CADE 10-Q Quarterly Report March 31, 2019

CADENCE BANCORPORATION

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10-Q 1 cade-10q_20190331.htm 10-Q cade-10q_20190331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition period from to

Commission File Number 001-38058

Cadence Bancorporation

(Exact name of registrant as specified in its charter)

Delaware		47-1329858
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2800 Post Oak Boulevard, Suite 3800

Houston, Texas 77056

(Address of principal executive offices) (Zip Code)

(713)-871-4000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 emerging growth company. See definitions of “accelerated filer”, “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

☒	Large accelerated filer	☐	Accelerated filer

☐	Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A Common Stock		CADE		New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Class A Common Stock, $0.01 Par Value		128,795,662
Class		Outstanding as of May 7, 2019

Cadence Bancorporation

FORM 10-Q

For the Quarter Ended March 31, 2019

INDEX

PART I: FINANCIAL INFORMATION		3

ITEM 1.	FINANCIAL STATEMENTS	3

	Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018	3
	Unaudited Consolidated Statements of Income for the three months ended March 31, 2019 and 2018	4
	Unaudited Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018	5
	Unaudited Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2019 and 2018	6
	Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	7
	Notes to Unaudited Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	77

ITEM 4.	CONTROLS AND PROCEDURES	80

PART II: OTHER INFORMATION		81

ITEM 1.	LEGAL PROCEEDINGS	81

ITEM 1A.	RISK FACTORS	81

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	81

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	81

ITEM 4.	MINE SAFETY DISCLOSURES	81

ITEM 5.	OTHER INFORMATION	81

ITEM 6.	EXHIBITS	81

PART I: FINANCI AL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADENCE BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2019			December 31, 2018
(In thousands, except share data)		(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	214,698		$	237,342
Interest-bearing deposits with banks		322,786			523,436
Federal funds sold		5,585			18,502
Total cash and cash equivalents		543,069			779,280
Investment securities available-for-sale		1,754,839			1,187,252
Other securities - FRB and FHLB stock		66,325			50,752
Loans held for sale		209,346			59,461
Loans		13,624,954			10,053,923
Less: allowance for credit losses		(105,038	)		(94,378	)
Net loans		13,519,916			9,959,545
Premises and equipment, net		128,399			63,621
Other real estate owned		2,862			2,406
Cash surrender value of life insurance		180,245			109,850
Net deferred tax asset		8,860			33,224
Goodwill		480,391			307,083
Other intangible assets, net		118,283			7,317
Other assets		440,376			170,494
Total Assets	$	17,452,911		$	12,730,285
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits	$	3,210,321		$	2,454,016
Interest-bearing deposits		10,988,902			8,254,673
Total deposits		14,199,223			10,708,689
Securities sold under agreements to repurchase		1,418			1,106
Federal Home Loan Bank advances		395,000			150,000
Senior debt		184,822			184,801
Subordinated debt		98,963			98,910
Junior subordinated debentures		37,075			36,953
Other liabilities		233,587			111,552
Total liabilities		15,150,088			11,292,011
Shareholders' Equity:
Common stock $0.01 par value, authorized 300,000,000 shares; 132,891,595 shares issued and 128,762,201 shares outstanding at March 31, 2019 and 83,625,000 shares issued and 82,497,009 shares outstanding at December 31, 2018		1,329			836
Additional paid-in capital		1,867,757			1,041,000
Treasury stock, at cost, 4,129,394 shares and 1,127,991 shares, respectively		(80,833	)		(22,010	)
Retained earnings		496,709			461,360
Accumulated other comprehensive income (loss)		17,861			(42,912	)
Total shareholders' equity		2,302,823			1,438,274
Total Liabilities and Shareholders' Equity	$	17,452,911		$	12,730,285

See accompanying notes to the unaudited consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
(In thousands, except share and per share data)	2019			2018
INTEREST INCOME
Interest and fees on loans	$	205,751		$	102,791
Interest and dividends on securities:
Taxable		10,796			5,118
Tax-exempt		1,739			3,266
Other interest income		3,899			1,918
Total interest income		222,185			113,093
INTEREST EXPENSE
Interest on time deposits		17,186			7,491
Interest on other deposits		29,485			9,139
Interest on borrowed funds		6,225			5,352
Total interest expense		52,896			21,982
Net interest income		169,289			91,111
Provision for credit losses		11,210			4,380
Net interest income after provision for credit losses		158,079			86,731
NONINTEREST INCOME
Investment advisory revenue		5,642			5,299
Trust services revenue		4,335			5,015
Credit related fees		4,870			3,577
Service charges on deposit accounts		5,130			3,960
Payroll processing and insurance revenue		1,859			—
SBA income		1,449			—
Other service fees		1,862			1,333
Mortgage banking income		579			577
Securities gains (losses), net		(12	)		12
Other income		4,950			5,210
Total noninterest income		30,664			24,983
NONINTEREST EXPENSE
Salaries and employee benefits		53,471			37,353
Premises and equipment		10,958			7,591
Merger related expenses		22,000			—
Intangible asset amortization		6,073			792
Other expense		20,938			16,203
Total noninterest expense		113,440			61,939
Income before income taxes		75,303			49,775
Income tax expense		17,102			10,950
Net income	$	58,201		$	38,825
Weighted average common shares outstanding (Basic)		130,485,521			83,625,000
Weighted average common shares outstanding (Diluted)		130,549,319			84,674,807
Earnings per common share (Basic)	$	0.44		$	0.46
Earnings per common share (Diluted)	$	0.44		$	0.46

See accompanying notes to the unaudited consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31,
(In thousands)	2019		2018
Net income	$	58,201	$	38,825
Other comprehensive loss, net of tax:
Net unrealized gains (losses) on securities available-for-sale:
Net unrealized gains (losses) arising during the period (net of $(6,783) and $7,030 tax effect, respectively)		22,593		(23,392	)
Reclassification adjustments for gains (losses) realized in net income (net of $(3) and $3 tax effect, respectively)		9		(9	)
Net unrealized gains (losses) on securities available-for-sale		22,602		(23,401	)
Unrealized gains (losses) on derivative instruments designated as cash flow hedges:
Net unrealized gains (losses) arising during the period (net of $(11,112) and $2,645 tax effect, respectively)		37,011		(8,633	)
Reclassification adjustments for losses realized in net income (net of $(348) and $(77) tax effect, respectively)		1,160		256
Net change in unrealized gains (losses) on derivative instruments		38,171		(8,377	)
Other comprehensive gains (losses), net of tax		60,773		(31,778	)
Comprehensive income	$	118,974	$	7,047

See accompanying notes to the unaudited consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In thousands)	Common Stock		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated OCI			Total Shareholders' Equity
Balance, December 31, 2018	$	836	$	1,041,000		$	(22,010	)	$	461,360		$	(42,912	)	$	1,438,274
Equity-based compensation cost		—		1,188			—						—			1,188
Net income		—		—			—			58,201			—			58,201
Cash dividends declared ($0.175 per common share)		—		—			—			(22,727	)		—			(22,727	)
Dividend equivalents on restricted stock units (Note 20)		—		—			—			(125	)		—			(125	)
Purchase of treasury stock - at cost		—		—			(58,830	)		—			—			(58,830	)
Issuance of 49,232,008 common shares for State Bank acquisition, net of issuance costs (Note 2)		492		825,621			—			—			—			826,113
Value of stock warrants assumed from State Bank acquisition		—		251			—			—			—			251
Common stock issuance costs		—		(295	)		—			—			—			(295	)
Issuance of 34,587 common shares for restricted stock unit vesting (Note 20)		1		(1	)		—			—			—			—
Issuance of treasury stock shares for exercise of stock warrant		—		(7	)		7			—			—			—
Other comprehensive income		—		—			—			—			60,773			60,773
Balance, March 31, 2019	$	1,329	$	1,867,757		$	(80,833	)	$	496,709		$	17,861		$	2,302,823

(In thousands)
Balance, December 31, 2017	$	836	$	1,037,040		$	—		$	340,213		$	(19,033	)	$	1,359,056
Equity-based compensation cost		—		453			—			—			—			453
Net income		—		—			—			38,825			—			38,825
Cash dividends declared ($0.125 per common share)		—		—			—			(10,453	)		—			(10,453	)
Cumulative effect of adoption of new accounting principle		—		—			—			1,000			—			1,000
Other comprehensive loss		—		—			—			—			(31,778	)		(31,778	)
Balance, March 31, 2018	$	836	$	1,037,493		$	—		$	369,585		$	(50,811	)	$	1,357,103

See accompanying notes to the unaudited consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
(In thousands)	2019			2018
NET CASH FLOWS FROM OPERATING ACTIVITIES	$	(85,013	)	$	72,788
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in acquisition		414,342			—
Purchase of securities available-for-sale		(69,743	)		(111,422	)
Proceeds from sales of securities available-for-sale		138,354			64,536
Proceeds from maturities, calls and paydowns of securities available-for-sale		61,512			26,982
Purchases of other securities, net		(15,573	)		—
Proceeds from sale of commercial loans held for sale		16,984			3,500
Increase in loans, net		(229,830	)		(397,496	)
Purchase of premises and equipment		(3,081	)		(2,347	)
Proceeds from disposition of foreclosed property		3,180			2,529
Other, net		(1,066	)		(460	)
Net cash provided by (used in) investing activities		315,079			(414,178	)
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in deposits, net		(606,131	)		37,456
Net change in securities sold under agreements to repurchase		(23,587	)		272
Net change in FHLB advances		245,000			—
Repurchase of common stock		(58,830	)		—
Cash dividends paid on common stock		(22,727	)		(10,453	)
Net cash (used in) provided by financing activities		(466,275	)		27,275
Net decrease in cash and cash equivalents		(236,211	)		(314,115	)
Cash and cash equivalents at beginning of period		779,280			730,811
Cash and cash equivalents at end of period	$	543,069		$	416,696

See accompanying notes to the unaudited consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Cadence Bancorporation (the “Company”) is a Delaware corporation and a financial holding company whose primary asset is its investment in its wholly owned subsidiary bank, Cadence Bank National Association (the “Bank”).

Note 1—Summary of Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements for the Company have been prepared in accordance with instructions to the SEC Form 10-Q and Article 10 of Regulation S-X; therefore, they do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, comprehensive income, and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the consolidated financial position and results of operations for the periods covered by this report have been included. These interim financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018. Operating results for the period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.

The Company and its subsidiaries follow accounting principles generally accepted in the United States of America, including, where applicable, general practices within the banking industry. The unaudited 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 (Note 22).

Certain amounts reported in prior years have been reclassified to conform to the 2019 presentation. These reclassifications did not materially impact the Company’s consolidated balance sheets or consolidated statements of income.

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 855, “Subsequent Events,’ 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. No subsequent events were identified that would have required a change to the consolidated financial statements or disclosure in the notes to the consolidated financial statements.

Nature of Operations

The Company’s primary subsidiary is the Bank.

The Bank operates under a national bank charter and is subject to regulation by the Office of the Comptroller of the Currency (“OCC”). The Bank provides full banking services in six southern states: Alabama, Florida, Georgia, Mississippi, Tennessee, and Texas.

The Bank’s operating subsidiaries include:

•

Linscomb & Williams Inc. —financial advisory firm; and

•

Cadence Investment Services, Inc.—provides investment and insurance products.

•

Altera Payroll and Insurance Inc.—provides payroll services.

The Company and the Bank also have certain other non-operating and immaterial subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with 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 and accounting for acquired credit impaired loans, valuation of goodwill, intangible assets and deferred income taxes.

Accounting Policies

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 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 o f 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 acqu ired is recorded as goodwill. On January 1, 2019 we completed our merger with State Bank Financial Corporation (Note 2) .

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases”. This ASU requires lessees to recognize lease assets and lease liabilities generated by contracts longer than a year on their balance sheets. Accordingly, a lessee will recognize a lease asset for its right-to-use (“ROU”) the underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. The ASU also requires lessees to provide additional qualitative and quantitative information about the amount, timing, and uncertainty for the payments they make for the lease agreements.

In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements . ASU No. 2018-10 provides improvements related to ASU No. 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements. The amendments affect narrow aspects of the guidance issued in ASU No. 2016-02. ASU No. 2018-11 allows entities adopting ASU No. 2016-02 to choose an additional (and optional) transition method, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU No. 2018-11 also allows lessors to not separate non-lease components from the associated lease component if certain conditions are met. The amendments in these updates became effective for annual periods and interim periods within those annual periods beginning after December 15, 2018.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842) Narrow-Scope Improvements for Lessors. The amendments in this guidance allow lessors as accounting policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. The amendments in ASU 2018-20 affect the amendments in ASU 2016-02 and have the same effective date and transition requirements. The adoption of this guidance on January 1, 2019 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

The Company adopted ASU 2016-02 on January 1, 2019 using the optional modified retrospective transition approach which resulted in a right-of-use asset of approximately $80.0 million and lease liability of $92.3 million (Note 7). The Company has elected to adopt the package of practical expedients permitted under ASC 842 which, among other things, does not require reassessment of lease classification. The Company determines if an arrangement is or contains a lease at the inception of the contract. In determining the present value of lease payments, the Bank used our incremental borrowing rate as the discount rate for the leases.

The Bank has defined a separate accounting policy for real estate and non-real estate leases to account for non-lease components from a lessee perspective. For non-real estate leases, we elected the practical expedient to not separate non-lease components from lease components and instead to account for both as a single lease component as it relates to this class type. The election was made to separate the non-lease components from the lease components in real estate leases due to the volume of real estate leases that are structured as triple net leases, where many of these expenses are already excluded from the lease. The Company’s lease agreements do not contain any residual value guarantees.

The Bank has elected to apply the short-term lease exception to existing leases that meet the definition of a short-term lease, considering the lease term from the commencement date, not the remaining term at the date of adoption. The Bank elected to include all renewal options in the lease term in determination of the capitalization period and lease liability and ROU asset.

In March 2019, the FASB issued ASU No. 2019-01, “Leases (Topic 842)”. ASU 2019-01 updates codification improvements related to ASU 2016-02 to increase stakeholders’ awareness of the amendments and to expedite the improvements. The amendments in ASU 2019-01 address three topics which include 1) determining the fair value of the underlying asset by lessors that are not manufacturers or dealers (Issue 1); 2) presentation on the statement of cash flows-sales-type and direct financing leases (Issue 2); and 3) transition disclosures related to Topic 250, Accounting Changes and Error Corrections (Issue 3). ASU No. 2019-01 will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for public business entities. An entity is permitted to early adopt. However, an entity should apply the amendments as of the date that it first applied Topic 842. The transition and effective date provisions apply to Issue 1 and Issue 2. The Company adopted ASU No. 2019-01 at January 1, 2019 and it did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables -Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”, which will shorten the amortization period for callable debt securities held at a premium to the earliest call date instead of the maturity date. The amendments do not require an accounting change for securities held at a discount, which will continue to be amortized to the maturity date. ASU No. 2017-08 will be effective for annual reporting periods beginning after December 15, 2018, includin g interim reporting periods within those periods. The amendments should be applied using a modified-retrospective transition method as of the beginning of the period of adoption. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2017-08 at January 1, 2019 did not have a material impact on the Company ’s financial condition, results of operations or cash flows.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this ASU allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The Company adopted this ASU on January 1, 2019 and reclassified approximately $35.4 million from accumulated other comprehensive income to retained earnings.

In July 2018, the FASB issued ASU No. 2018-09, “Codification Improvements”. The amendments in the ASU are related to changes which seek to clarify, correct errors or make improvements to the Codification. This ASU covers nine amendments, which affect a variety of Topics. Some amendments do not require transition guidance and are effective upon issuance, while others are applicable for annual periods beginning after December 15, 2018. The adoption of ASU 2018-09 at January 1, 2019 did not have a material impact on the Company’s financial condition, results of operations or cash flows.

In October 2018, the FASB issued ASU No. 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”. The amendments in ASU 2018-16 permit the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. The amendments should be adopted on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of the adoption. For public business entities that have already adopted ASU 2017-12, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of ASU 2018-16 at January 1, 2019 did not have an impact on the Company’s financial condition, results of operations or cash flows as the Company does not have any instruments tied to the OIS rate.

Pending Accounting Pronouncements

In June 2016, the FASB has issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (referred to as “CECL”). CECL is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. CECL will replace the current incurred loss accounting model with an expected loss approach and requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. CECL requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Adoption of the standard may result in a material increase in the allowance for credit losses given the change from accounting for losses inherent in the loan portfolio to accounting for losses over the remaining contractual life of the portfolio. However, the impact at adoption will be influenced by the portfolios’ composition and quality at the adoption date as well as economic conditions and forecasts at that time.

The Company expects no material allowance impact to available-for-sale securities.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Therefore, any carrying amount which exceeds the reporting unit’s fair value (up to the amount of goodwill recorded) will be recognized as an impairment loss. ASU No. 2017-04 will be effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those periods. The amendments will be applied prospectively on or after the effective date. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Based on recent goodwill impairments tests, which did not require the application of Step 2, the Company does not expect the adoption of this ASU to have an immediate impact.

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820)”. ASU 2018-13 amends the disclosure requirements of Topic 820. Fair Value Measurement, to remove disclosure of transfers between Level 1 and Level 2 of the fair value hierarchy and the valuation process for Level 3 fair value measurements, among other amendments, and to include disclosure of the range and weighted average used in Level 3 fair value measurements, among other amendments. Amendments should be applied retrospectively to all periods presented, except for certain amendments, which should be applied prospectively. ASU No. 2018-13 will be effective for annual reporting periods after December 15, 2019, including interim periods within those periods. An entity is permitted to early adopt any removed or modified disclosures upon issuance and delay adoption of the additional disclosures until the effective date.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s financial statements.

In October 2018, the FASB issued ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. This ASU amends Topic 810, Consolidation, guidance on how all reporting entities evaluate indirect interests held through related parties in common control arrangements when determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. The Company believes the adoption of this guidance will not have a material impact.

Note 2—Business Combination

On January 1, 2019, the Company acquired all the outstanding stock of State Bank Financial Corporation (“State Bank”), of Atlanta, Georgia, the bank holding company for State Bank and Trust Company, in a stock transaction. State Bank shareholders received 1.271 shares of the Company’s Class A common stock in exchange for each share of State Bank common stock resulting in the Company issuing 49.2 million shares of its Class A common stock. In total, the purchase price for State Bank was $826.4 million, including $826.1 million in the Company’s common stock and $0.3 million in cash representing the value of outstanding warrants. The Company’s strategic rationale for the transaction was to expand our market presence into Georgia, create a more diverse business mix as well as an attractive funding base and leverage operating costs through economies of scale. The acquisition added $3.5 billion in loans and $4.1 billion in deposits as well as 32 branch locations across northern and central Georgia.

The State Bank transaction was accounted for using the acquisition method of accounting. Accordingly, the results of operations of the acquired company have been included in the Company’s results of operations since the date of acquisition. Under this method of accounting, assets acquired, liabilities assumed, and consideration paid were recorded at their estimated fair values on the acquisition date. The fair values of securities, loans, OREO, premises and equipment, core deposit intangibles, other assets and deposits were determined with the assistance of appraisals, third-party valuations and advisors. An estimate of fair value has been recorded based on initial valuations available at March 31, 2019 and are considered preliminary and subject to refinement for up to one year after the closing date of the acquisition as additional information regarding the closing date fair values becomes available. The excess cost over fair value of net assets acquired is recorded as goodwill. As the consideration paid for State Bank exceeded the net assets acquired, g oodwill of $173.3 million was recorded from the acquisition and allocated to the Banking segment. Goodwill recorded in the transaction, which reflects the new Georgia market and synergies expected from the combined operations, is not deductible for income tax purposes.

The following table provide s the purchase price calculation as of the acquisition date and the identifiable assets acquired and the liabilities assumed at their fair values . These fair value measureme nts are based on internal and third-party valuations.

(In thousands)	As Recorded by Cadence
Assets
Cash and cash equivalents	$	414,342
Investment securities available-for-sale		667,865
Loans held for sale		148,469
Loans		3,324,056
Premises and equipment		65,646
Cash surrender value of life insurance		69,252
Intangible assets		117,038
Other assets		43,246
Total assets acquired	$	4,849,914
Liabilities
Deposits	$	4,096,665
Short term borrowings		23,899
Other liabilities		76,278
Total liabilities assumed		4,196,842
Net identifiable assets acquired over liabilities assumed	$	653,072
Goodwill	$	173,308
Net assets acquired over liabilities assumed	$	826,380
Consideration:
Cadence Bancorporation common shares issued		49,232,008
Fair value per share of the Company's common stock	$	16.78
Company common stock issued		826,113
Cash payment for fractional shares and the value of unexercised warrants		267
Fair value of total consideration transferred	$	826,380

The Company estimated the fair value of loans by utilizing the discounted cash flow method applied to pools of loans aggregated by product categories and interest rate type. In addition, certain cash flows were estimated on an individual loan basis based on current performance and collateral value, if the loan is collateral dependent. Contractual principal and interest cash flows were projected based on the payment type (i.e., amortizing or interest only), interest rate type (i.e., fixed or adjustable), interest rate index, weighted average maturity, weighted average interest rate, weighted average spread, and weighted average interest rate floor of each loan pool. The expected cash flows for each category were determined by estimating future credit losses using probabilities of default (PD), loss given default (LGD) and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on discount rates developed from various sources including an analysis of State Bank’s newly originated loans, a buildup approach and market data. There was no carryover of State Bank’s ACL associated with the loans acquired.

On January 1, 2019, the estimated fair value of the acquired non-credit impaired (“ANCI”) loans acquired in the State Bank transaction was $3.2 billion, which is net of a $74.8 million discount. The gross contractual amounts receivable of the ANCI loans at acquisition was $3.9 billion, of which $0.2 billion is the amount of contractual cash flows not expected to be collected.

The Company accounts for and evaluates acquired credit impaired (“ACI”) loans in accordance with the provisions of ASC Topic 310-30. When ACI loans exhibit evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all principal and interest payments in accordance with the terms of the loan agreement, the expected shortfall in future cash flows, as compared to the contractual amount due, is recognized as a non-accretable discount. Any excess of expected cash flows over the acquisition date fair value is known as the accretable discount and is recognized as accretion income over the life of each pool or individual loan. Information about the ACI loans acquired in the State Bank merger as of the acquisition date is as follows:

(In thousands)	Acquired Credit Impaired Loans
Contractually required principal and interest at acquisition	$	162,003
Contractual cash flows not expected to be collected (nonaccretable difference)		23,467
Expected cash flows at acquisition		138,536
Accretable difference		42,626
Basis in acquired loans at acquisition - estimated fair value	$	95,910

Intangible assets consisted of the core deposit intangible and the customer relationship intangible of a subsidiary. The core deposit intangible asset recognized of $111.9 million is being amortized over its estimated useful life of ten years utilizing an accelerated method. The benefit of the deposit base is equal to the difference in cash flows between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base. The difference was tax effected and discounted to present value at a risk-adjusted discount rate. The customer relationship and trademark intangible recognized of $3.7 million and $1.4 million are being amortized over estimated useful lives of ten and twenty years, respectively, using an accelerated method.

Goodwill of $173.3 million was recorded as a result of the transaction and is not amortized for financial statement purposes. All the goodwill was assigned to the Banking segment. The goodwill recorded is not deductible for income tax purposes

Certificates of deposit, including IRAs, were valued by projecting out the expected cash flows based on the contractual terms of the certificates of deposit. The fair values of savings and transaction deposit accounts were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. These cash flows were discounted using the interest rates on fixed maturity deposits offered by Cadence and State Bank as of January 1, 2019 resulting in a $3.4 million discount amortized over a twelve-month period.

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 $26.8 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.

The following table presents certain unaudited pro forma information for the results of operations for the quarters ended March 31, 2019 and 2018, as if State Bank had been acquired on January 1, 2018. The pro forma results combine the historical results of State Bank into the Company’s consolidated income statements 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, 2018. No assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, provision for credit losses, expense efficiencies or asset dispositions. Merger-related costs of $22.0 million recorded in the 2019 quarter are not included in the pro forma statements below.

	Three Months Ended March 31,
	2019		2018
(In thousands)	Pro Forma		Pro Forma
Total revenues (net interest income and noninterest income)	$	195,554	$	186,256
Net income		72,049		55,989

Revenues and earnings of the acquired company since the acquisition date have not been disclosed as it not practicable as State Bank was merged into the Company and separate financial information is not available.

Merger related expenses of $22.0 million incurred during the three months ended March 31, 2019, are recorded in the consolidated income statements and include incremental costs related to the closing of the transaction, including legal, accounting and auditing, investment banker fees, certain employment related costs, travel, printing, supplies, and other costs. The data processing systems conversion occurred in February 2019.

Note 3 — Investment Securities

A summary of amortized cost and estimated fair value of securities available-for-sale at March 31, 2019 and December 31, 2018 is as follows:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2019
Securities available-for-sale:
U.S. Treasury securities	$	100,372	$	—	$	2,806	$	97,566
Obligations of U.S. government agencies		118,498		596		227		118,867
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS)
Residential pass-through:
Guaranteed by GNMA		92,698		497		1,143		92,052
Issued by FNMA and FHLMC		764,369		3,999		4,659		763,709
Other residential mortgage-backed securities		319,706		2,275		752		321,229
Commercial mortgage-backed securities		134,345		1,101		3,134		132,312
Total MBS		1,311,118		7,872		9,688		1,309,302
Obligations of states and municipal subdivisions		229,723		1,949		2,568		229,104
Total securities available-for-sale	$	1,759,711	$	10,417	$	15,289	$	1,754,839

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2018
Securities available-for-sale:
U.S. Treasury securities	$	100,413	$	—	$	3,628	$	96,785
Obligations of U.S. government agencies		60,975		316		284		61,007
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS)
Residential pass-through:
Guaranteed by GNMA		85,052		146		2,093		83,105
Issued by FNMA and FHLMC		594,874		694		10,367		585,201
Other residential mortgage-backed securities		36,339		8		1,178		35,169
Commercial mortgage-backed securities		114,383		287		5,255		109,415
Total MBS		830,648		1,135		18,893		812,890
Obligations of states and municipal subdivisions		229,475		207		13,112		216,570
Total securities available-for-sale	$	1,221,511	$	1,658	$	35,917	$	1,187,252

The scheduled contractual maturities of securities available-for-sale at March 31, 2019 were as follows:

	Available-for-Sale
	Amortized		Estimated
(In thousands)	Cost		Fair Value
Due in one year or less		39,560		39,596
Due after one year through five years		128,883		126,188
Due after five years through ten years		50,865		51,521
Due after ten years		229,285		228,232
Mortgage-backed securities		1,311,118		1,309,302
Total	$	1,759,711	$	1,754,839

G ross gains and gross losses on sales of securities available for sale for the three months ended March 3 1 , 201 9 and 201 8 are presented below. There were no other-than-temporary impairment charges included in gross realized losses for the three months ended March 3 1 , 201 9 and 201 8 . The specific identification method is used to reclassify gains and losses out of other compreh ensive income at the time of sale.

	For the Three Months Ended March 31,
(In thousands)	2019			2018
Gross realized gains	$	3		$	12
Gross realized losses		(15	)		—
Realized (losses) gains on sale of securities available for sale, net	$	(12	)	$	12

Securities with a carrying value of $1.3 billion and $711.2 million at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits, FHLB borrowings, repurchase agreements and for other purposes as required or permitted by law.

Information pertaining to securities available-for-sale with gross unrealized losses aggregated by category and length of time the securities have been in a continuous loss position was as follows:

	Unrealized loss analysis
	Losses < 12 Months				Losses > 12 Months
(In thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
March 31, 2019
U.S. Treasury securities	$	—	$	—	$	97,566	$	2,806
Obligations of U.S. government agencies		13,670		61		18,692		166
Mortgage-backed securities		62,725		393		480,197		9,295
Obligations of states and municipal subdivisions		—		—		98,577		2,568
Total	$	76,395	$	454	$	695,032	$	14,835

	Unrealized loss analysis
	Losses < 12 Months				Losses > 12 Months
(In thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
December 31, 2018
U.S. Treasury securities	$	—	$	—	$	96,785	$	3,628
Obligations of U.S. government agencies		25,978		183		10,152		101
Mortgage-backed securities		259,794		2,864		405,974		16,029
Obligations of states and municipal subdivisions		74,503		2,501		125,092		10,611
Total	$	360,275	$	5,548	$	638,003	$	30,369

As of March 31, 2019 and December 31, 2018, approximately 44% and 84%, respectively, of the fair value of securities in the investment portfolio reflected an unrealized loss. As of March 31, 2019, there were 136 securities that had been in a loss position for more than twelve months, and 30 securities that had been in a loss position for less than 12 months. None of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption of the obligations. The Company has adequate liquidity and, therefore, does not plan to sell and, more likely than not, will not be required to sell these securities before recovery of the indicated impairment. Accordingly, the unrealized losses on these securities have been determined to be temporary.

Note 4 —Loans and Allowance for Credit Losses

The following table presents total loans outstanding by portfolio segment and class of financing receivable as of March 31, 2019 and December 31, 2018. Outstanding balances include originated loans, Acquired Noncredit Impaired (“ANCI”) loans and Acquired Credit Impaired (“ACI”) loans. See Note 2 regarding the merger with State Bank on January 1, 2019. Additional information about ACI loans is presented separately in the “Acquired Credit-Impaired Loans” section of this Note.


(In thousands)	March 31, 2019			December 31, 2018
Commercial and Industrial
General C&I	$	4,423,086		$	3,275,362
Energy sector		1,380,541			1,285,775
Restaurant industry		1,137,898			1,096,366
Healthcare		540,163			539,839
Total commercial and industrial		7,481,688			6,197,342
Commercial Real Estate
Income producing		2,481,360			1,266,791
Land and development		348,835			63,948
Total commercial real estate		2,830,195			1,330,739
Consumer
Residential real estate		2,518,347			2,227,653
Other		121,171			67,100
Total consumer		2,639,518			2,294,753
Small Business Lending		758,842			266,283
Total (Gross of unearned discount and fees)		13,710,243			10,089,117
Unearned discount and fees		(85,289	)		(35,194	)
Total (Net of unearned discount and fees)	$	13,624,954		$	10,053,923

Allowance for Credit Losses (“ACL”)

The ACL is management’s estimate of credit losses inherent in the loan portfolio at the balance sheet date. The Company has an established process to determine the adequacy of the ACL that assesses the losses inherent in our portfolio. While management attributes portions of the ACL to specific portfolio segments, the entire ACL is available to absorb credit losses inherent in the total loan portfolio.

The ACL process involves procedures that appropriately consider the unique risk characteristics of the loan portfolio segments based on management’s assessment of the underlying risks and cash flows. For each portfolio segment, losses are estimated collectively for groups of loans with similar characteristics, individually for impaired loans or, for ACI loans, based on the changes in cash flows expected to be collected on a pool or individual basis.

The level of the ACL is influenced by loan volumes, risk rating migration, historic loss experience influencing loss factors, and other conditions influencing loss expectations, such as economic conditions. The primary indicator of credit quality for the portfolio segments is its internal risk ratings. The assignment of loan risk ratings is the primary responsibility of the lending officer concurrent with approval from the credit officer reviewing and recommending approval of the credit. Additionally, there is independent review by internal credit review, which also performs ongoing, independent review of the risk management process. The risk management process includes underwriting, documentation and collateral control. Credit review is centralized and independent of the lending function. The credit review results are reported to senior management and the Board of Directors.

A summary of the activity in the ACL is as follows :

	For the Three Months Ended March 31, 2019
(In thousands)	Commercial and Industrial			Commercial Real Estate			Consumer			Small Business			Total
As of December 31, 2018	$	66,316		$	10,452		$	13,703		$	3,907		$	94,378
Provision for loan losses		9,299			102			1,206			603			11,210
Charge-offs		(461	)		(85	)		(234	)		(158	)		(938	)
Recoveries		372			—			15			1			388
As of March 31, 2019	$	75,526		$	10,469		$	14,690		$	4,353		$	105,038

Allocation of ending ACL
ACI loans collectively evaluated for impairment	$	89		$	1,410		$	5,983		$	—		$	7,482
ACI loans individually evaluated for impairment		—			7			45			—			52
ANCI loans collectively evaluated for impairment		301			77			557			116			1,051
ANCI loans individually evaluated for impairment		—			—			7			59			66
Originated loans collectively evaluated for impairment		60,630			8,975			8,085			4,178			81,868
Originated loans individually evaluated for impairment		14,506			—			13			—			14,519
ACL as of March 31, 2019	$	75,526		$	10,469		$	14,690		$	4,353		$	105,038
Loans
ACI loans collectively evaluated for impairment	$	39,301		$	102,074		$	131,133		$	20,337		$	292,845
ACI loans individually evaluated for impairment		3,668			6,946			324			—			10,938
ANCI loans collectively evaluated for impairment		1,105,684			1,471,679			509,600			465,083			3,552,046
ANCI loans individually evaluated for impairment		—			—			1,524			256			1,780
Originated loans collectively evaluated for impairment		6,244,068			1,249,496			1,996,683			273,166			9,763,413
Originated loans individually evaluated for impairment		88,967			—			254			—			89,221
Loans as of March 31, 2019	$	7,481,688		$	2,830,195		$	2,639,518		$	758,842		$	13,710,243

	For the Three Months Ended March 31, 2018
(In thousands)	Commercial and Industrial			Commercial Real Estate			Consumer			Small Business			Total
As of December 31, 2017	$	55,919		$	11,990		$	14,983		$	4,684		$	87,576
Provision for loan losses		5,330			(513	)		(903	)		466			4,380
Charge-offs		(58	)		—			(301	)		(453	)		(812	)
Recoveries		18			209			103			63			393
As of March 31, 2018	$	61,209		$	11,686		$	13,882		$	4,760		$	91,537

Allocation of ending ACL
Loans collectively evaluated for impairment	$	52,535		$	11,684		$	13,639		$	4,738		$	82,596
Loans individually evaluated for impairment		8,674			2			243			22			8,941
ACL as of March 31, 2018	$	61,209		$	11,686		$	13,882		$	4,760		$	91,537
Loans
Loans collectively evaluated for impairment	$	5,433,850		$	1,148,486		$	1,782,604		$	234,912		$	8,599,852
Loans individually evaluated for impairment		66,925			7,924			2,274			425			77,548
Loans as of March 31, 2018	$	5,500,775		$	1,156,410		$	1,784,878		$	235,337		$	8,677,400

Loans Held-for-sale

A summary of the loans held for sale at March 31, 2019 and December 31, 2018 is as follows:


(In thousands)	March 31, 2019		December 31, 2018
Mortgage loans held for sale	$	19,764	$	17,004
Commercial loans held for sale		189,582		42,457
Loans held for sale	$	209,346	$	59,461

Impaired Originated and ANCI Loans Including Troubled Debt Restructurings (“TDRs”)

The following includes certain key information about individually impaired originated and ANCI loans as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018.

Originated and ANCI Loans Identified as Impaired

	As of March 31, 2019
(In thousands)	Recorded Investment in Impaired Loans ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance		Nonaccrual Loans Included in Impaired Loans		Undisbursed Commitments
With no related allowance for credit losses
Commercial and Industrial
General C&I	$	9,063	$	8,997	$	—	$	—	$	1,333
Total commercial and industrial		9,063		8,997		—		—		1,333
Consumer
Residential real estate		1,531		1,524		—		—		—
Total	$	10,594	$	10,521	$	—	$	—	$	1,333
With allowance for credit losses recorded
Commercial and Industrial
General C&I	$	38,968	$	39,420	$	8,365	$	34,459	$	3,161
Energy sector		13,880		27,915		1,571		13,880		2,964
Restaurant industry		22,871		23,785		4,386		21,869		2,204
Healthcare		4,449		4,496		209		4,449		—
Total commercial and industrial		80,168		95,616		14,531		74,657		8,329
Consumer
Other		257		254		13		—		—
Total consumer		257		254		13		—		—
Small Business Lending		448		1,235		41		208		10
Total	$	80,873	$	97,105	$	14,585	$	74,865	$	8,339

(1)

The recorded investment of a loan also includes any interest receivable, net unearned discount or fees, and unamortized premium or discount.

	As of December 31, 2018
(In thousands)	Recorded Investment in Impaired Loans ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance		Nonaccrual Loans Included in Impaired Loans		Undisbursed Commitments
With no related allowance for credit losses
Commercial and Industrial
Energy sector	$	20,713	$	33,908	$	—	$	20,713	$	3,658
Total commercial and industrial		20,713		33,908		—		20,713		3,658
Consumer
Residential real estate		1,538		1,535		—		—		—
Total consumer		1,538		1,535		—		—		—
Total	$	22,251	$	35,443	$	—	$	20,713	$	3,658
With allowance for credit losses recorded
Commercial and Industrial
General C&I	$	28,684	$	28,677	$	3,559	$	24,103	$	930
Restaurant industry		23,043		23,698		3,485		22,042		2,329
Healthcare		4,496		4,496		256		4,496		—
Total commercial and industrial		56,223		56,871		7,300		50,641		3,259
Consumer
Other		254		254		25		—		—
Total consumer		254		254		25		—		—
Small Business Lending		476		1,249		107		229		10
Total	$	56,953	$	58,374	$	7,432	$	50,870	$	3,269

(1) The recorded investment of a loan also includes any interest receivable, net unearned discount or fees, and unamortized premium or discount.

The related amount of interest income recognized for impaired loans was immaterial for both three-month periods ended March 31, 2019 and 2018.

Generally, cash receipts on nonperforming loans are used to reduce principal rather than recorded as interest income. Past due status is determined based upon contractual terms. A nonaccrual loan may be returned to accrual status when repayment is reasonably assured and there has been demonstrated performance under the terms of the loan or, if applicable, under the terms of the restructured loan. Approximately $0.3 million of contractual interest paid was recognized on the cash basis for the three months ended March 31, 2018.

Average Recorded Investment in Impaired Originated and ANCI Loans

	Three Months Ended March 31,
(In thousands)	2019		2018
Commercial and Industrial
General C&I	$	38,358	$	4,979
Energy sector		17,297		47,969
Restaurant industry		22,957		10,993
Healthcare		4,473		—
Total commercial and industrial		83,085		63,941
Consumer
Residential real estate		1,534		1,583
Other		255		398
Total consumer		1,789		1,981
Small Business Lending		462		662
Total	$	85,336	$	66,584

Included in impaired loans are loans considered to be TDRs. The Company attempts to work with borrowers when necessary to extend or modify loan terms to better align with the borrower’s ability to repay. Extensions and modifications to loans are made in accordance with internal policies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. The Bank considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. Qualifying criteria and payment terms are structured by the borrower’s current and prospective ability to comply with the modified terms of the loan.

A modification is classified as a TDR if the borrower is experiencing financial difficulty and it is determined that the Company has granted a concession to the borrower. The Company may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future without the modification. Concessions could include reductions of interest rates at a rate lower than current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, principal forgiveness, forbearance, or other concessions. The assessments of whether a borrower is experiencing or will likely experience financial difficulty and whether a concession has been granted is highly subjective in nature, and management’s judgment is required when determining whether a modification is classified as a TDR.

All TDRs are reported as impaired. Impaired classification may be removed if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. The majority of TDRs are classified as impaired loans for the remaining life of the loan. Nonperforming loans and impaired loans are defined differently. Some loans may be included in both categories, whereas other loans may only be included in one category.

The following table provides information regarding loans modified into TDRs in the originated and ANCI portfolios for the periods indicated:

Originated and ANCI Loans that were modified into TDRs

	For the Three Months Ended March 31,
	2019				2018
(In thousands)	Number of TDRs		Recorded Investment		Number of TDRs		Recorded Investment
Commercial and Industrial		1	$	24,369		—	$	—
Total		1	$	24,369		—	$	—

There were no TDRs experiencing payment default during the three months ended March 31, 2019 and 2018. Default is defined as the earlier of the troubled debt restructuring being placed on non-accrual status or obtaining 90 days past due status with respect to principal and/or interest payments.

	For the Three Months Ended March 31,
	2019				2018
	Number of Loans Modified by:
	Rate Concession		Modified Terms and/ or Other Concessions		Rate Concession		Modified Terms and/ or Other Concessions
Commercial and Industrial		—		1		—		—
Total		—		1		—		—

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $3.6 million and $3.8 million of consumer loans secured by single family residential real estate that are in process of foreclosure at March 31, 2019 and December 31, 2018, respectively. Loans in process of foreclosure include those for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction. In addition to the single family residential real estate loans in process of foreclosure, the Company also held $1.3 million of foreclosed single family residential properties in other real estate owned as of March 31, 2019 and December 31, 2018.

Credit Exposure in the Originated and ANCI Loan Portfolios

The following tables provide information regarding the credit exposure by portfolio segment and class of receivable.

	As of March 31, 2019
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized
Commercial and Industrial
General C&I	$	78,070	$	73,623	$	9,916	$	161,609
Restaurant industry		36,216		25,886		—		62,102
Energy sector		—		22,172		7,876		30,048
Healthcare		3,173		4,449		—		7,622
Total commercial and industrial		117,459		126,130		17,792		261,381
Commercial Real Estate
Income producing		1,752		—		—		1,752
Land and development		6,291		96		—		6,387
Total commercial real estate		8,043		96		—		8,139
Consumer
Residential real estate		—		4,181		—		4,181
Other		—		6		—		6
Total consumer		—		4,187		—		4,187
Small Business Lending		3,459		1,343		—		4,802
Total	$	128,961	$	131,756	$	17,792	$	278,509

	As of December 31, 2018
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized
Commercial and Industrial
General C&I	$	74,592	$	79,815	$	—	$	154,407
Restaurant industry		24,449		26,171		—		50,620
Energy sector		11,812		6,227		14,486		32,525
Healthcare		—		4,496		—		4,496
Total commercial and industrial		110,853		116,709		14,486		242,048
Commercial Real Estate
Land and development		—		985		—		985
Total commercial real estate		—		985		—		985
Consumer
Residential real estate		—		3,315		—		3,315
Total consumer		—		3,315		—		3,315
Small Business Lending		772		2,013		—		2,785
Total	$	111,625	$	123,022	$	14,486	$	249,133

The following table provides an aging of past due loans by portfolio segment and class of receivable .

Aging of Past due Originated and ANCI Loans

	As of March 31, 2019
	Accruing Loans						Non-Accruing Loans
(Recorded Investment in thousands)	30-59 DPD		60-89 DPD		90+DPD		0-29 DPD		30-59 DPD		60-89 DPD		90+DPD
Commercial and Industrial
General C&I	$	516	$	—	$	10,029	$	34,459	$	—	$	—	$	—
Energy sector		—		—		—		6,003		—		—		7,877
Restaurant industry		—		—		—		21,869		—		—		—
Healthcare		—		—		—		4,449		—		—		—
Total commercial and industrial		516		—		10,029		66,780		—		—		7,877
Commercial Real Estate
Income producing		—		—		—		—		—		—		—
Land and development		1,120		—		—		—		—		—		—
Total commercial real estate		1,120		—		—		—		—		—		—
Consumer
Residential real estate		2,849		1,372		1,604		1,408		353		—		815
Other		1,097		273		6		—		—		—		—
Total consumer		3,946		1,645		1,610		1,408		353		—		815
Small Business Lending		5,096		968		—		332		35		—		83
Total	$	10,678	$	2,613	$	11,639	$	68,520	$	388	$	—	$	8,775

	As of December 31, 2018
	Accruing Loans						Non-Accruing Loans
(Recorded Investment in thousands)	30-59 DPD		60-89 DPD		90+DPD		0-29 DPD		30-59 DPD		60-89 DPD		90+DPD
Commercial and Industrial
General C&I	$	120	$	—	$	—	$	23,928	$	176	$	—	$	—
Restaurant industry		—		—		—		22,043		—		—		—
Energy sector		—		—		—		20,712		—		—		—
Healthcare		—		—		—		4,496		—		—		—
Total commercial and industrial		120		—		—		71,179		176		—		—
Commercial Real Estate
Land and development		—		61		—		—		—		—		—
Total commercial real estate		—		61		—		—		—		—		—
Consumer
Residential real estate		1,275		315		760		876		151		95		1,429
Other		27		112		—		—		—		—		—
Total consumer		1,302		427		760		876		151		95		1,429
Small Business Lending		491		25		—		250		29		4		50
Total	$	1,913	$	513	$	760	$	72,305	$	356	$	99	$	1,479

Acquired Credit Impaired (“ACI”) Loans

The following table presents total ACI loans outstanding by portfolio segment and class of financing receivable See Note 2 for more information regarding our merger with State Bank.

	As of
(In thousands)	March 31, 2019		December 31, 2018
Commercial and Industrial
General C&I	$	41,440	$	16,807
Restaurant industry		1,529		—
Total commercial and industrial		42,969		16,807
Commercial Real Estate
Income producing		96,780		65,427
Land and development		12,240		—
Total commercial real estate		109,020		65,427
Consumer
Residential real estate		130,484		120,495
Other		973		546
Total consumer		131,457		121,041
Small Business Lending		20,337		—
Total	$	303,783	$	203,275

The excess of cash flows expected to be collected over the carrying value of ACI loans is referred to as the accretable yield and is recognized in interest income using an effective yield method over the remaining life of the loan, or pools of loans. The accretable yield is affected by:

•

Changes in interest rate indices for variable rate ACI loans—Expected future cash flows are based on the variable rates in effect at the time of the regular evaluations of cash flows expected to be collected;

•

Changes in prepayment assumptions—Prepayments affect the estimated life of ACI loans which may change the amount of interest income, and possibly principal, expected to be collected; and

•

Changes in the expected principal and interest payments over the estimated life—Updates to expected cash flows are driven by the credit outlook and actions taken with borrowers.

Changes in the amount of accretable discount for ACI loans for the three months ended March 31, 2019 and 2018 were as follows:

Changes in Accretable Yield on ACI Loans

	For the Three Months Ended March 31,
(In thousands)	2019			2018
Balance at beginning of period	$	67,405		$	78,422
Additions (See Note 2)		42,626			—
Accretion		(5,844	)		(5,192	)
Reclass from nonaccretable difference due to increases in expected cash flow		899			4,558
Other changes, net		(6,843	)		(1,714	)
Balance at end of period	$	98,243		$	76,074

Impaired ACI Loans and Pools Including TDRs

The following includes certain key information about individually impaired and pooled ACI loans as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018.

ACI Loans / Pools Identified as Impaired

	As of March 31, 2019
	ACI Loans / Pools Identified as Impaired
(In thousands)	Recorded Investment in Impaired Loans ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance		Nonaccrual Loans Included in Impaired Loans		Undisbursed Commitments
Commercial and Industrial	$	12,091	$	13,190	$	89	$	—	$	—
Commercial Real Estate		65,924		83,125		1,417		—		—
Consumer		12,385		10,567		6,028		—		—
Total	$	90,400	$	106,882	$	7,534	$	—	$	—

	As of December 31, 2018
	ACI Loans / Pools Identified as Impaired
(In thousands)	Recorded Investment in Impaired Loans ⁽¹⁾		Unpaid Principal Balance		Related Specific Allowance		Nonaccrual Loans Included in Impaired Loans		Undisbursed Commitments
Commercial and Industrial	$	2,100	$	2,331	$	58	$	—	$	—
Commercial Real Estate		74,017		97,613		1,641		—		—
Consumer		18,301		17,888		6,225		—		—
Total	$	94,418	$	117,832	$	7,924	$	—	$	—

(1) The recorded investment of a loan also includes any interest receivable, net unearned discount or fees, and unamortized premium or discount.

ACI Loans that Were Modified into TDRs

There were no ACI loans modified into a TDR for the three months ended March 31, 2019 and 2018. There were no ACI TDRs experiencing payment default during the three months ended March 31, 2019 and 2018. Default is defined as the earlier of the troubled debt restructuring being placed on nonaccrual status or obtaining 90 days past due status with respect to principal and interest payments.

Credit Exposure in the ACI Portfolio

The following table provides information regarding the credit exposure by portfolio segment and class of receivable.

ACI Loans by Risk Rating / Delinquency Stratification

ACI loans based on internal risk rating:

	As of
	March 31, 2019						December 31, 2018
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Special Mention		Substandard		Doubtful
Commercial and Industrial
General C&I	$	497	$	22,394	$	979	$	426	$	1,445	$	39
Restaurant industry		—		1,529		—		—		—		—
Total commercial and industrial		497		23,923		979		426		1,445		39
Commercial Real Estate
Income producing		1,254		15,778		—		1,207		3,080		—
Land and development		166		2,820		—		—		—		—
Total commercial real estate		1,420		18,598		—		1,207		3,080		—
Consumer
Residential real estate		84		4,950		—		89		4,442		—
Other		—		49		—		—		3		—
Total consumer		84		4,999		—		89		4,445		—
Small Business Lending		470		18,890		—		—		—		—
Total	$	2,471	$	66,410	$	979	$	1,722	$	8,970	$	39

ACI Consumer credit exposure, based on past due status:

	As of
	March 31, 2019				December 31, 2018
(Recorded Investment in thousands)	Residential Real Estate		Other		Residential Real Estate		Other
0 – 29 Days Past Due	$	122,576	$	757	$	115,404	$	845
30 – 59 Days Past Due		2,832		135		1,985		91
60 – 89 Days Past Due		798		31		1,435		—
90 – 119 Days Past Due		574		23		217		3
120 + Days Past Due		3,704		26		3,598		—
Total	$	130,484	$	972	$	122,639	$	939

Note 5—Goodwill and Other Intangible Assets

The following table summarizes the Company’s goodwill and other intangible assets at March 31, 2019 and December 31, 2018:

	March 31,		December 31,
(In thousands)	2019		2018
Goodwill	$	480,391	$	307,083
Core deposit intangible, net of accumulated amortization of $44,989 and $39,385, respectively		106,634		301
Customer lists, net of accumulated amortization of $20,311 and $19,709, respectively		10,241		6,992
Trademarks, net of accumulated amortization of $16 and $0, respectively		1,408		24
Total goodwill and intangible assets	$	598,674	$	314,400

The increase in goodwill and other intangible assets is related to the acquisition of State Bank on January 1, 2019 (See Note 2).

Note 6—Derivatives

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 will designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship. The Company’s remaining derivatives 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” on 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, gains and losses due to changes in fair value are included in noninterest income and the operating section of the consolidated statement of cash flows. For derivatives designated as 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. The notional amounts and estimated fair values as of March 31, 2019 and December 31, 2018 were as follows:

	March 31, 2019						December 31, 2018
			Fair Value						Fair Value
(In thousands)	Notional Amount		Other Assets		Other Liabilities		Notional Amount		Other Assets		Other Liabilities
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate swaps	$	650,000	$	—	$	15,814	$	650,000	$	—	$	23,968
Commercial loan interest rate collars		4,000,000		169,277		—		—		—		—
Total derivatives designated as hedging instruments		4,650,000		169,277		15,814		650,000		—		23,968
Derivatives not designated as hedging instruments:
Commercial loan interest rate swaps		1,127,780		5,672		1,078		1,155,942		4,439		1,777
Commercial loan interest rate caps		112,194		176		176		88,430		239		239
Commercial loan interest rate floors		673,340		6,503		6,503		652,822		5,587		5,587
Commercial loan interest rate collars		80,000		128		128		80,000		96		96
Mortgage loan held for sale interest rate lock commitments		10,320		145		—		5,286		72		—
Mortgage loan forward sale commitments		4,069		14		—		1,959		5		—
Mortgage loan held for sale floating commitments		2,518		—		—		14,690		—		—
Foreign exchange contracts		50,552		372		347		46,971		698		683
Total derivatives not designated as hedging instruments		2,060,773		13,010		8,232		2,046,100		11,136		8,382
Total derivatives	$	6,710,773	$	182,287	$	24,046	$	2,696,100	$	11,136	$	32,350

The Company is party to collateral support agreements with certain derivative counterparties. Such agreements require that the C ompany or the counter-party to maintain collateral based on the fair values of derivative transactions. In the event of default by a counterparty the non-defaulting counter-party would be entitled to the collateral. At March 3 1 , 201 9 and December 31, 201 8 , the Company was required to post $ 19.5 million and $2 5.3 million , respectively, in cash or securities as collateral for its derivative transactions, which are included in “interest-bearing deposits with banks” on the Company’s consolidated balance sheets . In addition, the Company had recorded the obligation to return cash collateral provided by a counter-party of $178.7 million as of March 31, 2019 within deposits on the Company’s consolidated balance sheet. The Company’s master agreements represent writt en, legally enforceable bilateral agreements that (1) create a single legal obligation for all individual transactions covered by the master agreement and (2) in the event of default, provide the non-defaulting counterparty the right to accelerate, termina te, and close-out on a net basis all transactions under the agreement and to promptly liquidate or set-off collateral posted by the defaulting counterparty. As permitted by U.S. GAAP, the Company does not offset fair value amounts for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts of derivatives executed with the same counterparty under the master agreement.

Pre-tax gain (loss) included in the consolidated statements of income related to derivative instruments for the three months ended March 31, 2019 and 2018 were as follows:

	For the Three Months Ended March 31,
	2019							2018
(In thousands)	OCI		Reclassified from AOCI to interest income			Noninterest income		OCI			Reclassified from AOCI to interest income			Noninterest income
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate swaps	$	6,646	$	(1,508	)	$	—	$	(11,278	)	$	(333	)	$	—
Commercial loan interest rate collars		41,477		—			—		—			—			—
Derivatives not designated as hedging instruments:
Mortgage loans held for sale interest rate lock commitments		—		—			69		—			—			61
Foreign exchange contracts		—		—			1,140		—			—			508

Cash Flow Hedges

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, caps, floors and collars to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans (1-Month LIBOR).

In February 2019, the Company entered into a $4.0 billion notional interest rate collar with a five-year term. The interest rate collar has a purchased cap strike of 4.70%, a sold cap strike of 3.50%, a sold floor strike of 0.00%, and a purchased floor strike of 3.00%. The purchased option price was $127.8 million.

In June 2015 and March 2016, the Company entered into the following interest rate swap agreements to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans.

Effective Date

Maturity Date

Notional Amount

(In Thousands)

Fixed Rate

Variable Rate

June 30, 2015

December 31, 2019

300,000

1.5120

1 Month LIBOR

March 8, 2016

February 27, 2026

175,000

1.5995

1 Month LIBOR

March 8, 2016

February 27, 2026

175,000

1.5890

1 Month LIBOR

Based on our current interest rate forecast, $0.8 million of deferred net loss on derivatives in OCI at March 31, 2019 is estimated to be reclassified into net interest income during the next twelve months. Future changes to interest rates may significantly change actual amounts reclassified to income. There were no reclassifications into income during the three months ended March 31, 2019 and 2018 as a result of any discontinuance of cash flow hedges because the forecasted transaction was no longer probable. The maximum length of time over which the Company is hedging a portion of its exposure to the variability in future cash flows for forecasted transactions is approximately 6.9 years as of March 31, 2019.

Interest Rate Swap, Floor, Cap and Collar Agreements not designated as hedging derivatives

The Company enters into certain interest rate swap, floor, cap and collar agreements 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 swap, floor, cap or collar 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 as of March 31, 2019 and December 31, 2018.

Note 7—Leases

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases. This ASU requires lessees to recognize ROU assets and related lease liabilities on their consolidated balance sheets for all arrangements with terms longer than 12 months. Operating right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. Right-of-use assets and related liabilities are recognized at commencement date based upon the present value of lease payments over the lease term.

The Company elected to adopt the optional modified retrospective transition approach, which resulted in the following initial recognition amounts on January 1, 2019:

(In thousands)
Operating right-of-use assets	$	65,902
State Bank acquisition		14,089
Total operating right-of-use assets	$	79,991
Operating lease liability	$	92,268

The Company’s operating ROU assets represent both real estate and non-real estate leases. These leases have varying terms, with most containing renewal or first-right-of-refusal options for multi-year periods and annual increases in base rates.

The components of lease cost for the three months ended March 31, 2019 were as follows:

(In thousands)
Operating lease cost	$	2,646
Variable lease cost		4
Sublease income		(417	)
Total lease cost	$	2,233

As of March 31, 2019, a right-of-use asset of $67.6 million and an operating lease liability of $79.7 million were included as part of “other assets” and “other liabilities”, respectively, on the unaudited consolidated balance sheets. Supplemental balance sheet information related to operating leases at March 31, 2019 was as follows:

(Dollars in thousands)
Weighted average remaining lease term (in years)	12.7
Weighted average discount rate	4.8	%

Supplemental cash flow information related to leases for the three months ended March 31, 2019 was as follows:

(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities	$	2,872
Right-of-use assets obtained in exchange for operating lease liabilities		81,601

The following table presents a maturity analysis of the Company’s operating leases as of March 31, 2019:

(In thousands)
2019	$	8,237
2020		10,667
2021		10,677
2022		9,129
2023		8,503
Thereafter		60,904
Total lease payments		108,117
Less: interest		(28,368	)
Operating lease liability	$	79,749

Note 8—Deposits

Domestic time deposits $250,000 and over were $651.0 million and $491.3 million at March 31, 2019 and December 31, 2018, respectively. There were no foreign time deposits at either March 31, 2019 or December 31, 2018.

Note 9—Borrowed Funds

Repurchase Agreements

Securities sold under agreements to repurchase generally mature within one to seven days from the transaction date. Securities underlying the repurchase agreements remain under the control of the Company. Repurchase agreements are treated as collateralized financing obligations and are reflected as a liability in the consolidated balance sheets. The carrying value of investment securities collateralizing repurchase agreements was $3.2 million and $3.3 million at March 31, 2019 and December 31, 2018, respectively.

Information concerning the Company’s securities sold under agreements to repurchase is summarized as follows:


(In thousands)	March 31, 2019			December 31, 2018
Balance at period end	$	1,418		$	1,106
Average balance during the period		13,872			1,630
Average interest rate during the period		0.13	%		0.25	%
Maximum month-end balance during the period	$	23,908		$	2,384

Senior and Subordinated Debt

In June 2014, the Company and the Bank completed an unregistered $245 million multi-tranche debt transaction and in March 2015, the Company completed an unregistered $50 million debt transaction. These transactions enhanced our liquidity and regulatory capital levels to support balance sheet growth. Details of the debt transactions are as follows:

(In thousands)	March 31, 2019			December 31, 2018
Cadence Bancorporation:
4.875% senior notes, due June 28, 2019	$	145,000		$	145,000
5.375% senior notes, due June 28, 2021		50,000			50,000
7.250% subordinated notes, due June 28, 2029, callable in 2024		35,000			35,000
6.500% subordinated notes, due March 2025, callable in 2020		40,000			40,000
Total long-term debt—Cadence Bancorporation		270,000			270,000
Cadence Bank:
6.250% subordinated notes, due June 28, 2029, callable in 2024		25,000			25,000
Debt issue cost and unamortized premium		(1,137	)		(1,211	)
Purchased		(10,078	)		(10,078	)
Total long-term debt	$	283,785		$	283,711

The senior transactions were structured with 4 and 7 year maturities to provide holding company liquidity and to stagger the Company’s debt maturity profile. The $35 million and $25 million subordinated debt transactions were structured with a 15 year maturity, 10 year call options, and fixed-to-floating interest rates. These subordinated debt structures were designed to achieve full Tier 2 capital treatment for 10 years. The $40 million subordinated debt transaction has a 5 year call option.

The Company’s senior notes are unsecured, unsubordinated obligations and are equal in right of payment to all of the Company’s other unsecured debt. The Company’s subordinated notes are unsecured obligations and will be subordinated in right of payment to all of the Company’s senior indebtedness, general creditors and to depositors at the Bank. The Company’s senior notes and subordinated notes are not guaranteed by any subsidiary of the Company, including the Bank.

The Bank’s subordinated notes are unsecured obligations and are subordinated in right of payment to all of the Bank’s senior indebtedness, general creditors and to depositors of the Bank. The Bank’s subordinated notes are not guaranteed by the Company or any subsidiary of the Bank.

Payment of principal on the Company’s and Bank’s subordinated notes may be accelerated by holders of such subordinated notes only in the case of certain insolvency events. There is no right of acceleration under the subordinated notes in the case of default. The Company and/or the Bank may be required to obtain the prior written approval of the Federal Reserve, and, in the case of the Bank, the OCC, before it may repay the subordinated notes issued thereby upon acceleration or otherwise.

Junior Subordinated Debentures

In conjunction with the Company’s acquisition of Cadence Financial Corporation and Encore Bank, N.A., the junior subordinated debentures were marked to their fair value as of their respective acquisition dates. The related mark is being amortized over the remaining term of the junior subordinated debentures. Details of the junior subordinated debt are as follows:


(In thousands)	March 31, 2019			December 31, 2018
Junior subordinated debentures, 3 month LIBOR plus 2.85%, due 2033	$	30,000		$	30,000
Junior subordinated debentures, 3 month LIBOR plus 2.95%, due 2033		5,155			5,155
Junior subordinated debentures, 3 month LIBOR plus 1.75%, due 2037		15,464			15,464
Total par value		50,619			50,619
Purchase accounting adjustment, net of amortization		(13,544	)		(13,666	)
Total junior subordinated debentures	$	37,075		$	36,953

Advances from FHLB and Borrowings from FRB

The Bank reported FHLB advances of $395 million and $150 million as of March 31, 2019 and December 31, 2018, respectively. Advances are collateralized by $2.2 billion of investment securities and commercial and residential real estate loans pledged under a blanket lien arrangement as of March 31, 2019.

As of March 31, 2019 and December 31, 2018, the FHLB has issued for the benefit of the Bank irrevocable letters of credit totaling $445 million and $590 million, respectively. Included in the FHLB letters of credit is a $35 million of irrevocable letter of credit in favor of the State of Alabama SAFE Program to secure certain deposits of the State of Alabama. This letter of credit expires September 28, 2020 upon 45 days’ prior notice of non-renewal; otherwise it automatically extends for a successive one-year term. The Bank also has a $410 million irrevocable letter of credit to secure a large public fund treasury management deposit. Of this amount, $60 million expired in April 2019, while $350 million will expire May 26, 2021 upon 45 days’ prior notice of non-renewal; otherwise it automatically extends for a successive one-year term.

There were no borrowings from the FRB discount window as of March 31, 2019 and December 31, 2018. Any borrowings from the FRB will be collateralized by $802.7 million in commercial loans pledged under a borrower-in-custody arrangement.

Holding Company Revolving Loan Facility

On March 29, 2019, the Company entered into a credit agreement for a revolving loan facility in the amount of $100 million. The proceeds of the revolving loans shall be used to finance general corporate purposes. There were no amounts outstanding under this line of credit at March 31, 2019.

Note 10—Other Noninterest Income and Other Noninterest Expense

The detail of the other noninterest income and other noninterest expense captions presented in the consolidated statements of income is as follows:

	Three Months Ended March 31,
(In thousands)	2019		2018
Other noninterest income
Insurance revenue	$	—	$	2,259
Bankcard fees		2,213		1,884
Income from bank owned life insurance policies		1,152		935
Other		1,585		132
Total other noninterest income	$	4,950	$	5,210

	Three Months Ended March 31,
(In thousands)	2019		2018
Other noninterest expenses
Data processing expense	$	2,594	$	2,365
Software amortization		3,335		914
Consulting and professional fees		2,229		2,934
Loan related expenses		910		255
FDIC insurance		1,752		955
Communications		998		704
Advertising and public relations		781		341
Legal expenses		158		2,627
Other		8,181		5,108
Total other noninterest expenses	$	20,938	$	16,203

Note 1 1 —Income Taxes

Income tax expense for the three months ended March 31, 2019 and 2018 was $17.1 million and $11.0 million, respectively. The effective tax rate was 22.7% for the three months ended March 31, 2019 compared to 22.0% for the same period in 2018. The increase in the effective tax rate was primarily driven by the non-deductible merger expenses incurred in the first quarter of 2019.

The effective tax rate is primarily affected by the amount of pre-tax income, tax-exempt interest income, and the increase in cash surrender value of bank-owned life insurance. The effective tax rate is also affected by discrete items that may occur in any given period but are not consistent from period-to-period, which may impact the comparability of the effective tax rate between periods.

At March 31, 2019, we had a net deferred tax asset of $8.9 million, compared to
$33.2 million at December 31, 2018. The decrease in the net deferred asset was primarily due to certain purchase accounting adjustments recorded during the State Bank acquisition, changes in market conditions that impact the mark to market deferred tax adjustment on securities available-for-sale and the mark to market deferred tax adjustment on our cash flow hedges including our new interest rate collar agreement.

Note 12—Earnings Per Common Share

The following table displays a reconciliation of the information used in calculating basic and diluted net income per common share for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31,
(In thousands, except per share data)	2019			2018
Net income per consolidated statements of income	$	58,201		$	38,825
Net income allocated to participating securities		(173	)		—
Net income allocated to common stock	$	58,028		$	38,825

Weighted average common shares outstanding (Basic)		130,485,521			83,625,000
Weighted average dilutive restricted stock units		63,798			1,049,807
Weighted average common shares outstanding (Diluted)		130,549,319			84,674,807

Earnings per common share (Basic)	$	0.44		$	0.46
Earnings per common share (Diluted)	$	0.44		$	0.46

T he effect from the assumed exercise of 1,848,496 stock options and restricted stock units for the three months ended March 31, 2019, was not included in the above computations of diluted earnings per share because such amounts would have had an antidilutive effect on earnings per common share. There were no antidilutive stock options and restricted stock units for the three months ended March 31, 2018.

Note 13—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 deposits were insignificant as of March 31, 2019. At December 31, 2018, the aggregate balances of related party deposits were approximately $571 million. This was primarily due to a deposit account of approximately $311 million by State Bank and one large deposit account by a related third party. The aggregate balances of related party loans as of March 31, 2019 and December 31, 2018 were insignificant.

Note 14—Regulatory Matters

Cadence and Cadence Bank are each required to comply with regulatory capital requirements established by federal and state banking agencies. Failure to meet minimum capital requirements can subject the Company and the Bank to certain mandatory and

possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. These regulatory capital requirements i nvolve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items , and qualitative judgment s by the regulators .

Quantitative measures established by regulation to ensure capital adequacy require institutions to maintain minimum ratios of Common Equity Tier 1, Tier 1, and total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to average tangible assets (the “Leverage” ratio).

The actual capital amounts and ratios for the Company and the Bank as of March 31, 2019 and December 31, 2018 are presented in the following tables and as shown, are above the thresholds necessary to be considered “well-capitalized”. Management believes that no events or changes have occurred after March 31, 2019 that would change this designation.

	Consolidated Company					Bank
(In thousands)	Amount		Ratio			Amount		Ratio
March 31, 2019
Tier 1 leverage	$	1,717,530		10.0	%	$	1,889,679		11.1	%
Common equity tier 1 capital		1,717,530		10.4			1,839,679		11.2
Tier 1 risk-based capital		1,717,530		10.4			1,889,679		11.5
Total risk-based capital		1,959,393		11.9			2,020,268		12.3
Minimum requirement:
Tier 1 leverage		683,890		4.0			683,640		4.0
Common equity tier 1 capital		740,657		4.5			740,358		4.5
Tier 1 risk-based capital		987,543		6.0			987,144		6.0
Total risk-based capital		1,316,724		8.0			1,316,192		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A				854,551		5.0
Common equity tier 1 capital	N/A		N/A				1,069,406		6.5
Tier 1 risk-based capital		987,543		6.0			1,316,192		8.0
Total risk-based capital		1,645,905		10.0			1,645,240		10.0

	Consolidated Company					Bank
(In thousands)	Amount		Ratio			Amount		Ratio
December 31, 2018
Tier 1 leverage	$	1,209,407		10.1	%	$	1,327,974		11.1	%
Common equity tier 1 capital		1,172,454		9.8			1,277,974		10.7
Tier 1 risk-based capital		1,209,407		10.1			1,327,974		11.1
Total risk-based capital		1,403,311		11.8			1,447,719		12.1
Minimum requirement:
Tier 1 leverage		479,940		4.0			479,667		4.0
Common equity tier 1 capital		536,930		4.5			536,285		4.5
Tier 1 risk-based capital		715,907		6.0			715,047		6.0
Total risk-based capital		954,542		8.0			953,396		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A				599,584		5.0
Common equity tier 1 capital	N/A		N/A				774,634		6.5
Tier 1 risk-based capital		715,907		6.0			953,396		8.0
Total risk-based capital		1,193,178		10.0			1,191,745		10.0

Under regulations controlling national banks, the payment of any dividends by a bank without prior approval of the OCC is limited to the current year’s net profits (as defined by the OCC) and retained net profits of the two preceding years. The Federal Reserve, as primary regulator for bank holding companies, has also stated that all common stock dividends should be paid out of current income. As the Company does not generate income on a stand-alone basis, it does not have the capability to pay common stock dividends without receiving dividends from the Bank.

The Bank is required to maintain average reserve balances in the form of cash or deposits with the Federal Reserve Bank. The reserve balance varies depending upon the types and amounts of deposits. At March 31, 2019 and December 31, 2018, the required reserve balance with the Federal Reserve Bank was approximately $211.5 million and $91.5 million, respectively.

Note 1 5 —Commitments and Contingent Liabilities

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. The commitments and contingent liabilities are commitments to extend credit, home equity lines, overdraft protection lines, and standby and commercial letters of credit. Such financial instruments are recorded when they are funded. A summary of commitments and contingent liabilities is as follows:

(In thousands)	March 31, 2019		December 31, 2018
Commitments to extend credit	$	4,947,709	$	4,078,708
Commitments to grant loans		232,618		103,570
Standby letters of credit		174,955		141,214
Performance letters of credit		17,783		21,026
Commercial letters of credit		14,600		11,262

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 any significant liquidity risk. No significant losses on commitments were incurred during the three months ended March 31, 2019 and 2018.

The Company makes investments in limited partnerships, including certain low income housing partnerships for which tax credits are received. As of March 31, 2019 and December 31, 2018, unfunded capital commitments totaled $43.2 million and $37.5 million, respectively.

The Company and the Bank are defendants in various pending and threatened legal actions arising in the normal course of business. In the opinion of management, based upon the advice of legal counsel, the ultimate disposition of all pending and threatened legal action will not have a material effect on the Company’s consolidated financial statements.

Note 16—Concentrations of Credit

Most of the loans, commitments and letters of credit involve customers or sponsors in the Company’s market areas. Investments in state and municipal securities also involve governmental entities within the Company’s market areas. General concentrations of credit by type of loan are set forth in Note 4 of these consolidated financial statements. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Letters of credit were granted primarily to commercial borrowers.

Note 17—Supplemental Cash Flow Information

	For the Three Months Ended March 31,
(In thousands)	2019		2018
Cash paid during the year for:
Interest	$	44,999	$	19,217
Income taxes, net of refunds		81		(82	)
Non-cash investing activities (at fair value):
Acquisition of real estate in settlement of loans		599		1,548
Transfers of loans to loans held for sale		17,444		3,500
Transfers of loans held for sale to loans		17,678		-

Note 18—Disclosure About Fair Values of Financial Instruments

See Note 19, “Disclosure About Fair Values of Financial Instruments”, to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2018 for a description of valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis. Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change in inputs occurs.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis categorized by the level of inputs used in the valuation of each asset at March 31, 2019 and December 31, 2018:

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2019
Assets
Investment securities available-for-sale	$	1,754,839	$	—	$	1,754,839	$	—
Equity securities with readily determinable fair values not held for trading		6,073		6,073		—		—
Derivative assets		182,287		—		182,287		—
Net profits interests		5,317		—		—		5,317
Other assets		15,403		—		—		15,403
Total recurring basis measured assets	$	1,963,919	$	6,073	$	1,937,126	$	20,720
Liabilities
Derivative liabilities	$	24,046	$	—	$	24,046	$	—
Total recurring basis measured liabilities	$	24,046	$	—	$	24,046	$	—

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2018
Assets
Investment securities available-for-sale	$	1,187,252	$	—	$	1,187,252	$	—
Equity securities with readily determinable fair values not held for trading		5,840		5,840		—		—
Derivative assets		11,136		—		11,136		—
Net profits interests		5,779		—		—		5,779
Other assets		11,191						11,191
Total recurring basis measured assets	$	1,221,198	$	5,840	$	1,198,388	$	16,970
Liabilities
Derivative liabilities	$	32,350	$	—	$	32,350	$	—
Total recurring basis measured liabilities	$	32,350	$	—	$	32,350	$	—

There were no transfers between the Level 1 and Level 2 fair value categories during the three months ended March 31, 2019 and 2018.

Changes in Level 3 Fair Value Measurements

The tables below include a roll-forward of the consolidated balance sheet amounts for the three months ended March 31, 2019 and 2018 for changes in the fair value of financial instruments within Level 3 of the valuation hierarchy that are recorded on a recurring basis. Level 3 financial instruments typically include unobservable components, but may also include some observable components that may be validated to external sources. The gains or (losses) in the following table (which are reported in Other Noninterest Income in the consolidated income statements) may include changes to fair value due in part to observable factors that may be part of the valuation methodology.

Level 3 Assets Measured at Fair Value on a Recurring Basis

	For the Three Months Ended March 31,
	2019			2018			2019			2018
(In thousands)	Net Profits Interests						Investments in Limited Partnerships
Beginning Balance	$	5,779		$	15,833		$	11,191		$	—
Transfers in due to adoption of ASU 2016-01		—			—			—			5,518
Adjustment recorded in retained earnings due to adoption of ASU 2016-01		—			—			—			1,201
Net gains included in earnings		(174	)		(869	)		746			676
Reclassifications		—			—			(800	)		—
Contributions paid		—			—			608			225
Distributions received		(288	)		(669	)		(144	)		(106	)
Ending Balance	$	5,317		$	14,295		$	11,601		$	7,514
Net unrealized gains (losses) included in earnings relating to assets held at the end of the period	$	(174	)	$	(869	)	$	746		$	676

Assets 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. For assets measured at fair value on a nonrecurring basis which were still held on the balance sheets at March 31, 2019 and December 31, 2018, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value:

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2019
Loans held for sale	$	209,346		—	$	209,346	$	—
Impaired loans, net of specific allowance		76,882		—		—		76,882
Other real estate		2,862		—		—		2,862
Total assets measured on a nonrecurring basis	$	289,090	$	—	$	209,346	$	79,744

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2018
Loans held for sale	$	59,461		—	$	59,461	$	—
Impaired loans, net of specific allowance		71,741		—		—		71,741
Other real estate		2,406		—		—		2,406
Total assets measured on a nonrecurring basis	$	133,608	$	—	$	59,461	$	74,147

Significant unobservable inputs used in Level 3 fair value measurements for financial assets measured at fair value on a nonrecurring basis are summarized below:

Quantitative Information about Level 3 Fair Value Measurements

(In thousands)

Carrying

Value

Valuation

Methods

Unobservable Inputs

Range

March 31, 2019

Impaired loans, net of specific allowance

76,882

Appraised value, as adjusted

Discount to fair value

0% - 20%

Discounted cash flow

Net recoverable oil and gas reserves and forward-looking commodity prices. Discount rate - 10%

0% - 10% ⁽¹⁾

Discounted cash flow

Discount rates - 2.9% to 8.7%

0% - 20% ⁽¹⁾

Enterprise value

Exit multiples

4 - 11% ⁽¹⁾

Estimated closing costs

10%

Other real estate

2,862

Appraised value, as adjusted

Discount to fair value

0% - 20%

Estimated closing costs

10%

(1) - Represents difference of unpaid balance to fair value.

Quantitative Information about Level 3 Fair Value Measurements

(In thousands)

Carrying

Value

Valuation

Methods

Unobservable

Inputs

Range

December 31, 2018

Impaired loans, net of specific allowance

71,741

Appraised value, as adjusted

Discount to fair value

0% - 20%

Discounted cash flow

Net recoverable oil and gas reserves and forward-looking commodity prices. Discount rate - 10%

0 - 10%

Discounted cash flow

Discount rates - 2.9% to 8.7%

0% - 20% ⁽¹⁾

Enterprise value

Exit multiples

0 - 15% ⁽¹⁾

Other real estate

2,406

Estimated closing costs

10%

Appraised value, as adjusted

Discount to fair value

0% - 20%

Estimated closing costs

10%

(1) - Represents difference of unpaid balance to fair value.

The estimated fair values of the Company’s financial instruments are as follows:

	March 31, 2019
(In thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	214,698	$	214,698	$	214,698	$	—	$	—
Interest-bearing deposits in other banks		322,786		322,786		322,786		—		—
Federal funds sold		5,585		5,585		5,585		—		—
Investment securities available-for-sale		1,754,839		1,754,839		—		1,754,839		—
Equity securities with readily determinable fair values not held for trading		6,073		6,073		6,073		—		—
Loans held for sale		209,346		209,346		—		209,346		—
Net loans		13,519,916		13,119,074		—		—		13,119,074
Derivative assets		182,287		182,287		—		182,287		—
Net profits interests		5,317		5,317		—		—		5,317
Other assets		59,987		59,987		—		—		59,987
Financial Liabilities:
Deposits		14,199,223		14,210,340		—		14,210,340		—
Advances from FHLB		395,000		395,000		—		395,000		—
Securities sold under agreements to repurchase		1,418		1,418		—		1,418		—
Senior debt		184,822		186,967		—		186,967		—
Subordinated debt		98,963		105,479		—		105,479		—
Junior subordinated debentures		37,075		48,671		—		48,671		—
Derivative liabilities		24,046		24,046		—		24,046		—

	December 31, 2018
(In thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	237,342	$	237,342	$	237,342	$	—	$	—
Interest-bearing deposits in other banks		523,436		523,436		523,436		—		—
Federal funds sold		18,502		18,502		18,502		—		—
Investment securities available-for-sale		1,187,252		1,187,252		—		1,187,252		—
Equity securities with readily determinable fair values not held for trading		5,840		5,840		5,840		—		—
Loans held for sale		59,461		59,461		—		59,461		—
Net loans		9,959,545		9,735,130		—		—		9,735,130
Derivative assets		11,136		11,136		—		11,136		—
Net profits interests		5,779		5,779		—		—		5,779
Investments in limited partnerships		36,917		36,917						36,917
Financial Liabilities:
Deposits		10,708,689		10,700,350		—		10,700,350		—
Advances from FHLB		150,000		150,000		—		150,000		—
Securities sold under agreements to repurchase		1,106		1,106		—		1,106		—
Senior debt		184,801		194,762		—		194,762		—
Subordinated debt		98,910		103,008		—		103,008		—
Junior subordinated debentures		36,953		46,946		—		46,946		—
Derivative liabilities		32,350		32,350		—		32,350		—

Note 19—Segment Reporting

The Company determines reportable segments based on the services offered, the significance of 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. The Company operates through three operating segments: Banking, Financial Services and Corporate. Additional information about the Company’s reportable segments is included in Cadence’s Annual Report on Form 10-K for the year ended December 31, 2018.

The Banking Segment includes the Commercial Banking, Retail Banking and Private Banking lines of business. The Financial Services Segment includes the Trust, Retail Brokerage, and Investment Services businesses. In the second quarter of 2018, the Company sold its subsidiary, Town & Country Insurance Agency, Inc. All of the activities acquired in the merger with State Bank are part of the Banking segment.

Business segment results are determined based upon the management reporting system, which assigns balance sheet and income statement items to each of the business segments. The process is designed around the organizational and management structure and, accordingly, the results derived are not necessarily comparable with similar information published by other financial institutions or in accordance with generally accepted accounting principles.

The Company evaluates performance and allocates resources based on profit or loss from operations. There are no material inter-segment sales or transfers. The accounting policies used by each reportable segment are the same as those discussed in Note 1. All costs, except corporate administration and income taxes, have been allocated to the reportable segments. Therefore, combined amounts agree to the consolidated totals.

The following tables present the operating results of the segments as of and for the three months ended M arch 3 1 , 201 9 and 201 8 :

	Three Months Ended March 31, 2019
(In thousands)	Banking		Financial Services			Corporate			Consolidated
Net interest income	$	174,396	$	(630	)	$	(4,477	)	$	169,289
Provision for credit losses		11,210		—			—			11,210
Noninterest income		20,087		10,285			292			30,664
Noninterest expense		97,324		7,652			8,464			113,440
Income tax expense (benefit)		19,862		373			(3,133	)		17,102
Net income	$	66,087	$	1,630			(9,516	)	$	58,201
Total assets	$	17,347,134	$	100,175		$	5,602		$	17,452,911

	Three Months Ended March 31, 2018
(In thousands)	Banking		Financial Services			Corporate			Consolidated
Net interest income	$	96,100	$	(607	)	$	(4,382	)	$	91,111
Provision for credit losses		4,380		—			—			4,380
Noninterest income		12,438		12,358			186			24,983
Noninterest expense		50,532		9,978			1,429			61,939
Income tax expense (benefit)		12,446		308			(1,804	)		10,950
Net income	$	41,181	$	1,465		$	(3,820	)	$	38,825
Total assets	$	10,903,031	$	91,468		$	4,883		$	10,999,382

Note 20—Equity-based Compensation

The Company administers a long-term incentive compensation plan, the Amended and Restated 2015 Omnibus Incentive Plan (the “Plan”), that permits the Company to grant to employees and directors various forms of incentive compensation. The principal purposes of this plan are to focus directors, officers and other employees and consultants on business performance that creates shareholder value, to encourage innovative approaches to the business of the Company, and to encourage ownership of the Company’s stock. The Plan authorizes 7,500,000 common share equivalents available for grant, where grants of full value awards (e.g., shares of restricted stock, restricted stock units and performance stock units) count as one share equivalent. The number of remaining share equivalents available for future issuance under the Plan was 6,406,988 at March 31, 2019.

Restricted Stock Units

In the first quarter of 2019, the Company granted 645,346 shares of restricted stock units pursuant to and subject to the provisions of the Plan. Of the units granted, 415,940 will vest in twelve quarterly installments ending in the first quarter of 2022 and 57,521 shares will cliff-vest in first quarter of 2022. The remaining grants specify a stated target number of units, the determination of the actual settlement in shares will be based in part on the achievement of certain financial performance measures of the Company over the three years ended December 31, 2021. For half of the units granted, these performance conditions will determine the actual units vesting in the first quarter 2022 and can be in the range of twenty-five percent to two times the units granted. The remaining half of the restricted stock units vest equally in the first quarter of each of the next three years. These grants include rights as a shareholder in the form of dividend equivalents. Dividend equivalents for time vested restricted stock units will be paid on each dividend payment date for the Company; dividend equivalents for the performance vesting restricted stock will be accrued and paid on the vested number of shares once the performance is achieved and the shares are issued. The fair value of the restricted stock units were estimated based upon the fair value of the underlying shares on the date of the grant.

The Company recorded $0.9 million and $0.4 million of equity-based compensation expense for the outstanding restricted stock units for the three months ended March 31, 2019 and 2018, respectively. The remaining expense related to unvested restricted stock units is $15.1 million as of March 31, 2019 and will be recognized over the next 24 to 30 months.

The following table summar izes the activity related to restricted stock unit awards for the three months ended March 3 1 , 2019 and 2018:

	For the Three Months Ended March 31,
	2019					2018
	Number of Shares			Fair Value per Unit at Award Date		Number of Shares		Fair Value per Unit at Award Date
Non-vested at beginning of period		273,354		$	26.49		672,750	$	5.14
Vested during the period		(44,501	)		26.50		—		—
Forfeited during the period		(29,845	)		19.76		—		—
Granted during the period		645,346			17.87		—		—
Non-vested at end of period		844,354		$	20.14		672,750	$	5.14

Stock Options

During the three months ended March 31, 2019, Cadence granted stock options to certain executive officers. The options were granted at an exercise price equal to a 15% premium to the fair value of the common stock at the date of grant. The options vest over a three-year period and expire at the end of seven years. The remaining expense related to nonvested stock option grants is $3.5 million at March 31, 2019 and will be recognized over the next 33 months.

The following table summarizes the activity related to stock option awards for the three months ended March 31, 2019:

	For the Three Months Ended March 31, 2019
	Number of Shares		Weighted Average Exercise Price
Outstanding options at beginning of period		—	$	-
Granted during the period		1,602,848		20.43
Exercised during the period		—		—
Forfeited or expired during the period		—		—
Non-vested at end of period		1,602,848	$	20.43

The Company uses the Black-Scholes option pricing model to estimate the fair value of the stock options. The following weighted-average assumptions were used for option awards issued during the three months ended March 31, 2019:

	For the Three Months Ended March 31, 2019
Expected dividends		3.1	%
Expected volatility		25.2	%
Risk-free interest rate		2.5	%
Expected term (in years)		4.5
Weighted-average grant date fair value	$	2.32

Note 21—Accumulated Other Comprehensive Income (Loss)

Activity within the balances in accumulated other comprehensive gain (loss) is shown in the following tables for the three months ended March 31, 2019 and 2018:

(In thousands)	Unrealized gains (losses) on securities available for sale			Unrealized gains (losses) on defined benefit pension plans			Unrealized gains (losses) on derivative instruments designated as cash flow hedges			Accumulated other comprehensive gain (loss)
Balance at December 31, 2018	$	(24,279	)	$	(328	)	$	(18,305	)	$	(42,912	)
Net change		22,602			—			38,171			60,773
Balance at March 31, 2019	$	(1,677	)	$	(328	)	$	19,866		$	17,861

(In thousands)	Unrealized gains (losses) on securities available for sale			Unrealized gains (losses) on defined benefit pension plans			Unrealized gains (losses) on derivative instruments designated as cash flow hedges			Accumulated other comprehensive gain (loss)
Balance at December 31, 2017	$	(2,160	)	$	(531	)	$	(16,342	)	$	(19,033	)
Net change		(23,401	)		—			(8,377	)		(31,778	)
Balance at March 31, 2018	$	(25,561	)	$	(531	)	$	(24,719	)	$	(50,811	)

Note 22—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 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. ASC 810-10-65, as amended, requires continual reconsideration of conclusions reached regarding which interest holder is a VIE’s primary beneficiary.

The Bank has invested in several affordable housing projects as a limited partner. The partnerships have qualified to receive annual affordable housing federal tax credits that are recognized as a reduction of current tax expense. The Company has determined that these structures meet the definition of VIE’s under Topic ASC 810 but that consolidation is not required, as the Bank is not the primary beneficiary. At March 31, 2019 and December 31, 2018, the Bank’s maximum exposure to loss associated with these limited partnerships was limited to the Bank’s investment. The Company 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 Bank 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 Bank 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. At March 31, 2019 and December 31, 2018, the Company had recorded investments in other assets on its consolidated balance sheets of approximately $25.2 million and $7.8 million, respectively related to these investments.

Additionally, the Company invests in other certain limited partnerships accounted for under the fair value practical expedient of net asset value totaling $11.6 million and $11.2 million as of March 31, 2019 and December 31, 2018, respectively. The company recognized $0.7 million gains for both three-month periods ended March 31, 2019 and 2018, related to these assets recorded at fair value through net income. Certain 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 $10.2 million and $8.7 million as of March 31, 2019 and December 31, 2018, respectively. Other limited partnerships are accounted for under the equity method totaling $9.2 million at both March 31, 2019 and December 31, 2018.

The following table presents a summary of the Company’s investments in limited partnerships subsequent to the adoption of ASU 2016-01 and as of March 31, 2019 and December 31, 2018:

(In thousands)	March 31, 2019		December 31, 2018
Affordable housing projects (amortized cost)	$	25,167	$	7,803
Limited partnerships accounted for under the fair value practical expedient of NAV		11,601		11,191
Limited partnerships without readily determinable fair values that do not qualify for the practical expedient of NAV accounted for under the cost method		10,208		8,714
Limited partnerships required to be accounted for under the equity method		9,209		9,209
Total investments in limited partnerships	$	56,185	$	36,917

Marketable equity securities carried at fair value consist of one CRA qualifying investment and is reported in other assets in the consolidated balance sheets. Total marketable equity securities were $6.1 million and $5.8 million at March 31, 2019 and December 31, 2018, respectively.

Effective January 1, 2018, Cadence adopted the new accounting guidance that requires equity investments with readily determinable fair values not held for trading to be recorded at fair value with changes in fair value reported in net income. Cadence elect ed a measurement alternative to fair value for certain equity investments without a readily determinable fair value. There were no downward and upward adjustments for impairments or price changes. The carrying amount of equity investments measured under th e measurement alternative from observable transactions are as follows:

(In thousands)	Carrying Amount
Carrying value, December 31, 2018	$	8,714
Reclassifications		800
Distributions		(42	)
Contributions		736
Carrying value, March 31, 2019	$	10,208

During 2016, the Bank received net profits interests in oil and gas reserves, in connection with the reorganization under bankruptcy of two loan customers (one of these was sold during 2018). The Company has determined that these contracts meet the definition of VIE’s under Topic ASC 810, but that consolidation is not required as the Bank is not the primary beneficiary. The net profits interest is a financial instrument and recorded at estimated fair value, which was $5.3 million and $5.8 million at March 31, 2019 and December 31, 2018, respectively, representing the maximum exposure to loss as of that date.

The Company has established a rabbi trust related to the deferred compensation plan offered to certain of its employees. The Company contributes employee cash compensation deferrals to the trust. The assets of the trust are available to creditors of the Company only in the event the Company becomes insolvent. This trust is considered a VIE because either there is no equity at risk in the trust or because the Company provided the equity interest to its employees in exchange for services rendered. The Company is considered the primary beneficiary of the rabbi trust as it has the ability to select the underlying investments made by the trust, the activities that most significantly impact the economic performance of the rabbi trust. The Company includes the assets of the rabbi trust as a component of other assets and a corresponding liability for the associated benefit obligation in other liabilities in its consolidated balance sheets. At March 31, 2019 and December 31, 2018, the amount of rabbi trust assets and benefit obligation was $3.8 million and $3.6 million, respectively.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

The following discussion and analysis presents our results of operations and financial condition on a consolidated basis for the three months ended March 31, 2019. This discussion should be read in conjunction with the unaudited consolidated financial statements, accompanying footnotes and supplemental financial data included herein. The emphasis of this discussion will be amounts as of March 31, 2019 compared to December 31, 2018 for the balance sheets and the three months ended March 31, 2019 compared to March 31, 2018 for the statements of income.

Because we conduct our material business operations through our bank subsidiary, Cadence Bank, N.A., the discussion and analysis relates to activities primarily conducted by the Bank. We generate most of our revenue from interest on loans and investments and fee-based revenues. Our primary source of funding for our loans is deposits. Our largest expenses are interest on these deposits and salaries and related employee benefits. We measure our performance primarily through our net income, pre-tax and pre-loan provision earnings, net interest margin, efficiency ratio, ratio of allowance for credit losses to total loans, return on average assets and return on average equity, among other metrics, while maintaining appropriate regulatory leverage and risk-based capital ratios.

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our results of operations, financial condition and financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook,” or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•

business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic market areas;

•

economic, market, operational, liquidity, credit and interest rate risks associated with our business;

•

deteriorating asset quality and higher loan charge-offs;

•

the laws and regulations applicable to our business;

•

our 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;

•

our ability to maintain our historical earnings trends;

•

our ability to raise additional capital to implement our business plan;

•

material weaknesses in our internal control over financial reporting;

•

systems failures or interruptions involving our information technology and telecommunications systems or third-party servicers;

•

the composition of our management team and our ability to attract and retain key personnel;

•

our ability to monitor our lending relationships;

•

the composition of our loan portfolio, including the identity of our borrowers and the concentration of loans in energy-related industries and in our specialized industries;

•

the portion of our loan portfolio that is comprised of participations and shared national credits;

•

the amount of nonperforming and classified assets we hold;

•

time and effort necessary to resolve nonperforming assets;

•

our ability to identify potential candidates for, consummate, and achieve synergies resulting from, potential future acquisitions;

•

difficulties and delays in integrating our businesses and State Bank or fully realizing cost savings and other benefits;

•

our potential exposure to unknown or contingent liabilities of legacy State Bank;

•

any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan, or other systems;

•

environmental liability associated with our lending activities;

•

the geographic concentration of our markets in Texas and the southeast United States;

•

the commencement and outcome of litigation and other legal proceedings against us or to which we may become subject;

•

changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which we refer to as the Dodd-Frank Act, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and insurance, and the ability to comply with such changes in a timely manner;

•

changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve Board;

•

requirements to remediate adverse examination findings;

•

changes in the scope and cost of FDIC deposit insurance premiums;

•

implementation of regulatory initiatives regarding bank capital requirements that may require heightened capital;

•

the obligations associated with being a public company;

•

the fact that we are no longer an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies no longer apply to us;

•

changes in accounting principles, policies, practices, or guidelines;

•

our success at managing the risks involved in the foregoing items;

•

our modeling estimates related to an increased interest rate environment;

•

natural disasters, war, or terrorist activities; and

•

other economic, competitive, governmental, regulatory, technological, and geopolitical factors affecting our operations, pricing, and services.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Overview

Cadence Bancorporation is a financial holding company and a Delaware corporation headquartered in Houston, Texas, and is the parent company of Cadence Bank, N.A. With $17.5 billion in assets, $13.6 billion in total loans (net of unearned discounts and fees), $14.2 billion in deposits and $2.3 billion in shareholders’ equity as of March 31, 2019, we currently operate a network of 98 locations across Texas, Georgia, Alabama, Florida, Mississippi, and Tennessee. We focus on middle-market commercial lending, complemented by retail banking and wealth management services, and provide a broad range of banking services to businesses, high net worth individuals and business owners.

On January 1, 2019, w e acquired all the outstanding stock of State Bank Financial Corporation (“State Bank”), of Atlanta, Georgia, the bank holding company for State Bank and Trust Company, in a stock transaction. State Bank shareholders received 1.271 shares of the Company’s Class A common stock in exchange for each share of State Bank common stock resulting in the issuance of 49.2 million shares of our Class A common stock resulting in a total purchase price of $826.4 million. The primary reasons for the transaction were to e xpand our market presence into Georgia and create a more diverse business mix as well as an attractive funding base and leverage operating costs through economies of scale. The acquisition added $3.5 billion in loans and $4.1 billion in deposits as well as 32 branch locations across northern and central Georgia.

We operate Cadence Bancorporation through three operating segments: Banking, Financial Services and Corporate. Our Banking Segment, which represented approximately 97% of our total revenues for the three months ended March 31, 2019, consists of our Commercial Banking, Retail Banking and Private Banking lines of business. Our Commercial Banking activities focus on commercial and industrial (“C&I”), community banking, business banking and commercial real estate lending and treasury management services to clients in our geographic footprint in Texas and the southeast United States. Within our Commercial Banking line of business, we focus on select industries, which we refer to as our “specialized industries,” in which we believe we have specialized experience and service capabilities. These industries include franchise restaurant, healthcare and technology. Energy lending is also an important part of our business as energy production and energy related industries are meaningful contributors to the economy in our primary markets. With the acquisition of State Bank, we now offer SBA loans and asset-based lending. In our Retail Banking business line, we offer a broad range of banking services through our branch network to serve the needs of consumers and small businesses. In our Private Banking business line, we offer banking services, such as deposit services and residential mortgage lending, to affluent clients and business owners. Our Financial Services Segment includes our Trust, Retail Brokerage, Investment Services and Insurance businesses. These businesses offer products independently to their own customers as well as to Banking Segment clients. Investment Services operates through the “Linscomb & Williams” name and Insurance operated through the “Cadence Insurance” name until its sale in 2018. The products offered by the businesses in our Financial Services Segment primarily generate non-banking service fee income. Our Corporate Segment reflects parent-only activities, including debt and capital raising, and intercompany eliminations.

We are focused on organic growth and expanding our position in our markets. We believe that our franchise is positioned for continued growth as a result of prudent lending in our markets through experienced relationship managers and a client-centered, relationship-driven banking model, and our focus and capabilities in serving specialized industries. We believe our continued growth is supported by (i) our attractive geographic footprint, (ii) our stable and cost-efficient deposit funding provided by our acquired franchises (each of which was a long-standing institution with an established customer network), (iii) our veteran board of directors and management team, (iv) our capital position and (v) our credit quality and risk management processes.

Selected Financial Data

The following table summarizes certain selected consolidated financial data for the periods presented. The historical consolidated financial information presented below contains financial measures that are not presented in accordance with U.S. GAAP and which have not been audited. See “Table 29 - Non-GAAP Financial Measures.”

Table 1 – Selected Financial Data

	As of and for the Three Months Ended March 31,						As of and for the Year Ended December 31,
(In thousands, except share and per share data)	2019			2018			2018
Statement of Income Data:
Net income	$	58,201		$	38,825		$	166,261
Net interest income		169,289			91,111			387,741
Noninterest income - service fees and revenue		27,939			23,904			87,008
Noninterest expense		113,440			61,939			258,301
Provision for credit losses		11,210			4,380			12,700
Efficiency ratio ⁽¹⁾		56.73	%		53.35	%		53.55	%
Adjusted efficiency ratio ⁽¹⁾		45.73			50.22			49.56	%
Per Share Data:
Earnings
Basic	$	0.44		$	0.46		$	1.99
Diluted		0.44			0.46			1.97
Book value per common share		17.88			16.23			17.43
Tangible book value ⁽¹⁾		13.23			12.32			13.62
Weighted average common shares outstanding
Basic		130,485,521			83,625,000			83,562,109
Diluted		130,549,319			84,674,807			84,375,289
Cash dividends declared	$	0.175		$	0.125		$	0.55
Dividend payout ratio		39.77	%		27.17	%		27.64	%
Performance Ratios:
Return on average common equity ⁽²⁾		10.53	%		11.73	%		12.07	%
Return on average tangible common equity ^{(1) (2)}		15.54			15.76			15.73
Return on average assets ⁽²⁾		1.34			1.44			1.45
Net interest margin ⁽²⁾		4.21			3.64			3.61
Period-End Balance Sheet Data:
Investment securities, available-for-sale	$	1,754,839		$	1,251,834		$	1,187,252
Total loans, net of unearned income		13,624,954			8,646,987			10,053,923
Allowance for credit losses ("ACL")		105,038			91,537			94,378
Total assets		17,452,911			10,999,382			12,730,285
Total deposits		14,199,223			9,048,971			10,708,689
Total shareholders’ equity		2,302,823			1,357,103			1,438,274
Asset Quality Ratios:
Total nonperforming assets ("NPAs") to total loans and OREO and other NPAs		0.63	%		0.84	%		0.82	%
Total ACL to total loans		0.77			1.06			0.94
ACL to total nonperforming loans ("NPLs")		135.21			175.30			127.12
Net charge-offs to average loans ⁽²⁾		0.02			0.02			0.06
Capital Ratios:
Total shareholders’ equity to assets		13.2	%		12.3	%		11.3	%
Tangible common equity to tangible assets ⁽¹⁾		10.1			9.7			9.1
Common equity tier 1 (CET1)		10.4			10.5			9.8
Tier 1 leverage capital		10.0			10.7			10.1
Tier 1 risk-based capital		10.4			10.9			10.1
Total risk-based capital		11.9			12.6			11.8

(1) - Considered a non-GAAP financial measure. See Table 29 "Reconciliation of Non-GAAP Financial Measures" for a reconciliation

of our non-GAAP measures to the most directly comparable GAAP financial measure.

(2) – Annualized.

Summary of Results of Operations - Three Months Ended March 3 1 , 201 9

Net income for the three months ended March 31, 2019 was significantly impacted by the acquisition of State Bank on January 1, 2019 which increased our earning assets and revenue generating lines of business and expanded our deposit franchise. Partially offsetting the incremental net revenues related to the acquisition was $22.0 million of merger related expenses.

Net income for the three months ended March 31, 2019 totaled $58.2 million, a $19.4 million or 49.9% increase, compared to $38.8 million for the same period in 2018. The primary drivers of the net $19.4 million increase included a $78.2 million increase in net interest income, a $6.8 million increase in the provision for credit losses, and a $2.4 million decrease in income taxes, partially offset by an increase in noninterest expense of $51.5 million. Diluted earnings per common share for the three months ended March 31, 2019, were $0.44 compared to $0.46 for the same period in 2018.

The first quarter of 2019 and 2018 included non-routine revenues and expenses, primarily consisting of secondary offering expenses, merger related expenses, and other items. These non-routine revenues and expenses resulted in adjusted net income ⁽¹⁾ of $75.0 million for the three months ended March 31, 2019, and $41.9 million for the comparable period of 2018. Adjusted diluted earnings per share ⁽¹⁾ was $0.57 for the three months ended March 31, 2019, and $0.50 for the comparable period of 2018.

Annualized return on average assets, common equity and tangible common equity ⁽¹⁾ for the first quarter of 2019 were 1.34%, 10.53%, and 15.54%, respectively, compared to 1.44%, 11.73%, and 15.76% ⁽¹⁾ , respectively, for the first quarter of 2018. Adjusted annualized returns on average assets ⁽¹⁾ and adjusted tangible common equity ⁽¹⁾ for the first quarter of 2019 were 1.72% and 19.69%, respectively, compared to 1.56% and 17.00%, respectively, for the first quarter of 2018. Adjusted annualized returns ⁽¹⁾ on average assets, common equity, and tangible common equity reflect the impact of the non-routine items noted above.

Net interest income was $169.3 million for the three months ended March 31, 2019, a $78.2 million, or 85.8% increase compared to the same period of 2018. Our net interest spread increased to 3.70% for the three months ended March 31, 2019 compared to 3.29% for the same period in 2018, and the net interest margin on an annualized basis increased 57 basis points to 4.21% from 3.64%. The margin improvement resulted from acquired State Bank assets and liabilities including ANCI loans with higher yields and deposits with lower total costs, incremental accretion on acquired loans, and the impact of the 2018 quarterly market rate increases on the loan and deposit portfolios.

Service fees and revenue were $27.9 million in the three months ended March 31, 2019, an increase of $4.0 million or 16.9%, from the same period in 2018.

Noninterest expense for the three months ended March 31, 2019 increased $51.5 million, or 83.1%, to $113.4 million compared to $61.9 million during the same period of 2018. The three months ended March 31, 2019 included $22.0 million of merger related expenses resulting from the State Bank acquisition and an increase of $16.1 million, or 43.1% in salaries and benefits resulting from the additional employees from State Bank.

Our efficiency ratio was 56.73% for the three months ended March 31, 2019, compared to the 53.35% efficiency ratio for the same period of 2018. Our adjusted efficiency ratio ⁽¹⁾ was 45.73% for the three months ended March 31, 2019, an improvement over the 50.22% adjusted efficiency ratio for the same period of 2018. Adjusted efficiency ratios reflect the impact of the non-routine items.

Provision for credit losses increased $6.8 million, or 179.2%, to $11.2 million in the three months ended March 31, 2019, compared to $4.4 million in the same period of 2018. (See “—Provision for Credit Losses” and “—Asset Quality”). The increased provision for credit losses in 2019 was primarily related to organic loan growth during the quarter and an increase in specific reserves on certain credits. Annualized net charge-offs were 0.02% of average loans for both the three months ended March 31, 2019 and the same period of 2018.

Summary of Financial Condition as of March 31, 2019

Our total loans, net of unearned income, increased $3.57 billion, or 35.5%, from December 31, 2018 to $13.6 billion at March 31, 2019, which was primarily due to the merger with State Bank.

From an asset quality perspective, total nonperforming assets (“NPAs”) increased $3.4 million, or 4.2%, compared to December 31, 2018, and the ratio of NPAs to total loans, OREO, and other NPAS declined from 0.82% to 0.63%. (See “—Asset Quality). Our total allowance for credit losses increased $10.7 million, or 11.3%, from $94.4 million at December 31, 2018 to $105.0 million at March 31, 2019, and represented approximately 0.8% and 0.9% of total loans at March 31, 2019 and December 31, 2018, respectively.

(1) - Considered a non-GAAP financial measure. See Table 29 "Reconciliation of Non-GAAP Financial Measures" for a reconciliation

of our non-GAAP measures to the most directly comparable GAAP financial measure.

Total deposits increased $3.5 billion or 32.6% to $14.2 billion, at March 31, 2019, from $10.7 billion at December 31, 2018, due primarily to the State Bank acquisition. Over the same period, noninterest-bearing deposits increased $756.3 million or 30.8% and comprised 22.6% and 22.9% of total deposits at March 31, 2019 and December 31, 2018, respectively. Interest-bearing deposits increased $2.7 billion or 33.1% and comprised 77.4% and 77.1% of total deposits at March 31, 2019 and December 31, 2018, respectively. There was a decrease in brokered deposits of $181.8 million from December 31, 2018, bringing the ratio of brokered deposits to total deposits down to 6.0%.

Overall, our Tier 1 leverage ratio decreased 3 basis points, total risk-based capital ratio increased 14 basis points and Tier 1 risk-based capital ratio increased 30 basis points from December 31, 2018. We met all capital adequacy requirements and the Bank continued to exceed the minimum requirements to be considered well-capitalized under regulatory guidelines as of March 31, 2019.

Results of Operations

Earnings

Net income for the three months ended March 31, 2019 totaled $58.2 million, compared to $38.8 million for the corresponding period in 2018, a $19.4 million or 49.9% increase. The following table presents key earnings data for the periods:

Table 2 – Key Earnings Data

	Three Months Ended
	March 31,
(In thousands, except per share data)	2019			2018
Net income	$	58,201		$	38,825
Net income per common share
- basic		0.44			0.46
- diluted ⁽³⁾		0.44			0.46
Dividends declared per share		0.175			0.125
Dividend payout ratio		39.77	%		27.17	%
Net interest margin ⁽¹⁾		4.21			3.64
Net interest spread ⁽¹⁾		3.70			3.29
Return on average assets ⁽¹⁾		1.34			1.44
Return on average equity ⁽¹⁾		10.53			11.73
Return on average tangible common equity ⁽¹⁾⁽²⁾		15.54			15.76

( 1 )

Annualized.

( 2 )

Considered a non-GAAP financial measure. See “Table 29 - Non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

( 3 )

Includes common stock equivalents (“CSE”) of 63,789 and 1,049,807 for the three months ended March 31, 2019 and 2018, respectively .

Net Interest Income

The largest component of our net income is net interest income, which is the difference between the income earned on interest-earning assets and interest paid on deposits and borrowings. We manage our interest-earning assets and funding sources to maximize our net interest margin. (See “—Quantitative and Qualitative Disclosures about Market Risk” for a discussion regarding our interest rate risk). Net interest income is determined by the rates earned on our interest-earning assets, rates paid on our interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, the degree of mismatch and the maturity and re-pricing characteristics of our interest-earning assets and interest-bearing liabilities. Net interest income divided by average interest-earning assets represents our net interest margin. The yield on our net earning assets less the yield on our interest-bearing liabilities represents our net interest spread.

Interest earned on our loan portfolio is the largest component of our interest income. Our originated and acquired noncredit impaired loan (“ANCI”) portfolios are presented at the principal amount outstanding net of deferred origination fees and unamortized discounts and premiums. 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. ANCI loans acquired through our acquisitions are initially recorded at fair value. Discounts or premiums

created when the loans were recorded at their estimated fair values at acquisition are being accreted or amortized over the remaining term of the loan as an adjustment to the related loan’s yield (see “Note 2- Business Combination ” to our Unaudited Consolidated Financial Statements for additional information related to the State Bank merger).

The performance of loans within our acquired credit impaired (“ACI”) portfolio impacts interest income. At acquisition, the expected shortfall in future cash flows on our ACI portfolio, as compared to the contractual amount due, was recognized as a non-accretable discount. Any excess of expected cash flows over the acquisition date fair value is known as the accretable discount and is recognized as accretion income over the life of each pool or individual ACI loan. Additionally, remaining discounts and proceeds received in excess of expected cash flows are realized in interest income when these loans are closed through payoff, charge off, workout, sale or foreclosure (“recovery income’). Expected cash flows over the acquisition date fair value are re-estimated quarterly utilizing the same cash flow methodology used at the time of acquisition. Any subsequent decreases to the expected cash flows will generally result in a provision for credit losses charge in the consolidated statements of income. Conversely, subsequent increases in expected cash flows result in a transfer from the nonaccretable discount to the accretable discount, which has a positive impact on accretion income prospectively. The following table summarizes the amount of interest income related to our ACI portfolio for the periods presented:

Table 3 – ACI Interest Income

	Three Months Ended March 31,
(In thousands)	2019			2018
Scheduled accretion for the period	$	5,844		$	5,192
Recovery income for the period		505			431
Total interest realized on the ACI portfolio	$	6,349		$	5,623
Yield on ACI Portfolio
Scheduled accretion for the period		7.86	%		8.27	%
Recovery income for the period		0.68			0.69
Total yield on the ACI portfolio		8.54	%		8.96	%

The following table is a rollforward of the accretable difference on our ACI portfolio for the periods indicated:

Table 4 - Accretable Difference Rollforward

	Three Months Ended March 31,
(In thousands)	2019			2018
Balance at beginning of period	$	67,405		$	78,422
Additions ⁽¹⁾		42,626			—
Accretion		(5,844	)		(5,192	)
Reclass from nonaccretable difference due to increases in expected cash flow		899			4,558
Other changes, net		(6,843	)		(1,714	)
Balance at end of period	$	98,243		$	76,074

(1)

See “Note 2 – Business Combination” to our Unaudited Consolidated Financial Statements for additional information related to

the State Bank merger.

Three Months Ended March 31, 2019 and 2018

Our net interest income, fully-tax equivalent (FTE), for the three months ended March 31, 2019 and 2018 was $169.8 million and $92.0 million, respectively, an increase of $77.8 million. Our net interest margin for the three months ended March 31, 2019 and 2018 was 4.21% and 3.64%, respectively, an increase of 57 basis points. The yield on our total loan portfolio increased 111 basis points to 6.05% for the three months ended March 31, 2019 compared to 4.94% for the three months ended March 31, 2018 due to an increase in the rate and volume of our originated portfolio and the additional accretion from the loans acquired in the State Bank merger. The following table sets forth, on a tax equivalent basis, the components of our net interest income with the effect that the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the three months ended March 31, 2019:

Table 5 - Rate/Volume Analysis

	Three Months Ended March 31,
	Net Interest Income				Increase			Changes Due To ⁽¹⁾
(In thousands)	2019		2018		(Decrease)			Rate			Volume
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans:
Originated loans	$	132,065	$	94,378	$	37,687		$	14,357		$	23,330
ANCI portfolio		67,337	$	2,790		64,547			1,013			63,534
ACI portfolio		6,349		5,623		726			(274	)		1,000
Interest on securities:
Taxable		10,796		5,118		5,678			799			4,879
Tax-exempt ⁽²⁾		2,202		4,134		(1,932	)		(10	)		(1,922	)
Interest on fed funds and short-term investments		3,281		1,529		1,752			845			907
Interest on other investments		618		389		229			148			81
Total interest income		222,648		113,961		108,687			16,878			91,809
Expense from interest-bearing liabilities:
Interest on demand deposits		29,259		9,025		20,234			11,847			8,387
Interest on savings deposits		226		114		112			59			53
Interest on time deposits		17,186		7,491		9,695			4,383			5,312
Interest on other borrowings		3,695		2,956		739			(242	)		981
Interest on subordinated debentures		2,530		2,396		134			121			13
Total interest expense		52,896		21,982		30,914			16,168			14,746
Net interest income	$	169,752	$	91,979	$	77,773		$	710		$	77,063

(1)	The change in interest income due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

(2)	Interest income and yields are presented on a tax equivalent basis using a Federal tax rate of 21% on our state, county and municipal investment portfolios.

Our total interest income (FTE) for the three months ended March 31, 2019 totaled $222.6 million compared to $114.0 million for the three months ended March 31, 2018. This increase is primarily the result of the loans acquired in the State Bank acquisition and an increase in the volume and yield of our originated loans. The yield on our originated loan portfolio reflects an increase in LIBOR rates in our loan portfolio. The lower FTE yield on our tax-exempt securities reflects the decrease in tax exempt securities resulting from a reallocation of our portfolio in the second quarter of 2018.

The yield on our ACI portfolio fluctuates due to the volume and timing of cash flows received or expected to be received. The yield on our ACI portfolio for the three months ended March 31, 2019 was 8.54% compared to 8.96% for the three months ended March 31, 2018. The increase in interest income on our ACI portfolio was due to an increase in volume due to the State Bank acquisition. During the three months ended March 31, 2019, interest income on the ACI portfolio included $0.5 million in recovery income, compared to $0.4 million in the three months ended March 31, 2018. These amounts were realized on certain individual loans that were settled before expected, or where we received amounts above our estimates. Excluding these amounts, as shown in Table 3, the yield on our ACI loans would have been 7.86% for the three months ended March 31, 2019 compared to 8.27% for the three months ended March 31, 2018.

Our interest expense for the three months ended March 31, 2019 and 2018 was $52.9 million and $22.0 million, respectively, an increase of $30.9 million. This increase is primarily related to the impact of higher market rates on our interest-bearing demand accounts and time deposits, and from interest-bearing deposits assumed in the State Bank acquisition. Our cost of interest-bearing deposits increased to 1.68% for the three months ended March 31, 2019 compared to 0.98% for the three months ended March 31, 2018. Our total cost of borrowings for the three months ended March 31, 2019 and 2018 was 4.55% and 4.88%, respectively, as the addition of the State Bank deposits reduced our overall deposit costs.

The following table presents, on a tax equivalent basis, for the three months ended March 31, 2019 and 2018, our average balance sheet and our annualized average yields on assets and annualized average costs of liabilities. Average yields are calculated by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been calculated on a daily basis, except for ACI loans, which is a monthly average.

Table 6 – Average Balances, Net Interest Income and Interest Yields/Rates

	Three Months Ended March 31,
	2019									2018
	Average			Income/			Yield/			Average			Income/			Yield/
(In thousands)	Balance			Expense			Rate			Balance			Expense			Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income ⁽¹⁾
Originated loans	$	9,811,821		$	132,065			5.46	%	$	7,993,461		$	94,378			4.79	%
ANCI portfolio		3,684,905			67,337			7.41			196,017			2,790			5.77
ACI portfolio		301,660			6,349			8.54			254,503			5,623			8.96
Total loans		13,798,386			205,751			6.05			8,443,981			102,791			4.94
Investment securities
Taxable		1,531,514			10,796			2.86			827,227			5,118			2.51
Tax-exempt ⁽²⁾		217,200			2,202			4.11			406,999			4,134			4.12
Total investment securities		1,748,714			12,998			3.01			1,234,226			9,252			3.04
Federal funds sold and short-term investments		763,601			3,281			1.74			515,017			1,529			1.20
Other investments		58,139			618			4.31			48,986			389			3.22
Total interest-earning assets		16,368,840			222,648			5.52			10,242,210			113,961			4.51
Noninterest-earning assets:
Cash and due from banks		118,833									92,878
Premises and equipment		128,990									62,973
Accrued interest and other assets		1,114,669									613,311
Allowance for credit losses		(97,065	)								(89,097	)
Total assets	$	17,634,267								$	10,922,275

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	8,011,001		$	29,259			1.48	%	$	4,795,114		$	9,025			0.76	%
Savings deposits		248,651			226			0.37			179,662			114			0.26
Time deposits		2,985,720			17,186			2.33			1,909,019			7,491			1.59
Total interest-bearing deposits		11,245,372			46,671			1.68			6,883,795			16,630			0.98
Other borrowings		418,347			3,695			3.58			309,323			2,956			3.88
Subordinated debentures		135,934			2,530			7.55			135,233			2,396			7.19
Total interest-bearing liabilities		11,799,653			52,896			1.82			7,328,351			21,982			1.22
Noninterest-bearing liabilities:
Demand deposits		3,334,399									2,128,595
Accrued interest and other liabilities		258,563									122,884
Total liabilities		15,392,615									9,579,830
Shareholders' equity		2,241,652									1,342,445
Total liabilities and shareholders' equity	$	17,634,267								$	10,922,275
Net interest income/net interest spread					169,752			3.70	%					91,979			3.29	%
Net yield on earning assets/net interest margin								4.21	%								3.64	%
Taxable equivalent adjustment:
Investment securities					(463	)								(868	)
Net interest income				$	169,289								$	91,111

(1)	Nonaccrual loans are included in loans, net of unearned income. No adjustment has been made for these loans in the calculation of yields.

(2)	Interest income and yields are presented on a taxable equivalent basis using a tax rate of 21%.

Provision for Credit Losses

The provision for credit losses is based on management’s quarterly assessment of the adequacy of our ACL which, in turn, is based on such factors as the composition of our loan portfolio and its inherent risk characteristics, the level of nonperforming loans and net charge-offs, both current and historic, local economic and credit conditions, the direction of collateral values, and regulatory guidelines. The provision for credit losses is charged against earnings in order to maintain our allowance for credit losses, which reflects management’s best estimate of probable losses inherent in our loan portfolio at the balance sheet date. (See “—Allowance for Credit Losses”).

Under accounting standards for business combinations, acquired loans are recorded at fair value with no credit loss allowance on the date of acquisition. A provision for credit losses is recorded in periods after the date of acquisition for the emergence of new probable and estimable losses on ANCI loans. A provision for credit losses is recognized on our ACI loans after the date of acquisition based on the re-estimation of expected cash flows. See “—Asset Quality”.

The provision for credit losses totaled $11.2 million for the three months ended March 31, 2019, compared to $4.4 million for the three months ended March 31, 2018. The following is a summary of our provision for credit losses for the periods indicated presented by originated, ANCI and ACI portfolios:

Table 7 – Provision for Credit Losses

	Three Months Ended March 31,
(In thousands)	2019			2018
Originated Loans
Commercial and industrial	$	9,352		$	5,472
Commercial real estate		281			(192	)
Consumer		1,353			(816	)
Small business		593			574
Total originated loans		11,579			5,038
ANCI Loans
Commercial and industrial		(84	)		(137	)
Commercial real estate		45			(146	)
Consumer		50			(22	)
Small business		10			(108	)
Total ANCI		21			(413	)
ACI Loans
Commercial and industrial		31			(5	)
Commercial real estate		(224	)		(175	)
Consumer		(197	)		(65	)
Small business		—			—
Total ACI		(390	)		(245	)
Total Loans
Commercial and industrial		9,299			5,330
Commercial real estate		102			(513	)
Consumer		1,206			(903	)
Small business		603			466
Total provision for credit losses	$	11,210		$	4,380

Our originated and ANCI loan portfolios are divided into commercial and consumer segments. The commercial allowance estimate is driven by loan level risk ratings. The consumer allowance estimate uses pool level historical loss rates based on certain credit attributes. The primary driver of the originated ACL is the underlying credit quality of the loans, which have seen some credit risk migration over the periods as the portfolio has become more seasoned. We recognized $11.2 million and $4.4 million in provision during the three months ended March 31, 2019 and March 31, 2018, respectively, which included $11.6 million and $5.0 million provision related to the originated portfolio. The C&I originated portfolio provision of $9.4 million for the three months ended March 31, 2019 included provisions related to loan growth and approximately $7.2 million on specific credits within the energy, restaurant and general C&I segments.

Noninterest Income

Noninterest income is a component of our revenue and is comprised primarily of income generated from the services we provide our customers.

Noninterest income totaled $30.7 million for the three months ended March 31, 2019, compared to $25.0 million for the three months ended March 31, 2018. The increase for the three months ended March 31, 2019 compared to the same period in 2018 is primarily attributable to the State Bank merger which provided additional markets for our products and services as well as two new revenue sources.

The following table compares noninterest income for the three months ended March 31, 2019 and 2018:

Table 8 – Noninterest Income

	Three Months Ended March 31,
(In thousands)	2019			2018		% Change
Investment advisory revenue	$	5,642		$	5,299		6.5	%
Trust services revenue		4,335			5,015		(13.6	)
Service charges on deposit accounts		5,130			3,960		29.5
Credit related fees		4,870			3,577		36.1
Insurance revenue		—			2,259		(100.0	)
Bankcard fees		2,213			1,884		17.5
Payroll processing and insurance revenue		1,859			-	NM
SBA income		1,449			-	NM
Other service fees		2,441			1,910		27.8
Total service fees and revenue		27,939			23,904		16.9
Securities gain (losses), net		(12	)		12	NM
Other		2,737			1,067		156.5
Total other noninterest income		2,725			1,079		152.5
Total noninterest income	$	30,664		$	24,983		22.7	%

NM – Not Meaningful

Investment Advisory Revenue. Our investment advisory revenue is comprised largely of investment management and financial planning revenues generated through our subsidiary Linscomb & Williams, Inc. (“L&W”). The 6.5% increase in investment advisory revenue for the three months ended March 31, 2019 was due to an increase of 4% in assets under management and the continued market performance.

Trust Services Revenue. We earn fees from our customers for trust services. For the three months ended March 31, 2019 and 2018, trust fees totaled $4.3 million and $5.0 million, respectively, a decrease of $0.7 million, or 13.6%. The decrease was primarily due to the transfer of certain deposit relationships from trust to treasury management. Additionally, estate tax reform has slowed the pace of personal trust growth.

Service Charges on Deposit Accounts. We earn fees from our customers for deposit-related services. For the three months ended March 31, 2019 and 2018, service charges and fees totaled $5.1 million and $4.0 million, which is an increase of 29.5%. The increase was largely due to the increase in the number of deposit accounts and customers resulting from the State Bank acquisition.

Credit-Related Fees. Our credit-related fees include fees related to credit advisory services, unfunded commitment fees and letter of credit fees. For the three months ended March 31, 2019, credit-related fees increased 36.1% to $4.9 million, compared to $3.6 million for the three months ended March 31, 2018, primarily as a result of arrangement and other credit advisory fees.

Insurance Revenue. Our insurance revenue was zero and $2.3 million for the three months ended March 31, 2019 and 2018, The decrease results from the sale of the assets of Cadence Insurance in the second quarter of 2018.

Bankcard Fees. Our bankcard fees are comprised of automated teller machine (“ATM”) network fees and debit card revenue. Our bankcard fees were $2.2 million for the three months ended March 31, 2019, an increase of 17.5% primarily due to the State Bank acquisition. The increase was partially mitigated by the limit on interchange fees imposed by the Durbin Amendment. The third quarter of 2018 is the first quarter in which the Durbin Amendment applied to our interchange fees.

Payroll Processing and Insurance Revenue. Payroll processing represents a new source of revenue for us which we acquired in the State Bank acquisition.

SBA Income. Small Business Administration (“SBA”) Income also represents a new source of revenue for us acquired in the State Bank transaction. This revenue consists of gains on sales of SBA loans, servicing fees, and other miscellaneous fees.

Other Service Fees. Our other service fees include retail services fees. For the three months ended March 31, 2019 and 2018, other service fees totaled $2.4 million and $1.9 million, respectively. The first quarter 2019 increase resulted primarily from the additional fees generated due to the State Bank acquisition.

Other Income. The increase in other income for the three months ended March 31, 2019 compared to 2018 resulted from increases in several revenue items from the recently acquired State Bank market combined with an increase in the estimated fair value of a net profits interest in oil and gas reserves.

Noninterest Expenses

The following table compares noninterest expense for the three months ended March 31, 2019 and 2018:

Table 9 – Noninterest Expense

	Three Months Ended March 31,
(In thousands)	2019		2018		% Change
Salaries and employee benefits	$	53,471	$	37,353		43.2	%
Premises and equipment		10,958		7,591		44.3
Merger related expenses		22,000		-	NM
Intangible asset amortization		6,073		792	NM
Data processing expense		2,594		2,365		9.7
Consulting and professional fees		2,229		2,934		(24.0	)
Loan related expenses		910		255		256.9
FDIC insurance		1,752		955		83.5
Communications		998		704		41.8
Advertising and public relations		781		341		129.1
Legal expenses		158		2,627		(94.0	)
Other		11,516		6,022		91.2
Total Noninterest Expense	$	113,440	$	61,939		83.1	%

Noninterest expense was $113.4 million for the three months ended March 31, 2019, compared to $61.9 million for the three months ended March 31, 2018. The increase of $51.5 million or 83.1% for the three months ended March 31, 2019, compared to the same period in 2018 was driven by increases in salaries and benefits, merger related expenses, intangible asset amortization, and other expenses related to growth of the business during the periods.

Salaries and Employee Benefits. Salaries and employee benefit costs are the largest component of noninterest expense and include employee payroll expense, incentive compensation, health insurance, benefit plans and payroll taxes. Salaries and employee benefits increased $16.1 million or 43.2% for the three months ended March 31, 2019 compared to 2018, driven primarily by the increased number of employees resulting from the State Bank acquisition as full-time equivalent employees went from 1,170 at December 31, 2018 to 1,822 at March 31, 2019. Regular compensation makes up the majority of the total salaries and employee benefits category and increased 51.2% for the three months ended March 31, 2019 compared to the 2018 period. The following table provides additional detail of our salaries and employee benefits expense for the periods presented:

Table 10 – Salaries and Employee Benefits Expense

	Three Months Ended March 31,
(In thousands)	2019		2018
Salaries and employee benefits
Regular compensation	$	32,514	$	21,497
Incentive compensation		11,351		9,657
Taxes and employee benefits		9,606		6,199
Total salaries and employee benefits	$	53,471	$	37,353

Merger Related Expenses. These expenses were incurred solely due to the State Bank merger and include expenses across all categories including salaries and benefits, legal and professional fees, premises and equipment, and other.

Premises and Equipment. Rent, depreciation and maintenance costs compri se the majority of premises and equipment expenses, which in creased 44.4% for the three months ended March 3 1 , 201 9 . This increase is driven primarily by the State Bank acquisition .

Intangible Asset Amortization. In conjunction with the State Bank acquisition, we recorded core deposit and other intangible assets of approximately $117.0 million, which are being amortized on an accelerated basis over a ten-year period for the core deposit intangible and a ten- to -twenty year period for other intangibles.

FDIC Insurance. For the three months ended March 31, 2019, FDIC insurance expense increased $0.8 million due to the State Bank acquisition and the resulting increase to our balance sheet and risk profile as calculated under the Large Bank Pricing Rule. Our FDIC assessment will vary between reported periods as it is determined on various risk factors including credit, liquidity, composition of our balance sheet, and regulatory ratings.

Legal Expenses. Our legal expenses include fees paid to outside counsel related to general legal matters as well as loan resolutions. For the three months ended March 31, 2019 our legal fees decreased $2.5 million or 94.0% compared to the same period in 2018. Legal fees for the 2018 period included $2.2 million in legal costs associated with litigation related to a pre-acquisition matter of a legacy acquired bank. This matter was fully resolved in the first quarter of 2018.

Other. These expenses include costs for insurance, supplies, education and training, and other operational expenses. For the three months ended March 31, 2019, other noninterest expenses increased 91.2% compared to the same period in 2018. The increases include increases across all categories due to the State Bank acquisition led by increased software amortization of $2.1 million and losses on sales of premises and equipment of $0.8 million.

Income Tax Expense

Income tax expense for the three months ended March 31, 2019 was $17.1 million compared to $11.0 million and for the same period in 2018.

The effective tax rate was 22.7% for the three months ended March 31, 2019 compared to 22.0% for the same period in 2018. The increase in the effective tax rate was primarily driven by the non-deductible merger expenses incurred in the first quarter of 2019.

At March 31, 2019, we had a net deferred tax asset of $8.9 million, compared to a net deferred tax asset of $33.2 million at December 31, 2018. The decrease in the net deferred asset was primarily due to certain purchase accounting adjustments recorded during the State Bank acquisition, changes in market conditions that impact the mark to market deferred tax adjustments on securities available-for-sale and on our cash flow hedges including our new interest rate collar agreement.

Financial Condition

The following table summarizes selected components of our balance sheet as of the periods indicated.

Table 11 – Selected Balance Sheet Data ft

	As of				Average Balance
(In thousands)	March 31, 2019		December 31, 2018		Three Months Ended March 31, 2019		Three Months Ended March 31, 2018		Year Ended December 31, 2018
Total assets	$	17,452,911	$	12,730,285	$	17,634,267	$	10,922,275	$	11,498,013
Total interest-earning assets		15,989,907		11,899,165		16,368,840		10,242,210		10,817,317
Total interest-bearing liabilities		11,706,180		8,726,443		11,799,653		7,328,351		7,849,508
Short-term and other investments		394,696		592,690		821,740		564,003		465,554
Securities available for sale		1,754,839		1,187,252		1,748,714		1,234,226		1,180,623
Loans, net of unearned income		13,624,954		10,053,923		13,798,386		8,443,981		9,116,602
Goodwill		480,391		307,083		480,244		317,817		311,494
Noninterest-bearing deposits		3,210,321		2,454,016		3,334,399		2,128,595		2,137,953
Interest-bearing deposits		10,988,902		8,254,673		11,245,372		6,883,795		7,283,850
Borrowings and subordinated debentures		717,278		471,770		554,281		444,556		565,658
Shareholders' equity		2,302,823		1,438,274		2,241,652		1,342,445		1,377,471

Investment Portfolio

Our available-for-sale securities portfolio increased $567.6 million, or 47.8%, to $1.75 billion at March 31, 2019, from $1.19 billion at December 31, 2018. The increase resulted from our merger with State Bank. At March 31, 2019, our investment securities portfolio was 11.1% of our total interest-earning assets and produced an average taxable equivalent yield of 3.01%, compared to 3.04% for the three months ended March 31, 2018.

The following table sets forth the fair value of the available-for-sale securities at the dates indicated:

Table 12 –Investment Portfolio

	As of				Percent Change
(In thousands)	March 31, 2019		December 31, 2018		2019 vs 2018
Investment securities available-for-sale:
U.S. Treasury securities	$	97,566	$	96,785		0.8	%
Obligations of U.S. government agencies		118,867		61,007		94.8
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS):
Residential pass-through:
Guaranteed by GNMA		92,052		83,105		10.8
Issued by FNMA and FHLMC		763,709		585,201		30.5
Other residential mortgage-backed securities		321,229		35,169		813.4
Commercial mortgage-backed securities		132,312		109,415		20.9
Total MBS		1,309,302		812,890		61.1
Obligations of states and municipal subdivisions		229,104		216,570		5.8
Total investment securities available-for-sale	$	1,754,839	$	1,187,252		47.8	%

The following table summarizes the investment securities with unrealized losses at March 3 1 , 201 9 by aggregated major security type and length of time in a continuous unrealized loss position:

Table 13 –Unrealized Losses in the Investment Portfolio

	Unrealized loss analysis
	Losses < 12 Months				Losses > 12 Months
(In thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
March 31, 2019
U.S. Treasury securities	$	—	$	—	$	97,566	$	2,806
Obligations of U.S. government agencies		13,670		61		18,692		166
Mortgage-backed securities		62,725		393		480,197		9,295
Obligations of states and municipal subdivisions		—		—		98,577		2,568
Total	$	76,395	$	454	$	695,032	$	14,835

	Unrealized loss analysis
	Losses < 12 Months				Losses > 12 Months
(In thousands)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
December 31, 2018
U.S. Treasury securities	$	—	$	—	$	96,785	$	3,628
Obligations of U.S. government agencies		25,978		183		10,152		101
Mortgage-backed securities		259,794		2,864		405,974		16,029
Obligations of states and municipal subdivisions		74,503		2,501		125,092		10,611
Total	$	360,275	$	5,548	$	638,003	$	30,369

None of the unrealized losses relate to the marketability of the securities or the issuer’s ability to honor redemption of the obligations. We have adequate liquidity, no plans to sell securities and the ability and intent to hold securities to maturity resulting in full recovery of the indicated impairment. Accordingly, the unrealized losses on these securities have been determined to be temporary.

Loan Portfol io

We originate commercial and industrial loans, commercial real estate loans (including construction loans), residential mortgages and other consumer loans. A strong emphasis is placed on the commercial portfolio, consisting of commercial and industrial and commercial real estate loan types, with over 75% of the portfolio residing in these loan types as of March 31, 2019. Our commercial portfolio is further diversified by industry concentration and includes loans to clients in specialized industries, including restaurant, healthcare and technology. Additional commercial lending activities include energy, construction, general corporate loans, business banking and community banking loans. Also, with the acquisition of State Bank we have added asset-based lending and Small Business Administration (“SBA”) lending. Mortgage, wealth management and retail make up most of the consumer portfolio.

The following tables present total loans outstanding by portfolio component and class of financing receivable as of March 31, 2019 and December 31, 2018. Total loans increased $3.6 billion from December 31, 2018. The merger with State Bank added approximately $3.3 billion in held for investment loan balances (See “Note 2 – Business Combination” to the Unaudited Consolidated Financial Statements).

Table 14 –Loan Portfolio

	Total Loans						Change
(In thousands)	March 31, 2019			December 31, 2018			2019 vs 2018			Percent
Commercial and Industrial
General C&I	$	4,423,086		$	3,275,362		$	1,147,724			35.0	%
Energy sector		1,380,541			1,285,775			94,766			7.4
Restaurant industry		1,137,898			1,096,366			41,532			3.8
Healthcare		540,163			539,839			324			0.1
Total commercial and industrial		7,481,688			6,197,342			1,284,346			20.7
Commercial Real Estate
Income producing		2,481,360			1,266,791			1,214,569			95.9
Land and development		348,835			63,948			284,887			445.5
Total commercial real estate		2,830,195			1,330,739			1,499,456			112.7
Consumer
Residential real estate		2,518,347			2,227,653			290,694			13.0
Other		121,171			67,100			54,071			80.6
Total consumer		2,639,518			2,294,753			344,765			15.0
Small Business Lending		758,842			266,283			492,559			185.0
Total (Gross of Unearned Discount and Fees)		13,710,243			10,089,117			3,621,126			35.9
Unearned Discount and Fees		(85,289	)		(35,194	)		(50,095	)		142.3
Total (Net of Unearned Discount and Fees)	$	13,624,954		$	10,053,923		$	3,571,031			35.5	%

The State Bank merger significantly increased the ANCI portfolio balances and to a lesser degree, the ACI portfolio. The table below presents outstanding loan balances by the Originated, ANCI and ACI portfolios at March 31, 2019:

	March 31, 2019
(In thousands)	ACI		ANCI			Originated			Total
Commercial and Industrial
General C&I	$	41,440	$	1,045,188		$	3,336,458		$	4,423,086
Energy sector		—		400			1,380,141			1,380,541
Restaurant industry		1,529		36,075			1,100,294			1,137,898
Healthcare		—		24,021			516,142			540,163
Total commercial and industrial		42,969		1,105,684			6,333,035			7,481,688
Commercial Real Estate
Income producing		96,780		1,204,557			1,180,023			2,481,360
Land and development		12,240		267,122			69,473			348,835
Total commercial real estate		109,020		1,471,679			1,249,496			2,830,195
Consumer
Residential real estate		130,484		451,632			1,936,231			2,518,347
Other		973		59,492			60,706			121,171
Total consumer		131,457		511,124			1,996,937			2,639,518
Small Business Lending		20,337		465,339			273,166			758,842
Total (Gross of Unearned Discount and Fees)		303,783		3,553,826			9,852,634			13,710,243
Unearned Discount and Fees		—		(55,310	)		(29,979	)		(85,289	)
Total (Net of Unearned Discount and Fees)	$	303,783	$	3,498,516		$	9,822,655		$	13,624,954

Commercial and Industrial. Total C&I loans increased by $1.3 billion, or 20.7%, since December 31, 2018 and represented 54.6% of our total loan portfolio at March 31, 2019, compared to 61.4% of total loans at December 31, 2018. The majority of this increase resulted from our merger with State Bank.

At March 31, 2019, approximately 90.4% of our shared national credits (“SNCs”), or $2.5 billion, resides in the commercial and industrial segment of the loan portfolio, on a loan balance basis. The largest category of SNCs is the Energy sector, representing 33% of the SNCs, or $939.6 million as of March 31, 2019, compared to $864.9 million at December 31, 2018. The next largest categories of all SNC is the general C&I sector, at $747.7 million, followed by the Restaurant industry at $545.6 million, as of March 31, 2019. The remaining $0.6 billion of the SNC can be found in the other C&I categories and, to a lesser amount, the CRE segment of the loan portfolio.

General C&I . As of March 31, 2019, our general C&I category included the following types of loans: finance and insurance, professional services, commodities excluding energy, manufacturing, contractors, transportation, media and telecom, asset-based and lender finance and other. C&I loans typically provide working capital, equipment financing and financing for expansion, and are generally secured by assignments of corporate assets including accounts receivable, inventory and/or equipment.

Energy . Energy lending is an important part of our business and our energy team is comprised of experienced lenders with significant product expertise and long-standing relationships. Additionally, energy production and energy related industries are substantial contributors to the economies in the Houston metropolitan area and the state of Texas. We strive for a rigorous and thorough approach to energy underwriting and credit monitoring. The allowance for credit losses at March 31, 2019, was $8.3 million for our energy loans, or 0.60% of the energy portfolio compared to $7.3 million, or 0.57% as of December 31, 2018. (See “—Provision for Credit Losses” and “—Allowance for Credit Losses”). As of March 31, 2019, the Company had $13.9 million of nonperforming energy credits compared to $20.7 million of nonperforming energy credits as of December 31, 2018. In addition, 2.2% of the energy portfolio was criticized or classified as of March 31, 2019 and December 31, 2018. As presented in the following table our energy lending business is comprised of three areas: Exploration and Production (“E&P”), Midstream and Energy Services:

Table 15 –Energy Loan Portfolio

	As of						As of March 31, 2019
(In thousands)	March 31, 2019			December 31, 2018			Unfunded Commitments		Criticized
Outstanding Balance
E&P	$	352,867		$	366,973		$	173,060	$	19,653
Midstream		829,484			738,535			671,728		6,003
Energy Services		198,190			180,267			147,747		4,392
Total energy sector	$	1,380,541		$	1,285,775		$	992,535	$	30,048
Percent to total loans		10.1	%		12.8	%
Allocated ACL
E&P	$	2,361		$	2,195
Midstream		4,861			4,091
Energy Services		1,083			1,051
Total allocated ACL	$	8,305		$	7,337
ACL as a Percentage of Outstanding Balances
E&P		0.67	%		0.60	%
Midstream		0.59			0.55
Energy Services		0.55			0.58
Total percentage		0.60	%		0.57	%

E&P loans outstanding totaled $352.9 million and comprised approximately 25.6% of outstanding energy loans as of March 31, 2019 compared to $367.0 million, or 28.5%, of outstanding energy loans as of December 31, 2018. E&P customers are primarily businesses that derive a majority of their revenues from the sale of oil and gas and whose credit needs require technical evaluation of oil and gas reserves. Emphasis for E&P is on high quality, independent producers with proven track records. Our E&P credit underwriting includes a combination of well-by-well analyses, frequent updates to our pricing decks and engaging energy engineers to actively monitor the portfolio and provide credit redeterminations, at a minimum, every six months. At least quarterly, and more frequently during periods of higher commodity price volatility, we adjust the base and sensitivity price decks on which we value our clients’ oil and gas reserves. Generally, we seek to follow the shape of the NYMEX strips for oil and natural gas, but at a discount to the strip. In periods of higher commodity prices, our discount from the strip is higher whereas in lower price periods our discount is lower. The price decks utilized in our engineering analysis are ratified by our Senior Credit Risk Management Committee. Borrowing base redeterminations occur every spring and fall, with the spring redeterminations completed prior to the end of the second quarter and fall determinations completed prior to the end of the fourth quarter.

Midstream loans outstanding totaled $829.5 million and comprised approximately 60.1% of outstanding energy loans as of March 31, 2019 compared to $738.5 million, or approximately 57.4% of outstanding energy loans as of December 31, 2018. Midstream lending is generally to customers who handle the gathering, treating and processing, storage or transportation of oil and gas. These customers’ businesses are generally less price sensitive than other energy segments given the nature of their fee-based revenue streams. Underwriting guidelines for the Midstream portfolio generally require a first lien on all assets as collateral.

Energy Services loans outstanding totaled $198.2 million and comprised approximately 14.4% of outstanding energy as of March 31, 2019 compared to $180.3 million, or approximately 14.0% of outstanding energy loans, as of December 31, 2018. Energy Services lending targets oilfield service companies that provide equipment and services used in the exploration for and extraction of oil and natural gas. Customers consist of a wide variety of businesses, including production equipment manufacturers, chemical sales, water transfer, rig equipment and other early and late stage services companies.

Specialized lending . The following table includes our specialized lending portfolio as of the dates presented:

Table 16 –Specialized Lending Portfolio


	Originated and ANCI C&I Loans				Unfunded Commitments as of
(In thousands)	March 31, 2019		December 31, 2018		March 31, 2019
Specialized Industries
Restaurant industry	$	1,136,369	$	1,096,366	$	269,250
Healthcare		540,163		539,839		194,117
Technology		485,812		459,502		92,149
Total specialized industries	$	2,162,344	$	2,095,707	$	555,516

Restaurant industry, healthcare, and technology are the components of our specialized industries. For these industries we focus on larger corporate clients, who are typically well-known within the industry. The client coverage for these components is national in scope, given the size and capital needs of the majority of the clients. Given these customer profiles, we frequently participate in such credits with two or more banks through syndication.

Restaurant industry loans outstanding totaled $1.1 billion and comprised 52.6% of the outstanding specialized lending portfolio at March 31, 2019 compared to $1.1 billion or 52.3% at December 31, 2018. In the restaurant sector we focus on major franchisees and the operating companies of “branded” restaurant concepts.

Healthcare loans outstanding totaled $540.2 million and comprised 25.0% of the outstanding specialized lending portfolio at March 31, 2019 compared to $539.8 million or 25.8% at December 31, 2018. Our healthcare portfolio focuses on middle market healthcare providers generally with a diversified payer mix.

Technology loans outstanding totaled $485.8 million and comprised 22.4% of the outstanding specialized lending portfolio at March 31, 2019 compared to $459.5 million or 21.9% at December 31, 2018. Our technology portfolio focuses on the technology sub-segments of software and services, network and communications infrastructure, and internet and mobility applications.

Commercial Real Estate. Commercial real estate (“CRE”) loans increased by $1.5 billion, or 112.7%, since December 31, 2018. The increase resulted from our merger with State Bank. CRE loans represented 20.8% of the total loan portfolio as of March 31, 2019, compared to 13.2% of total loans as of December 31, 2018. Income Producing CRE includes non-owner occupied loans secured by commercial real estate, regardless of the phase of the loan (construction versus completed). Commercial construction loans are primarily included in Income Producing CRE. Additionally, all real estate investment trust and income producing loans are included in the Income Producing CRE segment. Land, lots and homebuilder loans are included in the land and development segment. All owner occupied CRE loans reside in the various C&I segments in which the underlying risk exists. Our CRE lending team is a group of experienced relationship managers focusing on construction and income producing property lending which generally have property or sponsors located in our geographic footprint. CRE loans are secured by a variety of property types, including multi-family dwellings, office buildings, industrial properties, hotel/motel and retail facilities. Additionally, due to the recent merger, the land and development portfolio increased due to the addition of a homebuilder portfolio. This group is managed by our CRE team as well.

Consumer . Consumer loans increased by $344.8 million, or 15.0%, from December 31, 2018 to March 31, 2019 with a significant portion of the increase attributable to the merger with State Bank. Consumer loans represented 19.3% of total loans at March 31, 2019, compared to 22.8% of total loans at December 31, 2018. We originate residential real estate mortgages that are held for investment as well as held for sale in the secondary market.

Small Business. Small Business loans increased by $492.6 million, or 185.0% from December 31, 2018 to March 31, 2019. The majority of the increase is attributable to the merger with State Bank. Small business loans represented 5.5% of the total loan portfolio at March 31, 2019 and 2.8% at December 31, 2018. The small business category is defined as all commercial loans with a transactional exposure of $1.5 million or less and relationship exposure of $2.0 million or less. These loans are primarily centrally underwritten in the Cadence Loan Center, using defined underwriting standards that are applied consistently throughout the category. For the State Bank conversion, a mapping process was performed to determine what loans would likely be underwritten in the Cadence Loan Center at next renewal date to assign to this segment.

Concentrations of Credit. Our concentrations of credit are closely and consistently monitored by the Company. Individual concentration limits are assessed and established, as needed, on a quarterly basis and measured as a percentage of risk-based capital. All concentrations greater than 25% of risk-based capital require a concentration limit, which are monitored and reported to the Board of Directors on at least a quarterly basis. In addition to the specialized industries, energy, and CRE segments in the loan portfolio, we manage concentration limits for other loans, such as leveraged loans, technology loans, specialty chemical, and

enterprise value loans. We evaluate the appropriateness of our underwriting standards in response to changes in national and regional economic conditions, including energy prices, interest rates, real estate values, and employment levels. Underwriting standards and credit monitoring activities are assessed and enhanced in response to changes in these conditions.

Asset Quality

We focus on asset quality strength through robust underwriting, proactive monitoring and reporting of the loan portfolio and collaboration between the lines of business, credit administration and risk management.

Credit risk is governed and reported up to the Board of Directors primarily through our Senior Credit Risk Management Committee. The Senior Credit Risk Management Committee reviews credit portfolio management information such as problem loans, delinquencies, concentrations of credit, asset quality trends, portfolio analysis, policy updates and changes, and other relevant information. Further, both Senior Loan Committee and Credit Transition Committee, the primary channels for credit approvals, report up through Senior Credit Risk Management Committee. The Senior Loan Committee generally approves all loans with relationship exposure greater than $5 million. Dual signature authority between the business unit and the credit officer is utilized for loan approvals below the $5 million threshold. Additionally, the Credit Transition Committee manages all material credit actions for classified credits greater than $5 million. Our Board of Directors receives information concerning asset quality measurements and trends on at least a quarterly basis if not more frequently.

Credit policies have been established for each type of lending activity in which we engage, with a particular focus given to the commercial side of the Bank. Policies are evaluated and updated as needed based on changes in guidance and regulations as well as business needs of the Bank.

Each loan’s creditworthiness is assessed and assigned a risk rating, based on both the borrower strength (probability of default) as well as the collateral protection (loss given default) of the loan. Risk rating accuracy and reporting are critical tools for monitoring the portfolio as well as determining the allowance for credit losses. Assigned risk ratings are regularly reviewed for accuracy and adjusted as appropriate for all relationships greater than $2.5 million.

Acquired Loans. Loans acquired in acquisitions are initially recorded at fair value with no carryover of the related allowance for credit losses. The fair value of the loans is determined using market participant assumptions in estimating the amount and timing of principa l and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest. (See “Note 2 – Business Combination” to the Unaudited Consolidated Financial Statements).

Under the accounting model for ACI loans, the excess of cash flows expected to be collected over the carrying amount of the loans, referred to as the “accretable yield,” is accreted into interest income over the life of the loans using the effective yield method. Accordingly, ACI loans are not subject to classification as nonaccrual in the same manner as originated loans. Rather, ACI loans are considered to be accruing loans because their interest income relates to the accretable yield recognized and not to contractual interest payments. However, if the timing or amount of the expected cash flows cannot be reasonably estimated an ACI loan may be placed in nonaccruing status. The excess of an ACI loan’s contractually required payments over the cash flows expected to be collected is the nonaccretable difference. As such, charge-offs on ACI loans are first applied to the nonaccretable difference and then to any related allowance for credit losses recognized subsequent to the combination. A decrease in expected cash flows in subsequent periods may indicate that the ACI loan pool or specifically reviewed loan is impaired, which would require the establishment of an allowance for credit losses by a charge to the provision for credit losses. Select asset quality metrics presented below distinguish between the originated, ANCI and ACI portfolios.

Nonperforming Assets. Nonperforming assets (“NPAs”) primarily consist of nonperforming loans and property acquired through foreclosures or repossession ( or other real estate owned or “OREO” ). The following tables present nonperforming assets (originated, ANCI and ACI) and additional asset quality data for the dates indicated:

Table 17 –Nonperforming Assets

	As of March 31, 2019
(Recorded Investment in thousands)	Originated			ANCI			ACI			Total
Nonperforming loans ("NPLs"):
Commercial and industrial	$	74,656		$	—		$	—		$	74,656
Commercial real estate		—			—			—			—
Consumer		1,403			1,174			—			2,577
Small business		212			238			—			450
Total NPLs		76,271			1,412			—			77,683
Foreclosed OREO and other NPAs		5,317			99			2,763			8,179
Total nonperforming assets ("NPAs")	$	81,588		$	1,511		$	2,763		$	85,862
NPLs as a percentage of total loans		0.56	%		0.01	%		0.00	%		0.57	%
NPAs as a percentage of loans plus OREO/other NPAs		0.60	%		0.01	%		0.02	%		0.63	%
NPAs as a percentage of total assets		0.47	%		0.01	%		0.02	%		0.49	%
Total accruing loans 90 days or more past due	$	10,385		$	1,254		$	29,534		$	41,173

	As of December 31, 2018
(Recorded Investment in thousands)	Originated			ANCI			ACI			Total
Nonperforming loans ("NPLs"):
Commercial and industrial	$	71,353		$	—		$	—		$	71,353
Consumer		1,218			1,337			—			2,555
Small business		104			229			—			333
Total NPLs		72,675			1,566			—			74,241
Foreclosed OREO and other NPAs		5,801			23			2,361			8,185
Total nonperforming assets ("NPAs")	$	78,476		$	1,589		$	2,361		$	82,426
NPLs as a percentage of total loans		0.76	%		0.45	%		0.00	%		0.74	%
NPAs as a percentage of loans plus OREO/other NPAs		0.83	%		0.46	%		1.15	%		0.82	%
NPAs as a percentage of total assets		0.62	%		0.01	%		0.02	%		0.65	%
Total accruing loans 90 days or more past due	$	366		$	394		$	5,480		$	6,240

Nonperforming Loans. Commercial loans, including small business loans, are generally placed on nonaccrual status when principal or interest is past due 90 days or more unless the loan is well secured and in the process of collection, or when the loan is specifically determined to be impaired. When a commercial loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income.

Consumer loans, including residential first and second lien loans secured by real estate, are generally placed on nonaccrual status when they are 120 or more days past due. When a consumer loan is placed on nonaccrual status, interest accrued but not received is generally reversed against interest income.

The related amount of interest income recognized for impaired loans was immaterial for both three-month periods ended March 31, 2019 and 2018.

Generally, cash receipts on nonperforming loans are used to reduce principal rather than recorded as interest income. Past due status is determined based upon contractual terms. A nonaccrual loan may be returned to accrual status when repayment is reasonably assured under the terms of the loan or, if applicable, under the terms of the restructured loan. For the three months ended March 31, 2018, approximately $0.3 million of contractual interest paid was recognized on the cash basis.

Our NPLs were $77.7 million, or 0.57% of our loan portfolio as of March 31, 2019 compared to $74.2 or 0.74% of our loan portfolio as of December 31, 2018 . Approximately $24 million, or 31%, of our NPLs are SNCs at March 31, 2019. The following table provides additional detail of our originated nonperforming loans and assets for the periods presented.

Table 18 – Originated Nonperforming Assets

	As of
(Recorded Investment in thousands)	March 31, 2019			December 31, 2018
Nonperforming loans ("NPLs"):
General C&I	$	34,459		$	24,103
Energy- E&P		7,876			14,485
- Midstream		6,003			6,227
Restaurant industry		21,869			22,042
Healthcare		4,449			4,496
Consumer		1,403			1,218
Small business		212			104
Total NPLs - originated portfolio		76,271			72,675
E&P - net profits interests		5,317			5,779
Foreclosed OREO		—			22
Total nonperforming assets ("NPAs") - originated portfolio	$	81,588		$	78,476
NPLs as a percentage of total loans		0.56	%		0.72	%

Other Real Estate Owned. Other real estate owned consists of properties acquired through foreclosure and unutilized bank-owned properties. These properties, as held for sale properties, are initially recorded at fair value, less estimated costs to sell, on the date of foreclosure (establishing a new cost basis for the property). Subsequent to the foreclosure date the OREO is maintained at the lower of cost or fair value. Any write-down to fair value required at the time of foreclosure is charged to the allowance for credit losses. Subsequent gains or losses on other real estate owned resulting from either the sale of the property or additional valuation allowances required due to further declines in fair value are reported in other noninterest expense.

The balance of foreclosed OREO was $2.9 million as of March 31, 2019, compared to $2.4 million as of December 31, 2018, with over 96% related to foreclosures resulting from our ACI loan portfolio. As of March 31, 2019 and December 31, 2018, there had been no additions to OREO resulting from foreclosure or repossession from a shared national credit. In the second and fourth quarters of 2016, we received net profits interests (“NPIs”) in certain oil and gas reserves related to two energy credit bankruptcies that were charged-off in 2016. The Company recorded the NPIs at estimated fair value using a discounted cash flow analysis applied to the expected cash flows from the producing developed wells. We sold one NPI during 2018. The balance of the remaining NPI is $5.3 million as of March 31, 2019 compared to $5.8 million as of December 31, 2018.

Past Due 90 Days and Accruing. We classify certain loans with principal or interest past due 90 days or more as accruing loans if those loans are well secured and in the process of collection or are specifically determined to be impaired as accruing loans. The bulk of the accruing 90 days or more past due loans reside in the ACI portfolio. These loans are monitored on a monthly basis by both the lines of business and credit administration. As of March 31, 2019, there was one SNC that was 90 days or more past due and accruing, totaling $12.2 million.

Troubled Debt Restructuring. We attempt to work with borrowers when necessary to extend or modify loan terms to better align with the borrower’s ability to repay. Extensions and modifications to loans are made in accordance with internal pol icies and guidelines which conform to regulatory guidance. Each occurrence is unique to the borrower and is evaluated separately. The Bank considers regulatory guidelines when restructuring loans to ensure that prudent lending practices are followed. Quali fying criteria and payment terms are structured by the borrower’s current and prospective ability to comply with the modified terms of the loan.

A modification is classified as a troubled debt restructuring (a “TDR”) if the borrower is experiencing financial difficulty and it is determined that we have granted a concession to the borrower. We may determine that a borrower is experiencing financial difficulty if the borrower is currently in default on any of its debt, or if it is probable that a borrower may default in the foreseeable future without the modification. Concessions could include reductions of interest rates at a rate lower than the current market rate for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, principal forgiveness, forbearance, or other concessions. The assessments of whether a borrower is experiencing or will likely experience financial difficulty and whether a concession has been granted is highly subjective in nature, and management’s judgment is required when determining whether a modification is classified as a TDR.

All TDRs are reported as impaired. An impaired classification may be removed if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. Nonperforming loans and impaired loans have unique definitions. Some loans may be included in both categories, whereas other loans may only be included in one category. As of March 31, 2019, there were two SNCs totaling $18.0 million designated as a TDRs. The following table summarizes TDR activity for the periods indicated:

Table 19 - Originated Loans and ANCI Loans that were modified into TDRs

	For the Three Months Ended March 31,
	2019				2018
(In thousands)	Number of TDRs		Recorded Investment		Number of TDRs		Recorded Investment
Commercial and Industrial		1	$	24,369		—	$	—
Total		1	$	24,369		—	$	—

There were no TDRs experiencing payment default during the three months ended March 31, 2019 and 2018.

ACI Loans that were modified into TDRs . There were no ACI loans modified in a TDR for the three months ended March 31, 2019 or 2018.

Potential Problem Loans. Potential problem loans represent loans that are currently performing, but for which known information about possible credit problems of the related borrowers causes management to have doubts as to the ability of such borrowers to comply with the present loan repayment terms and which may result in disclosure of such loans as nonperforming at some time in the future. These loans are not included in the amounts of nonaccrual or restructured loans presented above. We cannot predict the extent to which economic conditions or other factors may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become 90 days or more past due, be placed on nonaccrual status, become restructured, or require increased allowance coverage and provision for credit losses. We have identified three borrowers with credits totaling $37.9 million as potential problem loans at March 31, 2019. The borrowers are in the general C&I, Restaurant, and Energy portfolios, and the Restaurant and Energy credits are SNCs.

We expect the levels of nonperforming assets and potential problem loans to fluctuate in response to changing economic and market conditions, and the relative sizes of the respective loan portfolios, along with our degree of success in resolving problem assets. We seek to take a proactive approach with respect to the identification and resolution of problem loans.

Allowance for Credit Losses

The allowance for credit losses (“ACL”) is maintained at a level that management believes is adequate to absorb all probable losses inherent in the loan portfolio as of the reporting date. Events that are not within the Company’s control, such as changes in economic factors, could change subsequent to the reporting date and could cause increases or decreases to the ACL. The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for credit losses charged to earnings, which increases the allowance. In determining the provision for credit losses, management monitors fluctuations in the ACL resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio considering current and anticipated economic conditions (see Notes 1 and 4 to the Consolidated Financial Statements). This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.

Total ACL for the period ending March 3 1 , 201 9 was $ 105.0 million , or 0. 77 % of total loans (net of unearned discounts and fees) of $ 13 . 6 billion . This compares with $ 94.4 million, or 0.94 % of total loan s of $ 10. 1 billion at December 31, 201 8 . The decline in the percentage of the ACL to total loans is due to the inclusion of the State Bank loan portfolio at fair value, which results in no ACL recorded for those loans at the merger date . The State Bank merger increased the ANCI portfolio significantly. The following tables present the allocation of the allowance for credit losses and the percentage of these loans to total loans. The allocation below is neither indicative of the specific a mounts or the loan categories in which future charge-offs may occur, nor is it an indicator of any future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb any losses in any category.

Table 20 –Allocation of the ACL

	Allowance for Credit Losses				Percent of ACL to Each Category of Loans						Percent of Loans in Each Category to Total Loans
(In thousands)	March 31, 2019		December 31, 2018		March 31, 2019			December 31, 2018			March 31, 2019			December 31, 2018
Originated Loans
Commercial and industrial	$	75,136	$	65,965		1.19	%		1.08	%		46.19	%		60.65	%
Commercial real estate		8,975		8,758		0.72			0.70			9.11			12.51	%
Consumer		8,098		6,937		0.41			0.37			14.57			18.81	%
Small business		4,178		3,742		1.53			1.45			1.99			2.56	%
Total originated loans		96,387		85,402		0.98			0.90			71.87			94.54	%
ANCI Loans
Commercial and industrial		301		293		0.03			0.61			8.06			0.48	%
Commercial real estate		77		53		0.01			0.68			10.73			0.08	%
Consumer		564		541		0.11			0.19			3.73			2.81	%
Small business		175		165		0.04			1.89			3.39			0.09	%
Total ANCI		1,117		1,052		0.03			0.30			25.92			3.45	%
ACI Loans
Commercial and industrial		89		58		0.21			0.35			0.31			0.17	%
Commercial real estate		1,417		1,641		1.30			2.51			0.80			0.65	%
Consumer		6,028		6,225		4.59			5.14			0.96			1.20	%
Small business		—		—		—			—			—			—
Total ACI		7,534		7,924		2.48			3.90			2.22			2.02	%
Total Loans
Commercial and industrial		75,526		66,316		1.01			1.08			54.57			61.29	%
Commercial real estate		10,469		10,452		0.37			0.79			20.64			13.24	%
Consumer		14,690		13,703		0.56			0.60			19.25			22.82	%
Small business		4,353		3,907		0.57			1.47			5.53			2.65	%
Total allowance for credit losses	$	105,038	$	94,378		0.77	%		0.94	%		100.00	%		100.00	%

Originated ACL. The ACL on our originated loan portfolio totaled $96.4 million, or 0.98% on loans of $9.8 billion as of March 31, 2019 compared to $85.4 million, or 0.90% on loans of $9.5 billion as of December 31, 2018. The primary driver of the originated ACL is the net new loan growth as well as the underlying credit quality of the loans. Our originated and ANCI loan portfolios are divided into commercial and consumer segments for allowance estimation purposes. The commercial allowance estimate is driven by loan level risk ratings. The consumer allowance estimate uses pool level historical loss rates assigned based on certain credit attributes.

As March 31, 2019, $75.1 million, or 78.0% of our originated ACL is attributable to our C&I loan segment compared to $66.0 million, or 77.2%, as December 31, 2018. The ACL as a percentage of the C&I portfolio has remained steady at 1.2%, with an increase of $9.2 million as of March 31, 2019 since December 31, 2018. The increase in the level of ACL on the C&I portfolio as of March 31, 2019 from December 31, 2018 is the result of loan growth and additional provision of approximately $7.2 million on specific credits within the energy, restaurant and general C&I segments.

The level of criticized and classified loans in the Originated C&I portfolios are presented in the following tables.

Table 2 1 – Originated Criticized and Classified C&I Loans

	As of March 31, 2019
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized
General C&I	$	72,333	$	65,174	$	9,916	$	147,423
Energy Sector		—		22,172		7,876		30,048
Restaurant industry		36,216		25,886		—		62,102
Healthcare		—		4,449		—		4,449
Total	$	108,549	$	117,681	$	17,792	$	244,022

	As of December 31, 2018
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized
General C&I	$	74,592	$	76,056	$	—	$	150,648
Energy Sector		11,812		6,227		14,486		32,525
Restaurant industry		24,449		26,171		—		50,620
Healthcare		—		4,496		—		4,496
Total	$	110,853	$	112,950	$	14,486	$	238,289

As of March 31, 2019, $9.0 million, or 9.3% of our originated ACL is attributable to the CRE loan segment compared to $8.8 million, or 10.3%, as of December 31, 2018. The ACL as a percentage of the CRE portfolio has increased to 0.72% as of March 31, 2019 from 0.70% as of December 31, 2018.

In addition to quantitative elements, certain qualitative and environmental factors are also considered at management’s discretion, which are generally based on a combination of internal and external factors and trends. At March 31, 2019, these factors totaled $17.6 million and accounted for approximately 18.3% of the originated ACL compared to $19.7 million, or 23.1%, as of December 31, 2018, with the most significant considerations being reduced qualitative adjustments in C&I related to the volatility of indices used to measure collateral and oil and gas prices; these reduced qualitative adjustments were partially offset by an increase in the qualitative adjustments related to a certain macroeconomic factors. At March 31, 2019, the qualitative factors were allocated to various segments of the portfolio as follows: approximately $1.2 million to CRE, $2.0 million to Energy, $10.8 million to C&I and $3.6 million to Consumer .

As of March 31, 2019, and December 31, 2018, $23.0 million, or 23.8% and $21.1 million, or 24.7%, respectively, of the total originated ACL, was attributable to SNCs. The ACL is estimated based on the underlying credit quality of the loan, primarily based on its probability of default and loss given default. This methodology is consistent whether or not a loan is a SNC.

The following table includes the charge-off and recoveries on our originated portfolio for the periods presented:

Table 22 – Originated Charge-offs and Recoveries

	Originated Charge-offs and Recoveries
		Three Months Ended March 31,
(In thousands)		2019		2018
Charge-offs:
Commercial and industrial		$	461	$	58
Commercial real estate			64		—
Consumer			199		296
Small business			158		453
Total charge-offs			882		807
Recoveries:
Commercial and industrial			279		5
Commercial real estate			-		5
Consumer			8		68
Small business			1		21
Total recoveries			288		99
Net charge-offs		$	594	$	708

ANCI ACL. The ACL on our ANCI loans totaled $1.1 million on $ 3.5 billion in loans, or 0.03 %, compared to $1. 1 million on $ 34 9 . 3 million in loans, or 0. 30 %, at December 31, 2018 . ANCI loans were recorded at fair value at the date of each acquisition and are pooled for ACL assessment based on risk segment . The State Bank merger added approximately $3.2 billion in loan balances to the ANCI portfolio (See Table 14). Any net shortage of credit mark indicates the need for an allo wance on that segment of loans with certain loans individually reviewed for specific impairment.

ACI ACL. The ACL on our ACI loans totaled $7.5 million on $303.8 million in loans, or 2.48%, at March 31, 2019, compared to $7.9 million on $203.3 million in loans, or 3.90% at December 31, 2018. At the time of our acquisitions, we estimated the fair value of the total ACI loan portfolio by segregating the portfolio into loan pools with similar characteristics and certain specifically-reviewed non-homogeneous loan. Our recent merger with State Bank added approximately $96 million in ACI loans to our portfolio (See “Note 2 – Business Combination” to the Unaudited Consolidated Financial Statements).

Expected cash flows are re-estimated quarterly utilizing the same cash flow methodology used at the time of each acquisition. Any subsequent decreases to the expected cash flows generally result in a provision for credit losses. Conversely, subsequent increases in expected cash flows result first in the reversal of any impairment, then in a transfer from the non-accretable discount to the accretable discount, which would have a positive impact on accretion income prospectively. These cash flow evaluations are inherently subjective, as they require material estimates, all of which may be susceptible to significant change.

The largest component of our ACI ACL is attributable to our consumer category, primarily first and second-lien residential loans, that represents 80.0% of the ACI ACL at March 31, 2019 compared to 78.6% of the ACI ACL at December 31, 2018. This component of the ACL has declined $0.2 million to $6.0 million since December 31, 2018 due to impairment reversals largely driven by loan pay-offs.

The commercial real estate component comprises 18.8% of the ACI ACL at March 31, 2019 and has decreased $0.2 million to $1.4 million since December 31, 2018.

The following table summarizes certain information with respect to our ACL on the total loan portfolio and the composition of charge-offs and recoveries for the periods indicated. Subsequent tables present this information separately for the originated, ANCI and ACI portfolios:

Table 23 – Allowance for Credit Losses Loans Roll-forward

	Total Loans
	Three Months Ended						Year Ended
	March 31,						December 31,
(In thousands)	2019			2018			2018
Allowance for credit losses at beginning of period	$	94,378		$	87,576		$	87,576
Charge-offs		(938	)		(812	)		(8,045	)
Recoveries		388			393			2,147
Provision for credit losses		11,210			4,380			12,700
Allowance for credit losses at end of period	$	105,038		$	91,537		$	94,378

Loans at end of period, net of unearned income	$	13,624,954		$	8,646,987		$	10,053,923
Average loans, net of unearned income		13,798,386			8,443,981			9,116,602
Ratio of ending allowance to ending loans		0.77	%		1.06	%		0.94	%
Ratio of net charge-offs to average loans ⁽¹⁾		0.02			0.02			0.06
Net charge-offs as a percentage of:
Provision for credit losses		4.91			9.57			46.44
Allowance for credit losses ⁽¹⁾		2.12			1.86			6.25
Allowance for credit losses as a percentage of nonperforming loans		135.21			175.30			127.12

(1)

Annualized for the three months ended March 31, 2019 and 2018.

	Originated Loans
	Three Months Ended						Year Ended
	March 31,						December 31,
(In thousands)	2019			2018			2018
Allowance for credit losses at beginning of period	$	85,402		$	77,656		$	77,656
Charge-offs		(882	)		(807	)		(7,894	)
Recoveries		288			99			1,581
Provision for credit losses		11,579			5,038			14,059
Allowance for credit losses at end of period	$	96,387		$	81,986		$	85,402

Loans at end of period, net of unearned income	$	9,822,655		$	8,212,221		$	9,503,685
Ratio of ending allowance to ending loans		0.98	%		1.00	%		0.90	%
Net charge-offs as a percentage of:
Provision for credit losses		5.13			14.05			44.90
Allowance for credit losses ⁽¹⁾		2.50			3.50			7.39
Allowance for credit losses as a percentage of nonperforming loans		126.37			164.40			117.51

(1)

Annualized for the three months ended March 31, 2019 and 2018.

	ANCI Loans
	Three Months Ended						Year Ended
	March 31,						December 31,
(In thousands)	2019			2018			2018
Allowance for credit losses at beginning of period	$	1,052		$	1,396		$	1,396
Charge-offs		(56	)		(5	)		(151	)
Recoveries		100			211			394
Provision for credit losses		21			(413	)		(587	)
Allowance for credit losses at end of period	$	1,117		$	1,189		$	1,052

Loans at end of period, net of unearned income	$	3,498,516		$	185,276		$	346,963
Ratio of ending allowance to ending loans		0.03	%		0.64	%		0.30	%
Net charge-offs (recoveries) as a percentage of:
Provision for credit losses		(209.52	)		49.88			41.40
Allowance for credit losses ⁽¹⁾		(15.98	)		(70.26	)		(23.10	)
Allowance for credit losses as a percentage of nonperforming loans		79.11			50.68			67.18

(1)

Annualized for the three months ended March 31, 2019 and 2018.

	ACI Loans
	Three Months Ended						Year Ended
	March 31,						December 31,
(In thousands)	2019			2018			2018
Allowance for credit losses at beginning of period	$	7,924		$	8,524		$	8,524
Charge-offs		—			—			-
Recoveries		—		83				172
Provision for credit losses		(390	)		(245	)		(772	)
Allowance for credit losses at end of period	$	7,534		$	8,362		$	7,924

Loans at end of period, net of unearned income	$	303,783		$	249,490		$	203,275
Ratio of ending allowance to ending loans		2.48	%		3.35	%		3.90	%
Net charge-offs (recoveries) as a percentage of:
Provision for credit losses		—			33.88			22.28
Allowance for credit losses ⁽¹⁾		—			(4.03	)		(2.17	)
Allowance for credit losses as a percentage of nonperforming loans	NM			NM			NM

(1)

Annualized for the three months ended March 31, 2019 and 2018.

NM – Not Meaningful

Deposits. Deposits at March 31, 2019 totaled $14.2 billion as compared to $10.7 billion at December 31, 2018. The increase in deposits is due to the merger with State Bank. Our strategy is to fund asset growth primarily with customer deposits in order to maintain a stable liquidity profile and a more competitive cost of funds. We categorize deposits as brokered and non-brokered consistent with the banking industry. The following table illustrates the growth in our deposits during the periods indicated:

Table 24 –Deposits


					Percent to Total						Percentage Change
(In thousands)	March 31, 2019		December 31, 2018		March 31, 2019			December 31, 2018			2019 vs 2018
Noninterest-bearing demand	$	3,210,321	$	2,454,016		22.6	%		22.9	%		30.8	%
Interest-bearing demand		7,671,308		5,727,026		54.0			53.4			34.0
Savings		249,347		170,910		1.8			1.6			45.9
Time deposits less than $100,000		1,374,151		1,119,270		9.7			10.5			22.8
Time deposits greater than $100,000		1,694,096		1,237,467		11.9			11.6			36.9
Total deposits	$	14,199,223	$	10,708,689		100.0	%		100.0	%		32.6	%

Total brokered deposits included in the amounts above	$	855,717	$	1,037,474		6.0	%		9.7	%		(17.5	)%

Domestic time deposits $250,000 and over were $651.0 million and $491.3 million at March 31, 2019 and December 31, 2018, respectively, which represented 4.6% of total deposits at March 31, 2019, and December 31, 2018, respectively.

The following tables set forth our average deposits and the average rates expensed for the periods indicated:

Table 25 –Average Deposits/Rates

	Three Months Ended March 31,
	2019					2018
	Average		Average			Average		Average
	Amount		Rate			Amount		Rate
(In thousands)	Outstanding		Paid			Outstanding		Paid
Noninterest-bearing demand	$	3,334,399		—	%	$	2,128,595		—	%
Interest-bearing deposits:
Interest-bearing demand		8,011,001		1.48			4,795,114		0.76
Savings		248,651		0.37			179,662		0.26
Time deposits		2,985,720		2.33			1,909,019		1.59
Total interest-bearing deposits		11,245,372		1.68			6,883,795		0.98
Total average deposits	$	14,579,771		1.30	%	$	9,012,390		0.75	%

Borrowings

The following is a summary of our borrowings for the periods indicated:

Table 26 –Borrowings


(In thousands)	March 31, 2019		December 31, 2018
Securities sold under repurchase agreements	$	1,418	$	1,106
Advances from FHLB		395,000		150,000
Senior debt		184,822		184,801
Subordinated debt		98,963		98,910
Junior subordinated debentures		37,075		36,953
Total borrowings	$	717,278	$	471,770
Average total borrowings - YTD	$	554,281	$	565,658

On March 29, 2019, we entered into a credit agreement for a revolving loan facility in the amount of $100 million. The proceeds of the revolving loans shall be used to finance general corporate purposes. There were no amounts outstanding under this line of credit at March 31, 2019. Although the Credit Facility is unsecured, we agreed not to sell, pledge or transfer any part of its right, title or interest in its subsidiary bank while the Credit Agreement is in place.

Shareholders’ Equity

As of March 31, 2019 and December 31, 2018, our ratio of shareholders’ equity to total assets was 13.2% and 11.3%, respectively, and we had tangible common equity ratios of 10.11% and 9.05%, respectively. Shareholder’s’ equity was $2.3 billion at March 31, 2019, an increase of $864.5 million from December 31, 2018. The first quarter 2019 increase resulted from common stock issued of $826.1 million in the State Bank merger (net of issuance costs), net income of $58.2 million and an increase of $60.8 million in other comprehensive income which resulted from increased fair values of derivatives and of securities. These items were partially offset by dividends of $22.7 million and the repurchase of 3.0 million common shares at an average price of $19.60 per share, or $58.8 million during the quarter as part of the share repurchase program announced in October 2018.

Regulatory Capital

We are subject to regulatory capital requirements that require us to maintain certain minimum common equity Tier 1 capital, Tier 1 leverage, Tier 1 risk-based, and total risk-based ratios. At March 31, 2019, our capital ratios exceeded these requirements. Our actual regulatory capital amounts and ratios at March 31, 2019 are presented in the following table:

Table 27 – Regulatory Capital Amounts/Ratios

	Consolidated Company					Bank
(In thousands)	Amount		Ratio			Amount		Ratio
March 31, 2019
Tier 1 leverage	$	1,717,530		10.0	%	$	1,889,679		11.1	%
Common equity tier 1 capital		1,717,530		10.4			1,839,679		11.2
Tier 1 risk-based capital		1,717,530		10.4			1,889,679		11.5
Total risk-based capital		1,959,393		11.9			2,020,268		12.3
Minimum requirement:
Tier 1 leverage		683,890		4.0			683,640		4.0
Common equity tier 1 capital		740,657		4.5			740,358		4.5
Tier 1 risk-based capital		987,543		6.0			987,144		6.0
Total risk-based capital		1,316,724		8.0			1,316,192		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A				854,551		5.0
Common equity tier 1 capital	N/A		N/A				1,069,406		6.5
Tier 1 risk-based capital		987,543		6.0			1,316,192		8.0
Total risk-based capital		1,645,905		10.0			1,645,240		10.0

Liquidity

Overview

We measure and seek to manage liquidity risk by a variety of processes, including monitoring the composition of our funding mix; monitoring financial ratios specifically designed to measure liquidity risk; maintaining a minimum liquidity cushion; and performing forward cash flow gap forecasts in various liquidity stress testing scenarios designed to simulate possible stressed liquidity environments. We attempt to limit our liquidity risk by setting board-approved concentration limits on sources of funds and limits on liquidity ratios used to measure liquidity risk, and maintaining adequate levels of on-hand liquidity. We use the following ratios to monitor and analyze our liquidity:

•

Total Loans to Total Deposits—the ratio of our outstanding loans to total deposits.

•

Non-Brokered Deposits to Total Deposits—the ratio of our deposits that are organically originated through commercial and branch activity to total deposits.

•

Brokered Deposits to Total Deposits—the ratio of our deposits generated through wholesale sources to total deposits.

•

Highly Liquid Assets to Uninsured Large Depositors—the ratio of cash and highly liquid assets to uninsured deposits with a current depository relationship greater than $10,000,000.

•

Wholesale Funds Usage—the ratio of our current borrowings and brokered deposits to all available wholesale sources with potential maturities greater than one day.

•

Wholesale Funds to Total Assets—the ratio of current outstanding wholesale funding to assets.

As of March 31, 2019, all of our liquidity measures were within our established guidelines.

The goal of liquidity management is to ensure that we maintain adequate funds to meet changes in loan demand or any deposit withdrawals. Additionally, we strive to maximize our earnings by investing our excess funds in securities and other assets. To meet our short-term liquidity needs, we seek to maintain a targeted cash position and have borrowing capacity through many wholesale sources including the FHLB, correspondent banks and the Federal Reserve Bank. To meet long-term liquidity needs, we additionally depend on the repayment of loans, sales of loans, term wholesale borrowings, brokered deposits and the maturity or sale of investment securities.

Maturities of Time Deposits

The aggregate amount of time deposits in denominations of $100,000 or more as of March 31, 2019 and December 31, 2018, was $1.69 billion and $1.24 billion, respectively.

At March 31, 2019, the weighted average maturity of time deposits greater than $100,000 was 9.2 months and scheduled maturities of time deposits greater than $100,000 were as follows:

Table 28 – Time Deposit Maturity Schedule

	March 31, 2019
(In thousands)	Amount		Average Interest Rate
Under 3 months	$	285,626		2.17	%
3 to 6 months		333,383		2.20
6 to 12 months		599,387		2.33
12 to 24 months		397,223		2.40
24 to 36 months		71,410		2.45
36 to 48 months		4,824		1.63
Over 48 months		2,243		1.74
Total	$	1,694,096		2.27	%

Cash Flow Analysis

Cash and cash equivalents

At March 31, 2019, we had $543.1 million cash and cash equivalents on hand, a decrease of $236.2 million, or 30.4%, over our cash and cash equivalents of $779.3 million at December 31, 2018. At March 31, 2019 our cash and cash equivalents comprised 3.1% of total assets compared to 6.1% at December 31, 2018. We monitor our liquidity position and increase or decrease our short-term liquid assets as necessary. The lower balance in cash and cash equivalents at March 31, 2019 is due to timing of net loan fundings and customer deposits at the end of the quarter.

2019 vs. 2018

As shown in the Condensed Consolidated Statements of Cash Flows, operating activities used $85.0 million in the three months ended March 31, 2019 compared to net cash provided of $72.8 million in the three months ended March 31, 2018. The decrease in operating funds during the three months ended March 31, 2019 was due the purchased option price of $127.8 million of a $4.0 billion notional interest rate collar offset by increases in net income and proceeds from the sale of held for sale loans.

Investing activities during the three months ended March 3 1 , 201 9 provided $315.1 m illion of net funds, primarily due to net cash received in the acquisition, sales and other cash flows from available for sale securities offset by net loan funding of $ 229.8 m illion. This compares to investing activities during the three months ended March 3 1 , 201 8 using $ 414.2 million of net funds, primarily due to net loan funding.

Financing activities during the three months ended March 31, 2019 used net funds of $466.3 million, due to an decrease in deposits of $606.1 million, repurchase of $58.8 million in our common stock, dividends of $22.7 million offset by an increase in FHLB borrowings of $245 million. The decrease in deposits in the quarter included a decline of core deposits of $424.4 million, which included $311.8 million that State Bank had on deposit with us at December 31, 2018 that were eliminated out of deposits, as well as cyclical deposit declines typical in the first quarter of the year. This compares to financing activities during the three months ended March 31, 2018 providing net funds of $27.3 million, resulting from an increase in deposits offset by dividends paid.

NON-GAAP FINANCIAL MEASURES

We identify “efficiency ratio,” “adjusted efficiency ratio”, “adjusted noninterest expense,” “adjusted noninterest income,” “adjusted operating revenue,” “tangible common equity,” “tangible common equity ratio,” “return on average tangible common equity,” “adjusted return on average tangible common equity,” “tangible book value per share,” “adjusted return on average assets,” “adjusted net income,” “adjusted net income allocated to common stock,” “adjusted net income available to common shareholders”, “adjusted diluted earnings per share” and “adjusted pre-tax pre-provision net earnings” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in effect in the United States in our statements of income, balance sheet or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures, ratios or statistical measures calculated using exclusively financial measures calculated in accordance with GAAP.

The non-GAAP financial measures that we discuss herein should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP. Moreover, the manner in which we calculate these non-GAAP financial measures may differ from that of other companies reporting measures with similar names, and, therefore, may not be comparable to our non-GAAP financial measures.

Efficiency ratio is defined as noninterest expenses divided by operating revenue, which is equal to net interest income plus noninterest income. Adjusted efficiency ratio is defined as adjusted noninterest expenses divided by adjusted operating revenue, which is equal to net interest income plus noninterest income, excluding certain non-routine income and expenses. We believe that these measures are important to many investors in the marketplace who wish to assess our performance versus that of our peers.

Our adjusted noninterest expenses represent total noninterest expenses net of any merger, restructuring, branch closing costs or other non-routine expense items. Our adjusted operating revenue is equal to net interest income plus noninterest income excluding gains and losses on sales of securities and other non-routine revenue items. In our judgment, the adjustments made to noninterest expense and operating revenue allow management and investors to better assess our performance by removing the volatility that is associated with certain other discrete items that are unrelated to our core business.

Tangible common equity is defined as total shareholders’ equity, excluding preferred stock, less goodwill and other intangible assets. We believe that this measure is important to many investors in the marketplace who are interested in changes from period to period in common shareholders’ equity exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing both common equity and assets while not increasing our tangible common equity or tangible assets.

The tangible common equity ratio is defined as the ratio of tangible common equity divided by total assets less goodwill and other intangible assets. We believe that this measure is important to many investors in the marketplace who are interested in relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to total assets.

Return on average tangible common equity is defined as net income divided by average tangible common equity. Adjusted return on average tangible common equity is defined as adjusted net income divided by average tangible common equity. We believe the most directly comparable GAAP financial measure is the return on average common equity.

Adjusted net income is defined as net income plus or minus total non-routine items, net of tax. Non-routine items include merger related expenses, secondary offering expenses, gain on sale of insurance assets, net securities gains, one-time tax charge related to Tax Reform, benefit of legacy loan bad debt deduction for tax and other non-routine expenses. We believe the most directly comparable GAAP financial measure is net income.

Tangible book value per share is defined as book value, excluding the impact of goodwill and other intangible assets, if any, divided by shares of our common stock outstanding.

Adjusted return on average assets is defined as adjus ted net income divided by average assets. We believe the most directly comparable GAAP financial measure is the return on average assets.

Adjusted net income allocated to common stock is defined as net income allocated to common stock plus total non-routine items. We believe the most directly comparable GAAP financial measure is net income allocated to common stock.

Adjusted diluted earnings per share is defined as adjusted net income allocated to common stock divided by diluted weighted average common shares outstanding. We believe the most directly comparable GAAP financial measure is diluted earnings per share.

Adjusted pre-tax, pre-provision net earnings is defined as income before taxes and provision for credit losses. We believe the most directly comparable GAAP financial measure is income before taxes.

Table 29 – Non-GAAP Financial Measures

	As of and for the Three Months Ended						As of and for the Year Ended
	March 31,						December 31,
(In thousands, except share and per share data)	2019			2018			2018
Efficiency ratio
Noninterest expenses (numerator)	$	113,440		$	61,939		$	258,301
Net interest income	$	169,289		$	91,111		$	387,741
Noninterest income		30,664			24,983			94,638
Operating revenue (denominator)	$	199,953		$	116,094		$	482,379
Efficiency ratio		56.73	%		53.35	%		53.55	%
Adjusted efficiency ratio
Noninterest expenses	$	113,440		$	61,939		$	258,301
Less: Merger related expenses		22,000			—			2,983
Less: Secondary offerings expenses		—			1,365			4,552
Plus: Specially designated bonuses		—			—			9,795
Less: Other non-routine expenses ⁽¹⁾		—			2,278			3,423
Adjusted noninterest expenses (numerator)	$	91,440		$	58,296		$	237,548
Net interest income	$	169,289		$	91,111		$	387,741
Noninterest income		30,664			24,983			94,638
Less: Gain on sale of insurance assets		—			—			4,871
Less: Securities (losses) gains, net		(12	)		12			(1,853	)
Adjusted noninterest income		30,676			24,971			91,620
Adjusted operating revenue (denominator)	$	199,965		$	116,082		$	479,361
Adjusted efficiency ratio		45.73	%		50.22	%		49.56	%
Tangible common equity ratio
Shareholders’ equity	$	2,302,823		$	1,357,103		$	1,438,274
Less: Goodwill and other intangible assets, net		(598,674	)		(327,247	)		(314,400	)
Tangible common shareholders’ equity		1,704,149			1,029,856			1,123,874
Total assets		17,452,911			10,999,382			12,730,285
Less: Goodwill and other intangible assets, net		(598,674	)		(327,247	)		(314,400	)
Tangible assets	$	16,854,237		$	10,672,135		$	12,415,885
Tangible common equity ratio		10.11	%		9.65	%		9.05	%
Tangible book value per share
Shareholders’ equity	$	2,302,823		$	1,357,103		$	1,438,274
Less: Goodwill and other intangible assets, net		(598,674	)		(327,247	)		(314,400	)
Tangible common shareholders’ equity	$	1,704,149		$	1,029,856		$	1,123,874
Common shares outstanding		128,762,201			83,625,000			82,497,909
Tangible book value per share	$	13.23		$	12.32		$	13.62

___________________

(1)

Other non-routine expenses for the first quarter of 2018 included $2.3 million of legal costs associated with litigation related to a pre-acquisition matter of a legacy acquired bank that has been resolved. Other non-routine expenses for the year ended December 31, 2018 included amounts incurred during the first quarter of 2018 as well as amounts related to the sale of the assets of our insurance company.

	As of and for the Three Months Ended						As of and for the Year Ended
	March 31,						December 31,
(In thousands, except share and per share data)	2019			2018			2018
Return on average tangible common equity
Average common equity	$	2,241,652		$	1,342,445		$	1,377,471
Less: Average intangible assets		(602,446	)		(327,727	)		(320,232	)
Average tangible common shareholders’ equity	$	1,639,206		$	1,014,718		$	1,057,239
Net income	$	58,201		$	38,825		$	166,261
Plus: Intangible asset amortization		4,628			607		$	2,112
Tangible net income	$	62,829		$	39,432		$	168,373
Return on average tangible common equity ⁽²⁾		15.54	%		15.76	%		15.73	%
Adjusted return on average tangible common equity
Average tangible common shareholders’ equity	$	1,639,206		$	1,014,718		$	1,057,239
Tangible net income	$	62,829		$	39,432		$	168,373
Non-routine items:
Plus: Merger related expenses		22,000			—			2,983
Plus: Secondary offerings expenses		—			1,365			4,552
Plus: Specially designated bonuses		—			—			9,795
Plus: Other non-routine expenses ⁽¹⁾		—			2,278			3,423
Less: Gain on sale of insurance assets		—			—			4,871
Less: Securities gains (losses), net		(12	)		12			(1,853	)
Tax expense:
Less: Benefit of legacy loan bad debt deduction for tax		—			—			5,991
Less: Income tax effect of tax deductible non-routine items		5,239			529			3,157
Total non-routine items, after tax		16,773			3,102			8,587
Adjusted tangible net income available to common shareholders	$	79,602		$	42,534		$	176,960
Adjusted return on average tangible common equity ⁽²⁾		19.69	%		17.00	%		16.74	%
Adjusted return on average assets
Average assets	$	17,634,267		$	10,922,274		$	11,498,013
Net income	$	58,201		$	38,825		$	166,261
Return on average assets		1.34	%		1.44	%		1.45	%
Net income	$	58,201		$	38,825		$	166,261
Total non-routine items, after tax		16,773			3,102			8,587
Adjusted net income	$	74,974		$	41,927		$	174,848
Adjusted return on average assets		1.72	%		1.56	%		1.52	%
Adjusted diluted earnings per share
Diluted weighted average common shares outstanding		130,549,319			84,674,807			84,375,289
Net income allocated to common stock	$	58,028		$	38,825		$	166,064
Total non-routine items, after tax		16,773			3,102			8,587
Adjusted net income allocated to common stock	$	74,801		$	41,927		$	174,651
Adjusted diluted earnings per share	$	0.57		$	0.50		$	2.07
Adjusted pre-tax, pre-provision net earnings
Income before taxes	$	75,303		$	49,775		$	211,378
Plus: Provision for credit losses		11,210			4,380			12,700
Plus: Total non-routine items before taxes		22,012			3,631			17,735
Adjusted pre-tax, pre-provision net earnings	$	108,525		$	57,786		$	241,813

___________________

(1)

For the year ended December 31, 2018, $3.4 million of other non-routine expenses included $1.1 million of expenses related to the sale of the assets of our insurance company and $2.3 million of legal costs associated with litigation related to a pre-acquisition matter of a legacy acquired bank that has been resolved.

(2)

Annualized for the three months ended March 31, 2019 and 2018.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the exposure to unanticipated changes in net interest earnings or changes in the fair value of financial instruments due to fluctuations in interest rates, exchange rates and equity prices. Our primary market risk is interest rate risk.

Interest Rate Risk (“IRR”) is the risk that changing market interest rates may lead to an unexpected decline in the Bank’s earnings or capital. The main causes of IRR are the differing structural characteristics of the balance sheet’s 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 and floors, 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 which 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 simulations that reflect various interest rate scenarios and the related impact on net interest income over specified periods of time. We refer to this process as asset/liability management, or “ALM”.

The primary objective of ALM is to seek to manage IRR and desired risk tolerance for potential fluctuations in net interest income (“NII”) throughout interest rate cycles, which we aim to achieve by maintaining a balance 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 categories to limit our exposure to 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 either an individual asset or liability category, or externally with interest rate contracts, such as interest rate swaps, caps and floors. See “—Interest Rate Exposures” for a more detailed discussion of our various derivative positions.

Our asset and liability management strategy is formulated and monitored by our Asset/Liability Management Committee (“ALCO”) in accordance with policies approved by the board of directors. The 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 investments and borrowings, and projected future transactions. The ALCO also establishes and approves pricing and funding decisions with respect to overall asset and liability composition. The ALCO reports regularly to our 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 Economic Value of Equity (“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 at a given month-end, as well as the cash flows generated by the new business we anticipate over a 36-month forecast horizon. Numerous assumptions are made in the modeling process, including balance sheet composition, the pricing, re-pricing and maturity characteristics of existing business and new business. Additionally, loan and investment prepayment, 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 IRR and because the Bank’s loan portfolio will be actively managed in the event of a change in interest rates, simulation results, including those discussed in “—Interest Rate Exposures” immediately below, are not intended as a forecast of the actual effect of a change in market interest rates on our net interest income or results of operations or indicative of management’s expectations of actual results in the event of a fluctuation in market interest rates.

Interest Rate Exposures

Based upon the current interest rate environment as of March 31, 2019, our net interest income simulation model projects our sensitivity to an instantaneous increase or decrease in interest rates was as follows:

Table 3 0 - Interest Rate Sensitivity

	Increase (Decrease)
(in millions)	Net Interest Income							Economic Value of Equity
Change (in Basis Points) in Interest Rates (12-Month Projection)	Amount			Percent				Amount			Percent
+ 200 BP	$	30.6			4.86		%	$	678.5			22.28		%
+ 100 BP		25.0			3.98				370.0			12.15
- 100 BP		(6.1	)		(0.98	)			(478.7	)		(15.72	)
- 200 BP		(14.3	)		(2.28	)			(1,134.8	)		(37.26	)

Based upon the current interest rate environment as of March 31, 2019, the following table reflects our sensitivity to a gradual increase or decrease in interest rates over a twelve-month period:

	Increase (Decrease)
(in millions)	Net Interest Income
Change (in Basis Points) in Interest Rates (12-Month Projection)	Amount			Percent
+ 200 BP	$	30.4			4.83		%
+ 100 BP		19.7			3.13
- 100 BP		(7.4	)		(1.18	)
- 200 BP		(15.4	)		(2.45	)

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, as well as non-parallel changes in the yield curve, 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 and floors, and other instruments to the extent appropriate, in accordance with regulations and our internal policy. We expect to use interest rate swaps, caps and floors as macro hedges against inherent rate sensitivity in our securities portfolio, our loan portfolio and our liabilities.

Positions for hedging purposes are undertaken primarily as a mitigation of three main areas of risk exposure: (1) mismatches between assets and liabilities; (2) prepayment and other option-type risks embedded in our assets, liabilities and off-balance sheet instruments; and (3) the mismatched commitments for mortgages and funding sources.

We currently intend to engage in only the following types of hedges: (1) those which synthetically alter the maturities or re-pricing characteristics of assets or liabilities to reduce imbalances; (2) those which enable us to transfer the IRR exposure involved in our daily busi ness activities; and (3) those which serve to alter the market risk inherent in our investment portfolio, mortgage pipeline, or liabilities and thus help us to match the effective maturities of the assets and liabilities.

Cash Flow Hedges. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company uses interest rate swaps, caps, floors and collars to manage overall cash flow changes related to IRR exposure on benchmark interest rate loans (1-Month LIBOR).

In June 2015 and March 2016, the Company entered into interest rate swap agreements with notional values totaling $982 million and $350 million, respectively, to manage overall cash flow changes related to IRR exposure on the 1-Month LIBOR rate indexed loans. The following is a detail of our cash flow hedges as of March 31, 2019:

Table 31 –Summary of Cash Flow Hedges

Effective Date

Maturity Date

Notional

Amount

(In Thousands)

Fixed Rate

Variable Rate

June 30, 2015

December 31, 2019

300,000

1.51

1 Month LIBOR

March 8, 2016

February 27, 2026

175,000

1.60

1 Month LIBOR

March 8, 2016

February 27, 2026

175,000

1.59

1 Month LIBOR

The following summarizes all derivative positions as of March 31, 2019:

Table 32 –Derivative Positions

	March 31, 2019							December 31, 2018
			Fair Value							Fair Value
(In thousands)	Notional Amount		Other Assets		Other Liabilities			Notional Amount		Other Assets		Other Liabilities
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate swaps	$	650,000	$	—	$	15,814	x	$	650,000	$	—	$	23,968
Commercial loan interest rate collars		4,000,000		169,277		—			—		—		—
Total derivatives designated as hedging instruments		4,650,000		169,277		15,814			650,000		—		23,968
Derivatives not designated as hedging instruments:
Commercial loan interest rate swaps		1,127,780		5,672		1,078			1,155,942		4,439		1,777
Commercial loan interest rate caps		112,194		176		176			88,430		239		239
Commercial loan interest rate floors		673,340		6,503		6,503			652,822		5,587		5,587
Commercial loan interest rate collars		80,000		128		128			80,000		96		96
Mortgage loan held for sale interest rate lock commitments		10,320		145		—			5,286		72		—
Mortgage loan forward sale commitments		4,069		14		—			1,959		5		—
Mortgage loan held for sale floating commitments		2,518		—		—			14,690		—		—
Foreign exchange contracts		50,552		372		372	x		46,971		698		683
Total derivatives not designated as hedging instruments		2,060,773		13,010		8,257			2,046,100		11,136		8,382
Total derivatives	$	6,710,773	$	182,287	$	24,071		$	2,696,100	$	11,136	$	32,350

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. Our policies require that institutional counterparties must be approved by our ALCO and all positions over and above the minimum transfer amounts are secured by marketable securities or cash.

ITEM 4. CONTROLS AND PROCEDURES

(a)	Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer have evaluated the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and are also designed to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

(b)	Internal Control Over Financial Reporting

Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the period ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Any control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are achieved. The design of a control system inherently has limitations, including the controls’ cost relative to their benefits. Additionally, controls can be circumvented. No cost-effective control system can provide absolute assurance that all control issues and instances of fraud, if any, will be detected.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company and its subsidiaries are from time to time subject to claims and litigation arising in the ordinary course of business. At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial condition or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

ITEM 1A. RISK FACTORS.

There have been no material changes to our risk factors previously disclosed under Item 1.A. of our Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITES AND USE OF PROCEEDS.

The following table presents information related to issuer purchases of equity securities during the first quarter of 2019:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Be Purchased Under Publicly Announced Plans or Programs
January 1-31, 2019		271,135	$	18.87		271,135	$	53,874,873
February 1-28, 2019		1,495,503	$	19.65		1,495,503	$	24,482,033
March 1-31, 2019		1,235,135	$	19.69		1,235,135	$	161,351

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit Number		Description of Exhibit

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

101		Interactive Financial Data

SIGNAT URES

Pursuant to the requirements 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.

		Cadence Bancorporation (Registrant)

Date: May 10, 2019		/s/ Paul B. Murphy
		Paul B. Murphy
		Chairman and Chief Executive Officer

Date: May 10, 2019		/s/ Valerie C. Toalson
		Valerie C. Toalson
		Executive Vice President and Chief Financial Officer

TABLE OF CONTENTS

Part I: Financi Item 1. Financial Statements Note 1 Summary Of Accounting Policies Note 2 Business Combination Note 3 Investment Securities Note 4 Loans and Allowance For Credit Losses Note 5 Goodwill and Other Intangible Assets Note 6 Derivatives Note 7 Leases Note 8 Deposits Note 9 Borrowed Funds Note 10 Other Noninterest Income and Other Noninterest Expense Note 11 Income Taxes Note 12 Earnings Per Common Share Note 13 Related Party Transactions Note 14 Regulatory Matters Note 15 Commitments and Contingent Liabilities Note 16 Concentrations Of Credit Note 17 Supplemental Cash Flow Information Note 18 Disclosure About Fair Values Of Financial Instruments Note 19 Segment Reporting Note 20 Equity-based Compensation Note 21 Accumulated Other Comprehensive Income (loss)Note 22 Variable Interest Entities and Other Investments Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualitative Item 4. Controls and Procedures Part II Other Information Part II Other Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securites and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

31.1 Certification of the Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002 32.1 Certification of the Chief Executive Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002 32.2 Certification of the Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002

CADE 10-Q Quarter ended March 31, 2019

Exhibits