BancorpSouth, Inc. (NYSE:BXS)
Q1 2016 Earnings Conference Call
April 21, 2016 11:00 AM ET
Will Fisackerly - Senior Vice President and Director of Corporate Finance
James Rollins - Chairman of the Board and Chief Executive Officer
William Prater - Senior Executive Vice President and Chief Financial Officer
Chris Bagley - President and Chief Operating Officer
William James Threadgill - Senior Executive Vice President and Chief Business Development Officer
James Hodges - Senior Executive Vice President and Chief Credit Officer
Catherine Mealor - Keefe, Bruyette & Woods, Inc.
Jason Oetting - JPMorgan
Kevin Fitzsimmons - Hovde Group, LLC
Michael Rose - Raymond James
Emlen Harmon - Jefferies & Company, Inc.
Matt Olney - Stephens Inc.
Stephen Covington - Stieven Capital Advisors, L.P.
Good morning and welcome to the BancorpSouth First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Will Fisackerly, he is the Senior Vice President and Director of Corporate Finance, please go ahead, sir.
Good morning and thank you for being with us. I’ll begin by introducing the members of the senior management team participating today. We have Chairman and CEO, Dan Rollins; Chris Bagley, President and Chief Operating Officer; Bill Prater, Senior Executive Vice President and Chief Financial Officer; Ron Hodges, Senior Executive Vice President and Chief Credit Officer; 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 2015 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 Q1 2016 earnings release.
Our speakers will be referring to prepared slides during the discussion. You can find the slides by going to bancorpsouth.com and clicking on our Investor Relations page, where you’ll find them on the link to our webcast or you can view them at the exhibit to the 8-K that we filed earlier this morning.
And now, I’ll turn to Dan Rollins for his comments on the quarter.
Thank you, Will, and good morning. Thank you for joining us today for BancorpSouth’s first quarter 2016 conference call.
I will begin by making a few brief comments regarding the highlights from the first 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 in 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 may have.
Let’s 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 of the quarter, beginning with the financial highlights.
Net income for the quarter was $22.5 million or $0.24 per diluted share. We continue to grow both sides of our balance sheet. We reported net loan growth of $71.9 million in the first quarter, which is typically seasonally slower than other quarters. We reported deposit growth of $155.5 million or 5.5% [sic] on an annualized basis.
Chris will provide some highlights on our loan and deposit efforts in a moment including some color on specific teams and geographies within our company.
We had one material non-operating impact to results of the first quarter. We incurred a pre-tax charge of $13.8 million to reflect a probable and estimable liability associated with ongoing regulatory matters. This charge also includes the related estimated legal and consulting expense.
We continue to have productive discussions with the Consumer Financial Protection Bureau and the U.S. Department of Justice regarding a potential settlement of their joint-investigation of our fair lending practices. While we are still unable to predict the final timing of the settlement or the impact on our pending mergers, we recorded a liability related to the potential settlement.
However, it’s important to note that no settlement has been reached and any final liability, should one be reached, could differ materially from the current estimate. While we continue to believe that our fair lending policies and practices are in compliance with applicable laws and regulations, we are encouraged with the continuing progress being made to resolve this matter.
Moving onto the remainder of the financial results, we had a non-cash negative mortgage servicing valuation adjustment of $8 million that had an adverse impact on our results. This charge along with the regulatory accrual prevented what would have otherwise been steady improvement in many of our operating metrics including ROA, ROE and our efficiency ratio.
With that said, our mortgage team otherwise had a very nice quarter with production volume of $315 million, and production and servicing revenue of $10.6 million. We reported net operating income excluding the MSR of $36.9 million or $0.39 per diluted share. This measure excludes the regulatory charge that I mentioned earlier as well as the MSR adjustment. We believe this metric is relevant in assessing our core operating performance which continues to improve.
Bill will go over comparisons to prior periods in a moment.
Moving onto the remainder of the financial highlights, our credit quality remains stable. We had a recorded provision for credit losses of $1 million. This marks the first recorded provision since 2013. We’ve been saying for several quarters now, that we expected to reach an inflection point where we would need to start providing for loan growth.
Ron will spend some time discussing the factors that impacted our provision in a moment. We continue to maintain a stable net interest margin, while growing both sides of the balance sheet. The net interest margin for the first quarter was 3.56% compared to 3.58% for the fourth quarter of 2015. Bill will cover the components of our margin in more detail in his remarks.
We continue to challenge expenses allowing us to hold total non-interest expense relatively flat. Total operating expenses, which exclude the disclosed non-operating items declined this quarter when compared to both the first quarter and fourth quarter of 2015.
Our operating efficiency ratio excluding MSR continues to trend down. This ratio was 68.7% for the first quarter compared with 73.9% for both the fourth quarter of 2015 and the first quarter of 2015.
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 $22.5 million or $0.24 per diluted share for the first quarter. We have one material non-operating event in the first quarter of 2016, results in the fourth quarter - and in the fourth quarter of 2015 results. We had a $13.8 million regulatory related charge in the first quarter that Dan mentioned earlier.
During the fourth quarter, we incurred $16.5 million legal settlement charge related to class-action overdraft lawsuit. Dan also mentioned the non-cash negative MSR valuation adjustment of $8 million during the quarter. If you look at net operating income excluding MSR, you will see continued improvement in our core operating performance.
We reported net operating income excluding MSR of $36.9 million for the quarter or $0.39 per diluted share, compared to $29.6 million or $0.31 per diluted share for the fourth quarter of 2015, and $34.1 million or $0.36 per diluted share for the first quarter of 2015.
You’ll also notice on this slide the trends in our net interest revenue. Net interest revenue was $111.2 million for the first quarter compared to $111.2 million for the fourth quarter and $106.1 million for the first quarter of 2015. Our net interest margin was 3.56% for the first quarter compared to 3.58% for the fourth quarter of 2015 and 3.56% for the first quarter of 2015.
The components of net interest margin were relatively stable quarter over quarter. We had some pick this quarter on our loan yield but that was offset by some compression in our securities yield. The yield on loans was 4.21% for the quarter, compared to 4.15% for the fourth quarter of 2015. And the cost of deposits was 0.21% which is flat compared to the fourth quarter of 2015.
Moving on to the provision, we had a provision for credit losses for the first quarter of $1 million, which essentially match net charge-offs for the quarter. Ron will discuss that in more detail in a moment.
The following three slides break out our noninterest revenue and noninterest expense into further detail.
If you’ll turn to Slide 5, you’ll see a detail of our noninterest revenue streams. Total noninterest revenue was $65.5 million for the quarter, compared to $67.4 million for the fourth quarter of 2015, and $73.3 million for the first quarter of 2015. James will discuss mortgage lending revenue and insurance commission revenue in a moment. I’d like to make a few comments regarding the card fee revenue and deposit service charge revenue.
Card and merchant fees, and deposit services charges both declined compared to the fourth quarter of 2015, as the fourth quarter each year is seasonally as a high result of the holiday season. Card and merchant fees actually reflect a 5% increase compared to the first quarter of last year, while deposit service charges declined 2%.
Deposit service charges remain under pressure across the industry due to consumer behavior and the regulatory environment.
Slide 6 presents a detail of noninterest expense. Noninterest expense for the first quarter was $142.3 million compared to $148.4 million for the fourth quarter of 2015 and a $136.9 million for the first quarter of 2015. The schedule at the bottom of the slide shows the aggregate impact of non-operating items incurred in each of the quarters presented.
You can see the two significant non-operating events that I just mentioned. Specifically, you will see the regulatory related charge in the first quarter results and the legal charge in the fourth quarter of 2015 results. In addition, while it was not a non-operating expense, we did have a $5.5 million increase in our litigation reserve that is reflected in the first quarter of 2015 results.
I’d like to make a few comments about certain of the line items included in noninterest expense. Salaries and benefits totaled $82.5 million for the quarter compared to $80.2 million for the fourth quarter of 2015 and $81.2 million for the first quarter of 2015. We continue to be disciplined in our management of full-time equivalent employees and our control with this expense line item. The linked-quarter increase was driven primarily by the beginning of the year FICA resets.
Most of the expense items shown here are either flat or trending down. The legal line as well as other miscellaneous expense line which includes consulting were elevated as a result of those respective components of the regulatory related charge. As Dan mentioned earlier, our operating efficiency ratio excluding the MSR was 68.66% for the quarter.
That concludes the review of our financials. I will now turn it over to Chris for his comments on our frontline banking efforts.
Thank you, Bill. Slide 7 reflects our funding mix as of March 31 compared to both in fourth quarter of 2015 and first quarter of 2015. We experienced deposit and customer repo growth of $181 million for the quarter or 6.2% annualized. As a reminder, the first quarter is typically a high deposit growth quarter of the year due to seasonality.
Looking at both the quarter over quarter and year over year comparisons, we continue to see the same positive trends in deposits we’ve talked about for some time now. Time deposits continue to trend down. While other lower cost, demand and savings deposits are growing, we continue to emphasize growing core deposits as a top priority for our business development teammates.
Core deposits are the foundation of a strong banking franchise and growing core deposits is critical to the long-term success of our company. We had three divisions in our community bank stand out this quarter for deposit growth. I would like to recognize our Missouri Division, our Tennessee Metro Division and our Mid-Mississippi Division, which all reported great results this quarter on deposit growth.
Moving to Slide 8 you will see our loan portfolio as of March 31 compared to both the fourth quarter of 2015 and first quarter of 2015. We reported net loan growth for the first quarter of $72 million or 2.8% annualized, while loans are up $718 million or 7.4% over the last year.
As Dan mentioned in his opening remarks, first quarter can typically be a slow growth quarter due to seasonality. As a reminder, first quarter of last year, we reported net loan growth of $14 million.
With that said, we continue to maintain a steady loan pipeline and we are optimistic about our ability to continue to grow loans as we look to the remainder of 2016.
We had several lending teams in our community bank that stood out during the quarter for loan growth. Our loan production offices in Houston, Dallas, and Austin continue to perform very well. In addition, our Gulf Coast Division and Missouri Division stood out this quarter as well. We are proud of each of these teams and their contributions to our success.
I will now turn it over - excuse me, I will now turn it over to James to discuss our business development results in mortgage and insurance.
William James Threadgill
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 $315 million. Of that, $223 million or 71% represented home purchase money, which is at 11% increase in purchase money volume over the first quarter of 2015. We believe comparable quarter comparisons are more relevant given the seasonality in the business.
We continue to grow our mortgage production team. Originators increased from 124 at March 31, 2015 to 149 March 31, 2016. Deliveries in the quarter were $294 million compared to $292 million in the fourth quarter of 2015, and $243 million in the first quarter of 2015. Production and servicing revenue, which excludes MSR adjustment was $10.6 million for the quarter compared to $7.8 million for the fourth quarter of 2015 and $11.6 million for the first quarter of 2015.
Margin was 2.45% for the quarter, representing an increase from 1.68% in the fourth quarter of 2015. We’ve indicated in the past that we expected normalized margin to be in the 1.6% to 1.7% range, if the pipeline is stable. We had a pickup in the margin this quarter as the pipeline increased meaningfully from $249 million at December 31, 2015, to $303 million at March 31, 2016.
This resulted in a margin that is higher than normal. This is not uncommon in the first quarter as we move from a seasonally slower time into the spring selling season, resulting in a growing pipeline.
Moving onto insurance, total revenue for the quarter was $33.2 million compared to $25.3 million for the fourth quarter of 2015, and $33.5 million for the first quarter of 2015. As we have reported previously, the first quarter is always our best quarter of revenue as a result of the seasonality in the renewal cycle as well as the receipt of annual contingency commissions.
A soft market continues to impact insurance revenue, as we are seeing declining rates across most commercial property and casualty lines. Although it’s not shown on this slide, I’d like to make a few brief comments on wealth management revenue.
Wealth management revenue was down compared to both the fourth quarter of 2015 and the first quarter of 2015. This decline is partially the result of a large non-recurring executor fee taken on a large estate in the first quarter of 2015 and stock market volatility reducing brokerage commissions and fees.
Our wealth management team continues to work hard to develop new relationship and grow our customer base.
Now, I’ll turn it over to Ron for his comments on credit quality.
Thanks, James. Slide 10 presents some highlights of credit quality for the fourth quarter. As Dan mentioned earlier, we had a recorded provision for credit losses of $1 million for the first quarter compared with no recorded provision for the fourth quarter of 2015 and a negative provision of $5 million for the first quarter of 2015. Continued loan growth and a slight increase in adversely classified credits are the key drivers of this provision.
In the first quarter, the completion of a review of our loan portfolio in markets influenced by oil and gas resulted in this increase in classified assets as it relates to secondary [ph] derivatives. Net charge-offs were $1 million for the quarter compared with net charge-offs of $6.6 million for the fourth quarter of 2015. And net charge-offs of $800,000 for the first quarter of 2015.
Net charge-offs for the quarter totaled only 0.04% annualized as a percentage of average loans. The ALLL was 1.21% of net loans and leases as of March 31, 2016. Non-performing loan and non-performing asset balances were relatively stable compared to December 31, 2015 with total NPLs declining by $700,000, while total NPAs declined by $2.7 million.
Non-accrual loans, 90-plus past due and accruing, and restructured and accruing total were essentially flat compared to the fourth quarter. ORE continues to trend down as we work through the remaining properties. ORE declined $2.1 million or 14% during the course of the quarter.
The final bullet on this slide relates to near-term delinquencies, which continue to remain at low levels, representing only 0.23% of net loans and leases at March 31, 2016. With that, I will now turn back to Dan for his concluding remarks.
Thank you, Ron. We continue to make steady progress quarter after quarter toward achieving our goals and improving our operating performance. I feel like I am repeating the same simple story each quarter. Our bankers are growing deposits and they’re growing loans.
Our mortgage team continues to grow purchase money production volume. Our insurance producers are working hard to win new customers to offset industry pricing headwinds. We’ve been growing our company while maintaining stable credit quality, a stable net interest margin and leveraging our cost structure.
As I mentioned earlier, core operating expenses are down this quarter compared to both the first and fourth quarters of last year. Total noninterest expense excluding the disclosed non-operating items, had been very stable for several quarters now despite continued efforts to add producers in all of our product clients.
I’m optimistic that we have more runway ahead of us to continue to improve performance in the quarters to come through continued growth and disciplined expense control.
With that I will conclude our prepared remarks. Chad, we’d now be happy to answer any questions.
Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] At this time we will pause momentarily to assemble our roster. The first question comes today from Catherine Mealor with KBW. Please go ahead.
Thanks. Good morning, guys.
Catherine, how are you?
I’m great. How are you?
Good. I want to start in expenses. And you brought core expenses down in a quarter that’s typically seasonally higher, so really good efforts there. And so as I think about that rate going forward, could we actually see the expense number decline next quarter as they go to the back half of the year or are there other investments that are coming on that could prevent that?
Well, there are always moving parts from quarter to quarter. Our annual salary review cycle is midyear and not end of the year. So in the first quarter Bill mentioned that we had higher payroll taxes that should trail off in future quarters, but that would be offset and probably overrun by the normal compensation cycle that we’ll run through in the second and third quarter.
But other than those items I think we’re continuing to drive cost out of our expense base. We continue to invest in technology, so the technology piece continues to grow for us. I think you’ve seen that over some time. We need to make sure that we have current and appropriate and good technology to compete today. But we are continuing to drive other expenses out. So I think the same message that we had at the beginning of the year. We believe we can continue to drive expenses down and cover the increased cost that we got to use to continue to grow our company.
Okay. That’s helpful. Thanks, Dan. And then, one question on credit, there was a slight increase in substandard loans. I mean, it looks like it was mostly in the C&I bucket. Can you give us any color on that? I think it was only $13 million, but there’s any commentary on that migration?
Yes, Catherine. This is Ron. We had a slight uptick. As I said in my remarks, we completed a complete review of our total loan portfolio in the markets, mainly Louisiana and Texas and Southwest Arkansas that were affected directly by the oil and gas and we downgraded a few credits. I think it was a small amount of number of credits as a result of that.
Those credits Ron are not direct oil and gas credits. So the review was basically the second and third derivative.
Right, it wasn’t, it’s a good point. It was not directly oil and gas production or service. It was the second and third, that we think may be influenced by them.
Okay, got it. All right, thank you very much.
The next question is from Steven Alexopoulos with J.P. Morgan. Please go ahead.
Hello, this is Jason Oetting for Steve today. So you’ve indicated that you have been having productive discussions with CFPB and DOJ. Can you just give a little more color into how things are progressing or maybe even how frequently these conversations are taking place?
Well, I don’t know how we would describe that any different than we already have. I mean, we are certainly not going to violate any of the attorney-client privilege discussions that go into settlement discussions. So I think what we’ve said and what we would continue to say, Jason, is that we are pleased with the progress, we are meeting regularly, there is a good effort being extended on both sides of the table and we hope that we are well down our way of bringing this to a resolution.
Okay, helpful. And then, shifting gears on insurance commissions, these were down slightly year over year. Do you have a sense for how much of that is driven by softer insurance pricing versus other factors?
Are - go ahead.
Go ahead. I am sorry…
I was just saying, are volumes holding up or is it almost entirely the pricing environment?
Yes. Jason, this is James. It is almost entirely pricing environment. We are seeing declining rates across most of our commercial property and casualty lines.
We’ve been growing the number of customers, so…
Absolutely, yes, we continue to write new business to offset that.
There is pretty significant headwind on pricing.
Okay. And then, a quick follow-up, the other component that’s pretty large in first quarter, is that the contingency payment you mentioned?
Most out of it is, yes.
Yes. When you look at the - on the slide where it says you’ve got C&I broken out and other is almost all contingency premium.
Okay, great. Thank you.
The next question is from Kevin Fitzsimmons with Hovde Group. Please go ahead.
Hey, good morning, guys.
Good morning, Kevin.
Dan, quickly the update on discussions on the fair lending investigation and understating you got to be very careful what you say. But I’m going to ask a question I know I - just this is more theoretical. If you can just maybe educate me on it, because I guess what I am having trouble understanding is, I understand discussions are going on, you don’t know the timing, you don’t know the actual outcome.
But as far as the outcome or how it is going to impact the two pending deals, because I guess the way I look at it is the CFPB has nothing to do with the merger approval process and it’s not involved in that at all. So I can understand, I mean, the fed are waiting and wanting to wait to see the results of it.
Why would the results of this have a direct impact on those deals getting approved and completed, because to my knowledge the CFPB is not your primary regulator, it would be out of their jurisdiction or bounds to come out and say, we are giving you this kind of penalty for fair lending and by the way you can’t do any more deals for a year?
If you can just educate me on that, like why that caveat has to be thrown in there about the deals?
What that potential impact might be?
Sure, I think the question you are asking really is what has to happen between now and whenever we’re able to move forward on the two mergers. And I think that’s a fair question.
So you are correct. I think, your direct question though is probably better addressed to the FDIC and the State Banking Department and the Federal Reserve who are the primary regulators that get to make a decision. But I’ll try to speak to that question a little bit.
The process that we got to go through and we talk to our primary regulators regularly. They’re here in our office. We are in regular conversations with them also. They continue to tell us, that they need us to resolve whatever issues are ongoing with the CFPB.
Once those issues are resolved, then they can look at the situation and determine whether or not that resolution would cause them to have concern that would prevent them or encourage them to move forward on approving the two mergers that are holding out there. So the steps we got to go through is, we got to get the CFPB and us to agree and resolve whatever issues is there.
We are working towards that. We hope to get there. But as I said earlier, there is certainly guarantee today that we are going to get there.
Once that is resolved then the game-plan shifts back to the primary regulators. And I think once they’ve had a chance to see and understand what’s in this resolution, then they can make a good decision on whether or not they want to allow us to move forward with the mergers.
Got it, all right, so I mean, I guess, they just want to get this checked off. And then, I guess, the risk would be that if the CFPB comes on and says, well, here are the issues and we’re giving you six months or a year to remediate. Even though you - sounds like you’ve taken all those steps already, it’s still technically an open issue until they come back and then we don’t know how the primary regulator would apply that to their view on the merger.
So on this subject can you just give us an update on how it’s going with the two banks, the pending acquirees, how they’re holding up? How often you’re having discussions and updates with them?
Yeah. We talk on a regular basis. I have talked to both of the other institutions. We got the Central Community Corporation in Texas, the parent company of the bank over there and a lot of the nice shares in Monroe, Louisiana, the parent company of Ouachita Independent Bank in Monroe, Louisiana. We talk regularly, if not, every week; certainly every other week.
I think they continue to be frustrated. I put myself in their shoes. If I was them - they made an agreement with us two years and three months ago to merge with our bank and we’ve been unable to do that so far. So I think the frustration level is there. However, I think they all are like us, encouraged that we continue to make progress towards the finish line.
Got it, okay. Thanks, Dan.
The next question is from Michael Rose with Raymond James.
Hey, guys. How are you doing?
Michael, good, how are you?
Good. Hey, just wanted to ask on mortgage, I think you mentioned so maybe hires were up 20 or so. How much do they contribute to this quarter’s production and maybe how much of their expense base might be in kind of the run rate for expenses? And what’s kind of the outlook for continued hires in mortgage spaces moving forward?
James is going to jump on here too. But let’s talk about that for a few minutes. You’re right. We’re up year over year, not in the last quarter by that many. So you’ve looked at year over year, headcount change, not the last quarter. Clearly, all of those producers are working hard today.
In that number includes a number of community development mortgage producers that we have added over the last year that are focused on low-mod income census tracts, high-minority census tracts to help us on our fair lending issues. So that headcount includes some of those folks.
Remember, the mortgage producers are commission based. And so the expense run that’s in there is netted out, the gain on sale on those loans. So whatever their cost is it’s all in there. James you want to color that any further.
No, I think you hit it on the head. We are continuing to try to grow originators. And we’re finding a lot of seasoned originators that have approached us about wanting to come to work for our mortgage company. So we are continuing to look to expand that, to add our footprint.
Okay. That’s helpful. And then, just switching gears to capital. Obviously, you guys announced the buyback authorization back in January, didn’t look like you used any of it this quarter, dividend payout around 30%. How should we think about kind of the pace of that moving forward?
I mean, is there certain trigger points? Can you actually buyback stock with this DOJ matters still pending? And just any thoughts you have on capital point, it would be great. Thanks.
Sure. I think the direct answer is we could probably do whatever we want to do. I guess, the question is that a prudent decision. I think with ongoing discussions on a matter, that impacts us so greatly as the DOJ-CFPB, we’ve elected to sit on the sidelines on our stock buybacks. And I suspect we will continue to sit on the sideline until we can get some clarity around that and resolve that issue.
Frankly, I think when the price dip we would have loved to been in the market in a big way. But we don’t feel like we can do that while we are trying to resolve the issues that are outstanding.
Okay. That’s helpful. Thanks for taking my questions.
Next question is from Emlen Harmon with Jefferies. Please go ahead.
Hey, morning, guys. Aside from the kind of one-timers the last couple of quarters, is there a benefit to expenses from having some of these legal issues either reach or kind of a approach there conclusion. I’m sure there are plenty of lawyers billing some meaningful hours.
Yes. And there are some in the room here with us too right now, Emlen. Thank you.
Thanks, Emlen. What about there?
Lot of seamless-way, [ph] that kind of thing.
The direct answer is, I think as a company as a whole, we have had some fairly significant litigation items that have been an overhang for us for several years, and being able to remove those items from us, as we did in the fourth quarter last year that will ultimately reduce the regular ongoing normal legal expense.
So we’ve had elevated legal expense for our company in my mind for multiple years. And we have made - our general counsel and team has made great strides in reducing active litigation and in reducing certainly the major pieces of litigation that are out there. So our expectation is that over time we will see a much lower run rate on legal expense than we have seen over the past several years.
Got it. Thank you. And then, just on the loan growth, the number of areas that Chris highlighted as opportunity areas, or I would call it as energy heavy, are you starting to see less intense competition in any of those - in some of those? Some of your competitors are maybe under a little bit more distress from an asset-quality perspective.
I don’t think we’ve seen that. Ron can jump in. It’s still very competitive out there. Many banks are still - the competition is focused around longer term fixed rates and we are trying to stay disciplined in our approach. And while we have great opportunities, it’s still very competitive across the whole footprint, I would say.
Yes. I don’t think we’ve seen really any change in competition. If there has been any change, my answer would be it’s gone up with aggressive longer term pricing, almost across our footprint. We are hearing from our folks that they can get five-year and ten-year fixed rate loans at very low rates today. And we have tried hard not to participate in that. Ron, you want to add anything?
I don’t know. I really can’t - don’t have anything to add. I’d agree with both you. Competition really hasn’t changed a bit in the last couple of quarters.
All right. Thanks.
[Operator Instructions] Our next question is from Matt Olney with Stephens. Please go ahead.
Hey, thanks. Good morning, guys.
Hey, Matt. Good to talk to you.
Yes, thank you. So sticking on the whole loan growth discussion, obviously it was pretty soft in the first quarter. But we saw this last year it improved throughout 2015. Anything else would make you think it will be anything different this year that that we won’t see improved production throughout the year, as you look at the pipelines now versus a year ago or expectations for pay-downs now versus a year ago?
Yes. I don’t have any reason to believe in it as any different. I mean, as we look back at the first quarter, our first quarter experience this year was very similar to first quarter last year. And that we actually saw the planning loan balances in the early part of the quarter. We covered that up and got back into the growth mode in the middle of the quarter. And the growth that you see all laid on towards the end of the quarter.
Last quarter, I mean, literally it was the last few days of the quarter, before we got into positive territory on loan growth. And last year, we posted $14 million, is that what you said, Chris, $14 million in loan growth last year. This year we got into the positive territory a little earlier in March and ended with $70 million in loan growth. And I think we are continuing to build some momentum into the second quarter. So I think no reason not to believe that we are on the same trajectory as we were a year ago. Ron, you have anything to add, no?
Okay, that’s helpful. And then, just lastly as far as the securities balance continues to come down, how much longer do we have until the securities balances start to set a level off here?
Bill is going to jump in here too. My answer is we’re there. I think that we are going to see continued reinvestment out of that portfolio or growth in that portfolio as we grow our balance sheet. So I think we are there.
Great, thank you.
Thank you, Matt. I appreciate it.
The next question is from Joe Stieven with Stieven Capital. Please go ahead.
Actually this is Steve Covington for Joe. Dan, how are you?
Oh, Steve, good to talk to you.
I appreciate taking the question. I just wanted to - just keeping on the regulatory theme. Can you update us? We had a recent CRA exam. Can you maybe update us on any ratings there within this?
Sure. The answer is no. The last CRA exam was fall of 2013. So we completed our regular CRA exam in the fall of 2013. The rating was satisfactory. That’s a public disclosed rating. The final exam report was delivered to us in the spring of 2014. So, remember, if you are looking at the calendar, we made our two merger agreements in January of 2014 and made our applications to move forward with those. And then after those applications were filed, the CRA exam was completed from the fall the year before with a satisfactory rating.
So that exam will now be three-years-old, come the fall of this year. So our expectations are that we’ll see the CRA folks in here at the end, either late this year or early next year.
Okay. Great, thanks.
Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Dan Rollins for any closing remarks.
Thank you all for joining us today. If you need any additional information or have further questions, please do not hesitate to contact us. Otherwise, we look forward to speaking to you again soon. Thank you all very much.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.
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