CADE IPO opens 10% Higher than Expected

Cadence Bancorporation, based in Houston, has become the new barometer with which to measure investor sentiment on banking stocks. It also serves as a thermometer to gauge how hot the market is for energy loans that are volatile in a tightly regulated environment that can be stifling for small banks. On April 13th, Cadence (NYSE: CADE) opened at $22.05. This was after the pricing of 7.5 million shares of Class A common stock at $20.00 per share. While the IPO is expected to be concluded on April 19th, 2017, the surge in pricing is a good indicator for Cade and bank stocks.

Founded in 2009, Cadence was a reaction by savvy investors who wanted to capitalize on the financial crisis of 2008. These investors wanted to take over banks that were struggling or already failing. Cadence was able to get money from pension funds and other endowments, and these funds were used in taking over three small banks between 2011 and 2012.

Banks set up with a similar strategy have already gone public, and Cadence itself had plans of going public a few years ago. However, when oil and gas prices experienced major turbulence, the bank had to hold off on going public till prices stabilized. In the regulatory filings at the SEC, energy loans make up about 13% of the bank’s loan portfolio.

Cadence expects to raise $150 million in its IPO, with the money being used for general corporate purposes. These include paying debts owed by the bank. Other purposes include paying for organic growth, maintaining the regulatory capital requirement as well as building a financial war chest for future acquisition opportunities.

Cadence is run by Chairman and CEO Paul Murphy, with operations in Texas, Alabama and Florida. Its net income had reduced by 12% in 2015 but had increased by 68% by the end of 2016. It is not the first bank to go public in the recent past. In 2016, 4 U.S based banks launched their IPOs. First Hawaiian Inc. managed to get the lion’s share of the IPO market, raising about $558 million. Interestingly enough, its shares have increased in value by 25%.

With about 5900 banks in the United States, Cadence’s success is undoubtedly going to spark more interest in IPOs and bank stocks. Most of these banks have less than $5 billion in assets, which means that they have not been exposed to the exacting regulatory requirements of the Fed. However, seeing that the Fed has signaled that small banks will find it easier to get merger approval, it is likely that there’ll be consolidation in the industry.

Cadence has assets worth $9.5 billion. It, therefore, needs to convince investors that it can successfully navigate the tough regulatory environment that comes with banks with over $10 billion in assets. Cadence is expected to pass this threshold by mid-2018.

Goldman, Sachs & Co and J.P. Morgan are the lead underwriters for Cade’s IPO. Other underwriters include Sandler O’Neill + Partners, L.P and Keefe, Bruyette & Woods. If the underwriters exercise their right to buy extra shares during the IPO, Cadence expects to raise $175 million from its IPO.