BankAtlantic Bancorp Inc. in Fort Lauderdale, Fla., spends more on marketing than most companies its size - and with one of the nation's most effective retail banks soon to enter its territory, it plans to spend a lot more, its chief executive said.
Investors, though, do not think that is such a good idea.
BankAtlantic's stock has been in a free fall since Monday, when investors first learned of its plan to boost its marketing budget - a move investors fear would eat into earnings. By late Thursday the stock was trading at its lowest level in nearly two years.
Analysts too say that they were caught off guard, and many have responded by lowering earnings estimates and 12-month target prices.
In an interview Tuesday, CEO Alan Levan said he was surprised by the sudden selloff - the stock has fallen 17.5% this week and was trading at $14.02 late Thursday - but defended the decision to spend more on marketing as the bank braces for the arrival of Commerce Bancorp Inc.
Commerce, of Cherry Hill, N.J., will be moving into south Florida early next year when it completes a deal for the $350 million-asset Palm Beach County Bank in West Palm Beach. Commerce, which calls itself "America's Most Convenient Bank," has been very successful in stealing deposit share in markets it enters, and its CEO, Vernon Hill, has promised that it would aggressively add new branches once it establishes a foothold in Florida.
"From what I hear, Commerce Bank plans to come into town and set up branches right across the street from us," Mr. Levan said. "We are doing what's necessary to protect the long term franchise value of the company."
There is no love lost between the $33 billion-asset Commerce and the $6.7 billion-asset BankAtlantic, though they have never been direct competitors. Three years ago Commerce sued BankAtlantic for trademark infringement after BankAtlantic adopted the slogan "Florida's Most Convenient Bank." Commerce later dropped the suit.
It is not just the slogans that are similar. BankAtlantic openly acknowledges that it has mimicked Commerce's retail strategy, which stresses convenience. Both offer seven-day-a-week banking at most branches, and many of their branches are open for 12 hours on weekdays. (BankAtlantic keeps some of its branches open until midnight.)
The two banks even have similar, bright red mascots.
Still, Mr. Levan said that BankAtlantic was the first to offer its brand of banking in south Florida, and apparently its marketing campaign will stress that point. Mr. Levan would not give specifics about the campaign except to say that BankAtlantic would "aggressively market against Commerce."
In the second quarter alone BankAtlantic spent $8 million on marketing, advertising, and promotion, 43% more than in the year-earlier quarter, according to its second-quarter earnings statement. That is more than five times what the $9.9 billion-asset BankUnited Corp. of Coral Gables spent; BankUnited operates in many of the same markets and also focuses on attracting low-cost core deposits.
BankAtlantic runs several ads on radio and television and in newspapers and magazines using its new catch phrase, "Yeah, we're open." Last spring it sponsored the Miami Heat during the National Basketball Association playoffs, and last month it bought the naming rights to the Sunrise, Fla., arena where the National Hockey League's Florida Panthers play.
It is hard to argue with BankAtlantic's success since it adopted the Commerce model in early 2002. It has increased deposits at annualized rates of 25% and 35% in each of the last 12 quarters and has opened 500,000 new accounts.
Still, the company said last week that deposit growth has slowed and could keep doing so as competition intensifies. It also said in an investor presentation that it expects its net interest margin, which has been rising steadily in recent years, to level off - an indication, analysts said, that it might be time to reel in, not increase, spending.
"They have built up a huge expense base but have justified that by growing core deposits," said James Record, an analyst with Moors & Cabot Capital in Boston. "Now they are saying marketing expenses are going to skyrocket but core deposits are slowing?"
Salvatore DiMartino, an analyst with Bear Stearns & Co. in New York, said that though 20% deposit growth is still impressive, investors are afraid it will slow substantially when Commerce arrives. "Investors are concerned that with the new competition in town, 20% is going to go down to 10%," he said. "It's too early to tell but it's clearly going to have an effect."
Analysts and investors were also not happy with how they found out about BankAtlantic's plans. Mr. Levan talked about them in a presentation to investors at Sidoti & Co. in New York last Friday, but analysts did not receive copies of the presentation until Monday afternoon.
Mr. Levan said that management has talked about the possible deposit slowdown and the increased marketing costs "from time to time" in conference calls with analysts. The company also filed a copy of the presentation with the Securities and Exchange Commission last Friday.
But Gary Tenner, an analyst with SunTrust Robinson Humphrey in Atlanta, said that when he met with management last week it gave no indication that BankAtlantic would be ramping up its marketing. Last Friday he upgraded its stock to "buy," from "neutral"; on Tuesday he downgraded it back to "neutral."
"There is some concern about the way … [the situation] was handled, and potentially the credibility of what the management has been saying," Mr. Tenner said.
