Cadence Bancorporation Reports First Quarter 2019 Financial Results

HOUSTON–(BUSINESS WIRE)–Cadence Bancorporation (NYSE:CADE) (“Cadence”) today announced net
income for the quarter ended March 31, 2019 of $58.2 million, or $0.44
per diluted common share (“per share”), compared to $32.3 million, or
$0.39 per share for the quarter ended December 31, 2018, and $38.8
million or $0.46 per share for the quarter ended March 31, 2018. The
first quarter of 2019 included merger related expenses of $22.0 million
or $0.13 per diluted common share.

“This has been an active and exciting quarter for Cadence. We finalized
our merger with State Bank on January 1 and completed the systems and
branding conversions during the quarter. I am pleased with our expanded
footprint and the diversity it brings to our business model. We have
seen numerous examples of great leadership from our bankers in Georgia,
which we believe will lead to growing business opportunities throughout
that market. It is nice to report a strong start to the year with better
earnings than expected. On an adjusted basis, we earned $0.57 cents per
share(1) which is a 19.7% adjusted return on tangible common
equity(1); 1.72% adjusted return on assets(1); and
a 45.7% adjusted efficiency ratio(1). Our credit metrics are
positive also. We charged-off $550,000 or 2 basis points (annualized)
for the quarter. Nonperforming assets declined to 0.63% at March 31 from
0.81% at fiscal year-end. Overall, it is a good start to the year,”
stated Paul B. Murphy, Jr., Chairman and Chief Executive Officer of
Cadence Bancorporation.

Highlights:

  • Adjusted net income(1), excluding non-routine income and
    expenses(2) primarily related to the merger, was $75.0
    million for the first quarter of 2019, an increase of $33.0 million or
    79% compared to the first quarter of 2018 and an increase of $33.5
    million or 81% compared to the fourth quarter of 2018.
  • Adjusted EPS(1) for the first quarter of 2019 of $0.57
    increased $0.07 compared to adjusted EPS for both the prior year and
    linked quarters of $0.50.
  • Annualized returns on average assets, and tangible common equity(1)
    for the first quarter of 2019 were 1.34% and 15.54%, respectively,
    compared to 1.44% and 15.76%, respectively, for the first quarter of
    2018, and 1.05% and 11.85%, respectively, for the fourth quarter of
    2018.

    • Adjusted annualized returns on average assets(1) and
      adjusted tangible common equity(1) for the first
      quarter of 2019 were 1.72% and 19.69%, respectively, compared to
      1.56% and 17.00%, respectively, for the first quarter of 2018 and
      1.34% and 15.15%, respectively, for the fourth quarter of 2018.
  • First quarter of 2019 efficiency ratio was 56.7% and the adjusted
    efficiency ratio(1) was 45.7%, resulting from strong
    revenue growth coupled with expense management.
  • Nonperforming assets (“NPAs”) as a percent of total loans, OREO and
    other NPAs declined to 0.63% at March 31, 2019 compared to 0.84% and
    0.81% at March 31, 2018 and December 31, 2018, respectively. Net
    charge-offs for the first quarter of 2019 were $550 thousand or 2
    basis points on an annualized basis.

(1)

  Considered a non-GAAP financial measure. See Table 7 “Reconciliation
of Non-GAAP Financial Measures” for a reconciliation of our non-GAAP
measures to the most directly comparable GAAP financial measure.

(2)

See Table 7 for a detail of non-routine income and expenses.

Balance Sheet:

Total assets were $17.5 billion as of March 31, 2019, an increase of
$4.7 billion, or 37.1%, from December 31, 2018, and an increase of $6.5
billion, or 58.7%, from March 31, 2018.

Merger with State Bank Financial Corporation (“State Bank”).
Effective January 1, 2019, State Bank merged into Cadence, with Cadence
issuing 49.2 million shares to State Bank shareholders resulting in a
total purchase price of $826 million. This merger added the additional
assets and liabilities as shown in the table below, which included
goodwill of $173.3 million, core deposit intangibles of $111.9 million
or 3.28% of core deposits, an unfunded loan commitment mark of $26.8
million. The loan fair value adjustments totaled $99.0 million, made up
of a credit risk adjustment of $71.2 million or 2.1% of total loans, and
a market risk adjustment of $27.8 million. Note that the loan and
unfunded commitment marks accrete into revenue and the core deposit
intangible amortizes into expense over time as described in the
footnotes below. The estimated fair values will be subject to refinement
as additional information relative to the closing date fair values
becomes available through the measurement period for a maximum of one
year from consummation.

         
(Dollars in thousands)

As Recorded
by
State Bank

Reversal of
Legacy State
Bank
Amounts

Fair Value
Adjustments

As Recorded
by Cadence

Assets
Cash and cash equivalents $ 414,342 $ $

$

414,342
Investment securities available-for-sale 668,517 (652 ) 667,865
Loans, net 3,487,618 83,908 (99,001 ) A 3,472,525
Premises and equipment, net 55,151 10,495 65,646
Cash surrender value of life insurance 69,252 69,252
Intangible assets 92,918 (92,918 ) 117,038

B

117,038
Other assets   63,612   (2,342 )   (18,024

)

  43,246
Total assets acquired $ 4,851,410 $ (11,352 ) $ 9,856 $ 4,849,914
Liabilities
Deposits $ 4,100,340 $ $ (3,675 ) $ 4,096,665
Short term borrowings 23,899 23,899
Other liabilities   49,105     27,173 C   76,278
Total liabilities assumed   4,173,344     23,498   4,196,842
Net identifiable assets acquired over liabilities assumed 678,066 (11,352

)

 

$ (13,642 ) $ 653,072
Goodwill           173,308 D   173,308

Net assets acquired over liabilities assumed

$ 678,066 $ (11,352 ) $ 159,666 $ 826,380
 

Fair Value Adjustments:

A. Represents the mark on the total balance of loans, which is comprised
of a $20.3 million mark to the book balance on acquired credit impaired
(“ACI”) loans and a $78.6 million mark on acquired non-credit impaired
(“ANCI”) loans. Based on the expected cash flows, the ACI loans have an
accretable difference of $43 million and will accrete into interest
income over the expected life of the loan or pool of loans over
approximately seven years. The $78.6 million mark on ANCI loans will
accrete into interest income using either the effective yield or the
straight-line method over the contractual lives of the loans, or
approximately seven years.

B. Represents a core deposit intangible (“CDI”) of $111.9 million and a
customer list intangible of $5.1 million. The CDI and customer list
intangible amortize into interest expense and noninterest expense,
respectively, using an accelerated method over a ten-year period.

C. Primarily represents $26.8 million as the fair value of unfunded loan
commitments. The fair value for revolving lines and undrawn lines
amortize using the straight-line method over the life of the loan, or
approximately 48 months. The fair value of multi-advance loans amortizes
using the effective yield method over the life of the loan, or
approximately 29 months. Amortization of both of these adjustments do
not begin until some or all the unfunded amount becomes funded.

D. Represents excess of purchase price over the combined fair value
adjustments.

Loans. Loans at March 31, 2019 totaled $13.6 billion as
compared to $8.6 billion and $10.1 billion at March 31, 2018 and
December 31, 2018, respectively. Excluding the impact of the loans
acquired from State Bank, loans increased $1.6 billion or 18.6% since
March 31, 2018, and $245.9 million, or 2.4% from January 1, 2019 to
March 31, 2019. These increases reflect continued organic demand.

Total deposits. Deposits at March 31, 2019 totaled $14.2
billion as compared to $9.0 billion and $10.7 billion at March 31, 2018
and December 31, 2018, respectively. Excluding the impact of deposits
assumed from State Bank, deposits increased by $1.1 billion or 9.8% from
March 31, 2018 and decreased by $606.1 million or 5.7% from December 31,
2018. The year-over- year deposit increase was driven by growth in core
customer deposits (total deposits excluding brokered deposits) of $1.0
billion, or 12.4%, from March 31, 2018. The linked quarter decrease
included a decline of core deposits of $424.4 million, or 3.2%, from
December 31, 2018, which included $311.8 million that State Bank had on
deposit at Cadence as noninterest-bearing deposits at December 31, 2018
that were eliminated out of deposits, as well as cyclical deposit
declines typical in the first quarter of the year.

Shareholders’ equity was $2.3 billion at March 31, 2019,
an increase of $945.6 million from March 31, 2018, and an increase of
$864.5 million from December 31, 2018.

  • Tangible common shareholders’ equity(1) was $1.7 billion at
    March 31, 2019, an increase of $670.5 million from March 31, 2018, and
    an increase of $576.5 million from December 31, 2018. The first
    quarter 2019 increase resulted from common stock issued of $826.1
    million in the State Bank merger (net of issuance costs), net income
    of $58.2 million and an increase of $60.8 million in other
    comprehensive income which resulted from increased fair values of
    derivatives and of securities. These items were partially offset by an
    increase of $284.3 million in intangible assets, dividends of $22.7
    million and the repurchase of 3.0 million common shares at an average
    price of $19.60 per share, or $58.8 million during the quarter as part
    of the share repurchase program announced in October 2018.
  • Tangible book value per share(1) was $13.23 as of March 31,
    2019, an increase of $0.91 from $12.32 as of March 31, 2018, and a
    decrease of $0.39 or from $13.62 as of December 31, 2018.
  • Total outstanding shares in the quarter increased to 128.8 million
    shares due to the issuance of 49.2 million shares in connection with
    the State Bank merger, partially offset by the repurchase of 3.0
    million shares during the quarter.
(1)  

Considered a non-GAAP financial measure. See Table 7
“Reconciliation of Non-GAAP Financial Measures” for a
reconciliation of our non-GAAP measures to the most directly
comparable GAAP financial measure.

Asset Quality:

Credit quality reflected continued overall credit
stability in the loan portfolio. For the quarter ended March 31, 2019,
net charge-offs were $0.6 million or 2 basis points on an annualized
basis, compared to $0.4 million or 2 basis points and $0.2 million or 1
basis point for the quarters ended March 31, 2018 and December 31, 2018,
respectively.

  • NPAs totaled $86.0 million, $72.7 million and $82.4 million as of
    March 31, 2019, March 31, 2018 and December 31, 2018, respectively.
    NPAs as a percent of total loans, OREO and other NPAs declined to
    0.63% at March 31, 2019 compared to 0.84% and 0.81% at March 31, 2018
    and December 31, 2018, respectively.
  • The allowance for credit losses (“ACL”) was $105.0 million, or 0.77%
    of total loans, as of March 31, 2019, as compared to $91.5 million, or
    1.06% of total loans, as of March 31, 2018, $94.4 million, or 0.94% of
    total loans, as of December 31, 2018. The decline in the percentage of
    the ACL to total loans is due to recording the State Bank $3.5 billion
    loan portfolio at fair value, which results in no ACL recorded for
    those loans upon merger.
  • Loan loss provision was $11.2 million for the first quarter of 2019
    compared to $4.4 million in the prior year’s quarter and $8.4 million
    in the linked quarter. The first quarter 2019 provision was driven by
    the quarter’s net loan growth and an increase in specific reserves for
    certain credits.

Total Revenue:

Total operating revenue(1) for the first quarter of 2019 was
$200.0 million, up 72.2% from the same period in 2018 and up 61.1% from
the linked quarter. The revenue increases reflect strong loan growth
during the period as well as the impact of the State Bank acquisition.

Net interest income for the first quarter of 2019 was
$169.3 million, an increase of $78.2 million or 85.8%, from the same
period in 2018, and an increase of $66.1 million or 64.1%, from the
fourth quarter of 2018. Our fully tax-equivalent NIM was up
significantly in the first quarter of 2019 to 4.21% as compared to 3.64%
for the first quarter of 2018 and 3.55% for the fourth quarter of 2018.

Earning asset yields for the first quarter of 2019 were 5.52%, up 101
basis points from 4.51% in the first quarter of 2018, and up 57 basis
points from 4.95% in the fourth quarter of 2018. The current quarter’s
increase in earning asset yields reflects the impact of the State Bank
assets including purchase accounting accretion, combined with an
increase in originated earning asset yields during the first quarter of
2019.

  • Yield on originated loans increased to 5.46% for the first quarter of
    2019, as compared to 4.79% and 5.20% for the first quarter of 2018 and
    fourth quarter of 2018, respectively.
  • Approximately 69% of the total loan portfolio is floating at March 31,
    2019. On February 28, 2019, Cadence entered into a $4.0 billion
    notional interest rate collar with a five-year term designed to reduce
    the impact of interest rate sensitivity of this portfolio. The yield
    on originated loans was impacted 1 basis point, (2) basis points and
    (9) basis points for the first quarter of 2019, first quarter of 2018
    and fourth quarter of 2018, respectively, by the effect of our
    interest rate derivatives.
  • Total accretion for ANCI loans was $12.5 million in the first quarter
    of 2019 compared to $0.2 million for the first quarter of 2018 and
    ($0.3) million for the fourth quarter of 2018. The first quarter 2019
    accretion is predominantly related to loans acquired from State Bank.
  • Total accretion for ACI loans was $6.3 million in the first quarter of
    2019 compared to $5.6 million from the first quarter of 2018 and $5.6
    million in the fourth quarter of 2018. The first quarter 2019
    accretion includes $1.3 million related to loans acquired from State
    Bank.
  • Total cost of funds for the first quarter of 2019 was 1.42% compared
    to 0.94% for the first quarter of 2018 and 1.51% in the linked quarter.

    • Total cost of deposits for the first quarter of 2019 was 1.30%
      compared to 0.75% for the first quarter of 2018, and 1.34% for the
      linked quarter.
    • The current quarter’s decrease in deposit costs reflected the
      impact of the State Bank deposits, partially offset by an
      approximate 12 bp increase in legacy deposit costs during the
      first quarter of 2019.

Noninterest income for the first quarter of 2019 was $30.7
million, an increase of $5.7 million or 22.7%, from the same period of
2018, and an increase of $9.7 million, or 46.0%, from the fourth quarter
of 2018. Total service fees and revenue for the first quarter of 2019
were $27.9 million, an increase of $4.0 million or 16.9% from the same
period of 2018, and an increase of $6.7 million or 31.7% from the fourth
quarter of 2018. The year over year increase in fees was driven by:

  • Increase of $1.1 million in service charges on deposits due primarily
    to the increase in number of deposit accounts.
  • Increase of $1.3 million in credit related fees related to loan growth
    and leading loan transactions.
  • New revenue sources of payroll processing and insurance ($1.9 million)
    and SBA income ($1.4 million) which resulted from the State Bank
    merger.
  • Decrease of other service fees of $1.7 million due primarily to
    reduction in insurance revenue due to the sale of insurance company
    assets in the second quarter of 2018.

The linked quarter increase resulted primarily from:

  • Increase of $1.3 million in service charges on deposits due to the
    increase in the number of deposit accounts, primarily from the State
    Bank merger.
  • Increase of $1.1 million in bankcard fees which resulted from
    additional customers from the State Bank merger.
  • Previously mentioned new revenue sources of payroll processing and
    insurance of $1.9 million and SBA income of $1.4 million.

Other noninterest income increased by $1.6 million from the first
quarter of 2018 and by $2.9 million from the linked quarter. These
increases resulted primarily from increases in BOLI income and earnings
from limited partnerships, combined with stable net profits interest
valuation in the first quarter of 2019, as compared to writedowns in the
comparative quarters.

Noninterest expense for the first quarter of 2019 was
$113.4 million, an increase of $51.5 million or 83.1% from $61.9 million
for the same period in 2018, and an increase of $40.7 million or 56.0%
from $72.7 million for the fourth quarter of 2018. The increase resulted
primarily from:

  • Merger related expenses of $22.0 million related to the State Bank
    merger
  • Increase of $16.1 million and $10.0 million for the prior year period
    and linked quarter, respectively, in salaries and benefits due
    primarily to increased numbers of employees.
  • Increase of $5.3 million and $5.5 million for the prior year period
    and linked quarter, respectively, in intangible asset amortization due
    to the amortization of the State Bank core deposit intangible asset.
  • Increase of $5.5 million and $3.6 million for the prior year period
    and linked quarter, respectively, in other noninterest expenses due to
    business growth and the State Bank merger.

Adjusted noninterest expenses(1), which exclude the impact of
non-routine items(2), were $91.4 million for the first
quarter of 2019, up $33.1 million or 56.9% from $58.3 million for the
first quarter of 2018 and up $30.6 million or 50.3% from $60.9 million
for the fourth quarter of 2018. Non-routine expenses in the first
quarter of 2019 comprised $22.0 million in State Bank merger related
expenses. For the fourth quarter of 2018, non-routine expenses included
$9.8 million in compensation expense and $2.0 million in merger related
expenses. For the first quarter of 2018, non-routine expenses included
$1.4 million in secondary offering expenses and $2.3 million in legacy
acquired bank litigation costs.

Our efficiency ratio(1) for the first quarter
of 2019 was 56.7% compared to 53.4% for the first quarter of 2018 and
58.6% for the fourth quarter of 2018. The efficiency ratio in all
quarters was impacted by the noted non-routine expenses. Excluding
non-routine revenues and expenses, the adjusted efficiency ratio(1)
was 45.7%, 50.2%, and 49.0% for the first quarter of 2019, first quarter
of 2018, and fourth quarter of 2018, respectively. The first quarter of
2019 adjusted efficiency ratio is reflective of efficiencies already
gained through the State Bank merger, combined with strong revenue
growth.

(1)   Considered a non-GAAP financial measure. See Table 7 “Reconciliation
of Non-GAAP Financial Measures” for a reconciliation of our non-GAAP
measures to the most directly comparable GAAP financial measure.
(2)

See Table 7 for a detail of non-routine income and expenses.

Taxes:

The effective tax rate for the quarter ended March 31, 2019, was 22.7%
compared to 24.9% for the quarter ended December 31, 2018, and 22.0% for
the quarter ended March 31, 2018.

Supplementary Financial Tables (Unaudited):

Supplementary Financial Tables (Unaudited) are included in this release
following the customary disclosure information.

First Quarter 2019 Earnings Conference Call:

Cadence Bancorporation executive management will host a conference call
to discuss first quarter 2019 results on Monday, April 29, 2019, at
12:00 p.m. CT / 1:00 p.m. ET. Slides to be presented by management on
the conference call can be viewed by visiting www.cadencebancorporation.com
and selecting “Events & Presentations” then “Presentations.”

Conference Call Access:

To access the conference call, please dial one of the following numbers
approximately 10-15 minutes prior to the start time to allow time for
registration and use the Elite Entry Number provided below.

Dial in (toll free):   1-888-317-6003
International dial in: 1-412-317-6061
Canada (toll free): 1-866-284-3684
Participant Elite Entry Number: 2919550

For those unable to participate in the live presentation, a replay will
be available through May 13, 2019. To access the replay, please use the
following numbers:

US Toll Free:   1-877-344-7529
International Toll: 1-412-317-0088
Canada Toll Free: 1-855-669-9658
Replay Access Code: 10130277
End Date: May 13, 2019
 

Webcast Access:

A webcast of the conference call presented by management can be viewed
by visiting www.cadencebancorporation.com
and selecting “Events & Presentations” then “Event Calendar.” Slides are
available under the “Presentations” tab.

About Cadence Bancorporation

Cadence Bancorporation (NYSE: CADE), headquartered in Houston, Texas, is
a regional financial holding company with $17.4 billion in assets as of
March 31, 2019. Cadence operates 98 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, business insurance, 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 1,800 associates is committed to exceeding customer expectations and
helping their clients succeed financially.

Cautionary Statement Regarding Forward-Looking Information

This communication contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect our current views with respect to,
among other things, future events and our results of operations,
financial condition and financial performance. These statements are
often, but not always, made through the use of words or phrases such as
“may,” “should,” “could,” “predict,” “potential,” “believe,” “will
likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,”
“estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or
the negative version of those words or other comparable words of a
future or forward-looking nature. These forward-looking statements are
not historical facts, and are based on current expectations, estimates
and projections about our industry, management’s beliefs and certain
assumptions made by management, many of which, by their nature, are
inherently uncertain and beyond our control. Accordingly, we caution you
that any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions and uncertainties that
are difficult to predict. Although we believe that the expectations
reflected in these forward-looking statements are reasonable as of the
date made, actual results may prove to be materially different from the
results expressed or implied by the forward-looking statements. Such
factors include, without limitation, the “Risk Factors” referenced in
our Registration Statement on Form S-3 filed with the Securities and
Exchange Commission (the “SEC”) on May 21, 2018, and our Registration
Statement on Form S-4 filed with the SEC on July 20, 2018, other risks
and uncertainties listed from time to time in our reports and documents
filed with the SEC, including our Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q, and the following factors: business and
economic conditions generally and in the financial services industry,
nationally and within our current and future geographic market areas;
economic, market, operational, liquidity, credit and interest rate risks
associated with our business; deteriorating asset quality and higher
loan charge-offs; the laws and regulations applicable to our business;
our 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; our ability to
maintain our historical earnings trends; our ability to raise additional
capital to implement our business plan; material weaknesses in our
internal control over financial reporting; systems failures or
interruptions involving our information technology and
telecommunications systems or third-party servicers; the composition of
our management team and our ability to attract and retain key personnel;
the fiscal position of the U.

Contacts

Media contact:
Danielle Kernell
713-871-4051
[email protected]

Investor relations contact:
Valerie Toalson
713-871-4103
or 800-698-7878
[email protected]

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