Cadence makes its first big buy after IPO

Holding company purchasing Atlanta bank for $1.4 billion

Houston’s Cadence Bancorp has inked a deal to purchase Atlanta-based State Bank Financial Corp. for $1.4 billion in stock, the latest in a string of recent bank deals involving local financial institutions.

The acquisition, expected to close in the fourth quarter, would combine two banks with a combined $16 billion in assets and about 100 branches across six states in the Southeast, the company said Monday.

It’s the first large acquisition by Cadence Bancorp., the Houstonbased holding company of Cadence Bank, after its initial public offering. The lender’s debut on Wall Street in April 2017 gave it access to publicly traded currency — its stock — that has allowed it to pursue bank deals by issuing shares.

“When we went public, we were looking for a few gems, something that’s a really good fit,” Cadence CEO Paul Murphy Jr. said in an interview. “Atlanta is a fabulous market, and it has very good growth characteristics.”

Cadence made its first big splash in Houston in 2012 with the purchase of Encore Bank, which at the time was one of only three publicly traded banks headquartered in Houston and considered one of the healthiest and well-positioned local banks.

The Encore deal put Cadence Bank at $5.5 billion in assets in 2012. It has doubled since then to $11 billion in assets. Houston is

“When we went public, we were looking for a few gems, something that’s a really good fit,” Cadence CEO Paul Murphy Jr. says. Karen Warren / Houston Chronicle

still Cadence Bank’s biggest market.

State Bank has about $5 billion in assets. Murphy said Cadence was attracted to the Atlanta bank’s talented team of bankers, high-quality assets and its foothold in Atlanta’s growing market.

It’s also a good time for bank mergers. Rising interest rates have bolstered banks’ bottom lines, particularly as loan rates rise and deposit rates lag — for a while. U.S. tax cuts have also freed up money. Bank share prices have climbed higher over the past year. The KBW Bank stock market index, which captures the value of top U.S. banks, has risen from 63.51 points in June 2016 to 110.83 points on Monday.

Bank combinations help lenders spread out regulatory and technology costs over a bigger base, ultimately raising returns for shareholders.

It’s a particularly good time to buy banks in markets like Houston. Hilltop Holdings, which runs the $9.7 billion Dallas-based PlainsCapital Bank, in February scooped up Houston’s Bank of River Oaks for $85 million. Houston’s Allegiance Bancshares last month said it would buy Post Oak Bancshares, another local lender. And Houston’s Icon Bank of Texas sold itself to BancorpSouth Bank of Tupelo, Miss., another April cash-and-stock deal.

“The demographics of Houston make the larger banks want to get here to participate in some of that growth,” said Dan Bass, an investment banker at advisory firm Performance Trust Capital Partners.

State Bank shareholders will get 1.16 share in Cadence for each State Bank share they own. Cadence shareholders will own 65 percent of the combined company, and State Bank investors, 35 percent. State Bank chairman Joe Evans will join Cadence’s board of directors as vice chairman.

Murphy said Cadence will “take a breather” from looking for new bank deals to absorb State Bank.

“But over time we’d like to be active,” Murphy said. “We’ll be back looking for a few gems. We’ve looked at a lot of deals. They’re hard to find.”