Growth-minded banks are buying low in Atlanta.

The Georgia capital, hard hit by overbuilding and now a double-digit unemployment rate, has been a tough market for financial institutions the past three years. Yet several banks are actively looking to expand in the city, viewing it as a market that will inevitably rebound from its malaise.

JPMorgan Chase & Co. recently announced plans to open at least 35 branches in the area over the next two years, while Regions Financial Corp. is touting efforts to recruit bankers from competitors as it plans to move into a new regional headquarters building downtown. Countless smaller banks are increasing their presence, too, by buying failed banks from the Federal Deposit Insurance Corp.

Observers said such banks are obviously looking at Atlanta as a long-term success story that for now is coping with numerous challenges. Such willingness to kick the tires in a hard-hit city should give hope to other localities in need of renewal — and those concerned how banks can find new profit sources.

"Atlanta has fallen down and come back many times," said Ralph "Chip" MacDonald, a lawyer at the Jones Day firm there. "I think you still have more shakeout to come, but the overall demographics are still pretty good. There are a lot of people here, and we have a diverse economy."

Atlanta was one of the first major metropolitan areas to trip up banks with delinquencies and nonperforming loans. In all, 41 banks have failed in Georgia in the past two years, including seven based in Atlanta, according to FDIC data. Other banks have taken serious credit hits because of excessive residential development that has left the city with a glut of houses and residential lots. Problems remain: About $1.6 billion in loans that financed real estate deals in the city were 60 days past due at July 31, according to the research firm Trepp LLC.

Still, some banks are seeing a peak in credit issues, including Synovus Financial Corp., which has spent the better part of two years trying to sell real estate and write off losses from its construction and development book.

Kevin Howard, the Columbus, Ga., company's chief credit officer, said during a July 22 quarterly call that he was seeing "significant improvement" throughout Georgia in terms of new delinquencies. Synovus has reduced its exposure to residential loans by 63%, though Howard cautioned that the area "is still a challenging residential climate."

So why target Atlanta now? One reason is the potential for growth. Though fewer people are moving to the city, the population continues to expand. A local billboard recently estimated a population of 5.2 million, which would represent 6.1% growth since 2006 figures were released by the Metro Atlanta Chamber of Commerce. The city also had $114.6 billion in deposits at mid-2009, according to the most recent data from the FDIC.

"There is still a migration here from the North and even Florida," said Christopher Marinac, an analyst at FIG Partners LLC, which is based in Atlanta. "No one expects negative migration here over the long term."

Another catalyst is turmoil in the market, which could benefit banks that appropriately time an entry or expansion. First Citizens Bancorp. in Columbia, S.C., secured a inexpensive toehold with its government-assisted takeover of Georgian Bank in September, gaining $2 billion of deposits, along with $2 billion of assets covered with an FDIC loss-sharing agreement.

Dominic Ng, the chairman and chief executive of East West Bancorp, told analysts during a July 28 quarterly call that the Pasadena, Calif., bank is interested in increasing its operations in Atlanta and other markets it entered after buying the failed United Commercial Bank of San Francisco in November.

Closures also present opportunities to pick off talented bankers who are disinterested in joining the acquiring bank.

Bill Ritter, a regional president for Regions responsible for Georgia, discussed a desire to recruit bankers and build more branches in an effort to land business from more of the "young, educated workers" in Atlanta. The company, which controlled about 3% of area deposits at mid-2009, plans to occupy four floors at the prominent Atlantic Center Plaza by next year.

Small banks are not the only ones conceding market share. Atlanta's three biggest banks — SunTrust Banks Inc., Wells Fargo & Co. and Bank of America Corp. — have seen their collective deposit market share fall in recent years. At 56.5% at mid-2009, those banks had their smallest piece of the pie since 2004.

Wells Fargo will soon face another challenge as it looks to integrate the Wachovia Bank branches that gave it such a big presence in the city. SunTrust meanwhile has been besieged by speculation that it could eventually sell to a large foreign bank such as Barclays PLC, though the company has endured such chatter for years.

Competition could heat up as JPMorgan Chase's expands. The New York company gained a small presence in Atlanta, with roughly 0.6% of deposits, after its government-backed takeover of Washington Mutual in 2008. Richard Sawyer, who manages Georgia and central Florida for JPMorgan Chase, told the Associated Press earlier this month to expect 350 new jobs but no FDIC deals in the area.

At least on the margins, such hiring could help offset rising unemployment in metropolitan Atlanta, which reached 10.3% in June, compared with 9.8% a month earlier, according to the state labor department.

Marinac said that local customers, weary from the financial crisis and ensuing uncertainty, are more open than ever to switch banks. "[I]f you pitch them a new idea or hire the right banker there is an openness to change. That is why someone would want to be here."

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