Renasant Corp (RNST) 2005 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the quarter three 2005 Renasant Corporation earnings conference call. My name is Aneca (ph) and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to your host for today's conference, Mr. Jim Gray, Senior Executive Vice President and Chief Information Officer. Please proceed, sir.

Thank you Aneca. I'd like to welcome you to Renasant Corporation's third-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 Officer, and Corkie Springfield, Senior Executive Vice President and Chief Credit Policy Officer.

Before we begin, let me remind you that some of our comments during this call may be forward-looking statements which involve risk and uncertainty. A number of factors could cause actual 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.

Now Robinson McGraw will begin our discussion.

Thank you Jim. Good morning, everyone, and thank you for joining us. Let me express on behalf of the entire Renasant family our sympathy and concern for all of our friends impacted by the recent hurricanes that damaged much of the Gulf Coast and specifically, Mississippi. Our Company was fortunate not to be directly impacted by these catastrophic events.

As you may know, our Mississippi Banking and Insurance Offices are located in the northern half of the state. While our footprint does touch areas that were mildly affected by Hurricane Katrina, Renasant did not experience any negative impact to its business operations or performance.

Like much of the business and industry community, Renasant participated in aiding hurricane victims by making a substantial corporate donation to hurricane relief efforts, with additional contributions to different relief agencies coming directly from Renasant employees.

In addition to these monetary contributions, our employees have donated countless hours and relief efforts in helping displaced victims. Our hearts go out to those affected by this disaster, and we stand ready to do more as needed. Renasant Corporation is continuing its expansion into growth markets in Mississippi. Alabama, and Tennessee, and the economic activity in these new markets continues to accelerate.

In Southwestern Tennessee, we have now opened a full-service bank in East Memphis, adjacent to a mature, high-income neighborhood on one of the most highly traveled thoroughfares in Memphis. During the first quarter of next year, we will open another full-service bank in the dynamic city of Caryville, adjoining Germantown. It will be located in a prime location at the corner of one of the city's busiest intersections.

We continue to establish ourselves with an office in the affluent Brentwood area of Williamson County near Nashville. We believe this to be a strong growth market where the average household income is currently $98,000, and it is projected to reach $110,000 by 2009.

In the same period, home ownership is expected to total approximately 56,000, up 23% from the current 45,000 homeowners in Williamson County. This geographic area is expected to play a key role in our overall future expansion plans.

We are highly enthusiastic about our established presence in DeSota County, Mississippi with five current banking locations. This area joins Shelby County, Tennessee and the Memphis area cities that I mentioned earlier.

With the addition of our Caryville location, our operations in this high-growth region will nine strategically positioned offices by the first quarter of next year. According to the DeSota County Economic Development Council, over the past ten years DeSota has experienced an economic boom with 197 new and expanded industries. Over 7,000 new jobs have been created, $1.2 billion in capital investment and a 58% population increase.

One noted key fact according to DeSota Housing permit records. Seven families move to DeSota County each day, thus reinforcing the premise that this is a prime-growth market.

The current unemployment rate for DeSota County is 3.9%, well below the 4.9% national average. DeSota County is the state leader in the number of new and industrial locations and expansions. This attraction of new capital investment has for the last three years contributed more than 25% to the total capital in the Memphis-metro region.

With our eight banking offices and our mortgage operation now fully integrated in the thriving Alabama markets of Birmingham, Huntsville, and Decatur, we're anticipating strong business growth within this region.

The Birmingham Hoover area ranked 25th of Expansions Magazines list of America's 50 hottest cities for manufacturing, expansion, and relocation. Accordingly, Alabama is ranked as the third best state for business relocation. You can see why we're excited about this market.

The Birmingham economy continues to perform extremely well, lead by housing sales which are up 16.7% in 2005. Further indication of a surging local economy are retail sales which are up 4.9% and rising occupational taxes which are up 5.5%.

We are extremely pleased to be part of the dynamic Huntsville market. Huntsville is recognized by Forbes and other national publications as a leader in quality life and is a top 10 American city for business. According to Southern Business and Development Magazine, Huntsville is rated the Number 1 mid-market in the south, 2005.

One reflection of Huntsville's growth is the number of homes sold in 2005 is outpacing the number of homes sold in 2006 -- 2004 by nearly 25%. Also due to the federal government's base realignment and closure decisions of 2005, it is expected that approximately 2000 military personnel and their families will be relocated into the Huntsville area, adding to an already strong housing market.

In the Decatur, Morgan County area, we currently have three banking locations. This region continues to be one of the top counties in Alabama for recruitment and industry expansion and retention. According to an Alabama development office report, Morgan County ranked Number 1 in total capital investment and ranked in the top five in four of the categories. Retail sector provides strong support for the economy as well. This surge in economic growth has brought forth a substantial increase in residential construction to meet the area's housing needs.

The Decatur, Morgan County area is one of our leading opportunity markets and one in which we have a significant market share on which to build. We anticipate expansion in our Nashville, Tennessee, and Huntsville and Birmingham, Alabama growth markets for 2006 and 2007, and we are presently analyzing location alternatives.

One of our newest opportunity markets is Oxford, Mississippi, where during the past quarter we established a full-service bank located at one of the city's busiest retail intersections. This new full-service bank compliments our presence in the historic-downtown area of Oxford and our AMT located on the campus of the University of Mississippi.

The City of Oxford is one of the hottest real-estate markets in the state of Mississippi with assessed property values jumping 72% over the past five years. Oxford is also a growing retirement and vacation community and remains the second fastest in the state for growth of housing starts. Second only to our DeSota County area of operations.

Renasant continues to retain a strong and diversified economy in our Lee County homebase of Tupelo, Mississippi. According to the Lee County Tax Assessor's Office, Lee County real property values grew by $12.5 million over the past year, which is a positive sign of a healthy local economy. As a city, Tupelo also enjoyed much success in its retail sector as one of the few cities in northeastern Mississippi to see a sales tax diversion increase between August of 2004 and August of 2005.

Our financial performance for the third quarter of 2005 was indicative of the successful integration of our Tennessee Division and our continued progress and integration of our Alabama Division. Diluted earnings per share increased 15% to $0.60 for the third quarter of 2005 as compared to $0.52 cents per share for the third quarter of 2004.

Net income for the third quarter of 2005 was up over $1.6 million or 35% from the third quarter of 2004.

Now that we're near completion of the integration of both the Renasant Bank shares and Heritage Financial Corporation acquisitions and have incurred substantially all merger related and name changing expenses, we are able to focus our attention on franchise growth and expense control.

We have experienced solid loan and deposit growth since our entry into Tennessee with over $63 million in loan growth and $35 million in deposit growth coming from our Tennessee Division.

We believe we have successfully completed our integration with Renasant Bank shares and are now positioned for additional growth in the dynamic Memphis market. While it is still less than a year since we entered the Alabama markets, we're also pleased with the integration of Heritage, where we're beginning to experience loan growth. Alabama deposit growth has been robust with net year end to date growth of $11 million, including an intentional run-off of nearly $20 million in brokerage deposits which Heritage had at the time of the merger.

Net interest margin was 3.94% for the third quarter of 2005, compared to 4.16% for the third quarter of 2004. Factors negatively impacting margin include the acquisition of Heritage, which had a lower margin than the Company prior to the merger, the issuance of subordinated adventures to fund the merger, and rising deposit costs.

We maintained our quality credit during the third quarter, annualized net charge-offs as a percentage of average loans for 11 basis-points for the third quarter, down from 12 basis-points for the third quarter of 2004.

Annualized net charge-offs as a percentage of average loans for the nine months ending September 30th, 2005 were 20 basis-points as compared to 19 basis-points for the same period in 2004.

Non-interest income increased 22% to $10,244,000 for the third quarter from $8,378,000 for the third quarter of 2004. The increase in non-interest income was due to a combination of factors, including the Heritage acquisitions and improvements in service charges, fees, and commissions generated on the Company's loan and deposit products, trust revenue, and gains on the sales of mortgage loans. Diversified fee income is an important strategic objective for Renasant, and it now represents approximately 34% of our total revenue.

Operating expenses increased $4.3 million for the third quarter of 2005 from $16.2 million in the third quarter of 2004. The majority of this increase was due to the Heritage acquisition. Third quarter operating expenses were down compared to both the first and second quarter of 2005 as a result of several factors. After converting heritage in late first quarter 2005, we executed a plan reduction of operations staff in Alabama.

During this same period, we initiated a plan reduction in Mississippi staff. We also began to realize cost reductions related to a re-negotiated contract with our data processing provider.

In concluding my prepared remarks, let me re-emphasize our enthusiasm for the growth markets we are currently in and our excitement about our Denova plans to further expand our presence in these markets. I'll turn it back over to you for questions.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of Barry Mccarver of Stevens Incorporated. Please proceed.

Good morning, guys. And great quarter.

Thank you, Barry. Good morning.

Robin, one thing that caught my attention when you were talking about the culprits behind the little decline in net-interest margin, you didn't mention loan pricing competition as one of them. Can you give us a comment on what that's looking like right now?

Obviously, that has a bearing on it. Quite frankly, Barry, competition on loan pricing has been there the past several quarters. I think, more than anything, the competition on deposit pricing has had a bigger impact than pricing on loans.

Okay.

Although there are some banks out there that are aggressively pricing their loans and in order to be competitive, we have had to sharpen the pencil a pretty good bit.

So am I to understand it's not that it's not there but that there's really no big difference from the second quarter of this year?

That's correct.

Okay. I guess, again, a pretty strong quarter all around. If I was to play devil's advocate, I think the one area I would look at is just internal asset and loan growth. My question is, we know you ransom deposits off.

On the flip side of that is the asset growth and loan growth of just over 1% sequential. Include anything like that or is that just what your pure growth is? That being the case, you commented you're done with the acquisitions. You're focused more on growth and cost efficiencies going forward.

What might we expect to see just sort of roundabout on an annualized basis there for the next three or four quarters?

Barry, we anticipate better loan growth. Let me go back and talk a little bit on a state-by-state basis.

If you'll look at our Tennessee loan growth this year, it's been rather substantial, and we've taken advantage of that new market. As we look at Mississippi, it's been rather flat this year. And we're starting to see some loan growth in Alabama.

Looking back, last year, the third and fourth quarters of 2004, while we were integrating the Tennessee acquisitions, we had -- we were pretty flat. It took us about six to seven months before we started seeing any substantial growth in that market.

We're beginning to see the same process occur in Alabama. We're starting to see loan growth in this quarter. We're starting to pick up a little bit.

We're starting to feel a little loan growth happening in the Alabama markets for us, as kind of finish up. Get people's minds off integration and back on to business development.

By the same token, this year has been pretty flat in the Mississippi market. So we're examining where that's occurring and hopefully, we'll see some more activity in Mississippi in 2006 than we've seen.

In 2006 in Tennessee, we're beginning to see growth in our national market, and we anticipate having a more substantial amount of growth in Nashville next year again. It's been a process of starting up the operation up there, limited service facility we have. We'll be looking -- in fact, we are looking for a location to establish a full-service facility there, and we're beginning to see some momentum build in that Nashville market.

Again, we're beginning to build a little bit more momentum back in our DeSota market and also continued momentum in the three existing locations in Memphis.

In January, at least in the first quarter, but we're planning on January, we'll open up our Caryville facility, and we're anticipating some good deposit and loan growth in that market. We already have named a President, Jeff Pedron, who was already with our Company. Jeff has lived in Caryville for quite a few years while he was working in our DeSoto market. Jeff is already working that market, so we plan to hit the ground running in Caryville. We anticipate good loan growth next year, and we feel like our run-rate in Tennessee obviously will not be what it was this year, but our run-rate in both Alabama and Mississippi should pick up a pretty good bit from where we presently are.

That's very good. Thank you. And just one final housekeeping for Stuart. The tax rate was down a little bit. Can you tell us what affected that?

Tax rate down a little bit. Can you tell us what affected that?

We had -- one of the things that we had was our death benefit that was non-taxable. It wasn't a large sum. Pre-taxes about 160,000. It had a little bit of impact on that. And we've been able to work off -- our median is a little bit more on our primary investments.

So with the muni factor being in there, should we see it, maybe not quite this low, but as a little bit below the first half run rate?

Yes. We've been running probably a 28 plus, and we've just nudged down a little bit to slightly below 28% indicated tax rates. As we grow loans, you'll probably see that rate get more back into the normal range from earlier in the year.

Very good. Thanks, guys.

Thank you, Barry.

Your next question comes from the line of Charlie Ernst of Sandler O'Neil Asset Management. Please proceed.

Good morning.

Good morning, Charlie.

Can you guys comment on the run rate net-income contributions of Heritage and Renasant.

Run rate?

In the quarter what each of them contributed.

Dollar-wise?

Yes. To the net income.

I don't know if we have it broken out right here in front of us, Charlie. I could give you a guess, but I wouldn't want to be held to it. I know approximately what it is.

Maybe I can follow-up with you after the call.

Why don't we follow-up with you on that. I don't think we have our hands right on it.

I'm sorry to bring this up again, but the tax rate, would you say it added about a penny to the quarter that in a normal quarter wouldn't be there?

I think it would be just a little bit less than that, but it would be pushing that probably.

One last question. You talked kind of broadly about loan growth, but can you remind me what your target is on an ongoing basis?

Our target is in the 8 to 10% range for the Company as a whole.

In this environment, does it feel like that is within reason?

Going forward?

Yes, sir.

As we look at it over the course of, let's say, the next 15 months, I would say that probably is a viable opportunity.

Great. Thanks a lot.

Which would be the last quarter of this year and next year.

Thanks a lot.

You're welcome. Thank you.

Your next question comes from the line of David Scharf of FTN Midwest Securities. Please proceed.

Good morning, gentlemen. I was wondering if you could touch on any more sort of cost rationalization you'll have left from back office and also the sort of loan growth you've seen in Tennessee, the class of loan growth. If you could get into that, that would be great.

We're getting close to completing our back office rationalization. We're still -- in any -- we still anticipate absorbing some jobs in both the back office and in Mississippi.

Part of those back office jobs that we absorb will be in Tennessee, as we bring more functions into the Tupelo data-processing facility. But we will absorb those jobs, but in turn we're adding some retail jobs in Caryville beginning next year. It will be pretty much a wash.

Okay.

Over that time.

And as far as the type of loans that you're underwriting in the Nashville market?

In the Nashville market, it's basically real estate loans at this stage of the game. We're looking at both commercial and residential real estate.

And when you proceed with that, would that be maybe identified as -- you kind of build that around that person?

We right now have a staff of four individuals up there. Our Middleton president along with two seasoned lenders and an assistant. We will, before we open up our retail office up there, we will build around that type of lending.

Okay.

Once we open that office, we'll expand the type of lending we do.

Okay. Very good. Would you say, as far as the methods MSA's is going, that you feel pretty solid about the front line staff you have there and just the additional branch build-ins will be more retail based or is that also where you're going to see some more front line people as far as the lending environment?

We have already staffed for just about every job in the Caryville office.

Okay.

In answer to your question, I'll thoroughly excited about our Memphis staff. I think we have as good as or better staff as any bank in that East Memphis, Germantown, and Caryville area. We're real proud of who we have. Frank Cianciola had a tremendous staff prior to the merger, and we've only enhanced what we had since that time with some great additions.

I won't go into any names, but we've had some tremendous hires in that market, and I feel very comfortable with who we have and actually excited about it, as evidence by the growth that we've experienced there.

Okay, very good. Thank you very much for answering my questions.

Thank you, David.

Your next question comes from the line of Andy Stapp of Cohen Brothers.

Hi, guys.

Good morning, Andy.

Just a clarification. Did you say you allowed some deposits to run off in Alabama this quarter?

No. Over the course of the year.

Okay.

It was about almost $20 million that we've allowed of brokerage CDs that they had at the time of merger that were very high priced that we replaced with domestic deposits.

Okay. I remember that from the second quarter. I just wanted to know if you allowed some more to run off.

No, No. It was just an illustration of how much the growth has been when you take into consideration of growth of deposits have run off.

And you had pretty good deposit growth (link) quarter, I think it was a little over 3%. Could you tell me, was it mostly municipals? What markets was it coming in? So on and so forth?

It's actually been a combination. We've had some non-interest-bearing demand accounts. We've had growth obviously in CDs. We've had some municipal growth which probably accounts for a third of it. That's just off the top of my head. But mostly it's individual deposits and business deposits.

And is it more Alabama and Memphis?

Actually, it's a combination. For the quarter, we had about -- Mississippi, about for the year, I think, about 44 million. Actually, from June about 44.

Tennessee is looking to be about 35.

Okay.

It's been pretty much across the board. That the the one thing in Mississippi we've been flat in loan growth, but we've had good deposit growth.

In Alabama, we've had excellent deposit growth. In Tennessee, we've had excellent deposit and loan growth. We're starting to see excellent loan growth in Alabama.

Good. And lastly, you may have mentioned this but I missed it. When do you expect to have the full-service office in Nashville operational?

It will be by early ' 07 at the latest. .

Okay. Perfect. That's all for me. Thanks.

Thank you, Andy.

[OPERATOR INSTRUCTIONS] We have a follow-up question from the line of Barry McCarver.

Just two other quick questions. First off,on the loan loss provision, we saw it pick up in the quarter. Obviously, you had some loan growth in your newer markets. Should we continue to see that move up, stabilize or follow the trend that we're seeing in most of your competitors which it actually coming down a little bit?

Well, let me go back and do a little historical perspective for you, You know we --our allowance is at 115, which is based a lot on the fact that we had that accounting adjustment prior or contemporaneously with the Heritage merger with the '03 dash 3 loans which reduced us from a 1 over 1.40 down to a 1.15. We plan to keep our allowance at about that same level going forward.

So as loan growth occurs, we will be funding the provisions for the additional loans, and we don't anticipate charge-offs to be in excess of our present run rate, which is annualized at about 20 basis-points.

Okay. And then secondly, we saw the loan-to-deposit ratio come down a little bit with the really strong growth in the deposits.

You're really not necessarily quarter-to-quarter, but just over all is there kind of a goal you guys have in mind for a range for that ratio?

We'd like it to range between 90 and 100%.

So it's low for you guys then. Right?

It is. It is right now. And, again, let me go back, Barry. One thing on Mississippi's flat basic loan growth is we sold off a pretty good pool of Mississippi loans, total of about 10 to $13 million -- $13 million total over the course of the last quarter of last year and early this year and during the course of this year.

So we have had some loan growth in Mississippi, but we took advantage of an opportunity to sell some loans that we had already impaired more from what the purchase price was just kind of hedging our bets going forward on those loans.

Okay. Thanks.

Thanks, Barry.

We also have a follow-up question from the line of David Scharf. Please proceed. David, your line's open.

I apologize. I was wondering if you all could repeat the deposit breakout. Was that a year-over-year basis or is that link quarter?

Let me give you --

By state. I believe you said 44 million for Mississippi.

Here's what we've had over the course of the year.

So year-to-date?

Yes. We've had $35 million increase in deposit growth in Tennessee.

Alabama has had a deposit growth of $11 million net, but the gross amount is about 31 million because we allowed 20 in brokerage CDs to run off. So we got rid of that. And $46 million in loan growth in Mississippi year-to-date.

Very good. Thank you.

You're welcome. Thank you.

At this time, gentlemen, I'm showing no further questions.

Thank you, Aneca. We appreciate everyone's time today and your interest in Renasant Corporation, and we look forward to speaking with you again when we report our 2005 fourth quarter and annual results in January of 2006. Thank you for joining us.

Once again, ladies and gentlemen, we thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.