First City's Liquidity Boosted As FDIC Pays Off Note Early
First City Bancorporation of Texas disclosed that regulators made an early repayment of a $388 million note, boosting liquidity and providing some breathing room for the troubled company.
Houston-based First City also said that regulators have agreed not to take action against its lead bank until at least January, giving the company much-needed time to meet its capital plan. First City has pledged to raise at least $200 million in capital by yearend.
Action Is Forestalled
First City's lead Houston bank had a 1.89% ration of tangible equity to total assets at June 30. That is below the 2% limit at which the Federal Deposit Insurance Corp. can take "action it deems necessary to protect the Bank Insurance Fund."
In a 10Q filing with the Securities and Exchange Commission, First City said the FDIC repaid a note owed to the company stemming from its 1988 bailout. The note was scheduled to mature in April 1993.
FDIC spokesman Frank Gresock said First City requested early repayment of the note, which originally totaled $970 million. He said the FDIC borrowed from the Federal Financing Bank to pay off the note and in the process reduced its interest expense on the credit.
First City spokeswoman Suzy Taylor said the company had reinvested the funds in securities yielding roughly one percentage point more than the FDIC had been paying, raising First City's income on the funds.
Drain on Deposits
First City reported an 8.5% drop in deposits during the first quarter of 1991, a period in which it lost $71.2 million and was placed under strict federal supervision. Deposits dipped a mild 1.4% during the second quarter as First City lost $58.8 million.
In recent financial reports, First City attributed some of its deposit decline to the closing of foreign branch offices. The company said its funding "has remained stable," but reported it continues "to devise strategies to address any disintermediation . . . that might occur."
Rocked by a cumulative loss of $398.3 million over the past four quarters, First City for more than a year has been seeking fresh investors or a buyer.
Buyout Less Likely
Prospects for a buyout offer appear to have dimmed in recent months as two prime suitors entered major merger transactions elsewhere. NCNB Corp. talked with First City earlier this year but since has struck a merger agreement with C&S/Sovran Corp. Likewise, Bank of America Corp. extensively audited First City but recently agreed to merge with Security Pacific Corp.
First City said it is "engaged in continuing discussions with potential investors and acquirers," but warned that "irrespective of what ultimate resolution is found . . . preferred shareholders will likely be required to make substantial concessions and common shareholders will experience substantial ownership dilution."
Discount to Book Value
The company's common stock was trading on Friday afternoon at $2, an 81.5% discount from book value. First City preferred was trading at $4.75, a 91.2% discount from book value.
First City also reported continued deterioration in its collecting bank during the second quarter.
Containing bad assets left over from the company's 1988 rescue, the unit slid from a $20.5 million capital surplus at March 31 to an $8.34 million deficit at June 30. A company official said falling Texas realty values sparked the decline. [Graph Omitted]