Renasant Corp (RNST) 2010 Q4 法說會逐字稿

Good day and welcome to be Renasant Corporation fourth-quarter and year-end conference call and webcast. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Chairman and CEO Robin McGraw. Please go ahead.

Thank you, Mike. Good morning everyone and thank you for joining us for Renasant Corporation's 2010 fourth-quarter and year-end earnings webcast and conference call. Before we get started, let me go ahead and apologize for my voice today. I think it will survive the webcast.

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 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 changes in assumptions, the occurrence of unanticipated events or changes to future operating results over time.

Renasant found much success during the fourth quarter of '10 as we experienced positive results from our strategic efforts to grow core deposits and increase net interest margin, while at the same time continuing to realize improving trends in our credit quality metrics.

During the fourth quarter of '10 we increased our net interest income while decreasing noninterest expense, continued to decrease our exposure to residential construction and land development, as well as decreased our nonperforming loans, past-due loans, charge-offs and nonperforming assets in our legacy markets. For future reference, the Company's legacy markets exclude the Georgia markets we entered in connection with the Crescent Bank & Trust transaction.

In addition, we opened a new full-service banking location during the quarter in the Golden Triangle market of Columbus, Mississippi.

Reflecting our financial performance for the fourth quarter of '10, net income was approximately $4.7 million, as compared to approximately $4 million for the same period in '09. For the year 2010 net income was approximately $31.7 million as compared to $18.5 million for '09.

Basic and diluted EPS were $0.19 for the fourth quarter of '10 and the fourth quarter of '09. Basic and diluted EPS were $1.39 and $1.38 respectively for '10 as compared to basic and diluted EPS of $0.88 and $0.87 respectively for '09.

For '10 deposits were $3.47 billion as compared to $2.58 billion for '09. The Company's cost of legacy deposits for the fourth quarter of '10 was 125 basis points compared to 143 basis points for the third quarter of '10 and 167 basis points for the fourth quarter of '09.

We experienced strong core deposit growth in our legacy markets as evidenced by increasing year-over-year deposits by 28%. Our increase in core deposits enhanced our ability to reduce our cost of funds, as we were able to replace higher cost in borrowings, public funds and certificates of deposit.

Total loans were $2.52 billion at the end of 2010 as compared to $2.58 billion at the end of the third quarter of '10, and $2.35 billion at December 31, 2009.

Loans from the Company's legacy markets were $2.18 billion for the fourth quarter of '10 as compared to $2.22 billion at September 30, 2010. The decrease in total loans in our legacy markets during the fourth quarter of '10 is a result of the Company's continued efforts to reduce its exposure to residential construction and land development loans, which decreased by $144.4 million, or 34.8%, at December 31, 2010, as compared to the balance at December 31, 2009.

Loans related to the Company's acquisition of Crescent Bank & Trust covered under the FDIC loss share agreement were approximately $334 million. Total assets of December 30, 2010 were approximately $4.3 billion as compared to approximately $3.64 billion as of December 31, 2009.

Shareholders equity was $469.5 million at December 30, 2010 as compared to $410 million at December 31, 2009.

As of December 31, 2010 the Company's regulatory capital ratios were in excess of regulatory minimums required to be classified as well-capitalized. The Company's Tier 1 leveraged capital ratio was 8.97%. It's Tier 1 risk-based capital ratio was 13.58%, and its total risk-based capital ratio was 14.83%.

Net interest income was approximately $29.9 million for the fourth quarter of '10 as compared to $24.8 million for the same period in '09. Net interest income was approximately $105.1 million for '10 as compared to approximately $99.5 million for '09.

Net interest margin was 3.43% for the fourth quarter of 2010 as compared to 3.22% for the fourth quarter of '09 and 3.12% on a linked quarter basis. For 2010 net interest margin was 3.26% as compared to 3.16% for '09.

As a result of following our strategic plans of decreasing rates on time deposit renewals, deploying excessive cash and paying off high cost in Federal Home Loan Bank advances, we were able to increased margin by 31 basis points on a linked quarter basis.

During the fourth quarter of '10 net charge-offs as a percentage of average loans were 80 basis points as compared to 83 basis points for the same period in '09 and 118 basis points on a linked quarter basis. Net charge-offs as a percentage of average loans for the year ending December 31, 2010 were 100 basis points as compared to 91 basis points for '09.

The Company recorded a provision for loan losses of approximately $30.7 million and $5.5 million for the year and quarter ending December 31, 2010, respectively, as compared to approximately $26.9 million and $7.8 million for the year and quarter ending December 31, 2009, respectively. The provision for loan losses for the third quarter of 2010 was $11.5 million.

The loans acquired in the Crescent acquisition where recorded at fair value, which have been written down to reflect estimated credit deterioration. Therefore, in accordance with generally accepted accounting principles the Company did not assign any further allowance for loan losses to these acquired loans.

Excluding the Crescent loans, the allowance for loan losses as a percentage of total loans was 2.07% at December 30, 2010 as compared to 1.67% for December 31, 2009 and 2.02% on a linked quarter basis.

Within our legacy markets nonperforming loans, which are loans 90 days or more past due and nonaccrual loans, where $53.9 million at December 31, 2010 as compared to $65.6 million at September 30, 2010 and $50 million at December 31, 2009. Excluding the Crescent loans, nonperforming loans as a percentage of total loans were 2.46% December 31, 2010 as compared to 2.94% September 30, 2010 and 2.13% as of December 31, 2009.

Loans 30 to 89 past-due as a percentage of total loans in the Company's legacy markets decreased to 99 basis points at December 31, 2010 from 1.06% at December 30, 2010 and 1.02% on December 31, 2009.

Nonperforming loans covered under the loss share agreement with the FDIC in our North Georgia markets were $82.4 million on December 31, 2010.

Our credit administration team has worked hard to reduce our exposure to residential construction and land development loans. Through these efforts we were able to reduce both our charge-offs and our provision for loan losses on a linked quarter basis. In addition, it is worth noting that our nonperforming loans were at their lowest level in a year.

Legacy market and other real estate owned was approximately $71.8 million on December 31, 2010 as compared to approximately $62.9 million September 30, 2010 and $58.6 million on December 31, 2009. The increase in OREO continues to reflect the Company's efforts to resolve problem loans by taking possession and managing the disposal of underlying properties.

The Company continues to aggressively market the property held in our other real estate owned, as evidenced by the fact we sold approximately $28 million of OREO during '10 and $9.6 million during the fourth quarter of '10. We currently have in excess of $4 million under contract. Other real estate owned covered under the loss share agreement with the FDIC was $54.7 million at December 31, 2010.

For the fourth quarter of '10 noninterest income was approximately $14.6 million as compared to $13.4 million for the same period in '09. Excluding the one-time gain of $42.2 million related to the acquisition of certain assets of Crescent Bank & Trust in the third quarter of '10, noninterest income was $12.3 million for the third quarter of '10 and $53.7 million for the year 2010.

We experienced a linked quarter increase in noninterest income related to insurance, trust and mortgage operations. And we continue to focus on growing these key sources of revenue.

Noninterest expense was $32.2 million for the fourth quarter of '10 as compared to $25.6 million for the fourth quarter of '09 and $39.6 million on a linked quarter basis. The year-over-year increase in noninterest expense is primarily due to the Crescent acquisition.

Excluding the one-time items of $2 million in merger expenses related to the Crescent acquisition, and $2.8 million related to a prepayment penalty on Federal Home Loan Bank borrowings incurred during the third quarter of '10, noninterest expense was $34.8 million for the third quarter of '10 and $118.9 million for the year ending 2010.

Noninterest expense for the fourth quarter of '10, including operating and conversion expenses associated with our North Georgia markets, for Renasant in 2010 was a successful year. Some of our most notable achievements included our expansion in North Georgia through the acquisition of Crescent Bank & Trust's 11 locations in an FDIC-assisted transaction.

We opened three new full-service de novo locations in the markets of New Albany, Mississippi, which is one of the three Mississippi towns most impacted by Toyota and its suppliers; Columbus, Mississippi, which is an integral part of Mississippi's dynamic Golden Triangle area; and in the Mountain Brook area of Birmingham, Alabama. Each of these locations strategically positions us in emerging southern market areas.

We also grew net interest margin while we decreased exposure to construction and development loans by 34.8%, and sold $28 million of other real estate. We completed a private placement of 3.9 million shares of common stock, resulting in proceeds to the Company net of issuance costs of $51.4 million. The proceeds from the private placement further enhance the Company's strong capital position.

Throughout 2010 we were able to continue to pay dividends to our shareholders and maintain our capital ratios in excess of regulatory well-capitalized threshold. In total, we believe these accomplishments, along with the integration of our North Georgia markets, our increase in net interest margin, and our improving credit quality metrics have positioned ourself for a strong year going forward in 2011.

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

(Operator Instructions). Catherine Mealor, KBW.

Robin, can you talk a little bit about the inflows and outflows of the NPLs, particularly the inflows into OREO, and what loan type you were seeing? Is this mostly residential construction or land coming into your OREO balances?

Sure, Catherine, I'm going to let Smokey answer that question.

We had $21.2 million flow out of NPLs and $9.6 million flow in for a net reduction of $12 million. In OREO we had about $18.9 million come in and about $9.6 million go out. Plus we had a $400,000 impairment on a piece of property that we auctioned that was auctioned in December but won't actually close until January. So that net increase was $8.9 million.

To give you a little bit of color of what went into OREO, we had actually -- and these are the more significant dollar amounts -- we actually had about $8 million in some commercial properties. There were about four large commercial properties, one of which was an automobile dealership, and it has already been sold. It was sold almost as soon as we put it on the books. We did not lose anything on that sale.

Then the rest of it was, as you would expect, residential lots, some of which we took as deeds in lieu in some workout plans. And that was about $5 million of the $13.4 million significant increases there.

We still see continued pressure on the C&D portfolio. But it was interesting to see that out of that $13 million or so that I just mentioned probably, I guess, that is about 65%, 70% of it were actually commercial properties. And we look at that as really as a positive sign, because we are able to move the vertical stuff a lot quicker than we do the -- than we can the lots.

Okay, great. About what is your OREO currently marked at as a percentage of original par value? I am sure it is different for every loan category, but about on average?

Is that as to original loan amount?

Yes, the original loan amount.

It would be a fairly significant discount. I couldn't give you that off the top (multiple speakers).

Yes, I can't give you that off the top of the head. I can tell you that when we buy them in we try to make sure that we can buy them in based upon the new appraisal prior to foreclosure, and an amount that we can move them out without significant additional loss. For the last several years that loss on the sales has been below 5% of what we put them on the books at.

Okay, great. Do you have the balance of TDRs for the quarter?

Yes, I do. They were about $34.8 million. They are up slightly from the end of September, but overall I would consider them really remaining flat based on some activity that has occurred since the end of December.

Okay, great. I will let some others jump on for questions. Thank you so much.

Andy Stapp, B. Riley.

Just a follow-up question on the TDRs. How much of those are in nonaccrual?

None of those (multiple speakers).

They're not included -- none of them are included in non-performing assets?

Very few of them are even past due.

The way we do it, if they are nonaccural we put them in NPLs.

Okay.

TDRs are loans that have some interest rate. And probably the biggest concession we make will be on interest rate, but we don't -- if there is not some performance ability in our TDR list they move to NPLs.

Okay. Can you give us an update on Reg E? Are you getting any more opt-rins or is this pretty much stalled?

I'm going to let Jim Gray answer that.

As far as opt-ins on existing accounts that has pretty well died down. We are really not getting any more there. We are really not pursuing any more. On new accounts we are probably getting close to 50% new account opting in, which is pretty much in line with our experience on the existing accounts. Just the dollar impact to the deposit fee -- (inaudible) fee income for the fourth quarter running about 5%, 6%, which is pretty much in line with our projections -- about a 5% or 6% decline.

Okay. What do you expect the effective tax rate to be in 2011?

Kevin Chapman will answer that.

The effective tax rate for moving into next year is probably going to be somewhere between 28% and 30%.

Okay, great. I will hop back into the queue. Thank you.

Dave Bishop, Stifel Nicolaus.

A question for you, and sort of circling back to Catharine's question there in terms of the real estate owned. In terms of the composition of that portfolio are there some -- what is your sense in terms of maybe the duration in some of maybe the more hairy problem assets there, you know, probably the residential loss but not much vertical? Are you seeing any sort of change in the appetite for those types of properties out there in the secondary market? I am just trying to get a sense of is this something you are just going to have to live with for an extended duration or period of time?

A little over $30 million of the total is in the residential development type lots. The other $40 million is in what we consider to be probably marketable type property. We are seeing some slight improvement in the residential lots, but it is not in bulk type sales, but individual type sales.

We have gotten aggressive in our marketing efforts. Chris Rogers, who is an appraiser by trade, is over our central appraisal group -- also has taken over the other real estate portion and has done a very good job of getting a lot of this property marketed, more so than we have done in the past.

We feel like that we will see a good portion -- as I mentioned, we already have $4 million under contract. We had a large track of farmland that -- or actually timberland that was under contract and is not closed yet. It is going to be remarketed but with a lot of interest in it that is not part of that $4 million.

So we have a lot of interest in a lot of our property right now. That $30 million of development lots we feel will be the part that will take longer to market.

Great. Sort of another angle here in terms of the merger and acquisition front, given the closing of the books in 2010. Are you seeing -- is the call volume picking up, maybe not from so much from a distressed institution that might be on the FDIC watchlist, but more of an institution that is just hitting a revenue growth [long]? Would a relatively cheap hold bank position enter the lexicon potentially during the year?

I think there is more of that out there right now. Obviously from the latter that you spoke of -- distressed from a revenue standpoint we would be somewhat more interested in than the distressed institution at this stage of the game. We are still seeing FDIC opportunities out there and would obviously be interested in our footprint in those.

Got you. Great, thanks, Robin.

Bill Young, Macquarie.

I may have missed this in the beginning; if I did, I apologize. What is your near to intermediate term outlook for the margin? It just looks like there may still be some additional either short-term investments or liquidity that could runoff that could help offset any lack of loan growth. Could you just talk about what some of the drivers there that you see?

Jim will answer that for you, Bill.

Yes, we do see some further improvement in first quarter. We have some take-charge CDs in our legacy market. We mentioned we had some of those in the fourth quarter. We probably got another [100 million or so] in the first quarter that will be rolling off. Those are at -- in the high 2% rates. And we had been repricing -- renewing CDs either going -- those dollars are either going into core deposits or renewing in maybe the 70, 75 basis point range. So some additional improvement there.

We do believe we still have some further deposit right reductions that can occur in Georgia in the first quarter. Now that we've got the conversion complete and got some of our legacy products introduced into Georgia that will give us some room there.

Then, as you mentioned, the excess cash deployment, probably $100 million to $150 million that will either be going into -- in the investment portfolio or used to cushion any deposit runoff that may occur as we reduce rates. So some positive impact in first quarter.

Okay. Any thoughts about if there isn't -- are you willing to hold on to a portion of that, of any liquidity for future loan growth, or are you just willing to deploy on the securities now?

No, as I mentioned, we probably at the end of the quarter had $200 million plus in investable cash, and we will not deploy all of that. We will keep some of that as a cushion for rate sensitivity, and also because we do anticipate loan growth and hold some of that back for loan growth. And we are showing again a good loan pipeline. Mitch, you want to comment on that?

Currently in our new loan pipeline we are at $55 million, with $43 million of that being in the next 30 days. And if you look at that by region, about 51% is in Alabama, about 21% in the Tennessee markets, about 17% in Mississippi, and 11% in Georgia. And we continue to see the loans in discussion increase in that pipeline.

What kind of loans generally are in that pipeline?

More C&I (multiple speakers) commercial type loans.

Great. And then did you quantify the amount of OREO write-downs that were in other expenses this quarter?

During the year it was about $3.7 million. This quarter it was --

400.

$400,000.

It was on that one option.

Great.

That was the one that Harold mentioned a while ago that we actually had auctioned the property in December, but it is closing in January. We went ahead and impaired it for the amount of the loss.

Got you, got you. My last question, it looks like your AOCI position may have been under a little bit of pressure this quarter. Could you maybe talk about what some of the drivers there were?

The majority of that came from the fair value mark on the security portfolio. With rates going up security values went down a little bit and that was about $8 million, but it was all interest rate driven.

Got you. Great, thanks guys.

(Operator Instructions). Joe Stieven, Stieven Capital.

My question from a bigger picture, you know, you guys have been successful on the FDIC front. With the analysis that you guys have done, what do you think your, let's say, potential target list looks like? Just in broad numbers, is it 20 or 30?

Then just your big picture thoughts, if you think some of it is going to start accelerating and are you guys ready to go again?

We feel like target lists, and we are talking both open and FDIC-assisted, would be in the 20 plus range that we see as opportunities. And that list is growing as we continue looking at it.

We do believe that there are going to be a lot of opportunities out there. There will be a continuous stream of FDIC opportunities. We think in Georgia, obviously, there are going to be several more opportunities there. We do feel like there'll probably be some in a couple of the other states that we are in too, but not nearly of the same volume as in Georgia.

We have obviously looked at and will continue to look for opportunities on the open bank front. And just not saying we would do anything in the immediate future, but are obviously strategic in our thought processes there and we would be opportunistic if the chance comes.

Robin, I guess this is just a definitional question. When you say open bank front do you mean companies that are surviving but they're not going to prosper, so they're going to be willing to take a discounted deal? Is that what you are talking about when you say open bank?

Yes, and that would be for one or two reasons. It would be -- there are going to be a lot of banks, I think, Joe, that are smaller that the impact of Dodd-Frank is going to have a huge percentage impact on their revenue. Therefore -- both from the revenue side and the expense side. I think there'll be some opportunities there for banks the size that we are. I think a lot of larger banks wouldn't be interested in banks this size, but I think we would be a nice fit for a lot of these companies.

Also, there will be other opportunities of larger banks and banks of that size too that are stressed to the extent that at some point in time we may feel comfortable with what their credit marks are and be able to go in and maybe work out some sort of merger with one of those institutions.

We are continually looking for the opportunities, obviously, on the FDIC front. The loss share that the FDIC offers you is certainly attractive as opposed to the open bank transaction of a troubled bank.

Okay, Robin, thank you and good quarter.

Thanks a bunch, Joe.

Andy Stapp, B. Riley.

Just a few follow-up questions, one on the loan pipeline. What was that at the beginning of the quarter?

At the beginning of the quarter, the total pipeline was $55 million, with $43 million of that being in the next 30 days.

Okay, I thought that was the end of Q4. I'm just trying to see how much it has gone up from Q3.

Are you talking about the beginning of Q3?

Beginning of Q4. (multiple speakers).

I would say it is probably up slightly. We are -- as I say, we are continuing to see loans in discussions. We are continuing to see that growth in each of our regions.

Okay.

I think the key thing to loan growth is going to be -- we closed about $400 million of new loans last year, and so a net decrease in loans. I think one of the things that we're going to be seeing over the course of 2011 is fewer loans that are going away, and so therefore the net result is going to be loan growth for the year.

We think that our loan pipeline is going to be very good on a monthly and quarterly basis. We are continuing to see opportunities out there. It is very competitive out there right now rate-wise, but we are seeing a lot of opportunities out there.

So I think the key element is going to be the retention, or lack of charge-off, I guess, would be another way of putting it, as we move forward. We have been very, as you know, very intentional in our process of getting out of the construction and development business, as evidenced by $143 million of those loans going away during the course of this year.

Okay, and then a similar question, the mortgage banking pipeline, how does that compare quarter to quarter?

This is Jim. The mortgage pipeline has slowed down. As you know, with the 10 year dropping down to 2.5 in the fourth quarter we had a pretty good little mini refi boom. But with the ten-year back up now, the refi pipeline has slowed down and so, yes, I would anticipate a slower volume in the first quarter.

But just talking about mortgage banking, we are in the process of beefing up our Georgia production staff. Georgia really didn't have much in the way of mortgage production, although we feel there is still a lot of opportunity over there. So, hopefully, we could beef up our Georgia production staff and increase our Georgia volume to offset some of the decrease in the refi volume legacy market.

Okay, that's helpful. What are your thoughts about increasing the dividend and/or reinstituting share buybacks?

We don't see the latter happening anytime soon. We obviously will continue monitoring our dividend, and as our earnings continue to improve, we certainly will look at the dividend, but I don't see that happening in the immediate future.

Okay, all right, thank you.

Let me clarify something too on Joe's question, something I left out of that mix that we think is extremely important. That with all of the acquisition activity going on, FDIC and open bank transactions, one of the things, and we just mentioned our Columbus, Mississippi office that we opened, we will certainly look at de novo opportunities in the markets where there is a lot of disruption going on.

We feel like in a lot of those markets we don't have to buy a bank in order to benefit. That a lift out and taking advantage of that disruption is something of great advantage to us.

And Smokey slipped me a note of a second thought that he had a while ago -- or a comment that he wanted to clarify. His answer to Katherine on TDRs was based on the legacy bank and was not inclusive of the Georgia bank. Also, this was true with NPLs and TDRs and OREO too.

Well, we are showing no further questions at this time. We will go ahead and conclude our question-and-answer session. At this time I would like to turn the conference back over to Mr. McGraw and management for any closing remarks.

Thank you, Mike. And we appreciate everybody's time and interest today in Renasant Corporation. And thanks for bearing with me with my voice today. Thank goodness I had a lot of help on answering questions. We look forward to speaking with everyone again in the near future.

We thank you for your time, sir. This will conclude today's teleconference, and we thank you all for attending. At this time you may disconnect your lines. Thank you.