Will Fisackerly - SVP & Director, Corporate Finance Dan Rollins - Chairman & CEO Chris Bagley - President & COO Bill Prater - SEVP & CFO Ron Hodges - SEVP & Chief Credit Officer James Threadgill - SEVP & Chief Development Officer.

Catherine Mealor - KBW Steven Alexopoulos - JPMorgan Kevin Fitzsimmons - Hovde Group Jon Arfstrom - RBC Capital Markets David Bishop - Drexel Hamilton Emlen Harmon - Jefferies Matt Olney - Stephens John Rodis - FIG Partners Peyton Green - Sterne Agee Blair Brantley - BB&T.

Welcome to the BancorpSouth Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Will Fisackerly, Senior Vice President and Director of Corporate Finance. Please go ahead..

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 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; and James Threadgill, Senior Executive Vice President and Chief Development Officer.

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 10-K. Also during the call, certain non-GAAP financial measures may be discussed regarding the company's performance. If so, you can find the reconciliation of these measures in the company's Q4 2014 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 as they exhibit today, data that we filed earlier this morning.

And now I'll turn to Dan Rollins for his comments on the quarter..

Thank you, Will. Good morning, everyone. Thank you for joining us today for BancorpSouth's year-end 2014 conference call. I will begin by making a few brief comments regarding the highlights from last quarter and for the full year of 2014. 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 have. Now let's turn to the slide presentation. Slide 2 contains our customary Safe Harbor statements, with respect to certain forward-looking information in the presentation. The next slide begins our review of the fourth quarter.

Net income was $28.7 million or $0.30 per diluted share. Net operating income which excludes merger-related and other non-operating expenses was also $0.30 per diluted share as there were no material non-operating items in the fourth quarter results.

Earnings were flat compared to both the third quarter of '14 and the fourth quarter of '13, despite being adversely impacted by a negative mark-to-market adjustment of $3.4 million for our mortgage servicing assets. For the full year of 2014, we recorded a negative MSR adjustment of $6.4 million.

Despite this headwind, for the full year, we reported an increase of over 20% of net income from $94.1 million or $0.99 per diluted share in 2013 to $116.8 million or $1.21 per diluted share for 2014.

This increase was attributable to a decline in total non-interest expense of approximately $16 million year-over-year as well as continued loan growth which is shown in the next bullet. We reported another solid quarter of net loan growth totaling $202 million or 8.4% on annualized basis.

This concludes an outstanding year of loan growth for our company. Total loans grew over $750 million or over 8% over the course of the full year. Chris will give some more color on our loan production efforts shortly. While it is not shown on this slide, I would also like to mention deposit growth.

While promotional and single-service CD runoff provided a headwind to total deposit growth, our bankers were successful in growing lower-cost funding during 2014. Non-interest bearing demand, interest-bearing demand and savings deposits all grew over 5% in 2014.

Now that the majority of our promotional CDs have either left or were repriced, we are hopeful that our focus and efforts on deposit growth will be more visible during 2015. We continue to hold our net interest margin in a tight range. Margin for the fourth quarter was 3.6% compared to 3.62% for the third quarter of '14.

The mix and repricing of our deposits has helped us offset continued pressure on loan yields. Moving on to non-financial highlights, our team worked diligently in the quarter to fine tune the enhancements made to our BSA and AML compliance program since last summer. Chris will speak more specifically to that progress momentarily.

Consistent with the timeline communicated in last quarter's call, our primary regulators are currently on-site reviewing our enhanced program. We continue to believe the BSA AML cost projections, both the one-time cost and ongoing costs disclosed in last quarter's call are reasonable.

Finally, in December our Board of Directors authorized the repurchase of up to 6% or 5.764 million of our company's outstanding common stock. This authorization will give us another viable tool to use in our efforts to most effectively and efficiently manage capital.

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

Thanks, Dan. If you'll turn to slide 4, you'll see our summary income statement. Net income was $28.7 million or $0.30 per diluted share for the fourth quarter, essentially unchanged from the third quarter of 2014 and up $1 million or $0.01 per share from the fourth quarter of 2013.

Fourth quarter results were adversely impacted by the $3.4 million negative MSR valuation adjustment that Dan mentioned earlier which is a non-cash charge. There were no material items in the fourth quarter results that we consider to be non-operating.

As a reminder, for comparative purposes, earnings for the third quarter of 2014 were adversely impacted by a one-time pre-tax charge of $3.1 million related to our BSA AML remediation efforts. You'll also notice on this slide the continued growth in our net interest revenue.

Net interest revenue increased to $106.4 million for the fourth quarter compared to $105.6 million for the third quarter of 2014 and $102.4 million for the fourth quarter of 2013. Our net interest margin was 3.60% for the fourth quarter, compared to 3.62% for the third quarter and 3.52% for the fourth quarter of 2013.

Net loan growth as well as the repricing of higher-cost time deposits has continued to allow us to hold our net interest margin relatively steady. We believe there are still some additional opportunities to lower our cost of deposits. The following two slides break our non-interest revenue and expense into further detail.

If you'll turn to slide 5, you'll see a detail of our non-interest lines of business. Total non-interest revenue was $63.5 million for the quarter, compared to $69.3 million for the third quarter of 2014 and $65.1 million for the fourth quarter of 2013.

Mortgage lending revenue was $3.3 million for the quarter, compared to $6.9 million for the third quarter of 2014 and $9.6 million for the fourth quarter of 2013. The volatility in mortgage lending revenue was driven primarily by the fluctuation of the MSR asset valuation. James will discuss that more in a moment.

Insurance had a nice quarter as well, despite the seasonality in the revenue stream with total commission revenue totaling $25.4 million for the quarter compared to $29.2 million for the third quarter of 2014 and $21.4 million for the fourth quarter of 2013.

Both the third and fourth quarter 2014 results include revenue generated from the GEM and Knox agency acquisitions, while the fourth quarter of 2013 results only included one month of revenue from GEM. We also saw quarter-over-quarter growth in card fee income. Slide 6 presents the detail on non-interest expense.

Total non-interest expense for the current quarter was $130 million compared to $133.7 million for the third quarter of 2014 and $127.8 million for the fourth quarter of 2013. The schedule at the bottom of the slide shows the aggregate impact of the non-operating items included in each of the quarters presented.

The BSA AML charge incurred in the third quarter is the only material non-operating item impacting the three quarters shown here. Aside from these items, quarter-over-quarter trends are driven primarily by salaries and employee benefits as well as foreclosed property expense.

Salaries and benefits totaled $76.8 million for the quarter, compared to $77.5 million for the third quarter of 2014 and $75.5 million for the fourth quarter of 2013. We continue to challenge our overall headcount by adding producers.

Since the end of 2012, total full-time equivalent employees is down approximately 7%, despite the addition of over 100 revenue producers. In the fourth quarter, we added a Houston mortgage team that included 19 employees.

Foreclosed property expense declined $1.1 million compared to the third quarter, primarily as a result of declines in losses on sales which totaled $1.6 million for the quarter. We continue to be aggressive in marketing the remaining properties as total ORE declined by over 20% quarter-over-quarter.

Ron will discuss our ORE efforts in more detail in a moment. We expect ORE expense to decline in 2015, as our total ORE balance was cut in half over the course of the last year. I will now turn this over to Chris for his comments on BSA AML, as well as our front-line banking efforts.

Chris?.

Thank you, Bill. I am very pleased to announce that we have made significant progress implementing new policies and procedures that are necessary to improve, strengthen and bring our overall BSA AML program into compliance.

The training programs for all bank employees across all business lines have been enhanced; all BXS employees have completed their assigned training tasks.

Due to the leadership of our BSA officers and key BSA staff, along with the rest of the 38-member BSA AML team, we have effectively and efficiently made real process and procedural improvements to our overall program.

Additionally, our third-party consultants that performed a second follow-up assessment of our program to test implementation of their previously recommended items from their independent review have again reiterated that they find our program to be compliant.

A look-back component of the consent order is well underway, however this is a large project with many data points to extract. Therefore, the exact completion time is impossible to predict at this point, but current expectations are near the end of February.

We are confident that the many improvements we have made to our BSA program provide significant impact and that we have created a compliant program. This could only be possible with the commitment and leadership of our entire Board of Directors and every BXS employee.

I can't express enough the appreciation to the Board, all of our staff and finally, our remarkable BSA team for their long hours, dedication and efforts which have brought our program to where it is today. As Dan mentioned earlier, both the FDIC and the state regulators are here reviewing the progress we have made to-date.

The team of examiners began their review in early January and expect to complete their work within the next few weeks. I would like now to spend a few moments discussing our front-line efforts within the bank. Details of our loan growth are shown on slide 7.

We reported growth of 8.4% annualized for the quarter, consistent with prior-quarter trends in our portfolio. We continue to grow in virtually every major loan category. Coincidentally, we also reported 8.4% loan growth for the entire year.

Not long after Dan's arrival, Dan traveled our footprint and challenged our bankers to grow the company and to become more efficient, while still providing a great customer experience. Many in our company viewed these goals as unattainable.

However, I am very proud to say our bankers accepted this challenge, and I am pleased to report that since that time, we have grown loans by over $900 million, that's a testament to the hard work of our bankers and to the relationships they have built throughout our footprint. Loan growth continues to come from across our entire footprint.

All five of our regions produced net loan growth during 2014, as well as each of our specialized lending groups including corporate banking credit card and equipment finance. We had three bank divisions produce loan growth of over 10% for the year. They include our Gulf Coast, Northeast Texas and South Louisiana divisions.

Also, our Houston, Texas division that was formed with the LPO openings produced $55 million of loan growth and our more recently announced Austin, Texas, LPO is off to a great start, as well. As we enter 2015, we feel good about our current loan pipeline and our ability to continue to grow.

We will continue to set growth goals for our bankers, with their input, as part of our 2015 planning process. As Dan mentioned earlier, total deposits were relatively flat year-over-year as growth in savings and DDA was offset by time-deposit runoff.

Now that most of the higher-cost promotional type CD money has runoff or reprised, we’re optimistic about our ability to grow deposits. As part of the 2015 planning process, we've also set some meaningful deposit goals for our team.

We're asking our team of bankers to maintain their focus on growing core deposits by expanding existing relationships and developing new ones. We continue to review our products, pricing and promotions to ensure that we are equipping our front-line professionals with the tools needed to achieve that growth.

Before concluding, I would like to make a brief comment on the recent oil and gas price drop and potential impact to our company. While we have no direct exposure to production energy credits, we are in markets where oil and gas prices can impact the respective economy. South Louisiana and East Texas are both such areas for us.

It is also important to note that many of our markets and customers benefit from the lower cost of oil and the savings that lower cost generates in their monthly expenses and operating costs. Suffice it to say we are monitoring this situation very closely. I will now turn it over to James to discuss our business development in mortgage and insurance..

Thanks, Chris. The tables on slide 8 provide a five-quarter look at both more mortgage and insurance revenue. Our mortgage lending operation produced origination volume for the quarter totaling $256 million. Of that, $193 million or 75% represented home-purchase money which is a 20% increase in purchase money volume over the fourth quarter of 2013.

We believe comparable quarter comparisons are more relevant given the seasonality in the business. Deliveries in the quarter were $229 million compared to $225 million in the third quarter.

Mortgage lending revenue totaled $3.3 million for the quarter which included a negative MSR valuation adjustment of $3.4 million, compared to revenue of $6.9 million during the third quarter of 2014 which included a positive MSR valuation adjustment of $600,000. Margin was 1.72% for the quarter and increased from 1.66% in the third quarter of 2014.

In looking at the five-quarter trend in the margin, remember a one-time accounting policy election had a positive impact on the second quarter margin. We continue to reap the benefits of the new producers that we've added over the course of the year. These producers are developing relationships and building their pipeline.

In November, we announced the addition of a new mortgage team in Houston, Texas consisting of eight originators. In total, we grew our origination team by over 25% in 2014. Moving on to insurance total commission revenue for the quarter was $25.4 million compared to $29.2 million for the third quarter and $21.4 million for the fourth quarter of 2013.

As Bill mentioned, the GEM transaction closed in December of 2013 and Knox in April of 2014. Therefore, only one month of GEM's activity is reflected in the results for the fourth quarter of 2013. While seasonality is driving a sequential quarter decline we saw nice revenue growth compared to the fourth quarter of 2013.

For the year, we had organic growth of approximately 4% in addition to the revenue added by the GEM and Knox agency acquisitions. The Houston-based GEM agency produced very good numbers as they've written several large accounts in the Houston area utilizing the enhanced resources available to them through our agency.

We have established a dedicated small-accounts unit to realize operating efficiencies in serving the small-business market segment. In 2015, we will continue to look for additional ways to improve our operating results. Now I'll turn it over to Ron for his comments on credit quality..

Thanks, James. Slide 9 presents some highlights on credit quality for the fourth quarter. We mentioned in last quarter's call that we felt like certain of our credit quality metrics had reached normalized levels and we expected those trends to stabilize. Accordingly, we expect to see normal fluctuations quarter to quarter in individual areas.

However, this is not a cause for concern for us, in that we view it as a return to a somewhat normal operating environment. You can see this in this quarter in non-performing loans which increased by $2.8 million which is a very nominal amount.

Total non-performing assets continued to trend down, declining by $5.9 million or 5.3%, primarily as a result of ORE dispositions. ORE decreased $8.7 million or 20% from $42.7 million at September 30, 2014 to $34.0 million at December 31, 2014. Losses on sale and write-downs for the quarter totaled $1.6 million and $2.4 million respectively.

Total ORE declined by just over 50% over the course of the year. While there may continue to be some volatility in foreclosed property expense as we work through the remaining properties, a meaningful reduction in total inventory should reduce the adverse impact and absolute terms on our company's performance going forward.

Even with strong long growth produced during the quarter, that provision was not necessary, due to continued stability in our credit quality indicators and continued low levels of net charge-offs. The ALLL declined to 1.47% 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 remained at stable levels. Slide 10 provides a visual of the trends in NPLs, ORE and total NPAs over the past several quarters.

You can see the consistent progress we've made quarter after quarter in working these balances down to more normalized operating levels. Before I conclude, I would like to again reiterate that we've not changed any loan underwriting standards to facilitate loan growth, nor have we changed our approach regarding syndicated credits.

We continue to build our loan portfolio through attracting new producers and through our lenders winning new business. I will now turn back to Dan for his concluding remarks..

Thanks, Ron. We are pleased with our teammates' accomplishments during 2014 and excited about the foundation that has been built for 2015 forward. Our team answered our challenge on growth. Our lenders produced loan growth of over $750 million which represents the largest annual organic loan growth total in our company's history.

Our insurance producers had an outstanding year as well. They continue to win new business year-after-year, resulting in considerable organic revenue growth layered on top of the insurance transactions mentioned earlier.

We continue to grow our mortgage lending team and they are producing record levels of purchase money volume, despite the revenue headwind experienced in 2014 associated with the mortgage servicing asset valuation. Our wealth management team also reported revenue growth year-over-year. They are winning new clients and growing assets under management.

We have experienced growth across all product lines in our company, while continuing to challenge expenses. Total non-interest expense declined in '14 compared to '13 in virtually every major category. As we move into 2015, we will continue to see the benefits of actions taken over the past two years.

We must also continue to challenge every dollar we spend and find additional ways to improve our profitability. Finally, we will continue to emphasize the importance of monitoring and enhancing our compliance policies, procedures and programs.

We are optimistic the changes and enhancements made to our BSA AML program will result in an overall compliance program that exceeds regulatory requirements and expectations. With that, I will conclude our prepared remarks. And Andrew, we will now begin to answer questions..

[Operator Instructions]. The first question comes from Catherine Mealor of KBW. Please go ahead..

Chris, you mentioned that you don't have any direct exposure to energy companies -- does that include companies in the energy servicing sector?.

No ma'am. We would have a direct exposure to some servicing companies and obviously those markets we’re in and I would make the argument that many of the businesses in those markets have energy exposure at least impacted by movements in the oil prices. But we aren't an active production lender credit type lender --.

Or a service producer at the credit market. The markets that we're in East Texas and Louisiana we're going to have exposure to oil and gas and everything we do over there if the party is not selling more pickups and the restaurant is not serving more lunches, everybody is impacted by the slowdown..

How do you think about I guess 20% of your growth in the past couple of years have been in the Texas and Louisiana markets -- how do you envision the lower energy prices impacting your growth moving forward?.

Yes.

I think that we'll still have opportunities you know when you look at what we're doing I think we're making good sound decisions on basically non-energy related product and so when you look at the markets across Texas and talk about Austin, Austin's a very vibrant market and there is not a whole lot of energy credit activity going on in Austin at all.

When you look at the state of Louisiana there are pockets of the state that have big exposure to oil and gas and there are pockets that don't have as much exposure so I think our job is to make sound good decisions on credit by credit basis and market by market basis.

Your question is more forward-looking I think because it talks about where to we expect 2015 and forward to grow and I think we believe that we've got the ability to continue to grow loans at the same pace or close to the same pace as we been growing in the past and if it doesn't come from Louisiana and Texas it can come from other markets that are also doing well..

Okay.

And is there a way to quantify the amount of your -- I think about $2 billion Texas, Louisiana portfolio and how much of that is specifically in the servicing sector or is that specific number available?.

It's immaterial, so I said while we may have -- again, we don't have any large credits to anybody servicing any of the oil service business. If we have credits out there it's going to be little mom-and-pop somebody that has a welding shop that helps on something. It's going to be a very small immaterial amount that's of direct exposure.

Our exposure is all secondary to that. Our exposure is at the doctor's office [inaudible] the commercial real estate that's in the town.

It's going to be secondary exposure the hotel operator that's in the town without being able to fill the hotel so we certainly have exposure into those markets but direct production and exploration exposure is virtually zero and a direct service exposure is going to be a very small number..

The next question comes from Steven Alexopoulos of JPMorgan. Please go ahead..

Maybe I could start, so Texas bank stocks have gone on sale right given the plunge in oil prices and you were in that market for a long time.

How is that -- I know you have to work through the consent order before you can pursue additional M&A but how are you looking at that market? Is it more attractive to you given where prices are potentially if targets or is it less attractive given the potential negative impact to the economy from what's happened with oil?.

I think it depends upon again where you are -- Texas is a very large economy so when you look at the State of Texas and you look at where oil and gas has a big impact certainly had in West Texas and the Midland of West Texas area, in South Texas, some of the shale play areas there -- it's huge energy impact on the ground with workers doing their job.

The Houston market where the world's energy resources are managed, that may not have actually people working on the drilling rig in Houston but that still is all energy-related and you’ve seen the same announcements that I've seen and some of the big companies there are laying off workers worldwide. Those markets can have a negative impact.

There are other markets in Texas that they may not be experiencing all that negative oil and gas and frankly may be benefiting from the lower energy costs that you can look at and when you look at our footprint as a whole and here in our footprint, most of our manufacturing companies that we deal with in the southeast are very happy with their lower transportation costs, are very happy with higher disposable incomes and the consumer is able to buy some of their product.

So the fact that we've got a downturn in oil and gas certainly can have some negative local impacted in some markets we just have to do a good job of making sure that our underwriting is sound in our decision-making is good. You were specifically asking about opportunities within Texas. I think there will be some opportunities over there.

I think what you have always told us Stephen is a buy low and sell high. Well, the price is low.

I'm not sure you've got a lot of bankers in Texas that want to sell at historically low valuations on banks over there today and we are focused today on making sure that we can complete the two acquisitions that we're working on today before we get focused on the next deals..

Okay. And maybe just a separate question on the mortgage company. Given the drop in rates can you talk about how much you guys have dropped your mortgage rates? Are they enough where you could potentially see another refi spurt or whatever? And you need to bring on any additional staff here to handle volumes? Thanks..

Yes. Let me address that and James can jump in here with me. We have not dropped our rates any different than anybody else has.

The mortgage market is a commodity market and everybody is going to stay in lockstep with each other or you are not going to be doing any business so when you talk about rates, the rates are established every day by what's happening in the markets and a 10 year treasury is way, way low today.

We certainly have seen a pick-up in the last early this month and the beginning of 2015, we've seen a pick-up in application volume which would indicate that there is some refinance activity going on.

It's way too early to talk about staffing levels and how long this is going to run but the last time we came through this would be I guess full-year 2012 and we ran huge volumes of reifies and we did $1.1 billion of total volume last year?.

1.50 billion..

So just to say over $1 billion of total volume last year and in 2012 we did over $2 billion of total volume and that was refi focused. It is too early two weeks into the year to be answering that but I can tell you that our application pipeline is bigger today than it's been in some time and some of that's coming through the refi side..

And I will just add to that, Dan, we are seeing in those -- in the early stages of this month, we have seen an increase in the refi percentage. Up from the 75% purchase we did last quarter, we are seeing that come down significantly so not only indications -- there is some good bit of refi going on..

The application process..

In the application. Correct..

But you’re saying you’ve plenty of capacity for at least to handle those volumes today..

Yes. We do..

The next question comes from Kevin Fitzsimmons of Hovde Group. Please go ahead..

Just one question I want to ask is I heard the update on the BSA AML issue and saw it in the 8-K, the kind of the next stage here I guess of the investigation with the CFPB and the DOJ and I guess what I want to -- if the AML issue gets resolved and we're sitting here at late February , early March and that gets revolved but the CFPB issue is earlier and it's -- however long that process is going to take, is that the sort of issue that you think would disrupt or potentially delay your ability to go in and reapply and close the announced acquisitions? Or do you think that's just more a totally separate issue and won't stall that process at all? Thanks..

Yes. A great question, I wish I had answers for some of that, the CFPB is new and there is not a lot of history out there as to how the process plays and what goes on. I can tell you what we know factually that we don't apply for the CFPB for M&A activity.

So they're not a part of the application process -- they are not a part of the decision but they don't have a direct answer into the decision on M&A activity.

The process has been going on now as you know for a 9 or 10 months, that was late first quarter last year when this started and we've been talking about it basically ever since as they have started their investigation looking into this.

This is just continuing to go on how long it lasts and what their processes, I have no knowledge and we have no experience with the CFPB to be able to respond to that.

I can tell you we are providing them what they are asking for every time they ask for it we've been very quick to respond and we been very quick to tell them what we're doing and why we're doing it and why we think we're doing a good job but it's a process that they're running we can speak to..

Okay, understood. I know that's a tough one to nail down with any certainty--.

We have a lot more certainty but frankly..

I'm sure you do.

Just one quick follow-up, I know a common theme with you guys is always being focused on the efficiency ratio and improving that and we're pretty much almost -- I guess we're in the 72 plus kind of range and peers are at 62% and I know you do not want to pinpoint we're going to get to this level at this point in time but I think what you said in the past is we need to get around to where peers are or at least that level.

So when you look out, if you're assuming loan growth stays at least at this level, you can keep the margin relatively contained, you keep relatively tight lid on expenses, you’ve talked about fee revenues, all that -- when you're looking internally is there any kind of -- is it a year? Is it two years? In your mind that it will take to get that efficiency ratio more peer like? Thanks..

Yes. That's a good question too Kevin, I think that we want to continue to focus on what we're doing every day and continue to drop benefits to the bottom line.

So from a profitability enhancements that we've been working on, many of those are now bearing fruit and there are many that are young and are bearing fruit but not very much fruit yet but our job is to make keep making sure that we're planting the seeds of success every day, challenging where we're spending our money and I think we're doing a good job of that.

I would expect that we will see continued -- you call it a tight lid on expenses. I would probably be stronger than that. I think we expect to see all things being equal to pull out unclosed merger transactions.

I think we expect to be able to see bottom line expense numbers go down in 2015 over in 2014 and so if we continue to drive expenses down and we can drive revenue growth up, we've got a couple of headwinds that we talked about earlier, our mortgage production will have some negative headwinds on MSR this year, we’re at record low rates.

So maybe there's a little more mortgage servicing headwind but it shouldn't be very much so that line should be better. The insurance line, we had great production last year and while we are providing [ph] some softer insurance rate markets than we've had in years past, that revenue line should grow.

Our trust in wealth management line has been growing at 10% clip for a while. Our card services, debit card, credit card fee services have been doing well.

The only real headwind on the fee side that we see is the service charge line that we continue to fight headwinds but I think many of our peers are fighting, but we can continue to see improved revenue on the non-interest side that we can grow loans and grow deposits we can see improved revenue on the net interest margin that interest income line and I think all those things combine can make a pretty significant move and an efficiency ratio on a quarter-to-quarter basis again fourth quarter with insurance revenue being low, I think we kept talking about it was going to be low I'm not sure what fully understood what the swings and that we run through the insurance side, we would expect that insurance revenue will be very high in the first quarter but even that's all a benefit to us.

I think you're going to see improvement is the answer to your question..

The next question comes from Jon Arfstrom of RBC Capital Markets. Please go ahead..

Just a follow-up on the insurance line, how high is high? Is this -- if you can help us size it due to the deals it's a little tougher for us is it $28 million to $29 million is that what you're thinking for Q1?.

I would have to look back at Q1 last year. Q1 is skewed in a couple of ways. You've got renewals and I'm going to let James jump in here too, you have got multiple things that come in here, you've got renewals that all our year-end loaded so your first quarter revenue is high.

And then you also have some annual incentive payments that come in in the first quarter and some in the second quarter from performance for past years on a client perspective last year was not near as good of a year as '13 was, so our expected income on the contingencies or on the enhancement -- the incentive payments that we pick up from the carriers we expect to be a little off where it was last year but revenue growth has been good and customer growth has been good.

So I don't know that will be that much more different than we were a year ago.

We'll talk about that, James do you want to?.

The other thing you got remember too is that we closed Knox in April so it was not in any of the first quarter numbers in 2014. We did it right at $31.5 million in the first quarter last year, 2014 without Knox..

And the annual run-rate was in the $2 million range..

About $3 million and so as you mentioned Dan, we did have some significant claims with some of our carriers and we do expect to see a reduction in those incentive payments that we typically receive in the first quarter but all that being said, I think hopefully the first quarter will be in-line with where it was last year..

Okay.

And the incentive claims, James, on slide 8 that’s the 5.9 million in other?.

That's correct. That's correct..

I guess Bill or Dan or Ron, I guess on the provision continues to be at zero and credit continues to get better but how much more room do you think you have in terms of bringing the reserve down?.

Ron probably needs to jump in here, we continue to drive our model. We continue to tweak our model. We continue to deal with the stress testing environment that we're dealing with today.

If credit continues to improve, we're still -- when you look at us on up here and you are looking at us 147, Ron 147 or?.

147..

147 on the loan-loss reserve to loans on a pure basis is still relatively high and I will tell you that today on a pure basis I think that you will see our credit screens relatively good.

So we've gone from being on the other end of that scale where we had relatively weaker credit metrics than many of our peers and lower allowance [ph] and today we've kind of reverse that where today our credit might metrics are screening as good or better than most of our peers and yet our reserve is still higher than most of our peers we're still working through the issues that we have to deal with from the problem assets and the classified credits that are there as Ron said, we saw classified credits pick-up this quarter not that we're alarmed or upset, I think we’re again in a normal level and we would expect to see that happen.

It's really what you've got to really let your model work and I think our expectation is there is some room but we don't know how much more room..

I would agree.

I mean, as Dan said, we are at 147 which is I think favors favorably to our competitors and our peer group I mean and as long as our metrics on our credit quality continue to trend downward and they are trending downward is just not at the steep level as it was in previous years in previous quarter's, our allowance coverage of NPLs and NPAs continues to increase and improve and as long as our model continues to tell us that we're well reserve, we're going to continue to do that.

It's all the metrics of what the credit quality is and our function of loan growth. There will be a time in the future but as long as we continue to have good recoveries and loan charge-offs, I think it's going to be favorable for our allowance..

I would say just like the [inaudible] assets, Jon, when you look at the reserve, classified assets bounced for the first quarter and they may come up again this quarter and we certainly want to continue to trend them in a down way I think the loan-loss reserve is going to be in the same way at some point we're just going to have to provision coming back up whether that's this quarter or next quarter, but we're going to have to start provisioning for that as credit quality stabilizes..

Okay.

And then just one more, the stock repurchase plan that you announced, can you talk a little bit about appetite and pace on that? And is that a substitute for acquisitions as long as the consent order is out or is this something that you view as a separate program?.

I don't know that it's a substitute for acquisitions and I think you know when we look at capital management historically the company has had all of the tools in its toolkit for capital management. Acquisitions and we're looking at some history [inaudible] we've been doing acquisitions here at BancorpSouth for 110 years.

First it was 110 years ago when we had the first acquisition it was done here at our company. So that capital management of acquisition side I would expect we would continue to want to deploy capital management through dividend.

We increased our dividend mid last year from $0.20 to $0.30 on an annual basis and we continue to reward our shareholders in that way.

We certainly want to continue the organic growth that we are laying on an the one tool that we haven't had is the stock repurchase the last time the company did any stock -- had a stock repurchase plan in existence or in place was back in '06 and '07 and so just putting that back into place helps us.

Your question on pace and appetite, we see it as just a tool to manage capital and I expect that we will be repurchasing shares. I expect that we will be trying to make good decisions on at what level to repurchase those and at what pace to repurchase those but we are over capitalized today and we need to deploy that capital..

But it is set up and active at this point is what you're saying?.

Well, the answer is set up is correct. The company is just like any other insider. We've been locked out as being able to trade here until after we made our earnings announcement a few days after that so active is not a fair term, but set up is a fair term, set up and ready to go is a fair term, that’s starting line is a fair term..

The next question comes from Jennifer Demba of SunTrust Robinson Humphrey. Please go ahead..

This is Michael actually in for Jenny. Dan, I just wanted to ask you a question about the hiring pipeline and your outlook there particularly as it relates to Texas given your background there and the recent oil price weakness..

On people?.

Unidentified Analyst:.

Yes. I think we've added staff in the last year when you look back over the last year we added a team of lenders in Houston. We added a team of lenders or a couple lenders in Austin. We added a couple -- we added a bigger team in Chattanooga, Tennessee. We added a little team in Lake Charles, Louisiana.

We actually picked up some guys in Nashville, Tennessee last year. So we've been hiring across our footprint, not just in Texas. For me personally, for Chris personally, and our background, clearly we have history and an experience in the Texas market and there is opportunities there for us, if those opportunities present themselves we want to play..

Okay.

So no specific outlook then?.

No. I think -- I would put hiring folks in the same camp with M&A activity, Michael. When opportunities present themselves you want to be prepared and ready to take advantage of that, we can't be sitting here on our hands just waiting for something to happen.

We need to be out cultivating and planting seeds and trying to make sure we're doing what we need to do every day to be successful but that's not our only focus of what's going on every day.

We have to be kind of sitting back -- have your cards lined up, have your work prepared so that different opportunities presents itself we can move very quickly to take advantage of that opportunity, if an opportunity does not present itself we are okay there also..

And then just one follow-up if I could, just as it relates to sort of underwriting or specific loan categories, are you pulling back in any specific areas particularly in Texas or Louisiana in the areas that seem overheated?.

No, when you say pullback, we don't manage the portfolio in a way that says we're not going to do any more of X or any more of Y because of whatever.

We are looking on a market by market, customer by customer, relationship by relationship basis and we may want to make certain that in today's environment, if we are getting close to an area that's highly oil and gas tied or an industry that is highly oil and gas tied, we may want to look very carefully at those credits before we would extent further.

When you talk about construction and development, new development credits, we have shied away while you see develop credits growing on our balance sheet. I don’t think we have done any develop credits in the Memphis market now in the last three or four years.

So I think that same line applies when you talk about everybody's all excited about what's happening in Texas.

Again, I don't think you can paint with a broad brush and say Texas is Texas and the whole states going to feel the same but there are markets within Texas that we need to be making good intelligent decisions on and Ron, I will let you jump in but I think our underwriting process is set up and ready to react to that..

Yes. I will just echo what he said. We're looking at each individual deal and we're making sure it has good cash flow and it meets our underwriting standards, we haven't loosened them and I don't think it would be prudent for us to tighten them either. We just need to make good sound decisions..

The next question comes from David Bishop of Drexel Hamilton. Please go ahead..

Most of my questions have been answered but looking and getting back to the commentary at least on the deposit side, given the strong loan growth you are seeing here, any thoughts or may be tweaking deposit cost they're running any sort of promotions to maybe get ahead of the curve if rates do start to spike there, how should we think about some of the funding and deposit cost moving into 2015?.

Yes. I think when you look at our history as a company, we have historically lived off of those special promotional deposit products. I think what you see now is for the last three or four years, that drug has been running through our system and it's been a headwind to grow core deposit.

So while I think we clearly need to be focused on growing the core deposits, I think when you look at the statistics and look at the data, you're going to see that we grew non-interest bearing DBA, we grew interest-bearing DBA, money market bank accounts and we grew savings accounts.

We were down in CD accounts which was predominantly in the promotional type products. So I don't see as going back out into any big promotional way trying to bulk up on some certain term of a CD.

We need to be focused on the core relationship customers that are the bread and butter of our company across our footprint and we need to make sure that we have a competitive rate in every market that we're serving and I think we can do that -- I think you will see deposit growth..

[Operator Instructions]. The next question comes from Emlen Harmon of Jefferies. Please go ahead..

Just a quick one for Bill here.

With the rates coming in here in the first part of the year it seems kind of timely time to ask about just what renewing in the securities books, or with the cash flows off the securities book are and what your renewal rates are and just kind of how you see that impacting the NIM as we head into 2015?.

Well the market has been very strong here the first couple weeks of the quarter. And as we kind of model out even at these rates, there is not much deterioration in the yields on the securities book. Most of the stuff that's been there is relatively short.

We tend to kind of stage things out with 3 to 5 year maturity of kind of the whole portfolio, the weighted average maturity of that inside three years. So we had some pullback earlier in the quarter, toward the end of the year we actually -- but we were purchasing 2 or 3 years ago when rates were exactly where they are now..

Exactly. So we're trying to be opportunistic if we see a fullback in the market, we’re certainly willing to refine obviously you're not see a pullback in market right now. But from a collateral perspective we're still in good shape there so we are not forced into buying into a week market for the collateral perspective.

We've got probably about $350 million of free collateral, $200 million of that it's very easily pledgeable, [inaudible] product and the other 150 -- the muni's, you know you may only view complaints but that’s kind matched those up as pledging them on deposits in the states where those municipals reside.

But we've also got a significant amount of overnight borrowing capacity to not force us into anything long-term on the funding side. So I think we're very well positioned to continue to keep the margin relatively steady, despite the pressure on loan yields.

Again we're not getting there pressure on the securities book and we still got some opportunities to lower deposit cost.

I mean, we talked a lot about the promotional CDs and things we talked about the 4% CDs because that was kind of an individually significant program that there is a little bit of that left in there that will roll out most of the rest of that will roll out during the current quarter that we are in.

It's still a fairly low level but our CDs cost is still 87 basis points even all-in today and our new and renewed rates are in the low 30 basis points areas on CDs. So there is still some opportunity to pull that down. The CD, the last of CD books extended out much longer than it was a few years back in -- 15 or 16 month range right now.

But all that said, I think we are relatively well positioned to kind of maintain the margin at a fairly steady level..

The next question comes from Matt Olney of Stephens. Please go ahead..

Any commentary you can provide on those two pending acquisitions in Louisiana and Texas? Are they retaining personnel and customers? Are they growing loans? Any kind of commentary there?.

Yes. I think both the banks are doing well. They are frustrated probably equal to or more so than we are at the delays that are going on. But they are both surviving and doing well.

When you look at a Texas, we don't have a whole lot of overlap with those guys, that Austin Texas market and that Central Texas corridor down at I-35 [ph] Dallas to San Antonio is a very, very hot market and they are doing a good job over there of attracting and retaining business.

The guys in Louisiana have direct overlap with us and that direct overlap causes some issues for them and for us because there is just a lot of -- if I was a competitor of either one of ours over there I would be doing the same thing our competitors are doing trying to question and pick away at it but I think both of us are surviving and doing very well in that I-20 corridor quarter across the northern part of Louisiana.

I'm proud of the activity that both banks are doing, they are doing a good job..

And then Bill, the tax rate looks a little bit low this quarter.

Any outlook on the tax rate for 2015?.

Is it going down further?.

No. I don't expect tax rates to go down further. I mean, it's marginally lower. There is kind of year-end true ups of everything, Matt.

There is nothing -- no changes that we made in any kind of tax selections or no new programs and no new credits or anything that roll through but taxes are an estimate and they're not finished until you do a return which won't be filed until next August but we feel like we're very adequately reserved for our August tax liability, but there was nothing major in there..

The lower level of fourth quarter sustainable or is the third quarter number a better number?.

Third quarter number is a better number..

Okay. And then, and then lastly, I think you guys touched on credit card, debit card fees were up nicely in the quarter.

Any commentary there? Are you seeing anything -- is this the new initiative or new program or is it just the same thing as before just getting more volume out there?.

Additional volume helps and then continuing to work with our vendors. When you talk about our profitability initiatives on the expense side, we've also had profitability initiatives on the income side and that comes to working with our vendors.

The operations team that manages the large majority of our vendor relationships, we've been able to work with vendors to lower our costs in many, many areas and that area has some vendor relationships that we been able to improve our relationship on in addition to the increased volumes that are coming through those area.

So I think that's just another one of the examples of what we've been working on that takes years to get into place that we now begin to start to see some benefit from..

The next question comes from John Rodis of FIG Partners. Please go ahead..

I guess most of my questions have been asked by Bill maybe just one quick question for you on fee income, [inaudible] income was up about $1 million or $1.5 million can you touch on that please?.

For the year or for the quarter?.

I'm sorry. For the quarter, linked quarter..

Those are debt benefits. There is some volatility in that number, if you kind of go back to the third quarter that's probably better run-rate for you. I mean there were no big changes in any crediting rights from the carriers or anything. We do try to manage that to some extent but your limited in what you can do but there's no major changes there..

Okay.

So you didn't purchase any new policies or anything?.

No. We didn't..

The next question comes from Peyton Green of Sterne Agee. Please go ahead..

Yes. I apologize if I miss this. Good morning.

Bill, maybe speak to if you had let's just say $750 million or $800 million worth of loan growth again, would you expect earning assets to grow by a similar amount going forward -- I know the preference has been to work mix over the past year but are you at a point where that's finally changed and you can grow the balance sheet?.

Yes. I mean, I think that's true.

I mean, it would have to for one thing, Peyton, like you said you may have missed it earlier but we don't have nearly the capacity to be able to shrink the securities book nor the real desire at this point to do that and though we’re not funding that we had in place a year ago is down to -- what are we? $150 million? We can utilize all of that and then some on the borrowing side but if we go to the borrowing side on that you are still growing earning assets..

Yes. You've got to go back further than that Peyton, two years ago I joined the team and this is I guess the 8th conference call, so two years ago this was the first conference call I participated in here for us and we had $600 million or $700 million and 25 basis point funds and we made the rounds and we challenged the team to grow loans.

Many of you were all asking us for targets and I refused to give and still refusing to give a lot of external targets but we certainly set internal targets. We challenged our team internally to grow loans.

We challenged our team internally to be more efficient in what we're doing and watch our cost structure and they've done a great job on both of those and you are seeing the benefits of that.

When you look at our year-over-year just bottom-line expense number, we are down $30 million from '12 to '14 and loans are up roughly $900 million during that same time period which sucked up some of that excess liquidity. So when you look at future balance sheet growth I think you're spot on.

We've used our liquidity, now we've got to grow the balance sheet..

Okay.

I mean I gather that two years ago the average earning asset base was $12.45 billion, in the fourth quarter it was $12.38 billion and the margin is up 16 basis points over that timeframe and just thinking about the cost of the fund balance sheet growth, are you content having a borrowing position? If that's lower than raising deposits which still seem at least on the interest-bearing side hard to find at a low rate?.

In the short run, yes. I mean, ultimately, long run, I mean we've always been a deposit rich organization and strategically I think our desire is to remain to be a self-funding organization but as -- often times the deposit gathering opportunities and the loan and then lending opportunities don't occur on the same day.

We've got -- for our maturity structure of our loan portfolio, we've got a good loan to deposit mix, and we want to maintain that but if we needed to run out an overnight funding in the near-term, that doesn't bother me at all.

We’ve got the interest rate sensitivity balance slowing up to be able to manage that without exposing ourselves significantly to rising interest rates..

I agree with Bill. Being able to take care of short term needs is certainly there for us but we have to be focused on core -- our company is at core funded, we don't have any hot money, we don't have any internet money, we don't have any -- we are a core funded institution and we need to continue to build on those core relationships that we have.

Again I'm proud of our team for doing that when you look at the non-interest bearing DBA, the interest bearing DBA, the savings account that were all up over 5% for the year. I think we have the ability to continue to grow core funding and fund our growth..

The next question comes from Blair Brantley from BB&T. Please go ahead..

Just a couple quick questions, any update on future fee income oriented M&A kind of thoughts around that?.

Well, that’s opportunistic also, I think we had the two opportunities well I guess really one in '14 we had the insurance late '13, we had insurance first quarter early second quarter '14 and I think we certainly would like to be able to play in those games and our team on the insurance side [inaudible] is a very, very good manager in that group and he is very well connected and speaks often in industry groups so I know he knows who to talk to and I know he's out doing the same thing that we're doing on the bank side.

If those opportunities present themselves in 2015, we are prepared, ready, willing and able to play..

So is insurance the main focus then for the fees on M&A?.

Well, what other ones would you put out there? We're not going to go out there and buy a card base from somebody -- wealth management could be an opportunity for us if there was a wealth management shop within our footprint that could fit with us, that would be an opportunity.

From a target environment there is just much more target rich environment in the insurance world than there is in the other fee generators that we would be interested in..

And then one follow-up with -- can you just give an update on your technology spend and where you’re with your infrastructure investments and what that looks like going forward?.

I'm not sure I have a way to answer exactly what you're asking but I'm not sure I follow the exact question but I think if you're asking do we have any huge upcoming technology spent, no, we’re investing in technology every day.

Sometimes I will tell you way too much we're investing in technology every day and other side tells me we’re not investing enough because we need to keep up. If you're not investing in technology every day you are going to be behind. Technology is changing and enhancing. We are continuing to enhance.

We've got a huge undertaking going on now to improve and pick up the process is that we've got in our systems and that's all built into what you are seeing today. So from a big upcoming some announcement that you're going to see, no, but our tech team is actively at work every day improving what we do and improving our processes..

Seeing that there are no other questions, this concludes our question and answer session. I would like to turn the conference back over to Dan Rollins, Chairman and CEO for any closing remarks..

Thank you for joining us today. We appreciate your time and your interest in our company. If you need any additional information or have further questions, please don't hesitate to contact Bill Prater and myself, otherwise we look forward to speaking with you all again soon. Thank you very much..

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