Home » MBJ FEATURE » Trustmark loss of CADENCE stings but it’s not permanent

Trustmark loss of CADENCE stings but it’s not permanent

Getting jilted by Cadence Bank will cost Jackson’s Trustmark National Bank 7 cents in earnings per share for 2011, banking analyst Kevin Fitzsimmons of Sandler O’Neil & Partners estimates.

The 7 cents reduction puts the earnings per share for next year back to pre-acquisition estimate of $1.52, said Fitzsimmons, managing partner of the New York-based investment banking firm. He noted Trustmark’s third quarter earnings report on Oct. 26 will provide “guidance” on the accuracy of the estimate.

The loss of Cadence to Houston-based banking investment group Community Bancorp stings but won’t leave a scar, Fitzsimmons said.

“It’s unfortunate and disappointing that they lose Cadence,” he said in an interview last Tuesday. “They would have been a nice in-market, low-risk accretive deal.”

But avoiding the temptation to come back with a sweeter offer “clearly demonstrates that discipline and commitment to do what’s right for shareholders,” Fitzsimmons wrote in an analysis that followed the demise of Cadence’s merger into Trustmark National.

Trustmark keeps its “Buy” rating from Sandler O’Neil, according to Fitzsimmons, who said the bank is well positioned to seek out new acquisition targets.

“They are strong; they are profitable,” he said of the $9.8-billion multi-state bank holding company that reported earnings to shareholders of $26.2 million in the second quarter.

Trustmark will be viewed by potential sellers as an “acquirer of choice” as the pace of industry consolidation likely picks up over the next few years, Fitzsimmons wrote.

Fitzsimmons noted the proposed deal marked a milestone for the eventual consolidation of the industry “in that it represented one of the first ‘live’ bank acquisitions this cycle of a distressed target where the buyer’s stock reacted positively after the announcement (signaling perhaps that investors are becoming increasingly receptive to such transactions).”

Further, the way Trustmark approached the acquisition likely will serve as a blueprint for other banks of its size seeking to acquire distressed institutions not yet under Federal Deposit Insurance Corporation control, Fitzsimmons said.

Jerry Host, Trustmark president and COO, said Trustmark’s effort represents a primer on how to buy a “live” troubled bank. “We believe the transaction will be studied carefully by the industry and there will be other ‘live’ acquisitions announced in the future,” said Host, who takes over as Trustmark’s chairman and CEO in January.

The analyst took special note of the extensive due diligence performed by Trustmark and its consultants, especially in examining a Cadence loan portfolio that Cadence reported had $69 million in non-current loans and leases for the second quarter.

Trustmark’s examination determined a total loan portfolio value that was 11 percent below the value reflected on Cadence’s books. “On that note, we suspect the new suitor for CADE ended up being an indirect beneficiary of the time, resources and expense TRMK spent on conducting due-diligence on CADE’s loan portfolio (as we suspect their mark was largely the same as that assumed by TRMK),” Fitzsimmons wrote. Community Bancorp has not revealed what mark it placed on Cadence’s loan portfolio, he noted.

Scrutiny of the loans, according to Trustmark senior vice president Melanie Morgan, included visits by bank representatives to many of the properties for which loans had been made.

Trustmark pocketed a $2-million penalty from Cadence but it’s not yet known whether that will cover costs it incurred. “We’re still in the process of assimilating that” in order to report it to shareholders, Morgan said.

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