Renasant Corp (RNST) 2003 Q2 法說會逐字稿

Good day everyone and welcome to the People's Holding Company conference call. Today's call is being recorded. At this time for opening remarks and introductions, I'm going to turn the call over to the Executive Vice President, Mr. Jim Gray. Please go ahead, sir.

I'd like to welcome you to the People's Holding Company 2003 earnings conference call. With me today are Robin McGraw, President and Chief Executive Officer, Stuart Johnson, Executive Vice President and Chief Financial Officer, and Corky Springfield, Executive Vice President and Chief Credit Policy Officer. Before we begin, let me remind you that some of our comments may be forward-looking statements which involve risks and uncertainty. A number of factors could cause actual resuslts 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 and regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission.

And now, our President and Chief Executive Officer, Robin McGraw will begin our discussion.

Good morning, thank you for joining us today. Our company performed well in the second quarter of 2003 despite the sluggishness in the economy. We reported improvement in earnings and continued improvement in asset quality. Growth in non-interest income coupled with slower expense growth more than offset lower loan growth and a narrowing of our net interest margin. Economic conditions in the primary markets of our sixteen county operating region remain relatively strong. In the next six to twelve months our Lee County home base is expected to show increased growth in manufacturing (indiscernible). This will come primarily from new second tier automotive suppliers, plastics and furniture plants and expansions of existing facilities.

DeSoto County which is adjacent to Memphis, Tennessee, is another of our leading growth markets and one of the state's top five in gross retail sales. Manufacturing and distribution sector job growth for DeSoto County in fiscal 2002 exceeded that of the previous ten years. That trend is expected to continue.

For the quarter ended June 30, 2003, earnings per share increased 2.5 percent to 82 cents a share, from 80 cents per share last year. Net income increased 1.5 percent to 4,557,000 from $4,489,000 last year. Year-to-date earnings per share increased nearly 8 percent to $1.64 from $1.52 before the cumulative effect of an accounting change which we recognized in 2002.

Net interest income for the second quarter of 2003 was down 6 percent while non-interest income grew more than 18 percent in the second quarter of 2003. These results produced an annualized return on average equity of 12.79 percent compared with 14.36 percent for the second quarter of 2002. The annualized return on average assets for the second quarter was 1.27 percent compared with 1.37 percent for the prior year period. Year-to-date return on average equity was 13.16 percent for 2003 compared with 13.54 percent for 2002, before the cumulative effect of that accounting change I previously mentioned. Year-to-date return on average assets was 1.30 percent for 2003 compared to 1.29 percent for 2002 before the accounting change.

Despite the current economic environment, the quality of our loan portfolio remains strong, as is evidenced by net charge-offs. Net charge-offs as a percentage of average loans decreased to 4/100th of a percent in the second quarter of 2004 (ph) from 15/100th of a percent the prior year. Our increased emphasis over the past three years on credit scoring and risk analysis has paid off in a steady and consistent reduction in provisions for loan losses. The provision in the second quarter of 2003 was $603,000, down approximately 44 percent from $1,075,000 in the year earlier period. Despite this decrease, the allowance for loan losses as a percentage of total loans at the end of the second quarter was up to 1.49 percent, compared with 1.39 percent as of June 30, 2002.

Nonperforming loans as a percentage of total loans increased to 51/100th of a percent from 44/100 of a percent in this prior year period. The non-performing loan coverage ratio was 296 percent for the second quarter of 2003, compared with 318 percent for the year earlier period.

Net interest margin for the second quarter of 2003 declined to 4.31 percent from 4.75 percent due to a continuation of record low interest rates. During this time we have continued to match (indiscernible) loans with Federal Home Loan Bank advances to lock in low-cost liabilities and reduce our exposure to interest rate risk when rates begin to rise again. One of the strongest areas of our business in the second quarter was the increase of non-interest income of more than 18 percent. Through selective acquisitions over the past several years and internal development, we have diversified our revenue stream to include wealth management and trust revenue, loan fees, property and casualty insurance commissions, other service charges and debit card income. As a result of all these initiatives, non-interest income represented approximately 38 percent of our net operating revenue at the end of the quarter, confirming our effort to become less dependent on net interest income.

Expense control has also been an ongoing priority for the company, and our team did a solid job of controlling expenses in the second quarter. Although non-interest expenses increased 7.4 percent for the second quarter, the strong growth in non-interest income outpaced the slower growth in non-interest expense by 31 percent. This resulted in the net overhead ratio of approximately 1.66 percent compared to 1.81 percent for the second quarter of 2002. It should be noted that 40 percent of the expense increase was related to future revenue enhancements and professional fees.

In May of this year we implemented high-performance checking as a means to grow core deposits. Our goal was to double account openings. I am pleased to report that through 11 weeks of our account openings are now up more than two and a half times the openings for the same period in 2002. Our assets as of June 30th were up nearly 6 percent from a year ago to just under $1.4 billion. Deposits grew approximately 4 percent during the last 12 months, and loans increased nearly 4 percent.

Currently the slow economy continues to have a negative impact on loan growth in particular. However, our view is that the economy is forced to rebound later this year and we feel that we are well-positioned to take advantage of this improving environment. Now we will be glad to answer any questions that you may have.

(CALLER INSTRUCTIONS) David Hommel(ph) with KBW.

Do you think you can give us a little more of the detail on loan growth in the quarter by category, even just maybe breaking it down between commercial and consumer?

We are getting that right now. I tell you what, I am going to let Corky Springfield, he is our credit quality man -- give you a little breakdown on that, David.

Our loan growth basically has been in residential real estate construction. If you look at our portfolio overall we have about 70 percent, give or take a percent or two, of our entire portfolio is real-estate related. It's not so much as far as just construction, but we do take real estate as primary collateral for other types of loans. However, the growth we have seen has been basically in our Tuppelo market where our loans are up about 18 percent, and then our DeSoto County market which is basically a bedroom community for Memphis, and that is in some sort of -- I won't say flight -- but people moving out of the Shelby County, Tennessee area into north Mississippi because of the increased tax rates in Shelby County. And we have a number of builders in that market that build quality homes, and we've been very active in that market. So that's where our loan growth basically has been.

Okay. I guess maybe we can get some of the actual (indiscernible) quarter growth rates by category off-line. But do you want to just comment a little bit, Robin, on the margin outlook. It's been good control on the margin this quarter, it looks like. And do you think that is sustainable given what's going on with the market interest rates?

We were -- we're not pleased with our margin, but we were pleased with the fact that the deterioration between the first and second quarter was as low as it was. Obviously we, like all the banks and I think everybody is experiencing the same thing we are experiencing, the pressure we have on our spreads which is obviously contributed to the decline in margin, it possibly will continue. We feel that we have put into place some initiatives to as best as we can minimize the impact of this margin deterioration.

And feel as good as we could at this point in time. We can't make any predictions going forward, but we do our best to try to match the dollar amount -- the rate drop on the asset side with the dollar amount on the liability side, and we have been relatively successful in that. We felt the impact more of the November 2002 50 basis point drop than anything else. That's been the biggest hit that we've had. We felt like that, we won't feel the 25 basis point drop that we just had nearly as much as we did that one. That had a significant impact on us. As you can see from that big drop.

But we feel relatively good about where we are at this point in time. One thing we are pleased with is the 18 percent increase in non-interest income. We obviously were able to offset to a large extent that margin drop with that non-interest income. Also, we have concentrated heavily as we have mentioned before on the expense side, and we really, we think have done a pretty good along that line. We have, over the course of the year, have seen our expenses increase at a relatively modest level in comparison with where they could be. Our salaries and other employee benefits have not experienced much of an increase in comparison.

We had, as I mentioned in the conference call, 40 percent of our increase was the result of expenses related to some product development, one of which we mentioned was high points (ph) checking. Those in turn will be revenue producing in later quarters, so we should see some of the expenses will be nonrecurring, and all of the expenses will be more than offset with income generated later on in the year. So from that standpoint we see an improvement in our earnings on that side of the coin.

Yes, the service charge growth was impressive. Is this the sort of run rate we should expect now or are is there still more benefit to come in that line?

From the growth side and net side, we will see more to come.

Thanks.

(CALLER INSTRUCTIONS) Mark (indiscernible) with FTN Midwest Research.

Just a quick follow-up on David's margin question. What kind of trend did you see within the quarter on the monthly margin? Was it fairly flat within the quarter or did you see a significant taper and just average out (indiscernible) slight margin pressure?

We have seen about a 2 to 4 basis point drop on a monthly basis depending on the month of what we had repricing. I think on the high side, that that was about a 4 basis point drop in margin from month-to-month.

And in terms of asset quality, it seemed to be trending all right, but what are you seeing in terms of the actual watchlist? Some of the things we are covering or seeing some improvement in actual MPAs but watchlist deteriorating.

We really have not seen a deterioration in our watchlist. Actually this time our nonperforming assets are actually better. We have seen about a one-third drop in our other real estate. We had that slight uptick, quite frankly because of one large loan that is in bankruptcy and therefore we had to put on non-accrual. We feel relatively good about the long-term results of that, but we see that as a blip. But as far as our credit quality, we are still extremely optimistic. As we look down our past use are still trending at a great level in comparison to past years. As we look at past years in comparison to this year, where we made traditionally -- traditionally may have seen a jump from May to June, we did see that we stayed relatively flat along that line. So we feel very comfortable about where we are right now.

Again going back, what we see is the past three years we've initiated some pretty strong initiatives to resolve any credit issues that may have been there previously. And any charge-offs that we are seeing or problem loans that we are seeing are those old loans. They are not those -- they are not new loans. We are seeing that the loans we've made in the last three years are still good quality loans. We feel real good. As I said, we're down actually it's about $700,000 in our other real estate portfolio at this point in time, from March to June. So we see some continuing improvement and we anticipate that continuing.

Thank you.

(CALLER INSTRUCTIONS) Gentlemen, we have no other questions in queue. I will turn the call over to Mr. McGraw for any closing comments.

We appreciate everyone's time today and your interest in the People's Holding Company. We look forward to speaking with you again when we report our third-quarter results in October. Would like to thank everybody.

That does conclude our participation; at this time you may disconnect. Thank you.

(CONFERENCE CALL CONCLUDED)