ATLANTA - Patrick L. Flinn has had a lot of fun over the past few years taking pokes at his big-bank rivals.

The chairman and CEO of Bank South Corp. instigated playful advertising that mocked competitors like North Carolina-based First Union Corp. and NationsBank Corp. This aggressive marketing, combined with Bank South's own acquisitions, enabled the Atlanta-based company to build its share of deposits in the eight-county Atlanta region from 9.6% in 1991, when Mr. Flinn took command, to over 10.5% today.

The $7.7 billion-asset Bank South still attacks the "megabanks" in its radio commercials. But Mr. Flinn acknowledges that the company is getting less mileage these days from bashing the North Carolina banks, because they are integrating their Atlanta acquisitions to become more like, well, local banks.

Earnings count now, and Mr. Flinn, 53, faces the question of what to do for an encore. With Bank South fully recovered from the credit problems that afflicted it in the early 1990s, it has to pay a full tax rate this year. As a result, it's harder to show quarterly earnings gains.

The problem came into sharp relief in the second quarter, when net income dropped 4%, to $22 million. The main reason: the second-quarter 1994 results included 5 cents a share of tax benefits related to the old loan losses.

Mr. Flinn, in a recent interview, said he intends to clear the "revenue wall" with the aid of loan growth and lower expenses. Bank South's "core" earnings remain strong.

But if Mr. Flinn can't maintain the momentum, there are plenty of potential acquirers waiting in the wings. As the last major independent bank left in Atlanta, Bank South ranks near the top of every analyst's takeover list.

Q.: Does the recent outbreak of merger mania put any more pressure on Bank South to sell out?

FLINN: It doesn't put any more pressure on anybody. Our price is up, too.

Our job is to run the organization effectively. Anybody that says they have a deliberate plan to either avoid a change in ownership or to sell the company is missing a great opportunity. They really ought to manage the company for the benefit of the shareholders.

If there's a change in ownership, that's an issue that has to be dealt with at the time.

Q.: A lot of banks have hit a "revenue wall" this year, with margins contracting and loan-loss provisions inching up again. How can Bank South overcome this hurdle and keep its shareholders happy?

FLINN: Like everybody else, we worry about revenues. I think that's an even more pressing problem for those companies that have squeezed out all the costs they can.

Our forecasts show loan growth in the teens, fee income growth in the teens, all of which is on the revenue side. Then, with an efficiency ratio of 68%, we also have an opportunity to materially reduce costs.

Q.: Is your reengineering program, New Ideas '96, the principal means of achieving those cost savings?

FLINN: It does a little bit of both. It increases revenue and also reduces cost. In our first-quarter press release, we referred to a $17 million after-tax impact from the program, which converts to 17 cents a share.

Q.: What specifically are you doing with the reengineering program?

FLINN: It falls in the category of eliminating those dumb things you get in the habit of doing and not doing some things you're currently doing and doing them better and more effectively.

For example, we've always had a policy of not cashing checks for noncustomers. What we found was we hadn't emphasized that policy, and it was creating a problem for customer service, because we were serving noncustomers and cashing checks not drawn on us. What we've done is reemphasize the conversion of those noncustomers to customers, or they pay for the services rendered.

Either way, we're going to be the beneficiary. If we convert them to customers, we get new revenue. If they don't convert, we have another revenue opportunity in the form of a fee or, in the case of somebody not wanting to use our franchise to cash a check, we don't have the cost involved.

It's little things like that. The money is in the mud, in the details.

Q.: Are any consultants helping you identify these savings?

FLINN: Yeah. We're working with Furash & Co. and International Shared Solutions Inc. They made a joint-venture bid.

ISS is a company that looks at process engineering. We asked for the two of them to work together, because Furash understands strategically where the company is trying to go and we didn't want to have somebody that didn't understand that changing things that we'd have to go back and correct later.

Q.: Have you identified how many layoffs might be associated with the program?

FLINN: We're close to that. But I would suggest that since the implementation of these things takes a sufficient amount of time, you can cover an awful lot of that by attrition. It would not be a significant number. We've done a lot of those kinds of things as we have consolidated branches in acquisitions. We closed 66 branches - free-standing and supermarket - in the last three years.

Q.: Do you intend to continue acquiring community banks in Atlanta?

FLINN: There's still some markets we want to be in. We've basically spent our time filling in markets we need to be in to be a player in Atlanta. We said from Day One that if we couldn't win in Atlanta, we had no chance to win.

We know there are places where we currently have customers and no physical way to serve them. The obvious one that's closest is Cherokee County, one of Atlanta's fastest-growing bedroom communities. We have tens of thousands of people who do business with us that ZIP code out into Cherokee County.

Q.: A lot of people who look at the future of banking say only the largest banks, with the largest technology budgets, can survive and compete against the nonbanks. Do you agree?

FLINN: The big banks haven't proven that bigness is better. You not only have to have big technology budgets, but you also have to have the ability to react to the marketplace quickly. You still have a consumer out there who can move whenever he or she wants to.

I think as the cost of technology becomes less and less, it's a matter of how many pieces of hardware you can buy and how much you can spend for big software systems.

We've decided in this company that we don't have to build it ourselves. We don't care as long as it does what we want it to do. We are big believers that somebody already out there has a mousetrap that will work for us. If we can stick to that, we don't have the heavy development costs that other companies may have.

Q.: Some banks, like Wachovia Corp., believe they need to retain proprietary control over their products by developing them in-house.

FLINN: Sure. But you tell me the difference between their checking account and our checking account. Theirs has the Wachovia name on it and ours says Bank South. Our customer doesn't know who developed it.

You can tweak a product if you have an overriding need to. But the need to develop in-house is becoming less and less important. And if you spend a lot of time doing that, it's conceivable the market has left you by the time you've got your own products developed.

If we can get our systems to do what any large financial institution's do, then fine.

Q.: Bank South has become well known over the last few years for its aggressive marketing directed at out-of-state competitors. Why have you toned that down lately?

FLINN: The opportunity has not been the same. When there was as much change in the marketplace as there was in the 1991-92 time frame, it was very easy to identify opportunities to point out differences between our company and others.

Q.: Some analysts have said the easy things have been done at Bank South. Will it be more difficult from here on out?

FLINN: Well, we covered some of that earlier. We can reduce costs probably more than other companies, and will do so. We still think, with the growth in Atlanta, that if we get our market share and somebody else's, there's room for growth.

We have not done the job we think we're capable of in some areas, particularly small-business lending.

The flat earnings we've experienced have to do with the fact that we're paying a full tax rate and the margin has shrunk because the Fed took the extra margin away. But our pretax increase was pretty substantial. We're on plan or ahead of plan.

Alan Weiner

AS ATLANTA continues to grow, says Bank South chairman and CEO Patrick L. Flinn, "If we get our market share and somebody else's, there's room for growth."

Having recovered from credit problems, the company now has to pay a full tax rate.

Loan growth and cost reduction are seen as ways for it to clear the 'revenue wall.'

Bank South Faces the Earnings Challenge By KENNETH CLINE

ATLANTA - Patrick L. Flinn has had a lot of fun over the past few years taking pokes at his big-bank rivals.

The chairman and CEO of Bank South Corp. instigated playful advertising that mocked North Carolina-based competitors like First Union Corp. and NationsBank Corp. This aggressive marketing, combined with Bank South's own acquisitions, enabled the Atlanta-based company to build its share of deposits in the eight-county Atlanta region from 9.6% in 1991, when Mr. Flinn took command, to over 10.5% today.

The $7.7 billion-asset Bank South still attacks the "megabanks" in its radio commercials. But Mr. Flinn acknowledges that the company is getting less mileage these days from bashing the North Carolina banks, because they are integrating their Atlanta acquisitions to become more like, well, local banks.

Earnings count now, and Mr. Flinn, 53, faces the question of what to do for an encore. With Bank South fully recovered from the credit problems that afflicted it in the early 1990s, it has to pay a full tax rate this year. As a result, it's harder to show quarterly earnings gains.

The problem came into sharp relief in the second quarter, when net income dropped 4%, to $22 million. The main reason: the second-quarter 1994 results included 5 cents a share of tax benefits related to the old loan losses.

Mr. Flinn, in a recent interview, said he intends to clear the "revenue wall" with the aid of loan growth and lower expenses. Bank South's "core" earnings remain strong.

But if Mr. Flinn can't maintain the momentum, there are plenty of potential acquirers waiting in the wings. As the last major independent bank left in Atlanta, Bank South ranks near the top of every analyst's takeover list.

Q.: Does the recent outbreak of merger mania put any more pressure on Bank South to sell out?

FLINN: It doesn't put any more pressure on anybody. Our price is up, too.

Our job is to run the organization effectively. Anybody that says they have a deliberate plan to either avoid a change in ownership or to sell the company is missing a great opportunity. They really ought to manage the company for the benefit of the shareholders.

If there's a change in ownership, that's an issue that has to be dealt with at the time.

Q.: A lot of banks have hit a "revenue wall" this year, with margins contracting and loan-loss provisions inching up again. How can Bank South overcome this hurdle and keep its shareholders happy?

FLINN: Like everybody else, we worry about revenues. I think that's an even more pressing problem for those companies that have squeezed out all the costs they can.

Our forecasts show loan growth in the teens, fee income growth in the teens, all of which is on the revenue side. Then, with an efficiency ratio of 68%, we also have an opportunity to materially reduce costs.

Q.: Is your reengineering program, New Ideas '96, the principal means of achieving those cost savings?

FLINN: It does a little bit of both. It increases revenue and also reduces cost. In our first-quarter press release, we referred to a $17 million after-tax impact from the program, which converts to 17 cents a share.

Q.: What specifically are you doing with the reengineering program?

FLINN: It falls in the category of eliminating those dumb things you get in the habit of doing and not doing some things you're currently doing and doing them better and more effectively.

For example, we've always had a policy of not cashing checks for noncustomers. What we found was we hadn't emphasized that policy, and it was creating a problem for customer service, because we were serving noncustomers and cashing checks not drawn on us. What we've done is reemphasize the conversion of those noncustomers to customers, or they pay for the services rendered.

Either way, we're going to be the beneficiary. If we convert them to customers, we get new revenue. If they don't convert, we have another revenue opportunity in the form of a fee or, in the case of somebody not wanting to use our franchise to cash a check, we don't have the cost involved.

It's little things like that. The money is in the mud, in the details.

Q.: Are any consultants helping you identify these savings?

FLINN: Yeah. We're working with Furash & Co. and International Shared Solutions Inc. They made a joint venture bid.

ISS is a company that looks at process engineering. We asked for the two of them to work together, because Furash understands strategically where the company is trying to go and we didn't want to have somebody that didn't understand that changing things that we'd have to go back and correct later.

Q.: Have you identified how many layoffs might be associated with the program?

FLINN: We're close to that. But I would suggest that since the implementation of these things takes a sufficient amount of time, you can cover an awful lot of that by attrition. It would not be a significant number. We've done a lot of those kinds of things as we have consolidated branches in acquisitions. We closed 66 branches - free-standing and supermarket - in the last three years.

Q.: Do you intend to continue acquiring community banks in Atlanta?

FLINN: There's still some markets we want to be in. We've basically spent our time filling in markets we need to be in to be a player in Atlanta. We said from Day One that if we couldn't win in Atlanta, we had no chance to win.

We know there are places where we currently have customers and no physical way to serve them. The obvious one that's closest is Cherokee County, one of Atlanta's fastest-growing bedroom communities. We have tens of thousands of people who do business with us that ZIP code out into Cherokee County.

Q.: A lot of people who look at the future of banking say only the largest banks, with the largest technology budgets, can survive and compete against the nonbanks. Do you agree?

FLINN: The big banks haven't proven that bigness is better. You not only have to have big technology budgets, but you also have to have the ability to react to the marketplace quickly. You still have a consumer out there who can move whenever he or she wants to.

I think as the cost of technology becomes less and less, it's a matter of how many pieces of hardware you can buy and how much you can spend for big software systems.

We've decided in this company that we don't have to build it ourselves. We don't care as long as it does what we want it to do. We are big believers that somebody already out there has a mousetrap that will work for us. If we can stick to that, we don't have the heavy development costs that other companies may have.

Q.: Some banks, like Wachovia Corp., believe they need to retain proprietary control over their products by developing them in-house.

FLINN: Sure. But you tell me the difference between their checking account and our checking account. Theirs has the Wachovia name on it and ours says Bank South. Our customer doesn't know who developed it.

You can tweak a product if you have an overriding need to. But the need to develop in-house is becoming less and less important. And if you spend a lot of time doing that, it's conceivable the market has left you by the time you've got your own products developed.

If we can get our systems to do what any large financial institution's do, then fine.

Q.: Bank South has become well known over the last few years for its aggressive marketing directed at out-of-state competitors. Why have you toned that down lately?

FLINN: The opportunity has not been the same. When there was as much change in the marketplace as there was in the 1991-92 time frame, it was very easy to identify opportunities to point out differences between our company and others.

Q.: Some analysts have said the easy things have been done at Bank South. Will it be more difficult from here on out?

FLINN: Well, we covered some of that earlier. We can reduce costs probably more than other companies, and will do so. We still think, with the growth in Atlanta, if we get our market share and somebody else's, there's room for growth.

We have not done the job we think we're capable of in some areas, particularly small-business lending.

The flat earnings we've experienced have to do with the fact that we're paying a full tax rate and the margin has shrunk because the Fed took the extra margin away. But our pretax increase was pretty substantial. We're on plan or ahead of plan.

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