PNC Financial Services Group Inc (PNC) 2002 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the F&M Bancorp's quarterly conference call. At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session with our analysts and instruction will follow at that time. If anyone should require assistance during the call, please press star, then zero keys on your touch-tone telephone.

As a reminder, ladies and gentlemen, this conference is being recorded.

Good morning everyone.

This is Gordon Cooley. I'm General Counsel and Secretary for the Company.

Thank you for participating on F&M Bancorp's first quarter conference call. By now, you should have received your copy of the press release.

If anyone still needs one, please call our Investor Relations office at 888-694-4170 and we'll fax you a copy immediately following this call.

With us on line from management is Faye Cannon, President and Chief Executive Officer.

Faye will also introduce the other members F&M's management team.

Before we begin, however, we would like to remind you that statements contained in this morning's conference call, which are not historical fact, are forward-looking statements as the term is defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks and uncertainty, which could cause actual results to differ materially from those currently anticipated due to a number of factors which include but are not limited to factors discussed in documents filed by the Corporation with the Securities and Exchange Commission from time-to-time.

We will begin the call with a brief update on the quarter and then we will open up the line for questions.

And now, I'll turn the call over to Faye Cannon.

Thank you Gordon and good morning everyone.

We welcome you to our first quarter teleconference.

With me this morning are other members of our executive team Dave Stauffer, Senior Executive Vice President and Chief Operating Officer, Kaye Simmons, Executive Vice President and Chief Financial Officer, Jim Hogan, Senior Vice President and Chief Risk Officer and John Joback, Senior Vice President and our Chief Information Officer.

I'd like to begin this morning by discussing some highlights of our performance for the first quarter of 2002. Yesterday, we announced record first quarter earnings of 53 cents per share, an 18 percent increase over the prior year.

Net income for the first quarter rose 16 percent to a record 5.78 million. Return on equity increased to 13.71 percent and return on assets climbed to 1.26 percent.

Our earnings growth was driven primarily by an 11 percent increase in net interest income, as the net interest margin improved to 4.33 percent, a result of the low interest environment.

Our total assets grew by six percent due to continuing growth in our deposit products, which were up seven percent from last year.

We do continue to be challenged by loan growth, however, with total loans two percent lower than last year primarily as a result of auto loan re-financings due to the zero percent financing incentive programs that are being run by the auto manufacturers.

Asset quality remained exceptionally strong in the first quarter with only .13 percent of assets in non-performing loans.

The allowance for credit losses was 14.1 million or 1.20 percent of total loans with net charge offs of only .06 percent of average loans outstanding.

We recently announced the selection of a new independent accountant for F&M Bancorp.

The Audit Committee of the Board of Directors selected Deloitte & Touche to replace Arthur Andersen as our independent auditors.

And my colleagues will provide more detail on non-interest income; our credit quality and several strategic initiatives and we'll follow that with a question-and-answer session with our analysts.

So, at this time, we'll begin with Dave Stauffer.

Good morning.

This is Dave Stauffer and my responsibilities include the insurance, mortgage banking and wealth management businesses. I'll be focusing my comments on our non-interest income.

We continue to be pleased with our revenue momentum. Insurance income increased 45 percent from the fourth quarter of 2001 due to a positive loss experience resulting profit sharing payments received during the first quarter.

Against 2001, insurance revenues increased four percent.

The insurance market has changed significantly in the past six months with the events of September 11th.

The loss experience ratios by the carriers has dramatically increased insurance costs while at the same time driving down availability of coverage at certain industries in geographic markets.

Businesses will experience significant price increases at renewal and our agencies are positioned well in this environment with a stable of strong carriers to arrange for competitive bids.

The mortgage banking business benefited from the strong home buying market throughout the first quarter. Gains on sale of mortgages increased eight percent from the prior year, which was also a very strong home buying and re-fi market.

We continue to see momentum in this business line, however, with the prospects of rate increases and the lack of supply in both new and used homes, this momentum could moderate somewhat.

The wealth management business is an area of strategic focus for us.

Investor interest in investing its stocks improved in the first quarter of 2002 as more positive economic news was announced.

Fee income from our trust and brokerage business lines increased 10 percent from the fourth quarter of 2001 and was slightly ahead of last year's first quarter results.

At this time, I'd like to turn it over to Kaye Simmons our CFO.

Thanks Dave.

Good morning everyone and as Dave summarized the financial results at the outset of the conference, I'm going to focus my discussion on net interest income, operating expenses and equity management.

We are pleased to note that the net interest margin improved 16 basis points from the prior year quarter.

The improvement in the margin to 4.33 percent resulted primarily from deposit growth in our low cost deposit products with some reduction in our higher cost certificate of deposit products.

On a

quarter basis, the 4.33 percent net interest margins increased 15 basis points from the fourth quarter of 2001.

This improved margin was also the result of lower cost of funds on the deposit products selected by our customers. As the corporation is currently liability sensitive, increases in interest rates would cause a narrowing of our net interest margin.

Now, we will move on to a discussion of our expenses. For the first quarter of 2002 salary and benefit expenses increased nine percent from the previous year.

Increased commissions paid on the additional revenue produced, normal merit increases and employee medical costs primarily drove this increase.

Total non-interest expenses for the first quarter of 2002 were three percent higher than the previous year's quarter.

The increased salaries and benefit costs were offset by lower occupancy costs and other expenses.

F&M Bancorp does not carry any goodwill on its books that would be subject to the cessation of amortization; therefore, the amortization of intangible assets is approximately the same as the prior year.

In the first quarter, our operating efficiency ratio improved to 62.68 percent from the previous year's 64.91 percent. Another measure that we look at internally is our operating efficiency ratio without our insurance companies.

Insurance companies traditionally run at higher operating efficiency ratios than the traditional banking companies. Our operating efficiency ratio without the insurance companies would have been 61.53 percent for the first quarter compared to 63.10 percent in the prior year's first quarter.

Let's move on to our equity management strategic initiatives. During 2001, we announced a share re-purchase program of up to 500,000 to optimize the returns on our invested capital.

Through March 31, 2001 we have re-purchased 203,100 shares at an average price of $26.06. We will continue to purchase shares from time-to-time in the future depending on market conditions.

The provision for credit losses was decreased by 270,000 over the year ago period as economic conditions continue to improve. During the first quarter 2001, we anticipated the recession that was not yet announced and chose to bolster our reserve for credit losses.

Additional provisions were not deemed necessary in the first quarter of 2002 as our credit quality remained at its traditionally strong levels throughout the quarter.

And, with that, I will turn it over to Jim Hogan.

Thank you, Kaye.

Good morning, my name is Jim Hogan and I'm responsible for the risk management functions within the bank.

As Kaye mentioned our asset quality remained strong throughout the first quarter.

Non-performing assets as a percentage of total assets

under 13 basis points at March 31, 2002. Also want to mention that the non-performing assets have declined by 38 percent since March of 2001 although we did have an increase of $515,000 since year-end 2001.

Net charge offs for the first quarter were only six basis points of average loans outstanding. We believe our loan portfolio benefits from our emphasis on diversification and aggressively identifying and addressing problem situations as they arise.

During 2001, we initiated a company-wide comprehensive risk management program, which places primary accountability for the management of risks inherent in our various business lines on the respective business line managers. In so doing, we seek to ensure that recognizing and controlling their business risk remains uppermost in their minds.

We will continue to enhance and refine this enterprise wide risk management program throughout the remainder of 2002.

That concludes my remarks and I'll the floor over to John Joback our Chief Information Officer.

Thank you, Jim. Good morning.

My name is John Joback. I'm responsible for technology, e-commerce and operation functions within the bank.

The financial services business model adopted by F&M Bancorp heightens the demand for advance technology initiatives including integration of systems to leverage customer information and have a substantial impact on our IT strategy.

With businesses and banking, trust and mortgage and insurance services, we've expanded our product

and offerings within and beyond our traditional core products.

As we have added products and services capability across these sectors our business model requires multiple views of the converged business we support, customer, sales, service, operations, finance and risk as well as product.

To that end during the first quarter, we embarked on an initiative to image processing of our checks and documents to various lines of business in 2002.

This process will not only create efficiencies in processing our customer transactions but will also enhance the level of service our online customers receive in accessing the most current information on their accounts.

Also, during the first quarter, we upgraded our consumer web banking service to a new provider that provides a vastly improved ability to access and perform transactions in their accounts.

In the coming months we plan to rollout a web-based version of our commercial banking cash management products. This new product will significantly speed up the data transmission time to our commercial customers and facilitate greater ease of use.

When combined with the ability to view check images, online cash managers will have the vastly improved access to current cash positions with which to manage their businesses.

This concludes my remarks and now I'll turn it over to Faye Cannon, our President and CEO.

Thank you, John and we'd like to move on now to the question-and-answer session with our analyst community. We certainly invite your questions at this time.

Thank you.

For our analysts listening in, at this time, if you have a question you will need to press the one key on your touch-tone telephone and you'll hear a tone acknowledging your request.

Questions will be taken in the order that they are received. If your question has already been answered you may also remove yourself from the queue by pressing the pound key.

If you are on a speakerphone, please lift your handset before pressing the buttons.

One moment for our first question.

Our first question is from

of Davenport. Sir.

Good morning.

Good morning.

I was wondering if you could give me some sort of idea as to what you expect from loan growth the next couple quarters and when you think the auto prepayments will start to kind of constrain that growth?

Matt, this is Jim Hogan, the Chief Risk Officer.

We have already seen a slowing in the runoff in our indirect auto portfolio. As you know, most of the zero percent financing went away during January and some extended through the latter part of that month, but for the most part, by the middle of January those programs were out of the way and we have begun to see a stabilization in our indirect portfolio.

We certainly hope that will continue during the course of the remainder of the year.

As to growth otherwise in the general commercial portfolio and consumer portfolios, that's very difficult to predict.

We are seeing strong loan demand but we also to continue to see significant repayments in our commercial real estate portfolio, in particular, as the conduits continue to be very active.

Great.

Thank you.

You're welcome.

I show that there are no more questions at this time. Please continue with any closing comments.

I just wanted to thank everyone for joining us this morning. We're pleased to have you with us and we certainly appreciate your participation in this teleconference call and we look forward to sharing it with you next quarter.

Thank you.

Ladies and gentlemen that does conclude our conference today.

Thank you for participating. You may now disconnect.