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After the fall.


If there was a day when Curt Bradbury experienced a pang of anxiety worse than Feb. 25, 1986, he can't remember it.

Bradbury had just walked out of an executive meeting where he had been named president and COO of Worthen Banking Corp. In his coat pocket was a list of loans categorized as substandard or doubtful that totaled $235 million. It represented a staggering sum of potential trouble. The entire loan portfolio of the holding company was only $1.4 billion.

"What the hell am I doing?" Bradbury asked himself.

The enormity of Worthen's loan problems was almost overwhelming. More sick loans would be uncovered in the coming months and by the end of 1987, Worthen Banking Corp. would post a three-year net loss total of $92 million.

In the minds of many, Worthen's problems were caused by the spectacular $52 million loss associated with the bankruptcy of Bevill Bresler Schulman in 1985. However, BBS was merely the first in a series of problem investments to surface, problems caused by bad banking decisions. At the heart of the bank's troubles were the nearly one-quarter billion in potential bad loans stuffed inside Bradbury's pocket.

"BBS was a fortuitous event," discloses Bradbury, now Worthen's chairman, president and CEO. "It caused us to change lending policies and forced us to recognize the full scope of our problems. It saved the institution."

Today, after years of cost cutting and tight-fisted management, Worthen's nonperforming assets have fallen to $44 million with a corresponding decline in Bradbury's anxiety level. And 1989 marks the first year of across-the-board profitability for the Worthen family of banks in five years. Overall, Worthen Banking Corp. tallied net income of $11 million for 1989, which followed a $10.4 million profit the previous year.

Bank officials hope that by next year regulators will give Worthen a clean bill of health, ending an ongoing written agreement with the feds and a five-year period of supervisory oversight.

The Blowup

This turn-around story has an unlikely beginning.

In April 1985 a $52 million loss nearly forced Worthen Bank & Trust into receivership. The collapse of Bevill Bresler Schulman Asset Management Corp. thrust the bank into the public spotlight.

Worthen suffered the ignominous distinction of being the first financial institution in Arkansas to take a major multi-million dollar hit, losses that would later pale in comparison to S&Ls like Savers which would report a single quarter loss total exceeding all of Worthen's negative numbers to date.

Most of the $52 million loss has been recovered, but the BBS collapse acted as an early warning shot that kept Worthen from following other S&Ls and banks down the path to oblivion.

A critical self-examination at Worthen Bank & Trust and, ultimately, the entire holding company began that rescued the corporation from the brink of financial ruin.

Fixing Problems

Bradbury's regime promptly cleaned the leadership house that had allowed the mega mistakes to occur. A series of resignations/firings cleared out the executive management at Worthen Bank & Trust, the flagship of Worthen Banking Corp.

Gone are Gene Fortson, chairman and CEO; Jum Jett, president; Robert Taylor, vice chairman; and EVPs George Worthen, Robert Trammel and R.L. Qualls. They were replaced by an executive team led by Donald Hayes, a troubleshooter who was made chairman, president and CEO.

The difficulties of the wormy loan portfolio were compounded by $35 million of debt taken on after the acquisition of eight banks during a few short years. This buying spree helped total assets more than double in two years, shooting up from $1.1 billion in 1982 to $2.3 billion in 1984.

"During the expansion, things were done with the idea of get it done, not do it right," Bradbury observes.

Bradbury and Bill Cravens were brought in at the corporate level as well as others who filled positions at Worthen Bank & Trust, identified as the hot spot of problems.

With the capital base shored up, steps were to taken to lower debt. Affiliate banks at Mena and Fayetteville were sold. The workforce was cut by 13 percent, and operations were pared down to a core of community banking activities. Total assets at Worthen Bank & Trust were stripped down from $1.2 billion to a figure that now stands at more than $645 million.

A sampling of loans made in the go-go lending years illustrates some of the problems. Rather than incur more losses in the loser project, Worthen gave up its interest in a multi-million dollar project located in Surprise, Ariz. - a darkly prophetic name to be sure. Another big loan was made for an office building with an assigned occupancy rate of 95 percent with no tenant in sight and rental fees that reflected 1 1/2 times the market rate.

With such sweeping changes and high dollar stakes, emotions ran high. Outbursts of anger and frustration weren't uncommon when the salvaging operation was at its peak. On one especially tense occasion, Bradbury adopted the guise of an NFL place kicker and sent a trash can flying through air.

Tears were also shed by employees during staff reductions and from creditors who saw their financial life passing before their eyes when they were cut off on bad loans.

"Our health insurance premiums are beyond the industry norm, and we attribute a lot of that to stress," reveals Bradbury. The fact that Bradbury became chairman and CEO after Bill Cravens suffered a heart attack underlines the point.

Bradbury and others thought they had a handle on the difficult situation at Worthen until 1987 when they discovered a new source of problems: First National Bank in Hot Springs.

"Asset quality problems tend to follow people because it reflects a philosophy and attitude," Bradbury states.

And that trail of problems followed the career path of Jim Jett from Worthen Bank & Trust back to First National Bank in Hot Springs. Jett was president and CEO of the Hot Springs bank until 1983 when he was named president of Worthen Bank & Trust.

This new round of losses led to the resignation/firing of Mike Sigman, who had served under Jett and succeeded him as president and CEO in Hot Springs. Paul Burge, EVP and senior lending officer, preceded Sigman's departure by leaving the Hot Springs bank in 1986.

A glaring red flag that went unnoticed earlier involved a full-page ad in the Hot Springs Sentinal-Record that proudly proclaimed First National Bank of Hot Springs accounted for 90 percent of all new loans in Garland County during a single month. A bank just doesn't generate that kind of volume unless some bad loans are made along the way.

That type of aggressive lending sent the total assets skyward, rising from $166 million in 1980 to an all time high of $337 million in 1985. When the asset balloon was finally pricked in 1987, Worthen officials discovered it was kept aloft by nothing more than hot air in the case of many loans in the Hot Springs portfolio.

The tip-off was a 2-rated loan of $1.5 million that went into default after a creditor filed bankruptcy. The business gave no indication to the bank it was having any financial difficulties.

The obvious implication was there were major foul-ups with the risk rating of loans in Hot Springs. Loans don't go from the second highest rating to non-performing status in one fell swoop.

The problems were deemed so serious at the Hot Springs bank that Worthen tried to unload it for about six months. In fact, Worthen execs were once prepared to give the bank away to Kemmons Wilson, but a deal couldn't be struck because the founder of the Holiday Inn chain wanted a guarantee covering a portion of any unforeseen liabilities.

Keeping First National Bank has actually worked out to Worthen's advantage. The problems weren't as extensive as once feared, and First National is now making a profit, albeit a small one. Future prospects look even better.

No More Surprises

After discovering the problems in Hot Springs, Bradbury vowed there would be no more nasty surprises and insisted on reviewing 75 percent of all loans - not just at Hot Springs but systemwide. A typical audit has a 30-40 percent penetration of all loans, and during the 1987 review process that lasted from March through September, the audits at some of the smaller Worthen banks got down to the level of financing for dishwashers.

"No more surprises became our motto," Bradbury recalls with a grin.

Those heady days of rapid growth fueled by loosey-goosey loans that have since been written down half again, and half again more, are history. The corporation has adopted a conservative approach to banking, resulting in a reduction of its debt to equity ratio (down from nearly 60 percent in 1987 to about 25 percent today).

The total asset base has shrunk as well, down from $2.3 billion in 1984 to $1.8 billion today. This has led to concerns that the corporation's momentum has swung too far away from the dangerous liberalism of the past into the realm of stifling conservatism.

"It's a debate we have every day, every day," Bradbury reports.

For instance, upwards of $16 million in loans are carried on the books as nonperforming assets even though payments are current. Worthen has taken a worst case scenario view of these loans.

"That's on the conservative side of banking, and that's where we want to be," remarks Andrew Melton, Worthen EVP and CFO.

The execs at Worthen have gained a reputation as a bunch of number crunchers because of their attention to detail and their successful efforts at cost containment. The Styrofoam Cup Award, given monthly to the Worthen bank exhibiting the highest degree of corporate frugality, is perhaps the most colorful aspect of this thrifty crew. Bradbury thinks that conservative image is accurate to a point but overly general.

After all, these are the same guys who financed a Worthen TV commercial featuring a fat, bald guy lipsyncing a James Brown tune. The "I Feel Good" campaign, which won a handful of Addy awards, no doubt reflected the mood of many at Worthen who had weathered the storm.

"You put people through all of this, and you've got a good bank because everyone has experienced firsthand what happens when things aren't done right," Bradbury remarks. And they don't ever intend to go through it again.

PHOTO : TURNAROUND TIME: Curt Bradbury, chairman, president and CEO of Worthen Banking Corp. has weathered the hard years of Worthen's loan losses to put it soundly in the black.
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Title Annotation:Worthen Banking Corp., Arkansas
Author:Waldon, George
Publication:Arkansas Business
Article Type:company profile
Date:Mar 26, 1990
Previous Article:Keep the line open.
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