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So much for a handshake

Cadence spurns Trustmark for upstart Houston investment group

In the end, Starkville-based Cadence Bank’s handshake and “definitive agreement” with Trustmark National Bank went by the wayside last Wednesday in exchange for an attractive sale price and immediate capital injection of upwards of $200 million from a Houston banking investment group.

The prospect of keeping intact its workforce, name and charter further enticed the $1.9-billion Cadence to scrap its agreement to be acquired by Jackson-based Trustmark, Cadence chairman and CEO Lewis Mallory Jr. said at a press conference announcing a deal struck with Houston-based Community Bancorp, LLC.

“They bring some advantages to the table that Trustmark didn’t,” Mallory said of the $900-million bank investment group that is making Cadence its first acquisition.

The cash deal gives Cadence’s approximately 3,000 shareholders $2.50 a common share and severs their connections to Cadence as it becomes a privately held entity.

From the Trustmark deal, shareholders would have received a price of $20.62 per share of Trustmark. The transaction was valued at approximately $23.8 million, or $2 per Cadence common share, Trustmark officials said in the announcement of the now-dead deal.

Mallory insisted the new deal is more lucrative to Cadence shareholders. “The cash price per share represents a premium to our current trading price and represents a higher, more certain price than what had been previously offered,” he said in a press statement announcing the pact with Community Bancorp.

Further appealing to Cadence was Community Bancorp’s pledge to make Cadence and Starkville the hub of a significantly expanded regional banking operation.  “I think it’s a big win for Starkville,” said Mallory, whose bank holding company now operates 38 locations spread through Mississippi, Tennessee, Alabama, Georgia and Florida.

But it was the promise of the new capital that sealed the deal, according to Mallory. “Bringing new capital to the table is what gets you through tough times,” he said.

And times have indeed been tough for Cadence. It announced the September deal with Trustmark within 48 hours of expiration of a federal order to nearly double its Tier 1 capital reserves or face a takeover by the Federal Insurance Deposit Corporation. Cadence had planned to do an $80-million stock offering to meet the capitalization requirement.

Cadence had $69 million in non-current loans and leases second quarter’s close. It attributes much of its money troubles to an entry into residential and commercial estate lending just as a once-vibrant real estate market began to dim. Much of the lending that caused the bank’s difficulties occurred in the middle Tennessee and suburban Nashville markets, bank officials say.

Along with easing the regulatory pressures, the new money will allow Cadence to “act and do those things that we want to do,” Mallory said.

Bank building specialist Paul B. Murphy Jr. is Community Bancorp’s key person in the deal. The Vicksburg native and Mississippi State University alum became president and CEO of the investment group after growing Houston start-up bank Amegy Bank of Texas into an $11-billion bank over a 16-year period. He has since sold Amegy to a buyer in Salt Lake City.

He said his group’s acquisition of Cadence will preserve the jobs of the company’s 375-person workforce and is likely to increase them.  Under a conventional acquisition by one bank of another, it’s not unusual for the acquired bank to lose 20 to 30 percent of its employees, Murphy said.

“We expect jobs will be created,” he said. “Starkville will be the operating headquarters for the future.”

In addition to the $2.50 a share payment, Community Bancorp will pay $38 million in cash to settle Cadence’s $44 Trouble Asset Relief Program, or TARP, debt with the U.S. Treasury Department.

Cadence said it expects its shareholders will vote on the sale in the next 60 days and the deal could close early in 2011.

Cadence ended the second quarter with non-current loans and leases totaling $69 million, but lower charge-offs and a lower level of non-performing and classified loans allowed it to reduce its loan loss allowance to $35.6 million, or 3.6 percent of outstanding loans, as of June 30, compared to $43.4 million, or 4 percent of outstanding loans, on Dec. 31, 2009.

Cadence has decreased the size of its loan portfolio by 25 percent since 2007 and ceased making home mortgages.

Cadence also has $375 million of liquidity in short-term, low-return investments that would conceivably be available to new owners to use for higher-yield investments.


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