Cadence Bancorporation (Form: 10-Q, Received: 05/15/2018 06:59:13)

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, 2018

☐	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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “accelerated filer”, “ large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

☐	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

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		83,625,000
Class		Outstanding as of May 15, 2018

Cadence Bancorporation

FORM 10-Q

For the Quarter Ended March 31, 2018

INDEX

PART I: FINANCIAL INFORMATION		3

ITEM 1.	FINANCIAL STATEMENTS	3

	Condensed Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017	3
	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2018 and 2017	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2017	5
	Unaudited Condensed Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2018	6
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	40

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	75

ITEM 4.	CONTROLS AND PROCEDURES	77

PART II: OTHER INFORMATION		78

ITEM 1.	LEGAL PROCEEDINGS	78

ITEM 1A.	RISK FACTORS	78

ITEM 2.	UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS	78

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	78

ITEM 4.	MINE SAFETY DISCLOSURES	78

ITEM 5.	OTHER INFORMATION	78

ITEM 6.	EXHIBITS	78

PART I: FINANCI AL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CADENCE BANCORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2018			December 31, 2017
(In thousands, except share data)	(Unaudited)
ASSETS
Cash and due from banks	$	130,704		$	238,707
Interest-bearing deposits with banks		281,297			482,568
Federal funds sold		4,695			9,536
Total cash and cash equivalents		416,696			730,811
Securities available-for-sale		1,246,005			1,257,063
Securities held-to-maturity (estimated fair value of $311 at December 31, 2017)		—			290
Equity securities with readily determinable fair values not held for trading		5,829			5,885
Other securities - FRB and FHLB stock		50,662			50,009
Loans held for sale		37,446			61,359
Loans		8,646,987			8,253,427
Less: allowance for credit losses		(91,537	)		(87,576	)
Net loans		8,555,450			8,165,851
Interest receivable		47,813			47,793
Premises and equipment, net		62,092			63,432
Other real estate owned		6,642			7,605
Cash surrender value of life insurance		108,393			108,148
Net deferred tax asset		41,342			30,774
Goodwill		317,817			317,817
Other intangible assets, net		9,430			10,223
Other assets		93,765			91,866
Total Assets	$	10,999,382		$	10,948,926
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits	$	2,040,977		$	2,242,765
Interest-bearing deposits		7,007,994			6,768,750
Total deposits		9,048,971			9,011,515
Securities sold under agreements to repurchase		1,298			1,026
Federal Home Loan Bank advances		150,000			150,000
Senior debt		184,700			184,629
Subordinated debt		98,746			98,687
Junior subordinated debentures		36,591			36,472
Other liabilities		121,973			107,541
Total liabilities		9,642,279			9,589,870
Shareholders' Equity:
Common Stock $0.01 par value, authorized 300,000,000 shares; 83,625,000 shares issued and outstanding at March 31, 2018 and December 31, 2017		836			836
Additional paid-in capital		1,037,493			1,037,040
Retained earnings		369,585			340,213
Accumulated other comprehensive loss ("OCI")		(50,811	)		(19,033	)
Total shareholders' equity		1,357,103			1,359,056
Total Liabilities and Shareholders' Equity	$	10,999,382		$	10,948,926

See accompanying notes to the unaudited condensed consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended March 31,
(In thousands, except per share data)	2018		2017
INTEREST INCOME
Interest and fees on loans	$	102,791	$	80,810
Interest and dividends on securities:
Taxable		5,118		4,301
Tax-exempt		3,266		3,414
Other interest income		1,918		1,094
Total interest income		113,093		89,619
INTEREST EXPENSE
Interest on time deposits		7,491		4,122
Interest on other deposits		9,139		5,643
Interest on borrowed funds		5,352		5,096
Total interest expense		21,982		14,861
Net interest income		91,111		74,758
Provision for credit losses		4,380		5,786
Net interest income after provision for credit losses		86,731		68,972
NONINTEREST INCOME
Service charges on deposit accounts		3,960		3,815
Other service fees		1,333		972
Credit related fees		3,577		2,747
Trust services revenue		5,015		5,231
Mortgage banking income		577		866
Investment advisory revenue		5,299		4,916
Securities gains, net		12		81
Other income		5,210		5,477
Total noninterest income		24,983		24,105
NONINTEREST EXPENSE
Salaries and employee benefits		37,353		34,267
Premises and equipment		7,591		6,693
Intangible asset amortization		792		1,241
Other expense		16,203		12,120
Total noninterest expense		61,939		54,321
Income before income taxes		49,775		38,756
Income tax expense		10,950		12,639
Net income	$	38,825	$	26,117
Weighted average common shares outstanding (Basic)		83,625,000		75,000,000
Weighted average common shares outstanding (Diluted)		84,674,807		75,672,750
Earnings per common share (Basic)	$	0.46	$	0.35
Earnings per common share (Diluted)	$	0.46	$	0.35

See accompanying notes to the unaudited condensed consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31,
(In thousands)	2018			2017
Net income	$	38,825		$	26,117
Other comprehensive loss, net of tax:
Net unrealized (losses) gains on securities available-for-sale:
Unrealized (losses) gains arising during the period (net of $7,030 and $(644) tax effect, respectively)		(23,392	)		1,112
Reclassification adjustments for gains realized in net income (net of $3 and $30 tax effect, respectively)		(9	)		(51	)
Net unrealized (losses) gains on securities available-for-sale		(23,401	)		1,061
Net unrealized losses on derivative instruments designated as cash flow hedges:
Unrealized losses arising during the period (net of $2,645 and $580 tax effect, respectively)		(8,633	)		(1,010	)
Reclassification adjustments for losses (gains) realized in net income (net of $(77) and $688 tax effect, respectively)		256			(1,179	)
Net change in unrealized losses on derivative instruments		(8,377	)		(2,189	)
Other comprehensive loss, net of tax		(31,778	)		(1,128	)
Comprehensive income	$	7,047		$	24,989

See accompanying notes to the unaudited condensed consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

			Additional								Total
	Common		Paid-in		Retained			Accumulated			Shareholders'
(In thousands)	Stock		Capital		Earnings			OCI			Equity
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 condensed consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
(In thousands)	2018			2017
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES	$	72,788		$	62,510
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale		(111,422	)		(101,087	)
Proceeds from sales of securities available-for-sale		64,536			84,696
Proceeds from maturities, calls and paydowns of securities available-for-sale		26,982			22,939
Proceeds from sale of commercial loans held for sale		3,500			9,925
Increase in loans, net		(397,496	)		(171,010	)
Purchase of premises and equipment		(2,347	)		(937	)
Proceeds from disposition of foreclosed property		2,529			1,295
Other, net		(460	)		(16,542	)
Net cash used in investing activities		(414,178	)		(170,721	)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits, net		37,456			(175,029	)
Net change in securities sold under agreements to repurchase		272			77
Advances from FHLB		—			360,000
Repayment of senior debt		—			(9,600	)
Cash dividends paid on common stock		(10,453	)		—
Net cash provided by financing activities		27,275			175,448
Net (decrease) increase in cash and cash equivalents		(314,115	)		67,237
Cash and cash equivalents at beginning of period		730,811			248,925
Cash and cash equivalents at end of period	$	416,696		$	316,162

See accompanying notes to the unaudited condensed consolidated financial statements.

CADENCE BANCORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Cadence Bancorporation (the “Company”) is a Delaware corporation and a bank holding company whose primary asset is its investment in its wholly owned subsidiary bank, Cadence Bank, N.A., a national banking association (the “Bank”).

Note 1—Summary of Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed 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, 2017. Operating results for the period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

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 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 20).

Certain amounts reported in prior years have been reclassified to conform to the 2018 presentation. These reclassifications did not materially impact the Company’s consolidated balance sheets or consolidated statements of income.

Nature of Operations

The Company’s subsidiaries include:

•

Town & Country Insurance Agency, Inc., dba Cadence Insurance—full service insurance agency

•

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 lending services in Georgia and full banking services in five southern states: Alabama, Florida, Mississippi, Tennessee, and Texas.

The Bank’s subsidiaries include:

•

Linscomb & Williams Inc. —financial advisory firm; and

•

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

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.

Recently Adopted Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (ASU 2014-09), which is intended to improve and converge the financial reporting requirements for revenue contracts with customers. Previous accounting guidance comprised broad revenue recognition concepts along with numerous industry-specific requirements. The new

guidance establishes a five-step model which entities must follow to recognize revenue and removes inconsistencies and weaknesses in existing guidance. Our major sources of revenue are from financial instruments that have be en excluded from the scope of the new standard (including loans, derivatives, debt and equity securities, etc.). The standard required us to change how we recognize certain recurring revenue streams within insurance commissions and fees and other categorie s of noninterest income. The adoption at January 1, 2018 of ASU 2014-09 did not have a material effect on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”. ASU 2016-1, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheets, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheets or the accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale. The adoption at January 1, 2018 of ASU 2016-01 resulted in an adjustment to retained earnings of $1.0 million at January 1, 2018 related to fair value measurement changes to equity securities and certain limited partnership investments (See Notes 2, 16 and 20).

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments”, in order to reduce current diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The adoption at January 1, 2018 of ASU 2016-15 did not have a material effect on the Company’s financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”, which introduces amendments that are intended to clarify the definition of a business to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are intended to narrow the current interpretation of a business. The adoption at January 1, 2018 of ASU No. 2017-01 did not have a material effect on the Company’s financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Costs,” to improve the presentation of net periodic pension cost and net periodic pos tretirement benefit cost. The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments also allow only the service cost component to be eligible for capitalization when applicable. The Company adopted the standard effective January 1, 2018 and did not have a material impact on the Company’s financial statements.

In May, 2017, the FASB issued ASU 2017-09, “Stock Compensation (Topic 718): Scope of Modification Accounting”, which clarifies when modification accounting should be applied to changes in terms or conditions of share-based payment awards. The amendments narrow the scope of modification accounting by clarifying that modification accounting should be applied to awards if the change affects the fair value, vesting conditions, or classification of the award. The amendments do not impact current disclosure requirements for modifications, regardless of whether modification accounting is required under the new guidance. The adoption of ASU 2017-09 at January 1, 2018 did not have a material effect on the Company’s financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 amends the hedge accounting recognition and presentation requirements in ASC 815 to improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities to better align the entity’s financial reporting for hedging relationships with those risk management activities and to reduce the complexity of and simplify the application of hedge accounting. The Company elected to early adopt the provisions of ASU 2017-12 at January 1, 2018 which did not have a material effect on the Company’s financial statements.

Pending 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. The ASU also requires companies to disclose in the footnotes to their financial statements information about the amount, timing, and uncertainty for the payments they make for the lease agreements. ASU 2016-02 will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company is evaluating the effect of adopting this new accounting guidance.

In June 2016, the FASB has issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The guidance is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments. The guidance 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. The guidance 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. The Company is evaluating the effect of adopting this new accounting guidance.

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 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, including 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 Company is currently assessing this pronouncement and it is not expected to have a material impact on the Company’s financial condition or results of operations.

Note 2—Securities

A summary of amortized cost and estimated fair value of securities, excluding equity securities with readily determinable fair values not held for trading, at March 31, 2018 and December 31, 2017 is as follows:

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2018
Securities available-for-sale:
U.S. Treasury securities	$	100,535	$	—	$	4,605	$	95,930
Obligations of U.S. government agencies		99,807		367		339		99,835
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS)
Residential pass-through:
Guaranteed by GNMA		99,529		261		2,248		97,542
Issued by FNMA and FHLMC		442,887		711		10,513		433,085
Other residential mortgage-backed securities		44,269		20		1,468		42,821
Commercial mortgage-backed securities		75,666		—		4,930		70,736
Total MBS		662,351		992		19,159		644,184
Obligations of states and municipal subdivisions		419,246		2,019		15,209		406,056
Total securities available-for-sale	$	1,281,939	$	3,378	$	39,312	$	1,246,005

(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2017
Securities available-for-sale:
U.S. Treasury securities	$	100,575	$	—	$	3,731	$	96,844
Obligations of U.S. government agencies		80,552		738		66		81,224
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS)
Residential pass-through:
Guaranteed by GNMA		106,461		676		1,110		106,027
Issued by FNMA and FHLMC		431,409		1,284		2,271		430,422
Other residential mortgage-backed securities		47,379		97		1,084		46,392
Commercial mortgage-backed securities		76,201		63		4,069		72,195
Total MBS		661,450		2,120		8,534		655,036
Obligations of states and municipal subdivisions		420,111		7,539		3,691		423,959
Total securities available-for-sale	$	1,262,688	$	10,397	$	16,022	$	1,257,063
Securities held-to-maturity:
Obligations of states and municipal subdivisions	$	290	$	21	$	—	$	311

The Company elected to reclassify the one held-to-maturity security as of December 31, 2017 to available-for-sale as of March 31, 2018 under the transition election guidance in ASC Topic 815.

The adoption of ASU 2016-01 resulted in a classification change of equity securities from securities available-for-sale to equity securities with readily determinable fair values not held for trading. The Company recorded an adjustment of $95 thousand to retained earnings for the adoption of the accounting principle.

The scheduled contractual maturities of securities available-for-sale and securities held-to-maturity at March 31, 2018 were as follows:

	Available-for-Sale
	Amortized		Estimated
(In thousands)	Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		109,319		104,751
Due after five years through ten years		15,984		15,994
Due after ten years		494,285		481,076
Mortgage-backed securities		662,351		644,184
Total	$	1,281,939	$	1,246,005

Gross gains and gross losses on sales of securities available for sale for the three months ended March 31, 2018 and 2017 are presented below. There were no other-than-temporary impairment charges included in gross realized losses for the three months ended March 31, 2018 and 2017. The specific identification method is used to reclassify gains and losses out of other comprehensive income at the time of sale.

	For the Three Months Ended March 31,
(In thousands)	2018		2017
Gross realized gains	$	12	$	81
Gross realized losses		—		—
Realized gains on sale of securities available for sale, net	$	12	$	81

Securities with a carrying value of $533.1 million and $507.3 million at March 31, 2018 and December 31, 2017, respectively, were pledged to secure public and trust deposits, FHLB borrowings, repurchase agreements and for other purposes as required or permitted by law.

The detail concerning securities classified as available-for-sale with unrealized losses as of March 31, 2018 and December 31, 2017 was as follows:

	Unrealized loss analysis
	Losses < 12 Months				Losses > 12 Months
			Gross				Gross
	Estimated		Unrealized		Estimated		Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses
March 31, 2018
U.S. Treasury securities	$	—	$	—	$	95,930	$	4,605
Obligations of U.S. government agencies		58,217		245		11,531		94
Mortgage-backed securities		403,703		9,022		174,381		10,137
Obligations of states and municipal subdivisions		171,740		3,892		127,466		11,317
Total	$	633,660	$	13,159	$	409,308	$	26,153

	Unrealized loss analysis
	Losses < 12 Months				Losses > 12 Months
			Gross				Gross
	Estimated		Unrealized		Estimated		Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses
December 31, 2017
U.S. Treasury securities	$	—	$	—	$	96,844	$	3,731
Obligations of U.S. government agencies		1,577		9		14,323		57
Mortgage-backed securities		306,274		1,490		172,324		7,044
Obligations of states and municipal subdivisions		2,601		22		134,870		3,669
Total	$	310,452	$	1,521	$	418,361	$	14,501

There were no securities classified as held-to-maturity with unrealized losses as of March 31, 2018 and December 31, 2017.

As of March 31, 2018 and December 31, 2017, approximately 84% and 58%, respectively, of the fair value of securities in the investment portfolio reflected an unrealized loss. As of March 31, 2018, there were 89 securities that had been in a loss position for more than twelve months, and 138 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 3—Loans and Allowan ce for Credit Losses

The following table presents total loans outstanding by portfolio segment and class of financing receivable as of March 31, 2018 and December 31, 2017. Outstanding balances also include Acquired Noncredit Impaired (“ANCI”) loans, originated loans and Acquired Credit Impaired (“ACI”) loans net of any remaining purchase accounting adjustments. Information about ACI loans is presented separately in the “Acquired Credit-Impaired Loans” section of this Note.

	As of
(In thousands)	March 31, 2018			December 31, 2017
Commercial and Industrial
General C&I	$	3,005,397		$	2,746,454
Restaurant industry		1,078,904			1,035,538
Energy sector		984,200			935,371
Healthcare		432,274			416,423
Total commercial and industrial		5,500,775			5,133,786
Commercial Real Estate
Income producing		1,076,067			1,082,929
Land and development		80,343			75,472
Total commercial real estate		1,156,410			1,158,401
Consumer
Residential real estate		1,721,819			1,690,814
Other		63,059			74,922
Total consumer		1,784,878			1,765,736
Small Business Lending		235,337			221,855
Total (Gross of unearned discount and fees)		8,677,400			8,279,778
Unearned discount and fees		(30,413	)		(26,351	)
Total (Net of unearned discount and fees)	$	8,646,987		$	8,253,427

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 and is subject to independent review by internal credit review, which also performs ongoing, independent review of the risk management process. 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 for the three months ended March 31, 2018 and 2017:

	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

	For the Three Months Ended March 31, 2017
(In thousands)	Commercial and Industrial			Commercial Real Estate		Consumer			Small Business		Total
As of December 31, 2016	$	54,688		$	10,103	$	13,265		$	4,212	$	82,268
Provision for loan losses		5,097			438		211			40		5,786
Charge-offs		(310	)		—		(241	)		—		(551	)
Recoveries		532			14		63			192		801
As of March 31, 2017	$	60,007		$	10,555	$	13,298		$	4,444	$	88,304

Allocation of ending ACL
Loans collectively evaluated for impairment	$	50,006		$	10,550	$	13,031		$	4,397	$	77,984
Loans individually evaluated for impairment		10,001			5		267			47		10,320
ACL as of March 31, 2017	$	60,007		$	10,555	$	13,298		$	4,444	$	88,304
Loans
Loans collectively evaluated for impairment	$	4,545,395		$	1,084,936	$	1,569,763		$	203,649	$	7,403,743
Loans individually evaluated for impairment		168,086			10,407		1,887			919		181,299
Loans as of March 31, 2017	$	4,713,481		$	1,095,343	$	1,571,650		$	204,568	$	7,585,042

Loans Held-for-sale

The Company had held-for-sale (“HFS”) loans totaling $37.4 million as of March 31, 2018 consisting of $34.9 million in commercial loans and $2.5 million in mortgage loans.

Impaired Originated and ANCI Loans Including TDRs

The following includes certain key information about individually impaired originated and ANCI loans as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017.

Originated and ANCI Loans Identified as Impaired

	As of March 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
General C&I	$	189	$	197	$	—	$	189	$	—
Energy sector		8,711		10,903		—		8,711		5
Total commercial and industrial		8,900		11,101		—		8,900		5
Consumer
Residential real estate		1,083		1,088		—		34		—
Other		277		276		—		—		—
Total consumer		1,360		1,364		—		34		—
Small Business Lending		239		695		—		239		—
Total	$	10,499	$	13,160	$	—	$	9,173	$	5
With allowance for credit losses recorded
Commercial and Industrial
General C&I	$	4,759	$	4,737	$	3	$	—	$	—
Energy sector		32,549		40,287		7,202		21,791		1,810
Restaurant industry		10,969		10,969		1,469		10,969		2,500
Total commercial and industrial		48,277		55,993		8,674		32,761		4,310
Consumer
Residential real estate		494		491		35		—		—
Other		103		103		—		—		—
Total consumer		597		594		35		—		—
Small Business Lending		186		463		22		55		—
Total	$	49,060	$	57,050	$	8,731	$	32,816	$	4,310

	As of December 31, 2017
(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	$	5,010	$	4,994	$	—	$	192	$	—
Energy sector		14,822		23,307		—		14,822		387
Total commercial and industrial		19,832		28,301		—		15,014		387
Consumer
Residential real estate		1,093		1,097		—		35		—
Other		416		415		—		—		—
Total consumer		1,509		1,512		—		35		—
Small Business Lending		249		695		—		249		—
Total	$	21,590	$	30,508	$	—	$	15,298	$	387
With allowance for credit losses recorded
Commercial and Industrial
Energy sector	$	39,857	$	43,416	$	8,353	$	28,000	$	402
Restaurant industry		11,017		10,969		106		—		2,500
Total commercial and industrial		50,874		54,385		8,459		28,000		2,902
Consumer
Residential real estate		496		494		36		—		—
Small Business Lending		650		921		27		60		—
Total	$	52,020	$	55,800	$	8,522	$	28,060	$	2,902

(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 $239 thousand for the three months ended March 31, 2018 compared to $403 thousand for the same period in 2017.

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 compared to $0.2 million for same period in 2017.

Average Recorded Investment in Impaired Originated and ANCI Loans

	Three Months Ended March 31,
(In thousands)	2018		2017
Commercial and Industrial
General C&I	$	4,979	$	12,455
Restaurant industry		10,993		—
Energy sector		47,969		126,370
Total commercial and industrial		63,941		138,825
Consumer
Residential real estate		1,583		1,164
Other		398		388
Total consumer		1,981		1,552
Small Business Lending		662		930
Total	$	66,584	$	141,307

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 abi lity 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. Current amendments to the accounting guidance preclude a creditor from using the effective interest rate test in the debtor’s guidance on restructuring of payables (ASC 470-60-55-10) when evaluating whether a restructuring constitutes 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.

There were no originated or ANCI loans modified into a TDR for the three months ended March 31, 2018. There was one commercial and industrial loan with a recorded investment of $196 thousand modified into a TDR by a rate concession for the three months ended March 31, 2017. There were no TDRs experiencing payment default during the three months ended March 31, 2018 and 2017.

Residential Mortgage Loans in Process of Foreclosure

Included in loans are $2.2 million and $4.4 million of consumer loans secured by single family residential real estate that are in process of foreclosure at March 31, 2018 and December 31, 2017, 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 $2.8 million of foreclosed single family residential properties in other real estate owned as of March 31, 2018 and $2.7 million as of December 31, 2017.

Credit Exposure in the Originated and ANCI Loan Portfolios

The following provides information regarding the credit exposure by portfolio segment and class of receivable as of March 31, 2018 and December 31, 2017:

	As of March 31, 2018
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
Commercial and Industrial
General C&I	$	93,231	$	42,693	$	—	$	135,924
Restaurant industry		42,028		10,969		—		52,997
Energy sector		11,889		62,309		6,767		80,965
Healthcare		—		68		—		68
Total commercial and industrial		147,148		116,039		6,767		269,954
Commercial Real Estate
Land and development		19		—		—		19
Total commercial real estate		19		—		—		19
Consumer
Residential real estate		7,529		10,933		—		18,462
Other		675		337		4		1,016
Total consumer		8,204		11,270		4		19,478
Small Business Lending		1,996		1,877		25		3,898
Total	$	157,367	$	129,186	$	6,796	$	293,349

	As of December 31, 2017
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
Commercial and Industrial
General C&I	$	80,550	$	47,324	$	—	$	127,874
Restaurant industry		4,536		12,506		—		17,042
Energy sector		—		99,979		7,634		107,613
Healthcare		—		71		—		71
Total commercial and industrial		85,086		159,880		7,634		252,600
Commercial Real Estate
Income producing		—		26		—		26
Land and development		20		—		—		20
Total commercial real estate		20		26		—		46
Consumer
Residential real estate		7,610		12,416		—		20,026
Other		673		356		4		1,033
Total consumer		8,283		12,772		4		21,059
Small Business Lending		3,480		1,375		27		4,882
Total	$	96,869	$	174,053	$	7,665	$	278,587

The following provides an aging of past due originated and ANCI loans by portfolio segment and class of receivable as of March 31, 2018 and December 31, 2017:

Aging of Past due Originated and ANCI Loans

	As of March 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	$	63	$	—	$	—	$	—	$	—	$	189	$	—
Restaurant industry		—		—		—		10,969		—		—		—
Energy sector		—		—		—		31,636		—		—		5,633
Healthcare		—		—		—		—		—		—		68
Total commercial and industrial		63		—		—		42,605		—		189		5,701
Commercial Real Estate
Income producing		2		—		—		—		—		—		—
Land and development		—		—		53		—		—		—		—
Total commercial real estate		2		—		53		—		—		—		—
Consumer
Residential real estate		3,756		542		280		1,172		445		258		1,276
Other		474		68		—		—		—		—		—
Total consumer		4,230		610		280		1,172		445		258		1,276
Small Business Lending		168		29		—		343		35		36		156
Total	$	4,463	$	639	$	333	$	44,120	$	480	$	483	$	7,133

	As of December 31, 2017
	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	$	59	$	—	$	476	$	—	$	192	$	—	$	—
Energy sector		—		—		—		32,315		—		—		10,507
Healthcare		—		—		—		—		71		—		—
Total commercial and industrial		59		—		476		32,315		263		—		10,507
Commercial Real Estate
Income producing		—		—		26		—		—		—		—
Land and development		55		—		—		—		—		—		—
Total commercial real estate		55		—		26		—		—		—		—
Consumer
Residential real estate		3,191		1,030		325		1,070		173		293		2,205
Other		532		3		—		—		—		—		—
Total consumer		3,723		1,033		325		1,070		173		293		2,205
Small Business Lending		931		328		—		110		38		—		494
Total	$	4,768	$	1,361	$	827	$	33,495	$	474	$	293	$	13,206

Acquired Credit Impaired (“ACI”) Loans

The following table presents total ACI loans outstanding by portfolio segment and class of financing receivable as of March 31, 2018 and December 31, 2017.

	As of
(In thousands)	March 31, 2018		December 31, 2017
Commercial and Industrial
General C&I	$	22,620	$	23,428
Healthcare		6,033		6,149
Total commercial and industrial		28,653		29,577
Commercial Real Estate
Income producing		77,554		79,861
Total commercial real estate		77,554		79,861
Consumer
Residential real estate		142,293		149,942
Other		990		1,180
Total consumer		143,283		151,122
Total	$	249,490	$	260,560

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, 2018 and 2017 were as follows:

Changes in Accretable Yield on ACI Loans

	For the Three Months Ended March 31,
(In thousands)	2018			2017
Balance at beginning of period	$	78,422		$	98,728
Maturities/payoff		(1,446	)		(1,769	)
Charge-offs		(13	)		(79	)
Foreclosure		(255	)		(798	)
Accretion		(5,192	)		(6,331	)
Reclass from nonaccretable difference due to increases in expected cash flow		4,558			3,364
Balance at end of period	$	76,074		$	93,115

Impaired ACI Loans and Pools Including TDRs

The following includes certain key information about individually impaired ACI loans and pooled ACI loans as of March 31, 2018 and December 31, 2017 and for the three months ended March 31, 2018 and 2017.

ACI Loans / Pools Identified as Impaired

	As of March 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	$	13,668	$	17,838	$	1,914	$	—	$	—
Commercial Real Estate		87,135		122,460		—		—		—
Consumer		23,018		26,887		6,448		—		—
Total	$	123,821	$	167,185	$	8,362	$	—	$	—

	As of December 31, 2017
	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	$	13,541	$	17,630	$	5	$	—	$	—
Commercial Real Estate		82,856		112,330		2,010		225		—
Consumer		18,603		22,064		6,509		—		—
Total	$	115,000	$	152,024	$	8,524	$	225	$	—

(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, 2018. In the three months ended March 31, 2017, there was one ACI loan modified into a TDR with a recorded investment of $954 thousand. There were no ACI TDRs experiencing payment default during the three months ended March 31, 2018 and 2017.

Credit Exposure in the ACI Portfolio

The following provides information regarding the credit exposure by portfolio segment and class of receivable as of March 31, 2018 and December 31, 2017:

ACI Loans by Risk Rating / Delinquency Stratification

Commercial and Industrial credit exposure on ACI loans, based on internal risk rating:

	As of
	March 31, 2018						December 31, 2017
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Special Mention		Substandard		Doubtful
Commercial and Industrial
General C&I	$	700	$	1,150	$	38	$	737	$	1,173	$	37
Healthcare		—		6,033		—		—		6,148		—
Total commercial and industrial		700		7,183		38		737		7,321		37
Commercial Real Estate
Income producing		1,708		5,642		—		2,179		6,515		—
Total commercial real estate		1,708		5,642		—		2,179		6,515		—
Consumer
Residential real estate		3,824		20,531		—		3,900		22,635		—
Other		104		324		—		114		417		—
Total consumer		3,928		20,855		—		4,014		23,052		—
Total	$	6,336	$	33,680	$	38	$	6,930	$	36,888	$	37

Consumer credit exposure on ACI loans, based on past due status:

	As of
	March 31, 2018				December 31, 2017
(Recorded Investment in thousands)	Residential Real Estate		Other		Residential Real Estate		Other
0 – 29 Days Past Due	$	133,543	$	1,318	$	139,662	$	1,356
30 – 59 Days Past Due		3,216		14		2,299		120
60 – 89 Days Past Due		1,898		61		2,496		62
90 – 119 Days Past Due		798		—		399		—
120 + Days Past Due		5,108		—		7,480		45
Total	$	144,563	$	1,393	$	152,336	$	1,583

Note 4—Goodwill and Other Intangible Assets

The following table summarizes the Company’s goodwill and other intangible assets at March 31, 2018 and December 31, 2017:

(In thousands)	March 31, 2018		December 31, 2017
Goodwill	$	317,817	$	317,817
Core deposit intangible, net of accumulated amortization of $38,493 and $38,091, respectively		1,193		1,595
Customer lists, net of accumulated amortization of $18,487 and $18,097, respectively		8,213		8,604
Trademarks		24		24
Total goodwill and intangible assets	$	327,247	$	328,040

Note 5—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 in 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 effective portion of the gain or loss related to the derivative instrument is recognized as a component of other comprehensive income and subsequently reclassified as interest income when the forecasted transaction affects income. The ineffective portion of the gain or loss is recognized immediately as noninterest income. The notional amounts and estimated fair values as of March 31, 2018 and December 31, 2017 were as follows:

	March 31, 2018						December 31, 2017
			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	$	1,032,000	$	—	$	32,481	$	1,032,000	$	—	$	21,394
Derivatives not designated as hedging instruments:
Commercial loan interest rate swaps		701,111		2,390		2,390		737,533		2,056		2,056
Commercial loan interest rate caps		183,744		270		270		186,290		153		153
Commercial loan interest rate floors		328,420		2,463		2,463		330,764		1,054		1,054
Mortgage loan held for sale interest rate lock commitments		9,740		110		—		6,119		50		—
Mortgage loan forward sale commitments		403		—		—		4,565		10		—
Mortgage loan held for sale floating commitments		14,111		—		—		11,800		—		—
Foreign exchange contracts		44,825		1,070		1,030		41,688		635		623
Total derivatives not designated as hedging instruments		1,282,354		6,303		6,153		1,318,759		3,958		3,886
Total derivatives	$	2,314,354	$	6,303	$	38,634	$	2,350,759	$	3,958	$	25,280

The Company is party to collateral support agreements with certain derivative counterparties. Such agreements require that the Company maintain collateral based on the fair values of derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral. At March 31, 2018 and December 31, 2017, the Company was required to post $27.6 million and $20.1 million, respectively, in cash or securities as collateral for its derivative transactions, which are included in “interest-bearing deposits in banks” on the Company’s consolidated balance sheets. The Company’s master agreements represent written, 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, terminate, 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.

Gain (loss) included in the consolidated statements of income related to derivative instruments for the three months ended March 31, 2018 and 2017 were as follows:

	For the Three Months Ended March 31,
	2018								2017
(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	$	(11,278	)	$	(333	)	$	—	$	(1,590	)	$	1,867	$	—
Derivatives not designated as hedging instruments:
Mortgage loan held for sale interest rate lock commitments	$	—		$	—		$	61	$	—		$	—	$	178
Foreign exchange contracts		—			—			508		—			—		470

Interest Rate Swap and Cap Agreements not designated as hedging derivatives

The Company enters into certain interest rate swap, floor and cap 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 or cap with a loan customer while at the same time entering into an offsetting interest rate swap or cap 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 swap and cap 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, 2018 and December 31, 2017.

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 to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans. 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 15, 2015

December 17, 2018

382,000

1.3250

1 Month LIBOR

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, $7.8 million of deferred net loss on derivatives in OCI at March 31. 2018 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 2018 or 2017 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 eight years as of March 31, 2018.

Note 6—Deposits

Domestic time deposits $250,000 and over were $401.9 million and $382.4 million at March 31, 2018 and December 31, 2017, respectively. There were no foreign time deposits at either March 31, 2018 or December 31, 2017.

Note 7—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.

Information concerning the Company’s securities sold under agreements to repurchase as of March 31, 2018 and December 31, 2017 is summarized as follows:

(In thousands)	March 31, 2018			December 31, 2017
Balance at period end	$	1,298		$	1,026
Average balance during the period		1,165			3,371
Average interest rate during the period		0.25	%		0.25	%
Maximum month-end balance during the period	$	1,298		$	6,286

Repurchase agreements are treated as collateralized financing obligations and are reflected as a liability in the consolidated balance sheets.

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 the Bank’s capital levels to support balance sheet growth. Details of the debt transactions are as follows:

(In thousands)	March 31, 2018			December 31, 2017
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 issuance cost and unamortized premium		(1,476	)		(1,606	)
Purchased 4.875% senior notes, due June 28, 2019		(10,078	)		(10,078	)
Total long-term debt	$	283,446		$	283,316

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 in order to maximize regulatory capital treatment. 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 and 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 and 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. The following is a list of junior subordinated debt:

(In thousands)	March 31, 2018			December 31, 2017
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		(14,028	)		(14,147	)
Total junior subordinated debentures	$	36,591		$	36,472

Advances from FHLB and Borrowings from FRB

FHLB advances are collateralized by deposits with the FHLB, FHLB stock and loans. FHLB advances were $150 million as of March 31, 2018 and December 31, 2017. The advances as of December 31, 2017 matured in January 2018. The advances as of March 31, 2018 are fixed rate and will mature in February 2019. Any advances are collateralized by $1.4 billion of commercial and residential real estate loans pledged under a blanket lien arrangement as of March 31, 2018.

As of March 31, 2018 and December 31, 2017, the FHLB has issued for the benefit of the Bank irrevocable letters of credit totaling $586.5 million and $386.5 million, respectively. The Bank has a $35 million 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 27, 2018 upon 45 days’ prior notice of non-renewal; otherwise it automatically extends for a successive one-year term. The Bank also has a $550 million irrevocable letter of credit to secure a large treasury management deposit. This letter of credit expires May 26, 2018 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, 2018 and December 31, 2017. Any borrowings from the FRB will be collateralized by $826.8 million in commercial loans pledged under a borrower-in-custody arrangement.

Note 8—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)	2018		2017
Other noninterest income
Insurance revenue	$	2,259	$	2,130
Bankcard fees		1,884		1,812
Income from bank owned life insurance policies		935		1,059
Other		132		476
Total other noninterest income	$	5,210	$	5,477

	Three Months Ended March 31,
(In thousands)	2018			2017
Other noninterest expenses
Net cost of operation of other real estate owned	$	(52	)	$	296
Data processing expense		2,365			1,696
Consulting and professional fees		2,934			1,139
Loan related expenses		255			280
FDIC Insurance		955			1,493
Communications		704			655
Advertising and public relations		341			345
Legal expenses		2,627			471
Other		6,074			5,745
Total other noninterest expenses	$	16,203		$	12,120

Note 9—Income Taxes

Income tax expense for the three months ended March 31, 2018 was $11.0 million compared to $12.6 million for the same period in 2017. The effective tax rate was 22.0% for the three months ended March 31, 2018 compared to 32.6% for the same period in 2017. The decrease in the effective tax rate for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily driven by the decrease in the statutory Federal tax rate established by The Tax Cuts and Jobs Act (“Tax Reform”) enacted on December 22, 2017.

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.

As a result of Tax Reform enacted on December 22, 2017, deferred taxes are based on the newly enacted U.S. federal statutory income tax rate of 21%. Deferred taxes as of March 31, 2017 are based on the previously enacted U.S. statutory federal income tax rate of 35%. The provisional amount recorded related to the remeasurement of the Company’s deferred tax asset was $19.0 million, which was recorded in the fourth quarter of 2017 as income tax expense. Based on the information available and our current interpretation of Tax Reform, the Company has made reasonable estimates of the impact from the reduction in the U.S. federal statutory rate on the remeasurement of the deferred tax asset. However, the Company’s deferred tax asset will continue to be evaluated in the context of Tax Reform, and may change as a result of evolving management interpretations, elections, and assumptions, as well as new guidance that may be issued by the Internal Revenue Service. Management expects to complete its analysis within the measurement period in accordance with SAB 118. Nonetheless, there has been no change to the provisional net tax benefit we recorded in the fourth quarter of 2017.

Note 10—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, 2018 and 2017.

	Three Months Ended March 31,
(In thousands, except per share data)	2018		2017
Net income	$	38,825	$	26,117
Weighted average common shares outstanding (Basic)		83,625,000		75,000,000
Weighted average restricted stock units		1,049,807		672,750
Weighted average common shares outstanding (Diluted)		84,674,807		75,672,750
Earnings per common share (Basic)	$	0.46	$	0.35
Earnings per common share (Diluted)	$	0.46	$	0.35

Note 11—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 loans and deposits as of March 31, 2018 and December 31, 2017 were insignificant.

Note 12—Regulatory Matters

The Bank is subject to the capital adequacy requirements of the OCC. The Company, as a bank holding company, is subject to the capital adequacy requirements of the Federal Reserve. Failure to meet minimum capital requirements can initiate 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. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgment by regulators about components, risk weightings, and other related factors.

The risk-based capital requirements of the Federal Reserve and the OCC define capital and establish minimum capital requirements in relation to assets and off-balance sheet exposure, adjusted for credit risk. The risk-based capital standards currently in effect are designed to make regulato ry capital requirements sensitive to differences in risk profiles among bank holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate relative risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The Federal Reserve, the FDIC and the OCC have issued guidelines governing the levels of capital that banks must maintain. The bank guidelines for the period as of March 31, 2018 specify capital tiers, which include the following classifications:

Capital Tiers	Tier 1 Capital to Average Assets (Leverage)	Common Equity Tier 1 to Risk - Weighted Assets (CET1)	Tier 1 Capital to Risk – Weighted Assets	Total Capital to Risk – Weighted Assets
Well capitalized	5% or above	6.5% or above	8% or above	10% or above
Adequately capitalized	4% or above	4.5% or above	6% or above	8% or above
Undercapitalized	Less than 4%	Less than 4.5%	Less than 6%	Less than 8%
Significantly undercapitalized	Less than 3%	Less than 3%	Less than 4%	Less than 6%
Critically undercapitalized		Tangible Equity / Total Assets less than 2%

The most recent notification from the OCC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (the prompt corrective action requirements are not applicable to the Company). The actual capital amounts and ratios for the Company and the bank as of March 31, 2018 and December 31, 2017 are presented in the following table and as shown, are above the thresholds necessary to be considered “well-capitalized”. Management believes there are no conditions or events that would change that classification in the foreseeable future.

	Consolidated Company					Bank
(In thousands)	Amount		Ratio			Amount		Ratio
March 31, 2018
Tier 1 leverage	$	1,120,451		10.6	%	$	1,225,079		11.6	%
Common equity tier 1 capital		1,081,809		10.4			1,175,079		11.3
Tier 1 risk-based capital		1,120,451		10.8			1,225,079		11.8
Total risk-based capital		1,311,834		12.6			1,342,433		12.9
The minimum amounts of capital and ratios established by banking regulators are as follows:
Tier 1 leverage	$	423,950		4.0	%	$	423,855		4.0	%
Common equity tier 1 capital		467,253		4.5			467,093		4.5
Tier 1 risk-based capital		623,004		6.0			622,790		6.0
Total risk-based capital		830,672		8.0			830,387		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A			$	529,818		5.0	%
Common equity tier 1 capital	N/A		N/A				674,689		6.5
Tier 1 risk-based capital	N/A		N/A				830,387		8.0
Total risk-based capital	N/A		N/A				1,037,984		10.0

	Consolidated Company					Bank
(In thousands)	Amount		Amount			Amount		Ratio
December 31, 2017
Tier 1 leverage	$	1,096,438		10.7	%	$	1,198,234		11.7	%
Common equity tier 1 (transitional)		1,058,888		10.6			1,149,181		11.5
Tier 1 risk-based capital		1,096,438		10.9			1,198,234		12.0
Total risk-based capital		1,283,561		12.8			1,311,376		13.1
The minimum amounts of capital and ratios established by banking regulators are as follows:
Tier 1 leverage	$	410,770		4.0	%	$	410,743		4.0	%
Common equity tier 1 (transitional)		450,951		4.5			450,874		4.5
Tier 1 risk-based capital		601,269		6.0			601,165		6.0
Total risk-based capital		801,691		8.0			801,553		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A			$	513,429		5.0	%
Common equity tier 1 (transitional)	N/A		N/A				651,262		6.5
Tier 1 risk-based capital	N/A		N/A				801,553		8.0
Total risk-based capital	N/A		N/A				1,001,941		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, 2018 and December 31, 2017, the required reserve balance with the Federal Reserve Bank was approximately $70.7 million and $70.9 million, respectively.

Note 13—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 letters of credit. Such financial instruments are recorded when they are funded. A summary of commitments and contingent liabilities at March 31, 2018 is as follows:

(In thousands)	March 31, 2018
Commitments to extend credit	$	3,413,043
Commitments to grant loans		238,624
Standby letters of credit		98,701
Performance letters of credit		29,178
Commercial letters of credit		2,926

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. 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, 2018 and 2017. The Company does not anticipate any significant future losses as a result of these transactions.

The Company makes investments in limited partnerships, including certain low income housing partnerships for which tax credits are received. As of March 31, 2018 and December 31, 2017, unfunded capital commitments totaled $22.6 million and $20.3 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 14—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 3 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 15—Supplemental Cash Flow Information

	For the Three Months Ended March 31,
(In thousands)	2018			2017
Cash paid during the year for:
Interest	$	19,217		$	12,776
Income taxes, net of refunds		(82	)		(219	)
Non-cash investing activities (at fair value):
Transfers of loans to other real estate	$	1,548		$	3,489
Transfers of commercial loans to loans held for sale		3,500			39,249

Note 16—Disclosure About Fair Values of Financial Instruments

The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires the Company to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:

•

Level 1 —Valuation is based upon quoted prices for identical instruments traded in active markets.

•

Level 2 —Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•

Level 3 —Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models, and similar techniques.

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, 2018 and December 31, 2017:

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
March 31, 2018
Investment securities available-for-sale:
U.S. Treasury securities	$	95,930	$	—	$	95,930	$	—
Obligations of U.S. government agencies		99,835		—		99,835		—
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS)
Residential pass-through:
Guaranteed by GNMA		97,542		—		97,542		—
Issued by FNMA and FHLMC		433,085		—		433,085		—
Other residential mortgage-backed securities		42,821		—		42,821		—
Commercial mortgage-backed securities		70,736		—		70,736		—
Total MBS		644,184		—		644,184		—
Obligations of states and municipal subdivisions		406,057		—		406,057		—
Total investment securities available-for-sale		1,246,006		—		1,246,006		—
Equity securities with readily determinable fair values not held for trading		5,829		5,829		—		—
Derivative assets		6,303		—		6,303		—
Net profits interests		14,295		—		—		14,295
Investments in limited partnerships		7,514		—		—		7,514
Total recurring basis measured assets	$	1,279,947	$	5,829	$	1,252,309	$	21,809
Derivative liabilities	$	38,634	$	—	$	38,634	$	—
Total recurring basis measured liabilities	$	38,634	$	—	$	38,634	$	—

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2017
Investment securities available-for-sale:
U.S. Treasury securities	$	96,844	$	—	$	96,844	$	—
Obligations of U.S. government agencies		81,224		—		81,224		—
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS)
Residential pass-through:
Guaranteed by GNMA		106,027		—		106,027		—
Issued by FNMA and FHLMC		430,422		—		430,422		—
Other residential mortgage-backed securities		46,392		—		46,392		—
Commercial mortgage-backed securities		72,195		—		72,195		—
Total MBS		655,036		—		655,036		—
Obligations of states and municipal subdivisions		423,959		—		423,959		—
Total investment securities available-for-sale		1,257,063		—		1,257,063		—
Equity securities with readily determinable fair values not held for trading		5,885		5,885		—		—
Derivative assets		3,985		—		3,985		—
Net profits interests		15,833		—		—		15,833
Total recurring basis measured assets	$	1,282,766	$	5,885	$	1,261,048	$	15,833
Derivative liabilities	$	25,307	$	—	$	25,307	$	—
Total recurring basis measured liabilities	$	25,307	$	—	$	25,307	$	—

There were no transfers between the Level 1 and Level 2 fair value categories during the three months ended March 31, 2018 and 2017.

Changes in Level 3 Fair Value Measurements

The tables below include a roll-forward of the condensed consolidated balance sheet amounts for the three months ended March 31, 2018 and 2017 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 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,
	2018			2017			2018			2017
(In thousands)	Net Profits Interests						Investments in Limited Partnerships
Beginning Balance	$	15,833		$	19,425		$	—		$	—
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 (losses) gains included in earnings		(869	)		(2,645	)		676			—
Contributions paid		—			—			225			—
Distributions received		(669	)		(230	)		(106	)		—
Balance at March 31	$	14,295		$	16,550		$	7,514		$	—
Net unrealized (losses) gains included in earnings relating to assets held at the end of the period	$	(869	)	$	(2,645	)	$	676		$	—

The fair value of the net profit interests in oil and gas reserves was estimated using discounted cash flow analyses applied to the expected cash flows from producing developed wells. Expected cash flows are derived from reports prepared by consulting engineers under established professional standards for the industry. These expected cash flow projections contain significant unobservable inputs regarding the net recoverable oil and gas reserves and forward-looking commodity prices discounted at a rate of 10%. Therefore, the fair value is subject to change based on these commodity markets. An increase of 5% in the discount rate would not produce a material change in the fair value of the net profits interest.

The adoption of ASU 2016-01 on January 1, 2018 resulted in certain investments in limited partnerships being estimated using the net asset value “NAV” practical expedient provided by the partnership as allowed by ASC 820 for an equity security without a readily determinable fair value. These investments are within Level 3 of the valuation hierarchy and are measured on a recurring basis. Prior to the adoption of the accounting standard, these investments were accounted for under the cost method. On January 1, 2018, an adjustment of $1.2 million was recorded to retained earnings to account for the adoption of the accounting principle.

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, 2018 and December 31, 2017, 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, 2018
Loans held for sale	$	37,446	$	—	$	37,446	$	—
Impaired loans, net of specific allowance		50,829		—		—		50,829
Other real estate		6,642		—		—		6,642
Total assets measured on a nonrecurring basis	$	94,917	$	—	$	37,446	$	57,471

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2017
Loans held for sale	$	61,359	$	—	$	61,359	$	—
Impaired loans, net of specific allowance		65,087		—		—		65,087
Other real estate		7,605		—		—		7,605
Total assets measured on a nonrecurring basis	$	134,051	$	—	$	61,359	$	72,692

The fair value of collateral-dependent impaired loans and OREO and the related fair value adjustments are generally based on unadjusted third-party appraisals. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs.

Nonrecurring fair value measurements of collateral dependent loans secured by oil and gas reserves and mineral rights are generally based on borrower provided or third-party reserve reports (which are reviewed by the Company’s engineering team) that utilize projected cash flows under current market conditions and include significant unobservable inputs. Projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Assets are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current prices with existing conventional equipment, operating methods and costs. The significant unobservable inputs used in these valuations have been developed through our contacts with oil and gas industry participants, asset management and workout professionals and approved by senior management.

Significant unobservable inputs used in Level 3 fair value measurements for financial assets measured at fair value on a nonrecurring basis at March 31, 2018 and December 31, 2017 are summarized below:

Quantitative Information about Level 3 Fair Value Measurements

(In thousands)

Carrying

Value

Valuation

Methods

Unobservable Inputs

Range

March 31, 2018

Impaired loans, net of specific allowance

50,829

Appraised value, as adjusted

Discount to fair value

0% - 50%

Discounted cash flow

Net recoverable oil and gas reserves and forward-looking commodity prices. Discount rate - 9% to 10%

0% - 7% ⁽¹⁾

Discounted cash flow

Discount rates - 3.1% to 6.8%

0% - 2% ⁽¹⁾

Estimated closing costs

10%

Other real estate

6,642

Appraised value, as adjusted

Discount to fair value

0% - 20%

Estimated closing costs

10%

(1) - Represents fair value as a percent of the unpaid principal balance.

Quantitative Information about Level 3 Fair Value Measurements

(In thousands)

Carrying

Value

Valuation

Methods

Unobservable

Inputs

Range

December 31, 2017

Impaired loans, net of specific allowance

65,087

Appraised value, as adjusted

Discount to fair value

0%-50%

Discounted cash flow

Net recoverable oil and gas reserves and forward-looking commodity prices. Discount rate - 9%

0% - 29% ⁽¹⁾

Discounted cash flow

Discount rates - 3.6% to 8.0%

0% - 1% ⁽¹⁾

Estimated

closing costs

10%

Other real estate

7,605

Appraised value, as adjusted

Discount of

fair value

0%-20%

Estimated

closing costs

10%

(1) - Represents fair value as a percent of the unpaid principal balance.

Determination of Fair Values

In accordance with ASC 820-10-35, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the consolidated balance sheets and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50.

Investment Securities . When quoted prices are available in an active market, securities are classified as Level 1. For securities reported at fair value utilizing Level 2 inputs, the Company obtains fair value measurements from an independent pricing service. These fair value measurements consider observable market data that may include benchmark yield curves, reported trades, broker/dealer quotes, issuer spreads and credit information, among other inputs.

Loans Held for Sale . Loans held for sale are recorded at the lower of aggregate cost or fair value. Fair value is generally based on quoted market prices of similar loans and is considered to be Level 2.

Net Loans . Loans are valued on an individual basis, with consideration given to the loans’ underlying characteristics, including account types, remaining terms, annual interest rates or coupons, interest types, accrual basis, timing of principal and interest payments, current market rates, and remaining balances. A discounted cash flow model is used to estimate the fair value of the loans using assumptions for the coupon rates, remaining maturities, prepayment speeds, projected default probabilities by risk grade, and estimates of prevailing discount rates. The discounted cash flow approach models the projected cash flows, applying various assumptions regarding interest and payment risks for the loans based on the loan types, payment types and fixed or variable classifications. For variable rate loans, forward interest rate curves are integrated into the projection of cash flows. The forward curves are index specific and obtained from a leading third-party provider. Future coupon payments are determined based upon the applicable forward curve, spread, next repricing date, and repricing frequency.

Derivative Financial Instruments . Derivative financial instruments are measured at fair value based on modeling that utilizes observable market inputs for various interest rates published by leading third-party financial news and data providers. This is observable data that represents the rates used by market participants for instruments entered into at that date; however, they are not based on actual transactions so they are classified as Level 2.

Net profits interests. The fair value of the net profit interests in oil and gas reserves was estimated using discounted cash flow analyses applied to the expected cash flows from producing developed wells. Expected cash flows are derived from reports prepared by consulting engineers under established professional standards for the industry.

Investments in Limited Partnerships. The fair value of certain investments in limited partnerships was estimated using the net asset value practical expedient provided by the partnership as allowed by ASC 820 for an equity security without a readily determinable fair value.

Deposits . The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for CDs are estimated using a discounted cash flow calculation that applies interest rate spreads to current Treasury yields.

FHLB Advances . The fair value of the FHLB advance approximates its book value.

Security Sold Under Agreements to Repurchase . The carrying amount of security repurchase agreements approximates their fair values.

Senior Debt . The fair value of senior debt was estimated by obtaining broker indications that compared the Company’s senior debt to other comparable financial institutions.

Subordinated Debt. The fair value of subordinated debentures was estimated by obtaining broker indications that compared the Company’s subordinated debentures to other comparable financial institutions.

Junior Subordinated Debentures. The fair value of junior subordinated debentures was estimated by obtaining broker indications that compared the Company’s junior subordinated debentures to other comparable financial institutions.

Limitations . The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. The fair values for loans involve the use of significant internally-developed pricing assumptions due to market-illiquidity for loans net of unearned income and loans held for sale as of March 31, 2018 and December 31, 2017. These assumptions are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. This table only includes

financial instru ments of the Company, and, accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of the Company.

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

	As of March 31, 2018
	Carrying
(In thousands)	Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	130,704	$	130,704	$	130,704	$	—	$	—
Interest-bearing deposits in other banks		281,297		281,297		281,297		—		—
Federal funds sold		4,695		4,695		4,695		—		—
Securities available-for-sale		1,246,005		1,246,005		—		1,246,005		—
Equity securities with readily determinable fair values not held for trading		5,829		5,829		5,829		—		—
Loans held for sale		37,446		37,446		—		37,446		—
Net loans		8,555,450		8,437,656		—		—		8,437,656
Derivative assets		6,303		6,303		—		6,303		—
Net profits interests		14,295		14,295		—		—		14,295
Investments in limited partnerships		7,514		7,514		—		—		7,514
Financial Liabilities:
Deposits		9,048,971		9,045,299		—		9,045,299		—
Advances from FHLB		150,000		150,000		—		150,000		—
Securities sold under agreements to repurchase		1,298		1,298		—		1,298		—
Senior debt		184,700		193,529		—		193,529		—
Subordinated debt		98,746		98,101		—		98,101		—
Junior subordinated debentures		36,591		49,019		—		49,019		—
Derivative liabilities		38,634		38,634		—		38,634		—

	As of December 31, 2017
(In thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	238,707	$	238,707	$	238,707	$	—	$	—
Interest-bearing deposits in other banks		482,568		482,568		482,568		—		—
Federal funds sold		9,536		9,536		9,536		—		—
Securities available-for-sale		1,257,063		1,257,063		—		1,257,063		—
Securities held-to-maturity		290		311		—		311		—
Equity securities with readily determinable fair values not held for trading		5,885		5,885		5,885		—		—
Loans held for sale		61,359		61,359		—		61,359		—
Net loans		8,165,851		8,134,903		—		—		8,134,903
Derivative assets		3,985		3,985		—		3,985		—
Net profits interests		15,833		15,833		—		—		15,833
Financial Liabilities:
Deposits		9,011,515		9,006,890		—		9,006,890		—
Advances from FHLB		150,000		150,000		—		150,000		—
Securities sold under agreements to repurchase		1,026		1,026		—		1,026		—
Senior debt		184,629		194,484		—		194,484		—
Subordinated debt		98,687		94,724		—		94,724		—
Junior subordinated debentures		36,472		49,161		—		49,161		—
Derivative liabilities		25,307		25,307		—		25,307		—

Note 17—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

operati ng results of those services. The Company operates through three operating segments: Banking, Financial Services and Corporate.

The Banking Segment includes the Commercial Banking, Retail Banking and Private Banking lines of business. The Commercial Banking line of business includes a general business services component primarily focusing on commercial & industrial (C&I), community banking, business banking and commercial real estate lending to clients in the geographic footprint in Texas and the southeast United States. In addition, the Commercial Banking line of business includes within C&I a separate component that focuses on select industries (which is referred to as the “specialized industries”) in which the Company believes it has specialized experience and service capabilities, including energy, healthcare, restaurant industry, and technology. The Company serves clients in these specialized industries both within the geographic footprint and throughout the United States as a result of the national orientation of many of these businesses. The Retail Banking line of business offers a broad range of retail banking services including mortgage services through the branch network to serve the needs of consumer and small businesses in the geographic footprint. The Private Banking line of business offers banking services and loan products tailored to the needs of the high-net worth clients in the geographic footprint.

The Financial Services Segment includes the 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 operates though the “Cadence Insurance” name. The products offered by the businesses in the Financial Services Segment primarily generate non-banking service fee income. The Corporate Segment reflects parent-only activities and intercompany eliminations.

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 March 31, 2018 and 2017:

	For the 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			187			24,983
Noninterest expense		50,532		9,977			1,430			61,939
Income tax expense (benefit)		12,446		308			(1,804	)		10,950
Net income (loss)	$	41,180	$	1,466		$	(3,821	)	$	38,825
Total assets	$	10,903,031	$	91,468		$	4,883		$	10,999,382

	For the Three Months Ended March 31, 2017
(In thousands)	Banking		Financial Services		Corporate			Consolidated
Net interest income	$	79,103	$	784	$	(5,129	)	$	74,758
Provision for credit losses		5,786		—		—			5,786
Noninterest income		11,700		12,321		84			24,105
Noninterest expense		45,457		8,681		183			54,321
Income tax expense (benefit)		13,846		1,548		(2,755	)		12,639
Net income (loss)	$	25,714	$	2,876	$	(2,473	)	$	26,117
Total assets	$	9,629,061	$	88,644	$	3,232		$	9,720,937

Note 18—Equity-based Compensation

The Company administers a long-term incentive compensation plan that permits the granting of incentive awards in the form of stock options, restricted stock, restricted stock units, performance units, stock appreciation rights, or other stock-based awards. The terms of all awards issued under these plans are determined by the Compensation Committee of the Board of Directors.

The Amended and Restated 2015 Omnibus Incentive Plan (the “Plan”) 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 6,827,250 at March 31, 2018 assuming applicable performance goals are satisfied at target levels.

The Company recorded $0.4 million equity-based compensation expense for the outstanding restricted stock units for each of the three month periods ended March 31, 2018 and 2017, respectively. The remaining expense related to unvested restricted stock units is $1.0 million as of March 31, 2018 and will be recognized over the next 8 months.

There were 672,750 outstanding non-vested restricted stock units with a grant date fair value of $5.14. There were no grants or forfeitures for the three months ended March 31, 2018. See “Note 21-Subsequent Events” for additional information.

Note 19—Accumulated Other Comprehensive Loss

Activity within the balances in accumulated other comprehensive loss is shown in the following tables for the three months ended March 31, 2018.

`	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, December 31, 2017	$	(2,160	)	$	(531	)	$	(16,342	)	$	(19,033	)
Net change		(23,401	)		—			(8,377	)		(31,778	)
Balance, March 31, 2018	$	(25,561	)	$	(531	)	$	(24,719	)	$	(50,811	)

Note 20—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, 2018 and December 31, 2017, 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, 2018 and December 31, 2017, the Company had recorded investments in other assets on its consolidated balance

sheets of approximately $7.5 million and $7.9 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 $ 7.5 million as of March 31, 2018. The company recognized a $0.7 million gain for the three months ended March 31, 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 its 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. Thes e investments totaled $8.7 million as of March 31, 2018. Other limited partnerships are accounted for under the equity method totaling $8.8 million as of March 31, 2018. As of December 31, 2017 and prior to the adoption of ASU 2016-01, certain limited part nerships were accounted for under the cost method totaling $14.0 million and the equity method totaling $8.8 million.

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, 2018:

(In thousands)	As of March 31, 2018
Affordable housing projects (amortized cost)	$	7,479
Limited partnerships accounted for under the fair value practical expedient of NAV		7,514
Limited partnerships without readily determinable fair values that do not qualify for the practical expedient of NAV accounted for under the cost method		8,692
Limited partnerships required to be accounted for under the equity method		8,797
Total investments in limited partnerships	$	32,482

During 2016, the Bank received net profits interests in oil and gas reserves, in connection with the reorganization under bankruptcy of two loan customers. 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 interests are financial instruments and recorded at estimated fair value, which was $14.3 million and $15.8 million at March 31, 2018 and December 31, 2017, 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, 2018 and December 31, 2017, the amount of rabbi trust assets and benefit obligation was $3.7 million and $3.6 million, respectively.

Note 21—Subsequent Events

On April 2, 2018, the Company granted 270,105 shares of stock-based awards in the form of restricted stock units pursuant to and subject to the provisions of the Amended and Restated Cadence Bancorporation 2015 Omnibus Incentive Plan. While the grant specifies 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, 2020. For half of the units granted, these performance conditions will determine the actual units vested on March 31, 2021 and can be in the range of zero to two times the units granted. The remaining half of the restricted stock units vest equally on March 31 of each of the next three years.

On April 25, 2018, the Board of Directors of the Company declared a quarterly cash dividend in the amount of $0.125 per share of common stock, representing an annualized dividend of $0.50 per share. The dividend will be paid on June 15, 2018 to holders of record of the Class A common stock on June 1, 2018.

On May 13, 2018, the Company and State Bank Financial Corporation (“State Bank”) jointly announced the entry into a definitive merger agreement in a stock-for-stock transaction and has filed a Current Report on Form 8-K. Under the terms of the merger agreement, State Bank shareholders will receive 1.160 shares of the Company’s Class A common stock for each share of State Bank common stock, valuing the transaction at approximately $1.4 billion based on the closing share price of Cadence of $30.23 on May 11, 2018. After closing, legacy Cadence and State Bank shareholders will collectively own approximately 65% and 35% of the combined company, respectively. Closing is subject to customary approvals by regulators and the shareholders of State Bank, and is expected to occur in the fourth quarter of 2018.

In April 2018, the Company entered into a plan to sell the Company’s subsidiary, Town & Country Insurance Agency, Inc. (“T&C”) and classified this business line as held-for-sale, which requires lower of cost or fair value accounting. In May 2018, T&C entered into an Asset Purchase Agreement with an unrelated third party for the purpose of selling approximately $16 million in net assets. This transaction is expected to close in the second quarter of 2018 and result in a slight after-tax gain.

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 three months ended March 31, 2018. 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, 2018 compared to December 31, 2017 for the balance sheets and the three months ended March 31, 2018 compared to March 31, 2017 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;

•

lack of seasoning in our loan portfolio;

•

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;

•

the fiscal position of the U.S. federal government and the soundness of other financial institutions;

•

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;

•

our limited operating history as an integrated company and our recent acquisitions;

•

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;

•

the impact of recent and future legislative and regulatory changes, including changes in banking, securities and tax laws and regulations, such as the Dodd-Frank Act, and their application by our regulators, and the impact if potential expected changes do not occur;

•

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;

•

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

•

our modeling estimates related to an increased interest rate environment;

•

our ability to achieve the cost savings and efficiencies in connection with branch closures; and

•

our estimates as to our expected operational leverage and the expected additional loan capacity of our relationship managers.

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 bank holding company and a Delaware corporation headquartered in Houston, Texas, and is the parent company of Cadence Bank, National Association (N.A.). With $11.0 billion in assets, $8.6 billion in total loans (net of unearned discounts and fees), $9.0 billion in deposits and $1.4 billion in shareholders’ equity as of March 31, 2018, we currently operate a network of 65 branch locations across Texas, 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.

We operate Cadence Bancorporation through three operating segments: Banking, Financial Services and Corporate. Our Banking Segment, which represented approximately 90% of our total revenues for the three months ended March 31, 2018, consists of our Commercial Banking, Retail Banking and Pr ivate 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 ind ustries 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. In our Retail Ba nking 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 mortg age lending, to affluent clients and business owners.

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, with particular emphasis on Texas-based expansion 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, (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 33 - 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 per share data)	2018			2017			2017
Statement of Income Data:
Net income	$	38,825		$	26,117		$	102,353
Net interest income		91,111			74,758			326,216
Noninterest income - service fees and revenue		23,904			22,489			90,052
Noninterest expense		61,939			54,321			233,356
Provision for credit losses		4,380			5,786			9,735
Efficiency ratio ⁽¹⁾		53.35	%		54.95	%		54.77	%
Period-End Balance Sheet Data:
Investment securities, available-for-sale	$	1,246,005		$	1,110,624		$	1,257,063
Total loans, net of unearned income		8,646,987			7,561,472			8,253,427
Allowance for credit losses ("ACL")		91,537			88,304			87,576
Total assets		10,999,382			9,720,937			10,948,926
Total deposits		9,048,971			7,841,710			9,011,515
Total shareholders’ equity		1,357,103			1,105,976			1,359,056
Asset Quality Ratios:
Total nonperforming assets ('NPAs") to total loans plus OREO and NPI		0.84	%		2.25	%		0.85	%
Total ACL to total loans		1.06			1.17			1.06
ACL to total nonperforming loans ("NPLs")		175.30			65.80			183.62
Net charge-offs to average loans ⁽²⁾		0.02			(0.01	)		0.06
Capital Ratios:
Total shareholders’ equity to assets		12.34	%		11.38	%		12.41	%
Tangible common equity to tangible assets ⁽¹⁾		9.65			8.25			9.71
Common equity tier 1 (CET1) (transitional)		10.42			8.99			10.79
Tier 1 leverage capital		10.57			9.10			11.12
Tier 1 risk-based capital		10.79			9.36			11.17
Total risk-based capital		12.63			11.43			13.18

(1)	Considered a non-GAAP financial measure. See “Table 33 - Non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

(2)	Annualized for the three months ended March 31, 2018 and 2017.

Summary of Results of Operations - Three Months ended March 31, 2018

Net income for the three months ended March 31, 2018 totaled $38.8 million, a $12.7 million, or 48.7%, increase compared to $26.1 million for the same period in 2017. The primary drivers of the net $12.7 million increase included a $16.4 million increase in net interest income, a $1.4 million increase in service fees and revenue, a $1.4 million decrease in the provision for credit losses, and a $1.7 million decrease in income taxes. The resulting earnings per diluted common share for the three months ended March 31, 2018 were $0.46, compared to $0.35 and for the same period of 2017.

Net interest income was $91.1 million for the three months ended March 31, 2018, a $16.4 million, or 21.9%, increase compared to the same period of 2017. Our net interest spread increased to 3.29% for the three months ended March 31, 2018 compared to 3.22% for the same period in 2017, and the net interest margin on an annualized basis increased 18 basis points to

3.64% from 3.46%. The increases in net interest margin are primarily a result of our asset sensitive balance sheet and earning asset yields increasing more significantly than our funding costs in the recent ris ing rate environment.

Service fees and revenue was $23.9 million in the three months ended March 31, 2018, an increase of $1.4 million, or 6.3%, over the same period in 2017. The period-over-period increase reflects broad based business line growth in financial service fee revenues, credit fees and service charges.

Noninterest expense for the three months ended March 31, 2018 increased $7.6 million, or 14.0%, to $61.9 million compared to $54.3 million during the same period of 2017. The three months ended March 31, 2018 included higher salary and benefits expenses, driven by business growth and related incentives, offset by lower intangible amortization and FDIC insurance expense.

Our efficiency ratio was 53.4% for the three months ended March 31, 2018, an improvement over the 55.0% efficiency ratio for the three months ended March 31, 2017. A reconciliation of our non-GAAP measures is included in Table 33.

Provision for credit losses decreased $1.4 million, or 24.3%, to $4.4 million in the three months ended March 31, 2018, compared to $5.8 million in the three months ended March 31, 2017. (See “—Provision for Credit Losses” and “—Asset Quality”). The lower provision for credit losses in 2018 was primarily related to improving credit quality in the energy portfolio. Annualized net charge-offs were 0.02% of average loans during the three months ended March 31, 2018 compared to (0.01)% of average loans during the three months ended March 31, 2017.

Summary of Financial Condition as of March 31, 2018

Our total loans, net of unearned income increased $393.6 million, or 4.8%, from December 31, 2017 to $8.65 billion at March 31, 2018, which was driven by originated loan growth of $417.3 million, partially offset by a decrease of $23.7 million in the acquired loan portfolio. Our organic loan growth reflects increases in general C&I, commercial real estate and residential portfolios.

From an asset quality perspective, total nonperforming assets (“NPAs”) increased $2.0 million, or 2.9%, compared to December 31, 2017. The increase in NPAs from December 31, 2017 is primarily related to an addition of a restaurant industry credit, offset by pay downs and resolutions within the energy portfolio. (See “—Asset Quality). Our total allowance for credit losses increased $4.0 million, or 4.5%, from $87.6 million at December 31, 2017 to $91.5 million at March 31, 2018, and represented approximately 1.1% of total loans at both March 31, 2018 and December 31, 2017.

Total deposits increased $37.5 million, or 0.4%, to $9.05 billion, at March 31, 2018, from $9.01 billion at December 31, 2017. Over the same period, noninterest-bearing deposits decreased $201.8 million, or 9.0%, and comprised 22.6% and 24.9% of total deposits at March 31, 2018 and December 31, 2017, respectively. Interest-bearing deposits increased $239.2 million, or 3.5%, and comprised 77.4% and 75.1% of total deposits at March 31, 2018 and December 31, 2017, respectively. There was an increase in brokered deposits of $21.6 million from December 31, 2017.

Overall, our Tier 1 leverage ratio decreased 11 basis points, total risk-based capital ratio decreased 18 basis points and Tier 1 risk-based capital ratio decreased 15 basis points from December 31, 2017. 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, 2018.

Results of Operations

Earnings

We reported net income for the three months ended March 31, 2018 of $38.8 million compared to $26.1 million for the three months ended March 31, 2018 and 2017, respectively. The following table presents key earnings data for the periods indicated:

Table 2 – Key Earnings Data

	Three Months Ended
	March 31,
(In thousands, except per share data)	2018			2017
Net income	$	38,825		$	26,117
Net income per common share
- basic ⁽¹⁾⁽⁴⁾		0.46			0.35
- diluted ⁽¹⁾⁽⁴⁾		0.46			0.35
Dividends declared per share		0.125			—
Dividend payout ratio ⁽²⁾		27.17	%		—	%
Net interest margin		3.64			3.46
Net interest spread		3.29			3.22
Return on average assets ⁽²⁾		1.44			1.10
Return on average equity ⁽²⁾		11.73			9.71
Return on average tangible common equity ⁽²⁾⁽³⁾		15.52			13.96

(1)	54.9 million of our outstanding shares are owned by our parent holding company Cadence Bancorp, LLC.

(2)	Annualized for the three months ended March 31, 2018 and 2017.

(3)	Considered a non-GAAP financial measure. See “Table 33 - Non-GAAP Financial Measures” for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure.

(4)	Includes common stock equivalents (“CSE”) of 1,049,807 and 672,750 for the three months ended March 31, 2018 and 2017.

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 were initially recorded at fair value. Discounts or premiums created when the loans were recorded at their estimated fair values at acquisition are being accreted over the remaining term of the loan as an adjustment to the related loan’s yield.

The performance of loans within our acquired credit impaired (“ACI”) portfolio impacts interest income as the 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. 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 o ver 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. 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 non-accretable 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 f or the periods presented:

Table 3 – ACI Interest Income

	Three Months Ended
	March 31,
(In thousands)	2018			2017
Scheduled accretion for the period	$	5,192		$	6,331
Recovery income for the period		431			610
Total interest realized on the ACI portfolio	$	5,623		$	6,941
Yield on ACI Portfolio
Scheduled accretion for the period		8.27	%		8.11	%
Recovery income for the period		0.69			0.78
Total yield on the ACI portfolio		8.96	%		8.89	%

As of March 31, 2018 the weighted average contractual interest rate on the remaining active ACI portfolio loans was approximately 4.76%.

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)	2018			2017
Balance at beginning of period	$	78,422		$	98,728
Decreases from accretion, maturities/payoffs, foreclosures and charge-offs		(6,906	)		(8,977	)
Reclass from nonaccretable difference		4,558			3,364
Balance at end of period	$	76,074		$	93,115

Three Months Ended March 31, 2018 and 2017

Our net interest income, fully-tax equivalent (FTE), for the three months ended March 31, 2018 and 2017 was $92.0 million and $76.6 million, respectively, an increase of $15.4 million. Our net interest margin for the three months ended March 31, 2018 and 2017 was 3.64% and 3.46%, respectively, an increase of 18 basis points. The yield on our total loan portfolio increased 60 basis points to 4.94% for the three months ended March 31, 2018 compared to 4.34% for the three months ended March 31, 2017 due to an increase in the rate and volume of our originated portfolio. 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, 2018:

Table 5- Rate/Volume Analysis

	Three Months Ended March 31,
	2018 vs. 2017
	Net Interest Income				Increase			Changes Due To ⁽¹⁾
(In thousands)	2018		2017		(Decrease)			Rate			Volume
Increase (decrease) in:
Income from interest-earning assets:
Interest and fees on loans:
Originated and ANCI loans	$	97,168	$	73,869	$	23,299		$	12,834		$	10,465
ACI portfolio		5,623		6,941		(1,318	)		56			(1,374	)
Interest on securities:
Taxable		5,118		4,301		817			182			635
Tax-exempt ⁽²⁾		4,134		5,252		(1,118	)		(1,176	)		58
Interest on fed funds and short-term investments		1,529		425		1,104			521			583
Interest on other investments		389		669		(280	)		(293	)		13
Total interest income		113,961		91,457		22,504			12,124			10,380
Expense from interest-bearing liabilities:
Interest on demand deposits		9,025		5,531		3,494			3,048			446
Interest on savings deposits		114		112		2			4			(2	)
Interest on time deposits		7,491		4,122		3,369			2,186			1,183
Interest on other borrowings		2,956		2,802		154			433			(279	)
Interest on subordinated debentures		2,396		2,294		102			90			12
Total interest expense		21,982		14,861		7,121			5,761			1,360
Net interest income	$	91,979	$	76,596	$	15,383		$	6,363		$	9,020

(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% and 35% for the three months ended March 31, 2018 and 2017, respectively, on our state, county and municipal investment portfolios.

Our total interest income (FTE) for the three months ended March 31, 2018 totaled $114.0 million compared to $91.5 million in the three months ended March 31, 2017. This increase is primarily the result of 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 lower Federal tax rate of 21% in 2018 compared to 35% in 2017.

The following table presents a comparison of loan portfolio yield for the three months ended March 31, 2018 and 2017:

Table 6 - Loan Portfolio Yield

	Three Months Ended March 31,
	2018							2017
	Average		Interest					Average		Interest
(In thousands)	Balance		Income		Yield			Balance		Income		Yield
Loans, net of unearned income
Originated loans	$	7,993,431	$	94,622		4.80	%	$	7,016,714	$	70,730		4.09	%
ANCI loans		196,017		2,546		5.27			217,957		3,139		5.84
ACI Loans		254,503		5,623		8.96			316,502		6,941		8.89
Total loans	$	8,443,951	$	102,791		4.94	%	$	7,551,173	$	80,810		4.34	%

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, 2018 was 8.96% compared to 8.89% for the three months ended March 31, 2017. During the three months ended March 31, 2018, interest income on the ACI portfolio included $0.4 million in recovery income, compared to $0.6 million in the three months ended March 31, 2017. These amounts were realized on certain individual loans that were settled before expected, or where we received amounts above our estimates. Excluding these amounts, the yield on our ACI loans would have been 8.27% for the three months ended March 31, 2018 compared to 8.11% for the three months ended March 31, 2017. Our total loan yield, excluding these amounts, would have been 4.92% and 4.31% for the three months ended March 31, 2018 and 2017, respectively.

Our interest expense for the three months ended March 31, 2018 and 2017 was $22.0 million and $14.9 million, respectively, an increase of $7.1 million. This increase is primarily related to the impact of higher market rates on our interest bearing demand accounts and time deposits. Our cost of interest bearing deposits increased to 0.98% for the three months ended March 31, 2018 compared to 0.63% for the three months ended March 31, 2017. Our cost of borrowings for the three months ended March 31, 2018 and 2017 was 4.88% and 4.35%, respectively, and is primarily related to an increase in LIBOR rates from the prior period.

The following table presents, on a tax equivalent basis, for the three months ended March 31, 2018 and 2017, our average balance sheet and our average yields on assets and 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 7 – Average Balances, Net Interest Income and Intere st Yields/Rates

	Three Months Ended March 31,
	2018									2017
	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 and ANCI loans	$	8,189,448		$	97,168			4.81	%	$	7,234,671		$	73,869			4.14	%
ACI portfolio		254,503			5,623			8.96			316,502			6,941			8.89
Total loans		8,443,951			102,791			4.94			7,551,173			80,810			4.34
Investment securities
Taxable		827,227			5,118			2.51			722,465			4,301			2.41
Tax-exempt ⁽²⁾		406,999			4,134			4.12			402,709			5,252			5.29
Total investment securities		1,234,226			9,252			3.04			1,125,174			9,553			3.44
Federal funds sold and short-term investments		515,017			1,529			1.20			264,355			425			0.65
Other investments		48,986			389			3.22			48,047			669			5.65
Total interest-earning assets		10,242,180			113,961			4.51			8,988,749			91,457			4.13
Noninterest-earning assets:
Cash and due from banks		92,878									53,450
Premises and equipment		62,973									66,298
Accrued interest and other assets		613,341									644,354
Allowance for credit losses		(89,097	)								(82,258	)
Total assets	$	10,922,275								$	9,670,593

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits	$	4,795,114		$	9,025			0.76	%	$	4,455,742		$	5,531			0.50	%
Savings deposits		179,662			114			0.26			182,247			112			0.25
Time deposits		1,909,019			7,491			1.59			1,529,422			4,122			1.09
Total interest-bearing deposits		6,883,795			16,630			0.98			6,167,411			9,765			0.63
Other borrowings		309,323			2,956			3.88			340,470			2,802			3.34
Subordinated debentures		135,233			2,396			7.19			134,506			2,294			6.92
Total interest-bearing liabilities		7,328,351			21,982			1.22			6,642,387			14,861			0.91
Noninterest-bearing liabilities:
Demand deposits		2,128,595									1,857,657
Accrued interest and other liabilities		122,884									79,644
Total liabilities		9,579,830									8,579,688
Shareholders' equity		1,342,445									1,090,905
Total liabilities and shareholders' equity	$	10,922,275								$	9,670,593
Net interest income/net interest spread					91,979			3.29	%					76,596			3.22	%
Net yield on earning assets/net interest margin								3.64	%								3.46	%
Taxable equivalent adjustment:
Investment securities					(868	)								(1,838	)
Net interest income				$	91,111								$	74,758

(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% and 35% for the three months ended March 31, 2018 and 2017, respectively.

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 $4.4 million and for the three months ended March 31, 2018, compared to $5.8 million for the three months ended March 31, 2017. The following is a summary of our provision for credit losses for the periods indicated presented by originated, ANCI and ACI portfolios:

Table 8 – Provision for Credit Losses

	Three Months Ended March 31,
(In thousands)	2018			2017
Originated Loans
Commercial and industrial	$	5,472		$	5,204
Commercial real estate		(192	)		325
Consumer		(816	)		451
Small business		574			206
Total originated loans		5,038			6,186
ANCI Loans
Commercial and industrial		(137	)		30
Commercial real estate		(146	)		(2	)
Consumer		(22	)		76
Small business		(108	)		(166	)
Total ANCI		(413	)		(62	)
ACI Loans
Commercial and industrial		(5	)		(137	)
Commercial real estate		(175	)		115
Consumer		(65	)		(316	)
Small business		—			—
Total ACI		(245	)		(338	)
Total Loans
Commercial and industrial		5,330			5,097
Commercial real estate		(513	)		438
Consumer		(903	)		211
Small business		466			40
Total provision for credit losses	$	4,380		$	5,786

Our originated loan portfolio is categorized into specific risk segments that are subject to estimated loss rates according to their respective segment and risk rating. The primary driver of the originated ACL is the underlying credit quality of the loans, which have seen credit risk migration trends as the portfolio has become more seasoned. We recognized $4.4 million and $5.8 million in provision during the three months ended March 31, 2018 and 2017, respectively, which included $5.0 million and $6.2 million provision related to the originated portfolio. The provision for the three months ended March 31, 2018 was primarily related to loan growth in the C&I portfolio. The decrease in originated loan provision for the three months ended March 31, 2018 is primarily attributable to improved credit quality in the energy portfolio and to a lesser extent, consumer and commercial real estate.

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 $25.0 million for the three months ended March 31, 2018, compared to $24.1 million for the three months ended March 31, 2018 and 2017. The 6.3% increase in our service fees and revenue is primarily attributable to investment advisory revenue, credit-related fees and other service fee revenue.

The following table compares noninterest income for the three months ended March 31, 2018 and 2017:

Table 9 – Noninterest Income

	Three Months Ended March 31,
(In thousands)	2018		2017		% Change
Investment advisory revenue	$	5,299	$	4,916		7.8	%
Trust services revenue		5,015		5,231		(4.1	)
Service charges on deposit accounts		3,960		3,815		3.8
Credit-related fees		3,577		2,747		30.2
Insurance revenue		2,259		2,130		6.1
Bankcard fees		1,884		1,812		4.0
Mortgage banking revenue		577		866		(33.4	)
Other service fees earned		1,333		972		37.1
Total service fees and revenue		23,904		22,489		6.3
Securities gains, net		12		81		(85.2	)
Other		1,067		1,535		(30.5	)
Total other noninterest income		1,079		1,616		(33.2	)
Total noninterest income	$	24,983	$	24,105		3.6	%

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 7.8% increase in investment advisory revenue for the three months ended March 31, 2018 to $5.3 million was mostly due to growth in assets under management due to both new customer origination and market improvements.

Trust Services Revenue. We earn fees from our customers for trust services. For the three months ended March 31, 2018 and 2017, trust fees totaled $5.0 million and $5.2 million, respectively, a decrease of $0.2 million, or 4.1%. The decrease was primarily due to $0.2 million of receivable charge-offs that is not expected to recur.

Service Charges on Deposit Accounts. We earn fees from our customers for deposit-related services. For the three months ended March 31, 2018 and 2017, service charges and fees totaled $4.0 million and $3.8 million, which is an increase of 3.8%. The increase was largely due to an increase in account analysis fees.

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, 2018 and 2017, credit-related fees increased 30.2% to $3.6 million primarily as a result of an increase in unfunded commitment, capital market and letter of credit fees.

Insurance Revenue. Our insurance revenue is comprised of insurance commissions generated through our wholly-owned subsidiary, Cadence Insurance. Our insurance revenue was $2.3 million for the three months ended March 31, 2018 compared to $2.1 million for the same period in 2017. The increase of $0.1 million is the result of increased contingent commissions from insurance carriers and commercial premiums.

Bankcard Fees. Our bankcard fees are comprised of automated teller machine (“ATM”) network fees and debit card revenue. Our bankcard fees were $1.9 million and $1.8 million for the three months ended March 31, 2018 and 2017, respectively. The increase of 4.0% was primarily due to increased volume and customer expansion.

Mortgage Banking Revenue. Our mortgage banking revenue is comprised of mortgage loan sales and servicing income. The decreases of $0.3 million, or 33.4%, for the three months ended March 31, 2018, respectively, were mostly due to lower gains related to decreased volumes.

Other Service Fees. Our other service fees include retail services fees. For the th ree months ended March 31, 2018 and 2017, other service fees totaled $1.3 million and $1.0 million, respectively. The increase was largely due to an increase in sweep account income.

Other Income. The decrease in other income for the three months ended March 31, 2018 compared to 2017 is primarily related to a decline in the estimated fair value of a net profits interest in oil and gas reserves due to lower forecasted production, partially offset by an increase in the fair value of equity investments in certain limited partnership investments.

Noninterest Expenses

The following table compares noninterest expense for the three months ended March 31, 2018 and 2017:

Table 10 – Noninterest Expense

	Three Months Ended March 31,
(In thousands)	2018			2017		% Change
Salaries and employee benefits	$	37,353		$	34,267		9.0	%
Premises and equipment		7,591			6,693		13.4
Intangible asset amortization		792			1,241		(36.2	)
Net cost of operation of other real estate owned		(52	)		296		(117.6	)
Data processing expense		2,365			1,696		39.4
Consulting and professional fees		2,934			1,139		157.6
Loan related expenses		255			280		(8.9	)
FDIC Insurance		955			1,493		(36.0	)
Communications		704			655		7.5
Advertising and public relations		341			345		(1.2	)
Legal expenses		2,627			471		457.7
Other		6,074			5,745		5.7
Total Noninterest Expense	$	61,939		$	54,321		14.0	%

Noninterest expense was $61.9 million and $54.3 million for the three months ended March 31, 2018 and 2017, respectively. The increase of $7.6 million, or 14.0%, for the three months ended March 31, 2018, compared to the same period in 2017 was driven by increases in salaries and benefits, premises and equipment, data processing, consulting and professional fees and legal fees.

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 $3.1 million, or 9.0%, for the three months ended March 31, 2018 compared to 2017, driven by business growth and related incentives. The following table provides additional detail of our salaries and employee benefits expense for the periods presented:

	Three Months Ended March 31,
(In thousands)	2018		2017
Salaries and employee benefits
Regular compensation	$	21,498	$	20,084
Incentive compensation		9,657		8,469
Taxes and employee benefits		6,198		5,714
Total salaries and employee benefits	$	37,353	$	34,267

Premises and Equipment. Rent, depreciation and maintenance costs comprise the majority of premises and equipment expenses, which increased $898 thousand, or 13.4%, for the three months ended March 31, 2018 compared to the same period in 2017. This increase includes the increase in certain maintenance costs and new equipment.

Intangible Asset Amortization. In conjunction with our previous acquisitions, we recorded core deposit and other customer intangible assets of approximately $66.0 million, which are being amortized on an accelerated basis over a seven- to ten-year period.

Net Cost of Operation of Othe r Real Estate Owned. Net cost of operation of other real estate owned primarily represents our gains (losses) on other real estate owned resulting from the sale or write-down of foreclosed property. During the three months ended March 31, 2018, we had net gains from the sale/write-down of foreclosed properties totaling $112 thousand compared to net losses of $116 thousand for the same period in 2017. Our other costs of operations continue to decline as the volume and complexity of these properties diminishe s. See “—Nonperforming Assets” for detail of foreclosed properties as of March 31, 2018.

Data Processing. Data processing expense for our operating systems totaled $2.4 million for the three months ended March 31, 2018 compared to $1.7 million for the same period in 2017. The increase of 39.4% reflects growth in our business as well as related to a trust system upgrade and conversion.

Consulting and Professional Services. Consulting and professional services expenses include consulting, audit and professional fees paid to external parties. For the three months ended March 31, 2018, our consulting and professional services increased $1.8 million, or 157.6%, compared to the same period in 2017 as a result of $0.9 million expense related to the February secondary offering and additional costs of being a public company.

Loan-Related Expenses. Loan-related expenses include costs related to maintaining our various loan portfolios. For the three months ended March 31, 2018, our loan-related expenses totaled $255 thousand compared to $280 thousand for the same period in 2017. The decrease is related to insurance costs on serviced loans and may fluctuate between periods.

FDIC Insurance. We are subject to risk-based assessment fees by the FDIC for deposit insurance. For the three months ended March 31, 2018, FDIC insurance expense totaled $1.0 million, a decrease of $0.5 million from the three months ended March 31, 2017. The decrease was due to the increase in our levels of capital, and the reduction in our nonperforming loans and brokered deposits.

Communications. Communications expenses include expenses related to both voice and data communications. During the three months ended March 31, 2018, our communications expenses increased slightly to $0.7 million.

Advertising and Public Relations. Advertising and public relations expenses for the three months ended March 31, 2018 decreased 1.2% from the same period in 2017. Our advertising and public relations expenses are seasonal and can fluctuate between quarters.

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, 2018, our legal fees increased $2.2 million compared to the same period in the prior year. Legal fees for the first quarter of 2018 included $2.2 million in legal costs associated with litigation related to a pre-acquisition matter of a legacy acquired bank. This matter was resolved in the first quarter of 2018 and is not expected to result in any future expense.

Other. These expenses include costs for insurance, supplies, education and training, and other operational expenses. For the three months ended March 31, 2018, other noninterest expenses increased 5.7% compared to the same period in 2017.

Income Tax Expense

Income tax expense for the three months ended March 31, 2018 was $11.0 million compared to $12.6 million for the three months ended March 31, 2017. The effective tax rate was 22.0% for the three months ended March 31, 2018 compared to 32.6% for the three months ended March 31, 2017. The decrease in the effective tax rate for the three months ended March 31, 2018 compared to the same period in 2017 was primarily driven by the decrease in the statutory Federal tax rate established by
Tax Reform enacted in December 2017.

Our effective tax rate is impacted by pre-tax income, tax-exempt income, and the increase in the 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.

analysis within the measurement period in accordance with SAB 118. Nonetheless, there has been no change to the provisional net tax benefit we recorded in the fourth quarter of 2017.

Financial Condition

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

Table 11 – Selected Balance Sheet Data

	As of				Average Balance
(In thousands)	March 31, 2018		December 31, 2017		Three Months Ended March 31, 2018		Year Ended December 31, 2017
Total assets	$	10,999,382	$	10,948,926	$	10,922,275	$	10,020,036
Total interest-earning assets		10,272,921		10,120,137		10,242,180		9,345,046
Total interest-bearing liabilities		7,479,329		7,239,564		7,328,351		6,714,907
Short-term and other investments		336,654		542,113		564,003		363,464
Securities available for sale		1,246,005		1,257,063		1,234,226		1,155,819
Loans, net of unearned income		8,646,987		8,253,427		8,443,951		7,825,763
Goodwill		317,817		317,817		317,817		317,817
Noninterest bearing deposits		2,040,977		2,242,765		2,128,595		1,965,070
Interest bearing deposits		7,007,994		6,768,750		6,883,795		6,221,711
Borrowings and subordinated debentures		471,335		470,814		444,556		493,196
Shareholders' equity		1,357,103		1,359,056		1,342,445		1,253,861

Investment Portfolio

Our available-for-sale securities portfolio decreased $11.1 million, or 0.9%, to $1.25 billion at March 31, 2018, from $1.26 billion at December 31, 2017. At March 31, 2018, our investment security portfolio was 12.1% of our total interest-earning assets and produced an average taxable equivalent yield of 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
(In thousands)	March 31, 2018		December 31, 2017		Percent Change 2018 vs 2017
Investment securities available for sale:
U.S. Treasury securities	$	95,930	$	96,844		(0.9	)%
U.S. Agency securities		99,835		81,224		22.9
Mortgage-backed securities issued or guaranteed by U.S. agencies (MBS):
Residential pass-through:
Guaranteed by GNMA		97,542		106,027		(8.0	)
Issued by FNMA and FHLMC		433,085		430,422		0.6
Other residential mortgage-backed securities		42,821		46,392		(7.7	)
Commercial mortgage-backed securities		70,736		72,195		(2.0	)
Total MBS		644,184		655,036		(1.7	)
State, county and municipal securities		406,057		423,959		(4.2	)
Total investment securities available for sale	$	1,246,006	$	1,257,063		(0.9	)%

The following table summarizes the investment securities with unrealized losses at March 31, 2018 by aggregated major security type and length of time in a continuous unrealized loss position:

Table 13 –Unrealized Losses in the Investment Portfolio

	March 31, 2018
	Less than 12 Months				More than 12 Months				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Temporarily Impaired
U.S. Treasury securities	$	—	$	—	$	95,930	$	4,605	$	95,930	$	4,605
U.S. Agency securities		58,217		245		11,531		94		69,748		339
Mortgage-backed securities:
Residential pass-through		366,552		8,343		101,393		4,418		467,945		12,761
Other residential mortgage-backed securities		25,626		423		13,778		1,045		39,404		1,468
Commercial mortgage-backed securities		11,525		256		59,210		4,674		70,735		4,930
Total MBS		403,703		9,022		174,381		10,137		578,084		19,159
State, county and municipal securities		171,740		3,892		127,466		11,317		299,206		15,209
Total temporarily impaired securities	$	633,660	$	13,159	$	409,308	$	26,153	$	1,042,968	$	39,312

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 Portfolio

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 76% of the portfolio residing in these loan types as of March 31, 2018. 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. Mortgage, wealth management and retail make up the majority of the consumer portfolio.

The following tables present total loans outstanding by portfolio component and class of financing receivable as of March 31, 2018 and December 31, 2017. The tables below are presented using a risk-based perspective of the loan portfolio. Tot al loan balances include ANCI loans, originated loans and ACI loans combined. Subsequent tables present the ANCI, ACI and originated loans separately.

Table 14 –Loan Portfolio

	Total Loans						Change
(In thousands)	March 31, 2018			December 31, 2017			2018 vs 2017			Percent
Commercial and Industrial
General C&I	$	3,005,397		$	2,746,454		$	258,943			9.43	%
Restaurant industry		1,078,904			1,035,538			43,366			4.19
Energy sector		984,200			935,371			48,829			5.22
Healthcare		432,274			416,423			15,851			3.81
Total commercial and industrial		5,500,775			5,133,786			366,989			7.15
Commercial Real Estate
Income producing		1,076,067			1,082,929			(6,862	)		(0.63	)
Land and development		80,343			75,472			4,871			6.45
Total commercial real estate		1,156,410			1,158,401			(1,991	)		(0.17	)
Consumer
Residential real estate		1,721,819			1,690,814			31,005			1.83
Other		63,059			74,922			(11,863	)		(15.83	)
Total consumer		1,784,878			1,765,736			19,142			1.08
Small Business Lending		235,337			221,855			13,482			6.08
Total (Gross of Unearned Discount and Fees)		8,677,400			8,279,778			397,622			4.80
Unearned Discount and Fees		(30,413	)		(26,351	)		(4,062	)		15.41
Total (Net of Unearned Discount and Fees)	$	8,646,987		$	8,253,427		$	393,560			4.77	%

Commercial and Industrial. Commercial and Industrial (“C&I”) loans increased by $367.0 million, or 7.2%, since December 31, 2017 and represented 63.4% of our total loan portfolio at March 31, 2018, compared to 62.0% of total loans at December 31, 2017. Approximately 38% of the originated commercial loan portfolio (combining C&I and CRE) consists of shared national credits, which vary by industry and geography. These transactions are generally relationship-based and have the potential for ancillary business. As of March 31, 2018, 88% of the shared national credit portfolio, or $2.1 billion, resides in the commercial and industrial segment of the loan portfolio, on a loan balance basis. As of March 31, 2018, the largest category of shared national credits is the Energy sector, representing 28% of the shared national credits portfolio, or $682.6 million as of March 31, 2018 compared to 24% of the shared national credits portfolio, or $716 million as of December 31, 2017. The next largest category of shared national credits is the Restaurant industry at 25% of all shared national credits, or $599.1 million, compared to 24% and $731 million as of December 31, 2017. The remaining amount of the shared national credit portfolio can be found in the services, healthcare and other categories and, to a lesser amount, the CRE segment of the loan portfolio. Additionally, all shared national credits are part of the originated loan portfolio. In the first quarter of 2018, the OCC’s definition of a SNC increased the threshold from $20 million to extensions aggregating more than $100 million, reducing our outstanding SNC balances.

Our C&I loan growth reflects our strategic focus on this broad loan category. We seek further diversification within C&I loans by industry to mitigate concentration risk in any one industry and/or risk type. Our specialized industries are significant drivers of the growth and diversification of this portion of our loan portfolio. Energy and specialized industries lending have experienced teams with extensive knowledge on their particular industry, allowing for quality underwriting and relationship-based lending.

General C&I . As of March 31, 2018 our general C&I category included the following types of loans: finance and insurance, professional services, commodities excluding energy, manufacturing, real estate activities, transportation, media and telecom and other. Generally 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. As of March 31, 2018, energy loans outstanding totaled $984.2 million, or 11.3% of total loans compared to $935.4 million, or 11.3% as of December 31, 2017. We strive for a rigorous and thorough approach to energy underwriting and credit monitoring. As of March 31, 2018 we had an

allowance for credit losses of $14.9 million for our energy loans, or 1.52% of the energy portfolio compared to $17.0 million, or 1.82% as of December 31, 2017. (See “—Provision for Credit Losses” and “—Al lowance for Credit Losses”). As of March 31, 2018, we had $37.3 million of nonperforming energy credits, of which approximately 85% were current with their contractual terms compared to $42.8 million of nonperforming energy credits as of December 31, 2017. In addition, 8.2% of the energy portfolio was criticized or classified as of March 31, 2018 compared to 11.5% at December 31, 2017. We recorded no recoveries or charge offs on our energy portfolio during the three months ended March 31, 2018. As presente d 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

	Energy Sector						As of March 31, 2018
(In thousands)	March 31, 2018			December 31, 2017			Unfunded Commitments		Criticized/ Classified
Outstanding Balance
E&P	$	290,516		$	278,171		$	138,983	$	62,992
Midstream		558,745			557,800			510,001		6,508
Energy Services		134,939			99,400			101,433		11,465
Total energy sector	$	984,200		$	935,371		$	750,417	$	80,965
Percent to total loans		11.3	%		11.3	%
Allocated ACL
E&P	$	11,615		$	12,892
Midstream		1,707			1,582
Energy Services		1,597			2,509
Total allocated ACL	$	14,919		$	16,983
ACL as a Percentage of Outstanding Balances
E&P		4.00	%		4.63	%
Midstream		0.31			0.28
Energy Services		1.18			2.52
Total percentage		1.52	%		1.82	%

E&P loans outstanding totaled $290.5 million and comprised approximately 29.5% of outstanding energy loans as of March 31, 2018 compared to $278.2 million, or 29.7%, of outstanding energy loans as of December 31, 2017. 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 approved 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 $558.7 million and comprised approximately 56.8% of outstanding energy loans as of March 31, 2018 compared to $557.8 million, or approximately 59.6% of outstanding energy loans as of December 31, 2017. 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 $134.9 million and comprised approximately 13.7% of outstanding energy as of March 31, 2018 compared to $99.4 million, or approximately 10.6% of outstanding energy loans, as of December 31, 2017. 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 C&I Loans - Specialized Lending
	As of
(In thousands)	March 31, 2018		December 31, 2017		Unfunded Commitments as of March 31, 2018
Specialized Industries
Restaurant industry	$	1,078,904	$	1,035,538	$	316,134
Healthcare		424,715		408,665		248,464
Technology		469,356		411,050		121,589
Total specialized industries	$	1,972,975	$	1,855,253	$	686,187

Restaurant industry, technology and healthcare 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 both of these components is national in scope, given the size and capital needs of the majority of the clients. Additionally, in the restaurant sector we focus on major franchisees and the operating companies of “branded” restaurant concepts. Our healthcare portfolio focuses on middle market healthcare providers with diversified payer mix, while our technology portfolio focuses on the technology sub-segments of software and services, network and communications infrastructure, and internet and mobility applications. Given these customer profiles, we frequently participate in such credits with two or more banks through syndication.

Commercial Real Estate. Commercial real estate (“CRE”) loans decreased by $2.0 million, or 0.2%, since December 31, 2017. CRE loans represented 13.3% of our total loan portfolio as of March 31, 2018, compared to 14.0% of total loans as of December 31, 2017. 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 and retail facilities.

Consumer . Consumer loans increased by $19.1 million, or 1.1%, from December 31, 2017 to March 31, 2018. Consumer loans represented 20.6% of total loans at March 31, 2018, compared to 21.4% of total loans at December 31, 2017. We originate residential real estate mortgages that are held for investment as well as held for sale in the secondary market. Approximately 14.0% of the consumer portfolio relates to acquired portfolios compared to 15.1% as of December 31, 2017. Our originated consumer loan portfolio totaled $1.53 billion as of March 31, 2018, an increase of $34.7 million, or 2.3% from December 31, 2017.

Small Business. Small Business loans increased by $13.5 million, or 6.1% from December 31, 2017 to March 31, 2018. Small business loans represented 2.7% of the total loan portfolio at March 31, 2018 and December 31, 2017. 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.

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 is monitored and reported to the board of directors on at least a quarterly basis. In addition to the loans categorized in the loan portfolio section, we manage concentration limits for construction, multifamily, office building, leveraged loans, technology loans, specialty chemical, and non-specialized 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 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. While we continue to proactively monitor the loan portfolio, external factors, such as an economic downturn, can lead to negative consequences such as lowered earnings and unemployment leading to the inability to make loan payments.

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. Polices 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 periodically reviewed for accuracy and adjusted as appropriate for all relationships greater than $2.5 million.

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 (which we refer to as other real estate owned or “OREO”). The following tables present nonperforming assets and additional asset quality data for the dates indicated:

Table 17 –Nonperforming Assets

	As of March 31, 2018
(Recorded Investment in thousands)	Originated			ANCI			ACI			Total
Nonperforming loans ("NPLs"):
Commercial and industrial	$	48,495		$	—		$	—		$	48,495
Commercial real estate		—			—			—			—
Consumer		1,202			1,949			—			3,151
Small business		173			397			—			570
Total NPLs		49,870			2,346			—			52,216
Foreclosed OREO and other NPAs		14,624			164			5,677			20,465
Total nonperforming assets ("NPAs")	$	64,494		$	2,510		$	5,677		$	72,681
NPLs as a percentage of total loans		0.58	%		0.03	%		0.00	%		0.60	%
NPLs as a percentage of portfolio		0.61	%		1.27	%		0.00	%
NPAs as a percentage of loans plus OREO/other NPAs		0.74	%		0.03	%		0.07	%		0.84	%
NPAs as a percentage of portfolio plus OREO/other NPAs		0.78	%		1.35	%		2.22	%
NPAs as a percentage of total assets		0.59	%		0.02	%		0.05	%		0.66	%
Accruing 90 days or more past due	$	333		$	-		$	14,165		$	14,498

	As of December 31, 2017
(Recorded Investment in thousands)	Originated			ANCI			ACI			Total
Nonperforming loans ("NPLs"):
Commercial and industrial	$	43,085		$	—		$	—		$	43,085
Commercial real estate		—			—			225			225
Consumer		1,519			2,222			—			3,741
Small business		199			443			—			642
Total NPLs		44,803			2,665			225			47,693
Foreclosed OREO and other NPAs		15,973			187			6,805			22,965
Total nonperforming assets ("NPAs")	$	60,776		$	2,852		$	7,030		$	70,658
NPLs as a percentage of total loans		0.54	%		0.03	%		0.00	%		0.58	%
NPLs as a percentage of portfolio		0.57	%		1.35	%		0.09	%
NPAs as a percentage of loans plus OREO/other NPAs		0.73	%		0.03	%		0.08	%		0.85	%
NPAs as a percentage of portfolio plus OREO/other NPAs		0.78	%		1.44	%		2.63	%
NPAs as a percentage of total assets		0.56	%		0.03	%		0.06	%		0.65	%
Accruing 90 days or more past due	$	773		$	54		$	16,988		$	17,815

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.

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. For the three months ended March 31, 2018, approximately $0.6 million and $2.8 million, respectively, of contractual interest accrued on nonperforming loans was not recognized in earnings; however, approximately $0.3 million and $0.2 million, respectively, of contractual interest paid was recognized on the cash basis.

Our nonperforming loans were 0.60% of our loan portfolio as of March 31, 2018 compared to 0.58% of our loan portfolio as of December 31, 2017, with the increase primarily due to one restaurant industry credit within our originated portfolio. As of March 31, 2018, we had $37.3 million in energy credits considered nonperforming, of which 85% were current under their contractual terms.

The following table includes our originated nonperforming loans and assets for the periods presented.

Table 18 – Originated Nonperforming Assets

	As of
(Recorded Investment in thousands)	March 31, 2018			December 31, 2017
Nonperforming loans ("NPLs"):
Commercial and industrial
Energy- E&P	$	31,433		$	36,896
- Midstream		—			—
- Energy Services		5,836			5,926
Restaurant industry		10,969			—
Other commercial		257			263
Consumer		1,202			1,519
Small business		173			199
Total NPLs - originated portfolio		49,870			44,803
E&P - net profits interests		14,295			15,833
Foreclosed OREO		329			140
Total net profits interest and other nonperforming assets ("NPAs") - originated portfolio		14,624			15,973
Total nonperforming assets ("NPAs") - originated portfolio	$	64,494		$	60,776
NPLs as a percentage of total loans		0.58	%		0.54	%

Other Real Estate Owned. Other real estate owned (“OREO”) 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, are reported in other noninterest expense.

The balance of foreclosed OREO was $6.6 million as of March 31, 2018 compared to $7.1 million as of December 31, 2017, with 85.5% related to foreclosures resulting from our ACI loan portfolio. Approximately 29.0% of our foreclosed OREO, or $1.8 million, is comprised of single-family residential properties located in Alabama and Florida. As of March 31, 2018 and December 31, 2017, there had been no additions to OREO resulting from foreclosure or repossession from a shared national credit. However, we did receive during the second and fourth quarters of 2016, net profits interests (“NPIs”) in certain oil and gas reserves related to energy credit bankruptcies related to two energy portfolio shared national credits that were charged-off in 2016. These NPIs are considered financial instruments and recorded at fair value and are subject to the volatility of oil and gas prices and other operational factors outside of our control. The balance of the NPIs was $14.3 million as of March 31, 2018 compared to $15.8 million as of December 31, 2017. The decrease was primarily attributable to a decline in the estimated fair value due to lower production forecasts for one of the NPIs. The following tables present the balances of our OREO and NPIs as of the dates indicated:

Table 19 – OREO and Other Assets

	As of March 31, 2018
(In thousands)	Originated		ANCI		ACI		Other		Total
Acquired through foreclosure
Land	$	—	$	—	$	569	$	—	$	569
Residential property		329		164		2,282		—		2,775
Commercial property		—		—		2,826		—		2,826
Total foreclosed OREO		329		164		5,677		—		6,170
Unutilized bank-owned properties
Land		—		—		—		473		473
Total unutilized bank owned property		—		—		—		473		473
Total OREO		329		164		5,677		473		6,643
Other assets - net profits interests		14,295		—		—		—		14,295
Total OREO and other assets	$	14,624	$	164	$	5,677	$	473	$	20,938

	As of December 31, 2017
(In thousands)	Originated		ANCI		ACI		Other		Total
Acquired through foreclosure
Land	$	—	$	—	$	1,393	$	—	$	1,393
Residential property		140		164		2,392		—		2,696
Commercial property		—		23		3,020		—		3,043
Total foreclosed OREO		140		187		6,805		—		7,132
Unutilized bank-owned properties
Land		—		—		—		473		473
Total unutilized bank owned property		—		—		—		473		473
Total OREO		140		187		6,805		473		7,605
Other assets - net profits interests		15,833		—		—		—		15,833
Total OREO and other assets	$	15,973	$	187	$	6,805	$	473	$	23,438

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, of which approximately half consists of single family residential loans, the bulk of which are located in Florida and Alabama, with the remainder consisting of a healthcare loan and commercial real estate loans. These loans are monitored on a bi-weekly basis by both the lines of business and credit administration. As of March 31, 2018, there were no shared national credits that were 90 days or more past due and accruing.

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 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 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 at a rate lower than current market rate for a new loan with similar risk, 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 provid ed 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, 2018 , there were no shared national credit borrowers that were considered TDRs.

ACI Loans that were modified into TDRs . There were no ACI loans modified in a TDR for the three months ended March 31, 2018 or 2017. There were no ACI TDRs experiencing payment default during the three months ended March 31, 2018 and 2017.

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 not identified any credit as a potential problem loan at March 31, 2018. Any potential problem loans are assessed for loss exposure consistent with the methods described in Notes 1 and 3 to our Consolidated Financial Statements.

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 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 in light of current and anticipated economic conditions (see Notes 1 and 3 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 31, 2018 was $91.5 million, or 1.06% of total loans (net of unearned discounts and fees) of $8.6 billion. This compares with $87.6 million, or 1.06% of total loans of $8.25 billion at December 31, 2017. 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 amounts 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 21 –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, 2018		December 31, 2017		March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017
Originated Loans
Commercial and industrial	$	60,469	$	55,050		1.12	%		1.10	%		62.40	%		60.94	%
Commercial real estate		9,663		9,850		0.91			0.93			12.29			12.83
Consumer		7,344		8,389		0.48			0.56			17.68			18.11
Small business		4,510		4,367		2.02			2.08			2.58			2.54
Total originated loans		81,986		77,656		1.00			1.00			94.95			94.42
ANCI Loans
Commercial and industrial		741		864		1.30			1.47			0.65			0.71
Commercial real estate		109		130		0.87			0.82			0.15			0.19
Consumer		89		85		0.09			0.08			1.24			1.39
Small business		250		317		2.12			2.72			0.14			0.14
Total ANCI		1,189		1,396		0.64			0.71			2.18			2.43
ACI Loans
Commercial and industrial		—		5		—			0.02			0.33			0.36
Commercial real estate		1,914		2,010		2.47			2.52			0.89			0.96
Consumer		6,448		6,509		4.50			4.31			1.65			1.83
Small business		—		—		—			—			—			—
Total ACI		8,362		8,524		3.35			3.27			2.87			3.15
Total Loans
Commercial and industrial		61,210		55,919		1.12			1.09			63.38			62.01
Commercial real estate		11,686		11,990		1.01			1.04			13.33			13.98
Consumer		13,881		14,983		0.78			0.85			20.57			21.33
Small business		4,760		4,684		2.02			2.11			2.72			2.68
Total allowance for credit losses	$	91,537	$	87,576		1.06	%		1.06	%		100.00	%		100.00	%

Originated ACL. The ACL on our originated loan portfolio totaled $82.0 million, or 1.00% on loans of $8.21 billion as of March 31, 2018 compared to $77.7 million, or 1.00% on loans of $7.79 billion on loans of as of December 31, 2017. The primary driver of the originated ACL is the net new loan growth as well as the underlying credit quality of the loans. The underlying credit quality changes were driven by general migration related to the seasoning of the General C&I portfolio. Our loans are categorized into specific risk segments and are subject to loss rates according to their segment and risk rating. As March 31, 2018, $60.5 million, or 73.8% of our originated ACL is attributable to our C&I loan segment compared to $55.1 million, or 70.9%, as December 31, 2017. The ACL as a percentage of the C&I portfolio has stayed steady at 1.1%, with a slight increase of $5.4 million as of March 31, 2018 since December 31, 2017. The increase in the level of ACL as a percentage of C&I loans as of March 31, 2018 from December 31, 2017 is primarily the result of increased levels of criticized loans as presented below.

The level of criticized and classified loans in the C&I portfolio is presented in the following tables.

Table 22 –Criticized and Classified C&I Loans

	As of March 31, 2018
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
Originated Loans
Commercial and Industrial
General C&I	$	93,231	$	38,181	$	—	$	131,412
Energy Sector		11,889		62,309		6,767		80,965
Restaurant industry		42,028		10,969		—		52,997
Healthcare		—		68		—		68
Total	$	147,148	$	111,527	$	6,767	$	265,442

	As of December 31, 2017
(Recorded Investment in thousands)	Special Mention		Substandard		Doubtful		Total Criticized / Classified
Originated Loans
Commercial and Industrial
General C&I	$	80,550	$	41,309	$	—	$	121,859
Energy Sector		—		99,979		7,634		107,613
Restaurant industry		4,536		12,505		—		17,041
Healthcare		—		71		—		71
Total	$	85,086	$	153,864	$	7,634	$	246,584

As of March 31, 2018, $9.7 million, or 12% of our originated ACL is attributable to the CRE loan segment compared to $9.9 million, or 12.7%, as of December 31, 2017. The ACL as a percentage of the CRE portfolio has decreased to 0.91% as of March 31, 2018 from 0.93% as of December 31, 2017, primarily as a result of improving qualitative considerations surrounding macroeconomic and concentration risk.

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, 2018, these totaled $8.8 million and accounted for approximately 10.8% of the originated ACL compared to $7.6 million, or 9.8%, as of December 31, 2017, with the most significant considerations being additional qualitative adjustments in C&I related to classified loans and collateral value; these additional qualitative adjustments were partially offset by decreases in the energy qualitative adjustments that were the result of improving conditions in the energy portfolio and industry. Approximately $4.0 million and $4.5 million as of March 31, 2018 and December 31, 2017, respectively, of these qualitative reserves were allocated to the energy portfolio.

As of March 31, 2018 and December 31, 2017, $26.6 million, or 32.5% and $34.6 million, or 44.6%, respectively of the total originated ACL, was attributable to shared national credits. The ACL is estimated based on the underlying credit quality of the loan, primarily based on its risk segment and risk rating. This methodology is consistent whether or not a loan is a shared national credit.

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

Table 23 – Originated Charge-offs and Recoveries

	Originated Charge-offs and Recoveries
	Three Months Ended March 31,
(In thousands)	2018		2017
Charge-offs:
Commercial and industrial	$	58	$	237
Consumer		296		117
Small business		453		—
Total charge-offs		807		354
Recoveries:
Commercial and industrial		5		524
Commercial real estate		5		5
Consumer		68		31
Small business		21		37
Total recoveries		99		597
Net charge-offs	$	708	$	(243	)

ANCI ACL. The ACL on our ANCI loans totaled $1.2 million on $185.3 million in loans, or 0.64%, compared to $1.4 million on $197.9 million in loans, or 0.71%, at March 31, 2018 and December 31, 2017, respectively. ANCI loans were recorded at fair value at the date of each acquisition and are pooled for ACL assessment based on risk segment, with the majority of the ANCI loans within the consumer residential category. Any net shortage of credit mark indicates the need for an allowance on that segment of loans with certain loans individually reviewed for specific impairment.

ACI ACL. The ACL on our ACI loans totaled $8.4 million on $249.5 million in loans, or 3.35%, at March 31, 2018, compared to $8.5 million on $260.6 million in loans, or 3.27% at December 31, 2017. 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 loans.

Since the acquisition dates, the expected cash flows have been 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 77.1% of the ACI ACL at March 31, 2018 compared to 76.4% of the ACI ACL at December 31, 2017. This component of the ACL has declined $0.1 million to $6.4 million since December 31, 2017 due to impairment reversals largely driven by loan pay-offs.

The commercial real estate component comprises 22.9% of the ACI ACL at March 31, 2018 and has decreased $0.1 million to $1.9 million since December 31, 2017.

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 24 – Allowance for Credit Losses Loans Roll-forward

	Total Loans
	Three Months Ended March 31,						Year Ended December 31,
(In thousands)	2018			2017			2017
Allowance for credit losses at beginning of period	$	87,576		$	82,268		$	82,268
Charge-offs		(812	)		(551	)		(6,871	)
Recoveries		393		801				2,444
Provision for credit losses		4,380			5,786			9,735
Allowance for credit losses at end of period	$	91,537		$	88,304		$	87,576

Loans at end of period, net of unearned income	$	8,646,987		$	7,561,472		$	8,253,427
Average loans, net of unearned income		8,443,951			7,551,173			7,825,763
Ratio of ending allowance to ending loans		1.06	%		1.17	%		1.06	%
Ratio of net charge-offs to average loans ⁽¹⁾		0.02			(0.01	)		0.06
Net charge-offs as a percentage of:
Provision for credit losses		9.57			(4.32	)		45.48
Allowance for credit losses ⁽¹⁾		1.86			(1.15	)		5.06
Allowance for credit losses as a percentage of nonperforming loans		175.30			65.80			183.62

(1)

Annualized for the three months ended March 31, 2018 and 2017.

	Originated Loans
	Three Months Ended March 31,						Year Ended December 31,
(In thousands)	2018			2017			2017
Allowance for credit losses at beginning of period	$	77,656		$	71,012		$	71,012
Charge-offs		(807	)		(354	)		(5,746	)
Recoveries		99			597			882
Provision for credit losses		5,038			6,186			11,508
Allowance for credit losses at end of period		81,986		$	77,441		$	77,656

Loans at end of period, net of unearned income	$	8,212,221		$	7,037,217		$	7,794,943
Ratio of ending allowance to ending loans		1.00	%		1.10	%		1.00	%
Net charge-offs as a percentage of:
Provision for credit losses		14.05			(3.93	)		42.27
Allowance for credit losses ⁽¹⁾		3.50			(1.27	)		6.26
Allowance for credit losses as a percentage of nonperforming loans		164.40			60.87			173.33

(1)

Annualized for the three months ended March 31, 2018 and 2017.

	ANCI Loans
	Three Months Ended March 31,						Year Ended December 31,
(In thousands)	2018			2017			2017
Allowance for credit losses at beginning of period	$	1,396		$	978		$	978
Charge-offs		(5	)		(158	)		(618	)
Recoveries		211			192			635
Provision for credit losses		(413	)		(62	)		401
Allowance for credit losses at end of period	$	1,189		$	950		$	1,396

Loans at end of period, net of unearned income	$	185,276		$	213,063		$	197,924
Ratio of ending allowance to ending loans		0.64	%		0.45	%		0.71	%
Net charge-offs (recoveries) as a percentage of:
Provision for credit losses		49.88			54.84			(4.24	)
Allowance for credit losses		(70.26	)		(14.51	)		(1.22	)
Allowance for credit losses as a percentage of nonperforming loans		50.68			28.00			52.38

(1)

Annualized for the three months ended March 31, 2018 and 2017.

	ACI Loans
	Three Months Ended March 31,						Year Ended December 31,
(In thousands)	2018			2017			2017
Allowance for credit losses at beginning of period	$	8,524		$	10,278		$	10,278
Charge-offs		—			(39	)		(507	)
Recoveries		83			12			927
Provision for credit losses		(245	)		(338	)		(2,174	)
Allowance for credit losses at end of period	$	8,362		$	9,913		$	8,524

Loans at end of period, net of unearned income	$	249,490		$	311,192		$	260,560
Ratio of ending allowance to ending loans		3.35	%		3.19	%		3.27	%
Net charge-offs (recoveries) as a percentage of:
Provision for credit losses		33.88			(7.99	)		19.32
Allowance for credit losses		(4.03	)		1.10			(4.93	)
Allowance for credit losses as a percentage of nonperforming loans	NM				277.21		NM

(1)

Annualized for the three months ended March 31, 2018 and 2017.

NM – Not Meaningful

Deposits. 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. All customer deposits are non-brokered. The following table illustrates the growth in our deposits during the periods indicated:

Table 25 –Deposits

					Percent to Total						Percentage Change
(In thousands)	March 31, 2018		December 31, 2017		March 31, 2018			December 31, 2017			2018 vs 2017
Noninterest-bearing demand	$	2,040,977	$	2,242,765		22.6	%		24.9	%		(9.0	)	%
Interest-bearing demand		4,795,156		4,675,109		53.0			51.8			2.6
Savings		192,434		177,304		2.1			2.0			8.5
Time deposits less than $100,000		929,268		869,783		10.3			9.7			6.8
Time deposits greater than $100,000		1,091,136		1,046,554		12.1			11.5			4.3
Total deposits (including brokered)	$	9,048,971	$	9,011,515		100.0	%		100.0	%		0.4		%

Total brokered deposits	$	818,346	$	796,734		9.0	%		8.8	%		2.7		%

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

Table 26 –Average Deposits/Rates

	Three Months Ended March 31,
	2018					2017
	Average		Average			Average		Average
	Amount		Rate			Amount		Rate
(In thousands)	Outstanding		Paid			Outstanding		Paid
Noninterest-bearing demand	$	2,128,595		—	%	$	1,857,657		—	%
Interest-bearing deposits
Interest-bearing demand		4,795,114		0.76			4,455,742		0.50
Savings		179,662		0.26			182,247		0.25
Time deposits		1,909,019		1.59			1,529,422		1.09
Total interest bearing deposits		6,883,795		0.98			6,167,411		0.64
Total average deposits	$	9,012,390		0.75	%	$	8,025,068		0.49	%

Borrowings

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

Table 27 –Borrowings

(In thousands)	March 31, 2018		December 31, 2017
Summary of Borrowings
Securities sold under repurchase agreements	$	1,298	$	1,026
Advances from FHLB		150,000		150,000
Senior debt		184,700		184,629
Subordinated debt		98,746		98,687
Junior subordinated debentures		36,591		36,472
Total borrowings	$	471,335	$	470,814
Average total borrowings - YTD	$	444,556	$	493,196

The advances from the FHLB as of March 31, 2018 are one-year fixed rate advances. The advances from the FHLB as of December 31, 2017 matured in January 2018.

Shareholders’ Equity

Tangible Common Equity

As of March 31, 2018 and December 31, 2017, our ratio of shareholders’ equity to total assets was 12.34% and 12.41%, respectively, and we had tangible common equity ratios of 9.65% and 9.71%, respectively. Tangible common equity ratio is a non-GAAP financial measure. We believe that this non-GAAP financial measure provides investors with information useful in understanding our financial performance and, specifically, our capital position. The tangible common equity ratio is calculated as tangible common shareholders’ equity divided by tangible assets. Tangible common equity is calculated as total shareholders’ equity less goodwill and other intangible assets, net, and tangible assets are total assets less goodwill and other intangible assets, net. The following table provides a reconciliation of tangible common equity to GAAP total common shareholders’ equity and tangible assets to GAAP total assets:

Table 28 –Tangible Assets / Tangible Common Equity

(In thousands)	March 31, 2018			December 31, 2017
Shareholders’ equity	$	1,357,103		$	1,359,056
Less: Goodwill and other intangible assets, net		(327,247	)		(328,040	)
Tangible common shareholders’ equity		1,029,856			1,031,016
Total assets		10,999,382			10,948,926
Less: Goodwill and other intangible assets, net		(327,247	)		(328,040	)
Tangible assets	$	10,672,135		$	10,620,886
Tangible common equity ratio		9.65	%		9.71	%

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, 2018, our capital ratios exceeded these requirements. Our actual regulatory capital amounts and ratios at March 31, 2018 are presented in the following table:

Table 29 – Regulatory Capital Amounts/Ratios

	Consolidated Company					Bank
(In thousands)	Amount		Ratio			Amount		Ratio
March 31, 2018
Tier 1 leverage	$	1,120,451		10.6	%	$	1,225,079		11.6	%
Common equity tier 1 capital		1,081,809		10.4			1,175,079		11.3
Tier 1 risk-based capital		1,120,451		10.8			1,225,079		11.8
Total risk-based capital		1,311,834		12.6			1,342,433		12.9
The minimum amounts of capital and ratios established by banking regulators are as follows:
Tier 1 leverage	$	423,950		4.0	%	$	423,855		4.0	%
Common equity tier 1 capital		467,253		4.5			467,093		4.5
Tier 1 risk-based capital		623,004		6.0			622,790		6.0
Total risk-based capital		830,672		8.0			830,387		8.0
Well capitalized requirement:
Tier 1 leverage	N/A		N/A			$	529,818		5.0	%
Common equity tier 1 capital	N/A		N/A				674,689		6.5
Tier 1 risk-based capital	N/A		N/A				830,387		8.0
Total risk-based capital	N/A		N/A				1,037,984		10.0

Liquidity and Capital Resources

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 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, 2018, 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 correspondent banks, the Federal Home Loan Bank (“FHLB”) 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, 2018 and December 31, 2017, was $1.09 billion and $1.05 billion, respectively.

At March 31, 2018, the scheduled maturities of time deposits greater than $100,000 were as follows:

Table 30 – Time Deposit Maturity Schedule

	March 31, 2018
(In thousands)	Amount		Average Interest Rate
Under 3 months	$	93,418		1.47	%
3 to 6 months		303,547		1.61
6 to 12 months		342,601		1.69
12 to 24 months		300,068		1.92
24 to 36 months		38,920		1.67
36 to 48 months		7,069		1.23
Over 48 months		5,513		1.70
Total	$	1,091,136		1.67	%

Cash Flow Analysis

Cash and cash equivalents

At March 31, 2018, we had $416.7 million cash and cash equivalents on hand, a decrease of $314.1 million, or 43.0%, over our cash and cash equivalents of $730.8 million at December 31, 2017. At March 31, 2018 our cash and cash equivalents comprised 3.79% of total assets compared to 6.67% at December 31, 2017. 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, 2018 is due to timing of net loan fundings and customer deposits at the end of the quarter.

2018 vs. 2017

As shown in the Condensed Consolidated Statements of Cash Flows, operating activities provided $73.5 million in the three months ended March 31, 2018 compared to $62.5 million in the three months ended March 31, 2017. The increase in operating funds during the three months ended March 31, 2018 was due primarily to an increase in net income and an increase in proceeds from the sale of held for sale loans, offset by an increase in originations of loans held for sale.

Investing activities during the three months ended March 31, 2018 used $414.9 million of net funds, primarily due to net loan fundings of $397.5 million and purchases of securities of $111.4 million, partially offset by sales and other cash flows from available for sale securities. This compares to investing activities during the three months ended March 31, 2017 using $170.7 million of net funds, primarily due to net loan fundings of $171.0 million and the purchase of available for sale securities of $101.1 million, partially offset by sales of securities available for sale of $84.7 million.

Financing activities during the three months ended March 31, 2018 provided net funds of $27.3 million, due to an increase in deposits of $37.5 million, offset by a dividend of $10.5 million. This compares to financing activities during the three months ended March 31, 2017 providing net funds of $175.4 million, resulting from an increase in short-term FHLB borrowings of $360.0 million, offset by a decrease in deposits of $175.0 million.

NON-GAAP FINANCIAL MEASURES

We identify “efficiency ratio,” “adjusted noninterest expense,” “adjusted operating revenue,” “tangible common equity,” “tangible common equity ratio,” “return on average tangible common equity,” “tangible book value per share” and “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. We believe that this measure is important to many investors in the marketplace who wish to assess our performance versus that of our peers.

Our adjusted noninterest expenses represents total noninterest expenses net of any merger, restructuring or branch closing costs. Our adjusted operating revenue is equal to net interest income plus noninterest income excluding gains and losses on sales of securities and branches. 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 int erested 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. We believe the most directly comparable GAAP financial measure is the return on average common equity.

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.

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 33 – Non-GAAP Financial Measures

							As of and for the
	As of and for the three months ended						year ended
	March 31,						December 31,
(In thousands)	2018			2017			2017
Efficiency ratio
Noninterest expenses (numerator)	$	61,939		$	54,321		$	233,356
Net interest income	$	91,111		$	74,758		$	326,216
Noninterest income		24,983			24,105			99,874
Operating revenue (denominator)	$	116,094		$	98,863		$	426,090
Efficiency ratio		53.35	%		54.95	%		54.77	%
Adjusted noninterest expenses and operating revenue
Noninterest expense	$	61,939		$	54,321		$	233,356
Less: Branch closure expenses		35			46			198
Adjusted noninterest expenses	$	61,904		$	54,275		$	233,158
Net interest income	$	91,111		$	74,758		$	326,216
Noninterest income		24,983			24,105			99,874
Less: Securities gains (losses), net		12			81			(146	)
Adjusted operating revenue	$	116,082		$	98,782		$	426,236
Tangible common equity ratio
Shareholders’ equity	$	1,357,103		$	1,105,976		$	1,359,056
Less: Goodwill and other intangible assets, net		(327,247	)		(331,450	)		(328,040	)
Tangible common shareholders’ equity		1,029,856			774,526			1,031,016
Total assets		10,999,382			9,720,937			10,948,926
Less: Goodwill and other intangible assets, net		(327,247	)		(331,450	)		(328,040	)
Tangible assets	$	10,672,135		$	9,389,487		$	10,620,886
Tangible common equity ratio		9.65	%		8.25	%		9.71	%
Tangible book value per share
Shareholders’ equity	$	1,357,103		$	1,105,976		$	1,359,056
Less: Goodwill and other intangible assets, net		(327,247	)		(331,450	)		(328,040	)
Tangible common shareholders’ equity	$	1,029,856		$	774,526		$	1,031,016
Common shares issued		83,625,000			75,000,000			83,625,000
Tangible book value per share	$	12.32		$	10.33		$	12.33
Return on average tangible common equity
Average common equity	$	1,342,445		$	1,090,905		$	1,253,861
Less: Average intangible assets		(327,727	)		(332,199	)		(330,411	)
Average tangible common equity	$	1,014,718		$	758,706		$	923,450
Net income	$	38,825		$	26,117		$	102,353
Return on average tangible common equity ⁽¹⁾		15.52	%		13.96	%		11.08	%
Pre-tax, pre-provision net earnings
Income before taxes	$	49,775		$	38,756		$	182,999
Plus: Provision for credit losses		4,380			5,786			9,735
Pre-tax, pre-provision net earnings	$	54,155		$	44,542		$	192,734

___________________

(1)	Annualized for the three months ended March 31, 2018 and 2017.

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 interest rate risk 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 interest rate risk, 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 interest rate risk.

We evaluate interest rate risk and develop guidelines regarding balance sheet composition and re-pricing, funding sources and pricing, and off-balance sheet commitments that aim to moderate interest rate risk. We use computer 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 interest rate risk 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 interest rate risk 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 interest rate risk 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

The Bank’s net interest income simulation model projects that net interest income over a 12-month horizon will increase on an annual basis by 3.86%, or approximately $15.0 million, assuming an instant increase in interest rates of 100 basis points, by 7.59%, or approximately $29.4 million, assuming an instant increase in interest rates of 200 basis points and decrease by 4.15% or approximately $16.1 million, assuming an instant decrease in interest rates of 100 basis points. Based upon the current interest rate environment as of March 31, 2018, our sensitivity to interest rate risk was as follows:

Table 34- 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	$	29.4			7.59		%	$	410.9			18.08		%
+ 100 BP		15.0			3.86				230.5			10.14
- 100 BP		(16.1	)		(4.15	)			(309.8	)		(13.63	)

Based upon the current interest rate environment as of March 31, 2018, 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	$	31.8			8.20		%
+ 100 BP		16.1			4.15
- 100 BP		(16.8	)		(4.35	)
- 200 BP		(38.5	)		(9.94	)

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 interest rate risk exposure involved in our daily business 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. Our current interest rate hedges began to roll off at the end of 2017 and we do not currently expect to enter into interest rate swaps or like arrangements in the near-term.

Cash Flow Hedges. Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. We use interest rate swaps to manage overall cash flow changes related to interest rate risk exposure on benchmark interest rate loans (1-Month LIBOR). In June 2015 and March 2016, we entered into interest rate swap agreements with notional values totaling $982 million and $350 million, respectively, to manage overall cash flow changes related to interest rate risk exposure on the 1-Month LIBOR rate indexed loans. The following is a detail of our cash flow hedges as of March 31, 2018:

Table 35 –Summary of Cash Flow Hedges

Effective Date

Maturity Date

Notional

Amount

(In Thousands)

Fixed Rate

Variable Rate

June 15, 2015

December 17, 2018

382,000

1.33

1 Month LIBOR

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, 2018:

Table 36 –Derivative Positions

	March 31, 2018
			Fair Value
(In thousands)	Notional Amount		Other Assets		Other Liabilities
Derivatives designated as hedging instruments (cash flow hedges):
Commercial loan interest rate swaps	$	1,032,000	$	—	$	32,481
Derivatives not designated as hedging instruments:
Commercial loan interest rate swaps		701,111		2,390		2,390
Commercial loan interest rate caps		183,744		270		270
Commercial loan interest rate floors		328,420		2,463		2,463
Mortgage loan held for sale interest rate lock commitments		9,740		110		—
Mortgage loan forward sale commitments		403		—		—
Mortgage loan held for sale floating commitments		14,111		—		—
Foreign exchange contracts		44,825		1,070		1,030
Total derivatives not designated as hedging instruments		1,282,354		6,303		6,153
Total derivatives	$	2,314,354	$	6,303	$	38,634

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, 2018 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, 2017.

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

None.

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 15, 2018		/s/ Paul B. Murphy
		Paul B. Murphy
		Chairman and Chief Executive Officer

Date: May 15, 2018		/s/ Valerie C. Toalson
		Valerie C. Toalson
		Executive Vice President and Chief Financial Officer

Exhibit 31.1

CERTIFICATIONS

I, Paul B. Murphy, certify that:

I have reviewed this quarterly report on Form 10-Q of Cadence Bancorporation;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

May 15, 2018

/s/ Paul B. Murphy

Paul B. Murphy

Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Valerie C. Toalson, certify that:

I have reviewed this quarterly report on Form 10-Q of Cadence Bancorporation;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

May 15, 2018

/s/ Valerie C. Toalson

Valerie C. Toalson

Chief Financial Officer

(Principal Accounting Officer)

Exhibit 32.1

Chief Executive Officer’s Certification required under Section 906 of Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Cadence Bancorporation (the “Company”) on Form 10-Q for the period ended March 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Paul B. Murphy, Chief Executive Officer, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: May 15, 2018

/s/ Paul B. Murphy

Paul B. Murphy

Chairman and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to Cadence Bancorporation and will be retained by Cadence Bancorporation and furnished to the Securities and Exchange Commission or its staff upon request.

Exhibit 32.2

Chief Financial Officer’s Certification required under Section 906 of Sarbanes-Oxley Act of 2002

In connection with the quarterly report of Cadence Bancorporation (the “Company”) on Form 10-Q for the period ended March 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Valerie C. Toalson, Chief Financial Officer, certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date: May 15, 2018

/s/ Valerie C. Toalson

Valerie C. Toalson

Chief Financial Officer

(Principal Accounting Officer)