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Trustmark buys Cadence

September 23, 2010

Cadence Bank will be merging with Jackson-based Trustmark bank, officials with both companies announced late Wednesday.
The community will find Trustmark Bank “a very good addition,” the CEO of Cadence Financial Corp. said Wednesday night following the announcement of a merger between the two entities.
A faxed statement released just after 5 p.m. Wednesday heralded the deal to merge Starkville-based Cadence Bank with Trustmark, a financial institution headquartered in Jackson. Both are publicly-traded national banks.
“Our board has been reviewing capital alternatives during recent months and we felt like after reviewing all alternatives that the best strategy and opportunity for all of our stakeholders would be a merger with Trustmark,” said Lewis Mallory, chairman and CEO of Cadence Financial Corp.
Officials expect the merger – subject to Cadence shareholder and regulatory approval and other conditions – will be complete by the first quarter of 2011, officials with both banks said in the joint statement.
Under an agreement between the two institutions, Cadence shareholders will receive 0.096993 shares of Trustmark stock in a tax-free exchange. Trustmark will issue about 1,155,104 shares of common stock for all outstanding common shares at Cadence.
The transaction is valued at $23.8 million – or $2 per common Cadence share – working from a price of $20.62 for Trustmark shares.
Trustmark has offered to buy the $44 million in Cadence preferred stock sold to the U.S. Treasury in January 2009 at a price of $30.05 million in cash. Treasury officials have indicated a willingness to sell their stock in Cadence “subject to the entry into definitive documentation acceptable to Treasury in its sole discretion,” according to the statement.
In describing Trustmark, Mallory said: “They’ve demonstrated over
the years that they are a very customer-oriented bank. Their customers are extremely loyal, which obviously suggests something positive about the bank.”
Mallory also said: “Cadence and Trustmark have been close for decades in that have operated together in a mutually-beneficial relationship for a long time. We’ve maintained a corespondent relationship with them for many years. We know and admire their management and their business style, so we know who we’re partnering with and we think the community will find them to be a very good addition.”

‘The best thing’

Mallory said the merger “was the best thing for us to do at this time.”
Cadence was operating under a consent order with Office of the Comptroller of the Currency – its primary federal regulatory agency – signed May 19.
One of the provisions in the order was for the bank to hold capital of at least 12 percent of risk-weighted assets and Tier 1 capital of at least 9 percent of adjusted of adjusted total assets by 120 days of the date of the order.
This deadline would have been around Sunday.
On Friday, Mallory said: “Cadence continues to pursue its capital raising efforts. Contacts with capital markets and constructive discussions with regulators are continuing on an ongoing basis. Presently, Cadence maintains capital levels above the well-capitalized standards published by banking regulatory agency. Liquidity levels at Cadence significantly exceed peer bank liquidity.”
He also said Friday: “We remain focused on serving our customers as we have for over a 120 years and returning Cadence Bank to profitability.”
The OCC agreement “required very high capital ratios. Our capital ratios currently and always have exceeded published ratios for well-capitalized banks but we were unable to get to the elevated ratios the OCC asked us to obtain. We had an abundance of liquidity and enough capital to continue but as long as we were under that order, I don’t believe our stock price was ever going to improve and I think our ability to be profitable was limited,” Mallory said Wednesday.
Given these circumstances, the bank’s board “naturally is obligated to consider” the best alternatives for the institution,” he said. “And our decision with Trustmark reflects the board’s decision.”
When asked about branch and employee retention, Mallory said: “I think Trustmark will make every effort to retain as many Cadence people as possible. Those are decisions that are a little premature at this time.”
Regarding executive leadership, Mallory said: “Trustmark will be the surviving bank and their executive leadership would be expected to be the executive leadership of the surviving entity.”

‘Expanded presence’

Trustmark is a “Mississippi-based bank; it’s 121 years old, very similar to Cadence in that regard and it’s very strong financially. This market would certainly be attractive to them and they understand markets like this,” Mallory said.
In addressing how the merger will improve Trustmark’s footprint, Mallory said: “This would give them an expanded presence in the Golden Triangle which is one of the better growth areas in Mississippi.”
Trustmark has a limited presence in northeast Mississippi, Mallory said, adding that the bank currently has a location in Columbus.
The move will represent an extension for Trustmark into Alabama, where Cadence has offices in Birmingham and Tuscaloosa, Mallory said. Regarding Florida, Trustmark is on that state’s panhandle but not on the west coast, he said.
“Our Sarasota and Bradenton offices would represent new markets for Trustmark,” he said.
The merger will give Trustmark a presence in middle Tennessee – Cadence operates in Brentwood and Franklin there, Mallory said.
The two banks are in the Memphis, Tenn. area and the merger will “deepen their footprint” there, he said.
“This is a strategic, in-market opportunity that will be immediately accretive to Trustmark’s earnings per share and tangible book value,” said Richard G. Hickson, Trustmark’s chairman and CEO said in the statement.
Trustmark officials have “completed extensive on-site diligence, including review of Cadence’s loan portfolio and significant real estate collateral. We understand the inherent credit risk of the portfolio and have a proven record of managing real estate loans in a challenging economic environment,” Hickson said.
“Trustmark’s pro forma capital ratios will continue to significantly exceed ‘well-capitalized’ levels, enabling us to continue to take advance of opportunities in the marketplace,” he said.
Mallory said: “We are deeply appreciative of our customer and shareholder relationships and for the loyalty that has been shown Cadence over these years. We think that they will find Trustmark to be highly attentive to customer service and a good corporate citizen.”
Officials with both banks will hold a conference call with analysts today at 10 a.m. to discuss the merger. The call will be available to those interested by calling (877) 317-6789, passcode 444730 or by clicking the Investor Relations link at https://www.trustmark.com/index-secure.html.
A replay of the call will be available through Sept. 30 in an archived format at the Trustmark site or by calling (877) 344-7529, passcode 444730.

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