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Merger mania: will a Worthen-Union combination top the $70 million sales mark?

Rumor became reality Feb. 20.

It was on that day that officials of two of the state's largest bank holding companies, Worthen Banking Corp. and Union of Arkansas Corp., confirmed that merger talks are under way.

A transaction between the Little Rock-based companies could tip the scales at more than $70 million and reshape the Arkansas financial sector.

Here are other possible effects:

* A Worthen-Union combination would control more than one-third of the deposits and loans in Pulaski County.

* Augmented by Union National Bank of Arkansas, Little Rock's Worthen National Bank of Arkansas would surpass First Commercial Bank of Little Rock as the state's largest.

The addition of Union of Arkansas Corp.'s four banks would make Worthen Banking Corp. the largest bank holding company in the state with more than $2.5 billion in deposits.

* A Worthen-Union merger could involve as much as 39 percent of Pulaski County deposits, a figure that likely would receive regulatory approval despite antitrust concerns.

"That's certainly within federal parameters," says Warren Heller, research director at Veribanc Inc. in Wakefield, Mass. "Unless you get into the 60 percent range, there probably won't be a problem."

A proposed deal in California would place more than 52 percent of the state's deposits in the vaults of one bank. The merger of Bank of America in San Francisco (deposits of $90 billion) and Security Pacific of Los Angeles (deposits of $60 billion) is facing opposition.

Still, most financial observers believe even this huge transaction will receive regulatory approval.

A combined Worthen-Union operation also would fall below the state's 15 percent cap on total state deposits controlled by a bank holding company.

Officials of First Commercial Corp. are waiting to scrutinize any agreement that comes out of the talks between Worthen and Union. Its lead bank, First Commercial Bank of Little Rock, controls an estimated 28 percent of Pulaski County loans and 30 percent of the county's deposits.

In the event of a merger, Twin City Bank of North Little would become the third-largest bank in central Arkansas with an estimated 13 percent of county deposits and 16 percent of county loans.

The Office of the Comptroller of the Currency, the Department of Justice, the Federal Deposit Insurance Corp. and the Federal Reserve Bank of St. Louis would have to approve any deal.

Other players in the market could benefit in the likely event that duplicate branches are sold by Worthen.

Ownership And Citizens

All of the Union of Arkansas Corp. voting stock is controlled by four members of the McAdams family.

Herbert H. McAdams II, who owns 38.3 percent of the holding company, is chairman emeritus and chief executive officer of the holding company and of the Little Rock bank.

His son, H. Hall McAdams III, who owns 2 percent, is chairman and executive vice president of the holding company and its Little Rock, Oklahoma and Texas banks.

Robert C. Connor, who owns 19.3 percent, is president of the holding company and the Little Rock bank. He also is chairman and CEO of Union Modern Mortgage Corp. of Little Rock and chairman of Union National Bank of Magnolia.

Walter A. DeRoeck, who owns 19.2 percent, is vice president of the holding company and the Little Rock bank. He is president and CEO of Union National Bank of Austin, Texas.

Connor and DeRoeck are son-in-laws of Herbert McAdams II.

The joint announcement by Worthen and Union made no mention of Citizens Bank of Jonesboro, another McAdams bank. But that didn't stop the rumor mill from churning.

The elder McAdams owns 81.6 percent of Citizens Bancshares Corp., the holding company for the Jonesboro bank.

General American Enterprises Inc. at 14.8 percent and Craighead Investment Co. at 3.6 percent own the balance of Citizens Bancshares stock. Herbert McAdams II owns both of those ventures.

Citizens reported a profit of $1.26 million on deposits of $173.63 million during the first three quarters of 1991. The Jonesboro bank had assets of more than $197 million as of Sept. 30, 1991.

Citizens has six locations in Craighead County -- four in Jonesboro and one each in Cash and Lake City.

Herbert McAdams II bought a controlling interest in the Little Rock bank in October 1973. He was instrumental in saving the bank from the alleged mismanagement of Harvey "Don" Couch Jr. and Harlan Lane.

Couch is the namesake son of Harvey Crowley Couch, who founded Arkansas Power & Light Co.

Lane, a millionaire automobile dealer from Houston, later was convicted of financial malfeasance.

After the Union board of directors ousted Couch and Lane, McAdams bought a controlling interest in the bank and placed a large portion of his family fortune on the line. At the time, Union was publicly held.

The roles have reversed.

Worthen Banking Corp. is the publicly held and larger company.

Union is private. The holding company had a $415.1 million loan portfolio at the end of 1990. The loans were:

* Commercial (financial and agricultural) -- $113.6 million.

* Real estate (mortgage) -- $239.2 million.

* Consumer -- $30.7 million.

* Real estate (construction) -- $16.4 million.

* Other -- $15.2 million.

As of Sept. 30, problem loans in excess of loan loss reserves were only 2.5 percent.

Union highlights during the past three years include:

Jan. 19, 1989: Union National Bank of Austin buys First National Bank of Cedar Park, Texas, in a $9.7 million acquisition.

February 1989: Union of Arkansas Corp. sells its credit card and merchant operations to Lomas Bank of Dallas in a $105.7 million transaction. The net gain before taxes is $12.7 million. Union National Bank of Temple, Okla., then is used as a haven for the holding company's credit card operations in order to escape the Arkansas usury limit.

April 20, 1989: Union National Bank of Austin buys Travis Bank & Trust of Austin in a $24 million acquisition.

July 27, 1989: Union National Bank of Austin buys Bushy Creek National Bank of Round Rock, Texas, in an $8.8 million acquisition.

Jan. 1, 1990: Union of Arkansas Corp. buys the outstanding shares of Financial Properties Inc., a one-bank holding company owning 93.7 percent of First National Bank of Jacksonville.

Feb. 9, 1990: A federal court hands down a judgment of $1.2 million in compensatory damages and $4.5 million in punitive damages against Union National Bank of Arkansas. The judgment against the Little Rock bank, in favor of a former bank customer, is on appeal with the 8th U.S. Circuit Court of Appeals at St. Louis.

Oct. 31, 1990: The Jacksonville bank is merged with the Little Rock bank.

Will a Union-Worthen merger add the ultimate highlight in 1992?

Financial observers are casting their eyes toward the two towers on Little Rock's Capitol Avenue waiting for an answer.


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Title Annotation:Worthen Banking Corp.; Union of Arkansas Corp.
Author:Waldon, George
Publication:Arkansas Business
Date:Mar 2, 1992
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