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Cadence Bank of Starkville could be forced to sale or merge if the bank cannot meet capital requirements of a May consent order, according to a report by the Mississippi Business Journal.
The order was issued by the Office of the Comptroller of the Currency and signed by Cadence on May 19 of this year, and Cadence reportedly had until Sunday, Sept. 19 to meet the deadline. The MBJ report states that Cadence ended the second quarter with a net loss of $1.6 million and a Tier 1 leverage ratio of 5.25 percent, well short of the OCC's order to reach a minimum Tier 1 ratio of 9 percent.
Despite this loss, the bank states in a second quarter filing with the Securities and Exchange Commission that â€śwe could expect to be profitable by the end of 2011â€ť if the bank is allowed to put accrued liquidity in longer-term assets with higher returns instead of short-term, low-return investments, where a lot of the liquidity is currently, the report stated.
Cadence is now waiting on approval of an $80 million offering of its common stock through the Securities and Exchange Commission. This sale would increase shares of common stock from 50 million to 140 million.
The $80 million should be enough to meet the mandated capital levels, Cadence stated to the press in May.
Lewis Mallory, Chairman and CEO of Cadence Financial, said in an earnings report for the first quarter of 2010 that some of the bank's financial troubles is due to entering into the real estate markets late.
â€śOur primary strategy in restoring our earnings is to reduce exposure to high risk real estate loans,â€ť Mallory said. â€śWe're not ready to say we have reached the bottom, (but) our recent experience clearly indicates a real slowdown in new problem credits.â€ť
Cadence stated that their loan quality deteriorated because of the slow residential real estate and mortgage markets.
Mallory denies any takeover or merger of the bank and said that the bank is doing all it can to clear themselves of any OCC penalties.
â€śPresently, Cadence maintains capital levels above the well-capitalized standards published by banking regulatory agency. Liquidity levels at Cadence significantly exceed peer bank liquidity,â€ť Mallory said in the statement to the Starkville Daily News. â€śWe remain focused on serving our customers as we have for over a 120 years and returning Cadence Bank to profitability.â€ť
According to the MBJ, Cadence expects to meet the consent order requirements by creating a compliance committee to address capital adequacy, making strategic and capital plans, having competent and effective management and taking other necessary steps to get them back on track.
Bank officials said by the middle of 2010, Cadence cut its workforce from 505 to 375 people, saving approximately $750,000 annually to help the bank with it's financial difficulties.