Texas Thrift Industry Faces Another Long, Hard Ride in '86

American Banker, January 6, 1986 | Go to article overview

Texas Thrift Industry Faces Another Long, Hard Ride in '86


DALLAS -- For Texas savings and loan associations, 1986 promises to be another year under the gun.

Healthy thrifts are expected to report record profits if interest rates remain at present levels. Nationwide, the S&L industry is expected to earn up to $7 billion, according to one trade group estimate.

But for many Texas S&Ls, the year will mean struggle. Many will face continuing problems with commercial real estate loans and investments made during the state's building boom of the late 1970s and early 1980s.

S&Ls also will find it difficult to generate new and profitable business as real estate development slows. Regulators are expected to place increasing pressures on associations to build capital and adopt more stringent accounting practices.

And more thrifts are expected to fail.

"I think S&Ls will have a slightly more difficult time in 1986 than in 1985, and much more so than their colleagues around the country," said J. Livingston Kosberg, chairman of the First Texas Financial Corp., the largest S&L company in Texas, with about $8 billion in assets.

"Some thrifts that are marginal at this point can certainly look forward to having state or federal [regulatory] intervention," Mr. Kosberg said. "The Texas economy will be weak, and real estate, especially in many overbuilt markets, will remain weak."

Savings associations, both in Texas and throughout the country, were among the most aggressive lenders for commercial real estate projects in recent years. Now, with many Texas markets overbuilt, the commercial real estate industry faces a glut of office, warehouse, and retail space.

"Real estate overbuilding is the cause of the problem and real estate projects will continue to have cash-flow problems, "said Curtis Hoge, who follows the S&L industry for Rauscher Pierce Refsnes Inc., Dallas. "There are certainly more thrifts in the state that do not have asset problems than those that do, but the few that do will continue to be of concern."

The slowdown in many Texas real estate markets -- including Dallas, Austin, and San Antonio -- promises to complicate loan problems for S&Ls. Industry experts say that many S&L real estate loans are based on exaggerated appraisals and cash-flow expectations for projects.

Accounting and Profits

Regulators are forcing S&Ls to reappraise the properties and anticipate losses that may occur from their commercial real estate loans. These accounting procedures will translate into lower profits or losses at some institutions.

"Writing down the value of property reduces income, and the loss is what affects net worth," said George S. Derr, who heads the S&L practice in the Dallas office of Arthur Young & Co.

By mid-1985, Texas thrifts were taking on significant new amounts of repossessed real estate, according to records of the Federal Home Loan Bank Board. At the end of the second quarter, the most recent figures available, Texas S&Ls held $1.2 billion in repossessed assets, up from $465 million at the end of the similar period of 1984.

Those real estate problems forced Texas S&Ls to make $111.2 million in adjustments to income during the second quarter. That left the Texas thrifts with a $10.8 million loss for the period, although one regulator pointed out that $103 million of the real estate adjustment came from one S&L -- Bell Savings Banc of Texas, Temple -- which was closed by federal officials on Aug. …

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Texas Thrift Industry Faces Another Long, Hard Ride in '86
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