Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Renasant Corporation (NASDAQ:RNST)

F4Q07 Earnings Call

January 16, 2008 10:00 am ET

Executives

E. Robinson McGraw – Chairman of the Board, President & Chief Executive Officer

James W. Gray – Chief Information Officer.

Stuart R. Johnson – Chief Financial Officer

Harold H. Livingston – Chief Credit Officer

Claude H. Springfield – Chief Credit Policy Officer

C. Mitchell Waycaster – Chief Administrative Officer

Kevin [Inaudible] – Chief Account Officer

Analysts

Barry McCarver – Stephens, Inc.

Andrew Stapp – B. Riley & Company, Inc.

Kevin Reynolds – Janney Motgomery Scott, LLC

Rajiv Patal – SuNova Capital, LLC

Peyton Green – FTN Midwest Securities

Operator

Good day ladies and gentlemen and welcome to the 2007 Renasant Corporation earnings conference call. My name is Sarita and I will be your coordinator for today. At this time all participants are in listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today’s call Mr. E. Robinson McGraw, Chairman and CEO of Renasant Corporation. Please proceed.

E. Robinson McGraw

Good morning everyone. Thank you for joining us for Renasant Corporations fourth quarter 2007 earnings conference call. With me today are Jim Gray, Chief Information Officer; Stuart Johnson, our Chief Financial Officer; Harold Livingston, Chief Credit Officer; C. H. Springfield, Chief Credit Policy Officer; Mitch Waycaster, Chief Administrative Officer; and Kevin [Inaudible], our Chief Accounting Officer.

Before we begin let me remind you that some of our comments during this call may be forward-looking statements which may 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 & 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.

While the entire financial services industry faced a challenging environment in 2007 which included an inverted flat yield curve, a tightening of credit quality and a downturn in the national economy we’re pleased with our financial results for the fourth quarter and our overall accomplishments in 2007. During 07 Renasant completed it’s acquisition of Capital Bank Corp of Nashville Tennessee and the related issuance of 2.76 million shares of common stock, increased our cash dividend payout for the 20th consecutive year and opened a full service banking office in Oxford, Mississippi.

In looking at our key growth markets starting with Nashville, Tennessee we successfully consummated our merger with Capital on July 1, 2007. Capital and Renasant completed the integration of our banking systems and processed any applications on August 13th of 07. The overall integration process is now complete and we’re excited about our future growth opportunities within the Nashville financial services market. The completion of this merger gives us seven full time banking offices in Nashville, Tennessee. While Nashville has recently seen a slow down in new home sales we believe it’s a diverse economy and it’s lack of dependency on any one industry helps to insulate it somewhat from the adverse impact of downward business cycles.

In our other Tennessee market of Memphis we’ve experienced growth from our four financial service centers located in Collierville, Cordova, East Memphis and Germantown. We’ve decided to expand our East Memphis location to grow our commercial and private banking business. We see this expansion taking place over the next three to five years and this expansion is needed to keep pace with the growth that our bank has experienced in this market. Renasant is now the ninth largest bank in Memphis.

Looking at our Alabama region despite a downturn in the national economy our North Alabama markets as a whole have largely avoided a slowing of its economic activity. Huntsville continues to receive accolades during the fourth quarter of 07 being recognized as one of America’s top five technology centers by Computer World Magazine in its October 7 issue. As we previously mentioned we believe that the federal government’s base realignment and closure decisions of 05 may add up to 5,000 military jobs and 5,000 additional support jobs along with thousands of families moving in to the Huntsville Decatur area. With Renasant’s five locations in the Huntsville Decatur marketing the major focus continues to be on the potential influx of new residents from the Brach relocation assignment.

Even though we’re seeing a slow down in the housing market the Birmingham Hoover seven county metro area has exceeded 1.1 million population with the number of jobs in Birmingham and in Alabama currently at record highs and expected to grow faster than the US average. In addition, relative to all metro areas exceeding 1 million persons, Birmingham as the lowest unemployment rate in the country.

In Mississippi, even has housing starts are slowed in Desoto it continues to be the fastest growing county in Mississippi as well as one of the fastest growing counties in the nation according to the US Census Bureau data. In Oxford, Mississippi we opened our second full service banking location on June 1st of 07. This office is located off of historic Oxford Square and compliments our student union ATM located on the University of Mississippi campus and our other full service banking office in Oxford which was profitable within one year of its opening.

In Tupelo recent excitement over Toyota Manufacturing of North America’s announcement to build a $1.3 billion auto manufacturing facility in North Mississippi remained high. Construction is well underway and manufacturing operations are expected to commence in late 2009 or early 2010. The plant is expected to initially supply 2,000 jobs with an estimated additional 2,000 jobs provided by Tier One and other suppliers. Joining Toyota in North Mississippi, Toyota [Boshique] and Toyota Interior Company and Toyota Auto Body have both recently announced future plant locations in the close proximity of Tupelo that will bring over $300 million in capital investments and approximately 1,000 combined new jobs to the region. We believe that the construction and operation of the Toyota plan, Toyota [Boshique], Toyota Auto Body and other anticipated tier one and tier two service providers enhance the future growth prospects in our mature North Mississippi markets and may especially help to insulate the Tupelo market from the full effect of any downturns in the Mississippi or national economy.

Reflecting on our financial performance for 07, net income was $31,101,000 up 14.7% or $3,976,000 from 06. Basic and diluted earnings per share were $1.66 and $1.64 respectively for 07 compared to basic and diluted earnings per share of $1.75 and $1.71 for 06. For the fourth quarter of 07, net income was $8,755,000 as compared to $6,949,000 for the fourth quarter of 06. Basic earnings per share were $0.42 and diluted earnings per share were $0.41 for the fourth quarter of 07 compared to basic earnings per share of $0.45 and diluted earnings per share of $0.44 for the fourth quarter of 06.

Total assets as of December 31, 2007 were $3.16 billion an increase of 38.33% from December 31, 06. Total loans were $2.59 billion at the end of the fourth quarter 07 an increase of 41.6% from December 31, 06. Total deposits grew 20.81% to $2.55 billion during the same period.

Despite the recent downturn in the national as well as regional housing markets we were able to realize significant gains from the sale of mortgage loans. Gains from the sale of mortgage loans increased to $1.29 million for the fourth quarter 07 as compared to $1.03 million during the fourth quarter of 06. In addition, we’ve not actively participated in the originations of sub prime loans and as such believe that we have limited exposure in this area.

Net interest income was $95,821,000 for 07 an increase of 13.99% from $84,063,000 for 06. Net interest income increased to $26,943,000 for the fourth quarter of 07 compared to $20,910,000 for the fourth quarter of 06. During this period net interest margin decreased from 3.78% to 3.48%. Net charge offs as a percentage of average loans for the year ended December 31st of 07 was 14 basis points compared to 7 basis points for 06. Annual net charge offs a percentage of average loans were 36 basis points for the fourth quarter of 07 up from 12 basis points for the fourth quarter of 06. Net charge offs for the fourth quarter of 07 include $1,870,000 related to two loans which had been on non-performing status since 06 and were charged off in the fourth quarter of 07. Both of these loans were adequately provided for in the loan losses during 2006.

Non-performing loans as a percentage of total loans were 67 basis points at December 31st of 07 compared to 62 basis points as of December 31st of 06. The increase in non-performing loans is primarily attributable to placing the remainder of the loans with one relationship on non-approval status during the fourth quarter of 07. We recorded a provision of loan losses of $1,975,000 and $4,838,000 for the fourth quarter 07 and the year ended December 31st of 07 respectively, as compared to $800,000 and $2,408,000 for the same period in 06. As we previously stated the large charge offs incurred during the fourth quarter of 07 were provided for in 06. But, we felt it prudent to increase the provisions for loan losses during 07 in response to the softening of the credit quality throughout our markets. The allowance for loan losses as percentage of loans was 1.02% on December 31st of 07 as compared to 1.07% for December 31st of 06.

Non-performing loan ration was 153.31% in December 31st 07 compared to 173.05% in December 31st of 06. In light of the high credit environment facing financial services institutions during the third quarter of 2007, we instructed our senior credit officers to inspect each residential construction and development sights we have on our books no less than once per quarter to closely monitor our loans and lending relationships. This practice will continue throughout 2008.

Non-interest income for the year ending December 31st of 07 was $52,187,000 an increase of 13.59% from $45,943,000 for 06. Non-interest income was $13,197,000 for the fourth quarter of 07 compared to $11,764,000 for the fourth quarter of 06. Non-interest expense was $25,443,000 for the fourth quarter of 07 compared to $22,011,000 for the fourth quarter of 06. For the year ending December 31st of 07 non-interest expense was $98 million an increase of 10.10% from approximately $89 million of 06. Although the aggregate amount of non-interest expense grew, the ratio of non-interest expense to average assets decreased to 2.8% for the fourth quarter of 07 from 3.4% for the same period in 06.

As the economy continues to slow down during 07 we concentrated on reducing the operating expenses as is evident by the decrease in our non-interest expense to average assets over the past 12 months. In addition, we’ve reduced our non-interest expense on a link quarter basis by nearly $1 million by first realizing the cost savings from the capital merger and adjustments to our incentive plans and from the renegotiation of our data processing contract with our servicing provider.

In concluding my prepared remarks, let me again reemphasize our satisfaction with our solid 07 performance despite less than favorable conditions for the financial services industry and our national economy. Now, Serita I will turn it back over to you for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first call comes from the line of Barry McCarver from Stephens, Inc. Please proceed.

Barry McCarver – Stephens, Inc.

My first questions falls on MPAs. You said most of the increase was related to one relationship, I’m assuming that’s a separate relationship from the two that we dealt with in most of 2007 that were charged off?

E. Robinson McGraw

That’s correct, if you’ll remember at the end of the third quarter, we mentioned that we put a relationship, or part of a relationship out of Birmingham as a non-performer. At that time the balance of the relationship existed of another part of the development which was performing at that point in time in the individual’s residence, which at that point at time was still performing. But, during the course of the quarter it was thought that there was a resolution to those two parts of the relationship that didn’t occur and we put those on non-accrual. That particular relationship itself in total now comprises, I believe 60% of our total non-performing loans.

We are in fact, and do have a contract on a portion of the relationship that should close before the end of this month. In addition to that, the personal residence we feel based on the original appraisal we’re about 60% of value on quick sale. We feel we are close to what the appraised value would be at that level so we don’t have that much concern about it and it’s a as rather significant expense. But in addition to that we are in a position, we think, as we talk with additional builders and developers, to able to totally be out of that credit all together, hopefully the end of the quarter. We’re not certain, but we think a good portion of it will be out in the very near future. But that one is about 60% of the non-performers. And again, it even had been provided for prior to it going on that non-accrual, non-performing status.

Barry McCarver – Stephens, Inc.

Beyond this one relationship, what is your trend and thoughts for MPAs? Obviously, it did sound like there is a chance you could get some out of there by the end of this quarter. But, looking for the rest of this year what are your thoughts on how MPAs are going to trend? Are you more worried than anything else in the portfolio than you were last quarter just given the general economic slowdown you talked about?

E. Robinson McGraw

Barry, the Memphis MSA, is we feel like our softest of the four markets we’re in. And as I stated in the call itself we, during the third quarter, started sending out our senior credit offices along with the relationship manager for each account, we felt it prudent to get these senior credit officers involved in this process to get [inaudible] into looking at all the credits. We will continue to do that no less often than once a quarter, going out and any that we have more concerns than others we’ll look at obviously much more frequently and keeping a watch on it. We feel like, as we started looking during the quarter we - as I mentioned in the call, let me go back to that, the two credits that we charged off were reserved for in 06. So, none of our provision in the fourth quarter was related to that. In fact, one of the two which was totally bought at foreclosure by someone else, we had about $250,000 overage in the reserve for that particular credit itself. That was the smaller of the two.

The other one we have a contract on, they’re still in the due diligence period and we should be getting out of it basically for what we bought it in at so we don’t anticipate any significant change in that particular one. Going back to that the only other addition of any significance, there were two. One, a home in Mountain Brook that was under construction and it’ll be complete and sold and we don’t anticipate any additional losses on that at this time. And the other was a participation that was on the books at Capital when we bought the bank. We brought in as a SOPO3-3 loan and we don’t anticipate any loss on it. In fact, there was no loss in the reserve on that particular loan since it was an 03-3 and it was bought in at or above what it was on the books at. So, there was no impact to the allowance for any of those actions that I was just talking about.

We did in fact get aggressive as we looked at our portfolio and added, as you can tell, significantly more in the fourth quarter in our provision than we’ve done in prior quarters just because we thought it to be prudent for what may be out there. In additional, as we said before, we have significant qualitative reserves that are not specifically related to any particular credit but we felt back in 05 we started added to these qualitative reserves for factors that were out there. Interestingly enough the real estate market, all the credit energy prices, the fact that we are in new markets and larger markets and the fact that we have larger credits so there is a significant number of dollars that are in fact in those reserves that should something unforeseen occur.

Now, during the quarter we also allocated some significant reserves to performing loans that we just felt prudent to look at in case something came up. Going back historically it’s been, over the last seven years under this management we have tried to anticipate and provide as we did in 06 for those loans we charged off in 07, or loans that could in fact, turn sour in the future. And, hopefully we are continuing to do that. Looking forward in this quarter we will be evaluating the markets and the softness in certain markets and we will be very prudent as we look at what goes in our provision each month and each quarter.

Barry McCarver – Stephens, Inc.

My last question really revolves around loan growth a little bit. Even adjusting for the additional MPAs in the period loans were a little weaker than what we expected. What does the pop line look like there? And, is there anything in the quarter that may have just paid off that could be bringing that number down?

E. Robinson McGraw

That’s the exact reason we were flat for the quarter. We had what we would consider to be very reasonable loan growth during the fourth quarter. We did have a larger than normal amount of pay downs. Which, to some extent, we view positively quite frankly. So, going forward looking at our pipeline for the first quarter it is in fact, very reasonable. But again, take into consideration if we have larger than normal pay downs then the growth won’t be there. Obviously, we’re being extremely cautious about loans that we’re making. Taking probably, as you know, our credit group is very conservative to begin with but, they’re being even more so and crossing more t’s and dotting more i’s than ever before as we move forward. And, we feel like we should see any loans that we’re booking right now should be probably about as clean as any could be going forward in the future. So, we’re being very cautious as we look at that.

But, back to the original question. The pipeline itself is very reasonable in relation to what it’s been in the past. The big question out there is the pay down aspect of it.

Barry McCarver – Stephens, Inc.

Do you happen to know what gross loan production was for the quarter?

E. Robinson McGraw

Yeah. Gross loan production for the quarter was $162. We’ve been running around 4200 million, I think gross. Just the pay downs were.

Barry McCarver – Stephens, Inc.

That actually brings up another question in to mind. Assuming we get another 50 basis point cut from the fed next week, I believe it’s next week, how painful is that in the near term getting 50 basis points all at once to the margin here?

E. Robinson McGraw

The question comes back as to how the remaining financial institutions in the market respond. The liability side has been somewhat slower over the past several cuts to catch up with the asset side of the equation. We will be as aggressive as we can be and retain market share. Quite a few of our deposits are tied so they will automatically reset. So, that part of it does play into it. But, as we look at the time deposit side that question comes in to play as to how the rest of the financial institutions respond as to how we will respond to it.

Operator

You’re next question comes from the line of Andy Stapp of B. Riley & Company. Please proceed.

Andrew Stapp – B. Riley & Company, Inc.

If you could tell us how your 30 to 60 days past due, the balance at year end compared to September 30th as well as your watch list.

Claude H. Springfield

Our watch list I have got [inaudible] from a year ago we are up but I don’t have the quarter. [Inaudible]

E. Robinson McGraw

It’s up about $9 million on link quarter basis Andy.

Andrew Stapp – B. Riley & Company, Inc.

Okay. And do you have data for the 30 and 60 days loans past due?

Claude H. Springfield

30 days past dues ended the quarter at about 2% and that is up probably about 16 basis points from previous quarter. Off the top of my head.

Andrew Stapp – B. Riley & Company, Inc.

Is that just the 30 day or is that 30 and 60?

Claude H. Springfield

That would be 30 days or more.

Andrew Stapp – B. Riley & Company, Inc.

So that includes everything. You mentioned that there’s four loans that you identified, I’m just curious what type of loans are they? Are they construction development loans I presume since that is what you are studying in the dollar amount of these loans?

Claude H. Springfield

Beg your pardon.

Andrew Stapp – B. Riley & Company, Inc.

There’s four loans you mentioned that came to your attention that you expressed some concern about.

E. Robinson McGraw

In the fourth quarter?

Andrew Stapp – B. Riley & Company, Inc.

Yes.

E. Robinson McGraw

We mentioned that the increase in non-performing loans was the balance to the relationship that had gone on in the third quarter. And, included in that was the personal residence and another part separate development another part of the development that was in fact performing at that time.

Andrew Stapp – B. Riley & Company, Inc.

In your study of construction development loans have you found any significant findings?

E. Robinson McGraw

Well as we’ve looked throughout, it goes back; okay it is our four regions Andy. I think we said in looking at the four regions that the Memphis region was the softest and as we look there we are seeing a significant slowness in that Memphis region. All the regions are experiencing a slowdown but our concern came about more so as we look at it on a macro basis as opposed to a specific situations. But, housing starts are down in Memphis by about 40% and sales of new homes are down about 25% and the home inventory out there now is about 18 to 24 months. As a result of that, in general we felt it prudent to increase our reserve over prior quarters as you saw fairly significantly just to be certain that we are more than adequately with reserves should something come up. We are, our senior credit officers along with relationship managers are staying in touch and meeting with any developers and/or builders that we have in order to be very proactive on staying on top of them in light of what has been going on in the market.

Andrew Stapp – B. Riley & Company, Inc.

Okay and lastly I noticed construction loans were down late quarter. Is this due to the payoffs which you referenced earlier?

E. Robinson McGraw

Yes. This is due to payoffs and the fact too that as we are looking at new projects and of course to there are not that many projects coming to us. So it is a combination of the two but that goes back to the talk about the leveling off or the flattening of growth in the quarter because of the pay downs on that side of the ledger, on the construction side of the ledger. It’s better to be a positive quite frankly.

Operator

And your next question comes from the line of Kevin Reynolds with Janney Montgomery Scott. Please proceed

Kevin Reynolds – Janney Motgomery Scott, LLC

I wanted to get I guess a little clarification on the increase in non-performers this quarter versus last and then kind of tie it together with what you had identified last quarter just to make sure that I understand it correctly. As I recall last quarter we identified two loans, I think in the amounts of $3.9 million and $1.8 million. Are, we considering both of those part of the same relationship?

E. Robinson McGraw

No. They were separate relationships Kevin. Let me go back and re-clarify that. The one that had $3.9 million that went on. That total relationship is around $9 million s I think, in the $10 million vicinity. Part of it is a personal residence that was performing at the time and the other we thought was getting ready to clear out quite frankly. And the other was the rest of a development, a different part of a development that was in fact performing at that time. The rest of that relationship became non-performing during the fourth quarter. We are in the process, and part of that is going to be the developers selling a portion of that during this quarter to close right now, I think on the 28th of January if that occurs. We are probably going to have to, as it appears, foreclose the house because there is a second behind us and it appears that we will have to do that and we feel comfortable that we will come out at no or very little loss, if any at all, is incurred on the actual residence itself. The rest of that development is in fact being marketed at this point in time and we feel like if by the end of the quarter if that whole relationship with the possible exception of the house because of the foreclosure laws should be totally out by then. That credit itself comprises 60% of the non-performers.

The other one we mentioned we are in the process still of negotiating a sale of that particular loan. We have an offer for it at a loss of less than what is reserved for it but we have not completed that yet. The due diligence process is ongoing on that particular credit but again, that was the smaller of the two. And, that is basically the remainder of the $3.9 million credit that brought it up to around the $10 million area basically offset the two credits that we charged off.

Kevin Reynolds – Janney Motgomery Scott, LLC

Okay. So of the $15 million or so in non accrual loans this quarter roughly $12 million of it is accounted for in those two relationships both of which may be off of the balance sheet in one form or another by the end of the quarter if all goes well?

E. Robinson McGraw

That is correct.

Kevin Reynolds – Janney Motgomery Scott, LLC

Okay. Now beyond that I mean, what that suggests to me at least is that you’ve had your loan officers out there this quarter and clearly there is a slow down in economic activity and obviously, we know it and feel it well here in Memphis but are we seeing a slow down? Or, are we seeing a meltdown? And I ask that because there are varying degrees of fear and concern out there right now. What are you seeing in real time? What are your loan officers seeing in real time? And how do you do you prepare for or do we need to look at 2008 as a year where we just have to hunker down?

E. Robinson McGraw

I think that is a pretty good analogy. I think at this point it’s still a slow down but could turn into a meltdown. Just depending on what happens with the economy. And again too Kevin, I think as you look and I assume that you are talking about the Memphis market right now.

Kevin Reynolds – Janney Motgomery Scott, LLC

Actually Robin I would like to add into that. The national market which I think is more concerning to most investors out there right now, unless I completely misread the situation.

E. Robinson McGraw

Well then Nashville, as far as what we are seeing we, I go back to the 03-3 loan was participation in the Nashville market. That did in fact happen as a result of the economy slow down. And, you know what’s happened again, let me go back and give you this analogy and we’re seeing this quite frankly, [inaudible] putting a lot of stress on some developers. If you’ll remember going back to our comments on the Alabama credit, the $3.9 million credit. That was a good subdivision and it still is a good project but he got himself in trouble in Florida with some developments down there. He got out of what he was doing.

The participation that I mentioned a while ago in Nashville that was on the books when we acquired the bank, that developer was doing a good job and he was in the $400,000 house range but he jumped out there and our bank was not a participant in this but another bank funded him in building a couple of million specs. That’s where he got in trouble. So, you know we are starting to see that happening all around. I think one of the things that you have to look at is that in going back to what I was talking about selectively in these markets. Yes, there is a slow down which is causing a meltdown with some builders and some developers but builders with liquidity and some equity are generally speaking those guys are slowing down on their own and downsizing their operations. They’re not taking down the lots they previously committed to so, therefore they’re keeping themselves out of trouble.

You would hope that most of your developers are of that type whatever market they’re in. That has a bearing on each of the markets that you’re in. Not to say that we are immune to problems but as Harold Livingston, our chief credit officer has talked about on road shows and around, as we start looking at these development loans, one of the main things that we look at is liquidity. That’s one of the first things that we look at is the liquidity aspect of it is, can they carry during times such as that we are in right now? Can they carry these loans? Will there liquidity assist them to do so? Which is of extreme importance. Now if in fact we get into that meltdown, you know, you don’t know how long that will happen with some of these but going back to Andy’s previous question about that when he asked was a lot of the pay downs that we had due to construction. It was. So, you hope that will continue to occur. Every time one of those pay downs comes in the better off that we are.

Kevin Reynolds – Janney Motgomery Scott, LLC

Okay. And then, I guess along those lines looking at the other side of the equation not the problems but the future necessarily. We saw this, I guess, a link quarter decline on the construction loans but some pretty strong increase in commercial real estate mortgage if I am not mistaken. Is that sort of the balancing act that we ought to see going forward moderated balance sheet growth with those two dynamics kind of as counter balances to each other?

E. Robinson McGraw

Yes and to some degree just straight commercial lending, very prudent straight commercial lending. As I mentioned a while ago the expansion of our east Memphis office is for private banking and commercial type lending as we have tried to diversify our portfolio more.

Operator

Your next question comes from the line of Brian Klock of KBW. Please proceed.

Brian Klock – Keefe, Bruyette & Woods

Robin I guess I appreciate all the detail. I hate to ask another question about non-performing loans but I just want to make sure that I have everything that moving parts in and out. The Birmingham development loan that increased now and represents 60% of total MPL, you said that there was another development that was performing in the third quarter. Was that other development also in the [inaudible]?

E. Robinson McGraw

No. No. That’s part of that same loan.

Brian Klock – Keefe, Bruyette & Woods

Okay. Okay.

E. Robinson McGraw

That is part of the same loan. What it was, was a large development. He had kept current on part of it. You have a lot loan aspect of it and the other was actual homes. He had kept current on the lot loan.

Brian Klock – Keefe, Bruyette & Woods

Oh. I see.

E. Robinson McGraw

Okay and so therefore, he had kept current on part of it and part of it he had not.

Brian Klock – Keefe, Bruyette & Woods

It is all in the same Trussville development?

E. Robinson McGraw

It is all that same Trussville development. It is all the same subdivision that he was developing. He developed a portion of it and the other portion was his personal residence.

Brian Klock – Keefe, Bruyette & Woods

Okay.

E. Robinson McGraw

Which was performing at that point in time too.

Brian Klock – Keefe, Bruyette & Woods

So, actually there was some movement out if you take those two pieces like you have already talked about this relationship and the other $1.8 that you are still working on trying to get a sale on that property. The rest of non-performing loans actually decreased about $2.5 to $3 million. It looks like ORE went up about $5 to $5.5 million so was there movement into ORE or maybe you can talk about what was the movement into ORE was that new?

E. Robinson McGraw

Let me go back and mention that you know the two credits that had been non-performing since 2006.

Brian Klock – Keefe, Bruyette & Woods

So, those are the ones you charged off the $1.8.

E. Robinson McGraw

Yes. Alright. We charged off both of those. One of them was a $4 million credit. It went on to ORE. We brought it in basically for less the amount of reserve for. It had been impaired for that time frame. The other credit which was about a $1.4 million credit actually was not bought in. That was purchased by outside parties and we charged off all but about $250,000 that had been reserved for it. So actually we charged off less than what was reserved for that particular credit and we reallocated that to other credits in the allowance itself.

Brian Klock – Keefe, Bruyette & Woods

Okay.

E. Robinson McGraw

So that one did not go in. The other significant parts that went into ORE, I mentioned a while ago that we had participation or a cap letter of participation kind of acquisition. That credit actually came in to ORE at about $2.1 million. It actually was a little bit larger than that participation but the balance of it was in SOPO3-3 and we did not have to charge anything off. We feel very comfortable or our Nashville people feel very comfortable that we are well within the pricing of that as far as selling off these lots going forward. It should in fact change that. So that is $4.7 that came into ORE and the balance was about $600,000 at that house we talked about in Mountain Brook. A little under $600,000.

Brian Klock – Keefe, Bruyette & Woods

Okay.

E. Robinson McGraw

We will finish it and it should be sold at basically no loss to possibly even a slight gain depending on the finished product there.

Brian Klock – Keefe, Bruyette & Woods

I guess when I look at charge offs for $2.4 million in the fourth quarter. You detailed the biggest chunk was those two [inaudible] from 2006. Anything significant in the remaining charge offs, say $400,000 or $500,000 of remaining charge offs in the quarter that stand out?

E. Robinson McGraw

Yes. See the lot in Mountain Brook was a couple of $100,000 of that too.

Brian Klock – Keefe, Bruyette & Woods

Okay.

E. Robinson McGraw

Basically those three credits, the lot in Mountain Brook, and the other two that had been on that we talked about non-performance since 2006 basically comprised just about all of that charge off.

Brian Klock – Keefe, Bruyette & Woods

Okay. And I know that you guys have talked already about the pay downs. I guess what I was interested in kind of hearing on the construction side of it, are the pay downs coming from other sources refinancing out these projects? Is it the developers paying out of their own or is it that there finishing the project and there is a national home builder taking it out? Is there any sort of read across of how those pay downs and where they’re coming from?

E. Robinson McGraw

I think most of them are actually coming from the developer.

Brian Klock – Keefe, Bruyette & Woods

Okay.

Harold H. Livingston

Some of it is just selling off a house here and there and not starting a new house.

Brian Klock – Keefe, Bruyette & Woods

Okay.

E. Robinson McGraw

You know that’s as I mentioned a while ago we are finding that, and you would hope this would be 100% of them but obviously it wouldn’t be or won’t end up being, but most of our developers, our very prudent developers are slowing down on what they’re doing and as Harold just said they’re paying off or selling and maybe not starting another. They’re slowing down on what they’re doing out of there own prudence because of the economy.

Brian Klock – Keefe, Bruyette & Woods

Okay and I guess from the commercial industrial side there was about $18 million of a linked quarter drop. I guess what are you seeing there is it cash flow that they are just paying off and you’re borrowers aren’t needing new lines of credit? Is there competition from somewhere else? Maybe you can talk about the pay downs in the CNI portfolio.

E. Robinson McGraw

I think more than anything else it’s just the cyclical pay downs as opposed to actually the credits moving.

Brian Klock – Keefe, Bruyette & Woods

Okay and I think I’m not sure if you gave this earlier and I apologize if you did. Do you have the loans break outs end of period fourth quarter loans by region; so Memphis, Nashville, Alabama, Mississippi.

E. Robinson McGraw

We have that. I didn’t give that. Hang on just a second I will give it. We have in Mississippi a total of a $1 billion, about $1.6 billion, about $560 million in Alabama. In the West Tennessee or Memphis area about $380 million and in the Nashville area about $580.

Brian Klock – Keefe, Bruyette & Woods

Okay thanks. And actually just the last question on the deposit side I know there is some public money that moves around. Can you talk about the linked quarter decline in both the non-interest bearing and interest bearing? I’m not sure if there was some run off in capital or if it was just the public fund impact.

E. Robinson McGraw

A combination. As we looked at it Bryan capital had some brokerage CD’s that we felt, if you’ll remember back the same was true with Memphis and Alabama. We’ve been inclined to allow the brokerage CD’s to run off. At the time of run off, actually we were able to use wholesale funding to replace those brokerage CD’s cheaper than what we could have kept it in the brokerage CD market. In addition, we are starting to see, if you remember that we mentioned that we had some pretty expensive large public funds that we felt like should pay down a little bit and they have paid down a little bit at the end of the year. That was where most of the public fund run off went during the course of this quarter. And again, as you look over in the demand area you are starting to see some public funds in those demand accounts going also.

That’s where the majority of the funds, plus the fact we tried to be less aggressive in the time deposit area as we saw some banks in the area, some competitors not dropping their rates on there deposit accounts as quickly as we felt like that we needed to do ours, with prudence in that we felt like we could use wholesale funding to offset that. Generally speaking, this is hot money that you will generally see again in about a six month period of time. We felt it was prudent to take the approach in some degree to use wholesale funding as opposed to getting into some battles over some of this hot money. As far as any relationships we would obviously match in order to retain those relationships. But just on the hot money we didn’t get into that fight.

Stewart

Also Brian, on the DDA base just from day-to-day volatility if you go back and look at the DDA on an average basis on the quarter it’s pretty much in the line with that average and that account just fluctuates fairly significantly from day-to-day.

Operator

And your next question comes from the line of Rajiv Patal of SuNova Capital. Please proceed.

Rajiv Patal – SuNova Capital, LLC

Just a question and I know we’ve been down the MPAs but more on your reserve methodology. You know the inflow of MPAs increased despite the charge offs but, when I look at your reserve to loan they actually came down which compared to several of your banking competitors in the region it’s kind of the opposite where as everyone else has used this quarter to actually grow reserves given the weak environment. And so, can you just comment on how you look at the reserves and why they actually shrunk? And then also, earlier in the call when you guys where given the prepared remarks you said that this quarter you are going to be very prudent regarding your provisions looking at each of the loans by regions. So, can I take from that that we may see provision, you know we may see you guys build your reserves in the quarter.

E. Robinson McGraw

We will do whatever we do in a prudent manner. Let me go back and mention this. Those two loans that were charged off as I said they were in fact adequately reserved. That was $2.1 million that left the reserves. But, with the remaining loans obviously they were reserved adequately also. So, based on the fact that we did not have to provide for the charge offs that’s a $2.1 million start right there. We put $2 million in the reserve which is about a little over a $1 million, more actually around $1.9 million in the reserve. That is about a million dollars more than what we have done in previous quarters. Again, that extra money was not for any particular loans but again more than anything else was part of that qualitative reserve that we’ve been talking about that we felt like we build. And, we see ourselves depending on the economy itself, utilizing that qualitative reserves over and above any specific reserves going forward. And again, it just depends on what’s going on during the course of the quarter and we will be looking at that obviously on a month-to-month basis.

Rajiv Patal – SuNova Capital, LLC

Okay but given the kind of that your reserve to MPAs, reserve to loans came down. So, I guess it is safe to assume then that you guys don’t believe that you have seen the peak of MPAs then?

E. Robinson McGraw

We would certainly hope that we have but, you know prudence would say that we possibly haven’t. Let me say this, looking at the loans that we have that are performing; we don’t anticipate that they will become non-performing loans but prudence dictates that we take into consideration that that is a possibility. We went ahead and just out of prudence even though they were performing loans, went ahead and downgraded some loans on our watch list just from the standpoint that in order to make the watch list we had to down grade them. We wanted them on the watch list from the standpoint of being able to increase provision in the quarter for those loans and also to have them in a position where we can watch them more closely.

Going back to provision for the quarter, taking out $2.1 million had a impact that had we not gone in and put in additional funds we would have been down, just based on our normal calculations, we would have been down to a 1% reserve. We were able to build it back up to 1.02 just out of prudence into those qualitative reserves for the quarter.

Operator

Your next question comes from the line of Peyton Green of FTN Midwest Securities. Please proceed.

Peyton Green – FTN Midwest Securities

Question Robin, when you look at kind of the slow down in the markets that’s going on, how do you consider the reality of today’s collateral values versus what might be on the loans when they originated some period ago? And, then as your credit officers move through the individual projects over the past three to six months, how much style drift, so to speak, did ya’ll detect in your developer relationships?

E. Robinson McGraw

Interesting Peyton, as we looked at it like for example in the Nashville market although home sales have dropped off prices have not declined as much as home sales have dropped. And so therefore, that’s not necessarily the case in some of the other markets but I guess it depends on the development and where they are. To some extent I think you have a good point in that collateral values probably are less today possibly on some of the credits than when they were actually initiated and as we go in and look at loans as we get to the stage, anytime we go into one that becomes a non-performing loan or that we become suspicious of we will in fact get new actual appraisals on those loans just to kind of see exactly where we are.

Again, that is the purpose in what we are doing with our senior credit guys going out and looking at each and every project on a very frequent basis just for exactly what you were talking about. That if in fact, we sense anything or any signs out there we feel it prudent at that point possibly to actually go ahead and start getting some additional appraisals to see what in fact the collateral may be worth at that point in time. We loan at about 80 to 85% LTV to start with so that does allow for some of the slippage that could occur. But I think you’re right prudence dictates that when there is a question out there that you do in fact get new appraisals on the property. Which we have done.

Peyton Green – FTN Midwest Securities

Okay and has there been any change in your policy? I mean now with conditions are you doing higher or lower LTV’s on new deals?

E. Robinson McGraw

Yes. As we look at, in fact we have been talking about this quite frequently as you may think that we are in fact looking at our LTV’s to the extent that loan to values will actually drop or are in the dropping phase as to what we will in fact loan to a developer. And again, we are not real aggressive at this point in time in C&D type of lending out of prudence just depending on who it is. It’s the exception rather than the rule I think.

Peyton Green – FTN Midwest Securities

Okay last question. In terms of maturities and cash flow that you expect to get back from the loan portfolio, what does that look like in 2008 versus I mean, you obviously saw pretty good repayment activity in the fourth quarter. Is that particularly lumpy or do you expect there to be a fair amount of cash coming back to you in the first half of 2008 as well?

E. Robinson McGraw

I would anticipate it being kind of on a per credit type situation. Again, most of what we had coming back was actual developers or builders that were selling homes and then paying down and not moving out. They may have several that are out there and what they’re doing as opposed to starting new projects and taking draws they are just continuing to see a pay down on there lines as opposed to building the lines. We anticipate that continuing during this year because we don’t see any of our builders being real aggressive along that front. I think they’re being prudent just as we are.

Peyton Green – FTN Midwest Securities

Last question was the 30 days past dues including the non-accruals was 2%? Did I hear that right earlier?

E. Robinson McGraw

That was over 30 days. All loans over 30 days. Including non-accruals, that is correct.

Operator

At this time we have no further questions in queue

E. Robinson McGraw

Okay well thank you everyone. We appreciate everybody’s time and your interest in Renasant Corporation and we look forward to speaking with you again in the near future. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Renasant Corporation F4Q07 (Quarter End 12/31/07) Earnings Call Transcript
This Transcript
All Transcripts