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Emphasis seen on diversified financial services

BancorpSouth sees year of growth, profitable operations

TUPELO – While 2003 wasn`t a year for expanded loan demand, BancorpSouth CEO Aubrey Patterson said that the company achieved another year of substantial growth and profitable operations with a 20.9% increase in earnings per diluted share, thanks to a more diversified financial services emphasis.

Speaking at BancorpSouth`s recent annual shareholder meeting, Patterson and president/chief operating officer Jim Kelley stressed that while the company is positioned to take advantage of any economic improvements, it continues to seek ways to maximize customer relationships via comprehensive financial services offerings, particularly to core and small-to-mid-sized business customers. A notable result of this strategy, according to Patterson, was the record 52.3% increase in BancorpSouth`s noninterest revenue last year. For the year, return on average assets was 1.28%, and return on average shareholders’ equity was 15.5%.

Acknowledging the impact of a slow-growth economic climate on traditional activities of deposit taking and lending, Patterson said that the company had planned for the possibility of softer loans and tighter spreads last year by sharpening its focus on noninterest revenue from areas such as insurance, investments and trust.

“The economy is improving, and the result will logically be a return to a more normal lending environment,” Patterson said. “In the meantime, we have used the superb franchise BancorpSouth has developed in its six-state footprint to attract new and different customers.”

By design, Patterson said that 2003 deposit growth was not record setting, with “controlled growth to match loan demand during a slow economy.” However, Patterson noted that BancorpSouth did continue to grow its market share in most areas it serves. He attributed that trend to the company`s emphasis on local decision making.

“While many of our peers have become more centralized in their lending operations, BancorpSouth`s community approach allows us to offer our customers one-on-one personalized service that is more typical of a small community bank,” Patterson said. “At the same time, our size and sophistication allow us to enhance and expand these customer relationships by offering the resources and expertise of a larger regional bank network. As we have grown, our continued ability to empower our bank presidents with decision-making authority has been enabled by a common platform of centralized back-office operating technologies. This platform supports our lines of business as well as bank administration.”

Another key element of BancorpSouth`s philosophy, according to Patterson, has been its emphasis on credit quality. He stressed that the company`s loan portfolio is more diversified than ever in terms of both geography and type of loan.

But perhaps one of the most effective means of countering fluctuating economic conditions has been the company`s emphasis on non-interest revenue.

“With our emphasis on noninterest revenue growth, fee income is now more than 50% of total net interest income, and it is growing rapidly,” Patterson said. Noting its strategic importance, Patterson said that noninterest revenue reduces the impact of adverse interest rate shifts on the company`s financial results while creating stronger customer relationships via comprehensive financial service offerings.

“Our non-interest revenue is currently benefiting from significant increases in insurance commissions. We are now realizing the full value of our two recent agency acquisitions, which took place in the second and third quarters of last year.” In 2004, Patterson said that he anticipates that BancorpSouth will enter the top 20 of banks nationally with expected insurance revenue well above $50 million.

Patterson credited 2003 as a good year for BancorpSouth`s mortgage activities, with $1.2 billion in loans originated by the company`s mortgage loan division. While Patterson expects that mortgage origination volume will slow in 2004 given successive record years in that area, he stated that BancorpSouth will continue to expand its mortgage network.

While branch expansion activities in the banking industry can generate positive and skeptical commentary from some analysts, Patterson noted that BancorpSouth`s efforts are strategic with an emphasis on higher-growth urban areas. BancorpSouth`s 2004 branch expansions will include building-out markets where the company already operates, such as Shreveport, Little Rock and suburban Memphis. Additionally, Patterson said that the company will enter new markets on a de novo basis, like

BancorpSouth`s entry into the Nashville market in 2003.

On the merger front, Patterson said that the company continues to look for accretive strategic acquisition opportunities. However, he emphasized that growth from within is a major priority.

“We never forget that at our core we are a bank, and about 80% of our new business comes from existing clients,” Patterson observed.

North Mississippi-based journalist and consultant Karen Kahler Holliday writes frequently for the Mississippi Business Journal. Send comments about her column to mbj@msbusiness.com.


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