trending Market Intelligence /marketintelligence/en/news-insights/trending/5jyiloyncy3syhzxjyftna2 content esgSubNav
In This List

Cadence pays up for State Bank Financial, a 'gem' in Atlanta


Banking Essentials Newsletter: 17th April Edition


Banking Essentials Newsletter: 7th February Edition

Case Study

A Bank Outsources Data Gathering to Meet Basel III Regulations


Private Markets 360° | Episode 8: Powering the Global Private Markets (with Adam Kansler of S&P Global Market Intelligence)

Cadence pays up for State Bank Financial, a 'gem' in Atlanta

Just a year after going public, Cadence Bancorp. announced a transformative deal with State Bank Financial Corp. that will launch the pro forma company above $10 billion in assets and add new geographies and business lines throughout the South.

"When we went public a little over a year ago, we said we wanted to be active in M&A and we said we've been selective and that we were looking for a few gems," said Cadence CEO Paul Murphy at the open of the May 14 call. "We've found a gem with State Bank."

The all-stock deal, valued at about $1.4 billion, is the largest aggregate deal value since May 2017 and will create a regional bank with about $16 billion in assets. The deal helps Cadence offset heightened regulatory costs associated with growing above $10 billion. The deal will also help offset the decrease in debit interchange income.

At close, Cadence will become the sixth-largest bank holding company in Texas and a "major player" in Georgia based on deposit market share, said Cadence Bank NA CEO Samuel Tortorici. Cadence Bank NA's headquarters will move to Atlanta from Birmingham, Ala., and Tortorici will return to the Georgia capital to lead the franchise. State Bank will add business lines such as SBA lending, asset-based lending, correspondent banking and internet deposits.

SNL Image

The addition of State Bank's low-cost, low-beta deposits and asset-sensitive loans will reduce the pro forma company's cost of funds and enhance its asset base, management said. Cadence executives are modeling loan growth in the high single digits to low double digits for the combined company.

Management said the pairing presents attractive opportunities for expanded business lines and cost savings of about 30% of State Bank's noninterest expense. Cadence CFO Valerie Toalson said the cost saves will be fully achievable beginning in the second quarter of 2019.

Toalson said tangible book value dilution would be 4% and earned back in less than three years using the crossover method of calculation. The deal offers earnings per share accretion of about 6% in 2019 and 7% in 2020.

Some bank analysts that cover State Bank viewed it as a potential seller, given the limited number of community banks in Georgia and its asset-sensitive balance sheet. Hovde analyst Brian Zabora, however, wrote in a May 14 note that he had considered a near-term sale of the company unlikely, given it was still realizing cost-savings of the AloStar Bank of Commerce deal, announced in June 2017.

The deal improves asset sensitivity and net interest margin, is capital accretive and reduces funding costs and energy concentration — all factors that help offset the "pricey" valuation of 2.5x tangible book value, Raymond James analyst Michael Rose wrote in a May 14 note. He took a positive view of the deal and said he expects strong middle-market growth and the expansion of fee income businesses. Rose wrote in a follow-up note after the deal call that management intends to expand the commercial and industrial lending platform in Atlanta and will increase hiring in the region.

During the call, Rose observed that this announcement comes at a time when Atlanta has proven to be a hotbed of activity for bank deals. Murphy said the transaction is the culmination of a relationship that developed over a number of years.

Cadence's stock price fell 2.38% to $29.51 as of 12:07 p.m. ET.