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Five analysts and top management from ten sector firms examine the banking sector in this special 71-page South & SouthEastern Regional Banks issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info449.htm

TWST: Charlie, I asked you about what constitutes an attractive market, but I don’t recall that you gave us one.

Mr. Ernst: As Jefferson said and I mentioned earlier, the markets down in Texas continue to look great, and I agree with the positive comments surrounding the Jackson, Mississippi market. Specifically, Nissan is estimating that 4,000 jobs will directly result from the new auto facility, which is estimated to cost 930 million. Additionally, there’s potentially a ratio of 4:1 or 5:1 other jobs that will be created as a result of the plant. Also, Virginia and North Carolina appear to be holding up relatively well. In Florida it will be interesting to see what happens and whether there will be fallout from tourism as a result of the September 11th tragedy.

TWST: Charlie, are the banks better equipped to deal with issues of credit quality than they were a few years ago and in the last recession?

Mr. Ernst: There is definitely evidence that would suggest capital ratios are higher, along with returns on capital. Also, some of the challenges that caused the slowdown in the economy don’t appear to have been bank financed. In the early 1990s a lot of the problems were real estate-related, and of course, real estate was largely financed by the banks. This time around, thusfar at least, the problems have been technology-driven, and technology has been financed by the public markets and the venture capital firms. But a recession is a recession; people get laid off and credit costs go up. For instance, we estimate that net charge-offs rose by an average of 93.2% over the last four recessions. So my guess is that we will probably see more challenges on the credit side.

TWST: Charlie, will you give us a couple of stocks that you think investors could buy today?

Mr. Ernst: As I mentioned earlier, we still believe that the risks outweigh the reward for most of the regional banks. That being said, there are some stocks that should do better than their peers over the longer haul. National Commerce (NYSE:NCF) is a company that I have liked for a long time. Another stock that I actually increased to a BUY the other day is a company Jeff mentioned, Cullen/Frost (NYSE:CFR). The company has had a couple of credit issues lately, but the stock definitely has sold off a long ways. My thought is that the market is undervaluing the longer-term earnings power of the company. If we look at credit costs there, we are predicting a provision of 90-95 basis points during 2001. Over the last five years, the provision has been closer to 30 basis points. Although we do not expect credit costs to return to a more normal level until the economy shows signs of stability, we believe the long-run trend is down. The other factor that caused Cullen a great deal of pain in terms of its earnings power over the last year has been the net interest margin. In the coming quarter, we are looking for a margin of about 4.70%. In the year 2000, its net interest margin was 5.32%; that decline has placed considerable pressure on its earnings. I estimate margin compression is costing about 0.4 to their earnings. Again, we believe the long-term trend will be improvement. Lastly, we believe that narrower losses at subsidiary Frost Securities and expense savings from a recent cost reduction program could add another 0.1 to 0.15 to earnings before the end of 2003.

This special issue includes:

1) South & SouthEastern Regional Banks - In an in-depth (14,000 words) Analyst Roundtable, Jeff Davis, Analyst covering regional banks at Midwest Research, Inc., Charles N. Ernst, Vice President at Putnam Lovell Securities, Inc., Jefferson L. Harralson, Vice President at SunTrust Robinson Humphrey Capital Markets and Christopher M. Mutascio, Principal at Legg Mason Wood Walker, Inc., examine the outlook for the sector including investment approach, credit quality and share specific stock recommendations.

2) Regional Bank Stocks - In an in-depth (3,300 words) Analyst Interview, Gary B. Townsend, Senior Analyst at Friedman, Billings, Ramsey & Co., examines the outlook for the sector and shares specific stock recommendations.

3) The TWST confidential Off-The-Record survey of management performance at thirteen sector firms asked market insiders about the ability of management teams to create shareholder value.

4) CEO interviews (average 2,500 words). Top management of nine sector firms examine the outlook for their firm and the sector.