HOUSTON--(BUSINESS WIRE)--Cadence Bancorporation (NYSE: CADE) (“Cadence”) today announced net income for the quarter ended September 30, 2020 of $49.3 million or $0.39 per share, compared to net income of $44.0 million or $0.34 per share for the quarter ended September 30, 2019, and a net loss of ($56.1) million or ($0.45) per share for the quarter ended June 30, 2020. Adjusted net income (loss)(1), excluding non-routine income and expenses(2), was $51.4 million or $0.40 per share for the quarter ended September 30, 2020, compared to $44.2 million or $0.34 per share for the quarter ended September 30, 2019 and compared to ($56.9) million or ($0.45) per share for the quarter ended June 30, 2020.
“We are pleased to report that our company’s core fundamental performance continues to be resilient. For the third quarter, adjusted pre-tax pre-provision net revenue (“PPNR”) was $94.6 million, 2.06% of average assets. Our net interest margin (“NIM”) and efficiency ratio have been consistently attractive and favorable to peers. Credit pressure still exists in today’s economy, but charge-offs are down linked quarter, nonperforming assets are lower and loan deferrals declined significantly to 1.5% currently. Our attractive capital ratios further improved linked quarter with Common Equity Tier 1 capital increasing to 12.0%. Based on these factors, we are taking a step forward by increasing our fourth quarter dividend to $0.075 cents per share. While there remains considerable uncertainty about how this credit environment will play out, I am proud of the way our experienced senior leadership and each of our employees continue to serve our customers and enhance our bank. As the economy improves, we will be well positioned for growth in some of the most attractive markets in America,” stated Paul B. Murphy, Jr., Chairman and Chief Executive Officer of Cadence Bancorporation.
Third Quarter 2020 Highlights:
Third quarter 2020 highlights (compared to the linked quarter where applicable) are as follows:
- Adjusted pre-tax pre-provision net revenue(1) for the third quarter of 2020 remained strong at $94.6 million, compared to $94.9 million for the second quarter of 2020. As a percent of average assets, adjusted PPNR was 2.06%, consistent with the prior quarter.
- The provision for credit losses for the third quarter of 2020 was $33.0 million compared to $158.8 million in the linked quarter reflecting current economic forecasts and continued COVID-19 driven stress. As of September 30, 2020, our allowance for credit losses (“ACL”) increased to 2.86% of total loans, up from 2.71% at June 30, 2020. Excluding Paycheck Protection Program (“PPP”) loans, our ACL ratio to loans was 3.11% at September 30, 2020, up from 2.93% at June 30, 2020. Our ratio of ACL to total nonperforming loans increased to 204% from 165%.
- Our tax equivalent net interest margin (“NIM”) remained stable at 3.49%, down only 2 basis points from prior quarter, and excluding the PPP program impact, NIM was 3.64%, up 3 basis points from the linked quarter. The core NIM improvement was supported by continued management of our funding costs as well as our hedging gains, with total deposit costs declining 14 basis points in the quarter to 0.32%.
- Adjusted efficiency ratio(1) remained strong at 49.5%, reflecting ongoing expense management efforts.
- Common Equity Tier 1 capital ratio increased to 12.0% and total risk weighted capital increased to 14.7%, providing a robust capital base well-positioned for the current environment.
- Annualized returns on average assets and tangible common equity for the third quarter of 2020 were 1.08% and 11.08%, respectively, compared to (1.22%) and (10.56%), respectively, for the second quarter of 2020.
- Adjusted annualized returns on average assets(1) and adjusted tangible common equity(1) for the third quarter of 2020 were 1.12% and 11.52%, respectively, compared to (1.24%) and (10.73%), respectively, for the second quarter of 2020.
- At quarter end, we had $1.1 billion of loans outstanding under the PPP.
Balance Sheet:
Total assets were $18.4 billion as of September 30, 2020, an increase of $548.2 million or 3.1% from September 30, 2019, and a decrease of $453.6 million or 2.4% from June 30, 2020. The linked quarter decline was driven by decreases in cash and loans, partially offset by an increase in investment securities.
Cash and Cash Equivalents at September 30, 2020 totaled $1.2 billion as compared to $1.1 billion at September 30, 2019 and compared to $1.9 billion at June 30, 2020. The $652.2 million decrease in the third quarter of 2020 resulted from an increase of $427.3 million in investment securities as well as net declines in deposits during the quarter.
Loans at September 30, 2020 totaled $13.5 billion as compared to $13.6 billion at September 30, 2019, a decrease of $171.5 million or 1.3%. Loans decreased $233.5 million or 1.7% from $13.7 billion at June 30, 2020. The decline was driven by reductions in the C&I segment representing net paydowns, soft loan origination and strategic declines in certain portfolios. Notable linked quarter decreases included Energy, down $59 million, and Restaurant, down $56 million. These declines were partially offset by an increase in CRE balances largely due to construction draws in the industrial and multifamily categories.
Investment Securities at September 30, 2020 totaled $3.1 billion as compared to $1.7 billion at September 30, 2019 and $2.7 billion at June 30, 2020. Securities as a percent of earning assets was 17.4%, 10.5%, and 14.6% at September 30, 2020, September 30, 2019 and June 30, 2020, respectively. The increase in securities from both the prior year and linked quarter is a result of increased balance sheet liquidity resulting from growth in deposits and lower loan originations. Securities acquired during the third quarter include primarily agency pass-through mortgage-backed securities along with some municipal securities.
Goodwill at September 30, 2020 totaled $43.1 million, down from $486.0 million at September 30, 2019 and unchanged from June 30, 2020. As previously reported, the Company recorded a $443.7 million ($412.9 million, after-tax), non-cash goodwill impairment charge in the first quarter of 2020. The remaining goodwill at September 30, 2020 relates to our registered investment advisory subsidiary and trust division.
Total Deposits at September 30, 2020 were $15.8 billion, an increase of $1.0 billion or 6.7% from the September 30, 2019 level and down $283.1 million or 1.8% from the June 30, 2020 level. Third quarter 2020 core deposits decreased as a result of PPP funds being deployed by customers, balance movement between non-interest bearing and interest bearing accounts, strategic lowering of certain higher cost deposit balances and net time deposit runoff. Non-interest bearing deposits were $5.0 billion or 31.9% of total deposits at September 30, 2020, up from $3.6 billion or 24.4% at September 30, 2019 and down from $5.2 billion or 32.5% of total deposits at June 30, 2020. Total cost of deposits declined to 0.32% for the third quarter 2020, meaningfully lower than both the third quarter 2019 cost of 1.32% and the second quarter 2020 cost of 0.46%.
Shareholders’ equity was $2.1 billion at September 30, 2020, a decrease of $404.5 million or 16.3% from September 30, 2019, and an increase of $26.0 million or 1.3% from June 30, 2020. The linked quarter increase included quarterly net income of $49.3 million, $6.3 million in cash dividends, and a decrease of $18.8 million in other comprehensive income driven by the $18.4 million amortization of our interest rate collar gain into interest income. The year over year decrease was impacted by the goodwill impairment in the first quarter of 2020.
Tangible common shareholders’ equity(1) was $1.9 billion at September 30, 2020, an increase of $61.0 million or 3.2% from September 30, 2019 and an increase of $31.3 million or 1.6% from June 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 11.3% and 10.6%, respectively, at September 30, 2020 compared to 13.9% and 10.9% at September 30, 2019, and 10.8% and 10.2% at June 30, 2020, respectively.
- Tangible book value per share(1) was $15.40 as of September 30, 2020, an increase of $0.74 or 5.0% from $14.66 as of September 30, 2019 and an increase of $0.25 or 1.7% from $15.15 as of June 30, 2020.
- Total outstanding shares at September 30, 2020 were 125.9 million.
Tangible common equity to tangible assets was 10.6% at September 30, 2020, and quarter end capital ratios remained robust and increased during the quarter as follows:
| 9/30/2020 | 6/30/2020 | 9/30/2019 | |
| Common equity Tier 1 capital | 12.0% | 11.7% | 11.0% |
| Tier 1 leverage capital | 9.9% | 9.5% | 10.3% |
| Tier 1 risk-based capital | 12.0% | 11.7% | 11.0% |
| Total risk-based capital | 14.7% | 14.3% | 13.1% |
- Net charge-offs for the third quarter of 2020 were $19.9 million or 0.58% annualized of average loans compared to $31.3 million or 0.91% annualized and $32.6 million or 0.94% annualized for the quarters ended September 30, 2019 and June 30, 2020, respectively. The current quarter charge-offs included $14.7 million in Restaurant, $2.9 million in CRE-Office, $1.9 million in Energy, and $0.6 million in General C&I.
- Provision for credit losses for the third quarter of 2020 was $33.0 million as compared to $43.8 million for the third quarter of 2019 and $158.8 million for the second quarter of 2020. The current quarter’s provision was driven by both net credit migration as well as economic and environmental considerations. The third quarter 2020 loan provision was concentrated in the Commercial Real Estate segment provision of $33.3 million, driven by increased reserves on hospitality loans.
- The ACL was $385.4 million or 2.86% of total loans as of September 30, 2020, as compared to $127.8 million or 0.94% of total loans as of September 30, 2019, and $370.9 million or 2.71% of total loans as of June 30, 2020. Excluding PPP loans, the ACL was 3.11% of total loans at September 30, 2020, increased from 2.93% at June 30, 2020.
- The increase in the ACL as a percent of total loans in the third quarter 2020 was driven by increased coverage in our portfolios most impacted by COVID related stress. The ACL for our $311.0 million Hospitality portfolio increased to 13.6% of total loans at September 30, 2020 as compared 7.5% at June 30, 2020. The ACL for our $1.1 billion Restaurant portfolio increased to 5.66% of total loans at September 30, 2020 as compared to 5.52% at June 30, 2020.
- Total nonperforming loans (“NPL”) as a percent of total loans were 1.40% at September 30, 2020, compared to 0.79% at September 30, 2019 and 1.64% at June 30, 2020. NPL totaled $189.1 million, $108.1 million and $224.4 million as of September 30, 2020, September 30, 2019 and June 30, 2020, respectively. The linked quarter decline was due primarily to payoffs and net charge-offs.
- The ACL to NPL increased to 203.8% as of September 30, 2020, as compared to 118.2% as of September 30, 2019, and 165.3% as of June 30, 2020.
- Total criticized loans at September 30, 2020 were $1.1 billion or 8.05% of total loans as compared to $571.9 million or 4.19% at September 30, 2019 and $1.0 billion or 7.37% at June 30, 2020. The linked quarter increase was primarily in Hospitality, Energy and General C&I credits.
- COVID related loan payment deferrals totaled $376 million at September 30, 2020, down significantly from $1.4 billion at June 30, 2020. As of October 16, 2020, loan deferrals were down further to $181 million or 1.5% of total loans excluding PPP loans.
- Loans 30-89 days past due were 0.15% of total loans at September 30, 2020, compared to 0.15% at September 30, 2019 and 0.19% at June 30, 2020.
Total Revenue:
Total operating revenue(1) for the third quarter of 2020 was $186.6 million, down $8.2 million or 4.2% from the same period in 2019 and up $2.0 million or 1.1% from the linked quarter.
Net interest income Net interest income for the third quarter of 2020 was $154.0 million, a decrease of $6.1 million or 3.8% from the same period in 2019 and a slight decrease of $0.7 million or 0.4% from the second quarter of 2020. Compared to the linked quarter, loan interest income, excluding accretion, declined $6.8 million due to the trailing impact of the second quarter rate declines as well as lower average balances. Additionally, accretion declined $1.2 million. These declines were partially offset by $6.0 million in lower funding costs driven by lower rates, $2.0 million in additional hedge income and $1.4 million in increased investment income due to higher balances.
- We continued to aggressively lower our interest rates on deposits resulting in a 31% reduction in costs of total deposits to 0.32% for the quarter compared to 0.46% for the linked quarter. Noninterest-bearing deposits as a percent of total deposits decreased slightly to 31.9% from 32.5% in the linked quarter. Total interest-bearing liability costs declined by 19 basis points or 24% to 0.59% from 0.78% in the linked quarter. Average interest-bearing liabilities declined $451 million or 3.9% from the prior quarter to $11.1 billion.
- Yield on loans excluding accretion and hedge income was 3.75% in the third quarter of 2020, down 24 basis points from 3.99% in the second quarter of 2020. Excluding the impact of PPP loans, this yield was 3.87% and 4.07%, for the third and second quarters of 2020, respectively. Average loans declined $231.8 million or 1.7% from the prior quarter to $13.7 billion.
- Hedge income and collar gain recognition for the third quarter of 2020 was $19.7 million as compared to $17.7 million for the second quarter of 2020.
- Accretion on acquired loans totaled $6.4 million for the third quarter of 2020 as compared to $7.6 million for the second quarter of 2020.
- Yield on investment securities declined to 2.06% in the third quarter of 2020 compared to 2.29% in linked quarter, with the lower yield reflecting the impact of securities purchased in the third quarter. Average investment securities increased $472.9 million or 19.0% from the prior quarter to $3.0 billion. Fed funds sold and short-term investments likewise declined by $400.8 million or 29.9% from the prior quarter as excess funds were deployed into investment securities during the third quarter.
- Total earning asset yields declined to 3.86% in the third quarter of 2020 compared to 4.01% in the linked quarter, with average balances declining by $159.8 million or 0.9% to $17.6 billion.
- Our NIM for the third quarter of 2020 was 3.49% as compared to 3.94% for the third quarter of 2019 and 3.51% for the second quarter of 2020.
PPP loans averaged $1.0 billion in the third quarter at a yield of 2.27%, and along with cash in deposits associated with these loans, negatively impacted our third quarter NIM by 15 basis points as illustrated in the table below. Excluding the impact of the PPP program, the third quarter 2020 NIM improved 3 basis points to 3.64% from 3.61% in the linked quarter, as lower deposit costs, deployment of cash into securities, and increased hedge income more than offset the impact of lower rates on our loan portfolio. Specifically, the NIM change during the quarter included:
| Quarterly Change | $ MM | NIM | ||
| 2Q 2020 Net Interest Income | $155.1 | 3.51 | % | |
| 2Q 2020 Net Interest Income before PPP loans and associated cash | $151.1 | 3.61 | % | |
| Loans (ex PPP & accretion) | (10.9 | ) | (0.18 | %) |
| Deposits | 5.6 | 0.13 | % | |
| Hedge Income | 2.0 | 0.06 | % | |
| Accretion | (1.2 | ) | (0.02 | %) |
| Securities | 1.3 | 0.04 | % | |
| Borrowings | 0.4 | 0.01 | % | |
| NIM before PPP loans & cash* | $148.4 | 3.64 | % | |
| PPP Loans & associated cash | 6.1 | (0.15 | %) | |
| 3Q 2020 Net Interest Margin | $154.5 | 3.49 | % | |
| *Calculated by removing the quarterly average balance of PPP loans and income, as well as the quarterly average balance of cash associated with unused PPP funds. |
- The linked quarter included increases of $1.7 million and $1.5 million in SBA and mortgage banking income, respectively, due primarily to gains on loan sales from increased production volumes (excluding PPP loans). Service charges increased $1.0 million driven by higher account analysis revenue and loan fees were up $0.6 million. The quarter also reflected increases in trust and investment advisory revenue, partially enhanced by improved equity markets.
- Noninterest income as a percent of total revenue for the third quarter of 2020 was 17.5% as compared to 17.8% for the third quarter of 2019 and 16.2% for the linked quarter.
Noninterest expense for the third quarter of 2020 was $94.9 million, an increase of $0.6 million or 0.6% from the same period in 2019 and an increase of $6.2 million or 7.0% from the linked quarter. Adjusted noninterest expense(1), which excludes the impact of non-routine items(2), was $92.5 million, down $0.8 million or 0.8% from the third quarter of 2019 and up $5.1 million or 5.8% from the second quarter of 2020. The linked quarter increase in noninterest expenses resulted from:
- An increase of $4.6 million in personnel costs driven by lower loan cost deferrals as a result of the second quarter PPP loan volumes and an increase in incentive accruals due to improved corporate performance;
- An increase of $2.1 million in merger related expenses due to a revised estimate of a legacy State Bank post-retirement benefit; and
- A partially offsetting decrease of $1.4 million in FDIC insurance assessment due to additional second quarter accruals to reflect the impact of lower earnings on the assessment.
Adjusted efficiency ratio(1) for the third quarter of 2020 was 49.4%, compared to the linked quarter ratio of 47.9% and the prior year’s third quarter ratio of 48.1%. The linked quarter increase was driven by a modest increase in expenses and the impact of lower average loans in the quarter.
| _____________________ | ||
| (1) | Considered a non-GAAP financial measure. See Table 10 “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 10 for a detail of non-routine income and expenses. | |
Dividend:
As of October 21, 2020, the board of directors of Cadence Bancorporation declared a quarterly cash dividend in the amount of $0.075 per share of outstanding common stock, representing an annualized dividend of $0.30 per share. The dividend will be paid on November 16, 2020 to holders of record of Cadence’s Class A common stock on November 2, 2020.
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 $18.4 billion in total assets as of September 30, 2020. 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 1,800 associates is committed to exceeding customer expectations and helping their clients succeed financially.
