BancorpSouth in Tupelo, Miss., could make up for lost time when it comes to bank acquisitions.

The $17 billion-asset bank was forced to delay two deals and sit idle for four years while dealing with a range of regulatory issues. With those matters resolved, CEO Dan Rollins hopes his relationships with other bankers can go beyond conversations and lead to more deals.

Having a clean bill of health should provide more confidence as those talks take place.

“Building relationships is what we do,” Rollins said of his bank’s M&A strategy. “If an opportunity comes up, we want them to think of us.”

Rollins added, “I am now in year six of a two-year plan."

While BancorpSouth was dealing with Bank Secrecy Act compliance issues and a Community Reinvestment Act downgrade, Rollins and his team continued to develop relationships with targets. The strategy paid off; BancorpSouth recently agreed to buy the $815 million-asset Icon Capital in Houston for $146 million.

Rollins, a former chief operating officer at Prosperity Bancshares in Houston, kept in touch with Icon's management team while addressing regulators' concerns. The veteran banker, who has a reputation for expanding through acquisitions, is likely to announce more deals in the not-so-distant future, industry experts said.

As the top lieutenant to Prosperity CEO David Zalman, Rollins was involved in negotiations. His former employer bought nine banks between 2006 and 2012.

"It is a relatively small deal so if they can piece together a few like these then they collectively equal one bigger- sized deal,” said John Rodis, an analyst at FIG Partners. “I think they have some momentum — but they aren’t hitting on all cylinders.”

Those challenges include improving efficiency and increasing profitability.

Rollins spent his first few years cutting costs with voluntary retirement and other initiatives. He also cleaned up old credit problems. Those moves won some confidence from investors, which proved helpful as the company struggled to complete the Ouachita and Central Community deals, said Michael Rose, an analyst at Raymond James.

First-quarter profit at BancorpSouth rose 40% from a year earlier, to $53.5 million, largely reflecting the impact of tax reform and an 18% increase in revenue. The purchases of Ouachita Bancshares in Monroe, La., and Central Community in Temple, Texas, which finally closed in January, and the elimination of BancorpSouth should boost the bottom line even more.

While the efficiency ratio has improved since Rollins became CEO — falling from 79% at the end of 2012 to about 68% on March 31 — it remains well below the 43% ratio Prosperity had when he left that company.

"When he first joined everyone was so excited he would overnight bring BancorpSouth’s efficiency ratio from 80% to 40% just because that’s what Prosperity does," said Catherine Mealor, an analyst at Keefe, Bruyette & Woods. "But that’s a big task and the banks have two different business models.”

BancorpSouth will likely try to take advantage of its excess capital and improved stock price to pursue more acquisitions, industry observers said. Doing so should help Rollins get back on track and meet expectations that were set when he joined the bank.

“From a timing perspective, it might have been better if they could have done a deal last year or the year before,” Rose said. “I believe BancorpSouth would've liked to do more deals in Texas when multiples were depressed. Clearly that wasn't an option.”

BancorpSouth "probably missed out on opportunities,” as it tackled regulators' concerns, Rollins admitted, though he noted that the bank was still able to expand in Texas by opening branches.

While acknowledging that there was room for improvement, Rollins said he doesn't necessarily agree with how the regulatory issues at BancorpSouth played out.

“The situation was frustrating,” Rollins said. “It was all of the adjectives you want to use."

Rollins, in particular, questioned why BancorpSouth had to put its deals on ice.

“Does this rise to the level of having to stop the whole train?” he said. Regulators "don’t treat all banks the same. Sometimes you get harsh treatment. We do have better risk management processes today and we have improved along the way.”

Rollins deserves credit for convincing Ouachita and Central Community to stay in the fold as BancorpSouth focused internally, Rodis said. There are instances of acquisitions falling apart after the buyer was tripped up by an enforcement action or some other regulatory delay.

For his part, Rollins pointed to BancorpSouth’s reputation for taking care of employees to keep the deals together. After Hurricane Harvey hit Houston last summer, BancorpSouth diverted a construction crew that had been working for the bank to help five employees affected by the storm. The company did the same thing after Hurricane Katina in 2005.

That reputation, along with an understanding that BancorpSouth has emerged from a regulatory gauntlet, could prove beneficial when Rollins talks to other bankers about selling. Industry observers believe more deals in Texas are a possibility given his ties and contacts in the state.

Deals are possible in Texas, though Rollins said it depends on which banks want to sell.

Texas sellers have been commanding fairly high price tags. Last year, the average bank in the state sold for 205.7% of tangible equity, according to data from S&P Global Market Intelligence. That compared to a national average of 167%.

Rollins said he is also considering other markets where the bank already has branches. The bulk of BancorpSouth 310 branches are in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and Texas, according the Federal Deposit Insurance Corp. It has eight branches in Missouri and one office in Florida.

BancorpSouth could target banks to expand in higher-growth markets or wring out expenses, industry experts said.

“There will be a big focus from potential sellers on how quickly they can close Icon,” Mealor said. “Then you could see M&A pick up for them.”

Rollins also seems intent to become more efficient and strengthen the bank's value. Its stock trades at roughly 220% of tangible book value, or a 9.5% discount to similar-sized institutions in the Southeast and Southwest, Rose said.

“We have a great team of people and we have built a culture that says we take care of customers,” Rollins said. “If we stay focused on customers and the community then everything will fall into place.”

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.