Profits Up Across the South

Stability Seen in Nonperforming Assets

ATLANTA -- Buoyed by stabilizing asset quality and higher net interest margins, banks in the Southeast reported improved third-quarter profits.

The 32 southeastern banks followed by Keefe, Bruyette & Woods Inc. reported a median gain in earnings per share of 9% from the previous year's third quarter and 1% from this year's second quarter.

"There really is increasing evidence of stability among nonperforming assets," said Keefe Bruyette banking analyst Richard I. Stillinger.

Banks that reported lesser loan-loss provisions compared with the second quarter included SunTrust Banks Inc., Atlanta, down 18.7%; Barnett Banks Inc., Jacksonville, Fla., down 7%; and Wachovia Corp., Winston-Salem, N.C., down 5%.


NCNB Corp., Charlotte, N.C., maintained its $125 million provision, and First Union Corp., also based in Charlotte, was forced to increase its provision by 28%, to $145.7 million.

Most banks operating in the South reported only a modest increase in nonperforming assets compared with the second quarter. If it hadn't been for the Oct. 25 bankruptcy of a big Jacksonville real estate developer, many would have had a decline in newly classified bad loans.

The Chapter 11 bankruptcy filing by Koger Properties Inc. and its affiliated Koger Partnership Ltd. cast a pall over banks in the region to a degree not seen from one company since the late 1980s. At that time, all the major Tennessee banks suffered from the collapse, first, of the Freeman and, later, of the Fogelman real estate empires.

Impact on Nonperformers

The banks involved in the Koger credit decline to discuss the matter. But analysts said Koger exposure contributed most of the new nonperforming assets reported by SunTrust, Barnett, and Wachovia. First Union is also believed to have been hurt by Koger exposure.

Koger "was one of the most highly regarded developers in this area," said Henry J. Coffey Jr., banking analyst at J.C. Bradford & Co. in Nashville. "A lot of high-quality institutions had exposure, and it all unwound very quickly."

Despite the downgrading of $36 million in Koger debt, Barnett's nonperforming assets fell by $2 million, or 2%, to $941 million; without Koger, the decline would have been 4%.


This second consecutive quarterly decline in nonperforming assets at Barnett suggested that Florida's largest banking company is slowly recovering from the real estate debacle that forced Miami-based Southeast Banking Corp. into a federally assisted takeover two months ago.

"The third quarter changed the debate that surrounds Barnett from, |Is the company's credit quality improving?' to |How quickly is it improving?'," said Thomas K. Brown, banking analyst at Donaldson, Lufkin & Jenrette Securities Corp. in New York.

Commercial real estate problems in Florida contributed to loan delinquencies at the two big Charlotte-based banking companies. Nonperforming assets at NCNB rose 5.2% in the third quarter, to $1.1 billion. The ascent was even steeper at First Union: 8.5%, to $1.3 billion.

Unsecured Lender

Bankruptcy filings have identified First Union as the largest unsecured lender to the Koger companies among southern banks, with a $21 million exposure. Its secured exposure, if any, has not been made public.

Like most banking companies in the region, First Union benefited from an improved net interest margin, up 6 basis points, to 4.29%, compared to the second quarter and up 13 basis points from the year-ago quarter. The trend was seen across the region, as banks' cost of funds fell faster than loan yields.

Dominant Banks Benefit

The trend was particularly helpful to banks with dominant market share that can function as price leaders. In Florida, No. 1-ranked Barnett reduced its cost of funds 30 basis points during the quarter while its yield on earning assets fell only 21 points, according to the Atlanta-based brokerage firm Robinson-Humphrey Co.

Barnett's net interest margin was up 3 basis points from the second quarter and 19 basis points from the third quarter of 1990.

Improvement on the liability side was vital to net interest income because all banks reported slack loan growth.

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