UNITED STATES
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C. 20429
________________________________________
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
FDIC Certificate No. 11813
CADENCE BANK
(Exact name of registrant as specified in its charter)
Mississippi
(State or other jurisdiction of incorporation or
organization)
One Mississippi Plaza, 201 South Spring Street
Tupelo, Mississippi
(Address of principal executive offices)
64-0117230
(I.R.S. Employer Identification No.)
38804
(Zip Code)
Registrant's telephone number, including area code: (662) 680-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common stock, $2.50 par value per share
5.50% Series A Non-Cumulative Perpetual Preferred Stock, par
value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: None.
Trading Symbol(s)
Name of Each Exchange on Which Registered
CADE
CADE Pr A
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on June 30, 2022 was approximately $4.2 billion, based
on the last reported sale price per share of the registrant’s common stock as reported on the New York Stock Exchange on June 30, 2022.
As of February 24, 2023, the registrant had outstanding 182,462,377 shares of common stock, par value $2.50 per share, and 6,900,000 shares of its 5.50%
Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 per share.
To the extent stated herein, portions of the Definitive Proxy Statement on Schedule 14A to be used in connection with the registrant’s 2023 Annual Meeting
of Shareholders, scheduled to be held April 26, 2023, are incorporated by reference into Part III of this annual report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
1
CADENCE BANK
FORM 10-K
For the Fiscal Year Ended December 31, 2022
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements made in this annual report on Form 10-K (this “Report”) are not statements of historical fact and
constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and are subject to the safe harbor created thereby under the Private Securities Litigation
Reform Act of 1995. These statements are often, but not always, made through the use of words or phrases such as “anticipate,”
“aspire,” “assume,” “believe,” “budget,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “forecast,” “foresee,”
“goal,” “hope,” “indicate,” “intend,” “may,” “might,” “outlook,” “plan,” “project,” “projection,” “predict,” “prospect,”
“potential,” “roadmap,” “seek,” “should,” “target,” “will,” and “would,” or the negative versions of those words or other
comparable words of a future or forward-looking nature. These forward-looking statements may include, without limitation,
discussions regarding general economic, interest rate, real estate market, competitive, employment, and credit market
conditions, including the remaining economic impact of COVID-19 and related variants on our business; our assets; business;
cash flows; financial condition; liquidity; prospects; results of operations; deposit growth interest and fee-based revenue; capital
resources; capital metrics; efficiency ratio; valuation of mortgage servicing rights; mortgage production volume; net income;
net interest revenue; non-interest revenue; net interest margin; interest expense; non-interest expense; earnings per share;
interest rate sensitivity; interest rate risk; balance sheet and liquidity management; off-balance sheet arrangements; fair value
determinations; asset quality; credit quality; credit losses; provision and allowance for credit losses, impairments, charge-offs,
recoveries and changes in volume; investment securities portfolio yields and values; ability to manage the impact of pandemics
and natural disasters; adoption and use of critical accounting policies; adoption and implementation of new accounting
standards and their effect on our financial results and our financial reporting; utilization of non-GAAP financial metrics;
declaration and payment of dividends; ability to pay dividends or coupons on our 5.5% Series A Non-Cumulative Perpetual
Preferred Stock, par value $0.01 per share, or our subordinated notes; mortgage and insurance business and commission
revenue growth; implementation and execution of cost savings initiatives; ability to successfully litigate; resolve or otherwise
dispense with threatened, ongoing and future litigation and administrative and investigatory matters; ability to successfully
complete pending or future acquisitions; dispositions and other strategic growth opportunities and initiatives; ability to
successfully obtain regulatory approval for acquisitions and other growth initiatives; ability to successfully integrate and
manage acquisitions; opportunities and efforts to grow market share; reputation; ability to compete with other financial
institutions; ability to recruit and retain key employees and personnel; access to capital markets; investment in other financial
institutions; and ability to operate our regulatory compliance programs in accordance with applicable law.
Forward-looking statements are based upon management’s expectations as well as certain assumptions and estimates
made by, and information available to, management at the time such statements were made. Forward-looking statements are not
historical facts, are not guarantees of future results or performance and are subject to certain known and unknown risks,
uncertainties and other factors that are beyond our control and that may cause actual results to differ materially from those
expressed in, or implied by, such forward-looking statements. These risks, uncertainties and other factors include, without
limitation, general economic, unemployment, credit market and real estate market conditions, and the effect of such conditions
on the creditworthiness of borrowers, collateral values, the value of investment securities and asset recovery values; the risks of
changes in interest rates and their effects on the level and composition of deposits, loan demand, loan repayment velocity, and
the values of loan collateral, securities and interest sensitive assets and liabilities; the impact of inflation, the failure of
assumptions underlying the establishment of reserves for possible credit losses, fair value for loans and other real estate owned;
changes in real estate values; the availability of and access to capital; possible downgrades in our credit ratings or outlook
which could increase the costs or availability of funding from capital markets; the ability to attract new or retain existing
deposits or to retain or grow loans; potential delays or other problems in implementing and executing our growth, expansion
and acquisition strategies, including delays in obtaining regulatory or other necessary approvals or the failure to realize any
anticipated benefits or synergies from any acquisitions or growth strategies; significant turbulence or a disruption in the capital
or financial markets; the effect of a fall in stock market prices on our investment banking business and our fee income from our
brokerage and wealth management businesses; the ability to grow additional interest and fee income or to control noninterest
expense; the potential impact of the phase-out of the London Interbank Offered Rate (“LIBOR”) or other changes involving
LIBOR; competitive factors and pricing pressures, including their effect on our net interest margin; changes in legal, financial
and/or regulatory requirements; recently enacted and potential legislation and regulatory actions and the costs and expenses to
comply with new and/or existing legislation and regulatory actions, and any related rules and regulations; changes in U.S.
Government monetary and fiscal policy, including any changes that may result from U.S. elections; Federal Deposit Insurance
Corporation (“FDIC”) special assessments or changes to regular assessments; possible adverse rulings, judgments, settlements
and other outcomes of pending or future litigation or government actions (including litigation or actions arising from our
participation in and administration of programs related to the COVID-19 pandemic (including, among other things, the PPP
loan programs authorized by the CARES Act and the Economic Aid Act); the ability to keep pace with technological changes,
including changes regarding maintaining cybersecurity; increased competition in the financial services industry, particularly
from regional and national institutions, as well as from fintech companies, the impact of failure in, or breach of, our operational
3
or security systems or infrastructure, or those of third parties with whom we do business, including as a result of cyber-attacks
or an increase in the incidence or severity of fraud, illegal payments, security breaches or other illegal acts impacting us or our
customers; natural disasters or acts of war or terrorism; the remaining adverse effects of the global COVID-19 pandemic,
including the magnitude and duration of the pandemic, and the impact of actions taken to contain or treat COVID-19 on us, our
employees, our customers, the global economy and the financial markets; international or political instability (including the
impacts related to or resulting from Russia’s military action in Ukraine, including the imposition of additional sanctions and
export controls, as well as the broader impacts to financial markets and the global macroeconomic and geopolitical
environments); impairment of our goodwill or other intangible assets; adoption of new accounting standards or changes in
existing standards; and other factors described in “Part I, Item 1A. Risk Factors” in this Report or as detailed from time to time
in the Company’s press and news releases, reports and other filings we file with the FDIC.
Risks specifically related to the Legacy Cadence Merger include, but are not limited to: the possibility that the
anticipated benefits of the merger will not be realized when expected or at all, including as a result of the impact of, or problems
arising from, the integration of the two companies, or as a result of the strength of the economy and competitive factors in the
areas where the combined company does business; the possibility that the parties may be unable to achieve expected synergies
and operating efficiencies within the expected timeframes, or at all, and to successfully integrate legacy Cadence’s operations
and those of the Company or because such integration may be more difficult, time consuming, or costly than expected,
including as a result of unexpected factors or events; the risk that revenues following the Legacy Cadence merger may be lower
than expected; and the risk of potential adverse reactions or changes to business or employee relationships, including those
resulting from the completion of the Legacy Cadence Merger. There are also risks of adverse outcomes for any legal
proceedings that may be instituted against the Company or legacy Cadence in respect of the Legacy Cadence Merger; the risk
that any announcements relating to the Cadence Merger could have adverse effects on the market price of the capital stock of
the combined company; and risks arising from the dilution caused by the Company’s issuance of additional shares of its capital
stock in connection with the Legacy Cadence Merger and other factors as detailed from time to time in the Company’s press
and news releases, periodic and current reports, and other filings the Company files with the FDIC.
The Company also faces risks from: possible adverse rulings, judgments, settlements or other outcomes of pending,
ongoing and future litigation, as well as governmental, administrative and investigatory matters; the impairment of the
company’s goodwill or other intangible assets; losses of key employees and personnel; the diversion of management’s attention
from ongoing business operations and opportunities; and the combined company’s success in executing its business plans and
strategies, and managing the risks involved in all of the foregoing.
Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as
of the date of this Report, if one or more events related to these or other risks or uncertainties materialize, or if the Company’s
underlying assumptions prove to be incorrect, actual results may prove to be materially different from the results expressed or
implied by the forward-looking statements. Accordingly, undue reliance should not be placed on any forward-looking
statements. The forward-looking statements speak only as of the date of this Report, and the Company does not undertake any
obligation to publicly update or review any forward-looking statement, whether as a result of new information, future
developments or otherwise, except as required by applicable law. New risks and uncertainties may emerge from time to time,
and it is not possible for the Company to predict their occurrence or how they will affect the Company. All written or oral
forward-looking statements attributable to us are expressly qualified in their entirety by this section.
4
PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Cadence Bank (“We,” “Our,” or the “Company”), originally chartered in 1876, is a state chartered commercial bank
with dual headquarters in Tupelo, Mississippi and Houston, Texas. The Company conducts commercial banking and financial
services directly and through its banking-related subsidiaries. The Company operates over 400 commercial banking, mortgage
and insurance locations in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri, Tennessee and Texas,
including a single insurance location in Illinois and a single loan production office in Oklahoma.
Our common stock and our preferred stock are listed on the New York Stock Exchange under the symbols “CADE”
and “CADE Pr A”, respectively. During the fourth quarter of 2021, we changed our corporate name from BancorpSouth Bank
to Cadence Bank in connection with our acquisition of Cadence Bancorporation on October 29, 2021. At December 31, 2022,
the Company had total assets of $48.7 billion; total loans, net of unearned income, of $30.3 billion; total deposits of
$39.0 billion; and shareholders’ equity of $4.3 billion.
On October 29, 2021, we acquired all the outstanding stock of Cadence Bancorporation (“Legacy Cadence”),
headquartered in Houston, Texas, the bank holding company for Cadence Bank, N.A. Legacy Cadence shareholders received
0.70 shares of the Company’s common stock in exchange for each share of Legacy Cadence Class A common stock, resulting
in the issuance of 85.7 million shares of our common stock and a purchase price of $2.5 billion. The primary reasons for the
transaction were to create a more diverse business mix, enhance our funding base, leverage operating costs through economies
of scale, and expand our market presence in Georgia and other attractive southern markets.
The Company’s investor website address is https://ir.cadencebank.com. The Company makes available its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports free
of charge on its website on the Investor Relations webpage under the caption “Public Filings” as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the FDIC. The FDIC maintains a website that contains reports
and other information regarding issuers that file or furnish information electronically. The Company’s websites and the
information contained therein or linked thereto are not, and are not intended to be, incorporated into this Report.
PRODUCTS AND SERVICES
LENDING ACTIVITIES
The Company’s lending activities include both commercial and consumer loans. Loan originations are derived from a
number of sources including direct solicitation by the Company’s loan officers, existing depositors and borrowers, builders,
attorneys, walk-in customers and, in some instances, other lenders, real estate broker referrals and mortgage loan companies.
The Company has established systematic procedures for approving and monitoring loans that vary depending on the size and
nature of the loan, and applies these procedures in a disciplined manner.
Our loan portfolio includes commercial and industrial loans, residential real estate loans, commercial real estate loans
and other consumer loans. The principal risk associated with each category of loans we make is the creditworthiness of the
borrower. Borrower creditworthiness is affected by general economic conditions, the attributes of the borrower and the
borrower’s market or industry. Attributes of the relevant business market or industry include the competitive environment,
customer and supplier availability, the threat of substitutes and barriers to entry and exit.
Commercial Lending
The Company offers a variety of commercial loan services including term loans, lines of credit, equipment and
receivable financing, energy, restaurant, healthcare, technology, Small Business Administration (“SBA”) and agricultural loans.
A broad range of short-to-medium term commercial loans, both secured and unsecured, are made available to businesses for
working capital (including inventory and receivables), business expansion (including acquisition and development of real estate
and improvements), and the purchase of equipment and machinery. The Company also makes construction loans to real estate
developers for the acquisition, development and construction of residential and commercial properties.
Commercial loans are granted based on the borrower’s ability to generate cash flow to support its debt obligations and
other cash related expenses. A borrower’s ability to repay commercial loans is substantially dependent on the success of the
5
business itself and on the quality of its management. As a general practice, the Company takes as collateral a security interest in
any available real estate, equipment, inventory, receivables or other personal property, although such loans may also be made
infrequently on an unsecured basis. In many instances, the Company requires personal guarantees of its commercial loans to
provide additional credit support.
The Company’s exposure to agricultural lending is minimal. Agricultural loans are generally supported by the
financial strength of the borrower and secured by the crops/livestock, crop insurance, equipment or real estate.
Residential Consumer Lending
A portion of the Company’s lending activity consists of the origination of fixed and adjustable rate residential
mortgage loans secured by owner-occupied property located in the Company’s primary market areas. Home mortgage banking
is unique in that a broad geographic territory may be served by originators working from strategically placed offices either
within the Company’s traditional banking facilities or from other locations. In addition, the Company offers construction loans,
second mortgage loans and home equity lines of credit.
The Company finances the construction of individual, owner-occupied houses on the basis of written underwriting and
construction loan management guidelines. First mortgage construction loans are made to qualified individual borrowers and are
generally supported by a take-out commitment from a permanent lender. The Company makes residential construction loans to
individuals who intend to erect owner-occupied housing on a purchased parcel of real estate. The construction phase of these
loans has certain risks, including the viability of the contractor, the contractor’s ability to complete the project and changes in
interest rates.
Mortgage lending serves to finance residential properties through long-term mortgages, both sold into the secondary
market and retained in the bank portfolio. Ongoing efforts to grow the bank portfolio through the company’s Right@Home
product for low- to moderate-income borrowers have contributed to the department’s production. Revenue is primarily derived
from loan originations and servicing fees paid to the company by government-sponsored enterprises and other investors who
purchase the mortgages after origination.
The sale of mortgage loans to the secondary market allows the Company to manage the interest rate risk related to
such lending operations. Generally, after the sale of a loan with servicing retained, the Company’s only involvement is to act as
a servicing agent. In certain cases, the Company may be required to repurchase mortgage loans upon which customers have
defaulted that were previously sold in the secondary market if these loans did not meet the underwriting standards of the entity
that purchased the loans.
Non-Residential Consumer Lending
Non-residential consumer loans made by the Company include loans for automobiles, recreation vehicles, boats,
personal (secured and unsecured) and deposit account secured loans. Non-residential consumer loans are attractive to the
Company because they typically have a shorter term and carry higher interest rates than those charged on other types of loans.
The Company also issues credit cards solicited on the basis of applications received through referrals from the
Company’s branches and other marketing efforts. The Company generally has a small portfolio of credit card receivables
outstanding. Credit card lines are underwritten using conservative credit criteria, including past credit history and debt-to-
income ratios, similar to the credit policies applicable to other personal consumer loans.
The Company grants consumer loans based on employment and financial information solicited from prospective
borrowers as well as credit records collected from various reporting agencies. Financial stability and credit history of the
borrower are the primary factors the Company considers in granting such loans. The availability of collateral is also a factor
considered in making such loans. The geographic area of the borrower is another consideration, with preference given to
borrowers in the Company’s primary market areas.
Shared National Credits (“SNC”)
The federal banking agencies define a SNC as any loan(s) extended to a borrower by a supervised institution or any of
its subsidiaries and affiliates which aggregates $100 million or more and is shared by three or more institutions under a formal
lending agreement or a portion of which is sold to two or more institutions, with the purchasing institutions assuming its pro
rata share of the credit risk. As a commercial focused relationship bank, we may participate in syndicated loan offerings
6
because of the size of the customers and nature of industries we serve. At December 31, 2022, we have $4.1 billion of
outstanding SNC, representing 13.5% of total loans.
DEPOSITS AND OTHER FUNDING SOURCES
We offer our customers a variety of deposit products, including checking accounts, savings accounts, money market
accounts, time deposits, and other deposit accounts through multiple channels, including our extensive network of full-service
branches, drive-through branches, ATMs, ITMs, and our online, mobile and telephone banking platforms. At December 31,
2022, our total deposits were $39.0 billion and were comprised of 32.7% noninterest-bearing deposits and 67.3% interest
bearing deposits. We intend to continue our efforts to provide funding for our business from customer relationship deposits.
The Company has been able to compete effectively for deposits in its primary market areas, while continuing to
manage the exposure to rising interest rates. The distribution and market share of deposits by type of deposit and by type of
depositor are important considerations in the Company’s assessment of the stability of its funding sources and its access to
additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions and
loan and investment policies in an attempt, within set policies, to minimize cost and maximize net interest margin.
For more information regarding the Company’s deposits, see “Management’s Discussion And Analysis of Financial
Condition And Results Of Operations – Deposits.”
OTHER SERVICES
Cadence Insurance, Inc., the Company’s insurance service brokerage and payroll services subsidiary, serves as an
agent in the sale of commercial and personal lines of insurance with a full line of property, casualty, life, health and employee
benefits products and risk management services and operates offices across the Gulf- and Mid-South regions. Our business
model centers on developing a customized experience with a strategy centered on our clients’ goals related to risk management,
human capital, and/or their insurance program. Operating globally as a member of the Worldwide Broker Network, our team
consists of nearly 800 insurance and risk management specialists.
Through Linscomb & Williams Inc., a subsidiary of Cadence Bank, and Cadence Trust, a division of the Bank, we
offer wealth management and other fiduciary and private banking services targeted to affluent clients, including individuals,
business owners, families and professional service companies. In addition to generating fiduciary and investment management
fee income, we believe these services enable us to build new relationships and expand existing relationships to grow our
deposits and loans. Through our wealth management line of business and our relationships with LPL Financial LLC, we offer
financial planning, retirement services and trust and investment management by a team of seasoned advisors, providing access
for affluent clients as well as mass market clients, to a wide range of certificates of deposits, mutual funds, estate planning
products, insurance and annuities, individual retirement accounts, stocks, bonds, brokerage accounts, money market accounts,
investment advisory services, and other financial products and services. Although we do not limit our customers to affluent
clients and business owners, the focus of our wealth management line of business is on the “mass affluent” ($500,000 to $2
million in investible assets) and “highly affluent” ($2 million to $5 million in investible assets) markets.
In addition to traditional banking activities and the other products and services specified above, we provide a broad
array of financial services to our customers, including: debit and credit card products, treasury management services, merchant
services, automated clearing house services, lock-box services, remote deposit capture services, foreign exchange services, and
other treasury services.
COMPETITION
Vigorous competition exists in all major areas where the Company is engaged in business. The Company competes for
available loans and depository accounts with banks, thrifts, insurance companies, credit unions, mortgage bankers and finance
companies, money market mutual funds, other financial services companies and fintech companies, some of which are not
subject to the same degree of regulation and restrictions imposed upon us. None of these competitors are dominant in the entire
area served by the Company.
The principal areas of competition in the banking industry center on a financial institution’s ability and willingness to
provide credit on a timely and competitively priced basis, to offer a sufficient range of deposit and investment opportunities at
competitive prices and maturities, and to offer personal and business financial services of sufficient quality and at competitive
prices. Management believes that the Company can compete effectively in all of these areas.
7
CREDIT POLICIES AND PROCEDURES
In the normal course of business, the Company assumes risks in extending credit. The Company manages these risks
through underwriting in accordance with its lending policies, loan review procedures and the diversification of its loan and
lease portfolio. Although it is not possible to predict credit losses with certainty, management regularly reviews the
characteristics of the loan and lease portfolio to determine its overall risk profile and quality.
The provision for credit losses is the periodic cost (or credit) of providing an allowance or reserve for expected losses
on loans and leases. The Board of Directors has appointed a Credit Committee, composed of senior management and credit
administration staff which meets on a quarterly basis or more frequently if required to review the recommendations of several
internal working groups developed for specific purposes including the allowance for credit losses, specific provision amounts,
and charge-offs. The Allowance for Credit Losses (ACL) Group bases its estimates of credit losses on three primary
components: (1) estimates of expected losses that exist in various segments of performing loans and leases over the remaining
contractual life of the loan portfolio using a reasonable and supportable economic forecast; (2) specifically identified losses in
individually analyzed credits which are collateral-dependent, which generally include loans internally graded as impaired and
PCD Loss loans; and (3) qualitative factors related to economic conditions, portfolio concentrations, regulatory policy updates
and other relevant factors that address estimates of expected losses not fully addressed based upon management’s judgment of
portfolio conditions.
The Company utilizes credit risk models to estimate the probability of default and loss given default of loans over their
remaining life. Credit factors such as financial condition of the borrower and guarantor, recent credit performance, delinquency,
liquidity, cash flows, collateral type and value are used by the models to assess credit risk. In some cases, including certain
commercial real estate loans and credit cards, a loss rate model is used where lifetime loss rates are analyzed with factors
including vintage, loan-to-value, delinquency, and economic factors. Estimates of expected losses are influenced by the
historical net losses experienced by the Company for loans and leases of comparable creditworthiness and structure. Specific
loss assessments are performed for loans and leases based upon the collateral protection. The Company’s reasonable and
supportable eight quarter economic forecast is utilized to estimate credit losses before reverting back to longer term historical
loss experience. The Company subscribes to various economic services and publications to assist with the development of
inputs used in the modeling and qualitative framework for the ACL calculation. The economic forecasts consider changes in
real gross domestic product, unemployment rate, interest rates, valuations for residential and commercial real estate, and other
indicators that may be correlated with the Company’s expected credit losses.
The Company excludes accrued interest from interest income when it is determined that it is probable that all
contractual principal and interest will not be collected for loans.
During 2022, the impact of inflation, rising interest rates, and the remaining effects of the economic disruption from
COVID-19 resulted in additional concern that similar economic conditions may continue into 2023 and the heightened risk of
future customer loan defaults remains. The ACL estimate includes both portfolio changes and changes in economic conditions
experienced during the period. The unemployment rate has the highest weighting within the Company’s credit modeling
framework. The Company’s forecast for unemployment includes a range between 3.80% and 6.82% through the fourth quarter
of 2024. The Company considers several forecasts from external sources with management weighting the forecast more to the
downside forecast scenario in the fourth quarter of 2022 than in the first half of 2022. In addition, qualitative factors such as
changes in economic conditions, concentrations of risk, and changes in portfolio risk resulting from regulatory changes are
considered in determining the adequacy of the level of the allowance for credit losses. Attention is paid to the quality of the loan
and lease portfolio through a formal loan review process. An independent loan review department of the Company is
responsible for reviewing the credit rating and classification of individual credits and assessing trends in the portfolio,
adherence to internal credit policies and procedures and other factors that may affect the overall adequacy of the allowance for
credit losses. The ACL Group is responsible for ensuring that the allowance for credit losses provides adequate coverage of
expected losses. The ACL Group meets at least quarterly to determine the amount of adjustments to the ACL, and it is
comprised of senior management from the Company’s Credit Administration, Risk, and Finance departments.
The Impairment Group is responsible for evaluating individual loans that have been specifically identified through
various channels, including examination of the Company’s watch list, past due listings, and loan officer assessments. An
analysis is prepared to assess the extent the loan is collateral-dependent and whether a loss exposure exists, which is reviewed
by the Impairment Group. The Impairment Group reviews all loans restructured in a troubled debt restructuring (“TDR”) if the
loan is $1.0 million or greater to determine if it is probable that the Company will be unable to collect the contractual principal
and interest on the loan. The fair value of the underlying collateral is considered if the loan is collateral-dependent. The
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Impairment Group meets at least quarterly, and it is made up of senior management from the Company’s Credit Administration,
Risk, and Finance departments.
If financial concessions are granted to a borrower as a result of financial difficulties, the loan is classified as a TDR,
with the amount of provision determined by estimating the net present value of future cash flows for TDRs that are not deemed
to be collateral-dependent. TDRs are reserved in accordance with FASB ASC 326. Should the borrower’s financial condition,
collateral protection or performance deteriorate and warrant reassessment of the loan rating or specific provision, additional
reserves and/or charge-offs may be required.
Loans of $1.0 million or more that are identified as collateral-dependent, which generally include loans internally
graded as impaired or PCD Loss loans, are reviewed by the Impairment Group which approves the amount of specific reserve,
if any, and/or charge-off amounts. The evaluation of real estate loans generally focuses on the fair value of underlying collateral
less estimated costs to sell obtained from appraisals, as the repayment of these loans may be dependent on the liquidation of the
collateral. In certain circumstances, other information such as comparable sales data is deemed to be a more reliable indicator of
fair value of the underlying collateral than the most recent appraisal. In these instances, such information is used in determining
the specific provision recorded for the loan. For commercial and industrial loans, the evaluation generally focuses on these
considerations, as well as the projected liquidation of any pledged collateral. Our larger corporate and specialized industry loans
are underwritten to the underlying enterprise value of the borrower. The value is in the equity of the business as a going
concern. Many valuation approaches are used in these situations including discounted cash flow, multiple of cash flow, or
comparable sales approaches. The Impairment Group reviews the results of each evaluation and approves the final specific
provision amounts, which are then included in the analysis of the adequacy of the allowance for credit losses in accordance with
FASB ASC 326.
A new appraisal is generally ordered for loans $1.0 million or greater that have characteristics of potential specific
provision, such as delinquency or other loan-specific factors identified by management, when a current appraisal (dated within
the prior 12 months) is not available or when a current appraisal uses assumptions that are not consistent with the expected
disposition of the loan collateral. In order to measure a specific provision properly at the time that a loan is reviewed, a bank
officer may estimate the collateral fair value based upon earlier appraisals received from outside appraisers, sales contracts,
approved foreclosure bids, comparable sales, officer estimates or current market conditions until a new appraisal is received.
This estimate can be used to determine the extent of the specific provision on the loan. After a loan is determined to be
collateral-dependent, it is management’s policy to obtain an updated appraisal on at least an annual basis. Management
performs a review of the pertinent facts and circumstances of each collateral-dependent loan, such as changes in outstanding
balances, information received from loan officers and receipt of re-appraisals, at least quarterly. As of each review date,
management considers whether additional provision and/or charge-offs should be recorded based on recent activity related to
the loan-specific collateral as well as other relevant comparable assets. Any adjustment to reflect further exposure, either as a
result of management’s periodic review or as a result of an updated appraisal, are made through recording additional ACL
provisions and/or charge-offs.
When a guarantor is relied upon as a source of repayment, it is the Company’s policy to analyze the strength of the
guaranty. This analysis varies based on circumstances, but may include a review of the guarantor’s personal and business
financial statements and credit history, a review of the guarantor’s tax returns and the preparation of a cash flow analysis of the
guarantor.
Any loan or portion thereof which is classified as “loss” or which is determined by management to be uncollectible
because of factors such as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic
conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged off.
REGULATION AND SUPERVISION
The following discussion sets forth certain material elements of the regulatory framework applicable to the Company. This
discussion is a brief summary of the regulatory environment in which the Company operates and is not designed to be a
complete discussion of all statutes and regulations affecting the Company’s operations. Regulation of financial institutions is
intended primarily for the protection of depositors, the deposit insurance fund and the safety and soundness of the U.S.
financial system and generally is not intended for the protection of shareholders. Changes in applicable laws, and their
implementation and application by regulatory agencies, cannot necessarily be predicted but could have a material and adverse
effect on the Company’s assets, business, cash flows, financial condition, liquidity, prospects and results of operations.
9
GENERAL
The Company is incorporated under the laws of the State of Mississippi and is subject to the applicable provisions of
Mississippi banking laws, the laws of the various states in which it operates, and federal law. The Company is subject to the
supervision and examination of the FDIC and the Mississippi Department of Banking and Consumer Finance (the “MDBCF”).
Violations of laws and regulations, or other unsafe and unsound practices, may result in regulatory agencies imposing fines or
penalties, cease and desist orders, or other enforcement actions. Under certain circumstances, these agencies may enforce these
remedies directly against officers, directors, employees, and other parties participating in the affairs of a bank. Like all banks,
we are regulated extensively under federal and state law. Under federal and state laws and regulations pertaining to the safety
and soundness of insured depository institutions, the FDIC and the MDBCF have the authority to compel or restrict certain
actions on our part if they determine that we have insufficient capital or other resources, or are otherwise operating in a manner
that may be deemed to be inconsistent with safe and sound banking practices. Under this authority, our regulators can require us
or our subsidiaries to enter into informal or formal supervisory agreements, including board resolutions, memoranda of
understanding, written agreements and consent or cease and desist orders, pursuant to which we would be required to take
identified corrective actions to address cited concerns and to refrain from taking certain actions.
If we become subject to and are unable to comply with the terms of any regulatory actions or directives, supervisory
agreements, or orders, then we could become subject to additional, heightened supervisory actions and orders, possibly
including prompt corrective action restrictions and/or other regulatory actions, including prohibitions on the payment of
dividends on our common stock and preferred stock. If our regulators were to take such supervisory actions, then we could,
among other things, become subject to significant restrictions on our ability to develop any new business, as well as restrictions
on our existing business, and we could be required to raise additional capital, dispose of certain assets and liabilities within a
prescribed period of time, or both. The terms of any such action could have a material negative effect on our business,
reputation, operating flexibility, financial condition, and the value of our common stock and preferred stock.
CHANGE IN CONTROL
Federal law restricts the amount of voting stock of a bank that a person may acquire without the prior approval of
banking regulators. Under the Change in Bank Control Act and the regulations thereunder, a person or group must give advance
notice to the FDIC before acquiring control of the Company. Upon receipt of such notice, the FDIC may approve or disapprove
the acquisition. The Change in Bank Control Act creates a rebuttable presumption of control if a person or group acquires the
power to vote 10% or more of our outstanding common stock. The overall effect of such laws is to make it more difficult to
acquire a bank by tender offer or similar means than it might be to acquire control of another type of corporation. Consequently,
shareholders of the Company may be less likely to benefit from the rapid increases in stock prices that may result from tender
offers or similar efforts to acquire control of other companies. Investors should be aware of these requirements when acquiring
shares of our stock.
GOVERNANCE AND FINANCIAL REPORTING OBLIGATIONS
We are required to comply with various corporate governance and financial reporting requirements under the
Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the PCAOB, and the NYSE. In particular, we
are required to include management and independent registered public accounting firm reports on internal controls as part of
our Annual Report on Form 10-K in order to comply with Section 404 of the Sarbanes-Oxley Act. We have evaluated our
controls, including compliance with the SEC rules on internal controls, and have and expect to continue to spend significant
amounts of time and resources on compliance with these rules. Our failure to comply with these internal control rules may
materially adversely affect our reputation, ability to obtain the necessary certifications to financial statements, and the values of
our securities.
CONSUMER FINANCIAL PROTECTION BUREAU (“CFPB”)
The CFPB is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial
protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair
Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial Privacy provisions of the Gramm-Leach-
Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority under the consumer
financial protection laws with respect to depository institutions with $10.0 billion or more in assets, including the Company.
The CFPB regulates the origination of mortgages, mortgage disclosures, mortgage servicing, foreclosures, and
overdrafts, as well as many other consumer issues. The CFPB has authority to enforce a prohibition of unfair, deceptive, or
abusive practices in connection with the offering of consumer financial products. Additionally, the CFPB has proposed or will
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be proposing additional regulations, or modifying existing regulations, that directly relate to our business. Although it is
difficult to predict at this time the extent to which the CFPB’s rules impact the operations and financial condition of the
Company, such rules may have a material impact on the Company’s compliance costs, compliance risk, and fee income.
DIVIDENDS
Various federal and state laws limit the amount of dividends that the Company may pay to its shareholders without
regulatory approval. Under Mississippi law, the Company must obtain the non-objection of the Commissioner of the MDBCF
prior to paying any dividend on the Company’s capital stock. Further, the Company may not pay any dividends if, after paying
the dividend, it would be undercapitalized under applicable capital requirements. The FDIC also has the authority to prohibit
the Company from engaging in business practices that the FDIC considers to be unsafe or unsound, which, depending on the
financial condition of the Company, could include the payment of dividends.
CAPITAL REQUIREMENTS
We are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets
and capital to risk-weighted assets. The required capital ratios are minimums, and the FDIC may determine that based on our
size, complexity or risk profile, we must maintain a higher level of capital in order to operate in a safe and sound manner. Risks
such as concentration of credit risks and risks arising from non-traditional activities, as well as the institution’s exposure to a
decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks, are
important factors that are to be taken into account in assessing an institution’s overall capital adequacy. The following is a brief
description of the relevant provisions of these capital rules and their potential impact on our capital levels.
We are subject to the following risk-based capital ratios: common equity Tier 1 (CET1) risk-based capital ratio, Tier 1
risk-based capital ratio, which includes CET1 and additional Tier 1 capital, and total risk-based capital ratio, which includes
Tier 1 and Tier 2 capital. CET1 is primarily comprised of the sum of common stock instruments and related surplus net of
treasury stock plus retained earnings, less certain adjustments and deductions related to goodwill, intangible assets, mortgage
servicing assets and deferred tax assets subject to temporary timing differences. Additional Tier 1 capital is primarily comprised
of noncumulative perpetual preferred stock. Tier 2 capital consists of instruments disqualified from Tier 1 capital, including
qualifying subordinated debt and a limited amount of loan loss reserves up to a maximum of 1.25% of risk-weighted assets,
subject to certain eligibility criteria. The minimum capital to risk-weighted assets ratios are as follows: (1) CET1 of 4.5%, (2)
Tier 1 capital of 6.0%, and (3) total capital of 8.0%. The capital rules also define the risk-weights assigned to assets and off-
balance sheet items to determine the risk-weighted asset components of the risk-based capital rules, including, for example,
certain “high volatility” commercial real estate, past due assets, structured securities, and equity holdings.
The leverage capital ratio, which serves as a minimum capital standard, is the ratio of Tier 1 capital to quarterly
average total consolidated assets net of goodwill, certain other intangible assets and certain required deduction items. The
required minimum leverage ratio for all banks is 4%.
In addition, the regulatory capital rules require a capital conservation buffer of 2.5%, comprised of CET1, above each
of the minimum risk-based capital ratio requirements (CET1, Tier 1, and total capital), which is designed to absorb losses
during periods of economic stress. This buffer requirement must be met for the Company to be able to pay dividends, engage in
share buybacks or make discretionary bonus payments to executive management without restriction.
For more information, see the “Regulatory Capital” section of Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Annual Report on Form 10-K.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires federal bank regulatory
authorities to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital
requirements. For these purposes, FDICIA establishes five capital tiers: “well capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.”
An institution is deemed to be:
•
“well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 8.0% or
greater, a Tier 1 leverage ratio of 5.0% or greater, and a common equity Tier 1 risk-based capital ratio of 6.5% or
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greater, and is not subject to a regulatory order, agreement or directive to meet and maintain a specific capital level for
any capital measure;
“adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of
6.0% or greater, a Tier 1 leverage ratio of 4.0% or greater, and a common equity Tier 1 risk-based capital ratio of 4.5%
or greater, and the institution does not meet the definition of a “well capitalized” institution;
“undercapitalized” if it does not meet the definition of an “adequately capitalized” institution;
“significantly undercapitalized” if it has a total risk-based capital ratio that is less than 6.0%, a Tier 1 risk-based capital
ratio that is less than 4.0%, a Tier 1 leverage ratio that is less than 3.0%, and a common equity Tier 1 risk based capital
ratio that is less than 3.0%; and
“critically undercapitalized” if it has a ratio of tangible equity, as defined in the regulations, to total assets that is equal
to or less than 2%.
•
•
•
•
Throughout 2022, the Company’s regulatory capital ratios were in excess of the levels established for “well
capitalized” institutions.
FDICIA generally prohibits a depository institution from making any capital distribution, including payment of a cash
dividend, if the depository institution would be “undercapitalized” after such payment. “Undercapitalized” institutions are
subject to growth limitations and are required by the appropriate, primary federal regulator to submit a capital restoration plan.
If an “undercapitalized” institution fails to submit an acceptable plan, it is treated as if it is “significantly
undercapitalized.” “Significantly undercapitalized” institutions may be subject to a number of requirements and restrictions,
including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks.
“Critically undercapitalized” institutions may not, beginning 60 days after becoming “critically undercapitalized,”
make any payment of principal or interest on their subordinated debt. In addition, “critically undercapitalized” institutions are
subject to appointment of a receiver or conservator within 90 days of becoming so classified.
Under FDICIA, a depository institution that is not “well capitalized” is generally prohibited from accepting brokered
deposits and offering interest rates on deposits higher than the prevailing rate in its market. As previously stated, the Company
is “well capitalized,” and the FDICIA brokered deposit rule did not adversely affect its ability to accept brokered deposits. The
Company had $192.3 million in brokered deposits at December 31, 2022.
FDIC INSURANCE
The deposits of the Company are insured by the Deposit Insurance Fund (the “DIF”), which the FDIC administers, up
to applicable limits, which currently are set at $250,000 per depositor, per insured bank, for each account ownership category.
To fund the DIF, FDIC-insured banks are required to pay deposit insurance assessments to the FDIC. The deposit insurance
assessment base is based on an insured institution’s average consolidated total assets minus its average tangible equity. The
FDIC uses a “scorecard” system to determine deposit insurance premiums for institutions like the Company that have more than
$10 billion in assets. Each scorecard has a performance score and a loss-severity score that is combined to produce a total score.
The FDIC is authorized to make discretionary adjustments to the total score based upon significant risk factors that are not
adequately captured in the scorecard, which is translated into a premium rate.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC. In addition, the Federal Deposit Insurance Act provides that, in the event of the
liquidation or other resolution of an insured depository institution, the claims of depositors of the institution, including the
claims of the FDIC as subrogee of insured depositors, and certain claims for administrative expenses of the FDIC as a receiver,
will have priority over other general unsecured claims against the institution.
On October 18, 2022, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial
base deposit insurance assessment rate schedules uniformly by two basis points. The final rule is effective for the first quarter of
2023. The increase in the assessment rate schedules in intended to increase the likelihood that the reserve ratio of the DIF
reaches the statutory minimum if 1.35% by the statutory deadline of September 30, 2028. The new assessment rate schedules
will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing
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toward the FDIC’s long-term goal of a 2% Designated Reserve Ratio. Progressively lower assessment rate schedules will take
effect when the reserve ratio reaches 2%, and again when it reaches 2.5%.
STANDARDS FOR SAFETY AND SOUNDNESS
The Federal Deposit Insurance Act requires the federal bank regulatory agencies to prescribe, by regulation or
guideline, operational and managerial standards for all insured depository institutions relating to: (1) internal controls; (2)
information systems and audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate risk exposure; and (6)
asset quality. The federal banking agencies have adopted regulations and Interagency Guidelines Establishing Standards for
Safety and Soundness to implement these required standards. These guidelines set forth the safety and soundness standards used
to identify and address problems at insured depository institutions before capital becomes impaired. Under the regulations, if a
regulator determines that a bank fails to meet any standards prescribed by the guidelines, the regulator may require the bank to
submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and
soundness compliance plans.
INTERSTATE BANKING AND BRANCHING LEGISLATION
Federal law allows banks to establish and operate a de novo branch in a state other than the bank’s home state if the
law of the state where the branch is to be located would permit establishment of the branch if the bank were chartered by that
state, subject to standard regulatory review and approval requirements. Federal law also allows the Company to acquire an
existing branch in a state in which the Company is not headquartered and does not maintain a branch if the FDIC and MDBCF
approve the branch or acquisition, and if the law of the state in which the branch is located or to be located would permit the
establishment of the branch if the Company were chartered by that state.
Once a bank has established branches in a state through an interstate merger transaction or through de novo branching,
the bank may then establish and acquire additional branches within that state to the same extent that a state-chartered bank is
allowed to establish or acquire branches within the state. Current federal law authorizes interstate acquisitions of banks without
geographic limitation. Further, a bank headquartered in one state is authorized to merge with a bank headquartered in another
state, as long as neither of the states have opted out of such interstate merger authority prior to such date, and subject to any
state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed
five years, and subject to certain deposit market-share limitations.
AFFILIATE TRANSACTIONS AND INSIDER LOANS
The Company is subject to Regulation W, which comprehensively implements statutory restrictions on transactions
between a bank and its affiliates. Regulation W combines the Federal Reserve’s interpretations and exemptions relating to
Sections 23A and 23B of the Federal Reserve Act. Regulation W and Section 23A place limits on the amount of loans or
extensions of credit to, investments in, or certain other transactions with affiliates, and on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. Regulation W and Section 23B prohibit a bank from, among
other things, engaging in certain transactions with affiliates unless the transactions are on terms substantially the same, or at
least as favorable to the bank, as those prevailing at the time for comparable transactions with non-affiliated companies.
The Company is also subject to certain restrictions on extensions of credit to executive officers, directors, certain
principal shareholders and their related interests. Such extensions of credit must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and must not
involve more than the normal risk of repayment or present other unfavorable features.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act (“CRA”) provides an incentive for regulated financial institutions to meet the credit
needs of their local community or communities, including low and moderate income neighborhoods, consistent with the safe
and sound operation of such financial institutions. The regulations provide that the appropriate banking regulator will assess
reports under CRA in connection with applications for establishment of domestic branches, acquisitions of banks or mergers
involving financial holding companies. An unsatisfactory rating under CRA may serve as a basis to deny an application to
acquire or establish a new bank, to establish a new branch or to expand banking services. Both BancorpSouth Bank (FDIC) and
Legacy Cadence (OCC) received “Satisfactory” ratings at their respective most recent CRA exams. Cadence Bank has not yet
been rated by the FDIC.
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The Federal Reserve, the Office of the Comptroller of the Currency (“OCC”), and the FDIC implement the CRA
through their respective CRA regulations. The agencies have considered reform proposals to modernize the CRA in recent
years. On May 5, 2022, the OCC, FRB, and FDIC issued a notice of proposed rulemaking to provide for a coordinated approach
to modernize their respective CRA regulations, such that all banks will be subject to the same set of CRA rules. No final rule
has been issued, but the rulemaking may affect the Company’s CRA compliance obligations in the future. The Company
monitors developments with respect to any CRA rulemaking and assesses the impact, if any, of changes to the CRA regulations.
ANTI-TERRORISM AND MONEY LAUNDERING
Pursuant to federal law, the Company is required to: (i) establish an anti-money laundering program; (ii) establish due
diligence policies, procedures and controls with respect to its private banking accounts and correspondent banking accounts
involving foreign individuals and certain foreign financial institutions; and (iii) avoid establishing, maintaining, administering
or managing correspondent accounts in the United States for, or on behalf of, foreign financial institutions that do not have a
physical presence in any country. The Company is also required to follow certain minimum standards to verify the identity of
customers, both foreign and domestic, when a customer opens an account. In addition, federal law encourages cooperation
among financial institutions, regulatory authorities and law enforcement authorities with respect to individuals, entities and
organizations engaged in, or reasonably suspected of engaging in, terrorist acts or money laundering activities. Federal banking
regulators are required, when reviewing bank acquisition and merger applications, to take into account the effectiveness of the
anti-money laundering activities of the applicants.
On January 1, 2021, the Anti-Money Laundering Act of 2020 (the “AML Act”) was passed. The AML Act includes
significant changes to anti-money laundering rules, including the creation of a national registry maintained by the Financial
Crimes Enforcement Network (“FinCEN”) that banks may rely on to comply with customer due diligence requirements,
enhancement of cooperation between banks and law enforcement, and improvement of corporate transparency. Passage of the
AML Act started a rulemaking and policy development process that includes the Corporate Transparency Act and a proposed
rulemaking that requires companies to report beneficial ownership to FinCEN for the first time in the history of federal law. As
of December 31, 2022, no such regulations have been proposed. The Company continues to monitor developments related to
the enacted and proposed rulemaking.
CONSUMER PRIVACY, DATA SECURITY, AND OTHER CONSUMER PROTECTION LAWS
Federal law generally prohibits disclosure of non-public consumer information to non-affiliated third parties unless the
consumer has been given the opportunity to object and has not objected to such disclosure. Financial institutions are further
required to disclose their privacy policies to customers annually. Financial institutions, however, will be required to comply
with state law if it is more protective of consumer privacy than federal law.
Federal law also directed federal regulators to prescribe standards for the security of consumer information. The
Company is subject to such standards, as well as standards for notifying customers in the event of a security breach. The
Company utilizes credit bureau data in underwriting activities. Use of such data is regulated under the Fair Credit Reporting Act
and Regulation V on a uniform, nationwide basis, including credit reporting, prescreening, and sharing of information between
affiliates and the use of credit data. The Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting
Act, permits states to enact identity theft laws that are not inconsistent with the conduct required by the provisions of that Act.
Customers must be notified when unauthorized disclosure involves sensitive customer information that may be misused.
The federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk
management standards among financial institutions. As a result, financial institutions are expected to establish multiple lines of
defense and to ensure their risk management processes address the risk posed by potential threats to the institution. A financial
institution’s management is expected to maintain sufficient processes to effectively respond and recover the institution’s
operations after a cyber-attack. A financial institution is also expected to develop appropriate processes to enable recovery of
data and business operations if a critical service provider of the institution falls victim to this type of cyber-attack. Our
information security protocols are designed in part to adhere to the requirements of this guidance.
On November 18, 2021, the federal banking agencies issued a new rule effective in 2022 that requires banks to notify
their regulators within 36 hours of a “computer-security incident” that rises to the level of a “notification incident.”
A notification incident includes, among other things, a computer-security incident that materially disrupts or degrades,
or is reasonable likely to materially disrupt or degrade, a banking organization’s operations or activities or its ability to deliver
products or services to a material portion of its customer base. The final rule also requires a bank service provider to notify a
banking organization of certain material disruptions in services provided to the banking organization.
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State regulators have also been increasingly active in implementing privacy and cybersecurity standards and
regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity
programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many
states have also recently implemented or modified their data breach notification and data privacy requirements. We expect this
trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our
customers are located.
The Company is also subject, in connection with its deposit, lending and leasing activities, to numerous federal and
state laws aimed at protecting consumers, including the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures
Act, the Equal Credit Opportunity Act, the Truth in Lending Act, the Truth in Savings Act, the Fair Housing Act, the Fair
Credit Reporting Act, the Electronic Funds Transfer Act, the Currency and Foreign Transactions Reporting Act, the National
Flood Insurance Act, the Flood Protection Act, laws and regulations governing unfair, deceptive, and/or abusive acts and
practices, the Service Members Civil Relief Act, the Housing and Economic Recovery Act, and the Credit Card Accountability
Act, among others, as well as various state laws.
The Company’s insurance subsidiaries are regulated by the insurance regulatory authorities and applicable laws and
regulations of the states in which they operate.
COMMERCIAL REAL ESTATE LENDING CONCENTRATION REGULATIONS
The federal banking agencies have promulgated guidance governing concentrations in commercial real estate lending
for financial institutions. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total
reported loans for construction, land development and other land represent 100% or more of total risk-based capital or (ii) total
reported loans secured by multifamily and non-farm residential properties and loans for construction, land development and
other land represent 300% or more of total risk-based capital and the bank’s commercial real estate loan portfolio has increased
50% or more during the prior 36 months. If a concentration is present, management must employ heightened risk management
practices including board and management oversight and strategic planning, development of underwriting standards, risk
assessment and monitoring through market analysis and stress testing and increasing capital requirements.
INCENTIVE COMPENSATION
The Dodd-Frank Act required the federal banking agencies and the SEC to establish joint rules or guidelines for
financial institutions with more than $1 billion in assets, such as us, which prohibit incentive compensation arrangements that
the agencies determine to encourage inappropriate risks by the institution. The federal banking agencies issued proposed rules
in 2011 and previously issued guidance on sound incentive compensation policies. In 2016, the federal banking agencies and
the SEC proposed rules that would, depending upon the assets of the institution, directly regulate incentive compensation
arrangements and would require enhanced oversight and recordkeeping. At December 31, 2022, these rules have not been
implemented.
The scope and content of banking regulators’ policies on executive compensation are continuing to develop and are
likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will
adversely affect the Company’s ability to hire, retain and motivate its key employees.
On October 26, 2022, the SEC adopted rules to require securities exchanges to adopt listing standards that require
issuers to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation
received by current or former executive officers. The final rules require a listed issuer to file the policy as an exhibit to its
annual report and to include disclosures related to its recovery policy and recovery analysis where a recovery is triggered. The
final rules will become effective 60 days following publication of the adopting release in the Federal Register. Exchanges will
be required to file proposed listing standards no later than 90 days following publication of the release in the Federal Register,
and the listing standards must be effective no later than one year following such publication. Issuers subject to such listing
standards will be required to adopt a recovery policy no later than 60 days following the date on which the applicable listing
standards become effective.
THE VOLCKER RULE
Section 13 of the BHC Act, commonly referred to as the “Volcker Rule,” generally prohibits us and our subsidiaries
from (i) engaging in certain proprietary trading, and (ii) acquiring or retaining an ownership interest in or sponsoring a “covered
fund,” all subject to certain exceptions. The Volcker Rule also specifies certain limited activities in which we and our
subsidiaries may continue to engage and requires us to maintain a compliance program. In 2020, amendments to the proprietary
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trading and covered funds regulations issued by the federal banking agencies, the SEC, and the Commodity Futures Trading
Commission took effect, simplifying compliance and providing additional exclusions and exemptions.
DEBIT INTERCHANGE FEES
Interchange fees, or "swipe" fees, are fees that merchants pay to credit card companies and card-issuing banks such as
the Company for processing electronic payment transactions on their behalf. The maximum permissible interchange fee that a
non-exempt issuer such as the Company may receive for an electronic debit transaction is the sum of 21 cents per transaction
and 5 basis points multiplied by the value of the transaction, subject to an upward adjustment of 1 cent if an issuer certifies that
it has implemented policies and procedures reasonably designed to achieve the fraud-prevention standards set forth by the
Federal Reserve. In addition, card issuers and networks are prohibited from entering into arrangements requiring that debit card
transactions be processed on a single network or only two affiliated networks and allows merchants to determine transaction
routing.
LIBOR
On March 15, 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) to address
references to LIBOR in contracts that (i) are governed by U.S. law; (ii) will not mature before June 30, 2023; and (iii) lack
fallback provisions providing for a clearly defined and practicable replacement for LIBOR. On December 16, 2022, the FRB
adopted a final rule to implement the LIBOR Act by identifying benchmark rates based on SOFR (Secured Overnight Financing
Rate) that will replace LIBOR in certain financial contracts after June 30, 2023. The final rule identifies replacement
benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts
subject to the LIBOR Act.
EFFECT OF GOVERNMENTAL POLICIES
The Company is affected by the policies of regulatory authorities, including the Federal Reserve, the FDIC, and the
MDBCF. An important function of the Federal Reserve is to regulate the national money supply. Among the instruments of
monetary policy used by the Federal Reserve are: (i) purchases and sales of United States government and other securities in the
marketplace; (ii) changes in the discount rate, which is the rate any depository institution must pay to borrow from the Federal
Reserve; (iii) changes in the reserve requirements of depository institutions; and (iv) indirectly, changes in the federal funds
rate, which is the rate at which depository institutions lend money to each other overnight. These instruments are intended to
influence economic and monetary growth, interest rate levels, and inflation.
The monetary policies of the Federal Reserve and other governmental policies have had a significant effect on the
operating results of commercial banks in the past and are expected to continue to do so in the future. Because of changing
conditions in the national and international economy and in the money markets, as well as the result of actions by monetary and
fiscal authorities, it is not possible to predict with certainty future changes in interest rates, deposit levels, loan demand, or the
business and results of operations of the Company, or whether changing economic conditions will have a positive or negative
effect on operations and earnings.
OTHER PROPOSALS
Bills occasionally are introduced in the United States Congress and the Mississippi State Legislature and other state
legislatures, and regulations are occasionally proposed by federal and state regulatory agencies, any of which could affect the
businesses, financial results and financial condition of the Company. Generally, it cannot be predicted whether or in what form
any particular proposals will be adopted or the extent to which the Company may be affected.
RECENT ACQUISITIONS AND TRANSACTION ACTIVITY
See Note 2 to the consolidated financial statements for information regarding recent acquisitions.
HUMAN CAPITAL
We recognize that our most valuable asset is our people. One of our top strategic priorities is the retention and
development of our talent. This includes providing career development opportunities for all associates; increasing our diversity,
equity, and inclusion; training our next generation of leaders; and succession planning. Our goal each day is to create an
environment that makes Cadence Bank a great place to work. We believe our relationship with our employees to be good. We
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have not experienced any material employment-related issues or interruptions of services due to labor disagreements and are not
a party to any collective bargaining agreements.
Sourcing Talent
As of December 31, 2023, our full-time equivalent employees numbered 6,572. Our recruiting practices and hiring
decisions are among our most important activities. In order to build a more talented and diverse organization, we do not rely
only on our individual network for recruiting; instead, we utilize social media, local job fairs and educational organizations
across the United States to find diverse, motivated and qualified employees.
Our Board of Directors recognizes the importance of succession planning for our CEO and other key executives. The
Board annually reviews our succession plans for senior leadership roles, with the goal of ensuring we will continue to have the
right leadership talent in place to execute the organization's long-term strategic plans.
Education and Training
We are dedicated to the continual training and development of our employees to ensure we can develop future
managers and leaders from within our organization. Our training starts immediately with on-boarding procedures that focus on
safety, responsibility, ethical conduct and inclusive teamwork.
In addition to on-boarding training, we provide extensive ongoing training and career development focused on:
•
•
•
•
compliance with our Code of Business Conduct and Ethics;
laws and regulations applicable to our business;
skills and competencies directly related to employees’ job duties;
commitment to creating a diverse, equitable and inclusive workplace;
• management skills necessary to develop our next generation of leaders; and
•
responsibility for personal safety and the safety of fellow employees.
Health and Welfare
We support our employees’ and their families’ health by offering full medical, dental and vision insurance for
employees and their families, life insurance and long-term disability plans, and health and dependent care flexible spending
accounts. We also provide our Employee Assistance Program (“EAP”), which includes confidential services that can help
employees and their families with personal or work life issues. The EAP is available 24 hours a day, online or over the phone.
During 2021, as a part of our merger integration, we evaluated the benefits at both legacy organizations and developed a health
and welfare benefit package that provides options for coverage that meet each teammate’s needs. In order to make our benefits
more affordable for lower compensated teammates, we have a varying contribution structure whereby lower compensated
teammates pay less for coverage. We also provide benefit options for our part time employees. During 2021, we announced a
new Parental Leave policy that provides up to eight weeks of paid leave for the birth or adoption of a child.
Retirement
We provide a variety of resources and services to help our employees prepare for retirement. We provide an employer
funded pension plan that sets aside a cash contribution for all employees based on a percentage of their eligible pay and a
401(k) plan with a wide variety of investment options and a company match.
Diversity, Equity and Inclusion (“DEI”)
We have taken steps to expand our role as an employer that champions diversity, equity and inclusion. We believe
diversity is not about how we differ; it is about how we embrace one another’s differences and become the change we want to
see in the world. Inclusion is diversity’s seat at the table while equity ensures we are all valued fairly.
Our DEI efforts at Cadence are grounded solidly in our core values. Key focus areas include:
•
•
Strategic Purpose & Partnerships
Impediments to Inclusion and Culture Competence
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•
•
•
Unconscious Bias Training
Empowering Women in the Workplace
Allyship
• Measuring the Impact of Diversity & Inclusion
The Diversity, Equity and Inclusion Council is a multi-cultural group of associates from varying levels and
departments within the organization, nominated by management and their peers and serve voluntarily. The Council is chaired
by our Chief Diversity Officer.
INFORMATION TECHNOLOGY
The ability to access and use technology is an increasingly competitive factor in the financial services industry.
Technology is not only important with respect to delivery of financial services and protection of the security of customer
information but also in processing information. We must continually make technology investments to remain competitive in the
financial services industry. Accordingly, we continually adapt to the changing technological needs and wants of our clients by
investing in our electronic banking platform. We use a combination of online and mobile banking channels to attract and retain
clients and expand the convenience of banking with us. In most cases, our clients can initiate banking transactions from the
convenience of their personal computer or smart phone, reducing the number of in-branch visits necessary to conduct routine
banking transactions. The remote transactions available to our clients include remote image deposit, bill payment, external and
internal transfers, ACH origination, and wire transfer. We believe that our investments in technology and innovation are
consistent with our clients’ needs and will support future migration of our clients’ transactions to these and other developing
electronic banking channels. Further, we closely monitor information security for trends and new threats, including
cybersecurity risks, and invest significant resources to continuously improve the security and privacy of our systems and data.
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CORPORATE INFORMATION
Shares of Common Stock
Listed on the NYSE
NYSE Symbol: CADE
Shares of Series A Preferred Stock
Listed on NYSE
NYSE Symbol: CADE Pr A
Transfer Agent and Registrar
Computershare
150 Royall Street
Canton, MA 02021
Tel: (800) 368-5948
Internet address: www.computershare.com
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ITEM 1A. RISK FACTORS.
SUMMARY OF RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including, but not limited to, the
principal risks summarized below. Many of these risks are beyond our control although efforts are made to manage these risks
while simultaneously optimizing operational and financial results. The occurrence of any of the following risks, as well as risks
of which we are currently unaware or currently deem immaterial, could materially and adversely affect our assets, business,
cash flows, condition (financial or otherwise), liquidity, prospects, results of operations and the trading price of our capital
stock. A detailed discussion of our Risk Factors begins on page 23 following this Summary.
RISKS RELATED TO OUR BUSINESS
Market Risk
•
•
•
•
•
Current uncertain economic conditions pose challenges, and could adversely affect our business, financial condition
and results of operations;
Changes in interest rates could have an adverse impact on our results of operations and financial condition;
Inflationary pressures and rising prices may affect our results of operations and financial condition;
Our business is highly susceptible to local economic conditions as a result of the geographic concentration of our
operations; and
By engaging in derivative transactions, we are exposed to credit and market risk, which could adversely affect our
profitability and financial condition.
Credit Risk
•
•
If we do not properly manage our credit risk, our business could be seriously harmed;
Our ACL may not be adequate to absorb credit losses in our portfolio, which may adversely impact our business,
financial condition and results of operations;
• We make and hold in our portfolio real estate construction, acquisition and development loans, which are based upon
estimates of costs and values associated with the completed project and which pose more credit risk than other types of
loans typically made by financial institutions;
• Many of our loans are to commercial borrowers, which have unique risks compared to other types of loans;
•
•
•
•
•
Our loan portfolio includes lending in energy and other specialized industries;
Sustained low oil prices, volatility in oil prices and downturns in the energy industry, including in Texas, could
materially and adversely affect us;
A significant portion of our loan portfolio is comprised of loan participations and Shared National Credits (SNCs),
which could have a material adverse effect on our ability to monitor such lending relationships and lead to an increased
risk of loss;
The amount of our nonperforming and criticized assets may adversely affect our results of operations and financial
condition; and
The fair value of our investment securities may decline. Factors beyond our control can significantly influence the fair
value of our securities and can cause adverse changes to the fair value of these securities.
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Liquidity Risk
•
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition;
• We rely on customer deposits as a significant source of funding, and our deposits may decrease in the future;
•
•
The borrowing needs of our clients may increase, especially during a challenging economic environment, which could
result in increased borrowing against our contractual obligations to extend credit;
An increased level of indebtedness could affect our ability to meet our obligations and may otherwise restrict our
activities; and
• We rely on the mortgage secondary market for some of our liquidity.
Strategic Risk
• We compete with financial holding companies, bank holding companies, banks, insurance, fintech companies, other
financial services companies and nonbank financial institutions, and consumers may decide not to use banks to
complete their financial transactions;
•
•
Our growth strategy includes risks that could have an adverse effect on our financial performance;
If we are unable to manage our growth effectively, our operations could be negatively affected;
• We face risks in connection with completed or potential acquisitions;
• We may not realize all of the anticipated benefits of the acquisition of Legacy Cadence;
• We may not be able to raise additional capital in the future; and
•
If the goodwill that we record in connection with a business acquisition becomes impaired, it could require a charge to
earnings.
Operational Risk
• We are subject to environmental liability risk associated with our lending activities;
• We may be adversely impacted by the transition from LIBOR as a reference rate;
•
Our business is, and will continue to be, dependent on technology and an inability to invest in technological
improvements or obtain reliable technological support may adversely affect our results of operation and financial
condition;
• We are subject to a variety of systems-failure and cybersecurity risks that could adversely affect our business and
financial performance;
• We may be adversely affected by the failure of certain third-party vendors to perform;
•
Our earnings could be adversely impacted by incidences of fraud and compliance failures that are not within our direct
control; and
• We may be adversely affected by the soundness of other financial institutions.
Public Health and Impact of COVID-19
•
The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could
continue to adversely impact, our business and results of operations.
21
RISKS RELATED TO THE REGULATION OF OUR INDUSTRY
Regulatory Risk
•
•
•
•
•
The banking industry is highly regulated, and current and future legislative or regulatory changes could have a
significant adverse effect on our business, financial condition, or results of operations;
Regulatory initiatives regarding bank capital requirements may require increased capital;
Changes in accounting rules applicable to banks could adversely affect our financial condition and results of
operations;
Regulators periodically examine our business and we may be required to remediate adverse examination findings, and;
The Company is operating under a Consent Order, and failure to comply with the Consent Order could materially and
adversely affect our business.
Compliance Risk
• We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure
to comply with these laws could lead to a wide variety of sanctions;
•
•
Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase
our risk of liability with respect to such loans and could increase our cost of doing business;
The expanding body of federal, state and local regulations and/or the licensing of loan servicing, collections or other
aspects of our business and our sales of loans to third parties may increase the cost of compliance and the risks of
noncompliance and subject us to litigation; and
• We are subject to laws regarding the privacy, information security and protection of personal information and any
violation of these laws or another incident involving personal, confidential or proprietary information of individuals
could damage our reputation and otherwise adversely affect our operations and financial condition.
GENERAL RISK FACTORS
Economic Conditions
•
•
•
The fiscal and monetary policies of the U.S. government could have a material adverse effect on our results of
operations;
The Federal Reserve has implemented significant economic strategies that have impacted interest rates, inflation, asset
values, and the shape of the yield curve, over which the Company has no control and which the Company may not be
able to adequately anticipate; and,
The current economic environment poses significant challenges and could adversely affect our financial condition and
results of operations.
Investment in Our Common Stock and Preferred Stock
•
•
•
•
•
•
The price of our common stock and preferred stock may fluctuate significantly, which may make it difficult for
investors to resell shares of our common stock or preferred stock at a time or price they find attractive;
The rights of our common shareholders are generally subordinate to the rights of holders of our debt securities and
preferred stock and may be subordinate to the rights of holders of any class of preferred stock or any debt securities
that we may issue in the future;
Adverse changes in the ratings for our debt securities or preferred stock could have a material adverse effect on our
business, financial condition and liquidity and may increase our funding costs or impair our ability to effectively
compete for business and clients;
Our ability to declare and pay dividends is limited;
Our certificate of incorporation and bylaws include provisions that could impede a takeover of the Company; and
Shares of our common stock and preferred stock are not deposits insured by the FDIC and are subject to risk of loss
and uncertain return on investment.
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Other Risks
•
As a public company, we incur significant legal, accounting, insurance, compliance and other expenses. Any
deficiencies in our financial reporting or internal controls could materially and adversely affect us, including resulting
in material misstatements in our financial statements, and the market price of our common stock;
• We may be adversely affected by changes in U.S. tax laws;
• We depend upon key personnel and we may not be able to retain them or attract, assimilate and retain highly qualified
employees in the future;
• We are required to make significant estimates and assumptions in the preparation of our financial statements. These
estimates and assumptions may not be accurate and are subject to change;
• We are involved in legal proceedings and may be the subject of additional litigation or government investigations in
the future; the actual cost of legal proceedings may exceed our accruals for them;
•
•
•
Reputational and environmental, social, and governance (ESG) risk may impact our results;
Our framework for managing risks may not be effective in mitigating risk and any resulting loss; and
Certain weather conditions have the potential to disrupt our business and adversely impact the operations and
creditworthiness of our clients.
RISK FACTORS
Our operations and financial results are subject to various risks and uncertainties, including, but not limited, to the
material risks described below. It is impossible to predict or identify all such factors and, as a result, the following factors
should not be considered to be a complete discussion of the risks, uncertainties and assumptions that could affect us.
In addition, certain statements in the following risk factors constitute forward-looking statements. Please refer to the
section entitled “Cautionary Note Regarding Forward-Looking Statements” beginning on page 3 of this Report.
RISKS RELATED TO OUR BUSINESS
Market Risk
Current uncertain economic conditions pose challenges, and could adversely affect our business, financial condition and
results of operations.
We are operating in an uncertain economic environment. The pandemic caused a global economic slowdown, and
while we have seen economic recovery, continuing supply chain issues, labor shortages and inflation risk are affecting the
continued recovery. Continued economic uncertainty and a recessionary or stagnant economy could result in financial stress on
our borrowers, which could adversely affect our business, financial condition and results of operations. We decreased the
expense for credit losses for 2022 from the amounts recorded in fiscal year 2021 and 2020 as the economy began to recover,
however, deteriorating conditions in the regional economies we serve, or in certain sectors of those economies, could drive
losses beyond that which is provided for in our allowance for credit losses. We could also face the following risks in connection
with the following events:
• market developments and economic stagnation or slowdown may affect consumer confidence levels and may cause
adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit
facilities;
•
•
•
the processes we use to estimate the allowance for credit losses and other reserves may prove to be unreliable. Such
estimates rely upon complex modeling inputs and judgments, including forecasts of economic conditions, which may
be rendered inaccurate and/or no longer subject to accurate forecasting;
our ability to assess the creditworthiness of our borrowers may be impaired if the models and approaches we use to
select, manage, and underwrite loans become less predictive of future charge-offs;
regulatory scrutiny of the industry could increase, leading to increased regulation of the industry that could lead to a
higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation or
fines;
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•
•
•
ineffective monetary policy or other market conditions could cause rapid changes in interest rates and asset values that
would have a materially adverse impact on our profitability and overall financial condition;
further erosion in the fiscal condition of the U.S. Treasury could lead to new taxes that would limit our ability to
pursue growth and return profits to shareholders; and
The U.S. government’s decisions regarding its debt ceiling and the possibility that the U.S. could default on its debt
obligations may cause further interest rate increases, disrupt access to capital markets and deepen recessionary
conditions.
If these conditions or similar ones continue to exist or worsen, we could experience continuing or increased adverse
effects on our financial condition.
Changes in interest rates could have an adverse impact on our results of operations and financial condition.
Significant increases in market interest rates on loans, or the perception that an increase may occur, could adversely
affect both our ability to originate new loans and our ability to grow. Beginning early in 2022, in response to growing signs of
inflation, the Federal Reserve increased interest rates rapidly, which are expected to continue in 2023. Further, the Federal
Reserve has increased the benchmark rapidly and has announced an intention to take further actions to mitigate inflationary
pressures. Rapid changes in interest rates make it difficult for us to balance our loan and deposit portfolios, which may
adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system
issues, or having other adverse impacts on our business. Conversely, decreases in interest rates could result in an acceleration of
loan prepayments. The increased market interest rates could also adversely affect the ability of our floating-rate borrowers to
meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge offs,
which could adversely affect our business.
Further, our earnings and financial condition are dependent to a large degree upon net interest income, which is the
difference or spread, between interest earned on interest-earning assets and interest paid on interest bearing liabilities. When
market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities may fluctuate.
This can cause decreases in our spread and can adversely affect our earnings and financial condition.
Interest rates are highly sensitive to many factors including:
•
•
•
•
The rate of inflation;
Economic conditions;
Federal monetary policies; and
Stability of domestic and foreign markets.
Accordingly, fluctuations in interest rates could adversely affect our interest rate spread, and, in turn, our profitability.
Although it is expected that the Federal Reserve will continue to increase the target federal funds rate in 2023 to combat recent
inflationary trends, if interest rates do not rise, or if the Federal Reserve were to lower the target federal funds rate to below 0%,
these low rates could continue to constrain our interest rate spread and may adversely affect our business forecasts. On the other
hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest
bearing accounts. All else being equal, if the interest rates on the Company's interest bearing liabilities increase at a faster pace
than the interest rates on our interest-earning assets, the result would be a reduction in net interest income and with it, a
reduction in net earnings. Moreover, although we have implemented practices we believe will reduce the potential effects of
changes in interest rates on our net interest income, these practices may not always be successful. Accordingly, changes in
levels of market interest rates could materially and adversely affect our net interest income and our net interest margin, asset
quality, loan and lease origination volume, liquidity, and overall profitability. We cannot assure you that we can minimize our
interest rate risk.
In addition, the Company originates residential mortgage loans for sale and for our portfolio. The origination of
residential mortgage loans is highly dependent on the local real estate market and the level of interest rates. Increasing interest
rates tend to reduce the origination of loans for sale and fee income, which we report as gain on sale of loans. Decreasing
interest rates generally result in increased prepayments of loans and mortgage-backed securities, as borrowers refinance their
debt in order to reduce their borrowing cost. This typically leads to reinvestment at lower rates than the loans or securities were
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paying. Changes in market interest rates could also reduce the value of our financial assets. Our financial condition and results
of operations could be adversely affected if we are unsuccessful in managing the effects of changes in interest rates.
Inflationary pressures and rising prices may affect our results of operations and financial condition.
Inflation has continued rising in 2022 at levels not seen for over 40 years. Inflationary pressures are likely to continue
into 2023. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or
other obligations increasing our credit risk. Sustained higher interest rates by the Federal Reserve may be needed to tame
persistent inflationary price pressures, which could push down asset prices and weaken economic activity. A deterioration in
economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing
assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would
adversely affect our business, financial condition and results of operations.
Our business is highly susceptible to local economic conditions as a result of the geographic concentration of our
operations.
Our business is primarily concentrated in select markets in Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, Missouri, Tennessee, Texas and Illinois. Our financial condition and results of operations depend largely upon
economic conditions in these market areas. Deterioration in economic conditions in the markets we serve could result in one or
more of the following: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decrease in the
demand for our products and services; and a decrease in the value of collateral for loans, especially real estate collateral, in turn
reducing customers’ borrowing power, the value of assets associated with problem loans and collateral coverage. Our markets
are also susceptible to severe weather. The occurrence of adverse weather and natural disasters could destroy or cause a decline
in the value of assets that serve as collateral and increase the risk of delinquencies, defaults, foreclosures and losses on our
loans, damage our facilities and offices, negatively impact regional economic conditions, result in a decline in local loan
demand, loan originations and deposit availability and negatively impact our growth strategy. Any one or more of these
developments could have a material adverse effect on our business, financial condition or results of operations.
By engaging in derivative transactions, we are exposed to credit and market risk, which could adversely affect our
profitability and financial condition.
We manage interest rate risk by, among other things, utilizing derivative instruments to minimize significant
unplanned fluctuations in earnings that are caused by interest rate volatility. Hedging interest rate risk is a complex process,
requiring sophisticated models and constant monitoring, and is approximate. Due to interest rate fluctuations, hedged assets and
liabilities will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation will generally
be offset by income or loss on the derivative instruments that are linked to the hedged assets and liabilities. By engaging in
derivative transactions, we are exposed to credit and market risk. If the counterparty fails to perform, credit risk exists to the
extent of the fair value gain in the derivative. Market risk exists to the extent that interest rates change in ways that are
significantly different from what we expected when we entered into the derivative transaction. The existence of credit and
market risk associated with our derivative instruments could adversely affect our net interest income and, therefore, could have
a material effect on our business, financial condition and results of operations. Failure to manage interest rate risk could have a
material adverse effect on our business. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Quantitative and Qualitative Disclosures about Market Risk.”
Credit Risk
If we do not properly manage our credit risk, our business could be seriously harmed.
There are substantial risks inherent in making any loan or lease, including, but not limited to:
•
•
•
•
risks resulting from changes in economic and industry conditions;
risks inherent in dealing with borrowers;
risks inherent from uncertainties as to the future value of collateral; and
the risk of non-payment of loans and leases.
Although we attempt to minimize our credit risk through prudent loan and lease underwriting procedures and by
monitoring concentrations of our loans and leases, there can be no assurance that these underwriting and monitoring procedures
will reduce these risks as some of these risks are outside of our control. Moreover, as we continue to expand into new markets,
25
credit administration and loan and lease underwriting policies and procedures may need to be adapted to local conditions. The
inability to properly manage our credit risk or appropriately adapt our credit administration and loan and lease underwriting
policies and procedures to local market conditions or changing economic circumstances could have an adverse effect on our
allowance and provision for credit losses and our financial condition, results of operations and liquidity.
Our ACL may not be adequate to absorb credit losses in our portfolio, which may adversely impact our business,
financial condition and results of operations.
Due to the declining economic conditions, our customers may not be able to repay their loans according to the original
terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance. While we
maintain our ACL to provide for loan defaults and non-performance, losses may exceed the value of the collateral securing the
loans and the allowance may not fully cover any excess loss.
We make various assumptions and judgments about the collectability of our loan and lease portfolio and utilize these
assumptions and judgments when determining the ACL. The determination of the appropriate level of the ACL inherently
involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all
of which may undergo material changes. Deterioration in economic conditions affecting borrowers, new information regarding
existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require
an increase in the ACL. In addition, bank regulatory agencies periodically review our ACL and may require an increase in the
ACL or future provisions for credit losses, based on judgments different than those of management. Significant increases in the
ACL will result in a decrease in our net income and capital, and thus could have a material adverse effect on our financial
condition and results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Results of Operations – Provision for Credit Losses and Allowance for Credit Losses” included herein for more
information regarding our process for determining the appropriate level of the ACL.
We make and hold in our portfolio real estate construction, acquisition and development loans, which are based upon
estimates of costs and values associated with the completed project and which pose more credit risk than other types of
loans typically made by financial institutions.
At December 31, 2022, our real estate construction, acquisition and development loans represented 11.7% of our loan
portfolio. These loans have certain risks not present in other types of loans. The primary credit risks associated with real estate
construction, acquisition and development loans are underwriting, project and market risks. Project risks include cost overruns,
borrower credit risk, project completion risk, general contractor credit risk and environmental and other hazard risks. Market
risks are risks associated with the sale of the completed residential and commercial units. They include affordability risk, which
means the risk that borrowers cannot obtain affordable financing, product design risk, and risks posed by competing projects.
Real estate construction, acquisition and development loans also involve additional risks because funds are advanced upon the
security of the project, which is of uncertain value prior to its completion, and costs may exceed realizable values in declining
real estate markets. Because of the uncertainties inherent in estimating construction costs and the realizable market value of the
completed project and the effects of governmental regulation of real property, it is difficult to evaluate accurately the total funds
required to complete a project and the related loan-to-value ratio. As a result, real estate construction, acquisition and
development loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the
ultimate project and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor
to repay principal and interest. If our appraisal of the value of the completed project proves to be overstated or market values or
rental rates decline, we may have inadequate security for the repayment of the loan upon completion of construction of the
project. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that we
will be able to recover all of the unpaid balance and accrued interest on the loan as well as related foreclosure and holding costs.
In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an
unspecified period of time while we attempt to dispose of it. The adverse effects of the foregoing matters upon our real estate
construction, acquisition and development portfolio could result in an increase in non-performing loans related to this portfolio
and a resulting increase in charge-offs, which may have a material adverse effect on our financial condition and results of
operations.
Many of our loans are to commercial borrowers, which have unique risks compared to other types of loans.
At December 31, 2022, approximately 71.7% of our loan portfolio was comprised of commercial loans. Because
payments on these loans are often dependent on the successful operation or development of the property or business involved,
their repayment is sensitive to adverse conditions in the real estate market and the general economy. Accordingly, downturns in
the real estate market and economy increase the risk related to commercial loans, particularly commercial real estate loans.
Future declines in the real estate values in our markets could significantly impair the value of the particular collateral securing
26
our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to
us. This could require increasing our allowance for loan losses to address the decrease in the value of the real estate securing
our loans, which could have a material adverse effect on our business, financial condition, results of operations and growth
prospects. Commercial loans are also subject to loan specific risks, including risks associated with construction, cost overruns,
project completion risk, general contractor credit risk and risks associated with the ultimate sale or use of the completed
construction. If a decline in economic conditions, natural disasters affecting commercial development or other issues cause
difficulties for our commercial loan borrowers, if we fail to evaluate the credit of these loans accurately when we underwrite
them or if we fail to adequately monitor the performance of these loans, our lending portfolio could experience delinquencies,
defaults and credit losses that could have a material adverse effect on our business, financial condition or results of operations.
Our loan portfolio includes lending in energy and other specialized industries.
Our loan portfolio includes lending in energy and other specialized industries. At December 31, 2022, 6.5% of our
total loans outstanding were to companies operating in the hospitality and healthcare industries, and 5.4% were to companies
operating in the energy sector. These industries and businesses are sensitive to economic conditions and complex factors (such
as supply chain factors), which may expose us to risks unique to these industries. Oil prices can fluctuate widely on a month-to-
month basis in response to a variety of factors that are beyond our control. Factors that contribute to price fluctuations include
war and instability in oil-producing regions, worldwide economic conditions, weather conditions, the supply and price of
domestic and foreign oil, natural gas and natural gas liquids, consumer demand, the price and availability of alternative fuels,
the proximity to, and capacity of, transportation facilities and the effect of worldwide energy conservation measures. Adverse
economic conditions or business conditions relating to these industries could negatively impact our operating results more than
if our loan portfolio was not concentrated in these industries.
Sustained low oil prices, volatility in oil prices and downturns in the energy industry, including in Texas and Louisiana,
could materially and adversely affect us.
The economy in Texas and Louisiana significantly depends on the energy industry. A downturn or lack of growth in
the energy industry and energy-related businesses, including sustained low oil prices or the failure of oil prices to rise in the
future, could adversely affect our results of operations and financial condition. The economic impacts of COVID-19 initially
resulted in pricing pressure on oil and gas and weaker demand for energy lending, however, energy prices have risen
significantly during 2022 contributing to the overall inflation rate These factors and general uncertainty resulting from
continued volatility could have other future adverse impacts such as job losses in energy-related industries, lower borrowing
needs, higher transaction deposit balances and other effects that are difficult to isolate or quantify. Such impacts could
particularly impact states with significant dependence on the energy industry such as Texas and Louisiana, all of which could
have a material adverse effect on our business, financial condition and results of operations.
A significant portion of our loan portfolio is comprised of loan participations and Shared National Credits (SNC), which
could have a material adverse effect on our ability to monitor such lending relationships and lead to an increased risk of
loss.
We participate in loans originated by other institutions and in SNC, broadly defined as loans to larger institutions by a
group of participating lenders where the client’s needs are larger than any individual lender can prudently provide, and in which
other lenders serve as the agent bank. Additionally, our specialized industries lending includes larger, national companies that
tend to be served through SNC. At December 31, 2022, approximately 13.5% of our total loans, consisted of SNC. For the vast
majority of SNC, we are not the lead bank. Our reduced control over the monitoring and management of these relationships
could lead to increased risk of loss, which could have a material adverse effect on our results of operations.
The amount of our nonperforming and criticized assets may adversely affect our results of operations and financial
condition.
At December 31, 2022 and 2021, our nonperforming assets to total assets were 0.24% and 0.39%, respectively. Total
criticized loans at December 31, 2022 and 2021, were $622.8 million and $675.7 million, respectively (see “Asset Quality”
section in Part II, Item 7, Management’s Discussion and Analysis). Increases in nonperforming assets and criticized loans could
result in increased provisions for credit losses, lost income, and additional expenses to maintain such assets which could have a
material adverse effect on our results of operations.
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The fair value of our investment securities may decline.
At December 31, 2022, the fair value of our available for sale securities portfolio was approximately $11.9 billion.
Factors beyond our control can significantly influence the fair value of our securities and can cause adverse changes to the fair
value of these securities. These factors include rating agency actions, defaults by or other adverse events affecting the issuer,
lack of liquidity, changes in market interest rates, and continued instability in the capital markets. A prolonged decline in the
fair value of our securities could result in an other-than-temporary impairment write-down, which would affect our results of
operations.
Liquidity Risk
Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.
Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and
other sources could have a substantial negative effect on the Company’s liquidity. Our access to funding sources in amounts
adequate to finance our activities or on terms which are acceptable to us could be impaired by factors that affect us specifically
or the financial services industry or economy in general. A decrease in the level of our business activity as a result of a
downturn in the markets in which our loans are concentrated as well as adverse regulatory actions against us could
detrimentally impact our access to liquidity sources. In addition, our access to deposits may be affected by the liquidity and/or
cash flow needs of depositors, which may be exacerbated in an inflationary, recessionary, or elevated rate environment. Our
ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or
negative views and expectations about the prospects for the financial services industry generally.
We rely on customer deposits as a primary source of funding, and our deposits may decrease in the future.
We rely on customer deposits as a significant source of funding. Competition among U.S. banks and non-banks for
customer deposits is intense and may increase the cost of deposits (particularly in an elevated rate environment) or prevent new
deposits and may otherwise negatively affect our ability to grow our deposit base. Our deposit accounts may decrease in the
future, and any such decrease could have a material adverse impact on our sources of funding. Any changes we make to the
rates offered on our deposit products to remain competitive with other financial institutions may adversely affect our
profitability. The demand for our deposit products may also be reduced due to a variety of factors such as demographic patterns,
changes in customer preferences, including customers moving funds out of bank deposits and into alternative investments, such
as the stock market, that may be perceived as providing superior expected returns, reductions in consumers’ disposable income,
regulatory actions that decrease customer access to particular products or the availability of competing products. In addition, a
portion of our deposits are brokered deposits. The levels of these types of deposits that we hold may be more volatile during
changing economic conditions.
The borrowing needs of our clients may increase, especially during a challenging economic environment, which could
result in increased borrowing against our contractual obligations to extend credit.
A commitment to extend credit is a formal agreement to lend funds to a client as long as there is no violation of any
condition established under the agreement. The actual borrowing needs of our clients under these credit commitments have
historically been lower than the contractual amount of the commitments. At December 31, 2022, we had $11.2 billion in
unfunded credit commitments to our clients. Actual borrowing needs of our clients may exceed our expectations for any
numbers of reasons. This could adversely affect our liquidity, which could impair our ability to fund operations and meet
obligations as they become due and could have a material adverse effect on our business, financial condition and results of
operations.
Our indebtedness could affect our ability to meet our obligations and may otherwise restrict our activities.
Our indebtedness could limit our ability to borrow money for funding loans, capital expenditures, debt service
requirements or other corporate purposes; require us to dedicate a substantial portion of our cash flow to payments on our
indebtedness; increase our vulnerability to general adverse economic and industry conditions; and limit our ability to respond to
business opportunities, including growing our business through acquisitions. In addition, the instruments governing our
indebtedness contain certain restrictive covenants including with respect to consolidating or merging the Company or the Bank
into another entity or transferring substantially all of their respective assets or properties. Certain of the Company’s debt also
contains restrictions on the Company’s ability to assign or grant a security interest in or otherwise dispose of any shares of the
voting stock of the Bank. Failure to meet any of these covenants could result in an event of default under these agreements. If
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an event of default occurs under these agreements, the lenders could elect to declare all amounts outstanding under these
agreements to be immediately due and payable.
At December 31, 2022, the Company had $462.6 million of subordinated and long-term debt outstanding. Total
interest expense on this debt was $19.3 million on a pre-tax basis for 2022. An increase in interest rates will increase our
interest expense on any new debt we issue. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” In
addition, we may not be able to refinance our indebtedness on substantially similar terms, or at all, at or prior to the time that it
comes due.
We rely on the mortgage secondary market for some of our liquidity.
We originate and sell a portion of our residential mortgage loans. We rely on the Federal National Mortgage
Association (“FNMA”) and other purchasers to purchase loans in order to reduce our credit risk and provide funding for
additional loans we desire to originate. We cannot provide assurance that these purchasers will not materially limit their
purchases from us due to capital constraints or other factors, including, with respect to FNMA, a change in the criteria for
conforming loans. In addition, various proposals have been made to reform the U.S. residential mortgage finance market,
including the role of FNMA. The exact effects of any such reforms are not yet known, but may limit our ability to sell
conforming loans to FNMA. In addition, residential mortgage lending is highly regulated, and our inability to comply with all
federal and state regulations and investor guidelines regarding the origination, underwriting documentation and servicing of
residential mortgage loans may also impact our ability to continue selling residential mortgage loans. If we are unable to
continue to sell loans in the secondary market, our ability to fund, and thus originate, additional residential mortgage loans may
be adversely affected, which could have a material adverse effect on our business, financial condition or results of operations.
Strategic Risk
We compete with financial holding companies, bank holding companies, banks, insurance, fintech, other financial
services companies and nonbank financial institutions, and consumers may decide not to use banks to complete their
financial transactions, which could adversely affect our net income.
The banking, insurance and financial services businesses are extremely competitive in our markets. Certain of our
competitors, many of which are well-established banks, credit unions, insurance agencies and other large financial institutions,
have an advantage over us through substantially greater financial resources, lending limits and larger distribution networks, and
are able to offer a broader range of products and services. Other competitors, including fintech companies, many of which are
smaller, are privately-held and thus benefit from greater flexibility in adopting or modifying growth or operational strategies
than we do. If we fail to compete effectively for deposits, loans, leases and other banking customers in our markets, we could
lose substantial market share, suffer a slower growth rate or no growth and our financial condition, results of operations and
liquidity could be adversely affected.
Further, technology and other changes now allow parties to complete financial transactions without banks. For
example, consumers can pay bills, transfer funds directly and obtain loans without banks. This process could result in the loss
of interest and fee income, as well as the loss of customer deposits and the income generated from those deposits.
Non-bank financial technology providers invest substantial resources in developing and designing new technology,
particularly digital and mobile technology, and are beginning to offer more traditional banking products either directly or
through bank partnerships. Further, clients may choose to conduct business with other market participants who engage in
business or offer products in areas we deem speculative or risky, such as cryptocurrencies. Increased competition may
negatively affect our earnings by creating pressure to lower prices or credit standards on our products and services requiring
additional investment to improve the quality and delivery of our technology and/or reducing our market share, or affecting the
willingness of our clients to do business with us.
In addition, the widespread adoption of new technologies, including internet banking services, mobile banking
services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products
and services as we grow and develop our internet banking and mobile banking channel strategies in addition to remote
connectivity solutions. We might not be successful in developing or introducing new products and services, integrating new
products or services into our existing offerings, responding or adapting to changes in consumer behavior, preferences, spending,
investing and/or saving habits, achieving market acceptance of our products and services, reducing costs in response to
pressures to deliver products and services at lower prices or sufficiently developing and maintaining loyal customers.
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Further, we may experience a decrease in customer deposits if customers perceive alternative investments, such as the
stock market, as providing superior expected returns. When customers move money out of bank deposits in favor of alternative
investments, we may lose a relatively inexpensive source of funds, and be forced to rely more heavily on borrowings and other
sources of funding to fund our business and meet withdrawal demands, thereby increasing our funding costs and adversely
affecting our net interest margin.
Our growth strategy includes risks that could have an adverse effect on our financial performance.
An element of our growth strategy is the acquisition of additional banks, bank holding companies, financial holding
companies, insurance agencies and/or other businesses related to the financial services industry that may complement our
organizational structure in order to achieve greater economies of scale. The market for acquisitions remains highly competitive.
Accordingly, we cannot assure you that appropriate growth opportunities will continue to exist, that we will be able to acquire
banks, insurance agencies, bank holding companies and/or financial holding companies that satisfy our criteria or that any such
acquisitions will be on terms favorable to us. To the extent that we are unable to find suitable acquisition candidates, an
important component of our growth strategy may be lost.
In addition, acquisitions of financial institutions involve operational risks and uncertainties and acquired companies
may have unforeseen liabilities, exposure to asset quality problems, key employee and customer retention problems and other
problems that could negatively affect our organization. We may incur substantial costs to expand, and we cannot give assurance
such expansion will result in the levels of profits we seek. We may not be able to complete future acquisitions; and, if
completed, we may not be able to successfully integrate the operations, management, products and services of the entities that
we acquire and eliminate redundancies. The integration process could result in the loss of key employees or disruption of the
combined entity’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our
ability to maintain relationships with customers and employees or achieve the anticipated benefits of the transaction. The
integration process may also require significant time and attention from our management that they would otherwise direct at
servicing existing business and developing new business. Our inability to find suitable acquisition candidates and failure to
successfully integrate the entities we acquire into our existing operations may increase our operating costs significantly and
adversely affect our business and earnings.
Further, our growth strategy requires that we continue to hire qualified personnel, while concurrently expanding our
managerial and operational infrastructure. We cannot assure you that we will be able to hire and retain qualified personnel or
that we will be able to successfully expand our infrastructure to accommodate future acquisitions or growth. As a result of these
factors, we may not realize the expected economic benefits associated with our acquisitions. This could have a material adverse
effect on our financial performance.
If we are unable to manage our growth effectively, our operations could be negatively affected.
If we experience growth in the future, we could face various risks and difficulties, including:
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finding suitable markets for expansion;
finding suitable candidates for acquisition;
attracting funding to support additional growth;
• maintaining asset quality;
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attracting and retaining qualified management and personnel; and
• maintaining adequate regulatory capital.
In addition, in order to manage our growth and maintain adequate information and reporting systems within our
organization, we must identify, hire and retain additional qualified associates, particularly in the accounting and operational
areas of our business.
If we do not manage our growth effectively, our business, financial condition, results of operations and future
prospects could be negatively affected, and we may not be able to continue to implement our business strategy and successfully
conduct our operations.
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We face risks in connection with completed or potential acquisitions.
Historically, we have grown through the acquisition of other financial institutions as well as the development of de
novo offices. During 2021, we completed three bank mergers, including our acquisition of Cadence Bancorporation and
Cadence Bank, N.A. (collectively, “Legacy Cadence”). As appropriate opportunities present themselves, we have pursued and
intend to continue to pursue additional acquisitions in the future that we believe are strategic and accretive to earnings. There
can be no assurance that we will be able to identify, negotiate, finance or consummate potential acquisitions successfully or, if
consummated, integrate such acquisitions with our current business.
We may not realize all of the anticipated benefits of the acquisition of Legacy Cadence.
Our ability to realize the anticipated benefits of the acquisition of Legacy Cadence will depend, to a large extent, on
our ability to successfully integrate the acquired business. The integration and combination of the acquired business is a
complex, costly and time-consuming process. As a result, we will be required to devote significant management attention and
resources to integrating their business practices and operations with ours. The integration process may disrupt our business and
the business of Legacy Cadence and, if implemented ineffectively, could limit the full realization of the anticipated benefits of
the acquisition. The failure to meet the challenges involved in integrating the acquired businesses and to realize the anticipated
benefits of the acquisition could cause an interruption of, or a loss of momentum in, our business activities or those of Legacy
Cadence and could adversely impact our business, financial condition and results of operations. In addition, the overall
integration of the businesses may result in material unanticipated problems, expenses, liabilities, loss of customers and
diversion of our management’s and employees’ attention. The challenges of combining the operations of the companies include,
among others:
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•
•
•
•
•
•
Difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects, including the
potential adverse impact of the Company’s assumption of Legacy Cadence’s outstanding debt obligations;
Difficulties in the integration of operations and teams;
Difficulties in the assimilation and retention of employees;
Difficulties in managing the expanded operations of a larger and more complex company;
Challenges in keeping existing customers and obtaining new customers;
Challenges in attracting and retaining key personnel, including personnel that are considered key to future success;
Challenges related to Legacy Cadence’s credit quality and credit risk; and
Challenges in keeping key business relationships in place.
Many of these factors are outside of our control and any one of them could result in increased costs and liabilities,
decreases in expected income and deposits, and diversion of management’s time and energy, which could have a material
adverse effect on our business, financial condition and results of operations. Additionally, even if the integration of Legacy
Cadence is successful, the full benefits of the transaction may not be realized, including the synergies, cost savings, growth
opportunities or earnings accretion that are expected. These benefits may not be achieved within the anticipated time frame, or
at all, and additional unanticipated costs may be incurred in the integration of the businesses. Furthermore, Legacy Cadence
may have unknown or contingent liabilities that we assumed in the acquisition that were not discovered during our due
diligence. These liabilities could include exposure to unexpected asset quality problems, compliance and regulatory violations,
key employee and client retention problems and other problems that could result in significant costs to us.
All of these factors could cause dilution to our earnings per share, decrease or delay the expected accretive effect of the
transaction, negatively impact the price of our common stock, or have a material adverse effect on our business, financial
condition and results of operations.
We may not be able to raise additional capital in the future.
We are required by federal regulatory authorities to maintain adequate levels of capital to support our operations. In
addition, we may elect to raise additional capital to support our business or to finance any acquisitions or we may otherwise
elect or be required to raise additional capital. As a publicly-traded company, a likely source of additional funds is the capital
markets, accomplished generally through the issuance of equity, including common stock, preferred stock, warrants, depository
shares, rights, purchase contracts or units, and the issuance of senior or subordinated debt securities. Our ability to raise
additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other
factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot provide assurance of
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our ability to raise additional capital if needed or to be able to do so on terms acceptable to us. Any occurrence that may limit its
access to the capital markets, such as a decline in the confidence of investors, depositors of the Company or counterparties
participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our
liquidity. Moreover, if we need to raise capital in the future, we may have to do so when many other financial institutions are
also seeking to raise capital and would have to compete with those institutions for investors. If we cannot raise additional
capital on favorable terms when needed, it may have a material adverse effect on our financial condition and results of
operations.
If the goodwill that we record in connection with a business acquisition becomes impaired, it could require a charge to
earnings.
Goodwill represents the amount by which the purchase price exceeds the fair value of net assets acquired in a business
combination. We review goodwill for impairment at least annually, or more frequently if events or changes in circumstances
indicate the carrying value of the asset might be impaired.
We evaluate goodwill for impairment by comparing the estimated fair value of each reporting unit with its carrying
amount, including goodwill. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is
recognized in an amount equal to that excess. Factors that could cause an impairment charge include adverse changes to
macroeconomic conditions, declines in the profitability of the reporting unit, or declines in the tangible book value of the
reporting unit. Future evaluations of goodwill may result in impairment which could have a material adverse effect on our
business, financial condition and results of operations.
Operational Risk
We are subject to environmental liability risk associated with our lending activities.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may
foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances
could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well
as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may
materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or
more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental
liability. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material
adverse effect on our business, results of operations and financial condition.
We may be adversely impacted by the transition from LIBOR as a reference rate.
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel
banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). On March 5, 2021, LIBOR’s
regulator, the Financial Conduct Authority, and administrator, ICE Benchmark Administration, Limited, announced that the
publication of the one-week and two-month USD LIBOR maturities and non-USD LIBOR maturities will cease immediately
after December 31, 2021, with the remaining USD LIBOR maturities ceasing immediately after June 30, 2023.. Regardless, the
federal banking agencies also issued guidance on November 30, 2020, encouraging banks to (i) stop using LIBOR in new
financial contracts no later than December 31, 2021; and (ii) either use a rate other than LIBOR or include clear language
defining the alternative rate that will be applicable after LIBOR’s discontinuation.
To address the problem created by legacy financial contracts that incorporate LIBOR as their reference interest rate,
but extend beyond the date after which LIBOR will be published, on March 15, 2022, Congress enacted the Adjustable Interest
Rate (LIBOR) Act (the “LIBOR Act”). On December 16, 2022, the Federal Reserve adopted a final rule implementing the
LIBOR Act by adopting benchmark rates based on the Secured Overnight Financing Rate (“SOFR”) that will replace LIBOR in
certain financial contracts after June 30, 2023. Even with provisions allowing for designation of alternative benchmarks or
“fallback” provisions, the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a consequence
of the transition from LIBOR. All of this could result in damage to our reputation, loss of customers and additional costs to us,
all of which could be material.
We have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes
that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and
additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will
differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing
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models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition
process with our customers could adversely impact our reputation. Although we are currently unable to assess what the ultimate
impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on
our business, financial condition and results of operations.
The Company formed a working group to coordinate the orderly transition from the LIBOR to one or more alternative
reference rates. The working group consists of senior management of the Company, and the working group provides updates to
the Credit Committee of Management and the Credit Risk Committee of the Board on a recurring basis. Key initiatives of the
working group include identification of LIBOR exposure, review of associated contract language to determine optionality for
transferring to an alternative reference rate, and review of system capabilities for accommodating alternative reference rates.
The Company discontinued the use of new LIBOR-based production effective January 1, 2022. In addition, the Company is on
schedule to transition from LIBOR to an alternative reference for existing contracts upon the cessation of LIBOR, which
includes an effective date for the 1-week and 2-months settings of January 1, 2022 and an effective date of July 1, 2023 for the
overnight and 1, 3, 6, and 12-months settings.
At December 31, 2022, the Company has identified approximately $3.5 billion in loans for which the repricing index
is tied to LIBOR.
Our business is, and will continue to be, dependent on technology and an inability to invest in technological
improvements or obtain reliable technological support may adversely affect our results of operation and financial
condition.
The financial services industry is undergoing rapid technological changes with frequent introductions of new
technology-driven products and services. In addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. Our ability to grow and compete will depend in part upon our
ability to address the needs of customers by using technology to provide products and services that will satisfy their operational
needs, while managing the costs of expanding our technology infrastructure and our geographic footprint. Many competitors
have substantially greater resources to invest in technological improvements and third-party support. There can be no assurance
that we will be able to effectively implement new technology-driven products and services or be successful in marketing these
products and services to our customers. For the foreseeable future, we expect to rely on third-party service providers and on
other third parties for services and technical support. If those products and services become unreliable or fail, the adverse
impact on customer relationships and operations could be material.
We are subject to a variety of systems-failure and cybersecurity risks that could adversely affect our business and
financial performance.
Our internal operations are subject to certain risks, including, but not limited to, information systems failures and
errors, customer or employee fraud and catastrophic failures resulting from terrorist acts, data piracy or natural disasters. We
maintain a system of internal controls and security to mitigate the risks of many of these occurrences and maintain insurance
coverage for certain risks. However, should an event occur that is not prevented or detected by our internal controls, and is
uninsured against or in excess of applicable insurance limits, such occurrence could have an adverse effect on our business,
financial condition, results of operations and liquidity.
The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations
are dependent upon the ability to protect our computer equipment against damage from fire, severe storm, power loss,
telecommunications failure or a similar catastrophic event. Any damage or failure of our computer systems or network
infrastructure that causes an interruption in operations could have an adverse effect on our financial condition, results of
operations and liquidity.
In addition, our operations are dependent upon our ability to protect the computer systems and network infrastructure
against damage from physical break-ins, security breaches and other disruptive problems caused by internet users or other
users. Computer break-ins and other disruptions could jeopardize the security of information stored in and transmitted through
our computer systems and networks, which may result in significant liability and reputation risk to us, and may deter potential
customers. Although we, with the help of third-party service providers, intend to continue to actively monitor and, where
necessary, implement improved security technology and develop additional operational procedures to prevent damage or
unauthorized access to our computer systems and network, there can be no assurance that these security measures or operational
procedures will be successful. In addition, new developments or advances in computer capabilities or new discoveries in the
field of cryptography could enable hackers or data pirates to compromise or breach the security measures we use to protect
customer data. Any failure to maintain adequate security over our customers’ personal and transactional information could
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expose us to reputational risk or consumer litigation and could have an adverse effect on our financial condition, results of
operations and liquidity.
Our risk and exposure to cyber-attacks and other information security breaches remain heightened because of, among
other things, the evolving nature of these threats and the prevalence of internet and mobile banking. As cyber threats continue to
evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures
or to investigate and remediate any information security vulnerabilities. Disruptions or failures in the physical infrastructure or
operating systems that support our businesses and customers, or cyber-attacks or security breaches of the networks, systems or
devices that customers use to access our products and services, could result in customer attrition, regulatory fines, penalties or
intervention, reputational damage, reimbursement or other compensation costs, including litigation expense and/or additional
compliance costs, any of which could materially and adversely affect our business, results of operations or financial condition.
We may be adversely affected by the failure of certain third-party vendors to perform.
We rely upon certain third-party vendors to provide products and services necessary to maintain our day-to-day
operations. These third parties provide key components of our business operations. Accordingly, our operations are exposed to
the risk that these vendors might not perform in accordance with applicable contractual arrangements or service level
agreements. Any complications caused by these third parties, including those resulting from disruptions in communication
services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and security breaches at a
vendor, failure of a vendor to provide services for any reason or poor performance of services, could adversely affect our ability
to deliver products and services to our customers and otherwise conduct our business. Financial or operational difficulties of a
third-party vendor could also hurt our operations if those difficulties interfere with the vendor’s ability to provide services.
Furthermore, our vendors could also be sources of operational and information security risk, including from breakdowns or
failures of their own systems or capacity constraints. Replacing these third-party vendors could also create significant delay and
expense. Problems caused by external vendors could be disruptive to our operations, which could have a material adverse
impact on our business and, in turn, our financial condition and results of operations. We maintain a system of policies and
procedures designed to monitor vendor risks, including, among other things, (i) changes in the vendor’s organizational
structure, (ii) changes in the vendor’s financial condition, (iii) changes in existing products and services or the introduction of
new products and services, and (iv) changes in the vendor’s support for existing products and services. While we believe these
policies and procedures help to mitigate risk, the failure of an external vendor to perform in accordance with applicable
contractual arrangements or service level agreements could be disruptive to our operations, which could have a material adverse
effect on our financial condition and results of operations.
Our earnings could be adversely impacted by incidences of fraud and compliance failures that are not within our direct
control.
Financial institutions are inherently exposed to fraud risk. A fraud can be perpetrated by a customer of the Company,
an employee, a vendor or members of the general public. We are most subject to fraud and compliance risk in connection with
the origination of loans, automated clearing house transactions, ATM transactions and checking transactions. Our largest fraud
risk, associated with the origination of loans, includes the intentional misstatement of information in property appraisals or
other underwriting documentation provided to us by third parties. If any of the information upon which we rely is
misrepresented, either fraudulently or inadvertently, and the misrepresentation is not detected prior to asset funding, the value
of the asset may be significantly lower than expected, or we may fund a loan we would not have funded or on terms we would
not have extended. Whether a misrepresentation is made by the applicant or another third party, we generally bear the risk of
loss associated with the misrepresentation. A loan subject to a material misrepresentation is typically unsellable or subject to
repurchase if it is sold prior to detection of the misrepresentation. The sources of the misrepresentations are often difficult to
locate, and it is often difficult to recover any of the monetary losses we may suffer. Accordingly, the compliance risk is that
loans are not originated in compliance with applicable laws and regulations and our standards. There can be no assurance that
we can prevent or detect acts of fraud or violation of law or our compliance standards by third parties. Repeated incidences of
fraud or compliance failures could adversely impact the performance of our loan portfolio.
We may be adversely affected by the soundness of other financial institutions.
Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. We
have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the
financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients.
As a result, defaults by, or rumors or questions about, one or more financial services institutions, or the financial services
industry generally, may result in market-wide liquidity problems and could lead to losses or defaults by such other institutions.
Such occurrences could expose us to credit risk in the event of default of one or more counterparties and could have a material
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adverse effect on our financial position, results of operations and liquidity. In addition, our credit risk may be exacerbated when
the collateral we hold cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or
derivative exposure owed to us. Any such losses could have a material adverse effect on our financial condition and results of
operations.
Public Health and Impact of COVID-19
The ongoing COVID-19 pandemic and resulting adverse economic conditions have adversely impacted, and could
continue to adversely impact, our business and results.
Our business is dependent on the willingness and ability of our customers to conduct banking and other financial
transactions. The ongoing COVID-19 global and national health emergency caused significant disruption in the United States
and international economies and financial markets and continues to cause illness, quarantines, reduced attendance at events and
reduced travel, reduced commercial and financial activity, and overall economic and financial market instability.
While the level of disruption caused by, and the economic impact of, COVID-19 has lessened in 2022, there is no
assurance that the pandemic will not worsen again, including as a result of the emergence of new strains of the virus. Any
worsening of the pandemic and its effects on the economy could further impact our business, our provision and allowance for
credit losses, and the value of certain assets that we carry on our balance sheet such as goodwill. Our customers, business
partners, and third-party providers, including those who perform critical services for our business, may also be adversely
affected.
RISKS RELATED TO THE REGULATION OF OUR INDUSTRY
Regulatory Risk
The banking industry is highly regulated, and current and future legislative or regulatory changes could have a
significant adverse effect on our business, financial condition, or results of operations.
As a state chartered bank, we are subject to extensive federal supervision and regulation. Federal regulation of the
banking industry, along with tax and accounting laws, regulations, rules and standards, limit our operations significantly and
control the methods by which we conduct business. In addition, compliance with laws and regulations can be difficult and
costly, and changes to laws and regulations can impose additional compliance costs. Many of these regulations are intended to
protect depositors, customers, the public, the banking system as a whole or the FDIC deposit insurance fund, not shareholders.
Regulatory requirements and discretion affect our lending practices, capital structure, investment practices, dividend policy and
many other aspects of our business. There are laws and regulations which restrict transactions between us and our subsidiaries.
These requirements may constrain our operations, and the adoption of new laws and changes to or repeal of existing laws may
have a further impact on our business, financial condition, results of operations and future prospects. The burdens imposed by
federal and state regulations place banks at a competitive disadvantage compared to non-bank competitors. We are also subject
to requirements with respect to the confidentiality of information obtained from clients concerning their identities, business and
personal financial information, employment, and other matters. We require our personnel to agree to keep all such information
confidential and we monitor compliance. Failure to comply with confidentiality requirements could result in material liability
and adversely affect our business, financial condition, results of operations and future prospects.
Federal and state regulatory agencies may adopt changes to their regulations or change the manner in which existing
regulations are applied. We cannot predict the substance or effect of pending or future legislation or regulation or the
application of laws and regulations to our Company. Compliance with current and potential regulation, as well as regulatory
scrutiny, may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase
our regulatory capital, and limit our ability to pursue business opportunities in an efficient manner by requiring us to expend
significant time, effort and resources to ensure compliance and respond to any regulatory inquiries or investigations. In
addition, press coverage and other public statements that assert some form of wrongdoing by financial services companies
(including press coverage and public statements that do not involve us) may result in regulatory inquiries or investigations,
which, independent of the outcome, may be time-consuming and expensive and may divert time, effort and resources from our
business. Evolving regulations and guidance concerning executive compensation may also impose limitations on us that affect
our ability to compete successfully for executive and management talent.
Regulatory initiatives regarding bank capital requirements may require increased capital.
Cadence is subject to risk-based and leverage capital requirements. We must maintain certain risk-based and leverage
capital ratios as required by our banking regulators, which can change depending on economic conditions and our particular
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condition, risk profile, growth plans, and regulatory capital guidelines. Failure to meet minimum capital guidelines and/or other
regulatory requirements can subject the Company to certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material adverse effect on the Company’s consolidated financial statements.
Additional information, including the Company’s and Bank’s compliance with applicable capital adequacy standards is
provided in Note 20 to the consolidated financial statements and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Regulatory Capital.”
In March 2020, the Basel Committee on Banking Supervision announced that it will delay the implementation of
outstanding capital standards, commonly referred to as “Basel IV”, to allow banks to focus their resources on navigating the
economic impact of the COVID-19 pandemic. The standards, originally set to be implemented on January 1, 2022, now have an
implementation date of January 1, 2023, with a phasing in of the output floor to January 1, 2027.
Changes in accounting rules applicable to banks could adversely affect our financial condition and results of operations.
From time to time, the Financial Accounting Standards Board (the “FASB”) and the SEC change the financial
accounting and reporting standards that govern the preparation of our consolidated financial statements. These changes can be
hard to predict and can materially impact how we record and report our financial condition and results of operations. In some
cases, we could be required to apply a new or revised standard retroactively, resulting in a restatement of our prior period
financial statements.
Regulators periodically examine our business and we may be required to remediate adverse examination findings.
The FDIC, the MDBCF and the CFPB periodically examine our business, including our compliance with laws and
regulations, and we may become subject to other regulatory agency examinations in the future. If, as a result of an examination,
a federal or state banking agency were to determine that our financial condition, capital resources, asset quality, earnings
prospects, management, liquidity, or other aspects of any of our operations had become unsatisfactory, or that we were in
violation of any law or regulation, it may require us to take a number of different remedial actions as it deems appropriate.
These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in
our capital, to restrict our growth by preventing us from acquiring other financial institutions or limiting our ability to expand
our business by engaging in new activities, to change the asset composition of our portfolio or balance sheet, to assess civil
monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions
cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place us into
receivership or conservatorship. Any regulatory action against us could have a material adverse effect on our business, financial
condition and results of operations.
The Company is operating under a Consent Order, and its failure to comply with the Consent Order could materially
and adversely affect our business.
On August 30, 2021, Legacy Cadence Bank and the U.S. Department of Justice (“DOJ”) agreed to a settlement set
forth in the consent order related to the investigation by the DOJ of Legacy Cadence Bank’s fair lending program in Harris, Fort
Bend and Montgomery Counties located in Houston, Texas during the period between 2014 and 2016 (the “Consent Order”).
Under the Consent Order, Legacy Cadence Bank will, among other things, implement a mutually agreed upon Fair Lending
Plan, invest $4.17 million in a loan subsidy fund to increase credit opportunities to residents of majority-Black and Hispanic
neighborhoods and will devote $1.38 million toward advertising, community outreach, and credit repair and education. Legacy
Cadence Bank will also open one full-service branch to serve the banking and credit needs of residents in a majority-Black and
Hispanic neighborhood in Houston. In addition, Legacy Cadence Bank will employ a director of community lending and
development who will oversee these efforts and work in close consultation with Legacy Cadence Bank’s leadership. The
Consent Order was signed by the United States District Court for the Northern District of Georgia, Atlanta Division, on August
31, 2021. Pursuant to Section 5.2(g) of the Agreement and Plan of Merger with Legacy Cadence, dated April 12, 2021, and
Paragraph 50 of the Consent Order, Legacy BancorpSouth Bank approved the negotiated settlement, and subsequently, the
Company agreed to accept the obligations of the Consent Order. The Consent Order is in effect for five years. For additional
information regarding the terms of this settlement and the Consent Order, see Legacy Cadence’s Current Report on Form 8-K
that was filed with the SEC on August 30, 2021.
The Company is operating under the Consent Order. Our Board of Directors and senior management team have been
working diligently to comply with the Consent Order and believe that they have allocated sufficient resources to address the
corrective actions required by the DOJ. Compliance with and resolution of the Consent Order will ultimately be determined by
the DOJ. The Company’s failure to comply with the Consent Order and to successfully implement its requirements may cause
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us to incur additional significant compliance costs, subject us to larger fines, result in serious reputational consequences,
additional regulatory enforcement actions, including the imposition of material restrictions on the activities of the Company or
the assessment of fines or penalties against the Company and its officers and directors, which could prevent the Company from
executing its business strategy and negatively impact its business, or additional enforcement of the Consent Order through court
proceedings. Any of these results could have a material and adverse effect on our business, results of operations, financial
condition, cash flows and stock price.
Compliance Risk
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure to
comply with these laws could lead to a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies,
including the CFPB, are responsible for enforcing these laws and regulations. A successful regulatory challenge to an
institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions,
including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on
expansion, and restrictions on entering new business lines. As discussed in more detail above, the Company is subject to the
Consent Order in connection with Legacy Cadence Bank’s compliance with fair lending laws. In the case of the CRA, the
performance of a financial institution in meeting the credit needs of its community and its overall CRA rating are factors that
will be taken into consideration when the federal banking agencies evaluate applications related to mergers and acquisitions, as
well as branch opening and relocations. Private parties may also have the ability to challenge an institution’s performance under
fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial
condition and results of operations.
Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase
our risk of liability with respect to such loans and could increase our cost of doing business.
Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered
“predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling unnecessary
insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the borrowers will
be able to repay the loans irrespective of the value of the underlying property. It is our policy not to make predatory loans, but
these laws create the potential for liability with respect to our lending and loan investment activities. They increase our cost of
doing business and, ultimately, may prevent us from making certain loans and cause us to reduce the average percentage rate or
the points and fees on loans that we do make.
The expanding body of federal, state and local regulations and/or the licensing of loan servicing, collections or other
aspects of our business and our sales of loans to third parties may increase the cost of compliance and the risks of
noncompliance and subject us to litigation.
We service some of our own loans, and loan servicing is subject to extensive regulation by federal, state and local
governmental authorities as well as to various laws and judicial and administrative decisions imposing requirements and
restrictions on those activities. The volume of new or modified laws and regulations has increased in recent years and, in
addition, some individual municipalities have begun to enact laws that restrict loan servicing activities including delaying or
temporarily preventing foreclosures or forcing the modification of certain mortgages. If regulators impose new or more
restrictive requirements, we may incur additional significant costs to comply with such requirements which may further
adversely affect us. In addition, were we to be subject to regulatory investigation or regulatory action regarding our loan
modification and foreclosure practices, our financial condition and results of operation could be adversely affected.
We are subject to laws regarding the privacy, information security and protection of personal information and
any violation of these laws or another incident involving personal, confidential or proprietary information of individuals
could damage our reputation and otherwise adversely affect our operations and financial condition.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable
information in various information systems that we maintain and in those maintained by third parties with whom we contract to
provide data services. We also maintain important internal company data such as personally identifiable information about our
employees and information relating to our operations. We are subject to complex and evolving laws and regulations governing
the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third
parties). For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things: (i) imposes certain
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limitations on our ability to share nonpublic personal information about our customers with nonaffiliated third parties; (ii)
requires that we provide certain disclosures to customers about our information collection, sharing and security practices and
afford customers the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain
exceptions); and (iii) requires that we develop, implement and maintain a written comprehensive information security program
containing appropriate safeguards based on our size and complexity, the nature and scope of our activities, and the sensitivity of
customer information we process, as well as plans for responding to data security breaches. Various state and federal banking
regulators and states have also enacted data security breach notification requirements with varying levels of individual,
consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that
our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase
our costs. Furthermore, we may not be able to ensure that all of our clients, suppliers, counterparties and other third parties have
appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such
information is transmitted by electronic means. If personal, confidential or proprietary information of customers or others were
to be mishandled or misused (in situations where, for example, such information was erroneously provided to parties who are
not permitted to have the information, or where such information was intercepted or otherwise compromised by third parties),
we could be exposed to litigation or regulatory sanctions under personal information laws and regulations. Concerns regarding
the effectiveness of our measures to safeguard personal information, or even the perception that such measures are inadequate,
could cause us to lose customers or potential customers for our products and services and thereby reduce our revenues.
Accordingly, any failure or perceived failure to comply with applicable privacy or data protection laws and regulations may
subject us to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations
or practices or in significant liabilities, fines or penalties, and could damage our reputation and otherwise adversely affect our
operations and financial condition.
GENERAL RISK FACTORS
Economic Conditions
The fiscal and monetary policies of the U.S. government could have a material adverse effect on our results of
operations.
Our business is significantly affected by fiscal and monetary policies of the U.S. federal government and its agencies,
particularly the Federal Reserve Board. Federal Reserve policies determine in large part the cost of funds for lending and
investing and the returned earned on those loans and investments, both of which impact our net interest margin. Federal
Reserve policies may also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans or
could adversely create asset bubbles which result from prolonged periods of accommodative policy. This, in turn, may result in
volatile markets and rapidly declining collateral values. The monetary policies of the Federal Reserve and other governmental
policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do
so in the future. Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond
our control. Adverse economic conditions and government policy responses to such conditions could have a material adverse
effect on our business, financial condition and results of operations.
The Federal Reserve has implemented significant economic strategies that have impacted interest rates, inflation, asset
values, and the shape of the yield curve, over which the Company has no control and which the Company may not be
able to adequately anticipate.
In recent years, the Federal Reserve implemented a series of accommodative domestic monetary initiatives. Several of
these have emphasized so-called quantitative easing strategies and decreases to the Federal funds target rate. The Federal
Reserve reduced rates five times during 2019 through 2021. However, in response to the significant increase in the domestic
inflation rate in the U.S, the Federal Reserve increased the federal funds target rate seven times in 2022 for a total increase of
4.25%, and indicated additional increases would be forthcoming in 2023. Also during 2022, the Federal Reserve has
implemented quantitative tightening. Further rate changes reportedly are dependent on the Federal Reserve’s assessment of
economic data as it becomes available. The Company cannot predict the nature or timing of future changes in monetary,
economic, or other policies or the effect that they may have on the Company's business activities, financial condition and results
of operations. Changes in monetary policy, including changes in interest rates, could influence (i) the amount of interest we
receive on loans and securities, (ii) the amount of interest we pay on deposits and borrowings, (iii) our ability to originate loans
and obtain deposits, (iv) the fair value of our assets and liabilities, and (v) the reinvestment risk associated with changes in the
duration of our mortgage-backed securities portfolio.
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The current economic environment poses significant challenges and could adversely affect our financial condition and
results of operations.
We are operating in a challenging and uncertain economic environment. The global credit and financial markets have
from time to time experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, increases in unemployment rates, high rates of inflation, and
uncertainty about economic stability. As a result, financial institutions continue to be affected by uncertainty in the real estate
market, the credit markets, and the national financial market generally. We retain direct exposure to the commercial and
residential real estate markets, and we are affected by events in these markets. The financial markets and the global economy
may also be adversely affected by the current or anticipated impact of military conflict, including the current conflict between
Russia and Ukraine, which is increasing volatility in commodity and energy prices, creating supply chain issues and causing
instability in financial markets. Sanctions imposed by the United States and other countries in response to such conflict could
further adversely impact the financial markets and the global economy, and any economic countermeasures by the affected
countries or others could exacerbate market and economic instability.
The uncertainty in economic conditions has subjected us and other financial institutions to increased regulatory
scrutiny. In addition, deterioration in local economic conditions in our markets could result in losses beyond that provided for in
our ACL and result in increased loan delinquencies, problem assets, and foreclosures. This may also result in declining demand
for products and services, decreased deposits and increased borrowings under our current contractual obligations to extend
credit, all of which would adversely impact our liquidity positions, and declining values for loan collateral, which in turn would
reduce customers’ borrowing power and the value of assets and collateral associated with our existing loans.
Investment in Our Common Stock and Preferred Stock
The price of our common stock and preferred stock may fluctuate significantly, which may make it difficult for
investors to resell shares of our common stock or preferred stock at a time or price they find attractive.
The price of our common stock and preferred stock may fluctuate significantly as a result of a variety of factors, many
of which are beyond our control. In addition to those described in “Cautionary Notice Regarding Forward Looking Statements,”
these factors include, among others:
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actual or anticipated quarterly fluctuations in our operating results, financial condition or asset quality;
changes in financial estimates or the publication of research reports and recommendations by financial
analysts or actions taken by rating agencies with respect to us or other financial institutions;
failure to declare dividends on our capital stock from time to time;
failure to meet analysts’ revenue or earnings estimates;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
strategic actions by us or our competitors, such as acquisitions, restructurings, dispositions or financings;
fluctuations in the stock price and operating results of our competitors or other companies that investors deem
comparable to us;
future sales of our capital stock or other securities;
proposed or final regulatory changes or developments;
anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us;
reports in the press or investment community generally relating to our reputation or the financial services
industry;
domestic and international economic and political factors unrelated to our performance;
general market conditions and, in particular, developments related to market conditions for the financial
services industry;
adverse weather conditions, including floods, tornadoes and hurricanes; and
geopolitical conditions such as acts or threats of terrorism or military conflicts.
In addition, in recent years, the stock market in general has experienced extreme price and volume fluctuations. This
volatility has had a significant effect on the market price of securities issued by many companies, including for reasons
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unrelated to their operating performance. These broad market fluctuations may adversely affect the market price of our capital
stock, notwithstanding our operating results. We expect that the market price of our capital stock will continue to fluctuate and
there can be no assurances about the levels of the market prices for our capital stock.
General market fluctuations, industry factors and general economic and political conditions and events, such as
economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause the stock price of our capital
stock to decrease regardless of operating results.
The rights of our common shareholders are generally subordinate to the rights of holders of our debt securities and
preferred stock and may be subordinate to the rights of holders of any class of preferred stock or any debt securities
that we may issue in the future.
Our Board of Directors has the authority to issue debt securities as well as an aggregate of up to 500,000,000 shares of
preferred stock without any further action on the part of our shareholders. Our Board of Directors also has the power, without
shareholder approval, to set the terms of any debt securities or series of preferred stock that may be issued, including voting
rights, dividend rights, and preferences over our common stock with respect to dividends or in the event of a dissolution,
liquidation or winding up and other terms. The shares and subordinated notes have certain rights that are senior to our common
stock. Any debt or shares of preferred stock that we may issue in the future may be senior to our common stock. Accordingly,
you should assume that any debt securities or preferred stock that we may issue in the future will also be senior to our common
stock. Because our decision to issue debt or equity securities or incur other borrowings in the future will depend on market
conditions and other factors beyond our control, the amount, timing, nature or success of our future capital raising efforts is
uncertain. Holders of our common stock bear the risk that our future issuances of debt or equity securities or our occurrence of
other borrowings may negatively affect the market price of our common stock.
In the event that we issue preferred stock or debt securities in the future that has preference over our common stock
with respect to payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with
voting rights that dilute the voting power of our common stock, the rights of the holders of our common stock or the market
price of our common stock could be adversely affected.
Adverse changes in the ratings for our debt securities or preferred stock could have a material adverse effect on our
business, financial condition and liquidity and may increase our funding costs or impair our ability to effectively
compete for business and clients.
The major rating agencies regularly evaluate us and their ratings of our long-term debt and preferred stock based on a
number of factors, including our financial strength and conditions affecting the financial services industry generally. In general,
rating agencies base their ratings on many quantitative and qualitative factors, including capital adequacy, liquidity, asset
quality, business mix and level and quality of earnings, and we may not be able to maintain our current credit ratings and
preferred stock ratings. Our ratings remain subject to change at any time, and it is possible that any rating agency will take
action to downgrade us in the future.
The ratings for our debt securities and preferred stock impact our ability to obtain funding. Reductions in any of the
ratings for our debt securities or preferred stock could adversely affect our ability to borrow funds and raise capital.
Downgrades in our ratings could trigger additional collateral or funding obligations, which may adversely impact our liquidity.
Therefore, any negative credit rating actions could have a material adverse effect on our business, results of operations,
financial condition or liquidity.
Furthermore, our clients and counterparties may be sensitive to the risks posed by a downgrade to our ratings and may
terminate their relationships with us, may be less likely to engage in transactions with us, or may only engage in transactions
with us at a substantially higher cost. We cannot predict the extent to which client relationships or opportunities for future
relationships could be adversely affected due to a downgrade in our ratings. The inability to retain clients or to effectively
compete for new business may have a material and adverse effect on our business, results of operations or financial condition.
Additionally, rating agencies themselves have been subject to scrutiny arising from the financial crisis. As a result or
for unrelated reasons, the rating agencies may make or may be required to make substantial changes to their ratings policies and
practices. Such changes may, among other things, adversely affect the ratings of our securities or other securities in which we
have an economic interest.
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Our ability to declare and pay dividends is limited.
There can be no assurance of whether or when we may pay dividends on our capital stock in the future. Future
dividends, if any, will be declared and paid at the discretion of our Board of Directors and will depend on a number of factors.
Although the Company’s asset quality, earnings performance, liquidity and capital requirements will be taken into account
before we declare or pay any future dividends on our capital stock, our Board of Directors will also consider our liquidity and
capital requirements. In addition, federal and state banking laws and regulations and state corporate laws restrict the amount of
dividends we may declare and pay. See “Item 1. Business – Regulation and Supervision” included herein for more information.
Finally, so long as any shares of our 5.50% Series A Non-Cumulative Perpetual Preferred Stock, par value $0.01 (“Series A
Preferred Stock”) remain outstanding, unless we have paid in full (or declared and set aside funds sufficient for) applicable
dividends on the Series A Preferred Stock, we may not declare or pay any dividend on our common stock, other than a dividend
payable solely in shares of common stock or in connection with a shareholder rights plan.
Our certificate of incorporation and bylaws include provisions that could impede a takeover of the Company.
Certain provisions of our certificate of incorporation and bylaws could delay, defer, or prevent a third party from
acquiring control of our organization or conduct a proxy contest, even if those events were perceived by many of our
shareholders as beneficial to their interests. These provisions:
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enable our Board of Directors to issue additional shares of authorized, but unissued capital stock;
enable our Board of Directors to issue “blank check” preferred stock with such designations, rights and
preferences as may be determined from time to time by the board;
enable our Board of Directors to increase the size of the board and fill the vacancies created by the increase;
• may prohibit large shareholders, in particular those owning 15% or more of our outstanding voting stock,
from merging or combining with us for a certain period of time;
provide for a plurality voting standard in the election of directors;
do not provide for cumulative voting in the election of directors;
enable our Board of Directors to amend our bylaws without shareholder approval;
do not allow for the removal of directors without cause;
limit the right of shareholders to call a special meeting;
require advance notice for director nominations and other shareholder proposals; and
require prior regulatory application and approval of any transaction involving control of our organization.
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These provisions, as well as our classified or “staggered” board of directors, change-in-control agreements with
members of management and supermajority voting requirements, may discourage potential acquisition proposals and could
delay or prevent a change in control, including when our shareholders might otherwise receive a premium over the market price
of our shares.
Shares of our common stock and preferred stock are not deposits insured by the FDIC and are subject to risk of loss
and uncertain return on investment.
Shares of our common stock and preferred stock are not deposit accounts and are not insured by the FDIC or any other
government agency and are subject to investment risk, including the possible loss of all of your investment.
Other Risks
As a public company, we incur significant legal, accounting, insurance, compliance and other expenses. Any deficiencies
in our financial reporting or internal controls could materially and adversely affect us, including resulting in material
misstatements in our financial statements, and the market price of our common stock.
As a public company, we incur significant legal, accounting, insurance and other expenses. These costs and
compliance with the rules of the SEC and the rules of the applicable stock exchange may further increase our legal and financial
compliance costs and make some activities more time consuming and costly. SEC rules require that our Chief Executive Officer
and Chief Financial Officer periodically certify the existence and effectiveness of our internal control over financial reporting
and our independent registered public accounting firm will be required to attest to our assessment of our internal control over
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financial reporting. This process requires significant documentation of policies, procedures and systems, review of that
documentation by our internal auditing and accounting staff and our outside independent registered public accounting firm and
testing of our internal control over financial reporting by our internal auditing and accounting staff and our outside independent
registered public accounting firm. This process involves considerable time and attention from management, which could
prevent us from successfully implementing our business initiatives and improving our business, results of operations and
financial condition, may strain our internal resources, and increases our operating costs.
During our testing, we may identify deficiencies that would have to be remediated to satisfy the SEC rules for
certification of our internal control over financial reporting. A material weakness is defined by the standards issued by the
Public Company Accounting Oversight Board as a deficiency, or combination of deficiencies, in internal control over financial
reporting that results in a reasonable possibility that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. Therefore, we would have to disclose in periodic reports we file with the FDIC
any material weakness in our internal control over financial reporting. The existence of a material weakness would preclude
management from concluding that our internal control over financial reporting is effective and would preclude our independent
auditors from attesting to our assessment of the effectiveness of our internal control over financial reporting is effective. In
addition, disclosures of deficiencies of this type in our FDIC reports could cause investors to lose confidence in our financial
reporting, may negatively affect the market price of our common stock, and could result in the delisting of our securities from
the securities exchanges on which they trade. Moreover, effective internal controls are necessary to produce reliable financial
reports and to prevent fraud. If we have deficiencies in our disclosure controls and procedures or internal control over financial
reporting, it may materially and adversely affect us.
We may be adversely affected by changes in U.S. tax laws.
We are subject to federal and applicable state tax regulations. Such tax regulations are often complex and require
interpretation and changes in these regulations could negatively impact our results of operations. In the normal course of
business, we are routinely subject to examinations and challenges from federal and applicable state tax authorities regarding the
amount of taxes due. Federal and state taxing authorities have become increasingly aggressive in challenging tax positions
taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll,
property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax
authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income
among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse
effect on our results of operations.
We depend upon key personnel and we may not be able to retain them or attract, assimilate and retain highly qualified
employees in the future.
Our success depends in significant part upon the continued service of our senior management team and our continuing
ability to attract, assimilate and retain highly qualified and skilled managerial, product development, lending, marketing and
other personnel. We have an experienced senior management team and other key personnel that our board of directors believes
is capable of managing and growing our business. The loss of the services of any member of our senior management or other
key personnel or the inability to hire or retain qualified personnel in the future could adversely affect our business, results of
operations and financial condition.
We are required to make significant estimates and assumptions in the preparation of our financial statements. These
estimates and assumptions may not be accurate and are subject to change.
The preparation of our consolidated financial statements in conformity with GAAP requires our management to make
significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and expense
during the reporting periods. Estimates are made by management in determining, among other things, the accounting for
business combinations, estimates of fair value, ACL and valuation of deferred tax assets. If our underlying estimates and
assumptions prove to be incorrect or if events occur that require us to revise our previous estimates or assumptions, our
financial condition and results of operations may be materially adversely affected.
We are involved in legal proceedings and may be the subject of additional litigation or government investigations in the
future; the actual cost of legal proceedings may exceed our accruals for them.
The nature of our business ordinarily results in a certain amount of litigation and investigations by government
agencies having oversight over our business. Although we have developed policies and procedures to minimize the impact of
42
legal noncompliance and other disputes and endeavored to provide reasonable insurance coverage, litigation, government
investigations and regulatory actions present an ongoing risk.
We cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation and
other proceedings filed by or against us, our directors, management or employees, including remedies or damage awards. On at
least a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings as well as
certain threatened claims (which are not considered incidental to the ordinary conduct of our business) utilizing the latest and
most reliable information available. For matters where a loss is not probable or the amount of the loss cannot be estimated, no
accrual is established. For matters where it is probable we will incur a loss and the amount can be reasonably estimated, we
establish an accrual for the loss. Once established, the accrual is adjusted periodically to reflect any relevant developments. The
actual cost of any outstanding legal proceedings and the potential loss, however, may turn out to be substantially higher than the
amount accrued. Further, our insurance may not cover all litigation, other proceedings or claims, or the costs of defense. While
the final outcome of any legal proceedings is inherently uncertain, based on the information available, advice of counsel and
available insurance coverage, if applicable, management believes that the litigation-related expense we have accrued is
adequate and that any incremental liability arising from pending legal proceedings, including class action litigation, and
threatened claims and those otherwise arising in the ordinary course of business, will not have a material adverse effect on our
business or consolidated financial condition. It is possible, however, that future developments could result in an unfavorable
outcome for any lawsuit or investigation in which we or our subsidiaries are involved, which may have a material adverse effect
on our business or our results of operations for one or more quarterly reporting periods. See “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations-Financial Condition - Certain Litigation and Other
Contingencies” for more information regarding material pending legal proceedings and ongoing government investigations.
Reputational and ESG risk may impact our results.
Our ability to originate and maintain deposit accounts is highly dependent upon customer and other external
perceptions of our business practices and/or our financial health. Adverse perceptions regarding our business practices and/or
our financial health could damage our reputation in both the customer and funding markets, leading to difficulties in generating
and maintaining accounts as well as in financing them. Adverse developments with respect to customer or other external
perceptions regarding the practices of our competitors, or our industry as a whole, may also adversely impact our reputation.
While we carefully monitor internal and external developments for areas of potential reputational risk and have established
governance structures to assist in evaluating such risks in our business practices and decisions, adverse reputational impacts on
third parties with whom we have important relationships may also adversely impact our reputation. Adverse impacts on our
reputation, or the reputation of our industry, may also result in greater regulatory and/or legislative scrutiny, which may lead to
laws, regulations or regulatory actions that may change or constrain the manner in which we engage with our customers and the
products and services we offer. Adverse reputational impacts or events may also increase our litigation risk.
Our business faces increasing public, investor, activist, legislative and regulatory scrutiny related to ESG and “anti-
ESG” developments. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as
DEI, environmental stewardship, human capital management, support for our local communities, corporate governance and
transparency, or fail to consider ESG factors in our business operations. Additionally, investors and shareholder advocates are
placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment
decisions and when developing their investment theses and proxy recommendations. We may incur meaningful costs with
respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.
In response to ESG developments, there are increasing instances of “anti-ESG” legislation, regulation, and litigation
that could have unintended impacts on ordinary banking operations and increase litigation risk related to actions we choose to
take. If legislatures in the states in which we operate adopt legislation intended to protect certain industries by limiting or
prohibiting consideration of business and industry factors in lending activities, certain portions of our lending operations may
be impacted.
Our framework for managing risks may not be effective in mitigating risk and any resulting loss.
Our risk management framework seeks to mitigate risk and any resulting loss. We have established processes intended
to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity, credit, market,
interest rate, operational, legal and compliance, and reputational risk. However, as with any risk management framework, there
are inherent limitations to our risk management processes and strategies. There may exist, or develop in the future, risks that we
have not appropriately anticipated or identified. Also, breakdowns in our risk management framework could have a material
adverse effect on our financial condition and results of operations.
43
Certain weather conditions have the potential to disrupt our business and adversely impact the operations and
creditworthiness of our clients.
We have operations in Alabama, Arkansas, Florida, Georgia, Illinois, Louisiana, Mississippi, Missouri, Tennessee and
Texas, which include areas susceptible to hurricanes, tornados and tropical storms. Such weather conditions can disrupt our
operations, result in damage to our branch office locations or negatively affect the local economies in which we operate. We
cannot predict whether or to what extent damage caused by future hurricanes, tornados, tropical storms or other adverse weather
events will affect our operations or the economies in our market areas, but such weather conditions could result in a decline in
loan originations and an increase in the risk of delinquencies, foreclosures or loan losses. Our business or results of operations
may be adversely affected by these and other negative effects of devastating hurricanes, tornados, tropical storms or other
adverse weather events.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
At December 31, 2022, the physical properties of the Company are located in the states of Alabama, Arkansas, Florida,
Georgia, Louisiana, Mississippi, Missouri, Tennessee, Texas, and Illinois. The Company maintains dual headquarters in
Tupelo, Mississippi and Houston, Texas. The Company’s main office is located at One Mississippi Plaza, 201 South Spring
Street in the central business district of Tupelo, Mississippi in a seven-floor, modern, glass, concrete and steel office building
owned by the Company. The Company occupies approximately 98% of the space, with the remainder leased to various
unaffiliated tenants. The Company also owns an additional 318 buildings that provide space for branch banking, computer
operations, lease servicing, mortgage banking, warehouse needs and other general purposes. In addition to the facilities the
Company owns, 120 branch-banking, mortgage banking, insurance and operational facilities that are occupied under leases with
unexpired terms ranging from one to twenty-eight years. Of the owned and leased properties described above, 407 properties
are used by the Community and Corporate Banking segments, 115 are used by the Mortgage segment, 30 properties are used by
the Insurance Agencies segment, 40 properties are used by the Banking Services segment, and 14 properties are used by the
General Corporate and Other segment. Management considers all of the Company’s owned buildings and leased premises to be
in good condition. None of the Company’s properties are subject to any material encumbrances.
ITEM 3. LEGAL PROCEEDINGS.
The information in response to this item is incorporated herein by reference to “Note 23 - Commitments and
Contingent Liabilities - Litigation” in the notes to the consolidated financial statements included in Part II., Item 8. “Financial
Statements” of this Report.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
44
PART II—FINANCIAL INFORMATION
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET FOR CAPITAL STOCK
The common stock of the Company trades on the NYSE under the symbol “CADE,” and the 5.50% Series A Non-
Cumulative Perpetual Preferred Stock trades on the NYSE under the symbol “CADE Pr A.”
HOLDERS OF RECORD
As of February 23, 2023, there were 6,424 shareholders of record of the Company’s common stock.
DIVIDENDS
The Company declared cash dividends each quarter in an aggregate annual amount of $0.880 and $0.780 per share of
common stock during 2022 and 2021, respectively. Future dividends, if any, will vary depending on the Company’s
profitability, anticipated capital requirements and applicable federal and state regulations. Under Mississippi law, the Company
must obtain the non-objection of the Commissioner of the MDBCF prior to paying any dividend on the Company’s common
stock. In addition, the Company may not pay any dividends if, after paying the dividend, it would be undercapitalized under
applicable capital requirements. The Company is further restricted by the FDIC’s authority to prohibit the Company from
engaging in business practices that the FDIC considers to be unsafe or unsound, which, depending on the financial condition of
the Company, could include the payment of dividends. There can be no assurance that the FDIC or other regulatory bodies will
not limit or prohibit future dividends. Finally, so long as any shares of our Series A Preferred Stock remain outstanding, unless
we have paid in full (or declared and set aside funds sufficient for) applicable dividends on the Series A Preferred Stock, we
may not declare or pay any dividend on our common stock, other than a dividend payable solely in shares of common stock or
in connection with a shareholder rights plan. See “Item 1. Business – Regulation and Supervision” included herein for more
information on restrictions and limitations on the Company’s ability to pay dividends.
ISSUER PURCHASES OF EQUITY SECURITIES
The Company had repurchases of shares of common stock during the quarter ended December 31, 2022 as follows:
Period
October 31, 2022
November 30, 2022
December 31, 2022
Total
Total Number
of Shares
Purchased(1) (2)
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(2)
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(2)(3)
840 $
151
2,347
3,338
27.35
27.58
27.64
—
—
—
3,928,475
3,928,475
3,928,475
(1) This column included 840 shares redeemed in October 2022, 151 shares redeemed in November 2022, and 2,347 shares redeemed in
December 2022 from employees for tax withholding purposes for stock compensation and no shares were repurchased under the stock
repurchase program in the fourth quarter of 2022.
(2) On December 8, 2021, the Company announced a share repurchase program whereby the Company could acquire up to an aggregate of
10,000,000 shares of its common stock in the open market at prevailing market prices or in privately negotiated transactions during the
period between January 3, 2022 through December 30, 2022. Repurchased shares are held as authorized but unissued shares. These
authorized but unissued shares are available for use in connection with the Company’s equity incentive plans, other compensation
programs, other transactions or for other corporate purposes as determined by the Company’s Board of Directors. At December 31, 2022,
the Company had repurchased 6,071,525 shares under this repurchase program.
(3) On December 14, 2022, the Company announced a new share repurchase program whereby the Company may acquire up to an
aggregate of 10,000,000 shares of its common stock in the open market at prevailing market prices or in privately negotiated transactions
during the period between January 3, 2023 through December 29, 2023. The extent and timing of any repurchases depends on market
conditions and other corporate, legal and regulatory considerations. Repurchased shares are held as authorized but unissued shares.
These authorized but unissued shares will be available for use in connection with the Company’s equity incentive plans, other
compensation programs, other transactions or for other corporate purposes as determined by the Company’s Board of Directors.
45
RECENT SALES OF UNREGISTERED SECURITIES
From time to time, the Company issues securities in certain transactions that are described in its period and current
reports. The securities issued in these transactions are issued in reliance on the exemption provided by Section 3(a)(2) of the
Securities Act of 1933, as amended, because the sales involve securities issued by a bank.
STOCK PERFORMANCE GRAPH
The graph below compares the annual percentage change in the cumulative total shareholder return on the Company’s
common stock against the cumulative total return of the S&P 500 Index and the KBW Bank Index for a period of five years.
The graph assumes an investment of $100 in the Company’s common stock and in each respective index on December 31, 2017
and reinvestment of dividends without commissions. The KBW Bank Index is a modified cap-weighted index consisting of 24
exchange-listed National Market System stocks, representing national money center banks and leading regional institutions.
The performance graph represents past performance and should not be considered to be an indication of future performance.
Index
Cadence Bank
S&P 500 Index
KBW Bank Index
Period Ending
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
12/31/22
100.00
100.00
100.00
84.74
95.61
82.29
104.26
125.70
112.01
94.22
148.81
100.47
104.94
191.48
138.99
89.89
156.77
109.25
This stock performance graph and related information shall not be deemed to be “soliciting material” or to be “filed”
with the FDIC or subject to Regulation 14A or 14C of the Exchange Act or to the liabilities of Section 18 of the Exchange Act,
except to the extent that the Company specifically requests that such information be treated as soliciting material or specifically
incorporates it by reference into such filing.
ITEM 6. [RESERVED]
46
Comparison of Five-Year Cumulative Total ReturnsCadence BankS&P 500 IndexKBW Bank Index12/31/1712/31/1812/31/1912/31/2012/31/2112/31/2250.00100.00150.00200.00250.00
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company is a regional bank with dual headquarters in Tupelo, Mississippi and Houston, Texas with
approximately $48.7 billion in assets at December 31, 2022. The Company has commercial banking operations in Alabama,
Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri, Tennessee and Texas. The Company’s insurance agency
subsidiary also operates an office in Illinois. The Company and its subsidiaries provide commercial banking, leasing, mortgage
origination and servicing, insurance, brokerage, trust, investment advisory and payroll services to corporate customers, local
governments, individuals and other financial institutions through an extensive network of branches and offices.
On October 29, 2021, we acquired all the outstanding stock of Cadence Bancorporation, headquartered in Houston,
Texas, the bank holding company for Cadence Bank, N.A. (collectively “Legacy Cadence”). Legacy Cadence shareholders
received 0.70 shares of the Company’s common stock in exchange for each share of Legacy Cadence Class A common stock,
resulting in the issuance of 85.7 million shares of our common stock and resulting in a purchase price of $2.5 billion. The
primary reasons for the transaction were to create a more diverse business mix, enhance our funding base, leverage operating
costs through economies of scale and expand our market presence in Georgia and other attractive southern markets. The
acquisition added $11.5 billion in loans and $16.4 billion in deposits as well as 99 branch locations throughout the southern
United States.
Management’s discussion and analysis provides a narrative discussion of the Company’s financial condition and
results of operations. For a complete understanding of the following discussion, refer to the consolidated financial statements
and related notes presented elsewhere in this Report. Management’s discussion and analysis should also be read in conjunction
with the risk factors included in Item 1A of this Report. This discussion and analysis is based on reported financial information,
and certain amounts for prior years have been reclassified to conform with the current financial statement presentation.
The financial condition and operating results of the Company are heavily influenced by economic trends nationally
and in the specific markets in which the Company’s subsidiaries provide financial services. Generally, the pressures of the
national and regional economic cycle create a difficult operating environment for the financial services industry. During such
times, the Company is not immune to pressures and any economic downturn may have a negative impact on the Company and
its customers in all of the markets it serves. Management believes future weakness in the economic environment could
adversely affect the strength of the credit quality of the Company's assets overall. Therefore, management will continue to focus
on early identification and resolution of any credit issues.
The largest source of the Company’s revenue is derived from its corporate and community banking operations. The
financial condition and operating results of the Company are affected by the level and volatility of interest rates on loans,
investment securities, deposits and other borrowed funds, and the impact of economic downturns on loan demand, collateral
values and creditworthiness of existing borrowers. The financial services industry is highly competitive and heavily regulated.
The Company’s success depends on its ability to compete aggressively within its markets while maintaining sufficient asset
quality and cost controls to generate net income.
The information that follows is provided to enhance comparability of financial information between periods and to
provide a better understanding of the Company’s operations.
47
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
In addition to financial ratios based on measures defined by U.S. GAAP, the Company has identified “tangible
shareholders’ equity,” “tangible common shareholders’ equity,” “tangible common shareholders’ equity (excluding AOCI),”
“tangible assets,” “tangible assets (excluding AOCI),” “tangible shareholders’ equity to tangible assets,” “tangible common
shareholders’ equity to tangible assets,” “tangible common shareholders’ equity to tangible assets (excluding AOCI),” “tangible
book value per common share,” and “tangible book value per common share (excluding AOCI)” as non-GAAP financial
measures used when evaluating the performance of the Company.
•
•
•
•
•
•
•
Tangible shareholders’ equity is defined by the Company as total shareholders’ equity less goodwill and identifiable
intangible assets.
Tangible common shareholders' equity is defined by the Company as total shareholders' equity less preferred stock,
goodwill, and other identifiable intangible assets.
Tangible common shareholders' equity (excluding AOCI) is defined by the Company as total shareholders' equity less
preferred stock, goodwill, other identifiable intangible assets, and accumulated other comprehensive income (loss).
Tangible assets are defined by the Company as total assets less goodwill and identifiable intangible assets.
Tangible assets (excluding AOCI) are defined by the Company as total assets less goodwill, identifiable intangible
assets, and accumulated other comprehensive income (loss).
Tangible book value per common share is defined by the Company as tangible common shareholders’ equity divided
by total shares of common stock outstanding.
Tangible book value per common share (excluding AOCI) is defined by the Company as tangible common
shareholders' equity less accumulated other comprehensive income (loss) divided by total shares of common stock
outstanding.
Management believes the ratios of tangible common shareholders’ equity to tangible assets and tangible common
shareholders’ equity to tangible assets (excluding AOCI) to be important to investors who are interested in evaluating the
adequacy of the Company’s capital levels. Management also believes that tangible book value per share and tangible book
value per common share (excluding AOCI) are important to investors who are interested in changes from period to period in
book value per share exclusive of changes in intangible assets.
48
The following table reconciles these Non-GAAP financial measures as presented above to U.S. GAAP financial
measures as reflected in the Company’s consolidated financial statements for the periods indicated:
TABLE 1—NON-GAAP FINANCIAL MEASURES
(Dollars in thousands)
Total tangible assets, excluding AOCI
Total assets
Less: Goodwill
Other identifiable intangible assets
Total tangible assets
Less: Accumulated other comprehensive (loss) income
Total tangible assets, excluding AOCI
Total tangible common shareholders' equity, excluding AOCI
Total shareholders' equity
Less: Goodwill
Other identifiable intangible assets
Total tangible shareholders' equity
Less: Preferred stock
Total tangible common shareholders' equity
Less: Accumulated other comprehensive (loss) income
Total tangible common shareholders' equity, excluding AOCI
Year Ended December 31,
2021
2020
2022
$ 48,653,414
1,458,795
132,764
$ 47,061,855
(1,222,538)
$ 48,284,393
$ 47,669,751
1,407,948
198,271
$ 46,063,532
(139,369)
$ 46,202,901
$ 24,081,194
851,612
55,899
$ 23,173,683
11,923
$ 23,161,760
$
$
$
$
4,311,374
1,458,795
132,764
2,719,815
166,993
2,552,822
(1,222,538)
3,775,360
$
$
$
$
5,247,987
1,407,948
198,271
3,641,768
166,993
3,474,775
(139,369)
3,614,144
$
$
$
$
2,822,477
851,612
55,899
1,914,966
166,993
1,747,973
11,923
1,736,050
Total common shares outstanding
182,437,265
188,337,658
102,561,480
Tangible shareholders' equity to tangible assets
Tangible common shareholders' equity to tangible assets
Tangible common shareholders' equity to tangible assets, excluding AOCI
Tangible common book value per share
Tangible book value per common share, excluding AOCI
5.78 %
5.42
7.82 %
13.99
20.69
$
$
7.91 %
7.54
7.82 %
18.45
19.19
$
$
8.26 %
7.54
7.50 %
17.04
16.93
$
$
49
FINANCIAL HIGHLIGHTS
The following table presents financial highlights for the periods indicated:
TABLE 2—FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share amounts)
Common share data:
Basic earnings per share
Diluted earnings per share
Cash dividends per share
Book value per share
Tangible common book value per share (1)
Dividend payout ratio
Financial Ratios:
Return on average assets
Return on average shareholders' equity
Return on average common shareholders' equity
Total shareholders' equity to total assets
Total common shareholders' equity to total assets
Tangible common shareholders' equity to tangible assets (1)
Net interest margin-fully taxable equivalent
Credit Quality Ratios:
Net (recoveries) charge-offs to average loans and leases
Provision for credit losses to average loans and leases
Allowance for credit losses ("ACL") to net loans and leases
ACL to nonperforming loans and leases (“NPL”)
ACL to nonperforming assets (“NPA”)
NPL to net loans and leases
NPA to total assets
Capital Adequacy Ratios:
Common Equity Tier 1 capital
Tier 1 capital
Total capital
Tier 1 leverage capital
As of and For the Year Ended December 31,
2021
2022
2020
$
$
2.47
2.46
0.88
22.72
13.99
35.77 %
0.97 %
10.13
10.30
8.86
8.52
5.42
3.15
— %
0.02
1.45
402.47
379.16
0.36
0.24
10.22 %
10.66
12.81
8.43
$
1.54
1.54
0.78
26.98
18.45
50.65 %
0.65 %
5.85
5.86
11.01
10.66
7.54
2.96
(0.03) %
0.81
1.66
290.27
238.96
0.57
0.39
11.11 %
11.61
13.86
9.90
2.12
2.12
0.745
25.89
17.04
35.12 %
1.00 %
8.37
8.54
11.72
11.03
7.54
3.36
0.18 %
0.57
1.63
201.71
184.37
0.81
0.55
10.74 %
11.74
14.48
8.67
(1) Non-GAAP financial measure. See “Non-GAAP Financial Measures and Reconciliations.”
The Company reported net income available to common shareholders of $453.7 million for 2022 compared to $185.7
million in 2021 and $218.6 million for 2020. A primary factor contributing to the increase in net income available to common
shareholders in 2022 was the impact of the three bank mergers which occurred during 2021. The increase in net interest revenue
from $805.7 million in 2021 to $1.4 billion in 2022 combined with the increase in noninterest revenue from $378.2 million in
2021 to $493.0 million in 2022 were offset somewhat by the increase in noninterest expense from $798.9 million in 2021 to
$1.2 billion in 2022. Almost all categories of noninterest expense increased as a result of the two smaller mergers in the second
quarter of 2021 and the one larger merger in the fourth quarter of 2021. A primary factor contributing to the decrease in net
income available to common shareholders in 2021 was an increase in the provision for credit losses from $89.0 million in 2020
to $138.1 million in 2021, primarily as a result of the day one accounting provision required for loans and unfunded
commitments acquired during 2021 from the previously mentioned mergers. The decrease in net income was also a result of the
increase in noninterest expenses from $650.9 million to $798.9 million in 2021 which resulted primarily from the
aforementioned mergers. The decrease in net income was offset somewhat by the gain on sale of PPP loans of $21.6 million in
2021 with no such gain recorded in 2020.
50
Net interest revenue for 2022 was $1.4 billion compared to $805.7 million for 2021 and $691.0 million for 2020. The
67.7% increase in net interest revenue in 2022 compared to 2021 was primarily a result of the increase in interest revenue
related to the increasing average balances of the loan and lease portfolio and available-for-sale securities resulting from the
mergers previously mentioned as well as the increase in short-term interest rates. The increase in interest revenue was offset
somewhat by the increase in average interest-bearing liabilities, as average interest-bearing liabilities increased to $28.5 billion
in 2022 from $17.9 billion in 2021, with this increase also a result of the three previously mentioned mergers coupled with the
increase in rates paid on average interest bearing liabilities. As a result of the increase in average interest-bearing liabilities
coupled with the increase in rates paid on average interest bearing liabilities, interest expense increased 174.2% in 2022
compared to 2021. The 16.6% increase in net interest revenue in 2021 compared to 2020 was a result of the increase in interest
revenue related to the increasing balances of the loan and lease portfolio and available-for-sale securities combined with the
decrease in interest expense associated with interest bearing demand and other time deposits due to declining market interest
rates during 2021.
The Company attempts to diversify its revenue streams by increasing the amount of noninterest revenue received from
mortgage banking operations, insurance agency activities, brokerage and securities activities and other activities that generate
fee income. Management believes this diversification is important to reduce the impact of fluctuations in net interest revenue on
the overall operating results of the Company. Noninterest revenue for 2022 was $493.0 million, compared to $378.2 million for
2021 and $336.5 million for 2020. The primary contributor to the increase in noninterest revenue from 2021 to 2022 was the
three mergers that occurred during 2021. Noninterest revenue from 2020 to 2021 was also impacted by the $21.6 million gain
on sale of PPP loans during 2021. This gain was offset by the decrease of $28.2 million in mortgage banking revenue to $58.1
million in 2021 compared to $86.3 million in 2020.
Credit card, debit card and merchant fees increased $15.5 million to $58.2 million in 2022 compared to $42.6 million
in 2021 and $36.0 million in 2020. A primary factor contributing to the increase in 2022 was the result of an annual incentive
payment received during the second quarter of 2022 and improved contractual pricing, coupled with an increased number of
transactions primarily related to the activity from the three mergers in 2021 previously mentioned. The increase in credit card,
debit card and merchant fees from 2020 to 2021 was mainly the result of an increased number of transactions. Deposit service
charges increased $27.1 million to $73.5 million in 2022 compared to $46.4 million in 2021 and $40.2 million in 2020. The
increases in 2022 and 2021 are primarily related to the activity from the three mergers in 2021. Insurance commissions
increased $15.1 million in 2022 to $150.3 million after increasing $9.9 million in 2021 to $135.2 million, and up from $125.3
million in 2020. The increase was primarily a result of higher property and causality commissions related to new customers,
firm pricing and high retention rates of existing customers. Wealth management revenue increased to $80.5 million in 2022 up
from $39.5 million in 2021 and $26.2 million in 2020. The increases in wealth management revenue are related to increased
trust income and brokerage commissions and fees related to activities from the three mergers in 2021.
Other noninterest revenue fluctuations in 2022 compared to 2021 included the increase of bank-owned life insurance
income of $4.4 million, or 39.5% as a result of higher life insurance proceeds recorded in 2022 than 2021. The increase in 2021
compared to 2020 was due to the same dynamic. Other noninterest revenue increased in 2022 compared to 2021 primarily as a
result of SBA income, including gains on sale of SBA loans, payroll processing revenue and improved earnings in limited
partnership investments and were primarily offset by write-downs on equity securities. Other noninterest revenue increased in
2021 compared to 2020 as a result of earnings on limited partnerships, gains on the sales of fixed assets, gains on sale of SBA
loans and payroll processing revenue.
Noninterest expense in 2022 was $1.2 billion, an increase of 55.0% from $798.9 million for 2021, which was an
increase of 22.7% from $650.9 million for 2020. The increase in noninterest expense in 2022 compared to 2021 was primarily a
result of salary increases, increased commissions and compensation costs associated with the three bank mergers in 2021. In
2022, salaries and employee benefits increased $273.2 million, or 57.9% compared to 2021, including a charge of $9.0 million
in 2022 in accordance with ASC 715, Compensation - Retirement Benefits to reflect the settlement accounting impact of an
elevated number of retirements and related lump sum pension payouts during 2022 compared to a related charge of $3.1 million
in 2021. Other increases in noninterest expense for 2022 compared to 2021 were also primarily the result of the three bank
mergers occurring in 2021 and included the increase in occupancy and equipment, data processing and software and
amortization of intangibles. The increase in noninterest expense in 2021 compared to 2020 was primarily a result of increases in
salaries and employee benefits of $54.0 million, or 12.9%, as a result of salary increases and increased commissions and
compensation costs associated with the three bank mergers in 2021 as well as annual compensation increases. The increase in
noninterest expense in 2021 compared to 2020 was also a result of the increase in merger expense which represents costs to
complete the merger with no future benefit to the Company. Merger expense related to the three mergers in 2021 was $59.9
million and $51.2 million in 2021 and 2022, respectively, which was primarily comprised of advisor fees, legal fees and
51
compensation related expenses. Occupancy and equipment and data processing and software expenses also increased from 2020
to 2021 as a result of the three bank mergers occurring in 2021.
RESULTS OF OPERATIONS
The following is a summary of our results of operations for the periods indicated:
TABLE 3—SUMMARY OF RESULTS OF OPERATIONS
(Dollars in thousands)
Earnings Summary:
Interest revenue
Interest expense
Net interest revenue
Provision for credit losses
Net interest revenue, after provision for credit losses
Noninterest revenue
Noninterest expense
Income before income taxes
Income tax expense
Net income
Less: preferred dividends
Net income available to common shareholders
Net Interest Revenue
Year Ended December 31,
2021
2022
2020
$
$
1,560,593 $
209,290
1,351,303
7,000
1,344,303
493,032
1,237,960
599,375
136,138
463,237
9,488
453,749 $
882,049 $
76,322
805,727
138,062
667,665
378,153
798,890
246,928
51,766
195,162
9,488
185,674 $
799,493
108,526
690,967
89,044
601,923
336,504
650,882
287,545
59,494
228,051
9,488
218,563
Net interest revenue is the difference between interest revenue earned on assets, such as loans, leases and securities,
and interest expense paid on liabilities, such as deposits and borrowings, and continues to provide the Company with its
principal source of revenue. Net interest revenue is affected by the general level of interest rates, changes in interest rates and
changes in the amount and composition of interest earning assets and interest bearing liabilities. One of the Company’s long-
term objectives is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue, while
balancing interest rate, credit and liquidity risk. Net interest margin is determined by dividing fully taxable equivalent (FTE) net
interest revenue by average earning assets. For purposes of the following discussion, revenue from tax-exempt loans and
investment securities have been adjusted to a FTE basis, using an effective tax rate of 21% for the years ended December 31,
2022, 2021 and 2020.
52
The following table presents average interest earning assets, average interest bearing liabilities, net interest revenue-
FTE, net interest margin-FTE and net interest rate spread for each of the periods presented:
TABLE 4—CONSOLIDATED AVERAGE BALANCES AND YIELD/RATE ANALYSIS
(Dollars in thousands)
ASSETS
Loans and leases (net of unearned
income) (1)(2)
2022
2021
2020
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
Rate
$ 28,418,658 $ 1,344,195
4.73 % $ 17,055,429 $ 759,648
4.45 % $ 14,984,356 $ 701,772
4.68 %
Loans held for sale, at fair value
122,079
7,554
6.19
278,447
8,035
2.89
246,007
8,357
3.40
Available-for-sale securities, at fair value:
Taxable
Non-taxable (3)
Other investments
Total interest earning assets and
revenue
Other assets
Allowance for credit losses
Total
LIABILITIES AND SHAREHOLDERS'
EQUITY
Deposits:
Interest bearing demand and money
market
Savings
Time
Short-term debt
Subordinated and long-term debt
Total interest bearing liabilities and
expense
13,163,403
183,918
432,969
926,253
12,758
16,380
1.40
2.95
1.77
9,152,620
111,050
157,327
638,559
4,381
1,323
1.21
2.78
0.21
4,879,279
85,466
131,099
375,443
5,043
1,621
1.75
3.85
0.43
43,063,362
1,564,805
3.63 % 27,282,382
884,437
3.24 % 20,616,184
802,259
3.89 %
4,909,491
439,696
$ 47,533,157
3,001,809
289,543
$ 29,994,648
2,331,023
223,821
$ 22,723,386
$ 18,541,402 $ 109,893
0.59 % $ 11,114,242 $ 33,688
0.30 % $ 7,859,680 $ 47,692
0.61 %
3,657,718
3,545,402
2,249,354
465,004
5,519
24,253
50,295
19,330
0.15
0.68
2.24
4.16
2,946,629
2,784,733
713,788
341,170
2,764
24,394
838
14,638
0.09
0.88
0.12
4.29
2,199,405
2,649,809
837,036
301,526
4,117
38,940
4,525
13,252
0.19
1.47
0.54
4.39
28,458,880
209,290
0.74 % 17,900,562
76,322
0.43 % 13,847,456
108,526
0.78 %
Demand deposits - noninterest bearing
13,733,384
766,490
42,958,754
4,574,403
$ 47,533,157
Other liabilities
Total liabilities
Shareholders' equity
Total
Net interest revenue-FTE
Net interest margin-FTE
Net interest rate spread
Interest bearing liabilities to interest
earning assets
8,382,997
373,514
26,657,073
3,337,575
$ 29,994,648
5,850,761
299,624
19,997,841
2,725,545
$ 22,723,386
$ 1,355,515
$ 808,115
$ 693,733
3.15 %
2.90 %
66.09 %
2.96 %
2.82 %
65.61 %
3.36 %
3.11 %
67.17 %
(1)
Includes taxable equivalent adjustment to interest of approximately $1.5 million, $1.5 million and $1.7 million in 2022, 2021 and 2020, using an effective
tax rate of 21% for all periods presented.
(2) Nonaccrual loans are included in loans and leases (net of unearned income). Nonaccrual loans were $98.7 million, $122.1 million and $96.4 million in
2022, 2021 and 2020, respectively.
(3)
Includes taxable equivalent adjustment to interest of approximately $2.7 million, $0.9 million and $1.1 million in 2022, 2021 and 2020, respectively,
using an effective tax rate of 21% for all periods presented.
Net interest revenue-FTE increased 67.7% to $1.4 billion in 2022 from $808.1 million in 2021, which represented an
increase of 16.5% from $693.7 million in 2020. The increase in net interest revenue-FTE for 2022 compared to 2021 was
primarily a result of the increase in interest revenue-FTE related to the increases in average balances in available-for-sale
securities and the loan and lease portfolio from the three bank mergers in 2021. The mix of average interest-earning assets
improved during 2022, and average loans increased from 62% of average interest-earning assets in 2021 to 66% in 2022. In
2022, market interest rates increased as a result of the increases in the Federal funds target rate effected by the Federal Reserve
as part of its actions to reduce the inflation rate. This increase in market interest rates resulted in an increase in yields earned on
those interest-earning assets. Additionally, the average interest bearing liabilities increased due primarily to the acquisition
mentioned above. The rates paid on average interest bearing liabilities increased as rates paid for deposits and short-term debt
53
increased due to the increase in market interest rates. The increase in net interest revenue-FTE for 2021 compared to 2020 was
primarily a result of the increase in interest revenue-FTE related to the increase in average earning assets offset somewhat by a
decrease in rates earned on those interest earning assets, combined with a decrease in interest expense related to the decrease in
rates paid offset somewhat by an increase in the average balance of interest bearing liabilities. The increase in earning assets
was primarily a result of increases in average balances in available-for-sale securities and the loan and lease portfolio. Rates
paid on interest bearing liabilities decreased as a result of decreases in rates paid on all interest bearing categories.
Interest revenue-FTE increased 76.9% to $1.6 billion in 2022 from $884.4 million in 2021, which represented an
increase of 10.2% from $802.3 million in 2020. The increase in interest revenue-FTE in 2022 compared to 2021 was primarily
a result of increases in average balances in the loan and lease portfolio and available-for-sale securities related to the
aforementioned bank acquisitions and the increase in yields earned on interest-earning assets over the prior year due to the
increase in market interest rates that occurred during 2022. Additionally, interest revenue-FTE included $46.8 million (0.16%)
and $26.2 million (0.15%) in accretion related to the purchase discounts on acquired loans for 2022 and 2021, respectively. The
increase in interest revenue-FTE in 2021 compared to 2020 was a result of increases in average balances in the loan and lease
portfolio and available-for-sale securities related to the three acquisitions in 2021 coupled with increases in available-for-sale
securities associated with elevated interest bearing deposits due to various government stimulus programs. The increase in
interest revenue-FTE was offset somewhat by the decrease in yields earned on interest earning assets. Interest revenue-FTE
included $26.2 million (0.15%) and $11.3 million (0.08%) in accretion related to the purchase discounts on acquired loans for
2021 and 2020, respectively.
Interest expense increased 174.2% to $209.3 million in 2022 from $76.3 million in 2021 after decreasing 29.7% from
$108.5 million in 2020. The increase in interest expense in 2022 compared to 2021 was primarily a result of average interest-
bearing liabilities that increased 59.0% to $28.5 billion in 2022 compared to $17.9 billion in 2021 due to the 2021 bank
acquisitions. Also, the overall rates paid on average interest-bearing liabilities increased 31 basis points for 2022 compared to
2021 in response to rising short-term interest rates. The decrease in interest expense in 2021 compared to 2020 was a result of
decreased rates paid on all interest bearing liabilities more than offsetting the increase in the average balances of interest
bearing liabilities resulting from the three bank acquisitions in 2021 and the elevated interest bearing deposits due to various
government stimulus programs. The overall rates paid on average interest bearing liabilities decreased 35 basis points from
2020 to 2021. Average interest bearing liabilities increased 29.3% to $17.9 billion in 2021 compared to $13.8 billion in 2020.
54
Net interest margin-FTE for 2022 was 3.15%, an increase of 19 basis points, from 2.96% for 2021, which represented
a decrease of 40 basis points from 3.36% for 2020. Net interest revenue-FTE may also be analyzed by segregating the yield/rate
and volume components of interest revenue and interest expense. The table below presents an analysis of rate and average
volume change in net interest revenue from 2021 to 2022 and from 2020 to 2021. The changes in net interest income due to
both rate and volume have been allocated to volume.
TABLE 5—RATE/VOLUME ANALYSIS
(In thousands)
INTEREST REVENUE
Loans and leases, net of unearned income
Loans held for sale
Available-for-sale securities:
Taxable
Non-taxable
Other
Total interest income
INTEREST EXPENSE
Demand deposits - interest bearing
Savings deposits
Time deposits
Short-term debt
Subordinated and long-term debt
Total interest expense
Net interest income
(In thousands)
INTEREST REVENUE
Loans and leases, net of unearned income
Loans held for sale
Available-for-sale securities:
Taxable
Non-taxable
Other
Total interest income
INTEREST EXPENSE
Demand deposits - interest bearing
Savings deposits
Time deposits
Short-term debt
Subordinated and long-term debt
Total interest expense
Net interest income
Net Interest Income
2022
2022 over 2021 - Increase (Decrease)
Increase
(Decrease)
2021
Volume
Yield / Rate
$
1,344,195 $
7,554
759,648 $
8,035
584,547 $
(481)
506,118 $
(4,512)
78,429
4,031
183,918
12,758
16,380
1,564,805
111,050
4,381
1,323
884,437
72,868
8,377
15,057
680,368
48,663
7,676
596
558,541
24,205
701
14,461
121,827
109,893
5,519
24,253
50,295
19,330
209,290
1,355,515 $
$
33,688
2,764
24,394
838
14,638
76,322
808,115 $
76,205
2,755
(141)
49,457
4,692
132,968
547,400 $
22,512
667
6,663
1,803
5,313
36,958
521,583 $
53,693
2,088
(6,804)
47,654
(621)
96,010
25,817
Net Interest Income
2021
2021 over 2020 - Increase (Decrease)
Increase
(Decrease)
2020
Volume
Yield / Rate
$
759,648 $
8,035
701,772 $
8,357
57,876 $
(322)
92,246 $
936
(34,370)
(1,258)
111,050
4,381
1,323
884,437
85,466
5,043
1,621
802,259
25,584
(662)
(298)
82,178
51,849
731
545
146,307
33,688
2,764
24,394
838
14,638
76,322
808,115 $
47,692
4,117
38,940
4,525
13,252
108,526
693,733 $
(14,004)
(1,353)
(14,546)
(3,687)
1,386
(32,204)
114,382 $
9,865
701
1,182
(145)
1,653
13,256
133,051 $
$
(26,265)
(1,393)
(843)
(64,129)
(23,869)
(2,054)
(15,728)
(3,542)
(267)
(45,460)
(18,669)
55
Provision for Credit Losses and Allowance for Credit Losses (“ACL”)
An analysis of the ACL for the periods indicated is provided in the following table:
TABLE 6—ACL
(In thousands)
Balance, beginning of period
Impact of adopting ASC 326 - cumulative effect adjustment
Impact of adopting ASC 326 - purchased loans with credit
deterioration ("PCD")
Charge-offs:
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total charge-offs
Recoveries:
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total recoveries
Net recoveries (charge-offs)
Initial allowance on PCD loans (See Notes 2 and 5 in the
consolidated financial statements)
Provision (release):
Initial provision for acquired non-PCD loans
Provision (release) for credit losses related to loans and leases
Balance, end of period
Loans and leases, net of unearned income - average
Loans and leases, net of unearned income - period end
Year Ended December 31,
2021
2020
2022
$
446,415 $
—
244,422 $
—
119,066
40,000
—
—
22,634
(17,874)
(824)
(18,698)
(298)
(1,832)
(2,130)
(1,430)
(7,606)
(9,036)
(29,864)
14,165
2,292
16,457
4,352
3,521
7,873
3,017
2,566
5,583
29,913
49
(7,213)
(1,912)
(9,125)
(1,024)
(1,601)
(2,625)
(1,509)
(5,462)
(6,971)
(18,721)
11,754
4,140
15,894
1,831
1,262
3,093
2,424
2,624
5,048
24,035
5,314
(17,201)
(2,047)
(19,248)
(4,955)
(3,939)
(8,894)
(2,294)
(5,425)
(7,719)
(35,861)
1,705
1,554
3,259
545
439
984
1,946
2,168
4,114
8,357
(27,504)
(8,117)
75,124
4,226
—
2,000
440,347 $
130,555
(9,000)
446,415 $
1,000
85,000
244,422
28,418,658 $
17,055,429 $
14,984,356
30,349,277 $
26,882,988 $
15,022,479
$
$
$
56
TABLE 7—ACL RELATED RATIOS
RATIOS
Provision for credit losses to average loans and leases, net of
unearned income
ACL to loans and leases, net of unearned income
Non-performing loans to loans and leases, net of unearned income
ACL to non-performing loans
Net (recoveries) charge-offs to average loans and leases:
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases (recovered) charged off
Year Ended December 31,
2021
2020
2022
0.02 %
1.45
0.36
402.47
0.81 %
1.66
0.57
290.27
0.57 %
1.63
0.81
201.71
0.01 %
—
0.01
(0.01)
(0.01)
(0.02)
(0.01)
0.02
0.01
— %
(0.03) %
(0.01)
(0.04)
—
—
—
(0.01)
0.02
0.01
(0.03) %
0.10 %
0.01
0.11
0.03
0.02
0.05
—
0.02
0.02
0.18 %
For the years ended December 31, 2022, 2021, and 2020, net recoveries totaled $49 thousand compared to net
recoveries of $5.3 million and net charge-offs of $27.5 million, respectively. As a percentage of average loans and leases, net
recoveries were insignificant for 2022. For 2021, net recoveries as a percentage of average loans and leases totaled 0.03%
compared to net charge-offs totaling 0.18% for 2020. Net recoveries in 2022 were primarily in the commercial real estate
segment and residential mortgages class offset somewhat by net charge-offs in the non-real estate and other consumer classes.
Net recoveries in 2021 were primarily in the commercial and industrial segment and residential mortgages class and was offset
by net charge-offs in the other consumer class. Net charge-offs in 2020 were primarily driven by net charge-offs within the
commercial and industrial segment followed by net charge-offs in the commercial real estate segment and the other consumer
class.
The Company recorded $7.0 million in provision for credit losses during 2022 compared to $138.1 million for 2021
and $89.0 million during 2020. The $7.0 million recorded in provision for credit losses during 2022 was related to the provision
for unfunded commitments of $5.0 million and $2.0 million for provision related to loans and leases. The provision recorded for
2022 reflects stable credit quality and a modest provision for credit losses necessary to support continued growth in loans and
unfunded commitments.
The $138.1 million of provision recorded during 2021 included $130.6 million for initial provision for non-PCD
acquired loans, a release of $9.0 million for provision related to loans and leases, $13.0 million for provision for acquired
unfunded commitments and $3.5 million for provision for unfunded commitments. The elevated provision for credit losses of
$89.0 million in 2020 was impacted by the COVID-19 pandemic on the economic factors included in the Company's allowance
for credit losses methodology and the adoption of ASC 326.
The ACL decreased $6.1 million to $440.3 million at December 31, 2022 from $446.4 million at December 31, 2021.
The ACL to non-performing loans increased to 402.47% at December 31, 2022 from 290.27% at December 31, 2021. For more
information about the Company’s classified, non-performing, purchased credit deteriorated, and impaired loans, see “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Loans and
Leases” in Part II of the Report.
57
The breakdown of the allowance by loan and lease segment and class is based, in part, on evaluations of specific loan
and lease histories and the impact of forecasted economic conditions on the portfolio segments or geographical areas.
Accordingly, because these conditions are subject to change, the allocation is not necessarily indicative of the breakdown of any
future allowance for losses. Several forecasts from external sources are used in the estimation and allocation of the ACL. The
forecasts cover eight-quarter forecast horizons to establish a forecast range and are based on upside, downside, and base case
scenarios. A blended scenario is selected by management to reflect the probable economic conditions within the range. During
the fourth quarter, the forecast was weighted more to the downside forecast scenario than in the first half of the year.
The Company recognizes inflation, rising interest rates, and a slowing economy may have short-term, long-term, and
regional impacts to the economy. In addition, qualitative factors such as changes in economic conditions, concentrations of risk,
and changes in portfolio risk resulting from regulatory changes are considered in determining the adequacy of the level of the
ACL.
TABLE 8—ACL BY SEGMENT AND CLASS
(Dollars in thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total
December 31, 2022
December 31, 2021
% of Loans in
Each Category
to Total Loans
ACL
% of Loans in
Each Category
to Total Loans
ACL
$
$
147,669
35,548
183,217
68,902
74,727
143,629
106,142
7,359
113,501
440,347
29.6 % $
13.4
43.0
11.7
17.0
28.7
27.4
0.9
28.3
100.0 % $
138,696
59,254
197,950
52,530
98,327
150,857
85,734
11,874
97,608
446,415
29.2 %
13.3
42.5
10.9
18.3
29.2
27.2
1.1
28.3
100.0 %
58
Noninterest Revenue
The components of noninterest revenue for the years ended December 31, 2022, 2021, and 2020 and the percentage
change between the periods are shown in the following table:
TABLE 9—NONINTEREST REVENUE
(Dollars in thousands)
Mortgage banking, excluding MSR and MSR hedge
market value adjustment
$
MSR and MSR hedge market value adjustment
Credit card, debit card and merchant fees
Deposit service charges
Securities (losses) gains, net
Insurance commissions
Trust income (1)
Annuity fees (1)
Brokerage commissions and fees (1)
Gain on sale of PPP loans
Bank-owned life insurance
Credit related fees
SBA income (expenses)
Other miscellaneous income
2022
2021
Amount
% Change
Amount
% Change
2020
Amount
24,642
20,218
58,160
73,478
(384)
150,275
37,314
2,908
40,264
—
15,594
26,768
15,341
28,454
(48.6) % $
99.4
36.4
58.3
2.8
11.2
68.2
396.2
140.7
NM
39.5
437.6
NM
53.1
47,914
10,139
42,636
46,418
(395)
135,183
22,190
586
16,731
21,572
11,180
4,979
438
18,582
(51.6) % $
179.1
18.5
15.5
(781.0)
7.9
38.5
172.6
67.8
NM
36.7
133.4
283.3
49.1
99,067
(12,814)
35,972
40,181
58
125,286
16,025
215
9,973
—
8,181
2,133
(239)
12,466
Total noninterest revenue
$ 493,032
30.4 % $ 378,153
12.4 % $ 336,504
(1) Included in wealth management revenue on the Consolidated Statements of Income.
NM - not meaningful.
The Company’s revenue from mortgage banking typically fluctuates as mortgage interest rates change and is primarily
attributable to two activities - the origination and sale of new mortgage loans and the servicing of sold mortgage loans. Since
mortgage revenue can be significantly affected by changes in the valuation of the MSR in changing interest rate environments,
the Company hedges the change in fair value of its MSR. The Company’s normal practice is to originate mortgage loans for
sale in the secondary market and to either retain or release the associated MSR with the loan sold. The Company records the
MSR at fair value for all loans sold on a servicing retained basis with subsequent adjustments to fair value of the MSR in
accordance with GAAP.
In the course of conducting the mortgage banking activities of originating mortgage loans and selling those loans in the
secondary market, various representations and warranties are made to the purchasers of the mortgage loans. These
representations and warranties also apply to underwriting the real estate appraisal opinion of value for the collateral securing
these loans. Under the representations and warranties, failure by the Company to comply with the underwriting and/or appraisal
standards could result in the Company being required to repurchase the mortgage loan or to reimburse the investor for losses
incurred (i.e., make whole requests) if such failure cannot be cured by the Company within the specified period following
discovery. During the year ended December 31, 2022, fifty-one mortgage loans were repurchased or otherwise settled as a
result of underwriting and appraisal standard exceptions or make whole requests, compared to nineteen mortgage loans for the
same period in 2021. Losses of approximately $1.2 million and $170 thousand were recognized in the years ended December
31, 2022 and 2021, respectively, related to these repurchased and make whole loans.
At December 31, 2022, the Company had reserved $1.9 million for probable losses from representation and warranty
obligations, flat with the amount reserved for these losses at December 31, 2021. The reserve is based on the Company’s
repurchase and loss trends, and quantitative and qualitative factors that may result in anticipated losses different than historical
loss trends, including loan vintage, underwriting characteristics and macroeconomic trends.
Origination revenue is comprised of gains or losses from the sale of the mortgage loans held for sale, origination fees,
underwriting fees and other fees associated with the origination of loans. For the years ended December 31, 2022, 2021, and
2020, mortgage loan held for sale origination volumes totaled $1.1 billion, $2.2 billion, and $3.3 billion, respectively, which
59
produced origination revenue of $12.9 million, $39.9 million, and $90.3 million, respectively. The 2022 increase in market
interest rates caused decreases to the margins of loans sold for the year ended December 31, 2022 compared to the same period
in 2021.
Revenue from the servicing process, another component of mortgage banking revenue, includes fees from the actual
servicing of loans. For the years ended December 31, 2022, 2021, and 2020, revenue from the servicing of loans was $23.6
million, $22.0 million, and $21.5 million, respectively.
Changes in the fair value of the Company’s MSR are generally a result of changes in mortgage interest rates from the
previous reporting date. An increase in mortgage interest rates typically results in an increase in the fair value of the MSR while
a decrease in mortgage interest rates typically results in a decrease in the fair value of the MSR. The fair value of the MSR is
also impacted by principal payments, prepayments, charge offs and payoffs on loans in the servicing portfolio. Decreases in
value from principal payments, prepayments, charge offs, and payoffs were $11.8 million, $14.0 million, and $12.7 million for
the years ended December 31, 2022, 2021, and 2020, respectively. The Company hedges the change in fair value of its MSR.
At December 31, 2022 and 2021, respectively, there was a hedge in place designed to cover approximately 47.9% and 33.1%,
respectively, of the MSR value.
The Company is susceptible to significant fluctuations in MSR value during changing interest rate environments.
Reflecting this sensitivity to interest rates, the fair value of the MSR, including the hedge, experienced an increase of $20.2
million for the year ended December 31, 2022 and an increase of $10.1 million in the same period in 2021, compared to a
decrease of $12.8 million in 2020.
The following table presents the Company’s mortgage banking operations for the periods indicated:
TABLE 10— MORTGAGE BANKING OPERATIONS
(Dollars in thousands)
Production revenue:
Origination
Servicing
Payoffs/Paydowns
Total origination and servicing revenue
MSR and hedge market value adjustment
Total mortgage banking revenue
(Dollars in millions)
Origination of mortgage loans held for sale
Mortgage loans serviced at quarter-end
$
$
$
2022
2021
Amount
% Change
Amount
% Change
2020
Amount
12,869
23,565
(11,792)
24,642
20,218
44,860
(67.7) % $
7.0
15.5
(48.6)
99.4
(22.7) % $
39,855
22,020
(13,961)
47,914
10,139
58,053
(55.9) % $
2.3
(9.5)
(51.6)
179.1
(32.7) % $
90,293
21,520
(12,746)
99,067
(12,814)
86,253
1,098
7,693
(49.8) % $
1.8
2,189
7,554
(32.6) % $
3.1
3,250
7,330
Credit card, debit card and merchant fees increased $15.5 million for 2022 compared to 2021 and increased
$6.7 million in 2021 compared to 2020. The increases for the periods, which primarily relate to credit card-related fees, reflects
an increase in number of transactions related to two smaller mergers which occurred during the second quarter of 2021 as well
as the Legacy Cadence merger in the fourth quarter of 2021.
Deposit service charge revenue increased $27.1 million for 2022 compared to 2021 and increased $6.2 million in 2021
compared to 2020. The increases for the periods presented primarily resulted from three mergers in 2021 previously mentioned.
For 2022, this was partially offset by increase in the earnings credit rate on corporate analysis accounts and NSF representment
refunds due to policy changes.
Insurance commissions increased $15.1 million for 2022 compared to 2021 and increased $9.9 million for 2021
compared with 2020. The increase for 2022 is primarily as a result of new customers and high retention rates of existing
customers, as well as higher property and causality commissions related to new customers. In 2021, increases were largely
driven by higher insurance premiums related to the firming premium market.
60
Trust income increased $15.1 million for 2022 compared to 2021 and increased $6.2 million in 2021 compared to
2020. Annuity fees increased $2.3 million for 2022 compared to the same period in 2021 and increased $0.4 million in 2021
compared to 2020. Brokerage commissions and fees increased $23.5 million for 2022 compared to the same period in 2021 and
increased $6.8 million in 2021 compared to 2020. The increases in the three categories during 2022 and 2021 are primarily
related to the three mergers in 2021 previously mentioned.
In 2021, the Company recorded a gain on sale of PPP loans of $21.6 million. No such gain was recorded during 2022.
Bank-owned life insurance revenue increased $4.4 million for 2022 compared to 2021 and increased $3.0 million in
2021 compared to 2020. The increase in revenue for the periods presented reflects the impact of the three mergers in 2021
previously mentioned, as well as proceeds from death benefits in 2022.
Credit-related fees includes those associated with unused fees, letter of credit fees, derivative fee income, and
arrangement fees, among other loan-related fees. This category increased $21.8 million for 2022 compared to 2021 and
increased $2.8 million in 2021 compared to 2020. The increase was largely attributable to unused fees, as well as letter of credit
fees and derivative fees income.
SBA income increased $14.9 million for 2022 compared to 2021 and increased $0.7 million in 2021 compared with
2020. For both periods, this was largely attributable to gains on sales of SBA loans. The increase in SBA income is largely
related to timing of the merger with Legacy Cadence in October 2021.
Other miscellaneous income includes payroll processing revenue, foreign exchange revenue, wire transfer fees, and
other miscellaneous items. Other miscellaneous income increased $9.9 million for 2022 compared to 2021 and increased $6.1
million in 2021 compared to 2020. The increases for the periods presented were primarily driven by an increase in payroll
processing revenue and foreign exchange revenue.
Noninterest Expense
The components of noninterest expense for the years ended December 31, 2022, 2021, and 2020, and the percentage
change between years is shown in the following table:
TABLE 11—NONINTEREST EXPENSE
2022
2021
% Change
Amount
% Change
2020
Amount
(Dollars in thousands)
Salaries and employee benefits
Occupancy and equipment
Data processing and software
Merger expense
Deposit insurance assessments
Pension settlement expense
Advertising and public relations
Foreclosed property expense
Telecommunications
Travel and entertainment
Amortization of intangibles
Professional, consulting and outsourcing
Legal fees
Postage and shipping
Other miscellaneous expense
Total noninterest expense
NM - not meaningful.
Amount
$ 745,023
119,548
113,932
51,214
18,712
9,023
41,754
832
7,413
15,682
20,490
13,828
6,068
8,079
66,362
$ 1,237,960
57.9 % $ 471,815
81,394
46.9
73,085
55.9
59,896
(14.5)
8,701
115.1
3,051
195.7
10,780
NM
4,548
(81.7)
6,240
18.8
6,319
148.2
12,616
62.4
7,465
85.2
4,036
50.3
6,050
33.5
54.7
42,894
55.0 % $ 798,890
12.9 % $ 417,809
70,341
15.7
58,170
25.6
5,345
NM
6,726
29.4
5,846
(47.8)
6,908
56.1
4,074
11.6
5,883
6.1
4,949
27.7
9,605
31.3
3,480
114.5
3,431
17.6
5,256
15.1
(0.4)
43,059
22.7 % $ 650,882
Salaries and employee benefits expense is the largest category of our noninterest expense. Salaries and employee
benefits increased $273.2 million for 2022 compared to 2021. For 2021, salaries and employee benefits expense increased
61
$54.0 million compared to 2020. The increase in salaries and benefits expense for both periods was a result of salary,
compensation costs, and commissions increases related to the Legacy Cadence merger which occurred in the fourth quarter in
2021 and two smaller mergers which occurred during the second quarter of 2021, as well as annual compensation increases.
The increase during 2022 also included an increase in incentive compensation linked to corporate performance, a decrease in
deferred salaries due to lower mortgage originations, and the impacts from the increase in our minimum wage to $18 per hour
from $15 per hour. This was partially offset by revised estimates of various insurance accruals and the annual assessment of
employee benefit obligations impacted by higher discount rates.
The components of salary and employee benefits expense for the years ended December 31, 2022, 2021, and 2020 and
the percentage change between years are shown in the following table:
TABLE 12—SALARIES AND EMPLOYEE BENEFITS EXPENSE
2022
2021
(Dollars in thousands)
Regular compensation
Commissions and incentive compensation
Taxes and employee benefits
Total salaries and employee benefits
Amount
$ 410,579
223,117
111,327
$ 745,023
% Change
Amount
% Change
62.4 % $ 252,884
140,582
58.7
42.1
78,349
57.9 % $ 471,815
13.5 % $ 222,822
119,521
17.6
3.8
75,466
12.9 % $ 417,809
2020
Amount
Occupancy and equipment expense increased $38.2 million for 2022 compared to 2021 and increased $11.1 million in
2021 compared to 2020. The increases for the periods were largely driven by the increased number of properties related to the
three mergers in 2021 previously mentioned.
Data processing and software expense increased $40.8 million for 2022 compared to 2021 and increased $14.9 million
in 2021 compared to 2020. The increases for the periods presented were largely driven by increases in data processing,
maintenance, and depreciation expense recorded as a result of the three mergers in 2021 previously mentioned.
Merger expense represents costs to complete the merger with no future benefit and is comprised primarily of advisor
fees, legal fees, and compensation related expenses. Incremental merger related expenses represent costs related to the merger
for which the entity receives a future benefit. Incremental merger related expenses for 2022 totaled $52.2 million compared to
$4.6 million in 2021. The increase in 2022 included costs related to the franchise-wide rebranding of the Company under the
Cadence Bank name in October 2022, as well as employee retention, marketing, and technology related expenses, which are
included in the appropriate expense categories.
Deposit insurance assessments expense increased $10.0 million for 2022 compared to 2021 and increased $2.0 million
in 2021 compared to 2020. The increases for the periods presented were the result of the movement in several variables utilized
by the FDIC in calculating the deposit insurance assessment coupled with the impacts from the three mergers in 2021. Deposit
insurance assessments expense is expected to increase in 2023 given the FDIC’s adoption of a final rule, applicable to all
insured depository institutions, implementing an increase in the assessment rate schedules of 2 basis points beginning in the
first quarter of 2023.
Advertising and public relations expense increased $31.0 million for 2022 compared to 2021 and increased $3.9
million in 2021 compared to 2020. The increase for 2022 is largely driven by the incremental merger expenses related to the
Company’s rebranding across our footprint.
Other miscellaneous expense includes insurance, operational and fraud losses, supplies expense, franchise taxes,
training and business development expenses, various regulatory fees, SBA sold loan costs, and various other items. This
category increased $23.5 million for 2022 and was flat for 2021. The 2022 increase in other miscellaneous expense occurred as
a result of the three mergers in 2021 previously mentioned.
62
Income Taxes
The Company recorded income tax expense of $136.1 million, $51.8 million, $59.5 million for the years ended
December 31, 2022, 2021, and 2020, respectively. The increase in tax expense in 2022 can be attributed to higher pre-tax
income. The decrease in tax expense in 2021 can be attributed to lower pre-tax income.
The effective tax rate was 22.7%, 21.0%, and 20.7% for the years ended December 31, 2022, 2021, and 2020,
respectively. The increase in the effective tax rate for 2022 resulted from the increase in pre-tax income. For 2021, the effective
tax rate was negatively impacted primarily by the non-deductible merger costs incurred in the fourth quarter of 2021. The
effective tax rate for 2020 was favorably impacted by income tax benefits recorded during the first quarter of 2020 related to the
Company’s tax loss carrybacks as provided by certain tax provisions for corporations under the CARES Act.
In August 2022, the Inflation Reduction Act of 2022 (“IRA of 2022”) was signed into law to address inflation,
healthcare costs, climate change and renewal energy incentives, among other things. Included in the IRA of 2022 are provisions
for the creation of a 15% corporate alternative minimum tax rate (“CAMT”) that is effective for tax years beginning January 1,
2023 for corporations with an average annual adjusted financial statement income in excess of $1 billion. Based on information
available to date, we do not anticipate that the Company will be subject to the 15% CAMT, absent any further changes in law.
FINANCIAL CONDITION
The percentage of earning assets to total assets measures the effectiveness of management’s efforts to invest available
funds into the most efficient and profitable uses. Earning assets at December 31, 2022 were $43.7 billion, or 89.9% of total
assets, compared with $43.5 billion, or 91.3% of total assets, at December 31, 2021.
TABLE 13—FINANCIAL CONDITION SUMMARY
(In thousands)
Period-End Balances:
Total assets
Available-for-sale securities
Loans and leases, net of unearned income
Total deposits
Federal funds purchased and short-term FHLB advances
Subordinated and long-term debt
Total shareholders' equity
Common shareholders' equity
Average Balances:
Total assets
Available-for-sale securities
Loans and leases, net of unearned income
Total deposits
Federal funds purchased and short-term FHLB advances
Subordinated and long-term borrowings
Total shareholders' equity
Common shareholders' equity
As of and For the
Year Ended
December 31, 2022
As of and For the
Year Ended
December 31, 2021
$
48,653,414 $
11,944,096
30,349,277
38,956,614
3,300,231
462,554
4,311,374
4,144,381
47,533,157
13,596,372
28,418,658
39,477,906
1,580,409
465,004
4,574,403
4,407,410
47,669,751
15,606,470
26,882,988
39,817,673
595,000
482,411
5,247,987
5,080,994
29,994,648
9,309,947
17,055,429
25,228,601
5,441
341,170
3,337,575
3,170,582
63
Securities
The Company uses its securities portfolio as a source of revenue and liquidity, and to serve as collateral to secure
certain types of deposits and borrowings. These securities, which are available for a possible sale, are recorded at fair value.
The following tables show the carrying value of the Company’s available-for-sale securities by investment category for the
periods indicated:
TABLE 14—AVAILABLE-FOR-SALE SECURITIES SUMMARY
(In thousands)
Available-for-sale securities:
U.S. Treasury securities
Obligations of U.S. government agencies
Mortgage-backed securities issued or guaranteed by U.S.
agencies (MBS)
Residential pass-through:
Guaranteed by GNMA
Issued by FNMA and FHLMC
Other residential mortgage-backed securities
Commercial MBS
Total MBS
Obligations of states and municipal subdivisions
Other domestic debt securities
Foreign debt securities
Total
$
2022
December 31,
2021
2020
$
1,458,513 $
1,477,127
1,496,465 $
2,638,442
—
2,871,408
84,368
6,274,970
168,452
1,881,853
8,409,643
466,002
82,718
50,093
11,944,096 $
113,427
8,129,191
243,357
2,061,133
10,547,108
565,520
63,645
295,290
15,606,470 $
57,460
2,363,949
—
806,206
3,227,615
113,953
18,030
—
6,231,006
At December 31, 2022, the Company’s available-for-sale securities totaled $11.9 billion compared to $15.6 billion at
December 31, 2021. The decrease of $3.7 billion, or 23.5%, was driven by the decrease in the fair valuation of the portfolio
given the rising interest rate environment as well as portfolio cash flows. During the year ended December 31, 2022,
approximately $369.6 million of available-for-sale securities were sold and $2.6 billion of available-for-sale securities matured,
were called, or paid down. The Company purchased approximately $787.3 million in available-for-sale securities during the
year ended December 31, 2022. The cash from the maturing securities was used to fund loan growth during 2022.
Net unrealized losses on available-for-sale securities at December 31, 2022 totaled $1.5 billion compared to net
unrealized losses totaling $100.7 million at December 31, 2021. The increase in net unrealized losses was due to multiple
increases in interest rates which occurred in 2022. At December 31, 2022, none of the unrealized losses on the portfolio were
due to any material credit related issues; therefore, no allowance for credit losses was recorded on these securities (see Note 3 to
the consolidated financial statements).
In February 2023, the Company initiated a balance sheet repositioning related to a portion of its investment securities
portfolio. The Company executed the sale of $1.5 billion in book value of available-for-sale U.S. Treasury debt securities
yielding approximately 0.70% for an estimated after-tax realized loss of approximately $39.5 million. Proceeds from the sale of
$1.5 billion will be redeployed in accretive activities including reinvestment in higher-yielding debt securities, funding loans,
and/or paying off existing borrowings. The Company estimates that the loss will be recouped within approximately 8.5 months.
The loss on the sale of securities has a neutral impact on shareholders’ equity and the Company’s book value per share
as the unrealized loss was previously recognized in accumulated other comprehensive loss. This repositioning is expected to be
accretive to earnings, net interest margin, and return on assets during the year.
64
The following table shows the maturities and weighted average yields for the carrying value of the available-for-sale
securities for the periods indicated:
TABLE 15—MATURITY DISTRIBUTION OF AVAILABLE-FOR-SALE SECURITIES
(Dollars in thousands)
U.S. Treasury securities:
Due in less than one year
Due in one to five years
U.S. Treasury securities total
Obligations of U.S. government agencies:
Due in less than one year
Due in one to five years
Due in five to ten years
Due after ten years
Obligations of U.S. government agencies total
Obligations of states and municipal subdivisions:
Due in less than one year
Due in one to five years
Due in five to ten years
Due after ten years
Obligations of states and municipal subdivisions total
Other domestic debt securities:
Due in one to five years
Due in five to ten years
Due after ten years
Other domestic debt securities total
Foreign debt securities:
Due in one to five years
Due in five to ten years
Foreign debt securities total
Total securities due in less than one year
Total securities due in one to five years
Total securities due in five to ten years
Total securities due after ten years
Mortgage-backed securities
Total estimated fair value
Contractual Maturity
December 31, 2022
December 31, 2021
Estimated
Fair Value
Weighted
Average
Yield
Estimated
Fair Value
Weighted
Average
Yield
$ 1,458,513
—
1,458,513
796,830
437,156
156,506
86,635
1,477,127
5,819
16,704
24,292
419,187
466,002
12,906
68,153
1,659
82,718
50,093
—
50,093
0.70 % $
—
0.70
1.57
0.88
3.16
2.06
1.56
3.25
3.03
2.35
2.52
2.54
4.45
4.42
4.50
4.42
0.90
—
0.90
—
1,496,465
1,496,465
1,056,035
1,302,758
99,418
180,231
2,638,442
6,631
20,835
26,274
511,780
565,520
28,064
33,461
2,120
63,645
54,451
240,839
295,290
— %
0.69
0.69
1.83
1.32
1.11
2.00
1.56
2.82
3.24
3.06
2.36
2.43
0.64
4.20
4.50
2.64
0.75
0.35
0.43
2,261,162
516,859
248,951
507,481
8,409,643
$ 11,944,096
1,062,666
1.01
2,902,573
1.04
399,992
3.43
694,131
2.45
1.54
10,547,108
1.50 % $ 15,606,470
1.83
0.99
1.04
2.28
1.27
1.29 %
The yield on tax-exempt obligations of states and political subdivisions has been adjusted to a taxable equivalent basis
using a 21% tax rate.
65
Loans and Leases
The Company’s loans and leases held for investment portfolio represents the largest single component of the
Company’s earning asset base. Average loans and leases comprised 66.0% of average earning assets during the year ended
December 31, 2022. The Company’s lending activities include both commercial and consumer loans and leases. The Company
has established systematic procedures for approving and monitoring loans and leases that vary depending on the size and nature
of the loan or lease and applies these procedures in a disciplined manner. The Company’s loans and leases are widely
diversified by borrower and industry. Loans and leases, net of unearned income, totaled $30.3 billion at December 31, 2022,
representing a 12.9% increase from $26.9 billion at December 31, 2021. The bank also acts as agent or participant in Shared
National Credits (“SNC”) and other financing arrangements with other financial institutions.
The Company actively participated in assisting its customers with applications for resources through the Paycheck
Protection Program (“PPP”), which is administered by the SBA with the intent to help businesses keep their workforce
employed during the COVID-19 pandemic. During the second quarter of 2021, the Company sold PPP loans totaling $725.4
million which generated a gain on sale of $21.6 million. The Company believes that the remaining loans will ultimately be
forgiven by the SBA in accordance with the terms of the program. The PPP loans are designed to be fully guaranteed by the
U.S. government and as such should not present a credit risk. The remaining balance of PPP loans of $14.4 million at
December 31, 2022 is included in the non-real estate loan class.
The following table shows the composition of the Company’s loan and lease portfolio by segment and class at the
periods indicated.
TABLE 16—LOAN PORTFOLIO
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned income (1)
December 31, 2022
December 31, 2021
$
$
8,985,547 $
4,068,659
13,054,206
3,547,986
5,150,680
8,698,666
8,319,242
277,163
8,596,405
30,349,277 $
7,847,473
3,567,746
11,415,219
2,924,343
4,924,369
7,848,712
7,311,306
307,751
7,619,057
26,882,988
(1) Total loans and leases are net of $100.8 million and $103.2 million of unearned income at December 31, 2022 and December 31, 2021,
respectively.
66
The following table shows the Company’s loan and lease portfolio by segment and class at December 31, 2022 by
geographical location.
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of
unearned income
TABLE 17—LOANS BY GEOGRAPHICAL LOCATION
Alabama
Arkansas
Florida
Georgia
Louisiana
Mississippi
Missouri
Tennessee
Texas
Other
Total
$ 367,656
$ 156,600
$ 446,454
$ 543,854
$ 317,127
$ 515,897
$
67,208
$ 315,410
$ 3,948,846
$ 2,306,495
$ 8,985,547
370,125
737,781
248,015
404,615
296,159
742,613
304,096
847,950
287,915
553,376
96,500
177,315
1,481,888
253,270
4,068,659
605,042
1,069,273
163,708
492,725
5,430,734
2,559,765
13,054,206
226,990
425,617
652,607
1,155,001
31,270
1,186,271
82,356
260,602
342,958
374,544
17,816
392,360
180,017
369,848
549,865
574,308
5,294
579,602
396,250
580,819
977,069
373,371
12,827
386,198
54,945
216,519
271,464
246,402
403,491
649,893
35,861
162,977
1,738,098
424,090
3,547,986
188,775
224,636
302,252
1,900,831
501,926
5,150,680
465,229
3,638,929
926,016
8,698,666
442,087
1,044,746
150,952
647,556
3,301,528
255,149
8,319,242
12,487
86,499
1,439
17,115
63,029
29,387
277,163
454,574
1,131,245
152,391
664,671
3,364,557
284,536
8,596,405
$ 2,576,659
$ 1,139,933
$ 1,872,080
$ 2,211,217
$ 1,331,080
$ 2,850,411
$ 540,735
$ 1,622,625
$ 12,434,220
$ 3,770,317
$ 30,349,277
Mergers and Acquisitions
In connection with the merger and acquisitions (see Notes 2 and 4 to the consolidated financial statements), the
Company acquired loans both with and without evidence of credit quality deterioration since origination. Acquired loans are
recorded at their fair value at the time of acquisition with no carryover from the acquired institution’s previously recorded
allowance for credit losses.
The fair value for acquired loans recorded at the time of acquisition is based upon several factors including the timing
and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash
flows using comparable market rates. The resulting fair value adjustment is recorded in the form of a premium or discount to
the unpaid principal balance of each acquired loan. As it relates to acquired loans that, as of the date of acquisition, have
experienced a more-than-insignificant deterioration in credit quality since origination (“PCD”), the net premium or net discount
is adjusted to reflect the Company’s allowance for credit losses (“ACL”) recorded for PCD loans at the time of acquisition, and
the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the loan. As it
relates to acquired loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of the fair value
adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the
remaining life of the loan. The Company records an ACL for non-PCD loans at the time of acquisition through provision
expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.
In addition, a grade is assigned to each loan during the valuation process. For acquired loans that are not individually
reviewed during the valuation process, such loans are assumed to have characteristics similar to the assigned rating of the
acquired institution’s risk rating, adjusted for any estimated differences between the Company’s rating methodology and the
acquired institution’s rating methodology. Acquired loans that are individually evaluated at the acquisition date are assigned a
specific reserve in the same manner as other loans individually evaluated and are assigned an internal grade of “P” for
Purchased Credit Deteriorated with Loss Exposure.
The following is a discussion of our segments and classes of loans and leases:
Commercial and Industrial (“C&I”)
Non-Real Estate – The Company engages in lending to small and medium-sized business enterprises and government
entities through its community banking locations and to regional and national business enterprises through its corporate banking
division. Commercial and industrial loans are loans and leases to finance business operations, equipment and owner-occupied
facilities. These include both lines of credit for terms of one year or less and term loans which are amortized over the useful life
of the assets financed. Personal and/or corporate guarantees are generally obtained where available and prudent. Also included
in this category are loans to finance agricultural production. The Company recognizes that risk from economic cycles,
commodity prices, pandemics, government regulation, supply-chain disruptions, product innovations or obsolescence,
operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of key personnel, or
competitive situations may adversely affect the scheduled repayment of business loans. In addition, risks in the agricultural
67
sector including crop failures due to weather, insects and other blights, commodity prices, governmental intervention, lawsuits,
labor or logistical disruptions. Non-real estate loans increased 14.5% from December 31, 2021 to December 31, 2022.
Owner Occupied – Owner occupied loans include loans secured by business facilities to finance business operations,
equipment, agricultural land and owner-occupied facilities. These include both lines of credit for terms of one year or less and
term loans which are amortized over the useful life of the assets financed. Personal guarantees are generally obtained where
available and prudent. The Company recognizes that risk from economic cycles, pandemics, government regulation, supply-
chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or
embezzlement, health or loss of key personnel, or competitive situations may adversely affect the scheduled repayment of
business loans. Owner occupied loans increased 14.0% from December 31, 2021 to December 31, 2022.
Commercial Real Estate (“CRE”)
Construction, Acquisition and Development – Construction, acquisition and development loans include both loans and
credit lines for construction of commercial, industrial, residential, and multi-family buildings and for purchasing, carrying, and
developing land into commercial developments or residential subdivisions. The Company generally engages in construction and
development lending primarily in markets served by its branches. The Company recognizes that risks are inherent in the
financing of real estate development and construction. These risks include location, market conditions and price volatility,
demand for developed land, lots and buildings, desirability of features and styling of completed developments and buildings,
competition from other developments and builders, traffic patterns, governmental jurisdiction, tax structure, availability of
utilities, roads, public transportation and schools, interest rates, availability of permanent financing for homebuyers, zoning,
environmental restrictions, lawsuits, economic and business cycle, or labor and reputation of the builder or developer.
Construction, acquisition and development loans increased 21.3% from December 31, 2021 to December 31, 2022.
The underwriting process for construction, acquisition and development loans with interest reserves is essentially the
same as that for a loan without interest reserves and may include analysis of borrower and guarantor financial strength, market
demand for the proposed project, experience and success with similar projects, property values, time horizon for project
completion and the availability of permanent financing once the project is completed. The Company’s loan policy generally
prohibits the use of interest reserves on loans. Construction, acquisition and development loans, with or without interest
reserves, are inspected periodically to ensure that the project is on schedule and eligible for requested draws. Inspections may
be performed by construction inspectors hired by the Company or by appropriate loan officers and are done periodically to
monitor the progress of a particular project. These inspections may also include discussions with project managers and
engineers.
Interest income is not recognized on construction, acquisition and development loans with interest reserves that are in
nonaccrual status. Construction loans normally have a budget that includes the various cost components involved in the project.
Interest is such a cost, along with hard and other soft costs.
Each construction, acquisition and development loan is underwritten to address: (i) the desirability of the project, its
market viability and projected absorption period; (ii) the creditworthiness of the borrower and the guarantor, if applicable, as to
liquidity, cash flow and assets available to ensure performance of the loan; (iii) equity contribution to the project; (iv) the
developer’s experience and success with similar projects; and (v) the value of the collateral.
Income Producing – Commercial loans include loans to finance income-producing commercial and multi-family
properties. Lending in this category is generally limited to properties located in the Company’s market area with only limited
exposure to properties located elsewhere. Loans in this category include loans for neighborhood retail centers, medical and
professional offices, single retail stores, warehouses and apartments leased generally to local businesses and residents. The
underwriting of these loans takes into consideration the occupancy and rental rates as well as the financial health of the
borrower. The Company’s exposure to national retail tenants is limited. Generally, the Company has not purchased commercial
real estate loans from brokers or third-party originators. The Company recognizes that risk from economic cycles, pandemics,
delayed or missed rent payments, supply-chain disruptions, product innovations or obsolescence, operational errors, lawsuits,
natural disasters, losses due to theft or embezzlement, health or loss of key personnel, or competitive situations may adversely
affect the scheduled repayment of business loans. Income producing loans increased 4.6% from December 31, 2021 to
December 31, 2022.
Consumer
Residential Mortgages – Consumer mortgages are first or second-lien loans to consumers secured by a primary
residence or second home. This category includes traditional mortgages and home equity loans and revolving lines of credit.
68
The loans are generally secured by properties located primarily in markets served by the Company’s branches. These loans are
underwritten in accordance with the Company’s general loan policy and procedures which require, among other things, proper
documentation of each borrower’s financial condition, satisfactory credit history, and property value. In addition to loans
originated through the Company’s branches, the Company originates and services consumer mortgages sold in the secondary
market which are underwritten and closed pursuant to investor and agency guidelines. Residential mortgages increased 13.8%
from December 31, 2021 to December 31, 2022.
Other Consumer – Other consumer lending includes consumer credit card accounts as well as personal revolving lines
of credit and installment loans. The Company offers credit cards primarily to its deposit and loan customers. Consumer
installment loans include term loans of up to five years secured by automobiles, boats and recreational vehicles. The Company
recognizes that there are risks in consumer lending which include interruptions in the borrower’s personal and investment
income due to loss of employment, market conditions, and general economic conditions, deterioration in the health and well-
being of the borrower and family members, natural disasters, pandemics, lawsuits, losses, or inability to generate income due to
injury, accidents, theft, vandalism or incarceration. Other consumer loans decreased 9.9% from December 31, 2021 to
December 31, 2022.
Selected Loan Maturity and Interest Rate Sensitivity
The maturity distribution of the Company’s loan portfolio is one factor in management’s evaluation by collateral type
of the risk characteristics of the loan and lease portfolio. The interest rate sensitivity of the Company’s loan and lease portfolio
is important in the management of net interest margin. The Company attempts to manage the relationship between the interest
rate sensitivity of its assets and liabilities to produce an effective interest differential that is not significantly impacted by
changes in the level of interest rates (See - Item 7A - Quantitative and Qualitative Disclosures About Market Risk). The
following table shows the maturity distribution based on remaining maturities of the Company’s loan and lease portfolio and
the interest rate sensitivity of the Company’s loans and leases maturing after one year at December 31, 2022:
TABLE 18—INTEREST RATE SENSITIVITY OF LOANS
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
One Year
or Less
Over One
Year through
Five Years
Over Five
Years through
Fifteen Years
Over Fifteen
Years
Fixed
Interest Rate
Variable
Interest Rate
Rate Structure for Loans
Maturing Over One Year
$ 1,491,886 $
6,400,152 $
1,013,400 $
80,109 $ 1,067,208 $ 6,426,453
284,091
632,609
2,074,243
1,077,716
1,616,437
2,168,131
Total commercial and industrial
1,775,977
7,032,761
3,087,643
1,157,825
2,683,645
8,594,584
Commercial real estate
Construction, acquisition and development
1,223,501
Income producing
Total commercial real estate
799,321
2,022,822
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned
income
Loans Held-for-Sale
1,345,342
1,300,613
2,645,955
398,438
189,686
588,124
472,631
506,512
1,234,412
1,816,334
486,511
951,090
1,837,974
3,400,269
1,707,043
2,322,846
1,437,601
5,238,243
1,316,171
6,261,112
3,311,092
4,664,629
17,507
2,108
98,185
111,116
1,333,678
6,263,220
3,409,277
4,775,745
343,521
67,862
411,383
$ 4,210,182 $ 10,266,840 $
6,128,364 $ 9,743,891 $ 7,530,523 $ 18,608,572
At December 31, 2022 and 2021, loans held for sale totaled $187.9 million and $340.2 million, respectively. Included
in loans held for sale, loans sold to Government National Mortgage Association (“GNMA”) with an optional repurchase totaled
$71.4 million and $91.9 million at December 31, 2022 and 2021, respectively. The Company records the loans at fair value on
consolidated balance sheets with an offsetting liability. GNMA optional repurchase programs allow financial institutions to buy
back individual delinquent mortgage loans that meet certain criteria (90 days or more past due) from the securitized loan pool
for which the institution provides servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may
repurchase such a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. Under FASB
69
ASC 860, this buyback option is considered a conditional option until the delinquency criteria are met, at which time the option
becomes unconditional. When the Company is deemed to have regained effective control over these loans under the
unconditional buyback option, the loans can no longer be reported as sold and must be brought back onto the consolidated
balance sheet as loans held for sale, regardless of whether the Company intends to exercise the buy-back option. These loans
are not included in the nonperforming loans totals.
Asset Quality
Nonperforming Assets (“NPA”)
NPA consists of nonperforming loans (“NPL”), other real estate owned (“OREO”), and other repossessed assets. The
decrease from December 31, 2021 to December 31, 2022 in NPA was led by the decrease of $26.3 million, or 79.6%, in
foreclosed OREO and other NPA followed by the decrease of $23.4 million, or 19.1%, in nonaccrual loans and leases and the
decrease of $22.7 million, or 91.7%, in loans and leases past due 90 or more days that are still accruing. The decreases were
offset by the increase of $1.7 million, or 24.6%, in accruing restructured loans and leases from December 31, 2021 to
December 31, 2022. The majority of the increase is located in the C&I and CRE segments and is slightly offset by a decrease in
the consumer segment. NPAs, which are reported as a loan or OREO on the Company’s consolidated balance sheets, depending
on foreclosure status, were as follows at the end of each period presented:
TABLE 19—NONPERFORMING ASSETS
(In thousands)
Nonaccrual loans and leases
Loans and leases 90 days or more past due, still accruing
Restructured loans and leases, still accruing
Total NPL
Foreclosed OREO and other NPA
Total NPA
NPL to total loans and leases
NPA to total assets
December 31, 2022
98,745
$
2,068
8,598
109,411
6,725
116,136
$
December 31, 2021
122,104
$
24,784
6,903
153,791
33,021
186,812
$
0.36 %
0.24 %
0.57 %
0.39 %
GNMA loans 90 or more days past due eligible for repurchase (1)
$
71,367
$
91,902
(1) The company did not exercise the buy-back option during 2022 and 2021.
Nonperforming Loans
NPL consist of nonaccrual loans and leases, loans and leases 90 days or more past due and still accruing and accruing
loans and leases that have been restructured (primarily in the form of reduced interest rates and modified payment terms)
because of the borrower’s or guarantor’s financial difficulty. The Company’s policy provides that loans and leases are generally
placed in nonaccrual status if, in management’s opinion, payment in full of principal or interest is not expected or payment of
principal or interest is more than 90 days past due, unless the loan or lease is both well-secured and in the process of collection.
NPL decreased 28.9% at December 31, 2022, compared to December 31, 2021. NPL as a percentage of net loans and leases
decreased from 0.57% at December 31, 2021, to 0.36% at December 31, 2022.
Included in NPL at December 31, 2022, were $7.2 million of loans that were internally risk rated as impaired. These
impaired loans had a specific reserve of $2.3 million included in the allowance for credit losses of $440.3 million at
December 31, 2022, and were net of $84 thousand in partial charge-downs previously taken on these impaired loans.
Additionally, certain loans internally risk rated as PCD (loss) were included in NPL. At December 31, 2022, these loans totaled
$5.8 million and had a specific reserve of $311 thousand included in the allowance for credit losses. There were no net partial
charge-downs previously taken on these PCD (loss) loans.
NPL at December 31, 2021, included $25.2 million of loans that were internally risk rated impaired and had a specific
reserve of $4.5 million included in the allowance for credit losses of $446.4 million at December 31, 2021. PCD (loss) loans
included in NPL totaled $17.1 million and had a specific reserve of $6.1 million included in the allowance for credit losses.
70
The following table presents the Company’s NPL by geographical location at December 31, 2022:
TABLE 20—NONPERFORMING LOANS BY GEOGRAPHICAL LOCATION
(In thousands)
Alabama
Arkansas
Florida
Georgia
Louisiana
Mississippi
Missouri
Tennessee
Texas
Other
Total
Amortized
Cost
90+ Days
Past Due,
Still Accruing
Nonaccrual
Loans
Restructured,
Still Accruing
Total NPL
$ 2,576,659 $
1,139,933
1,872,080
2,211,217
1,331,080
2,850,411
540,735
1,622,625
12,434,220
3,770,317
$ 30,349,277 $
242 $
29
12
200
304
363
—
127
784
7
2,068 $
17,542 $
2,958
2,210
13,674
5,451
14,962
1,214
4,745
21,653
14,336
98,745 $
1,836 $
883
1,870
—
204
2,486
276
333
679
31
8,598 $
19,620
3,870
4,092
13,874
5,959
17,811
1,490
5,205
23,116
14,374
109,411
NPL as a
% of
Amortized
Cost
0.76 %
0.34
0.22
0.63
0.45
0.62
0.28
0.32
0.19
0.38
0.36 %
The following table provides additional details related to the Company’s loan and lease portfolio and the distribution
of NPL by segment and class at December 31, 2022:
TABLE 21—NONPERFORMING LOANS BY SEGMENT AND CLASS
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned
income
Amortized
Cost
90+ Days
Past Due,
Still
Accruing
Nonaccrual
Loans
Restructured,
Still
Accruing
Total NPL
NPL as a
% of
Amortized
Cost
$ 8,985,547 $
4,068,659
13,054,206
412 $
20
432
23,907 $
7,944
31,851
3,547,986
5,150,680
8,698,666
8,319,242
277,163
8,596,405
—
—
—
1,440
196
1,636
2,974
7,331
10,305
55,892
697
56,589
1,288 $
2,008
3,296
168 $
1,754 $
1,922
3,143 $
237 $
3,380
25,607
9,972
35,579
3,142
9,085
12,227
60,475
1,130
61,605
0.28 %
0.25
0.27
0.09
0.18
0.14
0.73
0.41
0.72
$ 30,349,277 $
2,068 $
98,745 $
8,598 $
109,411
0.36 %
Nonaccrual loans at December 31, 2022 decreased by $23.4 million, or 19.1%, to $98.7 million from $122.1 million at
December 31, 2021. The decline in nonaccrual loans resulted primarily from decreases of $23.9 million, or 42.9%, and
$11.3 million, or 52.4%, in commercial and industrial and commercial real estate segments, respectively. The decreases were
offset by an increase of $11.9 million, or 26.6%, in the consumer segment.
71
The following table provides details regarding the aging of the Company’s nonaccrual loans and leases by segment and
class at December 31, 2022:
TABLE 22—AGING OF NONACCRUAL LOANS
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned income
$
OREO and Repossessed Assets
30-59 Days
Past Due
60-89 Days
Past Due
90+ Days
Past Due
Total
Past Due
Current
Total
Nonaccrual
$
452 $
3,074 $
13,377 $
16,903 $
7,004 $
23,907
653
1,105
—
3,074
5,248
18,625
5,901
22,804
2,043
9,047
—
—
—
—
257
257
6,935
1,171
8,106
6,935
1,428
8,363
3,441
31
2,112
46,277
51,830
3
602
636
(3,961)
5,903
1,942
4,062
61
3,472
4,577 $
2,115
5,446 $
46,879
73,610 $
52,466
83,633 $
4,123
15,112 $
7,944
31,851
2,974
7,331
10,305
55,892
697
56,589
98,745
OREO consists of properties acquired through foreclosure. Repossessed assets consist of non-real estate assets
acquired in partial or full settlement of loans. OREO and repossessed assets totaled $6.7 million and $33.0 million at
December 31, 2022, and December 31, 2021, respectively. The decrease of $26.3 million, or 79.6%, was primarily the result of
write-downs on repossessed assets and sales of repossessed assets during 2022. During 2022, the writedowns totaled
$7.6 million and the sales totaled $18.3 million.
Because a portion of the Company’s NPL have been determined to be collateral-dependent, management expects the
resolution of a significant number of these loans may necessitate foreclosure proceedings resulting in further additions to
OREO. At December 31, 2022, residential mortgages in process of foreclosure increased to $4.6 million compared to
$2.2 million at December 31, 2021.
At the time of foreclosure, the fair value of the collateral for loans backed by real estate is typically determined by an
appraisal performed by a third-party appraiser holding professional certifications. Such appraisals are then reviewed and
evaluated by the Company’s internal appraisal group. A market value appraisal using a 180-360 day marketing period is
typically ordered and the OREO is recorded at the time of foreclosure at its market value less estimated selling costs. For
residential subdivisions that are not completed, the appraisals reflect the uncompleted status of the subdivision.
To attempt to ensure that OREO is carried at fair value less estimated selling costs on an ongoing basis, new appraisals
are obtained on at least an annual basis and the OREO carrying values are adjusted accordingly. The type of appraisals typically
used for these periodic reappraisals are “Restricted Use Appraisals,” meaning the appraisal is for client use only. Other
indications of fair value are also used to attempt to ensure that OREO is carried at fair value. These include listing the property
with a broker and acceptance of an offer to purchase from a third-party. If an OREO property is listed with a broker at an
amount less than the current carrying value, the carrying value is immediately adjusted to reflect the list price less estimated
selling costs and if an offer to purchase is accepted at a price less than the current carrying value, the carrying value is
immediately adjusted to reflect that sales price, less estimated selling costs. The majority of the properties in OREO are actively
marketed using a combination of real estate brokers, bank staff who are familiar with the particular properties and/or third
parties.
Troubled Debt Restructurings (“TDR”)
The Company has processes in place to review credits upon renewal or modification to determine if financial
concessions are being granted that meet the requirements set forth in FASB ASC 326. Loans identified as meeting the criteria
set out in FASB ASC 326 are identified as TDR. The concessions granted most frequently for TDR involve reductions or
delays in required payments of principal and/or interest for a specified time, reduced interest rate, or the rescheduling of
72
payments in accordance with a bankruptcy plan. In some cases, the conditions of the credit also warrant nonaccrual status, even
after the restructure occurs. TDR loans may be returned to accrual status after the restructure when the loan is current under the
restructured loan terms. For reporting purposes, if a TDR is 90 days or more past due or has been placed in nonaccrual status,
the restructured loan is included in the loans 90 days or more past due category or the nonaccrual loan category of NPA. Total
TDR were $9.8 million and $9.2 million at December 31, 2022, and December 31, 2021, respectively. TDRs of $1.2 million
and $2.3 million were included in the nonaccrual and 90+ days past due, still accruing loan categories at December 31, 2022,
and December 31, 2021, respectively. The majority of the increase was located in the commercial and industrial non-real estate
portfolio.
Internally Assigned Grades on Loans
Loans with an internally assigned grade of impaired are individually analyzed collateral-dependent loans for which a
specific provision has been considered to address the unsupported exposure. Loans with an internally assigned grade of
impaired, irrespective of TDR status, which were included in NPL, totaled $7.2 million and $25.2 million at December 31,
2022, and December 31, 2021, respectively, with a valuation allowance of $2.3 million and $4.5 million, respectively.
Individually analyzed PCD loans with loss exposure, irrespective of TDR status, totaled $33.2 million and $88.4 million at
December 31, 2022, and December 31, 2021, respectively, with a valuation allowance of $2.1 million and $20.3 million,
respectively.
At December 31, 2022, the Company did not have any concentration of loans or leases in excess of 10% of total loans
and leases outstanding which were not otherwise disclosed as a category of loans or leases. Loan concentrations are considered
to exist when there are amounts loaned to multiple borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. The Company conducts business in a geographically concentrated area and
has a significant amount of loans secured by real estate to borrowers in varying activities and businesses but does not consider
these factors alone in identifying loan concentrations. The ability of the Company’s borrowers to repay loans is somewhat
dependent upon the economic conditions prevailing in the Company’s market areas.
The Company utilizes an internal loan classification system that is perpetually updated to grade loans according to
certain credit quality indicators. These credit quality indicators include, but are not limited to, recent credit performance,
delinquency, liquidity, cash flows, debt coverage ratios, collateral type and loan-to-value ratio. See Note 4 to the consolidated
financial statements.
The following table provides details of the Company’s loan and lease portfolio by segment, class, and internally
assigned grade at December 31, 2022:
TABLE 23—GRADES ON LOANS
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned
income
Pass
Special
Mention
Substandard
Impaired
PCD (Loss)
Total
$ 8,735,337 $
4,024,179
12,759,516
37,389 $
6,062
43,451
205,246 $
32,912
238,158
3,375 $
3,824
7,199
4,200 $ 8,985,547
4,068,659
1,682
13,054,206
5,882
3,498,990
5,035,880
8,534,870
8,159,904
272,182
8,432,086
18,667
27,330
45,997
232
—
232
23,073
68,948
92,021
157,532
4,981
162,513
—
—
—
—
—
—
7,256
18,522
25,778
1,574
—
1,574
3,547,986
5,150,680
8,698,666
8,319,242
277,163
8,596,405
$ 29,726,472 $
89,680 $
492,692 $
7,199 $
33,234 $ 30,349,277
73
The following table provides details regarding the aging of the Company’s loan and lease portfolio by internally
assigned grade at December 31, 2022:
TABLE 24—AGING BY GRADE ON LOANS
(In thousands)
Pass
Special Mention
Substandard
Doubtful
Loss
Impaired
PCD (Loss)
Total
Current
30-59 Days
Past Due
60-89 Days
Past Due
90+ Days
Past Due
Total
$ 29,711,795 $
88,703
364,227
—
—
5,267
27,446
$ 30,197,438 $
7,881 $
977
48,000
—
—
545
—
57,403 $
834 $
—
17,812
—
—
112
—
18,758 $
5,962 $ 29,726,472
89,680
—
492,692
62,653
—
—
—
—
7,199
1,275
5,788
33,234
75,678 $ 30,349,277
At December 31, 2022, special mention, and substandard internally-assigned grade categories showed increases while
the remaining grades showed decreased compared to December 31, 2021. Loans internally-assigned special mention increased
$12.8 million, or 16.7%. The increase in special mention was driven primarily by increases in the construction, acquisition, and
development and owner occupied classed and was partially offset by decreases in the non-real estate and income producing
classes. Loans internally-assigned substandard slightly increased $10.3 million, or 2.1%, at December 31, 2022 compared to
December 31, 2021. The increase was located in in the non-real estate and residential mortgage classes while seeing decreases
in all other classes. The Company has maintained stable credit quality while continuing to grow loans. Of the total loans and
leases, 99.5% were current on their contractual payments at December 31, 2022.
Collateral for some of the Company’s loans and leases is subject to fair value evaluations that fluctuate with market
conditions and other external factors. In addition, while the Company has certain underwriting obligations related to such
evaluations, the evaluations of some real property and other collateral are dependent upon third-party independent appraisers
employed as independent contractors of the Company.
Deposits
Deposits originating within the communities served by the Company continue to be the Company’s primary source of
funding its earning assets. The Company has been able to compete effectively for deposits in its primary market areas, while
continuing to manage the exposure to rising interest rates. The distribution and market share of deposits by type of deposit and
by type of depositor are important considerations in the Company's assessment of the stability of its fund sources and its access
to additional funds. Furthermore, management shifts the mix and maturity of the deposits depending on economic conditions
and loan and investment policies in an attempt, within set policies, to minimize cost and maximize net interest margin.
The following table presents the Company’s deposits and the percentage change between the periods indicated:
TABLE 25—SUMMARY OF DEPOSITS
2022
2021
(Dollars in thousands)
Noninterest bearing demand deposits
Interest bearing demand and money market deposits
Savings
Time deposits
Total deposits
Amount
$ 12,731,065
19,040,131
3,473,746
3,711,672
$ 38,956,614
% Change
Amount
% Change
(6.6) % $ 13,634,505
18,727,588
1.7
3,556,079
(2.3)
(4.8)
3,899,501
(2.2) % $ 39,817,673
115.0 % $ 6,341,457
8,524,010
119.7
2,452,059
45.0
54.2
2,528,915
100.6 % $ 19,846,441
2020
Amount
Deposits experienced a decrease of 2.2% at December 31, 2022 compared to December 31, 2021. The decrease in total
deposits for 2022 included decreases in correspondent bank balances and average balance declines in customer accounts,
partially offset by increases in public funds. Interest bearing demand and money market deposits increased $312.5 million, or
1.7%, to $19.0 billion at December 31, 2022 from $18.7 billion at December 31, 2021 and noninterest bearing demand deposits
decreased $903.4 million, or 6.6%, to $12.7 billion at December 31, 2022 from $13.6 billion at December 31, 2021. Time
74
deposits decreased 4.8% at December 31, 2022 compared to December 31, 2021. The 100.6% increase in deposits at December
31, 2021 compared to December 31, 2020 was primarily a result of the merger with Legacy Cadence on October 29, 2021 (see
Note 2 of the consolidated financial statements for more details).
The following table presents the classification of the Company’s deposits on an average basis for each of the periods
indicated:
TABLE 26—AVERAGE BALANCE AND YIELD ON DEPOSITS
(Dollars in thousands)
2022
2021
2020
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Noninterest bearing demand deposits
$ 13,733,384 —%
$
8,382,997 —%
$
5,850,761 —%
Interest bearing demand deposits
Savings
Time
18,541,402
3,657,718
3,545,402
0.59
0.15
0.68
11,114,242
2,946,629
2,784,733
0.30
0.09
0.88
7,859,680
2,199,405
2,649,809
0.61
0.19
1.47
Total deposits
$ 39,477,906
$ 25,228,601
$ 18,559,655
Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit
and amounts in any other uninsured investment or deposit account that are classified as deposits and are not subject to any
federal or state deposit insurance regimes. Total estimated uninsured deposits were approximately $19.4 billion and
$17.8 billion at December 31, 2022 and December 31, 2021, respectively, as calculated per regulatory guidance. The
Company’s estimated uninsured time deposits at December 31, 2022 had maturities as follows:
TABLE 27—MATURITY ON UNINSURED TIME DEPOSITS
(In thousands)
Three months or less
Over three months through six months
Over six months through twelve months
Over 12 months
Total
Amount
135,428
93,552
341,731
311,721
882,432
$
$
The average maturity of time deposits at December 31, 2022 was approximately 11.6 months, compared to
approximately 10.6 months at December 31, 2021.
Borrowings
Short-term Borrowings
The Company utilizes securities sold under agreements to repurchase to secure short-term funding needs and to meet
the needs of our customers. Securities sold under repurchase agreements generally mature within 30 days from the date of sale.
The Company continually monitors collateral levels. The Company utilizes short-term FHLB borrowings which generally
mature within one year following the date of purchase. During 2022, short-term FHLB borrowings increased to $3.1 billion
with the majority of the advances maturing within the next five months. At December 31, 2021, there were no short-term FHLB
borrowings. All borrowings from the FHLB are collateralized by commercial and residential loans pledged under a blanket lien
arrangement at December 31, 2022. Additionally, we utilize federal funds purchased which generally mature the day following
the date of purchase. See Note 9 to the Company’s consolidated financial statements for additional details.
75
Long-term Borrowings
Under the terms of the blanket floating lien security agreement with FHLB Dallas, the Company is required to
maintain sufficient collateral to secure borrowings. At December 31, 2022, the remaining borrowing availability totaled
$6.4 billion. At December 31, 2022, there were no call features on long-term FHLB borrowings.
Due to the merger with Legacy Cadence on October 29, 2021, the Company assumed subordinated notes with the par
value totaling $145.0 million and junior subordinated notes with the par value totaling $50.6 million. The Company redeemed,
at par, $35 million of the junior subordinated debentures in December 2021 and $15 million on January 3, 2022. On May 1,
2021, the Company assumed $10.0 million in subordinated notes from the merger with FNS Bancshares Inc. See Note 2 of the
consolidated financial statements for more details related to the mergers. Also, during the third quarter of 2022, the Company
redeemed the remaining long-term promissory notes.
The following is a summary of our long-term borrowings at the dates indicated:
TABLE 28—LONG-TERM BORROWINGS
(In thousands)
December 31, 2022
December 31, 2021
Advances from FHLB Dallas
5.750% fixed rate, long-term promissory notes
4.125% fixed to floating rate, subordinated notes, due November 20, 2029,
callable in 2024
$
7.250% subordinated notes, due June 28, 2029, callable in 2024
4.750% subordinated notes, due June 30, 2029, callable in 2024
6.250% subordinated notes, due June 28, 2029, callable in 2024
5.000% fixed to floating rate, subordinated notes, due June 30, 2030,
callable in 2025
Junior subordinated debentures, 3 month LIBOR plus 1.75%, due 2037
Purchase accounting adjustment, net of amortization
836 $
—
300,000
35,000
85,000
25,000
10,000
—
8,064
Debt issue costs
Total long-term borrowings
Liquidity and Capital Resources
Liquidity
$
(1,346)
462,554 $
2,315
1,427
300,000
35,000
85,000
25,000
10,000
15,000
10,717
(2,048)
482,411
One of the Company's goals is to maintain adequate funds to meet increases in loan demand or any potential increase
in the normal level of deposit withdrawals. This goal is accomplished primarily by generating cash from the Company’s
operating activities and maintaining sufficient short-term liquid assets. These sources, coupled with a stable deposit base and a
historically strong reputation in the capital markets, allow the Company to fund earning assets and maintain the availability of
funds. Management believes that the Company’s traditional sources of maturing loans and investment securities, sales of loans
held for sale, cash from operating activities and a strong base of core deposits are adequate to meet the Company’s liquidity
needs for normal operations over both the short-term and the long-term.
To provide additional liquidity as needed, the Company utilizes short-term financing through the purchase of federal
funds, securities sold under agreements to repurchase, and borrowings at the FHLB. The Company had non-binding federal
funds borrowing arrangements with other banks aggregating $1.8 billion at December 31, 2022, of which, $200.0 million was
outstanding at December 31, 2022, compared to $595.0 million outstanding at December 31, 2021. The unencumbered fair
value of the Company’s federal government and government agencies securities portfolio may provide substantial additional
liquidity.
All securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are
recorded at the amounts at which the securities were acquired or sold plus accrued interest. The Company had securities sold
under agreements to repurchase of $708.7 million and $687.2 million at December 31, 2022 and 2021, respectively.
Further, the Company maintains a borrowing relationship with the FHLB which provides access to short-term and
long-term borrowings. The Company also has access to the Federal Reserve discount window and other bank lines. The
76
Company had no short-term borrowings at the Federal Reserve at December 31, 2022 and 2021. The Company had $3.1 billion
in short-term borrowings at the FHLB at December 31, 2022 and had none at December 31, 2021. The increase in short-term
borrowings at the FHLB offsets the decline in deposits during 2022. However, the available-for-sale securities portfolio cash
flows have continued to provide funding for loan growth.
At December 31, 2022, the Company had $836 thousand in long-term borrowings from the FHLB compared to
$2.3 million at December 31, 2021. The Company has pledged eligible loans to secure the FHLB borrowings and had
$6.4 billion in additional borrowing capacity under the existing FHLB borrowing agreement at December 31, 2022. The
Company had irrevocable letters of credit issued by the FHLB totaling $215.0 million at December 31, 2022 on behalf of our
customers.
The ability of the Company to obtain funding from these or other sources could be negatively affected should the
Company experience a substantial deterioration in its financial condition or its debt rating, or should the availability of short-
term funding become restricted as a result of the disruption in the financial markets. Management does not anticipate any short-
or long-term changes to its liquidity strategies and believes that the Company has ample sources to meet the liquidity challenges
caused by the current economic conditions. The Company utilizes, among other tools, maturity gap tables, interest rate shock
scenarios and an active asset and liability management committee to analyze, manage and plan asset growth and to assist in
managing the Company’s net interest margin and overall level of liquidity (See - Item 7A. Quantitative and Qualitative
Disclosures About Market Risk).
Other Liquidity Considerations
The Company’s operating lease obligations represent short and long-term operating lease and rental payments for
facilities, certain software and data processing and other equipment. Purchase obligations represent obligations to purchase
goods and services that are legally binding and enforceable on the Company and that specify all significant terms, including:
fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction.
In the ordinary course of business, the Company enters into various off-balance sheet commitments and other
arrangements to extend credit that are not reflected on the consolidated balance sheets of the Company. The business purpose of
these off-balance sheet commitments is the routine extension of credit. The Company also faces the risk of deteriorating credit
quality of borrowers to whom a commitment to extend credit has been made; however, no significant credit losses are expected
from these commitments and arrangements. At December 31, 2022, letters of credit totaled $691.2 million and unfunded
extensions of credit totaled $11.2 billion (see Note 23 to the consolidated financial statement for more information). At
December 31, 2022, the Company maintained a reserve for unfunded commitments of $28.6 million included in other
liabilities.
Cash Obligations
The following table summarizes the Company’s contractual obligations at December 31, 2022. See Notes 1, 7, 9, and
10 to the consolidated financial statements for further disclosures regarding contractual obligations.
(In thousands)
Contractual Obligations:
Total
Payments Due by Periods
One to Three
Years
Less Than
One Year
Three to Five
Years
More than
Five Years
Deposits without a stated maturity
Deposits with a stated maturity
Subordinated and long-term borrowings
Operating lease obligations
Securities sold under agreement to repurchase
Federal funds purchased
Short-term FHLB advances
Limited partnership investments
Total contractual obligations
$ 35,244,942 $ 35,244,942 $
— $
— $
3,711,672
462,554
223,071
708,736
200,000
3,100,231
186,676
2,327,838
—
15,625
708,736
200,000
3,100,231
148,716
$ 43,837,882 $ 41,746,088 $ 1,319,158 $
1,255,632
—
28,421
—
—
—
35,105
128,061
836
28,683
—
—
—
664
158,244 $
—
141
461,718
150,342
—
—
—
2,191
614,392
77
Cash Flow Sources and Uses
Cash equivalents include cash and amounts due from banks, including interest bearing deposits with other banks. At
December 31, 2022, cash and cash equivalents totaled $2.0 billion compared to $1.3 billion at December 31, 2021. The ratio of
cash to total assets was 4.1% at December 31, 2022 compared to 2.7% at December 31, 2021.
During 2022, operating activities provided $923.0 million in cash compared to $1.2 billion during 2021. The decrease
was primarily driven by a decrease of $1.0 billion in proceeds from payments and sales of loans held for sale and a decrease of
$131.1 million in provision for credit losses. An increase of $268.1 million in net income and a decrease of $252.3 million in
originations of loans held for sale somewhat offset the decreases.
During 2022, investing activities used $1.7 billion in cash compared to $3.2 billion during 2021. The change in
investing activities of $1.4 billion resulted primarily from a decrease of $7.1 billion in purchases of available-for-sale securities
and an increase of $393.7 million in proceeds from maturities, calls, and paydowns of available-for-sale securities. It was
somewhat offset by an increase of $3.4 billion in funding of originated loans, a decrease of $2.7 billion in cash paid for business
acquisitions, and a decrease of $194.4 million from proceeds from sales of available-for-sale securities.
During 2022, financing activities provided cash of $1.5 billion compared to $2.9 billion during 2021. The change in
financing activities resulted from a decrease in cash provided by deposits of $3.4 billion which was offset by an increase of
$2.1 billion in short-term borrowings. Additionally, cash dividends paid on common stock increased $61.5 million due to the
increase in cash dividends for common shares during 2022.
Regulatory Capital
Regulatory capital at December 31, 2022 and 2021 was calculated in accordance with standards established by the
federal banking agencies as well as the interagency final rule published on September 30, 2020 entitled “Revised Transition of
the Current Expected Credit Losses Methodology for Allowances” which delayed the estimated impact on regulatory capital
stemming from the adoption of CECL. The agencies granted this relief to allow institutions to focus on lending to customers in
light of the economic and other impacts from COVID-19, while also maintaining the quality of regulatory capital. Under the
final rule, the Day-1 impact of the adoption of CECL and 25% of subsequent provisions for credit losses (“Day-2 impacts”)
were deferred over a two-year period ending January 1, 2022. At that point, the amount is phased into regulatory capital on a
pro rata basis over a three-year period ending January 1, 2025.
The actual capital amounts and ratios for the Company at December 31, 2022 and 2021, are presented in the following
table and as shown, exceed the thresholds necessary to be considered “well capitalized”. Management believes that no events or
changes have occurred subsequent to the indicated dates that would change this designation.
TABLE 29—REGULATORY CAPITAL
(Dollars in thousands)
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
December 31, 2022
Ratio
10.22% $ 3,754,848
3,921,841
10.66
4,683,361
12.81
3,921,841
8.43
December 31, 2021
Ratio
11.11%
11.61
13.86
9.90
Amount
$ 3,880,508
4,047,501
4,861,521
4,047,501
Amount
Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends that the
Company may declare and pay. Under Mississippi law, the Company cannot pay any dividend on its common stock unless it
has received written approval of the Commissioner of the MDBCF. The federal banking agencies have indicated that paying
dividends that deplete a depository institution’s capital base to an inadequate level would be an unsafe and unsound banking
practice. Moreover, the federal agencies have issued policy statements providing that insured banks should generally only pay
dividends out of current operating earnings.
Uses of Capital
Subject to pre-approval from the FDIC and MDBCF, the Company may pursue acquisitions of depository institutions
and businesses closely related to banking that further the Company’s business strategies. Management anticipates that
consideration for any transactions would include shares of the Company’s common stock, cash or a combination thereof.
78
On December 14, 2022, the Company authorized a new share repurchase program allowing the company to purchase
up to an aggregate of 10,000,000 shares of the Company’s common stock. The new share repurchase program became effective
on January 3, 2023 and will expire on December 29, 2023. Under the new share repurchase program, Cadence's shares may be
purchased periodically in open market transactions at prevailing market prices, in privately negotiated transactions, or by other
means in accordance with federal securities laws. Repurchased shares are held as authorized but unissued shares and are
available for use in connection with the Company’s stock compensation programs, other transactions, or for other corporate
purposes as determined by the Company’s Board of Directors.
On December 8, 2021, the Company announced a new share repurchase program whereby the Company could have
acquired up to an aggregate of 10,000,000 shares of its common stock in the open market at prevailing market prices or in
privately negotiated transactions during the period between January 3, 2022 through December 30, 2022. During the year ended
December 31, 2022, the Company repurchased 6,071,525 shares under the share repurchase program leaving 3,928,475 shares
remaining under the share repurchase program. During the first quarter of 2022, the Company increased the dividend to $0.22
per share.
The IRA of 2022 includes a provision for an excise tax equal to 1% of the fair market value of any stock repurchased
by covered corporations during a taxable year, subject to certain limits and provisions. The excise tax is effective beginning in
fiscal year 2023. While we may complete transactions subject to the new excise tax, we do not expect a material impact to our
balance sheet or our results of operations.
Impact of Inflation
The consolidated financial statements and related consolidated financial data presented herein have been prepared in
accordance with U.S. GAAP and practices within the banking industry which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over
time due to inflation. Unlike many companies, virtually all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of
general levels of inflation. However, see “Part 1, Item 1.A., Risk Factors” for additional information regarding the risks of
inflation.
The effect of inflation on a financial institution differs from the effect on other types of businesses. While a financial
institution’s operating expenses are affected by general inflation, the asset and liability structure of a financial institution
consists largely of monetary items. Monetary items, such as cash, investments, loans, deposits, and borrowings, are those assets
and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes
in interest rates have a more significant impact on a financial institution’s performance than does general inflation. Inflation
may also have impacts on the Company’s customers, on businesses and consumers and their ability or willingness to invest,
save or spend, and perhaps on their ability to repay loans. As such, there would likely be impacts on the general appetite for
banking products and the credit health to the Company’s customers.
Certain Litigation and Other Contingencies
The nature of the Company’s business ordinarily results in certain types of claims, litigation, investigations and legal
and administrative cases and proceedings. Although the Company and its subsidiaries have developed policies and procedures
to minimize legal noncompliance and the impact of claims and other proceedings and endeavored to procure reasonable
amounts of insurance coverage, litigation and regulatory actions present an ongoing risk.
The Company and its subsidiaries are engaged in lines of business that are heavily regulated and involve a large
volume of financial transactions and potential transactions with numerous customers or applicants, and the Company is a public
company with a large number of shareholders. From time to time, applicants, borrowers, customers, shareholders, former
employees and other third parties have brought actions against the Company or its subsidiaries, in some cases claiming
substantial damages. Financial services companies are subject to the risk of class action litigation, and, from time to time, the
Company and its subsidiaries are subject to such actions brought against it. Additionally, the Company is, and management
expects it to be, engaged in a number of foreclosure proceedings and other collection actions as part of its lending and leasing
collections activities, which, from time to time, have resulted in counterclaims against the Company and its subsidiaries.
Various legal proceedings have arisen and may arise in the future out of claims against entities to which the Company is a
successor as a result of business combinations. The Company and its subsidiaries may also be subject to enforcement actions by
federal or state regulators, including the FDIC, the CFPB, the DOJ, state attorneys general and the MDBCF.
79
When and as the Company determines it has meritorious defenses to the claims asserted, it vigorously defends against
such claims. The Company will consider settlement of claims when, in management’s judgment and in consultation with
counsel, it is in the best interests of the Company to do so.
The Company cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of
litigation and other proceedings filed by or against it, its subsidiaries and its directors, management or employees, including
remedies or damage awards. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection
with outstanding legal proceedings as well as certain threatened claims (which are not considered incidental to the ordinary
conduct of the Company’s business) utilizing the latest and most reliable information available. For matters where a loss is not
probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable the Company
will incur a loss and the amount can be reasonably estimated, the Company establishes an accrual for the loss. Once established,
the accrual is adjusted periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings
and the potential loss, however, may turn out to be substantially higher than the amount accrued. Further, the Company’s
insurance policies have deductibles and coverage limits, and such policies will likely not cover all costs and expenses related to
the defense or prosecution of such legal proceedings or any losses arising therefrom.
Although the final outcome of any legal proceedings is inherently uncertain, based on the information available, advice
of counsel and available insurance coverage, if applicable, management believes that the litigation-related liability of
approximately $0.3 million accrued at December 31, 2022 is adequate and that any incremental change in potential liability
arising from the Company’s legal proceedings and threatened claims, including the matters described herein and those
otherwise arising in the ordinary course of business, will not have a material adverse effect on the Company’s business or
consolidated results of operations or financial condition. It is possible, however, that future developments could result in an
unfavorable outcome for or resolution of any one or more of the legal proceedings in which the Company or its subsidiaries are
defendants, which may be material to the Company’s business or consolidated results of operations or financial condition for a
particular fiscal period or periods.
On August 30, 2021, Legacy Cadence and the DOJ agreed to a settlement set forth in the consent order related to the
investigation by the DOJ of Legacy Cadence Bank’s fair lending program in Harris, Fort Bend and Montgomery Counties
located in Houston, Texas during the period between 2014 and 2016 (the “Consent Order”). The Consent Order was signed by
the United States District Court for the Northern District of Georgia, Atlanta Division, on August 31, 2021. Pursuant to Section
5.2(g) of the Agreement and Plan of Merger and Paragraph 50 of the Consent Order, Legacy BancorpSouth Bank approved the
negotiated settlement, and subsequently, the Company agreed to accept the obligations of the Consent Order. The Consent
Order is in effect for five years. For additional information regarding the terms of this settlement and the Consent Order, see
Legacy Cadence Bancorporation’s Current Report on Form 8-K that was filed with the SEC on August 30, 2021.
Recent Pronouncements
Refer to Note 1 “Summary of Significant Accounting Policies” in this consolidated financial statements for a
discussion of accounting standards currently effective for 2022 and accounting standards that have been issued but are not
currently effective.
CRITICAL ACCOUNTING ESTIMATES
The Company’s consolidated financial statements are prepared in accordance with U.S. GAAP, which require the
Company to make estimates and assumptions (see Note 1 to the consolidated financial statements). Management bases our
estimates on historical experience and on various other assumptions that we believe to be reasonable under current
circumstances.
These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not
readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. The use of alternative
assumptions may result in significantly different estimates. Additionally, actual results may differ from these estimates.
Accounting policies are an integral part of our consolidated financial statements. A thorough understanding of these
accounting policies is essential when reviewing our reported results of operations and our financial position. The critical
accounting estimates discussed below involve additional management judgment due to the complexity and subjectivity of the
methods and assumptions used.
80
Allowance for Credit Losses
The Company bases its estimates of credit losses on three primary components: (1) estimates of expected losses that
exist in various segments of performing loans and leases over the remaining life of the loan portfolio using a reasonable and
supportable economic forecast; (2) specifically identified losses in individually analyzed credits which are collateral-dependent,
which generally include loans internally graded as impaired and PCD Loss loans; and (3) qualitative factors related to economic
conditions, portfolio concentrations, regulatory policy updates, and other relevant factors that address estimates of expected
losses not fully addressed based upon management’s judgment of portfolio conditions.
The Company utilizes credit risk models to estimate the probability of default and loss given default of loans over their
remaining lives. In some cases, including certain commercial real estate loans and credit cards, a loss rate model is used where
lifetime loss rates are estimated using factors including vintage, loan-to-value ratios, delinquency, and economic factors. The
probability of default settings in the models incorporate a risk grading process by utilizing pool-specific historical default rates.
In addition, the loss given default assumptions in the models utilize historical losses for different types of collateral on defaulted
loans while giving consideration for the loan-to-value ratio at the time of default. The product of the probability of default and
loss given default derives a base expected loss rate for each credit. The base expected loss rate is adjusted by way of
econometric models that measure the direction and magnitude of change in expected loss rates given a change in forecasted
economic variables.
The aforementioned credit risk models and econometric models were developed and are recalibrated using historical
experience. Credit factors such as financial condition of the borrower and guarantor, recent credit performance, delinquency,
liquidity, cash flows, collateral type and collateral value are used by the models to assess credit risk. Estimates of expected
losses are influenced by the historical net losses experienced by the Company for loans and leases of comparable
creditworthiness and structure. Specific loss assessments are performed for loans and leases based upon the collateral
protection. The Company’s reasonable and supportable eight quarter economic forecast is utilized to estimate credit losses
before reverting back to longer term historical loss experience.
The ACL represents management’s best estimate, but significant downturns in circumstances relating to loan quality
and economic conditions could necessitate additional provisions or a reduction in the ACL. Unanticipated changes and events
could have a significant impact on the financial performance of borrowers and their ability to perform as agreed. One of the
most significant judgments used in determining the ACL is the reasonable and supportable economic forecast. The economic
indices sourced from the economic forecast and used in developing the estimate include the national unemployment rate,
changes in the U.S. gross domestic product, changes in commercial real estate prices and changes in home prices. The
economic series for unemployment carries the highest weighting and is the most sensitive component of the estimate.
Given the dynamic relationship between macroeconomic variables within our modeling framework, it is difficult to
estimate the impact of a change in any one individual variable on the ACL. As a result, management uses a probability-
weighted approach that incorporates a baseline and an downside risk economic scenario when formulating the quantitative
estimate.
However, to illustrate a hypothetical sensitivity analysis, management calculated a quantitative allowance using a
100% weighting applied to a downside risk scenario. Under this scenario, as an example, the unemployment rate increases, to
an estimated 6.1% and 6.6% at the end of 2023 and 2024, respectively. These numbers result in unemployment rates that are
approximately 1.5% and 2.2% higher than baseline scenario projections of 4.6% and 4.4%, respectively for the same time
periods.
To demonstrate the sensitivity to key economic parameters used in the calculation of our ACL at December 31, 2022,
management calculated the difference between a 100% base forecast and a 100% downside risk scenario. These calculations are
quantitative-only and exclude consideration of qualitative adjustments and produced a model result of difference of $86.8
million.
The resulting difference is not intended to represent an expected increase in ACL for a number of reasons including the
following:
• Management uses a weighted approach applied to multiple economic scenarios for its ACL estimation process;
•
•
•
The highly uncertain economic environment;
The difficulty in predicting the inter-relationships between the economic parameters used in the various
economic scenarios; and
81
•
The sensitivity estimate does not account for our qualitative reserve and associated risk profile components
incorporated by management as part of its overall ACL framework.
Goodwill and Other Intangible Assets
The acquisition method of accounting requires that assets acquired and liabilities assumed in business combinations
are recorded at their fair values. This often involves estimates based on third-party or internal valuations based on discounted
cash flow analyses or other valuation techniques, which are inherently subjective. Business combinations also typically result in
goodwill, which is subject to ongoing periodic impairment tests based on the fair values of the reporting units to which the
goodwill relates. The amortization of definite-lived intangible assets is based upon the estimated economic benefits to be
received, which is also subjective. Provisional estimates of fair values may be adjusted for a period of up to one year from the
acquisition date if new information is obtained about facts and circumstances that existed as of the acquisition date that, if
known, would have affected the measurement of the amounts recognized as of that date. Adjustments recorded during this
period are recognized in the current reporting period. Management uses various valuation methodologies to estimate the fair
value of these assets and liabilities, and often involves a significant degree of judgment, particularly when liquid markets do not
exist for the particular item being valued. Examples of such items include loans, deposits, identifiable intangible assets and
certain other assets and liabilities.
Management uses significant estimates and assumptions to value such items, including projected cash flows,
repayment rates, default rates and losses assuming default, discount rates, and realizable collateral values. The credit allowance
for PCD loans is recognized within business combination accounting. The ACL for non-PCD assets is recognized as provision
expense in the same reporting period as the business combination. The valuation of other identifiable intangible assets,
including core deposit intangibles, trademarks, and customer list intangibles, requires assumptions such as projected attrition
rates, expected revenue and costs, discount rates and other forward-looking factors. The purchase date valuations and any
subsequent adjustments also determine the amount of goodwill or bargain purchase gain recognized in connection with the
business combination. The use of different assumptions could produce significantly different valuation results, which could
have material positive or negative effects on our results of operations. The Company uses the best estimates and assumptions to
value assets acquired and liabilities assumed, at the acquisition date, and these estimates are subject to refinement.
Goodwill represents the excess of the consideration paid over the fair value of the net assets acquired in a business
combination. The Company assesses goodwill for impairment at the reporting unit level on an annual basis, or more often if an
event occurs or circumstances change which indicate there may be impairment. The impairment test compares the estimated fair
value of each reporting unit with its net book value. The Company’s annual assessment date is during the Company’s fourth
quarter. The fair value of the reporting unit is estimated using valuation techniques that market participants would use in an
acquisition of the whole reporting unit, such as estimated discounted cash flows, the quoted market price of our common stock
adjusted for a control premium, and observable average price-to forward-earnings and price-to-tangible book multiples of
observed transactions. If the unit’s fair value is less than its carrying value, an estimate of the implied fair value of the goodwill
is compared to the goodwill’s carrying value and any impairment recognized.
The Company performed a quantitative assessment to determine if it was more likely than not that a reporting unit’s
fair value was less than its carrying value during the fourth quarter of 2022. Based on this assessment, it was determined the
reporting units’ fair value exceeded their carrying value. See Note 8 to the consolidated financial statements for additional
information on the Company’s goodwill balances and Note 2 to the consolidated financial statements for goodwill and
intangibles recorded in the periods presented.
82
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
INTEREST RATE RISK MANAGEMENT
Market risk reflects the risk of economic loss resulting from changes in interest rates and other relevant market prices.
This risk of loss can be reflected in either reduced potential net interest revenue in future periods or diminished market values of
financial assets. The Company’s market risk arises primarily from interest rate risk (“IRR”) that is inherent in its lending,
investment and deposit taking activities.
The main causes of IRR are the differing structural characteristics of our assets, liabilities and off-balance sheet
obligations and their cumulative net reaction to changing interest rates. These structural characteristics include timing
differences in maturity or repricing and the effect of embedded options such as loan prepayments, securities prepayments and
calls, interest rate caps, floors, collars, and deposit withdrawal options. In addition to these sources of IRR, basis risk results
from differences in the spreads between various market interest rates and changes in the slope of the yield curve can contribute
to additional IRR.
We evaluate IRR and develop guidelines regarding balance sheet composition and re-pricing, funding sources and
pricing, and off-balance sheet commitments that aim to moderate IRR. We use financial simulation models that reflect various
interest rate scenarios and the related impact on net interest income (“NII”) and economic value of equity (“EVE”) over
specified periods of time. We refer to this process as asset/liability management (“ALM”).
The primary objective of ALM is to manage interest rate risk within a desired risk tolerance for potential fluctuations
in NII and EVE throughout different interest rate cycles, which we aim to achieve through management of interest rate sensitive
earning assets and liabilities. In general, we seek to maintain a desired risk tolerance with asset and liability balances within
maturity and repricing characteristics to limit our exposure to acceptable earnings volatility and changes in the value of assets
and liabilities as interest rates fluctuate over time. Adjustments to maturity categories can be accomplished either by
lengthening or shortening the duration of an individual asset or liability category, or externally with interest rate derivative
contracts, such as interest rate swaps, caps, collars, and floors. See “—Interest Rate Exposure” below for a more detailed
discussion of our various derivative positions.
Our ALM strategy is formulated and monitored by our Asset/Liability Management Committee (“ALCO”) in
accordance with policies approved by the Board of Directors. ALCO meets regularly to review, among other things, the
sensitivity of our assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized
gains and losses, recent purchase and sale activity, maturities of securities and borrowings, and projected future transactions.
ALCO also establishes and approves pricing and funding strategies with respect to overall asset and liability composition.
ALCO reports regularly to our Risk Committee of the Board of Directors.
Financial simulation models are the primary tools we use to measure IRR exposures. By examining a range of
hypothetical deterministic interest rate scenarios, these models provide management with information regarding the potential
impact on NII and EVE caused by changes in interest rates.
The models simulate the cash flows and accounting accruals generated by the financial instruments on our balance
sheet, as well as the cash flows generated by the new business that we anticipate over a 60-month forecast horizon, however,
past the 36-month mark, the growth of the balances is static in the forecast. Numerous assumptions are made in the modeling
process, including balance sheet composition, re-pricing and maturity characteristics of existing and new business.
Additionally, loan and investment prepayments, administered rate account elasticity, and other option risks are considered as
well as the uncertainty surrounding future customer behavior. Because of the limitations inherent in any approach used to
measure interest rate risk and because our loan portfolio will be actively managed in the event of a change in interest rates,
simulation results, including those discussed in “—Interest Rate Exposure” immediately below, are not intended as a forecast of
the actual effect of a change in market interest rates on our NII or EVE, or indicative of management’s expectations of actual
results in the event of a fluctuation in market interest rates; however, these results are used to help measure the potential risks
related to IRR.
83
INTEREST RATE EXPOSURE
Based upon the current interest rate environment at December 31, 2022, our simulation model projects our sensitivity
to an instantaneous increase or decrease in interest rates as follows:
TABLE 30—INTEREST RATE SENSITIVITY
(Dollars in thousands)
Change (in Basis Points) in Interest Rates (12-Month Projection)
Net Interest Income
Economic Value of Equity
Amount
Percent
Amount
Percent
Increase (Decrease)
+ 200 BP
+ 100 BP
- 100 BP
- 200 BP
$
134.0
68.0
(69.0)
(139.0)
9.0 % $
4.6 %
(4.6) %
(9.3) %
299.0
165.0
(199.0)
(449.0)
4.4 %
2.4 %
(2.9) %
(6.6) %
Both the NII and EVE simulations include assumptions regarding balances, asset prepayment speeds, deposit repricing
and runoff and interest rate relationships among balances that management believes to be reasonable for the various interest rate
environments. Differences in actual occurrences from these assumptions may change our market risk exposure.
Derivative Positions
Overview. Our Board of Directors has authorized the ALCO to utilize financial futures, forward sales, options, interest
rate swaps, caps, collars, and floors, and other instruments to the extent appropriate, in accordance with regulations and our
internal policy. From time to time, we expect to use interest rate swaps, caps, collars, and floors as macro hedges against
inherent rate sensitivity in our assets and our liabilities to synthetically alter the maturities or re-pricing characteristics of assets
or liabilities to reduce imbalances.
We currently engage in only the following types of hedges: (1) those which enable us to transfer the interest rate risk
exposure involved in our daily business activities; and (2) those which serve to alter the market risk inherent in our investment
portfolio, mortgage pipeline, mortgage servicing rights, or liabilities and thus help us to manage earnings and market value
volatility within approved risk tolerances.
The following is a discussion of our current derivative positions related to IRR.
Interest Rate Lock Commitments. In the ordinary course of business, the Company enters into certain commitments
with customers in connection with residential mortgage loan applications for loans the Company intends to sell. Such
commitments are considered derivatives under current accounting guidance and are required to be recorded at fair value. The
change in fair value of these instruments is reflected currently in the mortgage banking revenue of the consolidated statements
of income. The fair value of these derivatives is recorded on the consolidated balance sheets in other assets and other liabilities.
Forward Sales Commitments. The Company enters into forward sales commitments of mortgage-backed securities
(“MBS”) with investors to mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to
customers. During the period from commitment date to closing date, the Company is subject to the risk that market rates of
interest may change. In an effort to mitigate such risk, forward delivery sales commitments, under which the Company agrees
to deliver certain MBS, are established. These commitments are non-hedging derivatives in accordance with current accounting
guidance and recorded at fair value, with changes in fair value reflected currently in the mortgage banking revenue of the
consolidated statements of income. The fair value of these derivatives is recorded on the consolidated balance sheets in other
assets and other liabilities.
Mortgage Servicing Right Hedges. The value of our MSR is dependent on changes in market interest rates. In order to
mitigate the effects of changes in rates on the value of our MSR, the Company has used various instruments (including but not
limited to Treasury options, Treasury and TBA futures and forwards, etc.) as economic hedges. The MSR is sensitive to
changes in interest rates.
Agreements Not Designated as Hedging Derivatives. The Company enters into interest rate swap, floor, cap and collar
agreements on commercial loans with customers to meet the financing needs and interest rate risk management needs of its
customers. At the same time, the Company enters into offsetting interest rate swap agreements with a financial institution in
84
order to minimize the Company’s interest rate risk. These interest rate agreements are non-hedging derivatives and are recorded
at fair value with changes in fair value reflected in noninterest income. The fair value of these derivatives is recorded on the
consolidated balance sheets in other assets and other liabilities.
See Note 22 to the consolidated financial statements for additional information regarding our derivative financial
instruments.
LIBOR Transition
The Company formed a working group to coordinate the orderly transition from the London Interbank Offered Rate
(“LIBOR”) to one or more alternative reference rates. The working group consists of senior management of the Company, and
the working group provides updates to the Credit Committee of Management and the Credit Risk Committee of the Board on a
recurring basis. Key initiatives of the working group include identification of LIBOR exposure, review of associated contract
language to determine options for transferring to an alternative reference rate, and review of system capabilities for
accommodating alternative reference rates. The Company discontinued the use of new LIBOR-based production effective
January 1, 2022. At December 31, 2022, the Company has approximately $3.5 billion in existing loans for which the repricing
index is tied to LIBOR. In addition, the Company is on schedule to transition from LIBOR to an alternative reference rate for
existing contracts upon the cessation of LIBOR, which includes an effective date of July 1, 2023 for the overnight and 1, 3, 6,
and 12-months settings.
In March 2022, President Biden signed into law the Consolidated Appropriations Act, 2022, which contains the
Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”). The LIBOR Act addresses certain issues relating to the transition
from the use of LIBOR as a benchmark reference rate in contracts to the use of alternate reference rates. Among other things,
the LIBOR Act (i) provides for the replacement, by operation of law, of LIBOR with a Secured Overnight Financing Rate
(“SOFR”) -based reference rate selected by the Federal Reserve for contracts which do not have effective fallback language; (ii)
authorizes persons who have discretionary authority for selecting a LIBOR replacement to opt into a statutory safe harbor from
liability by selecting the benchmark identified by the Federal Reserve; (iii) states that parties to a contract may opt out of the
LIBOR Act; and (iv) provides that no federal supervisory agency may take supervisory action against a bank solely because the
bank uses a benchmark rate other than SOFR. The LIBOR Act directs the Federal Reserve to promulgate regulations to
implement this legislation by 180 days after the date of enactment.
In December 2022, the Federal Reserve adopted a rule to implement the LIBOR Act. The rule established Federal
Reserve-selected benchmark replacements for contracts governed by federal or state law that use LIBOR as a benchmark
reference rate but do not provide for a clearly defined or practicable replacement after June 30, 2023, when LIBOR will no
longer be available in its current form. The rule identifies separate Federal Reserve-selected replacement rates for derivative
transactions, consumer loans, contracts where a government sponsored enterprise is a party, and all other affected contracts.
Consistent with the LIBOR Act, each proposed replacement rate is based on SOFR and established spread adjustments for each
specified tenor of LIBOR. The rule defined various terms and provided clarification of certain provisions of the LIBOR Act.
The Company has identified loans to be transitioned to replacement rates and is in the process of obtaining
modification documentation from customers, where required, to transition the loans to new indices on or before LIBOR ceases
on June 30, 2023.
The Company may be adversely impacted by the transition from LIBOR to other reference rates, including SOFR-
based rate indices. We have a significant number of loans, derivative contracts, borrowings and other financial instruments with
attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs
and additional risk. Since the alternative rates are calculated differently, payments under contracts referencing new rates will
differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing
models, valuation tools, product design, and hedging strategies. SOFR is different from LIBOR in that it is a backward looking
secured rate rather than a forward looking unsecured rate. These differences could lead to a greater disconnect between the
Company’s costs to raise funds for SOFR as compared to LIBOR. For cash products and loans, CME Term SOFR, which is a
forward looking SOFR based on SOFR futures may in part reduce differences between SOFR and LIBOR. Failure to
adequately manage this transition process with our customers could adversely impact our reputation. Although we are currently
unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition
could have a material adverse effect on our business, financial condition and results of operations.
85
ITEM 8. FINANCIAL STATEMENTS.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Board of Directors of Cadence Bank
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. GAAP. The Company’s internal control over financial
reporting includes those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Chief Executive Officer and the Chief
Financial Officer, the Company conducted an assessment of the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on
management’s assessment and those criteria, management believes that the Company maintained effective internal control over
financial reporting as of December 31, 2022.
The Company’s independent registered public accounting firm has issued a report on the effectiveness of the
Company’s internal control over financial reporting. That report appears on page 87 of this Report.
Date:
February 27, 2023
Date:
February 27, 2023
/s/ James D. Rollins III
James D. Rollins III
Chief Executive Officer
/s/ Valerie C. Toalson
Valerie C. Toalson
Senior Executive Vice President and
Chief Financial Officer
(Principal
Accounting Officer)
86
Report of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors and Audit Committee
Cadence Bank
Tupelo, Mississippi
Opinion on the Internal Control over Financial Reporting
We have audited Cadence Bank’s (the “Company”) internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated
Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the three
years in the period ended December 31, 2022, and our report dated February 27, 2023, expressed an unqualified opinion on
those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
/s/ FORVIS, LLP (Formerly, BKD, LLP)
Jackson, Mississippi
February 27, 2023
87
Report of Independent Registered Public Accounting Firm
To the Shareholders, Board of Directors and Audit Committee
Cadence Bank
Tupelo, Mississippi
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cadence Bank (the “Company”) as of December 31, 2022
and 2021, the related consolidated statements of income, comprehensive (loss) income, shareholders’ equity, and cash flows for
each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2022, in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and our report dated February 27, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below arises from the current-period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the
accounts or disclosures to which it relates.
Allowance for Credit Losses
The Company’s loan portfolio totaled $30.3 billion as of December 31, 2022, and the allowance for credit losses on loans was
$440.3 million. The Company’s unfunded loan commitments totaled $11.9 billion, with an allowance for credit loss of $28.9
million. Together these amounts represent the allowance for credit losses (“ACL”).
As more fully described in Notes 1, 4 and 5 to the Company’s consolidated financial statements, the Company estimates its
exposure to expected credit loss as of the balance sheet date for existing financial instruments held at amortized cost, and off-
balance sheet exposures, such as unfunded loan commitments, letters of credit and other financial guarantees that are not
unconditionally cancellable by the Company.
88
The determination of the ACL requires management to exercise significant judgment and consider numerous subjective factors,
including (1) estimates of expected losses that exist in various segments of performing loans and leases over the remaining life
of the loan portfolio using a reasonable and supportable economic forecast; (2) specifically identified losses in individually
analyzed credits which are collateral dependent; and (3) qualitative factors related to economic conditions, portfolio
concentrations, regulatory policy updates, and other relevant factors that address estimates of expected losses not fully
addressed based upon management’s judgment of portfolio conditions. The Company utilizes credit risk models to estimate the
probability of default and loss given default of loans over their remaining life. The probability of default settings in the models
incorporate a risk grading process by utilizing pool-specific historical default rates. In addition, the loss given default settings in
the models utilize historical losses for different types of collateral on defaulted loans, while giving consideration for the loan-to-
value ratio at the time of default. The product of the probability of default and loss given default derives a base expected loss
rate for each loan. The base expected loss rate is adjusted by way of econometric models that measure the direction and
magnitude of change in expected loss rates given a change in forecasted economic variables.
We identified the valuation of the ACL as a critical audit matter. Auditing the AC L involved a high degree of subjectivity in
evaluating management’s estimates, such as evaluating management’s identification of qualitative factors, grouping of loans
determined to be similar into pools, estimating the remaining life of loans in a pool, assessment of economic conditions and
other environmental factors, evaluating the adequacy of specific allowances associated with individually evaluated loans and
assessing the appropriateness of loan risk grades.
The primary procedures we performed to address this critical audit matter included:
•
•
•
•
•
•
•
•
•
Obtained an understanding of the Company’s process for establishing the ACL, including the implementation of
models and the qualitative factor adjustments of the ACL;
Evaluated and tested the design and operating effectiveness of controls, including those related to technology, over the
ACL, including:
◦
◦
Loan data completeness and accuracy,
Classifications of loans by loan pool,
◦ Model inputs utilized including probability of default, loss given default, remaining life and prepayment
speed,
◦
◦
◦
Approval of model assumptions selected,
Loan credit risk ratings, and
Establishment of qualitative adjustments;
Tested the ACL model’s computational accuracy, along with a review of validation procedures over the model;
Evaluated the qualitative adjustments to the ACL, including assessing the basis for adjustments and the reasonableness
of the significant assumptions;
Evaluated credit quality trends in delinquencies, non-accruals, charge-offs and loan risk ratings;
Tested the internal loan review function and evaluated the reasonableness of loan credit risk ratings;
Considered the overall reasonableness of the ACL and compared to trends identified within peer groups;
Evaluated the reasonableness of specific allowances on individually evaluated loans;
Evaluated the accuracy and completeness of Topic 326 disclosures in the consolidated financial statements.
/s/ FORVIS, LLP (Formerly, BKD, LLP)
We have served as the Company’s auditor since 2019.
Jackson, Mississippi
February 27, 2023
89
Consolidated Balance Sheets
Cadence Bank and Subsidiaries
(In thousands, except share and per share amounts)
ASSETS
Cash and due from banks
Interest bearing deposits with other banks and Federal funds sold
Total cash and cash equivalents
Available-for-sale securities, at fair value
Loans and leases, net of unearned income
Allowance for credit losses
Net loans and leases
Loans held for sale, at fair value
Premises and equipment, net
Goodwill
Other intangible assets, net
Bank-owned life insurance
Other assets
TOTAL ASSETS
LIABILITIES
Noninterest bearing demand deposits
Interest bearing demand and money market deposits
Savings
Time deposits
Total deposits
Securities sold under agreement to repurchase
Federal funds purchased
Short-term FHLB borrowings
Subordinated and long-term borrowings
Other liabilities
$
$
$
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value per share; authorized and issued - 6,900,000
shares for both periods presented
Common stock, $2.50 par value per share; authorized - 500,000,000 shares;
issued and outstanding - 182,437,265 and 188,337,658 shares, respectively
Capital surplus
Accumulated other comprehensive loss
Retained earnings
TOTAL SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
See accompanying notes to consolidated financial statements.
December 31, 2022
December 31, 2021
756,906 $
1,241,246
1,998,152
11,944,096
30,349,277
440,347
29,908,930
187,925
817,430
1,458,795
132,764
630,046
1,575,276
48,653,414 $
12,731,065 $
19,040,131
3,473,746
3,711,672
38,956,614
708,736
200,000
3,100,231
462,554
913,905
44,342,040
656,132
638,547
1,294,679
15,606,470
26,882,988
446,415
26,436,573
340,175
786,426
1,407,948
198,271
597,953
1,001,256
47,669,751
13,634,505
18,727,588
3,556,079
3,899,501
39,817,673
687,188
595,000
—
482,411
839,492
42,421,764
166,993
166,993
456,093
2,709,391
(1,222,538)
2,201,435
4,311,374
48,653,414 $
470,844
2,841,998
(139,369)
1,907,521
5,247,987
47,669,751
90
Consolidated Statements of Income
Cadence Bank and Subsidiaries
(In thousands, except per share amounts)
INTEREST REVENUE:
Loans and leases
Available-for-sale securities:
Taxable
Tax-exempt
Loans held for sale
Other
Total interest revenue
INTEREST EXPENSE:
Interest bearing demand deposits and money market accounts
Savings
Time deposits
Federal funds purchased and securities sold under agreement to repurchase
Short-term debt
Subordinated and long-term debt
Total interest expense
Net interest revenue
Provision for credit losses
Net interest revenue, after provision for credit losses
NONINTEREST REVENUE:
Mortgage banking
Credit card, debit card and merchant fees
Deposit service charges
Security (losses) gains, net
Insurance commissions
Wealth management
Gain on sale of PPP loans
Other
Total noninterest revenue
NONINTEREST EXPENSE:
Salaries and employee benefits
Occupancy and equipment
Data processing and software
Merger expense
Amortization of intangibles
Deposit insurance assessments
Pension settlement expense
Other
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Less: preferred dividends
Net income available to common shareholders
Basic earnings per common share
Diluted earnings per common share
See accompanying notes to consolidated financial statements.
Year Ended December 31,
2021
2020
2022
$
1,342,662 $
758,180 $
700,065
183,918
10,079
7,554
16,380
1,560,593
109,893
5,519
24,253
13,432
36,863
19,330
209,290
1,351,303
7,000
1,344,303
44,860
58,160
73,478
111,050
3,461
8,035
1,323
882,049
33,688
2,764
24,394
813
25
14,638
76,322
805,727
138,062
667,665
58,053
42,636
46,418
(384)
(395)
150,275
80,486
—
86,157
493,032
745,023
119,548
113,932
51,214
20,490
18,712
9,023
160,018
1,237,960
599,375
136,138
463,237 $
9,488
453,749 $
2.47 $
2.46 $
$
$
$
$
135,183
39,507
21,572
35,179
378,153
471,815
81,394
73,085
59,896
12,616
8,701
3,051
88,332
798,890
246,928
51,766
195,162 $
9,488
185,674 $
1.54 $
1.54 $
85,466
3,984
8,357
1,621
799,493
47,692
4,117
38,940
2,282
2,243
13,252
108,526
690,967
89,044
601,923
86,253
35,972
40,181
58
125,286
26,213
—
22,541
336,504
417,809
70,341
58,170
5,345
9,605
6,726
5,846
77,040
650,882
287,545
59,494
228,051
9,488
218,563
2.12
2.12
91
Consolidated Statements of Comprehensive (Loss) Income
Cadence Bank and Subsidiaries
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Year Ended December 31,
2021
2022
2020
$
463,237 $
195,162 $
228,051
Unrealized (losses) gains on available-for-sale securities
Pension and other postretirement benefits
Other comprehensive (loss) income, net of tax
Comprehensive (loss) income
(1,096,907)
13,738
(1,083,169)
(619,932) $
$
(151,382)
90
(151,292)
43,870 $
66,148
8,438
74,586
302,637
See accompanying notes to consolidated financial statements.
92
Consolidated Statements of Shareholders' Equity
Cadence Bank and Subsidiaries
Year Ended December 31, 2022, 2021 and 2020
(In thousands, except share and per share amounts)
Shares
Amount
Shares
Amount
Preferred Stock
Common Stock
Accumulated
Other
Comprehensive
(Loss) Income
Capital
Surplus
Retained
Earnings
Total
Shareholders'
Equity
Balance at December 31, 2019
6,900 $ 167,021
104,523 $ 261,307 $
605,976 $
(62,663) $ 1,713,376 $
2,685,017
Net income
Other comprehensive income, net of tax
Recognition of stock compensation
Repurchase of stock
Issuance of stock in conjunction with acquisitions
Issuance of preferred stock
Cumulative effect of change in accounting
principles
Preferred dividends declared, $1.375 per share
Cash dividends declared, $0.745 per share
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(28)
—
—
—
—
—
—
—
—
—
465,798
1,165
11,655
(3,466,365)
(8,666)
(82,489)
1,039,243
2,598
30,045
—
—
—
—
—
—
—
—
—
—
—
—
—
228,051
74,586
—
—
—
—
—
—
—
—
—
—
—
—
(33,500)
(9,488)
(76,469)
228,051
74,586
12,820
(91,155)
32,643
(28)
(33,500)
(9,488)
(76,469)
Balance at December 31, 2020
6,900,000 $ 166,993
102,561,480 $ 256,404 $
565,187 $
11,923
1,821,970 $
2,822,477
Net income
Other comprehensive loss, net of tax
Recognition of stock compensation
Repurchase of stock
Issuance of stock in conjunction with acquisitions
Preferred dividends declared, $1.375 per share
Cash dividends declared, $0.780 per share
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
164,939
—
—
412
—
—
31,925
(6,167,002)
(15,418)
(170,261)
91,778,241
229,446
2,415,147
—
—
—
—
—
—
—
195,162
(151,292)
—
—
—
—
—
195,162
(151,292)
32,337
(185,679)
2,644,593
—
—
—
—
(9,488)
(9,488)
(100,123)
(100,123)
Balance at December 31, 2021
6,900,000 $ 166,993
188,337,658 $ 470,844 $ 2,841,998 $
(139,369) $ 1,907,521 $
5,247,987
Net income
Other comprehensive loss, net of tax
Recognition of stock compensation
Repurchase of stock
Preferred dividends declared, $1.375 per share
Cash dividends declared, $0.880 per share
—
—
—
—
—
—
—
—
—
—
—
—
—
—
242,313
—
—
606
—
—
35,620
(6,142,706)
(15,357)
(168,227)
—
—
—
—
—
—
—
463,237
463,237
(1,083,169)
—
—
—
—
—
—
—
(9,488)
(1,083,169)
36,226
(183,584)
(9,488)
(159,835)
(159,835)
Balance at December 31, 2022
6,900,000 $ 166,993
182,437,265 $ 456,093 $ 2,709,391 $
(1,222,538) $ 2,201,435 $
4,311,374
See accompanying notes to consolidated financial statements.
93
Consolidated Statements of Cash Flows
Cadence Bank and Subsidiaries
(In thousands)
Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by operations:
Year Ended December 31,
2021
2020
2022
$
463,237 $
195,162 $
228,051
Depreciation, amortization and accretion
Deferred income tax expense (benefit)
Provision for credit losses
Gain on sale of loans, net
Unrealized (gain) loss on limited partnerships
Share-based compensation expense
Proceeds from payments and sales of loans held for sale
Origination of loans held for sale
Increase in interest receivable
Net increase in prepaid pension asset
Decrease (increase) in other assets
Increase (decrease) in other liabilities
Other, net
Net cash provided by operating activities
Investing Activities:
Purchases of available-for-sale securities
Proceeds from sales of available-for-sale securities
Proceeds from maturities, calls, and payments of available-for-sale
securities
Acquisition of businesses, net of cash (paid) received
Decrease in short-term investments
Increase in loans, net
Net (purchases) sales of FHLB stock
Purchases of premises and equipment
Proceeds from disposition of foreclosed and repossessed property
Cash paid in branch divestiture
Proceeds from sales of loans transferred to held for sale
Purchases of bank owned life insurance, net of benefits received
Proceeds from sales of premises and equipment
Purchases of investments in tax credit investments
Purchases of limited partnership interests
Other, net
Net cash used by investing activities
Financing Activities:
(Decrease) increase in deposits, net
Net change in short-term borrowings
Repayment of long-term debt
Repurchase of common stock
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Issuance of preferred stock
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See accompanying notes to consolidated financial statements.
$
255,821
7,822
7,000
(46,083)
(8,169)
32,787
2,093,204
(1,965,956)
(41,193)
(5,037)
20,567
93,631
15,415
923,046
175,935
(22,063)
138,062
(104,996)
(1,587)
18,101
3,114,226
(2,218,300)
(35,922)
(5,676)
82,345
(164,400)
1,837
1,172,724
75,118
(240)
89,044
(82,333)
2,034
12,820
3,265,771
(3,249,670)
(39,879)
(49,022)
(58,917)
225,779
(195,664)
222,892
(787,318)
369,614
(7,909,743)
564,029
(3,037,984)
147,621
2,569,336
(11,511)
—
(3,630,970)
(131,055)
(94,499)
23,392
—
64,580
(17,564)
9,887
(66,637)
(30,298)
22,360
(1,710,683)
(863,976)
2,726,779
(17,844)
(183,584)
(160,777)
(9,488)
—
1,491,110
703,473
1,294,679
1,998,152 $
2,175,657
2,665,485
—
(202,667)
(311)
(72,267)
5,284
(358,916)
—
(648)
5,641
(34,701)
(3,480)
13,116
(3,153,521)
2,564,043
644,473
(55,977)
(185,679)
(99,264)
(9,488)
—
2,858,108
877,311
417,368
1,294,679 $
1,263,960
2,074
20,000
(783,286)
28,850
(65,952)
11,225
—
—
795
2,109
(14,878)
(282)
—
(2,425,748)
3,065,670
(600,929)
(392)
(91,155)
(76,460)
(9,488)
(28)
2,287,218
84,362
333,006
417,368
94
Consolidated Statements of Cash Flows (continued)
Supplemental Cash Flow Disclosures
Cadence Bank and Subsidiaries
(In thousands)
Supplemental Disclosures
Cash paid during the year for:
Interest
Income taxes, net of refunds
Cash paid for amounts included in lease liabilities
Non-cash investing activities, at fair value:
Acquisition of real estate and other assets in settlement of
loans
Transfers of loans held for sale to loans
Transfers of loans to loans held for sale
Right of use assets obtained in exchange for new operating
lease liabilities
Securities purchased with settlement after period end
Increase in funding obligations for certain tax credit
investments
See accompanying notes to consolidated financial statements.
2022
Year Ended December 31,
2021
2020
$
190,241 $
72,445
22,221
4,337
1,624
23,533
28,663
—
83,765
78,724
76,802
17,332
12,047
9,115
9,346
47,395
—
—
104,288
74,721
200
16,995
3,059
—
(1,407)
(9,347)
—
95
Notes to Consolidated Financial Statements
Cadence Bank and Subsidiaries
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation
The Company and its subsidiaries follow GAAP, including, where applicable, general practices within the banking
industry. The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation. The assessment of whether or not the Company
has a controlling interest (i.e., the primary beneficiary) in a variable-interest entity (“VIE”) is performed on an on-going basis.
All equity investments in non-consolidated VIEs are included in “other assets” in the Company’s consolidated balance sheets
(see Note 25 for more information).
Certain amounts reported in prior years have been reclassified to conform to the 2022 presentation. These
reclassifications did not materially impact the Company’s consolidated financial statements.
In accordance with GAAP, the Company’s management has evaluated subsequent events for potential recognition or
disclosure in the consolidated financial statements through the date of the issuance of the consolidated financial statements.
Refer to Note 26 for more information on subsequent events.
Nature of Operations
The Company operates under a state bank charter and is subject to regulation by the Federal Deposit Insurance
Corporation (“FDIC”). The Company is a regional banking franchise with more than 400 branch locations across the South,
Midwest and Texas. Services and products include 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, retirement plan management, and personal and business insurance.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Material estimates that are susceptible to significant change in the near term are the
allowance for credit losses, valuation of goodwill, intangible assets, and deferred income taxes.
Business Combinations
Assets and liabilities acquired in business combinations are accounted for under the acquisition method of accounting
and, accordingly, are recorded at their estimated fair values on the acquisition date. The Company generally records provisional
amounts at the time of an acquisition based on the information available. These provisional estimates of fair values may be
adjusted for a period of up to one year from the acquisition date if new information is obtained about facts and circumstances
that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that
date. Adjustments recorded during this period are recognized in the current reporting period. The excess cost over fair value of
net assets acquired is recorded as goodwill. In 2020, the Company completed the merger with Texas First Bancshares Inc., and
its wholly owned subsidiary, Texas First State Bank and completed the acquisition of Alexander & Sanders Insurance Agency,
Inc., headquartered in Baton Rouge, Louisiana. In 2021, the Company completed the mergers with National United Bancshares
Inc., the parent company of National United, and FNS Bancshares Inc., the parent company of FNB Bank. Additionally, in
October 2021, we completed our merger with Cadence Bancorporation and its wholly owned subsidiary, Cadence Bank, N.A.,
(collectively referred to as “Legacy Cadence”) (see Note 2).
Securities
Available-for-Sale Securities
Securities classified as available-for-sale are those debt securities that are intended to be held for an indefinite period
of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on
96
various factors, including movements in interest rates, liquidity needs, security risk assessments, changes in the mix of assets
and liabilities and other similar factors. These securities are carried at their estimated fair value, and the net unrealized gain or
loss is reported as accumulated other comprehensive income, net of tax, until realized upon sale. Premiums and discounts are
recognized in interest income using the effective interest method.
Realized gains and losses on the sale of securities available-for-sale are determined by specific identification using the
cost on a trade date basis and are included in securities (losses) gains, net in the Company’s consolidated statements of income.
The Company evaluates available-for-sale securities in an unrealized loss position to determine whether the decline in
the fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any
impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. Credit-related
impairment is recognized as an allowance for credit loss (“ACL”) on the balance sheet, limited to the amount by which the
amortized cost basis exceeds the fair value with a charge to earnings. In evaluating available-for-sale securities in unrealized
loss positions for impairment, management considers the magnitude and duration of the decline, as well as the reasons for the
decline, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating
agencies have occurred, whether the Company would be required to sell the securities before a full recovery of costs and the
results of reviews of the issuers’ financial condition, among other facts.
Held-to-Maturity Securities
Securities classified as held-to-maturity are those debt securities for which there is a positive intent and ability to hold
to maturity. These securities are carried at cost, adjusted for amortization of premium and accretion of discount, computed by
the effective interest method. At December 31, 2022 and 2021, the Company did not have any held-to-maturity securities.
Trading Account Securities
Trading account securities are securities that are held for the purpose of selling them at a profit. The Company had no
trading account securities at December 31, 2022 and 2021.
Securities Purchased and Sold Under Agreements to Resell or Repurchase
Securities purchased under agreements to resell are accounted for as short-term investments and securities sold under
agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the
securities were acquired or sold plus accrued interest. The securities pledged as collateral are generally U.S. government and
federal agency securities.
FHLB Stock
The Company has ownership in Federal Home Loan Bank of Dallas (“FHLB”) stock which does not have readily
determinable fair value and no quoted market value, as ownership is restricted to member institutions, and all transactions take
place at par value with the FHLB as the only purchaser. Therefore, the Company accounts for this investment as a long-term
asset and carries it at cost. Management’s determination as to whether this investment is impaired is based on management’s
assessment of the ultimate recoverability of the par value (cost) rather than recognizing temporary declines in fair value.
Investment in FHLB stock is required for membership in the FHLB system and in relation to the level of FHLB advances.
Derivative Financial Instruments and Hedging Activities
Derivative instruments are accounted for under the requirements of ASC Topic 815, Derivatives and Hedging. ASC
815 requires companies to recognize derivative instruments as either assets or liabilities in the consolidated balance sheets at
fair value. The fair value of derivative positions outstanding is included in other assets and other liabilities in the accompanying
consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying
consolidated statements of cash flows. The Company does not speculate using derivative instruments.
Interest Rate Lock Commitments
In the ordinary course of business, the Company enters into certain commitments with customers in connection with
residential mortgage loan applications for loans the Company intends to sell. Such commitments are considered derivatives
under current accounting guidance and are required to be recorded at fair value. The change in fair value of these instruments is
reflected currently in the mortgage banking revenue of the consolidated statements of income. The fair value of these
derivatives is recorded on the consolidated balance sheets in other assets and other liabilities.
97
Forward Sales Commitments
The Company enters into forward sales commitments of mortgage-backed securities (“MBS”) with investors to
mitigate the effect of the interest rate risk inherent in providing interest rate lock commitments to customers. During the period
from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. In an effort
to mitigate such risk, forward delivery sales commitments, under which the Company agrees to deliver certain MBS, are
established. These commitments are non-hedging derivatives in accordance with current accounting guidance and recorded at
fair value, with changes in fair value reflected currently in the mortgage banking revenue of the consolidated statements of
income. The fair value of these derivatives is recorded on the consolidated balance sheets in other assets and other liabilities.
Agreements Not Designated as Hedging Derivatives
The Company enters into interest rate swap, floor, cap and collar agreements on commercial loans with customers to
meet the financing needs and interest rate risk management needs of its customers. At the same time, the Company enters into
offsetting interest rate swap agreements with a financial institution in order to minimize the Company’s interest rate risk. These
interest rate agreements are non-hedging derivatives and are recorded at fair value with changes in fair value reflected in
noninterest income. The fair value of these derivatives is recorded on the consolidated balance sheets in other assets and other
liabilities.
Foreign Currency Contracts
The Company enters into certain foreign currency exchange contracts on behalf of its clients to facilitate their risk
management strategies, while at the same time entering into offsetting foreign currency exchange contracts in order to minimize
the Company’s foreign currency exchange risk. The contracts are short term in nature, and any gain or loss incurred at
settlement is recorded as other noninterest income or other noninterest expense. The fair value of these contracts is reported in
other assets and other liabilities. The Company does not apply hedge accounting to these contracts.
Risk Participation Agreements
Cadence has both bought and sold credit protection in the form of participations on interest rate swaps (swap
participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary
course of business to serve the credit needs of customers. Swap participations, whereby Cadence has purchased credit
protection, entitle Cadence to receive a payment from the counterparty if the customer fails to make payment on any amounts
due to Cadence upon early termination of the swap transaction. For contracts where Cadence sold credit protection, Cadence
would be required to make payment to the counterparty if the customer fails to make payment on any amounts due to the
counterparty upon early termination of the swap transaction.
Mortgage Servicing Right (“MSR”) Hedges
The value of our MSR is dependent on changes in market interest rates. In order to mitigate the effects of changes in
rate on the value of our MSR, the Company has used various instruments as an economic hedge. See Notes 19 and 22 for
further information.
Counterparty Credit Risk
Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties
and their ability to meet contractual terms. Under Company policy, institutional counterparties must be approved by the
Company’s Asset/Liability Management Committee. The Company’s credit exposure on derivatives is limited to the net fair
value for each counterparty. Refer to Note 22 for further discussion and details of derivative financial instruments and hedging
activities.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the transferred assets is surrendered. Control
is generally considered to have been surrendered when 1) the transferred assets are legally isolated from the Company or its
consolidated affiliates, even in bankruptcy or other receivership, 2) the transferee has the right to pledge or exchange the assets
with no conditions that constrain the transferee and provide more than a trivial benefit to the Company, and 3) the Company
does not maintain the obligation or unilateral ability to reclaim or repurchase the assets. If these sale criteria are met, the
transferred assets are removed from the Company’s balance sheet and a gain or loss on sale is recognized. If not met, the
98
transfer is recorded as a secured borrowing, and the assets remain on the Company’s balance sheet, the proceeds from the
transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.
In December 2021, Cadence Bank completed the divestiture of seven branches to The First, A National Banking
Association, a wholly owned subsidiary of The First Bancshares, Inc., to satisfy regulatory requirements in connection with the
Legacy Cadence merger. There were $41 million in loans and leases divested in this transaction. These loans and leases were
divested subject to recourse and as such, did not qualify as a sale. These loans have been recorded as secured borrowings on the
Company’s balance sheet at December 31, 2021. The recourse period expired in 2022.
Loans Held-for-Sale
Mortgage Loans Held-for-Sale
The fair value of loans held for sale is based on commitments outstanding from investors as well as what secondary
markets are currently offering for portfolios with similar characteristics. The Company has elected to carry loans held for sale at
fair value. Loans held for sale are subjected to recurring fair value adjustments. Loan sales are recognized when the transaction
closes, the proceeds are collected, ownership is transferred and, through the sales agreement, continuing involvement consists
of the right to service the loan for a fee for the life of the loan, if applicable. Gains and losses on the sale of loans held for sale
are recorded as part of mortgage banking revenue on the consolidated statement of income. Fees on mortgage loans sold
individually in the secondary market, including origination fees, service release premiums, processing and administrative fees,
and application fees, are recognized as mortgage banking revenue in the period in which the loans are sold.
Buyers generally have recourse to return a purchased loan to the Company under limited circumstances. Recourse
conditions may include early payment default, breach of representations or warranties, and documentation deficiencies. During
2022, 2021, and 2020, an insignificant number of loans were returned to the Company. At December 31, 2022, the Company
had reserved $1.9 million for probable losses from representation and warranty obligations.
Government National Mortgage Association (“GNMA”) optional repurchase programs allow financial institutions to
buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution
provides servicing. At the servicer’s option and without GNMA’s prior authorization, the servicer may repurchase such a
delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. Under FASB ASC 860, this
buyback option is considered a conditional option until the delinquency criteria are met, at which time the option becomes
unconditional. When the Company is deemed to have regained effective control over these loans under the unconditional
buyback option, the loans can no longer be reported as sold and must be brought back onto the consolidated balance sheet as
loans held for sale, regardless of whether the Company intends to exercise the buy-back option. These loans are reported as held
for sale in accordance with U.S. GAAP with the offsetting liability being reported as other liabilities. At December 31, 2022,
the amount of loans subject to buy back was $71.4 million.
Commercial Loans Held-for-Sale
The Company originates certain commercial loans for which a portion is intended for sale. The Company also transfers
certain commercial loans to held-for-sale when management has the intent to sell the loan or a portion of the loan in the near
term. These held-for-sale loans are recorded at fair value. At the time of transfer, write-downs on the loans are recorded as
charge-offs and a new cost basis is established. Any subsequent fair value adjustment is determined on an individual loan basis
and is recognized as a valuation allowance with any charges included in other noninterest expense. Gains and losses on the sale
of these loans are included in other noninterest income when realized.
Loans and Leases and Related Provision and Allowance for Credit Losses
Loans and leases are presented in the consolidated financial statements at amortized cost. The components of
amortized cost include unpaid principal balance, unamortized discounts and premiums, and unamortized deferred fees and
costs. Interest income is recognized based on the principal balance outstanding and the stated rate of the loan. Loan origination
fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Loans
acquired through acquisition are initially recorded at fair value. Discounts and premiums created when the loans were recorded
at their estimated fair values at acquisition are accreted over the remaining term of the loan as an adjustment to the related
loan’s yield. In the event of a loan pay-off, the remaining net deferred origination fees, and unamortized discounts and
premiums are automatically recognized into income. Where doubt exists as to the collectability of the loans and leases, interest
income is recorded as payment is received.
99
The Company's policy provides that loans and leases are generally placed in nonaccrual status if, in management’s
opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past
due, unless the loan or lease is both well-secured and in the process of collection. Once placed in nonaccrual status, all accrued
but uncollected interest related to the current fiscal year is reversed against the appropriate interest and fee income on loans and
leases account with any accrued but uncollected interest related to prior fiscal years reversed against the allowance for credit
losses (“ACL”).
The ACL is maintained through charges to income in the form of a provision for credit losses at a level management
believes is adequate to absorb an estimate of expected credit losses over the contractual life of the loan portfolio as of the
reporting date. Events that are not within the Company’s control, such as changes in economic conditions, could change
subsequent to the reporting date and could cause the ACL to be overstated or understated. The amount of the ACL is affected
by loan charge-offs, which decrease the ACL; recoveries on loans previously charged off, which increase the ACL; and the
provision for credit losses charged to income, which increases the ACL.
Prior to the Legacy Cadence merger, on January 1, 2020, Legacy Cadence also adopted ASC 326 through the
development of multiple current expected credit loss models (“ECL Models”) which segmented Legacy Cadence’s loan and
lease portfolio by borrower and loan type to estimate lifetime expected credit losses for loans and leases. Within each ECL
Model, loans and leases were further segregated based on additional risk characteristics specific to that loan or lease type and
the ECL Models used both internal and external historical loss data, as appropriate.
While there were significant similarities in the manner of adoption of ASC 326 by BancorpSouth Bank (“Legacy
BXS”) and Legacy Cadence, numerous steps were taken to align the Legacy Cadence process to ensure that the ACL reported
at the time of the Legacy Cadence merger and in all subsequent reporting periods is consistent with the ACL policies as
outlined in this section and Note 5 – Allowance for Credit Losses. This included conforming certain Legacy Cadence
assumptions (e.g., the reasonable and supportable forecast of future economic conditions and the reasonable and supportable
forecast period, among others) to that of Legacy BXS. This was accomplished primarily through qualitative adjustments for
alignment.
Further, ASC 326 eliminated existing guidance for purchase credit impaired (“PCI”) loans and provides special initial
recognition and measurement for the Day One accounting for PCD assets.
•
ASC 326 requires entities that purchase certain financial assets (or portfolios of financial assets) with the intention of
holding them for investment to determine whether the assets have experienced more-than-insignificant deterioration in
credit quality since origination.
• More-than-insignificant deterioration will generally be determined by the asset’s delinquency status, risk rating
changes, credit rating, accruing status or other indicators of credit deterioration since origination.
•
•
•
An entity initially measures the amortized cost of a PCD asset by adding the acquisition date estimate of expected
credit losses to the asset’s purchase price. Because the initial estimate for expected credit losses is added to the
purchase price to establish the Day One amortized cost, PCD accounting is commonly referred to as a “gross-up”
approach. There is no credit loss expense recognized upon acquisition of a PCD asset; rather the “gross-up” is offset
by establishment of the initial allowance.
After initial recognition, the accounting for a PCD asset will generally follow the credit loss model.
Interest income for a PCD asset is recognized using the effective interest rate (“EIR”) calculated at initial
measurement. This EIR is determined by comparing the amortized cost basis of the instrument to its contractual cash
flows, consistent with ASC 310-20. Accordingly, since the PCD gross-up is included in the amortized cost, the
purchase discount related to estimated credit losses on acquisition is not accreted into interest income. Only the
noncredit-related discount or premium is accreted or amortized, using the EIR that was calculated at the time the asset
was acquired.
Loans of $1.0 million or more that are identified as collateral-dependent, which generally include loans internally
graded as impaired or PCD Loss, are reviewed by the Impairment Group which approves the amount of specific reserve, if any,
and/or charge-off amounts. The evaluation of real estate loans generally focuses on the fair value of underlying collateral less
estimated costs to sell obtained from appraisals, as the repayment of these loans may be dependent on the liquidation of the
collateral. In certain circumstances, other information such as comparable sales data is deemed to be a more reliable indicator of
fair value of the underlying collateral than the most recent appraisal. In these instances, such information is used in determining
the specific provision recorded for the loan. For commercial and industrial loans, the evaluation generally focuses on these
considerations, as well as the projected liquidation of any pledged collateral. Our larger corporate and specialized industry loans
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are underwritten to the underlying enterprise value of the borrower. The value is in the equity of the business as a going
concern. Many valuation approaches are used in these situations including discounted cash flow, multiple of cash flow, or
comparable sales approaches. The Impairment Group, a cross-functional working group, reviews the results of each evaluation
and approves the final specific provision amounts, which are then included in the analysis of the adequacy of the ACL in
accordance with FASB ASC 326. These loans are internally classified as impaired.
A new appraisal is generally ordered for loans $1.0 million or greater that have characteristics of potential specific
provision, such as delinquency or other loan-specific factors identified by management, when a current appraisal (dated within
the prior 12 months) is not available or when a current appraisal uses assumptions that are not consistent with the expected
disposition of the loan collateral. In order to measure specific provision properly at the time that a loan is reviewed, a bank
officer may estimate the collateral fair value based upon earlier appraisals received from outside appraisers, sales contracts,
approved foreclosure bids, comparable sales, officer estimates or current market conditions until a new appraisal is received.
This estimate can be used to determine the extent of the specific provision on the loan. After a loan is determined to be
collateral-dependent, it is management’s policy to obtain an updated appraisal on at least an annual basis. Management
performs a review of the pertinent facts and circumstances of each collateral-dependent loan, such as changes in outstanding
balances, information received from loan officers and receipt of re-appraisals, at least quarterly. As of each review date,
management considers whether additional provision and/or charge-offs should be recorded based on recent activity related to
the loan-specific collateral as well as other relevant comparable assets. Any adjustment to reflect further exposure, either as a
result of management’s periodic review or as a result of an updated appraisal, are made through recording additional provisions
for credit loss and/or charge-offs.
At December 31, 2022, loans with an internally assigned grade of impaired, irrespective of troubled debt restructured
(“TDR”) status, totaled $7.2 million, which was net of cumulative charge-offs of $84 thousand. Additionally, the Company had
specific reserves of $2.3 million included in the ACL. Impaired loans at December 31, 2022 were primarily from the
Company’s C&I portfolio. Impaired loan charge-offs are determined necessary when management determines that the amount
is not likely to be collected.
When a guarantor is relied upon as a source of repayment, the Company analyzes the strength of the guaranty. This
analysis varies based on circumstances, but may include a review of the guarantor’s personal and business financial statements
and credit history, a review of the guarantor’s tax returns and the preparation of a cash flow analysis of the guarantor.
Management will continue to update its analysis on individual guarantors as circumstances change.
The Company's policy provides that loans and leases are generally placed in nonaccrual status if, in management’s
opinion, payment in full of principal or interest is not expected or payment of principal or interest is more than 90 days past
due, unless the loan or lease is both well-secured and in the process of collection. Once placed in nonaccrual status, all accrued
but uncollected interest related to the current fiscal year is reversed against the appropriate interest and fee income on loans and
leases account with any accrued but uncollected interest related to prior fiscal years reversed against the ACL.
In the normal course of business, management may grant concessions, which would not otherwise be considered, to
borrowers that are experiencing financial difficulty. Loans identified as meeting the criteria set out in FASB ASC 310 are
identified as TDRs. The concessions granted most frequently for TDRs involve reductions or delays in required payments of
principal and interest for a specified period or the rescheduling of payments in accordance with a bankruptcy plan. In most
cases, the conditions of the credit also warrant nonaccrual status, even after the restructure occurs. Other conditions that warrant
a loan being considered a TDR include reductions in interest rates to below market rates due to bankruptcy plans or by the bank
in an attempt to assist the borrower in working through liquidity problems. As part of the credit approval process, the
restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time of
restructure. TDRs recorded as nonaccrual loans may generally be returned to accrual status when the loan is current under the
terms of the restructured loan. During 2022, the most common concessions that were granted involved rescheduling payments
of principal and interest over a longer amortization period, granting a period of reduced principal payment or interest-only
payment for a limited time period, or the rescheduling of payments in accordance with a bankruptcy plan.
In the normal course of business, the Company assumes risks in extending credit. The Company manages these risks
through underwriting in accordance with its lending policies, loan review procedures and the diversification of its loan and
lease portfolio. Although it is not possible to predict credit losses with certainty, management regularly reviews the
characteristics of the loan and lease portfolio to determine its overall risk profile and quality.
The provision for credit losses is the periodic cost (or credit) of providing an allowance or reserve for expected losses
on loans and leases. The Board of Directors has appointed a Credit Committee, composed of senior management and lending
administration staff which meets on a quarterly basis, or more frequently if required, to review the recommendations of several
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internal working groups developed for specific purposes including the allowance for credit losses, specific provision amounts,
and charge-offs. The ACL Group bases its estimates of credit losses on three primary components: (1) estimates of expected
losses that exist in various segments of performing loans and leases over the remaining life of the loan portfolio using a
reasonable and supportable economic forecast; (2) specifically identified losses in individually analyzed credits which are
collateral dependent; and (3) qualitative factors related to economic conditions, portfolio concentrations, regulatory policy
updates, and other relevant factors that address estimates of expected losses not fully addressed based upon management’s
judgment of portfolio conditions.
The Company utilizes credit risk models to estimate the probability of default and loss given default of loans over their
remaining life. The probability of default settings in the models incorporate a risk grading process by utilizing pool-specific
historical default rates. In addition, the loss given default settings in the models utilize historical losses for different types of
collateral on defaulted loans while giving consideration for the loan-to-value at the time of default. The product of the
probability of default and loss given default derives a base expected loss rate for each loan. The base expected loss rate is
adjusted by way of econometric models that measure the direction and magnitude of change in expected loss rates given a
change in forecasted economic variables.
The aforementioned credit risk models and econometric models were developed and are recalibrated upon the basis of
historical experience. Credit factors such as financial condition of the borrower and guarantor, recent credit performance,
delinquency, liquidity, cash flows, collateral type and value are used by the models to assess credit risk. Estimates of expected
losses are influenced by the historical net losses experienced by the Company for loans and leases of comparable
creditworthiness and structure. Specific loss assessments are performed for loans and leases based upon the collateral
protection. The Company’s reasonable and supportable economic eight quarter forecast is utilized to estimate credit losses
before reverting back to longer term historical loss experience. The Company subscribes to various economic services and
publications to assist with the development of inputs used in the modeling and qualitative framework for the ACL calculation.
The economic forecast considers changes in real gross domestic product, nominal disposable income, unemployment rate,
equity valuations and related volatility, valuations for residential and commercial real estate, and other indicators that may be
correlated with the Company’s expected credit losses.
The Company excludes accrued interest from interest income when it is determined that it is probable that all
contractual principal and interest will not be collected for loans. For loans with available commitments that are not
unconditionally cancellable, expected losses were calculated by applying comparable loss rates on funded loans to the unfunded
commitment balances. In addition, the weighted average maturity and relatively stable line utilization were considered when
estimating losses on unfunded commitments.
Attention is paid to the quality of the loan and lease portfolio through a formal loan review process. An independent
loan review department of the Company is responsible for reviewing the credit rating and classification of individual credits and
assessing trends in the portfolio, adherence to internal credit policies and procedures and other factors that may affect the
overall adequacy of the allowance for credit losses. The ACL Group is responsible for ensuring that the ACL provides adequate
coverage of expected losses. The ACL Group meets at least quarterly to determine the amount of adjustments to the ACL. The
ACL Group is composed of senior management from the Company’s credit administration, risk and finance departments. The
Impairment Group is responsible for evaluating individual loans that have been specifically identified through various channels,
including examination of the Company’s watch list, past due listings, and loan officer assessments. For all loans identified, an
analysis is prepared to determine if the loan is collateral dependent and the extent of any loss exposure to be reviewed by the
Impairment Group. The Impairment Group reviews all loans restructured in a TDR if the loan is $1.0 million or greater to
determine if it is probable that the Company will be unable to collect the contractual principal and interest on the loan. An
evaluation of the circumstances surrounding the loan is performed in order to determine whether the loan was collateral-
dependent. The fair value of the underlying collateral is considered if the loan is collateral-dependent. The Impairment Group
meets at least quarterly. The Impairment Group is made up of senior management from the Company’s lending administration,
risk, and finance departments.
If financial concessions are granted to a borrower as a result of financial difficulties, the loan is classified as a TDR,
with the amount of provision determined by estimating the net present value of future cash flows for TDRs that are not deemed
to be collateral-dependent. TDRs are reserved in accordance with FASB ASC 326. Should the borrower’s financial condition,
collateral protection or performance deteriorate, warranting reassessment of the loan rating or specific provision, additional
reserves and/or charge-offs may be required.
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Any loan or portion thereof which is classified as “loss” or which is determined by management to be uncollectible,
because of factors such as the borrower’s failure to pay interest or principal, the borrower’s financial condition, economic
conditions in the borrower’s industry or the inadequacy of underlying collateral, is charged off.
For all loans determined to be collateral-dependent, which generally include loans internally classified as impaired and
PCD Loss, and all loans restructured in a TDR, an evaluation of the circumstances surrounding the loan is performed in order to
determine if and in what amount the Bank expects to encounter a loss. For loans which are collateral-dependent, a reserve will
be established to cover the difference between the loan balance and the fair value of the collateral less costs to sell or that
difference may be charged off. Large groups of smaller balance homogenous loans that are collectively evaluated for specific
provision are excluded from review by the Impairment Group.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation
and amortization, computed using straight-line methods, are charged to expense over the estimated useful lives of the assets.
Costs of major additions and improvements are capitalized. Expenditures for routine maintenance and repairs are charged to
expense as incurred. Upon retirement, sale, or other disposition of property and equipment, the cost and accumulated
depreciation are eliminated from the accounts, and any gains or losses are included in income.
Leases
The Company leases various premises and equipment. At the inception of the contract, the Company determines if an
arrangement is or contains a lease and will recognize on the balance sheet a lease asset for its right to use the underlying asset
(“ROU”) and a lease liability for the corresponding lease obligation for contracts longer than a year. Both the asset and liability
are initially measured at the present value of the future minimum lease payments over the lease term. In determining the present
value of lease payments, the Company uses our incremental borrowing rate as the discount rate for the leases.
The Company has elected the practical expedient to not separate non-lease components from lease components and
instead to account for both as a single lease component. The Company’s leases do not contain residual value guarantees or
material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that
would impact the Company’s ability to pay dividends or cause the Company to incur additional financial obligations.
The Company elected to apply the short-term lease exception to existing leases that meet the definition of a short-term
lease (less than 12 months), considering the lease term from the commencement date, not the remaining term at the date of
adoption. Certain of the Company’s leases contain options to renew the lease therefore these renewal options are included in the
determination of the capitalization period and calculation of the lease liability and ROU asset as they are reasonably certain to
be exercised.
Leases for which the Company is the lessor are substantially all accounted for as operating leases and the lease
components and non-lease components are accounted for separately. The remaining lease periods vary from one month to five
years and the contractual maturities of gross lease receivables were not material to the financial position of our Company. See
Note 7 for additional required disclosures under ASC 842.
Other Real Estate Owned and Repossessed Assets
Other real estate owned (“OREO”) consists of properties acquired through foreclosure. Repossessed assets consists of
non-real estate assets acquired in partial or full settlement of loans. OREO and repossessed assets totaled $6.7 million and $33.0
million at December 31, 2022 and 2021, respectively. These assets are recorded at fair value, less estimated costs to sell, on the
date of foreclosure or repossession, establishing a new cost basis for the asset. Subsequent to the foreclosure or repossession
date the asset is maintained at the lower of cost or fair value. Any write-down to fair value required at the time of foreclosure or
repossession is charged to the ACL. Subsequent gains or losses resulting from the sale of the property or additional valuation
allowances required due to further declines in fair value are reported in other noninterest expense.
Goodwill and Other Intangible Assets
Goodwill is not amortized but is evaluated for impairment at least annually in the fourth quarter, or more frequently if
an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its
carrying amount. As part of its testing, the Company may elect to first assess qualitative factors to determine whether it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. If the results of the qualitative assessment
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indicate that more likely than not a reporting unit’s fair value is less than its carrying amount, the Company determines the fair
value of the respective reporting unit (through the application of various quantitative valuation methodologies) relative to its
carrying amount to determine whether quantitative indicators of potential impairment are present (i.e., Step 1). The Company
may also elect to bypass the qualitative assessment and begin with Step 1. With the adoption of ASU No. 2017-04, effective
January 1, 2020, if the results of Step 1 indicate that the fair value of the reporting unit is below its carrying amount, the
Company will recognize an impairment loss for the amount that the reporting unit’s carrying amount exceeds its fair value (up
to the amount of goodwill recorded). A reporting unit is defined as an operating segment or a component of that operating
segment. Reporting units may vary, depending on the level at which performance of the segment is reviewed. Goodwill is
reviewed annually within the fourth quarter for possible impairment, or sooner if a goodwill impairment indicator is identified.
If impaired, the asset is written down to its estimated fair value. No impairment charges were recognized in any reporting unit
through December 31, 2022. See Note 8 for additional information.
Other identifiable intangible assets consist primarily of core deposit premiums and customer relationships arising from
acquisitions. These intangibles were established using the discounted cash flow approach and are being amortized using an
accelerated method over the estimated remaining life of each intangible recorded at acquisition. Additionally, trademarks and
trade names, considered finite-lived intangible assets, are reviewed for impairment when events or changes in circumstances
indicate that the asset’s carrying amount may not be recoverable from undiscounted future cash flows or that it may exceed its
fair value. No impairment to these intangible assets has been identified in any period presented.
Servicing Rights Assets
The Company recognizes as assets the rights to service mortgage loans for others, known as MSR. The Company
records MSRs at fair value for all loans sold on a servicing retained basis with subsequent adjustments to fair value of MSR in
accordance with FASB ASC 860. An estimate of the fair value of the Company’s MSRs is determined utilizing assumptions
about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market trends and industry
demand. Because the valuation is determined by using discounted cash flow models, the primary risk inherent in valuing the
MSR is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream. The use of different
estimates or assumptions could also produce different fair values. The Company hedges the fair value of MSR. At
December 31, 2022, there was a hedge in place designed to cover approximately 47.9% of the MSR value. The Company is
susceptible to fluctuations in their value in changing interest rate environments. MSR are included in the other assets category
of the consolidated balance sheet. Changes in the fair value of MSR are recorded as part of mortgage banking revenue on the
consolidated statements of income.
Cash Surrender Value of Life Insurance
The Company invests in bank-owned life insurance (“BOLI”), which involves the purchasing of life insurance on
selected employees. The Company is the owner of the policies and, accordingly, the cash surrender value of the policies is
included in total assets and increases in cash surrender values are reported as income in the consolidated statements of income.
The cash value accumulation on BOLI is permanently tax deferred if the policy is held to the insured person’s death and certain
other conditions are met.
Variable Interest Entities and Other Investments
The Company is deemed to be the primary beneficiary and required to consolidate a VIE if it has a variable interest in
the VIE that provides it with a controlling financial interest. For such purposes, the determination of whether a controlling
financial interest exists is based on whether a single party has both the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance and the obligation to absorb the losses of the VIE or the right to receive
benefits from the VIE that could potentially be significant to the VIE. Conclusions reached regarding which interest holder is a
VIE’s primary beneficiary must be continuously evaluated. The Company has determined that certain of its investments meet
the definition of VIE.
The Company invests in certain affordable housing projects as a limited partner and accounts for these investments and
the related tax credits using either the effective yield method or the proportional amortization method, depending upon the date
of the investment. Under the effective yield method, the Company recognizes the tax credits as they are allocated and amortizes
the initial costs of the investments to provide a constant effective yield over the period that the tax credits are allocated. Under
the proportional amortization method, the Company amortizes the cost of the investment in proportion to the tax credits and
other tax benefits received and recognizes the net investment performance in the income statement as a component of income
tax expense.
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Equity securities with readily determinable fair values not held for trading consist of marketable equity securities
which are carried at fair value with changes in fair value reported in net income.
For other investments in limited partnerships without readily determinable fair values, the Company has elected to
account for these investments using the practical expedient of the fair value of underlying net asset value. For investments in
other limited partnerships without readily determinable fair values that do not qualify for the practical expedient, these
investments are accounted for at their cost minus impairment, plus or minus changes resulting from observable price changes in
orderly transactions for the identical or a similar investment of the same issuer. Any changes in fair value are reported in net
income. See Note 25 for more information about our variable interest entities and other investments.
Pension and Postretirement Benefits
The Company accounts for its defined benefit pension plans using an actuarial model that uses an approach which
allocates pension costs over the service period of employees in the plan. The Company also accounts for its other postretirement
benefits by recognizing net periodic postretirement benefit costs as employees render the services necessary to earn their
postretirement benefits. The principle underlying the accounting is that employees render service ratably over the service period
and, therefore, the income statement effects of the Company’s defined benefit pension and postretirement benefit plans should
follow the same pattern. The Company accounts for the over-funded or under-funded status of its defined benefit and other
postretirement plans as an asset or liability in its consolidated balance sheets.
The discount rate is the rate used to determine the present value of the Company’s future benefit obligations for its
pension and other postretirement benefit plans. The Company determines the discount rate to be used to discount plan liabilities
at the measurement date with the assistance of its actuary using the actuary’s proprietary model. The Company developed a
level equivalent yield using its actuary’s model at December 31, 2022 and the expected cash flows from the BancorpSouth
Bank Retirement Plan (the “Basic Plan”), the BancorpSouth Bank Restoration Plan (the “Restoration Plan”) and the
BancorpSouth Bank Supplemental Executive Retirement Plan (the “Supplemental Plan”).
The Company offers a 401(k) defined contribution benefit plan to its employees. The plan provides for a 100% match
of employee contributions up to five percent of employee compensation. All contributions and related earnings are 100%
vested.
As a result of the prior acquisitions, the Company has various legacy unqualified supplemental retirement plans. The
plans allow for fixed payment amounts to begin on a monthly or annual basis at a specified age. The annual cost charged to
expense and the estimated present value of the projected payments was determined in accordance with the provisions of ASC
715. The present value of projected payments is recorded as a liability in the Company’s consolidated balance sheets. The
Company provides a voluntary deferred compensation plan for certain of its executive and senior officers. Under this plan, the
participants may defer up to 25% of their base compensation and 100% of certain incentive compensation. The Company may,
but is not obligated to, contribute to the plan. Amounts contributed to this plan are credited to a separate account for each
participant and are subject to a risk of loss in the event of the Company’s insolvency. The Company made no contributions to
this plan in 2022, 2021, or 2020.
Share-Based Compensation
The Company administers several long-term incentive compensation plans that provide for the granting of various
forms of incentive share-based compensation. The Company values these units at the grant date fair value and recognizes
expense over the requisite service period. The Company’s share-based compensation costs are recorded as a component of
salaries and employee benefits in the consolidated statements of income. The Company has elected to account for forfeitures of
share-based compensation awards as they occur, and compensation cost is recorded assuming all recipients will complete the
requisite service period. If an employee forfeits an award because they do not complete the requisite service period, the
Company will reverse compensation cost previously recognized in the period the award is forfeited. See Note 15 for additional
information. Upon the exercise of stock options or the granting of restricted stock awards, the Company would fulfill these
events by new share issuances. See Note 20 for additional information on share repurchases.
Income Taxes
The Company and its significant subsidiaries are subject to income taxes in federal, state and local jurisdictions, and
such corporations account for income taxes under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax
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assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The recognition of a deferred tax asset is dependent upon a “more likely than not” expectation of realization of the
deferred tax asset, based upon the analysis of available evidence. The deferred tax asset recoverability is calculated using a
consistent approach, which considers the relative impact of negative and positive evidence, including review of historical
financial performance, and all sources of future taxable income, such as projections of future taxable income exclusive of future
reversals of temporary differences and carryforwards, tax planning strategies, and any carryback availability. A valuation
allowance is required to sufficiently reduce the deferred tax asset to the amount that is expected to be realized on a “more likely
than not” basis. Changes in the valuation allowance are generally recorded through income. See Note 12 for more information
about the Company’s income taxes.
Common Stock Repurchases
The Company purchases shares of its common stock pursuant to share repurchase programs authorized by its Board of
Directors. Repurchased shares are available for use in the Company’s stock compensation programs and other transactions or
for other corporate purposes as determined by the Company’s Board of Directors. At the date of repurchase, shareholders’
equity is reduced by the repurchase price. See Note 20 for additional information.
Revenue Recognition
Service Charges on Deposit Accounts
Service charges on deposit accounts consist of non-sufficient funds fees, account analysis fees, and other service
charges on deposits which consist primarily of monthly account fees. Non-sufficient funds fees are recognized at the time the
account overdraft occurs in accordance with regulatory guidelines. Account analysis fees consist of fees charged to certain
commercial demand deposit accounts based upon account activity (and reduced by a credit which is based upon cash levels in
the account). The Company’s performance obligation for these fees is satisfied and related revenue recognized, when the
service is rendered.
Fees and Other Service Charges
Fees and other service charges primarily consist of debit and credit card income, merchant services and other service
fees. These fees are earned at a point in time as the Company’s performance obligation for service charges are satisfied, and
related revenue recognized, when the services are rendered.
Assets Under Administration and Asset Management Fees
The Company does not include assets held in fiduciary or agency capacities in the consolidated balance sheets, as such
items are not assets of the Company. Fees from asset management activities are recorded on an accrual basis, over the period in
which the service is provided. Fees are a function of the market value of assets administered and managed, the volume of
transactions, and fees for other services rendered, as set forth in the underlying client agreement. This revenue recognition
involves the use of estimates and assumptions, including components that are calculated based on estimated asset valuations
and transaction volumes. The Company does not earn performance-based incentives. The Company’s performance obligation
for these fees is satisfied, and related revenue recognized, when services are rendered.
Advisory Fees for Brokerage Services
Advisory fees for brokerage services are collected monthly through a third-party vendor at a predetermined rate in the
contract. Revenue for such performance obligations are recognized at the time the performance obligations are satisfied and is
reflected in the Wealth Management line in the Consolidated Statements of Income.
Credit Related Fees
Credit related fees primarily include fees assessed on the unused portion of commercial lines of credit (“unused
commitment fees”) and syndication agent fees. Unused commitment fees are recognized when earned. Syndication agent fees
are earned to act as an agent for a period of time, usually one year. Arranger fees are earned to arrange a syndicate of lenders
and are generally recognized when the transaction is closed.
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Bankcard Fees
Bankcard fees include primarily bankcard interchange revenue, which is recorded when services are provided.
Payroll Processing Revenue
Payroll processing revenue consists principally of payroll processing fees, property and casualty brokerage and
employee benefits brokerage. Payroll processing fees are charged as the services are provided and the Company satisfied its
performance obligation simultaneously. Property and casualty brokerage include the brokerage of both personal and
commercial coverages. The placement of the policy is completion of the Company's performance obligation and revenue is
recognized at that time. The Company's commission is a percentage of the premium. Employee benefits brokerage consists of
assisting companies in designing and managing comprehensive employee benefit programs. The services provided by the
Company are collectively benefit management services which are considered a bundle of services that are highly interrelated.
Each of the underlying services are activities to fulfill the benefit management service and are not distinct and separate
performance obligations. Revenue is recognized over the contract term as services are rendered on a monthly basis. Customer
payments are usually received on a monthly basis. This revenue is reflected in Other Income in the Consolidated Statements of
Income.
SBA Income
Small Business Administration (“SBA”) income consists of gains on sales of SBA loans, servicing fees, changes in the
fair value of servicing rights, and other miscellaneous fees. Servicing fee income is recorded for fees earned for servicing SBA
loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as
income when earned. This revenue is reflected in Other Income in the Consolidated Statements of Income.
Insurance Commissions
Insurance commissions consists of several types of insurance revenue related to insurance policy sales including direct
bill commissions, agency commissions, installment and agency fee income, and contingency income. The Company acts as an
intermediary between the Company’s customer and the insurance carrier. For agency commissions, the Company’s
performance obligation is satisfied upon the issuance of the insurance policy, and therefore the Company recognizes the
revenue at the time of policy issuance. For direct bill commissions, the carrier remits the commission payment to the Company
according to the policy statement and the Company recognizes revenue monthly as the performance obligation is satisfied and
no significant material reversal of revenue based on policy cancellations are anticipated.
Installment and agency fee income is for revenue billed on a more frequent basis than annually. Contingency income is
additional revenue based on insurance carriers’ profitability, loss ratios and production growth as determined by the insurance
carriers. These fees are typically collected in the first quarter of the subsequent year following the calendar year of service.
Under Topic 606, these are recognized during the calendar year of service. Due to the volatility of the income, significant
judgment is required to estimate revenue. The Company considers several quantitative factors deemed by management to be
appropriate for the estimate and it is periodically reviewed for any changes throughout the year to adjust revenue recognized for
contingency income. Topic 606 requires that even with variable consideration, an estimate of revenue should be recorded at the
time that the performance obligation is completed.
Basic and Diluted Earnings Per Share
Basic and diluted earnings per share (“EPS”) are calculated in accordance with ASC 260, Earnings Per Share. Basic
EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed using the weighted-average number of shares determined for the basic EPS
computation plus the shares resulting from the assumed exercise of all outstanding share-based awards using the treasury stock
method.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net
income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities,
pension liability and cash flow hedges, are reported as a separate component of the shareholders’ equity section of the
consolidated balance sheets, such items, along with net income, are components of comprehensive income. See Note 17 for
additional information.
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Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand and amounts due from banks,
interest bearing deposits with banks, and federal funds sold. Generally, federal funds are sold for one to seven day periods.
Cash flows from loans, either originated or acquired, are classified at the time according to management’s intent to
either sell or hold the loan for the foreseeable future. When management’s intent is to hold the loan for the foreseeable future,
the cash flows of that loan are presented as investing cash flows.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of
commitments to extend credit, credit card lines, standby letters of credit and commitments to purchase securities. Such financial
instruments are recorded in the consolidated financial statements when they are exercised.
Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on relevant market information and other information
about the Company’s financial instruments. These estimates do not reflect any premium or discount that could result from
offering for sale, at one time, the entire holdings of a particular financial instrument. Because no market exists for a portion of
the financial instruments, fair value estimates are also based on judgments regarding estimated cash flows, current economic
conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Management employs independent third-party pricing services to provide fair value estimates for the Company’s
financial instruments. Management uses various validation procedures to validate that the prices received from pricing services
and quotations received from dealers are reasonable for each relevant financial instrument, including reference to relevant
broker/dealer quotes or other market quotes and a review of valuations and trade activity of comparable securities.
Consideration is given to the nature of the quotes (e.g., indicative or firm) and the relationship of recently evidenced market
activity to the prices provided by the third-party pricing service.
Understanding the third-party pricing service’s valuation methods, assumptions and inputs used by the firm is an
important part of the process of determining that reasonable and reliable fair values are being obtained. Management evaluates
quantitative and qualitative information provided by the third-party pricing services to assess whether they continue to exhibit
the high level of expertise and internal controls that management relies upon.
Fair value estimates are based on existing financial instruments on the consolidated balance sheets, without attempting
to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial
instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes,
premises and equipment, goodwill and other intangible assets. In addition, the income tax ramifications related to the realization
of the unrealized gains and losses on available-for-sale investment securities can have a significant effect on fair value estimates
and have not been considered in any of the estimates. For further information about fair value measurements, see Note 14.
Related Party Transactions
In the normal course of business, loans are made to directors and executive officers and to companies in which they
have a significant ownership interest. In the opinion of management, these loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for comparable transactions with other parties, are
consistent with sound banking practices, and are within applicable regulatory and lending limitations. The aggregate balances of
related party loans and deposits are insignificant at December 31, 2022 and 2021. See Note 18 for additional information.
Recently Adopted Accounting Pronouncements
ASU No. 2020-06
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies an issuer’s (i) accounting for convertible instruments
by eliminating two of the three models in ASC 470-20 that require separate accounting for embedded conversion features and
108
(ii) application of the derivatives scope exception in ASC 815-40 for contracts in its own equity. The new guidance also
requires enhanced disclosures. Further, for the diluted earnings-per-share calculation, the guidance requires entities to use the if-
converted method for all convertible instruments and generally requires entities to include the effect of share settlement for
instruments that may be settled in cash or shares, among other things.
The guidance was effective for annual periods beginning after December 15, 2021, and interim periods within those
fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. As the
Company does not currently have any convertible debt or hedging contracts in our own equity, the adoption of this guidance
had no immediate impact on our consolidated financial statements.
ASU No. 2021-04
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and
Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—
Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of
Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). The ASU
clarifies the accounting for certain modifications or exchanges of freestanding equity-classified written call options (e.g.,
warrants) that remain equity classified after modification or exchange. The amendments do not apply to modifications or
exchanges of financial instruments that are within the scope of another Topic and do not affect a holder’s accounting for
freestanding call options.
The guidance was effective for annual periods beginning after December 15, 2021, and interim periods within those
fiscal years. The amendments should be applied prospectively to modifications or exchanges occurring on or after the effective
date of the amendments. As the Company does not currently hold any freestanding equity-classified written call options, the
adoption of this guidance had no immediate impact on our consolidated financial statements.
ASU No. 2021-06
This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No.
33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of
Statistical Disclosures for Bank and Savings and Loan Registrants. These incorporations do not change the accounting rules as
issued by the FASB.
ASU No. 2022-06
In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset
Date of Topic 848. In 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects
of Reference Rate Reform on Financial Reporting, which provides optional guidance to ease the potential burden in accounting
for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in ASC 848 is to
provide relief during the temporary transition period, so the FASB included a sunset provision within ASC 848 based on
expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.
In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD
LIBOR to June 30, 2023, which is beyond the current sunset date of ASC 848. To ensure the relief in ASC 848 covers the
period of time during which a significant number of modifications may take place, the amendments in the ASU defer the sunset
date of ASC 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the
relief.
The amendments were effective upon issuance of the ASU (December 21, 2022). This guidance had no immediate
impact on our consolidated financial statements.
Pending Accounting Pronouncements
ASU No. 2021-08
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers. The guidance primarily addresses the accounting for contract
assets and contract liabilities from revenue contracts with customers in a business combination. However, the guidance also
applies to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply, such as
109
contract liabilities from the sale of nonfinancial assets within the scope of Subtopic 610-20, Other Income—Gains and Losses
from the Derecognition of Nonfinancial Assets.
The guidance does not affect the accounting for other assets or liabilities that may arise from revenue contracts with
customers in accordance with ASC 606, such as refund liabilities, or in a business combination, such as customer-related
intangible assets and contract-based intangible assets.
The guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. Early adoption of the amendments is permitted, including adoption in an interim period. As this guidance is to be
applied prospectively to business combinations occurring on or after the effective date, this guidance will have no immediate
impact to our consolidated financial statements.
ASU No. 2022-01
In March 2022, the FASB issued ASU No. 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—
Portfolio Layer Method. The ASU expands and clarifies the portfolio layer method for fair value hedges of interest rate risk.
The amendments allow entities to employ a multiple-layer hedging strategy and further allows entities to hedge nonprepayable
financial assets under the portfolio layer method rather than just prepayable financial assets. The amendments provide
additional guidance on accounting for fair value hedge basis adjustments associated with portfolio layer hedges, generally
requiring these adjustments to be maintained at the closed portfolio level and clarifying how these amounts should be disclosed.
The guidance is effective for fiscal years beginning after December 15, 2022. Early adoption is permitted. The
guidance on hedging multiple layers in a closed portfolio is applied prospectively. The guidance on the accounting for fair value
basis adjustments is applied on a modified retrospective basis. Entities have the option to adopt the disclosure guidance
prospectively or retrospectively.
In addition, within 30 days of adoption, an entity may reclassify debt securities from held to maturity to available for
sale if it includes them in a closed portfolio that is hedged under the portfolio layer method. This guidance will have no
immediate impact to our consolidated financial statements.
ASU No. 2022-02
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled
Debt Restructurings and Vintage Disclosures. The FASB issued this ASU to eliminate the recognition and measurement
guidance on troubled debt restructurings for creditors that have adopted ASC 326 and require them to make enhanced
disclosures about loan modifications for borrowers experiencing financial difficulty. The new guidance also requires public
business entities to present current-period gross write-offs (on a current year-to-date basis for interim-period disclosures) by
year of origination in their vintage disclosures
The amendments are effective for fiscal years beginning after December 15, 2022, and interim periods therein. Early
adoption of the amendments is permitted, including adoption in an interim period. If an entity elects to early adopt in an interim
period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. An entity may
elect to early adopt the amendments related to TDRs separately from the amendments related to vintage disclosures.
Entities will apply the amendments related to disclosures for loan modifications and the presentation of gross write-
offs in the vintage disclosures starting in the period of adoption (i.e., prospectively). Information about modifications made in
periods before adoption are not required to be provided.
Entities can elect to adopt the guidance on TDRs using either a prospective or modified retrospective transition. The
Company intends to adopt these amendments via the modified retrospective transition method and currently anticipates any
impacts to its consolidated financial statements will not be material.
ASU No. 2022-03
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions. The amendments in the ASU clarify that a contractual restriction on
the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered
in measuring fair value. The ASU introduces new disclosure requirements to provide investors with information about the
restriction including the nature and remaining duration of the restriction.
110
The amendments are effective for fiscal years, including interim periods within those fiscal years, beginning after
December 15, 2023. Early adoption is permitted for both interim and annual financial statements that have not yet been issued
or made available for issuance. The amendments should be applied prospectively with any adjustments from the adoption of the
amendments recognized in earnings and disclosed on the date of adoption. This guidance will have no immediate impact to our
consolidated financial statements.
NOTE 2. BUSINESS COMBINATIONS
National United Merger
On May 1, 2021, the Company completed the merger with National United Bancshares Inc., the parent company of
National United (collectively referred to as “National United”), pursuant to which National United was merged with and into
the Company. National United operated six full-service banking offices in the Killeen-Temple, Texas; Waco, Texas; and
Austin-Round Rock-Georgetown, Texas metropolitan statistical areas. Under the terms of the definitive merger agreement, the
Company issued approximately 3.1 million shares of the Company’s common stock, plus $33.3 million in cash for all
outstanding shares of National United’s capital stock. At December 31, 2022, total goodwill related to the National United
acquisition was $49.3 million. Goodwill is calculated as the excess of both the consideration exchanged and liabilities assumed
as compared to the fair value of identifiable assets acquired, none of which is expected to be deductible for tax purposes.
Additionally, the Company recognized $2.5 million of core deposit intangibles in conjunction with this acquisition.
The Company completed its valuation of the assets and liabilities acquired from National United prior to the one year
anniversary of the merger, thus ending the measurement period for this merger.
The following table presents the amounts recorded on the consolidated balance sheets on the acquisition date of May 1,
2021 for National United, showing the fair value as adjusted during the measurement period (in thousands):
Assets acquired:
Cash and cash equivalents
Available-for-sale securities and other equity investments
Loans and leases
Premises and equipment
Accrued interest receivable
Other identifiable intangibles
Other real estate owned
Bank-owned life insurance
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Accrued interest payable
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Market value of common stock
Total cash paid
Total fair value of consideration paid
Goodwill
FNS Merger
$
$
$
$
$
$
$
232,578
132,046
431,910
9,802
1,932
2,541
663
6,651
4,320
822,443
744,602
138
1,730
746,470
75,973
92,018
33,256
125,274
49,301
On May 1, 2021, the Company completed the merger with FNS Bancshares Inc., the parent company of FNB Bank,
(collectively referred to as “FNS”), pursuant to which FNS was merged with and into the Company. FNS operated 17 full-
service banking offices in Alabama, Georgia, and Tennessee. Under the terms of the definitive merger agreement, the Company
111
issued approximately 3.0 million shares of the Company’s common stock, plus $18.0 million in cash for all outstanding shares
of FNS’s capital stock. At December 31, 2022, total goodwill related to the FNS acquisition was $55.5 million. Goodwill is
calculated as the excess of both the consideration exchanged and liabilities assumed as compared to the fair value of identifiable
assets acquired, none of which is expected to be deductible for tax purposes. Additionally, the Company recognized
approximately $0.9 million of core deposit intangibles in conjunction with this acquisition.
The Company completed its valuation of the assets and liabilities acquired from FNS prior to the one year anniversary
of the merger, thus ending the measurement period for this merger.
The following table presents the amounts recorded on the consolidated balance sheet on the acquisition date of May 1,
2021 for FNS, showing the fair value as adjusted during the measurement period (in thousands):
Assets acquired:
Cash and cash equivalents
Available-for-sale securities and other equity investments
Loans and leases
Premises and equipment
Accrued interest receivable
Other identifiable intangibles
Other real estate owned
Bank-owned life insurance
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Accrued interest payable
Junior subordinated debt
Long-term debt
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Market value of common stock issued
Total cash paid
Total fair value of consideration paid
Goodwill
Legacy Cadence Merger
$
$
$
$
$
$
$
143,179
170,158
453,035
14,671
2,531
938
1,023
12,064
11,981
809,580
721,462
174
10,000
20,206
7,161
759,003
50,577
88,028
18,003
106,031
55,454
On October 29, 2021, the Company completed its merger with Cadence Bancorporation, the parent company of
Cadence Bank, N.A., (collectively referred to as “Legacy Cadence”), pursuant to which Legacy Cadence merged with and into
the Company, with the Company continuing as the surviving entity. Legacy Cadence operated 99 full-service banking offices in
the southeast. Each Legacy Cadence shareholder, other than Legacy Cadence and the Company, received 0.70 shares of the
Company’s common stock for each share of Legacy Cadence Class A common stock. In addition, Legacy Cadence paid a one-
time, special cash dividend of $1.25 per share of Legacy Cadence Class A common stock on October 28, 2021. The merger is
anticipated to build a stronger banking franchise with relationship-focused financial services and better opportunities for
employees, customers, communities and shareholders. At December 31, 2022, total goodwill related to the Legacy Cadence
acquisition was $497.9 million. Goodwill is calculated as the excess of both the consideration exchanged and liabilities
assumed as compared to the fair value of identifiable assets acquired, none of which is expected to be deductible for tax
purposes. Additionally, the Company recognized $25.0 million of core deposit intangibles in conjunction with this merger. The
Company also recorded $49.3 million of customer relationship intangibles and $25.5 million for the Cadence trade name.
112
The following table presents the amounts recorded on the consolidated balance sheet on the acquisition date of October
29, 2021 for Legacy Cadence, showing the fair value as adjusted during the measurement period (in thousands):
Assets acquired:
Cash and cash equivalents
Available-for-sale securities
Loans held for sale
Loans and leases
Allowance for credit losses
Premises and equipment
Other identifiable intangible assets
Other assets
Total assets acquired
Liabilities assumed:
Deposits
Borrowings
Other liabilities
Total liabilities assumed
Net assets acquired
Consideration paid:
Market value of common stock
Fair value of equity awards
Cash paid in lieu of fractional shares
Total fair value of consideration paid
Goodwill
$
2,340,995
4,171,807
83,475
11,527,741
(56,459)
198,578
99,898
575,981
$ 18,942,016
$ 16,350,287
206,805
400,577
$ 16,957,669
1,984,347
$
2,464,546
17,675
8
2,482,229
497,882
$
$
In relation to the Legacy Cadence merger, the Company recorded $451.7 million provisional estimate of goodwill in
2021 and an additional $46.2 million during 2022, representing the excess of the purchase price over the acquisition accounting
value of net assets acquired, net of deferred taxes. The Company considers its valuations of Legacy Cadence’s assets acquired
and liabilities assumed to be final as management completed these valuations within the measurement period during the fourth
quarter of 2022.
During 2022, we continued to analyze the valuations assigned to the acquired assets and assumed liabilities and
received updated information resulting in the revised fair values displayed below. We updated our estimated fair values of these
items within our Consolidated Balance Sheet with a corresponding adjustment to goodwill. These changes are gross of taxes
and reflected in the following table:
(In thousands)
Acquired Asset or Liability
Balance Sheet Line Item
Available-for-sale securities
Loans and leases
Allowance for credit losses
Premises and equipment
Available-for-sale securities
Loans and leases
Allowance for credit losses
Premises and equipment
Other identifiable intangible assets Other intangible assets, net
Investments in limited partnerships Other assets
Goodwill
Deferred taxes
Unfunded commitments
Other liabilities
Goodwill
Other liabilities
Other liabilities
Other liabilities
Provisional
Estimate
Revised
Estimate
$
4,172,313 $
11,534,035
(64,576)
197,214
152,341
580,332
451,722
39,726
24,389
347,854
4,171,807 $
11,527,741
Increase (Decrease)
(506)
(6,294)
8,117
1,364
(52,443)
(4,351)
46,160
(2,756)
(6,507)
(2,129)
(56,459)
198,578
99,898
575,981
497,882
36,970
17,882
345,725
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All measurement period adjustments made during 2022 have been deemed insignificant individually and in the
aggregate. The Company finalized its valuation of the Legacy Cadence merger transaction within the measurement period (i.e.,
no later than October 28, 2022).
The following is a description of the methods used to estimate the fair values of significant assets acquired and
liabilities assumed above.
Cash and cash equivalents: The carrying amount of these assets is a reasonable estimate of fair value based on the
short-term nature of these assets.
Securities available-for-sale: Fair values for securities were based on quoted market prices where available. If quoted
market prices are not available, fair value estimates were based on observable inputs obtained from market transactions in
similar securities.
Loans: Fair values for loans were estimated based on a discounted cash flow methodology (income approach) that
considered factors including loan type and related collateral, classification status, remaining term of the loan (in months), fixed
or variable interest rate, past delinquencies, timing of principal and interest payments, current market rates, LTV, and current
discount rates. The discount rate did not include an explicit factor for credit losses, as that was included as a reduction to the
estimated cash flows. Large loans were specifically reviewed to evaluate credit risk. Additionally, purchased credit deteriorated
(PCD) loans that were determined to have more-than-insignificant deterioration were generally identified by the delinquency
status, risk rating changes, credit rating, accruing status or other indicators of credit deterioration since origination. Loans were
valued individually although multiple inputs were applied to loans with similar characteristics as appropriate.
Unfunded commitments are contractual obligations by a financial institution for future funding as it relates to closed
end or revolving lines of credit. The Company valued these unfunded commitments at $17.9 million and recorded a liability
using the “Netback” method. Because the borrower can draw upon their credit anytime until maturity, the lender must increase
its capital on hand to meet funding requirements. Therefore, the undrawn portion is considered a liability (or asset if the loan is
valued above par) and is netted back against the asset or the drawn portion. Generally, amortization for revolving lines occurs
straight-line over the life of the loan and for closed end loans using the effective yield method over the remaining life of the
loan when the loan funds.
Allowance for Credit Losses: The allowance for credit losses of $56.5 million was recorded on the identified PCD
loans. As discussed in Note 1, the adoption of ASC 326 impacted the way in which the allowance for credit losses is determined
for acquired loans. Prior to the Legacy Cadence merger, on January 1, 2020, Legacy Cadence also adopted ASC 326 through
the development of multiple current expected credit loss models (“ECL Model”) which segmented Legacy Cadence’s loan and
lease portfolio by borrower and loan type to estimate lifetime expected credit losses for loans and leases. Within each ECL
Model, loans and leases were further segregated based on additional risk characteristics specific to that loan or lease type and
the ECL Models used both internal and external historical loss data, as appropriate.
While there were significant similarities in the manner of adoption of ASC 326 by Legacy BXS and Legacy Cadence,
numerous steps were taken to align the Legacy Cadence process to ensure that the ACL reported at the time of the Legacy
Cadence merger in the table above and in all subsequent reporting periods is consistent with the ACL policies as outlined in
Note 1 – Summary of Significant Accounting Policies and Note 5 – Allowance for Credit Losses. This included conforming
certain Legacy Cadence assumptions (e.g., the reasonable and supportable forecast of future economic conditions and the
reasonable and supportable forecast period, among others) to that of Legacy BXS. This was accomplished primarily through
qualitative adjustments for alignment.
Intangible assets: Core deposit intangible asset represents the value of the relationships with deposit clients. The fair
value for the core deposit intangible asset was estimated based on a discounted cash flow methodology that gave appropriate
consideration to expected client attrition rates, net maintenance cost of the deposit base, alternative costs of funds, and the
interest costs associated with the client deposits. The core deposit intangible asset is being amortized over its estimated useful
life of approximately ten years utilizing an accelerated method. Client relationship intangibles are valued using a discounted
cash flow methodology that reflects the estimated value of the future net earnings from the relationships which includes
adjustments for estimated attrition. See Note 8 for additional information. Trade name assets are valued through the application
of a relief-from-royalty method, which presumes a trade name owner would license the rights to use the trade name and would
recognize revenues based on its use.
ROU Assets and Lease Liabilities: ROU assets and lease liabilities were measured using a methodology that involved
estimating the future rental payments over the remaining lease term with discounting using a fully-collateralized discount rate.
114
The lease term was determined for individual leases based on management’s assessment of the probability of exercising
existing renewal options. The net effect of any off-market terms in a lease were also discounted and applied to the balance of
the lease asset.
Premises: Land and buildings held for use were valued at appraised values, which reflect considerations of recent
disposition values for similar property types with adjustments for characteristics of individual properties.
Deposits: The fair values used for the demand and savings deposits by definition equal the amount payable on demand
at the acquisition date. Fair values for time deposits were estimated using a discounted cash flow analysis applying the
prevailing market interest rates currently offered to the contractual interest rates on such time deposits resulting in a $3.4
million premium to be accreted over a two-year period.
Borrowings: The fair value of the subordinated debentures were estimated using a discounted cash flow calculation
that used recent issuance rates for similar notes offerings for similar sized issuers.
The impact on the income statement resulting from the changes to the estimated fair values was insignificant. The
finalization of these analyses through the measurement period did not significantly impact the income statement.
Cadence’s operating results for the year ended December 31, 2021 include the operating results of the acquired assets
and assumed liabilities of Legacy Cadence subsequent to the merger transaction on October 29, 2021. Due to various system
conversions of Legacy Cadence during the fourth quarter of 2021, as well as other streamlining and integration of the operating
activities into those of the Company, historical reporting for the Legacy Cadence operations is impracticable and thus
disclosures of the revenue from the assets acquired and income before income taxes is impracticable for the period subsequent
to acquisition.
The following table presents certain unaudited pro forma information for the results of operations for the years ended
December 31, 2021 and 2020, as if Legacy Cadence had been acquired on January 1, 2020. The pro forma results combine the
historical results of Legacy Cadence into the Company’s consolidated revenue and net income available to common
shareholders including the impact of certain acquisition accounting adjustments including loan discount accretion, investment
securities discount accretion, intangible assets amortization and deposit premium accretion. The pro forma results have been
prepared for comparative purposes only and are not necessarily indicative of what would have occurred had the acquisition
taken place on January 1, 2020. No assumptions have been applied to the proforma results of operations regarding possible
revenue enhancements, provision for credit losses, expense efficiencies or asset dispositions. Merger-related costs of $59.9
million recorded by the Company and $56 million recorded by Legacy Cadence in 2021 are not included in the pro forma
statements below.
(In thousands)
Total revenues (net interest income and noninterest income) (1)
Net income available to common shareholders (2)
Pro Forma Information for the Years Ended
December 31, 2021
December 31, 2020
$
1,799,458 $
534,050
1,952,681
16,121
(1)
(2)
Includes accelerated hedge revenue of $169.2 million in Noninterest income, $129.5 million after tax that was recognized by Legacy
Cadence in 2020.
Includes the non-cash goodwill impairment charge of $443.7 million in noninterest expense, $412.9 million after-tax that was recognized
by Legacy Cadence in 2020.
Merger-related expenses of $51.2 million and $59.9 million incurred during 2022 and 2021, respectively, are recorded
in the consolidated income statement and include incremental costs related to the closing of the transactions, including legal,
accounting and auditing, investment banker fees, certain employment related costs, travel, printing, supplies, and other costs.
Branch Divestitures
In December 2021, Cadence Bank completed the divestiture of seven branches to satisfy regulatory requirements in
connection with the Legacy Cadence merger. The branches were located in Mississippi. There were $41 million in loans and
leases and $410 million in deposits divested in this transaction.
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NOTE 3. AVAILABLE-FOR-SALE SECURITIES AND EQUITY SECURITIES
The amortized cost, unrealized gains and losses, and estimated fair value of available-for-sale securities are presented
in the following tables:
(In thousands)
December 31, 2022
U.S. Treasury securities
Obligations of U.S. government agencies
Mortgage-backed securities issued or guaranteed by U.S.
agencies (MBS)
Residential pass-through:
Guaranteed by GNMA
Issued by FNMA and FHLMC
Other residential mortgage-backed securities
Commercial MBS
Total MBS
Obligations of states and political subdivisions
Other domestic debt securities
Foreign debt securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
1,514,494 $
1,581,308
— $
1,111
55,981 $
105,292
1,458,513
1,477,127
96,734
7,236,386
201,781
2,142,622
9,677,523
563,755
88,914
54,906
6
72
1
336
415
147
—
—
1,673 $
12,372
961,488
33,330
261,105
1,268,295
97,900
6,196
4,813
84,368
6,274,970
168,452
1,881,853
8,409,643
466,002
82,718
50,093
1,538,477 $ 11,944,096
Total available-for-sale securities
$ 13,480,900 $
(In thousands)
December 31, 2021
U.S Treasury securities
Obligations of U.S. government agencies
Mortgage-backed securities issued or guaranteed by U.S.
agencies (MBS)
Residential pass-through:
Guaranteed by GNMA
Issued by FNMA and FHLMC
Other residential mortgage-backed securities
Commercial mortgage-backed securities
Total MBS
Obligations of states and political subdivisions
Other domestic debt securities
Foreign debt securities
Total available-for-sale securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$ 1,497,169 $
2,623,356
124 $
22,618
828 $ 1,496,465
2,638,442
7,532
113,028
8,233,875
244,440
2,076,494
10,667,837
560,458
62,693
295,643
$ 15,707,156 $
1,073
1,556
155
12,979
15,763
5,948
971
63
45,487 $
674
106,240
1,238
28,340
136,492
886
19
416
113,427
8,129,191
243,357
2,061,133
10,547,108
565,520
63,645
295,290
146,173 $ 15,606,470
For available-for-sale securities, gross gains of $317 thousand and gross losses of $835 thousand were recognized in
2022, gross gains of $383 thousand and gross losses of $514 thousand were recognized in 2021, and gross gains of $88
thousand and no gross losses were recognized in 2020. There were no impairment charges related to credit losses included in
gross realized losses for the years ended December 31, 2022, 2021, and 2020. Available-for-sale securities with a carrying
value of $9.2 billion and $5.1 billion at December 31, 2022 and December 31, 2021, respectively, were pledged to secure public
and trust funds on deposit and for other purposes. There were no securities held for trading at December 31, 2022 and
December 31, 2021. Proceeds from the sales of securities available-for-sale totaled $369.6 million in 2022, $564.0 million in
2021, and $147.6 million in 2020.
116
The amortized cost and estimated fair value of available-for-sale securities at December 31, 2022 by contractual
maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
(In thousands)
Maturing in one year or less
Maturing after one year through five years
Maturing after five years through ten years
Maturing after ten years
Mortgage-backed securities
Total available-for-sale securities
Amortized
Cost
Estimated
Fair Value
$
$
2,330,041 $
571,793
271,777
629,766
9,677,523
13,480,900 $
2,261,162
516,859
248,951
507,481
8,409,643
11,944,096
At December 31, 2022 and December 31, 2021, approximately 98.6% and 73.7% of securities were in an unrealized
loss position, respectively. At December 31, 2022, there were 758 securities that have been in a loss position for more than
twelve months, and 470 securities that have been in a loss position for less than twelve months. A summary of available-for-
sale investments with continuous unrealized loss positions for which an allowance for credit losses has not been recorded
follows:
(In thousands)
December 31, 2022
U.S. Treasury securities
U.S. government agency securities
Mortgage-backed securities
Obligations of states and political subdivisions
Other domestic debt securities
Foreign debt securities
Less Than 12 Months
Fair
Value
Unrealized
Losses
12 Months or Longer
Fair
Value
Unrealized
Losses
$
496,403 $
959,715
1,170,212
391,025
53,639
—
19,472 $
53,576
122,598
84,152
4,672
—
36,509
962,110 $
51,716
467,758
1,145,697
7,161,803
13,748
57,019
1,524
8,079
4,813
50,093
284,470 $ 8,706,862 $ 1,254,007
Total available-for-sale securities at a loss
$ 3,070,994 $
(In thousands)
December 31, 2021
U.S Treasury securities
U.S. government agency securities
Mortgage-backed securities
Obligations of states and political subdivisions
Other domestic debt securities
Foreign debt securities
Total available-for-sale securities at a loss
Less Than 12 Months
Fair
Value
Unrealized
Losses
12 Months or Longer
Fair
Value
Unrealized
Losses
$
996,290 $
574,877
9,614,551
74,629
24,616
205,227
$ 11,490,190 $
828 $
7,532
136,320
886
19
416
146,001 $
— $
—
5,815
—
—
—
5,815 $
—
—
172
—
—
—
172
Management evaluates available-for-sale securities in unrealized loss positions to determine whether the impairment is
due to credit-related factors or noncredit-related factors. Credit loss is defined as the difference between the present value of the
cash flows expected to be collected and the amortized cost basis. Based upon a review of the credit quality of these securities,
management has no intent to sell these securities until the full recovery of unrealized losses, which may not be until maturity,
and it is more likely than not that the Company would not be required to sell the securities prior to recovery of costs. The fair
value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such
investments decline. Management believes that the unrealized losses detailed in the previous tables are due to noncredit-related
factors, such as changes in interest rates and other market conditions. Therefore, no allowance for credit losses was recorded
related to these securities at December 31, 2022 and December 31, 2021. No unrealized losses were recorded into income
during 2022, 2021, and 2020. See Note 26, Subsequent Events.
117
Held in other assets, equity investments with readily determinable fair values not held for trading are recorded at fair
value, with changes in fair value reported in net income. Additionally, the Company holds equity investments without readily
determinable fair values in other assets. These investments include an investment in common stock of the FHLB of Dallas. The
Company is required to own stock in the FHLB of Dallas for membership in the FHLB system and in relation to the level of
FHLB advances. The Company accounts for this investment as a long-term asset and carries it at cost. There are also several
investments in other financial service providers that qualify under the Community Reinvestment Act and to obtain
correspondent services.
(In thousands)
December 31, 2022
Equity securities held at cost:
Equity securities
Federal Home Loan Bank stock
Total equity securities, held at cost
Equity securities held at fair value:
Farmer Mac stock
Affordable Housing MBS Exchange Traded Fund
Total equity securities, held at fair value
(In thousands)
December 31, 2021
Equity securities held at cost:
Equity securities
Federal Home Loan Bank stock
Total equity securities, held at cost
Equity securities held at fair value:
Farmer Mac stock
Affordable Housing MBS Exchange Traded Fund
Total equity securities, held at fair value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
Fair Value
18,102 $
134,356
152,458 $
49 $
24,994
25,043 $
— $
—
— $
295 $
—
295 $
— $
—
— $
18,102
134,356
152,458
— $
3,685
3,685 $
344
21,309
21,653
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Cost
Fair Value
13,102 $
8,301
21,403 $
49 $
24,994
25,043 $
— $
—
— $
343 $
—
343 $
— $
—
— $
— $
462
462 $
13,102
8,301
21,403
392
24,532
24,924
$
$
$
$
$
$
$
$
118
NOTE 4. LOANS AND LEASES
The following table is a summary of our loan and lease portfolio aggregated by segment and class at the periods
indicated:
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned income (1)
December 31, 2022
December 31, 2021
$
$
8,985,547 $
4,068,659
13,054,206
3,547,986
5,150,680
8,698,666
8,319,242
277,163
8,596,405
30,349,277 $
7,847,473
3,567,746
11,415,219
2,924,343
4,924,369
7,848,712
7,311,306
307,751
7,619,057
26,882,988
(1) Total loans and leases are net of $100.8 million and $103.2 million of unearned income at December 31, 2022 and 2021, respectively.
The Company engages in lending to consumers, small and medium-sized business enterprises and government entities
through its community banking locations and to regional and national business enterprises through its corporate banking
division. The bank acts as agent or participant in Shared National Credits (“SNC”) and other financing arrangements with other
financial institutions. Loans are issued generally to finance home purchases and improvements, personal expenditures, business
investment and operations, construction and development and income producing properties. Loans are underwritten to be repaid
primarily by available cash flow from personal income, investment income, business operations, rental income or the sale of
developed or constructed properties. Collateral and personal guaranties of business owners are generally required as a condition
of the financing arrangements and provide additional cash flow and proceeds from asset sales of guarantors in the event primary
sources of repayment are no longer sufficient.
While loans are structured to provide protection to the Company if borrowers are unable to repay as agreed, the
Company recognizes that there are numerous risks that may result in deterioration of the repayment ability of borrowers and
guarantors. These risks include failure of business operations due to economic, legal, market, logistical, weather, health,
governmental and force majeure events. Concentrations in the Company’s loan and lease portfolio also present credit risks. The
economic impact of rising inflation, rising interest rates, labor and supply chain shortages, combined with the remaining
disruption resulting from the coronavirus (“COVID-19”) pandemic and the potential for a slowing economy poses additional
risk to borrowers and financial institutions. As a result of these factors, there is risk for businesses to experience difficulty in
meeting repayment obligations, and the Company may experience losses or deterioration in performance in its loan portfolio.
The Company has identified the following pools of loans and leases with similar risk characteristics for measuring
expected credit losses:
Commercial and Industrial (“C&I”)
Non-Real Estate – Commercial and industrial loans are loans and leases to finance business operations, equipment and
owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit for terms of one
year or less and term loans which are amortized over the useful life of the assets financed. Personal and/or corporate guarantees
are generally obtained where available and prudent. This category also includes loans to finance agricultural production. The
Company recognizes that risk from economic cycles, commodity prices, pandemics, government regulation, supply-chain
disruptions, product innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or
embezzlement, health or loss of key personnel or competitive situations may adversely affect the scheduled repayment of
business loans. In addition, risks in the agricultural sector including crop failures due to weather, insects and other blights,
commodity prices, governmental intervention, lawsuits, labor or logistical disruptions.
119
Owner Occupied – Owner occupied loans include loans secured by business facilities to finance business operations,
equipment and owner-occupied facilities primarily for small and medium-sized enterprises. These include both lines of credit
for terms of one year or less and term loans which are amortized over the useful life of the assets financed. Personal guarantees,
if applicable, are generally required for these loans. The Company recognizes that risk from economic cycles, pandemics,
government regulation, supply-chain disruptions, product innovations or obsolescence, operational errors, lawsuits, natural
disasters, losses due to theft or embezzlement, health or loss of key personnel or competitive situations may adversely affect the
scheduled repayment of business loans.
Commercial Real Estate (“CRE”)
Construction, Acquisition, and Development – Construction, acquisition and development loans include both loans and
credit lines for the purpose of purchasing, carrying and developing land into commercial developments or residential
subdivisions. This category also includes loans and credit lines for construction of residential, multi-family and commercial
buildings. The Company generally engages in construction and development lending primarily in local markets served by its
branches. The Company recognizes that risks are inherent in the financing of real estate development and construction. These
risks include location, market conditions and price volatility, demand for developed land, lots and buildings, desirability of
features and styling of completed developments and buildings, competition from other developments and builders, traffic
patterns, governmental jurisdiction, tax structure, availability of utilities, roads, public transportation and schools, interest rates,
availability of permanent financing for homebuyers, zoning, environmental restrictions, lawsuits, economic and business cycle,
labor and reputation of the builder or developer.
The underwriting process for construction, acquisition and development loans with interest reserves is essentially the
same as that for a loan without interest reserves and may include analysis of borrower and guarantor financial strength, market
demand for the proposed project, experience and success with similar projects, property values, time horizon for project
completion and the availability of permanent financing once the project is completed. Construction, acquisition and
development loans, with or without interest reserves, are inspected periodically to ensure that the project is on schedule and
eligible for requested draws. Inspections may be performed by construction inspectors hired by the Company or by appropriate
loan officers and are conducted periodically to monitor the progress of a particular project. These inspections may also include
discussions with project managers and engineers.
Each construction, acquisition and development loan is underwritten to address: (i) the desirability of the project, its
market viability and projected absorption period; (ii) the creditworthiness of the borrower and the guarantor as to liquidity, cash
flow and assets available to ensure performance of the loan; (iii) equity contribution to the project; (iv) the developer’s
experience and success with similar projects; and (v) the value of the collateral.
A substantial portion of construction, acquisition and development loans are secured by real estate in markets in which
the Company is located. The Company’s loan policy generally prohibits loans for the sole purpose of carrying interest reserves.
Certain of the construction, acquisition and development loans were structured with interest-only terms. A portion of the
residential mortgage and commercial real estate portfolios were originated through the permanent financing of construction,
acquisition and development loans. Rising interest rates and the potential for slowing economic conditions could negatively
impact borrowers’ and guarantors’ ability to repay their debt which would make more of the Company’s loans collateral-
dependent.
Income Producing – Commercial real estate loans include loans to finance income-producing commercial and multi-
family properties. Lending in this category is generally limited to properties located in the Company’s market area with only
limited exposure to properties located elsewhere but owned by in-market borrowers. Loans in this category include loans for
neighborhood retail centers, medical and professional offices, single retail stores, warehouses and apartments leased generally
to local businesses and residents. The underwriting of these loans takes into consideration the occupancy and rental rates as well
as the financial health of the borrower. The Company’s exposure to national retail tenants is limited. The Company has not
purchased commercial real estate loans from brokers or third-party originators. The Company recognizes that risk from
economic cycles, pandemics, government restrictions, delayed or missed rent payments, supply-chain disruptions, product
innovations or obsolescence, operational errors, lawsuits, natural disasters, losses due to theft or embezzlement, health or loss of
key personnel or competitive situations may adversely affect the scheduled repayment of business loans.
Consumer
Residential Mortgages – Residential mortgages are first or second-lien loans to consumers secured by a primary
residence or second home. This category includes traditional mortgages, home equity loans and revolving lines of credit. The
loans are generally secured by properties located within the local market area of the community bank which originates and
120
services the loan. These loans are underwritten in accordance with the Company’s general loan policies and procedures which
require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history and
property value. In addition to loans originated through the Company’s branches, the Company originates and services
residential mortgages sold in the secondary market which are underwritten and closed pursuant to investor and agency
guidelines. At December 31, 2022 and December 31, 2021, residential mortgage loans in process of foreclosure totaled
$4.6 million and $2.2 million, respectively. Additionally, the Company held $2.1 million and $3.2 million in foreclosed
residential properties at December 31, 2022 and 2021, respectively.
Other Consumer – Other consumer lending includes consumer credit cards as well as personal revolving lines of credit
and installment loans. The Company offers credit cards, primarily to its deposit and loan customers. Consumer installment
loans and leases include term loans secured by automobiles, boats and recreational vehicles.
The Company recognizes there are risks in consumer lending which include interruptions in the borrower’s personal
and investment income due to loss of employment, market conditions, and general economic conditions, deterioration in the
health and well-being of the borrower and family members, natural disasters, pandemics, lawsuits, losses or inability to
generate income due to injury, accidents, theft, vandalism or incarceration.
The following tables provide details regarding the aging of the Company’s loan and lease portfolio, net of unearned
income, at the periods indicated:
December 31, 2022
30-59
Days
Past Due
60-89
Days
Past Due
90+ Days
Past Due
Total
Past Due
Current
Total
Amortized
Cost
90+ Days
Past Due
still
Accruing
$
4,858 $
4,993 $
13,789 $
23,640 $ 8,961,907 $ 8,985,547 $
3,134
7,992
804
5,797
5,268
19,057
9,206
32,846
4,059,453
13,021,360
4,068,659
13,054,206
5,899
4,459
10,358
37,635
1,418
39,053
286
—
286
1,171
6,935
8,106
7,356
3,540,630
3,547,986
11,394
5,139,286
5,150,680
18,750
8,679,916
8,698,666
12,255
47,717
97,607
8,221,635
8,319,242
420
798
2,636
274,527
277,163
12,675
48,515
100,243
8,496,162
8,596,405
412
20
432
—
—
—
1,440
196
1,636
$
57,403 $
18,758 $
75,678 $ 151,839 $ 30,197,438 $ 30,349,277 $
2,068
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of
unearned income
121
December 31, 2021
30-59
Days
Past Due
60-89
Days
Past Due
90+ Days
Past Due
Total
Past Due
Current
Total
Amortized
Cost
90+ Days
Past Due
still
Accruing
1,375
6,305
1,628
188
1,816
53,914
1,458
55,372
$
4,930 $
3,652 $
18,293 $
26,875 $ 7,820,598 $ 7,847,473 $
123
3,775
9,489
27,782
10,987
37,862
3,556,759
11,377,357
3,567,746
11,415,219
5,109
904
6,013
6,039
10,370
16,409
12,776
2,911,567
2,924,343
11,462
4,912,907
4,924,369
24,238
7,824,474
7,848,712
2,966
—
2,966
535
—
535
12,896
52,857
119,667
7,191,639
7,311,306
21,099
575
449
2,482
305,269
307,751
184
13,471
53,306
122,149
7,496,908
7,619,057
21,283
$
63,493 $
23,259 $
97,497 $ 184,249 $ 26,698,739 $ 26,882,988 $
24,784
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of
unearned income
Past due loans held-for-sale past due 90 days or more totaled $71.4 million and $91.9 million at December 31, 2022
and 2021, respectively. These loans are not included in the tables above. The Company did not exercise its buy-back option on
any delinquent loans serviced for Government National Mortgage Association (”GNMA”) during 2022 or 2021 (see Note 1 for
additional information).
The Company utilizes an internal loan classification system that is perpetually updated to grade loans according to
certain credit quality indicators. These credit quality indicators include, but are not limited to, recent credit performance,
delinquency, liquidity, cash flows, debt coverage ratios, collateral type and loan-to-value ratio. The Company’s internal loan
classification system is compatible with classifications used by regulatory agencies. Loans may be classified as follows:
Pass: Loans which are performing as agreed with few or no signs of weakness. These loans show sufficient cash flow,
capital and collateral to repay the loan as agreed.
Special Mention: Loans where potential weaknesses have developed which could cause a more serious problem if not
corrected.
Substandard: Loans where well-defined weaknesses exist that require corrective action to prevent further deterioration.
Loans are further characterized by the possibility that the Company will sustain some loss if the deficiencies are not
corrected.
Doubtful: Loans having all the characteristics of Substandard and which have deteriorated to a point where collection
and liquidation in full is highly questionable.
Loss: Loans that are considered uncollectible or with limited possible recovery.
Impaired: An internal grade for individually analyzed collateral-dependent loans for which a specific provision has
been considered to address the unsupported exposure.
Purchased Credit Deteriorated (Loss): An internal grade for loans with evidence of deterioration of credit quality since
origination that are acquired, and for which it is probable, at acquisition, that the bank will be unable to collect all
contractually required payments receivable.
122
The following tables provide details of the Company’s loan and lease portfolio, net of unearned income, by segment,
class and internally assigned grade at the periods indicated:
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Pass
Special
Mention
Substandard
Doubtful
Impaired
PCD (Loss)
Total
December 31, 2022
$ 8,735,337 $
37,389 $ 205,246 $
— $
3,375 $
4,200 $ 8,985,547
4,024,179
12,759,516
3,498,990
5,035,880
8,534,870
8,159,904
272,182
8,432,086
6,062
43,451
18,667
27,330
45,997
232
—
232
32,912
238,158
23,073
68,948
92,021
157,532
4,981
162,513
—
—
—
—
—
—
—
—
3,824
7,199
1,682
4,068,659
5,882
13,054,206
—
—
—
—
—
—
7,256
18,522
25,778
3,547,986
5,150,680
8,698,666
1,574
8,319,242
—
277,163
1,574
8,596,405
Total loans and leases, net of unearned income
$ 29,726,472 $
89,680 $ 492,692 $
— $
7,199 $
33,234 $ 30,349,277
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Pass
Special
Mention
Substandard
Doubtful
Impaired
PCD (Loss)
Total
December 31, 2021
$ 7,655,502 $
43,009 $ 103,134 $
153 $
5,350 $
40,325 $ 7,847,473
3,484,116
11,139,618
2,884,673
4,686,699
7,571,372
7,196,106
300,175
7,496,281
3,440
46,449
441
28,964
29,405
990
—
990
55,247
158,381
31,263
174,936
206,199
110,429
7,381
117,810
—
153
—
—
—
2,560
137
2,697
11,229
16,579
13,714
3,567,746
54,039
11,415,219
3,765
3,810
7,575
1,047
—
1,047
4,201
29,960
34,161
174
58
232
2,924,343
4,924,369
7,848,712
7,311,306
307,751
7,619,057
Total loans and leases, net of unearned income
$ 26,207,271 $
76,844 $ 482,390 $
2,850 $
25,201 $
88,432 $ 26,882,988
The following tables provide credit quality indicators by class and period of origination (vintage) at December 31, 2022:
Commercial and Industrial - Non-Real Estate
Period Originated:
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Converted to
Term
Revolving
Loans
Total
Pass
$ 1,780,736
$ 1,513,306
$ 445,480
$ 375,963
$ 301,582
$ 592,688
$ 3,693,197
$
32,385
$ 8,735,337
Special Mention
Substandard
Impaired
PCD (Loss)
Total
% Criticized
—
3,682
1,250
—
—
18,026
18
—
1,160
19,929
53
—
14,969
9,358
21
—
8,860
29,993
—
—
—
40,890
—
4,200
12,400
83,172
2,033
—
—
196
—
—
37,389
205,246
3,375
4,200
$ 1,785,668
$ 1,531,350
$ 466,622
$ 400,311
$ 340,435
$ 637,778
$ 3,790,802
$
32,581
$ 8,985,547
0.3 %
1.2 %
4.5 %
6.1 %
11.4 %
7.1 %
2.6 %
0.6 %
2.8 %
123
Commercial and Industrial - Owner Occupied
Period Originated:
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Converted to
Term
Revolving
Loans
Total
Pass
$ 887,282
$ 897,011
$ 529,784
$ 347,760
$ 370,115
$ 890,804
$ 95,549
$
5,874
$ 4,024,179
Special Mention
Substandard
Impaired
PCD (Loss)
Total
% Criticized
—
332
—
—
—
1,102
—
—
59
979
—
—
356
8,382
1,305
1,134
978
5,356
—
—
4,669
16,653
2,519
548
—
108
—
—
—
—
—
—
6,062
32,912
3,824
1,682
$ 887,614
$ 898,113
$ 530,822
$ 358,937
$ 376,449
$ 915,193
$ 95,657
$
5,874
$ 4,068,659
— %
0.1 %
0.2 %
3.1 %
1.7 %
2.7 %
0.1 %
— %
1.1 %
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Converted to
Term
Revolving
Loans
Construction, Acquisition, & Development
Period Originated:
Pass
$ 1,426,054
$ 1,431,297
$ 328,225
$ 107,202
$ 34,368
$ 58,459
$ 113,385
$
Special Mention
Substandard
PCD (Loss)
Total
% Criticized
—
947
—
18,667
18,776
7,256
—
—
—
—
1,290
—
—
1,196
—
—
723
—
—
141
—
$ 1,427,001
$ 1,475,996
$ 328,225
$ 108,492
$ 35,564
$ 59,182
$ 113,526
$
0.1 %
3.0 %
— %
1.2 %
3.4 %
1.2 %
0.1 %
— %
1.4 %
Total
$ 3,498,990
18,667
23,073
7,256
$ 3,547,986
—
—
—
—
—
Commercial Real Estate - Income Producing
Period Originated:
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Converted to
Term
Revolving
Loans
Total
Pass
$ 1,132,359
$ 910,756
$ 574,920
$ 647,854
$ 549,030
$ 1,091,693
$ 113,948
$
15,320
$ 5,035,880
Special Mention
Substandard
PCD (Loss)
Total
% Criticized
—
—
—
11,624
2,006
—
928
196
—
—
15,919
14,309
7,283
1,489
—
7,495
45,338
4,213
—
4,000
—
—
—
—
27,330
68,948
18,522
$ 1,132,359
$ 924,386
$ 576,044
$ 678,082
$ 557,802
$ 1,148,739
$ 117,948
$
15,320
$ 5,150,680
— %
1.5 %
0.2 %
4.5 %
1.6 %
5.0 %
3.4 %
— %
2.2 %
Consumer - Residential Mortgages
Period Originated:
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Converted to
Term
Revolving
Loans
Total
Pass
$ 2,015,348
$ 1,737,985
$ 1,183,683
$ 601,178
$ 562,674
$ 1,141,054
$ 916,542
$
1,440
$ 8,159,904
Special Mention
Substandard
PCD (Loss)
Total
% Criticized
—
5,944
—
—
—
232
—
18,371
27,775
27,569
23,384
—
—
—
—
—
44,310
1,574
—
10,179
—
—
—
—
232
157,532
1,574
$ 2,021,292
$ 1,756,356
$ 1,211,458
$ 628,979
$ 586,058
$ 1,186,938
$ 926,721
$
1,440
$ 8,319,242
0.3 %
1.0 %
2.3 %
4.4 %
4.0 %
3.9 %
1.1 %
— %
1.9 %
124
Consumer - Other Consumer
Period Originated:
(In thousands)
2022
2021
2020
2019
2018
Prior
Revolving
Loans
$ 49,957
$ 27,269
$ 16,891
$
9,744
$
3,752
$
8,043
$ 156,526
924
1,160
653
715
426
206
897
$ 50,881
$ 28,429
$ 17,544
$ 10,459
$
4,178
$
8,249
$ 157,423
Pass
Substandard
Total
% Criticized
Revolving
Loans
Converted to
Term
$
$
—
—
—
Total
$ 272,182
4,981
$ 277,163
1.8 %
4.1 %
3.7 %
6.8 %
10.2 %
2.5 %
0.6 %
— %
1.8 %
In connection with the acquisitions discussed in Note 2, the Company acquired loans both with and without evidence
of credit quality deterioration since origination. Acquired loans are recorded at their fair value at the time of acquisition with no
carryover from the acquired institution’s previously recorded allowance for credit losses. Acquired loans are accounted for
under ASC 326, Financial Instruments—Credit Losses.
The fair value for acquired loans recorded at the time of acquisition is based upon several factors including the timing
and payment of expected cash flows, as adjusted for estimated credit losses and prepayments, and then discounting these cash
flows using comparable market rates. The resulting fair value adjustment is recorded in the form of premium or discount to the
unpaid principal balance of each acquired loan. As it relates to acquired loans that, as of the date of acquisition, have
experienced a more-than-insignificant deterioration in credit quality since origination, the net premium or net discount is
adjusted to reflect the Company’s allowance for credit losses (“ACL”) recorded for PCD loans at the time of acquisition, and
the remaining fair value adjustment is accreted or amortized into interest income over the remaining life of the loan. As it
relates to acquired loans not classified as PCD (“non-PCD”) loans, the credit loss and yield components of the fair value
adjustment are aggregated, and the resulting net premium or net discount is accreted or amortized into interest income over the
remaining life of the loan. The Company records an ACL for non-PCD loans at the time of acquisition through provision
expense, and therefore, no further adjustments are made to the net premium or net discount for non-PCD loans.
In addition, a grade is assigned to each loan during the valuation process. For acquired loans that are not individually
reviewed during the valuation process, such loans are assumed to have characteristics similar to the assigned rating of the
acquired institution’s risk rating, adjusted for any estimated differences between the Company’s rating methodology and the
acquired institution’s rating methodology.
In the acquisition of Legacy Cadence on October 29, 2021, the Company acquired additional loans (see Note 2 for
additional information). The following table represents the acquisition date fair value of loans purchased through the acquisition
of Legacy Cadence by portfolio segment, including measurement period adjustments recorded through October 28, 2022:
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
$
Fair Value
5,554,007
817,556
6,371,563
1,067,155
1,590,144
2,657,299
2,495,541
86,813
2,582,354
Total loans, leases, and loans held for sale, net of discounts
$
11,611,216
125
The estimated fair value of the non-PCD loans acquired in the Legacy Cadence transaction was $11.6 billion, which is
net of a $56.5 million discount. The gross contractual amounts receivable of the acquired non-PCD loans at acquisition was
approximately $12.1 billion, of which $111.0 million is the amount of contractual cash flows not expected to be collected.
The Company purchased loans through the acquisition of Legacy Cadence for which there was, at the date of
acquisition, more than insignificant deterioration of credit quality since origination. The carrying amount of those loans at
acquisition date was as follows:
(In thousands)
Purchase price of loans at acquisition
Allowance for credit losses at acquisition
Non-credit discount (premium) at acquisition
Par value of acquired loans at acquisition
Carrying Amount
$
$
313,109
56,459
24,857
394,425
The Company’s collateral-dependent loans totaling $40.4 million and $113.6 million at December 31, 2022 and 2021,
respectively, includes loans internally classified as impaired and PCD Loss. At December 31, 2022, most of these loans are
within the income producing, non-real estate, construction, acquisition, and development, and owner occupied classes.
Additionally, there were a small amount of these loans in residential mortgages. C&I loans are typically supported by collateral
such as real estate, receivables, equipment, inventory, or by an enterprise valuation. Loans within the CRE and Consumer
segments are generally secured by commercial and residential real estate.
Loans of $1.0 million or greater are considered for specific provision when management has determined based on
current information and events, it is probable that the creditor will be unable to collect all amounts due according to the
contractual terms of the note and that the loan is collateral-dependent. At December 31, 2022 and 2021, $31.3 million and
$92.5 million, respectively, of collateral-dependent loans had a valuation allowance of $4.5 million and $24.8 million,
respectively. The remaining balance of collateral-dependent loans of $9.1 million and $21.2 million at December 31, 2022 and
2021, respectively, have sufficient collateral supporting the collection of all contractual principal and interest or were charged
down to the underlying collateral’s fair value, less estimated selling costs. Therefore, such loans did not have an associated
valuation allowance.
Nonperforming loans (“NPL”) consist of nonaccrual loans and leases, loans and leases 90 days or more past due and
still accruing, and loans and leases that have been restructured because of the borrower's weakened financial condition. The
following table presents information concerning NPL at the periods indicated:
(In thousands)
Nonaccrual loans and leases
Loans and leases 90 days or more past due, still accruing
Restructured loans and leases, still accruing
Total NPL
December 31, 2022
$
98,745 $
2,068
8,598
109,411 $
December 31, 2021
122,104
24,784
6,903
153,791
$
The Company’s policy for all loan classifications provides that loans and leases are generally placed in nonaccrual
status if, in management’s opinion, payment in full of principal or interest is not expected or payment of principal or interest is
more than 90 days past due, unless such loan or lease is both well-secured and in the process of collection.
126
The following table presents the amortized cost basis of loans on nonaccrual status and loans 90 days or more past due
by segment and class at the periods indicated:
December 31, 2022
December 31, 2021
Nonaccrual
Loans
Nonaccrual
Loans with
No Related
Allowance
Loans 90+
Days Past
Due, still
Accruing
Nonaccrual
Loans
Nonaccrual
Loans with
No Related
Allowance
Loans 90+
Days Past
Due, still
Accruing
$
23,907 $
7,944
31,851
58 $
1,819
1,877
412 $
20
432
33,690 $
22,058
55,748
1,171 $
4,110
5,281
2,974
7,331
10,305
55,892
697
56,589
—
—
—
1,574
—
1,574
—
—
—
1,440
196
1,636
5,568
16,086
21,654
44,180
522
44,702
—
5,397
5,397
1,047
—
1,047
2,966
—
2,966
535
—
535
21,099
184
21,283
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned
income
$
98,745 $
3,451 $
2,068 $
122,104 $
11,725 $
24,784
The gross interest income which would have been recorded under the original terms of nonaccrual loans and leases
amounted to $7.0 million, $4.9 million, and $9.6 million in 2022, 2021, and 2020, respectively. The following table presents the
interest income recognized on loans on nonaccrual status by segment and class for the periods indicated:
$
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned income
$
2022
Year Ended December 31,
2021
2020
710 $
683
1,393
133
90
223
1,925
90
2,015
3,631 $
349 $
1,207
1,556
196
920
1,116
1,020
97
1,117
3,789 $
190
778
968
49
323
372
1,016
50
1,066
2,406
In the normal course of business, management may grant concessions, which would not otherwise be considered, to
borrowers that are experiencing financial difficulty. Loans identified as meeting the criteria set out in FASB ASC 310 are
identified as TDRs. In most cases, the conditions of the credit also warrant nonaccrual status, even after the restructure occurs.
Other conditions that warrant a loan being considered a TDR include reductions in interest rates to below market rates due to
bankruptcy plans or by the bank in an attempt to assist the borrower in working through liquidity problems, principal
forgiveness, term extension, other-than-insignificant payment delay or combination of concessions. As part of the credit
approval process, the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual
status at the time of restructure. TDRs recorded as nonaccrual loans may generally be returned to accrual status in years after
the restructure if the loan is paid current in accordance with the terms of the restructured loan. The most common concessions
granted include rescheduling payments of principal and interest over a longer amortization period, granting a period of reduced
127
principal payment or interest-only payment for a limited time period, or the rescheduling of payments in accordance with a
bankruptcy plan or a reduction in interest rates.
The following tables summarize the financial effect of TDRs for the periods indicated:
Year Ended December 31, 2022
Number of
Contracts
Pre-Modification
Outstanding
Amortized Cost
Post-Modification
Outstanding
Amortized Cost
(Dollars in thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
(Dollars in thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned income
165 $
12,476 $
Year Ended December 31, 2021
Number of
Contracts
Pre-Modification
Outstanding
Amortized Cost
Post-Modification
Outstanding
Amortized Cost
Total loans and leases, net of unearned income
39 $
4,158 $
9 $
9,323 $
1
10
1
1
2
27
126
153
832
10,155
65
—
65
1,969
287
2,256
6 $
403 $
6
12
1
3
4
20
3
23
492
895
3
1,857
1,860
1,359
44
1,403
8,937
766
9,703
64
—
64
1,963
275
2,238
12,005
400
490
890
3
1,819
1,822
1,352
44
1,396
4,108
128
(Dollars in thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of unearned income
Year Ended December 31, 2020
Pre-Modification
Outstanding
Amortized Cost
Post-Modification
Outstanding
Amortized Cost
Number of
Contracts
8 $
4
12
2
—
2
13
11
24
38 $
377 $
2,844
3,221
151
—
151
1,039
129
1,168
4,540 $
359
2,843
3,202
151
—
151
924
128
1,052
4,405
The following table summarizes TDRs restructured within the past 12 months for which there was a payment default
during the period indicated (i.e., 30 days or more past due at any given time during the prior year):
(Dollars in thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Total loans and leases, net of
unearned income
2022
Year Ended December 31,
2021
2020
Number of
Contracts
Amortized
Cost
Number of
Contracts
Amortized
Cost
Number of
Contracts
Amortized
Cost
4 $
2
6
—
—
—
14
3
17
622
98
720
—
—
—
1,040
13
1,053
2 $
—
2
—
1
1
8
3
11
55
—
55
—
30
30
446
35
481
3 $
1
4
178
2,465
2,643
1
—
1
4
1
5
26
—
26
202
3
205
23 $
1,773
14 $
566 $
10 $
2,874
During 2022, 2021, and 2020, the most common concessions involved rescheduling payments and/or reduction of
interest rates in accordance with a bankruptcy plan. Other concessions included reduction of interest rates, granting a period of
interest-only payments, or rescheduling payments over a longer amortization period.
129
NOTE 5. ALLOWANCE FOR CREDIT LOSSES
The following table summarizes the changes in the allowance for credit losses (“ACL”) for the periods indicated:
(In thousands)
Balance at beginning of year
Impact of adopting ASC 326
Charge-offs
Recoveries
Initial allowance on PCD loans (See Note 2)
Provision for credit losses
Balance at end of year
Year Ended December 31,
2021
2022
2020
$
$
446,415 $
—
(29,864)
29,913
(8,117)
2,000
440,347 $
244,422 $
—
(18,721)
24,035
75,124
121,555
446,415 $
119,066
62,634
(35,861)
8,357
4,226
86,000
244,422
The following tables summarize the changes in the ACL by segment and class for the periods indicated:
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Ending Balance
Year Ended December 31, 2022
Beginning
Balance
Charge-offs Recoveries
Initial ACL
on PCD
Loans
Provision
(Release)
Ending
Balance
$ 138,696 $
59,254
197,950
(17,874) $
(824)
(18,698)
14,165 $
2,292
16,457
— $
(551)
(551)
12,682 $ 147,669
35,548
(24,623)
183,217
(11,941)
52,530
98,327
150,857
(298)
(1,832)
(2,130)
4,352
3,521
7,873
—
(2,012)
(2,012)
12,318
(23,277)
(10,959)
68,902
74,727
143,629
85,734
11,874
97,608
$ 446,415 $
(1,430)
(7,606)
(9,036)
(29,864) $
3,017
2,566
5,583
29,913 $
(5,554)
—
(5,554)
(8,117) $
24,375
106,142
525
7,359
113,501
24,900
2,000 $ 440,347
130
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Ending Balance
Year Ended December 31, 2021
Beginning
Balance
Charge-offs Recoveries
Initial ACL
on PCD
Loans
Provision
Ending
Balance
$
31,906 $
35,488
67,394
(7,213) $
(1,912)
(9,125)
11,754 $
4,140
15,894
31,614 $
7,597
39,211
70,635 $ 138,696
59,254
13,941
197,950
84,576
28,891
64,291
93,182
(1,024)
(1,601)
(2,625)
1,831
1,262
3,093
6,323
14,932
21,255
16,509
19,443
35,952
52,530
98,327
150,857
70,493
13,353
83,846
$ 244,422 $
(1,509)
(5,462)
(6,971)
(18,721) $
2,424
2,624
5,048
24,035 $
85,734
317
14,009
11,874
710
649
14,658
97,608
1,027
75,124 $ 121,555 $ 446,415
(In thousands)
Commercial and industrial
Non-real estate
Owner occupied
Total commercial and
industrial
Commercial real estate
Construction, acquisition and
development
Income producing
Total commercial real estate
Consumer
Residential mortgages
Other consumer
Total consumer
Ending Balance
Beginning
Balance
Impact of
adopting
ASC 326
Year Ended December 31, 2020
Initial
ACL on
PCD
Loans
Recoveries
Charge-
offs
Provision
Ending
Balance
$ 19,509 $ 13,372 $ (17,201) $
(2,047)
10,608
15,563
1,705 $
1,554
1,043 $ 13,478 $ 31,906
35,488
8,619
1,191
35,072
23,980
(19,248)
3,259
2,234
22,097
67,394
12,912
22,297
35,209
1,091
12,891
13,982
(4,955)
(3,939)
(8,894)
545
439
984
—
1,920
1,920
19,298
30,683
49,981
28,891
64,291
93,182
38,762
10,023
48,785
(2,294)
26,937
(5,425)
(2,265)
(7,719)
24,672
$ 119,066 $ 62,634 $ (35,861) $
1,946
2,168
4,114
8,357 $
69
3
72
70,493
5,073
13,353
8,849
83,846
13,922
4,226 $ 86,000 $ 244,422
The following table represents a roll forward of the reserve for unfunded commitments for the periods shown. The
reserve for unfunded commitments is classified in other liabilities in the consolidated balance sheets.
(In thousands)
Balance at beginning of period
Provision for unfunded commitments for loans acquired during the period
Provision for credit losses for unfunded commitments
Balance at end of period
$
$
Year Ended December 31,
2021
2022
2020
23,551 $
—
5,000
28,551 $
7,044 $
13,007
3,500
23,551 $
4,000
—
3,044
7,044
The economic impact of inflation, rising interest rates, labor and supply chain shortages, combined with the remaining
effects from the economic disruption resulting from the coronavirus (“COVID-19”) pandemic and the potential for a slowing
131
economy poses additional risk to borrowers and financial institutions. These factors add to the risk borrowers may experience
difficulty in meeting repayment obligations, and the Company may experience losses or deterioration in performance in its loan
portfolio.
The ACL estimate includes both portfolio changes and changes in economic conditions experienced during the period.
The unemployment rate has the highest weighting within the Company’s credit modeling framework. The Company’s forecast
for unemployment includes a range between 3.80% and 6.82% through the fourth quarter of 2024. The Company considers
several forecasts from external sources. Forecasts are provided based on upside, downside, and base case scenarios over an
eight-quarter forecast horizon to establish a forecast range. Management considers the scenarios and selects a blended scenario
which reflects likely economic conditions within that range. In the fourth quarter the forecast was weighted more to the
downside forecast scenario than in the first half of 2022. The Company recognizes that inflation, rising interest rates and a
slowing economy may have short-term, long-term, and regional impacts to the economy. In addition, qualitative factors such as
changes in economic conditions, concentrations of risk, and changes in portfolio risk resulting from regulatory changes are
considered in determining the adequacy of the level of the ACL.
The allocation of ACL shifted from income producing and owner occupied to construction and development,
residential mortgages and non-real estate classes during 2022 due to changes in the economic forecasts, asset quality of the
segments, and loan growth.
NOTE 6. PREMISES AND EQUIPMENT
A summary by asset classification at the periods indicated:
(In thousands)
Land
Buildings and improvements
Leasehold improvements
Equipment, furniture and fixtures
Construction in progress
Right of Use - Lease
Subtotal
Accumulated depreciation and amortization
Premises and equipment, net
Estimated Useful
Life (Years)
N/A
5-40
5-39
3-20
N/A
N/A
December 31,
2022
December 31,
2021
$
$
139,320 $
535,851
35,385
407,084
70,891
228,083
1,416,614
599,184
817,430 $
144,485
512,340
19,021
396,467
57,463
211,686
1,341,462
555,036
786,426
Depreciation expense was $43.9 million, $31.6 million, and $27.9 million for the years ended December 31, 2022,
2021, and 2020, respectively.
Included in other assets is net software cost totaling $23.9 million and $28.9 million at December 31, 2022 and
December 31, 2021, respectively. Software amortization expense was $9.7 million, $6.7 million, and $5.9 million for the years
ended December 31, 2022, 2021, and 2020, respectively.
The Company leases various premises and equipment. At the inception of the contract, the Company determines if an
arrangement is or contains a lease and will recognize on the balance sheet a lease asset for its right to use the underlying asset
and a lease liability for the corresponding lease obligation for contracts longer than a year. See Note 7 for additional disclosures
related to our lease obligations.
NOTE 7. LEASES
The Company leases various premises and equipment. At the inception of the contract, the Company determines if an
arrangement is or contains a lease and will recognize on the balance sheet a lease asset for its right to use the underlying asset
and a lease liability for the corresponding lease obligation for contracts longer than a year.
132
At December 31, 2022 and 2021, the weighted average remaining lease term for operating leases was 15.6 years and
14.1 years, respectively, and the weighted average discount rate used in the measurement of operating lease liabilities was 3.2%
and 2.6% at December 31, 2022 and 2021, respectively. Lease costs were as follows for the periods presented:
(In thousands)
Operating lease costs
Short-term lease costs
Variable lease costs
Sublease income
Total operating lease costs
Year Ended December 31,
2021
2020
2022
$
$
24,362 $
39
710
(1,122)
23,989 $
11,150 $
—
1,270
(187)
12,233 $
8,861
—
1,233
(29)
10,065
There were no leveraged leases or lease transactions with related parties during the years ended December 31, 2022
and 2021. At December 31, 2022 and 2021, the Company had no leases that had not yet commenced.
For leases that may contain renewal options or options to extend the lease term, the Company is reasonably certain to
do so, therefore, these extended terms are included in our lease liability calculation. A maturity analysis of operating lease
liabilities is included in the table below at December 31, 2022:
(In thousands)
2023
2024
2025
2026
2027
Thereafter
Total future minimum lease payments
Discount effect of cash flows
Present value of net future minimum lease payments
Amount
22,071
20,268
19,912
19,629
19,245
184,506
285,631
62,560
223,071
$
$
At December 31, 2022 and 2021, the Company’s operating lease ROU assets were $200.3 million and $194.8 million,
respectively, and ROU liabilities were $224.7 million and $211.0 million, respectively.
NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
As further discussed in Note 21, the Company reorganized its management reporting structure during the fourth
quarter of 2021 and, accordingly, its segment reporting structure and reporting units used for goodwill impairment evaluation.
In connection with the reorganization, management reallocated goodwill to the new reporting units using a relative fair value
approach.
Subsequent to the merger of Legacy Cadence into BancorpSouth Bank (“BancorpSouth”) to form the new Cadence
Bank, the Company made significant changes to the structure of our internal organization that resulted in the composition of our
reporting units and operating segments to change. As such, segment information for the year 2020 has not been restated to
conform to the current period presentation as required by GAAP because it would be impracticable to do so. In addition,
segment information for the year 2020 has not been disclosed under the new basis of segmentation as required by GAAP
because such information is not available and impracticable to maintain.
The following tables present the carrying amounts of goodwill assigned to each of the Company’s reporting units at
December 31, 2022 and December 31, 2021. The Company finalized its valuation of the Legacy Cadence merger transaction
within the measurement period (i.e., no later than October 28, 2022). Refer to Note 2 for additional information on the mergers
133
and acquisitions, and Note 21 for additional information on segments, including the redetermination of both the operating
segments and the reporting units as a result of the Legacy Cadence acquisition in the fourth quarter of 2021.
(In thousands)
Corporate Banking
Community Banking
Mortgage
Insurance Agencies
Banking Services
Total
December 31,
2022
December 31,
2021
$
$
401,742 $
918,354
19,652
91,872
27,175
1,458,795 $
259,101
940,089
40,716
90,745
77,297
1,407,948
The Company’s policy is to assess goodwill for impairment at the reporting unit level on an annual basis or sooner if
an event occurs or circumstances change which indicate that the fair value of a reporting unit is below its carrying amount.
Impairment is the condition that exists when the carrying amount of the reporting unit exceeds the fair value of that reporting
unit. The Company’s annual assessment date is during the Company’s fourth quarter. The Company’s annual goodwill
impairment evaluation for 2022 was based on a quantitative assessment and indicated no impairment of goodwill for its
reporting units.
In the current economic environment, forecasting cash flows, credit losses and growth in addition to valuing the
Company’s assets with any degree of assurance is very difficult and subject to significant changes over very short periods of
time. Management will continue to update its analysis as circumstances change. As market conditions continue to be volatile
and unpredictable, impairment of goodwill related to the Company’s reporting units may be necessary in future periods.
The carrying value of other intangible assets was $132.8 million and $198.3 million at December 31, 2022 and
December 31, 2021, respectively. In connection with the mergers and acquisitions detailed in Note 2, the Company recorded
core deposit intangible assets of $28.5 million during the year ended December 31, 2021. The core deposit intangible assets are
being amortized over an estimated useful life of ten years utilizing an accelerated method.
In connection with the Legacy Cadence merger, the Company also recorded $49.3 million of customer relationship
intangibles and $25.5 million for the Cadence trade name. The customer relationship intangibles are being amortized over an
estimated useful life of ten years utilizing an accelerated method. The trade name is considered indefinite-lived and is not
subject to amortization.
The following table, which excludes fully amortized intangibles, shows the gross carrying amount and accumulated
amortization of the Company’s other intangible assets at December 31, 2022 and December 31, 2021.
(In thousands)
Core deposit intangibles
$
Customer relationship intangibles
Non-solicitation intangibles
Trade names
Total other intangible assets
$
December 31, 2022
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Value
112,379 $
104,490
3,516
26,196
246,581 $
56,689 $
53,665
3,463
—
113,817 $
55,690 $
50,825
53
26,196
132,764 $
112,378 $
126,371
3,461
49,388
291,598 $
47,281 $
43,238
2,808
—
93,327 $
65,097
83,133
653
49,388
198,271
134
The following table presents intangible asset amortization expense for the periods indicated.
(In thousands)
Core deposit intangibles
Customer relationship intangibles
Non-solicitation intangibles
Total intangible asset amortization expense
Year Ended December 31,
2021
2022
2020
$
$
9,408 $
10,427
655
20,490 $
7,286 $
4,459
871
12,616 $
6,704
2,023
878
9,605
The following table presents the estimated intangible asset amortization expense for the next five years.
(In thousands)
2023
2024
2025
2026
2027
Core
Deposit
Intangibles
Customer
Relationship
Intangibles
Non-
Solicitation
Intangibles
$
9,104 $
8,799
8,451
8,061
7,628
10,587 $
9,283
7,978
6,677
5,380
18 $
18
17
—
—
Total
19,709
18,100
16,446
14,738
13,008
NOTE 9. TIME DEPOSITS AND SHORT-TERM DEBT
Time deposits with a balance of $250,000 or more amounting to $1.1 billion were outstanding at December 31, 2022
and December 31, 2021.
At December 31, 2022, time deposits that will mature in under one year totaled $2.3 billion. For time deposits with a
remaining maturity of more than one year at December 31, 2022, the aggregate amount maturing in each of the following five
years and thereafter is presented in the following table:
(In thousands)
2024
2025
2026
2027
2028
Thereafter
Total
Amount
$ 1,023,465
232,167
73,041
55,020
60
81
$ 1,383,834
Borrowings with original maturities of one year or less are classified as short-term. The following tables present
information relating to short-term debt for the periods presented:
December 31, 2022
End of Period
Daily Average
(Dollars in thousands)
Federal funds purchased
Securities sold under agreement to repurchase
Short-term FHLB advances
Total
Balance
$
200,000
708,736
3,100,231
$ 4,008,967
Interest
Rate
4.35%
3.44
4.53
Balance
$
255,027
668,946
1,325,381
$ 2,249,354
Interest
Rate
2.46%
1.07
2.78
Maximum
Outstanding
at any
Month End
$
725,000
708,736
3,800,232
$ 5,233,968
135
December 31, 2021
End of Period
Daily Average
(Dollars in thousands)
Federal funds purchased
Securities sold under agreement to repurchase
Short-term FHLB advances
Total
Balance
$
595,000
687,188
—
$ 1,282,188
Interest
Rate
0.12%
0.10
—
Balance
$
$
5,438
708,169
3
713,610
Interest
Rate
0.11%
0.11
0.13
Maximum
Outstanding
at any
Month End
$ 1,595,000
926,764
—
$ 2,521,764
Federal funds purchased generally mature the day following the date of purchase. At December 31, 2022 and
December 31, 2021, the Company had established non-binding federal funds borrowing lines of credit with other banks
aggregating $1.8 billion and $1.6 billion, respectively. Federal Reserve Bank (“FRB”) discount window borrowings generally
mature within 90 days and any borrowings from the FRB will be collateralized by $2.4 billion in commercial, agriculture, and
consumer loans pledged under a borrower-in-custody agreement. At December 31, 2022 and December 31, 2021, there were no
borrowings from the FRB discount window.
Short-term FHLB borrowings mature within one year following the date of the advance. Total short-term FHLB
advances totaled $3.1 billion as December 31, 2022 and included advances of $1.2 billion at a rate of 4.7% and matures January
3, 2023; $800.0 million at a rate of 4.39% and matures January 30, 2023; $400.0 million at a rate of 4.43% and matures
February 8, 2023; $700.0 million at a rate of 4.45% and matures May 10, 2023; and $231 thousand at a rate of 4.79% and
matures October 2, 2023. All borrowings from the FHLB are collateralized by commercial, construction, and real estate loans
pledged under a blanket lien arrangement at December 31, 2022 (see Note 10).
Additionally, the Company utilizes securities sold under agreements to repurchase to facilitate the needs of our
customers and to facilitate secured short-term funding needs. Securities sold under repurchase agreements generally mature
within 30 days from the date of sale. Securities sold under agreements to repurchase are stated at the amount of cash received in
connection with the transaction. The Company monitors collateral levels on a continuous basis and may be required to provide
additional collateral based on the fair value of the underlying securities.
NOTE 10. LONG-TERM AND SUBORDINATED DEBT
The Company has entered into a blanket floating lien security agreement with the FHLB of Dallas. Under the terms of
this agreement, the Company is required to maintain sufficient collateral to secure borrowings in an aggregate amount of the
lesser of the book value (i.e., unpaid principal balance), after applicable FHLB discounts, of the Company’s eligible
commercial and residential loans pledged as collateral or 35% of the Company’s assets. Loans totaling $19.8 billion and
$12.8 billion at December 31, 2022 and December 31, 2021, respectively, were pledged to the FHLB of Dallas. At
December 31, 2022, the remaining borrowing availability totaled $6.4 billion. At December 31, 2022, there were no call
features on long-term FHLB borrowings. The FHLB of Dallas issued irrevocable letters of credit totaling $215.0 million at
December 31, 2022 on behalf of our customers. Of the $215.0 million, $30.0 million expires on December 17, 2023 and $185.0
million expires on December 31, 2029. See Note 9 for information related to short-term FHLB advances.
The following table presents the details of the long-term and subordinated debt the Company has outstanding:
136
(In thousands)
December 31, 2022
December 31, 2021
Advances from FHLB Dallas
5.750% fixed rate, long-term promissory notes
4.125% fixed to floating rate, subordinated notes, due November 20, 2029,
callable in 2024
$
836 $
—
2,315
1,427
300,000
300,000
7.250% subordinated notes, due June 28, 2029, callable in 2024
4.750% subordinated notes, due June 30, 2029, callable in 2024
6.250% subordinated notes, due June 28, 2029, callable in 2024
5.000% fixed to floating rate, subordinated notes, due June 30, 2030,
callable in 2025
Junior subordinated debentures, 3 month LIBOR plus 1.75%, due 2037
Purchase accounting adjustment, net of amortization
35,000
85,000
25,000
10,000
—
8,064
Debt issue costs
Total long-term borrowings
$
(1,346)
462,554 $
35,000
85,000
25,000
10,000
15,000
10,717
(2,048)
482,411
On November 20, 2019, the Company completed its public offering of $300 million aggregate principal amount of its
4.125% Fixed-to-Floating Rate Subordinated Notes due November 20, 2029 (“the Notes”). The Company received net
proceeds, after deducting the underwriting discount and estimated expenses, of approximately $296.9 million. Beginning
November 20, 2019, the Notes began to bear interest at a fixed annual interest rate equal to 4.125%, payable semiannually in
arrears commencing May 20, 2020. Beginning November 20, 2024, the interest rate will reset quarterly to an annual interest
rate equal to the three-month LIBOR plus 2.47%, payable quarterly in arrears. The Notes are unsecured obligations of the
Company and will not be guaranteed by any of its subsidiaries. The Notes are subordinated and rank junior in right of payment
to all of the Company’s existing and future senior indebtedness. There is no sinking fund for the Notes. The Company may on
or after November 20, 2024, and on any interest payment date thereafter, redeem the Notes, in whole or in part, subject to
certain conditions. The Notes do not contain any covenants or restrictions restricting the incurrence of debt, or restrictions on
the payment of dividends.
Due to the merger with Legacy Cadence on October 29, 2021, the Company assumed subordinated notes with the par
value totaling $145.0 million and junior subordinated notes with the par value totaling $50.6 million. The Company redeemed,
at par, $35 million of the junior subordinated debentures in December 2021 and $15 million on January 3, 2022. On May 1,
2021, the Company assumed $10.0 million in subordinated notes from the merger with FNS Bancshares Inc. See Note 2 of the
consolidated financial statements for more details related to the mergers. Also, during the third quarter of 2022, the Company
redeemed the remaining long-term promissory notes.
NOTE 11. PREFERRED STOCK
In November 2019, the Company completed its public offering of 6,900,000 shares of 5.50% Series A Non-
Cumulative Perpetual Preferred Stock, par value $0.01 per share, with a liquidation preference of $25 per share of Series A
Preferred Stock (the “Series A Preferred Stock”), which represents $172.5 million in aggregate liquidation preference (the
“Series A Preferred Stock Offering”). The Company received net proceeds from the Series A Preferred Stock Offering, after
deducting the underwriting discount and estimated expenses, of approximately $167.5 million. Holders of the Series A
Preferred Stock are entitled to receive, only when, as, and if declared by the Company’s board of directors, non-cumulative
cash dividends based upon the liquidation preference of $25 per share of Series A Preferred Stock, and no more, at a rate equal
to 5.50% per annum, payable quarterly, in arrears, on February 20, May 20, August 20 and November 20 of each year. The
Series A Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provision. The Company
may redeem shares of Series A Preferred Stock at its option, subject to regulatory approval, at a redemption price equal to $25
per share, plus any declared and unpaid dividends. The Board of Directors declared total cash dividends of $1.375 per share of
Series A Preferred Stock for a total of $9.5 million in 2022, 2021, and 2020.
137
NOTE 12. INCOME TAXES
The components of income tax expense attributable to operations were as follows for the years ended December 31,
2022, 2021 and 2020:
(In thousands)
Current:
Federal
State
Deferred:
Federal
State
Total
2022
2021
2020
$
112,536 $
66,194 $
15,780
7,635
6,232
1,590
(17,847)
(4,216)
51,229
8,505
637
(877)
$
136,138 $
51,766 $
59,494
The Company had income tax (payable) receivable of $(524) thousand, $53.2 million and $32.2 million at
December 31, 2022, 2021 and 2020, respectively.
Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 21% to
income before income taxes resulting from the following:
(In thousands)
Tax expense at statutory rates
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit
Tax-exempt interest revenue
Tax-exempt earnings on life insurance
Deductible dividends paid on 401(k) plan
Stock equity awards
Tax rate change revaluation of deferreds
Excess salary disallowance
Tax credits
FDIC disallowance
Nondeductible merger costs
Meals and entertainment
CARES Act benefit
Other, net
Total
2022
2021
2020
$
125,869 $
51,855 $
60,384
13,723
(2,877)
(2,640)
(537)
—
2,470
3,672
(9,728)
3,797
129
587
—
1,673
$
136,138 $
2,701
(1,783)
(2,304)
(492)
(362)
—
1,459
5,625
(2,101)
(1,718)
(546)
134
—
903
(3,406)
(3,203)
1,721
3,449
238
41
(1,351)
51,766 $
497
582
242
(832)
(473)
59,494
On March 27, 2020, the CARES Act was signed into law in response to the COVID-19 pandemic. Section 2303(b) of
the CARES Act allows for certain net operating losses generated after December 31, 2017, but before December 31, 2021, to be
carried back to the five tax years preceding the loss. The Company recorded a benefit of $0.8 million due to the carryback of
these net operating losses.
138
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2022 and 2021 were as follows:
(In thousands)
Deferred tax assets:
2022
2021
Loans, principally due to allowance for credit losses
$
113,927 $
117,661
Other real estate owned
Loans, fair value adjustment
Securities, fair value adjustment
Accrued liabilities
Net operating loss carryforwards
Lease liability
Other
Unrealized net losses on available-for-sale-securities
Unrecognized pension expense
Total gross deferred tax assets
Less: valuation allowance
Deferred tax assets
Deferred tax liabilities:
Lease transactions
Employment benefits
Premises and equipment, principally due to differences in depreciation
Mortgage servicing rights
Intangible assets
Investments
Deferred net loan fees
Right of use asset
Other
Total gross deferred tax liabilities
Net deferred tax assets
2,291
9,870
4,511
36,037
8,350
53,121
4,691
362,993
15,833
611,624
615
611,009
$
904 $
23,238
22,168
25,901
38,533
3,360
21,799
47,787
5,820
189,510
$
421,499 $
3,558
19,434
4,648
23,918
8,395
50,412
7,265
25,121
21,211
281,623
590
281,033
410
22,752
22,368
16,597
51,920
6,497
21,734
46,557
5,624
194,459
86,574
At December 31, 2022, the Company had a net deferred tax asset of $421.5 million, compared to $86.6 million at
December 31, 2021. The changes to gross deferred tax assets and liabilities during 2022 was primarily due to deferred tax
adjustments related to the change in market value of available-for-sale securities.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which
deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of
these deductible differences existing at December 31, 2022 with the exception of a state net operating loss carryforward that
will not be realized which resulted in a $0.6 million valuation allowance.
At December 31, 2022, the Company has federal net operating loss carryforwards of $35.9 million which will begin to
expire in 2030. The Company has state net operating loss carryforwards of $3.7 million which will begin to expire in 2030. The
Company believes it is more likely than not the benefit from certain state net operating loss carryforwards will not be realized,
and accordingly, has established a pre-tax valuation allowance of $13.5 million, $0.6 million after tax, associated with those net
operating losses at December 31, 2022.
The Company recognizes accrued interest related to unrecognized tax benefits and penalties as a component of other
noninterest expense. The Company accrued interest of approximately $214 thousand in 2022, $32 thousand in 2021 and none in
2020. The Company's accrued interest and penalties on unrecognized tax benefits was $1.2 million and $0.5 million at
December 31, 2022 and 2021. Accrued interest and penalties are included in other liabilities.
139
At December 31, 2022 and 2021, the balance of unrecognized tax benefits, if recognized that would reduce the
effective tax rate is approximately $3.1 million and $71 thousand, respectively. The Company does not anticipate a significant
change to the total amount of unrecognized tax benefits within the next 12 months. The following table presents a summary of
the beginning and ending amounts of unrecognized income tax benefits:
(In thousands)
Balance at January 1
Additions based on income tax positions related to current year
Additions for income tax positions for prior years
Additions from acquisition
Reductions for income tax positions of prior years
Statute of limitation expirations
Settlements
Balance at December 31
Years ended December 31,
2022
2021
2020
$
1,441 $
491 $
399
154
—
1,482
—
—
—
$
3,077 $
—
—
1,351
—
—
(401)
1,441 $
—
92
—
—
—
—
491
Unrecognized state income tax benefits are not adjusted for the federal income tax impact.
The Company is subject to taxation in the United States and various states and local jurisdictions. The Company files a
consolidated United States federal return. Based on the laws of the applicable state where the Company conducts business
operations, the Company and its applicable subsidiaries either file a consolidated, combined or separate return. The tax years
that remain open for examination for the Company's major jurisdictions of the United States—Federal, Mississippi, Arkansas,
Tennessee, Alabama, Louisiana, Texas, Georgia and Missouri—are 2019, 2020 and 2021.
In August 2022, the Inflation Reduction Act of 2022 (IRA of 2022) was signed into law to address inflation, healthcare
costs, climate change and renewal energy incentives, among other things. Included in the IRA of 2022 are provisions for the
creation of a 15% corporate alternative minimum tax rate (CAMT) that is effective for tax years beginning January 1, 2023 for
corporations with an average annual adjusted financial statement income in excess of $1 billion. Based on information available
to date, we do not anticipate that the Company will be subject to the 15% CAMT, absent any further changes in law.
NOTE 13. PENSION, OTHER POST RETIREMENT BENEFIT AND PROFIT SHARING PLANS
The Basic Plan is a non-contributory defined benefit pension plan managed by a trustee covering substantially all full-
time employees who have at least one year of service, worked at least 1,000 hours and have attained the age of 18. For such
employees hired prior to January 1, 2006, benefits were based on years of service and the employee’s compensation until
January 1, 2017, at which time benefits were based on a 2.5% cash balance formula. For such employees hired on or after
January 1, 2006, benefits accrue based on a cash balance formula, effective January 1, 2012. The Company's funding policy is
to contribute to the Basic Plan the amount that meets the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Company determines to be appropriate. The difference
between the plan assets and projected benefit obligation is included in other assets or other liabilities, as appropriate. Actuarial
assumptions are evaluated periodically.
The Restoration Plan provides for the payment of retirement benefits to certain participants in the Basic Plan. The
Restoration Plan is a non-qualified plan that covers any employee whose benefit under the Basic Plan is limited by the
provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and any employee who elects to participate in the
Cadence Frozen Deferred Compensation Plan, which reduces the employee’s benefit under the Basic Plan. For employees hired
prior to January 1, 2006, benefits were based on years of service and the employee’s compensation until January 1, 2017, at
which time benefits were based on a 2.5% cash balance formula. For such employees hired on or after January 1, 2006, benefits
accrue based on a cash balance formula, effective January 1, 2012. The Supplemental Plan is a non-qualified defined benefit
supplemental retirement plan for certain key employees. Benefits commence when the employee retires and are payable over a
period of ten years.
The Company measured benefit obligations using the most recent Pri-2012 mortality tables and MP-2021 mortality
improvement scale in selecting mortality assumptions at December 31, 2022. The Company uses a December 31 measurement
date for its pension and other benefit plans.
140
As a result of the merger with Legacy Cadence in 2021, three new participants were invited to participate in the
Supplemental Plan. The merger also triggered certain change in control provision of the Supplemental Plan where existing
active participants became fully vested in their benefits under the plan. The Company elected to recognize the fair value of the
additional liabilities resulting from these plan amendments, totaling $5.7 million, immediately as a one-time charge to merger
expense during 2021.
A summary of the three defined benefit retirement plans at and for the years ended December 31, 2022, 2021 and 2020
follows:
(In thousands)
Change in benefit obligations:
Pension Benefits
2022
2021
2020
Projected benefit obligations at beginning of year
$
323,274 $
303,319 $
309,007
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Administrative expenses paid
Plan amendments
Settlements (1)
Projected benefit obligations at end of year
Change in plans' assets:
Fair value of plans' assets at beginning of year
Actual return on assets
Employer contributions
Benefits paid
Administrative expenses paid
Settlements (1)
Fair value of plans' assets at end of year
Funded status:
Projected benefit obligations
Fair value of plans' assets
Net amount recognized
10,439
7,278
(61,610)
(10,510)
(1,033)
—
7,363
4,397
29,009
(10,870)
(1,262)
3,570
(28,960)
(12,252)
238,878 $
323,274 $
7,411
6,991
10,500
(10,254)
(1,261)
—
(19,075)
303,319
414,067 $
393,224 $
351,307
(34,384)
2,449
(10,510)
(1,033)
(28,960)
42,546
2,681
(10,870)
(1,262)
(12,252)
32,797
41,613
(10,254)
(1,261)
(20,978)
341,629 $
414,067 $
393,224
(238,878) $
(323,274) $
(303,319)
341,629
414,067
102,751 $
90,793 $
393,224
89,905
$
$
$
$
$
(1) The total lump sums paid during 2022 and 2021 were $29.0 million and $12.3 million, respectively, compared to a settlement threshold
of $14.8 million and $9.3 million. As a result, a charge of $9.0 million and $3.1 million were recognized for 2022 and 2021, respectively.
The overall funded status of the plans improved during 2022. While the fair value of the plans’ assets decreased during
the year, this was more than offset by the decrease in the pension benefit obligation. The decrease in the pension benefit
obligation was primarily as a result of increases in the discount rates for all plans during 2022, decreasing the pension benefit
obligation. This was partially offset by gains on the pension benefit obligation due to demographic experience related to the
Basic Plan.
The weighted-average interest crediting rates for both the Basic Plan and the Restoration Plan were 3.98% in 2022.
The Supplemental Plan does not have a minimum interest crediting rate.
141
Amounts recognized in the consolidated balance sheets consisted of:
(In thousands)
Prepaid benefit cost
Accrued benefit liability
Accumulated other comprehensive loss adjustment
Net amount recognized
Pension Benefits
2022
2021
2020
$
$
201,581 $
207,855 $
201,571
(31,800)
(67,030)
(32,047)
(85,015)
102,751 $
90,793 $
(26,530)
(85,136)
89,905
Pre-tax amounts recognized in accumulated other comprehensive loss consisted of:
(In thousands)
Net prior service benefit
Net actuarial loss
Total accumulated other comprehensive loss
December 31,
2022
2021
$
$
205 $
66,825
67,030 $
218
84,797
85,015
The components of net periodic benefit cost for the periods indicated were as follows:
(In thousands)
Service cost
Interest cost
Expected return on plan assets
Recognized prior service cost (benefit)
Recognized net loss
Settlement loss
Net periodic benefit (1)
Year Ended December 31,
2021
2020
2022
$
$
10,439 $
7,278
(23,003)
14
4,726
9,023
8,477 $
7,363 $
4,397
(22,901)
3,088
6,916
3,051
1,914 $
7,411
6,991
(20,409)
(718)
6,130
5,846
5,251
(1) While service cost is included in salaries and employee benefits, the other components of net periodic pension costs are included in other
noninterest expense in the consolidated statements of income for the years ended December 31, 2022, 2021, and 2020.
The weighted-average assumptions used to determine benefit obligations at December 31, 2022 and 2021 were as
follows:
Discount rate
Rate of compensation increase
Basic Plan
Restoration Plan
Supplemental Plan
2022
5.50%
4.00%
2021
2.73%
3.00%
2022
5.46%
4.00%
2021
2.77%
3.00%
2022
5.41%
3.00%
2021
2.41%
3.00%
The weighted-average assumptions used to determine net periodic benefit cost for 2022, 2021 and 2020 were as
follows:
Discount rate-service cost
Discount rate-interest cost
Rate of compensation increase
Expected rate of return on plan assets
2022
2.92%
1.95%
4.00%
6.00%
Basic Plan
2021
2.45%
1.42%
3.00%
6.00%
2020
3.27%
2.59%
3.00%
6.00%
142
Discount rate-service cost
Discount rate-interest cost
Rate of compensation increase
Expected rate of return on plan assets
Discount rate-service cost
Discount rate-interest cost
Rate of compensation increase
Expected rate of return on plan assets
2022
2.61%
2.26%
4.00%
N/A
2022
2.24%
1.62%
3.00%
N/A
Restoration Plan
2021
1.64%
1.70%
3.00%
N/A
Supplemental Plan
2021
1.81%
1.20%
3.00%
N/A
2020
2.77%
2.77%
3.00%
N/A
2020
2.91%
2.44%
3.00%
N/A
The following table presents information related to the defined benefit plans that had accumulated benefit obligations
in excess of plan assets at December 31, 2022 and 2021:
(In thousands)
Projected benefit obligation
Accumulated benefit obligation
Fair value of assets
2022
2021
$
35,951 $
31,361
—
42,871
39,125
—
In selecting the expected long-term rate of return on assets used for the Basic Plan, the Company considered the
average rate of earnings expected on the funds invested or to be invested to provide for the benefits of the plan. This included
considering the trust asset allocation and the expected returns likely to be earned over the life of the plan. This basis is
consistent with the prior year. The discount rate is the rate used to determine the present value of the Company’s future benefit
obligations for its pension and other postretirement benefit plans.
Plan assets are managed on a total return basis to meet future obligations. Risk is managed through asset allocation,
diversification, asset valuation analysis and maintaining a long-term focus. Assets are invested in multiple asset classes
including, but not limited to, domestic equities, international equities and fixed income securities. Factors considered for the
Plan’s asset allocation include, but are not limited to, the Plan’s funding status, long-term expected liabilities and expected
long-term investment performance. To meet the Plan’s obligation, long-term returns take priority over short term market
volatility and uncertainty. The Plan asset allocation, diversification and long-term performance are evaluated by the Retirement
Committee multiple times throughout each calendar year.
The Company’s pension plan weighted-average asset allocations at December 31, 2022 and 2021 and the Company’s
target allocations for 2023, by asset category, were as follows:
Asset category:
Equity securities
Debt securities
Cash and equivalents
Total
Plan assets at December 31,
Target for
2022
2021
46 %
50 %
4 %
100 %
51 %
47 %
2 %
100 %
2023
33-60%
40-67%
Equity securities held in the Basic Plan included shares of the Company’s common stock with a fair value of $2.0
million (0.60% of total plan assets) and $2.5 million (0.59% of total plan assets) at December 31, 2022 and 2021, respectively.
An analysis by management is performed annually to determine whether the Company will make a contribution to the Basic
Plan.
143
The following table presents information regarding expected future benefit payments, which reflect expected service,
as appropriate:
(In thousands)
Expected future benefit payments:
2023
2024
2025
2026
2027
2028-2032
$
Pension
Benefits
22,552
27,402
26,097
26,606
25,576
116,803
The following table presents the fair value of each major category of plan assets held in the Basic Plan at
December 31, 2022 and 2021:
(In thousands)
Investments, at fair value:
Cash and cash equivalents
U.S. agency debt obligations
Mutual funds
Common stock of Cadence Bank
Brokered certificates of deposit
Total investments, at fair value
Accrued interest and dividends
Fair value of plan assets
Plan Assets
2022
2021
$
14,503 $
16,347
264,674
2,029
43,446
340,999
630
10,013
21,806
318,511
2,451
60,659
413,440
627
$
341,629 $
414,067
Fair values are determined based on valuation techniques categorized as follows: Level 1 means the use of quoted
prices for identical instruments in active markets; Level 2 means the use of quoted prices for identical or similar instruments in
markets that are not active or are directly or indirectly observable; Level 3 means the use of unobservable inputs. Quoted
market prices, when available, are used to value investments. Pension plan investments include funds which invest in various
types of investment securities and in various companies within various markets. Investment securities are exposed to several
risks, such as interest rate, market and credit risks. Because of the level of risk associated with certain investment securities, it is
at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes
could materially affect the amounts reported.
The following tables set forth the plan investments at fair value at December 31, 2022 and 2021:
(In thousands)
Cash and cash equivalents
U.S. agency debt obligations
Mutual funds
Company common stock
Brokered certificates of deposit
Total
Level 1
Level 2
Level 3
Total
2022
$
14,503 $
— $
— $
—
264,674
2,029
—
16,347
—
—
43,446
—
—
—
—
14,503
16,347
264,674
2,029
43,446
$
281,206 $
59,793 $
— $
340,999
144
(In thousands)
Cash and cash equivalents
U.S. agency debt obligations
Mutual funds
Company common stock
Brokered certificates of deposit
Total
Level 1
Level 2
Level 3
Total
2021
$
10,013 $
— $
— $
—
318,511
2,451
—
21,806
—
—
60,659
—
—
—
—
10,013
21,806
318,511
2,451
60,659
$
330,975 $
82,465 $
— $
413,440
The following investments represented 5% or more of the total plan asset value at December 31, 2022:
(In thousands)
John Hancock Discip Value Fund
John Hancock Discip Value Mid Cap Fund
Curasset Capital Management Core Bond Fund
Curasset Capital Management Limited Term Inc Fund
Pioneer Multi-Asset Ultrashort Inc Fund
JP Morgan Equity Income R6
JP Morgan Strategic Income Opp Fund
JPMorgan Undiscovered Managers Behavioral Value
$
2022
21,261
18,179
28,893
35,129
22,930
25,671
23,646
17,546
The Company has a defined contribution plan (commonly referred to as a “401(k) Plan”). Employees may contribute a
portion of their compensation, as set forth in the 401(k) Plan, subject to the limitations as established by the Code. Employee
contributions (up to 5% of defined compensation) are matched dollar-for-dollar by the Company. Employer contributions were
$24.7 million, $16.7 million, and $14.9 million for 2022, 2021, and 2020, respectively.
NOTE 14. FAIR VALUE DISCLOSURES
Fair value is defined by U.S. GAAP as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires the Company to maximize the
use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.
Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:
•
•
•
Level 1: Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2: Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market.
Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the
market. These unobservable assumptions reflect management’s estimates of assumptions that market participants
would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash
flow models, and similar techniques.
Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change in
inputs occurs.
Determination of Fair Value
Fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The following describes the assumptions and methodologies
145
used to estimate the fair value of financial instruments recorded at fair value in the consolidated balance sheets and for
estimating the fair value of financial instruments for which fair value is disclosed.
Available-for-sale securities and equity investments. Available-for-sale securities and equity investments (with
readily determinable fair values) are recorded at fair value on a recurring basis. Available-for-sale securities and equity
investments that are traded on an active exchange are classified as Level 1. If quoted prices are not available, the Company
obtains fair value measurements from an independent pricing service. These fair value measurements consider observable
market data that may include benchmark yield curves, reported trades, broker/dealer quotes, issuer spreads and credit
information, among other inputs. These securities are classified as Level 2.
Mortgage servicing rights (“MSR”). The Company records MSR at fair value on a recurring basis with subsequent
remeasurement of MSR based on change in fair value. An estimate of the fair value of the Company’s MSR is determined by
utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage loan prepayment speeds, market
trends and industry demand. All of the Company’s MSR are classified as Level 3.
Derivative instruments. The Company’s derivatives that are traded on an active exchange are classified as Level 1.
The majority of the Company’s derivative instruments are measured at fair value based on modeling that utilizes observable
market inputs for various interest rates published by leading third-party financial news and data providers. This is observable
data that represents the rates used by market participants for instruments entered into at that date; however, they are not based
on actual transactions, so they are classified as Level 2. Derivative instruments that are measured at fair value based on either an
observable market price or a discounted cash flow valuation using the terms of a derivative agreement are classified as Level 3.
Loans held for sale. Loans held for sale are carried at fair value which is based on commitments outstanding from
investors as well as what secondary markets are currently offering for portfolios with similar characteristics. Therefore, loans
held for sale are subjected to recurring fair value adjustments and are classified as Level 2. The Company obtains quotes, bids,
or pricing indications on all or part of these loans directly from the buyers. Premiums and discounts received or to be received
on the quotes, bids or pricing indications are indicative of the fact that the cost is lower or higher than fair value.
Investments in limited partnerships. The fair value of certain investments in limited partnerships is estimated using
the practical expedient of net asset value. For other investments in limited partnerships that do not qualify for the practical
expedient, we use a measurement alternative which measures these investments at cost, less any impairment, plus or minus any
changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.
The Company classifies these investments in limited partnerships as Level 3.
Small Business Administration (“SBA”) servicing assets. The fair value of the SBA servicing assets is estimated
using the gross coupon less an assumed contractual servicing cost (“CSC”). The Company classifies SBA servicing assets as
Level 3.
Other real estate owned (“OREO”) and repossessed assets. OREO is carried at the lower of cost or estimated fair
value, less estimated selling costs and is subjected to nonrecurring fair value adjustments. Estimated fair value is determined on
the basis of independent appraisals and other relevant factors. Appraisals that are not based on observable inputs or that require
significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on
significant unobservable inputs. The fair value of repossessed assets is determined using net orderly liquidation valuation on a
nonrecurring basis. The Company’s OREO and repossessed assets are classified as Level 3.
Collateral-dependent loans (impaired and purchase credit deteriorated (loss)). Collateral-dependent loans
considered for specific reserve are loans for which, based on current information and events, it is probable that the creditor will
be unable to collect all amounts due according to the contractual terms of the loan agreement. Collateral-dependent loans
include impaired loans and classified purchased credit deteriorated (loss) loans (as defined by management). When a loan is
collateral-dependent, the fair value of the loan is determined based on the fair value of the underlying collateral. All of the
Company’s collateral-dependent loans are classified as Level 3.
146
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The following tables present the balances of the assets and liabilities measured at fair value on a recurring basis:
(In thousands)
Assets:
Available-for-sale securities
Equity investments
Mortgage servicing rights
Derivative instruments
Loans held for sale
Investments in limited partnerships
SBA servicing rights
Total
Liabilities:
Derivative instruments
(In thousands)
Assets:
Available-for-sale securities
Equity investments
Mortgage servicing rights
Derivative instruments
Loans held for sale
Investments in limited partnerships
SBA servicing rights
Net profits interests
Total
Liabilities:
Derivative instruments
Level 1
Level 2
Level 3
Total
December 31, 2022
$
— $
11,944,096 $
21,653
—
45
—
—
—
21,698 $
—
—
28,345
187,925
—
—
12,160,366 $
— $
—
109,744
1,031
—
67,533
5,585
183,893 $
11,944,096
21,653
109,744
29,421
187,925
67,533
5,585
12,365,957
253 $
54,935 $
982 $
56,170
Level 1
Level 2
Level 3
Total
December 31, 2021
$
— $
15,606,470 $
24,924
—
—
—
—
—
—
24,924 $
684
—
16,598
340,175
—
—
—
15,963,927 $
— $
—
69,552
6,749
—
46,750
5,358
2,000
130,409 $
15,606,470
25,608
69,552
23,347
340,175
46,750
5,358
2,000
16,119,260
$
$
$
$
— $
7,279 $
1,787 $
9,066
147
Level 3 financial instruments typically include unobservable components but may also include some observable
components that may be validated to external sources. The table below includes a roll forward of the consolidated balance sheet
amounts for the years ended December 31, 2022 and 2021 for changes in the fair value of financial instruments within Level 3
of the valuation hierarchy that are recorded on a recurring basis. The gains or (losses) in the following table (which are reported
in Other Noninterest Income in the consolidated statements of income) may include changes to fair value due in part to
observable factors that may be part of the valuation methodology.
During the year ended December 31, 2022, the Company transferred $2.6 million in derivative instruments out of
Level 3. The transfer was primarily related to the integration of systems after the Legacy Cadence merger.
(In thousands)
Year Ended December 31, 2022
Mortgage
Servicing
Rights
Net Profits
Interests
Investments
in Limited
Partnerships
SBA
Servicing
Rights
Derivative
Instruments
(Assets and
Liabilities)
Balance at December 31, 2021
$
69,552 $
2,000 $
46,750 $
5,358 $
4,962
Total net gains (losses) for the year included
in:
Net gains (losses)
Transfers out of Level 3
Sales
Purchase accounting adjustment
Additions
Reclassifications
Contributions paid
Distributions received
Other
Balance at December 31, 2022
Net unrealized gains (losses) included in net
income for the year relating to assets and
liabilities held at December 31, 2022
(In thousands)
Balance at December 31, 2020
Acquired in a business combination
Total net (losses) gains for the year included
in:
Net (losses) gains
Additions
Contributions paid
Distributions received
Balance at December 31, 2021
Net unrealized gains (losses) included in net
income for the year relating to assets and
liabilities held at December 31, 2021
$
$
23,903
—
—
—
16,289
—
—
—
—
—
—
(2,000)
—
—
—
—
—
—
7,771
(2,713)
—
—
(2,749)
—
6,665
18,930
(9,973)
139
—
—
—
2,940
—
—
—
—
$
109,744 $
— $
67,533 $
5,585 $
(7,549)
2,636
—
—
—
—
—
—
—
49
$
35,695 $
— $
7,771 $
(2,713) $
(7,549)
Year Ended December 31, 2021
Mortgage
Servicing
Rights
Net Profits
Interests
Investments
in Limited
Partnerships
SBA
Servicing
Rights
Derivative
Instruments
(Assets and
Liabilities)
$
47,571 $
—
— $
2,278
3,497 $
41,999
— $
5,135
16,842
—
(1,946)
23,927
—
—
69,552 $
(278)
—
—
—
2,000 $
1,587
—
3,067
(3,400)
46,750 $
(285)
508
—
—
5,358 $
(11,880)
—
—
—
4,962
12,015 $
(278) $
1,587 $
(285) $
(11,880)
148
Fair Value Option
The Company elected to measure commercial real estate loans held for sale and commercial and industrial loans held
for sale under the fair value option. Included in these loans are loans backed by the SBA and loans related to syndications. The
Company assumed the cost of these loans approximates the fair value.
The Company also elected to measure residential mortgage loans held at fair value. The election allows for effective
offset of the changes in fair values of the loans and the derivative instruments used to hedge them. Included in the residential
loans held for sale portfolio are certain previously sold Government National Mortgage Association (“GNMA”) loans. Under
ASC 860-10-40, GNMA loans are no longer considered to be sold due to the conditional buyback option becoming
unconditional once the delinquency criteria is met when they reach 90 or more days past due. The Company records the loans at
fair value on consolidated balance sheets with an offsetting liability. The Company assumed the cost approximates the fair
value. At December 31, 2022 and December 31, 2021, the fair value related to these loans totaled $71.4 million and $91.9
million, respectively.
The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal
balance of loans held for sale:
December 31, 2022
December 31, 2021
(In thousands)
Aggregate
Fair Value
Aggregate
Unpaid
Principal
Aggregate
Fair Value
Less
Aggregate
Unpaid
Principal
Aggregate
Fair Value
Aggregate
Unpaid
Principal
Aggregate
Fair Value
Less
Aggregate
Unpaid
Principal
Residential mortgage loans
Commercial and industrial loans
$
123,863 $
61,265
121,433 $
60,365
2,430 $
900
259,786 $
80,437
255,203 $
78,184
Commercial real estate loans
2,797
2,485
312
(48)
—
4,583
2,253
(48)
Total
$
187,925 $
184,283 $
3,642 $
340,175 $
333,387 $
6,788
Net gains and losses resulting from changes in fair value for residential mortgage loans held for sale are recorded in
mortgage banking income in the consolidated statements of income. For the years ended December 31, 2022 and 2021, the
Company had net losses totaling $8.0 million and $18.5 million, respectively.
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
From time to time, the Company may be required to measure certain other financial assets at fair value on a
nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of
cost or fair value accounting or write-downs of individual assets. The following tables present the balances of assets and
liabilities measured at fair value on a nonrecurring basis:
(In thousands)
Assets:
Impaired loans, collateral-dependent
Purchased credit deteriorated (loss) loans
Other real estate and repossessed assets
(In thousands)
Assets:
Impaired loans, collateral-dependent
Purchased credit deteriorated (loss) loans
Other real estate and repossessed assets
$
$
Level 1
Level 2
Level 3
Total
December 31, 2022
— $
—
—
— $
—
—
7,199 $
33,234
5,118
7,199
33,234
5,118
Level 1
Level 2
Level 3
Total
December 31, 2021
— $
—
—
— $
—
—
25,201 $
88,432
17,788
25,201
88,432
17,788
149
Unobservable Inputs
The following table presents the significant unobservable inputs used in Level 3 fair value measurements for financial
assets measured at fair value on a recurring and nonrecurring basis:
Quantitative Information about Level 3 Fair Value Measurements
Carrying
Value
Valuation
Methods
Unobservable
Inputs
Range
Weighted
Average (1)
(In thousands)
December 31, 2022
Measured at fair value on a recurring
basis:
Mortgage servicing rights
$
109,744 Discounted cash
flow
Discount rate
0.0%-41.3%
10.0%
Repayment speed
(CPR)
Coupon interest
rate
Remaining
maturity (months)
Servicing fee (bps)
0.0-100.0
7.2
2.3%-4.8%
3.6%
119.1-480.0
335.0
0.0 bps-50.0
bps
28.4 bps
Net asset value
NM
NM
Contractual
servicing
cost (bps)
12.5 bps-40.0
bps
26.3 bps
Discount rate
NM
NM
Investments in limited partnerships
67,533
SBA servicing rights
Derivative instruments (assets and
liabilities)
Measured at fair value on a
nonrecurring basis:
5,585
49
Practical
expedient
Coupon less
contractual
servicing cost
Discounted cash
flow
Impaired loans, collateral-dependent $
7,199
Purchased credit deteriorated (loss)
loans
Other real estate and repossessed
assets
33,234
5,118
Appraised value,
as adjusted
Appraised value,
as adjusted
Appraised value,
as adjusted
Discount to fair
value
Discount to fair
value
Estimated closing
costs
0%-75%
46.8%
10%-100%
36.1%
7%
7%
150
Quantitative Information about Level 3 Fair Value Measurements
Carrying
Value
Valuation
Methods
Unobservable
Inputs
Range
Weighted
Average (1)
(In thousands)
December 31, 2021
Measured at fair value on a
recurring basis:
Mortgage servicing rights
$
69,552 Discounted cash flow
Discount rate
Repayment
speed (CPR)
Coupon interest
rate
Remaining
maturity
(months)
Servicing fee
(bps)
7.7%-11.1%
7.4-30.5
2.6%-9.2%
9.4%
11.6
3.5%
117.0-445.9
332.0
21.0 bps-81.5
bps
27.8 bps
Investments in limited
partnerships
SBA servicing rights
Derivative instruments (assets
and liabilities)
Net profits interests
Measured at fair value on a
nonrecurring basis:
Impaired loans, collateral-
dependent
Purchased credit deteriorated
(loss) loans
46,750
Practical expedient
Net asset value
NM
NM
5,358
Coupon less contractual
servicing cost
Contractual
servicing cost
(bps)
12.5 bps-40.0
bps
26.3 bps
4,962 Discounted cash flow
Discount rate
2,000 Discounted cash flow
Discount rate
NM
10%
NM
10%
$
25,201
Appraised value, as
adjusted
88,432
Collateral value
Enterprise value
Discount to fair
value
Discount to fair
value
EBITDA
multiples times
sale multiples
0%-76%
45.0%
0%-100%
43.0%
5.00x-7.00x
6.44x
Discounted cash flow
Discount rate
10%-11%
10.0%
Other real estate and repossessed
assets
17,788
Appraised value, as
adjusted
Estimated
closing costs
7%
7%
(1) Weighted averages were calculated using the input attributed and the outstanding balance of the loan.
151
The following table presents carrying and fair value information of financial instruments for the periods presented:
(In thousands)
Assets:
Cash and due from banks
Interest bearing deposits with other banks
Available for sale securities, FHLB and equity investments
Net loans and leases
Loans held for sale
Accrued interest receivable
Mortgage servicing rights
December 31, 2022
Fair
Value
Carrying
Value
December 31, 2021
Fair
Value
Carrying
Value
$
756,906 $
756,906 $
1,241,246
12,118,207
29,908,930
187,925
183,433
109,744
1,241,246
12,118,207
29,366,553
187,925
183,433
109,744
656,132 $
638,547
15,641,379
26,436,573
340,175
142,340
69,552
656,132
638,547
15,641,379
26,587,853
340,175
142,340
69,552
Investments in limited partnerships
Other assets
317,048
10,703
317,048
10,703
227,229
25,145
227,229
25,145
Liabilities:
Noninterest bearing deposits
Savings and interest bearing deposits
Time deposits
Federal funds purchased and securities sold under agreement to
repurchase and other short-term borrowings
Short-term FHLB borrowings
Accrued interest payable
Subordinated debt and long-term debt
Derivative instruments:
Assets:
Commercial interest rate swaps, caps, and floors
Held-for-sale interest rate lock commitments
U.S. Treasury futures
Forward commitments to sell mortgage loans
Foreign exchange contracts
Liabilities:
Commercial interest rate swaps, caps, and floors
Held-for-sale interest rate lock commitments
U.S. Treasury futures
U.S. Treasury options
Forward commitments to sell mortgage loans
Foreign exchange contracts
Fair Value of Financial Instruments
$ 12,731,065 $ 12,731,065 $ 13,634,505 $ 13,634,505
22,283,667
22,513,877
3,915,733
3,711,672
22,513,877
3,690,752
22,283,667
3,899,501
908,736
3,100,231
27,533
462,554
908,736
3,100,231
27,533
428,637
1,282,188
—
8,483
482,411
1,282,188
—
8,483
475,614
$
$
25,900 $
856
45
175
2,445
52,616 $
431
170
83
551
2,319
25,900 $
856
45
175
2,445
52,616 $
431
170
83
551
2,319
17,567 $
4,675
732
218
155
8,487 $
21
6
—
371
181
17,567
4,675
732
218
155
8,487
21
6
—
371
181
GAAP requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions that are used by the Company in estimating fair values of financial instruments that are not disclosed
above are set forth below.
Cash and Cash Equivalents. The carrying amounts for cash and cash equivalents approximate fair values due to their
immediate and shorter-term maturities. Cash and equivalents include cash and amounts due from banks, including interest
bearing deposits with other banks.
152
Net Loans. Loans are valued on an individual basis, with consideration given to the loans’ underlying characteristics,
including account types, remaining terms, annual interest rates or coupons, interest types, accrual basis, timing of principal and
interest payments, current market rates, and remaining balances. A discounted cash flow model is used to estimate the fair value
of the loans using assumptions for prepayments speeds, projected default probabilities by risk grade, and estimates of prevailing
discount rates. The discounted cash flow approach models the projected cash flows, applying various assumptions regarding
interest and payment risks for the loans based on the loan types, payment types and fixed or variable interest rate classifications.
Estimated fair values are disclosed through the application of the exit price notion. The assumptions used to estimate fair value
are intended to approximate those that a market participant would use in an orderly transaction on the measurement date. All of
the Company’s loans and leases are classified as Level 3.
Deposits. The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts). Fair values for time deposits are estimated using a discounted cash flow
calculation that uses recent issuance rates over the prior three months and a market rate analysis of recent offering rates for
retail products. For wholesale products, brokered pricing offering rates were used. The Company’s deposits are classified as
Level 2.
Borrowings. The carrying amounts for federal funds purchased and repurchase agreements approximate fair value
because of their short-term maturity and are classified as Level 1. Similarly, the carrying amounts for the Company's fixed-term
FHLB advances also approximate fair value and are classified as Level 1. The fair value of the subordinated debentures was
estimated using a discounted cash flow calculation that uses recent issuance rates for similar notes offerings for similar sized
issuers. Both FHLB borrowings and the subordinate notes are classified as Level 2.
Lending Commitments. The Company’s lending commitments are negotiated at prevailing market rates and are
relatively short-term in nature. As a matter of policy, the Company generally makes commitments for fixed-rate loans for
relatively short periods of time. Therefore, the estimated value of the Company’s lending commitments approximates the
carrying amount and is immaterial to the financial statements. The Company’s lending commitments are classified as Level 2.
The Company’s off-balance sheet commitments, including letters of credit, which totaled $691.2 million at December 31, 2022,
are funded at current market rates at the date they are drawn upon. It is management’s opinion that the fair value of these
commitments would approximate their carrying value, if drawn upon. See Note 23 for additional information regarding lending
commitments.
Limitations. The fair value estimates are determined as of a specific point in time utilizing various assumptions and
estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain
financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. The fair
values for loans involve the use of various assumptions due to illiquidity in the market as of December 31, 2022 and 2021.
These assumptions are considered to reflect inputs that market participants would use in transactions involving these
instruments as of the measurement date. This table only includes financial instruments of the Company, and, accordingly, the
total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of the
Company.
NOTE 15. SHARE-BASED COMPENSATION
The Company’s Long-Term Equity Incentive Plan (“Incentive Plan”), Cadence Bank Equity Incentive Plan for Non-
Employee Directors, 2021 Long-Term Equity Incentive Plan and the Amended and Restated 2015 Omnibus Incentive Plan (the
“2015 Plan” assumed from Legacy Cadence) permits the Company to grant to employees and directors various forms of stock-
based incentive compensation. Performance stock units (“PSU”) entitle the recipient to receive shares of the Company’s
common stock upon the achievement of performance goals that are specified in the award over a performance period. The
recipient of performance stock units is not treated as a shareholder of the Company and is not entitled to vote or receive
dividends until the performance conditions stated in the award are satisfied and the shares of stock are issued to the recipient.
All of the performance stock units vest over a three-year period and are valued at the fair value of the Company’s stock at the
grant date based upon the estimated number of shares expected to vest. In 2022, the Company incorporated a lattice model into
the PSU valuation methodology to estimate the fair value of the portion of the award related to a market condition. Restricted
stock units (“RSU”) enable the recipient to receive the shares once they are vested but with no voting rights until the shares are
received. RSUs are entitled to receive dividends. Restricted stock awards (“RSA”) entitle the recipient to vote the shares of
stock but the recipient does not receive the shares until they are fully vested. RSA grants are entitled to receive dividends.
153
Performance Stock Units
The following table summarizes the Company’s PSU activity for the periods indicated:
Year Ended December 31,
2022
2021
Nonvested at beginning of period
Granted during the period
Vested during the period
Forfeited during the period
Nonvested at end of period
Weighted
Average Grant
Date Fair Value
28.86
27.98
27.22
29.03
28.54
Shares
1,215,576 $
542,175
(26,252)
(245,896)
1,485,603 $
Weighted
Average Grant
Date Fair Value
30.16
28.75
33.18
28.71
28.86
Shares
343,503 $
975,576
(78,084)
(25,419)
1,215,576 $
The Company recorded $10.6 million, $0.5 million, and $7.1 million of compensation expense related to the PSUs in
2022, 2021, and 2020, respectively. At December 31, 2022, there was $24.0 million of unrecognized compensation cost related
to PSUs that is expected to be recognized over a weighted average period of 1.90 years.
Restricted Stock Units
The following table summarizes the Company’s RSU activity for the periods indicated:
Year Ended December 31,
2022
2021
Nonvested at beginning of period
Granted during the period
Vested during the period
Forfeited during the period
Nonvested at end of period
Weighted
Average Grant
Date Fair Value
28.76
28.03
28.92
28.57
28.53
Shares
2,288,759 $
710,966
(422,175)
(141,748)
2,435,802 $
Weighted
Average Grant
Date Fair Value
—
28.76
28.76
28.41
28.76
Shares
— $
2,386,246
(69,798)
(27,689)
2,288,759 $
The Company recorded $21.8 million, $7.5 million, and $0.5 million of compensation expense related to the RSUs in
2022, 2021, and 2020, respectively. These amounts included approximately $1.5 million, $0.7 million, and $0.5 million related
to RSUs issued to the Company’s directors during 2022, 2021, and 2020, respectively. At December 31, 2022, there was $39.7
million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted average period of
2.55 years.
Restricted Stock Awards
The following table summarizes the Company’s RSA activity for the periods indicated:
Year Ended December 31,
2022
2021
Nonvested at beginning of period
Vested during the period
Forfeited during the period
Nonvested at end of period
Weighted
Average Grant
Date Fair Value
29.64
30.73
29.55
29.47
Shares
1,323,069 $
(176,925)
(90,837)
1,055,307 $
Weighted
Average Grant
Date Fair Value
29.00
25.03
30.23
29.64
Shares
1,647,282 $
(238,541)
(85,672)
1,323,069 $
154
The Company recorded $5.1 million, $8.1 million, and $10.2 million of compensation expense related to the RSAs in
2022, 2021, and 2020, respectively. At December 31, 2022, there was $7.4 million of unrecognized compensation cost related
to RSAs that is expected to be recognized over a weighted average period of 1.93 years.
The following table presents information regarding the vesting of the Company’s nonvested share-based compensation
grants outstanding at December 31, 2022:
Period Ending
2023
2024
2025
2026
2027
Total nonvested shares
Stock Options
PSU
Number of Shares
RSU
RSA
394,482
573,884
517,237
—
—
1,485,603
374,558
942,164
—
1,119,080
—
2,435,802
384,489
353,071
281,247
—
36,500
1,055,307
Key employees and directors of the Company may be granted stock options. Compensation expense is measured using
estimates of fair value of all stock-based awards. No stock options were granted during 2022, 2021, and 2020. However, the
Company assumed outstanding stock options from its acquisition of Legacy Cadence in October 2021. The outstanding options
were converted according to the exchange rate used in the acquisition and became fully vested at that time. At the acquisition
date, options outstanding totaled 1,121,994 and had a weighted average exercise price of $27.40. The Company recorded $51
thousand of compensation expense related to the stock options for 2022. The Company recorded no compensation expense
related to the stock options for 2021 and 2020. At December 31, 2022, there were 1,121,994 unexpired options outstanding
which are set to expire in the first quarter of 2026.
NOTE 16. EARNINGS PER SHARE AND DIVIDEND DATA
Basic and diluted earnings per share (“EPS”) are calculated in accordance with ASC 260, Earnings Per Share. Basic
EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is computed using the weighted-average number of shares determined for the basic EPS
computation plus the shares resulting from the assumed exercise of all outstanding share-based awards using the treasury stock
method. There were approximately 119 thousand and 325 thousand antidilutive equity awards excluded from dilutive shares for
the years ended December 31, 2022 and 2021, respectively. There were no antidilutive other equity awards for 2020.
The following table provides a reconciliation of the numerators and denominators of the basic and diluted EPS
computations for the periods indicated:
(In thousands, except per share amounts)
Net income
Less: preferred stock dividends
Net income available to common shareholders
Weighted average common shares outstanding
Dilutive effect of stock compensation
Weighted average diluted common shares
Net income per common share, basic
Net income per common share, diluted
Year Ended December 31,
2021
2022
2020
$
$
$
$
463,237 $
9,488
453,749 $
183,510
988
184,498
2.47 $
2.46 $
195,162 $
9,488
185,674 $
120,250
419
120,669
1.54 $
1.54 $
228,051
9,488
218,563
103,023
282
103,305
2.12
2.12
Dividends to shareholders are subject to approval by the applicable state regulatory authority.
155
NOTE 17. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (“AOCI”)
The following tables present the components of other comprehensive (loss) income and the related tax effects allocated
to each component for each of the years ended December 31:
(In thousands)
Unrealized losses on available-for-sale securities:
Unrealized losses arising during holding period
Reclassification adjustment for net losses realized in net income (1)
Net change in unrealized losses on available-for-sale securities
Recognized employee benefit plan net periodic benefit cost (2)
Other comprehensive loss
Net income
Comprehensive loss
(In thousands)
Unrealized losses on available-for-sale securities:
Unrealized losses arising during holding period
Reclassification adjustment for net gains realized in net income (1)
Net change in unrealized losses on available-for-sale securities
Recognized employee benefit plan net periodic benefit cost (2)
Other comprehensive loss
Net income
Comprehensive income
(In thousands)
Unrealized gains on available-for-sale securities:
Unrealized gains arising during holding period
Reclassification adjustment for net losses realized in net income (1)
Net change in unrealized gains on available-for-sale securities
Recognized employee benefit plan net periodic benefit cost (2)
Other comprehensive income
Net income
Comprehensive income
Before Tax
Amount
2022
Tax
Effect
Net of Tax
Amount
(595)
(1,436,118)
$ (1,435,523) $ 339,070 $ (1,096,453)
(454)
(1,096,907)
13,738
$ (1,418,132) $ 334,963 $ (1,083,169)
141
339,211
(4,248)
17,986
463,237
$ (619,932)
Before Tax
Amount
2021
Tax
Effect
Net of Tax
Amount
$ (201,843) $
132
(201,711)
120
$ (201,591) $
(33)
50,329
50,362 $ (151,481)
99
(151,382)
90
50,299 $ (151,292)
195,162
43,870
(30)
$
Before Tax
Amount
2020
Tax
Effect
Net of Tax
Amount
$
88,225
(87)
88,138
11,243
99,381 $
$
(22,012) $
22
(21,990)
(2,805)
(24,795) $
66,213
(65)
66,148
8,438
74,586
228,051
$ 302,637
(1) Reclassification adjustments for net (losses) gains on available-for-sale securities are reported as security (losses) gains, net on the
consolidated statements of income.
(2) Recognized employee benefit plan net periodic benefit cost includes recognized prior service cost and recognized net loss. For more
information, see Note 13 “Pension, Other Post Retirement Benefit and Profit Sharing Plans”.
156
Activity within the balances in accumulated other comprehensive income (loss) is shown in the following table for the
periods indicated:
(In thousands)
Balance at December 31, 2019
Net change
Balance at December 31, 2020
Net change
Balance at December 31, 2021
Net change
Balance at December 31, 2022
Unrealized
gain (loss) on
available-for-sale
securities
Pension and other
postretirement
benefits
Accumulated other
comprehensive
income (loss)
$
$
9,669 $
66,148
75,817
(151,382)
(75,565)
(1,096,907)
(1,172,472) $
(72,332) $
8,438
(63,894)
90
(63,804)
13,738
(50,066) $
(62,663)
74,586
11,923
(151,292)
(139,369)
(1,083,169)
(1,222,538)
NOTE 18. RELATED PARTY TRANSACTIONS
The Company has entered into loans and/or other banking or financial services transactions in the ordinary course of
business with our directors and executive officers and their affiliates, and expects to have such transactions in the future. In
management’s opinion, these transactions were made on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and did not involve more than the normal risk of collectability or present any other
unfavorable features.
A summary of outstanding loans is as follows:
(In thousands)
Loans outstanding at December 31, 2021
New loans to related parties
Repayments
Changes in directors and executive officers
Loans outstanding at December 31, 2022
NOTE 19. MORTGAGE SERVICING RIGHTS ("MSR")
Amount
16,389
26,321
(5,485)
716
37,941
$
$
The MSR, which are recognized as a separate asset on the date the corresponding mortgage loan is sold on a servicing
retained basis, is recorded at fair value as determined at each accounting period end. An estimate of the fair value of the
Company’s MSR is determined utilizing assumptions about factors such as mortgage interest rates, discount rates, mortgage
loan prepayment speeds, market trends and industry demand. Data and assumptions used in the fair value calculation related to
the MSR were as follows:
(Dollars in thousands)
Unpaid principal balance
Weighted-average prepayment speed (CPR)
Average discount rate (annual percentage)
Weighted-average coupon interest rate (percentage)
Weighted-average remaining maturity (months)
Weighted-average servicing fee (basis points)
December 31, 2022
$
7,682,074 $
December 31, 2021
7,553,917 $
11.6
9.4
3.5
332.0
27.8
December 31, 2020
7,330,293
15.6
9.5
3.8
332.0
27.5
7.2
10.0
3.6
335.0
28.4
Because the valuation is determined by using discounted cash flow models, the primary risk inherent in valuing the
MSR is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream. The use of different
estimates or assumptions could produce different fair values. At December 31, 2022, 2021, and 2020, the Company had an
economic hedge in place designed to cover approximately 47.9%, 33.1%, and 16.7%, respectively, of the MSR (see Note 22 for
additional information). The Company is susceptible to fluctuations in the fair value of its MSR in changing interest rate
environments.
157
The Company services a class of residential mortgages that are first lien loans secured by a primary residence or
second home. The following table presents changes in the fair value of the MSR related to the activity in this class for the
periods indicated:
(In thousands)
Fair value, beginning of period
Originations of servicing assets
Changes in fair value:
Due to payoffs/paydowns
Due to change in valuation inputs or assumptions used in the
valuation model
Other changes in fair value
Fair value, end of period
Year Ended December 31,
2021
2020
2022
69,552 $
16,289
47,571 $
23,927
57,109
21,025
(11,792)
(13,961)
(12,746)
35,695
—
109,744 $
12,015
—
69,552 $
(17,816)
(1)
47,571
$
$
All of the changes to the fair value of the MSR are recorded as part of mortgage banking revenue in the consolidated
statements of income. As part of mortgage banking noninterest revenue, the Company recorded contractual servicing fees of
$21.7 million, $20.8 million, and $19.3 million, and late and other ancillary fees of $2.4 million, $1.2 million, and $6.8 million
for the years ended December 31, 2022, 2021, and 2020, respectively.
NOTE 20. CAPITAL AND REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered by the federal and state banking
agencies. Regulatory capital ratios at December 31, 2022 and 2021 were calculated in accordance with the Basel III capital
framework as well as the interagency final rule published on September 30, 2020 entitled “Revised Transition of the Current
Expected Credit Losses Methodology for Allowances.” Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse
effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s
assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital
amounts and classification are also subject to qualitative judgments by regulators about components, risk weightings and other
factors. Quantitative measures established by the FDIC to ensure capital adequacy require the Company to maintain minimum
capital amounts and ratios.
158
The actual capital amounts and ratios for the Company are presented in the following tables and as shown, exceed the
thresholds necessary to be considered “well capitalized.” Management believes that no events or changes have occurred
subsequent to the indicated dates that would change this designation.
(Dollars in thousands)
Actual:
December 31, 2022
Ratio
Amount
December 31, 2021
Ratio
Amount
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
$ 3,880,508
4,047,501
4,861,521
4,047,501
10.22 % $ 3,754,848
3,921,841
10.66
4,683,361
12.81
3,921,841
8.43
11.11 %
11.61
13.86
9.90
Minimum requirement:
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
Well capitalized requirement under prompt corrective action
provisions:
Common equity Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
Tier 1 leverage capital (to average assets)
1,708,370
2,277,827
3,037,103
1,920,777
2,467,646
3,037,103
3,796,379
2,400,971
4.50
6.00
8.00
4.00
6.50
8.00
10.00
5.00
1,520,353
2,027,138
2,702,850
1,584,531
2,196,066
2,702,850
3,378,563
1,980,664
4.50
6.00
8.00
4.00
6.50
8.00
10.00
5.00
On December 8, 2021, the Company announced a new share repurchase program whereby the Company may acquire
up to an aggregate of 10,000,000 shares of its common stock in the open market at prevailing market prices or in privately
negotiated transactions during the period January 3, 2022 through December 30, 2022. At December 31, 2022, the Company
had repurchased 6,071,525 shares under the this repurchase program.
On December 14, 2022, the Company announced a new share repurchase program whereby the Company may acquire
up to an aggregate of 10,000,000 shares of its common stock in the open market at prevailing market prices or in privately
negotiated transactions during the period January 3, 2023 through December 29, 2023.
The extent and timing of any repurchases depends on market conditions and other corporate, legal and regulatory
considerations. Repurchased shares are held as authorized and unissued shares. These authorized but unissued shares are
available for use in the Company’s stock compensation programs, other transactions, or for other corporate purposes as
determined by the Company’s Board of Directors.
Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends that the
Company may declare and pay. Under Mississippi law, the Company cannot pay any dividend on its common stock unless it
has received written approval of the Commissioner of the Mississippi Department of Banking and Consumer Finance
(“MDBCF”). The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital
base to an inadequate level would be an unsafe and unsound banking practice. Moreover, the federal agencies have issued
policy statements providing that insured banks should generally only pay dividends out of current operating earnings.
NOTE 21. SEGMENT REPORTING
The Company determines operating segments based upon the services offered, the significance of those services to the
Company's financial condition and operating results, and management's regular review of the operating results of those
services. During the fourth quarter of 2021, the Company reorganized its internal management structure and, accordingly, its
operating segment reporting structure. On October 29, 2021, Cadence Bank closed its previously announced merger in which
Legacy Cadence merged into BancorpSouth, with BancorpSouth as the surviving company. Upon the completion of the merger,
BancorpSouth was renamed Cadence Bank. This transaction prompted organizational changes to better integrate and execute
159
the combined Company's strategic priorities across all lines of business. As a result, the Company revised its operating
segments as described below.
Historically, BancorpSouth had five operating segments: Banking Services, Mortgage, Wealth Management, Insurance
Agencies, and General Corporate and Other.
•
Banking Services segment provided all traditional banking products and services, including commercial or consumer
loans, and deposits.
• Mortgage segment included mortgage banking activities of originating mortgage loans, selling mortgage loans in the
secondary market and servicing the mortgage loans that were sold on a servicing-retained basis.
• Wealth Management segment offered individuals, businesses, governmental institutions and non-profit entities a wide
range of solutions to help protect, grow and transfer wealth. Offerings included credit-related products, trust and
investment management, asset management, retirement and savings solutions, estate planning, and annuity products.
•
•
Insurance Agencies segment provided service as agents in the sale of commercial lines of insurance and full lines of
property and casualty, life, health, and employee benefit products and services.
General Corporate and Other segment included other activities not allocated to other aforementioned operating
segments.
During the finalization of the merger between BancorpSouth and Cadence Bancorporation, the new Cadence Bank's
management reviewed the existing operating segment reporting formats for each legacy entity to determine how Cadence’s
business would be managed. After review and discussion including key members of senior management, it was determined
effective October 29, 2021, Cadence will make operating decisions based on the following six operating segments as described
below.
•
•
Corporate Banking segment focuses on C&I, business banking, and commercial real estate lending to clients in the
geographic footprint.
Community Banking segment provides a broad range of banking services through the branch network to serve the
needs of community businesses and individual consumers in the geographic footprint.
• Mortgage segment includes mortgage banking activities of originating mortgage loans, selling mortgage loans in the
secondary market and servicing the mortgage loans that are sold on a servicing retained basis.
•
•
•
Insurance Agencies segment provides service as agents in the sale of commercial lines of insurance and full lines of
property and casualty, life health and employee benefit products and services.
Banking Services segment offers individuals, businesses, governmental institutions, and non-profit entities a wide
range of solutions to help protect, grow, and transfer wealth. Offerings include credit-related products, trust and
investment management, asset management, retirement and savings solutions, estate planning and annuity products.
General Corporate and Other segment includes other activities not allocated to other aforementioned operating
segments. Additionally, intercompany elimination are included as they do not reflect normal operations of the other
segments The disaggregation of General Corporate and Other better defines the results from the individual segments
due to the direct relationship of the internal support provided by the strategic business units within the Bank.
Subsequent to the merger of Cadence Bancorporation and BancorpSouth to form the new Cadence Bank, the Company
made significant changes to the structure of our internal organization that caused the composition of our operating segments to
change. As such, segment information for the year 2020 has not been restated to conform to the current period presentation
because it would be impracticable to do so. In addition, segment information for the years 2022 and 2021 have not been
disclosed under the old basis of segmentation as required by GAAP because such information is not available and impracticable
to maintain.
160
Results of operations and selected financial information by operating segment for periods indicated are presented in
the following tables:
Corporate
Banking
Community
Banking
Mortgage
Insurance
Agencies
Banking
Services
General
Corporate
and Other
Total
(In thousands)
Results of Operations
Year Ended December 31, 2022
Net interest revenue
$
Provision (release) for credit losses
466,335 $
50,914
587,335 $
(77,277)
127,727 $
33,635
12 $
—
14,192 $
(272)
155,702 $ 1,351,303
7,000
—
Net interest revenue after
provision for credit losses
Noninterest revenue
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Selected Financial Information
Total assets at end of period
(In thousands)
Results of Operations
Year Ended December 31, 2021
Net interest revenue
Provision for credit losses
Net interest revenue after
provision for credit losses
Noninterest revenue
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Selected Financial Information
Total assets at end of period
415,421
53,628
98,919
370,130
82,814
$
287,316 $
664,612
110,961
364,843
410,730
92,040
318,690 $
94,092
44,725
51,780
87,037
19,408
67,629 $
12
160,102
135,772
24,342
5,589
18,753 $
14,464
84,931
75,790
23,605
5,289
18,316 $
155,702
38,685
510,856
(316,469)
(69,002)
(247,467) $
1,344,303
493,032
1,237,960
599,375
136,138
463,237
$ 10,597,552 $ 17,126,057 $ 4,318,010 $
364,266 $ 1,006,337 $ 15,241,192 $ 48,653,414
Corporate
Banking
Community
Banking
Mortgage
Insurance
Agencies
Banking
Services
General
Corporate
and Other
Total
$
69,509 $
123,801
562,302 $
9,832
57,349 $
4,429
16 $
—
4,648 $
—
111,903 $
—
805,727
138,062
(54,292)
6,768
19,818
(67,342)
12,402
(79,744) $
552,470
84,864
287,697
349,637
74,093
275,544 $
52,920
57,912
34,338
76,494
16,198
60,296 $
16
137,529
114,272
23,273
4,760
18,513 $
4,648
42,705
31,120
16,233
3,251
12,982 $
111,903
48,375
311,645
(151,367)
(58,938)
(92,429) $
667,665
378,153
798,890
246,928
51,766
195,162
$
$ 8,026,776 $ 15,593,803 $ 3,633,213 $
326,711 $ 1,114,550 $ 18,974,698 $ 47,669,751
(In thousands)
Results of Operations
Year Ended December 31, 2020
Results of Operations
Net interest revenue
Provision for credit losses
Net interest revenue after provision for
credit losses
Noninterest revenue
Noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Selected Financial Information
Total assets at end of period
Banking
Services
Group
Mortgage
Insurance
Agencies
Wealth
Management
General
Corporate
and Other
Total
$
664,722 $
—
39,366 $
—
39 $
—
23 $
—
(13,183) $
89,044
690,967
89,044
664,722
81,792
416,693
329,821
68,466
261,355 $
39,366
86,295
27,227
98,434
20,884
77,550 $
39
130,739
109,286
21,492
5,708
15,784 $
23
28,528
18,508
10,043
2,131
7,912 $
(102,227)
9,150
79,168
(172,245)
(37,695)
(134,550) $
601,923
336,504
650,882
287,545
59,494
228,051
$
$ 20,450,240 $ 1,586,658 $
296,495 $
51,606 $ 1,696,195 $ 24,081,194
161
The following table shows revenue disaggregated by operating segment for non-interest revenue type for the following
periods indicated:
(In thousands)
Year Ended December 31, 2022
Noninterest Income
In Scope of Topic 606
Credit card, debit card and
merchant fees
Deposit service charges
Insurance commissions
Trust income
Brokerage commissions and fees
Total noninterest income (in-scope
of Topic 606)
Total noninterest income (out-of-
scope of Topic 606)
Total noninterest income
(In thousands)
Year Ended December 31, 2021
Noninterest Income
In Scope of Topic 606
Credit card, debit card and
merchant fees
Deposit service charges
Insurance commissions
Trust income
Brokerage commissions and fees
Total noninterest income (in-scope
of Topic 606)
Total noninterest income (out-of-
scope of Topic 606)
Total noninterest income
Corporate
Banking
Community
Banking
Mortgage
Insurance
Agencies
Banking
Services
General
Corporate
and Other
Total
$
522 $
15,015
—
—
—
40,855 $
58,232
—
—
—
— $
—
—
—
—
— $
—
151,853
—
—
18 $
1,661
—
40,473
39,775
16,765 $
(1,430)
(1,578)
(3,159)
(232)
58,160
73,478
150,275
37,314
39,543
15,537
99,087
—
151,853
81,927
10,366
358,770
38,091
53,628 $ 110,961 $
11,874
44,725
44,725 $ 160,102 $
8,249
3,004
84,931 $
28,319
134,262
38,685 $ 493,032
$
Corporate
Banking
Community
Banking
Mortgage
Insurance
Agencies
Banking
Services
General
Corporate
and Other
Total
$
81 $
2,493
—
—
—
32,478 $
42,774
—
—
—
— $
—
—
—
—
— $
—
135,183
—
—
1 $
359
—
22,190
16,731
10,076 $
792
—
—
—
42,636
46,418
135,183
22,190
16,731
2,574
75,252
—
135,183
39,281
10,868
263,158
4,194
6,768 $
9,612
84,864 $
57,912
57,912 $ 137,529 $
2,346
3,424
42,705 $
114,995
37,507
48,375 $ 378,153
$
(In thousands)
Year Ended December 31, 2020
Noninterest Income
In Scope of Topic 606
Credit card, debit card and merchant
fees
Deposit service charges
Insurance commissions
Trust income
Brokerage commissions and fees
Total noninterest income (in-scope of
Topic 606)
Total noninterest income (out-of-scope of
Topic 606)
Total noninterest income
Banking
Services
Group
Mortgage
Insurance
Agencies
Wealth
Management
General
Corporate
and Other
Total
$
35,972 $
40,181
—
—
—
— $
—
—
—
—
— $
—
125,286
—
—
— $
—
—
16,025
9,973
— $
—
—
—
—
35,972
40,181
125,286
16,025
9,973
76,153
—
125,286
25,998
—
227,437
5,639
81,792 $
86,295
86,295 $
5,453
130,739 $
$
2,530
28,528 $
9,150
9,150 $
109,067
336,504
162
NOTE 22. DERIVATIVE INSTRUMENTS
The Company primarily uses derivatives to manage exposure to market risk, including interest rate risk, credit risk and
foreign currency risk, and to assist customers with their risk management objectives. Management may designate certain
derivatives as hedging instruments in a qualifying hedge accounting relationship. The Company’s derivative instruments consist
of economic hedges that do not qualify for hedge accounting and derivatives held for customer accommodation, or other
purposes.
The fair value of derivative positions outstanding is included in other assets and other liabilities in the accompanying
consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying
consolidated statements of cash flows. For derivatives not designated as hedging instruments or determined to be an ineffective
hedge under the accounting guidance, gains and losses due to changes in fair value are included in noninterest income and the
operating section of the consolidated statements of cash flows. For derivatives designated as cash flow hedging instruments, the
entire change in the fair value related to the derivative instrument is recognized as a component of other comprehensive income
and subsequently reclassified into interest income when the forecasted transaction affects income. At December 31, 2022, there
were no derivatives designated under hedge accounting. The notional amounts and estimated fair values at December 31, 2022
and 2021 were as follows:
December 31, 2022
December 31, 2021
Fair Value
Fair Value
(In thousands)
Commercial loan interest rate swaps
Commercial loan interest rate caps
Commercial loan interest rate floors
Mortgage loan held-for-sale interest rate lock
commitments
U.S. Treasury futures (used to hedge MSR, see
Note 19)
U.S. Treasury options (used to hedge MSR, see
Note 19)
Mortgage loan forward sale commitments
Mortgage loan held-for-sale floating
commitments
Foreign exchange contracts
Total derivatives
Notional
Amount
Other
Assets
Other
Liabilities
Notional
Amount
Other
Assets
$ 1,999,561 $ 13,102 $ 39,818 $ 1,039,260 $ 12,725 $
47,090
500,668
47,699
147,000
23,000
71,028
669
12,129
669
12,129
106,042
336,200
44
4,798
856
45
—
175
431
189,765
4,675
170
83
551
78,000
—
298,398
732
—
218
—
117,822
—
2,319
$ 2,953,868 $ 29,421 $ 56,170 $ 2,118,493 $ 23,347 $
337
70,491
—
2,445
—
155
Other
Liabilities
3,645
44
4,798
21
6
—
371
—
181
9,066
The Company is party to collateral support agreements with certain derivative counterparties. Such agreements require
that the Company maintain collateral based on the fair values of derivative transactions. In the event of default by the Company,
the counterparty would be entitled to the collateral. At December 31, 2022 and 2021, the Company was required to post
$47.0 million and $22.2 million, respectively, in cash or securities as collateral for its derivative transactions, which are
included in “interest bearing deposits in banks” on the Company’s consolidated balance sheets. In addition, the Company had
recorded the obligation to return cash collateral provided by counterparties of $25.0 million and $0.3 million at December 31,
2022 and 2021, respectively, within deposits on the Company’s consolidated balance sheet. Certain financial instruments, such
as derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or
similar agreements. The Company’s derivative transactions with upstream financial institution counterparties are generally
executed under International Swaps and Derivative Association master agreements which include “right of set-off” provisions.
In such cases, there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle
such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial
reporting purposes.
The Company records gains and losses for derivatives not designated as hedging instruments in noninterest income on
the consolidated statements of income. For the years ended December 31, 2022 and 2021, mortgage loans held for sale interest
rate lock commitments incurred losses of $8.0 million and $18.5 million, respectively, while having gains of $19.6 million for
the year ended December 31, 2020. The Company acquired foreign exchange contracts in the merger with Legacy Cadence
during 2021. Foreign exchange contract gains totaled $4.7 million, $0.7 million, $0.0 for the years ended December 31, 2022,
2021, and 2020, respectively.
163
The Company enters into certain interest rate swaps, floors, and caps on commercial loans that are not designated as
hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate
agreement with a loan customer while at the same time entering into an offsetting interest rate agreement with another financial
institution. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount
at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the
same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and
receive the same variable interest rate on the same notional amount. The interest rate swap transaction allows the Company’s
customer to effectively convert a variable rate loan to a fixed rate. The interest rate cap transaction allows the Company’s
customer to minimize interest rate risk exposure to rising interest rates. Because the Company acts as an intermediary for its
customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not
significantly impact the Company’s consolidated statements of income. The Company is exposed to credit loss in the event of
nonperformance by the parties to the interest rate agreements. However, the Company does not anticipate nonperformance by
the counterparties. The estimated fair value has been recorded as an asset and a corresponding liability in the accompanying
consolidated balance sheets at December 31, 2022 and 2021.
The Company has both bought and sold credit protection in the form of participations on interest rate swaps (swap
participations). These swap participations, which meet the definition of credit derivatives, were entered into in the ordinary
course of business to serve the credit needs of customers. Swap participations, whereby the Company has purchased credit
protection, entitle the Company to receive a payment from the counterparty if the customer fails to make payment on any
amounts due to the Company upon early termination of the swap transaction. For contracts where the Company sold credit
protection, the Company would be required to make payment to the counterparty if the customer fails to make payment on any
amounts due to the counterparty upon early termination of the swap transaction. Swap participation agreements where the
Company is the beneficiary had notional values totaling $153.7 million and $106.4 million at December 31, 2022 and 2021,
respectively. Swap participation agreements where the Company is the guarantor had notional values totaling $215.9 million
and $549.7 million at December 31, 2022 and 2021, respectively.
Other derivative instruments held by the Company include commitments to fund fixed-rate mortgage loans held for
sale to customers and forward commitments to sell individual, fixed-rate mortgage loans. The Company’s objective in obtaining
the forward commitments is to mitigate the interest rate risk associated with the commitments to fund the fixed-rate mortgage
loans. Both the commitments to fund fixed-rate mortgage loans and the forward commitments to sell individual fixed-rate
mortgage loans are reported at fair value, with adjustments being recorded in current period earnings, and are not accounted for
as hedges.
NOTE 23. COMMITMENTS AND CONTINGENT LIABILITIES
Mortgage Loans Serviced for Others
The Company services mortgage loans for other financial institutions that are not included as assets in the Company’s
accompanying consolidated financial statements. Included in the $7.7 billion of loans serviced for investors at December 31,
2022 was $1.3 million of primary recourse servicing pursuant to which the Company is responsible for any losses incurred in
the event of nonperformance by the mortgagor. The Company's exposure to credit loss in the event of such nonperformance is
the unpaid principal balance at the time of default. This exposure is limited by the underlying collateral, which consists of
single family residences and either federal or private mortgage insurance.
Lending Commitments
The consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the
normal course of banking business and which involve elements of credit risk, interest rate risk, and liquidity risk. Such financial
instruments are recorded when they are funded. At December 31, 2022, these included $691.2 million in letters of credit and
$11.2 billion in unfunded extensions of credit such as interim mortgage financing, construction credit, credit card and revolving
line of credit arrangements.
Commitments to extend credit and letters of credit include some exposure to credit loss in the event of nonperformance
of the customer. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. In addition, the Company has entered certain contingent commitments to grant loans.
Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The
credit policies and procedures for such commitments are the same as those used for lending activities. Because these
instruments have fixed maturity dates and because a number expire without being drawn upon, they generally do not present
164
any significant liquidity risk. The Company did not realize significant credit losses from these commitments and arrangements
during the years ended December 31, 2022, 2021 and 2020.
Other Commitments
The Company makes investments in limited partnerships, including certain affordable housing partnerships for which
tax credits are received. At December 31, 2022 and December 31, 2021, unfunded capital commitments totaled $186.7 million
and $123.1 million, respectively. See Note 25 for more information.
Litigation
The nature of the Company’s business ordinarily results in certain types of claims, litigation, investigations and legal
and administrative cases and proceedings. Although the Company and its subsidiaries have developed policies and procedures
to minimize legal noncompliance and the impact of claims and other proceedings and endeavored to procure reasonable
amounts of insurance coverage, litigation and regulatory actions present an ongoing risk.
The Company and its subsidiaries are engaged in lines of business that are heavily regulated and involve a large
volume of financial transactions and potential transactions with numerous customers or applicants, and the Company is a public
company with a large number of shareholders. From time to time, applicants, borrowers, customers, shareholders, former
employees and other third parties have brought actions against the Company or its subsidiaries, in some cases claiming
substantial damages. Financial services companies are subject to the risk of class action litigation, and, from time to time, the
Company and its subsidiaries are subject to such actions brought against it. Additionally, the Company is, and management
expects it to be, engaged in a number of foreclosure proceedings and other collection actions as part of its lending and leasing
collections activities, which, from time to time, have resulted in counterclaims against the Company and its subsidiaries.
Various legal proceedings have arisen and may arise in the future out of claims against entities to which the Company is a
successor as a result of business combinations. The Company and its subsidiaries may also be subject to enforcement actions by
federal or state regulators, including the FDIC, the CFPB, the DOJ, state attorneys general, and the MDBCF.
When and as the Company determines it has meritorious defenses to the claims asserted, it vigorously defends against
such claims. The Company will consider settlement of claims when, in management’s judgment and in consultation with
counsel, it is in the best interests of the Company to do so.
The Company cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of
litigation and other proceedings filed by or against it, its subsidiaries and its directors, management or employees, including
remedies or damage awards. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection
with outstanding legal proceedings as well as certain threatened claims (which are not considered incidental to the ordinary
conduct of the Company’s business) utilizing the latest and most reliable information available. For matters where a loss is not
probable or the amount of the loss cannot be estimated, no accrual is established. For matters where it is probable the Company
will incur a loss and the amount can be reasonably estimated, the Company establishes an accrual for the loss. Once established,
the accrual is adjusted periodically to reflect any relevant developments. The actual cost of any outstanding legal proceedings
and the potential loss, however, may turn out to be substantially higher than the amount accrued. Further, the Company’s
insurance policies have deductibles and coverage limits, and such policies will likely not cover all costs and expenses related to
the defense or prosecution of such legal proceedings or any losses arising therefrom.
Although the final outcome of any legal proceedings is inherently uncertain, based on the information available, advice
of counsel and available insurance coverage, if applicable, management believes that the litigation-related liability of
$0.3 million accrued at December 31, 2022 is adequate and that any incremental change in potential liability arising from the
Company’s legal proceedings and threatened claims, including the matters described herein and those otherwise arising in the
ordinary course of business, will not have a material adverse effect on the Company’s business or consolidated results of
operations or financial condition. It is possible, however, that future developments could result in an unfavorable outcome for
or resolution of any one or more of the legal proceedings in which the Company or its subsidiaries are defendants, which may
be material to the Company’s business or consolidated results of operations or financial condition for a particular fiscal period
or periods.
On August 30, 2021, Legacy Cadence Bank and the DOJ agreed to a settlement set forth in the consent order related to
the investigation by the DOJ of Legacy Cadence Bank’s fair lending program in Harris, Fort Bend and Montgomery Counties
located in Houston, Texas during the period between 2014 and 2016 (the “Consent Order”). The Consent Order was signed by
the United States District Court for the Northern District of Georgia, Atlanta Division, on August 31, 2021. Pursuant to Section
5.2(g) of the Agreement and Plan of Merger and Paragraph 50 of the Consent Order, Legacy BancorpSouth Bank approved the
165
negotiated settlement, and subsequently, the Company agreed to accept the obligations of the Consent Order. The Consent
Order is in effect for five years. For additional information regarding the terms of this settlement and the Consent Order, see
Legacy Cadence’s Current Report on Form 8-K that was filed with the SEC on August 30, 2021.
NOTE 24. OTHER NONINTEREST INCOME AND EXPENSE
The following table details other noninterest income for the periods indicated:
(In thousands)
Credit related fees
Bank-owned life insurance
SBA income
Other miscellaneous income
Total other noninterest income
Year Ended December 31,
2021
2022
2020
$
$
26,768 $
15,594
15,341
28,454
86,157 $
4,979 $
11,180
438
18,582
35,179 $
2,133
8,181
(239)
12,466
22,541
The following table details other noninterest expense for the periods indicated:
(In thousands)
Advertising and public relations
Foreclosed property expense
Telecommunications
Travel and entertainment
Professional, consulting, and outsourcing
Legal fees
Postage and shipping
Other miscellaneous expense
Total other noninterest expense
Year Ended December 31,
2021
2020
2022
$
$
41,754 $
832
7,413
15,682
13,828
6,068
8,079
66,362
160,018 $
10,780 $
4,548
6,240
6,319
7,465
4,036
6,050
42,894
88,332 $
6,908
4,074
5,883
4,949
3,480
3,431
5,256
43,059
77,040
NOTE 25. VARIABLE INTEREST ENTITIES AND OTHER INVESTMENTS
Under ASC 810-10-65, the Company is deemed to be the primary beneficiary and required to consolidate a variable
interest entity (“VIE”) if it has a variable interest in the VIE that provides a controlling financial interest. The determination of
whether a controlling financial interest exists is based on whether a single party has both the power to direct the activities of the
VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses of the VIE or the
right to receive benefits from the VIE that could potentially be significant to the VIE. ASC 810-10-65 requires continual
reconsideration of conclusions reached regarding which interest holder is a VIE’s primary beneficiary. Our consolidated VIEs
were insignificant at both December 31, 2022 and December 31, 2021.
The Company is invested in several tax credit projects as a limited partner. At December 31, 2022 and December 31,
2021, the Company’s maximum exposure to loss associated with these limited partnerships was limited to its investment. Most
of the investments are in affordable housing projects. The partnerships have qualified to receive annual affordable housing
federal tax credits that are recognized as a reduction of current tax expense. Under the effective yield method, the Company
recognizes the tax credits as they are allocated and amortizes the initial costs of the investments to provide a constant effective
yield over the period the tax credits are allocated. Under the proportional amortization method, the Company amortizes the cost
of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance
in the income statement as a component of income tax expense. The Company also has, to a lesser degree, investments in new
markets tax credit and historic tax credit projects. These types of investments are accounted for by either the deferred method or
the flow-through method. The Company has elected to account for these investments using the flow-through method which
reduces federal income taxes in the year in which the credit arises. At December 31, 2022 and December 31, 2021, the
Company recorded these tax credit investments in other assets on its consolidated balance sheets of approximately $234.5
million and $140.6 million, respectively, related to these investments.
166
Additionally, the Company has investments in other certain limited partnerships accounted for under the fair value
practical expedient of net asset value (“NAV”) totaling $67.5 million and $46.8 million at December 31, 2022 and
December 31, 2021, respectively. Related to these assets recorded at fair value through net income, the Company recognized
net gains of $7.8 million and $1.6 million for the years ended December 31, 2022 and 2021, respectively.
Other limited partnerships without readily determinable fair values that do not qualify for the practical expedient are
accounted for at their cost minus impairment, plus or minus changes resulting from observable price changes in orderly
transactions for the identical or a similar investment of the same issuer. These investments totaled $2.0 million and $4.6 million
at December 31, 2022 and December 31, 2021, respectively. Other limited partnerships accounted for under the equity method
totaled $13.1 million and $23.6 million at December 31, 2022 and December 31, 2021, respectively. The decrease in
investments measured under the equity method was due to an impairment of the Company’s equity position in response to a
future sale of the underlying assets. The following table presents a summary of the Company’s investments in limited
partnerships as of:
(In thousands)
Tax credit investments (amortized cost)
Limited partnerships accounted for under the fair value practical expedient of
NAV
Limited partnerships without readily determinable fair values that do not
qualify for the practical expedient of NAV accounted for under the cost
method
Limited partnerships required to be accounted for under the equity method
December 31, 2022
December 31, 2021
$
234,492 $
140,619
67,533
46,750
1,968
13,055
4,563
23,622
215,554
Total investments in limited partnerships
$
317,048 $
Equity investments with readily determinable fair values not held for trading are recorded at fair value, with changes in
fair value reported in net income (see Note 3). Cadence elected a measurement alternative to fair value for certain equity
investments in limited partnerships described above without a readily determinable fair value. During the years ended and at
December 31, 2022 and 2021, there were no downward and upward adjustments to these investments for impairments or price
changes from observable transactions. The carrying amount of these equity investments in limited partnerships measured under
this measurement alternative for the specified years are as follows:
(In thousands)
Carrying value at the beginning of the year
Legacy Cadence merger
Reclassifications
Distributions
Contributions
Carrying value at the end of the year
Year Ended December 31,
2022
2021
$
$
4,563 $
27
(3,328)
(5,524)
6,230
1,968 $
526
3,668
—
(43)
412
4,563
The Company acquired net profits interests in oil and gas reserves, in connection with the merger with Legacy
Cadence. The Company has determined that these contracts meet the definition of VIEs under Topic 810, but that consolidation
is not required as the Bank is not the primary beneficiary. The net profits interests are financial instruments and recorded at
estimated fair value, which was $2.0 million at December 31, 2021, representing the maximum exposure to loss as of that date.
This asset was sold in 2022 at no gain or loss.
NOTE 26. SUBSEQUENT EVENTS
In February 2023, the Company initiated a balance sheet repositioning related to a portion of its investment securities
portfolio. The Company executed the sale of $1.5 billion in book value of available-for-sale U.S. Treasury debt securities
yielding approximately 0.70% for an estimated after-tax realized loss of approximately $39.5 million. As of December 31,
2022, these investments had an unrealized loss, net of taxes, of approximately $42.6 million.
167
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND
PROCEDURES
The Company, with the participation of its management, including the Company’s Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this
Report.
Based upon that evaluation and as of the end of the period covered by this Report, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective in
ensuring that information required to be disclosed in its reports that the Company files or submits to the FDIC under the
Exchange Act is recorded, processed, summarized and reported on a timely basis.
Pursuant to Section 404 of the Sarbanes-Oxley Act, the Company has included a report of management’s assessment
of the design and operating effectiveness of its internal controls over financial reporting as part of this Report. The Company’s
independent registered public accounting firm reported on the effectiveness of the Company’s internal control over financial
reporting. Management’s report and the independent registered public accounting firm’s report are included in Item 8 of this
Report under the captions entitled “Management’s Report on Internal Control Over Financial Reporting” and “Report of
Independent Registered Public Accounting Firm.”
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company has integrated certain continuing Legacy Cadence processes into its overall internal control over
financial reporting processes. Except for changes made in connection with this integration of Legacy Cadence, there have been
no changes in the Company’s internal control over financial reporting that occurred during the three months ended
December 31, 2022, covered by this Report that materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
168
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The required information is incorporated herein by reference to the information under the captions “Directors and
Executive Officers” and “Board of Directors, Committees and Governance” in our Proxy Statement for the Annual Meeting of
Shareholders to be held on April 26, 2023 (the “2023 Proxy Statement”), to be filed with the FDIC pursuant to Regulation 14A
under the Exchange Act within 120 days of our fiscal year end.
MATERIAL CHANGES TO PROCEDURES BY WHICH SECURITY HOLDERS MAY RECOMMEND
NOMINEES
The Company has not made any material changes to the procedures by which its shareholders may recommend
nominees to the Company’s Board of Directors since the date of the Company’s Definitive Proxy Statement for its 2022 Annual
Meeting of Shareholders.
CERTAIN CORPORATE GOVERNANCE DOCUMENTS
The Company has adopted a Code of Business Conduct and Ethics that applies to its directors, officers, and
employees. The Company has also adopted Corporate Governance Principles for its Board of Directors. These documents, as
well as the links to charters of the Audit Committee, Executive Compensation and Stock Incentive Committee and Nominating
and Corporate Governance Committee of the Board of Directors, are available on the Investor Relations page of the Company’s
website at https://ir.cadencebank.com under the tabs “Corporate Governance - Governance Documents” and “- Board
Committees,” or shareholders may request a free copy of these documents from:
Cadence Bank
Attn: Corporate Secretary
One Mississippi Plaza
201 South Spring Street
Tupelo, Mississippi 38804
(662) 680-2000
The Company intends to disclose any amendments to its Code of Business Conduct and Ethics (“Code”), or any
waiver from a provision of the Code for the Company’s principal executive officer and senior financial officers on the
Company’s Investor Relations website in lieu of any filing of such information on Form 8-K.
The other information required by this Item 10 will be presented in, and is incorporated herein by reference to,
Cadence’s Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders which will be filed with the FDIC within
120 days of our fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 will be presented in, and is incorporated herein by reference to, Cadence’s
Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders which will be filed with the FDIC within 120 days of
our fiscal year end.
169
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table provides information at December 31, 2022 with respect to compensation plans (including
individual compensation arrangements) under which shares of Company common stock are authorized for issuance:
Plan Category
Equity compensation plans approved
by shareholders (1)
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (excluding securities
related to column (a))
(c)
1,121,994
$27.39
3,106,257
(1) Excludes 1,055,307 restricted shares that were nonvested, 2,435,802 restricted stock units that were nonvested and 1,485,603
performance shares that were unearned at December 31, 2022. Equity compensation plans approved by shareholders include the Cadence
Bank Equity Incentive Plan for Non-employee Directors, the Cadence Bank Long-Term Equity Incentive Plan, the 2021 Long-Term
Equity Incentive Plan and the Amended and Restated 2015 Omnibus Incentive Plan.
The other information required by this Item 12 will be presented in, and is incorporated herein by reference to,
Cadence’s Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders which will be filed with the FDIC within
120 days of December 31, 2022.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The information required by this Item 13 will be presented in, and is incorporated herein by reference to Cadence’s
Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders which will be filed with the FDIC within 120 days of
December 31, 2022.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by this Item 14 will be presented in, and is incorporated herein by reference to Cadence’s
Definitive Proxy Statement for the 2023 Annual Meeting of Shareholders which will be filed with the FDIC within 120 days of
December 31, 2022.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(2)
a) Agreement and Plan of Reorganization, dated as of July 26, 2017, by and between BancorpSouth, Inc. and
BancorpSouth Bank. (Filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC
on July 27, 2017 (file number 1-12991) and incorporated herein by reference thereto).
b) Amended and Restated Agreement and Plan of Reorganization, dated as of August 15, 2017, by and between
BancorpSouth, Inc. and BancorpSouth Bank. (Filed as Exhibit 2.1 to the Company’s Current Report on Form
8-K filed with the SEC on August 15, 2017 (file number 1-12991) and incorporated herein by reference
thereto).
c) Agreement and Plan of Merger, dated as of April 12, 2021, and as amended on May 27, 2021, by and
between BancorpSouth Bank and Cadence Bancorporation. (Filed as Annex A to the Company’s Definitive
Proxy Statement/Prospectus on Schedule 14A filed with the FDIC on July 7, 2021 and incorporated herein by
reference thereto).
170
(3)
(4)
(10)
a) Amended and Restated Articles of Incorporation of the Company. (Filed as Exhibit 3.1 to the Company’s
Current Report on Form 8-K filed with the FDIC on November 1, 2017 and incorporated herein by reference
thereto).
b) Articles of Amendment to the Amended and Restated Articles of Incorporation of the Company. (Filed as
Exhibit 3.2 to the Company’s Form 8-A filed with the FDIC on November 20, 2019 and incorporated herein
by reference thereto).
c) Articles of Second Amendment to the Amended and Restated Articles of the Company. (Filed as Exhibit 3.1
to the Company’s Current Report on Form 8-K filed with the FDIC on October 29, 2021 and incorporated
herein by reference thereto).
d) Amended and Restated Bylaws of the Company. (Filed as Exhibit 3.2 to the Company’s Current Report on
Form 8-K filed with the FDIC on November 1, 2017 and incorporated herein by reference thereto).
e) First Amendment to the Amended and Restated Bylaws of the Company. (Filed as Exhibit 3(d) to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the FDIC on
February 25, 2021 and incorporated herein by reference thereto).
f)
Second Amendment to the Amended and Restated Bylaws of the Company. (Filed as Exhibit 3.2 to the
Company’s Current Report on Form 8-K filed with the FDIC on October 29, 2021 and incorporated herein by
reference thereto).
a) Specimen Common Stock Certificate. (Filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K
filed with the FDIC on November 1, 2017 and incorporated herein by reference thereto).
b) Form of Certificate Representing the Series A Preferred Stock. (Filed as Exhibit 4.1 to the Company’s Form
8-A filed with the FDIC on November 20, 2019 and incorporated herein by reference thereto).
c) Fiscal and Paying Agency agreement, dated November 20, 2019, between BancorpSouth Bank and U.S. Bank
National Association. (Filed as Exhibit 4.2 to the Company’s Form 8-A filed with the FDIC on November 20,
2019 and incorporated herein by reference thereto).
d) Form of Global Subordinated Note, dated November 20, 2019, made by BancorpSouth Bank. (Filed as
Exhibit 4.3 to the Company’s Form 8-A filed with the FDIC on November 20, 2019 and incorporated herein
by reference thereto).
e) Description of the Company’s Capital Stock. (Filed as Exhibit 4(e) to the Company’s Form 10-K filed with
the FDIC on February 27, 2020 and incorporated herein by reference thereto).
a) BancorpSouth, Inc. Supplemental Executive Retirement Plan, as amended and restated. (Filed with the SEC
as Exhibit 10(A) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (file
number 1-12991) and incorporated herein by reference thereto). †
b) Amendment to the BancorpSouth, Inc. Supplemental Executive Retirement Plan. (Filed with the SEC as
Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30,
2012 (file number 1-12991) and incorporated herein by reference thereto). †
c) Amended and Restated BancorpSouth Bank Long-Term Equity Incentive Plan. (Filed as Exhibit 10(c) to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the FDIC on
February 25, 2021 and incorporated herein by reference thereto). †
d) BancorpSouth, Inc. Amended and Restated Executive Performance Incentive Plan., effective January 1, 2020
(Filed as Exhibit 10(e) to the Company’s Annual Report on Form 10-K filed with the FDIC on February 27,
2020 and incorporated herein by reference thereto). †
e) Form of Performance Share Award Agreement. (Filed as Exhibit 10.2 to the Company’s Current Report on
Form 8-K filed with the SEC on March 7, 2007 (file number 1-12991) and incorporated herein by reference
thereto). †
Form of Long-Term Equity Incentive Plan Restricted Stock Agreement. (Filed with the SEC as Exhibit 10(E)
to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2013 (file number
1-12991) and incorporated herein by reference thereto). †
f)
171
g) Amended and Restated BancorpSouth Equity Incentive Plan for Non-Employee Directors. (Filed as Exhibit
10(g) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the
FDIC on February 25, 2021 and incorporated herein by reference thereto). †
h) Amendment to BancorpSouth, Inc. Long-Term Equity Incentive Plan. (Filed with the SEC as Exhibit 10(D)
to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (file number 1-12991)
and incorporated herein by reference thereto). †
i) BancorpSouth, Inc. Restoration Plan, as amended and restated. (Filed with the SEC as Exhibit 10(F) to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (file number 1-12991) and
incorporated herein by reference thereto). †
j) BancorpSouth, Inc. Amended and Restated Deferred Compensation Plan. (Filed with the SEC as Exhibit
10(G) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (file number
1-12991) and incorporated herein by reference thereto). †
k) Description of Dividend Reinvestment Plan. (Filed with the SEC as the Company’s prospectus pursuant to
Rule 424(b)(2) filed on January 5, 2004 (Registration No. 033-03009) and incorporated herein by reference
thereto). †
l)
Form of BancorpSouth Bank Change in Control Agreement. (Filed as Exhibit 10(t) to the Company’s Annual
Report on Form 10-K filed with the FDIC on February 27, 2020). †
m) BancorpSouth, Inc. Deferred Directors’ Fee Unfunded Plan, as amended and restated. (Filed with the SEC as
Exhibit 10(U) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (file
number 1-12991) and incorporated herein by reference thereto). †
n) Employment Details for Chris Bagley. (Filed with the SEC as Exhibit 10(PP) to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2014 (file number 1-12991) and incorporated herein
by reference thereto).
o) Consent Order. (Filed as Exhibit 10.1 to the Company’s Current Report on form 8-K filed with the SEC on
June 29, 2016 (file number 1-12991) and incorporated herein by reference thereto).
p) Order Terminating Consent Order, dated January 27, 2020. (Filed with the SEC as Exhibit 10(aa) to the
Company’s Current Report on form 10-K filed with the FDIC on February 27, 2020 and incorporated herein
by reference thereto).
q) Retirement and Consulting Agreement, dated September 26, 2017, by and between BancorpSouth, Inc.,
BancorpSouth Bank and James R. Hodges. (Filed as Exhibit 10.1 to the Company’s Current Report on Form
8-K filed with the SEC on October 2, 2017 (file-number 1-12991) and incorporated herein by reference
thereto). †
r) BancorpSouth Split Dollar Life Insurance Plan, as amended and restated. (Filed as Exhibit 10(gg) to the
Company’s Annual Report on Form 10-K filed with the FDIC on February 26, 2018 and incorporated herein
by reference thereto). †
s) Cadence Bank, N.A. Consent Order, dated August 30, 2021. (Filed as Exhibit 10(s) to the Company’s Annual
Report on Form 10-K filed with the FDIC on February 25, 2022 and incorporated herein by reference
thereto).*
t) Letter Agreement, dated as of April 12, 2021, by and between BancorpSouth Bank and James D. Rollins, III.
(Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the FDIC on April 16, 2021
and incorporated herein by reference thereto). †
u) Letter Agreement, dated as of April 12, 2021, by and between BancorpSouth Bank and Chris A. Bagley.
(Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the FDIC on April 16, 2021
and incorporated herein by reference thereto). †
v) Letter Agreement, dated as of April 12, 2021, by and between BancorpSouth Bank and Paul B. Murphy, Jr.
(Filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the FDIC on April 16, 2021
and incorporated herein by reference thereto). †
w) Letter Agreement, dated as of April 12, 2021, by and between BancorpSouth Bank and Rudolph H. Holmes,
IV. (Filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the FDIC on April 16,
2021 and incorporated herein by reference thereto). †
x) Letter Agreement, dated as of April 12, 2021, by and between BancorpSouth Bank and Valerie C. Toalson.
(Filed as Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the FDIC on April 16, 2021
and incorporated herein by reference thereto). †
172
y) Amendment to the BancorpSouth Amended and Restated Long-Term Equity Incentive Plan. (Filed as Exhibit
99.1 to the Company’s Current Report on Form 8-K filed with the FDIC on March 11, 2021). †
z) BancorpSouth 2021 Long-Term Equity Incentive Plan. (Filed as Exhibit 10.1 to the Company’s Current
Report on Form 8-K filed with the FDIC on April 30, 2021 and incorporated herein by reference thereto). †
aa) Form of Retention Award Agreement for Performance Units issued pursuant to the BancorpSouth Bank 2021
Long-Term Equity Incentive Plan. (Filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed
with the FDIC on October 29, 2021 and incorporated herein by reference thereto).
ab) Form of Retention Award Agreement for Performance Units issued pursuant to the BancorpSouth Bank 2021
Long-Term Equity Incentive Plan. (Filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed
with the FDIC on October 29, 2021 and incorporated herein by reference thereto).
(21) Subsidiaries of the Registrant.*
(31.1) Certification of the Chief Executive Officer of Cadence Bank pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
(31.2) Certification of the Chief Financial Officer of Cadence Bank pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
(32.1) Certification of the Chief Executive Officer of Cadence Bank pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
(32.2) Certification of the Chief Financial Officer of Cadence Bank pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
†
Management contract or compensatory plan or arrangement.
*
**
Filed herewith.
Furnished herewith.
ITEM 16. FORM 10-K SUMMARY.
None.
173
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
DATE:
February 27, 2023
CADENCE BANK
By: /s/ James D. Rollins III
James D. Rollins III
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ James D. Rollins III
James D. Rollins III
/s/ Valerie C. Toalson
Valerie C. Toalson
/s/ Paul B. Murphy Jr.
Paul B. Murphy Jr.
/s/ Larry G. Kirk
Larry G. Kirk
/s/ Gus J. Blass III
Gus J. Blass III
/s/ Shannon A. Brown
Shannon A. Brown
/s/ Deborah M. Cannon
Deborah M. Cannon
/s/ Charlotte N. Corley
Charlotte N. Corley
/s/ Joseph W. Evans
Joseph W. Evans
/s/ Virginia A. Hepner
Virginia A. Hepner
/s/ William G. Holliman
William G. Holliman
/s/ Warren A. Hood Jr.
Warren A. Hood Jr.
/s/ Keith J. Jackson
Keith J. Jackson
/s/ Precious W. Owodunni
Precious W. Owodunni
/s/ Alan W. Perry
Alan W. Perry
/s/ Marc J. Shapiro
Marc J. Shapiro
/s/ Thomas R. Stanton
Thomas R. Stanton
/s/ Kathy N. Waller
Kathy N. Waller
/s/ J. Thomas Wiley Jr.
J. Thomas Wiley Jr.
Chief Executive Officer (Principal
February 27, 2023
Executive Officer) and Chairman
Senior Executive Vice President
February 27, 2023
and Chief Financial Officer (Principal
Accounting Officer)
Executive Vice Chairman
February 27, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
174
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
Name
Jurisdiction of Incorporation/
Organization
Holder of Ownership Interests
Cadence Holdings, Inc.
Mississippi
Cadence Community Capital, LLC
Mississippi
Cadence Investor, LLC
Cadence Insurance, Inc.
Mississippi
Mississippi
Linscomb & Williams, Inc.
Texas
Cadence Bank
Cadence Bank
Cadence Bank
Cadence Bank
Cadence Bank
CADENCE BANK
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, James D. Rollins III, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cadence Bank;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant's Board of Directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date:
February 27, 2023
/s/ James D. Rollins III
James D. Rollins III
Chief Executive Officer
CADENCE BANK
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, Valerie C. Toalson, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Cadence Bank;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in
this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant’s Board of Directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date:
February 27, 2023
/s/ Valerie C. Toalson
Valerie C. Toalson
Senior Executive Vice President and
(Principal
Chief Financial Officer
Accounting Officer)
EXHIBIT 32.1
CADENCE BANK
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Cadence Bank (the “Company”), for the year ended
December 31, 2022, as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, James D.
Rollins III, Chief Executive Officer of the Company, certify in my capacity as an executive officer of the Company, pursuant to
18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
1934, as amended; and
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 27, 2023
/s/ James D. Rollins III
James D. Rollins III
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Federal Deposit Insurance Corporation or its staff upon request.
EXHIBIT 32.2
CADENCE BANK
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report on Form 10-K of Cadence Bank (the “Company”), for the year ended
December 31, 2022, as filed with the Federal Deposit Insurance Corporation on the date hereof (the “Report”), I, Valerie C.
Toalson, Chief Financial Officer of the Company, certify in my capacity as an executive officer of the Company, pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)
1934, as amended; and
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
February 27, 2023
/s/ Valerie C. Toalson
Valerie C. Toalson
Senior Executive Vice President and
Chief Financial Officer (Principal
Accounting Officer)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Federal Deposit Insurance Corporation or its staff upon request.