Will Fisackerly - SVP, Director of Corporate Finance Dan Rollins - Chairman, CEO Bill Prater - SEVP, CFO Chris Bagley - President, COO James Threadgill - SEVP, CDO Ron Hodges - SEVP, CCO.

Kevin Fitzsimmons - Hovde Group Catherine Mealor - KBW Emlen Harmon - Jefferies Steven Alexopoulos - JPMorgan Jennifer Demba - SunTrust Robinson Humphrey Jon Arfstrom - RBC Capital Markets Matt Olney - Stephens David Bishop - Drexel Hamilton John Rodis - FIG Partners.

Good morning and welcome to the BancorpSouth Second Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note, this event is being recorded.

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

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 Business 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 2014 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 second quarter 2015 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.

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

Thank you, Will, and good morning. Thank you for joining us today for BancorpSouth second quarter 2015 conference call. I will begin by making a few brief comments regarding the highlights of the second quarter. Bill will discuss the financial results in more detail.

Chris will talk about our business development activities in the bank, James will provide some comments on our business development activities and mortgage and insurance and finally, Ron will discuss highlights regarding credit quality.

After we conclude our prepared comments our executive management team will be happy to answer any questions you have. Let's now turn to the slide presentation, Slide 2 contains our customary Safe Harbor statement with respect to certain forward-looking information in the presentation. Slide 3 covers the highlights for the quarter.

Beginning with the financial highlights; net income was $39.7 million or $0.41 per diluted share for the quarter. Net operating income which excludes merger related and other non-operating expenses was also $0.41 per diluted share as there were no material non-operating items in the second quarter results.

This marks the most profitable quarter that our company as reported since 2008. Our teammates have embraced the challenges and worked hard to build the foundation for the future success of our company. I'm pleased to see their efforts rewarded through improvement in our earnings as well as many other financial metrics.

Our bankers continue to build relationships and win new business across our footprint which generated net loan growth of approximately $280 million or 12% annualized. This marks the single largest quarterly organic loan growth total in our company's history.

In addition, we have been able to continue to attract quality lenders who want to join our team. Chris will talk more specifically about these efforts in a moment. Our mortgage team had an outstanding quarter as well, originating $417 million in mortgage loans. Over $300 million or 72% of this was purchased money loans.

This strong performance by our mortgage team resulted in just over $14 million in mortgage revenue for the quarter. James will discuss mortgage more in a moment. Earnings benefited from a release of loan-loss reserve of $5 million for the quarter.

Release was driven primarily by elevated recoveries from previously charged off loans and specifically, one large recovery which Ron will cover in more detail momentarily. We are also pleased with our progress toward improving efficiency. Our efficiency ratio for the quarter was 69.52%.

This marks the first time we've reported a sub 70% efficiency ratio in quite some time. While we are pleased with the progress we are making in improving our efficiency, we know there's more work to be done and I am confident our dedicated – our team is dedicated to the task of driving this number lower.

All of the items I have discussed thus far have contributed to improvement in many other operating metrics. Our ROA for the quarter was 1.18%. Our ROE was 9.6% and our return on tangible equity was 11.66%. Our team has worked diligently to move these performance metrics towards more peer-like levels.

However, I am confident we have a lot of room left to continue to improve core performance as we move forward. I will now turn to Bill and allow him to discuss our financial results in more detail.

Bill?.

Thanks, Dan. If you will turn to Slide 4, you will see our summary income statement. Net income was $39.7 million or $0.41 per diluted share for the second quarter, which represents an increase of 23% over the first quarter of this year and 29% over the second quarter of last year.

There were no material items in the results for these three quarters presented that we consider to be non-operating. You will also notice on this slide the trends in our net interest revenue.

Net interest revenue was $107.3 million for the second quarter compared to $106.1 million in the first quarter of this year and $103.1 million in the second quarter of last year. We continue to grow our net interest income as we grow our balance sheet.

Our net interest margin for the quarter was 3.54% compared to 3.56% for the first quarter of this year and 3.59% for the second quarter of last year. The quarter-over-quarter decline in the margin was driven primarily by continued pressure on loan yields, as well as the loan portfolio mix. Chris will talk more about our loan portfolio in a moment.

The yield on loans was 4.23% for the quarter compared to 4.31% for the first quarter this year and the cost of total deposits was 0.23% compared to 0.24% for the first quarter of this year.

You will also notice earnings for the quarter benefited from the negative provision for credit losses of $5 million compared to negative provision of $5 million for the first quarter of this year and no recorded provision for the second quarter of last year. Ron will discuss that more in more detail a moment.

The following two slides break our non-interest revenue and expense into further detail. If you will turn to Slide 5, you will see a detail of our non-interest revenue streams. Total non-interest revenue was $74.3 million for the quarter compared to $73.3 million for the first quarter of this year and $69.8 million for the second quarter of last year.

Mortgage lending revenue was $14.1 million for the quarter compared with $8.6 million for the first quarter of this year and $9.1 million for the second quarter of last year. The increase in mortgage lending revenue is primarily attributable to the fluctuation of the MSR asset valuation. James will discuss this more in a moment.

Insurance commission revenue totaled $29.3 million for the quarter compared with $33.5 million for the first quarter of this year and $28.6 million for the second quarter of last year. Slide 6 presents the detail of non-interest expense.

Total non-interest expense for the second quarter was $128.2 million compared with $136.9 million for the first quarter of this year and $128 million for the second quarter of last year. The schedule at the bottom of the slide shows the aggregate impact of the non-operating items incurred in each of these quarters presented.

As you can see, the only non-operating item impact in the three quarters shown here is merger expense, which is immaterial. I would like to make a few comments about certain of the line item included in non-interest expense.

Salaries and benefits totaled $79.8 million for the quarter compared to $81.2 million for the first quarter this year and $74.7 million for the second quarter of last year. The linked quarter decline was driven primarily by seasonal factors. Specifically, we discussed the impact of FICA taxes in the first quarter.

That declines throughout the year as individuals reach the compensation limits. However, as a reminder, our annual merit increases are effective July 1 of this year. The increase in salaries and benefits compared to the second quarter of last year was driven by a number of factors.

First, as disclosed in our 2014 10-K, we expect annual pension expense to be approximately $7 million higher for 2015 and 2014, based on the annual revisions to actuarial assumptions. Also, we've continued to add producers across our footprint. We've had several LPO openings over the last year.

We have also continued to add producers in our established locations as well. The remainder of the expense is shown on the slide are relatively flat across all periods presented with the exception of elevated legal expense in the first quarter of this year. We added $5.5 million to our litigation accrual.

Also, foreclosed property expenses continued to decline as ORE balances have decreased. That concludes our review of the financials. I will now turn it over to Chris for his comments on our front line banking efforts..

Thank you, Bill. Slide 7 reflects our deposit mix at June 30 compared to both the first quarter of this year and the second quarter of last year. While total deposits declined $118 million during the second quarter, we are still up year-to-date $163 million or 3% on an annualized basis.

If you recall, during our first quarter call, we noted that a portion of the growth is associated with tax money receipts and would flow out during the second quarter. As we travel our footprint, we continue to emphasize the importance of relationship banking and growing core deposits.

From a corporate perspective, we are currently undergoing a review of all of our product offerings to ensure that we are equipping our frontline salespeople with the tools to win new business.

When comparing the deposit mix to June 30 of last year, the trends are helping drive lower cost funding as non-interest bearing demand, interest bearing demand and savings deposits are all up over 7% year-over-year, while total deposits are up over 4%.

You will notice meaningful declines in other time deposits, both compared to the first quarter of this year and the second quarter of last year. The year-over-year comparisons are impacted by the run-off of promotional CDs as well as our efforts to focus on multi-product relationships.

We also believe customer behavior is impacting both comparisons seen here. We believe certain customers continue to shift transaction accounts or shifts to transaction accounts in light of low interest rates in anticipation of rising rates.

Moving to Slide 8, you'll see our loan portfolio as of June 30 compared to both the first quarter of this year and the second quarter of last year. During our first quarter call, we indicated we were extremely pleased with our loan pipeline despite some larger corporate paydowns preventing meaningful net loan growth for the first quarter.

We are pleased to report that net loan growth for the quarter of over $280 million or 11.6% annualized. This represents the largest quarter of loan growth in our company's history. Our loan growth continues to come from across all portfolios and geographies. All five of our geographic regions produced net loan growth for the quarter.

Of note, our more recently formed Central Texas region grew loans $52 million for the quarter and total put in stand at over $130 million today. This represents a very successful start for us in the new markets of Houston, Austin and Dallas. Our Northwest region also produced net loan growth over $50 million for the quarter.

With our respective regions we have had five divisional lending teams produce annualized loan growth of over 10% for the quarter. These teams included the North Central Arkansas division, the West South Arkansas division, the Gulf Coast division and the North Central Alabama division and our corporate banking team which manages our larger credits.

We are extremely pleased with the efforts of our team and optimistic about the opportunities our current loan pipeline will provide going forward. I will now turn it over to James to discuss our business development results in mortgage and insurance..

Thanks, Chris. The tables on Slide 9 provide a five-quarter look at both mortgage and insurance. Our mortgage lending operation produced origination volume for the quarter totaling $417 million.

As Dan mentioned, $301 million or 72% represented home purchase money, which is a 25% increase in the purchase money volume over the second quarter of 2014 and the largest purchase money quarter in the company's history.

Increases in volume have been partially attributable to increases in our production team as originators increase from $110 million at June 30, 2014 to $122 million June 30, 2015 and the lower interest rate environment during the first part of the quarter. As rates begin to rise, we saw an increase in rate locks.

Based on the current pipeline in recent applications, we expect elevated activity of purchase money production to continue into the third quarter. Deliveries for the quarter were $366 million compared to $243 million in the first quarter and $264 million in the second quarter of 2014.

Mortgage lending revenue totaled $14.1 million for the quarter, which included a positive MSR valuation adjustment of $4.3 million. This compares to revenue of $8.6 million during the first quarter of 2015, which included a negative MSR valuation adjustment of $3 million.

Margin was 2.02% for the quarter, a decline from the 3.66% in the first quarter of this year. The margins in the last two quarters had been elevated as a result of increases in the pipeline. The accounting rules require us to mark the pipeline to market.

This accounting treatment results in the margin being higher on a relative basis in quarters with a rising pipeline and lower when the pipeline is declining. Moving onto insurance, total commission revenues for the quarter was $29.3 million compared to $33.5 million for the first quarter of 2015 and $28.6 million for the second quarter of 2014.

As a remainder, the first quarter of each year is seasonally high as a result of contingency commissions. All five quarters presented here fully reflect our most recent agency acquisitions. The property and casualty insurance market remain soft with renewal premiums either flat or slightly declining.

Our Arkansas and Texas agency have been our bright spot this year, with revenue increases of 7% and 5%, respectively. We are beginning to see increased economic activity along the Gulf Coast corridor which should provide increased opportunities to write new business. Now, I will turn it over to Ron for his comments on credit quality..

Thank you, James. Slide 10 presents some highlights of credit quality for the second quarter. As Dan mentioned earlier, we had a negative provision for credit losses of $5 million for the second quarter compared with a negative provision of $5 million for the first quarter of this year and no provision for the second quarter of last year.

The negative provision was driven primarily by elevated levels of recoveries. We had gross recoveries for the quarter totaling $11.7 million and net recoveries of $6.7 million. The increase in recoveries was driven primarily by the recovery of one large single credit totaling $6 million. The ALLL was 1.38% of net loans and leases as of June 30, 2015.

Non-performing loans increased $18 million quarter-over-quarter while total non-performing assets increased $14.4 million. We have said for several quarters now that we wouldn't be surprised to see these levels fluctuate in either direction. The increase in both metrics is attributable to an increase of $13.3 million in non-accrual loans.

This increase is related to three separate relationships of different loan types in varying geographies and not the result of, in our opinion, any systemic credit problem. The final two bullets on this slide relate to near-term delinquencies and other real estate owned.

Near-term delinquencies continue to remain at low levels, representing only 0.24% of net loans and leases at June 30, 2015. ORE balances continue to trend down as ORE totaled only $24.3 million at the end of the quarter. Slide 11 provides a visual of the trends in NPLs, ORE and total NPAs over the past several quarters.

You can clearly see where these levels have stabilized over the past few quarters. I would again reiterate that we reached levels where quarter-to-quarter fluctuations in either direction would not surprise us going forward. With that, I will turn back to Dan for his concluding remarks..

Thanks, Ron. Our entire team is committed to building shareholder value. We are proud of the work our team has accomplished and the impact it is having on our financial performance each quarter. The story is pretty consistent and simple. We are winning across all geographies and product lines.

Every quarter it seems we are highlighting a different team producing record results. As I mentioned earlier, this quarter our lending team produced the largest quarter of loan growth in our company's history while our mortgage team set a new quarterly record for purchase money mortgages.

Chris highlighted multiple teams within our bank who achieved double-digit annualized loan growth for the quarter.

I am proud to be able to recognize different groups within our company each quarter for stepping up and producing exceptional results, just as we reported the largest quarter of insurance revenue in company history during the first quarter. We've been able to continuously grow while reducing costs at the same time.

While we are pleased to see our efficiency ratio dip into the 60s, we understand we need to continue to improve. I am optimistic the path we are on will allow us to continue to reduce that metric while improving our operating performance. With that, I will conclude the prepared remarks, and operator, we would now be happy to answer any questions..

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question will come from Kevin Fitzsimmons of Hovde Group. Please go ahead..

Good morning, everyone..

Kevin, how are you?.

I'm good Dan. I'm good. On the subject of efficiency, looking at the expense run rate, there was a healthy linked quarter to the client in that other miscellaneous expense category.

Can you just – was that a number of small items or was it one lumpy item? And does it represent run rate the way you guys look at it going forward?.

Yes. I think there is probably multiple items that are in there. As we've said before, we are watching everything we are spending money on. And most of the task that we are on today and looking to drive expenses out of our operation are relatively small none of them in themselves moved the needle.

But, there is lots of little items in there that we continue to work towards and continuing to reduce our overall cost..

Got it. Okay. Thank you. And it hasn't been that long since you guys came out and amended the date on the merger agreement. But just when I saw the statements at the end of the release but I just wanted to ask if there has been any developments, any dialogue, any dialogue at all for that matter with the CFPB? Thanks..

Yes. I would like to tell you that we've had some developments and some dialogue, but no, we are just waiting. No new news at all on that front..

Okay, all right. Thanks, Dan..

The next question will come from Catherine Mealor of KBW. Please go ahead..

Thanks. Good morning, everyone..

Hi, Catherine..

Question on the margin, still seeing some pressure on your loan yields.

Can you give any commentary on pricing for new loan production and how that impacts your outlook for the margin for the rest of the year?.

Yes, I think Ron and Chris can both jump in on where we are. I think the pricing on loans from quarter-to-quarter, you may remember if you look back at last year, I think in the same quarter we had a similar situation that really looks at what you are producing in any one quarter.

And so when you're looking at what loans are coming on and what that's doing to our loan yield, in the last quarter, you heard Chris recognize several different teams that were growing loans and in particular the large commercial group saw some good loan growth while the large commercial group is typically floating-rate and skinnier price.

So the more of that you put on that drives your rate down. Ron, you may want to just talk about what we are seeing from across our footprint from a loan pricing perspective..

Thanks, Dan. I think we are seeing continued pressure. It seems like a broken record that we talk about every quarter, but every bank is flush with cash and wanting to make loans like we are, and it's really – as we have continued to push more of our portfolio on floating rates.

And those rates are obviously lower when you put them on the books and the fixed rate loans, so we have seen a little bit of pressure, downward pressure, on our yields. But it's the competition out there and we are trying to fight for every deal as we can..

Chris, do you want to add anything to that?.

I would add to it that compression in the margin under loan yield, by getting more of a mix with floating rates is a good thing. So while we may have given up just a little bit on the top side, I think having position for the rates – position to go up in favorable fashion is probably a good thing.

And I think when you see – we mentioned in our comments the increase in the corporate portfolio this quarter, those typically are floating-rate loans. That is probably where the pressure came from..

I think we also saw, when you look at the portion of our loans that are variable rate compared with the fixed rate that also increased this quarter, so a larger portion of our portfolio is floating rate at the end of the quarter than it was at the beginning of the quarter. All those things are going to drive that.

And I think your question was specifically on margin. Bill, you may want to jump in and hit margin just a second..

I think you covered it. We had – part of the decrease quarter-to-quarter is just attributable to daycount. Your first quarter, all else being equal if everything else stayed the same, because it is a 90-day quarter you will have a little bit higher margin on a little bit lower net interest income. So part of it is attributable to that.

Part of the benefit that we saw from running down our overnight funds during the quarter kind of was offset by the decrease in the loan yields. And if you look at the other components of how it changed, it's really relatively flat with the previous quarter..

Catherine, did that help you?.

Very helpful. Yes, no. Thank you for all the comments. And maybe a follow-up just on the buyback.

Can you give us any outlook on when you expect to start the buyback program?.

Yes. We talk about that on a regular basis and I think we are sitting on the – with our hand on the switch to go. We just have not done that yet and I can't tell you that we are going to start this week or next week, or this month or next month, but we will be buying stock back..

Okay. Great, thank you..

Thank you..

Our next question will come from Emlen Harmon of Jefferies. Please go ahead with your question..

Hey, morning everyone..

Hey, Emlen..

Either Dan or Chris, could you give us a little bit more color just on the production opportunities you have had out of Texas since you had opened the LPOs there?.

Yes. We can probably both help on that. Our team in Texas is really consists of, I guess, four separate LPOs that we have opened up down there. The first one was opened in South Houston, Princewood area. Then we opened up in Sugarland area. We opened up in Austin after that and the newest one is in Dallas.

And all of those teams are seeing opportunity to grow. I think those markets, when you bring new people in, you are starting with a zero base. So from a percent growth factor, it kind of doesn't do any good to talk about that. But we are seeing great opportunities in that market.

I think we've got good people that have joined our team over there in that market.

Chris?.

I would add to it my point I would want to make is that there are experienced bankers in those markets and the opportunities we are seeing there are with relationships that they've known for years as well, so we feel good about that production. And like Dan said, when you are starting from zero, I think they've done a great job.

Percentages don't matter, but the gross dollars are really putting some momentum force in those markets..

I think that we have added producers over there on a pretty regular basis. So we started with a fairly small group and then we have had people that have joined us in the different markets on a regular basis to continue to add to the group. So total over there, if I was guessing, I'm going to say 15 people, give or take..

Give or take..

And just a couple of follow-ups on that; I guess one, on a dollars growth basis how meaningful a portion is Texas in the overall loan growth? And then has some of the volatility in the energy complex generated opportunities for you guys in that space?.

Yes. We are not playing in that space. So I don't think that -- from the energy perspective, I don't see that as an issue. On the numbers perspective, you heard Chris say that we are up $130 million in a year over there in Texas and we are up $700 million in total. So there is your numbers on the dollars..

Perfect. Thank you..

Thank you..

Our next question will come from Steven Alexopoulos of JPMorgan. Please go ahead..

Hey, good morning, everyone..

Steven, how are you?.

Good Dan.

Could I follow up first on Kevin's question? Could you update us at this stage, do you have an active dialogue with the CFPB and are you making progress on the issue?.

No, Steve. We have not had any dialogue with the CFPB all along the way. The CFPB is doing their investigation and the last communication we had with the CFPB – last communication from the CFPB to us was in December. The last communication from us to them was in January. Since then, there has been no communication.

So that's part of the frustration is there is no ongoing dialogue..

Okay.

And it's your view you would not be able to get regulatory approval for the deal until this was resolved, is that correct?.

Well, that is probably a question that you would be better to ask the regulators on. But no, there has been no activity on our applications. Waiting to hear what the CFPB wants to do..

Got you, got you, okay. And then I just wanted to follow up on Bill Prater's comments for pension expense to increase by $7 million in 2015.

Bill, how much of that was already in the 2Q run rate?.

Half of it. I mean it is kind of ratable across the entire year. It's just the same --.

So, it's already in the run rate, though, basically?.

Yes. It's in the run rate. All it is was a change in the mortality tables. People are living longer..

We talked about that first at the end of last year. We knew coming in after the end of the fourth quarter that the tables changed and the rules changed from the actuarial side. If we knew we were budgeting a $7 million increase for the year, $3.5 million of that has been paid for in the first half of the year..

That's right..

Okay, perfect. Thanks for taking my questions..

I guess the message was that was not in last year's run rate that $7 million in additional costs this year that we were not carrying last year..

All right. And our next question will come from Jennifer Demba of SunTrust Robinson Humphrey. Please go ahead..

Thank you. Two questions.

Dan, approximately how many lenders do you think you guys have hired in the last year or so across the footprint?.

That's a great question. I have no idea. Lenders in all lender types, from a mortgage production side to a banker side, it's going to be a healthy number. We probably hired 35 or 40 on the mortgage side and my guess, it's going to be somewhere close to that on the banker side..

Okay. And my follow-up is on expenses.

Excluding the pending acquisitions that you have, do you think at this point that any expense reductions you may make in the future will be mostly offset by hiring or other investment needs?.

I don't know how to answer that question. My answer would be we don't hire if we don't find people. So we could go along for several quarters and not hire somebody. But, if we have good opportunities to bring people in that could help us grow, we are looking for those opportunities on a regular basis.

The expense cost cuts on the other side, we are continuing to look for ways to drive cost out. So I think what I've said all along is that this quarter looks pretty good. But this is not going to be a linear path. This is going to be lumpy.

You're going to see quarters where we have got more expense than you were expecting, and you are going to see quarters, I think, like this quarter, where many of you think that our expenses were less than we expected. I don't think there is an easy answer to say here is what the crystal ball says we are going to have for the next couple quarters.

We are actively looking at every nickel and every dime on little dollars that we are spending trying to make sure that we are watching our expense and lowering our expense run rate..

And at this point, what is the biggest point of leverage do you think from an expense reduction standpoint?.

What do you mean by that?.

I mean is it branches? Is it -- what particular area represents the biggest opportunity?.

Jenny, I think it's all of the above. We work for what we refer to as our growth and profitability initiatives where we've got a laundry list of items that we are working through that improved earnings and lower cost and they fit in all categories. Certainly branch cost is a piece of it, people cost is a piece of it.

Backroom office cost is a piece of it, technology cost, working our vendors harder is a piece of it. All of the things that we can do to drive cost out of our operation is what we are working on every day. There is really, I guess, in my mind, no one that says this is the answer to the question. This is the fix what we've been looking for.

This is just old-fashioned, you know, roll your sleeves up and get to work and let's identify everything we are doing..

Thank you..

Thank you..

Our next question will come from Jon Arfstrom of RBC Capital Markets. Please go ahead..

Thanks. Good morning..

Jon..

Just a quick follow-up on Jenny's last question.

The salary and benefit increase, the merit increases you talked about, Bill, what is the magnitude of that?.

Dan might be better able to answer that..

Yes. I don't know that we have a number on that. Our typical routine Jon would be – we look at salaries once a year and so all that's coming through. And I think when you look at our budgeting process, we are in the 2.5% to 3% range on our overall cost increase for the year. And you are going to see a big hunk of that hit in the July range.

Some of it is merit increase in promotion throughout the year, but the majority of that is going to be in the July hit..

Okay. All right..

But remember, I guess, remember Jon, when you look at our salary line, you've got some folks in there that are commission-based. So they are not in that salary increase. So it is hard to run that percent off the total number..

Okay..

Yes. You've got pension and other benefits that subject to the --.

Pension, health insurance, all kinds of stuff that would not be in that rate..

Yes. I guess the message is, expect a balance of your typical --.

Yes, yes, yes..

Okay, maybe for Chris or Dan, just on the loan growth pace, what changed between Q2 and Q1? It seems like the stars aligned here.

And was it just the paydown activity or what changed between the two quarters?.

For me, it is hard for me to just answer questions on a quarter-by-quarter basis. Remember last quarter, we talked about the pipeline we had, we had some large paydowns that we would consider business cycle type paydowns from large operating credits, so we were able to identify those. I guess the message I would say is, we had a good pipeline.

Maybe the stars aligned in the sense of those paydowns and we've had some advances back up. But other than that, it's just normal production. We've got good pipeline across the footprint..

Yes. I think Ron can jump in here, too. But what I think we see is the production team is continuing to produce basically on par with what we were producing in the first quarter. We just didn't have the headwinds hitting us as we did.

And in fact, probably we had some tailwinds where some of those lines that paid off in the first quarter began to draw back up in the second quarter. So you had a couple of things that moved the needle.

But from a comparison basis, from a year ago, we are still kind of on our $700 million a year run rate that we have been on for a while now in loan growth..

I would agree. I think the thing that didn't happen in the second quarter is we didn't have the large chunk paydowns that we did in the first quarter and we made those up in the first quarter. But we did not have them in the second..

We did have some nice recoveries in the second quarter..

Yes, pretty good..

And then Ron, as long as you have the mic, just – I know you are not energy lenders but any indirect energy impact you are seeing in the footprint that is notable? Not necessarily what you are doing, but is there anything you are seeing that you are watching a little more carefully?.

Well, as you said, we are not really heavily energy-related lenders. Ours is mainly equipment and service industry where we have begun looking at our portfolio and continue to do that, started last quarter of last year to make sure that we – if we have some weaknesses, we jump on them as quickly as possible.

It all depends on how long the prolonged – how prolonged the oil rate stays down and oil price stays down. I think – don't believe it will affect us materially going forward. But it is something that we are continuing to monitor..

I think that Ron, our team has probably done the same thing as most every other lender out there that is in our footprint or anywhere close. They've got their – you've asked all of our lenders to pull up anything that is touching energy.

Whether it is classed as an energy credit, whether it is classed as an energy service credit, it doesn't have to be classed in those categories. If it touches energy in some way, we've asked our lenders to pull that out and report in on where we are. And we see that on a real-time basis..

Yes..

All right. Thank you..

Our next question will come from Matt Olney of Stephens. Please go ahead..

Yes. Thank you.

I wanted to ask about the insurance business and is there any other commentary you can provide your about the outlook for revenues within insurance and specifically, James, did I hear you say that renewal premiums are flat to declining at this stage in the cycle?.

You did, Matt. I will say that on the property and casualty side, the market is soft. Where we are really seeing a good opportunity is in the employee benefits side. The healthcare changed – the healthcare laws have created some tremendous opportunities for us. And we are seeing that side of the business continue to grow.

But, as the economy picks up and improves, we get more opportunities to write new business and our guys are out there every day knocking on doors. So we are holding our own..

Yes. I think that when you look at what the folks that are on the team are doing there, we are doing the same thing on insurance side as we're talking about in other areas. We are looking to add folks to the team where we can. The sales team is out actively soliciting. We track new business coming in and we are growing customer base over there.

The premium numbers are not helping us, if you want to put it in that context, Matt..

Yes, no, that's helpful. And then, going over to the mortgage side of the business, gain on sale mortgage around just over 2%. I believe that is just above the range you have discussed previously that we should expect.

Anything unusual in this gain on sale margin this quarter? And do you still expect that range to hold that you discussed previously?.

Well, as I mentioned in my remarks, when the pipeline is growing we have elevated margin. And it did move up from about $300 million to about $330 million in the quarter. So that – we benefited a little bit from that in the margin..

But had the pipeline stayed flat, you would see the margin more in line with the range that we have given you. But the growing pipeline causes that margin to increase a little bit. And the shrinking pipeline on the other side would be damaging to our margin..

Correct..

And can you quantify what that amount was in the quarter?.

You mean the range?.

I don't think we have that number..

I haven't really done that analysis. But it runs in the -- 175 range -- 175, 180 range in a flat pipeline environment..

Okay. That's helpful. Thank you..

Thank you..

Our next question will come from David Bishop of Drexel Hamilton. Please go ahead..

Yes. Good morning, gentlemen..

How are you David?.

Good, good. Most of my questions have been answered, but just a couple follow-ups. You mentioned the strength in some of those LPOs. Any plan for maybe some new markets that you are targeting in terms of additional LPOs? And I think you called out the Arkansas teams for producing some nice growth here.

Anything in particular driving that growth relative to the rest of the franchise?.

I don't know that we can identify anything in any market is doing well. All of the markets had growth when you look at the annualized growth on a percent basis. You are right, Arkansas did well.

The Gulf Coast market, the Gulf Coast market for us has been in that category of producing good growth now for four or five, or six or seven, or eight or nine quarters. When you look back over time, our Gulf Coast team has done a great job. The Arkansas teams picked in here.

The Alabama team was in and then the Texas team when you are talking about the loan growth. But no, I think that when I look at our opportunities from an expansion perspective, remember, we are in the people business.

So when you look at the teams that we've added to our bank over the last couple of years now, all of those were opportunities where we had good people that wanted to be a part of our team for whatever reason and we talked about the Texas group outside of Texas.

Remember that includes the Lake Charles, Louisiana team and the Chattanooga, Tennessee team are the other two markets that we have moved into where we did not have a presence before. And if an opportunity presents itself in some market where we are not there today, with the team that we think can help us, then I think we want to talk about that.

But we are not out actively looking in any particular geography saying, we need to have a presence in this town or that town and we've got to go find somebody and make that happen. That is not the way our team plays..

Got it. Thanks..

[Operator Instructions] The next question will come from John Rodis of FIG Partners. Please go ahead..

Good morning, guys..

Good morning, John.

How are you?.

Not too bad.

How are you doing Dan?.

Good..

Bill, maybe a question for you. The securities portfolio, it ticked up again a little bit this quarter.

I guess two questions; one, what are you buying? And then two, does it change -- much does the balance change much from this level?.

I don't think the balance changes much from this level right now, John. We are still – our duration is in the 2.5 year range. It's primarily an agency ladder. We have, over the course of the last six months, picked up a few mortgage-backed securities.

We don't have a huge appetite for that, but when we can get them without paying premiums, they are fairly attractive in comparison to --.

The size of the portfolio, that is very small..

It's very small, just a very small percentage of the portfolio. We've got about $500 million in unpledged securities, so about $300 million of that is pretty easily pledge-able. Agency product, a couple of hundred other would – are municipals that would take a little more effort to utilize in a pledging fashion.

So right now, with the lack of growth of public funds and other needs to collateralize deposits, we don't really need to buy securities for that purpose. And if the yields that are out there now, of course starts running off for the remainder of the year, is kind of under 1% all in stuff for us.

And we pick up a little bit but with the interest rate risk in anticipation of rising interest rates we don't really have an appetite to grow that portfolio right now..

Yes. I would say in a quick format that we really haven't changed where we are operating the portfolio at all..

Not at all..

Just normal, day-to-day operations..

Quarters that you have seen our securities increase primarily have been, as we look out the ladder and judge where the market is today. If it's a fairly strong market, we may jump out and buy the next couple, three-month maturities if there is a buying window opportunity. But we are not really building the portfolio, like I said..

Nor are we extending..

No. We are not extending term at all. We are buying three and four year agency product..

Okay. It makes sense. Bill, maybe just one more final question. The tax rate has been hovering around 32%.

Is that a good rate to use for the rest of the year?.

Yes. That is difficult to project when you look at an all in, I mean it --.

I don't know that it would change significantly..

It shouldn't change significantly. I mean it could – in quarters of higher net income as this quarter is, it pops up a little bit because you get more at the marginal rate..

Okay. Dan, maybe just one other question for you. I guess back on the buyback.

How does the unknowns around the pending acquisitions impact your thoughts on the timing of the buyback or does it?.

Yes. I don't know that that is a big factor in there. John, it's just we want to make sure that we are doing what we need to do from a capital management perspective on our side. Clearly, we would like to close the transactions that are out there. We want to work with our regulators to resolve whatever concerns, questions, issues they may have.

As somebody said earlier, it's frustrating when there is just no communication at all. We want to resolve the issues and move forward. And from an operating performance standpoint, obviously we are very pleased with the direction and the trajectory that all of our metrics are moving on.

We just want to be able to move forward what we want to do from a regulatory standpoint also..

Okay, sounds good. Thanks guys..

Ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Dan Rollins for his closing remarks..

All right, well, thank you all for joining us today. If you need any additional information or have any further questions, please do not hesitate to contact us. Otherwise, we will look forward to speaking with you all again soon. Thank you all very much..

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect..