CADE - Cadence Bancorporation Reports Fourth Quarter 2017 Results and Initiates a Quarterly Dividend

Cadence Bancorporation (NYSE:CADE) (“Cadence”) today announced net income for the quarter ended December 31, 2017 of $14.7 million, or $0.17 per diluted common share (“per share”), compared to $32.6 million, or $0.39 per share, in the third quarter of 2017, and $29.0 million, or $0.38 per share, in the fourth quarter of 2016. The fourth quarter of 2017 includes a one-time charge of $19.0 million, or $0.22 per share, recorded in income tax expense (the “one-time tax charge”) related to the enactment of the Tax Cuts and Jobs Act in December 2017 (“Tax Reform”) requiring a re-measurement of our deferred tax assets arising from a lower corporate tax rate.

Highlights:

• Fourth quarter of 2017 net income was $14.7 million. Excluding the one-time tax charge, after-tax earnings for the fourth quarter of 2017 were $33.7⁽¹⁾ million, representing an increase of $1.1 million, or 3.4%, as compared to the third quarter of 2017, and an increase of $4.7 million, or 16.2%, compared to fourth quarter of 2016.
  • On a per-share basis, net income was $0.17 per share for the fourth quarter of 2017. Excluding the one-time tax charge, after-tax earnings per share for the fourth quarter of 2017 was $0.39⁽¹⁾, the same as the third quarter of 2017 and up $0.01 from the fourth quarter of 2016. The year-over-year per share comparison was impacted by the issuance of 8.625 million shares in our initial public offering in April 2017.
  • Annualized returns on average assets, common equity and tangible common equity⁽¹⁾ for the fourth quarter of 2017 were 0.55%, 4.32% and 5.71%, respectively. Annualized returns on average assets, common equity and tangible common equity⁽¹⁾ excluding the one-time tax charge for the fourth quarter of 2017 were 1.26%, 9.92% and 13.11%, respectively, as compared to 1.29%, 9.78% and 13.04%, respectively, for the third quarter of 2017.
• Net income for the year ended December 31, 2017 was $102.4 million, compared to the prior year net income of $65.8 million. Excluding the one-time tax charge, after-tax earnings for the year ended December 31, 2017 were $121.4⁽¹⁾ million, an increase of $55.6 million, or 84.5%, compared to the year ended December 31, 2016.
  • Net income was $1.25 per share for the year ended December 31, 2017, compared to $0.87 per share in the prior year. Excluding the one-time tax charge, after-tax earnings per share for the year ended December 31, 2017 was $1.48⁽¹⁾ per share, an increase of $0.61 per share or 71% as compared to the year ended December 31, 2016.
  • Returns on average assets, common equity and tangible common equity⁽¹⁾ for the year ended December 31, 2017 were 1.02%, 8.16% and 11.08%, respectively. Returns on average assets, common equity and tangible common equity⁽¹⁾ excluding the one-time tax charge were 1.21%, 9.68% and 13.14%, respectively, as compared to 0.71%, 6.01% and 8.68%, respectively, for the prior year.
• Total revenue for the fourth quarter of 2017 was $113.6 million, up 4.9% from the linked quarter and up 19.7% from the same period in 2016. On a full year basis, 2017 revenues of $426.1 million represented an increase of $58.2 million, or 15.8%, as compared to the prior year.

⁽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.

• Total assets were $10.9 billion as of December 31, 2017, an increase of $1.4 billion, or 14.9%, as compared to $9.5 billion as of December 31, 2016.
• Loans were $8.3 billion as of December 31, 2017, an increase of $820.7 million, or 11.0%, as compared to $7.4 billion at December 31, 2016.
• Core deposits (total deposits excluding brokered) were $8.2 billion as of December 31, 2017 grew $1.2 billion, or 17.8%, from December 31, 2016.

“We are pleased with our core operating performance for the quarter, as our business growth continued to reflect the strong momentum we experienced throughout 2017,” said Paul B. Murphy, Jr., Cadence’s Chairman and Chief Executive Officer. “Revenue growth for the quarter was solid, driven by strong loan and core deposit growth, and stable margins. I am very pleased with our credit results during 2017, and particularly during the fourth quarter as we continued the trend of reduced nonperforming assets. Lower nonperforming assets (“NPAs”), low charge-offs and a stabilized energy environment all supported a net recovery of loan provision for the quarter. 2017 was a big year for Cadence as we became a public company, crossed the $10 billion asset threshold and achieved record financial performance. As a next step, we are very pleased to announce the initiation of a quarterly cash dividend in the amount of $0.125 per share to our common shareholders, representing an annualized dividend of $0.50 per share. I am proud of our employees who work hard for our customers every day, and we believe those efforts show through in our results and in returns for our shareholders.”

Period End Balance Sheet:

Cadence continued its strong growth during the quarter with total assets reaching $10.9 billion as of December 31, 2017, an increase of $446.7 million, or 4.3%, from September 30, 2017, and an increase of $1.4 billion, or 14.9%, from December 31, 2016.

Loans at December 31, 2017 were $8.3 billion, an increase of $224.5 million, or 2.8%, from September 30, 2017, and an increase of $820.7 million, or 11.0%, from December 31, 2016.

- Increases in loans reflect organic growth primarily in our specialized, general C&I and residential portfolios.

- Energy lending remained a consistent portion of total loans, with balances totaling $935.4 million, or 11.3% of total loans at December 31, 2017, and continued to reflect improved credit results.

Total deposits at December 31, 2017 were $9.0 billion, an increase of $510.4 million, or 6.0%, from September 30, 2017, and an increase of $994.8 million, or 12.4%, from December 31, 2016.

- Deposit increases reflect growth in core deposits, with a key focus on expansion of commercial deposit relationships and treasury management services. The core deposit growth supported a $245.1 million reduction in brokered deposits during the year.

- As of December 31, 2017, brokered deposits totaled $0.8 billion, or 8.8% of total deposits, down from 9.7% and 13.0% of total deposits at September 30, 2017 and December 31, 2016, respectively.

- Noninterest bearing deposits as a percent of total deposits increased to 24.9%, up from 24.4% at September 30, 2017 and 23.0% at December 31, 2016.

Shareholders’ equity was $1.4 billion at December 31, 2017, an increase of $18.2 million from September 30, 2017, and an increase of $278.6 million from December 31, 2016.

- The increase in shareholders’ equity includes $155.7 million in net proceeds from our April 2017 initial public offering that was added to tangible common equity during the second quarter of 2017. This offering resulted in increasing average diluted shares to 84.7 million for the fourth quarter of 2017, as compared to 75.4 million and 84.0 million in the fourth quarter of 2016 and third quarter of 2017, respectively.

- In November 2017, Cadence completed a secondary offering whereby its controlling stockholder, Cadence Bancorp, LLC, sold 10,925,000 Cadence Bancorporation shares, reducing its ownership in Cadence to 76.6%. All proceeds from this transaction were received by Cadence Bancorp, LLC and did not impact Cadence Bancorporation’s equity or outstanding shares.

Asset Quality:

Credit quality metrics reflected meaningful improvement during the fourth quarter of 2017 due to continued improvements of energy credits combined with general credit stability in the remaining loan portfolio.

- NPAs totaled $70.7 million, or 0.9% of total loans, OREO and other NPAs as of December 31, 2017, down from $121.8 million, or 1.5%, as of September 30, 2017, and down from $166.2 million, or 2.2%, as of December 31, 2016.

- The decline in NPAs are due primarily to continued improvements of energy credits, with energy portfolio NPAs totaling $58.7 million at December 31, 2017 down from $98.2 million at September 30, 2017.

- Of the $42.8 million in energy nonperforming loans included in total NPAs as of December 31, 2017, over 75% were paying in accordance with contractual terms.

The allowance for credit losses (“ACL”) was $87.6 million, or 1.06% of total loans, as of December 31, 2017, as compared to $94.8 million, or 1.18% of total loans, as of September 30, 2017 and $82.3 million, or 1.11% of total loans, as of December 31, 2016.

- Net-charge offs as a percent of average loans for the full year amounted to 0.06% in 2017, and an improvement from 0.65% in 2016. Net-charge offs were $2.7 million and $4.4 million for the quarter and year ended December 31, 2017, respectively, as compared to $3.7 million and $46.9 million for the quarter and year ended December 31, 2016, respectively, and $173 thousand for the three months ended September 30, 2017.

- The decline in the ACL during the fourth quarter of 2017 compared to the prior quarter resulted primarily from the reduction in non-performing loans and related valuation reserves (largely from the energy portfolio), improved environmental factors in the energy sector, and the reversal of approximately $2.0 million in consumer mortgage reserves recorded in the third quarter of 2017 associated with Hurricanes Harvey and Irma.

- At December 31, 2017, the ACL included reserves for the energy portfolio of 1.8%, down from 2.5% as of September 30, 2017 and 2.6% as of December 31, 2016.

- Loan provisions (reversals) for the fourth quarter of 2017 were $(4.5) million as compared to $(5.2) million in the prior year quarter and $1.7 million in the third quarter of 2017.

Total Revenue:

Total revenue for the fourth quarter of 2017 was $113.6 million, up 4.9% from the linked quarter and up 19.7% from the same period in 2016. On a full year basis, 2017 revenues of $426 million increased $58.2 million, or 15.8%. 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 fourth quarter of 2017 was $87.9 million an increase of $6.7 million, or 8.3%, from the third quarter of 2017 and an increase of $15.4 million, or 21.3%, from the same period 2016.

- Our fully tax-equivalent net interest margin (“NIM”) for the fourth quarter of 2017 was 3.59% as compared to 3.52% for the third quarter of 2017 and 3.31% for the fourth quarter of 2016. The year-over-year increase in NIM is primarily a result of our asset sensitive balance sheet and earning asset yields increasing more significantly than our funding costs in the recent rising rate environment. The linked quarter increase in NIM was due to timing of recovery accretion on acquired-impaired loans.

- Earning asset yields for the fourth quarter of 2017 were 4.41%, up 11 basis points from 4.30% in the third quarter of 2017, and up 45 basis points from 3.96% in the fourth quarter of 2016, driven by increases in loan yields.

• Approximately 70% of our loan portfolio is floating rate and has benefited from the short-term rate increases during the periods.
• Yield on loans, excluding acquired-impaired loans, was 4.47%, 4.41% and 4.03% for the fourth quarter of 2017, third quarter of 2017 and fourth quarter of 2016, respectively.
• Total accretion for acquired-impaired loans was $8.1 million in the fourth quarter of 2017, up $2.3 million from the third quarter of 2017 and up $0.3 million from the fourth quarter of 2016.
• Total loan yields increased to 4.72% for the fourth quarter of 2017 versus 4.55% for the third quarter of 2017 and 4.26% for the fourth quarter of 2016.

- Total cost of deposits for the fourth quarter of 2017 was 69 basis points versus 64 basis points in the linked quarter and 47 basis points in the fourth quarter of 2016.

- Total cost of funds for the fourth quarter of 2017 was 89 basis points versus 84 basis points in the linked quarter and 69 basis points in the fourth quarter of 2016.

• Increases in funding costs reflect the increases in short term rates, partially offset by improvements in the funding mix, including declines in interest-sensitive brokered deposits and increases in noninterest bearing deposits.

Noninterest income for the fourth quarter of 2017 was $25.7 million, a decrease of $1.5 million, or 5.4%, from the third quarter of 2017, and an increase of $3.3 million, or 14.7%, from the same period of 2016.

- Total service fees and revenue for the fourth quarter of 2017 was $22.4 million, a decrease of $0.6 million from the third quarter of 2017, and an increase of $1.8 million from the same period of 2016. The changes were driven primarily by:

• Assets Under Management increasing to $5.6 billion as of December 31, 2017, an increase of $51.4 million from September 30, 2017 and $266.2 million from December 31, 2016.
• Insurance revenue declines of $0.5 million linked quarter due to the sale of the assets of a specialty insurance unit in the third quarter of 2017.
• Mortgage banking revenue declines of $0.3 million from the third quarter of 2017 due to both seasonality and more mortgages being held on the balance sheet versus sold.

- Total other noninterest income for the fourth quarter of 2017 was $3.3 million, a decrease of $0.9 million from the third quarter of 2017, and an increase of $1.5 million from the same period of 2016.

- Significant non-routine items included in other noninterest income during comparable periods include:

• Securities gains (losses) - $16 thousand gains in the fourth quarter of 2017 and $1.3 million gains in the fourth quarter of 2016;
• Gain (loss) on sale of commercial loans - $1.6 million gain in the fourth quarter of 2017 and ($0.5) million loss in the fourth quarter of 2016, both related to credit resolutions;
• Gain on sale of assets of a specialty insurance unit - $1.1 million in the third quarter of 2017;
• Earnings from Limited Partnerships primarily due to changes in equity valuation — $0.7 million in the fourth quarter of 2017, $1.5 million in the third quarter of 2017 and a loss of ($0.2) million in the fourth quarter of 2016.

Noninterest Expenses:

Noninterest expense for the fourth quarter of 2017 was $66.4 million, an increase of $9.8 million from $56.5 million for the third quarter of 2017, and an increase of $11.0 million from $55.4 million during the same period in 2016. Increases in the fourth quarter of 2017 included non-routine expenses related to legacy bank pre-acquisition legal costs, secondary offering costs, consulting, and other notable expenses detailed below:

- Salaries and employee benefits expense included an increase in incentives of $0.7 million from the third quarter of 2017 and an increase of $5.0 million from the fourth quarter of 2016 driven by improved operating performance of the bank and company valuation.

- Other real estate (“ORE”) costs for the fourth quarter of 2017 included $0.6 million in ORE writedowns and another $0.4 million in ORE losses on sales, as we reduced our ORE by $11.2 million during the quarter to $7.6 million at December 31, 2017.

- Data processing expense for the fourth quarter of 2017 included $0.5 million in costs associated with a trust system upgrade and conversion.

- Consulting and professional fees in the fourth quarter of 2017 included $1.2 million in expenses specific to the November 2017 secondary offering, and $0.8 million in non-routine tax consulting costs.

- Legal expense for the fourth quarter of 2017 included $2.0 million in legal costs associated with certain pre-acquisition related litigation and contingencies related to a legacy acquired bank.

- Other expenses for the fourth quarter of 2017 included $0.8 million in unfunded commitments provision driven by loan growth, $0.6 million related to technology licensing updates, as well as other seasonal variances in expenses.

Noninterest expense for the year ended December 31, 2017 was $233.4 million as compared to $220.2 million during the same period of 2016, an increase of $13.2 million, or 6.0%.

The efficiency ratio⁽¹⁾ for the fourth quarter of 2017 was 58.44%, as compared to the fourth quarter of 2016 and third quarter of 2017 ratios of 58.40% and 52.20%, respectively. The efficiency ratio for the year ended December 31, 2017 was 54.77%, compared to 59.86% in the prior year, reflecting ongoing focus on managing expense and expanding revenue. Total 2017 revenues increased $58.2 million or 15.8% over 2016, while total 2017 expenses increased $13.2 million or 6.0% over 2016.

Taxes:

The effective tax rate for the quarter ended December 31, 2017 was 71.6% as compared to 34.9% in the third quarter of 2017 and 35.1% in the fourth quarter of 2016. Excluding the effects of Tax Reform, our effective tax rate for the quarter and year ended December 31, 2017 was 34.8%⁽¹⁾ and 33.7%⁽¹⁾, respectively. Considering the effects of Tax Reform, we estimate our effective tax rate will range between 21% to 22% in 2018.

⁽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.

Quarterly Dividend:

On January 24, 2018, the Board of Directors of Cadence declared a quarterly cash dividend in the amount of $0.125 per share of common stock, representing an annualized dividend of $0.50 per share. The dividend will be paid on March 20, 2018 to holders of record of the Class A common stock on March 1, 2018.

Supplementary Financial Tables (Unaudited):

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

Fourth Quarter 2017 Earnings Conference Call:

Cadence Bancorporation executive management will host a conference call to discuss fourth quarter 2017 results on Thursday, January 25, 2018, at 10:00 a.m. CT / 11:00 a.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.

For those unable to participate in the live presentation, a replay will be available through February 8, 2018. To access the replay, please use the following numbers:

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 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., Cadence Insurance, and Linscomb & Williams are direct or indirect 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-1 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 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).

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