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VOL. 124 | NO. 249 | Monday, December 21, 2009

Mixed Signals Remain for Local Banking Industry

By Andy Meek

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TOWARD BETTER DAYS: Banks like Miss.-based Renasant face a short-term industry future that continues to be uncertain, although many of them are improving. Shown is a message welcoming Renasant to the NASDAQ stock exchange in mid-2005, when the company’s common stock began trading under the symbol RNST. -- PHOTO COURTESY OF RENASANT CORP.

The old proverb about the fear of dismounting a tiger – once you’re riding one, you can’t hop off without becoming easy prey for the beast – seems applicable to the banking industry at the moment.

The tiger it’s riding is an economy marked by delinquent mortgages, companies shedding jobs and unpaid consumer loans stacking up as borrowers fall further behind. As a result of that upheaval, the U.S. government has basically turned into a vast holding company sitting on giant stakes in automakers and hundreds of banks.

Since a vast swath of the financial industry has operated essentially as a ward of the state for much of the past year, the industry as a whole can’t immediately dismount that tiger and go back to lending and operating as normal. For many small, regional and national banks, the near future will continue to be dominated by pressure on balance sheets, uncertainty in loan portfolios and a generally cautious outlook.

Fourth quarter earnings season, which is just around the corner, will bear that out to some degree.

Future unknown

Next month, the Memphis area’s banking institutions will report their performance results for the past three months of 2009. And while many of them have seen improvement, just as many likely are happy to be turning a page in the calendar.

Based on average estimates of earnings per share for the fourth quarter of 2009, the outlook seems less than upbeat for many of the area’s banking players.

Earnings per share of Starkville, Miss.-based Cadence Financial Corp., for example, will end up a little worse than in Q4 2008, according to average estimates. Average estimates are worse than in the same period last year for Birmingham, Ala.-based Regions Financial Corp. and Atlanta, Ga.-based SunTrust Banks Inc.

Regions is the parent company of the Memphis-based investment banking and brokerage firm Morgan Keegan & Co. Inc., which Dowd Ritter, Regions’ chairman and CEO, mentioned briefly during an industry conference earlier this month.

Asked about the possibility, he said Regions would not rule out something like finding a partner for Morgan Keegan as a way to generate capital if the bank decided it needed to do that.

When asked whether the bank was open to putting together a joint venture that included Morgan Keegan, Ritter said the bank is open to “anything and everything in terms of asset sales” and that Morgan Keegan remains important to Regions.

Meanwhile, the average Q4 earnings per share estimate of Memphis-based First Horizon National Corp., the parent company of First Tennessee Bank, is in negative territory. But it’s still better than what the firm posted during the same period last year.

In another sign of the company’s progress, First Horizon’s stock price has made a big climb since late 2008. The stock is up more than 40 percent, based on the Dec. 16, 2008, closing price of $9.40 per share and the Dec. 16, 2009, closing price of $13.49.

The average earnings per share estimate for Tupelo, Miss.-based Renasant Corp. is down slightly from last year’s fourth quarter, but still in positive territory.

“Improvements in the macro data continue to provide evidence to support our belief that the Great Recession ended in the summer months,” wrote banking analyst Kevin Reynolds of Wunderlich Securities in Memphis, in an analyst note published this month.

But he included the following caveat:

“While many market participants have begun to focus on the strength and sustainability of an economic recovery, we caution that economic growth will likely be subpar for some time when compared with prior recoveries,” Reynolds noted.

He added that as of Sept. 30, 370 “high-risk” banks were headquartered in the South, versus 341 in the first quarter, with total assets of about $220 billion.

Turning a corner?

Signaling tentative improvement in the local industry, meanwhile, banks in the Memphis-area market that accepted a chunk of last year’s taxpayer-funded bailout money have begun to pay it back. After raising money by issuing common shares to the public, Jackson, Miss.-based Trustmark Corp. a few days ago repaid the federal government’s $215 million investment in the bank through the Troubled Asset Relief (TARP) program.

The repayment came only about a month after the bank’s chairman and CEO, Richard Hickson, said during Trustmark’s third quarter earnings presentation that the bank would repay its TARP funds once the economy has moderated.

In a statement about the TARP repayment, Hickson said, “We believe the repurchase of these preferred shares is in the best interests of our shareholders. Based upon our continued solid profitability and strong capital base, Trustmark remains well positioned to meet the needs of our customers as well as maintain its financial flexibility to take advantage of opportunities for growth and expansion in the marketplace.”

One of the largest of Memphis’ homegrown banks, Magna Bank, reported strong signs of life in the third quarter after coming off a period for the industry that Magna’s chairman, president and CEO described as “cataclysmic” earlier this year.

Magna’s net income between July and September was $1.3 million, a big improvement over the loss of $1.9 million during the same period in 2008. Year to date, Magna’s net income is almost $3 million, compared to a net loss of $1.6 million in 2008.

PROPERTY SALES 64 87 1,429
MORTGAGES 39 60 1,107