Renasant Corp (RNST) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter Renasant Corporation earnings conference call. My name is Fab and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Jim Gray, Senior Executive Vice President and Chief Information Officer. Please proceed, sir.

Thank you. I would like to welcome you to Renasant Corporation's second-quarter 2006 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 Corky 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 fluctuations, regulatory changes, portfolio performance, and other factors discussed in our recent filings with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

And now Robinson McGraw will begin our discussion.

Thank you, Jim. Good morning, everyone. Thank you for joining us today for Renasant Corporation's second-quarter earnings conference call. Let me begin by noting how pleased we are to be included in the NASDAQ's Global Select Market. Renasant Corporation has been traded on the NASDAQ since May of 2005, and according to NASDAQ, their Global Select Market, which was announced on July 3, 2006, represents the highest initial listing standards of any exchange in the world, based on financial and liquidity requirements. We're proud to be one of the 1200 companies, out of approximately 3200 companies listed on NASDAQ, to be included in the new NASDAQ global select tier.

With that said, I would like to now spend a few minutes discussing the markets in which we currently operate. Looking within our tri-state footprint of Tennessee, Alabama, and Mississippi, we continue to experience great success in what we believe to be our current growth market.

In Tennessee, our Collierville location is now well into its fourth month of successful operation, as we believe Collierville continues to be a prime growth area in the surrounding Memphis metro market. Collierville's income per household indicators are significantly higher than those of the United States, with a median household income of over $90,000 per year, according to Collierville Chamber of Commerce.

We've been experiencing great success with our full-service bank in East Memphis, which is located in a high-income, highly-traveled area, which makes for a prime wealth management business bank location. The area of Germantown within the Memphis region is also a strong market, as the U.S. Census Bureau reported that Germantown residents have the highest per capita income of all municipalities in Shelby County to go along with a high median family income of nearly $100,000 per year.

We continue to be enthusiastic about the DeSoto County, Mississippi market, which is located within the Memphis MSA. DeSoto County continues to be recognized as a rapidly expanding economic area, as the U.S. Census Bureau shows that DeSoto County is the fastest-growing county in Mississippi.

DeSoto represents 39% of the total growth in Mississippi and 53.5% of the total population growth for the extended Memphis metro area. Median household income in DeSoto County is also the highest in the state of Mississippi. Our DeSoto County locations, with the addition of our Collierville location mentioned earlier, gives us 10 strategically positioned offices in the high-growth region of Memphis, Tennessee and DeSoto County, Mississippi.

We are continuing to establish ourselves in the Nashville, Tennessee market with our loan production office located in the affluent Brentwood area of Williamson County, and are currently analyzing potential locations for a full-service bank in this region. The Nashville region of Tennessee is growing at a rapid pace, as over the past three years alone, eight companies with annual revenues exceeding $100 million have relocated their headquarters to the Nashville region. And there have also been 401 relocations and major expansions, according to the Nashville area Chamber of Commerce.

In our Alabama markets, the economy remained strong as the Birmingham-Hoover area currently has a 3.1% unemployment rate, which is much lower than the United States average of 4.6% for June 2006, according to the United States Bureau of Labor Statistics. Also, according to the Birmingham Chamber of Commerce's latest economic research, Birmingham's personal income grew 6.3% and single-family housing permits rose by 10.4% over the past quarter on record.

The City of Huntsville, Alabama has been recognized in many recent publications for its positive business environment. In June, 2006, salaries.com named Huntsville the country's best value for salaries and cost of living. And in May of 2006, Forbes named Huntsville one of their leading cities for business.

Southern Business and Development Magazine has recently named Huntsville the number one midmarket in the South. According to the article in the Southern Business and Development Magazine, "there are some tremendous deals announced, including the Base Relocation and Closure, or BRAC, announcements that total almost 4000 new jobs. Economy development just does not get any better than it is in Huntsville right now."

The Decatur Morgan County area, where we currently have three banking locations, will join Huntsville in the BRAC relocation of nearly 4000 military families, with incomes ranging from 80,000 to $120,000 per year, this according to the Decatur Morgan County Chamber of Commerce. Decatur is home to 20 Fortune 500 companies and continues to be a major economic engine for the state of Alabama.

Our strategic plans call for expansion in our Nashville, Tennessee and Huntsville and Birmingham, Alabama growth markets for 2007 and 2008, and we are presently analyzing multiple location alternatives.

In Mississippi, we have now moved forward with the renovation of property on the historic Oxford downtown square, where we will be opening an additional full-service banking location later this year. Fayette County, where Oxford is located, is the 12th fastest-growing county in population in Mississippi according to the U.S. Census Bureau. Oxford was also recently featured on ABC's "Good Morning America" as one of the top five hottest real estate markets in the nation, as the average home value in Oxford was calculated to be $214,000.

In our corporate headquarters city of Tupelo, located in Lee County, Renasant continues to enjoy strong market share. Lee County is currently the number one manufacturing county in Mississippi and is the nation's second most active micropolitan area for new and existing industries according to Site Selection magazine.

Looking at our current locations and future plans of expansion within these tremendous Midsouth growth markets, as well as the current banking consolidations taking place throughout the banking industry, we believe our Company is well situated to build upon our current market share as we move toward the second half of 2006.

Reflecting our strong financial performance for the second quarter of 2006, basic earnings per share were $0.68, up 13%, and diluted earnings per share were $0.67, up 14% compared to basic earnings per share of $0.60 and diluted earnings per share of $0.59, respectively, for the second quarter of 2005. Net income for the second quarter 2006 was approximately $7 million, up 13%, or approximately $836,000 from the second quarter of 2005.

Total assets were approximately $2.5 billion, an increase of 6% over the same period in 2005. Total loans grew 9% to approximately $1.7 billion at the end of the second quarter of '06 from $1.6 billion at the end of the second quarter of '05. Total deposits grew 12% to approximately $2 billion during this same period.

Looking at linked-quarter comparisons, we realized significant loan growth within our tri-state footprint, as loans grew by over $65 million. Our Mississippi division contributed approximately $31 million, or 47% of the Company's loan growth for the second quarter of '06. Our Tennessee and Alabama divisions experienced loan growth of $14 million and $20 million, respectively, for this same period of time.

During this same time period, deposits decreased 2%. However, the Company expected certain levels of deposit runoff due to the higher than anticipated public funds accumulation during the first quarter of 2006. It is important to note that approximately 71% of our loans and 60% of our deposits are now in the key growth markets which I discussed earlier.

Net interest income grew 2% to nearly $20.9 million for the second quarter of '06 as compared to $20.4 million for the same period in '05, while net interest margin decreased from 4.14% to 3.96% over the same period. It is important to note that net interest income for the second quarter of '06 includes $120,000 in interest income associated with certain loans accounted for under SOP 03-03, as compared to $1 million in interest income for similar loans for the second quarter of '05. Excluding the additional interest income from these loans, net interest income grew 7% for the second quarter of '06, as compared to the same period in '05, while net interest margin was unchanged at 3.94%.

On a linked-quarter basis, net interest income increased $434,000, while net interest margin declined from 3.99% to 3.96%. Interest income on loans accounted for under SOP 03-03 increased second quarter 2006 net interest income by $120,000, and first-quarter '06 net interest income by $262,000. Excluding this interest income, net interest income increased $576,000, or 11% annualized, and net interest margin remained flat at 3.94% over the same period.

Credit quality remained strong during the second quarter 2006. During the second quarter of '06, we recovered $1.2 million of loans previously charged off, while our charged-off loans totaled $379,000, resulting in a net recovery of $877,000. As a result of these recoveries, we reported a negative provision of $360,000 for the second quarter of '06, as compared to a provision for loan losses of $847,000 for the same period in '05.

Annualized net charge-offs as a percentage of average loans were a -20 basis points for the second quarter of 2006, down from 19 basis points for the second quarter of '05. Nonperforming loans as a percentage of total loans were 45 basis points at June 30, 2006, as compared to 40 basis points at June 30, 2005. The allowance for loan losses as a percentage of loans was 1.10%, as compared to 1.14% during this same period last year.

Non-interest income increased 11% to $11 million for the second quarter of 2006 from $9.9 million for the second quarter of 2005, which was primarily due to increases in service charges on deposit accounts, loan fees, and commissions on investment products. Non-interest income for the second quarter of '06 represents 34% of our total revenue, as compared to 32% for the second quarter of '05.

Non-interest expense was $22 million for the second quarter of '06, as compared to $20.9 million for the second quarter of '05. On a linked-quarter basis, non-interest expenses increased $168,000 or less than 3% annualized.

We are pleased to note that we have been able to diversify our Company's revenue sources by increasing our non-interest income generating product line. In addition, we are controlling our expense growth, while absorbing the expenses related to three full-service banking offices that we have added since the second quarter of 2005.

In concluding my prepared remarks, let me again reemphasize our enthusiasm for the growth markets that we are currently in and our excitement about our de novo and expansion plans to further our presence into these markets.

Now, Fab, I'll turn it back over to you for questions.

(OPERATOR INSTRUCTIONS) Barry McCarver, Stephens Inc.

Good quarter. I was wondering if you could give me just a little bit more detail on the charge-off that you recovered in the quarter, and then talk a little bit about non-accruals. Looks like they came up to about $6 million. I am a little surprised to see that.

I will talk a little bit about both of them, Barry. Actually, that $1.2 million recovery consisted of basically four loans and then some normal recoveries were in there. We had a bond claim that we filed following the Heritage acquisition. This was a situation that occurred during the old Heritage time that we felt like we had an opportunity for recovery on, and we received a payment of $525,000 recovery on that particular loan.

In addition we, in lieu of litigation, were able to recover $350,000 from a guarantor under another loan that had been previously charged off at Heritage. So these were two items, again, when we were pricing the Heritage deal, that we felt like, as I said previously, we would in fact bring extra value to the deal with recoveries like this.

In addition, there were a couple of other old Heritage loans that had been charged off prior to the merger that we were able to recover, around $100,000 apiece on those loans. So that was something that we had anticipated and it is not something we could definitely plan on, but we were able to work out and it came to fruition this quarter.

Also, we elected to place a loan that approaches about $4 million on non-accrual. It is a Mississippi loan. It is in a workout Phase and we feel like this loan will be brought to closure between now and the end of the year. There's some negotiations going on. Our customer right now is in the process of trying to work out a possible sale for this loan.

We have had this loan very well reserved for some period of time, and we anticipate -- we don't see any reason to anticipate any kind of loss over and above what our reserve is. In fact, we feel optimistic that there will be some closure on this loan in the near future. But we went ahead and put it on non-accrual this quarter. It made up more than 50% of the total nonperforming loans.

Can you tell us what industry the loan might relate to?

Real estate.

Okay. It is just real estate development?

It is a real estate development project that -- it had some complications. It was not because of where it is located or anything of that nature. There were some events that occurred that kind of made that a little bit more of a situation that messed up our deal, and we were not -- the owner of the property was not able to bring that to fruition as quickly as he thought. As a result of that, it caused him some problems. But we feel like it will work out in some way, form or fashion.

By year-end?

We feel like within the next six months it should. By the way, Barry, an additional sidelight to this, good fortune has fallen on it. This property is within the go-zone, so there are some tax incentives to someone purchasing this property and putting it to use.

Okay. In terms of the deposit runoff, which really was not a surprise given the strength in the first quarter, are you seeing that continuing on pretty strongly in the third quarter so far?

No. We feel like we are more normalized now. We -- first quarter, if you'll recall on the conference call, we commented that we anticipated a runoff of a good portion of those deposits. If you remember, it was very substantial.

Yes.

And we had some decent deposit growth in some other areas, but we had that runoff that we anticipated.

How much of the little decline in margin is attributable to that runoff? Would you have a flatter margin if --?

Actually, when you exclude the SOP 03-03 income, Barry, we are flat on margin compared to like quarter in '05. So that is one of the things we have been very pleased about, was while maintaining pretty close to double-digit loan and deposit growth over the last year, we have able to maintain that margin. We put out -- when the question has been asked before what we anticipated our margin continuing at, we said somewhere in that [3.90] to [3.95] range. And when you take out the 03-03 adjustments either direction, we are still running in that range -- at the high side of it, actually, about [3.94].

Probably the growth in public funds has allowed us to be a little less aggressive on the deposit process, which has helped to protect that margin.

Right. Thanks a lot, guys.

Barry, one other thing, too. When we put that loan we discussed a while ago in non-accrual, that charge-off of interest accounted for a 1 basis point drop in margin too.

Okay, very good. Thank you.

Brian Klock, KBW.

I guess just another follow-up on the large recoveries. You've mentioned you detailed out the handful of loans that were, I guess, from the Heritage acquisition, right?

Correct.

So those were fully charged off at Heritage, so they were done on their books before you acquired them?

That is correct.

And I guess was there any principal payment over and above -- because those would've been zero balance brought onto your books, right -- zero loan balances?

That is correct.

Is there any accounting issues of, I guess, adjusting that against goodwill since it was part of the acquired portfolio? Or is that not an issue?

According to our accountants, it was not an issue.

Okay, otherwise, credit seemed to be very good. Core credit, if you take that recovery out, was only about 9 basis points annualized.

That's correct.

How does the book look? And I guess you have talked about the one large credit. But is that something we should see that maybe that goes back to a more normalized rate going forward? I guess what is your outlook on credit?

Brian, we charged off a little bit more in the first quarter than the norm. It was a decision we made following the year-end that there were some credits that we felt like we needed to go ahead and charge down or charge off. So first quarter was a little higher than normal. That 9 basis points is probably just a little bit lower than normal. We figure our normal run rate is going to be somewhere in that 15 to 20 basis point range.

Okay. Then you're still comfortable with the 110 -- 1.1% -- [110]% of loans as a reserve?

We are. In fact, we have some qualitative factors that are taken into consideration too, that we do have an opportunity that if in fact -- we have qualitative factors such as the real estate markets that we are in, the oil situation, factors like that over and above our normal reserves that we do have the ability to fall back on. In fact, second quarter's watch list credits declined by 10%.

Okay. Do you actually have the actual dollar of watch list at the end of second versus first quarter?

Yes, the dollar watch list is down from 43 to 39 million.

Okay. And you'd commented in the release and then this morning about the strong growth in the Mississippi market. Can you talk about, I guess, granularity of that growth and any kind of other color on where that is coming from, what industry or --?

Interestingly enough, it was pretty much -- we only had one credit that was larger than the norm from Mississippi. It was mainly from our three strongest markets from a loan standpoint, that being DeSoto County, Tupelo, and Oxford.

Interestingly enough, Brian -- you give me a point to say this -- in less than a year, Oxford is year-to-date profitable. So it will be profitable in its first full year of operation, which we are pleased to announce.

In addition to those three markets that are strong, we had positive loan growth in a high percentage of our Mississippi markets over this quarter. And Mississippi's pipeline looks very good for the next quarter too. So we are pleased to see a little positive activity in Mississippi this year.

Right, okay.

And part of our Mississippi activity, we had a planned runoff of some loans end of fourth and beginning of first quarter this year in Mississippi. We were pleased that someone was nice enough to loan some of our customers some money and pay us off. So it was a planned runoff in that particular instance. So Mississippi's lack of growth in the first quarter was somewhat planned as opposed to a surprise on that front.

It's obvious you don't expect any more of those planned runoffs and the pipeline looks pretty good from what you're seeing.

That $4 million loan I talked about earlier, we certainly would like to see.

Then just last question, I guess. The fees and commissions, up from the first quarter of '06; they are up almost 700,000, or 87% linked quarter annualized. Is there anything non-recurring in there? Maybe you can just comment on the strong growth there.

I'm going to let Stuart comment on that for us.

When we went through looking at that, it threw a number of key accounts in there. And it is all -- I'll use the word "core" there. It's primarily driven by the loan volume, the growth in loans for the second quarter from an origination of doc prep type fees for the majority of that.

We still had a very strong quarter in our Financial Services Group and our debit card was very strong as well. So those kind of three or four components make up that growth. But there is nothing in there that is one-time fees.

Okay. Thanks, Stuart.

David Scharf, FTN Midwest Securities.

I was wondering if you could comment a little more on the Mississippi loan growth. It was much higher than we had anticipated. And given that, do you feel a little more optimistic regarding the previous guidance of loan growth, which I believe was around 10 to 12%?

David, the loan growth in Mississippi was great this quarter. We have a nice pipeline for the next quarter. We don't anticipate Mississippi moving in that direction. We do feel like we should be on the upper range of our loan growth targets for the year. We, again, had an unusually low quarter for us in Tennessee. But obviously there were some payoffs and some other things that impacted that during that quarter, as we are still seeing some good growth in that market.

Our Alabama markets have kicked in, especially in the Huntsville and Birmingham areas, so we've seen some positive growth along that line too. So we had a really good quarter over there also.

So we do anticipate higher loan growth in Mississippi than we have had. We do not see Mississippi being the lead bank every quarter from here on out. We feel like some of those markets in Tennessee and Alabama should overshadow Mississippi. But again, the pipeline in Mississippi for next quarter is looking awfully good right now too.

Given that, would it be reasonable to assume -- maybe you could talk a little bit about the pricing pressures you're receiving on the loan side from those markets in the growth markets. Is that what is going to drive any margin compression? It would seem to me that if loan growth in Mississippi -- maybe not as strong as it is, but that should still give you some incremental growth of the margin or expansion, as compared to all else being equal.

David, those three markets I mentioned in Mississippi, the pricing pressures there are just about as bad as they are in those other growth markets. And again, any compression in margin -- but we do feel like we're going to continue along at that same level that we're talking about -- would, of course, come from some pricing pressure.

There is a lot of competition out there, but we feel like our guys out there on the front line are as good as any, and we anticipate continuing with our growth.

Okay, great. And one follow-up would be just on the deposit growth rate. Previously, you guys had mentioned 8 to 10%. Is that still a reasonable assumption?

I would say yes.

Okay. Thanks for your time.

Andy Stapp, Cohen Brothers.

Nice quarter. Just about all my questions have been asked, except for one. And just wondering if you could comment on the gains in one- to four-family mortgage loans, what type of loans were included in that growth.

Those pretty much are coming, I think, mainly from the Alabama markets, more so than anywhere else. And going forwards, it's a combination of things, some of which would be in the area of HELOCs and some original first mortgage type loans (multiple speakers) ARMs.

Okay. That's what I thought. Okay. That's really what I needed. Thanks.

(OPERATOR INSTRUCTIONS) Charlie Ernst, Sandler O'Neill Asset Management.

You all, I think, mentioned a little bit of some possible expansion initiatives. Can you touch on that?

Charlie, we are obviously going to put in a full-service location in Nashville. We [had] that. In fact we put in a contract on a piece of property. It is in limbo right now in that Franklin County -- in the Franklin area.

In addition, we are looking at, over the next three years, two new locations in the Huntsville market. In addition, we are looking at multiple new locations in the Birmingham market, either as additional locations or in some instances possibly moving locations as some leases run out. We are also looking for opportunities for expansion in those markets.

Can you also talk about acquisitions, what the environment looks like, what your expectations are there?

We are obviously looking. There have been a lot of opportunities out there. We are, at this stage of the game, looking in what we consider to be strategic markets. I am not going to mention exactly where at this point in time. But we see opportunities for expansion and will certainly take advantage of it.

One of the gentlemen on this call has referred to me as being awfully picky as far as merger partners go, and I take that as a compliment. And we’ll continue to be awfully picky as we look for strategic partnerships going forward.

Okay. You might have touched on this earlier, so I apologize if you did. But the capital markets line was obviously very strong in the quarter. Can you add any color there? It looks to me like just going back through the model some that seasonally you got a little bit of a bump in the second quarter. Can you explain maybe why that is, if that is the case? I guess I'm looking at the brokerage line.

Okay, investment sales.

Investment sales, yes. Okay. That -- again, I think you hit on it, Charlie. That is somewhat cyclical. And we just had a real good second quarter. In fact, the gentleman who runs that area for us -- we're with PFIC -- and he ranked in the top five in the country on PFIC sales for this particular quarter. So it was a good quarter. We have seen that expand a little bit into our other two states, so that in fact has added, especially in the Alabama market.

I'm sorry -- what are PFIC sales?

That's who we do our brokerage through. That's the broker-dealer we work with. We don't have our own broker-dealer.

Okay. What are the primary products that they are selling? If there was maybe a product or two that really drove the big increase.

We're mainly mutual funds and annuities. We do have some individual stock transactions, but they are much less a factor than mutual funds and annuities. Annuities are sold at the platform level. And we have only our, obviously, Series 7 personnel who sell the mutual fund side of it and any agency transactions. And those are sold out of central locations in Mississippi, Tennessee, and Alabama. But the annuity sales are at the platform level.

Okay. Can you all comment, given the strength of your loan growth and sort of the pullback in deposits, how you all are thinking about funding the loan growth going forward?

Our major source of funding will be deposits. We feel like, Charlie, that we have seen the runoff in the deposits, all of that that we're going to see. So we should start our normalized increase in deposits, again, moving forward through the last two quarters of the year. And so most, if not all, of the loan growth will in fact be funded through deposit growth.

We've really beefed up our cash management sales, and we're really looking for that as an opportunity to create core business deposits to supplement the CDs. And we have gotten a little more aggressive on our CD pricing now that our loan growth has picked back up, and are seeing increase in time deposits as a direct result of that.

Let me expand a little bit on what Jim said on the cash management side. We already had a good cash management or some good treasury management person in Mississippi. But we have had two strategic hires, one in Alabama and one in Tennessee in that area. And we are seeing a tremendous amount of opportunity for us in the treasury management area.

And we have added a couple of new products, such as merchant capture, payroll cards, things like that, where we can provide -- and in some cases we may not be the only one in the market providing those services, but it does give us a competitive advantage, at least for the short term.

Okay, great. Thanks a lot.

Brian Klock, KBW.

Actually, I just had two quick follow-ups. Stuart, I guess I wonder if you could comment on the effective tax rate. It was higher than the past few quarters, and obviously your taxable income was higher, but what should we think of as a modeling normalized tax rate going forward?

Brian, we are going to be about in that level that we're at right now, around the 30% is going to be our basic tax rate. As we continue to grow the Company, we are sheltering less income. If you look at our investment portfolio, it is rather flat. So we don't have as many municipals proportionate to the number of assets we have.

So one of the big changes that you saw between first quarter and second quarter, obviously, we had a death benefit that was not taxable. And we've had a couple of quarters that that has caused some volatility. But I think at this point you can be looking around that 30, 31%.

Okay. And then just last question, I guess. Knowing that the last couple of quarters you mentioned the BOLI death benefit and some sort of non-recurring items in the first quarter, the large recovery that you had the negative provision here, I guess. I'm not sure if you've provided formal guidance for the year, but I guess knowing that this is such a strong quarter, we probably should expect to see the next couple of quarters be something less than this. I'm not sure if you can give guidance on the second half of the year. Thanks.

We're not going to give any guidance on it, Brian. But I think one of the most -- a couple of things I think are very important that we've pointed out, is that when you take out, as you commented -- and we refer to it as noise -- when you take out some of those items that we're talking about and you're talking about, the 03-03, looking at the fact that we had a charge-off of interest on loans we put on non-accrual, the linked-quarter increase in net interest income, taking all that out, was $576,000, or 11%.

So what we are actually looking at is that improvement in net interest income. And hopefully with the pipeline we have, we will continue to see that type of improvement. Again, I'm not going to give any guidance and I don't anticipate being able to match this quarter necessarily. But we are looking at some real positive growth in that net interest income area.

And the other thing I think very noteworthy is the fact that the modest expense growth that we have had with the three rather expensive locations that we have added over the course of the last year. Bringing into -- again, I will repeat myself on the fact that despite all that, Oxford has in fact already turned a profit year-to-date. It is hard for us to segregate out East Memphis because we did move our headquarters to that East Memphis location, but we have had tremendous loan growth in that area. And so we anticipate that even the East Memphis location is possibly turning a profit at this point in time too.

Collierville, we have had extraordinary deposit growth through the first quarter, so we are seeing a return on those investments that we have had, and we are still just seeing modest expense growth, even with those three new locations.

Great. Thanks, Rob, and I appreciate the extra color.

Kevin Reynolds, Stanford Group.

As a first-timer here, I hope you guys will take it easy on me. I may have missed this a little earlier. I dialed in a few minutes late. But could you comment a little on the potential for M&A disruption as a result of the big banks getting together? And I guess specifically in some of your metropolitan markets, are you guys starting to see more interest from experienced talent out there that perhaps may want to come work for you or someone else that you know in those markets?

We are talking with individuals in all three states, quite frankly, looking for opportunities as a result of, as you called it, M&A disruption out there. We think there is some opportunity. We have a lot of interest by individuals in our Company, so we do feel like we will be adding talent as a result.

And this is -- you know, in many areas, as we look across a broad board, we have opportunities in lending and mortgage and on the front lines, even personal bankers. So there is an opportunity to add some very good talent, and with it bring rainmakers along that line.

Okay. Then which of the markets, if you can, of those -- I guess of any of your markets, do you sense the most opportunity? Or what excites you the most right now from a recruitment perspective?

We probably see the most opportunity, I would say, in Alabama from that standpoint. But we are seeing some opportunity in Mississippi and Tennessee also.

Okay, thank you.

A follow-up from Barry McCarver, Stephens Inc.

Just two more questions. Could you give us the balance of the SOP 03-03 notes? I'm curious to how much more of that we have.

We can get our hands right on it. What was your other question? I'll come back to that --

I didn't catch when you were talking about the branch expansion for the rest of the year. Just for modeling purposes and for me to make sure I know where expenses are going to be, could you kind of lay out the guesstimate for the third and fourth quarter on branches?

This year, we will be looking at -- probably the only addition this year will be in Oxford, with the little, small location that we're putting in on the square of Oxford. It will be '07 we should be adding one in Huntsville, one in Nashville, and probably one in Birmingham. And the Birmingham potentially will be a relocation.

So is it fair to assume that at least for most of the rest of the year, you'll keep expenses at a pretty decent run rate where we're at right now?

That is correct. Now, in answer to your other question, of the SOP 03-03 loans, there are about $8 million of loans outstanding and about $2.1 million of SOP 03 reserves that are still outstanding on those loans.

Okay, thank you.

There are no further questions in the queue.

Okay, thank you. We appreciate everybody's time today, and of course your interest in Renasant Corporation. We are looking forward to speaking with you again when we report our third-quarter results in October of '06. So thank you, everybody, and have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.