Cadence Bank

Good morning, and welcome to the Cadence Bank first quarter 2023 conference call. All participants will be in a listen-only mode for the duration of the call, and should you need any assistance during that time, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And if you would like to withdraw your question, please press star, then two. Please note that this event is being recorded today. I would now like to turn the conference over to Will Fazakerly, Director of Corporate Finance. Please go ahead, sir.

Good morning, and thank you for joining the Cadence Bank first quarter 2023 earnings conference call. We have our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Toltz, and Hank Holmes. Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to our investor relations page at ir.cadencebank.com, where you'll find them on the link to our webcast, or you can view them at the exhibit to the 8K that we filed yesterday afternoon. These slides are also in the presentation section of our investor relations website. I would remind you that the presentation, along with our earnings release, contains our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed. The disclosures regarding forward-looking statements contained in those documents apply to our presentation today. And now I'll turn to Dan for his opening comments.

Good morning, everyone. Thank you for joining us today to discuss Cadence Bank's first quarter 2023 financial results. I will start with a few general comments and highlights, and Valerie will review financials in more detail. Following our prepared marks, our full executive management team is available for questions. While it was clearly a very unique quarter for the industry, I believe our customer base and our company's first quarter results generally reflect a business-as-usual operating environment. While we added some additional on-balance sheet liquidity, including borrowings and brokered deposits, simply out of an abundance of caution, customer behavior, including deposit flows, were actually pretty normal during the first quarter. We reported total deposit growth of $450 million, or 4.7% annualized for the quarter. If you exclude the routine seasonal flows of public funds, as well as the brokered funds, deposits declined approximately $400 million, which we view as reasonable given the industry pressure on deposits. We actually saw a modest increase in our deposits within our community bank, offset by some normal first quarter outflows from some of our corporate customers, which is not unusual given the annual bonus and tax payments during the quarter. The sticky, granular nature of our largely rural deposit base has been and will continue to be of tremendous value to our franchise. We have an average consumer account size of less than $20,000, while our average commercial account balance is approximately $135,000. Additionally, As of the end of the first quarter, approximately 98% of our total accounts had balances less than $250,000, and 70% of our deposit dollars are either fully FDIC insured or collateralized. From a loan growth standpoint, we had another solid quarter, reporting net loan growth of $933 million, or 12.5% annualized. While the largest portion of our growth this quarter came from our corporate banking team, it continues to be very diverse both geographically and by category. A portion of this growth is funding on existing CRE credits originated in prior quarters. As we look forward, our pipelines have declined, but we are still seeing good activity. Having said that, the overall credit tightening is very apparent in the industry as almost all banks are requiring deposits. I anticipate pipelines will continue to decline over the next quarter or two. However, we continue to have a large, unfunded CRE book of existing lines that we'll fund throughout this year and will be somewhat of an annuity for us on loan growth in the coming quarters. Stepping back and looking at some of our other financial metrics, we reported net income available to common shareholders of $74.3 million, or $0.40 per diluted common share. and adjusted net income available to common shareholders of 124.4 million, or 68 cents per share on an adjusted basis. The primary difference between the two was a loss on sale of investment securities, which I will discuss further in just a moment. From a credit quality perspective, net charge-offs continued to remain very low, totaling just 1.9 million, or two basis points annualized. We recorded a provision for the quarter of $10 million, which accounted for our net loan growth, as well as some increases in non-performing and classified assets. We've said for quite some time that we expected to see our credit metrics return to a more normal level from the historically low levels we've reported now for many quarters. We, like the rest of our industry, expect to see negative impact of increasing rates on our clients' year-end financial reporting, which has driven some grade migration. This has been especially true in the CNI space for us. Before I turn it over to Valerie to review the financial statements, I would like to briefly discuss the ongoing efforts to improve profitability and operating efficiency. During February, we sold $1.5 billion in available for sale securities that had a weighted average yield of 70 basis points, which resulted in an after-tax loss of approximately $39.5 million. This trade is expected to have an earn-back of around 7.5 months and be accretive to earnings in early fourth quarter, ultimately improving net interest income by approximately $10.5 million this year. The strategy was strictly an effort to improve our financial performance and was unrelated to and well in advance of the industry liquidity concerns that occurred later in the quarter. In addition, branch optimization is one of the many efficiency initiatives we are focused on. We plan to close an additional 35 branch locations during the third quarter of this year as part of our ongoing effort to optimize our branch network structure and to improve our efficiency. These closures are in addition to the 17 branches closed in the fourth quarter of last year. This branch optimization, in addition to our other efficiency initiatives underway, is expected to result in expense savings of approximately 15 to 20 million annually. As we are now past our system conversions, we are continuing to actively identify and execute on additional efficiencies as we look forward through the coming quarters. I would be remiss if I didn't acknowledge Paul Murphy's transition this month from Executive Vice Chairman to a key consultant for both me and the management team. As you know, Paul was the force behind building Legacy Cadence and coined the phrase, for same-day service, call by 8 p.m., which exemplified the company's service-oriented culture. While he's no longer engaged in day-to-day management, his continued commitment to customer engagement and service insight will be invaluable to all of us as we continue to grow as the new Cadence Bank. Valerie, let me turn it to you for a few minutes on financials.