Executives at Deposit Guaranty Corp. agree that the election of its president and chief operating officer, Howard L. McMillan Jr., as president of the American Bankers Association gives the Jackson, Miss.-based bank a great view of the goings-on inside the Beltway.

But Mr. McMillan, who was installed last month as head of the industry's leading trade group, said that his new post doesn't relieve him of his responsibilities with the $4.9 billion-asset bank.

"I've still got my job to do, and I plan to do it," said Mr. McMillan.

And analysts say that Mr. McMillan and the management team at Deposit Guaranty have been doing an admirable job, given the traditionally slow rate of economic growth in Mississippi.

"To do as well as they have done in a very difficult market is quite an achievement," said Richard Stillinger, senior vice president at Keefe Bruyette & Woods Inc. in New York.

Mr. Stillinger calls chairman and CEO E.B. "Bud" Robinson a "very capable executive" and - referring to his hobby of running across deserts and over mountains in marathons around the world - "a pretty amazing person."

Last year Deposit Guaranty posted a return on assets of 1.38%, up from 0.95% a year earlier. For the first six months of this year, the figure was 1.41%, compared with 1.45% in 1993.

In the last two years, the bank has also substantially cleaned up its asset quality, which had been beset by problem loans incurred in the late 1980s and early 1990s. A big chunk of the problem loans came with Deposit Guaranty's 1990 acquisition of Commerce National Bank in Shreveport, La.

But as the Mississippi bankers look ahead, they see the need to increase loan volume, build a stronger sales culture, boost fee income, and improve efficiency.

For example, the efficiency ratio - or non-interest expense per dollar of revenue - stood at a hefty 68.19% at the end of 1993, and has been creeping upward for the past few years.

Mr. Robinson noted that the figure at Deposit Guaranty tends to be higher than at other regional banks, because most of its 112 offices are located in very small communities where the bank can't get economies of scale.

He added, "the No. 1 thing that effects our efficiency ratio outside of that is our [low] loan to deposit ratio."

Mr. McMillan said loan growth, while up 15% in the third quarter, is still slower than the executives had hoped for. "We probably still have got room for $400 million worth of additional loans," he said. "That would not stretch us from a liquidity point of view at all."

Still, the executives are confident that loan growth will continue to grow steadily, if somewhat slowly.

And that will be a key strategy toward paring down the efficiency ratio. "We are trying to take [1% to 2%] off a year for the next three years to get it down to 60%," said Mr. Robinson. "About five-sevenths of that is going to come from loan volume increase. And about two-sevenths is going to come from things like we are doing with technology."

Deposit Guaranty is in the process of stream-lining its lending process to free up loan officers to spend more time on developing business. Part of the reengineering involves deploying imaging technology.

"We're going to start with this pretty broad area called file folder," said William R. Boone, the executive vice president who oversees technology and marketing. "That two areas we are using as pilots are our own loan operations at the bank and the mortgage company."

"We realized the need to spend some money on the technology to give us the tools," said Mr. Boone.

Mr. Boone, who was given responsibility for marketing in a management restructuring earlier this year, also said the bank is committed to some other technological advancements.

Deposit Guaranty is now spending more than $1 million to build a wide-area network to link up its branches. "It opens up the sharing of information systemwide whereas previously it was just branchwide," said Tonya Favreau, senior vice president and information services director. "We're in the process of rollout now and we expect to be finished by the first quarter of 1995."

The bank is also upgrading its automated telephone voice response system, which was originally installed in the mid-1980s. The enhanced service is to be introduced next year. Among other functions, it will give customers the ability to transfer funds and instruct the bank to send an account statement via fax.

"We will probably have a menu in there that provides some kind of bill paying service," added Mr. Boone.

Deposit Guaranty has also introduced a number of low-tech measures to improve customer service. One service available at the Louisiana affiliate, called Auto QuickFacs, involves touch-screen software that provides potential car buyers with information on new and used auto prices and financing options. A service called Match-maker provides similar information for potential homebuyers.

"These little services are not big technology expenses but give the customer the ability to feel better about the bank and know better what they are talking about when they come in" for a loan, said Mr. Boone.

The bank has also been a test site for a number of developing technologies. In 1990, Deposit Guaranty was a beta site for Customer Information System. The system, from Software Alliance Corp., Berkeley, Calif., is designed to better tap into mainframe data bases to obtain more complete data about customer relationships.

Today, the bank is one of about two dozen institutions in a pilot group for a small-business credit scoring system being developed by Fair, Isaac & Co.

"We have always had a philosophy that we ... don't want to be out front but we don't want to be too far behind," said Mr. Boone.

Managers at Deposit Guaranty also proudly tell how, several years ago when they were thinking about outsourcing their data processing needs, International Business Machines Corp. was invited in to look at the operation.

"They turned us inside out and looked at everything they could," said Mr. Boone. "It turned out that at the end of that long process they said, `We really can't do it better.'"

Deposit Guaranty operates one data center for the entire company. The consolidation of back-office operations had begun in the mids. 1980s.

"One of the things our management supports here is we do not let our hardware and technology get dated," said Ms. Favreau. Mr. Boone said, "Most of our spending on technology in the next few years will be what is called discretionary technology, which is primarily focused on productivity, the customer interface, and the ability to differentiate ourselves from the competition."

Deposit Guaranty has also been able to keep its technology budget largely flat for four years, he added.

"We have always done a pretty good job of expense control," said Mr. McMillan. "We really started focusing on the headcount aspect of it as early as the mid 1980s. It's just a constant process."

Over the past decade, Deposit Guaranty has undertaken several reengineering efforts. In the early 1980s, the bank looked at its branch network with an eye toward making it more efficient. Late in the decade, consultants from McKinsey & Co. came in to "refine" the work they had already begun. More recently, Deposit Guaranty has worked on improving the lending process.

The efforts the bank has made to improve technology and efficiency also underscore the need to boost revenue, from both interest and non-interest sources.

Toward that end, Deposit Guaranty has, like so many other banks around die nation, been working to develop a sales culture.

"There has been a sales culture at this organization for years but it has just not been consistent at every level," said Mr. McMillan. "Some people have admitted - even recently - that the reason they went into banking was they knew they wouldn't have to sell."

The bank set out to train its staff on the basics of sales and has been putting incentive programs into place.

"No. 1, we had to convince everybody that selling is a part of their responsibility," said Mr. McMillan. "That message has pretty well gotten out now."

Deposit Guaranty has also set out to boost fee income from about 30% of revenues to about 50%. Mr. McMillan called that "a three-year to five-year goal."

A lot of that will come from the investment company," said Mr. McMillan, referring to Deposit Guaranty Investments Inc., a subsidiary.

Analysts also note that Deposit Guaranty has benefited from the advent of riverboat gambling in the state. But executives at the bank, while they have installed ATMs in casinos and have been involved in financing, regard gaming as a mixed blessing.

"From the very beginning we had mixed emotions about whether or not we were going to participate in the lending to the gaming industry. It's really not a part of organization'" said Mr. Robinson.

But the bankers saw that gambling was to be an important part of the state's economy. "We determined we would be involved in some of the financing but only to the strongest players," Mr. Robinson said.

The initial objections centered around concerns that too many people might lose more than they could afford to. There are also fears that the market may become saturated.

"If we get to the point where the red only people going to the casinos are Mississippi people, then it's just taking money out of one pocket and putting it into another," said Mr. McMillan. "And a lot of those dollars will be leaving the state."

But the bankers note that gambling has brought a lot of good jobs to the state, including work in construction.

Deposit Guaranty is also looking to grow through acquisitions. Mr. Robinson said the bank is looking west and northwest, to the area known as ArkLatex.

"Alabama had pretty much consolidated before we had the right to go across state lines. So had Tennessee," said Mr. Robinson. "That leaves Arkansas, Louisiana, and - with our acquisition in Shreveport, East Texas - as areas that are contiguous to where we are currently operating and that have banks available" for purchase.

Mr. Robinson added, "Our board has wanted to be the acquirer rather than the acquiree."

The bankers also note that Mississippi is not likely to be a hotbed of acquisition activity, an assessment with which analysts agree.

"Mississippi is a slow growth market," said Mr. McMillan. "I just expect that regionals and the super-regionals - particularly now that we've got interstate banking and they can go anywhere they want to go - to focus more on the growth states. I just don't think Mississippi and Deposit Guaranty are that vulnerable."

Mr. McMillan, as ABA president, is also thinking about larger issues affecting the industry. "Superfund reform is going to be a major factor this year, and something we are going to push very hard," said Mr. McMillan. He also plans to work to cut deposit insurance premiums. We feel we should get a reduction in 1995," he said. And the trade group also will oppose a merger of the Bank Insurance Fund and the Savings Association Insurance Fund.

"The thrift industry is not in the death spiral they were talking about being in earlier," he noted. And after he retires as head of the organization? Mr. McMillan, who at 56 is three years older than Mr. Robinson, said he has no plans to leave the bank or Mississippi. "We have worked together almost our entire careers," said Mr. McMillan, a 34-year veteran at the bank. "In my opinion we make a good team. "I'd like for it to continue this way until I retire."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.