Q2 2017 BancorpSouth Inc Earnings Call

Jul 20, 2017 AM EDT
BXS - BancorpSouth Inc
Q2 2017 BancorpSouth Inc Earnings Call
Jul 20, 2017 / 03:00PM GMT 

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Corporate Participants
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   *  Chris A. Bagley
      BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer
   *  James D. Rollins
      BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank
   *  James Ronald Hodges
      BancorpSouth Bank - Vice Chairman and Chief Lending Officer
   *  John G. Copeland
      BancorpSouth, Inc. - CFO, Senior EVP and Treasurer
   *  Will Fisackerly
      BancorpSouth, Inc. - SVP and Director of Corporate Finance

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Conference Call Participants
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   *  Blair Craig Brantley
      Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst
   *  Catherine Fitzhugh Summerson Mealor
      Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP
   *  Elan Zanger
      Jefferies LLC, Research Division - Equity Associate
   *  Emlen Briggs Harmon
      JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks
   *  Jennifer Haskew Demba
      SunTrust Robinson Humphrey, Inc., Research Division - MD
   *  John Lawrence Rodis
      FIG Partners, LLC, Research Division - SVP and Research Analyst
   *  Jon Glenn Arfstrom
      RBC Capital Markets, LLC, Research Division - Analyst
   *  Matthew Covington Olney
      Stephens Inc., Research Division - MD
   *  Michael Edward Rose
      Raymond James & Associates, Inc., Research Division - MD, Equity Research
   *  Peyton Nicholson Green
      Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

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Presentation
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Operator   [1]
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 Good morning, and welcome to the BancorpSouth Second Quarter 2017 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

 I would now like to turn the conference over to Will Fisackerly, Director of Corporate Finance. Please go ahead, sir.

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 Will Fisackerly,  BancorpSouth, Inc. - SVP and Director of Corporate Finance   [2]
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 Good morning, and thank you for being with us. I will begin by introducing the members of the senior management team participating today. We have Chairman and Chief Executive Officer, Dan Rollins; President and Chief Operating Officer, Chris Bagley; Senior Executive Vice President and Chief Financial Officer, John Copeland; and Senior Executive Vice President and Chief Credit Officer, Ron Hodges.

 Before the discussion begins, I'll remind you of certain forward-looking statements that may be made regarding the company's future results or future financial performance. Actual results could differ materially from those indicated in these forward-looking statements due to a variety of factors and/or risk.

 Information concerning certain of these factors can be found in BancorpSouth 2016 Annual Report on Form 10-K.

 Also during the call, certain non-GAAP financial measures may be discussed regarding the company's performance. If so, you can find the reconciliation of these measures in the company's second quarter 2017 earnings release.

 Our speakers will be referring to prepared slides during the discussion. You can find these slides by going to bancorpsouth.com and clicking on our Investor Relations page, where you'll find them on the link to our webcast or you can view them at the exhibit to the 8-K that we filed earlier this morning.

 And now I'll turn to Dan Rollins for his comments on our financial results.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [3]
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 Thank you, Will. Good morning. Thank you for joining us today for BancorpSouth Second Quarter 2017 Conference Call.

 I will begin by making a few comments regarding the highlights for the second quarter. John will discuss the financial results in more detail. Chris will provide more color on our business development activities, and finally, Ron will discuss highlights regarding credit quality.

 After we conclude our prepared comments, our executive management team will be happy to answer any questions.

 Let's turn to the slide presentation. Slide 2 contains our customary safe harbor statements with respect to certain forward-looking information in the presentation. Slide 3 covers the financial highlights for the quarter.

 We are very proud of the continued fundamental improvement reflected in the item shown on this slide. Quarter after quarter, we continue to report successes in our business development activities combined with stable credit quality and efficiency improvement. We've reached several milestones this quarter in our performance, some of which are high-water marks in our company's history.

 Net income for the quarter was $37.9 million or $0.41 per diluted share. We were particularly pleased with our loan growth during the second quarter as we reported net loan growth of $216.8 million or 8.1% on an annualized basis.

 This represents the first time in our company's history that total loans have surpassed the $11 billion mark.

 As expected, and as we have experienced the past several years, deposit balances declined during the quarter following seasonally elevated first quarter deposit activity. However, and more importantly, total deposits are up over 5% or $574 million from June 30 last year. Chris will provide some highlights on our loan and deposit efforts, including geographical commentary in a moment.

 Our net interest margin increased to 3.52% for the second quarter from 3.46% for the first quarter of this year. We continue to expect upward pressure on our margin as we reach repricing dates on our variable rate loans. The higher margin, along with the loan growth I just discussed, provided for a nice increase in our net interest income. John will provide more color on the components of our net interest margin in a moment.

 Moving on to the remainder of the financial results. We had a negative pretax mortgage servicing valuation adjustment of $1.5 million during the quarter. Our mortgage team produced $386 million in mortgage loans during the quarter and reported $7.6 million in mortgage production revenue.

 Our insurance team had a nice quarter as well, producing revenue of $31.1 million compared to $28.8 million in the second quarter of last year. Despite continued industry headwinds, our insurance team reported growth in property and casualty and life and health commissions during the quarter.

 We reported net operating income, excluding MSR, of $38.8 million or $0.42 per diluted share. This metric excludes the MSR valuation adjustment that I just mentioned.

 There were no material nonoperating items in our second quarter results. John will go over comparisons to prior periods in a moment.

 Our credit quality continues to remain strong, reflected by a modest provision of $1 million for the second quarter. Ron will discuss the considerations impacting our provision as well as other credit quality metrics in a few minutes.

 Our operating efficiency ratio, excluding MSR, was 67.3% for the second quarter, which is the lowest our company has achieved since 2010. We've been able to accomplish steady improvement in this metric through continued revenue growth combined with very stable expense base. We've continued to harvest expense saves in our cost structure to be able to pay for investments in growth opportunities and technology.

 We continue to be active in the market with our -- we continue to be active in the market by repurchasing our stock. We repurchased right at 1.4 million shares during the second quarter at a weighted average price of $29.64 per share. That leaves approximately 3 million shares available under our current share repurchase authorization, which expires at the end of this year. We expect share repurchases to continue to be a part of our capital management plan going forward.

 While it is not shown on this slide, I'm also pleased with the continued patience of our merger partners. Ouachita Bancshares Corporation in Louisiana and Central Community Corporation in Central Texas. While we are all frustrated with the amount of time it has taken to close these transactions, all parties involved continue to believe these mergers are in the best interest of our shareholders, our teammates and the communities we serve.

 We have recently been informed the FDIC has completed their on-site review of our CRA program, and they are now finalizing the exam report. While we do not have any official exam findings to report, we have worked collaboratively with the examiners continuously throughout this process.

 We remain confident our bank is in compliance with the CRA regulations, and we continue to expect the examiners to have a favorable conclusion about our CRA program.

 While there is no official timeline, we are hopeful we will receive the final CRA exam report prior to the end of the third quarter of this year.

 As we have said for some time now, we continue to take steps to be prepared to expeditiously complete our pending mergers. Both transactions remain subject to required regulatory approvals and the satisfaction of other closing conditions.

 Although we can provide no assurances that either merger will close timely or at all, we remain hopeful that these mergers will occur this year.

 I will now turn to the newest member of our executive management team and allow him to discuss our financial results in more detail. John Copeland joined our company in May and has quickly become fully integrated into our day-to-day operations. We are pleased with John's leadership and believe his involvement will help our company as we pursue our strategic goals. John?

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 John G. Copeland,  BancorpSouth, Inc. - CFO, Senior EVP and Treasurer   [4]
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 Thanks, Dan, and good morning.

 If you'll turn to Slide 4 in the slide deck, you'll see our summary income statement. Net income was $37.9 million or $0.41 per diluted share for the second quarter. There were, as Dan said, no material nonoperating items that impacted the results of the 3 quarters presented on the slide. Dan has already mentioned also the noncash negative MSR valuation adjustment of $1.5 million during the quarter.

 We reported net operating income, excluding the MSR valuation adjustment, of $38.8 million for the quarter or $0.42 per diluted share compared to $36.9 million or $0.39 per diluted share for the first quarter of 2017 and $37.2 million, also $0.39 per diluted share for the second quarter of '16.

 Net interest revenue increased 4.6% compared to the second quarter of '16 and 2.5% compared to the first quarter of 2017. The increase compared to the second quarter of 2016 is driven primarily by continued balance sheet growth while the increase compared to the first quarter 2017 is driven by balance sheet growth combined with some margin expansion.

 The net interest margin increased to 3.52% for the second quarter from 3.46% for the first quarter of the year. We still expect some upward pressure on asset yields as our variable rate loans reprice.

 Loan yields for the quarter increased to 4.27% from 4.20% from the first quarter of the year. This increase was the primary driver responsible for the nice pickup in our margin. We continue to expect to see future benefit in loan yields and positive impact on our margin as a result of recent rate increases.

 If you'll turn to Slide 5, you'll see a detail of our noninterest revenue streams. Total noninterest revenue was $68.1 million for the quarter compared to $70.9 million for the first quarter of 2017 and $68.5 million for the second quarter of 2016. We have a more detailed slide dedicated to mortgage and insurance that Chris will discuss in a moment.

 The other line items on the slide as you can see are relatively stable quarter-over-quarter.

 Slide 6 presents a detail of noninterest expense. Total noninterest expense for the second quarter was $127.6 million compared with $127.1 million for the first quarter of 2017 and also $127.6 million for the second quarter of 2016.

 Our expenses continue to remain stable across the board. And as a reminder, as we looked toward the second half of the year, our annual merit pay increases were effective on July 1. So this process will impact salaries and benefits expense for the remainder of the year.

 That concludes our review of the financials. Chris will now provide some color on our business development activities. Chris?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer   [5]
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 Thanks, John, and welcome to the team.

 Slide 7 reflects our funding mix as of June 30 compared to both the first quarter of 2017 and the second quarter of 2016. Total deposits and customer repos declined $81 million compared to March 31, 2017, which is primarily attributable to seasonal trend fluctuations and public funds and outflows to Uncle Sam. This is a recurring theme that we experienced in prior years. However, it is worth noting, and if you view the year-over-year trend, you'll notice that deposits and customer repo balances are up $558 million or 4.7% compared to June 30 of last year.

 As we look at geographical performance relating to deposits, despite the seasonal decline, we had 3 community bank divisions stand out this quarter for deposit growth. Our Central Arkansas, Gulf Coast and Northeast Texas divisions all reported excellent results for this quarter.

 As we look to the second half of the year, our team is focused on continuing to grow core deposits to fund our opportunities on the asset side of the balance sheet.

 Moving on to Slide 8, you'll see our loan portfolio as of June 30 compared to the first quarter of 2017 and the second quarter of 2016. As Dan mentioned, we're very pleased with our loan production efforts during the second quarter. We reported net loan growth for the quarter of $217 million or 8.1% on an annualized basis. Loans are up $443 million or 4.2% compared to June 30 of 2016.

 As we look at our second quarter loan growth from a geographical perspective, it is notable that all 5 of our geographical regions within our banking operation reported net loan growth. Standout divisions for the quarter were our East Central Mississippi, Memphis Metro, Pine Belt and our Northwest Louisiana divisions. Additionally, our LPOs or loan production offices in Houston, Dallas and Austin had nice quarters as well.

 As we look to the remainder of 2017, we continue to be optimistic about our loan opportunities that our stable and diverse footprint provides.

 Moving on to mortgage and insurance. The tables on Slide 9 provide a 5-quarter look at our results for each product offering. Our mortgage banking operation produced origination volume for the quarter totaling $386 million. Home purchase money volume was $307 million or 80% of our total volume for the quarter.

 Deliveries in the quarter were $264 million compared to $260 million in the first quarter of 2017 and $352 million in the second quarter of 2016. Production and servicing revenue, which excludes the MSR adjustment, totaled $7.6 million for the quarter compared to $8.1 million for the first quarter of 2017 and $12 million for the second quarter of 2016.

 Our margin was 2.19% for the quarter, representing an increase of -- from 1.97% for the first quarter of 2017.

 This margin increase is attributable to the increase in our mortgage loan pipeline. Our pipeline was $271 million at June 30 compared to $250 million at March 31, 2017.

 As we've experienced in the past, the mortgage margin is higher than our normal range the increase in pipeline environment.

 Finally, as Dan mentioned earlier, we had a negative MSR valuation of $1.5 million during the second quarter.

 Moving to the insurance. Total commission revenue for the quarter was $31.1 million compared to $32.9 million for the first quarter of 2017 and $28.8 million for the second quarter of 2016.

 For comparative purposes, as we have reported previously, first quarter is seasonally high primarily as a result of the receipt of contingencies. Excluding the contingencies, core property and casualty commissions and life and health commissions are collectively up $2.8 million when comparing the second quarter to the first quarter of this year.

 While we continue to see a relatively soft rate market, our team continues to strive to grow our customer base. These efforts paid off during the quarter as our insurance team made secured several new large customer wins during the quarter, which contributed to this revenue growth.

 Now I will turn it over to Ron for his comments on credit quality.

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 James Ronald Hodges,  BancorpSouth Bank - Vice Chairman and Chief Lending Officer   [6]
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 Thank you, Chris.

 Slide 10 presents some highlights of credit quality for the second quarter. As Dan previously mentioned, we had a provision for credit losses of $1 million for the second quarter compared with a provision of $1 million for the first quarter of 2017, and a provision of $2 million for the second quarter of 2016.

 Our credit quality metrics continue to remain strong across the board. We reported net charge-offs of $4.6 million for the quarter compared with net recoveries of $0.5 million for the first quarter of 2017 and net charge-offs of $1.6 million for the second quarter of 2016.

 The ALLL was 1.10% of net loans and leases as of June 30, 2017. The increase in net charge-offs from the second quarter was a result of charge-offs associated with loans for which a specific reserve was recorded in previous quarters. We charge these loans down as we work towards resolution.

 Both NPLs and NPAs declined meaningfully during the quarter. NPLs decreased $9.9 million to 0.65% of net loans and leases while NPAs decreased $10.6 million to 0.72% of net loans and leases.

 For the second consecutive quarter, NPAs as a percentage of net loans and leases have reached a low-water mark since the credit cycle. These declines were primarily driven by a $10.9 million decline in nonaccrual loans, which was a result of elevated paydowns received on such loans during the quarter.

 Consistent with the commentary we provided for some time now, we expect to continue to see normal fluctuations in these balances in either direction. While it's not shown on this slide, ORE also declined slightly to $7.7 million at June 30, 2017, compared to $8.5 million at March 31, 2017.

 The final bullet on this slide relates to near-term delinquencies, which were essentially flat at $26.4 million at June 30, 2017, compared to $25.8 million at March 31, 2017. This balance continues to remain at a very stable level.

 With that, I will now turn it back to Dan for his concluding remarks.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [7]
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 Thanks, Ron. I don't want to finish this call without recognizing your contribution to our company. Ron announced his planned retirement for October 6 earlier this week. When Ron joined our company in 1973 as a management trainee, our bank reported just under $100 million in total loans. While he will continue to lead our team through the summer and early fall, we are working now to make any transition as smooth as possible. Ron will complete a 44-year career as our Senior Executive Vice President and Chief Credit Officer responsible for over $11 billion in loans. Ron, we all just want to tell you, job well done.

 I know you will all want to join me in thanking Ron for his 44 years of service and congratulating he and Margaret as they move into retirement.

 In conclusion, we are proud of what we have achieved as a company. As we have mentioned throughout this call this morning, our results reflect several milestones, our loan portfolios surpassed the $11 billion mark for the first time in company history while our NPAs as a percentage of loans are at their lowest levels since the credit cycle.

 Additionally, our operating efficiency ratio, excluding MSR, is at its lowest quarterly mark since 2010. These achievements, along with our earnings growth, are the result of our ability to continue to grow our company while improving our cost structure.

 As we look to the second half of 2017, our teammates are excited about continuing to build on this progress and improve shareholder value.

 With that, operator, we'd now be happy to answer any questions.

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) And our first question will come from Jon Arfstrom of RBC Capital Markets.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [2]
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 A question on loan yields. You alluded to it a couple of times and also on the release about the loan yields could continue to move up. Just based on the increases we have so far, what's possible in terms of loan yields?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [3]
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 Yes, I don't know, Jon, if we have a number to put out there. But remember, our loan portfolio is really, in my mind, in kind of 3 buckets. We've got a couple of billion dollars that are in floating daily credits. We've got several billion more that are in variable rate credits at less than daily resets. Some of those are weekly, some of those are monthly, some of those are quarterly, some of those are annual or longer. So the rate increases that we've already seen or already experienced are not fully baked in to the loan portfolio that we have today. And so we will continue to see rising -- if nothing else happens, we will continue to see rising rate on our portfolio into the future.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [4]
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 Okay. Maybe a different way to ask it, how long does it take for the -- for one rate increase to be fully reflected in the loan yields?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [5]
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 Fully reflected is the hard part of that question. We have lots of loans that have a period of time out there on a fixed rate component, whether that's 1 year, 2 years, 3 years, 4 years. So to reach the full potential of every loan on the books today, you've got years out there of a rising rate environment.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [6]
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 Okay. But you're just saying -- I guess, the message you're sending to us is that you're not seeing any real pressure on deposits and you expect the loan yields to continue to move up for at least the next few quarters.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [7]
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 Yes, I think -- yes, I mean, John and Ron can jump in here, but I think where we are today, all things else being equal, we're going to continue to see a climbing rate on our loan book just because there's already 3 rate hikes built in that we have not fully recognized within that loan portfolio. On the deposit side of the aisle, clearly, as deposits pricing moves in the competitive market, we're going to have to respond to that. But today, we're -- our deposit pricing has held really firm, and we're pleased with that.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [8]
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 Okay. So nothing so far.

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Operator   [9]
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 And the next question will come from Emlen Harmon of JMP Securities.

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 Emlen Briggs Harmon,  JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks   [10]
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 A nice result in the C&I book this quarter after a few stagnant quarters, it sounds like loan growth was fairly broad geographically. I mean, anything notable that changed the path of C&I growth in terms of kind of either macro effects or particular products?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [11]
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 We don't have any particular products that are out there. Ron is shaking his head. You want to jump in there, Ron?

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 James Ronald Hodges,  BancorpSouth Bank - Vice Chairman and Chief Lending Officer   [12]
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 There wasn't anything particular or specific on that is just -- I think as we all know, C&I loans take a good while to book. And then sometimes it takes a little while for them to get comfortable and start drawing on their lines or just drawing on their normal lines.

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 Emlen Briggs Harmon,  JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks   [13]
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 And what would -- kind of how has the utilization rate trended the last few quarters?

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 James Ronald Hodges,  BancorpSouth Bank - Vice Chairman and Chief Lending Officer   [14]
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 I think we're running about 48% to 50% of our line -- line utilization.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [15]
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 Which is consistent.

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 James Ronald Hodges,  BancorpSouth Bank - Vice Chairman and Chief Lending Officer   [16]
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 It's been consistent over a number of quarters.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [17]
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 Yes, not a whole lot of change on that front. Remember, we're in multiple states, multiple geographies, mostly smaller communities, the average loan size is relatively small. I think what you're seeing is just normal activity within our footprint, and it's hard to kind of go pick and choose where it's going to come or go from. We're seeing what I would consider to be a normal economic environment.

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 Emlen Briggs Harmon,  JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks   [18]
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 Got it. Okay. And then a couple of quarters now, you talked about the NPAs kind of being at a bit -- maybe a run-rate basis. Could you -- can you remind us how you think about where the loan loss reserves should reside on a longer-term basis and maybe where we see that -- directionally, where you see that headed?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [19]
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 Well, as a percent of loans, that number has been coming down now for some time. And remember, this is -- we don't have a level that we expect it to be at on a long-term basis. We've got to model that is looking at the past performance in our portfolio, and we're all -- all institutions are working towards changing in that process as we work towards implementing CECL several years out from now. I think we continue to believe our model is strong and we continue to believe that the model that we're using to measure our loan loss reserve is adequate, and it has continued to allow us to, as a percent of total loans, move that number down, which is reflective upon the quality of the portfolio that's there. The net charge-offs that you saw this quarter, I don't remember exactly, but it's 4 -- over $4 million of the total charge-offs were really one relationship that was fully reserved for several quarters ago or many quarters ago that we charged that off. And that -- that's a part of what you saw in the charge-off number.

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Operator   [20]
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 The next question comes from Michael Rose of Raymond James.

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 Michael Edward Rose,  Raymond James & Associates, Inc., Research Division - MD, Equity Research   [21]
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 Hey, I just wanted to get some color and context on the insurance business. Results were a little bit better than I was anticipating. A large bank this morning talked about some positive momentum on the pricing front and on the growth front. And just wanted to get your sense and your thoughts as to how to think about the trajectory from here and what you're seeing in your business.

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer   [22]
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 Positive is probably too strong a word on the pricing side. It feels sort of flourish, I guess. I think what you're seeing for us is continuing to call on customers, develop new business. And remember, we had some acquisitions that are in those numbers, too, that it's probably added to the revenue side of the picture.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [23]
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 Yes, I think new customer generation was a plus in the quarter. So while pricing on the existing book is still relatively weak, I think our team is doing a good job of retaining their existing customer base, and we were able to pick up new customers.

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 Michael Edward Rose,  Raymond James & Associates, Inc., Research Division - MD, Equity Research   [24]
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 So is that a trend in terms of customer acquisition that you would expect to continue as you kind of rollout the full suite of services across your footprint?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [25]
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 I think we have that suite of services out there today. Expect is a strong word. I'd like to expect it to continue. But customer acquisition is one customer at a time, that's hand-to-hand combat across the 8 states that we serve. Our team is actively engaged in looking for new customers every day. They did a great job in the last quarter, and we saw the results of that. To say that we expect that to move forward, well, that's a little strong, but we certainly would like to see that.

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Operator   [26]
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 And the next question will come from Peyton Green of Piper Jaffray.

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 Peyton Nicholson Green,  Piper Jaffray Companies, Research Division - MD and Senior Research Analyst   [27]
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 Dan, I was wondering maybe if you could give some brackets around the part of the deposit base that's subject to administered rates that you all said versus maybe indexed rates that'll change given the movement of Fed funds in March or June.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [28]
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 I don't think any of that is disclosed in anything that we've got out there, and I don't have a number in my head. But we are core funded. The large majority of our deposit rates are set by our management team through our normal ALCO process. We certainly have some funding that is tied to some kind of an index, but it's going to be a relatively small part of the total deposit funding for our company.

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 Peyton Nicholson Green,  Piper Jaffray Companies, Research Division - MD and Senior Research Analyst   [29]
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 Okay. And then just as a follow-up maybe. I think John mentioned in his comments that you all would expect the margin to continue to improve in the third quarter given the June and the March move, is that fair?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [30]
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 Yes, I think we've continued to say that we believe we've got an upward bias on our margin, all thing else being equal. We know that we have not fully recognized the rate increases in our loan portfolio. We know that we've got a bond portfolio that's running off at a 1% yield, so you're picking up anything that we're putting back into the bond portfolio. So we've got a pick up in rates on the bond portfolio, we've got a pick up -- a built in pick up rates in the loan portfolio. The wild card is what you asked about on the deposit side is if we can continue to hold deposit funding stable or lower, then we've got an upward bias on our margin. John, you want to add anything to that?

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 John G. Copeland,  BancorpSouth, Inc. - CFO, Senior EVP and Treasurer   [31]
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 No, we're looking forward for that to happen and looking at in ALCO every month, looking at the variable pricing -- variable loan pricing and floating loan pricing -- repricing. So we still expect to see some of that. I don't have a number.

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 Peyton Nicholson Green,  Piper Jaffray Companies, Research Division - MD and Senior Research Analyst   [32]
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 Okay. And then maybe out of the $2.5 billion average securities that were on the balance sheet in the quarter, the yield on that was about 1.82%. How much is the cash flow over the next quarter or year? And what's the rolloff relative to what you're willing to reinvest in?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [33]
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 Yes, that's in the Qs, and we're basically on a 3-year duration, so you can run the math on the 3-year side there. And I think what's rolling off in the rest of this year that was in the Q is still closer to 1. Is that not correct? We can pull that up in the Q and you can look at it, but that's what I recall.

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 Peyton Nicholson Green,  Piper Jaffray Companies, Research Division - MD and Senior Research Analyst   [34]
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 Okay. No, just the yields were down year-over-year, and I was just a little surprised by that, that's all.

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Operator   [35]
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 The next question comes from Matt Olney of Stephens.

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 Matthew Covington Olney,  Stephens Inc., Research Division - MD   [36]
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 I want to go back to the insurance discussion, and I believe you mentioned that M&A was partially the reason for the good numbers in 2Q. Just remind me of what was acquired and when was it, and what was the revenue impact on the acquisition?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [37]
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 Yes, the last acquisition was in the fourth quarter of last year. It was an agency that generates a little over $3 million a year in total revenue to us. So that would not have been in 2Q last year and it is in 2Q this year. So that's a piece of that. I think they had some -- I think that particular agency actually had some of their revenue weighted into the second quarter more so than the first quarter. But that's just a part of the increase when you look at the total.

------------------------------
 Matthew Covington Olney,  Stephens Inc., Research Division - MD   [38]
------------------------------
 Sure. No, understood. And was that acquisition, was it all P&C, Dan, or was it kind of mix?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [39]
------------------------------
 Chris, you may have to jump in and help. Certainly predominantly P&C, I don't think they had any employee benefits down there.

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer   [40]
------------------------------
 No, I think it's mostly P&C or all P&C in that one.

------------------------------
 Matthew Covington Olney,  Stephens Inc., Research Division - MD   [41]
------------------------------
 Got it, okay. And then shifting gears, Dan, I understand the comments on the ongoing exam that's wrapped up, waiting to hear the results. Once you receive back the results officially and should you get positive results, how do we think about how quickly you can refile these applications and what's the turn time to get these refiled? And I'm trying to figure out how we should thinking about the closing time of those 2 pending acquisitions once they refiled.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [42]
------------------------------
 Yes, that's -- those are all great questions. I think where we are today, we continue to believe that we're doing the right thing and we're trying to decide when is the appropriate time to file those applications. When we get an application on file, you really don't know the timing to respond to that. So my guess is typically, the shortest that you see any approval on any application is 75 to 90 days, and they can certainly take longer than that depending upon what comments come your way. We'd like to get our applications on file as soon as we can, and we're hoping to be able to do that.

------------------------------
Operator   [43]
------------------------------
 The next question comes from Catherine Mealor of KBW.

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 Catherine Fitzhugh Summerson Mealor,  Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP   [44]
------------------------------
 One more back to the margin, not to beat the dead horse. But clearly see the upside in the margin as loan pricing continues to increase. How do we think about the impact that the flatter curve is also having? And how much of a offsetting impact you think you're having? If this curve was steeper, how much additional upside you would have in incremental margin and then forward rate in the buyer?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [45]
------------------------------
 Catherine, how are you? You ask hard questions. I don't know how to respond on the difference in what we could see with hypothetical different curve out there. Certainly, it would be better for us and my guess is everybody else out there if we had a more normal, steeper yield curve. But I think we've got -- because of the way we're structured today, because of the way our balance sheet is structured, because of the way our loan portfolio sits, we're going to see a rising yield coming off of our loan portfolio for multiple quarters into the future. And I think in the disclosures that we put into the Qs, there are some detail in there around that. I don't know how to answer the question on what it could be with a higher or steeper yield curve. Again, John, you want to try that question?

------------------------------
 John G. Copeland,  BancorpSouth, Inc. - CFO, Senior EVP and Treasurer   [46]
------------------------------
 No, that's a tough question. Catherine is good at asking tough questions. I don't have any numbers on that. But we do, as I mentioned before, we do look at the proportion of variable rate and floating rate loans in the portfolio. We do talk about that during ALCO, and we see nothing that makes us believe that we're not going to continue to see some positive benefit from that. But I don't have any kind of numbers on that right now. You can look at the Q and see some of the repricing aspects on the portfolio.

------------------------------
 Catherine Fitzhugh Summerson Mealor,  Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP   [47]
------------------------------
 Got it. And maybe a step back on the M&A side or I guess, it's more on the capital side. You had a higher share repurchase activity this quarter. Is it fair to say that as we get these 2 deals closed, let's just call it year-end that, that share repurchase activity will slow down a little bit, and that's just kind of filler capital management until we get to that point? Or do you expect to continue to buy back shares regardless over the next couple of quarters?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [48]
------------------------------
 Yes. Again, I don't know that we have a specific target on what we want to do in this quarter or next quarter. But certainly, we're pleased that we've been able to purchase almost 4 million shares that we picked up through this cycle. I think we will continue to be able to buy shares. So when you look at the -- again, it comes back to your balance sheet and capital management, as you said. When you look at our structure today, our balance sheet is growing at a slower pace than our capital is growing. And so in this quarter, we basically paid out about one quarter's worth of earnings, a little over one quarter's earnings in the process. So that basically holds our capital ratios in line with where they were coming into the quarter. Clearly, the 2 transactions that are still pending and we hope to be able to close are diluted to our capital numbers, something in the 80, 90 basis point range, we think. So we've got to keep that in mind, but I think we've got the ability to continue to buy stock.

------------------------------
Operator   [49]
------------------------------
 And the next question comes from Casey Haire of Jefferies.

------------------------------
 Elan Zanger,  Jefferies LLC, Research Division - Equity Associate   [50]
------------------------------
 This is Elan Zanger on for Casey. Just one for me on mortgage banking. Could you maybe speak to what you think gain on sale margin might look like in the back half of the year? I think it typically falls off, but maybe if you just could speak to the magnitude.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [51]
------------------------------
 Yes. Chris, you may jump in here with me. So when we look at our presentation, you see the margin move around from quarter-to-quarter. What you're seeing is that's dependent upon the move or the change in size in the pipeline. And so the reason you've seen the margin drop off in the fourth quarter has been because the pipeline has shrunk. So when the pipeline is growing, we've been able to report a higher margin. When the pipeline is shrinking, we've reported lower margin, and we look at the margin on a full year run rate. And we continue to think we're in the 1.6%, 1.7% year-over-year margin. I don't think we see any changes in that process at this point.

------------------------------
 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer   [52]
------------------------------
 No, I think the best way to look at it is an average. So not to get caught up in any one quarter's move based on the pipeline moving, if that makes sense.

------------------------------
 Elan Zanger,  Jefferies LLC, Research Division - Equity Associate   [53]
------------------------------
 Okay. So it's safe to say without a lot of refi volatility, we should see margin hold a little bit closer. I think last year, you saw it even go below 1% at one point. So...

------------------------------
 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer   [54]
------------------------------
 Yes, I don't think it's necessarily tied to this refi volatility. It's just production volumes and the timing of the way the accounting works.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [55]
------------------------------
 I don't think the margin has anything to do with refi. And I think we were below 1% in the fourth quarter of '15. So I think what you saw last year is historically consistent with what we've seen and that is 100% dependent upon the shrinking in the pipeline. So when you look at the mortgage pipeline from 3Q to 4Q, it went from $340 million to $256 million last year. That decline in the third quarter to fourth quarter caused the margin to shrink. You've seen the margin now move up a little bit, which allows us to move the margin a little higher because we're recognizing that revenue when the loans are put into the pipeline.

------------------------------
Operator   [56]
------------------------------
 And next, we have a question from John Rodis of FIG Partners.

------------------------------
 John Lawrence Rodis,  FIG Partners, LLC, Research Division - SVP and Research Analyst   [57]
------------------------------
 Just one sort of -- a few of my questions were asked and answered. But in fee income, I guess, other miscellaneous was up a little bit this quarter. Anything sort of unusual in there?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [58]
------------------------------
 That's a hodgepodge of lots of stuff that drops into that bucket. I think if you look back at 2Q last year, we were -- that was probably the high-water mark on the other bucket last year also, so -- and we were a little bit higher this year than last year. But there's just a lot of stuff that gets dropped into there.

------------------------------
 John Lawrence Rodis,  FIG Partners, LLC, Research Division - SVP and Research Analyst   [59]
------------------------------
 Okay. Fair enough. And then just maybe one follow-up on the tax rate. It was running, looks like, 33.% to first -- this quarter and last quarter, is that sort of a good number going forward?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [60]
------------------------------
 John, you want to -- can you answer that question?

------------------------------
 John G. Copeland,  BancorpSouth, Inc. - CFO, Senior EVP and Treasurer   [61]
------------------------------
 Yes, I wouldn't expect a big change in that number.

------------------------------
 John Lawrence Rodis,  FIG Partners, LLC, Research Division - SVP and Research Analyst   [62]
------------------------------
 Good. Great. So around the current level.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [63]
------------------------------
 Unless you can get some activity going in Washington for us.

------------------------------
Operator   [64]
------------------------------
 We have a question from Jennifer Demba of SunTrust.

------------------------------
 Jennifer Haskew Demba,  SunTrust Robinson Humphrey, Inc., Research Division - MD   [65]
------------------------------
 Just a question on efficiency ratio improvement over time. I know you guys have been working through a lot of different projects over time. But can you kind of just give us an update on things that you've realized recently or you think you're going to realize in terms of absolute cost savings maybe over the next 3 to 6 months?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [66]
------------------------------
 Yes, I don't know that I have a story to tell on items that we could pull out at this point. We continue to manage lots of different moving parts within our expense structure. I think where we're seeing the most benefit is we continue to work with our vendors. And so we continue to either renew or renegotiate or change or challenge some of our bigger vendors to find ways to eliminate costs, and that can range from technology cost to office-supply cost to -- if you can name the vendors out there, we're working those vendors to try and figure ways to be more efficient. Frankly, consolidating vendors. We've got multiple vendors providing the same service to us. If we can consolidate vendors, sometimes we can do better. So all that vendor management process continues to take time to process. At the same time, Jenni, you've heard us talk for some time about the construction work that we've done on our facilities where we've been able to become more efficient from a headcount perspective within our facilities. We continue to do that. Where we've done 20 some odd, we're pushing towards 30 locations where we've been able to improve the efficiencies on our teller line. So all of those things just continue to flow through and we're not to the finish line on these items, so we continue to expect to be able to see that. But the other side of that story is this, we continue to invest. We've been investing in technology and we've been investing in producers. And so that's been allowing us to harvest those cost saves and hold expenses flat while we continue to invest in other areas.

------------------------------
Operator   [67]
------------------------------
 And the next question comes from Blair Brantley of Brean Capital.

------------------------------
 Blair Craig Brantley,  Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst   [68]
------------------------------
 And just a quick question. I know you mentioned the increase in rates is kind of being felt through the loan portfolio and yields over time. But can you speak to what you're seeing just in terms of new pricing competition? And is that impacting those loan yields increasing or is it partial offset kind of -- what are your thoughts there?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [69]
------------------------------
 Ron and Chris can jump in here with this. I -- my answer on competition is we see it all the time. Competition is normal. Some markets we're in, we see folks out there that do things that we're just not willing to play in, and so we have lost some opportunities on some loans because we've been unwilling to play at those rates. And in other markets, where we sometimes are able to get significantly better rates. But I don't know that I would feel like competition is affecting us. Ron?

------------------------------
 James Ronald Hodges,  BancorpSouth Bank - Vice Chairman and Chief Lending Officer   [70]
------------------------------
 Not really. I mean, it's certainly not getting any easier out there to attract loans. I mean, we're like everybody else trying to make as many as we can, but it's -- the rates aren't getting any easier.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [71]
------------------------------
 Chris?

------------------------------
 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO and Treasurer   [72]
------------------------------
 I'd say there's some upward pressure on pricing opportunities and competition. But it's still very competitive out there. Maybe the pricing has not gone up as much as I thought it would with the rate raises we've had.

------------------------------
 Blair Craig Brantley,  Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst   [73]
------------------------------
 Okay, great. And then I just want to ask about the loan growth on the mortgage side this quarter. What kind of products were put on?

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [74]
------------------------------
 Yes. You're talking about in the portfolio?

------------------------------
 Blair Craig Brantley,  Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst   [75]
------------------------------
 Yes.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [76]
------------------------------
 Yes, so we're offering standard set of mortgage products that are out there across our footprint. We do not hold anything in our portfolio that's longer than a 5-1 ARM. So what you're seeing -- and we can produce 5-1 ARMs in the banks or in the retail bank channel and we produce those same 5-1 ARM product in our mortgage channel. So if you hit us in the mortgage channel and you're at a 5-1 ARM, that's a product that's going to come on to our balance sheet. If you hit us with a 15-year or 30-year fixed-rate product, we're going to service that, but we're going to sell the loan, and you'll see that. If you come into the bank and you're looking for a mortgage and you want a longer-term fixed rate, we're going to refer that over to the mortgage team. If you come into the bank and you want some type of an ARM, then we can handle that for you right there and take care of your business.

------------------------------
Operator   [77]
------------------------------
 And this concludes our question-and-answer session. I would like to turn the conference back over to Dan Rollins for any closing remarks.

------------------------------
 James D. Rollins,  BancorpSouth, Inc. - Chairman, CEO, Chairman of BancorpSouth Bank and CEO of BancorpSouth Bank   [78]
------------------------------
 Thank you all for joining us today. If you need any additional information or have further questions, please do not hesitate to contact us. Otherwise, we look forward to speaking to you all again soon.

------------------------------
Operator   [79]
------------------------------
 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.




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