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Mississippi Banks Steady Amid Economic Slowdown

By Erin Garrett

University of Mississippi

Most Mississippi banks are community banks, meaning they weather challenging economic conditions better than large national banks, says Ken Cyree, dean of the University of Mississippi School of Business Administration. Photo by Kevin Bain/Ole Miss Digital Imaging Services

As banks across the U.S. struggle against a slowing economy, Mississippi banks remain steady. The key to their resiliency is simple: community, said Ken Cyree, dean of the University of Mississippi School of Business Administration.

“Mississippi is a community banking state,” Cyree said. “Our banks are rural and community banks that are generally less risky.

“It works to our benefit when things start to go south.”

In March, regulators shut down Silicon Valley Bank, initiating the largest banking crisis since 2008. Signature Bank failed only 48 hours after SVB’s close. Regulators then seized First Republic Bank in May and sold it to JPMorgan Chase.

Last month, Truist Financial announced a major workforce reduction as part of a larger effort to cut $750 million in costs.

Local consumers may be concerned about similar trends among banks in their home state, but they can rest assured, Cyree said. Mississippi banks’ community engagement protects them from the economic highs and lows.

“They understand their market and are able to maintain employment better than the larger banks,” he said.

Mississippi banks also have more total deposits than other banks and fewer uninsured deposits. Uninsured deposits exceed the FDIC’s $250,000 insurable limit. These deposits may have played a role in the failures of Silicon Valley, Signature and First Republic banks.

Diverse loan portfolios can help protect banking institutions from fluctuations in the market. Mississippi banks have a diversified mix of residential, commercial, auto and personal loans, Cyree said.

For example, in comparison to other states, the proportion of commercial real estate loans in Mississippi banks is relatively low, averaged at 182% of capital for the first two quarters of 2023. This is a less risky approach that pays off when “times get tough,” Cyree said.

Core deposits, which are typically stable deposits such as checking and savings accounts, and other small deposits make up nearly 90% of Mississippi banks’ funding, he said.

“A lot of really big banks make money on nontraditional banking activities like mergers and acquisitions – underwriting debt and a lot of things the Mississippi banks don’t do,” he said. “Mississippi banks are traditional banks; they take deposits from regular people.”

One significant performance indicator for national banks is their return on assets, or ROA. This profitability ratio gives insight into how effectively a bank can manage its assets to produce profits. In the first quarter of 2023, Mississippi banks had 1.04% ROA, while the average nationally was 1.36%.

A stable ROA may be an indication of lower performance in some years, but adds to long-term stability in the state, Cyree said.

“I’ve seen this for many, many years,” he said. “Often, Mississippi banks will perform below the industry in times of high growth in the nation.

“When the industry falls, however, Mississippi will do better, and this adds the stability of our banking industry.”

Mississippi consumers benefit from the state’s traditional banking model, he said.

“When you think about the banks in our state, they are very relationship-oriented,” Cyree said. “You are more likely to get a loan here than with a large bank in a different state because we are a community banking state.

“Our banks have the experience weathering these types of storms. We don’t necessarily get the highs that some banks do, but we don’t get the lows either – it means we are very stable.”

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