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Lawmakers have set $10 billion in assets as a dividing line between small and large banks for regulatory purposes. That's left bankers at Trustmark's Gerard Host and other institutions that are approaching the cutoff with a choice: Deliberately limit their size or pursue acquisitions to solidly cross the threshold.
August 14 -
The insurance unit of BancorpSouth (BXS) has agreed to buy the assets of Securance Group, an insurance agency in Brewton, Ala.
June 25 -
BancorpSouth in Tupelo, Miss., announced Thursday that its longtime leader Aubrey Patterson plans to relinquish his duties as chief executive in 2013.
May 10 -
There are lists you want to be on, say, Santa's for presents. And there are lists you don't, such as the informal one Wall Street puts together of banks that may be compelled to sell under duress.
May 3
Aubrey Patterson is one of the banking industry's longest-serving leaders, having taken over as BancorpSouth's chief executive in 1990 and its chairman a year later.
Under Patterson's watch, the Tupelo, Miss.-based company has grown from a small $1.5 billion in assets, into a large community bank with $13.1 in assets and nearly 300 branches across eight states.
In recent years, BancorpSouth has been working through credit issues, particularly those associated with residential construction, while looking to grow fee revenue in business lines such as insurance brokerage and mortgage banking.
In an interview last Friday, Patterson discussed the highs and lows of his more than four decades at BancorpSouth, what role he expects his company to play as the industry consolidates and the status of the
Excerpts follow.
What has changed the most since you became CEO?
PATTERSON: Without starting to whine, I'd have to say that the regulatory environment has changed dramatically. It's not an overstatement to look back over 22 years and say that the single biggest change has been a more intense regulatory environment.
BancorpSouth has more than $10 billion in assets. That
PATTERSON: We get treated the same way as banks that are a lot larger than we are. Ostensibly, the community banks under a billion have a different landscape, but I think we all know that these trends tend to move downstream, and they already have to some extent. It's going to affect everyone.
It's a constant state of adjustment. Obviously, [hits to] fee revenues are significant because of the Durbin Amendment in terms of absolute dollars. As a practical matter, the change in regulatory expectations with respect to the use of dynamic models, risk management and assessment [was big]. I've come to believe that the safety and soundness regulators have concluded that the CAMELS system didn't work effectively as a protective measure and as an anticipatory tool when we went through [the] crisis. They are focused on using more analytics, more ground-up model building and more-sophisticated institution-wide models than what was previously necessary.
What have been your career highlights?
PATTERSON: One included our development of statewide banking in the mid-1980s [when Patterson was chief operating officer]. Our bank was the first to become a true statewide bank in Mississippi. In the early 1990s we were the first Mississippi bank to become an interstate bank when we moved into Tennessee.
What about low points?
PATTERSON: The economic cycle that we've been going through. BancorpSouth withstood the issues of the real estate market better in the earlier phases. We were affected late in the cycle and we've been working our way through that over the last couple of years, successfully so. In my entire 40-year career at the bank, we've never seen an economic cycle that is this challenging for banks that are primarily real estate lenders. We've never had a cycle that was as difficult to deal with as the one we've just gone through.
What are your thoughts on the 2008 financial crisis?
PATTERSON: I don't know if a lot of us, myself included, understood the magnitude of the problems on Wall Street and how close we were to the edge. It was only when you read the insider accounts of what went on behind the scenes and how much things were tipping on the edge that you realize how dramatically significant it was. We recognized that certainly there was a great challenge to the bank but we had strong credit folks, access to capital and strong liquidity.
We were certainly less impacted than some of the more highly leveraged operations in the money centers. We had issues to deal with, primarily after the subprime crunch and spillover into acquisition-and-development real estate lending, but they weren't issues that overnight were going to topple our company.
What's your biggest lesson learned?
PATTERSON: I don't care if it's the people inside the bank, customers or the regulators, we're in a people business. The most important thing, regardless of where you are in the pecking order, is character. Some pundits say character doesn't count and that it's collateral, cash flow and all those other things. But when you're put to the test, whether by physical disaster, economic downturn, regulatory burden or political pressures, character counts. If I didn't know that 40 years ago, I sure know it now.
How can small banks grow?
PATTERSON: About 40% of our net revenue comes from noninterest sources. Half of that is our insurance brokerage and our mortgage bank. That's how important those things are to us, and why I think they're important for the industry. Diversification of revenue streams is a smart business strategy regardless of what's happening. We're in a national market for money as a commodity. We don't want it to be that way. We want our business with clients to be built on relationships. The industry has really consolidated with power at the top of the heap. Increasingly you will truly see the rules of economics come into play, such that more efficient markets mean thinner margins.
We have to get other sources of revenue to augment narrower margins. We have to continue to diversify our revenue streams, we've got to replace the things that have been taken away from us, such as debit interchange and NSF fees at the level we had previously. We've got to embrace new technologies and use all kinds of ways to interact with our customer more efficiently. That means you have to invest more and have longer planning horizons and spread the cost of investments over a broader base. That means the industry is going to continue to consolidate significantly.
What is BancorpSouth's role in consolidation?
PATTERSON: There's a bit of a respite for the $300 million to $500 million [asset] community banks for a little while. They've been roped off from some of the effects of Dodd-Frank and other things. As the regulatory burden [inevitably] becomes more onerous there's going to be a natural migration to more midsize regional banks with roots in the community banking style, like BancorpSouth.
We'll see healthy community banks affiliating with banks like ours, moreso over the next few years than what we saw during the downturn. We've got to look at the long range future of what to do with the reg burden, a more efficient marketplace for commodity money and the cost of technology. I think banks like ours have an opportunity to be meaningful players in that arena.
Several reports have pegged BancorpSouth
PATTERSON: We have our own view. Our board is involved in a search process for my successor. Obviously [our directors] believe that we have a very bright future for our shareholders. We're always going to try and do our best to maximize shareholder value. The way you do that is to have options. I appreciate the fact that people speculate about us both ways.
How's the search going for a successor?
PATTERSON: We'll have an appropriate announcement at a time that is proper in relation to my anticipated retirement well in advance of that.
Do you have any advice for younger bankers?
PATTERSON: Tighten your seat belts. The fundamentals don't change, but managing all the components of risk and translating that into opportunity means you're going to have to be innovative and technologically savvy. You will ultimately have to bring value to the clients, where they have a reason to choose you over other alternatives, which might not even be a bank in the days ahead. We've got to continue to evolve as an industry.
My advice is to embrace that change and opportunity. We're not in the banking business. We're in the financial services business and it's going to continue to be encroached upon by retailers and technology companies.
The one thing we've always had is the payment system as a unique asset of the banking industry. Increasingly, we don't have a monopoly on the payment system, so we're going to have to be very effective competing with the encroachers.
