Cadence Bank

Good day and welcome to the Cadence Bank second quarter 2025 earnings webcast and conference call. All participants will be in a listen-only mode. Should 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 Fisacoli, Director of Corporate Finance. Please go ahead.

Good morning, and thank you for joining the Cadence Bank second quarter 2025 earnings conference call. We have members from our executive management team here with us this morning, Dan Rollins, Chris Bagley, Valerie Tolson, 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 available 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. Thank you for joining us today to discuss our second quarter results. I could not be prouder of our team and the results we are producing. I will cover a few highlights. Valerie will provide some additional detail on the financials. After our prepared comments, our executive management team will be available for questions. It was an active quarter for Cadence, both organically and for M&A. On the M&A front, we announced our acquisition of industry bank shares on April 25. We then completed our acquisition of First Chatham Bank, effective May 1, and we closed the industry transaction on July 1. The announcement to close timeline for industry was 67 days, which followed the 99-day announced to close timeline for First Chatham. These achievements are the result of a tremendous amount of collaboration between the teams at each of the target banks and with the various regulatory bodies. We are excited about the opportunity to expand our presence in Georgia and Central Texas. We welcome these teammates and customers to the Cadence family. Regarding the second quarter results, We continue to perform exceptionally well. Adjusted net income from continuing operations increased to $137.5 million, or $73 per share, and adjusted ROA was 1.14% for the quarter. Our balance sheet growth drove a meaningful increase in revenue, and our adjusted efficiency ratio improved by 90 basis points to 56.7%. Our loan growth once again highlighted the strength of our footprints. We achieved organic loan growth of $1.1 billion for the quarter, or 12.6% annualized. The growth came across our geography and nearly all verticals, with the highest growth coming out of Texas. Our community bank, corporate bank, private banking, and mortgage teams all reported nice organic growth for the quarter, and our pipelines are strong and growing. Our core customer deposit balances also showed growth, which offset some intentional runoff in brokered and a seasonal decline in public fund balances. Organic core customer deposits increased at a 4.4% annualized rate, with the largest portion of this growth in non-interest-bearing deposits. Credit results continue to remain in line with our expectations, with net charge-offs of 24 basis points annualized for the quarter. Finally, our tangible book value continued to improve, increasing to 22.94 per share, and regulatory capital levels remain strong with CET1 of 12.2%. Now let me turn the call over to Valerie, and she can get into the weeds and the details for our financials. Valerie?

Great. Thank you, Dan. To add to Dan's comments, our pre-tax, pre-provision net revenue for the second quarter increased to an all-time high of $206 million, up over 8% from the prior quarter. driven by the balance sheet growth that Dan mentioned, combined with strong fee income performance and improved operating leverage. Average loans were up a little over $800 million in the quarter, while period-end loans grew by $1.4 billion, $1.1 billion in organic growth and close to $400 million from the first Chatham acquisition. We also added just over $500 million in deposits from first Chatham in the quarter, in addition to our organic core customer deposit growth of $376 million. These increases were partially offset by declines of $437 million in brokered deposits and $300 million in public funds. Our period end non-interest bearing deposits as a percentage total deposits actually increased this quarter to 22.6%. Average deposits were down, which is not unusual for the second quarter as seasonal runoff earlier in the quarter was offset by growth in the latter part of the quarter. Our second quarter total adjusted revenue was strong at $476 million, an increase of $28 million, or 6%. Net interest revenue increased $15 million, or 4%, as a result of the robust loan growth as well as added securities. We added about $2 billion in securities in the late first quarter and early second quarter, funded by Federal Home Loan Bank term borrowings. These securities added nice revenue, but did result in a slight dip in the net interest margin in the quarter. The NIM declined six basis points in the second quarter to 3.40%. And before considering the impact of the added securities, the quarter's NIM actually increased two basis points as the trends in our earning asset yields and cost of funds were favorable. Loan yields were 6.34% in the quarter, up one basis point from the first quarter. And new and renewed loans in the quarter came on the books at just over 7%, which is well north of the total portfolio yield. Total cost of deposits also improved by five basis points linked quarter to 2.30%. And time deposit costs improved by 12 basis points as new and renewed time deposits in the quarter came in over 30 basis points lower than the total portfolio rate. Adjusted non-interest revenue reflected great performance really across the board, increasing 13 million or 15% compared to the first quarter. We had another big quarter in mortgage originations, and the MSR valuation adjustment improved as well. Our wealth management teams also had a good quarter, benefiting from improved market conditions as well as seasonal tax revenue. And finally, other non-interest revenue increased just over $7 million, a combination of several items, including strong credit and customer swap fees, SBA income, federal home loan bank dividends, and BOLI income. Adjusted non-interest expense increased $11.7 million linked quarter, mostly as a result of the closing of First Chatham, combined with costs associated with business growth and strong operating performance. Salaries and employee benefits increased just over $4 million, about half of that related to FCB, and the rest mostly due to increases in commissions and share-based payment accruals. Data processing increased $3.6 million, partially impacted by higher business and project volume. and we incurred a seasonal increase in our advertising and PR expense. Legal costs were up $4.6 million, driven by final resolution of a legal matter, and the decline in other miscellaneous expense of over $5 million was due to fraud and loss recoveries and lower consulting and regulatory expenses. Turning to credit, on slides 9 and 10, net charge us for the second quarter were $21 million, or 24 basis points annualized, which is down slightly from the first quarter and consistent with expectations. Non-performing loans declined just under $5 million linked quarter, while non-performing assets increased about two. All in all, a stable linked quarter. We did see an increase in criticized and classified loans linked quarter due to a handful of credits, but the balances continue to remain within historical ranges. The loan provision was $31 million, reflecting the day one provision of just over $4 million associated with acquired loans, as well as the impact of low growth in the quarter. Our allowance for credit loss coverage remained flat linked quarter at 1.34%. At this level, combined with our capital foundation laid out on slide 16, we believe our strong balance sheet continues to be very well positioned. As a quick update on industry bank shares, we did close the transaction effective July 1st, 2025. And as you may recall, industry had a sizable municipal portfolio. Once we closed, we immediately sold a large majority of that portfolio, liquidating $1.9 billion of securities and continuing to hold just under $600 million. We have since used that $1.9 billion in liquidity to reinvest in $1 billion of securities, yielding just over 5.25%, with the remaining $900 million used to lower wholesale funding. Additionally, we put on about $550 million in notional interest rate swaps to minimize any residual interest rate volatility in these securities that remained on our balance sheet. Finally, we have updated our guidance on slide 17 to reflect both the acquisition of First Chatham and industry. We continue to expect solid loan demand for the latter half of the year, bringing full-year loan growth, including the acquisitions, to between 11% and 15%. This, combined with full-year core customer deposit growth of between 12% and 15%, supports our expectation for total revenue growth between 10% and 12%. We forecast continued operating leverage with expenses increasing between 7% and 9% in support of the growth in the balance sheet and continued investment in our future. Combined with stable credit, we expect these results will continue to drive strong EPS performance for us throughout the rest of this year.

Operator, we would like to open the call to questions, please.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. We ask that you please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Casey Hare from Autonomous Research. Please go ahead.

Thanks. Good morning. Can you guys hear me? Hi, Casey. Good to hear from you.

to hear from you guys sorry it's been a little bit choppy so i apologize if i'm in and out but i guess first off um wanted to touch on the nii and the restructure um it feels like the margin can be bound to the mid 340s given what you did with um with the industry uh restructuring just wondering if i'm missing anything or just some help on the margin guide and then also are you guys Is there any more restructuring to be done on the industry side balance sheet? Thanks.

Yeah, on the industry piece, you know, we've done what we wanted to do. We certainly could divest a few more of those securities if we have that opportunity, but right now that's not on the top burner. Valerie, you need to go through all the NIM.

Yeah, there's obviously a lot of moving parts, particularly the acquisitions, but where we ended up with the repurchases, you know, of the industry security 527. When you combine that with the loan yields, the new loans coming on north of 7% and some of the repricing expectations that we have for the other portions of the portfolio that we have in our slide deck, as well as the fact that our new CDs are coming in well south of where the maturity These are coming in. We expect some continued improvement there. So, we're actually very optimistic about the net interest margin and anticipate that that would increase as we go through the rest of the year.

Yeah, we knew that what we did at the end of the first quarter, beginning of the second quarter, bringing on borrowings and buying the bonds was going to negatively impact them, but positively impact NII.

Right. And so, actually, I hope you caught it. Basically, the impact of that was a negative eight basis points. If you just kind of set aside those securities purchases, the net interest margin would have actually increased in a quarter by a couple of basis points.

Yeah. Okay. Great. Thank you. And then, so, just switching to M&A, it just feels like it's, you know, activities picking up here. You guys obviously have two deals under your belt here to date. Just wanted to get some updated thoughts on where you guys fit in on what appears to be, you know, M&A activity picking up. M&A's picking up? We haven't noticed.

Yeah, clearly there's a lot of talk, a lot of activity. We're seeing small transactions, a couple larger than what we've obviously done. I think what we've said when we announced the industry transaction earlier in the year was. We thought we could get this transaction done quickly. We think we're in a position to continue to execute. We like the footprint that we serve. We like the nine states that we're in. We're looking for opportunities to continue to grow in those states, and we think we'll have future opportunities.

Great. Thank you. Appreciate it. Thanks, Casey.

The next question comes from Manan Ghasilya with Morgan Stanley. Please go ahead.

Hey, good morning. Hey, good morning all. Can you provide some more color on the increase in the revenue guide? You know, the differences in the old guide and the new guide on the loan and deposit side were particularly helpful. So I was wondering if You know, the revenue guide is going up on an organic basis as well. And on the acquisitions piece, if you can just help us with some of the assumptions around purchase accounting.

Yeah, so let me take a little bit of that. Valerie's going to have to jump in here and help. But I think from your question on, is the guide up on an organic basis? Yes. So we saw tremendous loan growth in the quarter. The pipelines are good. Billy and Chris can talk about that. We really feel good about where we sit. Some of that's footprint. Some of that's our team just doing an outstanding job. We're bringing new customers into the bank. All of that moves the guide up. So with the increased guide on loan growth, that's going to produce revenue. you know, organic revenue growth that you're seeing in the increased guide there. When you talk about purchase accounting marks, we're early in. We're 24 days in from when we did that. Go ahead.

Yeah, you're exactly right. We'll be obviously reporting more on that as we go. But I guess just for a little color, just initially, and I'm speaking more to the industry, when the first chat was really pretty small, the grant scheme thing, as far as purchase accounting marks. On industry, on the securities particularly, I think in the announcements, we assumed that two and a half percent liquidity mark on some of those securities. We're actually, we're able to dispose of those securities, but less than half of that. So, we're coming in much better on that front.

We're supposed to be at four. We went to billion nine.

Yeah. Yeah. We all, and to Dan's point, we assume that we're holding less ongoing. So, again, less tangible, but value is packed from that transaction itself. The other pieces, you know, the deposit pieces are fairly close to market values. You know, loans, there wasn't too much of a market in there, and they refined that, obviously, over the next several weeks. But I would say, all in all, probably a little bit better on some of those marks than what we had originally anticipated.

Thank you.

Yep, and as my follow-up, just on the loan side, I mean, loan growth is fairly strong. Valerie, I think I heard you mention the new loans are coming on at a little over 7%, so that might be a little bit of an improvement versus last quarter. And then if I look at the fixed rate and variable rate loans on slide 12, those have also repriced up nicely. But the overall loan yields were up only one basis point Q1Q, Is there something that we might be missing there on the purchasing outing or anything related to the acquisitions there?

Yeah, no, it really has the loans that paid down, loans that paid off, some of those types of things are really what impacted that. We did dig into that as well because, to your point, all the underlying costs support items would lead to a higher loan yield. So that's part of what drives our expectations for a higher net interest margin as we go through the rest of the year is continuing to see good pipelines in our loan portfolio, continuing to have good performance from where those rates are coming in as we look out through the rest of the year.

Got it. Thank you. Appreciate your time.

The next question comes from Catherine Mueller with KBW. Please go ahead. Thanks. Good morning.

Hey, good morning, Catherine.

Just curious, kind of back to the loan growth, which was really strong this quarter. I think last quarter you talked about, you know, paydowns impacting some of your period end balances, and it seems like that's getting better. Can you talk a little bit about kind of new origination volumes versus paid-on activity and what you're seeing with both of those and kind of your thoughts on that balance as we get into the back half of the year, particularly with maybe some rate cuts. Thanks.

Yeah, you can see where we didn't grow was in the CRE book, and that's where we saw some paydowns. Billy, you jump in here.

Yeah. Hey, Catherine. So in the first quarter, we saw a lot in the merchant real estate portfolio from a paydown standpoint and from our midstream energy standpoint. We saw that kind of slow, while at the same time continuing really good origination, particularly in the midstream energy. That space, we've all backfilled the payoffs that have occurred really over the last six quarters in that space. That's been a recurring thing. On top of that, we just had water spread success. I mean, our C&I teams across the footprint all had some success. private banking team has significant success, and a lot of that's attributed to some hiring that we did last year and the teams being able to capitalize on that. So the pay down activity was more robust in the first quarter, specifically in that larger merchant CRE and midstream space, and that was curtailed. And pipelines continue to be widespread, robust. The borrower activity with all the You know, sitting this time last quarter, we were feeling more uncertain. I think there's still some thoughts of that, but, you know, borrowers talking to their vendors and clients, they've been able to formulate a strategy, and the loan pipelines are remaining as strong, and the pull-through from our approvals is similar to what it's been. It's just the pipelines are stronger.

Community Bank side, Chris, don't you know?

But I guess just to add to that, really loan growth has been broad, diverse, both geographies, lines of business, community bank, mortgage was healthy this quarter. So we really got it from all the wars. It was a good quarter for them.

Okay, great. And then your accretion with industry, with selling more of the bonds than originally expected, is there any change to your expectations for the accretion? Just with that nuance.

Yes, the accretion would be a little bit less. But, of course, your upfront impact to your rotational load value is less. So, net-net, it's... But not material. Yeah, it's not hugely material. We're still looking at, you know, a pretty meaningful impact. Yes, we look at it as a shared investment with this acquisition.

The difference in what we would have been earning off the bonds that we held versus the . It's not that big. So it's less than points on a portion of that security .

That makes sense. And then, of course, also with the loan growth being better, your reinvestment rate's probably higher, too, than you would have expected.

Remember, we talked about wanting to grow loans within the industry footprint a billion dollars over the next five years, and we did that organically in one quarter. So clearly the loan growth is a big difference for us.

Yes, for sure.

Okay, great. Thank you.

Thanks, Catherine.

The next question comes from Jared Shaw with Barclays. Please go ahead.

Hi, Jared. Good morning. Maybe shifting to the other side of the balance sheet, just the deposit growth, the strength in that core deposit origination, and especially on the DDA side. As we look out, should we think that there's still steady growth in DDAs here, or was there any one-time beyond-the-deal benefit from DDA growth?

Yeah, I think the teams are doing a great job of mixing it up in the community and trying to bring business into it. I don't know that one order is something that we can say this is a trend that we're on, but we certainly like what we saw.

Okay. And then on the CDs, you talked about the renewal rates coming in lower. Where are those now, and is there more room for CD costs to move lower, assuming stable rates?

Yeah, so I think there is. You know, right now we saw in the second quarter we had about 3.8 billion in originations of CDs that were just shy of 360. And so that's encouraging. We have a lot that are maturing. You know, if you look at really the last half of 2025, we've got about 5.4 billion that are maturing, really right about 4%. So depending on where those come back on, how many we're retaining, you know, there is an opportunity to continue to see a little bit of compression in that overall amount.

And his assumption is rates are stable.

Yeah, rates are stable. Right now we've got two rate cuts later in the year in our forecast. And so if those come to fruition, then, you know, there's further opportunity there, obviously.

Okay. Uh, thanks. That's, that's a good color on that. And then just, uh, on credit, you know, credit overall, good trends, just any, anything you would call out on the criticized and classified migration that's, um, either lumpy or episodic.

No, I can't call it maybe a little 22 million or so. That was part of the first channel merger. So that was a fit of the increase. Most of the increase in criticized was special mentioned. I would call it normal range, normal, process of working through credits and our normal processes. It's really, it was a select few larger credits that moved in there along with the first chat merger.

Thank you.

I'll follow back up with your comment on the deposits. You know, the other thing that we've got is a significant focus with our treasury management team. So, they continue to ramp up their efforts, and I think that's part of what we're seeing in some of the success that we've had. And so, we would hope for more success there as we go through the rest of the year.

And thinking going forward, right, and a lot of branches with new products, they're going to have a lot of . So, we're excited about that.

Thanks. Thanks, Jared.

The next question comes from Michael Rose with Raymond James. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions. Just two quick ones. Any change into beta expectations, either on the loan or deposit side with industry, and then would that have any kind of material change to the interest rate sensitivity profile? Thanks.

Sensitivity profile.

The bond portfolio industry has an ability to move interest rate sensitivity, but we've worked on that.

No, I would say no significant changes on the betas. You know, we'll be offering our products and services, and so I think that, over time, everything will just kind of morph into a little bit consistent with some of the legacy efforts. There may be a little bit of movement in the first quarter or so, but I don't think that'll be ongoing. As far as interest sensitivity is right, you know, really pretty consistent interest sensitivity. We continue to remain pretty neutral on that. But then, you know, that 150 days is going to be the plus or minus 100.

Okay, great. Thanks, Valerie. And then maybe just final, I know you get some buyback in place. You've got a lot of deals going on. I wouldn't expect that you'd be using it here, maybe just holding out for other opportunities. Is that the right way to think about it? It's a tool at this point, but not really looking to use it. Thanks.

Yeah, I think we said that when we announced the industry transaction. We knew with that transaction we needed to continue to build capital. So unless something drastic changes here, I think for this quarter, I don't think we'll be doing very much there.

All right. Thanks for taking my questions. Thanks, Michael.

The next question comes from John Armstrong with RBC Capital Markets. Please go ahead.

Thanks. Good morning. Good morning. Hey, back to loan growth. Would you guys call the pace of growth in the second quarter abnormal at all in terms of what you expect going forward? I mean, was it a rebound or catch up from the uncertainty in the first quarter? Or is this like a, like a real change in demand where this is a realistic pace of growth?

Yeah, I think I've said for a while, I think what we saw post liberation day was people took their foot off the accelerator and our question marks about what was going on out there. I think that's just catching back up with us. And no, I don't know that this was abnormal. I think when we look at what's coming through, you know, just watching the flow, We're as busy as we've ever been.

Yeah, that's right. I mean, John, I touched on it, but our kind of our weekly volumes that we're seeing come through are as high as they've been in over a year. And that's continued, you know, from the last couple months of the quarter to now. I mean, it's a continuing trend, so we're not seeing it slow.

Just talking to bankers across our footprint, there's excitement about opportunities in front of us. Yeah, I would just add, I mean, take the other side of that. You know, if capital markets open up, you can see some downward volume impact via parts and builders moving to things out. That is a little slower, but that could impact volumes going forward. But the pipeline's are good, the originations.

Okay, good. Dan, a question for you on Texas industry. I think we'll take your Texas deposit. your share up to 35% of total deposits. The approach in Texas, is that right? Is that the right number?

That's a verified answer.

The question is, do you have to do anything different in Texas, or is it just kind of business as usual? Because it's obviously a much, much larger piece of your franchise than it has been over the last several years.

Yeah, so we're at 37%. of deposits in Texas with this, but we're higher than that with loans in Texas. So, you know, I think the answer is no. We continue to see outsized growth. When we look at our footprint and you see where growth is coming from, Texas continues to drive that growth. The high growth markets of Georgia, Florida, Tennessee continue to add to us, but frankly, we're seeing growth across our footprint.

Texas just continues to lead.

Just last one, Valerie, for you. On the expense range, Is it safe to assume the higher end of the range is aligned with a higher end of your loan growth, or is there something else that we need to think about in terms of expenses at that higher or lower end of your range?

Now, the higher end tends to align with higher revenues. You know, there are associated costs associated with that. So, that would drive that.

Okay. All right. Thank you very much. Okay. Thanks, John.

As a reminder, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Ben Gerlinger with BIDI. Please go ahead.

Good morning. Hey, good morning, Ben. Seems like prior to this week, every bank that operates with an SEC football school in their state has highlighted growth through hirings They're putting up numbers and it seems like, I mean, like you guys have always had a little bit of a different strategy, but with the footprint that you have, I mean, I know you've been doing both at the same time, but is, could we see an outsized level of hiring from potential or even already announced acquisitions? Or is it more so just kind of filling in, letting the operation, because you now have these two deals to integrate. How should we think about the organic perspective of, of hirings and loan growths over the next year or two?

Yeah, we've not gone out and hired big teams of people. That's just not been in our past practices. We continue to hire good people. So, I mean, we've added in Texas. We've added in Georgia. We've added across our footprint in Malta and Florida over the last several quarters. But those are one and two. The acquisitions that we've got, we've not lost any of those people, if you're asking. So, I think on the other side, I think we've got good people that are out there wanting to grow business. And I think we've got capacity to grow with the team that we have today.

Gotcha. That's helpful.

And then just from a modeling question, Valerie, I know you said marks were a little bit smaller, so dilution should be a little bit less. And you originally had 8.5 on TBV. Is it fair to think it's less than that at this point, or is it still de minimis?

I don't know that we have a number to put out today.

Yeah, no, I think that we'll be obviously working on refining all of that as we go through the quarter. But overall, I mean, I would just say that we still anticipate, regardless of where the numbers move, that this is just really going to be a great acquisition for us.

Yeah.

Yeah, the earnings vision is significant. Gotcha. Yeah, no, I appreciate it. Okay, thank you.

The next question comes from with Steven. Please go ahead.

Yeah, thanks. Good morning. Just similar to Ben's last question on the industry impact in the third quarter, any color on the capital ratios and what these can look like at September 30th with the impact of industry on there?

Yeah, Matt, good to hear from you. That's what we were talking about earlier is, you know, we're 24 days in. We just don't have anything to be able to give you where we think we're going to end up. The pieces of the puzzle all look good to us and not far off of what we were talking about when we made the announcement back in April. It's just too quick.

Okay. Thank you. It's all from me. Thanks, Matt. Appreciate the time.

This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.

Hey, thank you all very much for joining this morning since we brought up the SEC with college football only 29 days away. We're glad that we finished the first half of 2025 here at Cadence, and we had a great first half. We continue to report growth and improvement in many of our operating metrics, including earnings per share, ROTCE, ROA, operating efficiency, just to name a few. I continue to be very confident that we've achieved both organically and through strategic partnerships in Texas and Georgia that we've positioned ourselves to continue that momentum through the second half of 2025, and it sets us up in a position of strength for 2026. We appreciate everybody's support on our call today. This concludes the call.

We look forward to seeing you all again soon.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.