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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: Given the relatively low valuations of most of the group, is this an environment in which you expect to see a lot of consolidation?

Mr. Townsend: I would be surprised if in a more difficult economic environment, we don’t find that some management teams finally capitulate and say, “We need to partner up with someone larger that has a good, strong currency, that can carry the value of our own assets to a higher level.” There are many community banks that are currently trading at well below 2 times tangible book value, that have what I would say are good prospects but may have to wait a few more years until the market really discovers them. These could realize that value much more quickly if they were acquired.

TWST: What is another that you would put into this third category?

Mr. Townsend: One of the strongest companies in my coverage is First Tennessee National Corporation (NYSE:FTN). This stock trades at 3.3 times tangible book, so it’s well above the peer group, which is closer to 2.5 times. In 3Q01, tangible book was 10.4, and we estimate 2002 operating EPS of 2.51, so the stock trades about 13.7 times our 2002 estimate.

TWST: Why is First Tennessee particularly attractive?

Mr. Townsend: First Tennessee is quite unusual for a mid-cap regional. As opposed to most banks that would have perhaps between 30% and 40% of their total revenues coming from noninterest-bearing sources, about 70% of FTN’s revenues come from non-spread sources. While it does very well on its banking businesses (it has a strong 4.37% 3Q01 margin), FTN has a very strong capital markets group and mortgage banking operation. Capital markets operations are focused on bonds and fixed income rather than equities. First Tennessee is a primary dealer for the U.S. Treasury and also for the government-sponsored agencies, such as Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) and the Federal Home Loan Bank system. And FTN has been in these markets for quite some time and knows the markets and customers well. Many banks do business with them. As the yield curve has steepened, capital markets became a very strong contributor to this year’s EPS acceleration.

TWST: In conclusion, how do you view investor sentiment surrounding the bank stocks today, in general and specifically with regard to the Southern and Southeastern banks?

Mr. Townsend: I think that there is a lot of interest currently, certainly among institutional investors, in this area, and they are watching them all quite closely. Credit risk is an issue that is perhaps keeping some investors from wading in too deeply right now, but I expect that they will become more active as they look out into 2002 and begin to give thought to what happens as the economy begins to improve and the Fed eventually tightens interest rates. As rates tighten, some commercial banks will actually begin to do a little bit better on their margins. These have some asset sensitivity that investors would like to be in front of. BB&T is one, for example, that has some asset sensitivity and will tend to have some margin expansion in a recovering economy. And of course in a recovering economy, after a lag, we should see some improving credit quality as well, and that would be good for them all.

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.