Q1 2021 Cadence Bancorp Earnings Call

Welcome to the cadence Bancorporation first quarter 2021 earnings call well, our comments are subject to the forward looking statements disclaimer, which can be found in the press release and on page two on the financial results presentation.

Both of these documents can be located in the Investor Relations section at cadence Bancorporation dotcom.

All participants will be in listen only mode. After management's opening remarks, there will be an opportunity to ask question. Please.

Please note. This event is being recorded I would now like to turn capital back to Paul Murphy, Chairman and CEO. Please go ahead well. Good morning. Thank you for joining US with me today are Valerie Toalson, Sam Tortorici, Hank Holmes and Billy Braddock.

Many of you know we hosted a call on LCR merger with Bancorp South on April 12.

Would encourage investors to review that presentation to learn more about our strategy and the significant opportunity we see for our overall combined companies.

For our call today, we're going to be focused on first quarter results.

So with that let me give a couple of highlights first.

First off I think it's a solid quarter overall.

Overall I think there are three primary takeaways for the first is that cadence continues to drive solid operating results and returns.

Our adjusted pre tax pre provision net revenue remains attractive at $86 4 million for 1.86% of assets.

In my opinion. This is on Nice reminder, that our business model with a meaningful mix of C&I, Josh generate nice profitability.

Our loan yields excluding hedge in accretion declined slightly down seven basis points in the quarter on our cost of funds declined six basis points linked quarter.

We arent $105 million for the quarter for 23% return on tangible common equity, which admittedly is elevated due to the reserve release.

The second takeaway for the quarter is that credit continues to improve across the board criticized and classified assets for guests still higher than we'd like but theyre down materially from the peak of Covid and now the lowest level since March of 2019.

$48 million negative provision is not a recurring item I understand that but I don't want to brush over it as it is really a strong indicator and a validating data point for the broad improvements we're seeing in credit.

So I'd like to say that thinking back on 2020 a.

Gear, which really about cadence in our bar, we're working hard to Derisk.

And the tone and the feel for 2021.

More about improving health of business activity the recovery of borrowers on operating cash flows are broader C&I portfolio has improved really as it has for most banks are more COVID-19 exposed portfolios restaurant and hospitality have improved from last year and improved in the first quarter.

Non performing loans declined over 11% linked quarter AR reserves special percentage from non performers now stand at 250% compared to 154% at the same time last year.

Criticized assets have declined for another quarter.

The improvements that we're seeing here again for broad based across.

All aspects of our portfolio.

For shrunk by six 4% linked quarter and finished the quarter $816 million.

We're seeing.

<unk> by upgrades and pay downs and restaurant energy healthcare and hospitality.

So to summarize we're police force the results in credit for the for the first quarter, we maintain our view that credit trends will continue to improve as the year progresses.

So last Theyre, just more business confidence.

<unk> demand across our portfolio.

On every day is the vaccination rates increase for companies or anticipating a normal operating environment and it just sort of feels better out there.

The underwriting environment has remained disciplined with regard to terms and structures.

Paydowns slope to those lowest level in over a year and as I mentioned really borrowers just same for confidence we originated about $1 billion on loan fundings in the quarter.

Driven primarily by.

Great team of bankers, our C&I and CRE portfolios were really.

The results that were most notable in the quarter.

So as a result of all these things I'm increasingly confident that we will see the accelerating loan growth in the second half of the year.

We're pleased with the beginning of 2021.

So let me just emphasize it.

Number of past the cadence has to drive shareholder value.

Well capitalize on <unk>.

Variance motivated team of bankers, we operate in some of the fastest growing markets in the United States. I think these factors are a powerful combination of factors too.

Collect on.

Of course, very importantly, the multiple layer benefits, we see strategic synergy that we can drive for Bancorp, South will only serve to accelerate and strengthen our ability to grow and deliver returns for shareholders. Just since the announcement really the excitement and enthusiasm of our team on.

Our bankers on assignment Bancorp south.

Communities, we serve our customer reaction.

It's all been really consistently very very positive so.

With that I'll pause and turn the call over to Valerie.

Thank you Bob and good morning.

For the first quarter, our adjusted net income was 105 million or <unk> 83 per share down from the prior quarter adjusted net income of $200 million and $1 57 per share due to accelerated hedge revenue recognized in the fourth quarter and a negative loan provision in the first quarter.

Our first quarter allowance reflected a provision release at $48 3 million, reflecting improvement in economic outlook and continued declines in criticized and nonperforming loans.

Even with the reserve release this quarter, our allowance for credit losses remains robust at 249% for $2 six 7% excluding PPP loans.

Turning to the balance sheet loans of $12 4 billion declined $354 million during the quarter for $223 million, excluding PPP loans.

It is notable however that this quarters net reduction in loans was about a third of what it was in the fourth quarter as we are seeing a resurgence in loan pipelines begin to pull through.

Strategic reductions on the quarter included $33 million in restaurants, and $23 million in E&P Paydowns.

Deposits of $16 1 billion were up $77 million during the quarter with $184 million growth in core deposits, partially offset by maturing broker deposits are noninterest bearing deposits as a percentage of total deposits increased to over 34% at March 31 up from 31% at year end.

We continued to add to our $3 9 billion securities portfolio in the quarter up 600 million. Additionally.

Additionally, our balance sheet liquidity remains elevated with loans to deposits at 77% and cash balances of $1 9 billion.

Net interest income decreased by $14 million in the quarter to $143 million, reflecting lower hedge revenue fewer days in the quarter and balance sheet mix changes, partially offset by lower funding costs. It.

It is important to remember the significance of our balance sheet liquidity in the first quarter, our cash balance has averaged $2 2 billion, yielding less than 15 basis points.

Once we are able to effectively deploy this excess liquidity into earning assets, we do expect that to flow into interest income accordingly.

Net interest margin for the quarter declined by 32 basis points to 322% again, largely driven by the decline in hedge revenue and excess balance sheet liquidity.

Loan yields excluding hedge on accretion income were $3 nine 1% in the first quarter down seven basis points, while cost of deposits ended the quarter at another record low of 20 basis points, a decline of five basis points linked quarter.

We also paid down $40 million of callable sub debt in March with an annual rate of $4, 91%.

Adjusted non interest income in the first quarter was 41 4 million ex.

Excluding the fourth quarter accelerated hedge revenue other non interest income increased $2 $2 million during the quarter as we saw a nice results across the board with some linked quarter softness in mortgage and credit fees driven by volume.

Adjusted non interest expenses were 98 million down $7 5 million compared to the prior quarter and with the adjusted efficiency ratio coming in as anticipated at 53% capital remains very strong with our common equity tier one and tier one ratios up to 14, 2% and total capital at 16, 7%.

In summary, we are encouraged by our first quarter credit metrics reflected multiple facets of improvement on pipelines.

Pipelines are active across our footprint funding costs continue to decline and P. PNR remains well above peer levels at 1.86% total assets.

Looking forward, given our excess liquidity strong capital levels attractive markets and motivated team, we are well positioned to capitalize on growth opportunities as the economy continues to improve.

With that let me turn it back to the operator for questions.

Okay.

We will now begin the question and answer session.

Ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone you will need to pick up the handset before pressing your cadence.

To withdraw your question. Please press Star then two.

Once again that with Star then one to ask a question on at this time, we will pause momentarily to assemble our roster.

Well Andrea.

Yes. My first question is from Jennifer Dunbar with <unk> Securities. Please go ahead.

Hey, this is Brandon King golf for Jennifer Good morning.

Hi, Brandon Thanks for joining us.

Okay.

Just curious.

Steve.

Please proceed.

Strategic progress.

No.

Great.

Good afternoon.

Yes.

Brandon I'm, sorry, I could not understand you.

Could you restate your question perhaps.

Sorry, sorry, sorry can you hear me now.

Yes.

Yes, yes, I wanted to touch on the calling bliss effort.

<unk> previously.

And I wanted to know.

You are seeing any green shoots from loan growth.

On that and any other.

Craig do you want a note about how that's going so for.

Hey, Brandon. Thanks. This is Hank and I. Appreciate the question. So we've had a lot of success with our calling Blitz as you know, we previously announced that we were hitting the ground in the first quarter.

I'm happy to tell you that we've had almost 9000 touch points with our clients both on the commercial side on the retail side.

This has led to obviously a lot of activity a lot of communication with our clients and prospects.

And in turn we've seen our pipelines increase and we've also seen some increase in our loan committee and through our approval process. So.

This Blitz will continue and we're going on it we're excited about it and actually with the announcement of the merger gives us another opportunity to go back in and talk talk to our customers again, which in my opinion drives business.

Organization.

Yeah.

Thank you. Thank you.

And this is for Paul Paul what do you see as most challenging part of integrating with Bancorp sales your line.

Yeah, well, thanks, Brandon I mean conversions are never easy I think that will require a great deal of focus and Fortunately we have two very experienced teams with a lot of conversion experience.

So so that will be extremely well planned and thoroughly designed and tested and it will be well execute I've just got a lot of confidence in our team.

The great thing about it is that our culture and the philosophy of both banks are so similar debt.

It just sets up for long term success.

Yes, it'd be on convergence are never easy so I'm not going on.

Under state that.

But.

We'll get through it and we'll do well in an execution of that and then just the more I get to know this team and the more time, we spend together.

It's just a better I feel about the outlook for the combination. So thank you for the question.

Thank you very much.

Yes.

Once again, if you would like to ask a question. Please press Star then one.

Okay.

Well, Andrew we sort of thought that there would be a limited number of questions I'm just going to see if Mike has any questions. While we don't know how good I am excited about the quarter.

Yes.

Why don't we Andrea just go ahead and wrap it up then and on.

Mike just kind of hearken back to some of my comments on the prepared remarks about.

Tying into Brandon's question about the enthusiasm that we have around.

The combination with with Bancorp South.

The expansion of our branch network for our customers have so many more branches if they can access it looks like Dallas and Austin, where we have limited access and just other markets on the whole, Georgia market for for Bancorp, South cluster merger huge opportunity and a lot of growth there.

As we said on our April 12 call, our commercial banking expertise combined with their community banking.

Just on.

Just the industrial logic, just really stacks up on I think makes a lot of sense.

As Dan said.

Announcement call merger for really all about people.

And I just whole heartedly believe that both banks, we have two great teams of people and we will.

Recently, all pulling together.

The strengths of both organizations.

As I reflect on it leaves me very optimistic about our future together.

With that we stand adjourn.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Okay.

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