Renasant Corp (RNST) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 Renasant Corporation earnings conference call. My name is Shaquana and I will be your coordinator for today. At this time, all participants are in a listen only mode. We will facilitate a question and answer session towards the end of the conference. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. E. Robinson McGraw, Chairman and Chief Executive Officer of Renasant Corp. Please proceed, sir.

Thank you, Shaquana. Good morning, everyone, and thank you for joining us for Renasant Corporation's second quarter 2007 earnings conference call. With me today are Jim Gray, Chief Information Officer; Stuart Johnson, Chief Financial Officer; C.H. Springfield, Chief Credit Policy Officer; Mitch Waycaster, Chief Administrative Officer; and Kevin Chapman, Chief Accounting 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. 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.

We're pleased with our second quarter earnings. Particularly our ability to offset the negative provision reported in the second quarter of '06 with core sources of revenue and expense control. In addition, we completed our equity offering in mid-May; and as expected this decreased both basic and diluted earnings per share for the second quarter of '07 by $0.02.

In our tri-state markets, we see previously mentioned opportunities beginning to materialize. On June 27, of '07 in National, Tennessee, Capital Bancorp, Inc. shareholders voted to approve the merger between Capital and Renasant Corporation and the merger was consummated on July 1 of '07. We are now moving forward towards completion of what thus far has been a smooth integration process. The completion of this merger gives us 7 full service-banking offices in the thriving national metropolitan statistical area. This acquisition and merger follows our previously stated strategic plan to expand into our key growth markets, and the Capital merger is Renasant's largest in our 104-year history.

We are excited about our new locations and personnel additions to the Renasant team in Nashville. Further reflecting our excitement about this, at market Nashville ranks eighth in the U.S. for per capita income growth and is also the eighth best place in the U.S. for workers with MBA's according to the May '07 issue of Fortune magazine. Nashville continues to thrive on its diverse economy, and its lack of dependency on any one industry insulates the area from the adverse impact of downward business cycles.

In Memphis, our other key Tennessee market, we're continuing to see strong growth from our 4 financial services offices located in Collierville, Cordova, East Memphis, and Germantown. Collierville and Cordova are distinct affluent Memphis suburban markets that we believe are poised to expand in the future. Collierville will soon become part of the I-69 highway plan, linking Canada and Mexico with the United States.

Cordova continues to be one of Memphis's fastest growing neighborhoods which, we believe, is partly due to the largest retail centers in Nashville being located in Cordova.

Our East Memphis and Germantown offices continue to thrive with their locations in high traffic areas. Germantown is the home to some of the highest real estate prices in the Memphis area, while East Memphis is largely considered a commercial and residential powerhouse. These 2 financial service centers gives us strategic locations in some of Memphis's most wealthy areas.

We believe the Memphis and Nashville, Tennessee area markets will be very strong in years to come. Looking at our Alabama markets, the employment picture remains strong in Birmingham; and though there has certainly been some moderation in the residential real estate market, a strong commercial market is helping to pick up this slight slow down. Birmingham's latest unemployment number is a strong 2.7% according to the U.S. Department of Labor.

Furthermore, a recent study shows that Birmingham enjoys the nation's best record of long-term income growth according to the American Business Journal's report that looks at 25 years of changes in per capita income in the 100 largest metropolitan areas in the country. Experts in this report say that Birmingham's transition from an economy based on heavy manufacturing to one based on diverse range of growing fields such as banking and healthcare have led the city's significant income growth over the last quarter century. The study concludes that income in the region has increased 292% since 1980.

Another one of our key Alabama markets, Huntsville, has been recognized for its business friendly environment as the Huntsville Madison Country region has led Alabama in jobs created by new and expanding companies in 14 out of the last 17 years. Madison County represents 15% to 20% of all jobs created statewide according to the Huntsville-Madison County Chamber of Commerce.

As we have previously mentioned, as potentially adding to the job growth in Huntsville is experiencing, we believe that the Federal Government's base realignment closure decisions of '05 may add up to 5,000 military jobs and 5,000 additional support jobs along with thousands of families moving into the area.

The Huntsville area continues to receive accolades for its business friendly environment as the Wall Street Journal ranked Huntsville as one of the top 10 cities in the nation for business vitality. The business vitality index takes into account current economic conditions, such as household income growth, factors that affect prospective conditions, including labor availability and regional cost structure and potential risks, such as employment volatility.

Just across the Tennessee River from Huntsville, the Decatur-Morgan County area is home to 20 Fortune 500 companies as well as the busiest port on the Tennessee River. Decatur is expected to join Huntsville in population and employment gains from the BRAC relocations as current city estimates put between 500 and 600 new households arriving indicator per year when relocation peaks in 2009 or 2010.

In Mississippi we continue to be highly enthusiastic about our DeSoto County markets. The Commercial Appeal Newspaper reported on July the 3, '07 that DeSoto County property was recently assessed at over $10 million for the first time. DeSoto County continues to be the fastest growing county in Mississippi and the 29th fastest growing county in the nation according to the U.S. Census Bureau in Dallas. Population growth throughout the County has continued, and the increased value of appraised property underscores the growth and power of local development.

In Oxford, Mississippi, we opened our second full-service banking location on June 1, 2007. This office is located off the historic Oxford Square and complements our student union ATM located on the University of Mississippi campus and other full service banking offices in Oxford, which was profitable, by the way, within one year of opening.

In our corporate headquarters' city of Tupelo, Renasant continues to enjoy strong market share. Regional excitement over Toyota Motor Manufacturing North America's announcement to build a $1.3 billion automobile manufacturing facility in northern Mississippi remains high. Site preparation is well underway and manufacturing operations are expected to commence in 2007 -- 2009, excuse me. We believe that the construction and operation of this Toyota plant enhances the future growth prospects of our mature North Mississippi markets and may especially help to insulate the Tupelo markets from the full effect of any downturns in the Mississippi or national economy.

The plant is expected to initially supply 2,000 jobs with an estimated 2,000 additional jobs provided by tier 1 and other suppliers. In addition, Toyota's management has recently selected the Renasant Center for IDEAs in Tupelo as their temporary 14-month headquarters until construction is complete on the automobile manufacturing facility. As mentioned in previous earnings calls, the Renasant Center for IDEAs is North Mississippi's business incubator that we have naming rights -- a naming rights agreement with the North Mississippi Community Development Foundation. Our locations -- we have 36 locations within a 60-mile radius of the facility and this will help us to capitalize on Toyota's impact in Northern Mississippi.

Looking at our financial performance for the second quarter of '07, basic earnings per share were $0.42 and diluted earnings per share were $0.41 compared to basic earnings per share of $0.45 and diluted earnings per share of $0.44 in the second quarter of '06. Let me remind you that in the second quarter of '06, net income included a negative provision for [loan] losses of $360,000, having a $0.04 positive impact on '06 earnings as compared to a provision for loan losses of $800,000 for the second quarter of '07. Net income for the second quarter of '07 was approximately $7.1 million compared to approximately $7 million for the second quarter of '06.

Total assets as of June 30, '07 were approximately $2.8 billion representing a 6.9% increase from December 31st of '06 and an 11.5% increase since June 30th of '06. Total loans grew to approximately $1.98 billion at the end of the second quarter of '07, an increase of 8.3% from $1.83 billion at December 31 of '06 and an increase of 14.3% from $1.73 billion at June 30 of '06. We are pleased with this loan growth and we are particularly satisfied that each state in which we operated contributed to the loan growth with $35 million coming from Tennessee, $30 million from Alabama, and $25 million from Mississippi. Total deposits grew $2.22 billion at June 30 of '07, a 5.4% increase from December 31 of '06 and a 12.1% increase since June the 30 of '06.

Net interest margin declined to 3.66% for the second quarter of '07, as compared to 3.96% for the second quarter of '06. On a [leak] quarter basis, however, net interest margin was 3.66% for the second quarter of '07 as compared to 3.67% for the first quarter of '07. Net interest income grew to $21.5 million for the second quarter of '07 as compared to $20.9 million for the same period in '06.

Our credit quality remains strong during the second quarter of '07. Annualized net charge-offs as a percentage of average loans were 6 basis points for the second quarter of '07, slightly up from 4 basis points for the first quarter of '07 and compared to a net recovery of 20 basis points for the second quarter of '06. As previously mentioned, the second quarter of '06 was positively impacted by net recoveries of $877,000.

Nonperforming loans as a percentage of total loans were 38 basis points at June 30th of '07 as compared to 62 basis points December 31st of '06 and 45 basis points on June 30th, of '06. The allowance for loan losses as a percentage of loans was 1.04% on June 30th of '07 as compared to 1.07% at December 31st of '06 and 1.10% on June 30th of '06. I would like to point out that we're not making any sub-prime loans in our retail bank or through our mortgage loan department. During '06 approximately one-third of 1% of all loans originated by mortgage loan department and sold in the secondary market were sub-prime and none have been originated this year.

Non-interest income increased 16.6% to $12.8 million for the second quarter of '07 from $11 million for the second quarter of '06. This was derived from multiple sources, including insurance, mortgage lending and loan and deposit fees.

Non-interest expense was $23.3 million for the second quarter of '07, up 5.92% compared to $22 million for the second quarter of '06. This increase over the second quarter of '06 was mainly due to strategic new hires within our growth markets and some other extraordinary fees. You may recall that in addition to key commercial lending hires, we hired 16 new members to our mortgage lending team during the second half of 2006. These hires also reflected in our increase revenue from mortgage lending.

We continue the trend of growing loans, deposits, and non-interest income at a faster rate than non-interest expense. This is represented by our commitment to control our overall expenses, while at the same time significantly growing loans, deposits, and non-interest income.

Taking a forward-looking view at our key growth markets, the completed merger of Capital in Nashville, along with Decatur and Huntsville's potential gains from BRAC relocations, DeSoto's continued population growth, and Toyota's manufacturing plant coming to North Mississippi, gives us a bullish outlook on the potential for solid, organic growth within our current footprint.

We are excited about the future outlook throughout our footprint and with the Capital merger now as well and before integration phase. We are focusing our resources on an organic and internal growth.

This concludes my prepared remarks and now, Shaquana, I'll turn it back over to you for questions.

Thank you. (OPERATOR INSTRUCTIONS). And your first question comes from the line of Barry McCarver with Stephens, Inc. Please proceed.

Good morning, guys.

Good morning, Barry.

Robin, I was wondering if just quickly if you could give us an idea of how Capital Bank did in the second quarter so as we put the two together going forward we'll have an idea of the third quarter. Any changes in its loan growth and asset quality?

Barry, we have not finalized and they've not reported their results yet, so I don't know that I can comment on those this time since they're not public. I will say that they're continuing with solid loan growth, and we don't see any future problems as far as their credit quality goes.

Okay. Would you comment on the pipeline there in Mississippi and let me -- I guess you set the question up. Most of the Mississippi banks have reported and I know you've got quite a bit of exposure outside the state as well as the rest of the banks in Mississippi, but it certainly seemed like the state produced a little bit better growth in it than we were expecting and that's a great thing. Could you give us an idea of what you saw in your markets and particular products and what that might hold for 3Q and 4Q?

Yes. We're looking at a pretty good pipeline in Mississippi, 30, 60 days out and 90 days out. We're continuing to see maybe about a $30 million pipeline 30 days out, little bit less than that, not much on the 60-day basis and right now 90 days out we're probably talking close to $20 million. So we're still seeing long growth opportunities in our Mississippi markets.

And then just lastly. I'd be remiss if I didn't ask about -- ask the quality of the bank given is such a big issue this quarter, but have you guys done any kind of strategic review of some of your assets related to commercial construction or whatnot, and do you still feel real comfortable with everything you've got on the books?

Yes. We have a continuous review going of that very in particular -- that particular sector which is real high profile right now. At this stage we still feel comfortable with where we are; the standpoint of our asset quality it continues to improve. Our other real estate category dropped rather dramatically over the course of the first half of the year and we're continuing to see that category drop.

I'm sure that when asked the question, what keeps you up at night, I always say the unexpected is what keeps me up because you never know what's going to happen; but we're well within the guidelines on -- over margin -- other real estate, and we see good equity and liquidity as far as our borrowers go.

Obviously one of the things that our credit folks look at is that liquidity portion of our borrower's financial statement. Can they in fact support -- should there be, heaven forbid, a stoppage, can they in fact support it with their own cash flow? That's of significant importance to our guys.

Okay, thanks a lot Robin.

You bet, Barry. Thank you.

Your next question comes from the line of Brian Klock with KBW. Please proceed.

Good morning.

Morning, Brian.

I apologize. I didn't get some of the detail you gave, Robin, on the loan growth by geography. Can you go through those numbers again?

You bet. Going back through it, Alabama was the -- each state had some excellent loan growth. Going back through it, Alabama was our leader at $35 million, Tennessee at $30 million, and Mississippi $25 million. So we had rather solid loan growth in each of the three states.

I think what you may have picked up on was the question -- Barry asked the question about our Mississippi loan pipeline whether or not we were still looking for some solid loan growth in the Mississippi segment in the future. Actually Mississippi still shows a strong pipeline with an in excess of $30 million in the 30-day pipeline and close to $30 million in the 60-day pipeline and around $20 million in the 90-day pipeline. So we're -- looking at what we have, we should see some continued solid loan growth in Mississippi and the other markets are looking good as well.

That sounds good and actually I guess I know Barry mentioned that other Mississippi banks have reported some good loan growth and some of your competitors have shown that -- and that Memphis MSA there has been good solid loan growth and it sounds like it's pretty strong too. Maybe you can comment on that and is that where you're getting the strong CRE and CNI growth that you had in the first or the second quarter?

In Mississippi or in general?

No, I get more and more [inaudible] in Memphis.

We're getting good Memphis growth. Our Alabama markets obviously have been very strong in 2006. In the first half of 2007, they've kind of been our leader on the 6-month basis although Tennessee took the lead for the second quarter this year. So we're seeing good growth in those markets. In Mississippi we're seeing good growth in the Tupelo and Oxford areas as well as DeSoto County area.

Well, good deal. It looks likes some good loan growth momentum continues even though you had a lot of things end up on your plate in the second quarter.

We were very pleased with it quite frankly.

And I guess maybe just one last question. It looked like non-interest expenses were a little high, mostly in that sort of other, miscellaneous line item. Anything in there that is non-recurring?

Yes. We actually did, Brian, have some non-recurring expenses in that other category. We settled a lawsuit that our insurance company wanted to settle. We had a deductible during the quarter and we had a legal reserve that we used to settle that. We put an additional $75,000 in that legal reserve during the quarter to kind of bring it back up to where we'd like to have it.

Okay.

In addition to that, we had a loan that actually -- we were taking out of, somebody paid off the loan -- another bank took us out of, but we had incurred about $70,000 of legal expenses on that during the prior quarter that we paid this quarter. In addition to that, we had some extraordinary travel expenses related to a new product that we put in, some training in addition to that, and then we changed our non-tradition investment product area. We changed vendors for our platform, and there was a significant cost there that will be non-recurring. In excess of $300,000 at one time hits during that quarter that impacted our earnings in excess (inaudible).

Okay. Really, none of these items are actually specifically related to Capital Bancorp so there is --?

No. No. Those -- we've not had any of those hit our income statement yet.

Okay.

And we don't see any expense coming there over and above what we've seen.

Okay, great. Thanks, good quarter, guys.

Thank you, Brian.

(OPERATOR INSTRUCTIONS). You have a question from the line of [Jim Higah] with Millennium Partners. Please proceed.

That was close. Hi, guys. It's Jim Hagah from Millennium.

Good morning, Jim.

Good morning. The results looked pretty good when I glanced at them last night. I did not hear the opening part of the conference call so I apologize, Robin; but can you guys talk about some of the creep up in non-interest expense? Was any of that related to the share offering or maybe some legal and other expenses related to the Capital Bancorp closing or is it pretty much just your own numbers?

Well, did you hear the answer I gave Brian just a second ago to a similar question?

No, I'm sorry.

Okay. About $300,000 plus were non-recurring expenses that we incurred, not related to either of those. There were expenses that were related to the offering and also to the merge of the creep in, but they were not significant enough to report, but we had about $300,000 or so of expenses. About $150,000 of it was legal in nature that are non-recurring. We had the expense of changing our non-traditional investment product platform. Then we had some travel expenses that were extraordinaire related to a new product that we're putting into place. All together it was a little over $300,000, a little bit over a penny a share after tax. In addition, I think that was the big question that hit from the expense side.

Perfect.

You asked another part of the question right?

Perfect. No, that's what I needed to know and then I just wanted to firm up on an adjusted basis with Capital. I was going through one of the securities filings that showed the combined banks, the consolidated balance sheet numbers --

Right.

Just so I can have it thinking towards Q3 and beyond. Is your new book -- I calculated it to be roughly off these numbers -- well, it says $18.64, but that's on basic right and $18.20 fully diluted?

Are you talking about book value per share?

Yes.

Okay. On a quarterly basis our book value per share was running $17.25.

Including cap.

Including cap, yes.

I think you're correct on that Jim.

Okay. All right. That seems cheap. Thanks, guys.

Yes. Thank you, Jim. Nice editorial comment.

At this time, there are no further questions. I would now like to turn the call back over to Mr. McGraw for closing remarks.

Thank you, Shaquana. I want to thank everybody for joining us today. We appreciate your time and interest in Renasant Corporation, and we're looking forward to speaking with you again when we report our third quarter results in October of '07. Thanks, everybody.

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