After baptism by fire, Worthen's Bradbury faces another test; execs at Arkansas' No. 1 bank must prove they can attain growth in tough market.

Execs at Arkansas' No. 1 Bank Must Prove They Can Attain Growth in Tough Market

LITTLE ROCK, Ark. -- The house Curt Bradbury bought last year has served as a constant reminder of his early days at Worthen Banking Corp.

Soon after he moved in, water leaks became a problem. He was faced with either fixing them or drowning. Reflecting on that disaster triggers memories of a previous bailout effort.

When Mr. Bradbury took control of the state's largest banking company in 1985, Worthen faced almost certain collapse. The failure of Bevill, Bresler & Schulman, a New Jersey securities firm, a stung Worthen for a $52 million loss on a securities deal which all but wiped out the bank's capital.

He quickly arranged for new capital that put the bank on sound footing. Or so he thought. "At the time, it appeared to be an isolated incident," recalls Mr. Bradbury, who is chairman, chief executive and president of the $3.5 billion-asset bank.

From Bad to Worse

But later than summer, fissures in the bank's foundation became apparent. Within two years, executives and regulators identified $235 million in bad credits, charging off an incredible 8.5% of its loans (a higher level than Bank of New England had when it failed).

"My darkest day was sometime in the spring of 1987 when I thought the problems were terminal," said the 45-year-old executive, who wins high marks from industry analysts for his persistence. "It wasn't until two years later that I could say the worst was over."

Rather than give in, Mr. Bradbury fought back. After shrinking the company by selling off assets, he led one of the nation's most remarkable but least remarked-upon turnarounds.

Country Club Atmosphere

Today, the only remnant of the country club atmosphere he blames for weak credit standards is a rooftop putting green. Once used by executives at the old Worthern, it can be seen from Mr. Bradbury's fifth floor office. Even though he long ago had the holes filled, the sight of the artificial turf still galls him.

The question now is whether Worthen's turnaround team can lead the bank into a new era. Worthen must garner double-digit growth, radically slash overhead, and expand the bank in-state and beyond. That's no easy task in Arkansas, where loan demand is often weak and a tough usury law limits interest rates to a thin 500 basis points above prime.

Worthen is off to a slow start. Regulatory approval of the acquisition of Union of Arkansas, a $692 million-asset bank, dragged out for more than a year. This sapped profits and delayed expected cost savings until at least 1994. At one point, analysts estimated the regulatory delays drove the company's efficiency ratio to 88% - far above the 55% that Mr. Bradbury wants.

|Learning a Lot of Things'

"It isn't what I'd call the most efficient bank in the world," said Jim Schutz, a bank analyst at Chicago Corp., which represented Union in the merger. "But this is really their first major merger and they are learning a lot of things."

In the $100 million stock-swap deal, Worthen swallowed its across-the-street rival. The move locked up Little Rock for the bank and also brought its first out-of-state operation - in Austin, Tex.

"This year was so-so for Worthen," said Peter Tuz, a bank analyst at Morgan Keegan & Co. in Memphis. "I would expect that in 1994 they are going to focus on getting the [Union] merger under control and growing revenues."

Beyond that, look for Mr. Bradbury to expand the bank. While he wants to grow a Texas franchise, the focus will be on expansion in Arkansas, where Worthen successfully lobbied last year to raise the deposit-share cap to 25% from 15%. His goals: building a presence in Jonesboro, adding to a strong presence in fast-growing northwestern Arkansas, and then moving into neighboring Missouri and Oklahoma.

With six states at Arkansas' borders and few interstate restrictions, Worthen can just as easily buy as he bought. But Mr. Bradbury insists the bank has no plans to turn the map into a pin cushion of possible targets.

"Acquisitions are less subject to planning than the regulators might like them to be," Mr. Bradbury said. "Acquisitions are really nothing more than the art of the deal."

At the same time, the emphasis will be on expanding lines of business. The company's Worthen Investments is a profitable retail operation with $900 million in accounts and room to grow as the bank does.

Return to Credit Cards Planned

The bank also has plans to reenter the credit card business it exited in the mid-1980s. Mr. Bradbury says with some regret that the $30 million portfolio of cards sold to First Interstate Bancorp is now a $150 million operation. He plans to grow a new credit card business and may center the operation in Oklahoma to escape the interest-rate cap that gives Arkansas banks the lowest card rates in the nation.

While the bank's 1.08% return on assets was in line with peers its profitability has been boosted by a corporate tax rate that was as low as 4% just two years ago. This year, the bank has an estimated rate of 35%, which will pressure earnings.

Mr. Bradbury and his crisis-hardened team have begun to look ahead at improving the bank's profile in the financial markets. Executives have traveled to Europe and around the United States to build interest in its stock. More than half of Worthen's 40 million authorized shares have yet to be issued, so there is leeway for stock swaps or raising cash.

Has $20 Million Credit Line

Worthen expects to have as much as $30 million in cash in the holding company by next year. It also has a $20 million credit line with NationsBank Corp. which could be tapped to finance acquisitions.

Worthen officials will not predict if a new offering is likely, but say little capital-raising is expected until next spring when the bank's largest shareholders, the McAdams family, decide whether to hold or reduce their 27% stake. The family received the stock in the Union merger, but the holdings are subject to a one-year standstill agreement.

Some market watchers expect a portion of the stock to be sold. However the bank's second largest shareholders, members of the Stephens family, are said to be in for the long term. (See accompanying story.)

For now, though, Mr. Bradbury is concentrating on the future while he tries not to forget the lessons of the past. "We've had eight years of running this place our way," he says. "There's a certain hardening of the arteries that goes with that."

Should he need any reminders, Mr. Bradbury need only go home.

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