BancorpSouth Aims to Stay Independent as Regs Alter Landscape, CEO says

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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 search for a successor following his planned retirement next April.

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 means more regulation. What's the hardest change for you?

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.

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