Cadence Bank, in its third quarter 2023 earnings conference call, announced the sale of its insurance division, Cadence Insurance, to Arthur J. Gallagher & Company. The deal, valued at nearly $1 billion, is expected to significantly enhance the bank's capital metrics and tangible book value per share. The bank also reported a stable quarter with net income available to common shareholders of $90.2 million, or $0.49 per diluted share.
Key takeaways from the earnings call include:
- Cadence Bank agreed to sell Cadence Insurance to Arthur J. Gallagher & Company for nearly $1 billion.
- The sale will significantly enhance the bank's capital metrics and tangible book value per share.
- The bank reported quarterly net income available to common shareholders of $90.2 million or $0.49 per diluted share.
- Loans remained stable at $32.5 billion, while reported deposits decreased by $357 million.
- The bank expects margin stability to continue in the fourth quarter and is making progress on its efficiency initiatives.
- The sale of Cadence Insurance is expected to result in additional capital of approximately $620 million.
The bank's decision to sell its insurance division is seen as a strategic move to focus on its core banking business. The sale is expected to result in additional capital of approximately $620 million. The bank plans to use the proceeds from the sale for various purposes, including securities repositioning, potential share buybacks, and future growth.
In terms of credit quality, the bank reported a provision for credit losses of $17 million for the quarter, and overall credit quality expectations remain stable. Nonperforming loans and assets remained at 0.49% and 0.33% of loans and assets, respectively. The bank also noted that their allowance coverage is solid at 1.37%.
The bank's executives also discussed their efficiency initiatives, which include a decline in headcount and branch closures. These initiatives have already had an impact on expenses, which the bank expects to keep flat year-over-year. The bank also plans to use the cash proceeds from the insurance sale to bring down borrowings, including brokered CDs.
During the call, the CEO stated that the bank is not currently pursuing whole bank M&A and will focus on taking care of their business. The CFO added that the fourth quarter will be noisy due to various factors such as branch closures and initiatives. The CEO also mentioned that the bank has seen some pressure in its franchise finance lending business but hasn't made any material changes to reserves.
In the future, the bank projects noninterest-bearing deposits to be just below 20% by the end of next year. They also projected some declines in rates in the latter half of next year. In terms of Commercial and industrial (C&I) loans, two credits were charged off, leading to a decrease in balances. However, the bank sees opportunities for credit extension in the energy sector, where terms and pricing have improved.
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