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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: Which markets will be most attractive in the South and the Southeast as 2002 progresses?

Mr. Townsend: I think that Georgia and the entire Atlantic Coast corridor will be an area that rebounds quickly. Probably the Gulf Coast will lag a bit behind, particularly those areas that have benefited recently from a strong petroleum economy. So I’m expecting some greater weakness out of Louisiana, and would count Texas as part of that economy too. We’re likely to see weakness coming out of those areas that have had particularly good business development and business success in the petroleum service sector.

TWST: What are the issues that you watch most carefully as you determine which banks make your recommended list?

Mr. Townsend: I divide my list into three subgroups. The first subgroup includes companies that appear to have the best valuations. These may have some credit or other problems but are improving or seem to have a good, strong corral around their credit problems, for example, and are working in the right direction. Two companies that come to mind in that regard would be AmSouth (NYSE:ASO) and Hibernia (NYSE:HIB), both companies that had shared national credit problems and are now working their way back to sound credit health. And their credit metrics have improved to more middle of the pack, but from a valuation standpoint remain relatively inexpensive.

TWST: What are they trading at today?

Mr. Townsend: We have a buy recommendation on Hibernia, which trades at 1.9 times its 3Q01 tangible book value of $8.22. AmSouth is a bit more expensive. We have an accumulate recommendation on that name. Amsouth trades today at $15.44, 10.5 times my 2002 estimate of $1.47 and 2.4 times tangible book value.

TWST: What have AmSouth and Hibernia done to improve their credit quality?

Mr. Townsend: In both cases they have refocused on their market footprint. Both had purchased shared national credits, loans originated by other lenders, mostly back in 1997 through 1999. Credit quality was much poorer than expected. Shared credits became a regulatory focus, too, and the source of many charge-offs, particularly in 2000.

TWST What is included in that?

Mr. Townsend: Shared national credits are loans of a size larger than a bank individually would be comfortable holding. These credits are sold in pieces to other institutions, with the originator saying, “We’ve got a credit. We believe it to be good. This is how we have underwritten it. Wouldn’t you like to buy a piece of it?” For a fee, the originating bank services the loan for the participants, but the purchased portion of the higher yielding loan goes on the books of the buyer. And the higher yield was attractive relative to alternative investments, typically US Treasuries or agencies.

TWST: Are AmSouth and Hibernia stocks that value investors should be looking at today?

Mr. Townsend: Yes. AmSouth has come back to levels that are beginning to approach the peer group, so from a value standpoint it’s not quite as attractive as a few months ago.

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.