Cadence Bancorporation Reports Second Quarter 2021 Financial Results

Cadence Bancorporation (NYSE: CADE) (“Cadence”) today announced net income for the quarter ended June 30, 2021, of $101.3 million or $0.80 per share, compared to net income of $106.4 million or $0.84 per share for the quarter ended March 31, 2021, and to a net loss of ($56.1) million or ($0.45) per share for the quarter ended June 30, 2020. Adjusted net income (loss)⁽¹⁾, excluding non-routine income and expenses⁽²⁾, was $106.1 million or $0.84 per share for the quarter ended June 30, 2021, compared to $104.7 million or $0.83 per share for the quarter ended March 31, 2021, and compared to ($56.9) million or ($0.45) per share for the quarter ended June 30, 2020.

Chairman and Chief Executive Officer of Cadence Bancorporation Paul B. Murphy, Jr. commented, “This quarter’s results demonstrate the strength of our profitable business model and continued improvement in the credit environment. With the economy expanding, our C&I focus and growth markets, combined with our strong capital levels, position Cadence well. We look forward to further augmenting our business model as we combine with BancorpSouth to become a stronger, more diversified and highly competitive regional bank.”

Second Quarter 2021 Highlights:

Second quarter 2021 highlights are as follows:

• Adjusted pre-tax pre-provision net revenue⁽¹⁾ (“PPNR”) remained strong at $85.2 million or 1.83% of average assets, compared to first quarter 2021 PPNR of $86.4 million or 1.86% of average assets.
• The allowance for credit losses (“ACL”) reflected continued reserve releases driven by improving credit metrics and economic forecasts, and incorporated a ($51.9) million provision release in the second quarter of 2021 compared to a ($48.3) million provision release in the linked quarter. The ACL remained robust at 2.13% of total loans. Excluding Paycheck Protection Program (“PPP”) loans, our ACL to loans ratio was 2.17% at June 30, 2021. Our ratio of ACL to total nonperforming loans was 202%.
• Net charge-offs were $8.7 million or 0.29% annualized of average loans, a level consistent with our longer-term expectations for our portfolio mix.
• Our tax equivalent net interest margin (“NIM”) was 3.10%, down 12 basis points from prior quarter. The NIM decline was primarily driven by lower hedge income, lower accretion and earning asset mix shifts out of higher yielding loans and into lower yielding investment securities. The decline was partially mitigated by a continued decline in total deposit costs, which decreased five basis points in the quarter to 0.15%.
• We continued to deleverage the balance sheet, paying off $50 million in senior debt in the quarter in addition to the $40 million sub-debt paid off in the first quarter of this year.
• Our capital ratios remained robust, with the Common Equity Tier 1 ratio increasing to 14.7% and total risk weighted capital increasing to 17.0%.
• Our adjusted efficiency ratio⁽¹⁾ remained stable at 53.9%.
• Annualized returns on average assets and tangible common equity were 2.17% and 21.12%, respectively.
• Adjusted annualized returns on average assets⁽¹⁾ and adjusted tangible common equity⁽¹⁾ were 2.28% and 22.08%, respectively.

Balance Sheet:

Total assets were $18.7 billion as of June 30, 2021, a decrease of $107.7 million or 0.6% from March 31, 2021, and a decrease of $165.1 million or 0.9% from June 30, 2020. The linked quarter decrease was largely driven by PPP loan payoffs, partially offset by reinvestment of those proceeds in investment securities.

Cash and Cash Equivalents at June 30, 2021, totaled $2.1 billion as compared to $1.9 billion at March 31, 2021 and June 30, 2020. The $211.6 million increase in the second quarter of 2021 was driven by $588.8 million in PPP loan repayments.

Loans at June 30, 2021 totaled $11.6 billion as compared to $12.4 billion at March 31, 2021, a decrease of $730.8 million or 5.9%. Loans decreased $2.1 billion or 15.1% from $13.7 billion at June 30, 2020. PPP loans declined by $588.8 million in the second quarter, with the remaining non-PPP loan decline of $142.0 million being driven by net paydowns and payoffs partially offset by approximately $1.1 billion in loan fundings in the quarter. Notable linked quarter changes, excluding PPP loans, included a net increase of General C&I of $42 million, and declines in Restaurant of $56 million, Healthcare of $29 million and CRE of $92 million.

Investment Securities at June 30, 2021 totaled $4.3 billion as compared to $3.9 billion at March 31, 2021 and $2.7 billion at June 30, 2020. Securities as a percent of earning assets was 23.9%, 21.7% and 14.6% at June 30, 2021, March 31, 2021, and June 30, 2020, respectively. The increase in securities from both the linked quarter and prior year is a result of increased balance sheet liquidity. Securities acquired during the second quarter include primarily agency pass-through residential mortgage-backed securities.

Total Deposits at June 30, 2021 were $16.0 billion, a decrease of $145.4 million or 0.9% from March 31, 2021 and down $85.5 million or 0.5% from June 30, 2020. Non-interest bearing deposits increased to $5.7 billion or 35.5% of total deposits at June 30, 2021, up from $5.6 billion or 34.4% of total deposits at March 31, 2021 and $5.2 billion or 32.5% at June 30, 2020. Total cost of deposits declined to 0.15% for the second quarter of 2021, down from both the first quarter 2021 cost of 0.20% and the second quarter 2020 cost of 0.46%.

Total Borrowings at June 30, 2021 were $282.7 million, a decrease of $50.3 million from $333.0 million at March 31, 2021 and a decrease of $89.5 million from $372.2 million at June 30, 2020. The second quarter decrease was due to repayment of $50.0 million in senior notes that matured on June 28, 2021.

Shareholders’ equity was $2.2 billion at June 30, 2021, an increase of $110.2 million or 5.3% from March 31, 2021 and an increase of $157.3 million or 7.7% from June 30, 2020. The linked quarter increase included quarterly net income of $101.3 million, an increase of $23.8 million in other comprehensive income including a $29.9 million increase in unrealized gains on investment securities available-for-sale, partially offset by $18.8 million in cash dividends.

Tangible common shareholders’ equity⁽¹⁾ was $2.1 billion at June 30, 2021, up $115.0 million or 5.8% from March 31, 2021 and up $177.6 million or 9.3% from June 30, 2020. The linked quarter increase resulted from the same factors noted above.

• Total shareholders’ equity to total assets and tangible equity to tangible assets were 11.8% and 11.2%, respectively, at June 30, 2021, compared to 11.1% and 10.6%, respectively, at March 31, 2021, and 10.8% and 10.2%, respectively, at June 30, 2020.
• Tangible book value per share⁽¹⁾ was $16.72 as of June 30, 2021, an increase of $0.92 or 5.8% from $15.80 as of March 31, 2021, and an increase of $1.57 or 10.4% from $15.15 as of June 30, 2020.
• Total shares outstanding at June 30, 2021 were 124.8 million.

Quarter end regulatory capital ratios remained robust and increased during the quarter as follows:

Asset Quality:

Credit quality metrics during the second quarter of 2021 reflected some notable improvements including lower net-charge offs and declines in nonperforming and criticized loan balances.

• Net charge-offs for the second quarter of 2021 were $8.7 million or 0.29% annualized of average loans compared to $12.1 million or 0.39% annualized and $32.6 million or 0.94% annualized for the quarters ended March 31, 2021 and June 30, 2020, respectively. The current quarter net charge-offs included $8.5 million in Energy.
• Provision for credit losses was a release of ($51.9) million for the second quarter of 2021 as compared to a release of ($48.3) million for the first quarter of 2021 and a provision expense of $158.8 million for the second quarter of 2020. The current quarter’s release was driven by improved economic conditions and forecasts, as well as continued improvements in overall credit including reductions in nonperforming and criticized loans. The second quarter 2021 provision release included $25.3 million release in the CRE segment (including releases of $14.2 million in the Hospitality category), and $25.6 million release in the C&I segment (including releases of $12.0 million in the Restaurant category).
• The ACL was $247.7 million or 2.13% of total loans as of June 30, 2021, as compared to $308.0 million or 2.49% of total loans as of March 31, 2021 and $370.9 million or 2.71% of total loans as of June 30, 2020. Excluding PPP loans, the ACL was 2.17% of total loans at June 30, 2021, down from 2.67% at March 31, 2021.
• Total nonperforming loans (“NPL”) totaled $122.5 million, $123.4 million, and $224.4 million as of June 30, 2021, March 31, 2021, and June 30, 2020, respectively. As a percent of total loans, NPL were 1.05% at June 30, 2021, compared to 1.00% at March 31, 2021 and 1.64% at June 30, 2020. The current quarter percentage increase resulted from a decrease in total loans during the quarter.
• The ACL to NPL was 202.2% as of June 30, 2021, as compared to 249.7% as of March 31, 2021 and 165.3% as of June 30, 2020.
• Total criticized loans at June 30, 2021 were $667.9 million or 5.7% of total loans, down from $816.3 million or 6.6% at March 31, 2021 and $1.0 billion or 7.4% at June 30, 2020. The linked quarter decrease included declines of $85.0 million or 46.7% in Restaurant, $79.0 million or 33.2% in Energy, and $23.9 million or 20.5% in Hospitality-CRE.
• Loans 30-89 days past due were 0.36% of total loans at June 30, 2021, compared to 0.40% at March 31, 2021 and 0.19% at June 30, 2020.

Total Revenue:

Total operating revenue⁽¹⁾ for the second quarter of 2021 was $185.0 million, down $1.4 million or 0.8% from the first quarter of 2021 and up $0.4 million or 0.2% from the second quarter of 2020.

Net interest income for the second quarter of 2021 was $138.5 million, a decrease of $4.2 million or 2.9% from the first quarter of 2021 and a decrease of $16.2 million or 10.5% from the second quarter of 2020.

• Compared to the prior year, the net interest income decline included $6.9 million in lower hedge income, $3.1 million in lower accretion, and $19.0 million in lower interest income due to a mix shift from higher yielding loans to lower yielding investment securities and declining yields, partially offset by $13.0 million in lower funding costs due to a 59% reduction in cost of funds, supported by improved mix and debt payoffs.
• Compared to the linked quarter, the net interest income decline included $3.3 million in lower hedge income, $1.3 million in lower accretion and $1.2 million in lower PPP loan income, partially offset by a $1.3 million increase due to number of days. Declines in interest income of $2.8 million resulting from earning asset mix shifts and yield declines were largely offset by $2.5 million in decreased interest expense resulting from lower funding costs and increases non-interest bearing liabilities.

Our NIM for the second quarter of 2021 was 3.10% as compared to 3.22% for the linked quarter and 3.51% for the second quarter of 2020. Excluding the impact of PPP loans, the second quarter 2021 NIM decreased by 15 basis points to 3.09% from 3.24% in the linked quarter, with lower average loan balances and declines in yield, lower hedge income and lower accretion income contributing 13, 8 and 3 basis points of the decline, respectively, partially offset by positive impacts from lower deposit costs and improved mix, increases in average securities balances and lower average borrowings attributing 5, 4 and 1 basis points, respectively.

• Our total funding costs continued to decline in the quarter, down $2.5 million to 0.23% compared to 0.29% in the prior quarter. Total deposit costs declined by five basis points to 0.15% for the current quarter compared to 0.20% for the linked quarter, and total interest-bearing liability costs declined by seven basis points to 0.36% from 0.43% in the linked quarter. Average interest-bearing liabilities decreased by $552.6 million or 4.9% from the prior quarter to $10.7 billion, and average noninterest-bearing deposits increased by $370.2 million or 6.9% from the prior quarter to $5.7 billion.
• Yield on loans excluding accretion and hedge income was 3.83% in the current quarter, down one basis point from 3.84% in the linked quarter. Excluding the impact of PPP loans, this yield was 3.86% in the current quarter, down from 3.91% for the linked quarter. Average loans declined by $508.4 million or 4.0% from the prior quarter to $12.1 billion.
• PPP loans averaged $619.3 million in the current quarter with a yield of 3.34%, down from $877.6 million in the linked quarter.
• Hedge income and collar gain recognition for the second quarter of 2021 was $10.8 million as compared to $14.1 million for the prior quarter.
• Accretion on acquired loans totaled $4.5 million for the second quarter of 2021 as compared to $5.8 million for the prior quarter.
• Yield on investment securities declined to 1.62% in the current quarter compared to 1.69% in linked quarter, with the lower yield reflecting the impact of securities purchased in the current and prior quarters. Average investment securities increased by $572.4 million or 16.6% from the prior quarter to $4.0 billion.
• Total earning asset yields declined to 3.31% in the current quarter compared to 3.49% in the linked quarter, with average balances remaining level at $18.0 billion, but reflecting a mix shift between loans and investment securities.
• Excess liquidity in the second quarter negatively impacted the NIM by an estimated 23 basis points compared to 24 basis points in the linked quarter.

Noninterest income for the second quarter of 2021 was $46.5 million, an increase of $2.8 million or 6.4% from the linked quarter, and an increase of $16.5 million or 55.2% from the same period of 2020. Adjusted noninterest income⁽¹⁾ for the second quarter of 2021 was $46.5 million, an increase of $5.0 million or 12.1% from the linked quarter, and an increase of $18.8 million or 68.0% from the second quarter of 2020.

• The increase from the prior year was driven by increases of $6.6 million in earnings from alternative investments, $4.5 million in SBA income, $2.4 million in service charges on deposits driven by an increase of $2.3 million in account analysis service charges, $1.7 million in investment advisory fees and $1.1 million in credit related fees.
• The linked quarter increase was driven by increases of $1.6 million, $1.8 million, and $0.9 million in credit related fees, SBA income and referral income, respectively. These items were partially offset by a decrease of $2.2 million in securities gains.
• Noninterest income as a percent of total revenue for the second quarter of 2021 increased to 25.1% as compared to 23.4% for the linked quarter and 16.2% for the second quarter of 2020.

Noninterest expense for the second quarter of 2021 was $106.1 million, compared to $97.8 million for the linked quarter and compared to $88.6 million for the same period of 2020. Adjusted noninterest expense⁽¹⁾, which excludes the impact of non-routine items⁽²⁾, was $99.8 million, up $2.0 million or 2.0% from the linked quarter and up $12.4 million or 14.2% from the second quarter of 2020.

• The increase from the prior year was attributable to increased incentive accruals related to improved company performance and lower loan cost deferral due to the large number of PPP loans generated in the prior year’s quarter.
• The linked quarter increase in noninterest expenses resulted from:
  • An increase of $6.3 million in merger related expenses which are directly attributable to the announced merger with BancorpSouth Bank.
  • An increase of $1.5 million in personnel costs driven by an increase of $1.2 million in salaries (largely related to annual merit increases) and an increase of $2.4 million in equity compensation and annual incentive compensation accruals resulting from improved company performance. These increases were partially mitigated by a seasonal decrease in payroll taxes and employee benefits.
  • A decrease of $1.0 million in other noninterest expenses due to a decrease of $1.4 million in operational losses resulting from a recovery in the current quarter.

Adjusted efficiency ratio⁽¹⁾ for the second quarter of 2021 was 53.9%, compared to the linked quarter ratio of 53.1% and the prior year’s second quarter ratio of 47.9%.

Taxes:

The effective tax rate for the second quarter of 2021 was 22.6% compared to 22.3% for the linked quarter and 10.6% for the second quarter of 2020.

Dividend:

On July 22, 2021, the board of directors of Cadence Bancorporation declared a quarterly cash dividend in the amount of $0.15 per share of outstanding common stock, representing an annualized dividend of $0.60 per share. The dividend will be paid on August 13, 2021 to holders of record of Cadence’s Class A common stock on August 6, 2021.

Supplementary Financial Tables (Unaudited):

Supplementary financial tables (unaudited) are included in this release following the customary disclosure information.

Second Quarter 2021 Earnings Conference Call:

Cadence Bancorporation executive management will host a conference call to discuss second quarter 2021 results on Thursday, July 22, 2021, at 7:30 a.m. CT / 8:30 a.m. ET. Slides to be presented by management on the conference call can be viewed by visiting www.cadencebancorporation.com and selecting “Events & Presentations” then “Presentations”.

Conference Call Access:

To access the conference call, please dial one of the following numbers approximately 10-15 minutes prior to the start time to allow time for registration and use the Elite Entry Number provided below.

For those unable to participate in the live presentation, a replay will be available through August 5, 2021. To access the replay, please use the following numbers:

Webcast Access:

The call and corresponding presentation slides will be webcast live on the home page of the Company’s website: www.cadencebancorporation.com.

About Cadence Bancorporation:

Cadence Bancorporation (NYSE: CADE), headquartered in Houston, Texas, is a regional financial holding company with $18.7 billion in total assets as of June 30, 2021. Its wholly owned subsidiary, Cadence Bank, N.A., operates 99 branch locations in Alabama, Florida, Georgia, Mississippi, Tennessee, and Texas, and provides corporations, middle-market companies, small businesses and consumers with a full range of innovative banking and financial solutions. Services and products include commercial and business banking, treasury management, specialized lending, asset-based lending, commercial real estate, SBA lending, foreign exchange, wealth management, investment and trust services, financial planning, retirement plan management, payroll and insurance services, consumer banking, consumer loans, mortgages, home equity lines and loans, and credit cards. Clients have access to leading-edge online and mobile solutions, interactive teller machines, and more than 55,000 ATMs. The Cadence team of approximately 1,800 associates is committed to exceeding customer expectations and helping their clients succeed financially.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this communication may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended with respect to BancorpSouth Bank’s and Cadence Bancorporation’s and Cadence Bank’s (together, “Cadence”) beliefs, plans, goals, expectations, and estimates. Forward-looking statements are not a representation of historical information but instead pertain to future operations, strategies, financial results or other developments. These forward-looking statements may be identified by their reference to a future period or periods or by the use of forward-looking terminology such as “anticipate,” “believe,” “could,” “continue,” “seek,” “intend,” “estimate,” “expect,” “foresee,” “hope,” “intend,” “may,” “might,” “plan,” “should,” “predict,” “project,” “goal,” “outlook,” “potential,” “will,” “will result,” “will likely result,” or “would” or future or conditional verb tenses and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to the terms, timing and closing of the proposed transaction.

Cadence cautions readers not to place undue reliance on the forward-looking statements contained in this communication, in that actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of factors, many of which are beyond the control of BancorpSouth Bank and Cadence. The factors that could cause actual results to differ materially include the following: the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the definitive merger agreement between BancorpSouth Bank and Cadence; the outcome of any legal proceedings that have been or may be instituted against BancorpSouth Bank or Cadence; the possibility that the proposed transaction will not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated; the ability of BancorpSouth Bank and Cadence to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction; the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the common stock of either or both parties to the proposed transaction; the possibility that the anticipated benefits of the proposed transaction 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 BancorpSouth Bank and Cadence do business; certain restrictions during the pendency of the proposed transaction that may impact the parties’ ability to pursue certain business opportunities or strategic transactions; the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events; diversion of management’s attention from ongoing business operations and opportunities; the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all and to successfully integrate Cadence’s operations and those of BancorpSouth Bank; such integration may be more difficult, time consuming or costly than expected; revenues following the proposed transaction may be lower than expected; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction; BancorpSouth Bank and Cadence’s success in executing their respective business plans and strategies and managing the risks involved in the foregoing; the dilution caused by BancorpSouth Bank’s issuance of additional shares of its capital stock in connection with the proposed transaction; business and economic conditions generally and in the financial services industry, nationally and within Cadence’s current and future geographic market areas; economic, market, operational, liquidity, credit and interest rate risks associated with Cadence’s business; deteriorating asset quality and higher loan charge-offs; the laws and regulations applicable to Cadence’s business; Cadence’s ability to achieve organic loan and deposit growth and the composition of such growth; increased competition in the financial services industry, nationally, regionally or locally; Cadence’s ability to maintain its historical earnings trends; Cadence’s ability to raise additional capital to implement its business plan; material weaknesses in Cadence’s internal control over financial reporting; systems failures or interruptions involving Cadence’s information technology and telecommunications systems or third-party servicers; the composition of Cadence’s management team and its ability to attract and retain key personnel; the fiscal position of the U.S. federal government and the soundness of other financial institutions; the composition of Cadence’s loan portfolio, including the identity of Cadence’s borrowers and the concentration of loans in energy-related industries and in its specialized industries; the portion of Cadence’s loan portfolio that is comprised of participations and shared national credits; the amount of nonperforming and classified assets Cadence holds; the extent of the impact of the COVID-19 pandemic on Cadence and its customers, counterparties, employees and third-party service providers, and the impacts to Cadence’s business, financial position, results of operations, and prospects; and other factors that may affect future results of BancorpSouth Bank and Cadence; and the other factors discussed in “Risk Factors” in BancorpSouth Bank’s Annual Report on Form 10-K for the year ended December 31, 2020, BancorpSouth Bank’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and BancorpSouth Bank’s other filings with the Federal Deposit Insurance Corporation (the “FDIC”), which are available at https://www.fdic.gov/ and in the “Investor Relations” section of BancorpSouth Bank’s website, https://www.bancorpsouth.com/, under the heading “Public Filings,” and in Cadence’s Annual Report on Form 10-K for the year ended December 31, 2020, Cadence’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and in Cadence’s other filings with the U.S. Securities and Exchange Commission (the “SEC”), which are available at http://www.sec.gov and in the “Investor Relations” section of Cadence’s website, https://cadencebancorporation.com/, under the heading “SEC Filings.” BancorpSouth Bank and Cadence assume no obligation to update the information in this communication, except as otherwise required by law.

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in respect of the proposed transaction by BancorpSouth Bank and Cadence. In connection with the proposed acquisition, BancorpSouth Bank and Cadence each filed with the FDIC and the SEC on July 7, 2021, respectively, a definitive joint proxy statement on Schedule 14A, including an offering circular with respect to the common stock of BancorpSouth Bank. STOCKHOLDERS OF BANCORPSOUTH BANK AND CADENCE ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/OFFERING CIRCULAR AND ALL OTHER RELEVANT DOCUMENTS FILED WITH THE FDIC AND SEC WHEN THEY BECOME AVAILABLE, (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO), BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security holders may obtain the documents free of charge at the FDIC’s website, https://www.fdic.gov/, and the SEC’s website, http://www.sec.gov,respectively.

Participants in Solicitation

BancorpSouth Bank and its directors and executive officers, and Cadence and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of BancorpSouth Bank common stock and the holders of Cadence common stock in respect of the proposed transaction. Information about the directors and executive officers of BancorpSouth Bank is set forth in the proxy statement for BancorpSouth Bank’s 2021 Annual Meeting of Stockholders, which was filed with the FDIC on March 12, 2021. Information about the directors and executive officers of Cadence is set forth in the proxy statement for Cadence’s 2021 Annual Meeting of Stockholders, which was filed with the SEC on March 26, 2021. Additional information regarding the interest of such participants is set forth in the definitive joint proxy statement/offering circular regarding the proposed transaction filed by each of BancorpSouth Band and Cadence with the FDIC and the SEC on July 7, 2021, respectively. Free copies of this document may be obtained as described in the preceding paragraph.

About Non-GAAP Financial Measures

Certain of the financial measures and ratios Cadence presents, including “efficiency ratio,” “adjusted efficiency ratio,” “adjusted noninterest expenses,” “adjusted operating revenue,” “tangible common equity ratio,” “tangible book value per share” and “return on average tangible common equity”, “adjusted return on average tangible common equity”, “adjusted return on average assets”, “adjusted diluted earnings per share”, and “pre-tax, pre-provision net revenue” are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). Cadence refers to these financial measures and ratios as “non-GAAP financial measures.” Cadence considers the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. Cadence believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance by excluding certain expenditures or assets that Cadence believes are not indicative of its primary business operating results or by presenting certain metrics on a fully taxable equivalent basis.

Cadence believes that management and investors benefit from referring to these non-GAAP financial measures in assessing its performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of Cadence’s performance.

The non-GAAP financial measures Cadence presents may differ from non-GAAP financial measures used by its peers or other companies. Cadence compensates for these limitations by providing the equivalent GAAP measures whenever it presents the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing Cadence’s performance. A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables (Table 10).