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Trustmark CEO: Cadence deal lost luster after competitor upped ante

Trustmark ready to consider new acquisition opportunities if money potential is right.

Trustmark executives backed away from the Cadence acquisition because a bid showdown with competing suitor Community Bancorp of Houston had too much short-term downside, said Trustmark chairman and CEO Richard Hickson in his first public remarks about his bank’s loss of the merger in early October.

Trustmark had a definitive agreement with Cadence on the acquisition but declined to up its bid beyond 25 cents a share after the Houston banking investment group followed with a $2.50 a share offer, still 25 cents over Trustmark’s counter offer.

While Trustmark saw the original acquisition deal as accretive to earnings, that accretion diminished at any price beyond the 25 cents counter offer, Hickson told analysts in an earnings presentation last Wednesday.

Taking on Cadence’s $69 million in distressed loans, mostly in construction and land development,  “would be a long and difficult workout process,” he said, and not worthwhile at a higher price.

That assumption came from a “very thorough, deep and accurate due diligence,” Hickson said, which included examinations of all loans over $1 million.

Even under an assumption the takeover of Cadence could be accompanied by a 29 percent reduction in expenses, buying the Starkville bank at a price higher than the counter offer “was not accretive to our earnings per share or tangible book value in the reasonable near term,” he said.

Trustmark thinks other opportunities will come up over next six to 24 months that would bring more near-term value to the company, Hickson said.

At the right price, said Hickson, Trustmark would be attracted to another bank like Cadence undergoing similar stresses. “We will see what develops when the next couple of banks in Cadence’s situation go into sale mode,” he said.

A healthy institution would be attractive as well, he said.

But for now, FDIC-assisted acquisition of community banks does not have sufficient appeal, he added. “We have not seen FDIC transactions with franchises with any long-term or intermediate value to us.”

That could change, Hickson noted. “Much will depend on what happens with CRE (commercial real estate) with the community banks over the next year.

“We would take a look at any community bank within our market that is an older established franchise,” he said. Opportunities in surrounding states will get a look as well, he added.

Trustmark, he insisted, has not felt pressure from an earnings perspective to do acquisitions  “just to bring in earnings or create this kind of equity.”

Added Hickson: “We’re not going to jump back into it if we’re not going to make some money.”


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