BancTrust Financial Group Inc. in Alabama entered Florida in 2002 to take advantage of booming growth there, and for more than two years the Florida operation drove its profits.
But lately Florida has become a drag on earnings, as the real estate market has slumped, and now the $1.4 billion-asset BancTrust is relying on its less-flashy home market to pick up the slack.
The three-bank holding company, based in Mobile, said last month that its first-quarter net income had dropped 34%, to $2.5 million, from the year earlier. It blamed the disappointing results on lackluster loan growth, rising nonperforming loans, and higher funding costs in the Florida bank that, in years past, had been "the most profitable bank that we had and also the fastest-growing," said Michael Johnson, BancTrust's chief financial officer.
This Florida story is not unique. Many banks based or with operations in Florida have scaled way back on construction and development lending and boosted loss provisions in the wake of a statewide real estate slowdown. At the same time, a persistently inverted yield curve and fierce competition for loans and deposits in the state have combined to squeeze margins.
Florida remains fast-growing compared with some other parts of the country, but observers say it could be 18 months or more before the realty market rebounds. For BancTrust, that means trying to make the most of opportunities in its Mobile market, where it has added lenders and is aiming to capture potential runoff prompted by last year's merger of Alabama's two largest banking companies.
BancTrust entered Florida with a $4 million deal for a small bank in the state's Panhandle region. In 2003 it more than quintupled its assets in the state with a deal for CommerceSouth Inc., a Eufala, Ala., company that had branches in Florida. Today, its Florida subsidiary, BankTrust in Santa Rosa Beach, has $352 million of assets.
Mr. Johnson said that in 2004, 2005, and the first half of 2006, the Florida bank generated a large chunk of the parent company's profit. In 2005, for example, the Florida bank reported net income of $5.4 million, up 130% from the previous year, according to Federal Deposit Insurance Corp. data.
But the Florida real estate market started to fizzle after the Gulf Coast hurricanes of 2004 and took a turn for the worse after the storms of 2005. Insurers became skittish about writing policies in hurricane-prone regions, property insurance premiums soared, and "the bottom fell out," Mr. Johnson said.
"Waterfront sales practically came to a halt," he said. "People [are] having second thoughts as to whether or not they want to own waterfront property after they take a look at what happened in those two years" in Florida, as well as Louisiana, Mississippi, and Alabama.
James Schutz, an analyst at Sterne, Agee & Leach Inc., called the Florida Panhandle "the most serious of the bubbles in Florida."
"The reason for that is because it's a lot of second homes," he said. "So … when things get bad and the prices get too high, those are the first to kind of suffer from affordability problems."
The result: Net income in 2006 at the Florida bank slipped 15% last year, to $4.5 million.
Despite the setback in the Sunshine State, however, BancTrust is seeing continued growth in Alabama.
Net income at its $760 million-asset Mobile bank, also called BankTrust, grew 11% last year, to $9.4 million, from the previous year and rose nearly 22% at its third bank, the $259 million-asset BankTrust of Alabama in Eufala.
Analysts say BancTrust's Mobile-Baldwin counties market is surprisingly strong and that the aftermath of Regions Financial Corp.'s November deal for AmSouth Bancorp has created an opportunity to achieve loan and deposit growth there.
Mobile and Baldwin counties are "pretty hot now, in terms of economic development and business development," said Mr. Schutz. "The area has got a couple of irons in the fire, any one of which would be a major win for the Mobile market." These include a steel mill that a German company may build, he said, and EADS Group's bid to build a tanker fleet for the U.S. military.
"Both of them involve major, major additions to job growth," he said.
Furthermore, AmSouth's sale to RBC Centura, a subsidiary of Toronto's Royal Bank of Canada, of 22 Mobile-area branches in connection with the Regions deal has put BancTrust in prime position to scoop up runoff, said Mark Muth, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp. The AmSouth divestiture was of 39 Alabama branches to RBC Centura, in all.
"The opportunity in Mobile is huge," Mr. Muth said. "One billion dollars of deposits were divested. It's sort of a once-a-generation type of opportunity to really gain market share — and it's a good market."
BancTrust has also been aggressive in adding talent, hiring about 12 lenders from Regions in the last nine months, said J. Corey Shipman, an analyst at Houston's Stanford Financial Group.
"As the revenue starts to come from those guys in the form of loan portfolio that is being brought over … you should continue to see some growth out of this company," he said.
Bulking up in Mobile "only bodes better" for BancTrust "when Florida rebounds," he added.
