Former Texas Capital Bancshares Inc. president and CEO Keith Cargill seemed confident about sealing a deal with Independent Bank Group Inc. just a month ago.
“We remain committed to a timely closing of our pending merger,” he told investors in the company’s April 22 quarterly earnings release.
It all fell apart Tuesday when the Texas banks announced a mutual termination of their $5.5 billion merger announced in December when banks were oblivious to the economic upheaval that would hit in early 2020. Not long after calling off the deal, Texas Capital also said Cargill was stepping down, effective immediately.
The combined bank would have been a megabank with $48 billion in assets. That would have made it the sixth largest bank operating in Texas, trailing only national behemoths like JPMorgan Chase, Bank of America, Wells Fargo, USAA and Dallas-based Comerica Inc., according to the Texas Department of Banking’s most recent ranking.
So what made the deal sour?
Dallas-based Texas Capital has been hit harder by the pandemic than Independent Bank. That’s because it had more exposure to the energy sector (about 5% of gross loans) and its earnings were severely impacted by lower interest rates, said Brady Gailey, a Texas banking analyst at Keefe, Brunette & Woods.
Meanwhile, Independent Bank has above average exposure to retail, which has had a downright traumatic year.
“Due to the unprecedented impact of the COVID-19 pandemic, both companies’ boards of directors believe it is in the best interests of our employees, clients and all of our shareholders to focus on managing our business during this time,” said Larry Helm, the bank’s board chairman since 2012. He’s replacing Cargill as executive chairman, CEO and president during a search process for a successor.
Cargill, 66, one of Texas Capital’s founders, had been planning to take a lesser role at the company as part of the merger and will remain as vice chairman until the end of 2020. Cargill’s transition agreement includes $4.9 million in salary, bonuses and stock grants.
Banks are stuck in a hard place as business customers and consumers struggle to make loan payments amid the pandemic’s economic fallout. Many businesses were forced to close for the last two months, and the unemployment rate reached its highest level in April since the Great Depression. That’s forcing banks to increase their allowance for credit losses.
Gailey said the world looks a lot different than it did when the merger was announced at the end of 2019. And he’s not just talking about the global pandemic; there’s also the Federal Reserve cutting interest rates to near zero and the plummeting price of oil.
“Those things really worked against this merger,” he said. “But we think both franchises are fairly high-quality, nice Texas banking franchises. And the…