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Banks tightening belts amidst ongoing economic recovery

With layoffs continuing at major employers in Mississippi, and the general economy remaining sluggish, the banking industry in Mississippi can’t help but be affected.

The lowest interest rates in decades have been a boon to home purchasers. There were a record number of homes sales in the country in 2002. But other areas of banking such as demand for business loans is down, and the number of past due loans and defaults on loans is up.

“Housing has held up pretty well, and consumers continue to spend at a pretty healthy pace,” said L.F. Mallory Jr., chairman and CEO of the National Bank of Commerce, Starkville. “The major thing that is missing is a step up in business investment, and hopefully that will come if confidence levels can rise.”

There is some concern in banking circles given the loss of jobs, lower loan demand and declining state revenues.

“We definitely see fewer loans and a reduced demand for credit as a result of our sluggish economy,” Mallory said. “It is most important that we be able to replace our lost jobs with other employment options for Mississippi workers.”

Mallory sees the Nissan project as one bright spot in the future, as well as the announcement by American Eurocopter of intentions to locate a production facility for helicopters near the Golden Triangle Regional Airport.

In order to remain profitable during lean economic times, Mallory said National Bank of Commerce has taken a hard look at all expenses to make certain that any excess costs are removed. He said banks have to be willing to reduce deposit expenses at a time when there is little loan demand. He adds that banks also need to be certain that they do not compromise on loan quality.

Mallory said it appears that credit quality has held up pretty well in most banks. But, obviously, harder economic times can make it more difficult for some borrowers.

“Hopefully, we can resolve some of our pressing international issues and get businesses investing again to improve economic activity during the second half of the year,” Mallory said.

There is always pressure for banks — or any other kind of business — to do better on the bottom line than last year. That’s true even during an economic downturn.

“Nobody wants to go backwards,” said Martha J. Rogers, chairman of the board and CEO of the Bank of Morton. “Community banks, I think, have a harder time than the big banks. We have less ways of making money. Bigger banks have so diversified in so many different areas.”

Rogers says more local businesses are cutting back. Two long-time businesses in Morton closed their doors recently.

“You are hearing more and more about this sort of thing,” she said. “I’m hearing that between here and Meridian, they are having even more difficulties. People around the state are saying they are beginning to feel the slowdown more. We feel fortunate here — most people who have been laid off seem to found another jobs.”

Banks, like other businesses, are finding it necessary to cut back on benefits such as health coverage. Rogers said many companies have increased deductibles, or even stopped offering health coverage to employees.

“You can’t keep having costs go up and your income not go up and not make changes of one sort or another,” Rogers said.

John Allison, commissioner of the Mississippi Department of Banking and Consumer Finance, said banks are getting a double whammy with businesses cutting back and not borrowing as much money. And because of layoffs, banks are seeing more customers with consumer loans that are past due or in default. Foreclosure costs are an additional expense for the bank.

There also may not be as much money moving through the banks because salaries are less and people are being more conservative with spending.

“This same scenario can be true for credit unions, small loan companies and even businesses like car dealership,” Allison said. “The effect of the slowdown doesn’t just trickle down. Sometimes it floods. This is what happens at any downturn. This time is no different than any other time.

“As banks tighten their belts, they look at both trying to enhance their revenue stream to offset losses, as well as ways to cut expenses. Do we need this branch here? Can we cut back hours there? Can we put more of our services on the Internet?

“They look at the whole gamet of things that can or should be done to reduce cost and increase income because they are stock companies with responsibilities to their shareholders to protect that investment,” Allison said.

Zach Wasson, executive vice president and chief financial officer for Trustmark National Bank in Jackson, said that although the country is continuing to face challenging economic conditions, 2002 was in fact the most successful year in Trustmark’s history, and its 11th consecutive year of record earnings.

“Revenues increased 8.8% while the cost containment measures we implemented helped reduce the cost of generating those revenues from 53.6


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