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Unprecedented regulatory demands and competition require banks to continue innovating and diversifying, says Aubrey Patterson, the Tupelo, Miss.-based company's longtime CEO, in a wide-ranging interview.
August 20 -
Gerald Host, Trustmark's CEO, expressed confidence in his company's purchase of BancTrust despite some analysts' concerns about the seller's weak deposit positions in key Alabama markets.
May 29
Mississippi bankers have been making do with less during hard times in a particularly tough market, but they hope outsiders fail to notice their strengths for a little while longer.
The Magnolia State has long had a weak demographic profile. It had the nation's lowest median household income last year, extending a run that goes back at least a decade. Unemployment stood at 9.2% last month and consistently floats above the national average.
Add in the same margin pressures, tepid loan demand and regulatory headaches that other banks face and it is easy to understand why they have struggled and why few of the nation's large banks have branches in Mississippi.
But many Mississippi bankers hold the view that, for once, adversity and lack of recognition could work to their advantage, shielding them from broader consolidation and preserving the overall banking culture.
"Mississippi has never been a hot market," concedes Hugh Potts, the chairman and chief executive of First M&F Corp. (FMFC) in Kosciusko, which is as close as one can get to the state's geographic center. The $1.6 billion-asset company operates Merchants & Farmers Bank, which is the state's seventh-largest bank with 30 branches and about $1.2 billion in deposits.
"This is a hard state to move into because the population is small and the economic activity is more deliberate," Potts adds, with a touch of diplomacy. "But people have made a lot of money in the banking business in Mississippi over the years, and to look over that or disparage the state is probably a mistake."
Bankers who assembled in Oxford, Miss., this month for the University of Mississippi's annual banking symposium were quick to point out some of the underappreciated attributes of the state's banking industry. Mississippi's banks continue, on average, to make money, have rising capital levels and relatively good credit quality.
The state's 83 banks earned $261 million during the first half of 2012, or 28% higher than a year earlier, according to Federal Deposit Insurance Corp. data. At June 30, equity capital at those banks was 5% higher than that of a year earlier. The state has only lost nine banks in the last five years, with just two failing and the rest giving way to consolidation.
Some of the state's markets are strong — such as Oxford (a college town with a liberal bent), Tupelo (home to a relatively new Toyota plant) and DeSoto County (the Memphis suburbs). But there are many disadvantaged areas outside them: More than 20% of the state's residents fall below the poverty level, compared with 13% nationally, according to the Census Bureau.
The state's community bankers see a benefit in the fact that the nation's biggest banks are largely ignoring the state. Regions Financial (RF), which is based in Birmingham, Ala., has the biggest market share in Mississippi. But the only other large bank in the state is Wells Fargo (WFC), with a rather pedestrian 13 branches and $620 million in deposits. However, the largest outside banks are trolling for commercial business in some of the state's best markets, some bankers say.
The state's principal in-state players are modest by national standards. Trustmark in Jackson, Hancock Holding in Gulfport and BancorpSouth in Tupelo hold roughly a third of the state's deposits, but the biggest of the three, Hancock, has less than $20 billion in assets. Those banks grew largely by taking advantage of interstate banking in the 1990s and subsequent years.
Less than 100 banks operate in the state, and the average bank has a dozen branches and $445 million in deposits. Most are focused on one or two markets and only four institutions — Regions, Trustmark, BancorpSouth and BankPlus in Belzoni — have more than 50 branches there.
"The fact that a lot of big banks don't want to be in Mississippi probably helps our growth prospects since we don't really have to deal with them," says Archie McDonnell Jr., the president and chief executive of Citizens National Bank of Meridian, a closely held bank located less than 20 miles west of Alabama.
Mississippi bankers are quick to admit that it is painfully difficult to add loans and make money. But a number of the state's community banks are tightly held S corporations, with many controlled by a handful of families, which should buy them some extra time before pressure mounts to sell.
Still, there is a growing belief that more banks here will eventually have to sell. They are too small for regional banks to snatch them up, leaving larger community banks such as Hancock, Trustmark or BancorpSouth with a golden opportunity to consolidate while keeping the banking culture relatively intact. But the leaders of those would-be consolidators are biding their time waiting for the right opportunity.
"As the regulatory burden becomes more onerous … we'll see healthy community banks affiliating with banks like ours," Aubrey Patterson, the chief executive of BancorpSouth (BXS), said
Mississippi's biggest banks are paying more attention to deals in surrounding states. Trustmark (TRMK)
"The 'Mississippi discount' is a missed opportunity and unfair," Potts says, referring to the prevalent notion among investment bankers that the state's banks are worth less than similarly sized institutions in nearby states.
McDonnell sees it differently. "I'd love to say they're wrong, but the reality is [acquirers] can go somewhere else with a higher growth outlook. They're going to put their resources to work in Florida and places like that."
Potts and McDonnell agree that consolidation is likely to be slow and that the pace will benefit banks that decide to remain independent.
"There will be a gradual consolidation over the next few years," Potts says, though he believes that up to 90% of the state's banks will still be in business 10 years from now.
However, survival will require patience and hard work.
"The challenge is big because we're not able to grow right now," McDonnell says. "But this, too, will pass and we'll be able to grow again in two to three years. I think we'll still be here, but you have to have the mentality to do what it takes to perpetuate the bank."
