Magazine article American Banker

BancTrust's Fla. Drive Takes a U-Turn

Magazine article American Banker

BancTrust's Fla. Drive Takes a U-Turn

Article excerpt

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. …

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