What the financial crisis didn't do to Mississippi banks, the oil spill in the Gulf of Mexico may accomplish.
Mississippi's slower-paced banks have fared far better than their higher-flying Southeastern cousins. The state had its first failure in a decade last week, and Mississippi banks had been expected to remain relatively healthy with few failures this cycle.
Yet the tortoise-beats-the-hare story may be spoiled if the oil spill leaks into the state's economy.
"The real wild card, I think, is what the oil spill is going to do to banks in the area," said Charles "Stormy" Greef, partner and co-practice leader of the financial institutions team at Hunton & Williams LLP in Dallas. The spill could have significant economic effects if it is prolonged and harms the fishing, oil and tourism industries, he said.
At this point, Greef predicted that Mississippi will have additional bank failures, but that they likely will be limited to rural areas and pale in comparison with the failures pouring out of other Southeast states like Georgia and Florida.
Mississippi, unlike those states, did not experience a boom in speculative real estate development, and its banks did not finance such activity with brokered deposits as some failed banks in Florida and Georgia did before the market collapsed.
The state's first bank failure in nearly a decade occurred June 4, when bank regulators shut down First National Bank, a one-branch, $60.4 million-asset rural bank in Rosedale. Jefferson Bank in Fayette, Miss., assumed First National's $63.5 million in deposits and acquired $43.5 million of its assets.
Mississippi's previous bank failure was on Sept. 29, 2000, when the Bank of Falkner closed.
"We haven't had the huge ramp-up and as a result, you don't see the huge crash as other markets have experienced," said Carl Chaney, the president and chief executive of Hancock Bank, a $5.6-billion asset bank in Gulfport, Miss.
Since the start of 2008, only 10 states have not had a bank failure. They are Alaska, Connecticut, Hawaii, Montana, New Hampshire, New Mexico, North Dakota, Pennsylvania, Rhode Island and Tennessee.
While most failures this cycle were driven by the real estate downturn and recessionary economic conditions, First National's failure was not, the bank's state regulator said.
"They just had tremendously horrible earnings, bad loans and no access to capital," said John Allison, the commissioner of the Mississippi Department of Banking and Consumer Finance.
A majority of the bank's loans, 71%, were farm loans at March 31, according to the Federal Deposit Insurance Corp. More than 35% of First National's loans were noncurrent, and the bank had a total risk-based capital ratio of minus-7.14%.
Two other banks in Mississippi are on the FDIC's national problem bank list.
"But we don't anticipate a failure from them," Allison said, though he would not identify the banks. He expects one or two more will likely be added to the list soon.
Chaney said Mississippi and Louisiana were largely insulated during the banking crisis because their economies were still feeding off federal projects generated through the stimulus money pouring into the states after Hurricane Katrina. "At this point today, we're still seeing the impact of the recession but not to the extent of the rest of the country," Chaney said.
About 20% to 25% of Mississippi's 72 state-chartered banks are operating under a formal or informal administrative action, according to Allison.
In comparison, a recent memo from Rep. Cliff Stearns, a Democrat who represents a north central Florida House district, indicates that roughly 70% of banks in that state are operating under some form of regulatory order. There are 278 insured institutions in Florida, according to the FDIC.
The most-troubled Mississippi banks typically expanded outside the state just before the financial crisis hit, said McKinley Deaver, the president of the Mississippi Bankers Association. While some banks in depressed areas of the state are hurting, he said that "I don't think, by any means, this is the beginning of a rash of failures."
Yet a prolonged spill that washes up on the state's beaches could change that. Among those that could be hurt by the spill are banks in the state that financed condominiums on the Gulf Coast. "This is also a critical time because it is tourist season," Greef said.
While the oil spill is a concern, Chaney said the fallout for Hancock, one of the biggest banks based in the state, would be limited because it has little exposure to the tourism, seafood and oil-and-gas industries — all of which would be affected by the spill.
Bankers in Mississippi and Louisiana are also quite concerned about the potential effects of a six-month offshore-drilling moratorium — and especially a longer or permanent ban on drilling. The moratorium is putting jobs on hold, Chaney said. That is "a bigger issue to us than the oil spill."