ATLANTA -- Southeastern banks continued their rebound in the third quarter, bolstered by strong net interest margins and lower loan-loss provisions.
The banks also encountered significant loan demand for the first time this year, providing hope for continued strength in 1993. "We're seeing more loan applications throughout the system at this point," said Aubrey Barnard, chief financial officer of South-Trust Corp., Birmingham, Ala.
The per-share earnings of 29 southeastern banks followed by Keefe, Bruyette & Woods Inc. rose a median of 34% from the the year-earlier period - the best performance in any region - and 5.5% from the second quarter of 1992.
First Tennessee's Strength
Improvements in asset quality showed up in two areas: lower loan-loss provisions, which helped bolster profits, and a continuing decline in nonperforming assets.
Typical was Memphis-based First Tennessee National Corp., which reported net income of $23.5 million, up 42% from the year-earlier period. The improvement was spurred by a 17% drop in its loan-loss provision, to $10.4 million, and by a 4.82% net interest margin that was 34 basis points more than a year ago.
Boding well for the future, First Tennessee's nonperforming assets fell by $23.5 million, or 27%, from their year-earlier level, to $64.8 million, or 1.55% of total assets.
Asset-quality improvements also contributed to a dramatic gain at Barnett Banks Inc., Jacksonville, Fla., which earned $58.5 million, 58% more than in the third quarter of 1991. Barnett's provision for bad loans fell 18%, to 61.9 million.
Like many banks, Barnett is starting to see the effects of expense control: noninterest costs fell by $13 million in the quarter because of job cuts at branches.
Margin Gains
Most southeastern banks enjoyed strong net interest margins, but the gains were generally less than in previous quarters. This suggests the banks will not be able to wring much additional advantage out of the decline in interest rates.
At First Union Corp. of Charlotte, N.C., which reported a 5.18% margin, chief financial officer Robert T. Atwood said the bank had lowered the rate paid on about $10 billion in deposits during the first nine months and only had $2 billion to reprice by yearend.
Lending Revival
Fortunately, as margin gains taper off, loan demand is returning. First Alabama Bancshares Inc. is one of the primary beneficiaries, reporting its second straight quarterly gain in loans.
Though First Alabama stood virtually alone in the second quarter, when its loans rose 5.9%, other Alabama banks experienced a pickup in the third quarter, as First Alabama's portfolio grew by 4.4%, or about $200 million.
"I've got to think it's more the economy now, rather than just us taking away from others," said Ronald C. Jackson, First Alabama's assistant controller.
First Alabama showed strong gains, Mr. Jackson said, in virtually all categories, including home mortgages, real estate construction, commercial mortgages, installment loans, and credit cards.
First Alabama operates primarily in its home state, which has come out of the recession in better shape than many southern states. But banks with operations throughout the region also noticed a pickup in loan demand.
Surge at NationsBank
Loans at NationsBank Corp., the Southeast's largest bank, surged by $800 million in the latest quarter. The Charlotte-based company reported improvements in both the commercial and consumer areas.
Richard I. Stillinger, an analyst with Keefe Bruyette in New York, found such data "mildly encouraging." Most southeastern banks did not experience dramatic surges in their loan balances in the quarter, but few reported declines, he said.
Mr. Stillinger foresees continued earnings gains at most southeastern banks next year, particularly if loan demand picks up. He also expects foreclosed property expenses to weigh less heavily on balance sheets as banks sell more non-performing real estate.
"I feel fairly optimistic about the ongoing trend of earnings," Mr. Stillinger said.
