New Signs of Health in Southwest
Fresh signs of recovery emerged in the Southwest banking industry during the second quarter, though numerous institutions still plodded and several reported deepening woes.
The momentum of the Southwest rebound showed in acquisitions by banks previously absorbed with navigating the region's energy and real estate downturn and overcoming loan problems.
In the Lone Star state, the revived First Interstate Bank-Texas made its first big takeover in years, acquiring 27 branches and $1.1 billion of deposits from the failed Commonwealth Federal Savings Association, Houston.
In Arkansas, Worthen Banking Corp. embarked on a 19% expansion drive, acquiring eight branches and $153 million of assets from One National Bank, Little Rock, and agreeing to buy the $262 million-asset First National Bank of Fayetteville.
United New Mexico Financial Corp. completed the purchase of two banks from First Interstate Bancorp. That boosted United's assets 55% to $1.7 billion, making it the second-largest banking company in the state.
And in Colorado, Central Bancorp. acquired 18 branches and $700 million of deposits from the failed Capitol Federal Savings, Aurora, doubling its banking locations to 35.
The expansions give evidence of the growing confidence among Southwest banks and their financial backers that internal problems have been dealt with and the region's economic fortunes will stay on the upswing.
The two glaring exceptions to an overall positive trend in the Southwest during the second quarter came at Hibernia Corp., New Orleans, and First City Bancorporation of Texas, Houston. Both outfits have suffered big losses and are seeking capital.
Rocked by a $33.2 million second-quarter loss that followed a $49.5 million first-quarter deficit, troubled Hibernia announced plans to sell its Texas subsidiary. The bank's four top officers vacated their positions, and the bank entered a supervisory agreement with the Comptroller of the Currency.
More Trouble Predicted
Hibernia finished the second quarter with $338.6 million of problem assets that equaled 7% of gross loans. Gerry O'Meara, a bank analyst with Robinson-Humphrey Co., Atlanta, predicted Hibernia would lose money during the remaining two quarters of 1991 and would have trouble attracting a buyer until its portfolio stabilized.
First City reported a second-quarter loss of $58.9 million. That followed a $71.2 million first-quarter deficit. The company's newly appointed chairman and chief executive, C. Ivan Wilson, said it was probable that full-year 1991 losses will meet or exceed First City's 1990 deficit of $158.3 million.
At June 30, First City held $499 million of problem assets equaling 7% of gross loans. The company said it had retained J.P. Morgan & Co. to help it find investors or a buyer.
Reviving Southwest institutions were fairly uniform in reporting continued soft loan demand. At Texas Commerce Bancshares Inc., for example, net loans of $8.82 billion at June 30 represented a modest 2.8% increase from a year ago.
Even though commercial loans were up a strong 11% for the 12 months ended June 30, shrinkage in realty loans largely offset the gains, said Texas Commerce vice chairman Robert Hunter. "We are focusing largely on fee income and market share gains for growth."
Income Rises Smartly
Thanks in part to a shrinking caseload of problem assets, Houston-based Texas Commerce, owned by Chemical Banking Corp., reported $34.4 million in second-quarter income, representing a 43% rise from the year-earlier period.
Among the Southwest's star performers during the second quarter were First Commercial Corp., Little Rock, and First Interstate Bank-Texas, Houston.
First Commercial stands virtually alone among Southwest institutions in reporting healthy and consistent profits over the past few years. The company earned $6.5 million in the second-quarter, for a 1.21% annualized return on average assets and a 16.58% annualized return on common equity.
Strong second-quarter results at First Interstate-Texas stemmed from significant reductions in problem loans - facilitated by parent First Interstate Bancorp, Los Angeles - and tax breaks generated by prior severe losses.
The unit reported $29.8 million of second-quarter income, double the earnings of the year-earlier period. The results included $15 million of tax benefits. During the 12 months ended June 30, problem assets fell 65% to $121 million, or 3.9% of gross loans.
Also showing strength was Worthen Banking Corp., Little Rock, whose restoration from the severe loan problems of five years earlier seems complete. The company's second-quarter earnings of $5.3 million represent an ROA of a roughly 1%, considered a benchmark of healthy performance.
|Irrational Players' Out
Curt Bradbury, Worthen's chairman, chief executive and president, said the company had benefited not only from the solution of its own problems but from the government's closing of broke Arkansas thrifts. "The irrational players have been shoved out of the market," he said.
Elsewhere in the Southwest, banking companies reported improved results that could have been even better had it not been for lingering inventories of problem assets.
First Commerce Corp., New Orleans, reported quarterly income of $8.5 million, a 63% increase over the prior-year period. The results represented a 0.76% annualized return on average assets. The company at June 30 held $107 million of problem loans, equaling 4.5% of gross loans.
Denver-based Affiliated Bankshares of Colorado reported second-quarter income of $4.6 million, a 42.2% increase. The results represented a 0.67% ROA. The company at June 30 held $81.4 million of problem assets, or 5.12% of gross loans.
Sunwest Financial Services Inc., Albuquerque, eked out $2.8 million of second-quarter profits (ROA:0.34%), rebounding from a $12.3 million loss a year earlier. The company's problem assets equaled 8.15% of gross loans at June 30.
Bank of Oklahoma, Oklahoma City, reported second-quarter earnings of $2.8 million, virtually flat from the $2.6 million earned in last year's period.