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Encouraging signs point to improved economic outlook

Mississippi’s banks faring well during recession times

Deposits are up, lending is flat and employment is stable in Mississippi’s banking industry as 2001 draws to a close.

“Banks in Mississippi are generally strong because we’re fairly conservative compared to others around the nation,” said Steve Webb, president of the Mississippi Bankers Association. “Although our economy has been hit hard with plant closings and we’ve taken our licks, we’re still strong.”

On Nov. 15, BancorpSouth Inc. (NYSE: BXS), the largest bank headquartered in Mississippi, and Little Rock, Ark.-based Pinnacle Bancshares Inc. agreed to merge by the end of the first quarter of 2002 for an undisclosed sum. Since the early 1990s, BancorpSouth has aggressively acquired banks to expand its interstate operations.

The next day, Trustmark Corp. (NASDAQ: TRMK) approved an 11.1% increase for its quarterly dividend, from $.135 per share to 15 cents a share, raising the indicated annual dividend rate from 54 cents a share to 60 cents per share. At fiscal year-end last December, Trustmark reported an 11.4% one-year sales growth, and recently moved into the Shelby County market in Memphis.

On Nov. 20, eWeek’s annual FastTrack 500, a list of companies that incorporate cutting-edge technologies, named Birmingham, Ala.-based AmSouth (NSYE: ASO) as No. 6. The only financial services company that ranked higher was Merrill Lynch at No. 5. In 1999, AmSouth acquired First American, which had acquired Jackson-based Deposit Guaranty National Bank the previous year.

“The economic downturn has affected some situations, but there hasn’t been a change in the way we’re looking at things,” said Sid Sims, senior vice president of commercial banking for AmSouth in Mississippi.

“In the last nine months or so, we’ve seen some volatility in the earnings of some manufacturing companies, but that’s the only substantial change we’ve seen in our commercial loan portfolio.”

Trustmark continues to set record origination volumes in its mortgage lending area, partially because of low mortgage rates, according to Zach Wasson, executive vice president and CFO of Trustmark.

“This gives our customers an opportunity to reduce their mortgage payments and invest in increased economic activity,” Wasson said. “Trustmark has seen a decrease in consumer and automobile lending, but that is not surprising in light of recent events on Sept. 11 and since Mississippi has shown an employment decrease over the last year.”

Loan demand is off dramatically, said Griffin Norquist, president of the Bank of Yazoo City.

“We haven’t seen a tightening of credit by banks as much as we’ve seen a tightening of credit by consumers,” he said. “Zero percent car loans offered by car companies have been good for the economy, for example, but not necessarily for banks.”

Small business lending is holding up well, said Odean Busby, chairman and CEO of Magee-based Citizens State Bank.

“Overall, there’s certainly a lower demand and slowdown in bank lending than there has been for quite some time,” he said. “Not as many good projects are being started. Many of the ones that are being pursued are not measuring up to the underwriting standards that most lenders currently have in place. Fortunately, the markets we are in have held up pretty well with good loan demand.”

Sims said many companies are exercising more caution.

“Many businesses are trying to build their liquidity,” Sims said. “It’s resulted in fewer loan opportunities, but better deposits.”

According to the FDIC’s Quarterly Banking Report, net income, reserves and capital cushions are at historically high levels nationwide.

In the last nine months, Trustmark reported strong growth in checking and money market accounts, Wasson said.

“(We) continue to see positive deposit inflows from our personal and corporate deposit base,” he said.

Busby said Citizens State Bank has reported a “more than normal increased inflow of deposits into the bank.”

“It’s evident that the slowdown in the economy and the effect that it has had on the stock market have made many investors nervous about where to invest their money and they’re looking for a safe place to park their money until they feel more comfortable about what direction the economy will take,” he said.

Sufficient capital is available for lending, but demand, driven by consumer confidence, remains well below normal, said Norquist.

“I look for us to come out of it sometime next year,” he said.

Meanwhile, the drop in interest rates has presented a challenge concerning investment opportunities, Norquist said.

“Not only are we not able to invest in the bond market like we’d like to, because that’s where we’ve always been able to go with our excess money, but we’ve been dealing with 2% and 3% interest on 180-day treasuries and we just don’t want to do that,” he said.

Busby said Citizens State Bank has been investing primarily in “government agencies, municipals and highly-rated corporates.”

“During a period of uncertainty, it’s always best to maintain a conservative approach in proven investment products, not take too much risk, and remain short to keep your options open if rates start to rise again,” he said.

So far this year, employment in Mississippi’s banking industry has remained steady, with no reported layoffs or hiring freezes from banks surveyed for this article. Some Mississippi banks, including the Bank of Yazoo City, expanded its staff.

“I don’t know of any cutbacks in personnel at the banks around the state,” Webb said.

Despite economic indicators, employee morale has remained high.

“We work very hard on having an outstanding, well-trained staff dedicated to serving our customers,” Busby said. “It’s important to us, even in an economic slowdown, to make sure our employees are well taken care of. We have not experienced any morale issues, maybe because we are a growing bank in very good markets. However, we still have a need for highly- motivated, trainable employee prospects on an ongoing basis.”

In addition to economic challenges, banks are facing other serious issues, such as tort reform, Busby said.

“The legal climate in Mississippi is starting to have an effect on many of our customers,” he said. “This has contributed to extremely high insurance premiums in many sectors that we lend to. There is a real need for the Legislature to address the issue of tort reform so businesses know what the legal environment is where they are doing business. Unless this area is addressed, everyone is going to suffer repercussions in the future.”

Even though times are tough, there are signs that the economy is improving, Webb said.

“Auctions are going well,” he said. “Prices and volumes for used equipment are up. That’s very encouraging to me, not only in Mississippi but throughout the South.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.

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