Will Fisackerly - Former SVP and Director, Corporate Finance James Rollins - Chairman, CEO & Director John Copeland - Senior EVP, Treasurer & CFO Chris Bagley - President & COO.

Michael Rose - Raymond James & Associates Jennifer Demba - SunTrust Robinson Humphrey Jon Arfstrom - RBC Capital Markets William Curtiss - Piper Jaffray Companies John Rodis - FIG Partners Catherine Mealor - KBW Blair Brantley - Brean Capital Elan Zanger - Jefferies.

Good day, and welcome to the BancorpSouth's First Quarter 2018 Webcast and 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, sir..

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 will 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 2017 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 a reconciliation of these measures in the company's first quarter 2018 earnings release.

Our speakers will be referring to prepared slides during the discussion. You can find the 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..

Thank you, Will. Good morning. Thank you for joining us today for BancorpSouth's First Quarter 2018 Conference Call. I'll begin by making a few brief comments regarding the highlights for the first 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. Before we discuss the quarter, I'd like to make a few brief comments regarding last night's announcement, regarding our merger with Icon Capital Corporation, the parent company of Icon Bank of Texas.

First and foremost, I want to welcome Mark Reiley, John Green and their experienced team of bankers to the BancorpSouth Bank family. Mark and John cofounded Icon in 2007 in Houston, and have now grown the bank to almost $800 million organically.

They currently operate 7 offices across the Houston Metropolitan area, with an 8th office currently in the works. Upon closing, Mark will serve as our Houston area Chairman, while John will become our Houston Division President. When you look at what we desire in a partnership, this transaction checks all the boxes.

First, strategically, it's a great opportunity for us to meaningfully expand our presence and market share in a dynamic, high-growth market. Today, we operate 2 full-service branches in Houston. On a pro forma basis, we will have approximately $1 billion in loans in the Houston market and over $700 million in deposits.

Second, we believe it's a great cultural fit. Mark and John have built a great team of community bankers that pride themselves on taking care of customers and being actively engaged in the community. Finally, and most importantly, we believe this transaction adds value for our shareholders and further enhances our ability to grow.

We are pleased with all of the various financial metrics. The estimated pro forma impact to our tangible book value per share and regulatory capital metrics is minimal.

We expect to achieve cost savings of approximately 20% of their non-interest expense base, which will allow the transaction to be accretive to earnings in the first full year as well as provide a reasonable earn back on the tangible book value dilution of less than 3.5 years.

We anticipate the transaction could close during the second half of 2018, subject to regulatory approval and other customary closing conditions. Again, this is a big win for our company. Expanding further into Houston, where I've spent the better part of my life, living and working, is exciting for us.

Mark and John and Icon team provide us a solid foundation, upon which we can grow and develop our presence. Let's now turn to the slide presentation and discuss the first quarter. Slide 2 contains our customary Safe Harbor statement, with respect to certain forward-looking information in the presentation.

Slide 3 covers the financial highlights for the first quarter, which was a record quarter for our company. We reported an all-time record-high net income for the quarter of $53.5 million or $0.54 per diluted share, also a new quarterly record for our company.

On a per share basis, this represents an increase of 32% compared to both the first and fourth quarters of 2017. While the tax law changes certainly contributed to earnings improvement, we also achieved several other milestones in the quarter that contributed to our record performance.

The most notable highlight for the quarter was the completion of the mergers for Central Community Corporation and Ouachita Bancshares Corporation, effective January 15. Since we discussed these -- this item on our fourth quarter call, I won't go into a lot of detail, but I would like to provide a brief update.

We completed the operational integration of OIB on the I-20 corridor in North Louisiana in February. This integration went very well, and our teammates are focused on making the transition as seamless as possible for our customers. We expect to complete the first state bank integration later this quarter.

Accordingly, most of the cost savings from these 2 transactions will be harvested in the quarters to come.

Reported GAAP earnings were impacted in the quarter by a few nonoperating items, including merger related expenses of $5.7 million in the first quarter related to the two complete transactions, along with a positive pretax mortgage servicing rights valuation adjustment of $5.5 million as a result of continued rising interest rates.

Accordingly, our net operating income, excluding MSR was $53.6 million or $0.54 per diluted share. This represents an increase of 32% compared to the fourth quarter of last year and 38% compared to the first quarter of last year.

Consistent with our historical seasonal trends, the first quarter was a great deposit growth quarter for our company, while organic loan growth was nominal.

Excluding the balances acquired with the transaction closings, we generated deposit growth of $240 million or 8% on an annualized basis and organic loan growth of approximately $50 million or 2% annualized.

While some of the seasonal public fund and tax balances will flow out in the second quarter, we were extremely pleased with our team's efforts on deposit growth. Chris will discuss loan and deposit activity further in a moment, including some commentary on interest-rate competition in our markets.

I'm also pleased to report continued improvement in our net interest margin. Our core margin, which excludes accretable yield was 3.6% for the quarter compared to 3.58% for the fourth quarter of 2017. The margin benefited primarily from rising loan yields. John will discuss the margin in more detail in a moment.

Finally, we were active in our share repurchase program during the quarter, repurchasing just over 2 million shares of our common stock at a weighted average price of $32.32. The increase in the repurchase volume compared to previous quarters was the result of movement in the market, combined with certain triggers set forth in our 10b5-1 plan.

We have just under 4 million shares remaining in our current authorization. I will now turn to John and allow him to discuss our financial results in more detail.

John?.

Thanks, Dan, and thanks to everyone for dialing in this morning. If you turn to Slide 4, you'll see our summary income statement. As Dan mentioned earlier, the two merger transactions closed effective January 15. So accordingly, the financial results that we will discuss will include $2.5 million of activity from those two banks.

This additional activity will impact the comparability of all of our financial results shown on the next several slides. In reviewing the summary income statement, net income was $53.5 million or $0.54 per diluted share for the first quarter. We did have one meaningful nonoperating item during the quarter the $5.7 million in merger related expenses.

Additionally, as Dan mentioned, we had a positive MSR valuation adjustment for the first quarter of $5.5 million.

Accordingly, we reported net operating income, excluding MSR of $53.6 million for the quarter or $0.54 per diluted share compared to $36.8 million or $0.41 per diluted share for the fourth quarter of '17 and $36.9 million or $0.39 per diluted share for the first quarter of 2017.

Net interest revenue increased 13.8% compared to the fourth quarter of '17 and 24.5% compared to the first quarter of 2017.

In addition to the incremental net interest revenue associated with the acquisition, we also saw continued expansion in our net interest margin, both as a result, of course, rate increase as well as purchase accounting accretion.

Our reported net interest margin for the first quarter was 3.67%, while our net interest margin excluding equitable yield was 3.60%. This compares to net interest margin of 3.58% for the fourth quarter of 2017 and 3.46% for the first quarter of 2017, neither of which were impacted by purchase accounting accretion.

And looking at our core margin, the pick up and loan yields continues to outpace the increase in deposit rates. Our loan yields, excluding accretion increased by 15 basis points compared to the fourth quarter of '17, while the total cost of deposits increased by four basis points.

If you turn to Slide 5, you'll see a detail of our noninterest revenue streams. The total noninterest revenue was $78.9 million for the quarter compared to $63.1 million for the fourth quarter of '17 and $70.9 million for the first quarter of '17. As Dan mentioned earlier, we had a positive MSR evaluation adjustment of $5.5 million.

This adjustment was primarily responsible for the increase in mortgage lending revenue compared to the first quarter of 2017. Second, I would like to discuss the accounting change related to insurance commission revenue recognition.

Our contingent commissions have historically been recognized at the time of cash received, which is heavily weighted toward the first quarter of the year. The new revenue recognition accounting standards require that we estimate and accrued for these commissions throughout the year, which the commissions are earned.

And the transition to the new standard we will require to make a balance sheet entry in January to implement the standard. We recorded $5.9 million less applicable deferred taxes directly to equity as an estimate of 2017 contingent commissions to be received in 2018.

Additionally, we began to accrue estimated 2018 contingent commissions to earnings during the first quarter. In summary, our contingent commissions will now be estimated and recognized over the course of the year rather than in the period of receipt.

This accounting treatment resulted in our insurance commission revenue being an estimated $3.7 million less for the first quarter than it would have been under the prior year -- prior accounting convention. Finally, I would like to mention the increase in other noninterest revenue during the first quarter.

This increase was driven to a large extent by a legal settlement totaling $3 million. While legal items are a part of our operating earnings, we certainly wouldn't expect settlements of this magnitude to be reoccurring in future periods. Slide 6 present the detail of noninterest expense.

Total noninterest expense for the first quarter was $147.7 million compared with $125.9 million for the fourth quarter and $127.1 million for the first quarter of '17. As I mentioned earlier, the only nonoperating item that impacted noninterest expense was the $5.7 million of measure related expenses.

Additionally, we had a single large fraud loss totaling $2.3 million, which is reflected in other miscellaneous expense. Otherwise, trends within our expense base were consistent with expectations given the merger closings.

Our operating efficiency ratio, excluding MSR, was 66.8% over the quarter compared to 68.2% for the fourth quarter and 68.4% for the first quarter of 2017. This metric showed continued improvement despite the large fraud loss. That concludes our review of the financials. Chris will now provide some color on our business development activities..

Thank you, John. Before I discuss the business development activity for the quarter, I would like to briefly reiterate the advanced comments on the Icon opportunity. I too spent a lot of my career, over 30 years in Houston, and I'm excited about what this partnership means for our company.

When I look at Icon, I see two tremendous strengths, the first is clearly the people. I've had the opportunity to work personally with several of their lenders in my career, which has provided me the opportunity to see firsthand what kind of bankers they are.

I'm very optimistic about what they can do for our company, particularly when equipped with the additional product offerings, services and scale that we can offer to their customers. Second, Icon has a nice branch of network across the Houston market. Houston is a big place.

In addition to the Icon footprint, combined with our current locations will provide a platform -- excuse me, to better serve the entire community as we continue to build our presence in the Houston market. Including my comments on Icon, I would like to mention our Huston mortgage and insurance teams.

We currently have 15 insurance professionals in the Houston market and over 20 mortgage professionals. These teams will be yet another resource of the fingertips of the Icon team as they currently do not offer mortgage or insurance products. Moving on to our quarterly results.

Slide 7 reflects our funding mix as of March 31 compared to both the fourth quarter of 2017 and the first quarter of 2017.

The balance increases here are largely attributable to the 2 transaction closing that Dan discussed earlier, however, we also experience strong organic growth during the quarter in our deposits in customer referrals, totaling approximately $240 million or 8% annualized.

Our first quarter is always seasonally high as a result of tax revenues and public funds. We are extremely proud of this accomplishment. Before we discuss the geographical performance on deposits, I'd like to make a few brief comments on the deposit pricing environment in our footprint.

And recently, we started to see more of our competitors adjusting posted deposit rates in response to the rising rate environment. An effort to remain competitive and take care of our customers, we have followed suit on raised the posted rates on certain of our product offerings.

While we still believe there is upside in our net interest margin, we won't be immune to the competitive environment on the deposit pricing as rates continue to rise. As we look at geographical performance relating to deposits, we have 6 community bank divisions standout this quarter for deposit growth.

Our recent for Mississippi, Memphis Metro, Missouri, Northeast Arkansas and Mid Mississippi and South Louisiana divisions all reported excellent results this quarter. Looking forward, core deposit growth will continue to be a top priority across our entire footprint.

Moving to Slide 8, you will see our loan portfolio as of March 31 compared to the fourth quarter of 2017 and the first quarter of 2017. As with deposits, our prior period comparisons are impacted by the merger closings. On an organic basis, our team reduce net loan growth of approximately $50 million for the quarter or 2% annualized.

While not robust this growth does compare favorably when compared to previous first quarter numbers and the first quarter has typically been a slower production quarter for us. As we look at our first quarter lending inference from a geographical perspective, we had several divisions produce meaningful loan growth.

Stand out divisions for the quarter were our Dallas, Texas, East Central Mississippi, Missouri and West South Arkansas divisions. Slide 9 contains credit quality highlights. I'd like to touch briefly on a couple of these bullets.

We had a provision for credit losses of $1 million for the first quarter compared with a provision of $500,000 for the fourth quarter of 2017 and a provision of $1 million for the first quarter of 2017. We actually reported a nominal net recovery for the quarter of $200,000.

Finally, the remainder of our credit quality indicators continue to trend in a positive direction despite the addition of loans and ORE from the two acquisitions.

Reviewing year-over-year trends, total NPLs to net loans and leases have declined to 66 basis points from 76% a year ago, while NPAs to net loans and leases have declined from 0.83% to 0.74% over the same time period. Moving on to mortgage and insurance for 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 $292 million. Home purchase money volume was $205 million or 70% of our total volume for the quarter.

I'd like to commend our mortgage team for growth in both total production volume and purchase money production compared to the first quarter of last year despite the rising rate environment. Deliveries in the quarter were $215 million compared to $267 million in the fourth quarter of 2017 and $260 million in the first quarter of 2017.

Production and servicing revenue, which excluded the MSR adjustment, totaled $7.7 million for the quarter compared to $4.9 million for the fourth quarter of 2017 and $8.1 million for the first quarter of 2017. Our margin was 2.44% for the quarter, representing an increase from 1.06% for the fourth quarter 2017.

This margin increase is common during the first quarter each year as our pipeline increase as we move into the spring selling season. Our pipeline was $260 million at March 31 compared to $194 million at December 31, 2017. Finally, as Dan mentioned earlier, the MSR valuation adjustment during the quarter was $5.5 million. Moving on to Insurance.

Total commission revenue for the quarter was $29.1 million compared to $25.8 million for the fourth quarter of 2017 and $32.9 million for the first quarter of 2017. John walked through the mechanics of the accounting revenue recognition change earlier.

This change resulted in our insurance commission revenue being an estimated $3.7 million lower for the quarter than it would have been otherwise. Despite the lease in industry commentary that might suggest otherwise, our team is still seeing an overall soft premium market, which puts pressure on revenue growth.

With that said, our producers are out there battling everyday to defend their current customer base and to win new customers as opportunities arise. Now I'll turn it back over to Dan for his concluding remarks..

Thank you, Chris. 2018 is off to a great start for our company. All of our financial metrics continued to improve quarter-after-quarter, including return on assets, return on equity, efficiency and net interest margin, just to name a few.

As we look forward, the message to our team remains the same, we must continue to leverage our structure and expense base by growing our company both organically and through strategic opportunities. We must also do this while maintaining strong credit quality.

This simple approach is delivered continued performance improvement for our company for some time now and I'm confident there is a long runway ahead for this trend to continue. With that, operator, we'd now be happy to answer any questions. If you can help us with that..

[Operator Instructions]. And our first question comes from Michael Rose with Raymond James..

Just wanted to touch on the acquisition. So if I look at Slide 8, it looks like you guys clearly have some opportunities to deploy some of your products into their franchise. You're obviously bolstering your Houston market presence, the market that you noted, you have a lot of experience in.

What are your expectations, kind of, short and longer term for Houston and can we expect some potential revenue synergies from this deal?.

Sure, I appreciate that question. While Houston is a great market, I think you know that. The dynamics, the economy there, the resilience of the economy. It's been a good market for us for some time and non-bank products as you can see, your referenced Slide 8 on the Icon presentation. We already have little less than $400 million in loans there.

While we just recently opened the 2 full-service branches. We've got a little less than $50 million in deposits there. But insurance team, we chin up and have been chinning up approximately 10% of our insurance revenue out of the Houston market and Trevor runs insurance for us down there and does a great job there.

And on the mortgage side, we've got the 10 originators, who have a total of 20 people in the mortgage team down there, Icon does not offer long-term fixed rate mortgages 15-year, 30-year, mortgage products.

So I think our mortgage team and their bankers, I think, we're excited about the opportunity to partner those two together along with the referrals that can come into our insurance team. So clearly, there's opportunities for us to marry what we're doing together.

The seven offices that they operate today, they've got one that's about ready to kick off construction soon give them eight, along with our two gives us 10 locations. I would expect that we will continue to look for opportunities to expand further in that market and leverage the economy there for growth.

That's a growth market, and again in the same slide deck, you can see some of the population growth numbers, the household income growth numbers, the deposit growth numbers, all of those things are very favorable for us and when we compare to the rest of the footprint. So it's a real opportunity for us in Houston..

That's great color, maybe another way to answer -- ask the question is, how should we think about the size of the Texas franchise in proportion to the overall size of the company.

I mean, I assume it's something you want to get bigger but is there any upper balance to how big is that grow? Or could we expect as I got friends across the street have said that maybe you might the headquarters down the Houston at some point? I'm just [indiscernible]..

When you look at our footprint today, I think, we like where we are. I think we've got a great team of folks here across the South East. I don't see us making any structural moves in the company anytime soon, if at all. But clearly, from a growth perspective, 40% of our base is still here in our home.

So this moves us to a little less than 20% in the Texas market and I can't pull the slides desk, I have to find that slide but Louisiana and Arkansas are right behind that on deposit market share. We just completed the acquisition in North Louisiana but I-20 corridor is a good market for us.

We've got a good presence and a little walk Arkansas markets. I think we like our entire footprint. And I think we can marry the strengths of each of those footprints together.

Clearly, the growth prospects and Houston is a plus and again, you've got to look at our core low-cost sticky core funding base that comes from the spread that we have across the eight state footprint that we have. I think we like where we are..

Okay, fair enough. Maybe one more for me. The organic loan growth this quarter was a little bit less than I was expecting. Any notable pay downs this quarter and then can you give any commentary around the pipeline and maybe expectations for the year..

I'll let some people get here on that but my comment would be, your expectations are off. When you look at our first quarter for the last 5 years, this is one of the best first quarters we've had out of the last 5 years. So I'm not sure what was driving your expectations to be outside in 1Q.

But our first quarter performance for the last 5 years has been wider, the lightest quarter for the year for us and I think we're pretty pleased with where we are. Pipeline, I think, is doing well.

Chris you want to add on any other color coming forward?.

Yes, no big pay downs that I can note or think about. I think the pipeline does remain good, we're competing on a lot of deals. Interest rates, that's part of the issue out there as well. Competing against deals and thinking about a prime rate increases coming up so we're being disciplined on our pricing approach, and we feel good about our pipeline.

But it's a competitive market, and we're going to [indiscernible] on price..

We've seen many competitors pricing deals on a 10-year fix at forward, and we are not playing in that game. So if there's banks out there wanting to give away money that way, we're happy to knock like that long..

Okay.

So mid to high single digit the deal is still a good way to think about it?.

Yes, I think we feel good about our look forward..

The next question comes from Jennifer Demba with SunTrust..

Just curious staying on the acquisition topic.

What's your appetite for future deals in 2018, given that you just closed 2 and you have another pending?.

Well, [indiscernible] on how you asked that question, too. There's lots of constituents that would have an opinion on that. If you're asking our technology team, they may tell you that we need to be careful what we move forward with. If you're talking to others, some people have bigger appetites than others.

Deals, Jenny, as you know are all opportunistic and so we have known Mark and John, we've been talking to them for several years. This was a perfect fit for us in many ways.

That doesn't mean there's not other opportunities out there but we just need to keep looking at them and decide what the timeline could be and it looks like we're going to have a train come by our conference call today. That's right, the triple O train.

I don't know that I see an answer to we will or we will not do something in the back half of the year. I think it would be -- I think we need to be careful that we don't overload the team in what we're doing.

So I think we've got the capacity, we continue to grow, we've got to get past the second quarter integration of the First State Bank of Central Texas team. We have got to get this transaction, we have got first file for applications, so we got to get approval, we got to have a shareholder meeting, and we got to integrate that one.

So I think as we get closer, and we can see some clarity on that timeline, then we can start talking about where the next one might come along..

The next question comes from Jon Arfstrom with RBC..

Is that the Dan Rollins acquisition freight train?.

It is, there you go, there you go. The train is running, and it likes its horn, as you can tell..

Just a follow up on a couple of your acquisition questions.

Can you talk a little about Central Community in Ouachita, how they're going in terms of -- versus your early expectations, are they growing, are you doing some back filling, what's going on there?.

Well, clearly, when you take -- when you are in the middle of an integration, and you've got to change names, and you've got to change computer systems, and you have got to change how you login, and you've got to change everything else about what you're doing, that takes a focus off of growth for those teams.

So did we grow in the first quarter, I think both of them did very well. One was up a little bit in loans, the other was down a little bit in loans. One was up just a little bit in deposits, well they both were probably down just a little bit for deposits, I think.

But when you look at the overall expectation, I think which is your question, we are very pleased with what's happening there. I think the long delay that we went through and getting to the finish line allowed us to get to know each other.

And so, while it just is kind of happened, and we just put them in our computer systems, we've now known each other for over 4 years and so there's a comfort level that sometimes it's not there in acquisitions that happen on a normal timeframe or a shorter timeframe and you would normally expect to see some shrinkage on the balance sheet.

I think our teams are out there producing very well, like I said, OIB the ones you talked group on I-20 in North Louisiana, I couldn't be proud of what's happened in their market and the team in Texas is chewing up for to be next up in the batters box and before the end of this quarter, we'll have them in our computer system also and I don't anticipate to see any problems there..

Okay, good. Maybe one for you.

Chris, you talked about some of deposit repricing, actions that your taking, can you just talk about how material that might be?.

Well, we are on a diverse footprint on a lot of states, so you've got a lot of different types of competitors that are doing in different ways, but we have to think about it from top of the house and a total footprint perspective. So we're watching our rates.

We are taking selective approach to selective products where we need to and where we think to. It's hard to put a quantitive measure on it, I just -- I guess the color would be, there's definitely competition out there and some upward pressure on deposit pricing.

That help?.

Yes, it helps. So I guess, one of the numbers that was disclosed was the yield's ex accretion up.

I think, you said 15 basis points and deposits up 4 year-over-year if I had that right?.

Right..

Can that relationship still hold, assuming the rates march higher?.

I would want to add into that. Also, when you look at the total deposit cost was up 4 bps, Jon, I want to make sure we're right. Total deposit cost is up 4 bps, that includes the two acquisitions.

When we look at our -- like we were talking earlier about deposit growth and loan growth, ex acquisitions, if you look at the deposit cost of the -- albeit excess part of the book, we were up 1 basis point and the bring on of the other two banks, moved us up the other 3 to get us up the total of 4 basis point for the quarter.

Chris, you want to add on that?.

Yes, I know that I can really predict what it's going to look like in terms of the spread between those 2 numbers but I think there's also in addition to the competitive pressure on the deposit side, how does we still feel like we have upward pressure on the loan margin the types of loans that we have and the repricing schedules that we have.

So have those upward pressure on both. What that does to the -- compared to 2 numbers together, that would be hard to answer..

And discipline on not putting out....

Right..

[Indiscernible] price, loan money..

The next question comes from Will Curtiss with Piper Jaffray..

I want to go back for a quick one on the gross side. Sound like you still feel good about the mid- to high single digit loan growth range.

And I think last quarter, there was some optimism about the benefits from tax reform, so I'm curious if you can kind of update us on, kind of, what you're seeing from your customers and had they still feel that the benefits will come through sooner or is it been, you think maybe pushed out towards the latter half of the year?.

Yes, I don't know how to answer to that.

From an economic standpoint, John, we'll let you jump in here, from an economic standpoint, I think customers were feeling optimistic but there's still a whole lot of unknowns that are out there I think when we compare ourselves to many of our peers in our market, I think we did as good or better than many of our peers on a loan growth situation.

So again, when you aggregate all the numbers together, we certainly watch just like you do, Will. And then we compare to what are historical numbers have been.

As I said, a little while ago, I think we are proud of our team, we think there is opportunity out there for us on an economy basis, some markets are better than others but there is opportunity for us, John you want to add on that?.

Just anecdotally, I mean most of my business contacts are relatively small businesses and primarily in the Memphis and Nashville markets. But the people that I know, the small-business people I know are very optimistic, they feel very good about the tax reform, very....

Turn that into borrowings, yet?.

No, they have not. But actually, yes. They feel optimistic, so that's very anecdotal..

Not for me. I think it takes a while for that to grind through the system has start to suppress to start to see benefits for optimism. Yes, I think people are positive..

Okay, understood. And switching gears.

On the expense outlook, can you, kind of, help us as going to progress to the course of the year, I'm trying to get a sense for how the timing of the cost saves look forward through and just make sure that we're starting from the correct base? The correct base is [indiscernible] we tried to give you some color in press release.

So there were several items that were in there, that were unusual, clearly, the fraud item was unusual on the expense side. Legal settlement was unusual on the income side.

Remember, we also had some cost in our first quarter numbers that would be of a one-time nature in salaries, when you look at the decision that we made as a company to reward our staff as a part of the Jobs Act and Tax Saving Bill that started the year off.

So we put out raises to the large majority of our team effective January 1, and some folks got a one-time bonus that one-time bonus, I think, was a little less than $1 million on a pretax basis what am I missing John, on the one-time items? And the expense base? Okay, so if you pull off the specials that we just talk about and I think that's a fair base to start from and then your question is, where are we on a cost saved, and we literally just finished the integration of OIB at the end of the quarter.

We haven't done integration of First State Bank until the end of this quarter. So I would expect to see the cost savings that we've modeled in begin to impact us and 2Q and certainly 3Q and 4Q this year..

The next question comes from John Rodis with FIG Partners..

On the Icon acquisition, just -- if the numbers I'm looking at are right, it looks like there are loans have sort of trended down the last couple of quarters.

Can you maybe just talk about that anything specific going on there?.

Not that I know of. I don't have an answer to that question. I think they've, like many in the Houston market or dealing with the aftermath of the flooding last year and trying to figure out, kind of, what's there.

I don't think they're feeling any pressure I think they'll do like they've got great opportunities in front of them, just economic wins in Houston..

I guess all things considered, would you think that portfolio should grow higher than the leg -- BancorpSouth portfolio better than the mid- to high single digits or how should we think about that?.

Yes, I think when you look at the company as a whole, again, some markets, we don't have a whole lot of growth opportunities. So to grow the whole company, you've got to have the some markets that are outperforming. And I think we've been seeing that already.

Our presence in Houston, the $300 million and almost $400 million in loans that we've put on over there, they started at 0. So if you're trying to make a percentage growth off of that market, well it's growing a lot faster than 5%, because they started at 0, 3 years ago.

Houston market has the ability, as does the Dallas market, as does the Austin market, as does the Nashville market, as does Little Rock and Saint Louis, the Memphis Metropolitan markets we're in have real opportunity for growth and then we have got a big part of our footprint its in the rural south that doesn't have that same opportunity for growth..

Okay, fair enough. John, maybe just a question for you, the yield accretion, you guys said, was roughly seven basis points in the quarter, which I guess, equates to about $2.5 million.

Would you say that's sort of the normal accretion that we should expect would be modeling going forward or were there any early payoffs?.

I'm not aware of any significant early payoffs in that mix. But recall that, that was 2.5 months' worth since the deal was closed on the 15, so....

Yes, there's a table in the press release, John, on this, kind of, accretion, Page 17, that's right, on the earnings release that may be will help you with some of that..

My experience in that in the past is that it can be lumpy. It's hard to predict when people pay off their loans and when they refinance..

Pay off comes off one bucket and that's kind of the accretion comes in another and we break that out for you on Page 17..

Okay, fair enough. And just one follow-up, the tax rate, I think last quarter, you said 23% to 25%. You came in a little bit better this quarter.

How should we be thinking about that, given the acquisition and stuff?.

Go ahead John, I think, go ahead..

Well. Yes, we did say 23%, 25%, it's going to be closer to 23%. We've got some tax benefits coming up that we did in to really include in our projection..

[Indiscernible] this quarter..

Yes, we had some tax benefits from the investing of restricted stock in this quarter, we'll have that again next quarter. So that's going to improve the tax rate somewhat. But I think, 23% is probably a pretty good number going forward..

The next question comes from Catherine Mealor with KBW..

One follow up on the margin. The breakdown of the funding cost where your legacy funding cost were up 1 basis point and then the deal was up 3. That was super helpful.

Can you help us break that down for the loan yield as well, how much the incremental loan yields past accretion was just legacy BankcorpSouth forces its impact from higher yielding from acquired books..

I'll take that..

I think total yield was up 24 basis points for the quarter. We were estimating that probably, I think, 9 bps of that was accretion. About 10 bps was the effect of FSB and OIB on the loan yields, excluding accretion. So that's 19 basis points. And then about 5 basis points of legacy loan improvement in the loan yields..

Okay, great. Really helpful. So then, kind of the question earlier, your legacy loan there increasing by 5 bps but your legacy deposit costs are only up 1, so you have a really nice spread there..

That's right..

We are looking to trying to do the math on the other side. Loan cost in the last quarter or loan yield for us in the fourth quarter was 4.36% before anything was posted in, we posted 4.60%. We think the quarter previous bank was somewhere in the 4.50% range. So if the extra pickup came from the accretion and from the other banks..

Yes, that's the 24 basis points. I gave you the details on, Catherine..

Got it. That's really helpful.

And then, on the Icon deal, where does your capital -- where do your capital ratios go for that deal? And then, as we kind of think about capital deployment from here your division payout ratio is going down and that's giving you making more money this year, so how do we think about your outlook for dividends given your higher earnings base this year?.

I think that when you look at what our directors are going to want is that they like seeing increased dividend. We've got a lot of shareholders on the -- on our board, and I would expect us to continue on the same dividend payout process that we've been on now for some years.

So I think that's certainly something that our directors look at and consider in our capital planning process, we see a capital planning and an update to capital planning in every one of our quarterly board meetings. When you look at share buyback, we still have capacity within our share buyback.

Clearly, the transactions move the needle a little bit, it's probably 20 bps on capital ratios, which when you look at earnings capacity, we can repair that very quickly.

Another way to look at it would be to look at our capital ratios from 12.31% to 3.31% the deals, as we've said all along, those 2 deals were a 90 bps to 100 bps diluted to capital, which means, we basically paid for all of the share buyback that we did this quarter with earnings because that's basically what we were down for the quarter..

The next question comes from Blair Brantley with; Brean Capital..

Just a couple of quick questions.

First on the Icon deal, is there anything major you see from a restructuring perspective that will be needed?.

Major from a restructuring, what are you mean from a cost perspective?.

Well I just look at a bunch of cash then the -- they attest portfolio just curious if any opportunities there, anything you can see really changing from the structure of the portfolio today?.

Yes, they really don't have a portfolio today. There balefully loaned up. They're using all of the deposits that they have on the loan book. I think, their total investor portfolio was less than $1 million..

$900,000..

It's virtually nothing..

91%..

I don't see anything that's going to move the needle on it..

And then to switch gears, on the mortgage side, the gain on sale margins, is that what you are expecting or maybe just give a sense of what you're seeing out there right now because we're hearing a lot of competition and a lot of pressure on the gain on sale margins..

Yes, I think our team continues to perform well. When you look back and compare us year-over-year, I think our first quarter margin has been up consistently.

First quarter over first -- first quarter to first quarter to first quarter and then you can see that margin wane throughout the year, we look at it on the full year run rate and first quarter is a big part of that.

But I don't know if there was anything unusual here, Chris, do you?.

No. Not unusual. A lot of that is just accounting treatment and timing based on your pipeline. So, I don't--.

Almost down to production..

That's right. But it is competitive but it's -- I think as we're not seeing any pressure on that..

And then from the -- it looks like you guys sold about 78% of your production, is that a reasonable target going forward? Or you -- how do you think about that?.

That all comes back into what we're producing. So I think that's a fair number. But sometimes, we can produce more product that gets sold, sometimes we could produce more product that gets retained..

Right. And then, I have one other quick question. In the other income line, is there anything else that kind of stands out for the quarter because it still seems like it was pretty high relative to expectations..

Yes, I think that's a good catch. There is an item in there that's basically an early payoff fee that's not an interest on the transaction and I can know that was, John..

$2.5 million, we experienced and we liquidated in investments subsidiary and booked a gain of $2.5 million, that's also in that other income number..

That's right..

The next question comes from Casey Haire with Jefferies..

This is Elan Zanger on for Casey.

Just going back to the insurance, is it fair to take the $3.7 million adjustment you guys had on those quarter and just kind of spread it across the remainder of the year?.

Kind of, but that's not exactly how it works. So I think, we would look and say that we took in $1.7 million in the first quarter, and we would anticipate that all things being equal, unless we change estimates, that will would bring that same amount in the next 3 quarters..

Yes, this is John. Of course, we received in the first quarter $5.5 million roughly in contingencies fee income. That normally, we would book it on a cash basis, which we did.

But then when we adopted the new revenue recognition standard we had -- we reverse that out and book back to retained earnings and then began accruing, I think, $1.7 million in the first quarter, and we would expect to accrue about the same amount in the subsequent quarters this year..

But at the end of the day, it's an estimate..

It's an estimate and it would be true to up then in 2019, when we actually receive the cash..

And will be estimating in 2020..

And then we will be estimating in 2020..

So GAAP has told us instead of booking what we actually earn, we should make estimates and book off of the estimates and then true them up in another period that's on Page 18, there's some disclosures on Page 18 at the bottom of the page that falls into other, under the insurance commission line, and you can see we booked $6 million in other commissions in the first quarter of last year and $2.3 million in the first quarter of this year.

And then that line will be up in the second, third and fourth quarter of this year because of the change in revenue recognition..

I think we estimated the current accrual based on, I believe a 5-year run average. Contingency fee income so its okay with that, but you had to reverse out what received in the first quarter to capital to avoid double counting..

That help you Casey, that's not Casey, I'm sorry, Elan..

Yes, that's helpful.

And then was there any impact on how you accrue for expenses or this is just on the top line?.

It's just on revenue side. That's the renewal, it has nothing to do with the expense side..

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

Thank you all for joining us today, if you need any additional information or have any further questions, please don't hesitate to contact us. Otherwise, we look forward to speaking with you again soon as we are out on the road. Thank you very much..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..