Trustmark Corp. and Cadence Financial Corp. had danced around each other in neighboring markets in eastern and central Mississippi for more than 120 years.

Now, with problem real estate loans drying up earnings and diminishing capital at Cadence, Trustmark is stepping in to rescue its longtime rival. Its $23.8 million stock deal for Cadence, announced Thursday, is one of the largest deals involving Mississippi banks in recent years.

Some questioned why a company like the capital-rich Trustmark, with a history of acquiring healthy and failed banks, would purchase the $1.9 billion-asset Cadence now rather than wait to see if it could pick it up in a deal with assistance from the Federal Deposit Insurance Corp.

"Cadence was in a pretty grave condition," said John Allison, the commissioner of the Mississippi Department of Banking and Consumer Finance. "I've categorized Trustmark as a savior."

Allison is not the banks' regulator as both are nationally chartered.

Though Cadence Bank, based in Starkville, is well capitalized with a 10.67% total risk-based capital ratio, nonperforming assets made up more than 5% of its assets as of June 30. In May regulators ordered it to reach a 12% total risk-based capital ratio by Sept. 19.

Analysts said the deal — with the order hanging over Cadence — was a chance for the $9.2 billion-asset Trustmark to acquire a rival at a good price before valuations improved or Cadence found another partner. Trustmark's executives also maintain that Cadence was nowhere near failing.

"There's a significant difference between an ailing bank and a dying bank, and [Cadence] was far from that," Trustmark's president and chief operating officer, Jerry Host, said in an interview Thursday. After extensive due diligence, he said, "we're fairly certain this was a timing issue in certain markets and not a core issue at Cadence."

Much of the credit deterioration occurred in Cadence's Tennessee operations and within its residential construction and land development portfolio.

Executives at both companies said in a conference call Thursday that Cadence has been aggressively writing down its problem loans.

"It still has a decent capital position, and there are a lot more troubled banks than Cadence," said Andrew W. Stapp, a senior analyst at B. Riley & Co. Inc. "It's a good fit."

Moreover, Trustmark was running out of time to pick up Cadence in this condition. Cadence's chairman and chief executive, Lewis Mallory, said it has been considering a recapitalization, and had several offers. "I can't think of two banks with a more similar culture," said Mallory, who said he has known all of the Trustmark chief executives during his 45-year career at Cadence.

Though the companies operate in some similar markets in the Southeast, Cadence's dominance of the Golden Triangle area — the cities of Columbus, Starkville and West Point in northeast Mississippi — enticed Trustmark. Also, the deal would allow Trustmark to enter Alabama, Nashville and Florida's Gulf Coast.

Trustmark would acquire all of Cadence's 38 offices, $1 billion of loans and $1.5 billion of deposits. Trustmark would also purchase its $44 million in Troubled Asset Relief Program funds. Pending approval by regulators and Cadence's shareholders, the deal is expected to close in the first quarter of 2011.

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