Cadence Bank

Good day and welcome to the Cadence Bank third quarter 2023 webcast and conference call. All participants will be in a listen only mode. If you need assistance, 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 a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Will FitzAckerley, Director of Finance. Please go ahead.

Good morning, and thank you for joining the Cadence Bank third quarter 2023 earnings conference call. We have members from our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Tolson, Hank Holmes, and Billy Braddock. 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, contain our customary disclosures around forward-looking statements and any non-GAAP metrics that may be discussed. The disclosures regarding these 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. We would like to take some time this morning during our third quarter 2023 earnings conference call to also discuss the announcement of our agreement to sell Cadence Insurance to Arthur J. Gallagher and Company. Following our prepared remarks, our executive management team will be available for questions. The first several slides in our deck today provide some detail regarding the sale of our insurance agency. The total deal value of nearly $1 billion represents a multiple of 5.4 times the last 12 months revenue. The achievement of this multiple is a tremendous testament to the growth and accomplishments of Cadence Insurance under the leadership of Marco McKnight, Chris Boone, Amy Kilpatrick, and their entire executive team. While we've repeatedly said We like the insurance business. The opportunity to monetize this business at historically high valuation levels is a huge win for our shareholders. It's also a tremendous win for our insurance teammates and clients, with access to additional resources and product offerings of an agency with the size and scale of Gallagher. We value the relationships we've built with these teammates, and we look forward to continuing to work with them in their new roles as Gallagher will be the preferred insurance partner of Cadence Bank. From a shareholder perspective, we are able to significantly enhance our capital metrics and tangible book value per share while focusing our efforts on supporting and growing our core banking business. Valerie will provide some more color on the pro forma impact of the transaction as well as plan uses of the proceeds in just a moment. As we move to financial results for the quarter, we reported quarterly net income available to common shareholders of 90.2 million or 49 cents per diluted share. and adjusted net income available to common shareholders of $103.9 million, or $0.56 per diluted common share, with the primary difference being non-routine expenses largely associated with our efficiency initiatives that we've discussed on our second quarter call. Our balance sheet was relatively stable for the quarter. Loans were essentially flat for the quarter at $32.5 billion, while reported deposits declined $357 million. The deposit decline included our intentional reduction in brokered CD balances, as well as a seasonal decline in public funds. Before the impact of those, total core customer deposits actually increased just over 500 million, or 5% annualized. This growth reflected success in both our corporate and community banking segments, particularly given the ongoing competitive environment for deposits. Deposit trends also reflected a slower pace of deposit mix shift compared to the most recent quarters as non-interest bearing deposits represented 25.2% of total deposits at the end of the third quarter compared to 26.4% three months ago. These balance sheet trends contributed to stability in our net interest margin, which was 2.98% for the third quarter. The third quarter increase in deposit costs slowed considerably, representing roughly half of the increase we experienced during each of the first two quarters this year. We anticipate this margin stability to continue in the fourth quarter as well. From a credit quality standpoint, net charge-offs were elevated as a result of the charge-off of two CNI credits that were previously identified as impaired. These two credits have been on our radar and reflected in our credit metrics for several quarters now. Otherwise, both of our non-performing as well as our criticized and classified asset totals were stable compared to the second quarter of 2023. We reported a provision for credit losses of $17 million for the quarter, driven by slower loan repayment expectations and credit outlook. Overall, despite the volatility in the macro environment, our risk identification process is working well and credit quality expectations remain stable. Finally, we continue to make progress in our efficiency initiatives. This progress is evidenced in our headcount declines. Total FTEs have declined over 300 during the third quarter and over 400 since the end of last year. We expect a decline of additional 80 headcount prior to the end of this year. We expect the fruits of these efforts to be more visible in our numbers during the fourth quarter and the first part of 2024. Before factoring in the insurance sale impact, we are working hard toward holding our 2024 expenses flat through these and other efforts.