Dive Brief:

• Cadence Bank, a lender with dual headquarters in Tupelo, Mississippi and Houston, Texas, has agreed to acquire Industry Bancshares, the holding company of six Texas community banks, in an all-cash transaction valued between $20 million and $60 million, based upon Industry’s equity capital at closing the company announced Friday.
• The acquisition will bolster Cadence’s presence in Texas and add Industry’s $4.4 billion in assets, $1.1 billion in loans and $4.5 billion in deposits, along with 27 branches across central and southeast Texas.
• The deal, expected to close during the second half of 2025, has been approved by both boards and awaits regulatory and shareholder approvals. The deal also needs to meet Industry’s equity capital minimum requirements at closing, according to the press release.

Dive Insight:

Analysts have raised questions about the deal, dubbing it “unique” since Industry is operating under consent orders from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. involving all of its six subsidiaries.

“We expect questions abound on why this franchise, which arguably could have been closed by regulators given its significant negative tangible common equity since 2Q22, was ultimately the right fit (where roughly half of its deposits are in counties with less than 26,000 people),” analysts at Raymond James wrote in their notes Monday before a conference call detailing the transaction.

The OCC issued cease-and-desist orders against The First National Bank of Shiner, Bank of Brenham and First National Bank of Bellville in November, which were aimed at resolving charges filed in January 2024. The regulator alleged that all three banks engaged in unsafe banking practices by concentrating investments in long-term securities, exposing them to excessive interest rate risk.

Additionally, the Bank of Brenham and First National Bank of Bellville were cited for unsafe credit administration practices.

Meanwhile, the FDIC hit three other subsidiaries of Industry Bancshares with consent orders highlighting the lenders’ shortcomings in capital position, liquidity, staffing and risk management. The banks cited by the FDIC included Industry State Bank, Fayetteville Bank and Citizens State Bank in Buffalo, Texas.

However, the $50 billion-asset Cadence noted that executives had extensive pre-announcement discussions with regulators and that the Industry's existing consent orders are not expected to impact approval and the approval process should be relatively quick.

Raymond James analysts noted that Industry has negative tangible common equity and net income due to significant unrealized losses of $869 million in its available-for-sale securities portfolio, making traditional valuation metrics unusable.

The deal is set to enhance Cadence’s Texas footprint, where it would have the fifth-largest regional deposit market share in the state post-closing, and the ninth-largest in total. The legacy subsidiaries will be consolidated into Cadence’s charter and merged into Cadence Bank upon closing.

Cadence has a long track record of M&A deals. It received regulatory approval for its latest deal, buying FCB Financial, the parent company of First Chatham Bank, in a deal worth approximately $103.6 million, within 61 days of the announcement.

“What makes this alliance so impactful is that Cadence Bank's community banking foundation aligns well with the community focus of Industry Bancshares' six bank subsidiaries,” Dan Rollins, chairman and CEO of Cadence Bank, said in a statement.

“Because we operate in very similar markets across Texas and the South, we understand the needs of these local economies and can bring expanded product offerings and increased lending opportunities to fuel future growth,” he said.

Cadence wants to immediately sell $1.4 billion (~2.60% yield) of Industry's securities post-closing and the proceeds will be reinvested in loans and other earning assets. The remaining 60% will be gradually liquidated while earning accretion income, the company noted during its conference call.

Cadence, which operates 350 locations across the South and Texas, believes it can grow deposits in Industry's markets by offering broader products and improving its market reputation.

Raymond James analysts noted, citing the conference call, that Cadence expects no significant branch reductions planned as a cost-savings measure, with only one or two branch closures due to overlap, and attributed high cost savings of roughly 40% to the consolidation of six independently operated banks.

Analysts indicated a positive risk-reward view based on a stable credit outlook, a solid core deposit base, and a growing presence in attractive markets.

In a separate note, Cadence announced its 2025 repurchase authorization of up to 10 million shares of its common stock that will expire on December 31, 2025. The company expects repurchase activity to be muted in the near term due to the pending approval and integration of the two simultaneous M&A transactions. However, Cadence “should be well-positioned to return to a more offensive stance entering 2026” and reapproach capital deployment opportunities, they wrote.

Headquartered in Industry, Texas, Industry Bancshares was founded in 1911 and has around 340 employees. 

After the merger is complete, executives from Industry, including Doak Hartley, Michelle Hodge, Mike Mueller, Brent Jones, Gary Durrenberger, Kyle Holloway, Lisa Moeller, and Mike Kalina, will continue in key roles in their respective communities within the combined entity.

“This merger represents an exciting new chapter for our customers and communities,” Carl J. Chaney, executive chairman of Industry Bancshares, said in a statement. “With their scale, resources and relationship-driven approach, this merger will allow continued personal service and trusted expertise our customers depend on.”