UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2020

☐ 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)

Registrant’s telephone number, including area code: (713) 871-4000

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act. Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting shares of common stock held by non-affiliates of the registrant was approximately $0.9 billion. This figure is based on the closing sale price of $8.86 per share of the registrant’s Class A common stock, par value $0.01 per share (the “Class A common stock”) on June 30, 2020.

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

Class A Common Stock, $0.01 Par Value	124,457,864
Class	Outstanding as of February 26, 2021

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement relating to the 2021 Annual Meeting of Shareholders, which will be filed within 120 days after December 31, 2020, are incorporated by reference into Part II, Item 5 and Part III, Items 10-14 of this Annual Report on Form 10-K.

CADENCE BANCORPORATION AND SUBSIDIARIES

2020 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I		6
Item 1.	Business	6
Item 1A.	Risk Factors	18
Item 1B.	Unresolved Staff Comments	36
Item 2.	Properties	36
Item 3.	Legal Proceedings	36
Item 4.	Mine Safety Disclosures	36
PART II		37
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	37
Item 6.	Selected Consolidated Financial Data	40
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 8.	Financial Statements and Supplementary Data	92
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	159
Item 9A.	Controls and Procedures	159
Item 9B.	Other Information	159
PART III		160
Item 10.	Directors, Executive Officers and Corporate Governance	160
Item 11.	Executive Compensation	160
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	160
Item 13.	Certain Relationships and Related Transactions, and Director Independence	160
Item 14.	Principal Accountant Fees and Services	160
PART IV		160
Item 15.	Exhibits and Financial Statement Schedules	160
Item 16.	Form 10-K Summary	160
Signatures		163

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Forward-Looking Statements

This Report on Form 10-K (“Annual Report”) 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;

• COVID-19, market, operational, liquidity, credit, strategic and general risks associated with our business;

• deteriorating asset quality and higher loan charge-offs;

• the laws and regulations applicable to our business;

• our ability to achieve organic loan and deposit growth and the composition of such growth;

• increased competition in the financial services industry;

• derivative transactions expose us to credit and market risk;

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

• material weaknesses in our internal control over financial reporting;

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

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

• our ability to monitor our lending relationships;

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

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

• the amount of nonperforming and criticized assets we hold;

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

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

• environmental liability associated with our lending activities;

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

• litigation and other legal proceedings;

• changes in legislation, regulation, policies, or administrative practices, whether by judicial, governmental, or legislative action, and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection, and the ability to comply with such changes in a timely manner;

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

• requirements to remediate adverse examination findings;

• regulatory initiatives regarding regulatory capital requirements may require heightened capital;

• the discontinuation of the London Interbank Offered Rate (“LIBOR”) and other reference rates;

• our modeling estimates related to a changing interest rate environment;

• natural disasters, war, terrorist activities, or a pandemic;

• adverse effects due to COVID-19 on us and our customers, counterparties, employees, and third-party service providers, and the adverse impacts to our business, financial position, results of operations, and prospects; or

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

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Annual 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

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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.

Summary of Risk Factors

Our business is subject to a number of risks that could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. These risks are discussed more fully under “Item 1A. Risk Factors” and include, but are not limited to the following:

Public Health and COVID-19

• The COVID-19 pandemic is adversely affecting us and our customers, counterparties, employees, and third-party service providers, and the continued adverse impacts on our business, financial position, results of operations, and prospects could be significant.

Credit Risk

We are highly subject to credit risk.

• Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.

• The security interest that we have in our clients’ assets may not be sufficient to protect us from loss.

• Many of our loans are to commercial borrowers, which have unique risks compared to other types of loans.

• Our loan portfolio has significant concentration in energy and specialized industries.

• Sustained low oil prices, volatility in oil prices and downturns in the energy industry, including in Texas, could materially and adversely affect us.

• A significant portion of our loan portfolio is comprised of loan participations and Shared National Credits.

• The amount of nonperforming and criticized assets may adversely affect our results of operations and financial condition.

• The fair value of our investment securities may decline.

Liquidity Risk

• Liquidity risk could impair our ability to fund operations and meet our obligations as they become due and could jeopardize our financial condition.

• We rely on customer deposits as a significant source of funding, and our deposits may decrease in the future.

• The borrowing needs of our clients may increase, especially during a challenging economic environment, which could result in increased borrowing against our contractual obligations to extend credit.

• Our indebtedness could affect our ability to meet our obligations and may otherwise restrict our activities.

Market Risk

• We are subject to interest rate risk.

• The geographic concentration of our markets in Texas and the southeast United States makes our business susceptible to local economic conditions.

• By engaging in derivative transactions, we are exposed to credit and market risk.

Strategic Risk

• We face significant competition to attract and retain customers and clients.

• We may not be able to manage our growth effectively.

• We may not be able to raise additional capital in the future.

• Future acquisitions will subject us to a variety of risks.

• If the goodwill that we record in connection with a business acquisition becomes impaired, it could require a charge to earnings.

Operational Risk

• We are subject to certain operational risks.

• We are subject to environmental liability risk associated with our lending activities.

• We offer certain third-party wealth management products which could experience significant declines in value, subjecting us to reputational damage and litigation risk.

• We may be adversely impacted by the transition from LIBOR as a reference rate.

• A failure in or breach of our operational or security systems or infrastructure, or those of our third-party providers, could result in financial losses to us and/or in the disclosure or misuse of confidential or proprietary information, including client information.

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• We depend on third parties for many of our information technology and telecommunications solutions.

• We are subject to laws regarding the privacy, information security and protection of personal information, and any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation.

• We continually encounter technological changes, and if we are unable to stay current with those changes, we may not be able to effectively compete.

• We may be adversely affected by the soundness of other financial institutions.

Regulatory Risk

• The banking industry is highly regulated, and current and future legislative or regulatory changes could have a significant adverse effect on our business, financial condition, or results of operations.

• Because our total assets exceed $10 billion, we are subject to additional regulatory requirements.

• Regulatory initiatives regarding bank capital requirements may require heightened capital.

• Regulators periodically examine our business and we may be required to remediate adverse examination findings.

• The Federal Reserve may require us to commit additional capital resources to support Cadence Bank.

Compliance Risk

• We are subject to numerous laws designed to protect consumers.

• Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our risk of liability with respect to such loans and could increase our cost of doing business.

• The expanding body of federal, state and local regulations and/or the licensing of loan servicing, collections or other aspects of our business and our sales of loans to third parties may increase the cost of compliance and the risks of noncompliance.

• Failure to comply with economic and trade sanctions or with applicable anti-corruption laws could have a material adverse effect on our business.

Economic Conditions

• The fiscal and monetary policies of the U.S. government could have a material adverse effect on our results of operations.

• The current economic environment poses significant challenges and could adversely affect our financial condition and results of operations.

Investment in Our Class A Common Stock

• The market price of our Class A common stock may be subject to substantial fluctuations.

• There are substantial regulatory limitations on changes of control of bank holding companies that may discourage investors from purchasing shares of our Class A common stock.

• Securities analysts may not continue coverage on our Class A common stock.

• Shares of our Class A common stock are subject to dilution.

• We may issue shares of Class B non-voting common stock or shares of preferred stock that would adversely affect the rights of our Class A common shareholders.

• Our future ability to pay dividends is subject to restrictions.

• Our certificate of incorporation and bylaws include provisions that could impede a takeover of the Company.

• Shares of our Class A common stock are not deposits insured by the FDIC and are subject to risk of loss.

• The return on investment in our common stock is uncertain.

Other Risks

• As a public company, we are required to meet periodic reporting requirements under the rules and regulations of the Securities and Exchange Commission (the “SEC”).

• As a public company, we incur significant legal, accounting, insurance, compliance and other expenses. Any deficiencies in our financial reporting or internal controls could materially and adversely affect us.

• We may be adversely affected by changes in U.S. tax laws.

• We rely heavily on our management team and could be adversely affected by the unexpected loss of key personnel.

• Acts or threats of terrorism and political or military actions taken by the United States or other governments could adversely affect general economic or industry conditions.

• We are required to make significant estimates and assumptions in the preparation of our financial statements.

• We are subject to litigation, which could result in substantial judgment or settlement costs.

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PART I

ITEM 1. BUSINESS

Company Overview

Cadence Bancorporation is a financial holding company and a Delaware corporation headquartered in Houston, Texas, and is the parent company of Cadence Bank, National Association (“Cadence Bank”). Formed in 2009 by banking industry veterans, we secured $1.0 billion of capital commitments in 2010 and built our franchise on the foundation established from three successful acquisitions: Cadence Bank, in March 2011, the franchise of Superior Bank in April 2011, and Encore Bank, N.A. in July 2012. On January 1, 2019, we completed our merger with State Bank Financial Corporation, the holding company for State Bank and Trust Company (“State Bank”). Today, we are a middle-market focused commercial relationship bank providing a broad range of banking and wealth management services to businesses, high net worth individuals, business owners and retail customers through a network of 98 branches in Alabama, Florida, Georgia, Texas, Mississippi, and Tennessee. We completed our initial public offering and listing on the NYSE in April 2017 with the ticker “CADE.”

As of December 31, 2020, we had $18.7 billion of assets, $12.7 billion of gross loans, $16.1 billion in deposits and $2.1 billion in shareholders’ equity. We generated a net loss of ($205.5) million and net income of $202.0 million in 2020 and 2019, respectively.

COVID-19 Pandemic

During 2020, the global economy experienced a downturn related to the impacts of the COVID-19 global pandemic (“COVID-19”). Such impacts have included significant volatility in the global stock markets, a 150-basis-point reduction in the target federal funds rate, the enactment of the Coronavirus Aid, Relief, and Economic Security (“CARES Act”) and related relief legislation, including the Paycheck Protection Program (“PPP”) administered by the Small Business Administration, and a variety of rulings from the federal banking regulators.

We continue to actively monitor developments related to COVID-19 and its impact upon our business, customers, employees, counterparties, vendors, and service providers and have taken several actions to offer various forms of support to our customers, employees, and communities that have experienced impacts from this development. We have actively worked with customers adversely impacted by the economic downturn, offering payment deferrals and other loan modifications as well as provided loans under PPP (see “Overview” in Management’s Discussion and Analysis of Financial Condition and Results of Operations).

Our Strategy

Our strategy is to build a premier commercial bank primarily through organically growing our client base while using mergers and acquisitions as an opportunistic complement to this strategy. We focus on middle-market commercial lending (generally characterized as lending to businesses with annual revenues of $10 million to $500 million) and provide a broad range of banking services to businesses, high net worth individuals, business owners and retail customers. Through our experienced and motivated team of commercial relationship managers and our integrated, client-centric approach to banking, we have successfully grown our businesses. Our management team and experienced relationship managers have long-standing client relationships and operating experience in the markets we serve, and we believe these attributes will continue to position us to build market share. Further, we believe our franchise is positioned for continued growth as a result of (i) our attractive geographic footprint, (ii) our focus and ability to provide differentiated, personalized service to a wide variety of industries and clients, (iii) our stable and customer-driven deposit funding base, (iv) our veteran board of directors, management team and relationship managers, (v) our ability to realize economies of scale, (vi) our capital position and (vii) our credit and risk management processes.

Leverage our Relationships and Service Capabilities to Drive Organic Growth

We have previously demonstrated meaningful loan growth in our markets, driven by our client relationships and client development efforts. We believe our loan growth has been a direct result of our people and our strategy, which focuses on a client-centered, service-oriented approach. Further, we believe our relationship managers’ entrepreneurial spirit, decision-making autonomy, flexibility and market expertise offer us unique growth opportunities not available to many of our peers. We intend to leverage the quality of our team, our existing relationships and our institutional approach to building tailored banking solutions to drive deeper relationships and increase penetration in our markets. Additionally, we are dedicated to investing in our team to ensure they continue to meet our high standard of excellence, while attracting and developing early career talent that embodies our entrepreneurial spirit and drives incremental relationships and loan growth.

Grow our Core Deposit Franchise

The strength of our deposit franchise is derived from the relationships we have with our clients and the strong ties we have to the markets we serve. Our deposit footprint has provided, and we believe will continue to provide, primary support for our loan growth. Deposits comprise nearly 98% of our total funding as of December 31, 2020. Our deposit growth and funding opportunities to support our loan growth come from our commercial and public-sector relationships, in addition to our retail deposit base. An additional part of our strategy is to continue to enhance our funding sources by expanding the ways in which we serve our customers,

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including ongoing optimization of our product offerings, treasury management services and client service capabilities, and increased adoption of mobile and digital platforms.

Prudently Invest in our Business to Drive Operating Leverage

We believe it is critical to prudently invest in our business to provide the best possible customer experience and build a scalable infrastructure that can support our growth while driving operating leverage. We have a history of making successful investments, starting with the acquisition and integration of our four predecessor banks. Our past investments have yielded significant benefits to our business, and we believe a focus on investing in our people, our technology and our processes will allow us to continue to support operational efficiencies.

Build our Fee-Based Business through New Business Initiatives and Existing Customer Relationships

We have built a successful base of fee businesses—in both our Banking segment and our Financial Services segment—that provide complementary products and services to our core banking business. Each of our fee-based businesses is run by an experienced team and has infrastructure to support additional growth. We believe our integrated approach to our commercial relationships, along with our growing market position and the expertise and knowledge of our team, will provide ongoing new business opportunities.

Engage in Opportunistic Mergers and Acquisitions

We prioritize organic growth but may evaluate acquisition opportunities that we believe could produce attractive returns for our shareholders. We may consider acquisition opportunities that can improve our market position in geographies with attractive demographics and business growth trends (including Texas and the southeast United States), expand our branch network in existing markets, increase our earnings power and/or enhance our suite of products. We believe our acquisition and integration experience provides an advantage in identifying and executing on strategically and financially compelling opportunities that could supplement our organic growth strategy. We have been, and will continue to be, highly selective on acquisitions.

Products and Services

Lending Activities

Our primary strategic objective is to engage in commercial lending to middle-market customers (generally characterized as businesses with annual revenues of $10 million to $500 million) and provide a full array of commercial loans to middle-market commercial businesses, high net worth individuals and business owners. We believe we have a strong team of consumer and commercial bankers to execute on a client-centered, relationship-driven banking model, with dedicated expertise in the sectors we serve. Our Commercial Banking team focuses on middle-market businesses with an advisory approach that emphasizes understanding the client’s business and offering a broad suite of loan, deposit and treasury management products and services.

Our Consumer Banking team consists of experienced professionals that focus on knowing individual clients in order to best meet their financial needs, offering a full complement of loan, deposit and online banking solutions. Our consumer bankers do most of their new lending in the areas served by our branches, which are also where our marketing is focused.

Our loan portfolio includes commercial and industrial loans, residential real estate loans, commercial real estate loans and other consumer loans. The principal risk associated with each category of loans we make is the creditworthiness of the borrower. Borrower creditworthiness is affected by general economic conditions and the attributes of the borrower and the borrower’s market or industry. Attributes of the relevant business market or industry include the competitive environment, customer and supplier availability, the threat of substitutes and barriers to entry and exit.

Commercial and Industrial Loans (“C&I”). As of December 31, 2020, $7.3 billion or 57% of our total bank loan portfolio consisted of C&I loans. Our C&I loans, which are generally made to middle-market businesses, include lines of credit, acquisition finance credit facilities and other types of commercial credit, and typically have maturities of five years or less.

Commercial Real Estate Loans. As of December 31, 2020, $2.9 billion or 23% of our bank loan portfolio consisted of commercial real estate loans. We offer construction financing, acquisition or refinancing of properties primarily located in our geographic footprint.

Residential Real Estate Loans. As of December 31, 2020, $2.5 billion or 19% of our bank loan portfolio consisted of residential real estate loans. We provide one-to-four family residential real estate loans with terms ranging from 10 to 30 years; however, our portfolio is heavily weighted to the 30-year term. We offer both fixed and adjustable interest rates. We do not originate subprime loans. Loans are typically closed end first lien loans for purposes of purchasing property or for refinancing existing loans with or without cash out. Our loans are primarily owner occupied, full documentation loans.

Other Consumer Loans. As of December 31, 2020, $102.1 million or 1% of our bank loan portfolio consisted of other types of consumer loans. We offer consumer loans to our customers for personal, family and household purposes, automobiles, and boats.

Shared National Credits (“SNC”). The federal banking agencies define a SNC as any loan(s) extended to a borrower by a supervised institution or any of its subsidiaries and affiliates which aggregates $100 million or more and is shared by three or more

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institutions under a formal lending agreement or a portion of which is sold to two or more institutions, with the purchasing institutions assuming its pro rata share of the credit risk. As a commercial focused relationship bank, we may participate in syndicated loan offerings because of the size of the customers and nature of industries we serve. As of December 31, 2020, we have $2.3 billion of outstanding SNC, representing 18% of total loans, compared to $2.6 billion or 20% of total loans at December 31, 2019.

Our SNC loans are spread across our commercial products with many falling within our specialized industries and are focused on customers where we have ancillary business or believe we can develop such business. Our management team, relationship managers and credit risk management team have extensive experience in the underwriting, due diligence, and monitoring of SNC credits. We evaluate SNC loans using the same credit standards we apply in underwriting all our loans.

Deposit Products and Other Funding Sources

We offer our customers a variety of deposit products, including checking accounts, savings accounts, money market accounts, time deposits, and other deposit accounts through multiple channels, including our extensive network of full-service branches, drive-through branches, ATMs, ITMs, and our online, mobile and telephone banking platforms. See “—Marketing and Distribution.” As of December 31, 2020, our deposit portfolio was comprised of 31% noninterest-bearing deposits and 69% interest bearing deposits. We intend to continue our efforts to provide funding for our business from customer relationship deposits.

Deposit flows are significantly influenced by general and local economic conditions, changes in prevailing interest rates, internal pricing decisions and competition. Our deposits are primarily obtained from depositors located in our footprint, and we believe that we have attractive opportunities to capture additional retail and commercial deposits in our markets. To attract and retain deposits, we rely on providing quality service, offering a suite of retail and commercial products and services at competitive prices, and introducing new products and services that meet our customers’ needs as they evolve.

Wealth Management

Through Linscomb & Williams Inc., a subsidiary of Cadence Bank, and our Cadence Trust brands, we offer wealth management and other fiduciary and private banking services targeted to affluent clients, including individuals, business owners, families, and professional service companies. In addition to fiduciary and investment management fee income, we believe these services enable us to build new relationships and expand existing relationships to grow our deposits and loans. Through our wealth management line of business, we offer financial planning, retirement services and trust and investment management by a team of seasoned advisors, providing access, for affluent clients as well as mass market clients, to a wide range of certificates of deposits, mutual funds, annuities, individual retirement accounts, money market accounts and other financial products. Although we do not limit our customers to affluent clients and business owners, the focus of our wealth management line of business is on the “mass affluent” ($500,000 to $2 million in investible assets) and “highly affluent” ($2 million to $5 million in investible assets) markets.

Payroll Services

In January 2019, we acquired Altera Payroll and Insurance, Inc. (“Altera”) as part of the acquisition of State Bank. This acquisition diversified our revenue beyond existing business lines and complements our other treasury management services. Altera operates as a subsidiary of Cadence Bank, and in partnership with treasury management services, provides payroll services, human resources services, payroll cards and employee health insurance. Altera also offers employer liability insurance and workers’ compensation insurance through licensed insurance agents.

Financial Products and Services

In addition to traditional banking activities and the other products and services specified above, we provide a broad array of financial services to our customers, including: debit and credit card products, treasury management services, merchant services, employee and payroll benefits solutions (including payroll cards and bank-at-work benefits), automated clearing house services, lock-box services, remote deposit capture services, foreign exchange services, and other treasury services.

Our Markets

We define our markets broadly as Texas and the southeast United States. Our active banking operations are located principally in six states, which we refer to as our geographic footprint (our “footprint”), where we operate 98 branches as of December 31, 2020 throughout Texas, Alabama, Florida, Georgia, Mississippi, and Tennessee. We focus on serving these regional markets, although we also serve specialized industries clients both within our footprint and throughout the United States, as many of our clients in these industries have operations nationwide.

While we are focused on driving growth across all our markets and products, we believe our Texas presence will be the largest contributor to near term asset growth, followed by Georgia, with funding support from our deposit base in Texas and the southeast United States.

Technology Systems

We continue to make significant investments in our information technology systems for our banking, lending, and cash management activities. We believe this is necessary investment to offer new products and enhance our overall customer experiences,

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as well as to provide scale for future growth. Our technology investments include investment in the foundational layer of our infrastructure (including security, data and voice network, storage, and business continuity).

Additionally, our technology investments include investment in the application layer of our technology. We have built a robust technology core for the Treasury Management product suite, including “Allegro,” our single sign on portal for our business customers to access our Treasury Management products. Supported by this technology core, our Treasury Management product suite is competitive with small community banks as well as large regional and money center banks. Additionally, we operate the “Fluent by Cadence” platform, our online, mobile and other digital banking solution for consumer and small business banking. By leveraging the same platform as “Allegro,” we can centrally service and manage all digital banking activities and provide a seamless experience to our customers as they migrate from a small business to one that leverages our Treasury Management services.

We have also invested in video teller capabilities which enable our customers to interact with tellers outside of regular banking hours through interactive drive-throughs.

Credit Policy and Procedures

General. Our credit policy requires that key risks be identified and measured, documented, and mitigated, to the extent possible, to seek to ensure the soundness of our loan portfolio. We require various levels of internal approvals based on the characteristics of our loans, including the size of the exposure. We also have specialized underwriting guidelines for loans in our specialized industries that we believe reflect the unique characteristics of these industries. Our credit policy also provides guidelines for the underwriting of loans to individuals along with the regulatory requirements to ensure that all loan applications are evaluated subject to our fair lending policy. We believe that the guidelines required by our credit policies enhance internal responsibility and accountability for underwriting decisions and permit us to monitor the performance of credit decision-making.

Credit Risk Management. Our credit risk management is overseen by our Board of Directors, including its Risk Management Committee, and our Senior Credit Risk Management Committee (“SCRMC”). Our SCRMC has seven standing members, including the Chief Executive Officers of Cadence Bancorporation and Cadence Bank, Cadence Bank’s President, our Chief Credit Administration Executive, who serves as chairman of the committee, our Chief Risk Officer, our Chief Credit Officer, and our Chief Credit Underwriting Executive, who serves as vice chairman of the committee. The committee is responsible for reviewing our credit portfolio management information, including asset quality trends, concentration reports, policy, financial and documentation exceptions, delinquencies, charge-offs, and nonperforming assets. The approval of the SCRMC is required for changes to our credit policy as well as lending and wire authority.

Under our dual credit risk rating (“DCRR”) system, it is our policy to assign risk ratings to all commercial loan (CRE and C&I) exposures using our internal credit risk rating system. The assignment of loan risk ratings is the primary responsibility of the lending officer concurrent with approval from the credit officer reviewing and recommending approval of the credit. The assignment of commercial risk ratings is done on a transactional basis using scorecards. We use nine different scorecards that accommodate various areas of lending. Each scorecard contains two main components: probability of default (“PD”) and loss given default (“LGD”). Each component is assessed using a multitude of both qualitative and quantitative scoring elements, which will generate a percentage for each component. The key elements assessed in the scorecard for PD are financial performance and trends as well as qualitative measures. The key elements for LGD are collateral quality and the structure of the loan. The PD percentage and LGD percentage are converted into PD and LGD risk ratings for each loan. The PD rating is used as our risk grade of record, while the LGD rating is utilized in both our allowance estimate as well as pricing model. Loans with PD ratings of 1 through 8 are rated internally as “Pass.” Loans with PD ratings of 9 through 13 are rated internally as “Criticized” and represent loans for which one or more potential or defined weaknesses exist. Loans with PD ratings of 10 through 13 are also considered “Classified” and represent loans for which one or more defined weaknesses exist. These classifications are consistent with bank regulatory guidelines. Consumer purpose loan risk classification is conducted in accordance with the Uniform Retail Credit Classification, based on delinquency and accrual status.

Concentration Limits. Our policies establish concentration limits for various industries within the commercial portfolio as well as commercial real estate, leveraged lending and other regulatory categories. Concentration limits are monitored and reassessed on a periodic basis and approved by the Risk Management Committee of the Board of Directors on an annual basis or as needed. For example, given the changing economic environment during 2020, certain concentration limits were reassessed and adjusted during the year an deemed appropriate for the environment.

Credit Approval Process. The approval of our Senior Loan Committee is generally required for relationships in an amount greater than $5.0 million. The Senior Loan Committee has eight standing voting members, including six members of the SCRMC. Two “no” votes will result in declining a credit request.

For loans in an amount greater than $5.0 million that are risk rated 9 or worse, approval of the Credit Transition Committee is generally required. The Credit Transition Committee has seven standing members, including our Chief Credit Officer, our Director of Special Assets Group, our Chief Credit Administration Executive, and our Chief Credit Underwriting Executive. Two “no” votes will result in declining a credit application.

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There is a credit executive assigned to each line of business who holds the primary responsibility for the approval process outside of the loan approval committees.

Portfolio Monitoring and Reporting. We believe that an important part of our assessment of risk is the ongoing completion of periodic risk rating reviews. As part of these reviews, we seek to review the risk ratings of each facility within a customer relationship and may recommend an upgrade or downgrade to the risk ratings. Our policy is to review two times per year all customer relationships with an aggregate exposure of $10.0 million or greater as well as all SNC. Additionally, all customer relationships with an aggregate exposure of $2.5 million to $10.0 million are reviewed annually. Further, customer relationships with an aggregate exposure of $2.5 million and greater with a pass/watch risk weighting (defined as a borderline risk credit representing the weakest pass risk rating) are reviewed quarterly. This threshold is reduced to $1.0 million in the fourth quarter each year. Customer relationships with an aggregate exposure of $2.5 million and greater with criticized risk ratings are reviewed quarterly. Certain relationships are exempt from review, such as relationships where our exposure is cash-secured. An updated risk rating scorecard is required during each risk review as well as with any credit event that requires credit approval. Additionally, in response to COVID-19, we implemented internal reporting on PPP loans and loans with COVID-19 payment deferrals to the Board of Directors and certain senior officers. We also include this information in our regulatory filings with the banking regulators and in our public filings and investor materials.

Marketing and Distribution

As of December 31, 2020, we conduct our banking business through 98 branches located in Texas and five states in the southeast United States. Our distribution network also includes ATMs, ITMs, fully integrated online banking and a telephone banking service. In addition, our customers have free access to Publix Presto! ATMs located throughout Alabama, Florida, North Carolina, South Carolina and Tennessee and Allpoint ATMs worldwide. Our ATMs are enabled for several networks, including Visa, Discover, MasterCard, NYCE, Plus, Cirrus, Pulse, American Express and Quest.

We target growing companies and middle-market businesses, as well as individual consumers throughout Texas and the southeast United States. In order to market our deposit products and financial services, we use local print advertising and direct mail and provide sales incentives for our employees. We market our lending products through our experienced relationship managers, who rely on robust calling efforts and relationship banking to develop relationships with customers that result in business growth and product sales. Our compensation plans for our relationship managers include incentives based on achievement of certain loan, deposit, fee, income and profitability metrics that are established as individual performance goals that support our business plan each year. The incentive plans for the relationship managers is reviewed annually by executive management, including the Chief Risk Officer, to ensure that the design of the incentive plan does not encourage excessive risk-taking. Additionally, all incentives are reviewed in light of the credit quality of the manager’s portfolio.

Competition

The financial services industry in general and in our markets in Texas and the southeast United States are highly competitive. We actively compete with national, regional and local financial services providers, including banks, thrifts, credit unions, mortgage bankers and finance companies, money market mutual funds, other financial institutions, and fintech companies, some of which are not subject to the same degree of regulation and restrictions imposed upon us. See “Risk Factors—Risks Relating to Our Business—We face significant competition to attract and retain customers and clients, which could adversely affect our growth and profitability.”

Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and non-traditional alternatives. The primary factors driving commercial and consumer competition for loans and deposits are the interest rates, the fees charged, the levels of customer service and the range of products and services offered. In addition, other competitive factors include the location and hours of our branches and ATMs/ITMs.

In addition to the terms of loans and deposits, we compete with other financial institutions with respect to the terms of swaps and letters of credit that we offer our customers and the fraud prevention products and other technological aspects of customers’ accounts that we provide, including compatibility with our commercial customers’ accounting systems.

Supervision and Regulation

Banking is a complex, highly regulated industry. Consequently, our growth and earnings performance can be affected, not only by management decisions and general and local economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. These authorities include, but are not limited to, the Federal Reserve Board (“Federal Reserve”), the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit
Insurance Corporation (“FDIC”), the Consumer Financial Protection Bureau (“CFPB”), various state banking regulators, the Internal Revenue Service (“IRS”) and state taxing authorities. The effect of these statutes, regulations and policies and any changes to any of them can be significant and cannot be predicted.

The primary goals of the bank regulatory structure are to maintain a safe and sound banking system and to facilitate the conduct of sound monetary policy. In furtherance of those goals, the U.S. Congress and the individual states have created numerous regulatory agencies and enacted numerous laws and regulations that govern banks and the banking industry. The system of supervision and

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regulation applicable to the Company establishes a comprehensive framework for our operations and is intended primarily for the protection of the Deposit Insurance Fund (“DIF”), our depositors and the public, rather than our shareholders and creditors.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and its implementing regulations impose additional supervisory obligations on banking organizations with $10.0 billion or more in total consolidated assets. The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “EGRRCPA”) was enacted in May 2018, which provided entities having less than $50.0 billion in consolidated assets, such as Cadence and Cadence Bank, with relief from several requirements of the Dodd-Frank Act, including the annual company-run stress testing.

The following summarizes some of the relevant laws, rules and regulations governing banks and bank holding companies, but does not purport to be a complete summary of all applicable laws, rules and regulations governing banks and bank holding companies. The descriptions are qualified in their entirety by reference to the specific statutes and regulations discussed.

Bank Holding Company Regulation

The Company is a financial holding company registered under the Bank Holding Company Act of 1956 (the “BHC Act”) and is subject to supervision and regulation by the Federal Reserve. Federal laws subject financial holding companies to restrictions on the types of activities in which they may engage and to a range of supervisory requirements and activities, including regulatory enforcement actions, for violation of laws and policies.

Activities Closely Related to Banking

The BHC Act permits a financial holding company (an “FHC”), such as Cadence, to engage in a broader set of activities, including insurance underwriting and broker-dealer services, as well as activities that are jointly determined by the Federal Reserve and the Treasury Department to be financial in nature or incidental to such financial activity. FHCs may also engage in activities that are determined by the Federal Reserve to be complementary to financial activities. To qualify as an FHC, the bank holding company and all subsidiary depository institutions must be well managed and well capitalized. Additionally, each subsidiary depository institution of the bank holding company must have received at least a “Satisfactory” rating on its most recent Community Reinvestment Act of 1977 (“CRA”) examination. Failure to meet any of these requirements may result in limitations on activities and acquisitions.

Safe and Sound Banking Practices

Bank holding companies are not permitted to engage in unsafe and unsound banking practices. The Federal Reserve may order a bank holding company to terminate an activity or control of a non-bank subsidiary if such activity or control constitutes a significant risk to the financial safety, soundness or stability of a subsidiary bank and is inconsistent with sound banking principles. Regulation Y and capital rules also require a holding company to receive the prior approval of the Federal Reserve for certain redemption or repurchase of its own equity securities.

Consistent with the Dodd-Frank Act codification of the Federal Reserve’s policy that bank holding companies must serve as a source of financial strength for their subsidiary banks, the Federal Reserve has stated that, as a matter of prudence, a bank holding company generally should not maintain a rate of distributions to shareholders unless its available net income has been sufficient to fully fund the distributions, and the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality and overall financial condition.

In addition, the Federal Reserve Supervisory Letter SR 09-4 provides guidance on the declaration and payment of dividends, capital redemptions and capital repurchases by a bank holding company. Supervisory Letter SR 09-4 provides that, as a general matter, a bank holding company should eliminate, defer or significantly reduce its dividends if: (i) the bank holding company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) the bank holding company’s prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios. Failure to do so could result in a supervisory finding that the bank holding company is operating in an unsafe and unsound manner.

Limitations on the Bank paying dividends could, in turn, affect our ability to pay dividends to our shareholders. For more information concerning the Bank’s ability to pay dividends, see “Bank Regulation” below.

Volcker Rule

Section 619 of the Dodd-Frank Act, known as the Volcker Rule, prohibits any bank, bank holding company, or affiliate (referred to collectively as “banking entities”) from engaging in two types of activities: “proprietary trading” and the ownership or sponsorship of private equity or hedge funds that are referred to as “covered funds.” In December 2013, the federal banking agencies, the SEC, and the Commodities Futures Trading Commission, finalized a regulation to implement the Volcker Rule. After the enactment of the EGRRCPA in May 2018, Volcker Rule limitations apply to banking entities with $10.0 billion or more in total consolidated assets. Under the Volcker Rule implementing regulations, banking entities had until January 1, 2021, to conform its

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investments and implement the required compliance plan. As of January 1, 2021, we were in compliance with these limitations and we also have a compliance plan structured with our level of trading.

Regulatory Capital

Cadence and Cadence Bank are each required to comply with applicable capital adequacy standards established by the federal banking agencies. Under the Basel III Rules implementing the Basel III framework as well as certain provisions of the Dodd-Frank Act, we are subject to the following risk-based capital ratios: Common Equity Tier 1 risk-based ratio (“CET1”), Tier 1 risk-based based capital ratio, which consists of CET1 and additional Tier 1 capital, and a total capital ratio, which consists of Tier 1 capital and Tier 2 capital. CET1 is primarily comprised of common stock and related surplus net of treasury stock and retained earnings, less certain adjustments and deductions. For more information, see the “Regulatory Capital” section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K. FHCs and banks are also required to comply with minimum leverage capital requirements. These requirements provide for a minimum ratio of Tier 1 capital to quarterly average tangible assets of 4.0%.

Effective January 1, 2019, the capital rules require a capital conservation buffer of 2.5% above each of the minimum capital ratio requirements, which is designed to absorb losses during period of economic stress. This buffer requirement must be met for the bank or bank holding company to be able to pay dividends, repurchase its stock, and make certain discretionary incentive compensation payments to executive management without restriction.

As of December 31, 2020, the Bank exceeded the capital levels required to be deemed well capitalized.

Further, by statute and regulation, a bank holding company must serve as a source of financial and managerial strength to each bank that it controls and, under appropriate circumstances, may be required to commit resources to support each such controlled bank. This support may be required at times when the bank holding company may not have the resources to provide the support. In addition, if the Federal Reserve believes that a bank holding company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the Federal Reserve could require the bank holding company to terminate the activities, liquidate the assets or divest the affiliates. The regulators may require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank holding company or its shareholders.

In March 2020, the federal banking agencies issued an interim final rule (followed in August 2020 by a final rule) that provides banking organizations with an option to delay for two years an estimate of the CECL accounting standard's effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. The agencies granted this relief to allow institutions to focus on lending to customers in light of recent strains on the U.S economy due to COVID-19, while also maintaining the quality of regulatory capital. Under the final rule, 100% of the CECL Day 1 impact and 25% of subsequent provisions for credit losses (“Day 2” impacts) will be deferred over a two-year year period ending January 1, 2022, at which time this deferred amount will be phased in on a pro rata basis over a three-year period ending January 2025. We elected this alternative option instead of the one described in the December 2018 rule previously issued by banking agencies.

Acquisitions by Bank Holding Companies

The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before (1) acquiring more than 5% of any class of voting stock of any bank or other bank holding company, (2) acquiring all or substantially all of the assets of any bank or bank holding company, or (3) merging or consolidating with any other bank holding company. Additionally, the BHC Act provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to create a monopoly or substantially lessen competition or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy. As a result of the USA PATRIOT Act of 2001, the Federal Reserve is required to consider the record of a bank holding company and its subsidiary bank(s) in combating money laundering activities in its evaluation of bank holding company merger or acquisition transactions. The Dodd-Frank Act also amended the BHC Act to require consideration of the extent to which a proposed acquisition, merger or consolidation would result in greater or more concentrated risks to the stability of the U.S. banking or financial system.

Bank Regulation

Cadence Bank

Cadence Bank is a national banking association, which is subject to regulation and supervision primarily by the OCC and secondarily by the Federal Reserve, the FDIC, and the Consumer Financial Protection Bureau (“CFPB”). Cadence Bank is subject to requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank.

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The OCC regularly examines the Bank. The FDIC and CFPB may also periodically examine and evaluate insured banks.

Standards for Safety and Soundness

As part of the FDIC Improvement Act’s (“FDICIA”) efforts to promote the safety and soundness of depository institutions and their holding companies, the federal banking regulators are required to have in place regulations specifying operational and management standards (addressing internal controls, loan documentation, credit underwriting and interest rate risk), asset quality and earnings. As discussed above, the Federal Reserve, the OCC, the FDIC, and the CFPB have extensive authority to police unsafe or unsound practices and violations of applicable laws and regulations by depository institutions and their holding companies. For example, the FDIC may terminate the deposit insurance of any institution that it determines has engaged in an unsafe or unsound practice. The agencies can also assess civil money penalties of up to $1.0 million per day, issue cease-and-desist or removal orders, seek injunctions and publicly disclose such actions.

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. Due to the effects on the Bank’s retained profits from the recognition of the non-cash goodwill impairment charge in the first quarter of 2020 and the net loss in the second quarter of 2020, the Bank is currently required to seek prior approval of the OCC to pay dividends to the holding company.

The present and future dividend policy of Cadence Bank is subject to the discretion of its Board of Directors. In determining whether to pay dividends to the Company and, if made, the amount of the dividends, the board of directors of Cadence Bank considers many of the same factors discussed above. Cadence Bank cannot guarantee that it will have the financial ability to pay dividends to the Company, or if dividends are paid, that they will be sufficient for Cadence to make distributions to shareholders. Cadence Bank is not obligated to pay dividends.

The CARES Act and Initiatives Related to COVID-19

 In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020 to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of U.S. financial institutions, such as Cadence and Cadence Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal banking agencies. Furthermore, as the ongoing COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact additional supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. The Company continues to assess the impact of the CARES Act and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.

Capital Adequacy

In addition to the capital rules applicable to both banks and bank holding companies discussed above, under the prompt corrective action regulations, the federal bank regulators are required and authorized to take supervisory actions against undercapitalized banks. For this purpose, a bank is placed in one of five categories based on the bank’s capital: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The quantitative requirements for well capitalized are: 5% leverage capital, 6.5% common equity Tier 1 capital, 8% Tier 1 capital and 10% total capital. As of December 31, 2020, the Bank exceeded the capital levels required to be deemed well capitalized.

Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, banking regulators must appoint a receiver or conservator for an institution that is “critically undercapitalized.” The federal banking agencies have specified by regulation the relevant capital level for each category. An institution that is categorized as “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized” is required to submit an acceptable capital restoration plan to its appropriate federal banking agency, which, for Cadence Bank, is the OCC.

Failure to meet capital guidelines could subject the Bank to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits and other restrictions on our business.

Deposit Insurance

The FDIC insures the deposits of federally insured banks up to prescribed statutory limits for each depositor, through the Deposit Insurance Fund (the “DIF”) and safeguards the safety and soundness of the banking and thrift industries. The Dodd-Frank Act permanently raised the standard maximum deposit insurance amount to $250,000.

Cadence Bank pays deposit insurance assessments to the FDIC based on an assessment rate established by the FDIC. FDIC assessment rates for large institutions with more than $10.0 billion in assets, such as Cadence Bank, are calculated on a scorecard methodology that seeks to capture both the probability that an individual institution will fail and the magnitude of the impact on the

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DIF if such a failure occurs. The FDIC has the authority to make discretionary adjustments to the total score, up or down, based upon significant risk factors that are not adequately captured in the scorecard.

Consumer Financial Protection Bureau (“CFPB”)

The Dodd-Frank Act created the CFPB, which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. The CFPB has examination and primary enforcement authority under the consumer financial protection laws with respect to depository institutions with $10.0 billion or more in assets. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. As noted above, the Company and Cadence Bank are subject to examination by the CFPB.

The CFPB has issued several regulations related to the origination of mortgages, foreclosures, and overdrafts, as well as many other consumer issues. Additionally, the CFPB has proposed, or will be proposing, additional regulations or modifying existing regulations that directly relate to our business. Although it is difficult to predict at this time the extent to which the CFPB’s final rules impact the operations and financial condition of the bank, such rules may have a material impact on the bank’s compliance costs, compliance risk and fee income.

Financial Privacy and Cybersecurity

The federal banking regulators have adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties, including provisions of the Gramm-Leach-Bliley Act dealing with privacy for nonpublic personal information of individual customers. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In addition, consumers may also prevent disclosure of certain information among affiliated companies that is assembled or used to determine eligibility for a product or service, such as that shown on consumer credit reports and asset and income information from applications. Consumers also have the option to direct banks and other financial institutions not to share information about transactions and experiences with affiliated companies for the purpose of marketing products or services. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

The federal banking agencies regularly issue guidance regarding cybersecurity intended to enhance cyber risk management standards among financial institutions. A financial institution is expected to establish multiple lines of defense and to ensure their risk management processes address the risk posed by comprised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. A financial institution’s management is expected to maintain sufficient business continuity processes to effectively respond and recover the institution’s operations after a cyber-attack. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to a cyber-attack. If we fail to observe this guidance, we could be subject to various regulatory sanctions, including financial penalties. The Cadence Information Security Program reflects the requirements of this guidance.

State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. In June 2018, the California legislature passed the California Consumer Privacy Act of 2018 (the “CCPA”), which took effect on January 1, 2020. The CCPA, which covers businesses that obtain or access personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights. Some of the rights afforded to California resident consumers also extend to California employees, though the California legislature exempted certain employee information and employer usage from some of the act’s provisions until at least January 1, 2021. Other states have implemented, or are considering, similar privacy laws. We expect this trend of state-level activity to continue and are monitoring developments in the states in which we operate.

In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date we have not detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third-party service providers are under constant threat and it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and

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sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers. See “Risks Relating to Our Business – Operational Risks” for a further discussion of risks related to cybersecurity.

In January 2021, it was reported that the information systems at numerous government agencies, including the U.S. Treasury and Commerce Departments, were compromised by a supply chain attack on SolarWinds, a security vendor whose software is utilized by over 300,000 customers, including the federal government, the U.S. military and a range of private sector companies, including Cadence, to monitor the health of their IT networks. The systems of many SolarWinds customers experienced a highly sophisticated, manual supply chain attack through malware installed on the SolarWinds Orion® Platform. As a result of this compromise, multiple federal and industry regulatory authorities issued directives and advisories.

Cadence is aware of the SolarWinds supply chain attack and has reviewed the cybersecurity recommendations provided by SolarWinds. No malicious activity has been observed to date on the Cadence network. Cadence operates a multi-layered, widely distributed information security infrastructure and our security team is actively monitoring our environment using all the available tools based on available threat intelligence published by the DHS Cybersecurity and Infrastructure Security Agency, and others. Our SolarWinds infrastructure was immediately disconnected and isolated from the Cadence network. We are implementing additional recommended actions from SolarWinds on our affected infrastructure. Cadence continuously monitors its infrastructure for any malicious activity and will continue to monitor our numerous Threat Intelligence sources for any updates and further actions.

PATRIOT Act, International Money Laundering Abatement and Financial Anti-Terrorism Act and Bank Secrecy Act

A major focus of governmental policy on financial institutions has been aimed at combating money laundering and terrorist financing. The PATRIOT Act and the International Money Laundering and Financial Anti-Terrorism Act of 2001 substantially broadened the scope of U.S. anti-money-laundering laws and penalties, specifically related to the Bank Secrecy Act, and expanded the extra-territorial jurisdiction of the United States. The U.S. Treasury Department has issued a number of implementing regulations which apply various requirements of the PATRIOT Act to financial institutions such as Cadence Bank. These regulations impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing and to verify the identity of their customers.

Failure of a financial institution and its holding company to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with relevant laws and regulations, could have serious legal, reputational and financial consequences for the institution. Because of the significance of regulatory emphasis on these requirements, Cadence Bank will continue to expend significant staffing, technology and financial resources to maintain programs designed to ensure compliance with applicable laws and regulations and an effective audit function for testing of the banks’ compliance with the Bank Secrecy Act on an ongoing basis.

Community Reinvestment Act (“CRA”)

The CRA requires that the primary federal regulators evaluate the record of each financial institution within their respective jurisdictions in meeting the credit needs of its local community, including low and moderate-income neighborhoods. The performance of a financial institution in meeting the credit needs of its community is a factor that must be taken into consideration when the federal banking agencies evaluate applications related to mergers and acquisitions, as well as branch openings and relocations. Additionally, financial institutions must publicly disclose the terms of various CRA-related agreements.

Failure to adequately meet the credit needs of our community in accordance with the CRA could prevent us from pursuing our business strategy. Any CRA rating below “Satisfactory” for the Bank could restrict the Company’s ability to undertake certain activities, including any merger or acquisition that our management and Board of Directors may otherwise desire to pursue, and may prevent or materially delay the consummation of future mergers or acquisitions or the opening of new branch locations, until the Bank’s rating improves. In addition, as described above, an FHC faces limitations on activities and acquisitions if its subsidiary depository institutions do not have at least a “Satisfactory” CRA rating. Our latest CRA rating assessment period was January 1, 2015 through December 31, 2018, for which our public CRA rating was “Satisfactory.”

In June 2020, the OCC adopted a final rule to update, strengthen and modernize the regulatory framework implementing the CRA by: clarifying and expanding the activities that qualify for CRA credit; updating where activities count for CRA credit; creating a more consistent and objective method for evaluating CRA performance; and providing for more timely and transparent CRA-related data collection, recordkeeping, and reporting. Banks subject to the general performance standards, including Cadence Bank, must comply with the new CRA framework by January 1, 2023.

Commercial Real Estate Lending Concentration Regulations

The federal banking agencies have promulgated guidance governing concentrations in commercial real estate lending for financial institutions. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm residential properties and loans for construction, land development and other land represent 300% or more of total capital and the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months. If

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a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing and increasing capital requirements. Cadence Bank has never exceeded these thresholds, therefore we have not been subject to the heightened risk management practices.

Effect of Governmental Monetary Policies

The commercial banking business is affected not only by general economic conditions but also by both U.S. fiscal policy and the monetary policies of the Federal Reserve. Some of the instruments of fiscal and monetary policy available to the Federal Reserve include changes in the discount rate on member bank borrowings, the fluctuating availability of borrowings at the “discount window,” open market operations, the imposition of and changes in reserve requirements against member banks’ deposits and assets of foreign branches, the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates, and the placing of limits on interest rates that member banks may pay on time and savings deposits. Such policies influence to a significant extent the overall growth of bank loans, investments, and deposits and the interest rates charged on loans or paid on time and savings deposits. We cannot predict the nature of future fiscal and monetary policies and the effect of such policies on the future business and our earnings.

Human Capital

We recognize that our most valuable asset is our people. One of our top strategic priorities is the retention and development of our talent. This includes providing career development opportunities for all associates; increasing our diversity, equity, and inclusion; training our next generation of leaders; and succession planning. Our goal each day is to create an environment that makes Cadence Bank a great place to work.

Recruiting

Our recruiting practices and hiring decisions are among our most important activities. In order to build a more talented and diverse organization, we do not rely only on our individual network for recruiting, instead, we utilize social media, local job fairs and educational organizations across the United States to find diverse, motivated and qualified employees.

Core Values and Culture

Fostering and maintaining a strong, healthy culture is a key strategic focus. Our core values reflect who we are and the way our employees interact with one another, our customers, partners and shareholders. The core values include “Do Right,” “Own Your Actions,” “Embrace We,” and “Fresh Thinking Welcomed Here.” “Do Right” focuses on doing right by customers, colleagues, and yourself. “Own Your Actions” means to be accountable for what works and what does not work. “Embrace We” encompasses the importance of bringing together a diverse group of professionals committed to customers, colleagues, and the community. “Fresh Thinking Welcomed Here” encourages us to challenge convention to find new and better ways to do things to separate us from our competition and best serve our clients. These core values drive the organization and our diversity, equity, and inclusion efforts.

Education and Training

We are dedicated to the continual training and development of our employees to ensure we can develop future managers and leaders from within our organization. Our training starts right at the beginning with on-boarding procedures that focus on safety, responsibility, ethical conduct and inclusive teamwork.

In addition to on-boarding training, we provide extensive ongoing training and career development focused on:

• compliance with our Code of Business Conduct and Ethics;

• laws and regulations applicable to our business;

• skills and competencies directly related to employees’ job duties;

• management skills necessary to develop our next generation of leaders and

• responsibility for personal safety and the safety of fellow employees.

During 2020, we introduced our new leadership development program. This program included over 100 of our most promising associates who currently have a people management role and have shown the ability to progress within the organization for greater responsibility. This talent pipeline is integral to our succession planning. The development program has continued into 2021 when we will graduate our first class. During 2021 we expect to enhance diversity, equity and inclusion (“DEI”) training across the organization as well.

Health and Welfare

We support our employees’ and their families’ health by offering full medical, dental, and vision insurance for employees and their families, life insurance and long-term disability plans, and health and dependent care flexible spending accounts. We also provide our Employee Assistance Program (“EAP”), which includes confidential services that can help employees and their families with personal or work life issues. The EAP is available 24 hours a day, online or over the phone. During 2020 we expanded our benefits to include a new paid short-term leave. The short-term leave policy will be beneficial to any employee who needs extended

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time off for a medical procedure and will particularly benefit those on maternity leave. Health and welfare benefits provided to our associates have been enhanced each of the last two years and will be enhanced again in 2021. In 2020, we added telemedicine services prior to the pandemic onset, which proved very helpful to our associates. We also added a diabetes management program which has been beneficial to some of our associates. For 2021 we will be expanding our programs to include assistance in weight reduction for employees who are either prediabetic or obese.

Retirement

We provide a variety of resources and services to help our employees prepare for retirement. We provide a 401(k) plan with a wide variety of investment options and a company match. We also provide our Employee Stock Purchase Plan that offers our associates the opportunity to purchase shares of Cadence common stock at a discount to the market price using after-tax payroll deductions.

Diversity, Equity and Inclusion (“DEI”)

We have taken steps to expand our role as an employer that champions diversity, equity, and inclusion. We believe diversity is not about how we differ; it is about how we embrace one another’s differences and become the change we want to see in the world. Inclusion is diversity’s seat at the table while equity ensures we are all valued fairly.

Our DEI efforts at Cadence are grounded solidly in our core values: Do Right, Own It, Embrace We and Fresh Thinking Welcome Here. Key focus areas include:

• Race, Power & Privilege

• Strategic Purpose & Partnerships

• Impediments to Inclusion and Culture Competence

• Conscious Bias Training

• Empowering Women in the Workplace

• Allyship

• Measuring the Impact of Diversity & Inclusion

The Diversity, Equity and Inclusion Council is a multi-cultural group of associates from varying levels and departments within the organization, nominated by management and their peers and serve voluntarily. The Council is chaired by our Chief Diversity Officer. The Council will abide by the following mission statement:

Powered by Cadence’s core values of Embrace We, Do Right, Own It and Fresh Thinking, we consciously foster a diverse, equitable and inclusive workforce with a shared commitment to collaborative innovation, sustainable growth and positive progress for our associates, clients, communities, shareholders and vendors.

We have also created Diversity, Equity and Inclusion Council subcommittees to further carryout the goals of the Council.

We measure gender and diversity demographic levels by business and function and are placing a more targeted focus on our incoming college graduate pipeline and branch operations roles to improve overall representation. In 2020, we introduced a diversity scorecard to be utilized to track the level of diversity within our organization. The scorecard is provided to our Board of Directors quarterly to track progress in adding diversity at higher levels of the organization. Additionally, we began reporting on all key positions recruited during the period, and the number of diverse candidates included in our interview pool. During 2021, we expect our Chief Diversity Officer to enhance this reporting.

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At December 31, 2020, 65% of our workforce was comprised of females and 31% of our workforce was comprised of people of color. Our Board of Directors includes three females (representing 33% of directors), two of which are persons of color (representing 22% of directors). Our executive officers include three females (representing 29% of section 16 executive officers). In our most senior management group, 28% are either women or people of color.

The following table contains our Diversity Dashboard as of the dates indicated (numbers represent actual number of employees):

	December 31, 2020								December 31, 2019
Level	Nonminority Female		Minority Female		Minority Male		Total		Nonminority Female		Minority Female		Minority Male		Total
Executives and senior managers		23		5		6		110		25		3		6		114
First and mid-level managers		161		57		28		363		162		44		28		347
Professional		152		88		35		383		160		85		35		375
Sales workers		260		119		34		523		306		137		34		602
Technician		15		6		24		93		14		5		24		72
Administrative support		163		135		24		346		167		134		24		354
		774		410		151		1,818		834		408		151		1,864

We also include information on DEI in our Cadence Bancorporation Human Rights Statement and our Cadence Bancorporation Statement of Corporate Social Responsibility, both of which can be found on our Investor Relations web site under www.cadencebancorporation.com/governance/documents.

Employee Metrics

None of our employees is represented by any collective bargaining unit or is a party to a collective bargaining agreement. We believe that our relations with our employees are good. We regularly survey our employees regarding their level of engagement, company culture, and other metrics that would indicate their satisfaction with employment at Cadence Bank. Based on the surveys, we develop plans to actively respond to any opportunities identified.

The following table presents our full-time equivalent employees by business segment as of the dates indicated.

Segments	December 31, 2020		December 31, 2019		Change
Banking		961		1,056		(9.0	)%
Financial services		116		119		(2.5	)%
Corporate		731		680		7.5	%
Consolidated		1,808		1,855		(2.6	)%

Availability of Information

Our investor website can be accessed at www.cadencebancorporation.com under “Investor Relations.” Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our investor website under the caption “SEC Filings” as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the SEC. No information contained on any of our websites is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K. Documents filed with the SEC are also available free of charge on the SEC’s website at www.sec.gov.

ITEM 1A. RISK FACTORS

There are risks, many beyond our control, which could cause our results to differ significantly from management’s expectations. Some of these risk factors are described below. Any factor described in this Annual Report on Form 10-K (“Annual Report”) could, by itself or together with one or more other factors, adversely affect our business, results of operations and/or financial condition. Additional risks and uncertainties not currently known to us or that we currently consider to not be material also

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may materially and adversely affect us. In assessing these risks, you should also refer to other information disclosed in our SEC filings, including the financial statements and notes thereto.

Risks Relating to Our Business

Public Health and COVID-19

The COVID-19 pandemic is adversely affecting us and our customers, counterparties, employees, and third-party service providers, and the continued adverse impacts on our business, financial position, results of operations, and prospects could be significant.

The spread of COVID-19 has created a global public-health crisis that has resulted in widespread volatility and deteriorations in household, business, economic, and market conditions. The extent of the impact of the COVID-19 pandemic on the Company’s capital, liquidity, financial condition, and results of operations during 2020 include:

• A goodwill impairment charge of $443.7 million, recognized in the first quarter of 2020, primarily caused by economic and industry conditions resulting from COVID-19. At December 31, 2020, our remaining goodwill totaled $43.1 million.

• Provision for credit losses of $278.0 million for 2020, primarily caused by the adoption of the CECL accounting standard and the forecasted effects of COVID-19 on the various loan segments due to worsening economic conditions. Because of CECL, our financial results may be negatively affected as soon as weak or deteriorating economic conditions are forecasted and alter our expectations for credit losses. In addition, due to the expansion of the time horizon over which we are required to estimate future credit losses under CECL, we may experience increased volatility in our future provisions for credit losses.

• Hedge income of $169.2 million recognized in the fourth quarter of 2020, which resulted from a partial accounting ineffectiveness determination that resulted from a decline of hedge eligible loans due to the economic impact of COVID-19.

• Loans decreased by 2.0% during 2020, resulting from decreased loan originations due in part to the economic impacts from COVID-19. This decrease was partially mitigated by outstanding Paycheck Protection Program (“PPP”) loans which were $938.0 million at December 31, 2020.

• Deposits increased by 8.9% during 2020 due to corporate customer increases in liquidity in the current economic environment and broader impacts of fiscal stimulus.

The specific effects of the pandemic noted above are discussed and described in more detail throughout Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The extent of the impact of COVID-19 on the Company’s future capital, liquidity, and other financial positions and on its business, results of operations, and prospects will depend on a number of evolving factors, including:

• The duration, extent, and severity of the COVID-19 pandemic. COVID-19 is not yet contained and could affect significantly more households and businesses. The duration and severity of the COVID-19 pandemic continue to be impossible to accurately predict.

• The response of governmental and nongovernmental authorities. The actions of many governmental and nongovernmental authorities have been directed toward curtailing household and business activity to contain COVID-19 while simultaneously deploying fiscal- and monetary-policy measures to partially mitigate the adverse effects on individual households and businesses. These actions are not always coordinated or consistent across jurisdictions but, in general, have rapidly expanded in scope and intensity.

• The effect on the Company’s customers, counterparties, employees, and third-party service providers. COVID-19 and its associated consequences and uncertainties have affected individuals, households, and businesses differently and unevenly. The COVID-19 pandemic had an impact on our operations, financial condition and results of operations during 2020, and we expect that the virus will continue to have an impact on the business, financial condition, and results of operations of the Company and its customers during 2021. In order to protect the health of our customers and employees, and to comply with applicable government directives, we have modified our business practices, including restricting employee travel, asking employees to work from home insofar as is possible, cancelling in-person meetings and implementing our business continuity plans and protocols to the extent necessary. We may take further such actions that we determine are in the best interest of our employees, customers and communities or as may be required by government order. These actions in response to the COVID-19 pandemic, and similar actions by our vendors and business partners, have not materially impaired our ability to support our employees, conduct our business and serve our customers, but there is no assurance that these actions will be sufficient to successfully mitigate the risks presented by COVID-19 or that our ability to operate will not be materially affected going forward.

• CARES Act and Consolidated Appropriations Act 2021 (“CAA”). In response to the pandemic, we have also enacted assistance for customers affected by COVID-19, including fee and penalty waivers, loan deferrals or other scenarios that may help our customers. Furthermore, in an effort to support our communities during the pandemic, we are participating in the PPP under the CARES Act whereby loans to small businesses are made and those loans are subject to the regulatory

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requirements that would require forbearance of loan payments for a specified time or that would limit our ability to pursue all available remedies in the event of a loan default. If the borrower under the PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of holding the loan at an unfavorable interest rate as compared to the loans to customers that we would have otherwise extended credit. Rules providing for forgiveness have been constantly evolving, including an automatic forgiveness if the amount of the PPP loan was not larger than a specified floor. The CAA was enacted on December 27, 2020 and includes nearly $900 billion in COVID-19 aid including taxpayer stimulus checks, enhanced federal unemployment benefits, an additional $284 billion in PPP loans, and other economic aid.

• The effect on economies and markets. Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies and markets could suffer disruptions that are lasting. An economic slowdown could adversely affect the Company’s origination of new loans and the performance of its existing loans. In addition, governmental actions are meaningfully influencing the interest-rate environment, which could adversely affect the Company’s results of operations and financial condition.

COVID-19 has also resulted in increased operational risks. A significant portion of our workforce has been working remotely, and the increased level of remote access creates additional cybersecurity risk and opportunities for cybercriminals to exploit vulnerabilities. Cybercriminals may increase their attempts to compromise business emails, including an increase in phishing attempts, and fraudulent vendors or other parties may view the pandemic as an opportunity to prey upon consumers and businesses during this time. The increase in online and remote banking activities may also increase the risk of fraud in certain instances. Additionally, our third-party service providers have also been impacted by the pandemic and we may experience some disruption to certain services performed by vendors, which could adversely impact our business.

Credit Risk

We are highly subject to credit risk.

Our business depends on our ability to successfully measure and manage credit risk. As a lender, we are exposed to the risk that the principal of, or interest on, a loan will not be repaid timely or at all or that the value of any collateral supporting a loan will be insufficient to cover our outstanding exposure. In addition, we are exposed to risks with respect to the period of time over which the loan may be repaid; proper loan underwriting; and changes in economic and industry conditions. The creditworthiness of a borrower is affected by many factors including local market conditions and general economic conditions. If the overall economic climate in the United States, generally, or our market areas, specifically, experiences material disruption, our borrowers may experience difficulties in repaying their loans, the collateral we hold may decrease in value or become illiquid, and the level of nonperforming loans, charge-offs and delinquencies could rise and require significant additional provisions for credit losses. Additional factors related to the credit quality of commercial loans include the quality of the management of the business and the borrower’s ability both to properly evaluate changes in the supply and demand characteristics affecting their market for products and services and to effectively respond to those changes. Additional factors related to the credit quality of commercial real estate loans include tenant vacancy rates and the quality of management of the property.

Our credit risk management practices and our credit approval, review and administrative practices may not adequately reduce credit risk, and our credit administration policies and procedures may not adequately adapt to changes in economic or any other conditions affecting customers and the quality of the loan portfolio. A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for credit losses (“ACL”). As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations.

Our ACL may prove to be insufficient to absorb losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations.

Credit losses are inherent in the business of making loans and could have a material adverse effect on our operating results. Our ACL is maintained at a level considered adequate by management to absorb expected credit losses based on our analysis of the quality of our loan portfolio, market environment and other factors we deem to be relevant to this analysis based upon relevant information available to us. The ACL contains provisions for expected losses relating to specific borrowing relationships, as well as expected life-of-loan losses in the loan portfolio and credit undertakings that are not specifically identified. The determination of the appropriate level of the ACL inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Although our management has established an ACL it believes is adequate to absorb expected losses in our loan portfolio, the allowance may not be adequate. We could sustain credit losses that are significantly higher than the amount of our ACL for a variety of reasons, including changes in economic, operating and other conditions within our markets, as well as changes in the financial condition, cash flows, and operations of our borrowers. In addition, regulatory agencies periodically review our ACL, the policies and procedures we use to determine the level of the allowance and the value attributed to nonperforming loans or to real estate acquired through foreclosure. Such regulatory agencies may require us to recognize future charge-offs. Substantial increases in the ACL could have a material adverse effect on our business, financial condition and results of operations.

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The security interest that we have in our clients’ assets may not be sufficient to protect us from a partial or complete loss if we are required to foreclose.

Our loans are often secured by a lien on specified collateral of our clients. However, the collateral may not protect us from suffering a loss if we foreclose on the collateral. Factors that could reduce the value of the collateral that we have a security interest in include:

• changes in general economic and industry conditions;

• changes in the real estate markets in which we lend;

• inherent uncertainties in the future value of the collateral;