First National Bank Group Inc. in Edinburg, Tex., has sold off a large chunk of its stake in another Texas banking company that it had been pressing to either unload assets or put itself on the sale block.
Recent filings with the Securities and Exchange Commission and Federal Reserve Board show that the $4.1 billion-asset First National reduced its ownership in Southside Bancshares Inc. of Tyler, from 8.6% in February to 5% on May 14.
First National got approval in September 2006 from the Federal Reserve Board to be a passive investor in the $1.9 billion-asset Southside. Disappointed, however, in some of Southside’s decisions to move into new business lines and markets, First National in December applied to terminate the passivity agreement so that it could exert more influence on Southside’s board. This application was approved in February.
In SEC filings. First National said its suggestions for boosting Southside’s market value could include a sale of the company or the disposition of certain assets. Specifically, it questioned Southside’s decision to buy the $124 million-asset Fort Worth Bancshares Inc. for $36 million, and it took issue with Southside’s buying a 50% stake in a new company that acquires automobile portfolios from banks, thrifts, credit unions, and other lenders nationwide.
First National’s attempts to influence company decisions did not sit well with Southside’s officers and directors. In an interview with American Banker in February, Southside’s chairman and chief executive, B.G. Hartley, called First National’s actions "hostile."
Neither First National nor Southside officials returned calls Thursday, so it was unclear exactly what motivated the reduction of First National’s stake.
But Brett Rabatin, an analyst at First Horizon National Corp.’s FTN Midwest Securities Inc., said it is likely that First National is backing away because it was so difficult to get Southside’s management to change course.
"Obviously they were unhappy with the addition of the indirect auto portfolio, and they really didn’t want them to expand into Fort Worth," he said. "They probably realized it wouldn’t be easy to exert influence on them. So my guess is, they are decreasing interest for that reason."
