Renasant Corp (RNST) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2009 Renasant Corporation earnings conference call. My name is Carmen, and I will be your coordinator for today. At this time, all participants are in 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 call over to your host for today, Mr. Robinson McGraw, Chairman and Chief Executive Officer. Please proceed.

Good morning, everyone, and thank you for joining us for Renasant Corporation's third-quarter 2009 earnings conference call. Participating in this call with me today are members of Renasant Corporation's executive management team.

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 that 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.

Looking at the third quarter of 2009, Renasant's financial highlights included growth in net interest income and net interest margin, a decline in nonperforming loans and total past-due loans for the second consecutive quarter and a continued reduction in non-interest expenses. In addition, we experienced an increase to all three of our regulatory capital ratios and an increase in our tangible common equity as compared to the previous quarter.

Net income was approximately $4.2 million for the third quarter of '09 as compared to approximately $7.5 million for the third quarter of '08. Third-quarter '09 basic and diluted EPS was $0.20 as compared to basic and diluted EPS of $0.36 for the third quarter of '08.

Total assets as of September 30 of '09 were approximately $3.64 billion, representing a 1.97% decrease from December 31 of '08 and a 2.22% decrease since September 30 of '08. The decrease in assets was primarily due to two strategic initiatives, the first of which was the continued reduction in our construction and development portfolio. Construction and land development loans decreased 9.34% to approximately $460 million at September 30 of '09 as compared to $507 million at June 30 of '09.

The second initiative was our ability to utilize excess liquidity to reduce public fund deposits and pay off maturing Federal Homeland Bank borrowings. As a result, we reduced our public fund deposits by $98 million and cost associated with these deposits by 20 basis points.

As of September 30 of '09, the Company's Tier 1 leverage capital ratio was 8.56%. Its Tier 1 risk-based capital ratio was 11.04%. And its total risk-based capital ratio was 12.29%. In each case, in excess of regulatory well-capitalized thresholds.

The Company's tangible common equity ratio increased to 6.34% at September 30 of '09 as compared to 5.94% at June 30 of '09 and 6.01% on September 30 of '08. This increase resulted from earnings retention after dividends paid and improvements in the fair value of available-for-sale securities in the investment portfolio.

Net interest income was $25.2 million for the third quarter of '09 as compared to $24.1 million for the second quarter of '09 and $27.9 million for the same period in '08. Net interest margin was 3.22% for the third quarter of '09 as compared to 3.45% for the third quarter of '08 and 3.04% for the second quarter of '09. The linked-quarter increase in both net interest income and net interest margin was a result of our ability to replace wholesale borrowings and public fund deposits with less expensive retail deposits, coupled with an increase in our loan yields.

Total deposits were $2.56 billion at September 30 of '09, an increase of 9.24% from $2.34 billion at December 31st of '08. On a linked-quarter basis, retail deposits grew $58.7 million, which partially offset a planned reduction in public fund deposits of $97.9 million. This resulted in a net decrease of total deposits of $39.2 million as of September 30 of '09.

Total loans were approximately $2.4 billion at the end of the third quarter of '09, a decrease from $2.53 billion at December 31 of '08 and $2.47 billion at June 30 of '09. As we previously mentioned, a significant portion of this decrease was the result of our continued efforts to reduce our exposure to construction and development loans, which have been impacted more by the current economic environment than other types of loans.

Some time ago, we implemented a plan to change the mix of the Company's loan portfolio by moving away from residential construction and land development lending and certain types of non-owner-occupied commercial real estate loans. Our relationship managers, along with our credit officers and loan review team, continue to aggressively analyze our entire loan portfolio.

Annualized net charge-offs as a percentage of average loans were 112 basis points for the third quarter of '09, up from 93 basis points for the second quarter of '09 and 25 basis points for the third quarter of '08. Our charge-offs for the third quarter are in line with previous estimates, and we still believe that charge-offs will end the year in the $24 million range.

The allowance for loan losses as a percentage of loans was 1.51% on September 30 of '09 as compared to 1.46% on June 30 of '09 and 1.11% at September 30 of last year. We recorded a provision for loan losses of approximately $7.3 million for the third quarter of '09 as compared to approximately $6.7 million for the second quarter of '09 and $3 million for the third quarter of '08.

Nonperforming loans as a percentage of total loans were 203 basis points as of September 30 of '09 compared to 265 basis points for June 30 of '09 and 117 basis points on September 30 of '08. Although loans 30- to 89-days past due increased on a linked-quarter basis, total past-due loans decreased for the second consecutive quarter. Loans of past due 30 to 89 days as a percentage of total loans increased to 138 basis points at September 30 of '09 as compared to 89 basis points at June 30 of '09 and 117 basis points at September 30 of '08.

Nonperforming assets as a percentage of total assets increased slightly to 264 basis points at September 30 of '09 compared to 259 basis points on June 30 of '09 and 138 basis points on September 30 of '08.

On a linked-quarter basis, OREO increased $16.9 million. During the third quarter of '09, we sold $4.3 million of property, bringing our year-to-date sales of OREO to $10.5 million. These sales resulted in a slight loss of approximately $185,000.

In addition, we have $2.8 million of property under contract to sell within the next 45 days.

Noninterest income increased 2.26% to $13.9 million from the third quarter of '09 from $13.6 million for the third quarter of '08. Noninterest income for the third quarter was down $1.4 million from $15.4 million for the second quarter of '09.

During the second quarter of '09, the Company recorded a gain of $1.1 million from the sale of investment securities and additional income from the high level of mortgage loan production during that quarter.

The Company's mortgage operations continue to provide a strong source of revenue, although mortgage loan production declined during the third quarter of '09 compared to the record levels achieved during the second quarter of '09. Gains from the sale of mortgage loans increased $480,000 to $1.8 million from the third quarter of '09 as compared to $2.3 million for the second quarter of '09 and $1.3 million for the third quarter of '08.

Mortgage loan production was $150.9 million during the third quarter of '09 compared to $260.6 million for the second quarter of '09 and $174.2 million for the third quarter of '08. Third-quarter '09 noninterest expense was approximately $26 million as compared to $27.8 million for the third quarter '08 and $27.1 million for the second quarter of '09.

We continued our focus on reducing and controlling operating expenses during the third quarter of '09. Reduction in operating expenses as compared to the third quarter of '08 was primarily due to cost containment on salaries and benefits, as well as the renegotiations of contracts related to items such as maintenance, supplies and leases.

In closing, we believe our third-quarter performance reflects our strategic efforts to position ourselves for future success, as evidenced by our growth in net interest income and net interest margin, decline in nonperforming loans and total past-due loans, reduction in noninterest expenses and continued improvement in our regulatory capital ratios. Although the current economic environment is challenging, we believe that Renasant Corporation is well-positioned for future success, with long-term growth opportunities and viability.

Now, Carmen, I will turn it back over to you for questions.

(Operator Instructions) [Katherine Malore], KBW.

Good morning, guys. Wanted to see, Robin, if you could give us a little more detail on the credit inflows. Can you talk about what moved into NPL and then what moved from NPL into OREO?

Sure. We had -- basically, as we look at it from the standpoint of the type of loans that moved out of the NPL category, from a regional standpoint, we saw a reduction, first of all, in Alabama of about $1.8 million, in Memphis of about $17.8 million, Mississippi about $8.5 million, and Nashville about $3.5 million.

For the most part, those loans came from the construction and development portfolio. Now, a collateral type of NPLs by one-to-four family builders is like $4.5 million; lots of about $21 million; consumer mortgages and rental property of about $5.8 million; commercial development land of $2.2 million; and other commercial income property of about $10 million; and then miscellaneous other NPLs of about $3.4 million; and multifamily of $1.4 million. That is what we are looking at as of today.

Okay. And then of your $7 million in charge-offs, how much of that was related to the NPLs that moved from NPL into OREO?

Pretty much -- of the charge-offs that moved?

Um hmm.

Yes, most of that was true from that standpoint. In fact, about $16 million of additions to OREO came from those charge-offs.

Okay, thanks. And then wanted to see -- we've been looking at troubled debt restructurings a little bit more recently. I think it was about $10.5 million last quarter for you all. Do you have that number updated for the third quarter?

Sure. Harold --.

$21 million.

Okay.

We had one significant addition of about $10 million that we restructured that basically makes up the major amount of that difference.

Okay, great. Thanks so much.

(Operator Instructions) Michael Lipman, Sterne, Agee.

Good morning, guys. Just kind of want to follow up on Katherine. I think I missed in the quarter or in your commentary, what is the value of OREO that you currently have under contract? And if you could provide, I guess, a greater breakdown on the OREO currently in the book and kind of what you are seeing from a sales standpoint and a pricing standpoint.

You bet. We have about $2.8 million under contract right now. Of that, about $1.7 million, $1.8 million of it is one-to-four family homes, residential lots of about $217,000. We have also some other one-to-four family that was actually rental property and consumer mortgages that were not part of the development loans of about $800,000 under contract.

So we are moving along. Our special asset guys are doing a very good job of moving the vertical of the real estate through the process. Right now, our current OREO by type is about $14 million of one-to-four family homes that -- out of the C&D portfolio; about $21 million in residential lots and development land. The consumer mortgages and other one-to-four family, like rental property, is about $5.8 million, and just commercial income property, commercial real estate, is about $6.2 million.

Okay, got you. Well, I guess I've asked you this every quarter, but can you kind of give me a commentary on commercial real estate? I know -- I guess last quarter you had about $100 million in retail. How are the retail spaces faring now? Have you seen any weakening, any stabilization?

We have had not really any, I guess, evident weakening, other than we had some -- we had a relationship that had two motels that were about $4 million plus combined between the two that have gone into the nonperforming category. We probably will be looking at foreclosing those unless something changes, and it is still a moving target at this point in time. Otherwise, we are not seeing any real significant movement into that non-owner-occupied commercial real estate category.

What is the balance on those loans?

Those two loans combined are a little over $4 million.

Got you. Okay.

Closer to $5 million. It is probably about $4.5 million to $5 million.

Okay. How about on charge-offs, are there any commercial real estate showing up in charge-offs yet, or is it still kind of pretty low or minimal?

It is minimal. During the past quarter on charge-offs, we had -- of the $6.9 million we had that were charged off, $5.4 million of it was still in the C&D portfolio.

Okay.

We had other commercial real estate that was about $500,000, which would consist of some small (multiple speakers) yes, one little small strip center.

Okay. On the income side, the other income line was up almost $0.5 million quarter-over-quarter. What was kind of behind that number?

Stuart, do you want to answer that?

The primary driver of the increase in other income came from a nonreoccurring income that we recorded with a vendor, primarily dealing with (multiple speakers) over our credit card -- debit card.

Got you. Okay, so you don't expect that going forward, just nonrecurring?

It is nonrecurring, right.

Okay. And then on to the margin, it was up considerably -- nice job on that in the quarter. Is the margin expansion sustainable at this point? Are you able to continue to price CDs down? I guess any color on any of that would be great.

Michael, if you will go back a call or even two calls, at the end of the -- actually, I guess at the end of the second quarter we talked about it, and we talked about it, I guess, at the end of the first quarter, that we would see a dip in our margin before it started back up again.

We have been working on a planned reduction of our exposure to wholesale funding. If you will recall, last year, in the last half of the year, through some pretty irrational pricing by some competition, we backed out of the CD market for all practical purposes and utilized wholesale funding, both on the short term and, to some degree, on a longer-term basis in order to keep our liability level at the same level. And we knew at that time that we would start seeing some more rationalization in the deposit pricing market, which occurred this year.

We've been able to pay off a significant amount. We've reduced our Home Loan bank Exposure by over $300 million, and we are continuing to do that. Through the first quarter of next year is when the final, large amount -- we will have about $150 million that will mature that we won't replace during the first quarter of next year.

In order to do that, we've built up our liquidity, and so therefore, it has had a drain on margin during that time frame. Second quarter was the biggest drain, when we were down to 3.04 level. But we are continuing to build margin. We don't anticipate as large of an increase in the fourth quarter or first quarter as we had this quarter, but we do anticipate somewhere in the three to five basis point range in each of those two quarters, and with a little larger increase in the first quarter next year and the second quarter, after we get a full quarter's of benefit of the $150 million of Home Loan Bank borrowings that have gone away.

Okay, great. What is the average rate on the CD book right now that you are currently offering -- or CD rate you are currently offering?

Right now, the CDs that we are renewing, we are renewing on average in the probably the 1.55, 1.65 range. And those CDs are maturing in the 2, 2.20 range. So we are continuing to pick up improvement on our CDs that are renewing.

Okay. And I guess lastly, across the board, throughout the industry, loan balances have been struggling a bit. What do your pipelines feel like? What does the general environment from a balance sheet growth perspective feel like? Is it possible that maybe growth returns not next quarter, but in the beginning of 2010?

We think the growth will probably return in the latter half of next year, mainly for this reason, Michael. We are running off, as we talked about, $57 million of our C&D portfolio moved out in a linked-quarter basis. We had about $60 million plus of new loans that were booked during the quarter. So with just a regular runoff of other types of loans, it is still going to be a fairly flat situation before we start seeing some growth again, mainly because of our goal is to obviously decrease our exposure to that C&D portfolio.

But we do -- we are seeing some life in the commercial side, C&I side, owner-occupied side, small business especially. In fact, it was commented on earlier today that this past week we had the largest volume of loans going through our small-business unit that we've had before.

And that is really kind of what we are trying to do. The Mississippi Bank pre-merger was more of a small-business type company. The banks that we acquired, the Memphis one especially, was very much construction and development oriented in a wholesale bank. So it has taken us a while to turn that one toward the same direction that the rest of the Company was doing. And then the Nashville and Alabama mergers were more that direction than we, but they still had a lot of similarities to the legacy Company here.

So we are in fact moving in that direction. And one of the things that we feel like is going to add to that is we have had several new hires in some of our metro markets, several new hires. We've added new presidents in each of the three Alabama markets, new city presidents in each of those markets, plus some relationship people. And these were replacements, not additions.

We are doing the same in some of our other markets outside of Mississippi. We've mentioned previously that we've had a significant restructuring of our retail mortgage group in Memphis-Nashville, and we are in the process of doing that in Birmingham. And we've hired a new wholesale mortgage guy in the Tennessee market that has some real strong relationships with community banks in that market. So we anticipate him picking up some of the slack that will be left because of the refi drop-off.

So we are looking forward to -- and we are already seeing production from some of these new hires, and we are continuing to be looking for opportunities for new hires in each of these markets.

Okay, great. Well, thanks so much, Robin.

Al Savastano, Fox-Pitt Kelton.

Good morning, guys. It's a very unique pronunciation of my name there. I haven't heard that one.

If you noticed, I was having a hard time saying hi to you.

Just three questions. We'll start with the securities purchases during the quarter. Can you give us a little bit of color of what you are buying and if it is short duration or not?

Jim will take care of that one.

We've been purchasing primarily agencies, both callable and a few step-ups. Most of it has been a one-time call that we anticipate that will be called, and then pass-throughs primarily on the mortgage-backed side. And have picked up a few CMOs.

We are trying to keep relatively short duration in our mortgage-backeds. We are buying primarily premium mortgage-backeds, so in the event of rates going up, we would get some yield lift out of that. So that is primarily the areas.

We have reduced our percentage of our portfolio in mortgage-backeds a little bit and increased our percentage in agency and munis. Our duration or average life of our portfolio went up from around 4.2 years to 4.6 years. So we had a slight increase in that. Some of that was related to some of the restructuring we did in our portfolio. We had some mortgage-backeds in our portfolio that had gains in them and were paying pretty rapidly. And we made the decision to sell some of those, reinvest those proceeds, so we wouldn't get paid off at par.

But no real -- we are mindful that we don't want to extend the portfolio significantly in here. Although even with that slight extension in our portfolio, we remain positively [gapped]. We are -- continue to be fairly sensitive to -- positively sensitive to an increase in rates on the overall balance sheet.

Okay, and can I just make sure I got your margin guidance correct? You said three to five basis points in the fourth quarter and the first quarter and then more benefit in the second quarter?

Yes, we feel like we will have more benefit in the second quarter because we are going to have about 150 basis points of Home Loan Bank borrowings that we will pay off during that quarter, and we will eliminate that liability. It's somewhat of a duplication at this time with the liquidity we have on our balance sheet.

Okay, great. And then can you comment on the dollar change in AOCI during the quarter?

I'm going to let Stuart do that for you, Al.

We had about a $14 million change from the second quarter to the third quarter. Primarily, that would have been driven from mortgage-backed securities, even though we did have some in the municipals. That would have related to about $9 million change in the OCI between the periods.

$9 million change in OCI, great. And then I guess Stuart, the last -- I'm sorry, Robinson, last one for you. The NPA inflows this quarter, the levels, how were they versus last quarter?

They were lower than last quarter. This quarter, the NPA inflows were 15.5, including 90 days; and last quarter they were higher than that. I don't have that right in front of me right now. (Multiple speakers) Yes, we are thinking in the neighborhood of $20 million to $22 million.

Okay, great. Thanks, guys.

Matt Olney, Stephens.

Good morning, guys. You might have covered this in your prepared remarks, but other expenses were up about $1 million sequentially when you take out the FDIC assessment last quarter. Anything unusual there, or is that a fair number going forward?

Unfortunately, most of it had to do with our other real estate and legal fees resulting from some of the problem credits that we have. We had about an almost $600,000 impairment that we took on some of our land in the other real estate portfolio. And the rest of it basically was related to that OREO for the most part.

And I think Jim mentioned some CD renewals. There's some upside there, it sounds like. Is there anything unusual by market on the CD renewals? I mean, where are you getting some of the better CD pricing and some of the more challenging CD pricing by market?

I was kind of looking at that. Our CD pricing is pretty well consistent across the board. There used to be more of a variance between our metro and our legacy markets, but there is really not that much anymore. And we try to -- we position ourselves about the middle of the market. So we are not paying up for CDs above market or even at the top of the market in any of our markets right now.

Okay. And last question, any update on the Toyota plant? I know there have been some other Toyota plant closures in other states and been some rumors that it could ultimately benefit the plant in north Mississippi. Are you hearing the same rumors, and what is the expectation for opening at the plant?

Well, we were hearing the rumors, and we were pretty excited about it. But the way it stands right now, Matt, is it is still basically mothballed.

Toyota is in the midst of their strategic planning process right now. We don't know if, in fact, anything will come out of that yet. They've made an election. The 15 Japanese nationals that were here, their two-year rotation has rolled off and they are delaying sending any additional Japanese-Americans until a decision is made as to when the actual process will begin. It will take 18 months, probably, from date of announcement to production startup. So they are electing to wait, since they are delaying on doing that.

They have in fact continued -- in fact, we have a delegation from Mississippi and especially Lee County in Japan right now visiting the Toyota plants, the Toyota suppliers. All of them are still very positive on what is going to happen. Toyota says they are totally committed to this area, and that they will be coming; they just aren't prepared yet to announce. And they won't announce -- or they won't come in until after they start having a pickup in sales.

There is no indication -- and this came from -- locally and from the American PR group -- there is no indication that they will in fact change from Prius; that is still what they are thinking about building here. We've heard several rumors, all around the world, but none of them were true. They are making actually in May their first $5 million payment to the education of the three counties, with the payment going to [Create Incorporated], who will in fact manage that investment. Originally, they were just supposed to make it in July, so there a couple of months ahead as far as what that payment is made. They're making their payments -- or scheduled and will make their payments to the state of Mississippi for the improvements that are done.

So everything is still as was. They still plan on doing exactly what they say they are going to do. They are just delaying when they are going to do it. But unfortunately, we really felt like with the closing of the plant in California and some other things that it may expedite the opening of the plant. But at this stage of the game, they have not made a commitment to move forward -- or a public commitment to move forward in the next few months.

Okay, that's great color. Thanks again, guys. Great quarter.

Jordan Hymowitz, Philadelphia Financial.

Just following up on Matt's questions, because I was a little confused. You said there was an 18-month period between what and what?

Jordan, when -- once they announce that they are going to start production, it will be about 18 months before the first car comes off the line.

But objectively, once they announce, it should still benefit you, because growth opportunities in that region will accelerate?

Without a doubt. No, once they announce, they will start the hiring process, and so our benefit -- our benefit will hit immediately. It just -- it'll take 18 months to get the first car off the line. So what I was getting at is they will make an announcement -- as they start looking out, when they see the growth as being such that they will need it within that 18-month time frame, they will have to start production 18 months prior to when they actually need those cars. So we feel like that something within the next year probably still will happen.

There are four or five other Tier 1 and Tier 2 suppliers that are sort of dependent on this planet, as well. Are any of those change of status or do we have to wait for Toyota first?

No, they are waiting on Toyota -- the Toyota Boshoku and Toyota Auto Body and ViewTech plants are all completed at this stage of the game, as are some of the smaller suppliers. So they are ready to go as soon as Toyota announces.

Boshoku and Auto Body are owned over 50% by Toyota, so in addition to the investment they have in the Toyota plant here, they have a significant investment in two other plants that were going to employ at least 500 people in each plant. So there is a significant amount of completed buildings that Toyota has in this area. So there is -- they continue to tell us that they continue their commitment to open up in the plant here.

So every indication, it is not if, but when?

That's right. And they say that. It is not an if, but a when.

And with the closing of the Fremont facility, what was made there? Was the Tundra was made there and another Toyota vehicle, correct?

Yes, Tundra and Corolla. And the Tundra was --.

Tundra has been shipped to the San Antonio, I assume.

Right, and temporarily, I think, the Corollas are going to Canada. But that is not a permanent fix, we understand. So there is going to be something happen soon, but we just can't get a -- Toyota is pretty closed mouth about it.

Okay. And last question is we know about Toyota's capacity worldwide. But do you have any idea what Toyota's capacity in North America relative to production is, in terms of their need for the extra capacity here at this point?

Right now -- and we are looking strictly at the Prius right now, because that is what their thought process is. Let me go back a step, Jordan. There was some rumor out there that they were going to go and move forward and build the Corolla here, but they -- because the Corolla is built on the same equipment as the Prius. That is one thing about Toyota's automobiles is you can build multiple -- their chassis size is very similar on different types of vehicles, and the Corolla and Prius are interchangeable.

But that rumor was strictly that, rumor. Right now, the capacity is not there for the Prius, but it is beginning to build once again. If you will remember, originally this was going to be a Highlander plant. And the Prius got to be so much in demand to the point that people were paying premiums to buy them, that is when they changed over to it being a Prius. And as of all indications -- and in fact, I got an e-mail from Mitch Waycaster, who is our Chief Administrative Officer, who is with the delegation in Japan, that they have continued to be committed to the Prius here, and they are continuing to be committed to the plant here.

So nothing has changed since they've been over there. In fact, our governor was just over there, and he had a meeting with either Mr. Toyoda himself, who is the chairman, or the vice chairman, if in fact he was absent. And I have not talked with the governor to find out which one he visited with. He has just gotten back from his visit over there. So we feel like we are still on goal. It's just a question of when they will do it.

And the weakening dollar only helps the situation, I would assume, as well.

Sure.

All right. Thank you.

Wesley Grace, Wunderlich Securities.

Hidey-tidey, everybody. We have a question regarding back to your construction portfolio, relating to your construction portfolio.

You may have some resistance from Matt Olney on that comment.

Sorry, Matt. But particularly relating to land and maybe undeveloped lots, particularly in Memphis and your Nashville and Birmingham markets, do you see any stabilization in the value of land and any evidence of buyers and investors coming back in?

Weekly. We see it, but it is not a real strong re-entrance, Wesley. But we are seeing a small, small amount of life right now. I just -- in the Memphis market. Now in the Birmingham market on the other side of the coin, we have a development over there that truly is getting sticker price of what sticker price was a while back for lots over there. So we see a little bit of life in that area.

Nashville and Memphis, we are seeing some building going on. In fact, we were talking yesterday about someone, not a customer of ours, but that had moved down to the Nashville market from Michigan and taken advantage of some opportunities with some, I guess, fire sale prices on some lots, not our lots. But that were actually out there building several spec homes. and these homes were ranging anywhere from $180,000 to $750,000 range.

So I think there is some activity going on in the markets now that was not going on in the past. So again, we do see some life. It is not something that we can jump out and say there is a great resurgence, but there is some activity going. And we are, in fact, on the home front seeing reductions in inventories at this point in time.

The appraisers are starting to increase their methodology on lots and unimproved loans. So we are seeing some positive signs. That was in the national market. So we are seeing some life.

Okay, thanks. Good quarter.

Matt Olney, Stephens.

One more follow-up question, guys. As far as -- back on credit quality, I don't want to put words in your mouth, Robin, but I think last quarter we talked about maybe a peak of NPAs sometime late 2009, early 2010.

Is that what we talked about last time, first? And second, is that still what you have in mind going forward?

I think what I said was that we would see a peak in nonperforming loans some time before the end of the year, and nonperforming assets peaking within two quarters afterwards. We feel like that we are at -- we have been at or probably the peak as far as nonperforming loans, and we should be seeing a peak in nonperforming assets in the not-too-distant future, too, within that couple of quarter range as far as that goes. Just based on what we see right now, Matt, we still hold true to that same statement.

So based off those comments, what should we expect in terms of peak and provision? Would that occur with the peak and NPLs, or maybe a quarter or two after that?

I would like to say that we will peak with the provision in fourth quarter of '09, but it could be within the first quarter or two of '10. As you notice, I'm hedging myself, Matt.

I feel like that we will not see a provision any higher than the provision we had this quarter, which would be somewhere in the same range next quarter. But I can't say with confidence that we have, in fact, peaked at that point in time. But we are very close to it, within the first two quarters of next year.

Well, that's fair. I don't think we are holding you to that number. As long as we see NPLs continue to decrease, I think we will be pretty satisfied. So thanks, guys.

Michael Rose, Raymond James.

Good morning, guys. I hopped on the call a little bit late, but I wanted to get some color around your construction and land development portfolio. And specifically, you've run that down over the past couple quarters. Where do you think you can get to in that portfolio and what is kind of the optimal mix for that portfolio in a normalized type of environment going forward?

I am going to let our Chief Credit Officer, Harold Livingston, give you some color on that, Mike.

I think the answer to the optimal mix depends upon what the land value -- the land valuations do going forward. As Robin mentioned earlier, the stabilization of the land and lot values is very much in correlation with the types of developments, the 250,000 house developments and [the last] of those houses are still moving; the income tax credit helps that. Obviously, that helps those lots move.

Generally speaking, the more expensive the development associated with the property, the more difficult it is to move the property, and the bigger the discount involved when you do see the sale. I think our land and lot figure, as I recall, is $163 million. I believe that's right. Yes, it is $163 million. That is down $20 million from what it was at June 30.

We would still like to see that decline because there is still a lot of house inventory that has to be moved before lot inventories will begin to decline. So right now, we are still focused on reducing those dollars. Honestly, I can't tell you where the optimal mix is yet, because a lot still rides on where those valuations bottom out and start back up.

Okay. That's helpful. And secondarily, do you have a sense for what the average life of your -- or what the average age of your appraisals are in that portfolio?

Young. We've got a lot of new ones. I can tell you that. We are getting -- with an abundance of caution, we are getting new appraisals on pretty much the whole portfolio. We are, just for safety's sake, going in and looking. And quite frankly, as I've pointed out, we are starting to see a little bit of progress in those appraisals, too.

The good news is when you make your loans at proper margins to begin with, even with reductions in the values, you're still in the money on those appraisals. But we are in fact getting new appraisals, obviously, on every renewal and on an interim basis if we have any concern about those.

We have a very strong appraisal area. Mark Williams, who is over loan operations and other areas, is very adept in this area. But we have one of the -- Mississippi's premier appraisers, who is in fact the head of that department working with Mark, and then we have two appraisal specialists with it. So we feel very confident in our appraisal area right now, as we get appraisals and we analyze the appraisals that are coming in. So we feel like the belt-and-suspenders approach is pretty good to take right now.

Okay. And finally, if I can, just on your tangible common equity ratio, it increased again. Do you expect that to continue to build, and kind of what is a comfortable level, now that a peak in NPAs and NPLs is kind of in sight?

Obviously, it grew this time based on some appreciation of some securities that we had. We would like to see it continue at this level and grow from here. We do know that, based on retained earnings and otherwise, that we can in fact grow easily to the 7% level within four to six quarters from where we are right now. So we are, in fact, looking to continue to do that.

Okay, that's helpful. Thanks a lot, guys.

Joe Stieven, Stieven Capital.

Hi, Robin. Robin, I joined a little bit late, but just -- sort of just one question that I was going to ask you. Your net interest margin -- and you guys had alluded to this in the past -- really showed good growth during the quarter on a ratio basis. And it looks like it is coming from both sides, both obviously loans and deposits. But at some point pretty soon, deposit pricing -- or how much more do you have on deposit side to improve? Then how much more do you have on the loan side to improve? Take it in two parts.

I think the first thing that we want to discuss is where we are seeing the big jump that we are going to have is that we are restructuring the liabilities side of our balance sheet, Joe, as we've been pointing out. We have reduced our wholesale funding from over $800 million in the Home Loan Bank area down below $0.5 million, and we will see another $150 million of that go away in the first quarter of next year. That is going to be where we have our biggest improvement to margin, is on that side.

In addition to that, we have had some public funds that had some rather high rates on them that we have repriced, and in some instances, seen leave because of the additional liquidity that we've had from the retail side. As we mentioned in the call itself, we had about -- from memory, about $57 million of new retail deposits that came in, and we had about $97 million of public fund dollars that we allowed to run off during the quarter. Some of it was that we allowed to run off and some of it was just a natural attrition of those funds prior to the end of the year.

So a lot of it is coming in that type of repricing. We had mentioned earlier -- somebody asked the question, did I see probably in the neighborhood of 3, 4, 5 basis points per quarter the next two quarters of improvement in margin and in the second quarter of next year. We have that -- I mentioned we have that $150 million of Home Loan Bank borrowings that mature in the first quarter that we will let just disappear; we will pay off. That will have the biggest impact, and we will feel that impact in the second quarter of next year.

So we are migrating ourselves back up toward the [3.40] plus range that we experienced toward the end of last year. So that is one side of it.

On the loan side of it, obviously, as loans mature, we are continuing to put floors on them. And our new deals are all appearing to be less rate competitive than they used to be. So we are being able to improve on the asset side with improved yields on loans.

And another thing that we will see that hopefully will have an impact in the not-too-distant future is each quarter we have to charge off nonaccrual interest. And that nonaccrual interest adjustment, over and above the drag based on the nonperforming asset side of it, is five to 10 basis points a quarter. So as those things straighten out, we will see a migration to a much higher not only margin, which is important, but more importantly, net interest income.

And that was the good thing about this quarter. In addition to the improve in margin, we saw $1 million improvement in net interest income.

Okay. Robin, thank you. Nice quarter.

And we have no further questions at this time.

Thank you, Carmen. And thank everyone for your time and interest in Renasant Corporation. We look forward to speaking with each and every one of you again before, but if not before, when we report our year-end results for 2009. Thank you, everybody.

This concludes the presentation for today, ladies and gentlemen. You may now disconnect. Have a wonderful day.