Renasant Corp (RNST) 2010 Q1 法說會逐字稿

Good morning and welcome to the Renasant Corporation first quarter 2010 earnings webcast and conference call. All participants will be in listen-only mode. (Operator Instructions)

After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). I would now like to turn the conference over to Robinson McGraw, Chairman and CEO of Renasant Corporation. Please go ahead, sir.

Thank you, Andrea. Good morning, everyone, and thank you for joining us for Renasant Corporation's first-quarter 2010 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 of performance and other factors discussed in our recent filings with the SEC. We understand 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.

During the first quarter of 2010, we saw positive trends as our net interest margin increased, our core deposits grew and we were able to hold non-interest expenses relatively flat as compared to the fourth quarter of 2009. As anticipated, our first-quarter results reflect the challenging environment for the financial services industry as well as the national economy. As we continue to adapt to this challenging environment and focus on capitalizing on opportunities presented in our markets, we believe we are positioned to improve earnings in future quarters.

Looking at our financial performance, net income was approximately $3.6 million for the first quarter of 2010 as compared to approximately $4 million for the fourth quarter of 2009 and $6 million for the first quarter of 2009. Basic and diluted EPS was $0.17 for the first quarter of 2010 as compared to basic and diluted EPS of $0.19 for the fourth quarter of 2009 and basic EPS of $0.29 and diluted EPS of $0.28 for the first quarter of 2009.

Total assets as of March 31, 2010 were approximately $3.6 billion, representing a slight increase from year-end and a 4% decrease from March 2009. At quarter end, the Company's tier one leverage Cape capital ratio was 8.74% as tier one risk-based capital ratio was 11.19% and total risk-based capital ratio was 12.44%. In each case, an excess regulatory well-capitalized threshold. The Company grew all of its capital ratios on a linked quarter basis.

We are particularly pleased that our leverage ratio has continually increased quarter over quarter during the last year. In addition, our tangible common equity ratio has grown 62 basis points since the first quarter of 2009.

Total loans were approximately $2.3 billion at the end of the first quarter of 2010, a decrease from both December 31, 2009 and March 31, 2009. As anticipated, total loans declined primarily from the Company's reduction of its exposure to construction and land development loans.

In addition, total loans were affected by the Company's exit from the student lending program due to recent legislation affecting the bank's ability to make these loans. The sale of our student loans during the quarter reduced loans over $10 million. We have reduced construction and development loans in our portfolio by approximately 32% since the first quarter of 2009.

Total deposits grew to over $2.7 billion at quarter end, a 5.35% increase from year-end and a 0.91% increase since March of 2009. I would like to point out however that the public fund deposits were $141 million higher during the first quarter of 2009 as they were this quarter. This runoff was replaced entirely with core deposits.

Our increase in core deposits has also allowed us to reduce our reliance on other wholesale funding sources as we continue to pay down barred funds by another $135 million this quarter. Non-interest-bearing demand deposits grew approximately $10 million or 3.31% during the first quarter.

We were pleased that the FDIC recently approved the extension of the transaction account guarantee program, which offers unlimited deposit insurance on a non-interest bearing and certain other transactional accounts from July 1, 2010 to December 31 this year. This was needed due to various regional economic weaknesses throughout the country and the necessity for banks to maintain liquidity as well as the importance of retaining depositor confidence.

Net interest margin was 3.27% for the first quarter of 2010 as compared to 3.22% for the last quarter and 3.19% for the first quarter of 2009. The improvement in net interest margin was achieved despite a 4 basis point reduction in yield on earning assets as the Company recognized higher levels of premium amortization resulting from increased prepayments on the mortgage-backed securities portfolio. A significant portion of the prepayments were a result of Freddie Mac's repurchase of nonperforming loans and securities that it guarantees.

Contributing to the increase in net interest margin was a continued effort to improve our funding costs by replacing higher cost in borrowings in public fund deposits with lower cost in core deposits. Our funding cost was 1.95% for this quarter as compared to 2.06% for the fourth quarter of 2009 and 2.24% for the first quarter of 2009.

Net interest income was $24.4 million for the first quarter of 2010 compared to $24.8 million for the fourth quarter of 2009 and $25.3 million for the same period in 2009. We are seeing positive results from our efforts to improve net interest margin and net interest income even as interest rates remain at historically low levels.

We anticipate this upward trend continuing throughout 2010. As we have previously discussed, we expect net interest margin to continue to increase approximately 5 basis points each quarter for the remainder of the year.

Our policy is to aggressively identify potential issues in our credit portfolio and address them as quickly as possible. In order to provide for these potential issues, we believed it prudent to significantly increase our provision for loan losses over the past six quarters.

With this in mind, we recorded a provision for loan losses of approximately $6.7 million for the first quarter of 2010 in addition to the $7.8 million we recorded for the fourth quarter of 2009. As a result, our allowance for loan losses as a percentage of loans increased to 1.78% at quarter's end as compared to 1.67% at year end and 1.40% at March 31 last year.

Annualized net charge-offs as a percentage of average loans were 81 basis points for the first quarter of 2010, down from 83 basis points for the fourth quarter of 2009 and up from 75 basis points for the first quarter of 2009.

Nonperforming loans as a percentage of total loans were 237 basis points at quarter end as compared to 213 basis points at year end and 269 basis points for March 2009. Loans 30 to 89 days past due as a percentage of total loans increased to 1.8% at the quarter end, up from 1.03% at year end and 1.04% at March of 2009. Although loans 30 to 89 days past due were elevated at quarter end, I would like to note that over $10 million of these loans were brought current subsequent to quarter end.

OREO was $62.5 million at quarter end as compared to $58.6 million at year end and $25.3 million at March of 2009. OREO increased as the Company took position of [rural properties] securing problem loans in order to control the liquidation of these properties.

During the first quarter of 2010, we sold approximately $3.3 million of OREO, recognizing a loss of $115,000 and currently have an additional $4 million under contract to sell in the near future. These properties are primarily located in the Alabama region and DeSoto County, Mississippi and are mainly comprised of one to four residential and construction properties.

With this in mind, members of our special assets division continued their proactive effort to market OREO while at the same time maintaining very low loss rates. Non-interest income was $12.5 million for the first quarter of 2010 as compared to $14.8 million for the first quarter of 2009.

The primary reduction in non-interest income was due to a decline in production from our mortgage loan division. During the first quarter of 2009, the Company experienced increased production in residential mortgage loans being refinanced due to a decline in mortgage interest rates.

Despite a decline in mortgage loan production during the first quarter of 2010 that affected non-interest income, we experienced growth in debit card revenue as well as gains in our trust division. In addition, early second quarter 2010 mortgage loan production results are showing encouraging signs.

Non-interest expense was $25.6 million for the first quarter of 2010 as compared to $26.9 million for the first quarter of 2009, a 4.8% decrease. Non-interest expense remained relatively unchanged on a linked quarter basis.

The decline in year-over-year non-interest expense was due to a reduction in personnel, occupancy and equipment expense. These reductions were more than enough to offset elevated expenses related to OREO.

As we move toward the halfway point of 2010, there's several noteworthy items taking place within our footprint. In mid May, we will be opening our second location in New Albany, Mississippi. This full-service branch is located in the business district of New Albany and became available after the merger of a competing financial institution. As an added benefit, this branch is within close proximity of a future Toyota automotive production factory in Blue Springs and is very close to one of Toyota's major tier one suppliers.

While there are many rumors surrounding Toyota in the national media, we are still optimistic that the Blue springs plant will make an announcement about its future operation and Toyota is scheduled to make its first bond payment to the state in April, as well as a $5 million donation to the surrounding three [counties of education] in May. We are still anticipating that the future opening of the $1.3 billion Toyota plant and Toyota's multiple supplier plants and as mentioned in previous calls, we believe that they will have a major impact on our legacy market when production commences.

In addition, we're opening a new location in the Crestline area of Birmingham, Alabama. This branch will be a cost-neutral expansion of our Birmingham franchise as we're simultaneously closing a drive-through acquired in a merger that had extremely low transaction accounts.

This full-service location will be located in Mountain Brook which is the highest per capita income area of any city in Alabama. Staying consistent with our conservative banking approach, we will continue to properly adjust our loan portfolio concentrations for the current economic environment, implement initiatives to increase non-interest income, keep non-interest expense growth contained and maintain capital ratios in excess of regulatory well-capitalized thresholds as we move forward into 2010. Even as the current banking environment remains a challenge, our key markets are fundamentally sound and we are optimistic in positioning for long-term success.

Now, Andrea, I'm going to turn it back over to you for questions.

(Operator Instructions) Andy Stapp, B. Riley & Co.

Thank you for the color on the Toyota plant. Can you assign some level of probability that it will open?

Andy, you know, I would jump out on a limb, but I'll say the odds are extremely good that it's going to open. I mean, the odds are -- I think it's a 100% that it's going to open. I think the odds are good that it's going to open in the not-too-distant future.

And could you provide some more color on what was driving the linked quarter increase and the early-stage delinquencies?

We had several I think larger credits in probably -- or I guess in the Tennessee markets that came past due. As I said, we had about $10 million that came off that list right after quarter end. We had some renewal issues. In one instance, we had a guarantor that was out of the country. Just different things such as that occurred. I think that we're still bringing to closure some issues in that Memphis market I guess more so than anything else.

Okay and could you provide some color on the loan pipeline and any anecdotally you have that -- just to provide some color and address the possibility of your being able to begin to grow loans this year?

We're continuing to originate new loans.

Right.

More than anything else, there's several issues out there. We're having large C&D credits move off the balance sheet.

That's a good thing.

While we're bringing on smaller business type credits. I would have to equate it as you are seeing the home runs going off and the bunt singles rolling on and it takes a lot of singles to make up for those that are going off.

We have a pipeline that's somewhere -- 75 to $100 million of new loans that are in the 90 days bucket. We are seeing that activity. I think we've said in past calls that our budget didn't call for any loan growth until really the second half of the year.

We don't see anything that has changed our minds on that because of the outflow and inflow inequities that we've talked about. But I think we're seeing some real positive signs and as a result of that, we probably will start seeing some activity.

We have seen about $8 million of net loan growth in the Alabama area and starting to see some others. I think going back to the Toyota deal, if and when that occurs, I think you'll start seeing some positive activity in Mississippi.

Again, going back to what I've said before, we're being more conservative in spreading our risk for the future by diversifying our portfolio. And again, those credits are much smaller than what we have seen in the past.

So you still think you can generate net positive loan growth in the second half of the year?

I think during the second half of the year, we will cross over that threshold.

Kevin Fitzsimmons, Sandler O'Neill.

Just a couple questions. I was little surprised to see the size of the linked quarter increase in non-accruals and I think what you've said in the past is that non-performing loans have probably already peaked back in second quarter but NPAs won't peak until second quarter 2010 because of OREO going up and we're continuing to see that.

But is this -- while the non-accruals are still below that second quarter peak, is that increase we saw this quarter, does that kind of change your view a little bit on credit? I mean that, given what you're seeing kind of in your internal migration of credit, are you still in that frame of mind on non-performers peaking or is it (multiple speakers)

It peaked I think at that $67 million number at the end of the second quarter. We were considerably below that number at the end of this quarter. We are still going to have some loans migrate through there and we are quite frankly trying to move those through as quickly as possible to get on the other side. And so we are aggressive in our credit ratings.

Now one thing, our watch list basically has been flat over the course of the -- since October, quite frankly. As we look at our total commercial portfolio, over 87% of our loans are pass rated loans and 7% of our loans are in the initial watch list bucket which is just special mention which are definitely performing type credits.

Of our total watch list, nearly 75% of the loans are actually performing type credits. So very high percentage of it or almost 50% -- excuse me, 70 -- well about half of the loans are in that first little bucket which is just strictly special mention type credits.

So we don't see any real additional deterioration. We're just moving credits through the process more rapidly. A lot of these loans that are non-performers are actually performing non-performers that we feel like by putting them on non-accrual, we would prefer getting the principle paid down as opposed to collecting interest at this stage in the game, where we can in fact collect the interest later on, but would rather have the loans paid off at a more rapid rate. So we are continuing to do that which again makes that non-performer number a little bit higher.

Just a quick follow-up on subject of capital. The TCE ratio did tick up this quarter, however, your dividend payout was roughly 100%, stock's up about 30% year-to-date.

Any change in your view in terms of -- I know you have said before that you would want to wait before raising capital until you had some kind of opportunity. But do you look at this as being kind of a window that could close or will stay open indefinitely in terms of your ability to go out there and raise capital? Any thoughts on where you could use it? Thanks.

At this stage, we really are still looking at our options which obviously one of them is as we talked about before, just-in-time type proposition in there. It remains open, the opportunity to do a preemptive type raise. But at this point, we don't have any intention to do that as of today. But I'm not going to lock myself in and say never.

Dave Bishop, Stifel Nicolaus.

Question and I think we have had a couple of banks impacted by this this quarter, but you mentioned the Freddie Mac -- the calls, the repurchasing delinquent loans. Do you know the -- I guess the dollar, the margin impact that had this quarter?

It hit us by about 4 basis points on margin. But you'd couple that in there with the slight impairment we took on our trust preferreds and it cost us about $0.015.

Irrespective of that, it sounds like you're still comfortable in terms of the outlook for some additional expansion here through the course of the year?

Yes, we feel good about it looking at what's happened. We paid off that $135 million of home loan bank borrowings first quarter. Only about $50 million of it was in January and about $50 million in February and about $35 million in March. So we'll start getting the full impact of that coming up.

In addition to that, Dave, we have some -- we did a special CD a little while back and those are beginning to start maturing and they're at the 3% plus range. So we'll start seeing some relief from a margin standpoint on those CDs as they start rolling over. So we are optimistic that we are still on target for the guidance we have given on margin for the year.

Peyton Green, Sterne, Agee.

A question on the OREO, what is your timeframe or what is a realistic timeframe to start seeing the OREO number go down? Has there been any improvement in the distressed asset side of the markets that you will have the OREO?

The positive thing, of the $4 million that we have that we have under contract is coming up, a portion of that is still in that DeSoto County market. DeSoto County, the vertical parts of the houses are moving pretty well in DeSoto County.

We are in discussions ad we have sold some lots in DeSoto County and we're in discussion on quite a few more. We're seeing lots move in the Birmingham market.

Starting to sell a little bit of interest in some lots in the Memphis market. So there is some life out there. Obviously we have about $30 million of OREO that is in land. That is going to be the slowest to move.

But, again, we're starting to see the freeze kind of lifting on that so -- we are not aggressively pushing them at losses. So we're starting to see some lots start moving. The houses again, the $3.3 million that we sold, first quarter we lost $115,000. Our special assets guys are doing a really good job of moving this property and we see it still continuing to do so. We are optimistic on that.

Okay and then just in terms of the mix, so about $30 million you mentioned was land. What does the other $35 million or so consist of?

Basically you're looking at about -- basically you're looking I think at houses at about -- residential at about $11 million. You're looking at -- that's a combination of one to four family and multifamily commercial income properties, about $11 million, about $11 million of one to four family, plus about another six that was like rental property. So I guess one to four family houses, about $17 million total. But $30 million is development, about $11 million is in commercial income type properties.

Okay and the balance of the 62.5 or so?

The balance of it is just other type things.

Okay, I mean do you feel like that number has peaked or do you think it still continues to roll a little higher as we go through the year?

Again, it just depends on how rapidly we sell. I think we'll have some other roll through there, but at some point in time, it will have peaked. So I'm not exactly sure what it's going to be.

We have some property that's going to be possibly auctioned that will never reduce. Just depends on whether or not we get the price that we are looking for on that and we anticipate that probably happening, that it will come out. But we have other coming in too over time.

So I think we're still going to be dealing with other real estate because that $30 million of lots aren't going to move as fast as we would like to see. We think that the inflow of buildings, whether they be commercial or residential, will kind of offset and move through. It's just going to be what happens with those lots.

And I'll jump off after this. But in terms of the OREO valuation, you indicated that you lost a fairly minimal amount on the disposition of the vertical stock. What's the carrying value of the land component versus where you would have been at origination?

Well it depends. Last year we did take -- or year before last, we took an impairment on some of the DeSoto County property. We bought it all in just depending on whether it was raw land, developed lots or things of that nature, anywhere from $0.50 on the dollar up to maybe $0.70 on the dollar at max on the land.

On the houses, we're not seeing much depreciation at all on them. A lot of those were bought in at fairly close to what the loan values were and we're getting that back out of them. At worst, we bought them in at $0.80 on the dollar probably. But we're not seeing any real losses on that type of property right now.

Okay and then this will be the last one, but to what degree was -- what was OREO expense in the quarter and how did that compare to the fourth?

It was about a little over $0.5 million, excluding the loss.

Okay and that's a pretty good run rate to kind of process everything going forward?

From the standpoint of excluding the loss, I think it would be a little bit lower than that because we had a a lot of (inaudible) taxes paid in that month.

Okay, great. Thank you very much.

Catherin Mealor, KBW.

A lot of my questions have been asked but I just have a couple more on credit. Robin, can you talk a little bit about the inflows into NPLs, geographically where it came from, and loan types?

Sure, pretty much what we saw were about -- we had $1 million that came in that was a farm in Mississippi that we feel like will in fact -- is not current today but still -- it has been a performing credit. We don't anticipate that one. It will probably be a performing -- non-performing credit I guess because there's a workout working on it right now.

We saw about $0.5 million in one to four family rental move-in. We saw -- and this is all in Mississippi I'm giving you right now. We saw about -- $5.6 million came in in condos in a project that was going on there.

Another 500 in just residential C&D type property, another 1.2 in land. Then we have a house that's actually in Florida that the appraisal on is higher than the actual loan value still. This is the most current appraisal. But because of Florida foreclosure laws, it will take us some time to be able to move this property through.

In fact, the guys had offers for more than what it would've taken to pay those out. But we haven't been able to get him to budge on that.

That's pretty much what we had. That was out of our Nashville market. One thing out of our -- well Alabama we basically have nothing. So that's pretty much all there is. I think that should total up.

Does that total about $9.5 million of new NPLs?

Yes, it nets out to about that. That's about right. Yes.

I don't know if I missed it earlier on the call, but did you disclose the restructured loans for this quarter?

It's about the same. Not much change. Maybe about $0.5 million or so I think increase.

Matt Olney, Stephens Inc.

I got kicked off the call for a few minutes. I hope I'm not repeating a question, but can you disclose if you've made any bids on failed banks so far year-to-date 2010?

We've not made any bids.

And can you let us know maybe how many banks you're targeting that kind of fit your profile in terms of size and geography? How many banks are you tracking right now?

About 25 to 30.

And has that stayed pretty consistent in recent months or has that increased or decreased would you say?

It's increased a little bit, not significantly; a couple of banks.

And I assume all of those banks are in your current franchise, three-state franchise?

It was within the three states, right.

And lastly, service charges were down. Is that just seasonality or was there something else there in Q1?

No, it's seasonality. Overdrafts usually are lower. Now that you have electronic filing, tax returns come in faster. So therefore what we used to see is a drop-off in the March-April range, now you're seeing it in February and March.

Okay, those are all my questions, guys. Thanks for your help.

[Kyle Oliver], Raymond James.

Most of my questions have been answered, but I was wondering, do you guys have any estimates as to how the new legislation is going to affect your NSF fees going forward?

I think the prevailing number they are saying is about 10% possibly, maybe in the latter part of the year.

So starting in the third quarter?

Yes.

At this time, gentlemen, we have no further questions. Do you have any closing remarks today?

First of all, I want to thank everyone for joining us today. We appreciate your time and interest in Renasant Corporation and look forward to speaking with everyone again when we report our second-quarter results for 2010. Thank you, everybody, and Andrea.

Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.