Renasant Corp (RNST) 2002 Q1 法說會逐字稿

Good, morning. My name is and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Peoples Holding Company first quarter 2000 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star and then the number one on your telephone keypad and questions will be taken in the order they are received. If you would like to withdraw your question press the pound key. I will now turn the call over to Mr. Jim Gray, Executive Vice President, Investor Relations and Planning. Thank you, Mr. Gray you may begin your conference.

Thank you, , and welcome to the Peoples Holding Company first quarter 2002 earnings conference call. With me today are Robin McGraw, our President and CEO, Stuart Johnson, Executive Vice President and Chief Financial Officer, and Harold Livingston, Executive Vice President and Chief Credit Officer.

Before beginning, I should remind you that some of our statements might be forward-looking. Forward-looking statements involve risk and uncertainty and a number of factors could cause actual results to differ materially from anticipated results or other expectations expressed in the forward-looking statement. Those factors include, but are not limited to, interest rate fluctuation, regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission. Now, to begin our discussion, here is our President and CEO, Robin McGraw.

Good morning, and thank you for joining us today. We are pleased, as I'm sure you are the postwar recession was a relatively mild economic downturn. The consumer led recovery is gaining strength, and quick action by the Federal Reserve obviously played a key role in avoiding what could have been a more serious and protracted recession. We see positive signs of the recovery here in north and north central Mississippi in the growth of retail sales and sales tax collections.

We enjoy a balance of manufacturing and non-manufacturing employment in our operating region, which is positive for our company going forward. We are based in Tupelo in Lee County, which is number one in the state for manufacturing employment, and number four in non-manufacturing jobs. For the past 19 years Lee County has averaged adding 1,000 jobs annually. For the first quarter of 2002 our co-operating earnings per share were up more than 30 percent. The Peoples Holding Company has now posted record co-operating earnings for five consecutive quarters. And although we are pleased with these results, we won't be satisfied until we are a top performing company compared to our peers.

The implementation of our business plan and resulting earnings performance demonstrates our commitment in the key areas of margin improvement, asset quality, non-interest income, expense control, capital management, growth and maintaining a quality management team. Co-operating earnings per share for the first quarter were up nearly 31 percent to 72 cents per share from the 55 cents a share we had a year ago. Co-operating income increased over 23 percent. It should be noted that our co-operating results exclude the cumulative effect of 142 adoption. Including the one time effect of the adoption, earnings per share for the first quarter were 49 cents compared to 55 cents for the same period a year ago.

Net income was $2.765 million compared to $3.3 million dollars for the same period in 2001. Net interest income for the period was up 12.25 percent, while non-interest income increased 15.34 percent. These results generated a return on average equity for first quarter 2002 of 12.29 percent compared to 10.42 percent for the same period in 2001, representing an increase of almost 18 percent; and our return on average assets for the first quarter 2002 of 1.19 percent compared to 1.06 percent for the comparable period in 2001, an increase of over 12.25 percent. We have continued to manage our capital through stock buybacks, and during the first quarter this year, our company has repurchased 83,400 shares of stock, or 1.46 percent of common shares outstanding at an average purchase price of $34.68 a share.

Over the course of the year 2001 purchases totaled more than 352,000 shares. At the same time, the book value of our stock has increased 3.36 percent per share to $21.52 from $20.82 at March 31, 2001. All of our earnings drivers have contributed to the improvement in earnings. Net interest margin continues to show improvement. Net interest margin was 4.59 percent and 4.30 percent the first quarter 2002 and 2001 respectively. This has been accomplished by taking a proactive stance on deposit and loan pricing, as well as restructuring our investment portfolio. We believe that under our current rate environment re-pricing of higher rate CDs during the next several months will further enhance our margin. We have also followed the policy of risk based pricing for loans, which has positively affected our margin.

Federal home loan bank funds have enabled us to match fund loans from reduced future interest rate risks in the likely event that rates begin rising in the near future. Total non-interest income at March 31 was up over 15.25 percent to $6.609 million from $5.7 million for the same period in 2001. Non-interest income now represents approximately 34 percent of gross income.

Our gains in this area continued to be led by a variety of revenue sources, including insurance commissions, sale of investment products, fees, service charges, mortgage loan fees, , among others. For first quarter 2002 the banks experienced an 11.24 percent growth in non-interest expense, over that of the comparable period in 2001. This increase was due largely to employee incentive plans, health insurance, pension benefits, computer depreciation, fees, the disposal of a former banking facility and other real estate expenses. Loan quality continues to get top priority for our company.

Provisions for loan losses remain unchanged at $1.125 million for the first quarter of 2002 and 2001. Allowance for loan losses as the percentage of loans increased to 1.44 percent for first quarter and 1.36 percent at March 31, 2001. Net charge percent of average loans was .008 percent this first quarter compared to .007 percent for the comparable period in 2001.

The company's loan coverage ratio was 207.23 percent for the quarter compared to 143.35 percent for first quarter 2001. Our ethic quality continues to improve as a result of our commitment to credit scoring, central credit analysis and central collections. From first quarter 2001 our assets grew about 5.69 percent to $1.3 billion, due primarily by growth in deposits. Loans grew at a modest rate of 67 percent from $813 million to $819 million due to the continued sluggishness of the economy.

We are, however, beginning to see a pick up in loan activity and hope to see loans increased during the next few quarters. Deposits have grown 5.11 percent to $113 billion, primarily through transactions in money market accounts. Although credit quality and profitability have been given highest priority, growth is still seen as an important part of our strategic plan. Our internal growth and issues included a concerted effort to expand relationships with our existing clients from 2 to 5.

Although we continue to ride around two services per client household, our emphasis on profitability of the relationship has helped improve the average household profit. This is being accomplished through the attraction of and a fluent market segment of clients through upgrading of our position in financial services company, insurance integration, the seniors program and development of our wealth management division.

Our acquisition initiatives, including filling in strategic markets within our existing north and north central Mississippi, and expanding into desirable target markets in southwestern Tennessee, northwestern Alabama and central Mississippi. We are focusing on selected markets that contain approximately $23 billion in deposit with a three-year annual growth rate of 6 percent.

Our positive earnings performance is the result of our people diligently implementing a comprehensive client centered business plan. The major objectives of this plan include client satisfaction and development, financial soundness and profitability, growth, employee satisfaction and development and shareholder satisfaction and development.

As mentioned earlier, we have well defined initiatives and action plans, which are designed to address our margin by increasing our loan deposit ratio and for deposit and through risk based loan pricing and proactive deposit pricing.

Also through asset quality, through credit scoring, central credit analysis and central consumer collections, through non-interest income, through the sale of insurance and wealth management services and by improving our fee collection percentages and our new loan fees, through capital management with our continuing stock buyback program and through dividends that we have increased for 15 consecutive years, and also through cost efficiency by increasing debit card and Internet banking usage, automatic drafts for loan payments, enforcement of a small loan single pay policy and incenting the use of electronic statements in lieu of paper statements.

While we have made great strides in improving our performance, we have not reached our potential. We measure ourselves against a custom peer group and we strive to be in the top quartile of that group. We believe that with a strong foundation, capable experience leadership, a dedicated staff, and a clear direction, that we will achieve our objectives. We are confident that Peoples Holding Company offers a long-term investment opportunity.

Now, , I will turn it back over to you for any questions from anybody in our audience.

At this time, I would like to remind everyone if you want to ask a question, please press star and then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A rosters.

Your first question comes from the line of .

Congratulations on a good quarter.

Thank you, Scott.

I have a few questions. First, could you talk a little bit about the pick up in loan activity, maybe what types of loans, what regions, or where you are seeing that come from.

Scott, interestingly enough, we picked up just recently quite a few loans, which were approved sometime and fairly large amounts for our bite. These are mainly commercial and some consumer real estate secure type loans. Mostly in the Lee County and DeSoto County areas where we are seeing these larger credits, and in the adjoining area, mainly in this north portion of our market.

OK. Secondly, could you talk a little bit about the competitive environment?

As you well know, we have a very competitive environment over here. We have a strong competition. South obviously is also headquartered here in Tupelo and most of the major banks in Mississippi are here. Because of that, or in the region that we are in, we see quite a bit of competition, but it is healthy competition. It is one of those things that I think causes all of us to do a better job in what we do. We look at pricing as a result of it, and we also have to concentrate on customer service, which I think plays a significant role in who makes the deal and who doesn't.

So, you can really see any changes in the competitive environment?

Scott, this is Jim Gray. How are you doing?

Hi, Jim. Good.

I wanted to mention one thing. We have started to see on the deposit side some specials kind of creep into the markets, higher rates, particularly in the 3 to 5 year range on deposits, probably on the positive side that is really about the only thing we have seen. Maybe a little less pressure on the loan side for some of the longer. I think everyone is starting to get a little concerned about interest rates going up and we are seeing less of the longer term fixed rate type of loan offers out there, more variable rate offers.

OK, I see. Finally, I believe Robin that you mentioned you altered the securities portfolio somewhat. Could you talk a little bit about what you did there.

We did. We changed some of our investment policies. We had some restrictions on the direction we could go. As a result of that, we reduced, for example, the percentage of treasuries we hold in our portfolio from about 18 percent down to about 4 percent. We are looking more at the cash flow opportunities for . We bought some trust . We are looking at different types of securities than we looked at in the past. As a result of this, we have a that we look at and as a result of this we have gone from the fourth quartile to the second quartile in our investment portfolio in that time-frame.

Thank you very, much

Thank you, Scott.

Thank you. Our next question comes from the line of of Midwest Research.

Hi, good morning. Could you comment a little bit, Robin, on what your prospects are for activity?

, it is one of those deals that over the course of the year, a little over a year now, that we have been involved in this. I guess starting with probably the last nine months we have kind of been in a courtship stage more than anything else. We are looking. One of the things that we want to do, obviously, if we do a deal is that we pay an optimum price.

That being a price that is not too much that would cause excessive delusion, but also one that would be satisfactory in order to do the deal. Over the course of time, we have made some real good relationships and as you have seen and we have talked previously, we are looking obviously, as I said a while ago, at the market that we are in, central Mississippi, southwestern Tennessee and northwestern Alabama and we think there are some good opportunities for us in those markets. We are looking for banks in markets that are very similar to the markets that we are in. We do not want to try to expand into territories that we are unfamiliar with the type of markets that they are in. We feel real good about some opportunities.

What was the $1.3 million write down on your good will related to? Which acquisition or type of acquisition was that related to?

One of the insurance agencies we acquired.

OK, were there any issues with, I guess you all actually pulled all your bank transactions, didn't you?

Correct.

OK. Are there any more of those going forward, or do you think you, I mean I know you have to review it annually, but how do you feel about that going forward and what could possibly affect the good will that you still have on your books?

We feel good about it going forward. We saw this as the time to go ahead and accept that impairment based on our we feel like that in going forward we should not have to recognize additional impairment. We feel real good. In fact, we feel real good about our insurance agencies going forward. It just basically boiled down to it took longer to integrate the insurance agency evidently than it was anticipated when the acquisition was made.

That was, as you know, one of our priorities beginning last year, to integrate the insurance agency with the bank in order to get the profits up. That was something we were disappointed with, with the level of the level profits there. So, that was one of our major priorities when we started this process, to integrate the agency in there. We feel like that our folks have done a very good job of doing this, both on the bank side and on the insurance side.

In fact, going forward, we see our insurance management group very concerned about the profitability of the agencies and we have strengthening the management of the agency and we see this as being a strong profit center for us going forward.

OK, how do you feel about the chronic quality? I guess this question is on the loan growth. Do you see loan growth going back up and surpassing the deposit growth rate that you have enjoyed over the last few quarters, or is it just kind of going up from the 1 percent range to 2 percent or 3 percent.

We actually see our loan growth going up, , to equal, or maybe exceed, but probably to equal deposit growth going forward. We see some really good opportunities; taking advantage of opportunities we may not have taken advantage of before.

Let me go back and say one of the reasons that we have seen our loan deposit ratio drop, you may recall, we eliminated our indirect lending operation and so we are still having run-off of those types of loans and we are not replacing them. So, as we go out and replace loans as a different type of loan, so we are kind of having a turnaround phase that has shown some impact on being able to increase loans.

We are looking at a lot stronger quality loan than we had in the past. We are living by our credit sworn models. We like that this has improved the quality dramatically. We are seeing the new loans we are booking being of much, much higher quality than what we have had in the past. So, we are feeling very good about that. I think, as is evidenced by our coverage ratio, as you looked at, we are at 207 percent in that category and we feel real strong about how that will continue to impact us. We feel real good about our credit .

OK, great. Looking at the interest rate risk going forward. Let's say the fed stays on hold for the next quarter or two and they start raising rates in the fourth quarter. If they raises, let's say 100 basis points in a one quarter period, how would that affect your net interest margin?

This is Stuart. In performing our rate analysis, we would have actually a mild increase in our net interest income. It is almost flat, but it is up about 1 percent.

OK. I guess looking at this, if the margin is at 459 right now, do you feel comfortable with near term with the margin in the 465 range?

I think we will end up in maybe in the low 460s. If you are talking about rates going up?

Sure.

Yea. Probably still low 460s. We are still making some improvement in those each month. For example, for the month of March we had a 462 and I think we will probably stay there, 462, 463, for the remaining part of the year, if the rates rise a percentage point.

OK, one last little question. What are you prospects for the trust business? I noticed it was down a pretty good amount year every year. Has that business picked up on a month-to-month basis, or what are your prospects for that longer term?

I think one of the major reasons that they were down income wise and asset wise has been the impact of the stock market. Our trust fees are based on asset size and so not only does it have an impact on the size of the trust area when equities are down, it also has an impact on the income they have generated. We look at it as being something that will be a very positive good part in the future. We have an outstanding group there and they are adding significant new business as we speak. This is also an area that we look in the future to really expand to wealth management in general.

Looking back historically, I guess the revenue was clipping along around 265,000 a quarter. Do you feel like you are back to that revenue rate with market conditions having improved in the last 90 days? How do you feel about that on a more short-term basis?

is going to answer that for us.

One of the things that I would say is we have some people working in with merging with our trust department with our wealth management and that process is going on as we are talking.

, I think in answer to the question, we see the trust revenue stream going back up to the level where it was and exceeding that. We do not have, quite frankly, a real good accrual system on trust income right now. That accrual is being worked out as we speak to get that income spread more over a 12-month period than it has in the past. But, we do see trust income going back up significantly over time.

Great, thank you all very much.

thank you.

Thank you, sir. At this time there are no further questions.

Thank you. We appreciate your interest in the Peoples Holding Company for those of you who have joined us today. Hopefully we provided you with pertinent information about our company. Please do not hesitate to contact any of us if you have any further questions or if we can be of assistance in any way. Thank you very much.

This concludes today's Peoples Holding Company first quarter 2002 earnings conference call. You may now disconnect.