Cadence Bank
Q1 2021 Earnings Call Transcript

Published: 22 Apr 2021

[Operator:]

Welcome to the Cadence Bancorporation First Quarter 2021 Earnings Call. Comments are subject to the forward-looking statements disclaimer which can be found in the press release and on Page 2 of the financial results presentation. Both of those documents can be located in the Investor Relations section at cadencebancorporation.com. All participants will be in listen-only mode. After management’s opening remarks, there will be an opportunity to ask questions. Please note this event is being recorded.

[Paul Murphy:]

Good morning and thank you all for joining us. Joining me today on the call are Valerie Toalson, Sam Tortorici, Hank Holmes and Billy Braddock. As many of you know, we hosted a call announcing our merger with BancorpSouth on April the 12th. I 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 are going to be focused on first quarter results. So with that, let me give a couple of highlights. First off, I think it’s a solid quarter. Overall, I think there are three primary takeaways. The first is the Cadence continues to drive solid operating results and returns are adjusted pre-tax pre-provision, net revenue remained attractive at 86.4 million, or 1.86% of assets. In my opinion, this is a nice reminder that our business model with a meaningful mix of C&I, just generate nice profitability. Our loan yields, excluding hedge and accretion declined slightly down seven basis points in the quarter. Our cost of funds declined six basis points linked quarter. We earned $105 million for the quarter or 23% return on tangible common equity, which admittedly is elevated due to the reserve release. Second takeaway for the quarter is that credit continues to improve across the board. Criticizing classified assets are still higher than we would like, but they are down materially from the peak of COVID, and now the lowest levels since March of 2019. The $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 are seeing in credit. So I would like to say that thinking back on 2020, the year was really about cadence and our borrowers working hard to de-risk and that the tone and the feel for 2021 is as much more about improving health of business activity. The recovery of borrowers and operating cash flows. Our broader CNI portfolio has improved to really as for most banks. Our more COVID exposed portfolios, restaurant and hospitality have improved from last year and improved in the first quarter. Non-performing loans declined over 11% linked quarter. Our reserves as percentage of non-performers now stand at 250% compared to 154% at the same time last year. Credit size assets have declined for another quarter.

[Valerie Toalson:]

Thank you, Paul and good morning. For the first quarter our adjusted net income was 105 million or $0.83 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 the negative loan provision in the first quarter. The first quarter allowance reflected a provision release of 48.3 million reflecting improvement in economic outlook and continued declines in criticize and nonperforming loans. Even with the reserve release this quarter, our allowance for credit losses remains robust at 2.49% or 2.67%, excluding PPP loans.

[Operator:]

We will now begin the question-and-answer session. Our first question is from Jennifer Gammal with Tourist Security. Please go ahead.

[Unidentified Analyst:]

This is (Ph) keying on for Jennifer. Good morning. I was just curious .

[Paul Murphy:]

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

[Valerie Toalson:]

Could you repeat your question perhaps?

[Unidentified Analyst:]

Sorry. Sorry. Sorry. Can you hear me now?

[Paul Murphy:]

Yes.

[Unidentified Analyst:]

Yes, I wanted to touch on the calling woods effort that you have mentioned previously. And I wanted to know, if you are seeing an increase from loan growth on that, and any other things you want to note about how that is going so far?

[R.H. Holmes:]

Hey Brandon, thanks, this is Hank and appreciate question. So, we have had a lot of success with our calling woods. We previously announced that we were hitting the ground in the first quarter. And I’m happy to say that we have had almost 9,000 touch points with our clients both on the commercial side and 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 have seen our pipelines increase. And we have also seen some increase in our loan committee and through our approval process. So this Blitz will continue and we are excited about it. And actually, with the announcement of the merger gives us another opportunity to go back and talk to our customers again, which in my opinion, drives business in our organization.

[Unidentified Analyst:]

Thank you. And this is for Paul. Paul, what do you see as most challenging part of integrating with BancorpSouth in your mind?

[Paul Murphy:]

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 that will be extremely well planned, and thoroughly designed and tested, and it will be well executed I just got a lot of confidence in our team.

[Unidentified Analyst:]

Thanks very much.

[Operator:]

[Paul Murphy:]

Well Andrew, we sort of thought that there would be a limited number of questions. I’m just going to see if Hank has any questions while we got.

[R.H. Holmes:]

No I’m good. You just guided about the quarter so.

[Paul Murphy:]

Why don’t we Andrew just go ahead and wrap it up then. And I might just kind of parking back to some of my comments in the prepared remarks about tying into Brandon’s question about, the enthusiasm that we have around the combination with BancorpSouth. The expansion of the branch network for our customers, so many more branches that they can access, places like Dallas and Austin, where we have limited access and just other markets. I mean the whole Georgia market for BancorpSouth customers it is a huge opportunity and, and a lot of growth there. And as we sat on our April 12th call, our commercial banking expertise combined with their community banking. It is just the industrial logic, just really stacks up, and I think makes a lot of sense. As Dan said, in our announcement call, mergers are really all about people. And I just wholeheartedly believe that both banks, we have two great teams of people and will very soon be all pulling together and the strengths of both organizations as I reflect on it leaves me very optimistic about our future together. With that, we stand adjourned.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.