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Cadence Bancorporation Reports Record Second Quarter 2018 Results and Increase in Quarterly Dividend

July 23, 2018 8:05 AM

HOUSTON--(BUSINESS WIRE)-- Cadence Bancorporation (NYSE: CADE) (“Cadence”) today announced net income for the quarter ended June 30, 2018 of $48.0 million, or $0.57 per diluted common share (“per share”), compared to $38.8 million, or $0.46 per share, in the first quarter of 2018, and $29.0 million, or $0.35 per share, in the second quarter of 2017. Tangible book value per share(1) increased $0.53, or 4.3%, to $12.85 per share for the second quarter of 2018, compared to $12.32 per share as of March 31, 2018. On July 20, 2018, the Board of Directors of Cadence declared a 20% increase in the quarterly cash dividend to $0.15 per share of common stock, representing an annualized dividend of $0.60 per share.

“We are very pleased to report to you another consecutive quarter of strong organic growth and record earnings for second quarter of 2018,” stated Paul B. Murphy, Jr., Chairman and Chief Executive Officer of Cadence Bancorporation. “Our performance for the first half of the year has exceeded expectations with annualized, double digit growth in the balance sheet and earnings trending favorably. We have been fortunate to operate in attractive markets with extraordinary bankers, focused on doing a great job for clients and driving our financial results. We were excited to announce our merger with State Bank in May and are well underway in the integration planning to ensure a successful combination. I believe this strategically compelling deal, combining two great companies, will add to our attractive story in the future.”

(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.

Highlights:

After-tax Increase(Decrease) in

(In thousands, except per share data)

Income/Expense

EPS

ROA

ROTCE

Noninterest income (non-routine) $ 3,058 $ 0.03 0.08 % 0.91 %
Noninterest expense (non-routine) (3,066 ) (0.03 ) (0.08 ) (0.91 )
Tax expense - Timing of legacy loan bad debt deduction for tax 5,991 0.05 0.16 1.78
Total $ 5,983 $ 0.05 0.16 % 1.78 %

(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.

Balance Sheet:

Cadence continued its solid growth during the quarter with total assets reaching $11.3 billion as of June 30, 2018, an increase of $306.1 million, or 2.8%, from March 31, 2018, and an increase of $1.5 billion, or 15.2%, from June 30, 2017.

Loans at June 30, 2018 were $9.0 billion, an increase of $328.8 million, or 3.8%, from March 31, 2018, and an increase of $1.3 billion, or 16.3%, from June 30, 2017. Average loans for the second quarter of 2018 were $8.8 billion, an increase of $404.9 million, or 4.8%, from first quarter of 2018, and an increase of $1.2 billion, or 15.7%, from second quarter of 2017. Increases in loans reflect continued demand primarily in our specialized and general C&I portfolios compared to linked quarter and in our specialized, general C&I and residential portfolios compared to prior year.

Total deposits at June 30, 2018 were $9.3 billion, an increase of $282.1 million, or 3.1%, from March 31, 2018, and an increase of $1.4 billion, or 17.7%, from June 30, 2017. Average total deposits for the second quarter of 2018 were $9.1 billion, an increase of $123.0 million, or 1.4%, from first quarter of 2018, and an increase of $1.2 billion, or 15.0%, from second quarter of 2017.

Shareholders’ equity was $1.4 billion at June 30, 2018, an increase of $32.9 million from March 31, 2018, and an increase of $85.9 million from June 30, 2017.

(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 metrics reflected continued improvement in the energy portfolio and general credit stability in the second quarter of 2018.

Total Revenue:

Total revenue for the second quarter of 2018 was $120.1 million, up 3.4% from the linked quarter and up 13.9% from the same period in 2017. The revenue increases were primarily a result of both strong loan growth during the period and meaningful increases in net interest margins.

Net interest income for the second quarter of 2018 was $95.4 million, an increase of $4.3 million, or 4.7%, from the first quarter of 2018 and an increase of $13.0 million, or 15.8%, from the same period in 2017, reflecting strong growth in our earning assets combined with increases in net interest margin.

Noninterest income for the second quarter of 2018 was $24.7 million, a decrease of $0.3 million, or 1.2%, from the first quarter of 2018, and an increase of $1.7 million, or 7.3%, from the same period of 2017.

Noninterest expense for the second quarter of 2018 was $62.4 million, an increase of $0.5 million, or 0.8%, from $61.9 million for the first quarter of 2018, and an increase of $6.3 million, or 11.2%, from $56.1 million during the same period in 2017. The linked quarter included an increase of $0.9 million in salaries and benefits, offset by decreases in consulting and professional fees and legal expenses. The increase in expenses from the prior year’s quarter was due to a $3.6 million growth in salaries and benefits driven by business growth and related incentives, $1.2 million in consulting and professional fees and other expenses related to the May 2018 secondary offering, $1.1 million in expenses related to the sale of the assets of our insurance company and $0.8 million in other expenses specific to acquisition related costs. Adjusted noninterest expenses(1) of $59.3 million for the second quarter of 2018 was up slightly from $58.3 million in the first quarter of 2018 and up 5.8% from the second quarter of 2017 total of $56.1 million. See Table 8 – Non-Routine Income/Expense for information related to non-routine items.

Our efficiency ratio(1) for the second quarter of 2018 was 52.0%, as compared to the first quarter of 2018 and second quarter of 2017 ratios of 53.4% and 53.3%, respectively. The improvement in the efficiency ratio reflects ongoing focus on managing expenses and expanding revenue. The second quarter of 2018 included non-routine revenues and expenses. Excluding these non-routine revenues and expenses, the adjusted efficiency ratio(1) was 50.7% for the second quarter of 2018. This compares to an adjusted efficiency ratio of 50.2% and 53.1% for the first quarter of 2018 and second quarter of 2017, respectively. See Table 8 – Non-Routine Income/Expense for more information related to non-routine items.

(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.

Taxes:

The effective tax rate for the quarter ended June 30, 2018 was 14.9% as compared to 22.0% in the first quarter of 2018 and 31.9% in the second quarter of 2017. The decreased rate in the second quarter of 2018 was due primarily to a one-time bad debt deduction related to the legacy loan portfolio. Our annualized effective tax rate for 2018 is currently expected to be approximately 21.1%.

Quarterly Dividend:

On July 20, 2018, the Board of Directors of Cadence declared a 20% increase in the quarterly cash dividend to the amount of $0.15 per share of common stock, representing an annualized dividend of $0.60 per share. The dividend will be paid on September 17, 2018 to holders of record of the Class A common stock on September 4, 2018.

Supplementary Financial Tables (Unaudited):

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

Second Quarter 2018 Earnings Conference Call:

Cadence Bancorporation executive management will host a conference call to discuss second quarter 2018 results on Monday, July 23, 2018, 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 “Event Calendar”.

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: 3865570

For those unable to participate in the live presentation, a replay will be available through August 6, 2018. 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: 10121734
End Date: August 6, 2018

Webcast Access:

A webcast of the conference call as well as the slides to be presented by management can be viewed by visiting www.cadencebancorporation.com and selecting “Events & Presentations” then “Event Calendar”.

About Cadence Bancorporation

Cadence Bancorporation (NYSE: CADE) is an $11.3 billion in assets regional bank holding company headquartered in Houston, Texas. Through its affiliates, Cadence operates 65 locations in Alabama, Florida, Texas, Mississippi and Tennessee, 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, commercial real estate, foreign exchange, wealth management, investment and trust services, financial planning, retirement plan management, business and personal 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 56,000 ATMs. The Cadence team of 1,200 associates is committed to exceeding customer expectations and helping their clients succeed financially. Cadence Bank, N.A., and Linscomb & Williams are subsidiaries of Cadence Bancorporation.

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 (SEC), 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; lack of seasoning in our loan portfolio; 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.S. federal government and the soundness of other financial institutions; the composition of our loan portfolio, including the identify of our borrowers and the concentration of loans in energy-related industries and in our specialized industries; the portion of our loan portfolio that is comprised of participations and shared national credits; and the amount of nonperforming and classified assets we hold. Cadence can give no assurance that any goal or plan or expectation set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements. The forward-looking statements are made as of the date of this communication, and Cadence does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.

About Non-GAAP Financial Measures

Certain of the financial measures and ratios we present, 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” and “pre-tax, pre-provision net earnings,” are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider 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. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our 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 our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present 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 our 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 7).

Table 1 - Selected Financial Data

As of and for the Three Months Ended
(In thousands, except share and per share data)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Statement of Income Data:
Interest income $ 123,963 $ 113,093 $ 108,370 $ 99,503 $ 99,375
Interest expense 28,579 21,982 20,459 18,340 16,991
Net interest income 95,384 91,111 87,911 81,163 82,384
Provision for credit losses 1,263 4,380 (4,475 ) 1,723 6,701
Net interest income after provision 94,121 86,731 92,386 79,440 75,683
Noninterest income - service fees and revenue 21,395 23,904 22,405 23,014 22,144
- other noninterest income 3,277 1,079 3,251 4,110 845
Noninterest expense 62,435 61,939 66,371 56,530 56,134
Income before income taxes 56,358 49,775 51,671 50,034 42,538
Income tax expense 8,384 10,950 36,980 17,457 13,570
Net income $ 47,974 $ 38,825 $ 14,691 $ 32,577 $ 28,968

Period-End Balance Sheet Data:

Investment securities $ 1,049,710 $ 1,251,834 $ 1,262,948 $ 1,198,032 $ 1,079,935
Total loans, net of unearned income 8,975,755 8,646,987 8,253,427 8,028,938 7,716,621
Allowance for credit losses 90,620 91,537 87,576 94,765 93,215
Total assets 11,305,528 10,999,382 10,948,926 10,502,261 9,811,557
Total deposits 9,331,055 9,048,971 9,011,515 8,501,102 7,930,383
Noninterest-bearing deposits 2,137,407 2,040,977 2,242,765 2,071,594 1,857,809
Interest-bearing deposits 7,193,648 7,007,994 6,768,750 6,429,508 6,072,574
Borrowings and subordinated debentures 471,453 471,335 470,814 572,683 499,266
Total shareholders’ equity 1,389,956 1,357,103 1,359,056 1,340,848 1,304,054

Average Balance Sheet Data:

Investment securities $ 1,183,055 $ 1,234,226 $ 1,228,330 $ 1,169,182 $ 1,099,307
Total loans, net of unearned income 8,848,820 8,443,951 8,226,294 7,867,794 7,650,048
Allowance for credit losses 93,365 89,097 94,968 94,706 90,366
Total assets 11,218,432 10,922,274 10,586,245 10,024,871 9,786,355
Total deposits 9,135,359 9,012,390 8,635,473 8,139,969 7,940,421
Noninterest-bearing deposits 2,058,255 2,128,595 2,170,758 1,982,784 1,845,447
Interest-bearing deposits 7,077,104 6,883,795 6,464,715 6,157,185 6,094,974
Borrowings and subordinated debentures 595,087 444,557 502,428 484,798 510,373
Total shareholders’ equity 1,358,770 1,342,445 1,348,867 1,320,884 1,251,217

Table 1 (Continued) - Selected Financial Data

As of and for the Three Months Ended
(In thousands, except share and per share data)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Per Share Data:(3)
Earnings
Basic $ 0.57 $ 0.46 $ 0.18 $ 0.39 $ 0.35
Diluted 0.57 0.46 0.17 0.39 0.35
Book value per common share 16.62 16.23 16.25 16.03 15.59
Tangible book value (1) 12.85 12.32 12.33 12.10 11.64
Weighted average common shares outstanding
Basic 83,625,000 83,625,000 83,625,000 83,625,000 81,918,956
Diluted 84,792,657 84,674,807 84,717,005 83,955,685 81,951,795
Cash dividends declared $ 0.125 $ 0.125 $ — $ — $ —
Dividend payout ratio 21.93 % 27.17 % — % — % — %
Performance Ratios:
Return on average common equity (2) 14.16 % 11.73 % 4.32 % 9.78 % 9.29 %
Return on average tangible common equity (1) (2) 18.58 15.52 5.71 13.04 12.63
Return on average assets (2) 1.72 1.44 0.55 1.29 1.19
Net interest margin (2) 3.66 3.64 3.59 3.52 3.71
Efficiency ratio (1) 52.00 53.35 58.44 52.20 53.27
Adjusted efficiency ratio (1) 50.74 50.22 55.57 52.74 53.15
Asset Quality Ratios:
Total nonperforming assets ("NPAs") to total loans and OREO and other NPAs 0.63 % 0.84 % 0.85 % 1.51 % 1.82 %
Total nonperforming loans to total loans 0.44 0.60 0.58 0.96 1.36
Total ACL to total loans 1.01 1.06 1.06 1.18 1.21
ACL to total nonperforming loans ("NPLs") 230.60 175.30 183.62 122.66 88.81
Net charge-offs to average loans (2) 0.10 0.02 0.13 0.01 0.09
Capital Ratios:
Total shareholders’ equity to assets 12.29 % 12.34 % 12.41 % 12.77 % 13.29 %
Tangible common equity to tangible assets (1) 9.78 9.65 9.71 9.95 10.27
Common equity tier 1 (CET1) 10.56 10.42 10.57 10.79 10.92
Tier 1 leverage capital 10.74 10.57 10.68 11.12 11.00
Tier 1 risk-based capital 10.93 10.79 10.94 11.17 11.31
Total risk-based capital 12.71 12.63 12.81 13.18 13.41
_____________________

(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) Annualized.

(3) As of the completion of a secondary offering on May 22, 2018, 34,175,000 of our outstanding shares are owned by our parent-holding company Cadence Bancorp, LLC.

Table 2 - Average Balances/Yield/Rates

For the Three Months Ended June 30,
2018 2017
Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate Balance Expense Rate

ASSETS

Interest-earning assets:
Loans, net of unearned income(1)
Originated and ANCI loans $ 8,606,253 $ 108,130 5.04 % $ 7,348,932 $ 79,904 4.36 %
ACI portfolio 242,567 5,610 9.28 301,116 10,525 14.02
Total loans 8,848,820 113,740 5.16 7,650,048 90,429 4.74
Investment securities
Taxable 838,842 5,518 2.64 688,464 4,178 2.43
Tax-exempt(2) 344,213 3,547 4.13 410,843 5,208 5.08
Total investment securities 1,183,055 9,065 3.07 1,099,307 9,386 3.42
Federal funds sold and short-term investments 452,074 1,269 1.13 312,287 688 0.88
Other investments 55,909 634 4.55 50,064 695 5.57
Total interest-earning assets 10,539,858 124,708 4.75 9,111,706 101,198 4.45
Noninterest-earning assets:
Cash and due from banks 80,000 59,220
Premises and equipment 62,711 65,392
Accrued interest and other assets 629,228 640,403
Allowance for credit losses (93,365 ) (90,366 )
Total assets $ 11,218,432 $ 9,786,355
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 4,712,302 $ 11,700 1.00 % $ 4,232,497 $ 6,354 0.60 %
Savings deposits 189,567 133 0.28 186,307 119 0.26
Time deposits 2,175,235 10,497 1.94 1,676,170 5,298 1.27
Total interest-bearing deposits 7,077,104 22,330 1.27 6,094,974 11,771 0.77
Other borrowings 459,678 3,785 3.30 375,681 2,896 3.09
Subordinated debentures 135,409 2,464 7.30 134,692 2,324 6.92
Total interest-bearing liabilities 7,672,191 28,579 1.49 6,605,347 16,991 1.03
Noninterest-bearing liabilities:
Demand deposits 2,058,255 1,845,447
Accrued interest and other liabilities 129,216 84,344
Total liabilities 9,859,662 8,535,138
Stockholders' equity 1,358,770 1,251,217
Total liabilities and stockholders' equity $ 11,218,432 $ 9,786,355
Net interest income/net interest spread 96,129 3.26 % 84,207 3.42 %
Net yield on earning assets/net interest margin 3.66 % 3.71 %
Taxable equivalent adjustment:
Investment securities (745 ) (1,823 )
Net interest income $ 95,384 $ 82,384
_____________________

(1) Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.

(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21% for the three months ended June 30, 2018, and a tax rate of 35% for the three months ended June 30, 2017.

For the Three Months EndedJune 30, 2018

For the Three Months EndedMarch 31, 2018

Average Income/ Yield/ Average Income/ Yield/
(In thousands) Balance Expense Rate Balance Expense Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income(1)
Originated and ANCI loans $ 8,606,253 $ 108,130 5.04 % $ 8,189,448 $ 97,168 4.81 %
ACI portfolio 242,567 5,610 9.28 254,503 5,623 8.96
Total loans 8,848,820 113,740 5.16 8,443,951 102,791 4.94
Investment securities
Taxable 838,842 5,518 2.64 827,227 5,118 2.51
Tax-exempt(2) 344,213 3,547 4.13 406,999 4,134 4.12
Total investment securities 1,183,055 9,065 3.07 1,234,226 9,252 3.04
Federal funds sold and short-term investments 452,074 1,269 1.13 515,017 1,529 1.20
Other investments 55,909 634 4.55 48,986 389 3.22
Total interest-earning assets 10,539,858 124,708 4.75 10,242,180 113,961 4.51
Noninterest-earning assets:
Cash and due from banks 80,000 92,878
Premises and equipment 62,711 62,973
Accrued interest and other assets 629,228 613,341
Allowance for credit losses (93,365 ) (89,097 )
Total assets $ 11,218,432 $ 10,922,275
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 4,712,302 $ 11,700 1.00 % $ 4,795,114 $ 9,025 0.76 %
Savings deposits 189,567 133 0.28 179,662 114 0.26
Time deposits 2,175,235 10,497 1.94 1,909,019 7,491 1.59
Total interest-bearing deposits 7,077,104 22,330 1.27 6,883,795 16,630 0.98
Other borrowings 459,678 3,785 3.30 309,323 2,956 3.88
Subordinated debentures 135,409 2,464 7.30 135,233 2,396 7.19
Total interest-bearing liabilities 7,672,191 28,579 1.49 7,328,351 21,982 1.22
Noninterest-bearing liabilities:
Demand deposits 2,058,255 2,128,595
Accrued interest and other liabilities 129,216 122,884
Total liabilities 9,859,662 9,579,830
Stockholders' equity 1,358,770 1,342,445
Total liabilities and stockholders' equity $ 11,218,432 $ 10,922,275
Net interest income/net interest spread 96,129 3.26 % 91,979 3.29 %
Net yield on earning assets/net interest margin 3.66 % 3.64 %
Taxable equivalent adjustment:
Investment securities (745 ) (868 )
Net interest income $ 95,384 $ 91,111
_____________________

(1) Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.

(2) Interest income and yields are presented on a fully taxable equivalent basis using a tax rate of 21%.

Table 3 – Loan Interest Income Detail

For the Three Months Ended,
(In thousands)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Loan Interest Income Detail
Interest income on loans, excluding ACI loans $ 108,130 $ 97,168 $ 89,762 $ 84,321 $ 79,904
Scheduled accretion for the period 5,016 5,192 5,348 5,550 6,075
Recovery income for the period 594 431 2,797 290 4,450
Accretion on acquired credit impaired (ACI) loans 5,610 5,623 8,145 5,840 10,525
Loan interest income $ 113,740 $ 102,791 $ 97,907 $ 90,161 $ 90,429
Loan yield, excluding ACI loans 5.04 % 4.81 % 4.47 % 4.41 % 4.36 %
ACI loan yield 9.28 8.96 12.21 8.27 14.02
Total loan yield 5.16 % 4.94 % 4.72 % 4.55 % 4.74 %

Table 4 - Allowance for Credit Losses

For the Three Months Ended
(In thousands)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Balance at beginning of period $ 91,537 $ 87,576 $ 94,765 $ 93,215 $ 88,304
Charge-offs (3,650 ) (812 ) (2,860 ) (581 ) (2,879 )
Recoveries 1,470 393 146 408 1,089
Net (charge-offs) recoveries (2,180 ) (419 ) (2,714 ) (173 ) (1,790 )
Provision for (reversal of) credit losses 1,263 4,380 (4,475 ) 1,723 6,701
Balance at end of period $ 90,620 $ 91,537 $ 87,576 $ 94,765 $ 93,215

Table 5 -Noninterest Income

For the Three Months Ended
(In thousands)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Noninterest Income
Investment advisory revenue $ 5,343 $ 5,299 $ 5,257 $ 5,283 $ 5,061
Trust services revenue 4,114 5,015 4,836 4,613 4,584
Service charges on deposit accounts 3,803 3,960 3,753 3,920 3,784
Credit-related fees 3,807 3,577 3,372 3,306 2,741
Insurance revenue 417 2,259 1,470 1,950 1,828
Bankcard fees 1,915 1,884 1,833 1,803 1,862
Mortgage banking revenue 650 577 687 965 1,213
Other service fees earned 1,346 1,333 1,197 1,174 1,071
Total service fees and revenue 21,395 23,904 22,405 23,014 22,144
Securities (losses) gains, net (1,813 ) 12 16 1 (244 )
Other 5,090 1,067 3,235 4,109 1,089
Total other noninterest income 3,277 1,079 3,251 4,110 845
Total noninterest income $ 24,672 $ 24,983 $ 25,656 $ 27,124 $ 22,989

Table 6 -Noninterest Expense

For the Three Months Ended
(In thousands)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Noninterest Expenses
Salaries and employee benefits $ 38,268 $ 37,353 $ 35,162 $ 35,007 $ 34,682
Premises and equipment 7,131 7,591 7,629 7,419 7,180
Intangible asset amortization 715 792 1,085 1,136 1,190
Net cost of operation of other real estate owned 112 (52 ) 1,075 453 427
Data processing 2,304 2,365 2,504 1,688 1,702
Consulting and professional fees 2,545 2,934 4,380 2,069 1,502
Loan related expenses 645 255 810 532 757
FDIC insurance 1,223 955 939 889 954
Communications 703 704 857 650 675
Advertising and public relations 575 341 683 521 499
Legal expenses 468 2,627 2,626 612 508
Other 7,746 6,074 8,621 5,554 6,058
Total noninterest expenses $ 62,435 $ 61,939 $ 66,371 $ 56,530 $ 56,134

Table 7 - Reconciliation of Non-GAAP Financial Measures

As of and for the Three Months Ended
(In thousands)

June 30,2018

March 31,2018

December 31,2017

September 30,2017

June 30,2017

Efficiency ratio
Noninterest expenses (numerator) $ 62,435 $ 61,939 $ 66,371 $ 56,530 $ 56,134
Net interest income $ 95,384 $ 91,111 $ 87,911 $ 81,163 $ 82,384
Noninterest income 24,672 24,983 25,656 27,124 22,989
Operating revenue (denominator) $ 120,056 $ 116,094 $ 113,567 $ 108,287 $ 105,373
Efficiency ratio 52.00 % 53.35 % 58.44 % 52.20 % 53.27 %
Adjusted efficiency ratio
Noninterest expenses $ 62,435 $ 61,939 $ 66,371 $ 56,530 $ 56,134
Less: Merger related expenses 756 — — — —
Less: Secondary offerings expenses 1,165 1,365 1,302 — —
Less: Other non-routine expenses(1) 1,145 2,278 1,964 — —
Adjusted noninterest expenses (numerator) $ 59,369 $ 58,296 $ 63,105 $ 56,530 $ 56,134
Net interest income $ 95,384 $ 91,111 $ 87,911 $ 81,163 $ 82,384
Noninterest income 24,672 24,983 25,656 27,124 22,989
Less: Gain on sale of insurance assets 4,871 — — 1,093 —
Less: Securities (losses) gains, net (1,813 ) 12 16 1 (244 )
Adjusted noninterest income 21,614 24,971 25,640 26,030 23,233
Adjusted operating revenue (denominator) $ 116,998 $ 116,082 $ 113,551 $ 107,193 $ 105,617
Adjusted efficiency ratio 50.74 % 50.22 % 55.57 % 52.74 % 53.15 %
Tangible common equity ratio
Shareholders’ equity $ 1,389,956 $ 1,357,103 $ 1,359,056 $ 1,340,848 $ 1,304,054
Less: Goodwill and other intangible assets, net (315,648 ) (327,247 ) (328,040 ) (329,124 ) (330,261 )
Tangible common shareholders’ equity 1,074,308 1,029,856 1,031,016 1,011,724 973,793
Total assets 11,305,528 10,999,382 10,948,926 10,502,261 9,811,557
Less: Goodwill and other intangible assets, net (315,648 ) (327,247 ) (328,040 ) (329,124 ) (330,261 )
Tangible assets $ 10,989,880 $ 10,672,135 $ 10,620,886 $ 10,173,137 $ 9,481,296
Tangible common equity ratio 9.78 % 9.65 % 9.71 % 9.95 % 10.27 %
Tangible book value per share
Shareholders’ equity $ 1,389,956 $ 1,357,103 $ 1,359,056 $ 1,340,848 $ 1,304,054
Less: Goodwill and other intangible assets, net (315,648 ) (327,247 ) (328,040 ) (329,124 ) (330,261 )
Tangible common shareholders’ equity $ 1,074,308 $ 1,029,856 $ 1,031,016 $ 1,011,724 $ 973,793
Common shares issued 83,625,000 83,625,000 83,625,000 83,625,000 83,625,000
Tangible book value per share $ 12.85 $ 12.32 $ 12.33 $ 12.10 $ 11.64
Return on average tangible common equity
Average common equity $ 1,358,770 $ 1,342,445 $ 1,348,867 $ 1,320,884 $ 1,251,217
Less: Average intangible assets (323,255 ) (327,727 ) (328,697 ) (329,816 ) (330,977 )
Average tangible common shareholders’ equity $ 1,035,515 $ 1,014,718 $ 1,020,170 $ 991,068 $ 920,240
Net income $ 47,974 $ 38,825 $ 14,691 $ 32,577 $ 28,968
Return on average tangible common equity 18.58 % 15.52 % 5.71 % 13.04 % 12.63 %
Pre-tax, pre-provision net earnings
Income before taxes $ 56,358 $ 49,775 $ 51,671 $ 50,034 $ 42,538
Plus: Provision for credit losses 1,263 4,380 (4,475 ) 1,723 6,701
Pre-tax, pre-provision net earnings $ 57,621 $ 54,155 $ 47,196 $ 51,757 $ 49,239
_____________________

(1) Other non-routine expenses for the second quarter 2018 were $1.1 million and included expenses related to the sale of the assets of our insurance company. This compares to $2.3 million and $2.0 million for the first quarter of 2018 and fourth quarter of 2017, respectively, each representing legal costs associated with litigation related to a pre-acquisition matter of a legacy acquired bank that has been resolved.

Table 8 – Non-Routine Income/Expense

For the Three Months Ended
June 30, 2018 March 31, 2018 June 30, 2017

After-taxIncrease(Decrease) in

After-taxIncrease(Decrease) in

After-taxIncrease(Decrease) in

(In thousands, except per share data)

Income/Expense

EPS

ROA

ROTCE

Income/Expense

EPS ROA ROTCE

Income/Expense

EPS ROA ROTCE
Noninterest income (non-routine)
Gain on sale of assets of insurance subsidiary $ 4,871 $ — $ —
Securities (losses) gains, net (1,813 ) 12 (244 )
Total 3,058 $ 0.03 0.08 % 0.91 % 12 $ — — % — % (244 ) $ — (0.01 )% (0.07 )%
Noninterest expense (non-routine)
Expenses related to sale of assets of insurance company (1,145 ) — —
Secondary offering expenses (1,165 ) (1,365 ) —
Merger related costs (756 ) — —
Legacy litigation — (2,278 ) —
Total (3,066 ) (0.03 ) (0.08 ) (0.91 ) (3,643 ) (0.03 ) (0.10 ) (1.10 ) — — — —
Tax expense
Timing of legacy loan bad debt deduction for tax 5,991 0.05 0.16 1.78 — — — — — — — —
Total $ 5,983 $ 0.05 0.16 % 1.78 % $ (3,631 ) $ (0.03 ) (0.10 )% (1.10 )% $ (244 ) $ — (0.01 )% (0.07 )%

Cadence Bancorporation

Media:

Danielle Kernell, 713-871-4051

[email protected]

or

Investor relations:

Valerie Toalson, 713-871-4103 or 800-698-7878

[email protected]

Source: Cadence Bancorporation

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