Q3 2017 BancorpSouth Inc Earnings Call

Oct 19, 2017 AM EDT
BXS - BancorpSouth Inc
Q3 2017 BancorpSouth Inc Earnings Call
Oct 19, 2017 / 03:00PM GMT 

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Corporate Participants
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   *  Chris A. Bagley
      BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer
   *  James D. Rollins
      BancorpSouth, Inc. - Chairman & CEO
   *  John G. Copeland
      BancorpSouth, Inc. - CFO, Senior Executive VP & 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
   *  David P. Feaster, Jr.,
   *  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 - Senior VP & Research Analyst
   *  Jon Glenn Arfstrom
      RBC Capital Markets, LLC, Research Division - Analyst
   *  Matthew Covington Olney
      Stephens Inc., Research Division - MD

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

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

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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; and Senior Executive Vice President and Chief Financial Officer, John Copeland.

 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 risks. Information concerning certain of these factors can be found in BancorpSouth's 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 to these measures in the company's third 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   [3]
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 Thank you, Will. Good morning. Thank you for joining us today for BancorpSouth's Third Quarter 2017 Conference Call. I will begin by pointing out a few of the highlights from our third quarter, John will discuss the financial results and Chris will provide more color on our business development activities. After we conclude our prepared comments, our executive management team will be happy to answer questions.

 Let's turn to the slide presentation. Slide 2 contains our customary safe harbor statement with respect to certain forward-looking information and the presentation.

 Slide 3 covers the financial highlights for the quarter.

 Before we get into the details, I would like to take a few -- make a few comments about the recent CRA exam results. Our management team has consistently communicated our belief we are meeting or exceeding all regulatory requirements and expectations as it relates to serving the communities in which we operate.

 As we announced in an 8-K filing last week, our primary regulators have issued our 2017 CRA performance evaluation with a rating of satisfactory. We are thankful for their commitment to carefully consider all information that our team worked tirelessly to provide.

 This positive resolution was a necessary step toward the closing of our 2 pending transactions, Ouachita Bancshares Corp. and Central Community Corporation. The necessary regulatory applications were refiled for these transactions in mid-August. While we are waiting for the required regulatory approval, our integration teams are working daily toward the goal of closing these transactions on January 1, 2018. However, we're unable to provide any assurances that these transactions will close timely or at all.

 As we look at our results for the quarter and as I've said for some time now, our story seems routine quarter after quarter. However, when this repetition reflects consistent improvement, quality earnings growth along with balance sheet and asset quality strengths, this is certainly a positive outcome for our company.

 Net income for the quarter was $39.5 million or $0.43 per diluted share. There was no material MSR market value adjustment necessary during the quarter. Also, there were no significant nonoperating items in our third quarter results. Accordingly, net operating income, excluding MSR, was $39.6 million, which is also $0.43 per diluted share. Quarter after quarter, we've reached various milestones and records. This quarter, our earnings represent the highest level of net operating income excluding MSR in our company's history.

 Our net interest margin increased to 3.58% for the third quarter from 3.52% for the second quarter of this year. We continue to benefit from loan yield pickup as our variable rate loans repriced combined with our stable core deposit base. John will provide more color on the components of our net interest margin in a moment.

 Our credit quality continues to remain strong, reflected by a modest provision of $500,000 for the third quarter. Despite their already low levels, we saw continued improvement in several key credit quality metrics during the quarter. Chris will highlight some of these in a moment.

 Our total noninterest expense for the third quarter declined compared to both the second quarter of this year and the third quarter of last year. Our results reflect continued disciplined expense control in virtually all line items. John will discuss noninterest expense in more detail in a moment. This decline contributed to a slight decline in our operating efficiency ratio excluding MSR to 67.2%.

 We were active in the market, repurchasing stock during the quarter. We repurchased 700,000 shares during the quarter with a weighted average price of $28.99 per share. That leaves approximately 2.3 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.

 Finally, in July, we announced a corporate reorganization, which will result in the merger of BancorpSouth, Inc. with and into BancorpSouth Bank. In simple terms, this transaction will eliminate our holding company. This decision is reflective of our continued effort to simplify our operating structure and will eliminate duplicative regulatory oversight. The transaction has been approved by our shareholders and is expected to close upon receipt of required regulatory approvals.

 I will now turn to John and allow him to discuss our financial results in more detail.

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 John G. Copeland,  BancorpSouth, Inc. - CFO, Senior Executive VP & Treasurer   [4]
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 Thanks, Dan. If you'll turn to Slide 4, you'll see our summary income statement. Net income was -- Dan said, net income $39.5 million or $0.43 per diluted share for the third quarter. There were no material nonoperating items that impacted the results of the 3 quarters presented on the slide. Additionally, as Dan mentioned, the noncash MSR valuation adjustment was not significant during the quarter.

 Accordingly, we did report net operating income excluding MSR of $39.6 million for the quarter, $0.43 per diluted share compared to $38.8 million or $0.42 per diluted share for the second quarter of '17 and $36.7 million or $0.39 per diluted share for the third quarter of 2016.

 Net interest revenue increased 5.2% compared to the third quarter of 2016 and 2.6% compared to the second quarter of 2017. The [delinked] -quarter increase was driven primarily by continued expansion in our net interest margin while the increase compared to the third quarter of last year was driven by margin expansion and growth in average earning assets.

 The net interest margin increased 3.58% for the third quarter from 3.52% for the second quarter of this year. We've said for several quarters that we expect upward pressure on asset yields as we reach repricing dates on our variable rate loans.

 Our loan yields increased for the quarter 4.3% -- 4.33% from 4.27% for the second quarter of the year. Additionally, as Dan alluded to, the cost of our core deposit base remains very stable. Our total cost to deposits increased only 1 basis point compared to the second quarter to 26 basis points.

 If you'll turn to Slide 5, you'll see detail of our noninterest revenue streams. Total noninterest revenue was $66 million for the quarter compared to $68.1 million for the second quarter of 2017 and $69.7 million for the third 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 this slide are relatively stable quarter-over-quarter.

 Slide 6 presents the detail of noninterest expense. Total noninterest expense for the third quarter was $126.9 million compared with $127.6 million for the second quarter of 2017 and $128.3 million for the third quarter of 2016. As I mentioned earlier, there were no material nonoperating items impacting the quarters presented.

 One item I would like to point out is the salary and employee benefits line item, which essentially stayed flat compared to the second quarter of 2017 despite annual merit increases being effective on July 1. This was primarily the result of a decline in insurance commission revenue quarter-over-quarter, which resulted in a decline in commission compensation in that line item when comparing salary and benefits to the second quarter.

 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 & Treasurer   [5]
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 Thank you, John. Slide 7 is a reflection of our funding mix as of September 30 compared to both second quarter of 2017 and the third quarter of 2016.

 Total deposits and customer repos declined $141 million compared to June 30, 2017, and increased slightly compared to September 30, 2016. We are pleased to see a continued growth in our noninterest-bearing demand deposit accounts. This growth, combined with disciplined pricing on interest-bearing and time deposits, has resulted in a positive shift in our deposit mix.

 As Dan mentioned earlier, we have been able to hold our total cost of deposits in a very tight rank.

 As we look at geographical performance relating to deposits, we had 3 community bank divisions stand out this quarter for deposit growth. Our Memphis metro, West Tennessee and Northeast Texas divisions all reported excellent results this quarter. As we move forward, our team will continue to stay focused on growing core deposits to support our loan production efforts.

 Moving to Slide 8, you'll see our loan portfolio as of September 30 compared to the second quarter of 2017 and the third quarter of 2016. We reported net loan growth for the quarter of $37 million or 1.3% annualized. Loans are up $397 million or 3.7% compared to September 30, 2016.

 We did experience some loan growth headwinds this quarter. First, the hurricanes in the Gulf adversely impacted our Gulf Coast footprint, particularly our newer Texas markets in Houston, which have contributed a meaningful portion of our loan growth over the last several quarters. Additionally, our line utilization was down compared to June 30. While line utilization is still well within historical ranges, the decline provided a headwind to our loan growth efforts for the quarter. With that said, our loan pipeline remains relatively stable. We are optimistic that efforts of our lenders will continue to result in net loan growth as we look forward.

 As we look at our third quarter loan growth from a geographical perspective, we had several divisions produce meaningful loan growth for us. Standout divisions for the quarter were our Dallas, Texas; Northeast Mississippi; Northeast Arkansas and South Louisiana divisions.

 Slide 9 contains credit quality highlights summary. I'd like to touch briefly on a couple of these bullets. Our credit quality metrics remained strong across-the-board. As Dan mentioned, we had a provision for credit losses of $500,000 for the third quarter compared with a provision of $1 million for the second quarter of 2017 and no recorded provision for the third quarter of 2016.

 We saw another meaningful decline in nonperforming assets. Total NPAs declined $8.4 million or 11% compared to June 30. NPAs to net loans and leases have declined to 0.64% or 64 basis points compared to a loan -- compared to a year ago, nonperforming loans have declined from 85 basis points to 59 basis points.

 And ORE is now below $6 million as of September 2017.

 Moving on to mortgage and insurance. The tables on Slide 10 provide a 5-quarter look at our results for each product offering. Our mortgage banking operation produced origination volume for the quarter totaling $342 million. Home purchase money volume was $263 million or 77% of our total volume for the quarter. Deliveries in the quarter were $314 million compared to $264 million in the second quarter of 2017 and $424 million in the third quarter of 2016.

 Production and servicing revenue, which excluded the MSR adjustment, totaled $7 million for the quarter compared to $7.6 million for the second quarter of 2017 and $9.3 million for the third quarter of 2017. Our margin was 1.53% for the quarter, representing a decrease from 2.19% for the second quarter of 2017.

 This margin decrease is attributable to the decline in our mortgage loan pipeline as we move into seasonally slower time of the year. Our pipeline was $233 million at September 30 compared to $271 million at June 30, 2017.

 Finally, as Dan mentioned earlier, the MSR valuation adjustment during the quarter was not significant.

 Moving to insurance. Total commission revenue for the quarter was $28.6 million compared to $31.1 million for the second quarter of 2017 and $28.2 million for the third quarter of 2016. Our insurance team has experienced some key large customer wins, which has allowed us to report year-over-year revenue growth in spite of continued softness in the market.

 A reminder that the insurance business is seasonal for us and our fourth quarter insurance commission revenue has historically declined approximately $3 million from the third quarter. We expect this trend to continue as a result of the seasonality in this book of business.

 Now I'll turn it back over to Dan for his concluding remarks.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [6]
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 Thanks, Chris. We have a lot of momentum right now as a company, and our teammates have a lot to be proud of. The successful completion of our CRA exam is a huge accomplishment for our company. The results of this exam validate the hard work and effort that our front-line teammates have invested daily in serving our communities. Additionally, the receipt of this regulatory exam is another important hurdle we have now cleared as we continue to work diligently to be able to execute our strategic plans.

 Despite the obstacles we've encountered, we've consistently reported improved financial performance quarter after quarter. Our management team is excited about the direction we are headed, and we believe there continues to be a long runway ahead of us for earnings growth and improved performance.

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

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Questions and Answers
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Operator   [1]
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 (Operator Instructions) And the first question comes from Catherine Mealor with KBW.

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 Catherine Fitzhugh Summerson Mealor,  Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP   [2]
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 First, congrats on the CRA rating. That was really exciting to see. Wanted to focus most of my questions first on the fees, looking first at the insurance revenue that came down linked quarter. Can you just give us any kind of commentary on what drove that linked-quarter decline? Was it just softness in the market or anything else we can talk -- you can talk to -- more -- I appreciate the guidance into next quarter. That seasonality was very much seen over the past few years, but as we kind of think about what an organic year-over-year growth rate should look like in the insurance business might be helpful.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [3]
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 Yes, that's a great question. I think part of that is you just don't know what's being sold in what quarter and the lumpiness of you get all of that revenue anytime you sell a policy. We're not big into excuses, so I think the life is third quarter is always similar to what was there in the second quarter. We lost a little momentum. My guess is about 10% or a little more of our volume is driven out of the Houston market and they shut down for basically a month down there trying to take care of the issues around the storm. But again, I think our team's out every day trying to fight for business and win business and we think we're winning more than we're losing. Chris, you have anything to add?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [4]
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 No, that was a good explanation of it. I think we always look at it from a year-over-year perspective because there is seasonality in those quarters and so it's not exactly always perfect timing. We know first quarter's good, but some of that rolls into second and you can't always predict all that. But it is more of a year-over-year comparison the way we're looking at it. But Dan's right, the hurricanes in the Gulf impacted a lot of our business, especially in the Houston market.

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 Catherine Fitzhugh Summerson Mealor,  Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP   [5]
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 Perfect. And then a second -- or a question on the margin. I mean, your margin expansion this quarter was so good. I mean I don't think I've seen a deposit beta as strong as yours so far this quarter. So first, congrats on that. As we think about the margin moving forward, could you argue that some of your ability to maintain deposit cost was that growth was a little slower this quarter and so as we have growth improve over the next couple of quarters into next year that, that may put some incremental pressure on your deposit betas. And so as we see the next couple of rate hikes, maybe we won't see as much of an improvement in your margin? Or am I thinking about it too simplistically?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [6]
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 Yes, I don't know that I can argue with you because I don't have any facts in front of me to tell me that your logic is flawed. But I don't know that the deposit flows that we experienced for the quarters were that rate-dependent. So I think our team is out there every day looking to grow deposits and is asking for deposits. I think we improved our deposit mix for the quarter. We actually grew free money in the quarter, which is some of what you see helping on some of that. I think we can continue to win business. John, you want to add on margin?

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 John G. Copeland,  BancorpSouth, Inc. - CFO, Senior Executive VP & Treasurer   [7]
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 Well just -- yes, Catherine. We've continued to look at the opportunity on the asset side that we have to experience a repricing on our variable rate portfolio and the numbers that we're running project that, given no increases in rates, that we would see some positive repricing on the other side of that equation. So combined with the capability of increasing the yield on repriced variable rate loans versus the improved deposit beta, as you mentioned, we think we'll continue to see some upward movement in that margin for the next foreseeable quarter or two.

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 Catherine Fitzhugh Summerson Mealor,  Keefe, Bruyette, & Woods, Inc., Research Division - MD and SVP   [8]
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 And one final one on the margin. Any -- can you provide us an update on how you believe the margin will be impacted from the 2 pending acquisitions?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [9]
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 I don't know that we've run numbers on margins specifically. You've got all the mark-to-market accounting adjustments that'll flow through there. So obviously, if there's accretion income, that's going to change because we have no accretion income in our margin today.

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [10]
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 And you got that combined with what we've had to put their information into our model to have a good -- good really understanding of it. So I don't know that we have any clarity on that.

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Operator   [11]
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 The next question comes from David Feaster with Raymond James.

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 David P. Feaster, Jr.,,    [12]
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 Congratulations on getting another -- getting a positive result on your CRA exam. I just kind of wanted to follow up on that last question. With the path to the pending deals closing increasingly visible, how do you think about your original expectations for the deals? Has your thoughts on cost savings or loan marks or earnings accretion changed at all? And maybe could you remind us of the pro forma capital levels once they do close?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [13]
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 Yes, we've put out several things along the way. I think from a capital perspective, the transactions are, give or take, 90 basis points dilutive to capital. We've not put out any projections on accretion in dollars or in cents per share, but I don't think we've seen a lot of change. If we've seen any change, it's been an improvement. So it's been a long time since we first announced these transactions and the economy has gotten better every year since then. So what you see is both of the banks are much better banks today, asset quality-wise, than they were when we made the transaction as are we. So their performance and our performance have mirrored each other from an asset quality perspective, so the original loan marks that were out there will not be there. And again, just like us, our total loan-loss reserve is actually lower today than it was 4 years ago, and I think the same thing applies to those 2 organizations. On the cost save front, we clearly expect to be able to build in some operational savings into our integration process. I think some of those savings may already be in place because the 2 banks had been running fairly lean as we've been working through this process because they knew that there were folks in positions that were at risk. As we've put our 2 banks together, those people know what's happening and we know where we are and the timeline working towards that. But I think from the original projections, I think our cost save number will be there. Maybe we just get to the cost saves quicker under the current scenario because it's been so delayed and so long in happening.

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 David P. Feaster, Jr.,,    [14]
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 Okay, that's helpful. You guys have done a great job controlling costs even in the face of, as you pointed out, merit increases kicking in this quarter. Could you just talk about your thoughts on expenses going forward and your ability to further rationalize costs and balancing that out with continued investments in your business? And where else do you need to continue to invest in?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [15]
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 Yes, I think we want to continue to invest in anything that benefits us and helps us be stronger, faster, quicker, more profitable, all the things that you want to invest in that are good for our company. The revenue-producing, the efficiency generating, those are the things we're spending money in today. We've been spending money on technology. We've been spending money on people to produce for us. We've expanded in different places to do that. So I don't see any change there from the investment side. We want to find ways to grow our organization. When we talk about the expenses, I think we continue to challenge the money that we're spending every day. We continue to challenge are we making good decisions, and I think we're seeing quarter after quarter after quarter after quarter of that progress. We've basically held expenses flat for 3 or 4 or 5 years now, and as we look forward into the 2018 budget, we're working on that now and we're looking for ways to continue to make sure we can manage our expenses prudently.

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 David P. Feaster, Jr.,,    [16]
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 Okay. Last one for me. Credit quality has continued to improve and NPAs ticked down again nicely this quarter. Could you just give us your sense -- your thoughts on credit going forward? Maybe where you're comfortable with the reserve going and your thoughts on the provision.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [17]
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 Yes, provision and reserve is all driven off of the model. So it's -- I wish it was as simple as we decided that we wanted to be at X percent and we plug in the number and make it work from there, but that's not the way how it works. So that's not there. But when you talk about credit in particular, I think we're very pleased with where we are. Ron Hodges, as you know, retired from last quarter to this quarter and we've made some changes in how we manage and who's in those chairs. But the credit quality today is very strong. I think Ron has said now for multiple quarters in a row that our credit quality is as good as we've seen as a company in our company's history and we think we're at a level where it would not surprise us to see a bounce up or a bounce down. For the last 2 or 3 quarters, we've actually written down a little bit further each quarter. But again, 1 or 2 loans at these levels can move the numbers pretty significantly for us. Chris, you want to add on that?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [18]
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 Very proud of our credit metrics. They're very good. That's phenomenally low ORE number. We have a great process in place. I'm proud of our team. Dan's right, I think when you've got credit metrics like this, it wouldn't be unusual for them to bounce around a little bit. But I would also say that we're very focused on credit quality and we'll continue to try to manage it as best we can. We believe in good credit quality.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [19]
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 Are you seeing any signs of weakness in any parts of our credit book?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [20]
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 No, no. It's a loan-by-loan issue at this point in time. No geographic, no industry. Obviously, we've experienced some -- or saw some oil and gas-type residual stuff in those markets there, but nothing that we can tie to a large number or a concentration issue.

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Operator   [21]
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 Next question comes from Emlen Harmon with JMP Securities.

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 Emlen Briggs Harmon,  JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks   [22]
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 Dan, if the CEO thing doesn't work out, you may have a career as an analyst. So good job with the redirect on the question there. A quick one for me. Just...

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [23]
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 Or a politician.

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 Emlen Briggs Harmon,  JMP Securities LLC, Research Division - MD and Senior Research Analyst of Regional Banks   [24]
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 Getting back to the insurance business, talk about your expectations for pricing kind of -- do those change at all with some of the natural disasters or events that we've seen this past quarter?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [25]
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 It may be too early to tell. Clearly, as the claims are being paid, the hurricane that hit Florida, the hurricane that hit Texas, the hurricane that came across the Caribbean and hit Puerto Rico, all of those can certainly have an impact, but I think it might be a little too early to tell what the claims numbers are and what carriers are being impacted. Property and casualty on the coastline may certainly see some pricing stability or maybe some pricing move-up, but I really think it's too early for us to tell what the real impact will be.

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Operator   [26]
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 Next question comes from Jennifer Demba with SunTrust.

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 Jennifer Haskew Demba,  SunTrust Robinson Humphrey, Inc., Research Division - MD   [27]
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 Sorry if I may have missed this. Did you make any kind of provision for the hurricane impact? Or was it just a matter of business disruption?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [28]
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 Yes, we did not. The dollar volume, there were no specific dollar provisions on hurricane. The dollar volume for us directly in that path is relatively small. We've talked to our customers down there and I don't see anything that's going to move the needle in any material way. So we did not have any specific numbers attached to any of the hurricanes.

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 Jennifer Haskew Demba,  SunTrust Robinson Humphrey, Inc., Research Division - MD   [29]
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 Okay. Dan, assuming you're able to close the 2 pending deals at the beginning of 2018, at what point do you think you'd be back looking again for more acquisition opportunities?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [30]
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 Well, I think we need to certainly be able to digest what we've got on the table today. But I think part of the M&A market is building relationships and talking to people and understanding the needs of the folks out there that may want to partner with you and we haven't stopped talking to people through the last 4 years. We may not have been able to do anything, but we certainly have continued to try and build relationships and talked to folks and let people understand what we're trying to do and understand what other folks are trying to do. I think there's going to be opportunities out there for us. The when part, unfortunately, I don't think we get to choose that. I think that the folks on the other side choose when. And we've -- because we've been unable to play for the last several years, we probably missed being able to participate in a couple of opportunities that may have been good fits for us. I'm hopeful that we're not going to have to sit on the sidelines and miss opportunities as they present themselves in the future.

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Operator   [31]
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 The next question comes from Jon Arfstrom with RBC.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [32]
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 Just a bigger picture question on the January 1 target for closing. Can you sequence for us what needs to happen in order for the January 1 date to happen?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [33]
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 I think we need regulatory approval. I think we're down to one hit. And so when you look back at what we've been through, we certainly have had a laundry list of hurdles that we've been jumping over the last several years, and the CRA exam completion was a big hurdle for us. Now the applications are in process. We've drawn up a protester, which is not unusual, and so the regulators are working through their normal process at this point and we remain hopeful that we can get resolution to that before the end of the year. If we don't, then we'll stand back and look at it again and wait another month or 2 if we need to. But at this point, I don't know that there's a whole lot more for us to do besides wait and make sure that the regulators have the information that they need from us, and they're telling us they have everything they need from us. So it's just a matter of letting the time go for them to have the proper amount of time for them to process and deal with the issues that regulators have to deal with.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [34]
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 Okay, good. Buyback thoughts, if a deal's potentially close to closing. How do you feel about the buyback?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [35]
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 Yes, I think that the stock buyback, when you're ginning up the earnings numbers that we're ginning up, I think that the stock buybacks continue to be a part of our capital management plan. The current stock buyback expires here at the end of the year. I know our board will be looking at that as we go forward. Capital management is important for us, and we continue to manage at a higher capital level so I think we've got opportunities both on the M&A side and on the buyback side.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [36]
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 Okay. So no reason to pause it for the next few months?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [37]
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 Yes. I don't know that there's a general reason to make any change in our process other than we just keep watching what's happening in the market.

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 Jon Glenn Arfstrom,  RBC Capital Markets, LLC, Research Division - Analyst   [38]
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 Okay, good. And then just one for Chris. You talked about the slowdown in Houston. Two sides of the question. Can you maybe give us an idea of how material the, call it, the Houston pause was in terms of growth? And then what kind of lending opportunities are you seeing now? Has it dramatically improved at this point?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [39]
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 I don't know that I can provide exact numbers or percentages, that's hard. But I can tell you that when there's a hurricane in the Gulf, after working in Houston for 35 years, the title companies shut down, no real estate transactions happen for a long time. Nobody writes insurance, nobody will quote anything. So there's a good probably 60- or 90-day lag there. I think we would expect to see some activity as the -- as it subsides and construction picks back up to repair and replace and -- but it's still probably too soon to see a lot of that. We're not seeing a whole lot of that.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [40]
------------------------------
 I think there's going to be opportunity for us. Anytime you've got a major weather event or any kind of major -- something that happens outside that stops business from taking place, it takes a while to measure some of that. That impacts us in lots of ways. So not only does our loan team down there basically go into pause, our mortgage team, we -- there were mortgage closings that just didn't happen for 3 weeks, so you basically lost 3 weeks out of the quarter where there were no mortgages taking place down there. You lost 3 weeks out of the quarter on the insurance side where there was not a lot of business activity going on. Certainly, the insurance team was very busy working with their claims side. The claims line was ringing off the phone -- ringing off the wall, but the business side, the business growth side of both the mortgage side, the banking side, the entire process that we've got down there took a pause.

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [41]
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 Yes. Like the insurance side, Dan's point is great about our guys have to stop what they're doing and take care of customers. That's when we shine, when we're dealing with claims and customers that were impacted. And that just slows you down on the revenue, but it pays dividends later. It's just hard to say when and how much.

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Operator   [42]
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 The next question comes from Matt Olney with Stephens.

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 Matthew Covington Olney,  Stephens Inc., Research Division - MD   [43]
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 Dan, you'd mentioned that the C&I growth was impacted this quarter from some lower utilization in the lines. Looks like historically that the utilization picks up in the fourth quarter. Could you just remind us what types of businesses typically drive this? And looking forward to the fourth quarter this year, would you anticipate some seasonal benefits? Or could other macro factors maybe slow that down as well?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [44]
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 I wouldn't call it -- Matt, this is Chris. I don't know that I would tie seasonal to it, your latter, more macro. It's what happens in the business cycle, is there a slowdown, are they're collecting receivables, that's really hard to predict. But we do see it. It's just lumpy.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [45]
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 Yes. When you look at what's happening out there, we stay focused day in, day out on taking care of customers. And for whatever reason, customers were bringing money back into us and [line] utilization went down, which gives us a headwind on loan growth. We had the other, the storms we're talking about. When you talk about the storm that hit Texas, that's certainly one, but the other storm that came up in Florida is not technically our footprint, but those storm warnings came all the way over into our area and certainly did cause things to slow down. Then we've had another low-grade hurricane that actually came in the Mississippi Coast. Again, didn't do any real damage, but it all stops business for a week while everybody talks about how to take care of their personal lives. All of that is a damper on business growth along the whole coast throughout the quarter.

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 Matthew Covington Olney,  Stephens Inc., Research Division - MD   [46]
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 Understood. And Dan, on the fee income side, I think you hit on the insurance piece. But on the service charges, looks like those were up sequentially. Any change in pricing there? Or anything to speak of on the service charge line?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [47]
------------------------------
 No. Remember, we changed our service charges effective September 1 last year. So in this quarter, we had -- we have finished running through the full year. So we changed our payment order. We changed our process on deposit service charges September 1 a year ago. So we had 2 quarters to catch up from so on a sequential -- so comparing last year to this year on the same quarter, we were 2 quarters of change, 1 quarter was the same. So I think over that years' time, we've seen volume pick up and now we're -- now we should have a comparable quarter comparison going forward from here.

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Operator   [48]
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 (Operator Instructions) The next question comes from John Rodis with FIG Partners.

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 John Lawrence Rodis,  FIG Partners, LLC, Research Division - Senior VP & Research Analyst   [49]
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 Actually, all my questions were asked and answered, so easy one for you.

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Operator   [50]
------------------------------
 Next question comes from Blair Brantley with Brean Capital.

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 Blair Craig Brantley,  Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst   [51]
------------------------------
 Just a quick question on mortgage and the view on kind of margins going forward. I know they kind of trend with the pipelines, but just some -- commit -- I think in the past you gave kind of some averaged views for the year. Any updates there?

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [52]
------------------------------
 No, I think the numbers are going to be very similar. Again, back to the -- we've had a recurring theme it sounds like in the hurricane. When you look at pipeline, the hurricane was damaging to our pipeline. So when you look at what happened down there, we gin up, I don't know if it's 10% of our business on the coast or not, but we can gin up a piece of our business on the coast. And because of the storms that slows your pipeline down, so not a lot was going on, on the pipeline side. But I think when you look at the numbers, we were 1.50%, Chris?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [53]
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 1.53%.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [54]
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 1.53% in the quarter. I think that's...

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [55]
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 Kind of where we peg the average to be and...

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [56]
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 That's right.

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [57]
------------------------------
 A lot of time that is an accounting timing entry, so I mean, what we said in the past was the best way to look at that is as an average and 1.50% is kind of where we feel like it belongs. So...

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [58]
------------------------------
 That's right. Okay.

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 Blair Craig Brantley,  Brean Capital, LLC, Research Division - SVP and Senior Equity Research Analyst   [59]
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 Nothing from a competition standpoint that's squeezing margins at all?

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [60]
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 No, sir.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [61]
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 I don't think so.

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 Chris A. Bagley,  BancorpSouth, Inc. - President, Interim CFO, COO & Treasurer   [62]
------------------------------
 I don't think so.

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Operator   [63]
------------------------------
 This concludes our question-and-answer session. I would like to turn the conference back over to Dan Rollins for any closing remarks.

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 James D. Rollins,  BancorpSouth, Inc. - Chairman & CEO   [64]
------------------------------
 Thank you for joining us today. If you need any additional information or have further questions, please don't hesitate to reach out to us. Otherwise, we look forward to speaking to you again soon.

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Operator   [65]
------------------------------
 The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.




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