Analysts See a Revival At Some Tennessee Banks
Several Tennessee banks are regaining some of the luster lost when local real estate started collapsing in 1987.
First Tennessee National Corp., for example, got a plaudit last week from Salomon Brothers Inc. The firm issued a "buy" recommendation on the stock, raising per-share earnings projections for this year and next to $3.70 and $4.15, from $3.45 and $3.75, respectively.
Salamon upgraded the Memphis-based company from market performer to outperformer, though expressing a "cautious stance" about the local economy.
Investors already may have been wise to to this. Salomon noted a 17.1% gain in share price in recent weeks, to $34.50. The stock opened at that price Tuesday and was trading late in the afternoon at $34.25.
This is quite a turnaround. "Nashville was being touted as the next Atlanta. It turned out to be the next Texas," said analyst Peter W. Tuz of Morgan Keegan & Co.
Reasons for Optimism
Mr. Tuz has been bullish on First Tennessee for several quarters. He said the $6.9 billion-asset bank limited its exposure to Nashville, where in 1989 the bank tried but failed to buy a thrift now controlled by regulators, Metropolitan Savings and Loan Association of Nashville.
Moreover, he said, First Tennessee "initiated their cleanup of commercial real estate far earlier, [and] they're several quarters ahead of the average regional bank" in recovering.
Nevertheless, said Mr. Tuz, First Tennessee's experience may be only the most noteworthy example of a wider trend. Union Planters Corp., Memphis, and even First American Corp., Nashville, which suffered more from the collapse in Nashville, also appear to be on the mend, Mr. Tuz said.
Nonperforming real estate loans at Union Planters stood at less than 2% of total loans and real estate, even better than First Tennessee's ratio of 2.3% to 2.4%, he said. At the same time, First America's nonperformers declined from the 5% range to about 4.3%, he said.
Mr. Tuz rated First Tennessee and Union Planters as "buys" and First America as a "speculative buy."
First Tennessee's 99-cent-a-share earnings in the second quarter represented a slight decline from the same period of 1990 but a dramatic improvement from the first quarter, Salomon Brothers noted.
A $2.7 million expense for foreclosed real estate illustrated that the company has been "relatively aggressive" in revaluing property, Salomon said. A decline in nonperforming assets during the quarter, to $108.4 million, from $117.6 million convinced Salomon analysts that those problems have peaked.
Salomon praised First Tennessee's new credit review policies, which include an annual review of all credits in excess of $3 million and a grading system for loan officers that rewards prompt recognition of problems. The analysts also cited the banking company's strong franchise and strategy of focusing on smaller credits.
Two midwestern regional banks gained substantially. Comerica Inc. in Detroit was up $1.25 a share, at $39.75, and Minneapolis-based Norwest Corp., recently rated a "strong buy" by an analyst, had gained $1, to $30.125, by 3 p.m.