| BANCTRUST FINANCIAL GROUP INC Item 1A Risk Factors You should carefully consider the following risk factors and other information included in this Annual Report on Form 10-K The risks and uncertainties described below are not the only ones we face, and additional risks and uncertainties not presently known to us or that we deem to be less significant may also impair our financial condition and results of operations |
| Our business strategy includes significant growth plans |
| Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively |
| We intend to continue pursuing a profitable growth strategy |
| Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development |
| We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations |
| Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy |
| Also, if we grow more slowly than anticipated, our operating results could be materially adversely affected |
| Our ability to grow successfully will depend on a variety of factors including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market areas 15 ______________________________________________________________________ [39]Table of Contents and our ability to manage our growth |
| While we believe we have the management resources and internal systems in place to successfully manage our future growth, there can be no assurance growth opportunities will be available or growth will be successfully managed |
| Our business is subject to the vitality of the local economies where we operate, and a downturn in our local economies, including as a result of hurricanes or other adverse weather conditions, could adversely affect our business |
| Our success depends in large part upon the growth in population, industry, income levels, deposits and housing starts in our primary and secondary markets |
| If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed |
| Adverse economic conditions in our specific market area could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations |
| Damage caused by hurricanes and other adverse weather conditions may create economic uncertainty in our market area that could negatively affect our local economies |
| We cannot predict the long-term effects that hurricanes and other adverse weather conditions may have on our business or results of operations |
| We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies |
| Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market areas if they do occur |
| Any adverse market or economic conditions in Alabama and Northwest Florida may disproportionately increase the risk that our borrowers will be unable to make their loan payments |
| In addition, the market value of the real estate we hold as collateral could be adversely affected by unfavorable changes in market and economic conditions |
| Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market, real estate or economic conditions in our market areas, including as a result of Hurricane Katrina, could adversely affect the value of our assets, our revenues, results of operations and financial condition |
| Hurricanes or other adverse weather events could negatively affect our local economies or disrupt our operations, which could have an adverse effect on our business or results of operations |
| Our market areas in Alabama and Florida are susceptible to hurricanes |
| Such weather events can disrupt our operations, result in damage to our properties and negatively affect the local economies in which we operate |
| In late August 2005, Hurricane Katrina struck the gulf coast of Louisiana, Mississippi and Alabama and caused substantial damage to residences and commercial properties in our Alabama market areas, including damage to our main office |
| We cannot predict whether or to what extent damage caused by Hurricane Katrina or damage that may be caused by future hurricanes will affect our operations or the economies in our market areas, but such weather events could result in a decline in loan originations, a decline in the value or destruction of properties securing our loans and an increase in the risk of delinquencies, foreclosures or loan losses |
| Our business or results of operations may be adversely affected by these and other negative effects of Hurricane Katrina or future hurricanes |
| We face risks with respect to future expansion |
| We may acquire other financial institutions or parts of those institutions in the future and we may engage in de novo branch expansion |
| We may also consider and enter into new lines of business or offer new products or services |
| We also may receive future inquiries and have discussions with potential acquirors |
| Acquisitions and mergers involve a number of expenses and risks, including: • the time and costs associated with identifying and evaluating potential acquisitions and merger partners; • the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate; 16 ______________________________________________________________________ [40]Table of Contents • the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; • our ability to finance an acquisition and possible dilution to our existing shareholders; • the diversion of our Management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses; • entry into new markets where we lack experience; • the introduction of new products and services into our business; • the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and • the risk of loss of key employees and customers |
| We may incur substantial costs to expand, and we can give no assurance such expansion will result in the levels of profits we seek |
| There can be no assurance integration efforts for any future mergers or acquisitions will be successful |
| Also, we may issue equity securities in connection with future acquisitions, which could cause ownership and economic dilution to our shareholders |
| There is no assurance that, following any future mergers or acquisitions, our integration efforts will be successful or our company, after giving effect to the acquisition, will achieve profits comparable to or better than our historical experience |
| If the value of real estate in our core Northern Gulf Coast market were to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on us |
| With a substantial portion of our loans concentrated along the Gulf Coast of South Alabama and Northwest Florida, a decline in local economic conditions could adversely affect the values of our real estate collateral |
| Consequently, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically diverse |
| In particular, we cannot predict whether and to what extent damage caused by hurricanes and other adverse weather in our market areas will cause adverse economic conditions or will disrupt our operations |
| Any decline in deposits or loan originations, any increase in borrower delinquencies or any decline in the value or condition of mortgaged properties could have a material adverse effect on our business |
| In addition to considering the financial strength and cash flow characteristics of our borrowers, the Banks often secure loans with real estate |
| The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower |
| Real estate values may deteriorate during the time the credit is extended |
| If we are required to liquidate collateral to satisfy a debt during a period of reduced real estate values, our earnings and capital could be adversely affected |
| An inadequate allowance for loan losses would reduce our earnings |
| The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan |
| Management maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality |
| Based upon such factors, Management makes various assumptions and judgments about the ultimate collectibility of the loan portfolio and provides an allowance for loan losses based upon such assumptions and judgments as well as a percentage of the outstanding balances |
| If Management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require the Banks to increase the allowance for loan losses as a part of their examination process, the Banks’ earnings and capital could be significantly and adversely affected |
| 17 ______________________________________________________________________ [41]Table of Contents Our recent results may not be indicative of our future results |
| We may not be able to sustain our recent historical rate of growth or may not even be able to grow our business at all |
| In addition, our recent and rapid growth may distort some of our historical financial ratios and statistics |
| In the future, we may not have the benefit of several recently favorable factors, such as a generally stable interest rate environment, a strong residential mortgage market, a vibrant coastal real estate market with rapidly rising land values or the ability to find suitable expansion opportunities |
| Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or preclude our ability to expand our market presence |
| If we experience a significant decrease in our historical rate of growth, our results of operations and financial condition may be adversely affected because a high percentage of our operating costs are fixed expenses |
| Our continued pace of growth may require us to raise additional capital at a time when capital may not be readily available |
| We are required by federal and state regulatory authorities, as well as good business practices, to maintain adequate levels of capital to support our operations |
| Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at the time and on our financial performance |
| Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us |
| If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired |
| Changes in interest rates may negatively affect our earnings and the value of our assets |
| Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest expense, our largest recurring expenditure |
| In a period of rising or declining interest rates, our interest expense could increase or decrease in different amounts and at different rates than the interest that we earn on our assets |
| Accordingly, changes in interest rates could reduce our net interest income |
| Changes in the level of interest rates may negatively affect our ability to originate real estate loans, the value of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings |
| A decline in the market value of our assets may limit our ability to borrow additional funds or result in our lenders requiring additional collateral from us under our loan agreements |
| As a result, we could be required to sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity |
| If those sales were made at prices lower than the amortized costs of the investments, we would incur losses |
| Competition from financial institutions and other financial service providers may adversely affect our profitability |
| The banking business is highly competitive and we experience competition in each of our markets from many other financial institutions |
| We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our primary market areas and elsewhere |
| We compete with these institutions both in attracting deposits and in making loans |
| In addition, we have to attract our customer base from other existing financial institutions and from new residents |
| Many of our competitors are well-established larger financial institutions |
| While we believe we can and do successfully compete with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, lack of geographic diversification and inability to spread our marketing costs 18 ______________________________________________________________________ [42]Table of Contents across a broader market |
| Although we compete by concentrating our marketing efforts in our primary markets with local advertisements, personal contacts and greater flexibility and responsiveness in working with local customers, we can give no assurance this strategy will continue to be successful |
| We are subject to extensive regulation that could limit or restrict our activities |
| We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal and state agencies |
| Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans, interest rates charged, interest rates paid on deposits and locations of offices |
| We are also subject to capitalization guidelines established by our regulators that require us to maintain adequate capital to support our growth |
| The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of these changes on our business and profitability |
| Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate profitably |
| The Sarbanes-Oxley Act of 2002, and the related rules and regulations promulgated by the Securities and Exchange Commission and Nasdaq that are now applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices |
| Our directors and executive officers own a significant portion of our common stock |
| Our directors and executive officers, as a group, beneficially owned approximately 12dtta63prca of our outstanding common stock as of February 28, 2006 |
| As a result of their ownership, the directors and executive officers will have the ability, by voting their shares in concert, to significantly influence the outcome of all matters submitted to our shareholders for approval, including the election of directors |
| We are dependent upon the services of our management team |
| Our future success and profitability are substantially dependent upon the management and banking abilities of our senior executives |
| We believe that our future results will also depend in part upon our attracting and retaining highly skilled and qualified management, sales and marketing personnel |
| Competition for such personnel is intense, and we cannot assure you that we will be successful in retaining such personnel |
| We also cannot guarantee that members of our executive management team will remain with us |
| Changes in key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business, financial condition and results of operations |