Randy Burchfield - Senior Vice President of Corporate Marketing James D. Rollins - Chief Executive Officer, Director, Member of Executive Committee and Chief Executive Officer of Bancorpsouth Bank William Lloyd Prater - Chief Financial Officer, Treasurer, Chief Financial Officer of BancorpSouth Bank and Executive Vice President of BancorpSouth Bank W.

James Threadgill - Executive Vice President and Vice Chairman of BancorpSouth Bank Gordon R. Lewis - Executive Vice President, Vice Chairman of Bancorpsouth Bank and Director of Bancorpsouth Bank James Ronald Hodges - Vice Chairman and Chief Lending Officer

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division Matt Olney - Stephens Inc., Research Division Catherine Mealor - Keefe, Bruyette, & Woods, Inc., Research Division Emlen B. Harmon - Jefferies LLC, Research Division Preeti S.

Dixit - JP Morgan Chase & Co, Research Division Peyton N. Green - Sterne Agee & Leach Inc., Research Division Blair C.

Brantley - BB&T Capital Markets, Research Division Jennifer H. Demba - SunTrust Robinson Humphrey, Inc., Research Division

Thank you very much, and good morning, and thank you for being with us. On our call is CEO, Dan Rollins; Jim Kelly, President and Chief Operating Officer; Bill Prater, Executive Vice President, Chief Financial Officer; Ron Hodges, EVP and Chief Lending Officer; James Threadgill, Executive Vice President, Head of our Financial Service division; and Gordon Lewis, EVP responsible for the General Bank.

As usual, before we begin the discussion, we'll remind you of the forward-looking statements that may be made during the company's discussion of 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 the factors can be found in BancorpSouth's 2012 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 Q2 '13 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 the exhibit to the 8-K that we filed earlier.

And now CEO, Dan Rollins.

Thank you, Randy. Good morning.

Welcome to BancorpSouth's conference call for the second quarter of 2013, and thank you for joining us today. Since I arrived almost 8 months ago, I've been impressed with the welcome I have received from the BancorpSouth family.

As I traveled across our footprint and met many of my teammates, I have heard many stories of exceptional customer service and community involvement. The passion our bankers have for our company, our customers and our communities is admirable.

Frankly, it's this passion that has allowed us to make the extraordinary progress we reported yesterday afternoon. This morning, I will provide some brief comments regarding the highlights of the quarter.

Bill will discuss the financial results in a little more detail. James will share some key income highlights.

Gordon will provide some color on our loan production efforts and our portfolio. And finally, Ron will discuss the progress we're making in reducing our problem assets.

After we concluded our prepared comments, our executive management team will be happy to address any questions you may have. Now let's turn to the slide presentation.

Slide 2 contains the customary Safe Harbor statement with respect to certain forward-looking information in our presentation. Slide 3 begins our review of the second quarter.

I would like to focus for a few minutes on a couple of the key milestones for the quarter. I will lay some of the other financial highlights for Bill to discuss momentarily.

When we last spoke, I indicated that we were working on specific initiatives to improve profitability. We made announcements during the quarter with respect to 2 of those initiatives.

One was the Voluntary Early Retirement Program. We had 227 employees accept the offer, which resulted in a pretax charge of $10.9 million during the quarter.

We anticipate the program resulting in fully phased in, annual pretax savings of approximately $9 million or $0.06 per share net of tax. We expect to begin to see the financial impact of this program during the third quarter with all impacted employees retiring by the end of the year.

We believe the program appropriately rewarded those who chose to participate and we were extremely pleased with the results. We made a second announcement late in the quarter regarding our planned redemption of $125 million of outstanding 8.15% Trust Preferred Securities on August 12.

We will refund the redemption -- excuse me, we will fund the redemption with approximately $75 million of available cash, and $50 million of new borrowings. The redemption, net of the estimated cost of borrowings, is expected to result in interest expense savings of approximately $9 million, or $0.06 per share net of tax.

We will incur a one-time noncash charge of $2.9 million during the third quarter to write off the unamortized issuance costs associated with the trust preferred. Finally, I continuously emphasize the importance of growth, both in conversations with the investment community and with our team.

We are pleased to report net loan growth for the quarter for the first time in over 3 years. Frankly, the current market environment has produced erratic performance across our industry.

We previously communicated that we hope to reach the inflection point this year and begin to grow loans. We are hopeful that we reached that point, but we are cognizant that we still have some challenges to work through and growth will continue -- excuse me, growth will require a dedicated effort by our team.

And I'd also like to point out the growth that our insurance team produced this quarter. Insurance commission revenue was up over 12% on a comparable quarter basis.

Our executive team will provide additional details about each of these trends in their remarks. Let me turn our call to Bill for his comments on our performance during the past quarter.

Bill?

Thanks, Dan. If you turn to Slide 4, you'll see our summary income statement presented on a sequential and comparable quarter basis.

Net income was $20.8 million or $0.22 per diluted share for both the second and first quarter of this year, compared to $20.6 million, which is also $0.22 per diluted share for the second quarter last year. As a reminder, we incurred a pretax charge of $6.8 million that increased our legal reserves during the first quarter this year; and we incurred a $10.9 million charge in the second quarter that Dan mentioned earlier, related to the VERO program.

You'll also notice on this slide the consistency in our net interest revenue quarter-over-quarter. Our net interest margin of 3.36% remained flat relative to 3.37% for the first quarter of this year.

The redemption of the TruPS will provide a benefit of approximately 9 basis points to our margin going forward. Slide 5 shows the detail of our noninterest lines of business.

Total noninterest revenue was $76.1 million for the quarter, compared to $71.3 million for the first quarter of this year and $66.5 million for the second quarter of last year. Net interest revenue, as a percentage of total revenue, continue to grow, representing 43.7% for the current quarter, compared to 42.1% for the first quarter of this year and 38.8% for the second quarter of 2012.

If you'll turn to Slide 6, James will spend a few moments discussing 2 of the largest contributors to this noninterest revenue: mortgage and insurance.

Thanks, Bill. The tables provide a 5-quarter look at both our mortgage and insurance.

Our mortgage lending operation produced another solid quarter, with origination volume totaling $435 million. Mortgage lending revenue totaled $17.9 million for the quarter, which included an MSR valuation recovery of $5.3 million.

Mortgage production continues to remain strong despite declines in refinance activity. Of total production volume for the quarter, 48% was refinancing of existing mortgage, while 52% represented purchase money financing, which is an increase from the 38% purchase money financing during the first quarter the year.

Of current quarter refinances, 45% represented refinancing of mortgages not previously serviced by BancorpSouth. You will also notice that the margin remained strong at 2.41% for the quarter.

One thing I should point out is that we calculate our mortgage origination income net of direct cost to originate, which results in differences in the margin calculation when compared to others who report the revenue on a gross basis. As we head into the second half of the year, we won't be immune to the headwinds that declining refinancing activity will present to the industry both in terms of production and margin.

However, our team has been able to consistently expand market share and we've been able to continue to produce solid production numbers despite declines in refinance activity. When activity does begin to decline, our business model is structured in a way that will allow us to reduce overhead accordingly.

Moving onto insurance. Total commission revenue for the quarter was $25.9 million.

While first quarter commissions are seasonally high, second quarter commission income increased $2.9 million or 13% compared to the second quarter of last year. Our insurance production team continues to win new business, which drives organic growth.

As you can see on the chart, we produced consistent organic growth in both our property and casualty and our life and health product offerings. Now I'm going to turn it over to Gordon who will spend a few minutes discussing the loan portfolio.

Thanks, James. Slide 7 presents the comparable and sequential quarter comparison of our loan portfolio, broken down by classification.

As Dan mentioned earlier, we reported net loan growth for the quarter for the first time in over 3 years. Total loans increased almost $100 million, which represents a 4.5% annualized increase.

The primary drivers of the increase were the C&I portfolio, which increased 20% on an annualized basis, and the owner-occupied CRE portfolio, which increased 12% annualized. The pace of runoff in our CAD portfolio has declined significantly over the last couple of quarters.

While this quarter's growth is modest, it's clearly a step in the positive direction. We understand the importance of growing our loan portfolio, and we continue to work daily with our producers to ensure that this is their primary focus.

Our lending team now has more time to pursue loan opportunities and expand relationships as a result of the continuing decline in problem loans. We also believe the reorganization of our General Banking division over the last 12 to 18 months has positively impacted our lending efforts, specifically by allowing our community bankers to focus on the markets and the relationships they've traditionally served and now, more smoothly hand off some of the larger, more complex loans to our corporate banking group.

We are encouraged by the gradual but steady increases on our loan pipeline, and we believe we have the right people and operating model to build on the positive results we posted this quarter. I'll now turn it over to Ron Hodges to spend a few moments discussing credit quality.

Thanks, Gordon. Slide 8 presents some highlights of the credit quality for the second quarter.

The company's second quarter provision of $3.0 million declined from $4.0 million for the first quarter of 2013, and $6.0 million for the second quarter of 2012. Total nonperforming loans declined by $39.1 million, or 19% during the quarter; and total nonperforming assets declined $47.0 million, or 15%.

Other real estate owned decreased $7.9 million, or 8%, from $96.3 million at March 31, 2013, to $88.4 million at June 30, 2013. Total dispositions for the second quarter were $15.6 million, resulting in a net loss in sale of $0.2 million.

Foreclosures and write-downs were $9.6 million and $1.9 million, respectively. The percentage of loans paying as agreed declined from 56% of total nonaccrual loans at March 31, 2013, to 48% at June 30, 2013.

The decline is attributable to 2 items: first, we were able to return approximately $14 million of the loans that were paying as agreed as of the end of the first quarter to accrual status; second, we received cash payments of $27.5 million during the quarter, which resulted in a reduction in the balance of the loans that were paying as agreed. Additionally, near-term delinquencies representing 30 to 89 past due declined $3.2 million or 13% from $24.4 million at March 31, 2013, to $21.2 million or 0.24% of total loans at June 30, 2013.

We also had continued improvement in classified asset totals with substandard loans declining $36.6 million or 8% during the second quarter. Now let's take a closer look at credit quality starting with Slide 9, which breaks down NPLs by loan category.

While decreases in nonperforming loans have occurred across the whole portfolio, the majority of the year-over-year decrease was achieved through a reduction of $64.2 million of NPLs in the CAD segment. NPLs represented 1.94% of net loans and leases at June 30, 2013, compared to 2.41% at March 31, 2013, and 3.06% at June 30, 2012.

Slide 10 provides a visual of the significant improvement in the NPLs, ORE and total NPAs over the past several quarters. I've covered the quarter-over-quarter activity for each of these metrics in earlier slides.

This graph shows the amount of progress that has been made to reduce these problem assets to a much more manageable level. Slide 11 presents the visual of net charge-offs and annualized net charge-offs as a percentage of average loans for the last several quarters.

Net charge-offs for the second quarter of 2013 were $4.6 million, representing improvement from $11.9 million from the second quarter last year and $5.9 million for the first quarter of this year. Of the $4.6 million of total current quarter charge-offs, $4.3 million were loans that have been identified and reported as impaired and which were specifically reserved for in previous quarters.

Additionally, recoveries of previously charged-off loans continue to have a meaningful impact on net charge-offs. The coverage for the second quarter were $7.7 million, compared with $10.0 million for the second quarter of last year and $3.9 million for the first quarter of this year.

Annualized net charge-offs for the second quarter of 2013 were 0.21% of the average loans. That concludes our review of credit and financial results.

I'll now turn it back over to Dan for a few closing remarks.

Thanks, Ron. Again, we are very pleased with the progress made during the quarter.

While the 2 big ticket items that we've discussed will produce meaningful results beginning in the third quarter, we continue to work diligently on other expense control measures that will help us improve efficiency. While many of these items aren't press release worthy in and out of themselves, we believe that in aggregate, they will contribute to improvement in our efficiency level.

According to the fed, the regional economy across our [indiscernible] footprint continues to grow and the outlook for business in our region is fairly positive. Finally, as I've said repeatedly, when we've been on the road visiting our investors, our people are hungry to compete and are ready to grow.

I've visited many of our markets already and I've planned to spend a significant portion of the next few weeks out in the field visiting with more of our people. As we continue the transition from the defensive mindset that was developed through the credit cycle into more of an offensive mindset, I can sense the excitement of our people and their desire to help our company be successful.

We are focused on growth. We must grow loans, grow deposits, grow fee revenue and we have to do it while reducing cost.

I'm hopeful that we can parlay the momentum built during the first half of the year and the even better results during the second half of the year. Our team is working diligently to improve shareholder value everyday.

Thank you for your time and attention this morning, and for your interest in BancorpSouth. Operator, we'd now be happy to answer any questions.

Dan, just -- I hear your comments on expenses and that you're going to continue to focus, but not all these will be kind of announced initiatives. But can you, from a top level, just give us your sense, timing wise, based on what you know about the environment and what you expect from the environment?

We're out on efficiency ratio right now in the upper 70s, which is improved from a few quarters ago -- but what kind of time period do you expect it will take to get that down into the 60s -- into the high 60s or even mid-60s? I know there's a lot of components driving that, but it would help us just to know what kind of timeframe you are looking at and if we can go from there.

Sure. Thanks, Kevin.

I don't know that we have a timetable. I think we have to make consistent progress.

We have to challenge everything we're doing. We have to look at all of the line items across our expense base.

We have to sum up some items or contractually bound and take more time than others. There's no magic potion here that says we can do this in an orderly fashion, quarter over quarter over quarter.

I think when we find opportunities, we're going to take those opportunities. We're challenging our team everyday to make sure that we're spending money wisely.

But the real answer, Kevin, is you can't just wave a magic wand and make it happen in 3 quarters or 4 quarters, or 2 years or 1 year. We've got to challenge everything that we're doing.

So to put a timetable on it and tell you, "You know what? We're going to get to x."

I don't know that we can do that. I can tell you that the entire team is very focused on every nickel we're spending to make sure that we're adding value, that we're spending money that it's going to help us grow our customer base.

It's going to help us grow loans. It's going to help us grow deposits.

It's going to improve the customer experience. It's going to help us grow our fee revenue.

That's where we're spending money, and if it's not going to do those things, we need to stop spending money.

Okay. And just as a quick follow-up, if you could just address what your thoughts are on the dividend.

I know that's a big goal of all yours to get that back up to a more reasonable level. And give us a sense for timing and what you really need to see before you get comfortable, asking to take that up.

I appreciate that. You're exactly right.

I've been out and met many customers across our footprint, pretty good retail ownership based across our footprint. I can assure you I heard that question many, many, many times: "What's happening to our dividend?"

And I think our Board of Directors continues to review that and every one of them meeting. They're looking at the dividend.

They're looking at our capital plan. They're looking at our stress test progress that we're working for.

We're mid-tier bank. We're in this year's stress test modeling.

We certainly have progress being made on our stress testing, and all of that has to play in. And I can assure you that our Board of Directors, who also has large ownership interest, every one of those are just as interested as you and everyone else to make sure that we can raise our dividend just as soon as we're able to.

But I think that there's a long list of things that we need to make sure that we accomplish. We need to do things in an approved manner.

We need to make sure that we've got all of our capital management plans in place. We've got our stress test modeling running before we take that action.

Dan, good to see the inflection point on the loan growth. Can you talk more about that growth in terms of: Are these new customers?

Are these old customers? And it looks like the growth came on at the end of the quarter.

Can you speak to the timing of the loan growth during the quarter and what that means for the momentum in the 3Q?

'yes. I wish we had a crystal ball that could answer all those questions, Matt.

I think that we are excited about the loan growth. I think the entire team feels some relief that, okay, we can turn the corner.

But as I've said, we've been declining and we still have some progress to make on some problem assets that we'd still like to move out. We're hopeful that we turn the corner.

The team is very focused on growing loans. I think when you look at the timing, we've had -- we bounced around.

So I think that when you look back to the quarter -- I've got to get my months, here, right -- in May, we were strong. Some pretty good growth in May and towards the end of the month of May.

In about a week's time, it all went about pretty quickly. So really, when you've got larger customers, they can move the needle in a big way.

So we make some progress, and then we take a step back. And I think we're seeing the same type progress across all of the initiatives that we've got going.

We take 2 or 3 steps forward and we plateau out, or we take a step back, and then we've got to refocus and take 2 or 3 steps forward again. I think that's exactly what's happening with our loan production team.

We're working very hard to make sure that we've got products out there, that we can take care of our customers. We know the lenders are focused on it.

We certainly have continued to remove some of the impediments to their abilities to get out and make more calls. When you talk about the progress that's being made, a lot of that is really due to the fact that many of our markets, our lenders are making an average 1 or 2 or even 3 additional calls per week out into the market, and that's just going to continue to help us grow.

Gordon can jump in here, and I don't know that I have a sense on whether or not the growth is coming from new business or growth of existing customer base. I don't have a real sense for that process.

Gordon, you maybe able to add something to that?

I don't know, but I can really speak to that directly. But I would say that as we look at the growth that we saw during the quarter, we're broken down into 16 divisions and we saw growth in just over 1/2 of those divisions, so it's across our footprint and we see that same sort of progress as we look at our loan pipeline.

It's slow and it's gradual. And as Dan said, sometimes we think we're really moving forward, and then we have a big payoff or something that happens, and it puts us back a step, but I think it's across the board.

Ron also participates in that process. And Ron, you've been telling me that you've seen good volume coming across your desk from an approval standpoint.

You may have some insight on where the business is coming from, too.

Well, I would agree with Gordon that it is across the majority of our divisions and regions. But we have seen an uptick as we've sort of re-shifted our focus off of CAD loans.

We have seen an uptick in C&I lending, and I think that's pretty much across our footprint that we've been taking a more positive approach to those loans and actively seeking those in order to diversify our portfolio.

Matt, does that get you covered?

Yes, that's great commentary, guys. I appreciate that.

And I guess, as a follow-up, moving over to the margin: It feels like we're also close to an inflection point on the margin given the momentum from the TruPS redemption to the positive repricing, excess liquidity coming down. Can you speak to the margin outlook of the next few quarters and how close we are to an inflection point there?

Bill could jump in on that one.

Getting the crystal ball was a little bit pricey, but when they have some positive momentum in the third quarter -- or excuse me, light or early part of the fourth quarter and on in through next year, we've got some fairly high-priced CDs that we'll roll out. Even on the CDs, from a year ago, that are maturing and being renewed, we see the rates there coming in well below where they were.

In fact, I think this quarter, our borrowing cost was down about 5 basis points. And the TruPS, that won't kick in until mid-August, and while it's about 9 basis points on a full run rate, we should get about -- that's about halfway through the quarter, so we should benefit in the third quarter by about half of that.

But it was really dead flat when you consider day count because there's an additional day in the second quarter over the first quarter. That kind of factors in and pulls the margin down by a basis point when you compare it to a lean quarter, so we feel pretty good about it.

Maybe as a follow-up to the margin question. On average, what level are you adding new loans versus the current -- I think it was about 4.6% yield -- on the portfolio?

I don't know that we have a hard number to put out there to that number, Catherine. I think what we're seeing is it's depending upon the product.

If we could put more one type of product on there and we can get a better rate and we could go to other products. The C&I business is going to be a lower rate, loaning rate environment.

Some of the CRE may be a little higher rate, may have a year or 2 or 3 on a fixed side to it, so it really depends on where the product is coming in. But we're putting loans on today, all over the board, ranging from 4s, all down from there.

So maybe a better way to ask the question is, how much downside do you see to that 4.62% yield? I mean, the growth seems to be coming on, which is great to see, and so I would imagine that the higher volume is going to help offset the still lower yield.

But to what extent -- I guess, I'm trying to determine to what extent are all the other positive momentum do you have behind the NIM . And the TruPS and the borrowings coming down, the CDs coming down, the deployment of excess liquidity, how much of that is going to be offset just by the loan yields coming down over time?

Well, I think you're going to continue to see the same thing you've been seeing. So if you look at the loan yield over the last 3 or 4 or 5 quarters, I think you're going to continue to see that trend as we continue to book new businesses at lower rates.

So you saw the loan yields drop a few basis points last quarter. Our expectation is we'll continue to see that as we put new business.

Okay. And will it be fair to say that, the other triggers you have are strong enough that you'll be able to offset it by more.

So you'll still probably see positive movement in your NIM despite when you're coming down. Would that be a fair assumption?

Bill just told you that of the trust preferred, we can tell you exactly what the basis point impact on NIM is there. Everything else out there is a moving target.

Now we continue to have the ability to reprice down the deposit costs. We have some real -- some significant benefit in that process even in out quarters because we've got some expensive, high-rate CD money that won't come off.

I think beginning fourth quarter and running second quarter next year and we talked about that in the past. I can't remember the exact numbers, it's over $100 million at almost 4%.

So we've got levers in multiple places, but our crystal ball doesn't tell us exactly what the margins are going to do in what quarter. I can tell you that we got opportunities on all fronts.

I was hoping to dive a little deeper into the commercial loan growth. Specifically, can you help us or could you help quantify for us kind of the breakdown between what's coming out of kind of the more community bank originated stuff, versus what's coming in the corporate book?

And where you see the real opportunity for growth there?

Well, I don't know what's your definition of corporate book. I guess, you might want to kind of define what terms you're using here.

Now, you look at...

Just kind of -- you mentioned the larger loans that were going through the corporate review process.

Yes. I think -- I would tell you that all of the loans that we have are coming out of the community bank.

So how we manage those processes, that's some of the reorganization that Gordon referenced earlier. A year and a half ago, when we stopped the reporting structure in the community bank, we took our investments to commercial lenders and we said we want those folks to help us grow the larger commercial relationship across our entire footprint as an add-on, or a support, to the community bankers that are in the market.

That some are able and do handle larger credits, but some of our community markets have folks that kind of feel a little bit uncomfortable when you start talking about a $10 million credit or more. So we have the support structure in there to help those and I think that referral process is working very well.

Gordon, you can probably add just some color to that.

Dan, that's exactly right. We're having great success getting some of our traditional large customers referred over to our corporate banking group, and our folks in the field are more confident in calling with this corporate group; going out and calling on customers that we haven't been servicing before that may not be directly in their market, but they have some contact with and that helped us secure some new business.

And we have had growth in that corporate banking group. But as I said earlier, over half of our geographic divisions also had growth in the community banking area.

I think we're seeing good growth in lots of place. I guess there's a couple of markets that are weaker, and we got a couple of markets that have outsized problems still to resolve.

And so we may not be seeing growth in all of our markets, but we're feeling confident that we're turning the corner in a lot of markets.

Got it, helpful. And then, a question for James, I guess just on the mortgage banking cost, you guys mentioned an ability to bring those down as origination volumes dropped.

I mean, could you give us a sense of how much of the expense in that business is fixed versus variable?

Well, I don't have the exact percentage, but I can tell you that the way we structure that business is, particularly in the back-office part, we do a lot of temporary staffing that we can turn lose when buyings start declining. Also a lot of our processors and underwriters are incentivized to -- or paid on incentive based on the number of files they handle.

So as those files decline, those expense cost go down as well. Now that's what I was referring to.

And I don't really have an exact percentage, but I can tell you that we have always been able to manage when times slow down, to reduce our cost there.

I think there's several positives on that front. I know you talk about what's happening from a mortgage group perspective spin in that specific number, but our servicing book also is up fairly significantly for the last quarter.

So the production that we're producing and what we're able to service today -- what's our servicing book now, over 5?

$5.4 billion.

$5.4 billion up from $5 billion.

A year ago, it was $4.6 billion.

A pretty big increase in the servicing piece, too.

This is actually Preeti Dixit, on for Steve. Just a follow-up on the expenses.

It looks like this quarter, excluding OREO and the charges, expenses were about $127 million. Beyond the retirement program, how should we think about this level over the next couple of quarters?

So looks like some of the non comp-related items coughed up a bit here in 2Q?

I think I addressed that early on. Our expenses are too high.

If I had the right -- first of all, if you could tell me exactly which line items to jump into and attack first? Clearly, we're running -- we've got an expense base and an infrastructure that is too large for our back.

We've got to shrink our expense structure. We've got to shrink our infrastructure and we've got to grow into it at the same time.

And the hard part here is making sure that when we're trying to rightsize the expense base, that we do that in a way that doesn't damage the growth machine. We've got to grow the company.

Growth is going to be critical to our success and so, making sure that we're making smart decisions on our expense base is very important. I can't tell you, again, which specific line item is going to move, which one is going to move first.

But I can tell you the number is too high. And Bill can probably add some color to that.

Well, on the personnel front, most of those people that accepted the early retirement offer were here through at least May , and many of them on up until the end of the quarter.

And some are still here that will go away in the quarter.

There are probably still around 25% of the people involved that will be departing between now and the end of the year. And so that -- while we gave you a fully phased kind of run rate of the impact, very little of that was realized during this quarter.

We did have a little bit of tick-up, about $1 million of tick-up in the foreclosed property expense line item that still -- it's well down from where the run rate we were when our real estate was roughly doubled where we are today. But I think, important -- is very important to the expense base to get that out, get that out down to a much lower level to improve efficiency.

Okay, that's helpful color. And then, have you had the opportunity to evaluate the core system of the company?

Are there any investments on that front that you think need to be made?

I think that any company that's looking to grow is going to have to continually review and refine and improve upon their technology, all of us. Technology is moving pretty past, talk about the things that are out there today.

I haven't even -- I couldn't even begin to dream about, some things are a reflection of the Jetson's -- and some of that's right here today. We've got to continually look at every piece of technology we got, so I wouldn't count that as something extraordinary or different.

I think that's just part of ongoing business just to review the technology that we have in place and make sure that we have technology in place that gives us and our team the ability to compete effectively with our competitors.

I was wondering, Bill, if you and Dan could talk about maybe the desire for average earning asset growth going forward? Certainly, we're positive to see loan growth pick up, but I guess I was a little surprised to see the aggregate average earning asset base shrink on a link-quarter basis.

Well, that was the interest-bearing funds.

I think we talked in the first quarter that we said that we would expect to see second quarter deposit balances shrink so much because that's seasonally what had happened to us over the years past as we've had some large corporate or public deposits that rolled in towards the end of the year. Those deposits begin to get used in the second quarter.

So I think when you look back, year-over-year, we had some deposit growth. When you look on a quarterly basis, we've seen the second quarter is a declining quarter, or we talked about that in the first quarter.

I think when you look at the growth of the company though, earning assets, I think, we're able to grow alone, the deposits are going to come with it. So clearly, growth is going to be a part of our process, taking what we've talked -- when we've been together with you, with our team, across our footprint, our #1 focus is to grow.

We've got to grow loans. And with those loans, it's going to come with deposits, and I think you'll continue to see that happening going forward.

Okay. And then, I mean, Bill, would you expect to take any -- is there any opportunity to take advantage of steepening the curve?

I know you all had your securities portfolio appropriately and conservatively structured. Anything changing practically over the last month?

No, no. I think that's been a good strategy for us.

When we look at our assets sensitivity, we're fairly well levered to do positive things. One, we keep talking about growth, but still with the level of funds that we have out there that are earning 25 basis points, the opportunity to move those into the loans is certainly a big positive for us and helps margin and the net interest income dollars pretty significantly.

The -- with the recent rise in interest rates, who knows when this will continue and how it affects the steepness of the curve over the long term, but we certainly are, over a 1-year horizon, and are fairly positively levered to a rising interest rate. So if you started dumping that out into a securities portfolio and enrolling that many just because there's a few more basis points of opportunity there today than there were 90 days ago, it would take away some of that positive momentum when rates do eventually rise.

I had a question on -- with your order disposition, can you kind of talk about the market conditions there because it looks like some of your write-downs have kind of fallen? And if your strategy has changed at all in terms of bulk sales at this point?

Yes, I mean, let me talk about that in front, and probably Ron can color in here between the lines. I think you had a couple of questions in there, ORE disposition and what happening in the market.

I think that in the write-downs in particular, I think what we're experiencing, and Ron can make sure I'm stating here correct, but I think what we're seeing is that as we revalue and as we do appraisals on both collateral and our loan book and our ORE, the decline in those appraisals has significantly slowed, if not stopped. So when we're getting new appraisals, we're consistently seeing declining values and most of our markets were not experiencing that anymore and that has allowed us to slow the write-downs in that ORE.

I think we're seeing opportunities that a lot of markets for the disposition of ORE, and Ron can be specific to that. And then, the last part of your question was bulk sale.

I think that while we would be happy to sell in bulk, we're not happy to give it away. And I think to make that work, expectations are is that we're going to discount this property significantly.

When you look at a total gain or loss on ORE for the last quarter -- again, Ron correct me -- but I think our total gain or loss was less than $500,000 in the quarter, which means we're comparing the values pretty closely, and for us to bulk sale, we would have to incur a much larger loss than that. Ron, you may want to color in some of that.

Yes, that's right. I mean, we event initially stayed away from bulk sales because of the significant write-downs and losses that we'd have to take, and we still don't think they're warranted in the markets that we have.

We've been successful in selling the ORE at -- they're here, the marks that we have on the books. We're consistently reevaluating the ORE and updated appraisals and analysis from our appraisal department on a quarterly and annual basis and writing them to market value.

We're seeing the markets firm up in some of our distressed ORE markets, and we have, specifically, the Memphis market, I think, is firmed up. It's not robust yet, but it has firmed up, so we haven't seen declines, as Dan indicated, and we just -- we feel confident and optimistic about being able to continue the progress we've made and moving this ORE out of the bank to a reasonable return to us.

Okay. As a follow-up -- different subject -- with the insurance growth, is that -- how much of that is new business versus premiums kind of firming up and getting stronger?

Blair, this is James Threadgill. It's a little bit of both.

We -- I will say that -- point out that that 13% growth in the second quarter, some of that came through the acquisition we made in July 1 of last year that wasn't on the books for the first 6 months of this year. About 3% of that 13% came from acquisitions.

The remaining 10%, quite frankly, is a lot of new business and a firming of the markets. When I say firming, it's not really a hardening of the markets, but what it's doing is it's helping our ability to retain business.

It's much harder for competitors in a rising rate environment to come in and take our customers away from us. So it's both growth and retention -- higher percentage of retention of our existing book.

I have 2 questions. The first is related to the CCAR process.

I'm just wondering if all the expenses that you need to incur to go through that process are currently in your run rate? And then, my second question relates to acquisitions.

Dan, are you ready to sort of evaluating those kinds of opportunities yet?

Well, let's try those in reverse order. I think that the acquisition trail is out there.

Since I've been here, we've talked to a lot of folks. We continue to talk every day.

I think we need the right opportunity to present itself and I think we could have been ready a month ago and my guess is we'll be ready from a month from now or 2 months from now when the right opportunity presents itself. So I don't know that we have any concerns that would keep us from wanting to play in the acquisition market or the merger market, if there are opportunities that make sense for us.

For us, we need a transaction that can help us. We don't need to grow just for growth's sake.

We need to grow earnings, we need to grow in the right way. Frankly, we need good people.

We need people that know how to take care of customers. And so the culture is going to be very important in the acquisition side.

On the stress test modeling that you're questioning, I hope that we have what we need to do. I think -- you don't know that until your examiners tell you whether you do or you don't.

We certainly are incurring expense today. We have engaged some partners to help us through that process.

We have a very robust modeling that's basically in the final stages of being constructed so that we can turn on and start testing that modeling. I think our team is doing a very good job on that front.

I don't know of any expenses that would move the needle looking forward well over what we've already guided in the run rate.

No, I don't think there is.

All right. Well, thank you, all, very much for joining us today.

If you need any additional information or have further questions, please feel free to reach out and contact us. Otherwise, we look forward to speaking to you again as soon as we make it to the road.

Thank you very much.