Renasant Corp (RNST) 2015 Q2 法說會逐字稿

Good morning and welcome to the Renasant Corporation 2015 second-quarter earnings conference call and webcast. (Operator Instructions). Please note that this event is being recorded.

I would now like to turn the conference over to Mr. John Oxford, Vice President, Director of Corporate Communications. Please go ahead.

Good morning and thank you for joining us for Renasant Corporation's second-quarter 2015 earnings conference call. Participating in this call with me today are members of Renasant Corporations' executive management team.

Before we begin let me remind you that some of our comments in 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 fluctuations; regulatory changes; portfolio performance and other factors discussed in our recent filings with the SEC. 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.

Now I will turn the call over to Renasant Chairman and CEO, Robin McGraw. Robin?

Thank you, John. Good morning, everyone, and welcome to our second-quarter 2015 conference call.

We are pleased with our second-quarter financial results which were highlighted by 16.37% annualized linked quarter non-acquired loan growth and strong revenue growth driven from our mortgage operations. Net income for the second quarter of 2015 was $15.4 million or basic and diluted EPS of $0.49 and $0.48 respectively as compared to $14.9 million or basic and diluted EPS of $0.47 for the second quarter of 2014.

During the second quarter of 2015, we incurred merger expenses of approximately $1.5 million or $906,000 on an after-tax basis which equated to $0.03 of diluted EPS which were related to the Heritage merger which we did complete on July 1.

Focusing on profitability for the quarter, our reported diluted earnings per share was $0.48. Excluding merger expenses related to the Heritage merger, operating EPS was actually $0.51 which was a record quarter excluding quarters which we recognized one-time gains associated with acquisitions.

For the second quarter of 2015, our return on average assets and return on average equity were 1.06% and 8.42% which includes the aforementioned merger expenses. Excluding merger expenses, our ROA and ROE were 1.12% and 8.92% respectively. This marks the fifth consecutive quarter that we have achieved greater than a 1% return on assets.

Total assets as of June 30 of 2015 were approximately $5.90 billion as compared to $5.81 billion that year-end.

Total loans including loans acquired in either the First M&F merger or the FDIC assisted transactions which we refer to collectively as acquired loans, were approximately $4.04 billion at June 30, 2015 as compared to $3.95 billion on a linked quarter basis and $3.99 billion at year-end. Excluding acquired loans, loans grew at an annualized rate of 16.37% to $3.41 billion on a linked-quarter basis and grew 8.67% on an annualized basis from Q4 2014.

Breaking down loan growth on an annualized basis as compared to year end, our Alabama market grew loans by 3%, our Mississippi market increased loans by 15.4% and our Tennessee market grew loans by 3.6%. In Georgia, we grew loans by 17.5%.

Looking ahead, our loan pipelines and opportunities to grow throughout all of our markets project more pronounced loan growth for the remainder of 2015.

Total deposits were $4.89 billion at June 30, 2015 as compared to $4.84 billion at year end. Our cost of funds was 40 basis points for the second quarter of 2015 as compared to 48 basis points for the same quarter in 2014. The decrease in cost of funds is the result of time deposit repricing and our continued improvement in our funding mix.

In regards to our funding mix, non-interest-bearing deposits averaged approximately 20% of average total deposits for the second quarter of 2015 as compared to approximately 18% for the second quarter of 2014.

At June 30, 2015, our Tier 1 leverage capital ratio was 9.90%, our Tier 1 risk-based capital ratio was 12.52%, and our total risk-based capital ratio was 13.54%. Our common equity Tier 1 capital ratio was 10.44% and our tangible common equity ratio stands at 7.78% at quarter end.

In all capital ratio categories, our regulatory capital ratios continue to be in excess of the regulatory minimums required to be classified as well capitalized.

Net interest income was $51.7 million for the second quarter of 2015 as compared to approximately $52.2 million for the second quarter of 2014. Net interest margin was 4.17% compared to 4.24% for the second quarter of 2014. Additional interest income recognized in connection with the acceleration of paydowns and payoffs from acquired loans was $3.6 million in the second quarter of 2015 compared to $3.5 million for the same quarter of 2014. This additional interest income increased margin in both quarters by 28 basis points.

Noninterest income increased 17.70% to $22.9 million for the second quarter as compared to $19.5 million for the second quarter of 2014. The increase in noninterest income was primarily attributable to the growth in the Company's mortgage operations. Noninterest expense was $51.2 million for the quarter as compared to approximately $49.4 million for the second quarter of 2014.

In addition to our merger expenses, the increase in noninterest expense was primarily attributable to an increase in salary and the employee benefits due to higher levels of commissions paid in our mortgage banking division. At June 30, 2015, nonperforming loans which are loans 90 days or more past due and nonaccrual loans were $44.3 million and OREO was $27.1 million. Our nonperforming loans in OREO that were acquired either through the First M&F merger or in connection with the FDIC assisted transactions which we collectively refer to as acquired nonperforming assets, were $23.1 million and $12.1 million respectively at June 30, 2015.

Since the acquired nonperforming assets were recorded at fair value at the time of acquisition or subject to loss share agreements with the FDIC which significantly mitigates our actual losses, the remaining information in this discussion on nonperforming loans, OREO and the related asset quality ratios excludes these acquired nonperforming assets.

Our nonperforming loans were $21.2 million at June 30, 2015, as compared to $20.2 million at year end. The increase in NPLs was due to a $2.8 million matured loan that was carried as 90 days past due at June 30, 2015, but was paid off in full subsequent to the quarter end. Nonperforming loans as a percentage of total loans were flat at 62 basis points as of June 30, 2015 compared to year end. Excluding the aforementioned NPL that was paid off after quarter end, NPLs as a percentage of loans were 57 basis points.

Annualized net charge-offs as a percentage of average loans were 16 basis points for the quarter as compared to 23 basis points for the second quarter of 2014. We recorded a provision for loan losses of $1.2 million in the second quarter as compared to $1.5 million for the second quarter of 2014. The allowance for loan losses totaled $41.9 million or 1.23% of total loans at June 30, 2015, as compared to $42.3 million or 1.29% at year end.

Our coverage ratio or our allowance for loan losses as a percentage of nonperforming loans was 197.95% as of quarter end as compared to 209.49% at year end. Loans 30 to 89 days past due as a percentage of total loans were 19 basis points at June 30 as compared to 32 basis points at year end.

OREO was approximately $15 million at quarter end as compared to $17 million at year end. OREO under contract to sell it quarter and was $1.4 million. We continue to see many opportunities on the horizon, specifically strong commercial loan pipelines which support our annual loan growth goals and a robust mortgage loan pipeline both of which should drive continued revenue growth.

As of July 1, we have approximately $7.77 billion in total assets with 171 banking, mortgage, wealth management investment insurance offices throughout the five southeastern states of Mississippi, Tennessee, Alabama, Georgia and Florida.

Looking forward and with the addition of the Heritage team, its customers and operations, we are going to continue to be well positioned to accelerate profitability and earnings growth which in turn we believe will generate more shareholder value.

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

(Operator Instructions). Catherine Mealor, KBW.

Good morning, everyone. I just wanted to dig into the margin a little bit and I know we had talked about this before but you have in the past given us three pieces of your margin, your core margin and then accelerated fair value accretion and then the normal fair value accretion. And that normal piece you have said has been about 15 basis points or so historically. Is that still at this current level or does that come down a little bit this quarter because it looks like the core margin fell linked quarter. But I am wondering if a little piece of that was also a decline in the normal fair value accretion?

Catherine, the interest-rate mark, that is a number that will decline over time. We are two years into the Heritage acquisition and that number has started -- I am sorry, the M&F acquisition -- that interest rate mark has started to decline. In the earlier periods, it was 15 basis points. This quarter it was in the 12 -- 10 to 12 basis point range so it did pull margin down a little bit.

A couple of other factors impacting margin is a little bit of a mix change. Our mortgage loans held for sale, the balance of that if you look on the average balance side is up about double and those loans have an average yield of somewhere between 350, 375 and that is also pulling margins down a basis point or two.

So there is a little bit of a mix change and we made a cognizant decision to hold onto those mortgage loans held for sale. Typically our turnover, our inventory turnover in the held for sale bucket is about 30 days historically. We have been holding onto those loans in the more 45 to 60 days to really just pick up additional interest income that isn't impacting pricing upon sale. So it is just a way for us to hold onto those loans and just pick up a little bit more interest income spread for the time that we have them. That did pull margin back like I said a basis point or two.

The other margin compression is what we have discussed in the past and that is what we are seeing just with loan repricing and really competitive factors that are driving loan yields down. We continue to see new levels of irrational loan pricing in the market. I'm not going to say that we are participating in that but we are defending relationships, long-term existing relationships against what we think will be short-term irrational decision-making going on at some competitive banks.

How should we think about the outlook for the direction of the core margin and then your reported margin once we have -- including the accelerated accretion and then HBOS coming on next quarter?

The reported margin won't change significantly and let me also disclaim that we are still finalizing all of our fair value marks, interest rate, credit marks but based on our early projections and then what we have seen -- and changes in interest rates or changes in credit profile, I think our reported margin will be very similar to what we are reporting now. After we back out additional interest income from credit reserve release, I still think we will be in that 390 range as far as a going forward margin.

Again, factors that will impact that is what we are seeing in loan yields that continue to compress margin 2 basis points, 2 to 3 basis points per quarter.

Got it, okay. That is very helpful. Thank you.

Emlen Harmon, Jefferies.

Was hoping you could maybe a little early on this but hoping you could provide us with an update on earnings at Heritage in the second quarter. I don't know if you guys have a rough idea on net income. Just also be interested to hear how the mortgage business did there in Q2?

Since they have not announced earnings I think it wouldn't be appropriate for us to comment on that right now. But we can say that their mortgage production was higher than expected. Loan production was at the levels that we did anticipate.

I will just add to that, Emlen, if you look, they will be filing a call report, they won't be filing a 10-Q but they will be filing a call report. And one thing that we were pleased with is just as Heritage went through what was a very vulnerable time for them that six month period where we went from announcement to closing, they did experience balance sheet growth, balance sheet growth in line with what we were projecting. The mortgage operations, as Robin mentioned, are performing better than we anticipated.

If you look specifically at the Q2 call report, you will see some noise in there much like we experienced in Q2, they will have merger expenses. But overall, their operations are in line with what we projected back in December when we were doing our due diligence.

Got it. Thanks. And then just on the expenses, you guys had attributed some of the salaries and benefits increase to mortgage commission. It seems like the expense there kind of outstripped kind of what we saw in mortgage revenue growth. I guess two questions. Kind of what was the overall profitability change in mortgage quarter over quarter? And then just anything else underlying the expense trend in that salaries and benefits line?

There is a couple of other items in salaries and employee benefits and if we compare Q2 of 2015 expenses to Q2 of 2014 expenses, the big difference there is the mortgage pipeline, the mortgage commission. If we look at a linked quarter basis, there are a couple of more factors in the equation. Mortgage commissions are up about $600,000 against revenue increases of over $1 million.

There is also some other variable costs. Our loan production was up. We had strong loan production and as a result, lender incentives were up as well as just overall corporate incentives. We are on target to be slightly ahead of corporate targets so also some variable costs in the form of incentive comp.

All of those combined equate it to about $1.2 million to $1.3 million in additional expense and that would be lender, mortgage and corporate incentives.

Another thing that I think worthwhile to note that is skewing -- that is showing maybe a higher increase in salary employee benefits that isn't evident is as we approach the Heritage merger closing at Renasant, we start adding employees that were lost on the Heritage side. We had planned on retaining some of these employees at Heritage and they ultimately took opportunities elsewhere and that necessitated us to go ahead and hire individuals. I can tell you for example in the accounting department, we had slotted to keep three people that ultimately were not retained at Heritage. We replaced all of those individuals on the Renasant side at the end of Q1, beginning of Q2.

So we have already got some of our Heritage expense embedded in our run rate that upon closing will -- the offset to that expense is over on the Heritage side. And to quantify that and this is primarily in the back office area being compliant, it would be some in loan review, some in accounting, to quantify that impact for the quarter is probably upwards of -- quarterly impact is upwards of $200,000 to $300,000 of an impact.

This is Jim Gray. You had asked about profitability of mortgage quarter to quarter. Q1 mortgage pretax net income was $1.735 million; Q2 mortgage pretax net income was $2.886 million. So the revenue did far outstrip the increase in expenses.

Perfect. Thank you.

Michael Rose, Raymond James.

I missed some of your prepared remarks, I jumped on late but can you give us some color on where the loan pipeline is and maybe how that compares to last quarter? And then if you didn't touch on it already, maybe if Mike Ross is there, he can't comment on loan growth by market. Thanks.

Sure. Mitch Waycaster can give you a comment about the pipeline.

Michael, the 30-day loan pipeline is $146 million. Premerger the pipeline at quarter end was $115 million which was an increase from $85 million the last quarter end which Heritage adding an additional $31 million.

If you break down the $146 million pipeline by state, 17% would be in Tennessee; 25% in Alabama; 22% in Georgia; 34% in Mississippi, and 2% in Florida. We believe this pipeline should result in approximately $48 million in growth in non-acquired loans in the next 30 days and of course at $146 million, we continue to experience strong pipeline as we enter the third quarter and expect continued healthy loan growth.

Michael, as far as the loan growth by region, Alabama grew right around 3%; Tennessee was up 3.5%; Mississippi was up a little over 15%; and Georgia was up a little over 17%.

Okay. Did any of the specialty businesses drive the growth in any of those markets?

Yes, actually a decent amount of the growth in Georgia was attributed to the ABL team and then the leasing team actually contributed a decent amount of the growth in the Alabama franchise.

Okay. And then just one more for Mitch I guess on the HBOS pipeline, it looks like you said $31 million as of now. Is that kind of in line with your expectations and maybe how does that compare to the other pipelines over the past few quarters? Thanks.

Michael, I would say it is certainly is in line and Len Dorminey is in the room. Len, do you want to comment on the past?

Sure. Michael, let me just address in general the transition. It is going very well. We haven't lost any production people. In fact, as Kevin said, we are experiencing loan growth so the pipeline is continuing to grow. We are very pleased with it and so we think it is not only in line but will continue to stay that way after the merger, which is important.

Mike, let me let Mike Ross talk a little bit about a new individual in one of our specialty commercial lines.

We are real excited. We have added a gentleman by the name of Craig Gardella to our team. He is going to work out of Nashville and he is going to head our healthcare banking division for the company. And Craig, he has only been on board for a little less than six weeks and we have already got a very robust pipeline.

A lot of the numbers that were not in the numbers that Mitch gave you because what Mitch gives you is already approved and accepted. But we have got a very robust list of opportunities within the healthcare space already that we feel very good about being able to convert. So that would actually be an addition to those numbers that Mitch gave you if we are successful in converting some of those.

The other piece on that is we actually also added a gentleman by the name of John Teasley to our credit organization and he has a very extensive background in healthcare banking. So those two as a team we feel very, very good about.

Okay great, guys. Thanks for taking my questions.

Brad Milsaps, Sandler O'Neill.

Good morning. Kevin or Robin, just wanted to follow up on the expense question, just curious, anything changed with your outlook on potential cost savings from the HBOS deal and the timing of how those might flow through?

Secondly, I know you guys had laid out some efficiency goals, any update on those? I know it is going to be muddled for the next couple of quarters and then you throw in more mortgage, it is going to look skewed as well. So just any updates on efficiency goals and how you see those cost saves flowing through the income statement would be great.

Let me comment first and then I'm going to let Kevin get a little more granular on it. Brad, as Kevin mentioned a while ago, we have already made some hires here so I guess as you look at it, the cost saves coming from Heritage following the quarter end will be a little bit more. But it will be offset by the increases here. But we do anticipate cost saves being about where we looked at them from day one I think going forward in that particular regard. Kevin, do you want to --?

To just reiterate what Robin said, our total expense save number hasn't changed. Probably what has changed is just the realization and the timing of the realization. I think we were projecting to realize about 75% this year. The realization rate will be higher so we won't realize 100%. We won't have our first look at a true run rate including all expense saves until Q1 of next year. But with the attrition that we have seen particularly on the back office side at Heritage preacquisition, that will accelerate some of the cost savings.

All right, Kevin. Any update in terms of kind of what maybe Q1 type efficiency ratio you guys might be targeting once the companies are -- you kind of get a cleaner quarter or looking out further than that?

Just going back to what we have said in the past our goal is to get below 60 on the efficiency ratio. Heritage will slow the decline of that. Just the amount of fee income that they have; they've got a large mortgage group. That will slow the pace of the decline but we still our trajectory will still be a declining efficiency ratio with our stated goal of as we get into -- our run rate for 2016 will be sub 60. The Heritage acquisition won't prohibit us from getting to that but it will slow the pace that we are able to decline that ratio.

The offset of that is that with mortgage it is a little less efficient, the profitability of it is significantly higher, the amount of capital we have to tie up in that operation is far less than the capital we have to tie up in the core commercial bank.

Great. Thank you, guys.

Kevin Fitzsimmons, Hovde Group, LLC.

Good morning, guys. Kevin, what you were commenting on earlier about the yield pressure and the competition you guys are seeing, can you just dig into that a little more in terms of what geographies or what loan types or what size loans that is most prevalent in just to get a sense of where it is really coming from? Thanks.

I will. Let me give you just some top of the house information and then I will let Mike Ross give a little bit more detail on specifically where and what types. I will make a general statement that it is everywhere. What used to exist in more metropolitan markets as far as what we would deem to be irrational pricing has now seeped into every market that we are in.

If you look at our new and renewed loan portfolio, the new and renewed rates that we saw were in the [425] range for this quarter. That compares to [430] in Q1 and Q4 and as we get to the early parts of last year, we were in the [450] range. We are still doing more variable rate loans than we have done historically. Our mix of variable and fixed was 60% fixed, 58% fixed and about 40% to 38% variable. But we continue to see the new and renewed yields come down primarily due to competition and that is again we think with the rates that we are seeing that it is short term but it is something that we are having to combat right now in all markets. Mike?

As Kevin said, it is fairly consistent across the board. We are seeing most of it is coming from frankly the larger super regional banks that we are seeing very intense pressure on long-term low fixed-rate financings and we are just not, we are not going to play in that arena and we are going to maintain our discipline in how we are going about approaching things.

We are defending relationships but clearly you can see from our numbers we are not getting down to the level of some of our competition on competing for loans. When we are winning loans, we are winning on relationship, we are not winning on price.

Okay, great. That is helpful. Robin, just a quick follow-up if you can now with the Heritage deal closed may be a bit early to bring up this topic but how do you think about the future timing, size, geography of the type acquisition opportunities you guys might attain or might look at? Thanks.

We definitely are looking within the Tri-State region that we are currently in for any future acquisitions. We feel like with the closing of Heritage, that we are in a position today that we can in fact start working with some partners within that region in order to maybe put together a merger. Size wise, our preference right now would with the less than $1 billion would not preclude us from looking larger as we go forward. But right now we are more in the less than $1 billion range.

How would you characterize Florida when you talk about the states in your footprint in terms of what might interest you or might just be off the table in that state?

Right now our interest probably lies down that 75 corridor as you look or maybe on over as you look from Tampa, Orlando, Jacksonville and up the corridor up to where we are currently in Ocala and in Gainesville. We think those are the markets that appear attractive to us in Florida. We think the Georgia markets especially Atlanta are still very attractive to us. We think the Tennessee market is very attractive to us since there are some attractive markets in the state of Alabama also.

Okay, great. Thank you.

David Bishop, Drexel Hamilton.

Good morning, Robin. Not sure if you touched upon this in the preamble but do you have the breakdown in terms of the mortgage banking production second quarter versus first quarter, maybe some numbers behind the details there?

Let me let Jim comment on that for you, David.

Yes, David, volume for the first quarter was $207 million, second quarter was $265 million. Just a little breakdown on that, first quarter our wholesale was 34%; retail was 66%. We were pretty much in line with that for the second quarter at 36% wholesale and 64% retail.

Looking at purchase refi mix, first quarter we were right at 50-50 purchase and refi. In the second quarter, our purchase volume had gone up to 65%; refi at 35%. So we saw a good increase and what was very encouraging about that that a lot of that increase came in purchase volume.

Just to give you a little bit of color on Heritage, the first quarter for Heritage -- and as we mentioned -- Heritage does have a large mortgage operation. Their second-quarter volume was $483 million. That is compared to a first-quarter volume of $447 million. Their mix for the second quarter 70% retail, 30% wholesale. So a little more on the retail side. And very encouraging and this is one thing that was very attractive with Heritage's mortgage operation, they are very much a purchase money shop, built that way with a number of standalone mortgage offices, they do have originators in the branch footprint as well but their purchase volume for the second quarter was 76%; refi 24%.

Great. Appreciate the detail. And then, Robin, maybe sort of looking out across some of the markets there as you look at maybe the corporate-wide total efficiency, in terms of some of the more recent de novo markets, are any of those sort of hitting -- I don't want to say critical mass -- but sort of the inflection point in terms of that 60% efficiency ratio? Are you seeing any of these markets sort of hit their critical mass and do you see a need to add capacity in some of the newer markets?

I think as you look, Dave, some of our de novos, the first de novos are beginning to hit that critical mass. We have historical Mississippi obviously with the combination of the growth that we have there and then the M&F merger, it has definitely hit the critical mass there and is doing very well.

By the same token, our Columbus market has and we have added a new main office. We started off in a very small branch facility there. We are in the process of building a new main office, not large but a new main office in the Columbus, Mississippi market. I think we are getting close in Montgomery and we just opened up our new main office in Tuscaloosa. Tuscaloosa has had remarkable growth and it was basically a loan production type office.

And Mike, do you want to comment on Tuscaloosa?

Yes, Tuscaloosa, we have continued to do very well. We have actually seen, since we opened up our new office, we have actually seen our deposit base start to grow and catch up with a little bit of the lending growth we have seen there.

Montgomery continues to grow. We have actually added one more team member there to the original team and we are seeing some good activity. Montgomery went over $100 million in loans during the quarter and we still see a very active pipeline there.

David, I would just add, we have seen some pickup in M&A throughout the system and that is creating opportunity to have conversations with other teams some end market teams where we already have existing locations either de novo or more legacy branches. But we are seeing more opportunity to add some more scale in all of our markets particularly higher growth metro markets.

East Tennessee is continuing to grow. I don't believe we have hit our critical mass there yet but we are looking for opportunities there to expand in those East Tennessee markets also.

Thank you, appreciate the color.

Matt Olney, Stephens Inc.

Thanks, good morning, guys. I appreciate the comments on the core loan yield pressure that you guys made and it sounds like you guys aren't too excited about participating some of the longer term fixed-rate deals. I want to get a better idea of what the strategic alternatives are to doing that. Should we be thinking that net loan growth could slow from recent levels if you are not willing to do some of those or is it more of a matter of the capital deployment alternative could lean more towards M&A than in the past? Any commentary on that?

I would just say it really hasn't changed our philosophy, Matt. We have analyzed capital to really identify where we are getting the best returns. But at the same time, I think we have realized that we have got to also protect long-standing relationships and that is not a change from our attitude of the past but it is requiring us to evaluate the total relationship and make sure that we are not taking hard-line stances purely for the sake of trying to build capital or looking at other investment alternatives that really would be the security portfolio for that cash.

So we are looking at the total profitability of the relationships rather than one-off loan transactions. But our allocation of capital hasn't changed. It will go to where we get the highest level of returns and that is a combination, that is a mixed bag, it is a combination of organic loan growth augmented by M&A as well as deploying it in new investment opportunities. Those investment opportunities will be additional team members or additional new markets but we look at all of those in total, that hasn't changed.

Yes, our philosophy hasn't changed since 2009 when we started the process of what we are doing. We are looking for the best way to deploy our capital and a combination of M&A and loan growth we feel have really been the two best methods along with adding talent in de novo markets over that timeframe.

I don't think that it is safe to make the leap that our loan growth should slow. Frankly our loan has continued just like it has for the last several years and this dynamic of the pricing pressure has really been there for quite some time now. So I think it is safe to assume we have continued to generate good loan growth and so we have no reason to believe that that won't continue.

If it is a good customer, we are in fact going to protect our turf as far as some of the pricing that is out there right now. But as far as being aggressive, trying to bring in new business at those levels we are not going to. We feel like there are better uses of our capital.

Just to time this into the Heritage conversation, we are going to spend some capital. Our capital ratios will come down in Q3 but again, the returns we are getting off of that use of capital will build those capital ratios back very efficiently. What we are doing with Heritage, what we are doing with the discussion we are having with our organic loan growth, that hasn't changed. We are picking opportunities to use capital for the highest levels of return.

Understood. Thanks, guys.

Andy Stapp, Hilliard Lyons.

Good morning. Any material change in your interest rate sensitivity position from what was reported in your Q1 Q?

Andy, there wasn't. We are still showing that we are basically neutral, slight asset sensitivity. But for the most part neutral and that is really our mindset is that we are neutral but we need to get more asset sensitive. And so a lot of our discussions, our decisions, they are based on a need and an urgency to get more asset sensitive. However, we are not going to make a bet on when rates are going to rise. But we feel that the prudent approach is to embed that asset sensitivity over time.

If rates move quicker than we anticipate, we can always come back and layer in swaps, something synthetic to embed more sensitivity. But we don't see a need to do it at this time so we are still holding the position that we are rate neutral with the need to get more asset sensitive.

And just trying to get a sense of your longer-term asset sensitivity. What does your model show say going out two years?

In year two -- so let's just say an up 100 shock of 100 basis points, our net interest income in year two is up 3% and that is a percentage point or two from zero I view as neutral. I don't view us as heavily asset sensitive, we are slightly asset sensitive and again 3% up in year two assuming a 100 basis point movement.

Okay, great. Thank you.

There are no further questions at this time.

We appreciate everyone's time and interest in Renasant Corporation today and look forward to speaking again with everyone in the future.

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