Cadence Bancorporation (NYSE: CADE) (“Cadence”) today announced net income for the quarter ended September 30, 2021, of $84.0 million or $0.67 per share, compared to net income of $101.3 million or $0.80 per share for the quarter ended June 30, 2021, and to net income of $49.3 million or $0.39 per share for the quarter ended September 30, 2020. Adjusted net income⁽¹⁾, excluding non-routine income and expenses⁽²⁾, was $83.4 million or $0.67 per share for the quarter ended September 30, 2021, compared to $106.1 million or $0.84 per share for the quarter ended June 30, 2021, and compared to $51.4 million or $0.40 per share for the quarter ended September 30, 2020.

“As we look forward to the closing of our merger with BancorpSouth scheduled for the end of this week, I would like to take a moment to express my gratitude to every one of our bankers who have helped build our great institution over the past 11 years,” commented Chairman and Chief Executive Officer Paul B. Murphy, Jr. “We started with an all-star board and the goal of deploying $1 billion of opportunistic capital to strengthen the banking system in the years following the Great Financial Crisis. We have since grown to a premier $20 billion commercial bank serving Texas and the Southeast. I would like to thank our customers and the communities we serve for their trust and support. This merger takes us to the next chapter in the Cadence Bank story, and we pledge to continue to work hard for you and earn your loyalty.

“Our financial results for the third quarter provide an advantageous foundation for the new combined Cadence, highlighted by strong capital ratios, Common Equity Tier 1 ratio of 14.5%, and Total Capital of 16.6%, and continued improvement in credit, as demonstrated by a 29% linked quarter decline in criticized loans, net recoveries of $0.4 million, a ($28.4) million provision release, and an allowance for credit losses at 1.91% of total loans or 218.6% to total nonperforming loans. The adjusted pre-tax pre-provision net revenue remained solid at $79.4 million or 1.66% of average assets, as did our profitability ratios with adjusted annualized returns on average assets and adjusted tangible common equity of 1.75% and 16.56%, respectively.

“I am proud of Cadence’s historical achievements. Our team is excited about combining our franchise with BancorpSouth to create a top-tier regional bank with approximately $48 billion in pro forma assets. This strategic combination expands our reach and offerings, which will have a positive impact for our customers and communities while driving long-term shareholder value. As I noted previously, the scale of our combined bank, our collective talent, our complementary cultures, and our strategic footprint in some of the fastest-growing markets in the country have us extremely excited about the future. We look forward to delivering significant value to our shareholders, driven by meaningful synergies and our shared banking philosophy of putting the client first.”

Third Quarter 2021 Highlights:

Third quarter 2021 highlights are as follows:

• Adjusted pre-tax pre-provision net revenue⁽¹⁾ (“PPNR”) remained solid at $79.4 million or 1.66% of average assets.
• The allowance for credit losses (“ACL”) reflected a ($28.4) million provision release in the third quarter of 2021. The ACL remained meaningful at 1.91% of total loans. Our ratio of ACL to total nonperforming loans was 218.6%.
• Net charge-offs (recoveries) were ($0.4) million or (0.01%) annualized of average loans.
• We continued to deleverage the balance sheet, paying off $100 million in FHLB advances in the quarter in addition to the $90 million of debt paid off in the first half of this year.
• Our capital ratios remained robust, with the Common Equity Tier 1 ratio at 14.5% and total risk weighted capital at 16.6%.
• Our adjusted efficiency ratio⁽¹⁾ was 56.5%.
• Annualized returns on average assets and tangible common equity were 1.76% and 16.66%, respectively.
• Adjusted annualized returns on average assets⁽¹⁾ and adjusted tangible common equity⁽¹⁾ were 1.75% and 16.56%, respectively.

Balance Sheet:

Total assets were $19.8 billion as of September 30, 2021, an increase of $1.1 billion or 5.7% from June 30, 2021, and an increase of $1.3 billion or 7.3% from September 30, 2020. The linked quarter increase was largely driven by an increase in deposits and a corresponding increase in cash and cash equivalents, partially offset by small decreases in investment securities and total loans.

Cash and Cash Equivalents at September 30, 2021, totaled $3.4 billion as compared to $2.1 billion at June 30, 2021 and $1.2 billion at September 30, 2020. The $1.3 billion increase in the third quarter of 2021 was driven by an increase of $1.2 billion in deposits.

Loans at September 30, 2021 totaled $11.5 billion as compared to $11.6 billion at June 30, 2021, a decrease of $136.3 million or 1.2%. Loans decreased $2.0 billion or 14.6% from $13.5 billion at September 30, 2020. Non-PPP loans increased $76 million linked quarter before adjusting for $43 million of loans related to planned branch divestitures moved to held-for-sale. The increase in non-PPP loans was driven by increases in General C&I loans.

Investment Securities at September 30, 2021 totaled $4.0 billion as compared to $4.3 billion at June 30, 2021 and $3.1 billion at September 30, 2020. Securities as a percent of earning assets was 21.2%, 23.9% and 17.4% at September 30, 2021, June 30, 2021 and September 30, 2020, respectively. The decrease in securities from the linked quarter resulted primarily from sales of approximately $505 million during the quarter as part of balance sheet positioning in preparation for the upcoming merger with BancorpSouth Bank.

Total Deposits at September 30, 2021 were $17.1 billion, an increase of $1.2 billion or 7.2% from June 30, 2021 and up $1.4 billion or 8.6% from September 30, 2020. Non-interest bearing deposits increased to $6.3 billion or 36.9% of total deposits at September 30, 2021, up from $5.7 billion or 35.5% of total deposits at June 30, 2021 and $5.0 billion or 31.9% at September 30, 2020. Total cost of deposits declined to 0.12% for the third quarter of 2021, down from both the second quarter 2021 cost of 0.15% and the third quarter 2020 cost of 0.32%.

Total Borrowings at September 30, 2021 were $182.8 million, a decrease of $99.8 million from $282.7 million at June 30, 2021 and a decrease of $189.6 million from $372.4 million at September 30, 2020. The third quarter decrease was due to prepayment of $100.0 million in FHLB advances in September 2021.

Shareholders’ equity was $2.2 billion at September 30, 2021, essentially unchanged from June 30, 2021 and up $110.6 million or 5.3% from September 30, 2020. The linked quarter activity included quarterly net income of $84.0 million, a decrease of $39.1 million in other comprehensive income driven by a decline in unrealized gains on investment securities available-for-sale, purchases of $50.0 million in treasury stock, and $19.0 million in cash dividends.

Tangible common shareholders’ equity⁽¹⁾ was $2.1 billion at September 30, 2021, essentially unchanged from June 30, 2021 and up $130.3 million or 6.7% from September 30, 2020. The linked quarter increase resulted from the same factors noted above.

• Total shareholders’ equity to total assets and tangible equity to tangible assets were 11.0% and 10.5%, respectively, at September 30, 2021, compared to 11.8% and 11.2%, respectively, at June 30, 2021, and 11.3% and 10.6%, respectively, at September 30, 2020.
• Tangible book value per share⁽¹⁾ was $16.91 as of September 30, 2021, an increase of $0.19 or 1.1% from $16.72 as of June 30, 2021, and an increase of $1.51 or 9.8% from $15.40 as of September 30, 2020.
• Total shares outstanding at September 30, 2021 were 122.4 million, down from 124.8 million due to share repurchase activity during the quarter.

   

Quarter end regulatory capital ratios remained robust during the quarter as follows:

Asset Quality:

Credit quality metrics during the third quarter of 2021 reflected notable improvements including net recoveries and declines in nonperforming and criticized loan balances.

• Net charge-offs (recoveries) for the third quarter of 2021 were ($0.4) million or (0.01%) annualized of average loans compared to $8.7 million or 0.29% annualized and $19.9 million or 0.58% annualized for the quarters ended June 30, 2021 and September 30, 2020, respectively. The current quarter net recoveries included charge-offs of $3.0 million in Energy, $1.1 million in CRE, and $0.7 million in general C&I as well as recoveries of $2.7 million in general C&I and $2.3 million in CRE.
• Provision for credit losses was a release of ($28.4) million for the third quarter of 2021 as compared to a release of ($51.9) million for the second quarter of 2021 and a provision expense of $33.0 million for the third quarter of 2020. The current quarter’s release was driven by improved economic conditions and forecasts, as well as continued improvements in overall credit including significant reductions in nonperforming and criticized loans. The third quarter 2021 provision release included $20.9 million release in the CRE segment and $7.0 million release in the C&I segment.
• The ACL was $219.6 million or 1.91% of total loans as of September 30, 2021, as compared to $247.7 million or 2.13% of total loans as of June 30, 2021 and $385.4 million or 2.86% of total loans as of September 30, 2020. Excluding PPP loans, the ACL was 1.92% of total loans at September 30, 2021, down from 2.17% at June 30, 2021.
• Total nonperforming loans (“NPL”) totaled $100.4 million, $122.5 million, and $189.1 million as of September 30, 2021, June 30, 2021, and September 30, 2020, respectively. As a percent of total loans, NPL were 0.87% at September 30, 2021, compared to 1.05% at June 30, 2021 and 1.40% at September 30, 2020.
• The ACL to NPL was 218.6% as of September 30, 2021, as compared to 202.2% as of June 30, 2021 and 203.8% as of September 30, 2020.
• Total criticized loans at September 30, 2021 were $475.9 million or 4.1% of total loans, down from $667.9 million or 5.7% at June 30, 2021 and $1.1 billion or 8.1% at September 30, 2020. The linked quarter decrease included declines of $65.2 million or 67.3% in Restaurant, $57.1 million or 35.9% in Energy, and $55.9 million or 30.7% in CRE which included $26.2 million or 28.3% in Hospitality-CRE.
• Loans 30-89 days past due were 0.20% of total loans at September 30, 2021, compared to 0.36% at June 30, 2021 and 0.15% at September 30, 2020.

Total Revenue:

Total operating revenue⁽¹⁾ for the third quarter of 2021 was $198.2 million, up $13.2 million or 7.1% from the second quarter of 2021 and up $11.6 million or 6.2% from the third quarter of 2020. Total adjusted operating revenue for the third quarter of 2021 was $182.5 million, down $2.5 million or 1.4% from the second quarter of 2021 and down $4.6 million or 2.5% from the third quarter of 2020.

Net interest income for the third quarter of 2021 was $136.1 million, a decrease of $2.4 million or 1.7% from the second quarter of 2021 and a decrease of $17.9 million or 11.6% from the third quarter of 2020.

• Compared to the linked quarter, the net interest income declines were driven by declines in hedge income and PPP loan income of $4.1 million and $2.7 million, respectively. These declines were partially offset by net securities purchases increasing average earning assets, $1.3 million in number of days and $1.8 million in decreased interest expense resulting from lower funding costs.
• Compared to the prior year, the net interest income decline included $11.6 million in lower hedge income, $5.0 million in lower PPP loan income, $0.6 million in lower accretion, and $9.3 million in lower interest income due to a mix shift from higher yielding loans to lower yielding investment securities as well as declining yields, partially offset by $8.8 million in lower funding costs due to a 55% reduction in cost of funds, supported by improved mix and debt payoffs.

Our net interest margin (“NIM”) for the third quarter of 2021 was 2.99% as compared to 3.10% for the linked quarter and 3.49% for the third quarter of 2020. The linked quarter NIM decline was due to lower PPP loan income and lower hedge income contributing 8 basis points and 6 basis points of the decline, respectively, with earning asset yield declines materially offset by increases in earning assets and lower funding costs.

• Our total funding costs continued to decline in the quarter, down $1.8 million to 0.18% compared to 0.23% in the prior quarter. Total deposit costs declined by three basis points to 0.12% for the current quarter compared to 0.15% for the linked quarter, and total interest-bearing liability costs declined by eight basis points to 0.28% from 0.36% in the linked quarter. Average interest-bearing liabilities increased by $156.9 million or 1.5% from the prior quarter to $10.8 billion, and average noninterest-bearing deposits remained stable at $5.7 billion.
• Yield on loans excluding accretion and hedge income was 3.80% in the current quarter, down three basis points from 3.83% in the linked quarter. Excluding the impact of PPP loans, this yield was 3.81% in the current quarter, down from 3.86% for the linked quarter. Average loans excluding PPP loans declined slightly by $10.7 million or 0.1% from the prior quarter to $11.5 billion.
• PPP loans averaged $131.7 million in the current quarter with a yield of 3.38%, down from $619.3 million in the linked quarter.
• Hedge income including collar gain recognition for the third quarter of 2021 was $8.1 million as compared to $10.8 million for the prior quarter.
• Accretion on acquired loans totaled $5.8 million for the third quarter of 2021 as compared to $4.5 million for the prior quarter.
• Yield on investment securities declined to 1.60% in the current quarter compared to 1.62% in linked quarter, with the lower yield reflecting the impact of securities purchased and sold in the current and prior quarters. Average investment securities increased by $365.3 million or 9.1% from the prior quarter to $4.4 billion.
• Total earning asset yields declined to 3.16% in the current quarter compared to 3.31% in the linked quarter, with average balances increasing slightly to $18.1 billion.

Noninterest income for the third quarter of 2021 was $62.1 million, an increase of $15.6 million or 33.6% from the linked quarter, and an increase of $29.5 million or 90.6% from the same period of 2020. Adjusted noninterest income⁽¹⁾ for the third quarter of 2021 was $46.4 million, a decrease of $0.1 million or 0.2% from the linked quarter, and an increase of $13.3 million or 40.0% from the third quarter of 2020. Adjusted noninterest income excludes net gains on securities and branch building sales.

• The linked quarter increase was driven by increases of $15.7 million in securities gains and $3.6 million in earnings from alternative investments. These items were partially offset by decreases of $1.3 million and $2.0 million in credit related fees and SBA income, respectively. The increase in securities gains was related to the sale of approximately $505 million in securities related to balance sheet positioning in contemplation for our upcoming merger with BancorpSouth Bank.
• The increase from the prior year was driven by increases of $15.7 million in securities gain, $9.2 million in earnings from alternative investments, $2.0 million in service charges on deposits and $1.2 million in investment advisory fees. These increases were partially mitigated by a decrease of $2.1 million in mortgage banking income.
• Adjusted noninterest income as a percent of adjusted total revenue for the third quarter of 2021 increased to 25.4% as compared to 25.1% for the linked quarter and 17.7% for the third quarter of 2020.

Noninterest expense for the third quarter of 2021 was $117.2 million, compared to $106.1 million for the linked quarter and compared to $94.9 million for the same period of 2020. Adjusted noninterest expense⁽¹⁾, which excludes the impact of non-routine items⁽²⁾, was $103.1 million, up $3.3 million or 3.3% from the linked quarter and up $10.6 million or 11.4% from the third quarter of 2020.

• Non-routine items in the third quarter of 2021 included $9.9 million in expenses related to regulatory settlements announced during the quarter and $4.2 million in merger related expenses.
• The linked quarter increase in noninterest expenses resulted primarily from the non-routine regulatory settlement expense and a $2.2 million increase in compensation expense driven by increased incentive accruals, partially offset by a $2.1 million decline in non-routine merger related expenses.
• The increase from the prior year was attributable to increased incentive accruals of $7.5 million related to improved company performance and $9.9 million expenses related to regulatory settlements.

Adjusted efficiency ratio⁽¹⁾ for the third quarter of 2021 was 56.5%, compared to the linked quarter ratio of 53.9% and the prior year’s third quarter ratio of 49.4%.

Taxes:

The effective tax rate for the third quarter of 2021 was 23.3% compared to 22.6% for the linked quarter and 16.1% for the third quarter of 2020.

Merger with BancorpSouth Bank

BancorpSouth Bank recently received all required regulatory approvals to complete the pending merger with Cadence Bancorporation. Subject to the satisfaction of all closing conditions, the merger is expected to close effective October 29, 2021.

Supplementary Financial Tables (Unaudited):

Supplementary financial tables (unaudited) are included in this release following the customary disclosure information.

About Cadence Bancorporation:

Cadence Bancorporation (NYSE: CADE), headquartered in Houston, Texas, is a regional financial holding company with $19.8 billion in total assets as of September 30, 2021. Its wholly owned subsidiary, Cadence Bank, N.A., operates 99 branch locations in Alabama, Florida, Georgia, Mississippi, Tennessee, and Texas, and provides corporations, middle-market companies, small businesses and consumers with a full range of innovative banking and financial solutions. Services and products include commercial and business banking, treasury management, specialized lending, asset-based lending, commercial real estate, SBA lending, foreign exchange, wealth management, investment and trust services, financial planning, retirement plan management, payroll and insurance services, consumer banking, consumer loans, mortgages, home equity lines and loans, and credit cards. Clients have access to leading-edge online and mobile solutions, interactive teller machines, and more than 55,000 ATMs. The Cadence team of approximately 1,800 associates is committed to exceeding customer expectations and helping their clients succeed financially.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this communication may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended with respect to BancorpSouth Bank’s and Cadence Bancorporation’s and Cadence Bank’s (together, “Cadence”) beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information but instead pertain to future operations, strategies, financial results or other developments. These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “could,” “continue,” “seek,” “intend,” “estimate,” “expect,” “foresee,” “hope,” “intend,” “may,” “might,” “plan,” “should,” “predict,” “project,” “goal,” “outlook,” “potential,” “will,” “will result,” “will likely result,” or “would” or future or conditional verb tenses and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to the terms, timing and closing of the proposed transaction.

Cadence cautions readers not to place undue reliance on the forward-looking statements contained in this communication, in that actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of factors, many of which are beyond the control of BancorpSouth Bank and Cadence. The factors that could cause actual results to differ materially include the following: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between BancorpSouth Bank and Cadence; the outcome of any legal proceedings that have been or may be instituted against BancorpSouth Bank or Cadence; the possibility that the proposed transaction will not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated; the ability of BancorpSouth Bank and Cadence to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the common stock of either or both parties to the proposed transaction; the possibility that the anticipated benefits of the proposed transaction will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where BancorpSouth Bank and Cadence do business; certain restrictions during the pendency of the proposed transaction that may impact the parties’ ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all and to successfully integrate Cadence’s operations and those of BancorpSouth Bank; such integration may be more difficult, time consuming or costly than expected; revenues following the proposed transaction may be lower than expected; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction; BancorpSouth Bank and Cadence’s success in executing their respective business plans and strategies and managing the risks involved in the foregoing; the dilution caused by BancorpSouth Bank’s issuance of additional shares of its capital stock in connection with the proposed transaction; business and economic conditions generally and in the financial services industry, nationally and within Cadence’s current and future geographic market areas; economic, market, operational, liquidity, credit and interest rate risks associated with Cadence’s business; deteriorating asset quality and higher loan charge-offs; the laws and regulations applicable to Cadence’s business; Cadence’s ability to achieve organic loan and deposit growth and the composition of such growth; increased competition in the financial services industry, nationally, regionally or locally; Cadence’s ability to maintain its historical earnings trends; Cadence’s ability to raise additional capital to implement its business plan; material weaknesses in Cadence’s internal control over financial reporting; systems failures or interruptions involving Cadence’s information technology and telecommunications systems or third-party servicers; the composition of Cadence’s management team and its ability to attract and retain key personnel; the fiscal position of the U.S. federal government and the soundness of other financial institutions; the composition of Cadence’s loan portfolio, including the identity of Cadence’s borrowers and the concentration of loans in energy-related industries and in its specialized industries; the portion of Cadence’s loan portfolio that is comprised of participations and shared national credits; the amount of nonperforming and classified assets Cadence holds; the extent of the impact of the COVID-19 pandemic on Cadence and its customers, counterparties, employees and third-party service providers, and the impacts to Cadence’s business, financial position, results of operations, and prospects; and other factors that may affect future results of BancorpSouth Bank and Cadence; and the other factors discussed in “Risk Factors” in BancorpSouth Bank’s Annual Report on Form 10-K for the year ended December 31, 2020, BancorpSouth Bank’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and BancorpSouth Bank’s other filings with the Federal Deposit Insurance Corporation (the “FDIC”), which are available at https://www.fdic.gov/ and in the “Investor Relations” section of BancorpSouth Bank’s website, https://www.bancorpsouth.com/, under the heading “Public Filings,” and in Cadence’s Annual Report on Form 10-K for the year ended December 31, 2020, Cadence’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and in Cadence’s other filings with the U.S. Securities and Exchange Commission (the “SEC”), which are available at http://www.sec.gov and in the “Investor Relations” section of Cadence’s website, https://cadencebancorporation.com/, under the heading “SEC Filings.” BancorpSouth Bank and Cadence assume no obligation to update the information in this communication, except as otherwise required by law.

About Non-GAAP Financial Measures

Certain of the financial measures and ratios Cadence presents, including “efficiency ratio,” “adjusted efficiency ratio,” “adjusted noninterest expenses,” “adjusted operating revenue,” “tangible common equity ratio,” “tangible book value per share” and “return on average tangible common equity”, “adjusted return on average tangible common equity”, “adjusted return on average assets”, “adjusted diluted earnings per share”, and “pre-tax, pre-provision net revenue” are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). Cadence refers to these financial measures and ratios as “non-GAAP financial measures.” Cadence considers the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. Cadence believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain expenditures or assets that Cadence believes are not indicative of its primary business operating results or by presenting certain metrics on a fully taxable equivalent basis.

Cadence believes that management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of Cadence’s performance.

The non-GAAP financial measures Cadence presents may differ from non-GAAP financial measures used by its peers or other companies. Cadence compensates for these limitations by providing the equivalent GAAP measures whenever it presents the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing Cadence’s performance. A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables (Table 10).