May 21, 2010 11:02:00 AM
Starkville-based Cadence Financial Corp. announced this week that it has filed to offer up to $80 million in common stock in an effort to shore up capital to meet a new consent order placed on Cadence Bank by federal officials.
By agreeing to the consent order, the $1.9 billion bank has 120 days to raise total capital to at least 12 percent of risk-weighted assets, and have Tier 1 capital at least equal to 9 percent of adjusted total assets, or it could face further action.
Bank officials said they believe the stock offering will enable it to meet its new obligation.
"After successfully completing the proposed offering, the Company expects that the Bank will exceed the capital requirements set forth in the Consent Order," according to the Wednesday filing with the SEC. "Pursuant to the Consent Order, the Bank agreed to make improvements to several areas of its operations. The Bank and its directors will take various actions designed to enhance the Bank''s risk management and planning process, including, among other things, developing a strategic plan, assessing the capabilities of the Bank''s management, reviewing and revising the Bank''s credit policy and liquidity risk management program and adopting and implementing an internal audit program."
Under the order, federal officials must approve any changes to the bank''s board of directors, and mandates the board form a special committee to make monthly reports on its progress.
"The number of shares to be offered and the price for those shares has not yet been determined," the bank said in a Wednesday statement, adding that proceeds from the sale will be for "for general corporate purposes, including funding its regulatory capital needs."
The bank attempted and ultimately canceled a stock offering last year. In a letter to shareholders last September, Lewis F. Mallory, Jr., chairman and chief executive officer, said the offering, announced last June, was suspended "until such a time as we can raise capital on more favorable terms than those possible in today''s economic environment. Our strong liquidity provides us the flexibility to wait until market conditions have improved to consider additional capital."
Mallory stressed last year that "Cadence is in no danger of failing, and our customers continue to enjoy the full measure of FDIC insurance at the maximum levels."
The new consent order comes after the bank was unable to meet a previous benchmark from the OCC. In its annual report filed in March, the bank detailed that earlier agreement, entered into in April 2009, which required a "tier 1 leverage ratio of 8 percent and a total-risk-based capital of 12 percent." By the end of 2009, the bank had a "Tier 1 leverage ratio of 6.0 percent and a total risk-based capital ratio of 10.2 percent and, therefore, was not in compliance with the OCC''s mandated capital ratios and may be subject to further enforcement action by the OCC," the bank said in its annual report.
As of mid-morning, Cadence shares were trading on the NASDAQ at $2.13, down 4 cents from Thursday. The shares have a 52-week high of $4.80.
Hurt by housing downturn
Cadence, which has branches in Mississippi, Tennessee, Alabama, Florida and Georgia, has been struggling amid the downturn in the housing market, weighed down by construction and housing loans. The bank posted a $110 million loss in 2009.
In April, Cadence reported a net loss of $1.2 million, for the first quarter of 2010, compared with a net loss of $84.2 million for the first quarter of 2009.
"We launched a review of our operations in the first quarter that focused on improving the efficiency and profitability of Cadence across our five-state franchise," Mallory said in the April filing. "We identified changes in customer delivery of services arising from increased use of electronic banking, redundant positions in certain departments and improved processes to reduce our costs. We incurred the majority of the expense in implementing the changes in the first quarter and expect to reduce ongoing costs by approximately $730,000 per quarter going forward. As part of our continued review of operations, we also formed process improvement teams that will focus on ongoing programs to enhance our efficiencies and improve the delivery of services to our customers. We believe our plans to improve our product offerings, customer service and overall profitability should be fully implemented during the second half of 2010."
Mallory said the bank has been restoring its earnings by reducing "exposure to higher risk real estate loans over the past year."
The bank has been working to build its liquidity over the past year by "accumulating deposits and investing in short-term assets," according to the April report. "At March 31, 2010, Cadence had approximately $309.8 million invested in short-term assets," the bank said.
Layoffs, board resignations
The bank earlier this year established a special asset department, whose purpose is to deal with problem loans, Mallory said in an interview earlier this year. 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 reviewed all its operations and announced a round of layoffs this year.
In January, two members of the bank''s board of directors, James D. Graham and Dan R. Lee, resigned their seats. 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.
Mallory said in January that the board considered selling the bank. "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," he said.
Cadence is among the financial institutions nationwide that 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 its first stock offering.