News

HOUSTON and TUPELO, Miss., July 24, 2023 /PRNewswire/ -- Cadence Bank (NYSE: CADE) (the Company), today announced financial results for the quarter ended June 30, 2023.

Highlights for the second quarter of 2023 included:

• Achieved quarterly net income available to common shareholders of $111.7 million, or $0.61 per diluted common share, and adjusted net income available to common shareholders,⁽¹⁾ which excludes non-routine income and expenses,⁽²⁾ of $116.9 million, or $0.64 per diluted common share.
• Generated net organic loan growth of $1.3 billion for the second quarter of 2023, or 16.3% annualized. On a year-to-date basis, loans have grown $2.2 billion, or 14.7% annualized.
• Reflected a decline in total deposits of $704.8 million during the quarter. On a year-to-date basis, total deposits have declined $254.9 million, or 1.3% annualized.
• Continued to maintain strong balance sheet liquidity, with a loan-to-deposit ratio of 84.1% at June 30, 2023.
• Reported total revenue of $465.8 million, down 2.9% compared to the prior quarter (excluding securities gains and losses) as net interest revenue was negatively impacted by higher funding costs, partially offset by meaningful growth in several noninterest revenue sources spotlighted by record quarterly insurance commission revenue of $45.6 million.
• Decreased adjusted noninterest expenses⁽¹⁾ to $297.0 million, down $8 million, or 2.6% from the prior quarter as we continue to refine our operating leverage.
• Announced the closure or consolidation of 35 branches and other strategic initiatives including early retirements and other personnel efficiencies to occur primarily during the third quarter of 2023. These initiatives are now projected to collectively reduce noninterest expense by approximately $35 - $40 million annually, an increase from our previous estimate of $15 - $20 million.

"Our second quarter results reflect several key successes, particularly from a business development standpoint," remarked Dan Rollins, Chairman and Chief Executive Officer of the Company. "While higher than anticipated deposit costs negatively impacted our net interest margin, we had another very solid quarter from a loan growth perspective and our bankers continue to successfully protect our core deposit relationships. From a liquidity and capital perspective, our balance sheet remains in a strong position. We also reported meaningful revenue growth in several of our noninterest revenue businesses, highlighted by record quarterly revenue from our insurance team. Finally, we remain encouraged with our credit quality.  Net charge-offs for the quarter remain at low levels, and our total non-performing asset levels declined."

Earnings Summary

For the second quarter of 2023, the Company reported net income available to common shareholders of $111.7 million, or $0.61 per diluted common share, compared with $124.6 million, or $0.68 per diluted common share, for the second quarter of 2022 and $74.3 million, or $0.40 per diluted common share, for the first quarter of 2023. Adjusted net income available to common shareholders⁽¹⁾ was $116.9 million, or $0.64 per diluted common share, for the second quarter of 2023, compared with $134.2 million, or $0.73 per diluted common share, for the second quarter of 2022 and $124.4 million, or $0.68 per diluted common share, for the first quarter of 2023. Additionally, the Company reported adjusted pre-tax pre-provision net revenue (PPNR)⁽¹⁾ of $168.8 million, or 1.38% of average assets on an annualized basis, for the second quarter of 2023 compared to $176.7 million, or 1.51% of average assets on an annualized basis, for the second quarter of 2022 and $174.6 million, or 1.46% of average assets on an annualized basis, for the first quarter of 2023.

The declines in adjusted earnings⁽¹⁾ and PPNR⁽¹⁾ metrics for the second quarter of 2023 were driven by a decline in net interest revenue and an increase in the provision for credit losses, which were partially offset by growth in several noninterest revenue categories and improvement in operating expenses.

Net Interest Revenue

Net interest revenue was $333.6 million for the second quarter of 2023, compared to $324.8 million for the second quarter of 2022 and $354.3 million for the first quarter of 2023. The net interest margin was 3.03% for the second quarter of 2023, compared with 3.06% for the second quarter of 2022 and 3.29% for the first quarter of 2023.

The decline in net interest revenue in the second quarter of 2023 of $20.7 million, or 5.9%, compared to the linked quarter was primarily driven by net interest margin pressure resulting from an increase in funding costs, including the impact of mix shift out of noninterest bearing into interest bearing deposits. The decline also included $4.8 million in lower accretion revenue related to acquired loans and leases.  Accretion revenue was $5.2 million and $10.0 million for the second quarter of 2023 and the first quarter of 2023, respectively, adding approximately 4 basis points to the net interest margin for the second quarter of 2023 and 9 basis points for the first quarter of 2023.

Yield on net loans, loans held for sale, and leases excluding accretion, was 6.18% for the second quarter of 2023, up 31 basis points from 5.87% for the first quarter of 2023, while yield on total interest earning assets was 5.21% for the second quarter of 2023, up 33 basis points from 4.88% for the first quarter of 2023. The increase in earning asset yields continues to be driven by both the impact of rising interest rates on loan portfolio repricing and new loan production, as well as a change in mix as cash flows from lower yielding securities are deployed primarily into higher yielding loans. Approximately 20% of our total loans are floating (reprice within 30 days), and another 28% reprice within 12 months. 

The average cost of total deposits increased to 1.87% for the second quarter of 2023, compared with 1.28% for the first quarter of 2023, reflecting continued competitive pressure on rates as well as a continued mix shift from noninterest bearing to interest bearing products during the second quarter of 2023. Our total deposit beta is 33% cycle-to-date. Total interest-bearing liabilities costs increased to 2.92% from 2.23% during the second quarter of 2023. 

Balance Sheet Activity

Loans and leases, net of unearned income, increased $1.3 billion during the second quarter of 2023, or 16.3% annualized, to $32.6 billion. Consistent with prior quarters, the loan growth continues to be diverse from both a loan category and geographic standpoint, including approximately $556.6 million in Commercial and Industrial, $268.4 million in Commercial Real Estate and $453.6 million in Residential Mortgage due to increased seasonal mortgage loan production. Total investment securities of $10.3 billion at June 30, 2023 decreased $623.3 million during the second quarter as routine portfolio cash flows continue to be redeployed into loan growth. 

Total deposits decreased $704.8 million to $38.7 billion as of June 30, 2023 with the decline primarily in corporate account activity. Our community bank deposits reflected net deposit outflows of $129.6 million in the second quarter, however on a year-to-date basis, they increased $346.7 million, demonstrating the strength of our community franchise deposit base. Total brokered deposits were $1.8 billion at June 30, 2023, down slightly from $1.9 billion at the end of the first quarter of 2023. The June 30, 2023 loan to deposit ratio was 84.1% and securities to total assets was 21.0%, reflecting continued strong liquidity. Noninterest bearing deposits represented 26.4% of total deposits at the end of the second quarter of 2023, declining from 29.2% at March 31, 2023, as we saw further migration from noninterest bearing products into interest bearing products. The Company's deposit base continues to be very granular, with average transaction account balances of approximately $22,000 for consumer accounts and $132,000 for commercial accounts at June 30, 2023. Additionally, approximately 98% of the Company's deposit accounts have balances less than $250,000, and approximately 75% of our deposit balances were FDIC insured or collateralized at quarter-end.

Short-term borrowings declined $2.2 billion during the quarter to $3.5 billion at June 30, 2023 while cash, due from balances and deposits at the Federal Reserve declined $3.4 billion to $1.7 billion at June 30, 2023. These balances returned to more normalized levels after excess on-balance sheet liquidity was proactively added late in the first quarter of 2023 in response to industry-wide disruption.  

Credit Results, Provision for Credit Losses and Allowance for Credit Losses

Total non-performing assets as a percent of total assets were 0.34% at June 30, 2023 compared to 0.27% at June 30, 2022 and 0.33% at March 31, 2023. Total non-performing loans and leases as a percent of loans and leases, net were 0.50% at June 30, 2023, compared to 0.41% at June 30, 2022 and 0.53% at March 31, 2023. Other real estate owned and other repossessed assets declined meaningfully during the second quarter to $2.9 million at June 30, 2023 compared to the June 30, 2022 balance of $14.4 million and the March 31, 2023 balance of $5.3 million.   

Net charge-offs for the second quarter of 2023 were $12.7 million, or 0.16% of average net loans and leases on an annualized basis, compared with net recoveries of $1.4 million for the second quarter of 2022 and net charge-offs of $1.9 million for the first quarter of 2023. The increase in net charge-offs during the second quarter of 2023 was driven primarily by the charge down of one C&I credit that was previously identified as impaired. The provision for credit losses for the second quarter of 2023 was $15.0 million, compared with $1.0 million for second quarter of 2022 and $10.0 million for the first quarter of 2023. The second quarter of 2023 provision expense included a $25.0 million provision charge for funded loans and a $10.0 million provision reversal for unfunded commitments. The allowance for credit losses of $466.0 million at June 30, 2023 represented 1.43% as a percent of total loans and leases, stable compared to the March 31, 2023 coverage of 1.45%.

Noninterest Revenue

Noninterest revenue was $132.3 million for the second quarter of 2023, compared with $125.2 million for the second quarter of 2022 and $74.1 million for the first quarter of 2023. First quarter 2023 noninterest revenue included a $51.3 million non-routine loss on the sale of securities. Excluding the securities loss, noninterest revenue increased $6.9 million from the first quarter of 2023 revenue driven by increases in insurance commission, card, and mortgage banking revenue, partially offset by lower other noninterest revenue.

Insurance commission revenue continues to be strong at $45.6 million for the second quarter of 2023, compared with $40.0 million for the second quarter of 2022 and $39.6 million for the first quarter of 2023. The year-over-year quarterly revenue was up $5.6 million or 14.0% reflecting continued strong performance. The linked quarter increase of $6.0 million or 15.1% was primarily in property and casualty commissions and was driven by successful client acquisition efforts as well as continued upward pressure on policy rates.   

Credit card, debit card and merchant fee revenue was $12.6 million for the second quarter of 2023, compared with $16.6 million for the second quarter of 2022 and $11.9 million for the first quarter of 2023.  The second quarter of 2022 included vendor incentive revenue that was elevated compared to other periods. Deposit service charge revenue was $17.2 million for the second quarter of 2023 compared with $18.3 million for the second quarter of 2022 and $16.5 million for the first quarter of 2023. The decline compared to the second quarter of 2022 includes increases in earnings credit rate due to the increasing rate environment.  Other noninterest revenue was $26.7 million for the second quarter of 2023, compared with $17.3 million for the second quarter of 2022 and $29.8 million for the first quarter of 2023. The decline compared to the first quarter of 2023 is related primarily to a decline in revenue on SBA loan sales, while the increase from the second quarter of 2022 was in multiple areas including partnership income, credit fees, FX income and other revenue streams. 

Mortgage production and servicing revenue totaled $6.8 million for the second quarter of 2023, compared with $6.8 million for the second quarter of 2022 and $8.4 million for the first quarter of 2023. The net mortgage servicing rights valuation adjustment was a positive $1.6 million for the second quarter of 2023, compared with a positive $4.7 million for the second quarter of 2022 and a negative $2.3 million for the first quarter of 2023 with the variances due to continued changes in the interest rate environment. Mortgage origination volume for the second quarter of 2023 was $848.9 million, compared with $913.0 million for the second quarter of 2022 and $454.2 million for the first quarter of 2023. Compared to the same quarter in 2022, mortgage origination volume was down 7.0%, and was up 86.9% compared to the prior quarter reflecting seasonality. 

Noninterest Expense

Noninterest expense for the second quarter of 2023 was $303.9 million, compared with $285.9 million for the second quarter of 2022 and $319.3 million for the first quarter of 2023. Adjusted noninterest expense⁽¹⁾ for the second quarter of 2023 was $297.0 million, compared with $271.8 million for the second quarter of 2022 and $305.0 million for the first quarter of 2023. Adjusted noninterest expense⁽¹⁾ for the second quarter of 2023 excludes $1.8 million in total merger related expenses, $6.2 million in branch closure and other restructuring charges, and a $1.1 million debt extinguishment gain. The adjusted efficiency ratio⁽¹⁾ was 63.6% for the second quarter of 2023 compared to 63.5% for the first quarter of 2023, as the decline in the second quarter's revenue offset the impact of lower expenses.

The $8.0 million, or 2.6%, decline in adjusted noninterest expense⁽¹⁾ compared to the linked quarter was driven primarily by a decline in salaries and employee benefits expense as well as data processing and software expense, partially offset by an increase in amortization of intangibles. Salaries and benefits expense declined $4.8 million compared to the first quarter of 2023 due to a number of factors including lower payroll tax expense and retirement plan expense. Data processing and software expense declined $3.8 million compared to the first quarter of 2023 related to cost savings associated with vendor service terminations and vendor contracts. 

The Company continues to identify strategic opportunities to improve operating efficiency, including branch optimization.  In April 2023, the Company announced 35 additional branch locations that will be closed or consolidated early in the third quarter of 2023. These branch closures and consolidations are in addition to the 17 executed in the fourth quarter of 2022. The Company also continues to execute on other initiatives designed to improve efficiency, including personnel-related initiatives. These branch optimization and other efficiency initiatives are now collectively expected to result in annual cost savings of $35 - 40 million, an increase from our previous estimate of $15 - $20 million. One-time costs associated with the initiatives included $6.2 million in the second quarter of 2023 and are expected to include $10 - $12 million over the remainder of 2023 with the majority in the third quarter.

Capital Management

Total shareholders' equity was $4.5 billion at June 30, 2023 compared with $4.4 billion at June 30, 2022 and $4.5 billion at March 31, 2023. Estimated regulatory capital ratios at June 30, 2023 included Common Equity Tier 1 capital of 10.1%, Tier 1 capital of 10.5%, Total risk-based capital of 12.7%, and Tier 1 leverage capital of 8.5%. During the second quarter of 2023, the Company did not repurchase any shares of its common stock pursuant to its 10 million share repurchase authorization for 2023. Outstanding common shares were 182.6 million as of June 30, 2023.

Summary

Rollins concluded, "While deposit competition and pricing are impacting financial performance across the industry, we are proud of our second quarter accomplishments and we remain optimistic on our business opportunities as we look forward. We have continued to grow loans in a steady and prudent manner, protect core deposit relationships and maintain stable credit quality. Additionally, we continue to execute on strategic initiatives designed to improve our operating efficiency. As we move into the second half of 2023, these key strategies will continue to be our focus."

Conference Call and Webcast

The Company will conduct a conference call to discuss its second quarter 2023 financial results on July 25, 2023, at 10:00 a.m. (Central Time). This conference call will be an interactive session between management and analysts. Interested parties may listen to this live conference call via Internet webcast by accessing http://ir.cadencebank.com/events. The webcast will also be available in archived format at the same address.

About Cadence Bank

Cadence Bank (NYSE: CADE) is a leading regional banking franchise with approximately $50 billion in assets and more than 350 branch locations across the South and Texas. Cadence provides consumers, businesses and corporations with a full range of innovative banking and financial solutions. Services and products include consumer banking, consumer loans, mortgages, home equity lines and loans, credit cards, commercial and business banking, treasury management, specialized lending, asset-based lending, commercial real estate, equipment financing, correspondent banking, SBA lending, foreign exchange, wealth management, investment and trust services, financial planning, retirement plan management, and personal and business insurance. Cadence is committed to a culture of respect, diversity and inclusion in both its workplace and communities. Cadence Bank, Member FDIC. Equal Housing Lender.

Forward-Looking Statements

Certain statements made in this news release constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and are subject to the safe harbor under the Private Securities Litigation Reform Act of 1995 as well as the "bespeaks caution" doctrine. These statements are often, but not exclusively, made through the use of words or phrases like "assume," "believe," "budget," "contemplate," "continue," "could," "foresee," "indicate," "may," "might," "outlook," "prospect," "potential," "roadmap," "should," "target," "will," "would," the negative versions of such words, or comparable words of a future or forward-looking nature. These forward-looking statements may include, without limitation, discussions regarding general economic, interest rate, real estate market, competitive, employment, and credit market conditions, or any of the Company's comments related to topics in its risk disclosures or results of operations. Forward-looking statements are based upon management's expectations as well as certain assumptions and estimates made by, and information available to, the Company's management at the time such statements were made. Forward-looking statements are not guarantees of future results or performance and are subject to certain known and unknown risks, uncertainties and other factors that are beyond the Company's control and that may cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements.

Risks, uncertainties and other factors the Company may face include, without limitation: general economic, unemployment, credit market and real estate market conditions, including inflation, and the effect of such conditions on customers, potential customers, assets, investments and liquidity; risks arising from market and consumer reactions to the general banking environment, or to conditions or situations at specific banks; risks arising from media coverage of the banking industry; risks arising from perceived instability in the banking sector; the risks of changes in interest rates and their effects on the level, cost, and composition of, and competition for, deposits, loan demand and timing of payments, the values of loan collateral, securities, and interest sensitive assets and liabilities; the ability to attract new or retain existing deposits, to retain or grow loans or additional interest and fee income, or to control noninterest expense; the effect of pricing pressures on the Company's net interest margin; the failure of assumptions underlying the establishment of reserves for possible credit losses, fair value for loans and other real estate owned; changes in real estate values; a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S.government may take to avoid exceeding the debt ceiling, or uncertainties surrounding the debt ceiling and the federal budget; potential delays or other problems in implementing and executing the Company's growth, expansion and acquisition strategies, including delays in obtaining regulatory or other necessary approvals, or the failure to realize any anticipated benefits or synergies from any acquisitions or growth strategies; the ability to pay dividends or coupons on the Company's 5.5% Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share, or the 4.125% Fixed-to-Floating Rate Subordinated Notes due November 20, 2029; possible downgrades in the Company's credit ratings or outlook which could increase the costs or availability of funding from capital markets; the potential impact of the phase-out of the London Interbank Offered Rate ("LIBOR") or other changes involving LIBOR; changes in legal, financial, accounting, and/or regulatory requirements; the costs and expenses to comply with such changes; the enforcement efforts of federal and state bank regulators; the ability to keep pace with technological changes, including changes regarding maintaining cybersecurity and the impact of generative artificial intelligence; increased competition in the financial services industry, particularly from regional and national institutions; the impact of a failure in, or breach of, the Company's operational or security systems or infrastructure, or those of third parties with whom the Company does business, including as a result of cyber-attacks or an increase in the incidence or severity of fraud, illegal payments, security breaches or other illegal acts impacting the Company or the Company's customers. The Company also faces risks from natural disasters or acts of war or terrorism; international or political instability, including the impacts related to or resulting from Russia's military action in Ukraine and additional sanctions and export controls, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical environments.

The Company also faces risks from: possible adverse rulings, judgments, settlements or other outcomes of pending, ongoing and future litigation, as well as governmental, administrative and investigatory matters; the impairment of the Company's goodwill or other intangible assets; losses of key employees and personnel; the diversion of management's attention from ongoing business operations and opportunities; and the company's success in executing its business plans and strategies, and managing the risks involved in all of the foregoing.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with those factors that are set forth from time to time in the Company's periodic and current reports filed with the FDIC, including those factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, particularly those under the heading "Item 1A. Risk Factors," in the Company's Quarterly Reports on Form 10-Q under the heading "Part II-Item 1A. Risk Factors," and in the Company's Current Reports on Form 8-K.

Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date of this news release, if one or more events related to these or other risks or uncertainties materialize, or if the Company's underlying assumptions prove to be incorrect, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking statements. The forward-looking statements speak only as of the date of this news release, and the Company does not undertake any obligation to publicly update or review any forward-looking statement, except as required by applicable law. All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by this section.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 14
Reconciliation of Non-GAAP Measures and Other Non-GAAP Ratio Definitions
(Unaudited)

Management evaluates the Company's capital position and adjusted performance by utilizing certain financial measures not calculated in accordance with GAAP, including adjusted net income, adjusted net income available to common shareholders, pre-tax pre-provision net revenue, adjusted pre-tax pre-provision net revenue, total adjusted noninterest expense, tangible common shareholders' equity to tangible assets, total shareholders' equity (excluding AOCI), common shareholders' equity (excluding AOCI), tangible common shareholders' equity to tangible assets (excluding AOCI), return on average tangible common equity, adjusted return on average tangible common equity, adjusted return on average assets, adjusted return on average common shareholders' equity, pre-tax pre-provision net revenue to total average assets, adjusted pre-tax pre-provision net revenue to total average assets, adjusted earnings per common share, tangible book value per common share, tangible book value per common share, excluding AOCI, efficiency ratio (tax equivalent), adjusted efficiency ratio (tax equivalent), and adjusted dividend payout ratio. The Company has included these non-GAAP financial measures in this release for the applicable periods presented. Management believes that the presentation of these non-GAAP financial measures: (i) provides important supplemental information that contributes to a proper understanding of the Company's capital position and adjusted performance, (ii) enables a more complete understanding of factors and trends affecting the Company's business and (iii) allows investors to evaluate the Company's performance in a manner similar to management, the financial services industry, bank stock analysts and bank regulators. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables below. These non-GAAP financial measures should not be considered as substitutes for GAAP financial measures, and the Company strongly encourages investors to review the GAAP financial measures included in this news release and not to place undue reliance upon any single financial measure. In addition, because non-GAAP financial measures are not standardized, it may not be possible to compare the non-GAAP financial measures presented in this news release with other companies' non-GAAP financial measures having the same or similar names.

 

 

 

 

 

 

Efficiency Ratio-Fully Taxable Equivalent and Adjusted Efficiency Ratio-Fully Taxable Equivalent Definitions

The efficiency ratio and the adjusted efficiency ratio are supplemental financial measures utilized in management's internal evaluation of the Company's use of resources and are not defined under GAAP. The efficiency ratio is calculated by dividing total noninterest expense by total revenue, which includes net interest income plus noninterest income plus the tax equivalent adjustment. The adjusted efficiency ratio excludes income and expense items otherwise disclosed as non-routine from total noninterest expense.

 

SOURCE Cadence Bank