Alabama Banks Staying Healthy On Slow Growth

Four major banks in Alabama have managed to dodge problems plaguing big banks in most other states these days.

Share price of Central Bancshares, Southtrust Corp., and AmSouth Bancorp, all based in Birmingham, and of First Alabama Bancshares, based in Montgomery, have jumped 40% to 75% since investors discovered them early this year.

"Alabama is my favorite banking state in the South," said Peter W. Tuz, banking industry analyst at the investment brokerage firm of Morgan Keegan & Co., Memphis. "The banks there chug along without the distractions you find elsewhere."

From Liability to Boon

The state's modest economic growth, once viewed as a liability, helped keep these banks sound. Steady enough to provide a solid base for the four leading banking companies, growth was slow enough to prevent boom-related problems - and to deter out-of-state banks from entering the market.

But the banks have challenges to overcome if they are to satisfy heightened earnings expectations. Norman Jaffe, a banking analysts at Fox-Pitt Kelton Inc., New York, predicts that the group's earnings will rise 10% in 1991, led by SouthTrust, whose earnings are expected to reach $3 per share, a gain of 16.7%.

Each of the four banks has pinned growth in the future to a different strategy.

Central Bancshares of the South has headed to Texas, while South Trust Corp. is establishing selective beachheads in high-growth markets in the Southeast.

New Focus at Home

AmSouth Bancorp, after an initial Florida foray, is now focusing on its most profitable business at home, particularly credit cards. And First Alabama Bancshares has chosen mortgage banking as its growth vehicle.

Including pending acquisitions, Central Bancshares has about $1 billion of assets in Texas, divided between Houston and Dallas. It was the first out-of-state bank to acquire a Texas bank, and its goal is to operate banks with assets of $1 billion in the state's two top cities.

"In addition to providing a more diversified earnings stream, we believe this strategy could provide an upward shift in Central Bancshares' earnings trend line in the future," Mr. Jaffe said.

Picking Their Shots

Meanwhile, SouthTrust, in a strategy avoided by many banks, enters new markets with new branches or small acquisitions. "They make this work by carefully picking their spots and the management they put there," Mr. Tuz said.

SouthTrust recently opened a new bank in Tennessee, and its acquisition of three Barclay's Bank branches in North Carolina is pending.

Profits at AmSouth, the state's largest banking company, with $9 billion of assets, have been hampered a bit by credit quality problems. But the problems are centered in a subsidiary in Pensacola, Fla., that AmSouth acquired in 1987 and converted from a thrift institution.

Growth Seen in Retail

The company says it expects its highest growth rates in the next several years to be in retail banking, especially credit card operations, home equity lending, and mortgage banking.

First Alabama has been acquiring mortgage servicing from the Resolution Trust Corp. and has also been performing subservicing for the RTC as well. Subservicing involves handling payments for mortgages until the properties are disposed of by the agency.

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