Cadence Financial Corporation Reports Third Quarter Results

• Press Release
• Source: Cadence Financial Corporation
• On 4:13 pm EDT, Monday October 26, 2009

STARKVILLE, Miss.--(BUSINESS WIRE)--Cadence Financial Corporation (NASDAQ: CADE - News), a $1.8 billion bank holding company whose principal subsidiary is Cadence Bank, N.A., today reported a net loss applicable to common shareholders of $13.1 million, or $1.10 per diluted share, for the third quarter ended September 30, 2009, compared with a net loss of $5.3 million, or $0.44 per diluted share, for the third quarter of 2008. The loss for the 2009 period was due primarily to a high provision for loan losses and higher non-interest expenses related to increased FDIC premiums, and nonrecurring expenses related to early extinguishment of debt and those associated with our efforts to raise capital.

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Symbol	Price	Change
CADE	1.52	+0.03

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“We are making real progress in reducing Cadence’s exposure to higher risk real estate loans this year in order to improve our earnings prospects,” stated Lewis F. Mallory, Jr., chairman and chief executive officer of Cadence Financial Corporation. “We took aggressive steps to clean up our nonperforming loans and charged off $22.5 million in loans in the third quarter of 2009. These actions had the effect of reducing our nonperforming loans and nonperforming assets compared with the second quarter of 2009. In addition, we reduced our other real estate owned (OREO) for the second consecutive quarter. In the fourth quarter of 2009, we expect to report continued improvement in asset quality and a reduced provision for loan losses assuming the current economic trends continue to stabilize and begin to improve.”

Third Quarter Results

Net interest income was $11.6 million in the third quarter of 2009 compared with $13.5 million in the third quarter of 2008. Net interest margin improved to 2.56% in the third quarter of 2009 compared with 2.21% in the second quarter of 2009. Net interest margin was 3.00% in the third quarter of 2008. The reduction in net interest margin since last year was due in part to management’s focus on reducing certain higher-risk real estate loans that typically have higher interest rates, and pay downs on loans that were not replaced due to weak loan demand. In addition, Cadence built its liquidity over the past three quarters in 2009 by accumulating deposits and investing in short-term assets. The shift in earning assets from loans to lower yielding short-term investments was estimated to cost about 26 basis points in net interest margin for the third quarter of 2009.

“Cadence’s net interest margin improved to 2.56% in the third quarter of 2009, up 35 basis points from the second quarter of 2009,” continued Mr. Mallory. “We benefited from an improved yield on earning assets and lower cost of funds compared with the second quarter. We expect to make further improvement in our loan yields and continue to focus on reducing the cost of non-accrual loans in future quarters. Our margin has averaged 3.35% over the past five years.”

Total interest income was $20.2 million for the third quarter of 2009 compared with $24.9 million in the third quarter of 2008. Interest and fees on loans declined 21.1% due to a 74 basis point decrease in yields and a $131.6 million decrease in average loan balances from the third quarter of 2008. The majority of the decrease in loans is due to Cadence’s program to reduce its exposure to real estate loans across its franchise; specifically loans for 1-4 speculative residential construction, land development, lots to builders, and commercial real estate loans. These higher risk real estate loan categories were down approximately $25 million in the last three months and down $169 million since the third quarter of 2008.

Interest and dividends on investment securities were down 10.4% to $4.6 million for the third quarter of 2009 compared with the third quarter of 2008 due to a 54 basis point decline in yield offset partially by a $16 million increase in the average investment securities portfolio.

Cadence’s provision for loan losses was $20.7 million in the third quarter of 2009 compared with $11.7 million in the third quarter of 2008 and $23.0 million in the second quarter of 2009. At the end of the third quarter 2009, the allowance for loan losses was $44.9 million, or 3.81% of total loans, compared with $46.7 million in the second quarter of 2009, or 3.76% of loans, and $18.1 million, or 1.3% of total loans, in the third quarter of 2008. The third quarter 2009 allowance included net charge-offs of $22.5 million. Approximately $20 million of these charge-offs had been reserved for previously.

Total non-interest income increased to $6.7 million in the third quarter of 2009 compared with $6.2 million in the third quarter of 2008. The increase in non-interest income was due primarily to an increase in security gains, offset partially by lower services charges, trust department income, insurance commission and mortgage loan fees. Cadence sold its insurance business effective August 31, 2009, and booked a gain of approximately $500,000 in other non-interest income during the third quarter. The gain on sale is subject to adjustment in the fourth quarter of 2009 based on final settlement costs related to pension and tax costs at the year end of 2009.

Non-interest expense increased 6% to $18.3 million in the third quarter of 2009 compared with $17.2 million in the third quarter of 2008. The increase was due to higher other non-interest expenses, offset partially by lower salaries and net premises costs. Third quarter 2009 non-interest expenses increased $1.3 million due to higher costs for FDIC insurance premiums, and one-time charges on the early extinguishment of debt and expenses associated with the Company’s efforts to raise capital. These costs were offset partially by a $1.5 million reduction in expenses related to OREO. FDIC insurance premiums increased from $267,000 in the third quarter of 2008 to $1,215,000 in the third quarter of 2009. The loss on early extinguishment of debt totaled $934,000 in the third quarter of 2009 due to Cadence’s repayment of higher costs Federal Home Loan Board advances. The Company expensed $967,000 associated with its efforts to raise capital.

Pre-tax loss was $20.7 million in the third quarter of 2009 compared with pre-tax loss of $9.2 million in the third quarter of 2008.

Net loss for the third quarter of 2009 was $12.4 million. Net loss applicable to common shareholders for the second quarter of 2009 was $13.1 million, or $1.10 per diluted share. This compares with a net loss of $5.3 million, or $0.44 per diluted share, in the third quarter of 2008. Diluted weighted average shares outstanding decreased 0.2% to 11.91 million in the third quarter of 2009 compared with 11.93 million in the third quarter of 2008.

Cadence sold $44 million in senior preferred shares to the U.S. Treasury in mid-January 2009. The preferred shares pay a cumulative annual dividend of 5% for the first five years. Cadence’s third quarter 2009 loss applicable to common shareholders included $652,000 related to the preferred dividend and accretion of the discount recorded in relation to the preferred stock.

Nine-Month Results

Net interest income declined 17.8% to $34.6 million in the first nine months of 2009 compared with $42.1 million in the same period of 2008. The decrease in net interest income was due to a 63 basis point decrease in net interest margin, partially offset by a 3.3% increase in average earning assets for the first nine months of 2009 compared with the first nine months of 2008. The provision for loan losses was $76.5 million in the first nine months of 2009 compared with $18.0 million in the first nine months of 2008.

Net loss applicable to common stockholders for the first nine months of 2009 was $112.2 million, or $9.42 per diluted share, compared with a net loss of $640,000, or $0.05 per diluted share, for the first nine months of 2008. The 2009 results include a $66.8 million ($5.61 per diluted share) non-cash charge associated with the write-down of goodwill in the first quarter of 2009. The goodwill impairment charge was required by FASB Accounting Standards Codification Topic 350 (Intangibles - Goodwill and Other) and was an accounting adjustment that did not affect cash flows, liquidity, tangible book capital, regulatory capital, regulatory capital ratios and will not affect future operations. There was no comparable impairment loss in the 2008 period.

OCC Update

Cadence has previously disclosed that the Bank had entered into an agreement with the Office of Comptroller of Currency (“OCC”) to improve the Bank’s practices and raise its regulatory capital ratios for Total Risk Based Capital and Tier 1 Leverage Capital to 12% and 8%, respectively, as of September 30, 2009. While the Bank has implemented policies and procedures, and improved its practices to meet its obligations under such agreement, management reports that based on preliminary numbers they do not expect the Bank to be in compliance with the above referenced ratios as of September 30, 2009. These ratios are compiled as part of the Bank’s next quarterly call report which is to be filed by October 31, 2009.

“We do not expect to meet the above-referenced regulatory ratio guidelines as of September 30, 2009; however, we are working on steps that will lead to our compliance in the future,” concluded Mr. Mallory.

Conference Call

Cadence Financial Corporation will provide an on-line, real-time webcast and rebroadcast of its third quarter results conference call to be held tomorrow, October 27, 2009. The live broadcast will be available on-line at www.cadencebanking.com under investor information as well as www.investorcalendar.com beginning at 10:00 a.m. (Eastern Time). The on-line replay will follow immediately and continue for 30 days.

About Cadence Financial Corporation

Cadence Financial Corporation is a $1.8 billion bank holding company providing full financial services, including banking, trust services, mortgage services and investment products in Mississippi, Tennessee, Alabama, Florida and Georgia. Cadence’s stock is listed on the NASDAQ Global Select Market under the symbol CADE.

Forward-Looking Statements

This press release contains statements that are forward-looking as defined within the Private Securities Litigation Reform Act of 1995. These forward-looking statements are provided to assist in the understanding of anticipated future financial results. However, such forward-looking statements involve risks and uncertainties (including uncertainties relating to interest rates, management and operation of acquired operations and general market risks) that may cause actual results to differ materially from those in such statements. For a discussion of certain factors that may cause such forward-looking statements to differ materially from the Company’s actual results, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and other reports filed with the Securities and Exchange Commission. Cadence Financial Corporation is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet services.

Cadence Financial Corporation
Richard T. Haston, 662-324-4258