January 15, 2010 11:45:00 AM
Tim Pratt -
Cadence Bank CEO Lewis Mallory this week acknowledged the bank went through a "challenging" 2009, but said the institution''s financial situation isn''t as bleak as some media reports suggest.
The company lost about $110 million in the past year, Mallory said, but $68 million of that total was considered "goodwill." Goodwill, Mallory explained, is the amount Cadence paid above total book value when acquiring other companies.
Goodwill totals are higher than book value due to a number of factors, one of which is reputation, and Cadence decided to "write off" the goodwill totals in 2009.
"We made a decision in 2009 to write off all our goodwill and get it off the books," Mallory said. "That''s what is called a non-operating, non-recurring, non-cash charge. That contributed in a major way to the reported losses we''ve had."
"That goodwill does not affect our regulatory capital at all," he continued. "The balance of the losses, which is approximately $40 million, are attributable to the loan losses we''ve had. They were primarily real-estate construction and development loans, but we are aggressively working through those loans."
The bank earlier this year established a special asset department, whose purpose is to deal with problem loans. The bank also added to its loan review area, made improvements to its lending policy and "moved aggressively to recognize issues in our loan portfolio," Mallory said.
The bank''s financial difficulties have been highlighted recently by the resignation of two members of the board of directors: James D. Graham and Dan R. Lee. In a letter to Mallory, which was filed with the Securities and Exchange Commission, Graham said his decision to resign was based on the unwillingness of Cadence officials to sell the bank.
"The only strategic option recently explored that I thought would be good for the stockholders was to sell the bank," Graham said in the letter. "Now that we know a sale is not going to happen anytime soon, I believe it right and appropriate that I vacate my seat."
Contacted Thursday, Graham had no further comment.
"I really don''t have any comment other than that letter," Graham said. "People know what the letter means. I don''t have any other comments. I''ve put a lot of thought into trying to be as succinct as I can and to be as truthful as possible."
Attempts to reach Lee were unsuccessful.
Mallory said the board of directors has considered selling the bank.
"The board is charged with the responsibility of doing what they think is best based on the advice and information they get," Mallory said. "They want to do what is in the best interest of shareholders. The alternative of selling the bank is certainly always before the board as a possibility and the board is weighing that against what is in the shareholders'' best interest. So, in that regard, the board did consider selling and will probably consider it again in future time. They''re constantly weighing what is the best option for the shareholders."
The Cadence Bank board of directors is now down to 12 members, though no plans are in the works to immediately replace Graham or Lee, Mallory said.
"I think the director resignations and that kind of financial climate can perhaps attract really an undue amount of attention and maybe some excessive speculation," Mallory said. "These are good men. They are personal friends of a lot of members of the board and they''ve been darn good directors. We''re sorry they left the board, but Cadence moves on."
Cadence has been struggling amid the U.S. housing meltdown. Cadence sought federal help through the Troubled Asset Relief Program. Cadence sold to the government $44 million in senior preferred shares that pay an annual dividend of 5 percent for the first five years.
In September, the company sold its insurance business, Galloway Chandler McKinney Insurance Agency, back to back to its original Columbus and West Point-based owners, about the same time the bank shelved a planned sale of stock in an effort to shore up its low stock price.
Cadence stock opened for trading today at $1.79, down from a 52-week high of $5.29.