Renasant Corp (RNST) 2009 Q4 法說會逐字稿

Good day and welcome to the Renasant Corporation's 2009 earnings Webcast and conference call. All participants will be in a listen-only mode. (Operator Instructions).

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions).

Please note, this event is being recorded. Now I would like to turn the conference over to Robinson McGraw, Chairman, CEO, and President. Mr. McGraw, the floor is yours, sir.

Thank you. Good morning, everyone, and thank you for joining us today at Renasant Corporation's 2009 fourth quarter and year-end earnings Webcast and 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 risks and uncertainties. A number of factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements.

Those factors include but are not limited to interest rate fluctuations; regulatory changes; portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time.

At the beginning of last year, we stated that the Company's success would be determined by management's ability to preserve margin, minimize credit losses, grow non-interest income and reduce non-interest expense -- all of which would result in continued enhancement of our strong capital position.

Looking back, after experiencing margin compression for the second quarter of '09, we grew margin during the second half of the year, continued to reduce our construction and development loans, grew non-interest income and reduced non-interest expense, notwithstanding the special assessment levied by the FDIC during the second quarter of '09. As of December 31, 2009, the Company's regulatory capital ratios were in excess of regulatory minimums required to be classified as well capitalized.

At December 31, 2009, the Company's tier 1 leverage capital ratio was 8.68%. It's tier 1 risk based capital to ratio was 11.16% and its total risk based capital ratio was 12.41%. The Company's growth in capital ratios reaffirms management's decision in the fourth quarter of '08 not to participate in the federal government's troubled asset relief program.

Reflecting our financial performance for '09, the net income was the $18.5 million as compared to $24 million for '08. Basic and diluted EPS were $0.88 and $0.87, respectively, for '09 compared to basic and diluted EPS of $1.15 and $1.14, respectively, for '08.

For the fourth quarter of '09, net income was $4 million as compared to $232,000 for the fourth quarter of '08. Basic and diluted EPS were $0.19 for the fourth quarter of '09 as compared to basic and diluted EPS of $0.01 for the fourth quarter of '08. The increase in fourth-quarter '09 net income and EPS is compared to the fourth quarter '08 is primarily due to our lower provision for loan losses during the fourth quarter of '09.

Total deposits grew $2.58 billion at December 31, '09, as compared to approximately $2.34 billion at December 31, '08. Included within this growth is an increase to non-interest-bearing deposits of $20.7 million and an increase in retail interest-bearing deposits of $288.2 million. This growth allowed the Company to reduce public fund deposits by $80.6 million and borrowings by $315.9 million during '09.

The Company experienced strong deposit growth, due to management's strategic efforts to acquire lower costing and non-interest-bearing deposits while reducing reliance on higher costs being sources of funds. This growth in deposits will allow us to continue to reduce higher cost borrowings.

Total loans were approximately $2.35 billion at the end of '09 as compared to approximately $2.53 billion at December 31 of '08. During '09, total loans declined year over year as new loan production did not keep pace with our efforts to have our construction and development loan portfolios, which had been more negatively impacted by the economic downturn, pay off and pay down. Oir construction and development loan portfolio decreased by an additional $150 million during '09.

Total assets as of December 31, '09 were approximately $3.64 billion as compared to approximately $3.72 billion for December 31 of 2008.

During '09, net interest income was $99,466,000 as compared to $109,437,000 for '08. Net interest income was $24.8 million for the fourth quarter of '09 as compared to $26.8 million for the same period in '08.

Net interest margin was 3.16% for '09 as compared to 3.44% for '08. For the fourth quarter of '09, net interest margin was 3.22% as compared to 3.36% for the same period in '08. Net interest margin remained unchanged on a linked quarter basis.

In looking at our fourth-quarter asset quality data, net charge-offs as a percentage of average loans for the year ended December 31 '09 were 91 basis points compared to 55 basis points for '08. Nonperforming loans, which are loans 90 days or more past due, and nonaccrual loans were $50 million at December 31, '09, as compared to $48.7 million at September 30 of '09 and $39.9 million at December 31 of '08.

Nonperforming loans as a percentage of total loans were 2.13% at December 31 of '09 as compared to 2.03% on September 30 of '09 and 1.58% on December 31 of '08. Loans 30 to 89 days past due as a percentage of total loans decreased to 1.03% at December 31 of '09, down from 1.38% at September 30 of '09 and 1.92% on December 31 of '08.

The Company recorded a provision for loan losses of approximately $7.8 million and $26.9 million for the fourth quarter of '09 in the year ending December 31 of '09, respectively, as compared to approximately $14.9 million and $22.8 million, respectively, for the same period in '08.

The allowance for loan losses as a percentage of loans was 1.67% at December 31, '09, as compared to 1.38% for December 31 of '08.

Our credit administration team has an ongoing initiative of aggressively reviewing our credit portfolio with the goal of establishing appropriate reserves against future losses. Other real estate owned was $58.6 million at December 31 of '09 as compared to $47.4 million on September 30 of '09, and $25.1 million on December 31 of '08.

The increase in OREO reflects our efforts to resolve problem loans by taking possession and controlling the liquidation of the underlying properties. We continue to aggressively manage the property held in our other real estate-owned portfolio. This is evident as we sold $16 million of other real estate owned during '09.

Non-interest income was $57.6 million for '09 as compared to $54 million for '08. For the fourth quarter of '09, non-interest income grew to $13.4 million as compared to $12.7 million for the fourth quarter of '08. We continue to see an increase in year-over-year and quarter-over-quarter non-interest income, primarily associated with increases in deposits and our record mortgage production during 2009.

Non-interest expense was $105,753,000 for '09 compared to $107,968,000 for '08. Non-interest expense was $13,419,000 for the fourth quarter as compared to $12,751,000 for the fourth quarter of '08. On a linked quarter basis, non-interest expense was down $535,000.

Despite an industry-wide special assessment levied by the FDIC, which resulted in a $1.7 million expense to the Company, non-interest expense decreased by approximately $2.2 million during '09 as compared to '08. This planned reduction in non-interest expense was due to achieved efficiencies throughout the Company.

In closing, Renasant is looking forward to a successful 2010 as we build our 100 and -- build on our 105-year history of success and capitalize on future opportunities to enhance our long-term value.

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

Yes sir. We will now begin the question-and-answer session. (Operator Instructions).

Andy Stapp of B. Riley & Co.

Good morning. In your last quarter's call you indicated that you felt that NPAs would peak by year-end. Is that still the case?

I think we said our nonperforming loans (multiple speakers) assets would peak by next year. Actually, our nonperforming loans peaked at the end of the second quarter. Third quarter was a little bit off from the second quarter and we continued seeing a drop.

We had a slight increase in a quarter-over-quarter basis, but we feel like that we did peak in the second quarter of '09 in non-performing loans. Non-performing assets should peak somewhere next year, probably midyear.

Okay. And with regard to the increase in NPAs, how much of that was skewed to the construction development?

About $9.4 million.

Okay.

Of the NPLs that moved into the NPA category. For the most part it was the same going into the OREO category too, Andy.

And the reserved build was a little bit stronger than I expected. How close do you think you are to the end of the reserved building process?

We plan to continue building reserves next year -- this year in 2010. We just feel it prudent under the climate that we're in, not knowing if in fact there could be additional needs for funds.

So our plan for 2010, although we look for a reduction in the level of charge-offs in a year-over-year basis, we anticipate still building reserves at a little bit less than what we did this year as far as our quarterly provision. We will probably have a higher quarterly division earlier this year than we will in the latter part of the year. But we do anticipate trying to continue building reserves just to be prudent.

Okay. And could you also talk about your outlet for your net interest margin?

Right. We see our net interest margin continuing to build. We -- our core margin in the fourth quarter as compared to the third quarter actually built by about 5 basis points after taking into consideration not accrual loans and pre-payments on mortgage-backs. We had about 7 basis points of non-accruals and about 3 basis points of mortgage-backed pre-payments in the fourth quarter.

It gave us about a 5 basis point increase on the core basis over the third quarter. We're anticipating an average of 5 basis points or about a 20 basis point gain this year, more heavily weighted following the first quarter with the mortgage where the home loan banks paid-outs occur. We've got about $130 million paying down first quarter.

About -- I think for the most part we've had 60 already pay down in January or it's paying down this month. About 50 in February and about 30 in March -- 20 in March, I'm sorry.

Okay. I have some other questions but I will get back into the queue.

Okay. Thank you.

[Catherine Neeler] of KBW.

Good morning, guys.

Good morning Catherine.

I've been wondering if you could give us a little more color on the inflows and outflows of NPLs? New NPLs coming in and then NPLs slowing from NPL into OREO?

For the most part those flowing in, it was pretty much an equal inflow and outflow. Of the inflows about $9.4 million of them were residential C&D, and for those all going out, pretty much all of them went to the OREO category. About $7.9 million of that was residential C&D.

And what was the amount of OREO sales you had in the quarter?

For the quarter we had about $5.5 million. Totalled about $16 million for the year. We have about $2 million of sales pending right now.

And would you think most of that residential construction movement, is that still coming from Memphis?

Yes. Of that [$7.9 million] that I mentioned that we foreclosed and moved out, about [$5 million] was Memphis.

On the other side of the coin, of the $9.4 million that moved into nonperforming loans, for the most part that was pretty much Memphis and some Alabama. We had a couple of situations out of Alabama that occurred, one of which was owner participation. That distorted the Alabama look, but about $4 million of that was out of Alabama. Actually the participation was outside the state of Alabama. It was not planned in Alabama, it came out of our Alabama division.

And any comments on how your commercial real estate portfolio is holding up?

For the most part, it is still holding up well on the income-producing properties. We -- in the quarter as far as our foreclosures, we did have a motel in Alabama and some other Alabama properties that we did foreclose. One of them was a church, interestingly enough. But otherwise it's holding up pretty well.

And do you have the updated trouble debt restructuring number?

Yes. I'm going to let [Harold Livingston] answer that, Catherine.

At the present time we are at about $43.8 million of restructured loans. That's up considerably from the end of September.

There was an inter-agency guidance that came out, I think it was in November. And after we read through that we felt like we needed to reclassify some of the loans. But it wasn't any new or unexpected loans.

We knew about all of them. We just had not classified them all the same way. And after that guidance, we made that change.

These are all performing TDRs? They would not be also counted in any of your non-performing and past due categories?

That's correct.

And the number at September was 10.3 -- is that correct?

That's correct. It went from 10.3 up to about 43.8.

Any -- are these mostly land or construction loans? I mean any of the CREs even need -- any color you can give to the geography and type of loans these are?

Yes. Most of them are still in the C&D category. About 75% of those are in Memphis and about 20% are in the Nashville, estimating another 5% (inaudible).

And does the reserve currently hold any reserve against these loans?

Oh yes, ma'am.

Most definitely.

All right. That is all I've got. Thank you so much.

Let me answer another part of your question. On non-owner occupied or CRE, commercial real estate, only about 3% of our nonperforming loans are in that category.

Okay. Perfect. Thank you.

Thank you.

Joseph Stieven of Stieven Capital.

Joseph Stieven of Stieven Capital.

Morning, Robin. Actually most of my questions were answered. First of all, good quarter, but can you talk a little bit about pricing you are seeing your markets on both the deposit and loan site, so just sort of get a little color on your margin a little bit more?

I mean, are people -- do you have any people, I'm not looking for names -- but are people behaving on the deposit side now and then talk about loan pricing?

It's amazing the difference a year makes. Last year in -- excuse me, in 2008 in the latter part of the year, to use your term people were behaving, but that's been exactly the opposite now. We are looking now at CDs maturing at an average rate of about 150 and we are renewing them in the 130 to 135 range as opposed to obviously last year or in 2008 and early '09 when they were at much higher rates.

But we have seen a significant change there and that is one of the reasons that we are seeing some positive opportunities in our margin outlook. By the same token, we've been able to get floors on our loans as we continue to -- as they renew. Some of them were [return] loans and were at LIBOR or other, or prime plus or prime minus, as the case may be and we are in fact now being able to reprice those two.

So, again, we are looking for about a 20 basis point improvement in margin over the course of the year.

Okay. Thank you, Robin.

Thank you, Joe.

Dave Bishop with Stifel Nicolaus.

You guys made good progress obviously on the operating expense front. In terms of the outlook for 2010, in terms of budget expectation there, do you think there is room for further proven off this current run rate?

Actually we are looking to be basically flat. Maybe a slight increase. We are budgeting for higher costs with our other real estate portfolio. Obviously it is expanded. We will have taxes and insurance and obviously legal fees associated with trying to dispose of this real estate and -- as we pursue some of the debtors.

So we do in fact, look for basically flat expense growth the next year to slight maybe 50 basis point increase. And that is strictly based on the ORE portfolio.

Do you have the, the [not being] released, the other real estate owned costs or foreclosure costs this quarter compared to last quarter? Or are you still seeing pretty much --? I think we've talked in the past on a due diligence. It didn't seem like the variants relative to your book value had taken too much of a hit --.

No. We -- over the course of the $16 million of sales we had last year, Dave, we lost $0.5 million. About an 8% loss on average last year. And we anticipate that maybe being slightly higher this year, but not significantly in that regard.

We are still -- we bought it in for the most part at a good price it's time -- not a good price to us maybe but at a price that we could sell the property at without any additional loss in the future.

Okay. And then maybe just a follow-up in terms of credit quality, putting aside some of the reported metrics in terms of getting back to the [watchless] trends. What are you thinking there in terms of early-stage delinquencies, and degradation in terms of loan grades there during quarter over quarter?

Well, you know as we mentioned we saw a decrease in the 30 to 89 day bucket of past due. So we are moving pretty much at that same rate there. But in the last couple of months, we were pretty flat on the watch list maybe with a slight decrease in November and December.

Got you. And one follow-up question, I guess, in terms of I would say obviously the hot button topic in terms of the FDIC acquisitions out there. Where do you guys stand there in terms of the -- that arena? I mean, have you guys been active in looking at in the proposals there?

We look at them obviously every time they come out. We just have not seen any where we are looking. We've identified quite a few that are in the market that we would look at and have narrowed that list down and have prioritized those that we would be interested in. At this stage we have not seen any of those appear.

Great, thanks.

Thank you.

Andy Stapp with B. Riley & Co.

Just wondering if you can provide the color on what you expect for the net interest margin as the Fed begins to increase rates? In other words are you sufficiently asset-sensitive to offset the impact of interest-rate floors and loans?

We are asset-sensitive. Obviously though, too, as you pointed out, floors figure into it to some degree. But we are still asset-sensitive even with the floors. So we feel like that we would benefit from an upward rate environment.

And do you have the balance of development loans at year-end?

Yes. We -- Smoky -- Harold can give you that. It's, I think about $150 million in the residentials. Is that right?

Well we've got $145 million in residential. That breaks down about $65 million in lots and about $80 million in residential land for development.

And I will go ahead and give you the commercial side too. We have got about $27 million in lots and about $62 million in commercial land. And then we got another category that is about $42 million that we classify as other raw land. There's like 500 notes in there and we think a lot of that could be anything from small farm land to hunting land, stuff like that. So we kind of break those out separately.

Let me clarify one thing too. Back to your margin question. And the margin numbers when I was saying we would go up by 20 basis points, that was assuming a flat rate environment. We did not put in any assumptions for rate changes. But we -- still that's (multiple speakers) yes. Right.

Do you think you can reach a point where you will start, where you will resume growing loans again this year?

Yes. Do you want me to get more than that?

Yes. That would be good.

We have budgeted for a slight increase the latter part of the year. What we have been looking at you know over the last three months we were actually seeing new loans being originated at about $25 million, $30 million, but continuing to see about a $15 million net decline in loans on a month-over-month basis.

We budgeted basically to continue with a slight decline in the first quarter and maybe flattening out with a slight increase toward the end of the year. Maybe just have you know it's basically a breakeven standpoint but maybe a $25 million, $30 million net increase by year-end.

And lastly you touched on FDIC-assisted transactions. What markets are you looking at? Would you prefer to stay in market or have you identified markets outside your footprint that you would consider?

We are looking basically within the three states that we are in. We would look outside of our present footprint in those states, but pretty much looking for banks based in those states right now. Obviously banks have branch locations outside of those three states. That wouldn't stop us from looking at one of those.

Okay. Thank you.

Matt Olney of Stephens.

Good morning. I'm trying to get a better idea of the overall balance sheet strategy here and it feels like your capital levels are good, maybe not as good relative to some of your competitors out there. And the dividends still seemed high, relative to the earning space and it feels like we have been here the last few quarters.

So can you give us an idea of the overall big picture plan? Is it to remain patient and keep seeing singles or doubles? Or you think there's a chance maybe to load up on capital and make a bigger play for something else out there in the market?

Well, at this stage of the game we're still continuing to look in the market and we've not made a decision to do any type of preemptive capital raise at this point in time. But we see our -- the way our budget looks for next year is that we will see earnings grow on a quarter-over-quarter basis, starting out very close to where we are presently, but by the end of the year having some pretty good separation in where we are and where we will end up with earnings in 2010, and anticipating that continuing into future years. So the spread between earnings and dividends will increase in a quarter-over-quarter basis during 2010.

That's helpful and I guess the second part of that would be, what are your regulators saying about your capital levels when you are looking at [70s] FDIC transactions? Are they saying that you should probably be raising capital prior to doing some of this? Or are they comfortable with your current capital base and potentially doing a contingent deal if you found something that you like?

I think they would be comfortable either way. Based on our conversations.

Let me make -- let me point out something, too, to you. Talking about our asset mix and how we are trying to grow. Obviously we are not making any C&D type loans and we are going back to the old People's Bank culture, obviously, of small-business type lending and have really started moving in that direction in all of our markets, still making owner-occupied and other C&I type loans.

But the process is gradual as we start to grow and going back to your question about singles. Small-business type loans or singles as opposed to the big development loans which are the homeruns. So, therefore, we are still getting a lot of singles and it is taking a while to start -- building up that portfolio.

Okay. Great. Thanks, Robin. Great quarter.

Thank you. Appreciate it.

Al Savastano of Macquarie.

Just a question on your reserve build. I think you mentioned it would be less than it -- in '10 it will be less than it was in 2009. Is that going to come from a flattish provision and lower charge-offs?

Yes, a combination. We will see the provision -- the reserve itself we'll build this year. And we are budgeting for a fairly significant bills. But -- and it will come from a little bit lower provision than we had in 2009. And we are also budgeting lower charge-offs in 2009 -- in 2010 than we had in 2009.

Okay. And then what --? The reason for the reserve build, is that more of the commercial real estate portfolio or is it more on the land portfolio?

It's more on the -- being conservative and not necessarily anticipating anything either way. We just feel that over the course of the year that we want to continue to be proactive in building our reserve. We feel like that accounting rules have loosened up to the extent of being able to be more aggressive along that line than they were previously.

You know, the reason our reserves got as low as they did were a couple of mergers where SOP 03-3 came into play. And we had to charge down reserves, obviously, based on that accounting principle. Absent an FDIC acquisition where that would come into play again, we see our reserves building over the course of the year -- just to be prudent.

Okay and last question in terms of the margin you said about average of 5 basis points a quarter and 20 basis points for the year, but maybe a little bit slower expansion in the beginning of the year?

During the first quarter of the year, those home loan bank borrowings are still on our books, parts of them. So it's basically going to average out about the same over the course of the year, pretty much, Al.

Great. Thank you, guys.

Dave Bishop. Stifel Nicolaus.

Two follow-up questions. Nice uptick in the deposit service charges in this quarter. Anything unusual impacting this quarter? Or is this the back of an increased consumer usage, any sort of green shoots to read into that?

No. I think the main thing you hit on is increased consumer usage. As you saw that in the deposit charges also with our debit card income that we had interchange fees. People were out using plastic again toward the end of the year, I think is what it boiled down to.

And then, finally a big picture competitive question here. Getting back to one of the earlier questions in terms of some of the small-business environment. Seemingly, maybe some of the big uglies you compete with in the Memphis market their might be turning a battleship around here.

Any sort of pickup in a competitive stance there that these guys are becoming more offensive than defensive on a marketshare position?

Not really. Not at this stage of the game.

Great. Thanks.

(Operator Instructions). Mr. McGraw, it appears that we have no further questions at this time, sir. Did yourself or management have any final comments?

Thank you, Mike. Let me make one comment. I want to thank everyone for joining us today and we at Renasant look forward to visiting with you again for our first quarter earnings call in April. Thank you, Mike.

Thank you, sir. Thank you, gentlemen. This conference is now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines. Thank you again.