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Southwest Bank looks to take on royalty trusts

Scott Nishimura
Reporter

Fort Worth’s Southwest Bank wants to expand its wealth management services and is looking to take over as trustee for several venerable energy royalty trusts now managed by Bank of America’s U.S. Trust.

Bank of America, seeking to divest its royalty trust management, would exit the business. Southwest would bring over “the majority, almost all” of U.S. Trust’s staff members now handling the trusts, all in Dallas, Southwest CEO Vernon Bryant told the Business Press. Southwest would continue to run the business from Dallas, where it has two offices.

The years-old trusts range in age from 20 to 50 years, said Ron Hooper, U.S. Trust senior vice president in Dallas, who said he’d be one of the staff members moving to Southwest.

“It doesn’t make flashy dollars, but it’s consistent business,” as evidenced by the longevity, Hooper said. “And they all still have 10, 15 years life left in them.”

Tidelands Royalty Trust “B” is the oldest of the trusts, Hooper said. Bank of America, through a predecessor company, entered the business with the trust 50 years ago.

“It’s not part of (Bank of America’s) core type of business,” Hooper said. “It’s an odd duck for them to work with.”

The trusts, which Hooper said return 6-8 percent annually to unitholders, receive money and disburse royalties. Their management and reporting requirements amount to running “seven little corporations,” Hooper said. Royalty trusts are required to pay all cash flow to unitholders, and aren’t subject to corporate income taxes.

Bank of America found a willing successor trustee in Southwest Bank, Hooper said. The bank has nominated Southwest as successor trustee for all seven trusts.

Besides Tidelands, the other trusts are Sabine Royalty Trust, Permian Basin Royalty Trust, Cross Timbers Royalty Trust, Hugoton Royalty Trust, Dominion Resources Black Warrior Trust and Marine Petroleum Trust.

The trusts will hold special meetings for unitholders to vote. Bank of America’s resignation as trustee is contingent upon several conditions. Sabine’s unitholders must vote to approve Southwest’s succession, or none of the agreements will be completed, Hooper and Bryant said. Assuming all of the conditions are met, Bank of America’s resignation as trustee would take effect May 30. The meeting dates are not yet set.

The Sabine trust “is a critical workhorse that’s a lot more complicated,” Hooper said. “If Sabine doesn’t get approved, none will be moving to Southwest Bank.”

Southwest’s succession would mark a return for Bryant – and the bank’s entry - to royalty trust management. Formerly at Texas Bank, Bryant managed the San Juan royalty trust.

“Bank of America has decided to exit that business, and we’re willing to take it,” Bryant said. “I’m familiar with it, some of our directors are familiar with it.”
 

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