Renasant Corp (RNST) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Renasant Corporation earnings conference call. My name is Sarita and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this 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 CEO of Renasant Corporation. Please proceed.

Good morning, everyone. Thank you for joining us for Renasant Corporation's fourth quarter 2007 earnings conference call. With me today are Jim Gray, Chief Information Officer, Stuart Johnson, our Chief Financial Officer, Harold Livingston, Chief Credit Officer, CH Springfield, Chief Credit Policy Officer, Mitch Waycaster, Chief Administrative Officer and Kevin Chapman, our Chief Accounting Officer.

Before we begin, let me remind you that some of our comments during this call may be forward-looking statements, which may involve risks 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 on or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

While the entire financial services industry faced a challenging environment in 2007, which included an inverted to flat yield curve, a tightening of credit quality, and a downturn in the national economy, we're pleased with our financial results for the fourth quarter and our overall accomplishments in 2007. During '07, Renasant completed its acquisition of Capital Bancorp of Nashville, Tennessee, and the related issuance of 2.76 million shares of common stock, increased our cash dividend payout for the 20th consecutive year, and opened a full service banking office in Oxford, Mississippi.

In looking at our key growth markets, starting with Nashville, Tennessee, we successfully consummated our merger with Capital on July 1, 2007. Capital and Renasant completed the integration of our banking systems and processing applications on August 13 of '07. The overall integration process is now complete and we are excited about our future growth opportunities within the Nashville financial services market. The completion of this merger gives us seven full-time banking offices in Nashville, Tennessee. While Nashville has recently seen a slowdown in new home sales, we believe that its diverse economy and lack of dependency on any one industry helps to insulate it somewhat from the adverse impact of downward business cycles.

In our other Tennessee market of Memphis, we've experienced growth from our four financial service centers located in Collierville, Cordova, East Memphis, and Germantown. We've decided to expand our East Memphis location to grow our commercial and private banking business. We see this expansion taking place over the next three to five years and this expansion is needed to keep pace with the growth our bank has experienced in this market. Renasant is now the ninth largest bank in Memphis.

Looking at our Alabama region, despite a downturn in the national economy, our north Alabama markets as a whole have largely avoided a slowing of this economic activity. Huntsville continues to receive accolades during the fourth quarter of '07 being recognized as one of America's top five technology centers, by Computer World Magazine in its October '07 issue. As we previously mentioned, we believe that the federal government's base realignment and closure decisions of '05 may add up to 5000 military jobs and 5000 additional support jobs, along with thousands of families moving into the Huntsville/Decatur area. With Renasant's five locations in the Huntsville/Decatur market, the major focus continues to be on the potential influx of new residents from the BRAC relocation assignments.

Even though we're seeing a slowdown in the housing market, the Birmingham/Hoover seven-county metro area has exceeded 1.1 million population with the number of jobs in Birmingham and in Alabama currently at record highs and expected to grow faster than the U.S. average. In addition, relative to all metro areas exceeding 1 million persons, Birmingham has the lowest unemployment rate in the country.

In Mississippi, even as housing starts have slowed in DeSoto county, it continues to be the fastest growing county in Mississippi, as well as one of the fastest growing counties in the nation, according to the U.S. census bureau data. In Oxford, Mississippi, we opened our second full-service banking location on June 1 of '07. This office is located off the historic Oxford Square and compliments our student union ATM located on the University of Mississippi campus, and our other full-service banking office in Oxford, which was profitable within one year of its opening.

In Tupelo, regional excitement over Toyota Motor Manufacturing, North America's announcement to build a $1.3 billion auto manufacturing facility in North Mississippi remains high. Construction is well under way and manufacturing operations are expected to commence in late 2009, or - early 2010. The plan is expected to initially supply 2000 jobs with an estimated additional 2000 jobs provided by Tier 1 and other suppliers. Joining Toyota in north Mississippi, Toyota Boshiku and Toyota Interior Company and Toyota Auto Body have both recently announced future plant locations in the close proximity to Tupelo that will bring over $300 million in capital investments and approximately 1000 combined new jobs to the region. We believe that the construction and operation of the Toyota plant, Toyota Boshiku, Toyota Auto Body, and other anticipated Tier 1 and Tier 2 service providers enhance the future growth prospects in our mature north Mississippi markets and may especially help to insulate the Tupelo market from the full effect of any downturns in the Mississippi or national economy.

Reflecting on our financial performance for '07, net income was $31.101 million, up 14.7%, or $3,976,000 from '06. Basic and diluted earnings per share were $1.66 and $1.64 respectively for '07, compared to basic and diluted earnings per share of $1.75 and $1.71 for '06. For the fourth quarter of '07, net income was $8.755 million, as compared to $6.949 million for the fourth quarter of '06. Basic earnings per share were $0.42 and diluted earnings per share were $0.41 for the fourth quarter of '07, compared to basic earnings per share of $0.45 and diluted earnings per share of $0.44 for the fourth quarter of '06.

Total assets as of December 31, '07 were $3.61 billion, an increase of 38.33% from December 31, '06. Total loans were $2.59 billion at the end of the fourth quarter of '07, an increase of 41.6% from December 31, '06. Total deposits grew 20.81% to $2.55 billion during the same period. Despite the recent downturn in the national, as well as regional housing markets, we were able to realize significant gains from the sale of mortgage loans. Gains from the sale of mortgage loans increased to $1.29 million for the fourth quarter of '07, as compared to $1.03 million during the fourth quarter of '06. In addition, we've not actively participated in the originations of subprime loans, and as such, believe that we have limited exposure in this area.

Net interest income was $95.821 million for '07, an increase of 13.99% from $84.063 for '06. Net interest income increased to $26.943 million for the fourth quarter of '07 compared to $20.910 for the fourth quarter of '06. During this period, net interest margin decreased from 3.78% to 3.48%. Net charge-offs as a percentage of average loans for the year ended December 31 of '07 was 14 basis points compared to 7 basis points for '06. Annual net charge-offs as a percentage of average loans were 36 basis points for the fourth quarter of '07, up from 12 basis points for the fourth quarter of '06. Net charge-offs for the fourth quarter of '07 include $1.870 million related to two loans, which have been on nonperforming status since '06 and were charged off in the fourth quarter of '07. Both of these loans were adequately provided for in the allowance for loan losses during 2006.

Nonperforming loans as a percentage of total loans were 67 basis points at December 31 of '07, compared to 62 basis points as of December 31 of '06. The increase in nonperforming loans is primarily attributable to placing the remainder of the loans with one relationship on nonaccrual status during the fourth quarter of '07. We recorded a provision of loan losses of $1.975 million and $4.838 million for the fourth quarter of '07 and the year ending December 31 of '07 respectively. As compared to $800,000 and $2,408,000 for the same period in '06.

As we previously stated, the large charge-offs incurred during the fourth quarter of '07 were provided for in '06, but we felt it prudent to increase the provision for loan losses during '07 in response to the softening of the credit quality throughout our markets. The allowance for loan losses as a percentage of loans was 1.02% at December 31 of '07 compared to 1.07% for December 31 of '06. Nonperforming loan coverage ratio was 153.31% at December 31 of '07 compared to 173.05% at December 31 of '06.

In light of the heightened credit quality environment facing financial services institutions during the third quarter of '07, we instructed our senior credit officers to inspect each residential construction and development site we have on our books, no less than once per quarter to closely monitor our loans and lending relationships. This practice will continue throughout 2008. Noninterest income for the year ending December 31 of '07 was $52.187 million, an increase of 13.59% from $45.943 million for '06. Noninterest income was $13.197 million for the fourth quarter of '07 compared to $11.764 million for the fourth quarter of '06. Noninterest expense was $25.443 million for the fourth quarter of '07 compared to $22.011 for the fourth quarter of '06.

For the year ending December 31 of '07, noninterest expense was $98 million, an increase of 10.10% from approximately $89 million of '06. Although the aggregate amount of noninterest expense grew, the ratio of noninterest expense to average assets decreased to 2.8% for the fourth quarter of '07 from 3.4% for the same period in '06. As the economy continues to slow down during '07, we concentrated on reducing our operating expense, as is evident by the decrease in our noninterest expense to average assets over the past 12 months. In addition, we reduced our noninterest expense on a link quarter basis by nearly $1 million by first realizing the cost savings from the Capital merger, and adjustments to our incentive plans and from the renegotiation of a data processing contract with our service provider.

In concluding my prepared remarks, let me again reemphasize our satisfaction with our solid '07 performance, despite less than favorable conditions for the financial services industry and our national economy. Now, Sarita, I'll turn it back over to you for questions.

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

Good morning, guys.

Good morning, Barry.

I guess, Robin, my first question calls on MPAs. You said most of the increase there was related to one relationship. I'm assuming that's a separate relationship from the two that we dealt with in most of 2007 that were charged off?

That's correct. If you'll remember, at the end of the third quarter, we mentioned that we put a relationship out of Birmingham, or part of a relationship out of Birmingham as a nonperformer. At that time, the balance of the relationship consisted of another part of development, which was performing at that point in time in the individuals' residence, which at that point in time was still performing. But during the course of the quarter, it was thought that there was a resolution to those two parts of the relationship that didn't occur, and we put those on nonaccrual. That particular relationship itself in total now comprises I believe 60% of our total nonperforming loans.

We are in fact, and do have a contract to own a portion of the relationship that should close before the end of this month, and in addition to that, the personal residence, we feel like that we are--based on the original appraisal, we are -- it's about 60% of value on the quick sale, we feel like that we're close to what the appraised value would be at that level. So we don't have that much concern about it, and it's a rather significant expense, but in addition to that, we are in a position, we think, to, as we've talked with additional builders and developers, to be able to totally be out of that credit all together, hopefully by the end of the quarter. We're not certain, but we think a good portion of it we will be out of in the very near future. But that one is about 60% of the nonperformers. And again, it had been provided for prior to it going on that nonaccrual, nonperforming status.

That's very helpful. Beyond this one relationship, kind of what are your trends and thoughts for NPAs? Obviously it sounds like there's a chance you could get some out of there by the end of this quarter, but looking out for the rest of the year, what are your thoughts on how NPAs are going to trend? Are you more worried about anything else in the portfolio than you were last quarter, just given the general economic slowdown you've talked about?

Well, we -- Barry, the Memphis MSA is, we feel like our softest of the four markets that we are in, and as I've stated in the call itself, we, during the third quarter,started sending out our senior credit officers along with the relationship manager feature account, we felt it prudent to get the senior credit officer involved in this process to get a non-jaundiced eye into looking at all the credits. We will continue to do that, no less often than once a quarter, going out and any that we have more concern about than others, we'll look at obviously in much more frequently in keeping a watch on it.

We feel like, as we started looking during the quarter, we -- as I mentioned in the call, let me go back to that, the two credits that we charged off were reserved for in '06, so none of our provision in the fourth quarter was related to that. In fact, one of the two, which we totally -- which was totally bought at foreclosure by someone else, was -- we had about $250,000 overage in the reserve for that particular credit itself. It was the smaller of the two. The other one, we have a contract on. They are still in the due diligence period, and we should be getting out of it basically for what we bought it in at, and so we don't anticipate any significant change in that particular one either. Going back to that, the only other addition of any significance -- there were two, one, a home in Mountain Brook that was under construction, and it will be completed and sold and we don't anticipate any additional losses on it at this time.

And the other was a participation that was on the books at Capital when we bought the bank. We brought it in as an SOP 03-3 loan and we don't anticipate any loss on it. In fact, there was no loss in the reserve on that particular loan since it was an 03-3. And it was bought in at or above what, what it was on the books at. So there was no impact to the allowance for any of those actions that I was just talking about. Now, we did in fact get aggressive as we looked at our portfolio, and added, as you can tell, significantly more in the fourth quarter in our provision than we've done in prior quarters just because we felt it to be prudent for what may be out there.

In addition, as we've said before, we have significant qualitative reserves that are not specifically related to any particular credit, but we felt back in '05 we started adding to these qualitative reserves for factors that were out there, interesting enough the real estate market, credit, energy prices. The fact that we are in newer markets, larger markets and the fact that we have larger credit. So there's a significant number of dollars that are in fact in those reserves that should something unforeseen occur. Now, during the quarter, we also allocated some significant reserves to performing loans that we just felt prudent to look at in case something came up.

Going back historically, it's been, and over the last seven years, under this management, we have tried to anticipate and provide, as we did in '06 for those loans we charged off in '07, four loans that could in fact turn sour in the future. And hopefully, we're continuing to do that. Looking forward in this quarter, we will be evaluating the markets, the softness in certain markets, and we will be very prudent as we look at what goes in our provision each month and each quarter.

Okay. That's a lot of great detail, Robin. My last question really revolves around loan growth a little bit there. Even adjusting for the additional NPAs, end of period loans were a little weaker than what we had expected. What's the top line look like there, and is there anything in the quarter that, that may have just paid off that could be bringing that number down?

That's, that's the exact reason that we were flat for the quarter. We had significant -- what we would consider to be very reasonable loan growth during the fourth quarter. We did have a larger than normal amount of paydowns, which to some extent, we view positively, quite frankly. So going forward, looking at our pipeline for the first quarter, it is in fact very reasonable, but again, Barry, taking into consideration if we have a larger than normal paydowns, then the growth, won't be there.

Obviously, too, we're being extremely cautious about loans that we're making, taking probably, as you know, our credit group is very conservative to begin with, but they are being even more so in crossing more T's and dotting more I's than ever before as we move forward. And we feel like that we should see any loans that we're booking right now should be probably about as clean as any could be, going forward in the future. So we're being very cautious as we look at that. But back to the original question, the pipeline itself is very reasonable in relation to what it's been in the past. The big question out there is the paydown aspect of it.

Do you happen to know what gross loan production was in the quarter?

Yeah, gross loan production for the quarter, Stuart? Yeah, gross was 162.

Okay.

And we've been running, around 200 million, I think, gross. Just the paydowns were.

Yes. That actually brings up another question to mind. You know, assuming we get another 50 basis point cut from the fed next week, I believe it's next week, how painful is that in the near term to get 50 basis points all at once to the margin here?

The question comes back as to how the remaining financial institutions in the market respond. The liability side has been somewhat slower over the past several cuts to catch up with the asset side of the equation.

Yes.

We will be as aggressive as we can be in retained market share. Now, quite a few of our deposits are timed, so they will automatically reset, so that part of it does play into it, but as we look at the timed deposit side, that question comes into play as to how the rest of the financial institutions respond as to how we'll respond to it.

Okay. Well, thanks a lot, guys.

Thank you, Barry.

And your next question comes from the line of Andy Stapp of B. Riley and Company. Please proceed.

Good morning.

Good morning, Andy.

If you could tell us how the, your 30 to 60 days past due, the balance at year end compared to September 30, as well as your watch list?

Hi Andy, this Courtney Springfield. Our watch list, I've got grown from a year ago. I don't have the quarter.

It's up about $9 million on the link quarter basis, Andy.

Okay. And do you have data for the 30 and 60-day loans past due, 30-60 days?

Link quarter?

30-day past dues ended the quarter at about 2% and they were -- that's up probably about 16 basis points from the previous quarter, off the top of my head.

Did you hear that, Andy?

Okay. Yes, is that just the 30-day, or is that 30 and 60?

That would be 30-day or more.

Okay.

30 days or more.

Okay. So that would include everything, okay. Okay, and you mentioned that there's four loans that you identified. Just curious, what type of loans are they? Are they construction/development loans, I presume, since that's what you're studying and the dollar amount of these loans?

Beg your pardon?

There's four loans you mentioned, that came to your attention that you expressed some concern about.

In the fourth quarter?

Yes.

We mentioned that the increase in nonperforming loans was the balance of the relationship that had gone on in the third quarter.

Okay.

And included in there was the personal residence and another part, separate development, another part of the development that was in fact performing at that time. This--

Let me -- go ahead.

Go ahead. What were--

Well, the -- in your study of construction development loans, did you -- have you found any significant findings?

Well, the -- as we've looked throughout, and this is -- and it goes back -- okay. It's our four regions, Andy, and not -- I think we said in looking at the four regions, the Memphis region was the softest, and as we look there, we're seeing a significant slowness in that Memphis region. All the regions are experiencing a slowdown, but our concern came about more so as we look at it on a macro basis as opposed to specific situations. But housing starts are down in Memphis by about 40% and sales of new homes were down by about 25%, and the home inventory out there now is about 18 to 24 months. As a result of that, in general, we felt it prudent to increase our reserve over prior quarters, as you saw, fairly significantly, just to be certain that we are more than adequately reserved, should something come up. We are, our senior credit officers, along with relationship managers, are staying in touch and meeting with any developers and/or builders that we have in order to be very proactive on staying on top of them in light of what's been going on in the market.

Okay, and lastly, I noticed construction loans were down link quarter. Is this due to the payoffs that you referenced earlier?

Yes, it would be due to payoffs, and the fact, too, that as we're looking at new projects, we're not very -- and of course, too, there aren't that many new projects coming to us. So it's the combination of the two. But that goes back to the talk about the leveling off, or the flattening of growth in the quarter because of the paydowns on that side of the, on that side of the ledger, on the construction side of the ledger.

Okay, great. Thank you.

Better to be a positive, quite frankly.

And your next question comes from the line of Kevin Reynolds of Janney Montgomery Scott. Please proceed.

Good morning, gentlemen.

Good morning. How are you doing, Kevin?

Doing great. How are you guys doing?

We're doing well, thank you.

Good. I guess I wanted to get a little clarification on the increase in nonperformers this quarter versus last and then kind of tie it together with what you had identified last quarter, just to make sure that I understand it correctly. As I recall, last quarter, we identified two loans, I think in the amount of $3.9 million and $1.8 million.

That's correct.

And then -- are those now -- are we considering both of those part of the same relationship?

No, they were separate relationships, Kevin. Let me go back and reclarify that. The one that had 3.9 million that went on, that total relationship is around 12 million -- $9 million, I think, in the $10 million vicinity. Part of it is a personal residence, which was performing at the time, and the other was, and we thought was getting ready to clear out quite frankly. And the other was the rest of a development, a different part of the development that was in fact performing at that point in time. That -- the rest of that relationship became nonperforming during the fourth quarter. We're in the process, and part of that is going to be the developers selling a portion of that during this quarter to close right now on I think the 28th of January that occurs. We're probably going to have to, as it appears, foreclose the house because there is a second behind us and it appears that we'll have to do that and we feel comfortable that we will come out at no or very little loss, if any at all, is incurred on the actual residence itself.

The rest of that development is in fact being marketed at this point in time and we feel like that by the end of the quarter, that that whole relationship with the possible exception of the house because of the foreclosure loss should be totally out by then. That credit itself comprises 60% of the nonperformers. The other one we mentioned, we are in the process still of negotiating a sale of that particular loan. We have an offer for it at a loss of less than what's reserved for it, but we don't -- we have not completed that yet. The due diligence process is ongoing on that particular credit itself, but, again, that was the smaller of the two. And that's basically the, the, the remainder of the $3.9 million credit, it brought it up to around the $10 million area, basically offset the two credits that we charged off.

Okay. So of the $15 million or so in nonaccrual loans this quarter, roughly $12 million of it is accounted for in those two relationships, both of which may be off of the balance sheet in one form or another by the end of the quarter, if all goes well.

That's correct.

Okay. Now, beyond that, I mean with that suggestions to me at least is that you've had your loan officers out there this quarter and clearly there's a slowdown in economic activity and we know it and feel it well here in Memphis, but is -- are we seeing a slowdown, or are we seeing a meltdown? And I ask that because there are varying degrees of fear and concern out there right now. I mean what are you seeing in realtime, what are your loan officers seeing in realtime, and how do you prepare for it or do we need to look at 2008 as a year where we just have to hunker down?

I think it's a pretty good analogy. I think at this point, it's still a slowdown, but could turn into a meltdown, just depending on what happens with the economy. And again, too, Kevin, I think as you look and I assume you're talking about the Memphis market right now--

Actually, Robin, I would like to add into that the national market, which I think is more concerning to most investors out there right now, unless I've completely misread the situation.

Well, the national, as far as what we're seeing, we -- the -- I go back to the 03-3 loan, participation in the national market, that did in fact happen as a result of the economy slowdown, and, what's happened, let me go back and give you this analogy, and we're seeing this, quite frankly a lot, is putting a lot of stress on some developers. If you'll remember going back to our comments on the Alabama credit, the $3.9 million credit, that was a good subdivision and it still is a good project, but he got himself in trouble in Florida with some developments down there. He got out of what he was doing. The participation that I mentioned a while ago in Nashville that was on the books when we acquired the bank, that developer was doing a good job and he was in the $400,000 house range, but he jumped out there and our bank was not a participant in this, but another bank funded him in building a couple million dollars specs. That's where he got in trouble. So, we're starting to see that happening all around.

I think one of the things you have to look at is that again, going back to what I was talking about with selectively in these markets, yes, there's a slowdown which is causing a meltdown with some builders and some developers, but builders with the liquidity and some equity are generally speaking, those guys are slowing down on their own and downsizing their operations and this -- they are not taking down the lots that they previously committed to. So therefore they are keeping themselves out of trouble. You would hope that most of your developers are of that type, whatever market they are in. So it has -- that has a bearing on each of the markets that you're in.

Not to say that we're immune to problems, but as Harold Livingston, our Chief Credit Officer, has talked about on road shows and around, is we start looking at these development loans, one of the main things that we look at is liquidity. That's one of the first things we look at, is the liquidity aspect of it, is can they carry during times such that we're in right now? Can they carry these loans? Will their liquidity assist them to do so, which is of extreme importance. Now, if in fact we get into that meltdown, you don't know how long that will happen with some of these, but going back to Andy's previous question about that, when he asked was a lot of the paydowns that we had due to construction, it was. You hope that that will continue to occur. Every time one of those paydowns comes in, the better off that we are.

Okay, and then I guess along those lines, looking at the other side of the equation, not the problems, but the future necessarily, I mean we saw this quarter I guess a decline -- link quarter decline on the construction loans, but a pretty strong increase in commercial real estate mortgage, if I'm not mistaken. Is that sort of the balancing act that we ought to see going forward, moderated balance sheet growth with those two dynamics, kind of as counterbalances to each other?

Yes, yes, and to some degree, just straight commercial lending, very prudent straight commercial lending. As I mentioned a while ago, the expansion of our east Memphis office is for private banking and commercial-type lending, as we try to diversify our portfolio more.

Okay. Thank you very much.

Thank you, Kevin.

And your next question comes from the line of Brian Klock of KBW. Please proceed.

Good morning, guys.

Good morning, Brian.

Robin, I guess I appreciate all the detail, and I hate to ask another question about nonperforming loans, but I just want to make sure that I've got everything, the moving parts in and out. The Birmingham development loan, that increase now, it represents 60% of total NPLs. You said there was another development that was performing in the third quarter. Now, was that other development also in the trust fill?

No, no. That's part of that same loan.

Okay, okay.

Yeah, that's part of the same loan. And it was a large development. Part of -- he had kept current on part of it. You had a lot loan aspect of it and the other was actual homes. He had kept current on the lot loan.

Oh, I see, okay.

And so therefore he had kept current on part of it and part of it he had not.

Okay.

All the same subdivision that he was developing.

Okay, great. Got it.

And the other portion of it was his personal residence, which was performing at that point in time, too.

Okay. So actually there was some movement out, if you take those two pieces, like you've already talked about, this relationship and the other 1.8 that you're still working on, trying to get a sale on that property. The rest of nonperforming loans actually decreased about 2.5 to $3 million. Looks like ORE went up about 5, $5.5 million. So was there movement into ORE? Or what was the movement into ORE? Was that--

Let me go back and mention that. The two credits that had been nonperforming since '06-- So those are the ones you charged off, the 1.8-- We charged off both of those. One of them was a $4 million credit.

Okay.

It went on to ORE. We charged -- it -- we bought it in basically for what -- less the amount of reserve for it.

Okay.

It had been impaired for that timeframe. The other credit, which was about a $1.4 million credit actually was not bought in. That was purchased by outside parties and we charged off all but about, all but about $250,000 that had been reserved for it. So actually we charged off less than had been reserved for that particular credit. And we reallocated that to other credits in the allowance itself.

Okay.

So that one did not go in. The other significant parts that went into ORE, I mentioned a while ago that we had a participation, or Capital had a participation, correct. That credit actually came into ORE at about $2.1 million. It was about a 2.5 -- it actually was a little bit larger than that participation, but the balance of it was in SOP 03-3, and we did not have to charge anything off and we feel very comfortable, our national people feel very comfortable that we're well within the pricing on that as far as selling off these lots going forward. It should in fact change that. So that's 4.7 that came into ORE and the balance was about $600,000 of that house we talked about in Mountain Brook, a little under $600,000.

Okay.

And we'll finish it and it should be sold at basically no loss to possibly even slight gain, depending on the finished product there.

Okay. Great. Appreciate that. And I guess when I look at charge-offs were $2.4 million in the fourth quarter. You detailed the biggest chunk was those two entails from '06. Anything significant in the remaining charge-offs, say 4 or $500,000 of remaining charge-offs in the quarter?

I don't--

That stand out?

Yes, see, the lot in Mountain Brooke was couple hundred thousand dollars of that, too.

Okay.

Basically those three credits, the lot in Mountain Brooke, the other two that had been on -- we talked about nonperforming since '06 basically comprised just about all of that charge-off.

Okay, okay. And I know that you guys have talked already about the paydowns. I guess what I was interested in kind of hearing on the construction side of it, are the paydowns coming from other sources, refinancing out these projects? Is it the developers paying out of their own or is it, that -- they are finishing the project and there's a national home builder taking it out, or is there any sort of read across of how those paydowns and where they are coming from?

I think most of them are coming actually from the developer.

Okay.

Some of it's just, you know, selling off a house here and there and not starting a new house.

Okay.

That's -- as I mentioned a while ago, we're finding that, and you would hope this would be 100% of them, but obviously it wouldn't be, or won't end up being, but most of our developers, our very prudent developers are slowing down on what they're doing and as Harold just said, they are paying off or selling and maybe not starting another.

Sure.

So they are slowing down on what they are doing out of their own prudence because of the economy.

Okay, and I guess from the commercial/industrial side, there was about $18 million of it linked quarter drop. I guess what are you seeing there? Is it is it cash flow that they are just paying off and your borrowers aren't needing new lines of credit, or is there competition from somewhere else, or maybe you can talk about the paydowns in the C&I portfolio?

I think more than anything else, it's just the cyclical paydowns.

Okay.

Not -- as opposed to actually the credits moving.

Okay. And I think I'm not sure if you gave this earlier, I apologize if you did, do you have the loan breakout, so end of period, fourth quarter loans by region, Memphis, Nashville, Alabama, Mississippi?

We had that. I didn't give that.

Okay.

I think it's -- hang on just a second. I can give it to you.

Okay.

We have -- in Mississippi, a total of $1 billion, about $1.6 billion, about $560 million in Alabama. In the west Tennessee or Memphis area, about $380 million, and in the Nashville area, about $580 million.

Okay, thanks, and actually just the last question, on the deposit side, I know there is some public money that moves around. Can you talk about the linked quarter decline, about the noninterest bearing and interest bearing and I'm not sure if there was some run-off at Capital, or was it just the public fund impact?

A combination. As we looked at it, Brian, Capital had some brokerage CDs that we felt -- if you remember back, same was true with Memphis and with Alabama. We've been inclined to allow the brokerage CDs to run off. At the time of the runoff, the -- actually we were able to use wholesale funding to replace those brokerage CD's cheaper than what we could have kept in the brokerage CD market. In addition, we're starting to see, if you'll remember, we mentioned that we had some pretty expensive, large public funds that we felt like should pay down a little bit and they have paid down a little bit at the end of the year. That was where most the public fund runoff went during the course of this quarter. And again, in the, as you look over in the demand area, you're starting to see some public funds in those demand accounts going also.

That's where the majority of the funds -- plus the fact we tried to be less aggressive in the timed deposit area, as we saw some, some banks in the area, some competitors not dropping their rights on their deposit accounts as quickly as we felt like that we needed to do ours, with prudence, and that we felt like that we could use wholesale funding to offset that and generally speaking, this is money that you will generally see again in about a six-month period of time. So we felt it prudent to take the approach to some degree to use wholesale funding as opposed to getting into some battles over some of this hot money. Now, as far as any relationships, we would obviously match in order to retain the relationships.

Sure.

But just on the hot money, we didn't get into that fight.

Also, too, Brian, on the DDA base, just from day to day volatility, if you go back and look at the DDA on average basis for the quarter, it's pretty much in line with that average and that account just fluctuates fairly significantly from day to day.

Okay. All right, thanks, Stuart. I appreciate it. I guess given a pretty tough environment, good job on some expense control in the quarter, too. Thanks for taking my question, guys. Take care.

You bet. Thanks, Brian.

And your next question comes from the line of Rajiv Patel of Sunova Capital. Please proceed.

Hi, thanks. Just a question, and I know we've beaten down the NPAs, but more on your reserve methodology. The inflow of NPAs decreased despite the charge-offs, but when I look at your reserve to loans, they actually came down, compared to several of the, of your banking competitors in the region, it's kind of the opposite, whereas everyone else has used this quarter to actually grow reserves, given the weaker environment. And so, can you just comment on how you look at the reserves and why they actually shrunk, and then also, earlier in the call when you guys were giving the prepared remarks, you said this quarter you're going to be very prudent regarding your provisions, looking at each of the loans, but by region. So can I take from that, that we may see provision, may see you guys build your reserves in the quarter?

We will do it, do whatever we do in a prudent manner. Let me go back and mention this. Those two loans that were charged off, as I said, they were in fact adequately reserved. That was $2.1 million that left the reserve. But with the remaining loans, obviously they were reserved for at -- adequately also. So based on the fact that we did not have to provide for the charge-offs, that's a $2.1 million start right there, and we put $2 million in the reserve, which is about $1 million, a little over $1 million more, around $1.9 million in the reserve. That's about $1 million more than what we have done in previous quarters. Again, that extra money was not for any particular loans, but again, more than anything else, was part of that qualitative reserve that we've been talking about, that we felt like that we build. And we see ourselves depending on the economy itself, utilizing those qualitative reserves over and above any specific reserves going forward. And again, it just depends on what's going on during the course of the quarter and we will be looking at, at that obviously on a month to month basis.

Okay, but given the, kind of that year-over-year reserve -- came down, so I guess it's safe to assume then that you guys haven't -- you don't believe like you've seen the peak of NPAs then?

We would certainly hope that we have, but, prudence would say that we possibly haven't. Let me say this. You know, looking at the loans that we have that are performing, we don't anticipate that they will become nonperforming loans. But prudence dictates that we take into consideration that that is a possibility. We, we went ahead and, just out of prudence, even though they were performing loans, went ahead and downgraded some loans on our watch list, just from the standpoint that we wanted to put them on the -- in order to make the watch list, we had to downgrade them, but we wanted them on the watch list from the standpoint of being able to increase the provisions in the fourth quarter for those loans and also to have them in a position where we can watch them more closely. Going back to the provision for the quarter, taking out $2.1 million had an impact that had we not gone in and put in additional funds, we would have been down just based on our normal calculations, we would have been down to a 1% reserve.

Right.

And we were able to build it back up to 1.02, just out of prudence into those qualitative reserves for the quarter.

Okay. Thanks very much.

You bet.

And your next question comes from the line of Peyton Green of FTN Midwest Securities. Please proceed.

Good morning. A question, Robin.

Yes, sir.

When you look at kind of the slowdown in the markets that's going on, I mean how do you consider the reality of today's collateral values versus what might be on the loans when they are originated, you know, some period ago? And then as your credit officers move through the individual projects over the past three to six months, I mean how much style drift, so to speak, did you all detect in your developer relationships?

Interesting, Peyton, as we've looked at it, like, for example, I think in the Nashville market, although home sales have dropped off, prices have not declined as much as home sales have dropped, and so therefore -- that's not necessarily the case in some of the other markets, but I guess it depends on the development and where they are. To some extent, I think you have a good point in that collateral values are probably less today possibly on some of the credits than when they were actually initiated. And as we go in and look at loans, as we get to the stage, any time we go into one that becomes a nonperforming loan, or we become suspicious of, we will in fact get new appraisals, actual appraisals on those loans just to kind of see exactly where we are. And again, that's the purpose of what we're doing with our senior credit guys going out and looking at each and every project on a very frequent basis.

Just for exactly what you were talking about, that if in fact we sense anything, any signs out there, we feel it prudent at that point possibly to actually go ahead and start getting some additional appraisals to see what in fact the collateral may be worth at that point in time. We loan at about 80 to 85% LTV to start with, so that does allow for some of the slippage that could occur, but you think you're right. Prudence dictates that when there is a question out there, that you do in fact get new appraisals on the property, which we have done.

Okay, and then has there been any change in your policy? I mean now with conditions, are you doing higher or lower LTVs on new deals?

Yeah, as we look at -- in fact, we've been talking about this quite frequently, as you may think, that we are in fact looking at, at our LTVs to the extent that loans to value will actually drop, or are in the dropping phase as to what we will in fact loan to a developer. And again, we are not real aggressive at this point in time in C and D-type lending, out of prudence. Just depending on who it is, it's, it's the exception rather than the rule, I think.

Okay, and then last question, in terms of maturities and cash flow that you expect to get back from the loan portfolio, what does that look like in '08 versus -- I mean you obviously saw pretty good repayment activity in the fourth quarter. Was that particularly lumpy, or I mean do you expect there to be a fair amount of cash coming back to you in '08, in the first half of '08 as well?

Yeah, I would anticipate it being kind of on a per-credit type situation. Again, most of what we had coming back was actual developers, builders that were selling homes and then paying down and not moving out. You know, they may have several that are out there and what they are doing as opposed to starting new projects and taking draws, they are just continuing to see a paydown on their lines as opposed to building the lines. We anticipate that continuing during this year because we don't see any of our builders being real aggressive along that front. I think they are being prudent just as we are.

Okay, and then last question was, the 30-day past dues including the nonaccruals was 2%. Is that -- I did hear that right earlier?

That was over 30 days. All loans over 30 days, correct.

Okay, great. Thank you.

Including nonaccruals, that's correct.

Okay.

At this time, we have no further questions in queue.

Okay. Well, thank you, everyone. We appreciate everybody's time and your interest in Renasant Corporation, and we look forward to speaking with you again in the near future. Thanks.

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