Houston's Coastal Banc Savings Association this month got out of its Southwest plan contract four years early.

"In six years, we have transformed ourselves from a predominantly government-assisted balance sheet," said chief executive Manuel J. Mehos, a former Wall Street tyoe who engineered Coastal's unlikely success since 1988.

"This agreement was planned for a 10-year life, and we've done most of the work in six years."

With the deal done, Mr. Mehos" and the savings and loan debacle is just about over. Having survived the Texas recession and the bad PR associated with the Southwest plan, Mr. Mehos is mapping out an aggressive plan for Coastal that, if executed, could make it one of Texas, major financial institutions.

"Coastal is one of those few Southwest plan thrifts that really worked its way through remarkably," said William Strunk, a Houston bank consultant.

"It's one of the true survivors of the thrift business in this state."

Southwest Plan

Coastal Savings had $60 million assets in 1988 when it became the first exciting institution to buy an S&L franchise in what became known as the Southwest plan. The old Federal Savings and Loan Insurance Corp. used it to resolve the rash of failed institutions in Texas, in a way that rewarded private buyers, not the government, for liquidating bad assets.

The assets the FSLIC sold to the investors -- in Coastal's case $543.4 million from four thrifts -- were "covered," meaning the buyer's losses on managing and liquidating the assets was reimbursed by the government. Coastal's agreement was scheduled to terminate in 1988.

Overnight, Coastal became a $600 million thrift with branches all over Houston. Over the next six years, culminating with two acquisitions in the last year, Coastal bought more failed S&L assets and deposits. At March 31, it had $2.3 billion in assets.

Mr. Mehos said he and the Federal Deposit Insurance Corp, FSLIC's successor in the agreement, felt it was time to end the agreement. Covered assets are whittled down to $40 million, and Mr. Mehos said the stock market's had a negative perception of the FDIC's ownership of Coastal stock warrants.

"What was left on the contract was too small," he said. "It's not economical for the government to monitor the contract any more, and our investors are rid of the perception that the government is their partner."

Loan Growth

"We've replaced the covered assets with loan growth," Mr. Mehos said, adding that Coastal, which just traded its federal charter for a state savings bank charter, has both generated and bought mortgage loans and in the last eight months began making commercial loans.

However, Coastal, with 24 retail offices in Houston, is still extremely liquid.

"At least two-thirds of our balance sheet is securities, Mr. Mehos said. "Our objectives is to start replacing those securities with loans. It will be a change for us, because we run a very low-cost operation. Our philosophy is that with a low-cost operation you can still make a 15% return on equity and still have only one-third of our assets as loans."

He said he's still interested in expanding. "We are still looking," Mr. Mehos said. "We look at deposit-only or whole-thrift deals, mostly in southern third of Texas. We want to be a major thrift, and in 10 years I would say we could be as big as $10 billion.

"One day we will be buying commercial banks. That is part of our long-term plan."Coastal Banc SavingsAt a GlanceSymbol CBSA (Nasdaq)Headquarters HoustonCeo Manuel J. MehosBranches 26Assets $2.3 billionROA 1.1%ROE 23%As of March 31

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.