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In-Depth: The View from Memphis: Bankers, Business Leaders Cautiously Optimistic


Martha Perine Beard
Friday, July 1, 2011

Between January and April, we held revealing discussions with banking and business leaders at events and one-on-one meetings throughout the District’s Memphis Zone.  Before the Mississippi River flooding, leaders told us that they were cautiously optimistic about the economy for the rest of 2011 and that local business conditions and profits were better than they were a year ago.

Banking Conditions

Business leaders and bankers expect loan demand in urban areas to increase, but the number of strong, creditworthy applicants is not large, and many bankers say they are chasing the same few good applicants.  Several bankers report that past dues remained level through the first quarter of 2011 and that losses on other real estate owned (OREOs) are improving.  In more rural areas, leaders inform us that loan demand is softer because of competition from farm credit services that can offer more competitive rates.  Meanwhile, accounts are that rural land values are rising and farm equipment sales are at an all-time high.

Bankers tell us that they continue to face challenges related to their investments.  They say that with the fed funds rate at an all-time low and little loan demand, achieving a decent earnings level is a challenge.

Bankers indicate that a key strength today is enhanced deposit growth:  After years of negative savings growth, they are seeing significant increases as consumers learn the importance of saving.  Business leaders report that some consumers are being more imaginative on how to improve their financial positions:  Because of low CD rates, some consumers with extra cash are choosing to pay down debt when the interest rate exceeds what they would earn on a CD.

Housing Market Conditions

Business leaders and bankers say that the housing sector has yet to rebound from the recession, and most categorize the state of the housing sector as “fair” at best.  Reports are that new building permits are a fraction of their peak during the housing boom.  They say that many builders are no longer in business; home values have declined to less than the amount owed for some homeowners; mortgage underwriting has tightened considerably; and the inventory of homes for sale remains high.

Bankers vary on their approach for handling foreclosed homes.  Some are implementing lease-to-own arrangements as a means of earning some revenue, while others have expressed concerns about this approach.

The current unemployment rate in the Memphis Zone does not bode well for a large increase in home sales.  East Arkansas is performing more positively than other parts of the zone.  Sales in the first quarter of 2011 exceeded those in the first quarter of 2010.  Although there are buyers, business leaders say that obtaining long-term financing is difficult.  Many bankers suggest that they are backing away from residential loans because of more stringent regulatory requirements.  Additionally, bankers report that appraisers have become much more conservative on their evaluations.

Employment and Job Growth

Memphis:  The greater Memphis area began 2011 with a high level of employment contraction.  Both Memphis and Jackson, Miss., registered unemployment rates that were higher than the 9.4 percent rate for the United States.  However, bankers and business leaders see the projected job growth in Memphis as very positive.  Since the beginning of 2011, several companies, including Electrolux, Mitsubishi and City Brewing, have announced plans to relocate or bring more jobs to Memphis.  Many bankers and business leaders say that ongoing cooperation between city and county governments to simplify the solicitation of economic development incentives has contributed to the positive announcements.

Rural Western Tennessee:  This area reportedly has not fared as well.  The unemployment rate is already above 10 percent, and about 1,900 jobs will be lost in Union City at the end of the year with the planned closing of a Goodyear tire plant.

Northern Mississippi:  Beginning in 2011, the unemployment rate in several rural areas was in double digits.  The overall rate for northeast Mississippi was 11.8 percent, more than the state average of 10.4 percent.  In northwest Mississippi, which relies heavily on economic growth related to casinos, business leaders say that gaming revenue continues to decline, primarily because of less consumer discretionary income and legalized gaming in neighboring states. 

Eastern Arkansas:  Unemployment remains a strong concern for eastern Arkansas.  While most of the counties in the area showed little or no improvement in the unemployment rate, leaders think that may change in the remaining months of 2011 because of several announcements concerning plant expansions and increases in employment.

Business leaders and bankers think that for the remainder of 2011, employment will remain at the status quo or improve because most companies have already cut the maximum number of positions possible.  They expect capital spending to increase in several areas because companies have deferred purchases as long as they can, and there is now a need to purchase new or replace outdated equipment for expansion plans.  Overall, banking and business leaders appear to be more optimistic in 2011 than they were a year ago,  but some areas will fare better than others will over the next six to 12 months.