Cadence Bank Announces Second Quarter 2024 Financial Results

HOUSTON and TUPELO, Miss., July 22, 2024 /PRNewswire/ -- Cadence Bank (NYSE: CADE) (the Company), today announced financial results for the quarter ended June 30, 2024.

Highlights for the second quarter of 2024 included:

• Reported quarterly net income available to common shareholders of $135.1 million, or $0.73 per diluted common share, and adjusted net income from continuing operations available to common shareholders,⁽¹⁾ which excludes non-routine income and expenses,⁽²⁾ of $127.9 million, or $0.69 per diluted common share, which represents an increase of $0.07 per share, or 11.3%, compared to the first quarter of 2024 adjusted net income from continuing operations available to common shareholders.⁽¹⁾
• Achieved record adjusted pre-tax pre-provision net revenue from continuing operations (PPNR)⁽¹⁾ of $190.9 million, up $16.7 million from the prior quarter, and up $31.4 million from the same quarter one year ago. Year-to-date, adjusted PPNR⁽¹⁾ is $365.1 million, up $35.9 million or 11.0%, from the same period in 2023.
• Generated net organic loan growth of $430.2 million, or 5.3% on an annualized basis, for the second quarter of 2024. Year-to-date, net loan growth was $815.8 million or 5.0% annualized.
• Grew core customer deposits, which exclude brokered deposits and public funds, by $237.4 million, or 2.9% on an annualized basis. Year-to-date, core customer deposits have grown $637.2 or 4.0% annualized.
• Continued improvement in net interest margin by 5 basis points to 3.27%, benefiting from continued loan growth, stabilized funding costs, and upward repricing of earning assets.
• Experienced stable credit quality reflected by a flat linked quarter provision for credit losses and relatively stable net charge-offs as well as slight reductions in both nonperforming and criticized/classified loan levels.
• Materially enhanced operating efficiency reflected in an improvement in the adjusted efficiency ratio⁽¹⁾ of 339 basis points to 56.7%.
• Repurchased 256,033 shares of Company common stock during the second quarter at a weighted average price of $26.97 per share; regulatory capital remained strong with Common Equity Tier 1 Capital of 11.9% and Total Capital of 14.2%.

"We are pleased to report another quarter of improved financial performance in virtually every aspect of our business," remarked Dan Rollins, Chairman and Chief Executive Officer of Cadence Bank. "Our second quarter results reflect steady loan and core customer deposit growth combined with stable funding costs, which led to additional improvement in our net interest margin. Importantly, our credit quality metrics remained stable, reflected by a flat linked quarter provision for credit losses and slight improvement in our past due loans as well as criticized and classified loans. Finally, our efforts to improve efficiency continue to be evident in the linked quarter decline in adjusted noninterest expense and continued improvement in our adjusted efficiency ratio to 56.7% in the second quarter."

Earnings Summary

All adjusted financial results discussed herein are adjusted results from continuing operations.⁽³⁾

For the second quarter of 2024, the Company reported net income available to common shareholders of $135.1 million, or $0.73 per diluted common share, up from $111.7 million, or $0.61 per diluted common share, for the second quarter of 2023 and $114.6 million, or $0.62 per diluted common share, for the first quarter of 2024. Adjusted net income available to common shareholders from continuing operations⁽¹⁾ increased to $127.9 million, or $0.69 per diluted common share, for the second quarter of 2024, compared with $110.1 million, or $0.60 per diluted common share, for the second quarter of 2023 and $114.4 million, or $0.62 per diluted common share, for the first quarter of 2024.

Additionally, the Company reported adjusted PPNR from continuing operations⁽¹⁾ of $190.9 million, or 1.59% of average assets on an annualized basis, for the second quarter of 2024, an increase of $16.7 million, or 9.6%, compared to the first quarter of 2024, and an increase of $31.4 million or 19.7% compared to the same quarter of 2023.  These notable increases in financial performance were driven by improved operating efficiency, improved net interest margin, and continued improvement in earning asset mix.

Net Interest Revenue

Net interest revenue, driven by continued improvement in net interest margin, increased to $356.3 million for the second quarter of 2024, compared to $333.5 million for the second quarter of 2023 and $353.9 million for the first quarter of 2024. The net interest margin (fully taxable equivalent) improved to 3.27% for the second quarter of 2024, compared with 3.03% for the second quarter of 2023 and 3.22% for the first quarter of 2024.

Net interest revenue increased $2.4 million, or 0.7%, compared to the first quarter of 2024 as the Company continues to benefit from slowing pressure on funding costs as well as an improved earning asset mix resulting from continued deployment of excess liquidity and net loan growth.  Purchase accounting accretion revenue was $3.0 million and $3.5 million for the second quarter of 2024 and the first quarter of 2024, respectively. Average earning assets declined slightly to $43.9 billion, as growth in average loans was offset by lower average investment securities and excess cash.

Yield on net loans, loans held for sale, and leases excluding accretion, was 6.56% for the second quarter of 2024, up 10 basis points from 6.46% for the first quarter of 2024. Investment securities yielded 3.19% in the second quarter of 2024, up 6 basis points from 3.13% in the first quarter of 2024, and up 106 basis points from 2.13% in the second quarter of 2023, reflective of the securities restructurings that occurred in 2023. As a result, the yield on total interest earning assets increased to 5.90% for the second quarter of 2024, up 10 basis points from 5.80% for the first quarter of 2024.

The average cost of total deposits was 2.53% for the second quarter of 2024, up 8 basis points compared to the first quarter of 2024. The second quarter increase in total deposit costs was the lowest quarterly increase cycle-to-date. Total interest-bearing liabilities cost was 3.45% for the second quarter of 2024 compared to 3.40% for the first quarter of 2024.

Balance Sheet Activity

Loans and leases, net of unearned income, increased $430.2 million during the second quarter, or 5.3% annualized to $33.3 billion.  The loan growth for the quarter was in the commercial and industrial, income-producing commercial real estate and residential mortgage portfolios.

Total deposits were $37.9 billion as of June 30, 2024, a decline of $261.6 million from the prior quarter. The second quarter's decline included a $50.0 million reduction in brokered deposits to $452.2 million, and a decline of $449.0 million in public funds to $4.3 billion at June 30, 2024.  Importantly, core customer deposits, which excludes brokered deposits and public funds, reflected organic growth of approximately $237.4 million compared to March 31, 2024.

The June 30, 2024 loan to deposit ratio was 88.0% and securities to total assets was 16.5%, reflecting continued strong liquidity. Noninterest bearing deposits represented 22.7% of total deposits at the end of the second quarter of 2024, down slightly from 23.1% at March 31, 2024, as the pace of migration to interest bearing products continued to slow.

Total investment securities declined $0.4 billion during the quarter to $7.9 billion at June 30, 2024. Cash, due from balances and deposits at the Federal Reserve declined $0.4 billion to $2.6 billion at June 30, 2024, as the Company continues to utilize securities portfolio cash flow and excess liquidity to fund loan growth and reduce reliance on higher cost funding.

In June 2024, the Company called $138.9 million in fixed-to-floating subordinated debt at par.  This debt was yielding 5.65%; however, was set to reprice to a weighted-average rate of SOFR+3.76% after the June call date. This debt repayment is estimated to be positive to earnings by approximately $5.0 million pre-tax over the next 12 months.

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

Net charge-offs for the second quarter of 2024 were $22.6 million, or 0.28% of average net loans and leases on an annualized basis, compared with net charge-offs of $12.7 million, or 0.16% of average net loans and leases on an annualized basis, for the second quarter of 2023 and net charge-offs of $19.5 million, or 0.24% of average net loans and leases on an annualized basis, for the first quarter of 2024. The provision for credit losses for the second quarter of 2024 was $22.0 million, compared with $15.0 million for the second quarter of 2023 and $22.0 million for the first quarter of 2024. The allowance for credit losses of $470.0 million at June 30, 2024 declined slightly to 1.41% of total loans and leases compared to 1.44% of total loans and leases at March 31, 2024.

Total nonperforming assets as a percent of total assets were 0.46% at June 30, 2024 compared to 0.33% at June 30, 2023 and 0.51% at March 31, 2024. Total nonperforming loans and leases as a percent of loans and leases, net were 0.65% at June 30, 2024, compared to 0.48% at June 30, 2023 and 0.73% at March 31, 2024.  Other real estate owned and other repossessed assets was $4.8 million at June 30, 2024 compared to the June 30, 2023 balance of $2.9 million and the March 31, 2024 balance of $5.3 million.  For the second quarter of 2024, criticized and classified loans were relatively stable. Criticized loans represented 2.51% of loans at June 30, 2024 compared to 2.74% at June 30, 2023 and 2.64% at March 31, 2024, while classified loans were 2.09% at June 30, 2024 compared to 1.90% at June 30, 2023 and 2.19% at March 31, 2024.

Noninterest Revenue

Noninterest revenue was $100.7 million for the second quarter of 2024 compared with $86.7 million for the second quarter of 2023 and $83.8 million for the first quarter of 2024.  Adjusted noninterest revenue⁽¹⁾ for the second quarter of 2024 was $85.7 million, compared with $86.6 million for the second quarter of 2023 and $83.8 million for the first quarter of 2024. Adjusted noninterest revenue⁽¹⁾ for the second quarter of 2024 excludes a gain of $15.0 million associated with the sale of businesses, primarily related to the sale of Cadence Business Solutions, LLC during the second quarter of 2024 (see Key Transactions below).

Wealth management revenue increased to $24.0 million for the second quarter of 2024, compared with $22.8 million for the first quarter of 2024.  The second quarter 2024 increase was driven by asset management and trust revenue as well as retail brokerage.

Credit card, debit card and merchant fee revenue was $12.8 million for the second quarter of 2024, up slightly from $12.2 million for the first quarter of 2024.  Deposit service charge revenue was $17.7 million for the second quarter of 2024 compared to $18.3 million for the first quarter of 2024 due to seasonality.  Other noninterest revenue was $40.1 million for the second quarter of 2024, increased from $24.0 million for the first quarter of 2024.  Other noninterest revenue for the second quarter of 2024 included the $15.0 million gain on sale of businesses as well as an increase of $3.1 million in partnership income as a result of improved SBIC investment valuations.

Mortgage production and servicing revenue totaled $7.2 million for the second quarter of 2024, compared with $6.8 million for the second quarter of 2023 and $6.5 million for the first quarter of 2024. The net MSR valuation adjustment was a negative $1.0 million for the second quarter of 2024, compared with a positive $1.5 million for the second quarter of 2023 and an insignificant adjustment for the first quarter of 2024. Mortgage origination volume for the second quarter of 2024 was $758.4 million, compared with $848.9 million for the second quarter of 2023 and $437.2 million for the first quarter of 2024.

Noninterest Expense

Noninterest expense for the second quarter of 2024 was $256.7 million, compared with $267.5 million for the second quarter of 2023 and $263.2 million for the first quarter of 2024. Adjusted noninterest expense⁽¹⁾ for the second quarter of 2024 was $251.1 million, compared with $260.6 million for the second quarter of 2023 and $263.5 million for the first quarter of 2024.  Adjusted noninterest expense for the second quarter of 2024 excludes a $1.1 million gain on the extinguishment of debt as well as a charge of $6.3 million related to the FDIC deposit insurance special assessment.  The adjusted efficiency ratio⁽¹⁾ was 56.7% for the second quarter of 2024, meaningfully improved from both 60.1% for the first quarter of 2024 and 61.9% for the second quarter of 2023.

The $12.4 million, or 4.7%, linked quarter decline in adjusted noninterest expense⁽¹⁾ was driven by declines in salaries and employee benefits expense as well as other noninterest expense, partially offset by a seasonal increase in advertising and public relations.  Salaries and employee benefits declined $8.6 million compared to the first quarter of 2024 due primarily to lower compensation costs, increased deferred compensation related to loan originations, and anticipated seasonal reductions in payroll taxes and 401k match.  Other noninterest expense declined $5.3 million compared to the first quarter of 2024.  This decline included decreases in a number of expense items including recoveries in legal costs and operational losses as well as lower other miscellaneous expenses.

Capital Management

Total shareholders' equity was $5.3 billion at June 30, 2024 compared with $4.5 billion at June 30, 2023 and $5.2 billion at March 31, 2024. Estimated regulatory capital ratios at June 30, 2024 included Common Equity Tier 1 capital of 11.9%, Tier 1 capital of 12.3%, Total risk-based capital of 14.2%, and Tier 1 leverage capital of 9.7%. During the second quarter of 2024, the Company repurchased 256,033 shares of Company common stock at an average price of $26.97.  The company has 9.1 million shares remaining on its current share repurchase authorization, which expires on December 31, 2024.   Outstanding common shares were 182.4 million as of June 30, 2024.

Summary

Rollins concluded, "We are very proud of the accomplishments the Company has reported over the first half of 2024.  We announced back-to-back quarters reflecting strong operating performance driven by organic growth in loans, increases in our net interest margin, increased operating leverage and stable credit quality, all backed by strong capital and liquidity.  Our Company is driven and committed to taking care of our customers, our teammates and the communities we serve."

Key Transactions

Effective May 17, 2024, the Company completed the sale of Cadence Business Solutions, its payroll processing business unit, resulting in a net gain on sale of approximately $12 million.  The impact on both revenues and expenses is not material. The payroll processing unit had previously been part of Cadence Insurance, Inc., prior to its sale in November 2023.

Effective November 30, 2023, the Company completed the sale of its insurance subsidiary, Cadence Insurance, to Arthur J. Gallagher & Co. for approximately $904 million. The Transaction resulted in net capital creation of approximately $625 million, including a net gain on sale of approximately $525 million.  The gain along with Cadence Insurance's historical financial results for periods prior to the divestiture have been reflected in the consolidated financial statements as discontinued operations.  Additionally, current and prior period adjusted earnings exclude the impact of discontinued operations. 

Conference Call and Webcast

The Company will conduct a conference call to discuss its second quarter 2024 financial results on July 23, 2024, 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, and retirement plan management. 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, 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 as well as the impact of the Cadence Insurance sale on the Company's financial condition and future net income and earnings per share, and the Company's ability to deploy capital into strategic and growth initiatives. 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; uncertainties surrounding the functionality of the federal government; potential delays or other problems in implementing and executing the Company's growth, expansion, acquisition, or divestment strategies, including delays in obtaining regulatory or other necessary approvals, or the failure to realize any anticipated benefits or synergies from any acquisitions, growth, or divestment 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; 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, the escalating conflicts in the Middle East, 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, 2023, 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.

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 from continuing operations. The adjusted efficiency ratio excludes income and expense items otherwise disclosed as non-routine from total noninterest expense from continuing operations.

SOURCE Cadence Bank