Renasant Corporation (RNST) Q1 2015 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Renasant Corporation 2015 First Quarter Earnings Conference call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note that today’s event is being recorded. At this time, I’d like to turn the conference call over to Mr. John Oxford with Renasant Corporation. Sir, please go ahead.

Thank you, Jamie, and good morning and thank you for joining us for Renasant Corporation’s first quarter 2015 earnings conference call. Participating in the call today are members of Renasant Corporation’s executive management team. Before we begin, let me remind you that some of our comments during this call may be forward-looking statements which involve risks and 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 Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to future operating results over time. Now I will turn the call over to Renasant’s Chairman and CEO, Robin McGraw. Robin?

Thanks, John. Good morning, everyone, and welcome to our first quarter 2015 conference call. Our first quarter results reflect a strong start to what we expect to be a great year. These results are a continuation of superior returns on profitability metrics as our return on tangible assets was 1.18% and our return on tangible equity was over 15%. When compared to the same quarter in ’14, we increased our net income and our earnings per share by 12% by growing revenue while at the same time holding non-interest expense flat. As we look forward, we believe we’re well positioned to improve profitability and earnings growth during ’15. Net income for the first quarter of ’15 was $15.2 million or basic and diluted EPS of $0.48 as compared to $13.6 million or basic and diluted EPS of $0.43 for the first quarter of ’14. In addition, during the quarter, we received regulatory approval to complete the proposed merger with Heritage, pinning both company shareholder votes as pursuant to our previously announced agreement and plan of merger. During the first quarter of ’15, we incurred merger expenses of approximately $478,000 or $0.01 in earnings per share related to this Heritage merger. But the course of the first quarter of ’15, our return on average assets and return on average equity were 1.06% and 8.59% respectively, as compared to 93 basis points and 8.19% respectively for the first quarter of ’14. Total assets as of March 31, 2015 remained flat at approximately $5.89 billion. The increase in assets on a lean quarter basis is due to a seasonal influx of deposits, primarily in public fund deposits. Due to the short term nature of these deposit influxes, the fund-based deposits remained in liquid assets such as low-yielding interest bearing cash or short term investments. Total deposits were $4.9 billion as of March 31, 2015 as compared to $44.8 billion in December 31, 2014. Our non-interest bearing deposits averaged approximately $932 million or 19.1% of average deposits for the first quarter of ’15 as compared with $949 million or 18.9% of average deposits for the first quarter of ’14. Our cost of funds decreased 43 basis points for the first quarter of ’15 as compared to 48 basis points for the same quarter in ’14. Total loans, including loans acquired in either the First M&F merger or in FDIC-assisted transactions, which are collectively referred to as acquired loans, were approximately $3.95 billion at March 31, 2015 and $3.99 billion on a linked quarter basis. Excluding acquired loans, loans grew 11% to $3.27 billion at March 31, 2015 as compared to $2.95 billion at March 31, 2014. Non-acquired loans increased slightly compared to December 31, 2014, which is normal for the first quarter when we have a seasonal reduction in many of our revolving commercial lines of credit. Breaking down year-over-year loan growth by each market, our Alabama market grew by 9.1%, our Mississippi market increased loans by 13.7% and our Tennessee market grew loans by 7.5%. In Georgia, we grew loans by 28.4% as compared to the first quarter of ’14. Looking ahead, our loan pipelines and opportunities for growth at our markets project more pronounced loan growth for the remainder of ’15, especially in the second and third quarters which are traditionally our heaviest loan production quarters of the year. At March 31, 2015, the company’s Tier 1 leverage capital ratio was 9.75%, Tier 1 risk-based capital ratio was 12.45% and total risk-based capital ratio was 13.5%. Our common equity Tier 1 capital ratio was 10.34% at March 31, 2015. And all capital ratio categories or regulatory capital ratios continue to be in excess of regulatory minimums required to be classified as well-capitalized. Our tangible common equity ratio was 7.65% as of March 31, 2015. Net interest income was $48.8 million for the first quarter of ’15 as compared to approximately $50 million for the first quarter of ’14. Net interest margin was 40.3% for the first quarter of ’15 as compared to 4.04% for the first quarter of ’14. Additional interest income recognized in connection with the acceleration of paydowns and payoffs from acquired loans was $590,000 in the first quarter of ’15, and increased net interest margin by five basis points as compared to $2.6 million and 21 basis points in net interest margin in the same period in ’14. Non-interest income was $21.9 million for the first quarter of ’15 as compared to $18.6 million for the first quarter of ’14 and $20 million for the fourth quarter of ’14. Our mortgage revenue increased 95% on a linked quarter basis due to increased production as a result of a decrease in rates and new mortgage originator hires made in the latter part of ’14. Non-interest expense was $47.4 million for the first quarter of ’15 as compared to $47.6 million for the first quarter of ’14. At March 31, 2015, total non-performing loans, which are loans 90 days or more past due, and non-accrual loans were $48.2 million. And total OREO was $31.7 million. Our non-performing loans and OREO that were acquired at the First M&F merger or in connection with the FDIC-assisted transactions, which collectively are referred to as acquired non-performing assets, were $29.3 million and $15 million respectively at March 31, 2014. Since the acquired non-performing 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 loss, the remaining information of this discussion on non-performing loans, OREO and related asset quality ratios excludes these acquired non-performing assets. Our non-performing loans were $18.9 million as of March 31, 2015 as compared to $19.7 million as of March 31, 2014 and $20.2 million on a linked quarter basis. Non-performing loans as a percentage of total loans were 58 basis points as of March 31, 2015 as compared to 67 basis points as of March 31, 2014 and 62 basis points on a linked quarter basis. Annualized net charge-offs as a percentage of average loans remain the same at 11 basis points for the first quarter of ’15, as compared to the first quarter of ’14. We recorded a provision for loan losses of $1.1 million for the first quarter of ’15 as compared to $1.5 million for the first quarter of ’14. The allowance for loan losses totaled $42.3 million at March 31, 2015 as compared to $48 million as of March 31, 2014 and $42.3 million as of December 31, 2014. The allowance for loan losses as a percentage of loans was 1.29% as of March 31, 2015 as compared to 1.63% as of March 31, 2014 and 1.29% on a linked quarter basis. Our coverage ratio or our allowance for loan losses as a percentage of non-performing loans was 223.68% as of March 31, 2015 as compared to 244.06% as of March 31, 2014 and 209.49% on a linked quarter basis. Loans 30 to 89 days past due as a percentage of total loans were 37 basis points at March 31, 2015 as compared to 25 basis points March 31, 2014 and 32 basis points on a linked quarter basis. OREO was $16.7 million as of March 31, 2015 as compared to $25.1 million as of March 31, 2014 and $17.1 million on a linked quarter basis. In addition, during the first quarter of ’15, the company experienced a significant reduction in costs associated with OREO as OREO expense decreased approximately 69% as compared to the first quarter of ’14. We see many positives on the horizon, specifically, healthy commercial loan pipelines which support our annual loan growth goals and a robust mortgage loan pipeline, both of which drive continued revenue growth. Concurrently, we’re working towards a successful merger and conversion with Heritage which after receiving the required regulatory approval during the first quarter, we anticipate completing during the third quarter of 2015. As previously indicated, we anticipate this merger to being immediately accretive to earnings with double-digit accretion in 2016. Now I’ll turn the call back over to you, Jamie.

[Operator Instructions] Our first question comes from Brad Milsaps from Sandler O’Neill. Please go ahead with your question.

Hey, good morning.

Good morning, Brad.

Robin and Kevin, just curious if you guys could maybe talk a little bit more about your NaN outlook for the year? I know the first quarter can be affected by the municipal deposits you talked about but I know last quarter you talked about loan yields coming in maybe in the low to mid 4s. Can you talk a little bit about what you’re seeing as of this quarter and how that sort of lines up with how you see the margin playing out for the remainder of the year?

Yes. Brad, this is Kevin. Let’s first talk Renasant standalone and then when we close Heritage, which we’re expecting in Q3, that will change a little bit. But let’s just talk about Renasant before Heritage. What we see for the next couple of quarters and really carrying us out through to the end of the year is that an opportunity for margin to be flat from where we currently see. If you look at Q1, we did have some pressure on margin a basis point or two just from the seasonal inflow of that public fund money. It was held in short term securities, held in cash and it just doesn’t yield a whole lot. So it did compress margin a basis point or two. That will relieve itself as we get into Q2 and Q3. When we look at our repricing on our loans, for Q1, we came in in the 4.30 [ph] range. That’s consistent with what we saw in Q4. And also compared with Q4, we saw more mix of variable rate loans that we saw fixed rate loans. And that’s a trend that we’ve seen now for two quarters and a trend we’ve seen that’s been building as an emphasis on variable rate loans that do carry lower yield but it is part of our strategy to just embed more asset sensitivity into the balance sheet. All that being said, as the yield has been compressing, we still have opportunity and are still picking up calls over on the liability side. That’s offsetting that yield compression. That’s what’s going to hold margin flat - flat maybe slightly declining but we don’t see a significant amount of compression as we look into Q2 and Q3.

No, that’s helpful. Thank you. And then just a follow-up on the loan growth, I appreciate the color on the seasonality in the first quarter but anything else? In 1Q, were there any elevated level of paydowns and just kind of curious what production may have looked like versus paydowns in the quarter and kind of how you feel about as you move into the second, third in terms of loan growth?

Yes, Brad, this is Robin. We actually had very strong production during the quarter. We had about $195 million of new loans funded during the quarter as opposed to last year first quarter, like $165 million, $167 million, so a significant increase in that light. We did - again, going back to the seasonality of some of our revolving loans, we saw a decrease of about $65 million on a linked quarter basis in those lines which may be a little bit higher than normal. But this was exacerbated, the reductions by some payoffs about $100 million to $110 million of payoffs on some of our loans, a lot of which went into the conduit market. So we did see some significant paydowns in that particular light which is a little bit unusual. And I think this was a quarter that had hit us. So that exacerbated the reduction a little bit more so than would be normal in that particular light. But now going forward, we see some very robust pipelines, similar to what we saw this time last year for both the 30 and 60-day pipelines. We’re in the mid to high 80s on the 30-day pipeline and have probably a higher 60-day pipeline than we normally see. So we’re looking very optimistically at our loan growth in coming quarters.

Great. Thank you, guys.

Thank you, Brad.

Our next question comes from Emlen Harmon from Jefferies. Please go ahead with your question.

Hey, good morning, guys.

Good morning, Emlen.

I was hoping to hit on just the mortgage outlook. Obviously, we got a couple of factors going on there with kind of the refi cycle but then you guys are also hiring. So I really just wanted to get a sense, one, of just kind of what the sustainability of the current level of mortgage revenue is. And just, what’s the overall profitability of that business today or for this quarter?

Yes, Emlen, this is Jim Gray. We did have obviously a good improvement in volume from the fourth quarter to the first quarter, about $207 million in Q1 versus $162 million in Q4. And then the gain was pretty well - the increase in our gain was pretty well driven by that volume. It was somewhat driven by mix in that we did have a little higher percentage retail than wholesale. We were about 66% retail, 34% wholesale, closer to the 60-40 retail-wholesale mix in Q4. Our purchase and refi mix, we were 60-40 purchase-refi in Q4. We were closer to 50-50 in the first quarter. But we did see an increase in purchase volume during the first quarter which, typically, the first quarter is not a strong purchase quarter and adding on the weather during the first quarter, we were very pleased to see that increase in purchase volume. And we’re just now in the second quarter getting into that purchase season which our purchase volumes should be strong through the second and third quarters. We did have an increase related to some lift-outs. If you recall in prior calls, we mentioned a lift-out in Alabama, a team in Alabama and also did a lift-out. That team was lifted out about mid-2014. And the Georgia team was lifted out in the end of the third, early first quarter of 2014. The Alabama lift-out is hitting its stride now. Its volume has double and that team is probably averaging close to $1 million per month per originator. The Georgia team is still ramping up. They’re probably averaging about $0.5 million per team member. We actually have more originators in that Georgia lift-out, so we’re looking at even more and we’re starting to see it through pipelines increasing that Georgia team into the second quarter. Our pipeline at the end of the first quarter was $121 million. That’s compared to a pipeline at the end of the fourth quarter of about $50 million. So we are looking at a strong second quarter. And even though, as you know, mortgage is going to be driven somewhat by rates and the 10-year [ph] is still hovering around 2% or a little below, but that refis is more dependent on the rate than the purchase. So even if we do see another 25, 50 basis point increase in rates, I think while we would see - definitely see a slowdown of refi, I think our purchase volume would continue strong and it’s continued to grow. Just from a profitability standpoint, for the first quarter, we were running about - I was going to give you our efficiency ratio - running in the 70%, 75% range on efficiency ratio. We do see trying to bring that efficiency ratio down a little more. So net pre-tax income for the first quarter was $1.7 million off of revenue. Total revenue was $5.8 million.

Got it, perfect. A ton of information there, so I feel like I used my two questions already. Thanks, guys.

Emlen, one thing I would add just talking about - Jim mentioned the efficiency ratio. And mortgage is going to carry a higher efficiency ratio than our core bank. But the offset to that is that the amount of capital we have to allocate to that line of business is minimal. And so the returns that minimal amount of capital investment drive exceed other returns and other business lines. So it is less efficient but the returns that we get off that capital allocating is tremendous.

Got it. All right, thank you.

Thank you, Emlen.

Our next question comes from Kevin Fitzsimmons from the Hovde Group. Please go ahead with your question.

Hey, guys. Good morning.

Good morning, Kevin.

Quick question on credit. Noticed this quarter it looked like you built the reserves a little versus past few quarters under providing relative to charge-offs. So are we at a point where you’re looking to kind of keep the allowance stable here or what is your kind of target on that front? Thanks.

Yes, Kevin, what we’ve been doing over the last year and the year before that is really just maintaining an allowance to cover what we - it covers two things. One, future charge-alls that we project and then loan growth. And that’s really been our allowance methodology. We do our internal risk ratings and have our migrations up and bound to the internal watch list. And what we’ve seen over the last several years is an improvement in credit. As that improvement and underlying credit metrics have materialized, we’ve been slow to release reserves and really have been challenging the current economic environment, current economic factors and how that impact our allowance methodology. So for example, are there economic drivers that may be driving walls [ph] today that aren’t going to show up a year, two years from now? And so that’s why we’ve been a little bit slow to say release reserves. But our allowance methodology is really to provide for loan growth and to replenishing the charge-alls that we project.

All right. That’s fair. And I guess, I mean, in theory with what you were saying about the loans, so your allowance on loan ratio, you probably view that denominator as being a little understated just because of the seasonality in paydowns relative to the pipelines that you see going forward?

Correct. That’s correct. I was going to point that out, Kevin. We had close to $200 million of loan originations during the course of the quarter. And if you look at the quarter as compared to the fourth quarter, actually, total loans on average were up about $55 million during the course of the quarter. So you have that $65 million paydown or net paydown on those revolving lines during the quarter. So that distorts it a little bit as you look at the loans.

Right. Makes sense. Just one quick follow-up, Robin. Can you - with the Heritage deal coming to close I guess in the third quarter, can you remind us where you guys stand on M&A, like are you all really on the sidelines, as you put it, or as I’d put it I guess for - until you get through that deal or are you still pretty active in conversations and maybe remind us what is kind of top of your priority list? Thanks.

Yes. We’re back as far as conversations. We’re looking at this stage of the game as we anticipate to close early in the quarter. We don’t see integration risk being high. We’ve just completed integration with a similar size with First M&F and we’ve been working on integration with Heritage since the beginning of the year, quite frankly. We’ve had teams in both - well, all three states, quite frankly - Alabama, Georgia and Florida. So we don’t see that being an inhibiting factor as far as going forward with any acquisitions. And so if we can find the right partner, we certainly would not hesitate to move forward with an acquisition at this stage.

Kevin, just to build on that, in Q1 we announced receipt of all the regulatory approvals. Right now, we are in the process of mailing our materials for the special shareholder meeting which is scheduled for June. So that puts us at a Q3 close date and really gives us a final timeframe for us to work around as far as a legal merge. And the benefit of that is it allows us to now focus on the conversion which we’re anticipating in August. So really, we’re able now to look and focus our efforts more towards conversion and integration rather than uncertainty about when the deal will actually close. And that’s where our focus and efforts are right now is more towards conversion and making that seamless for the customers.

And when is that going to happen again, Kevin?

Mid August.

Okay. All right. Great. Thanks, guys.

Thanks, Kevin.

Our next question comes from David Bishop from Drexel Hamilton. Please go ahead with your question.

Hey, good morning, gentlemen.

Good morning, Dave.

Hey, Robin, just following up on Kevin’s question, maybe appending that, maybe just an update or refresh my memory in terms of cost saves you’re looking at the Heritage deal again.

Kevin.

Yes. David, we projected 20% of Heritage - 20% cost save from Heritage. And I would just remind everybody that 20% includes the investments that they’ve made in mortgage. And we really did not assume cost saves coming out of that mortgage group. So if we would strip that out of the core bank, we’re looking more in the 27% range or true cost save off the commercial bank.

We didn’t project any mortgage cost saves, but there will be some synergies over time back office wise. But we did not include anything in our projected cost saves.

Got it. And then any potential adds maybe on the bulk management area there. You touched upon the mortgage bank and I’m just curious if there’s any other lift outs or any other markets or teams out there on the wealth management side that could be enticing or present a logical expansion opportunity.

Yes. That’s something that we’re always looking at, Dave. In fact, our director of wealth management is very aggressively looking for opportunities along that line. We just have not found the right fit yet. But we could expand through acquisition. But we’re also looking for opportunities for limited lift outs or in some cases, larger lift outs to enhance what we’re already doing. We have in fact, with that in mind, expanded into the national market with a business development officer in the 401(k) retirement plan arena and starting to see some success in that area right now. We’ll be doing the same thing in the Georgia markets and then eventually into the Florida markets. Right now, our main concentration in the wealth management other than annuity and mutual fund and equity sales is in the Mississippi and the Birmingham markets as far as the trust divisions go. But we’re seeing the expansion in Nashville to some degree in the Atlanta market. We’re looking to expand in the not too distant future. So yes, we’re looking for opportunities here. And we see that as a good line of business.

And then following up on that in terms of the Atlanta market there, you noted the originations this quarter up, but maybe just an update in terms of the commercial lending growth in those markets or the Atlanta markets.

Yes. We have been very pleased with the growth that we’ve seen in our Atlanta market. Obviously, our Georgia production is 90%, 95%. It’s coming in the Atlanta market as opposed to some of the North Georgia markets. One of the features of the Heritage mergers, we picked up another location with about $120 million to $140 million of deposits with a good opportunity for some additional loan growth in that Atlanta market. We’re very pleased with where we are there. And we definitely look to expand in that area.

Great. Thanks for the answer.

Thanks, Dave.

Our next question comes from John Rodis from FIG Partners. Please go ahead with your question.

Good morning, guys.

Good morning, John.

Most of my questions have been asked and answered. But Robin, maybe just a follow up on M&A. You’ve talked about potentially expanding into the Carolinas. And I was just wondering what you’re thoughts are on those markets today.

John, the question I think that I responded to, the Carolinas was in the future. Do you see yourself going outside of the markets that you’re in? And we still feel like there’s a lot of opportunity in the vast space that we’re in right now. But I think the eventual move outside of those markets would be to the Carolinas as opposed to West Louisiana, Arkansas and Texas or North to Kentucky, we just kind of see the Carolinas being a little bit more like the current markets we’re in. We don’t see any expansion there in the immediate future. But that could be a possibility for us down the road.

Okay. And then Robin, just one more question on M&A as far as I guess potential size of a deal going forward just because at some point, you’re going to be up against the $10 billion threshold. So can you just talk a little bit about that?

Yes, right now, we probably would be concentrating more on smaller deals, the deals of $1.5 billion, $500 million to $1 million to $1 billion as we kind of get our feet on the ground. One of the things that we’ve done, John, going back to the M&F merger is we felt like that there was a real need for us to go ahead and spend some money to put ourselves in the position from a cost standpoint that when we go over the $10 billion number, that we’re in a position from infrastructure standpoint to be able to have the I guess IT infrastructure which we’ve done as you know. We’ve mentioned previously, we utilized some of the cost save from the M&F merger to hire a new chief information officer and several other IT specialist at that point in time. Also, we have or in the process of doing all the infrastructure needed for a bank much larger than $10 billion at this point in time from a standpoint of equipments, buildings, wiring. We also have hired a significant number of individuals in the compliance are both from BSA fair lending compliance, all aspects of compliance, added to new lawyer specializing in compliance. So we felt like that from that standpoint that we have put ourselves in the position to cross over the line. We want to be in the position that when we do cross over that $10 billion barrier to have everything other than the actual hard cost of the - as we say, interchange, fees change and/or the additional enhanced FDIC premium. We want those to be really the only additional cost we see at that point in time. As a result of having - we’ve added some new software and with a new IT personnel. We’re in a position that going forward that we should be able to handle any issues that pop up along that lines. So hopefully, as we kind of move up slowly, that we’ll be in a position that we did cross over with a judgment, somewhat larger deal that it won’t have any real negative impact on us.

Okay. Makes sense. Thanks, guys.

Thanks.

Our next question comes from Eric Grublich [ph] who is an investor. Please go ahead with your question.

Hi. Good morning. Most of my questions are answered too. But I did have one about the mortgage banking. I think you quoted a number of about $5.8 million in revenue. I assumed that was a gain on sale plus the spread income from the carry loans.

That’s correct.

Okay. And the efficiency ratio, I think you said it was about 77% on that business. Is it fair to assume that 80% of that is comp and is that what drove the late quarter increase in the comp and benefit plan this quarter?

It is.

Kevin will comment on the --

It is. If you look at our salaries and employee benefit. It’s up $900,000. $600,000 of that is related to commissions. The other $600,000 is related to FICA, just an increase in FICA with the start of the new year. If you look at our salaries and employee benefits, just the salary line item, it was down $400,000.

Oh, okay.

So the increase is due to commissions and then FICA.

Okay. Great. And then just one other thing on some of the 30-, 60-day pipeline numbers you’re talking about. Does that tend to be concentrated more on the commercial real estate than the C&I or how does that mix of business look going forward?

Actually, the mix is getting better from the C&I standpoint, especially in that 60-day bucket that I was talking about. We’re seeing some significant improvement as we try to expand C&I business so we don’t have nearly the concentration in the commercial world state.

Okay. Great. Thanks very much and sorry I won’t see you next week at the Gulf South Conference. But I hope you have a good time down there.

Thank you, Eric.

Okay. Bye-bye.

Our next question comes from Matthew Olney from Stephens. Please go ahead with your questions.

Hey. Thanks. Good morning, guys.

Good morning, Matt.

Hey, Robin, you just mentioned the discussion about the build out of compliance cost, more people, more software, more technology. And I’m sure it feels like this investment’s never complete. And that being said, where do you think the bank is on the most expensive part of this compliance build out? Is it behind you or is it still kind of in the thick of it as we speak?

Yes. I’d say the most expensive part is behind us. I think all you’ll be seeing is incremental cost going forward, Matt.

Okay. And then going back to the efficiency ratio, can you remind me what kind of impact you expect on that ratio from the HBOS acquisition? And obviously being a business mix that’s pretty heavy in fee income in HBOS, I’m trying to understand at the momentum on the efficiency ratio you’ve had the last few years if that’s going to slow it all as you integrate this in the back half of 2015.

Matt, it’s Kevin. It will slow in the back half of ’15. It doesn’t really change our projections with what we stated about our efficiency goals. What it really changes is to what degree we can move it beyond 59% and the timing of a rapidly moving it past 59% to a lower number. That will change. We won’t be able to move it as quickly. And it’s really just because to your exact point, Heritage is, if you look at the contribution of their total income, just from their mortgage group, it is a far larger proportion than ours and it drives a higher efficiency ratio. It doesn’t mean it’s necessarily less profitable or unprofitable on the business. But it’s just less efficient which is the nature of mortgage. But it really doesn’t change our goals. But it will change our ability to incrementally move it down in ’16, ’17 and beyond, just with that mix of the income.

And Jim’s comment about the efficiency ratio of our mortgage division is indicative of the higher efficiency ratio and it is 77%. So that will weight obviously with the, as Kevin said, they have concentration of income they have to make.

Sure. Yes. That makes sense. Okay. That’s all for me. Thanks, guys.

Thanks, Matt.

Our next question comes from Andy Stapp from Hilliard Lyons. Please go ahead with your question.

Good morning.

Good morning, Andy.

I got on the call late, so any of my questions have been addressed, just let me know and I’ll look at the transcript. First question, any update when you might decide to consolidate the mortgage platform, Renasant and Heritage that might occur?

Initially, we will run both mortgage divisions as separate divisions of the bank.

Yes.

And at least through 2016. But along the way, we will start looking at efficiencies more, in particular being the platform around three different computer platforms. We will be looking at getting on a common platform, continuing to run the divisions separately but getting on a common platform. That will be efficiency. We’re looking at vendors, secondary market investors. We’re looking at QC vendors. We’re looking at secondary market accounting vendors, all of the different vendors we utilize in both mortgage divisions. We’re looking at all those and kind of looking - but we’re not making snap judgments on that. We’re taking our time.

Right.

Running them parallel, deciding which is the best whether it be one of the two that we’re using or possibly even another one given the increase combined volumes. So we’ll take our time on that, but ultimately we will be on common platforms.

So at this point, you don’t know if it will be a 2016 event?

I would say, we would have everything on common platform by the end of ’16.

Okay.

And we’ll be working on it during this period of time.

Okay. And with regard to both - oh, I think you addressed our recent benefits. But in occupancy, any unusual line item there or is it good run rate?

Yes. Andy, there’s not a lot of noise in that number. That late quarter increase reflects we had several facilities that we’ve had in the works come online in late Q4, early Q1.

Okay.

And that just reflects the operating calls investment lines of the business or those new operating facilities.

Got you. And could you provide the Q1 yield on loans?

Yes. So the yield first quarter on loans, all in and this includes the additional accretion from M&F or the 481. If we back that out - if we back out the additional accretion from M&F and back out any other fair value adjustments related to M&F, that yield is a 458 on loans.

Okay. Great. Thanks, guys.

Our next question comes from Kevin Reynolds from Wunderlich Securities. Please go ahead with your question.

Hey. Good morning, everybody. Same deal as Andy, I got on here late. So I apologize if my question has been already answered. But I have a couple. One is, Kevin, I think I got on the tail end of the conversion about mortgage. I believe you talked about it, but I may have missed that. But mortgage took a big jump this quarter. I know that there’s obviously some refinance activity and some producers that have come online. But do you think that you’re able to because seasonal business will be stronger in Q2 or at least maintain the strength in Q2, do you think you can hold that level of production as you go in to the second and third quarter in the summer selling season? Or do you think they were due for a little bit of a fall back to slightly lower level that you can sustain?

Yes. This is Jim Gray. And we believe that we will be able to sustain the volumes. As I noted earlier, the purchase volume which is typically slow during the first quarter and ramps up in the second and third quarter, we see that continuing to pick up particularly with the two lift of Alabama and the Georgia lift outs. And in addition to that, I should mention we’ve hired some other originators in the Jackson area and then some fill in in some of our other markets. So we believe we’re well-positioned to increase purchase volume even if we do see a fall out in some refi volume. At current rates, refi is still pretty strong. We did see a 25, 50 basis point back up in rates. And given our pipeline, our pipeline at the end of the quarter was really strong. So that pipeline is carrying us through well into the second quarter.

Okay. Thanks for that, Jim. And then Kevin, on the margin, I think you’re just talking about core versus reported loan yields. I think last quarter wasn’t your core margin around 3.98 or so. And then what was that this quarter versus the reported margin that you had the quarter?

Yes. So we reported a 4.02 in margin. If we exclude the 5 basis points from the M&F accelerated payoffs, that gets us down to about 3.97 compared to that 3.98 in Q4.

Got you. So relatively stable there. The final question I have is probably around just before somebody made an acquisition into the Memphis market last night or at least announced it they have a big lift out, do you have any thoughts on that on how maybe, not so much the specific competitor coming in, although, you could comment on it if you want to, but just maybe the changing dynamics of that Memphis market. I mean what does this - we’ve had some other out of state competitors that have done lift outs in prior years that’s probably making some progress. Now, you’ve got a new one coming in. It’s been pretty aggressive in other urban markets in the State of Tennessee. How does that make you feel? Where do you see your place in all this in the Memphis market because you’ve been there for a long, long time?

Kevin, it’s Robin. No comment on the new competitor coming in. They do a very good job. And I’m very complimentary of them. But we don’t see anything changing as far as we’re concerned. We are delighted that we have a very good team there, a very strong team. That’s an area where we see some good C&I type business growing for us along with a good commercial real estate team that we’ve had there. And from what we see and obviously you used to live there, we’re seeing that Memphis is improving economically. So I feel much more optimistic about Memphis today than we have in the future. Honestly, our West Tennessee pipeline is one of the strongest that we have right now. So I’m very optimistic about that market.

Yes. I mean it sound like with some of the local developments going on there with a bakeshop opening up today, it seems like there’s some real opportunities for that market to maybe transition from something that have been constantly challenged to perhaps making the turn, hitting that inflection point where there might be some additional business opportunity, do you get the sense if that’s the case going on there that maybe the market’s finally making a turn?

Yes, we do. And we’re hearing it even from the homebuilding standpoint that one of our directors is a homebuilder. And he was commenting on the positive trends in that direction too. So yes, we are a 30- and 60-day pipeline in that Memphis is very strong.

Okay. Well, good. Thanks. Good quarter, guys.

Thanks, Kevin.

And ladies and gentlemen, at this time I’m showing no additional questions, I’d like to turn the conference call back over for any closing remarks.