In the Mississippi Business Journal’s Book of Lists 2007, banks and financial institutions dominate the list of the state’s publicly traded companies.
The conservative history of Mississippi banking may be one reason why there are so many public banks in Mississippi, and that many of the banks had significant increases in stock prices in 2006.
“The history of the Mississippi banking system has been very conservative,” said Mississippi Banking Commissioner John Allison. “If you have a conservative company that historically shows a good track record of growth, dividends and earnings, you have confidence in investing in that company.”
In addition to that, banks had an exceptional year in 2006 because of the billions of dollars in Hurricane Katrina federal grants and insurance money proceeds. Allison said the Katrina revenues were an aberration, but nonetheless boosted values of some banks considerably. Hancock Holding Company, for example, saw its stock increase approximately 39% in 2006.
“In late 2005 and early 2006, what you had in banks was an enormous amount of funds that kind of blew the numbers away,” Allison said. “That was an extraordinary thing. But if you go back and look at the steady growth trends, and take out the things attributed to Katrina, Mississippi banks are still right at the national average.”
The Mississippi Department of Banking and Consumer Finance doesn’t follow public banks separately from private banks. But in general, Mississippi banks are tracking along with the U.S. average for record earnings and low past due loans.
“Charge-offs are very small in number, loan losses are not significant anymore, and reserves are high,” Allison said. “A lot of the banks chose over the years to go public to give a more ready market to their shareholders. They wanted to open it up to investors outside of Mississippi. You see a lot of people outside of Mississippi or the immediate trade area who are shareholders.”
Easier to value
One reason why banks may be more likely to be publicly traded is that they are easier to value than many other kinds of businesses, said Dr. Ken Cyree, Frank R. Day-Mississippi Bankers Association Chair of Banking, University of Mississippi.
“Also, because they are examined by regulatory agencies, it is a little easier for them to be small and public as compared to a company that is much more difficult for an outsider to value,” Cyree said. “There is a lot of information about small banks, as long as they have deposit insurance. Going public is another avenue for them to raise capital. If they are already doing a lot of that reporting that is required when you have federal deposit insurance, it isn’t a big step for them to go public.”
He adds that with the recent Sarbanes-Oxley legislation and other legislation that makes it more burdensome to be a public company, there is less of a hardship on banks than other types of firms who don’t have to do a lot of other reporting.
“Banks have an advantage there, as well,” Cyree said.
Cyree said the reason there may not be more public companies in the state is that Mississippi is very much a small business-type state. A lot of the state’s businesses aren’t large enough to list or don’t have the incentives to list.
In general, the banking industry in the country has been very healthy largely because of low interest rates, lots of refinancing of mortgages and healthy home sales. Cyree said even though Mississippi has one of the highest foreclosure rates in the country, most of the banks in Mississippi have largely avoided the subprime mortgage problems that have been highly publicized recently.
“There hasn’t been much of that in Mississippi, especially compared to some states like California,” Cyree said. “That bodes well for banks in Mississippi. I think the Mississippi banks will continue to do well. If they will do as well as they have recently remains to be seen. In general, the banking industry has been very healthy, but certainly in Mississippi. The third quarter last year average ROA (return on assets) was 1.26% in Mississippi. Historically anything above 1% is good. So 1.26% is doing quite well. That is for all the banks in the state, not just the public banks.”
Another reason for the thriving bank industry is that the trend towards mergers and acquisitions has been healthy for the bottom line, says Chevis Swetman, president and CEO, The People’s Bank, Biloxi.
“You can achieve economies of scale by acquiring another financial institution,” Swetman said. “You have seen a lot of these mergers and consolidations. With a merger or acquisition, you rarely close the bank offices that serve the public unless there is a direct overlap. You achieve economies of scale by not having two bookkeeping departments, two audit departments, etc. The back office function is where you save. You are eliminating excess capacity.”
Anticipating August anniversary
Swetman said Coast banks are doing well, but there will likely be an up-tick in personal and business bankruptcies at the second anniversary of Katrina. The FDIC has done studies that indicate after a natural disaster, it takes approximately two years for a consumer or business owner to decide if they can make it.
“There will probably be upswing in bankruptcy for the business man and possibly the consumer,” Swetman said. “Throw in the wild card insurance issue, and it makes it a little bit tough. But hopefully by the end of the year, most of those issues will be behind us.”
Swetman said the recent state legislation regarding stabilizing Wind Pool rates will be helpful to consumers and businesses.
“What the Legislature has done is a wonderful thing,” Swetman said. “They have recognized the importance of insurance to economic development. The stability of insurance is very important. The affordability of insurance is very important. It is going to take a few more months, but all of the sudden people will be starting to build homes. Insurance will be affordable and available. We might not like what we have to pay, but at least it will be available.”
Overall banks are doing well right now. But Swetman said banks are always cognizant of net interest margin.
“Right now it is being a squeezed a bit because the short-term money is yielding more than the long-term money,” Swetman said. “An inverted yield curve is generally a precursor to a recessionary period of time.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.