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Alabama deal an important starting point for building assets

BancorpSouth plans to stick with its own corporate goals

In the second quarter, Tupelo-based BancorpSouth Inc. finally achieved a long-sought goal – a foothold in its neighboring Alabama market via a pending merger with Alabama Bancorp Inc., which operates community banks in the metropolitan Birmingham- and Montgomery-area markets.

From an asset-size perspective, BancorpSouth`s proposed presence is hardly a blip on Alabama`s banking radar screen. But psychologically, the acquisition is important because it gives BancorpSouth a starting point from which to build assets in that state. In western Tennessee, for example, BancorpSouth has built its presence to $1 billion in assets and the company recently told Keefe Bruyette & Woods analysts in New York that BancorpSouth expects to have about $500 million in assets in Alabama within the next year.

Additionally, the merger reinforces the company`s strategy of focusing on suburban markets with ample small- and mid-sized businesses from which to develop new revenues.

But as the $4.5-billion-asset BancorpSouth pursues its goal to achieve an asset base target of $8 billion by year-end 2002 via internal growth and acquisitions – it also has a pending deal with Vicksburg-based Merchants Capital Corp. announced in May – the company must keep a sharp focus on the fundamentals of the business.

While BancorpSouth executives told analysts that it would consider buying a bank up to $2.5 billion in assets and that a merger of equals could be possible as well, observers say the company can`t allow itself to become distracted from the business of doing business. BancorpSouth executives agree.

“While size is certainly a barometer in our industry, our company has never been hung up on size for its own sake,” said BancorpSouth CEO Aubrey Burns Patterson in a recent interview. “In today`s acquisition environment, there`s a lot more room to make mistakes. You have to make sure that your decisions aren`t driven by someone else`s agenda, but by a focus on your own corporate goals. Subsequently, we have to continue to exercise discipline in our acquisition choices. We also continue to recognize that from a business development standpoint, there`s still a lot of mining to be done in markets where we already do business.”

Analysts assert that while the bank has been acquisitive, its more recent purchases have been relatively small. If the company is to achieve its growth and revenue objectives, it must pursue internal and external strategies. In today`s merger environment, analysts say it`s easy for companies to become distracted from the basics as banks seek out acquisition candidates and as these candidates become more absorbed and transitioned into a new company if purchased.

“Doing smaller deals – as they have been doing recently – is somewhat of a painstaking way to reach their desired critical mass,” said KBW analyst Joseph Roberto.

While BancorpSouth has been busy with acquisitions, Patterson stressed that the company hasn`t lost sight of the fundamentals of the business.

Patterson said that one of the company`s ongoing strengths has been its ability to comprehend “what it can and cannot do.” However, he acknowledges that the industry needs to change its image from “order-taking bankers.” While the concept of a sales culture has been often frowned upon in the industry, Patterson said that the sale of products and services – when done in a professional and consultative way – is critical in enhancing customer relationships.

Not surprisingly, the company has been working with one of the nation`s premier consulting firms to enhance its efforts in building a sales culture.

Moreover, BancorpSouth continues to make significant investments in technology to better understand and anticipate the needs of its customers.

“The challenge for this company is not simply to take away business from local competitors, but to expand our share of financial wallet with our customers,” Patterson said.

While the bank has been making acquisitions, second-quarter financials appeared to be on track. Net income for the quarter ended June 30, increased 9.3% to $13.39 million in comparison to the second quarter of 1997. On a diluted per share basis, net income for the second quarter was 30


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