The recovery has finally caught up with two northeastern thrifts.
A year ago, Greater New York Savings Bank, which is based in New York City, and Farmers and Mechanics Bank in Middletown, Conn., reported another year of losses, with nonperforming assets still hovering near 7.5% of total assets.
Last week, both institutions reported they had reversed their year- earlier losses, largely due to stronger core earnings.
Greater New York Savings listed net income for 1994 of $13 million, up from a net loss of $14.7 million last year. And Farmers and Mechanics earned $767,000, compared with a loss of $312,000 in 1993.
Both thrifts cut nonperforming assets to just under 5% of all assets.
Fourth-quarter results were even more of an about-face. Both institutions reported a surge of more than 150% in quarterly income over the same period in 1993. Greater actually tripled its earnings to $3.7 million, while Farmers and Mechanics' went up 159% to $525,000.
"These are two companies where the asset-quality improvement lagged behind what many in the Northeast had seen, but over the past year or so have really gotten the nonperforming assets to come down nicely," said Kevin Timmons, a bank analyst at First Albany Corp.
Much of the 1994 earnings improvement for the $2.6-billion-asset Greater New York Savings was from a cut of $33.4 million in the thrift's provision for loan and real estate losses. The thrift also saw a $10.5 million increase in core earnings.
For Greater officials, the reduction in bad assets to 4.81% of total assets is particularly satisfying. It's the 10th consecutive quarter of reductions since nonperformers peaked at $309 million in 1991.
"We couldn't be more pleased at this time as to where we are with the bank's progress," said Gerard C. Keegan, chairman and chief executive. "Everything we said to the analyst community and to our shareholders three years ago we've delivered on."
The company's allowance for loan and real estate losses now covers 23% of nonperforming assets. Its Tier 1 leveraged capital ratio stands at 6.96%.
Greater also closed a chapter from the early part of the recession, settling a class-action shareholder lawsuit in which it was accused of failing to report fully the bank's financial condition from 1989 to 1990.
Under the terms of the $2.5 million settlement, reached in the fourth quarter of 1993, Greater issued new warrants in October 1994 for common stock at $1 below the market price of $9.50. The company also paid $500,000 to the plaintiffs.
But the stock price traded down below $8.50, making the warrants more expensive. By the time the offering closed on Dec. 27, only about 50 or 60 claimants from a class of more than 1,800 actually exercised the warrants, officials said.
As a result, only 14,000 new shares were issued, raising only $119,000 but only costing about $14,000 from the discounted stock. The thrift was also able to recover reserves set aside for legal fees.
For the $497 million-asset Farmers and Mechanics, the surge in net income for 1994 includes a $1.9 million recognition of the bank's deferred tax asset accrued during the recession.
More than $7 million, or $4.23 per share, remains, part of which must be used by 1998.
Nonperforming assets were down 38% from the end of 1993, to $22.5 million or 4.5% of assets. Foreclosed real estate declined 41% over the past year to $14.4 million.
"The faster we beat down NPAs, all other things being equal, the more justification there will be for recognizing further income benefits from our deferred tax asset," said president and chief executive John F. Beckert.
The company's Tier 1 leveraged capital ratio at Dec. 31 was 6.01%, which is in compliance with the July memorandum of understanding that replaced a cease-and-desist order from the Federal Deposit Insurance Corp.