A resurrected Cadence Bank, formerly headquartered in Starkville but now operating out of Birmingham, Ala., is pausing for some introspection after a couple years of rapid growth throughout a multi-state region.
The period of internal focus could lead the privately held $5.7-billion banking company to decide to go public, a move that would return the bank to an ownership structure held by Cadence in its Starkville incarnation, according to Cadence CEO Sam Tortorici.
“It’s not imperative that we go to an IPO, but as our assets improve it might be a way to raise new investor capital,” he said.
The timing could be attractive, as well. Bauer Financial awarded Cadence top 5-star ranking for its first quarter performance. Cadence went into the quarter having ended 2012 with the highest percentage point growth in commercial & industrial loans in the country, growing C&I loans by 10 percentage points, for an overall C&I increase of 40.9 percent in the three-month period. The loan pace slowed in the first quarter but should regain strength in the second, Tortorici said.
The five stars from Bauer is a world away from the single-star “troubled” ranking Bauer gave Cadence in the final quarter of 2010.
As that fourth quarter of that year began, federal regulators appeared days away from shutting down Cadence, having run out of patience with the bank’s failure to carry out a consent order that specified a significant increase in risk-based capital. A rescue scenario unfolded by which Cadence, at the time a $1.6 billion regional bank with nearly two dozen locations in North Mississippi and a dozen more outside the state, would stay a Mississippi-based bank through an acquisition by Trustmark Bank.
At the last minute, however, Cadence backed away from the deal with the much larger Jackson bank and opted for a backup offer from Houston’s Community Bancorp.
That Community Bancorp had arrived in Starkville with nearly $1 billion of private investment money to spend on the bank’s revival made the deal especially appealing to Cadence, as did the suitor’s pledge to keep a substantial portion of the Cadence operation in Starkville, officials of the bank said at the time.
In its first step in the conversion, Community Bancorp took Cadence private. Under the newly adopted name Cadence Bancorp, the banking company set about building the new Cadence, including $4.5 million in technological upgrades to the back office complex in Starkville.
Within a year, the once cash-poor Cadence had moved its headquarters to Birmingham and bought up that city’s distressed $3.4 billion Superior Bank in an FDIC sale. Superior added 73 banking offices and 23 consumer finance offices in Alabama and Florida to Cadence’s market.
A few months later, Cadence Bank acquired Houston’s Encore Bancshares, a $1.6 billion bank that was distressed but not to the point of an FDIC shutdown. With Encore’s Texas operations, Cadence grew to more than 100 locations with the addition of Encore.
After all that, it’s time for Cadence to catch its breath, CEO Tortorici said.
“The good news about Cadence is that we have very patient investors,” he said, describing the money backers as mainly endowments and university funds.
They will give the banking company time to sort things out, he added.
“We have deployed much of our organic capital. Now we are going to be internally focused… An IPO would be one option for us.”
Acquisition could be another option, said Ken Cyree, dean of the University of Mississippi’s School of Business Administration and director of the Mississippi Bankers Association’s School of Banking.
“It’s a rather commonplace occurrence, especially in the last 30 years,” for a larger institution to roll up a small-to-mid-size regional that has been busy expanding on its own, he said.
Cyree credited Cadence Bancorp’s former entity, Community Bancorp, with successful capital raising and initiation of a strong growth strategy. Soon they could be on the receiving end of a larger bank’s growth strategy, he said.
“There could be quite a few” potential acquirers, “whether it is Wells Fargo, Bank of America or one of the regional players like Regions, he added.
The alternative is for Cadence to continue to grow on its own to the point it reaches the “sweet spot” of a mid-size regional with assets of between $20 billion and $100. The sweet spots come from “being small enough to get through the regulations of Basel and Dodd Frank but not so large they have to face the more onerous regulations” the large nationwide banks encounter, Cyree said.
“You don’t want to get so big it takes heroic efforts to survive.”