Cadence Bank

The stable outlook reflects our expectation that over the next two years, Cadence will maintain financial metrics commensurate with similarly rated regional bank peers. We also expect loan losses will gradually rebound to more normal levels amid a weaker economy and funding ratios will deteriorate somewhat given higher interest rates and expected loan growth. We expect capital ratios to decline modestly over the next two years. We could lower the rating within the next two years if asset quality deteriorates substantially more than similarly rated peers or worse than historical averages, or if the bank has unforeseen and significant operational, legal, or regulatory issues. We view an upgrade as unlikely over the next two years given already appropriate peer comparisons.

...Cadence Bank has substantially enhanced its scale, diversified its loan portfolio, and expanded its geographic reach following its merger. With nearly $48 billion in total assets, Cadence operates more than 400 branches across nine southeastern states. Cadence has substantially integrated its operations since closing its transformational merger last year, and we do not expect major challenges. The bank has achieved some cost synergies, as highlighted by improvements in its adjusted noninterest expenses and adjusted efficiency ratio in recent quarters, and we expect further improvements next year. Cadence's loan performance has been strong and compares favorably to rated U.S. banks, but we expect gradual deterioration over the next two years. The ratio of adjusted nonperforming assets to customer loans and other real estate owned was 0.31% as of Sept. 30, 2022, by our calculation, which is much lower than the median of U.S. rated banks and down from 0.47% at year-end 2021. Thus far in 2022,...

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