Southern National's CEO Engineers Transformation into a Bistate Force
Cline, Kenneth, American Banker
WINSTON-SALEM, N.C. -- Southern National Corp. finished the 1980s as a sleepy alsoran confined mainly to the eastern part of North Carolina. Now, midway through the 1990s, it has become a highly profitable regional bank, with a strong franchise in both Carolinas.
L. Glenn Orr Jr., the man who engineered this transformation, believes that Southern National, with $8.1 billion of assets, can chart its own destiny by remaining independent or, if it chooses, selling on its own terms.
"We can go either way," says Mr. Orr, the company's chairman, president, and CEO.
The independence question takes on some urgency since North Carolina will be open to reciprocal national interstate banking by July 1, 1996, which would allow banks from outside the Southeast to buy into the state. Legislation making its way through Congress could make that happen even sooner.
Eye Toward Virginia
But Mr. Orr indicates he's likely to be more of an acquirer. And while he expects to remain focused on the two Carolinas "for the foreseeable future," he doesn't rule out venturing into a contiguous state, most likely Virginia.
"I just believe the opportunities for a bank our size would be better in Virginia," he says.
Mr. Orr exudes self confidence and with good reason. Southern National finished the first quarter with a return on assets of 1.30% and a return on equity of 19.61%. The company outstrips most of its peers in both efficiency (with a 60% expense-to-revenue ratio) and credit quality (0.86% nonperformers to total loans).
But there are some lingering questions. An expensive and dilutive thrift acquisition last year - five times larger than any previous deal in the company's history - could yet come back to haunt Mr. Orr. Southern National's paucity of fee income also makes it heavily dependent on its net interest margin, which could come under pressure later this year.
The acquisition of the First Savings Bank of Greenville, S.C., was clearly Southern National's major strategic move of the '90s. In one fell swoop, Mr. Orr added $2 billion of new assets and boosted Southern National's deposit market share in South Carolina from ninth place to third.
Trouble is, the deal didn't come cheap. Southern National agreed to pay $181 million in stock, or 1.74 times the First's tangible book value, for a mediocre performer.
Southern National avoided impairing its future earnings performance by taking all its lumps up front. A $74 million merger-related restructuring charge in last year's fourth quarter produced a downward restatement of Southern National's 1993 earnings from $2.03 a share to 57 cents, which ate into common equity and reduced yearend book value from $13.47 a share to $11.42.
Mr. Orr defends the price as necessary to clinch the deal. Other bidders were reported to be in the hunt, including Charlotte-based First Union Corp. and South Trust Corp., Birmingham, Ala. In addition, no other opportunities existed in South Carolina for Southern National to increase its presence in a meaningful way.
"When we finally came down to the yes or no trigger, I think the value that we saw in the South Carolina market and the value represented by the First overcame our reluctance to take dilution," says Morris D. Marley, Southern National's chief investment officer and treasurer.
Southern National's challenge now is to build the First's profitability up to its own standards, which mainly entails building a portfolio of commercial loans - no small task since the First was principally a residential mortgage lender with only an embryonic commercial lending arm.
The influx of the First's residential mortgages has already reduced Southern National's overall ratio of commercial loans to total loans from 53% to 48%.
"The burden of proof is on Southern National right now," says Guy W. …