Shawmut Posts a Profit As Bad Assets Decline

Upturn Strengthens Bank for Merger Talks

Shawmut National Corp. posted a third-quarter profit of $2.3 million Thursday, exceeding analysts' estimates. The bank also reduced nonperforming assets, by 8%.

"Shawmut's free-fall has stopped," said Gerard Cassidy, an analyst at Tucker, Anthony Inc. in Portland, Maine.

He and other analysts said Shawmut's results give it leverage in its merger talks with Bank of Boston Corp. Shawmut could demand better terms for its shareholders -- or make a show of its ability to remain independent -- if asset-quality problems are diminishing, they said.

Capital Needs Stall Talks

Negotiations between the banks have stalled in recent weeks, largely because of their need to raise capital in order to win regulators' approval for a combination, sources said.

Bank of Boston has agreed to offer 0.87 of its shares for each of Shawmut's 73 million shares outstanding. Some analysts felt that exchange rate would short-changed Shawmut shareholders.

Shawmut's stock was trading at $8.125 per share, down 12.5 cents, at midday Thursday. Bank of Boston's shares were also down 12.5 cents, to $9.875.

Shawmut's modest third-quarter profit was buoyed by a one-time, $15.7 million gain in the company's investment securities portfolio.

Though the company would have posted a small loss without the securities sales, analysts said the numbers were strong in comparison with Shawmut's huge losses in recent quarters.

Shawmut lost $392 million in its last three quarters. It earned $11.9 million last year's third quarter.

Core Earnings Rise

The company, jointly based in Hartford, Conn., and Boston, said core earnings rose 9%, to $59.1 million, from the second quarter, largely because of wider interest margins.

However, profits before accounting for loan-loss provisions and foreclosed properties were 16% less than the $70.3 million Shawnut earned in last year's third quarter.

Shawmut's strongest showing came in reducing problem assets. Nonperforming assets declined 8%, to $1.484 billion.

However, nonperforming assets as a proportion of total loans and foreclosed property still hover at a substantial 10.3%. That ratio stood at 10.8% at the end of the second quarter.

Reserves Seen a Adequate

Shawmut charged off $85.1 million in bad loans and took a loan-loss provision of $57 million. Because the provision was less than the chargeoffs, reserves dropped by $28 million, or 3%, in the third quarter.

As a percentage of bad loans, however, Shawmut's reserve rose to 89% at the end of the quarter, from 82% three months earlier, because of recoveries and chargeoffs.

"Shawmut's reserves are adequate," said James Moynihan, an analyst in Boston for Advest Group Inc.

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