Will Fisackerly – Senior Vice President Director of Corporate Finance James D. Rollins, III – Chairman of the Board & Chief Executive Officer Chris A. Bagley – President & Chief Operating Officer William L. Prater – Chief Financial Officer & Treasurer James Ronald Hodges – Executive Vice President W.

James Threadgill – Executive Vice President Gordon Ray Lewis – Executive Vice President.

Jon Arfstrom – RBC Capital Markets Jennifer Demba – SunTrust Robinson Humphrey Emlen Harmon – Jefferies & Company Catherine Mealor – Keefe, Bruyette & Woods Kevin Fitzsimmons – Hovde Group Matt Olney – Stephens, Inc. David Bishop – Drexel Hamilton Kevin Reynolds – Wunderlich Securities Peyton Green – Sterne Agee.

Welcome to the BancorpSouth third quarter 2014 earnings conference call. Please note this call is being recorded. I will now turn the call to Will Fisackerly, Senior Vice President Director of Corporate Finance..

I’ll begin by introducing the members of the senior management team participating today.

We have Chairman and CEO Dan Rollins; Chris Bagley, President and Chief Operating Officer; Bill Prater, Senior Executive Vice President and Chief Financial Officer; Ron Hodges, Senior Executive Vice President and Chief Credit Officer; James Threadgill, Senior Executive Vice President Chief Business Development Officer; and Gordon Lewis, Senior Executive Vice President.

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 2013 annual report on Form 10K. 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 Q3 2014 earnings release.

Our speakers will be referring to prepared slides in the discussion. You can find the slides by going to www.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 as an exhibit to the 8K we filed earlier this morning.

Now, I’ll turn it to Dan Rollins for his comments on the quarter..

Thank you for joining us today for BancorpSouth’s third quarter 2014 conference call. I believe the results for the third quarter demonstrate continued progress toward the goals we have laid out along with improvement in several core fundamental areas of our company’s performance.

I will begin by making a few brief comments regarding the highlights of the quarter. Bill will discuss the financial results in more detail. Chris will talk about our BSA AML remediation efforts as well as our business development activities in the bank. James will provide some comments on our business development activities in mortgage and insurance.

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 you may have. Now let’s turn to the slide presentation.

Slide Two contains our customary Safe Harbor statement with respect to certain forward-looking statements and information in the presentation. The next Slide begins our review of the third quarter.

Net income for the quarter was up 16% to $28.8 million from the third quarter of 2013 and our diluted earnings per share was up 15% to $0.30 per diluted share.

Net operating income, which excludes merger related and other non-operating expenses was $30.8 million or $0.32 per diluted share, while certain one-time costs and other specific elevated expenses prevented sequential quarter improvement in net income, I believe our performance continues to reflect progress in core underlying fundamentals of our company.

Bill will discuss the components of net income in more details shortly. In our second quarter earnings release, we discussed concerns about our Bank Secrecy Act and Anti-Money Laundering compliance programs identified by our regulators.

The primary focus of our efforts from a corporate and operational standpoint during the past quarter was to build a sustainable BSA AML program. We feel very good about the progress we have made and we continue to remain optimistic about resolving these matters in a timely manner.

As a result of these efforts, we incurred pre-tax costs of $3.1 million during the quarter associated with our remediation plan, which we consider to be one-time in nature.

Based upon currently available information, including communication with our regulators and outside consultants, this charge reflects our estimate of total one-time costs to be incurred. We expect ongoing and recurring costs associated with our BSA and AML programs to total approximately $3 million annually.

Approximately $500,000 of this ongoing costs is reflected in our third quarter run rate. We continue to work daily on this project and all implemented improvements are subject to follow up regulatory review.

Moving onto more fundamental aspects of our performance, we’ve reported another solid quarter of net loan growth, which was $199 million or 8.5% on an annualized basis. This is the sixth consecutive quarter of net loan growth overall. You’ve seen several announcements this quarter regarding the additions of key producers across our footprint.

These producers are starting to build their books of business and add to the growth generated by our legacy lending team. This loan growth has helped us maintain the positive bias to our net interest margin, which increased to 3.62% in the third quarter compared to 3.59% in the second quarter of the year.

Finally, all of our credit quality metrics continued to move in a positive direction. Ron will discuss credit quality in more detail in a moment. I will now turn the call to Bill and allow him to discuss our financial results in more detail..

If you’ll turn to Slide Four, you’ll see our summary income statement. Net income was $28.8 million or $0.30 per diluted share for the third quarter compared to $30.9 million or $0.32 per diluted share for the second quarter of this year, and $24.9 million or $0.26 per diluted share for the third quarter of 2013.

As Dan mentioned earlier, earnings for the quarter were adversely impacted by one-time pretax charges totaling $3.1 million related to our BSA AML remediation efforts. We consider this item to be non-operating in nature.

Also a reminder for comparative purposes in the third quarter of last year, we recorded pretax charges of $2.9 million related to the write off of unamortized TRUPS issuance cost, and $2.8 million to increase the litigation accrual for probable losses associated with various legal proceedings.

You’ll also notice on this Slide the continued improvement in our net interest revenue. Net interest revenue increased from $100.2 million in the third quarter of last year to $105.6 million for the current quarter.

Our net interest margin was 3.62% for the third quarter this year compared to 3.59% in the second quarter of this year, and 3.45% for the third quarter of 2013. Net loan growth as well as reprocessing of higher cost time deposits has continued to allow us to hold our net interest margin relatively steady.

We still have approximately $50 million remaining of 3.97% five year CD money that will roll off in October of this year. This will allow us to continue to offset some of the pressure on loan yields. The following two Slides break our non-interest revenue and expense into further detail.

If you’ll turn to Slide Five, you’ll see a detail of non-interest lines of business and total non-interest revenue was $69.3 million for the quarter compared to $69.8 million for the second quarter of this year, and $62.5 million for the third quarter of last year.

Mortgage and lending revenue was $6.9 million for the current quarter compared with $9.1 million for the second quarter of this year and $5.1 million for the third quarter of last year. As a reminder, second quarter results included the impact of a policy election change regarding the accounting for mortgage loans held for sale.

Insurance had a nice quarter as well with total commission revenue totaling $29.3 million for the current quarter compared to $28.6 million for the second quarter of this year and $23.8 million for the third quarter of last year.

Both second and third quarter 2014 results included revenue generated from the GEM and Knox Insurance acquisitions, while the third quarter 2013 results did not. We also saw quarter-over-quarter growth in several of our bank fee service charge line items as well. James will spend a few moments discussing mortgage insurance in more detail in a moment.

Slide Six presents a detail of non-interest expense. Total non-interest expense for the current quarter was $133.7 million compared to $128 million in the second quarter of this year and $129.4 million for the third quarter of last year.

The schedule at the bottom of the Slide shows the aggregate impact of nonoperating items incurred in each of the quarters presented. Aside from these items, quarter-over-quarter trends are driven primarily by salaries and employee benefits cost as well as foreclosed property expense.

Salaries and benefits totaled $77.5 million for the current quarter compared to $74.7 million for the second quarter of this year and $73.5 million for the third quarter of last year.

The current quarter increase is primarily a result of the completion of our annual performance review for employees and compensation adjustments that went with that performance review. This is effective July 1.

Also the addition to staff from the Knox Insurance Agency and recently opened loan production offices added approximately $500,000 of salary expense to the current quarter compared to the previous quarter. Despite the increase in compensation expense, we continue to work total headcount down while adding producers as Dan mentioned earlier.

Headcount FTE is down another 43 positions compared to June 30th. Foreclosed property expense increased to $1.5 million compared to the second quarter primarily as a result of increases and losses on sales which totaled $3.3 million for the quarter.

We continue to be aggressive in marketing the remaining properties and total ORE has declined over 20% quarter-over-quarter. Brian will discuss our ORE efforts in a moment. ORE expense can continue to be volatile in the near term as we work through these remaining properties.

We would expect that line item to decline meaningfully over the long term which would be a benefit to earnings. Now, I’ll turn it to Chris for his comments on BSA AML as well as our banking frontline efforts..

I’d like to take a moment and provide a bit more detail on our progress of remediating issues noted in our BSA AML monitoring program.

As we announced on September 4th, we have entered into a consent order with the FDIC and the Mississippi Department of Banking and Consumer Finance for deficiencies in our overall BSA AML monitoring program as noted in their July 22nd target review letter.

I’m about to highlight some of the steps to address issues and items noted in both the target review and the consent order. Specifically staffing as increased from less than 10 to 35 full-time positions committed to the BSA AML monitoring program including designation of a new BSA officer.

We have made significant efforts and enhancements around all training programs related to BSA staff and the AML processes.

We have completed an enhanced bank wide BSA risk assessment and that risk assessment has led to significant enhancements to internal controls with respect to customer due diligence and transaction monitoring in order to more completely and accurate identify suspicious activity.

Additional, a third-party consultant has been engaged for both model validation of the bank’s monitoring software and independent testing of the overall compliance program subsequent to the enhancements noted above.

While we still have work to do to reach our goals of exceeding examiner expectations, the results of the recent independent testing have identified our overall framework as compliant.

Of course, final resolution and lifting of the consent order will only occur after successful examination by our regulators and we appreciate very much the collaborative support of our regulators and their commitment to schedule up follow up examine within the next 90 days.

I’d now like to turn and spend a few moments discussing our front line efforts within the bank. Details of our loan growth is shown in Slide Seven. Our third quarter reports indicate continuing progress in our efforts to expand our loan portfolio.

In line with recent quarterly announcements, the results of this quarter reflect increases in all major loan categories. Total loans are 8.4% higher than a year earlier and annualized rate of loan growth during the third quarter was 8.5%. This quarterly growth rate is in the mid-range of results we have seen during the last six quarters.

It is important to note loan growth is occurring across our entire geographic footprint. As previously announced and referenced early in our discussion, we continue to hire experienced bankers to establish loan production officers in attractive markets. We’ve utilized this strategy over the past several years with great success.

Though these newly established offices contributed only marginally in terms of net loan growth during this quarter, our new bankers are making meaningful progress in expanding some of their long standing banking relationships and building a pipeline of loans to be funded as we move forward.

Deposits have remained relatively stable during the last year moving around $10.7 billion. During this time we have experienced a reduction in [timed] deposits offset by an increase in transaction accounts.

We’re asking our team of experienced bankers to maintain their focus on growing core deposits by expanding existing relationships and developing new ones. At the corporate level we are engaged in a review of our products, pricing, and promotions to ensure we are properly positioned in a very competitive arena.

I will now turn it over to James to discuss our business development and mortgage and insurance..

The tables on Slide Eight provide a five quarter look at both mortgage and insurance. Our mortgage lending operation produced origination volumes for the quarter totaling $305.7 million.

Of that, $245 million or 80% represented home purchase money which represents the second consecutive quarter we’ve reported record purchase money volume for our company. Deliveries in the quarter were $225 million compared to $264 million in the second quarter.

Mortgage lending revenue totaled $6.9 million for the quarter which included a positive MSL evaluation adjustment of $600,000 compared to revenue of $9.1 million during the second quarter of this year, which included a negative MLS valuation adjustment of $2.1 million.

Margin was 1.66% for the quarter, a decline from 3.31% in the second quarter of this year. As Bill noted earlier, a onetime accounting policy election had a positive impact on the second quarter margin.

We continue to have proven originators and have grown the originating staff by 15% this year including the addition of several CRA mortgage product specialists. Moving onto insurance, total commission revenue for the quarter was $29.2 million compared to $28.6 million for the second quarter and $23.8 million for the third quarter of last year.

As Bill mentioned earlier, revenue generated by the GEM and Knox agencies is fully reflected in the second and third quarter results. We continue to see strong growth in our industrial and commercial construction specialty groups particularly along the gulf coast.

In addition, we continue to grow our marine practice group and have excellent performance from our quick service [restoration] program. As a reminder, as we look to the remainder of 2014, fourth quarter insurance commission revenue is always the lowest of the year.

Consequently, we expect to see a significant decline in the fourth quarter insurance commission revenue compared to the third quarter. Now, I’ll turn it over to Ron for his comments on credit quality..

Slide Nine presents some highlights of credit quality for the third quarter. The credit score continues to be virtually the same quarter-to-quarter. All of our credit quality metrics and balances continue to trend in a positive direction.

Total non-performing loans declined by $4.7 million or 6% during the quarter and total non-performing assets declined $17.3 million or 13%. ORE decreased $12.6 million or 26% from $55.3 million at June 30, 2014 to $42.7 million at September 30, 2014.

Losses on sales and write downs continue to be somewhat elevated and volatile as we work through the remaining properties in ORE some of which have been in inventory for extended periods of time.

Two specific properties that had been on the books for some period of time drove $1.4 million of the loss on sales as we decided to accept offers we received in order to move these properties.

Even with strong long growth produced during the quarter, a provision was not necessary due to the continued improvement of credit quality indicators and low levels of net charge offs. The ALLL declined to 1.51% of the total loan portfolio.

The other bullets on the Slide cover near term delinquencies, net charge offs, and non-accrual loans paying as agreed. Each of these metrics remains at stable levels. Slide 10 provides a visual of the significant improvement in NPLs, ORE and total NPAs over the past several quarters.

You can see the consistent progress we made quarter-after-quarter in working these balances down to levels that are consisted with those from the pre-credit cycle. The final point I’d like to make is in regards to the loan growth we continue to generate. We have no altered any credit quality or underwriting stands to achieve this growth.

As both Dan and Chris have mentioned, this growth is attributable strictly to the hard work of our lenders as well as our ability to attract new producers and has not been the result of any change in our underwriting standards or our philosophy regarding syndicated credits. I will now turn it back to Dan for his concluding remarks..

Obviously, all of the focus from the investment community during the quarter has been related to the BSA and AML concerns. That’s been the focus of our efforts during the quarter from an executive management and an operations perspective.

As I mentioned earlier, we were pleased with our progress and are hopeful we can bring resolution to these issues in a timely manner, thus allowing us to proceed towards the closing of the two pending bank mergers.

On the other hand, the BSA AML issues have had virtually no impact on our ability to continue to take care of our customers on the front side of the house. We continue to attract and hire talented producers across our footprint that are helping us produce growth.

Earlier in the year, we opened loan production offices in Lake Charles Louisiana and Houston Texas. More recently, we announced an additional LPO in Houston Texas market as well as one in Chattanooga Tennessee. Additionally, as James mentioned, we’ve continued to hire mortgage producers as well throughout the year.

Our people are energetic and excited about the fundamental progress we are making daily. We are reporting growth across our footprint both in loans and several of our lines of business and fee income streams.

Credit quality continues to trend in a positive direction and finally, while it’s not evidenced in this quarter’s results due to several factors Bill discussed earlier, we are making decisions and developing plans daily that will drive more costs out of our system. We are committed to continue improving operating efficiencies.

We expect certain expense line items such as foreclosed property expense property expense to naturally reduce over time while others will continue to be a more surgical approach. With that, I will conclude our prepared remarks and operator we’ll now be happy to answer any questions..

(Operator Instructions) Your first question comes from Jon Arfstrom – RBC Capital Markets..

Probably unfair questions Dan, but it’s probably the question that everybody wants to ask.

In terms of the next milestones or the timeline for getting the consent order lifted, can you just kind of talk us through what you know today?.

Well I think we know that we’ve got to let the process take its course. We’ve got to give regulators time to do what they need to do, and the milestones that we’re on Jon are just kind of letting the processes mature and work through where we are.

I know you heard Chris say we expect the regulators back in within the next 90 days, and we think we’re looking forward to having them back in here. The process that we’re in every day is just continuing to make sure we’re doing what we need to be doing..

Can you give us an update on your CFPB interaction as well, if there has been any more interaction?.

There’s really not any interaction there at all. From the beginning, we felt it was important to put out what’s happening there. In the CFPB world, that’s relatively new agency still, we’re dealing with them whenever they ask us questions, but there’s not a lot of communication back and forth at all, so there’s really no update to give..

Just to be clear on the expenses, the $500,000, you’re saying that is in the run rate for BSA expenses, so essentially $2 million of the $3 million that you expect in the full year run rate is already in the run rate, is that correct?.

That’s correct..

Your next question comes from Jennifer Demba – SunTrust Robinson Humphrey..

Could you give us some color on exactly what the components are of this $3 million in annual costs to improve the program? What part is headcount, what part is systems, and what systems are you using, and things like that?.

The lion’s share of it is people, and when you look at what’s out there today, Chris gave you a number, we’re at 35 folks.

We think that’s the right number for us, and we’ve come up from less than 10 when we talked last time, so we do think that’s the right number for us when we look forward, and so that’s obviously the lion’s share of the costs involved.

You can throw in some occupancy costs and some data processing costs, and some communication costs, and those kinds of things.

We run a software product that many other large banks also run to do their BSA process, and then we think the product that we’re using is adequate and will do a good job for us, and we’ve been running that product for well over a year now, year and a half now..

What’s that product called?.

US Patriot Officer..

Your next question comes from Emlen Harmon – Jefferies & Company..

Just looking at the earning assets, you guys actually shrank the securities book on an average basis.

How are you balancing overall balance sheet growth with profitability and anything unique there or was it just you weren’t finding much that was attractive in terms of rolling those securities over?.

I think what we’re trying to do is deploy the deposits that we have, and the loan growth has been very good for us. Bill can certainly jump in here on the securities side of the house. The securities yield, as you know, are extremely low, and since the end of the quarter they’ve gone even lower.

Our game plan has been trying to deploy those available funds into higher earning assets on the loan side of the balance sheet..

The yields on that are just not attractive for the durations that are available. One day last week when things kind of cratered down, we were looking at it and I think the yield on the three year agency bullet was somewhere in the 67, 68 basis point range. We keep our securities portfolio right around that three-year level.

We ladder it out to five years, but we keep the duration around three. There’s just not much opportunity to growth that having a meaningful impact on earnings currently. You’re taking on some longer term interest rate risk..

When you look back over at the 130 or 140-year history of the company, the company has always been able to fund loan growth and core deposit growth, and I think that’s our intention to continue doing it. We’ve still got about $500 million in unpledged securities..

Just on the mortgage origination and sales, the sales level lagged originations the past few quarters.

Is it because of more production going into the held for investment portfolio or should we think about kind of a big slug coming to market at some point here?.

I think that you hit it right with the first comment you made.

I think that what you’re seeing is with all of the new regulatory rules around the mortgage process over the last several years, and in particular we talked about this I think at the end of the last year and the first quarter this year, we’re producing the same paper in the bank as we’re producing in our mortgage side.

We’re selling some of that, so now if we’re producing ARMs most of that is coming in through our held for investment portfolio as opposed to what’s been sold in the past. So that’s what you’re seeing, most of what’s not being sold today is ARM products that we’re holding.

I guess if we needed liquidity we could certainly sell those products because they’re being produced that way but we’re holding those. We’d rather have that rate than whatever it is with those getting on the investment portfolio, which is pretty [inaudible].

The other side I think on the mortgages, we have just over the last couple of quarters and when we’ve improved our delivery channels for mortgages, James and his team are now making some – I can’t think of the exact words but best delivery or best sales we were providing, we were selling 100% of our product to Fannie Freddie in the past and now we’re able to package that up and actually pick up a little on sales.

But you’re seeing some timing off on some of that that you did not see in the past from us..

How should we think about a normalized gain on sale margin? It was 166 this quarter, is that kind of a normal level or how do we think about that?.

I think when you look back at what we’ve had over the last couple of quarters, I think James can jump in here and tell you directly, but remember what you saw last quarterly was positively impacted pretty significantly off of the accounting change that we made as to how we were accounting for the gain on sale.

When you look back and you exclude the last quarter we were 166 this quarter, 137 two quarters ago, 179 four quarters ago and James what would we have been at had we not had that accounting change?.

Well the same quarter would have been in the 240 range..

240 over the 330 that we published out so 160, 240, 130, 170 the average of that is going to be?.

I think the 165 to 185 range is where we’re going to probably level out..

Your next question comes from Catherine Mealor – Keefe, Bruyette & Woods..

Can you give us an update to the amount of variable loans that you’ve got still with floors and maybe the average rate versus the fully indexed rate? I know you’ve mentioned before that you continue to see that gap narrowing and I just wanted to see if you continued to see that this quarter..

The below the floor number has shrunk another couple million dollars since we looked at it last time..

I don’t have the [inaudible] package in front of me but there’s not a meaningful change to that from last quarter..

It was down a little bit in dollars. It was down a few basis points in [inaudible]..

That’s right that trend has kind of held..

Your next question comes from Kevin Fitzsimmons – Hovde Group..

When we figure out expenses now, so say we’re up to the full run rate next quarter on what’s coming in on an ongoing basis from the enhanced BSA programs and there’s definitely some investment spending going on.

You’ve outlined the new offices are being opened and the new producers being brought on but you referred to these surgical efforts to take costs down other than OREO.

At a top level should we be thinking about all these efforts netting out keeping that expense base stable or can you take that expense base down? In other words, the surgical efforts offsetting the investment spending you’re doing..

I think that the real issue here is that nothing – the timing of all of these adds and deducts never seem to match up so we can tell you we want to go down and ultimately we may be down long term, this quarter we were up.

So I think the answer is, as we expect to be able to hold expenses flat and our goal is to lower overall total expenses, but the timing of where those things fall into play is the issue. So on any given quarter-to-quarter we can be up some and down some.

This past quarter we obviously were up but we still believe we’ve got lots of nuggets we can harvest that will help us reduce our expense cost..

I know in the past you have said that – this was before the BSA issue, a lot of the bulk efficiency improvement was going to be driven by growth, by growing the balance sheet and I was wondering if you still feel that way or whether it would be more of a mixture on both sides?.

I don’t know if that’s an accurate quote. I think what I’ve said for some time since I got here is the efficiency efforts start with cost base and reducing overall costs. Certainly, growing topline revenue can benefit our efficiency ratio but that’s not the primary focus of fixing our efficiency ratio.

The primary focus on fixing our efficiency ratio is paying attention to where we’re spending money on and what we’re spending money on every day.

We continue to believe that we’ve got expenses that we can pull out of our company so the issue becomes how do you do that, and how long does it take to do that, and what are the processes involved and that involves culture changes, that involves structural changes within our system and we’ve announced many of those.

We announced our management reorganization in June and I said then it was going to take us some time before we realize all the benefits that would come from that.

Well, we’re six months in and frankly we’ve experienced and we’re seeing some benefits from that but we’re also finding that there’s even going to be better benefits than we thought when we first went down this path. So the time to do what we need to do is the issue here and we will be able to see expenses go down not up..

Your next question comes from Matt Olney – Stephens, Inc..

I wanted to stick with the discussion about expenses and can you talk about more where the bank is in respect to technology upgrades and technology spend versus where you need to get to and how much of the technology upgrade required is from compliance versus other normal operations?.

You and I talked about that not long ago. I think that technology is something that we need to be spending money on every day of every week. If we’re not investing in technology it’s outdated. The latest and greatest wizardry of technology is changing on a daily basis and if we stop investing in technology we’re going to be behind.

So I’m not one who wants to use technology as an excuse, we’ve got to find a way to use technology and continue to invest in technology. Our mobile product growth in sales and growth in customer adoption is off the charts high.

We’ve seen huge numbers of our customers that have started using our mobile app over the last year and I think the technology that is out there today, I think all banks are seeing some of that so we’ve got to stay in front of the technology.

We’ve got to continue to invest and with that investment in that technology there certainly should be some benefit to our compliance programs. I would tell you I don’t see us investing in technology specifically for compliance.

We’re investing in technology to keep up with what we’ve got to keep up with out there because we’re going to be behind if we don’t and frankly we’ve got to make sure we have the latest and greatest ways to interact with our customers and from that our expectation is that we get benefit on a compliance perspective..

As far as the headcount reduction since June 30th of 43 FTEs, it sounds like that includes the FTEs that were added from the compliance remediation.

Is that right and any commentary as far as where you’re gaining FTE decreases?.

That’s a net decrease and we’re seeing decrease in FTE across the footprint and across the platform as we continue to challenge processes, procedures.

There are ways to be more efficient in what we’re doing every day and really when you look back at our headcount change, we’re down a little bit year-over-year but when you look at what we’ve added in the way of revenue producers over that time, I think Bill mentioned that briefly in his comments, we’ve added 100 plus revenue producers over the last year and yet headcount is still down.

So you’re spot on with your comment. We’ve added people into BSA AML and we have added revenue producers, and at the same time we’re shrinking headcount and I think we can continue to do that..

Your next question comes from David Bishop – Drexel Hamilton..

A question for you as it relates on the revenue side of things. Obviously, you made a nice push on the insurance side.

As it relates to potential acquisition, any sort of prohibition from the consent orders to continue expanding the acquisitions on the insurance side and some commentary there for the outlook?.

I think we certainly want to make sure we’re working with our regulators daily to accomplish what they’re looking for but the insurance world is not regulated the way the bank is so there is no regulatory approval process on insurance. The insurance is a subsidiary so the insurance subsidiary has a little more longitude and latitude.

They have a larger playbook I guess than we do today but we are sitting here in Mississippi the center of college football, I wanted to ring my Mississippi State cowbell today but the boys on ESPN game day told me it was too loud so I didn’t bring my cowbell here today. I think we’ve got a lot of opportunity in front of us.

The playbook on many of the fee businesses, we don’t have the restrictions on us but we do on the bank side and frankly on the bank side of the house from a customer standpoint we’re able to go out and attract all the customers and talk to all the customers, and deal with all the customers we want to we just need to make sure our BSA and AML processes are compliant and as you heard Chris say we’ve made a lot of progress in the last quarter and the consultants we engaged are reporting to us that our new and enhanced program is compliant and we’re anxious to see the regulators come back in and see us again..

A follow up question, construction loan growth, development loan growth very robust this quarter.

Any commentary in terms of where you’re seeing that strength? Is it some of these new markets you guys are penetrating?.

I am going to kick it over to Gordon Lewis. Gordon is here with us today. Gordon didn’t speak this morning, Gordon is coming close to retirement. This will be Gordon’s last conference call with us but I’ll let Gordon talk about his team.

He’s got a team of producers in the field that are doing a fantastic job in producing business for us across an eight state footprint. Gordon, we’re going to miss you when you go play with your grandkids..

It’s certainly across our footprint and there are markets where they’re having great growth in construction and residential development area and fortunately we’re in some of those markets.

It’s not in every community that we’re in and it’s not focused in just one community it’s pretty well across the footprint in some of our larger and more active markets as you may understand. It’s certainly not centralized or isolated..

Your next question comes from Kevin Reynolds – Wunderlich Securities..

A couple of questions here, one is when I look at loan growth I know that last quarter C&I was pretty strong sequentially and that contributed to a little lower loan yields, this quarter it looks like it slowed down a bit and I know perhaps that’s coincidental.

I wanted to ask is there anything that we could read into that? Have activity levels changed much with all the market volatility that has gone on over the last few weeks or over the summer time, or is that just kind of the ebb and flow of the C&I business? Then I’ve got a second question to ask on a different topic..

I think my answer would be that what you’re seeing is just the ebb and flow. We’ve seen noting that would cause – last quarter we saw some great growth on the C&I side that was higher than it was in the second quarter of this year.

So second quarter C&I growth was lower than third quarter and fourth quarter C&I growth was more similar to what we did in the second quarter.

I think you’re seeing our producers working out there every day to call on customers and take advantage of opportunities where opportunities present themselves and maybe we didn’t win a few of those games, I’m not sure but I don’t think we’re worried about where it’s coming from.

From a pipeline perspective I think our pipeline continues to be as strong or stronger than we’ve seen it in the past..

The other question I’ve got is in terms of the checklist if you will, of activities on BSA AML remediation and I’m not sure if you mentioned this earlier, if you did I missed it, can you offer up kind of a percentage of completion if you will? I know at some point you kind of get close to having checked off all the items on the list.

Where do you think you stand today relative to what they put in front of you in the consent order and the longer checklist behind that..

I’m going to bring Chris in here to talk about that too. The checklist is – what they’re asking us to do really is not hard. We have to make sure our processes and our procedures are in place and that they’re sustainable.

We have to make we have procedures and policies that allow us to capture the data that we need to capture so we can analyze the data and I think when we look at where we are we’ve made tremendous strides in the last quarter. We’ve moved a lot of dirt. That means that there’s still dust settling out there.

Chris, where do you think we are in that process?.

Action items come really from four sources. We have a target review that was completed in July, our own internal risk assessment, the consent order itself, and then independent review that we just completed from our third-party consultants so there are actually action items from all of those things.

I would tell you that I believe we’re 100% on the target review items. Our own internal risk assessment is a little bit more robust and some of those items would be immediate action items and some of those would be looking further out so they’re all in progress but with different completion dates.

The consent order is more broad and it really addresses the four pillars of BSA and so we’ve got some action items from that.

Then the independent review really looked at our program subsequent to all three of those things and a lot of the actions we’ve already taken so it’s identified some more, I would call them granular, and some of them are even longer term items, sub items to strengthen your program.

So to give you a percentage I would say from what we’ve identified we were working on 100% of it, completion is probably 80% and then between that 80% and 100% we’ve got items that we’re scheduling to complete in the coming months depending on technology, and timing, and changing of forums, and training so it’s just a fluid process..

I would tell you that the BSA process is no different than the technology question that we had earlier.

BSA is not something that you put something into place and say, “Okay, we’re done and we’re now 100% complete.” My answer is that I don’t know that we’ll ever be 100% complete on BSA nor be 100% complete on our sales efforts, or our technology efforts.

It’s an ongoing effort that changes and evolves on a daily, weekly, monthly, quarterly basis and our belief is that BSA process and AML process will continue to be that way..

Your next question comes from Peyton Green – Sterne Agee..

I was hoping you could comment maybe a little bit on the tangible common equity build over the last couple of years.

The ratio is up about 120 basis points and I was wondering when we might see a little bit more leveraging of that capital either through dividend policy or share buyback, or does the pending M&A prohibit that?.

Well I think the direct answer is the pending M&A doesn’t prohibit that. I think our board continues to look at deploying our capital in the best way possible. We raised our dividend last quarter.

You’re exactly right we are continuing to build capital, certainly the completion of the two mergers we have in place today, we are committed to our partners [inaudible] metrics that were in place before and are still there today.

I believe our partners are committed to us so that’s certainly something we would like to see and be able to be completed here as soon as we can get all the pieces lined up so we can turn the switch..

Then a follow up question is, I guess in a couple of quarters you’ll basically be done with the excess securities portfolio in terms of the unpledged.

What do you think it takes to grow deposits going forward?.

I think we need to be focused on deposits. I think there’s deposit growth out there. When you look back over the rate cycle where we were as a company I think we have not focused on sales efforts on deposits like we should have and so that’s something we need to stay focused on.

As I said earlier, our 140 plus year history as a company, we’ve been able to fund our loan growth with core deposits and I believe we will be able to continue to do that.

Our team today continues to look at our product mix to make sure we’re competitive and we’re looking to make sure we have products and services that our frontline business development and sales team can sell..

(Operator Instructions) Your next question comes from Steven Alexopoulos – JP Morgan..

In spending $3 million a year and having an AML group of 35 people, it’s both relatively modest in terms of what you needed to do to get approval from you independent group to say you’re complying now perhaps with the consent order. You’re also figuring this out, pretty short order, it’s basically one quarter.

What I’m struggling with here is to figure out why you needed to pull the merger applications for the two deals given that you seem to be getting this behind you pretty quickly?.

I think our game Steven is to work with our regulators the way that they’ve requested we work with them. We want to make sure we’re doing all the things we need to do.

When you look at the processes when you stop a merge process as we have, we’ve got to basically go through the process of starting everything up and updating all the numbers so the decision was made here that we would redraw and [rebuy]..

Can you remind us where the timeline is where the merger agreements have been extended to and what the walk away provisions are?.

The timeline today on both agreements, and they’re really not terminations so let’s make sure we get the correct terminology around the merger agreements. Both our Texas partners and our Louisiana partners have extended the merger agreement of which it is an exclusive merger agreement until next June 30th.

After that time the merger agreement doesn’t in and of itself automatically terminate, it allows either party to terminate at that time or we could agree to extend further should we decide to do that if we’re not able to get to where we need to be.

The termination provisions, I can’t remember exactly what the details are, we filed all that, but there’s some payment of some type if we’re unable to close. I think it’s $1 million or [inaudible] that we would owe if we’re unable to close for regulatory reasons..

One final one regarding the AML group going from 10 to 35 people, how many of those came from outside the bank as new hires? Can you talk about your new BSA compliance officer, where they came from, etc.?.

The BSA officer was internal. We took some of our folks internally and the BSA officer has been here and has been here for some time, I think 10 or 11 years right now and has done a fantastic job for us in his new role. The direct answer to your how many were outside, I think the answer is one. So one of those 35 people have come from outside the bank.

We’re pleased with our BSA team. I think when you look back at what we’ve done and the progress we’ve made, like I said, last quarter and along the way, what we’ve done is we’ve really restructured our BSA program in a way. We had people that were working on BSA related items spread across our infrastructure but not fully 100% dedicated to BSA.

By our restructuring and reorganizing we now have a fully 100% dedicated BSA team that’s doing a fantastic job today moving the dirt..

Having no further questions this concludes our question and answer session. I would like to turn the conference back to Dan Rollins for any closing remarks..

Thank you all for joining us today. If you need any additional information or have further questions, please do not hesitate to call Bill Prater or myself. Otherwise, we look forward to speaking to you again soon. Thank you all very much..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..