Renasant Corp (RNST) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Renasant Corporation formerly the Peoples Holding Company's first quarter earnings conference call. My name is Elisha (ph) and I will be your operator.

[Operator Instructions]

I would now like to introduce to your host for today's call Mr. Jim Gray, Senior Executive Vice President for Renasant Corporation. Please go ahead sir.

Thank you Elisha. I'd like to welcome you to Renasant Corporation's first quarter 2005 earnings conference call. With me today are Robinson McGraw, Chairman and Chief Executive Officer, Stuart Johnson, Senior Executive Vice President and Chief Financial Officer, Harold Livingston, Senior Executive Vice President and Chief Credit Quality Officer and Corky Springfield, Senior Executive Vice President and Chief Credit Policy Officer.

Before we begin, let me remind you that some of our comments may be forward-looking statements, which involve risks and uncertainties. A number of factors could cause results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements those factors include but are not limited to, interest rate fluctuation, regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission.

And now our chairman and chief executive officer, Robinson McGraw will begin our discussion.

Good morning thank you for joining us today. I would first like to first like to comment on the markets in our freestate operating regions. Our recent acquisitions in Tennessee and Alabama have given our company access to market with significant potential for growth.

We have most recently established our presence in the Brentwood, Tennessee area of Williamson County adjacent to Nashville. Since 1990 the population of Williamson County has grown 75 % to 141,000 in 2003. That number is expected to increase to a 166,000 by 2006.

The median household income for that County is approximately $75,000, and the unemployment rate is about 3%. Compared to most, to more than 5% in the United States. Williamson and Davidson Counties had been widely recognized as how desirable areas in which to live and also to work.

Our acquisition to Renasant Banks here in (inaudible), Germantown and Cordova Tennessee areas are joining underscore our increasing prevalence in the region around the nation's eighteenth largest city.

In second half of this year we will open an additional full service location in the high growth area of East Memphis and another in the City of Collierville. We will then have 10 locations in the Memphis Vicinity including our self-existing offices in Desoto County, Mississippi. Our Lee County home base is the number one manufacturing county in the state of Mississippi.

The area's diversified economy has shown rapid and consistent growth and a significant development United States Department of Commerce in March approves Lee County's inclusion in the US Foreign trade zone.

The trade zone will greatly improve the ability of the Mississippi foreign trade industry and other Lee County manufacturers to market their value-added productions and compete more effectively with foreign-based manufacturers.

Our company's acquisitions in Alabama brought us into the dynamic, attractive North Alabama market of Huntsville, Decatur, Birmingham and adjacent cities. The Birmingham Metro area ranks as the eight best place in the nation for entrepreneurs. And Alabama's tax were up as the twelfth best among the states from the (inaudible).

According to a 2004 report by the US Bureau of Labor Statistics, the Birmingham Hoover area is home to more than 400 technology companies and ranks among the top ten largest South Eastern Technologies centers. This area is the center for the nation's fastest-growing automotive manufacturing region, which includes Mercedes-Benz US International, Honda Manufacturing of Alabama and Hyundai Motors Manufacturing.

That (inaudible) Morgan County area is home to 500 companies and is consistently one of the leaders in the state when it comes to new and expanded capital investment in jobs creation. Morgan County is home to 32 new expanding companies with an announced expanding capital investment of more than a $318 million. These statistics compared closely or exceed some of Alabama's largest markets.

The Huntsville Metro area got high marks in 2004 for both its economic growth and development of its quality of life. Expansion magazine ranked Huntsville as the number 44 metro area among America's hottest cities for expansion and relocations. Forbes Magazine selected Huntsville 8 of the 150 large metro areas is being one of the best places for business and careers.

The evaluation criteria included workforce qualifications, job growth, cost of living, migration patterns, crime, and a culture and leisure. Huntsville has also been recognized as being among the best performing cities based on business costs and knowledge jobs in the areas of ability to attract and maintain jobs. Relative to population, Huntsville's five firms own each list of 500 fastest growing companies amounting to the highest concentration in the nation.

I will now discuss our first quarter's financial results. Net income for the first quarter 2005 was. $5.45 million, up 17% or $812,000 from the first quarter of 2004. First quarter 2005 net income included approximately $244,000 of after-tax expenses related to the merger of Heritage Financial Holding Corporation and a $160,000, an after-tax cost associated with change in the name of our bank and insurance agency to Renasant Bank and Renasant Insurance. Excluding these adjustments, net income for the first quarter of 2005 would have been $5.86 million.

Basic and diluted earnings per share were $0.52 for the first quarter of 2005 compared to basic and diluted earnings at $0.57 in the first quarter of 2004. First quarter 2005 earnings include a $0.02 reduction for expenses related to the Heritage merger and a $0.02 reduction for costs associated with the name change.

Excluding these reductions, basic and diluted earnings per share were $0.56. In line with our expectations, the Renasant Bancshares acquisition completed July 1, 2004 had a $0.02 diluted impact in the Heritage acquisition also had a $0.02 impact for the first quarter of 2005 earnings.

We do, however, anticipate both acquisitions to become accretive during 2006. We continue to make progress in several areas. We have now experienced five consecutive quarters of loan growth and six consecutive quarters of improvement in net interest income.

Credit quality continues to improve as we bring to final resolution the credit relationship that is accounted for over a half of our non-performing loan ratio over the past year. With our two recent acquisitions, we have now extended our footprint to include key growth markets in Tennessee and Alabama.

We also announced yesterday that we have changed our name from the Peoples Holding Company to Renasant Corporation. This now positions us to unify our bank, insurance agency and holding company under the Renasant brand.

As I mentioned earlier, we completed the acquisition of Heritage on January 1, with the issuance of approximately 1.37 million shares of Renasant Corporation common stock and $23.1 million in cash. Related to Heritage our quarter end balances reflect $540 million in assets, $390 million in loans, $381 million in deposits $47.5 million in goodwill and $4.6 million of core deposit intangibles.

We continue to make progress in improving credit quality. The allowance for loan losses as a percentage of loans was 1.14% at the end of the first quarter 2005, compared to 1.50% at the end of the same period in 2004.

Due to a combination of improved credit quality, loan growth, and the application of AICPA statements of position 03-3 regarding the treatment of reserves related to certain loans acquired in the Heritage merger. This is further explained in our press release.

Net charge-offs with 31 basis points annualized and as a percentage of average loans for the first quarter 2005 compared to 21 basis points for the first quarter 2004. During the first quarter we will close the collateral securing the one problem relationship, which it represented half of our non-performing loan ratio. This will close resulted in a partial charge-offs of $605,000 during the first quarter with an additional charge-off of $296,000 expected to be reported in the second quarter of this year.

All amounts related to this charge-offs have been fully reserved in our allowance for loan losses. Excluding this charge off, charge-offs for the first quarter 2005 were 15 basis points annualized.

Partially as a result of this charge-off non-performing loans as a percentage of total loans decreased to 43 basis points at March 31, 2005 from 76 basis points, at December 31, 2004 and our non-performing loan coverage ratio was 264% at the end of the first quarter of 2005 compared to a 166% at the end of the fourth quarter 2004.

Net interest income grew 55% to $19.3 million for the first quarter 2005 compared to $12.5 million for the same period in 2004 reflecting loan growth and the acquisition of Renasant Bancshares and Heritage.

Net interest margin declined to 3.92% for the first quarter of 2005 from 4.09% from the first quarter 2004 due primarily to the fact that both Renasant Bancshares and Heritage had a lower margin than our company.

Non-Interest income increased to $9.9 million for the first quarter of 2005 from $8.2 million for the first quarter of 2004 partially as a result of two mergers. Despite the loss above the $350,000 of merchant discount revenue as a result of our sale to the merchant business in June 2004, non-interest income increased due to improvements in fees and commissions plus revenues gains on sale of mortgage loans and $264,000 representing our share of member proceeds resulted from the sale of its force network to discover.

Our comprehensive investment insurance and traditional banking services have resulted in significant growth in non-interest income during the previous seventeen quarters. We continue to generate diversified fee income, which represents over a one-third of our net operating revenue.

Non-interest expense was $20.9 million for the first quarter 2005, compared to $13.7million for the first quarter of 2004. The Increase was attributable to Renasant Bancshares and Heritage was approximately $6.3 million including a $399,000 of merger-related expenses.

In addition, we incurred approximately $262,000 in expenses related to changing the name of our bank and insurance agency to Renasant Bank and Renasant Insurance. Part of the increase and salary benefit expenses were a result of duplicate staff at headquarters and Heritage to facilitate the consolidation of back office functions related to the merger. These duplicate positions were eliminated in the second quarter 2005.

The balance of this increase were investments in the futures, such as salary and benefit expenses related to this strategic hiring and commercial lending and wealth management personnel in some of our new markets.

Marketing expenses related to the expansion of a successful consumer checking account program into Tennessee and the introduction of a business checking account program.

And finally, cost associated with the number of branches into dynamic markets of (inaudible), Mississippi and Nashville, Tennessee. Reflecting the acquisition of Heritage, assets as of March 31, 2005 were 36% from December 31, 2004 to over $2.3 million. And deposits were up 32% to more than $1.7 billion. Loans grew 38% to over $1.5 billion at the end of the first quarter 2005 from $1.1 billion at December 31, 2004. Excluding Heritage, loans still grew at an annualized rate of 15% from the end of the fourth quarter 2004.

In addition to our previously mentioned expenses in Tennessee and Alabama we continue to grow in Mississippi as well. We are constructing a full-service bank in Oxford, Mississippi to complement our existing limited service downtown location and ATM on the University of Mississippi campus.

Additionally, we installed a full-service ATM on the campus of Mississippi State University Historical earlier this year. With our solid net interest income, strong credit quality, and exceptional Fee income, and with the markets in which we are currently or will soon operate we believe that we are very well positioned for significant earnings growth.

Now Elisha, we will be glad to answer any questions that any one may have.

[Operator Instructions]

First question is from Andy Stapp with Cohen Brothers. Please go ahead.

Would you give me some color on this quarter net interest margin compression. For example how much was driven by the Heritage acquisition.

Stuart will have answer that. Most it was in that regard was --- Stuart go ahead and give the numbers.

Andy, the Alabama division had about 357 margin through the end of first quarter as with the major impact in pulling our margin down for the quarter.

And do see that going up or is this a pretty good run rate going forward.

We feel like it will be a gradual increase over there. There were some existing deposits that have an impact on it. They are in fact positively gapped (ph). We should see that margin improved.

And will it be for all the company as well?

Yes they improve the whole company. We bring the margin back up to similar stated hours.

Andy in addition in Alabama we will be introducing our checking program over there have actually we pick them out in the later part of the month. We anticipate that helping from a core positive standpoint, they also have some brokered deposits that will be working on as well.

Also, we have started implementation of our pricing model over there which should in fact improve the interest income on their loans.

Okay. You mentioned that loans increased on a length the quarter basis by about 15%.

Correct.

Is that a good run rate going forward? Can you sustain that?

I don't know that we will sustain 15%, but we are looking hopefully at 10%, -- 8 to 10% range going forward I would say.

Okay. And it also looks like organically quarter deposit growth, I guesstimated it at about 3.5%. Does that sound right?

That sounds about right for organic growth.

Right, when you see that going forward?

We look that to drive this year to maintain at about 3.5 to 5% growth in deposits.

Annualized?

Annualized, correct.

Okay. On your deposit service charges, it looks like just about I guess every bank had some organic decline there. Anything driving in that other than higher earnings credit?

Our Audit is just in with our new free checking program. There is a decline in account maintenance charges in our products. Those continue to drop.

Okay. So would you expect that line item to continue to experience a decline?

We are introducing high performance checking into Alabama, certainly that should drive some of that revenue.

Is that your free checking program?

Yes that's our free checking program of business and consumers. That would drive some of the revenue.

In addition we have introduced a new program called Renasant Advantage (ph), which is a packaged type of product that can generate additional income similar to the Prime revenue that Stuart mentioned. So we are looking to try to regain some of that.

Okay. I noticed that fees and commissions were lower than in recent quarters. You know what was driving that?

(multiple speakers)

I think it was lower than second, third and fourth quarters.

We will have to get back to you on that, Andy.

Okay.

And when did the Heritage conversion takes place?

January 1st was the data of the merger of the conversion took place February 25th, the last weekend of February. The merger was effective on January 1st.

Right. Okay. It looks like your effective tax rate was up a bit. Is the first quarter tax rate at good run rate?

As we bring you the bank on, with the experience of loan growth that we have we expect improvement. We're looking at about 28 plus percent.

Okay. That is all the questions I have.

Thank you.

Thank you.

The next question is from Joe Stieven with Stifel, Nicolaus. Please go ahead.

Nice quarter. Most of my questions have been answered, but I will dive into one. It looks like SOP 03-3 is going to complicate the reserves and methodology for us. You know your reserves is now one 114,who, how do, we sort of, I know it's kind of ...

With SOP 03-3, it would have been 150.

Will you continue that in every quarter to help ourselves by giving us what those reserves are specifically satisfied for the acquired assets. This is really going to make the whole process more complicated. I am sure you already know that.

You are telling us something we don't already know.

I am sure you guys know that but those sitting as outsiders it's going to make the numbers look very misleading. We are going to need the pieces to reassemble the Reserve each time.

SOP 03-3 , it is kind of a moving target. It changes several times before actual implementation and had we known or it may have been a better idea to the merger on December 31 as opposed to January 1. We cannot change in Midstream and they did change it midstream. So we were stuck with it. But if you do back do the calculation we would be at 1.50.

Now when you calculate reserve coverage of non-performing loans, those specific --- the non-performers that you picked up from Heritage, are those non-performers net of their reserves in that calculation?

That is correct.

Okay, they are net as the reserves in the calculation?

That is correct.

And so that actually makes that --- again that's where we need the pieces going forward. I will talk to you all off-line just to make that process for everybody more difficult.

Okay thanks guys.

We have discovered that Joe. Thanks.

The next question is from Peyton Greene with FTN Midwest. Please go ahead

I am wondering if you could you comment a little bit on how return has stuck around both with Renasant (voice fades out) franchise and then also what you expect to change with Heritage going forward? Thank you.

We lost one-well actually the CFOs of the both companies are no longer with us, but we anticipated that obviously. Other than that, we have lost a senior level lender in the Memphis market.

But we have reached agreement immediately following his departure with someone of equal or higher caliber to come and take his place. We have yet to announce his name, but Frank and I just reached agreement with him late yesterday afternoon and this morning before for him to come join us. He is there someone with a tremendous experience in that Memphis market, and will be a great addition to that staff of there so. We feel like we did rather nicely in that transition.

Okay. How should we think about Heritage going forward?

We have not lost any key members of that team, the CFO left but again that was something that works well for us, you know, from that perspective. We have added staffing here in the headquarters office to replace those senior level executives with senior level executives of, we think, better expertise in certain areas have been the other two jump in that.

We were able to hire someone to come in and take on our external authority really drop young man and we have hired a lady who has tax expertise. So, both of those slots were filled at headquarters with people of certain expertise that we needed as opposed to the generalized expertise those who left.

No I guess, I was trying to get at in terms of hires, which is I mean--

We have hired in Alabama two or three lenders of certain expertise over there and yesterday we saw loan production from them. So, those right now are the only additions we've had over there.

We are getting ready to hire a President for our bank in Decatur. They never had a President for that city. We are hiring a City President in Decatur. That will be the only other addition that we have right now.

And then, in terms of Tennessee, how many lenders do you want to hire overall?

In Tennessee, we right now we have all that we're going to hire until the Collierville move which will be in probably the late third and early fourth quarter. Quite frankly right now Peyton we don't have any space to put any additional lenders in Memphis.

We will be moving East Memphis in July or August hopefully July. At that point there's a possibility that we will add depending on finding right person. Again this is one of those deals that we are not going to be hiring to just hire.

We will be looking for the right person to come in to fill these slots when that does occur. But we will be making hire for a President of the Collierville location and probably some lenders in that area, but that will be later this year.

Okay. And then, anything in Nashville?

Right now we have staff of three out there. And we will be looking to expand that staff going forward. We are obviously looking for you know, permanent location there for a full- service bank.

And then, in terms of Mississippi, what do you think you're staffing means how to grow the production?

In Mississippi, We will be looking in DeSoto County additional staffing. But again, only if the right person we will be hiring some and we'll be looking for the right person in that market. And always, in people, Tupelo area we will be looking for the right person.

And then, just finally I mean, What's your appetite for additional expansion beyond kind of the core markets that you have already got in place?

Anything that we do the rest of this year would be the noble type expansion. We do not really plan to do anything in the first half of the year. We possibly could see open another location in Mississippi. This time while we get in Oxford with a loan production type office with the idea of building a bank, we will be looking in the Alabama markets, especially Huntsville and Birmingham for, sites of future locations also.

Okay. But in terms of the Denver (ph) branching this year, you'd have that the Oxford office you would have the two in Memphis and that's probably at?

That is probably yet for this year.

And then next year, you'd have something like Birmingham, Huntsville?

That is correct.

And Nashville

That is correct

Would you do any more in Memphis (inaudible) you mentioned?

We feel like that the ten locations we have in the Memphis market in Shelby and Desoto County. Right will be adequate for the near term.

Okay great. All right, thank you very much.

Thank you, Peyton.

Sir at this time, we have no more questions in the queue should I (inaudible) some more questions?

If there are no?

No additional questions at this time, sir.

Thank you Elisha.

We appreciate your time today and your interest in Renasant Corporation. We look forward to speaking with you again when we record our second quarter results in July.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the presentation.

You may now disconnect.

Good day.