ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, January 19, 1996 TAG: 9601190094
SECTION: BUSINESS PAGE: G-1 EDITION: METRO
SOURCE: MAG POFF
Cecil R. "Andy" McCullar made the remark last month when First American Corp. of Nashville took over Charter Federal Savings Bank, which he headed.
"There's going to be no future for the thrift industry," said McCullar, who is now president of First American's Roanoke-based Virginia bank. "It's passe."
He's not the only one who thinks so. Many industry observers believe the times have passed by the institutions that generally changed their names to "savings bank" following the "savings and loan" failures of the last decade.
"Yes, that's true," said Bert Ely of Ely & Co. in Alexandria, a cosultant who achieved national recognition for correctly predicting the extent of the savings and loan debacle.
Ely, a former Roanoker, said the trend of disappearing thrifts began eight to 10 years ago, driven by two sources.
One, he explained, is that marketplace forces are eliminating specialized lenders. Thrifts traditionally collected savings deposits and lent the money to people buying homes.
Now, he said, they are acting more banklike even as they adopt the bank name. They are trying to orient themselves toward consumer lending, not just home loans, although not all of them are doing a good job.
The second source of the push comes from regulators, Ely said. Federal authorities in 1989 narrowed the differences between banks and thrifts so there is less distinction, he said.
And, he pointed out, Congress is considering legislation that would insure both banks and thrifts through a single fund and, at the same time, merge the charters of the institutions.
He believes this will pass Congress in 1998, thus largely eliminating the traditional concept of a thrift.
Even then, Ely added, we will still see some thriftlike institutions operating in smaller towns.
More and more, Ely said, big banks such as First Union and Crestar are buying up the larger thrifts.
This trend will accelerate because so many thrifts, like Southwest Virginia Savings Bank and Bedford Savings Bank, have converted from mutual institutions owned by their customers into stock holding companies owned by investors, Ely said. Many of their investor-stockholders are eager to sell.
Thrifts in small towns that also have maintained the savings and loan name and mutual ownership are more isolated from these forces, Ely said. An example is Imperial Savings and Loan Association of Martinsville, but the number of such thrifts is declining.
Ely said 34 thrifts were headquartered in Virginia as of June 30, 1995, and some of those have since been gobbled up by banks. They shared $12.3 billion in assets.
Of the 34, he said, 30 are stock companies and only four are still mutual companies. That differs from other states such as Pennsylvania, where most thrifts are still mutuals.
That means Virginia thrifts are more easily swallowed by banks than are those in Pennsylvania. But none of this will happen overnight, Ely said.
One removed from the list since June 30 is Columbia First Savings Bank of Arlington, which was acquired in November by First Union National Bank of Virginia. It alone had assets of $2.8 billion, according to Ely.
First Union has also bought out Home Federal of Washington and Ameribanc of Annandale in Virginia, plus many thrifts in states such as Florida.
David Scanzoni, spokesman for First Union in Charlotte, N.C., said that thrifts are "a great source of deposits" and bring to the bank many loyal customers.
Most traditional thrifts have offered only a very limited number of financial products, Scanzoni said. That means the customers acquired in a buyout are "strong prospects" for such First Union offerings as a stock brokerage and mutual funds.
The irony of McCullar's remark is that First American formed a thrift to hold the Virginia operations, although First American operates as a bank in Tennessee.
The step was taken, he said, primarily for tax reasons. The matter had to do with recapturing money from bad debts and the company's return on reserves. Some pre-existing contracts with vendors also came into the picture.
But McCullar said "the days are numbered" for the thrift as an operating vehicle. "I think that one day this will be a bank."
That day may come in summer 1997, when interstate banking laws will allow a merger between banks in Tennessee and Virginia. Now the laws provide for mergers with other states, but not Tennessee.
Like Ely, McCullar said banking regulations have changed so that it no longer makes sense to stick to the old limitations of savings accounts and home loans.
Thrifts and banks must pay more interest on savings accounts than they do on checking accounts, thus narrowing the interest margin between deposits and loans, McCullar pointed out. At the same time, interest on credit cards and general consumer lending pays the banks more than they can earn in interest on home loans.
Therefore, he said, it makes sense to offer checking accounts and general consumer loans. First American is also pushing commercial lending and credit cards, which Charter didn't offer.
McCullar said he tried to take those steps away from the traditional way of operating when he was at Charter, but the move "met with tremendous internal resistance."
Even as Charter, he said, the thrift made progress, and First American will continue to make progress.
Bill Rakes, president of Southwest Virginia Savings Bank, said thrifts are moving toward banking services by adding more products, such as automated teller machines and consumer loans. "It's difficult for customers to tell the difference."
"I think there's a trend that way," he said. "We're going in that direction."
The government is giving credence to this trend through legislation that would replace thrift charters with banking charters, Rakes said.
But he thinks that thrifts will not disappear entirely. No matter what the trend or legislation, Rakes said, we will see a few institutions remaining in smaller towns that will concentrate on savings accounts and home loans.
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