Cadence Bancorporation (NASDAQ:CADE) is a leading regional banking franchise with approximately $50 billion in assets and over 350 branch locations across the South and Texas. The company provides consumers, businesses and corporations with a full range of innovative banking and financial solutions, including consumer banking, consumer loans, mortgages, home equity lines and loans, credit cards, commercial and business banking, treasury management, specialized lending, asset-based lending, commercial real estate, equipment financing, correspondent banking, SBA lending, foreign exchange, wealth management, investment and trust services, financial planning and retirement plan management.

Financials

Cadence has reported strong financial results in recent years, with annual net income of $542.3 million, annual revenue of $2.20 billion, annual operating cash flow of $597.1 million, and annual free cash flow of $498.8 million in 2023. The company's diversified business model and focus on specialized industries have been key drivers of its consistent performance.

In the second quarter of 2024, Cadence reported net income of $137.5 million, or $0.73 per diluted common share, and adjusted net income from continuing operations of $127.9 million, or $0.69 per diluted common share. This represents an 11.3% increase in adjusted earnings per share compared to the first quarter of 2024. The company's results were driven by improved operating efficiency, increased net interest margin, and continued growth in earning assets.

Net Interest Income and Margin

Net interest income for the second quarter of 2024 was $356.3 million, up 0.7% from the previous quarter, as the company benefited from continued loan growth, an improved earning asset mix, and slowed deposit cost increases. Cadence's net interest margin expanded to 3.27% in the second quarter, up 5 basis points from the first quarter.

Noninterest Revenue and Expenses

Noninterest revenue for the second quarter was $100.7 million, an increase of 20.2% compared to the first quarter, driven by growth in wealth management, credit card and merchant fees, and other noninterest income. Adjusted noninterest revenue, which excludes a $15.0 million gain on the sale of Cadence Business Solutions, was $85.7 million, up 2.3% from the previous quarter.

Noninterest expense for the second quarter was $256.7 million, down 2.5% from the first quarter, as the company continued to focus on improving operating efficiency. Adjusted noninterest expense, which excludes certain non-routine items, was $251.1 million, a decrease of 4.7% compared to the prior quarter. Cadence's adjusted efficiency ratio improved to 56.7% in the second quarter, compared to 60.1% in the first quarter.

Credit Quality and Capital Position

The company's credit quality remained stable, with a provision for credit losses of $22.0 million in the second quarter, consistent with the previous quarter. Net charge-offs were $22.6 million, or 0.28% of average loans on an annualized basis, up slightly from 0.24% in the first quarter but within the company's expectations.

Cadence's capital position remained strong, with a Common Equity Tier 1 ratio of 11.9% and a total risk-based capital ratio of 14.2% as of June 30, 2024. The company repurchased 256,033 shares of common stock during the second quarter at an average price of $26.97 per share.

Outlook

Looking ahead, Cadence is maintaining its guidance for adjusted revenue growth of 5% to 8% for the full year 2024, and expects to finish the year toward the lower end of its adjusted expense guidance of plus or minus 1% compared to 2023. The company's diversified business model, focus on specialized industries, and commitment to operational efficiency position it well for continued success.

Business Overview

Geographically, Cadence has a strong presence in Texas, which accounted for approximately 45% of its loan portfolio as of June 30, 2024. The company also has significant operations in Georgia, Florida, Alabama, Mississippi, and Tennessee. This diversified footprint has been a key advantage, allowing Cadence to capitalize on growth opportunities across its markets.

In terms of revenue breakdown, Cadence's largest business line is commercial and industrial (C&I) lending, which represented 54.1% of the loan portfolio as of June 30, 2024. Commercial real estate (CRE) loans accounted for 24.8% of the portfolio, while consumer loans made up the remaining 21.2%. The company's specialized lending verticals, including restaurant, healthcare, and technology, contributed 13.8% of total loans.

Cadence has seen strong growth in its fee-based businesses, with wealth management revenue increasing 10.2% year-over-year in the second quarter of 2024, and credit card, debit card, and merchant fees rising 4.6% over the same period. The company's mortgage banking revenue, which includes origination and servicing income, was $6.2 million in the second quarter, up 4.4% from the previous year.

Liquidity

The company's liquidity position remains robust, with a loan-to-deposit ratio of 87.9% as of June 30, 2024. Cadence's securities portfolio, which represented 16.5% of total assets, provides additional liquidity and flexibility to support future loan growth.

Risks and Challenges

In terms of risks, Cadence is exposed to the economic conditions in its primary markets, which could impact credit quality and loan demand. The company also faces competition from larger regional and national banks, as well as from non-bank financial institutions. Additionally, the company's reliance on fee-based revenue streams, such as wealth management and mortgage banking, exposes it to market volatility and regulatory changes.

Conclusion

Overall, Cadence Bancorporation is a well-diversified regional banking franchise that has demonstrated its ability to deliver consistent growth and profitability. The company's focus on specialized lending, fee-based businesses, and operational efficiency, combined with its strong capital position and liquidity, position it well for continued success in the years ahead.