Regulators terminate actions against Texas banks

Federal regulators have started rolling back enforcement actions imposed on a group of Texas banks for lackluster interest rate risk management and other deficiencies.

The Federal Reserve Board terminated a cease and desist order against Industry Bancshares, Inc. this month, drawing to a close a saga that dates back to the mini banking crisis of 2023.

The Fed's move comes a little more than a week after the Office of the Comptroller of the Currency ended similar orders against three of the firm's subsidiary banks: Bank of Brenham National Association, the First National Bank of Brenham and the First National Bank of Shiner. 

Industry's three Texas-chartered state banks — Industry State Bank, Fayetteville Bank and Citizens State Bank — each have an outstanding enforcement action from the Federal Deposit Insurance Corp., according to the agency's website.

The OCC's terminations went into effect on July 1, the same day that Tupelo, Mississippi-based Cadence Bank completed its acquisition of Industry Bancshares and all six of its banking subsidiaries. The Fed closed its action on July 10 and announced it on Tuesday. 

Representatives from Industry Bancshares and Cadence Bank did not immediately respond to requests for comment on Tuesday.

Based in Industry, Texas, Industry Bancshares became something of a poster child for interest rate risk mismanagement in 2023 after the Fed quickly raised rates in 2022.

An American Bank analysis showed that Industry Bancshares was one of dozens of banks with underwater balance sheets as a result of unrealized losses on long-term securities investments. In late 2023, it had $4.7 billion of assets against $5.1 billion of liabilities. 

Similar paper losses contributed to the failure of Silicon Valley Bank in March 2023. When the Santa Clara, California bank was forced to sell some of its depreciated bond holdings to generate liquidity, the realized losses spooked depositors, triggering a massive run that led to the demise of the bank. 

After SVB, bank examiners cracked down on interest rate risk management and other issues, contributing to an uptick in enforcement actions last year that included cease and desist orders against Industry Bancshares and all of its depository subsidiaries.

Industry Bancshares fought back against the string of citations, rather than signing on to consent orders with the OCC. As a result, the national bank supervisor released documents saying the company had fallen into "troubled condition" as a result of its pandemic-era bond investments. 

The firm argued that agreeing to the terms of the consent order would "cause more harm than good," noting that it was already in the process of remediating its balance sheet. 

Last summer, Industry Bancshares secured an equity infusion of $195 million led by a holding company known as CSBH, which controls New Horizon Bank in Powhattan, Virginia. Earlier this year, regulators signed off on CSBH acquiring a larger stake in Industry Bancshares of up to 49.9%. At the time, Industry had reported cumulative losses of $13.9 million through the first nine months of last year.

Cadence announced its intention to buy Industry Bancshares for a minimum of $20 million cash. The acquisition adds 27 branches and $4.5 billion of deposits to the $50 billion asset bank, which already had a strong presence in Texas.