Renasant Corp (RNST) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Q4 2003 The Peoples Holding Company earnings conference call. [OPERATOR'S INSTRUCTIONS] I will now turn the presentation over to your host to today's call, Mr. Jim Gray, executive vice president. Please proceed, sir.

Thank you, David. I'd like to welcome you to The Peoples Holding Company's fourth quarter 2003 earnings conference call.

With me today are Robin McGraw, president and chief executive officer, Stuart Johnson, executive vice president and chief financial officer, Harold Livingston, executive vice president and chief credit quality 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 uncertainties. 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 SEC.

And now our president and chief executive officer, Robin McGraw, will begin our discussion.

Good morning. Thank you for joining us today. I'm pleased to advise you that 2003 was another good year for our company. Although slow economic growth and low interest rates throughout the year combined to compress our net interest margin, we have successfully overcome this with strong non-interest income growth, slower operating expense growth and lower net charge-offs with these record earnings 2003.

Economic conditions in the primary market of our 16 county operating regions remain relatively strong. Since mid 2003, our Lee County home base has added 583 manufacturing jobs through the expansions of 11 plants and the addition of four new plants.

Cooper tire and rubber company for example has added 2000 new jobs in 2003. For the past 20 years, Lee County has averaged 1,000 new jobs per year and since January 2003; the county has created a 1019 manufacturing jobs.

DeSoto County, which is adjacent to Memphis, Tennessee, is another of our leading growth markets. During 2003, DeSoto County attracted eight new companies and reported 12 investor expansions. One of the largest expansions was by Williams SONOMA, distributor of home decorative items, which added a million square feet to the existing 2 million square feet in olive bank Mississippi. where we have a bank. This level of development DeSoto County is expected to continue.

To take advantage of this, we are expanding our presence in this market with a location in Horn Lake, Mississippi, our fourth location in DeSoto County. It's scheduled to open later this month. Diluted EPS for 2003 increased almost 5% to $2.19 from $2.10 before the cumulative effect of an accounting change recognized in 2002.

Net income increased almost 3% to $18.181 million for 2003, up from $17.670 million before the accounting change. Net income and diluted EPS were $16.370 million and $1.94 respectively for 2002 after this accounting change. The result on average assets was 1.33% for 2003 compared to 1.35% for 2002 and return on average equity was 13.41% for 2003, compared to 13.87% for 2002 before the accounting change. For 2002, the return on average equity and return on average assets were 12.85% and 1.25% respectively after the accounting change. For the quarter ended December 31, 2003, diluted EPS were increased slightly to 55 cents per share from 54 cents share for the fourth quarter of 2002.

Net income of $4.557 million remained relatively flat compared to $4.572 million for the same period in 2002. Non-interest income including security gains grew more than 7% for the fourth quarter of 2003 while net interest income was down 6.8%. These results produced an annualized return on average equity for the fourth quarter of 13.27% compared to 13.48 for the prior year period. The annualized return on average assets for the fourth quarter was 1.32% compared to 1.35 for the prior-year period.

During the fourth quarter of 2003, we realized an 8 basis point improvement in margin from 4.08% for the third quarter of '03 to 4.16% for the fourth quarter as a result of increasing our loan volume and the improvement in our yield on mortgage backed securities, which resulted from the slowdown in additional principal payments on those securities. The provision for loan loss has decreased from $1.025 million in the fourth quarter of '02 to $544,000 for the fourth quarter of '03, resulting primarily from a decrease in net charge-offs.

Net charge-offs, there is a percentage of average loans declined to 0.26% annualized compared to 52 basis points for the fourth quarter of 2002. For 2003, net charge-offs decreased to 20 basis points from 42 basis points for 2002. The allowance for loan losses as a percentage of loans was 1.53% at the end of the fourth quarter 2003 compared to 1.41% at the end of the same period in 2002.

Non-performing loans as a percentage of total loans increased to 85 basis points at December 31, 2003, from 42 basis points at December 31, 2002. The non-performing loan coverage ratio was 181% at December 31, '03 compared to 338% at December 31, 2002. We are pleased with the reduction in the net charge-off ratio, which is consistent with our strategic goal. While non-performing loans are higher than targeted, it's important to note that over half of this increase relates to one credit. And we believe that the resolution of this credit will not have a significant impact on operating results.

As a result of a strong growth in service charges, fees related to sale of insurance and investment products, loan fees, debit card usage and an $82,000 in securities gains, non-interest income increased 7.10% to $7.709 million for the fourth quarter of 2003, from $7.198 million in the fourth quarter of 2002.

The increase in non-interest income, which stems from multiple sources, continues to be a key strategic initiative for our company. As of year end nearly 40% of our net operating revenues derived from non-interest income reflecting our commitment to this initiatives. Non-interest expense growth slowed to 18 basis points for the fourth quarter of 2003, although we continued to incur significant marketing expenses related to the implementation of a strategic initiative to grow transaction accounts.

During the fourth quarter of 2003, growth in non-interest income continued with a stringent control of operating expenses, resulting in a net overhead ratio of 1.57% compared to 1.85% for the fourth quarter 2002. Net overhead is defined as non-interest expense less non-interest income expressed as a percentage of average assets. In addition to achieving record earnings for 2003, we have continued to advance our strategic plan with the construction of a new bank in Horn Lake, Mississippi, which is part of the rapidly growing suburb in Memphis, Tennessee market.

We will open our financial services center in the Fair Park district of Tupelo in January 2004. This facility will serve affluent clients with a full range of financial services and including financial planning. Our high performance-checking program implemented in May of 2003 continues to generate more than double the account openings of the comparable period of 2002. Capital Management continues to be an important initiative. In a stock repurchase plan, during the fourth quarter we announced a three for two stock split and 2 cents per share dividend increase to 20 cents per share. This action makes 2003 the 17th consecutive year of dividend increases.

Assets as of December 31, 2003, were up more than 5.25% from a year ago to just over $1.4 billion. Deposits grew more than 3% in the last 12 months and loans were slightly up. Although the slow economy has had a negative impact on loan group; it's encouraging to note that loans that almost 7% during the fourth quarter of 2003 and we anticipate this trend to continue. Our view is that the economy is showing signs of rebounding and with a strong capital and liquidity position; we are well positioned to take advantage of this improving environment. Now, we'll be glad to answer any questions that anybody may have.

Thank you sir. [OPERATOR INSTRUCTIONS]. Our first question comes from Wilson Smith from Cone Brothers. Please go ahead sir.

Good morning, gentlemen. Happy New Year.

Good morning Wilson Smith.

Could you give us a little flavor on the economy and a little more detail on the economies that you serve down there and kind of the outlook as we come out of the fourth quarter and into '04 here in terms of brighter prospects?

Wilson, one of the things that I think is extremely important is that the unemployment rates have dropped in every county that we operate in and something that tells the tale quite frankly is that the Want Ads in the northeast Mississippi Daily Journal, which serves this market have been full of opportunities for employment. So I believe that we are definitely seeing a strong turn around in the economy in this area.

Good. How does the loan backlog look at this point, both on the, you know, commercial side and the retail side and a where do you see most of the growth coming from at this point?

Well, most of our growth will continue to come from the DeSoto County market and the Lee County market. And we've also had significant growth in the Clay County and Otibaha County market, which is the - Otibaha's the county that Mississippi state is located in. And we have also some significant loans in La Fayette County, which is the County that houses the University of Mississippi. So those are probably the markets where we have seen the most loan growth and which will continue to see that. At the present time, our backlog is what I would term adequate, but we certainly would like to see an increase and we have our lenders actively pursuing loan opportunities at this time.

Wilson, let me add, too, that we have just recently hired two new lenders in that DeSoto County market that have been in that Memphis market for some time. And they bring with us quite a bit of experience and hopefully will be bringing a lot of new loans, which we're planning to have during this first quarter of the year.

Good. And I would assume that they have really been brought on to bring up the commercial out standings?

Correct.

Do you expect to see stronger growth on the commercial side, rather than the retail side this year or - ?

We do. We have spent a lot of time in our -- the change of our company to concentrate more on those commercial lines and we have been making a lot of hires in order to accomplish that goal.

I think that overall from what we've been seeing, with other institutions around the country, is clearly, you know, that the commercial business has been better. But we've also seen a lot of cases, some very strong home equity growth both in terms of lines and straight loans. Are you seeing that as well?

We are seeing a considerable amount of this as refis have come into place, we're adding home equity loans with those refis.

Good, good. One more question here and then I will, I will, may be two and then I will let somebody else in. The net interest margin popped up nicely to 8 basis points in the fourth quarter for you. And I'm assuming as you said, it is primarily due to the investment portfolio, the pressure coming off on the pre-pays there. How much - do you see continuing pressure as we're getting into '04 here or do you think that you kind of flattened out?

We have bottomed out. And we see probably a little more appreciation in that, in the margin during the first quarter. These additional loans will certainly add to that.

OK. And could you just give us - could you give us a little update on the one large non-performer?

Sure. I'm going to let Corky Springfield who is our Chief Credit Policy Officer to comment on that.

Wilson, on that non-performer, its one large credit involving some rental properties. That customer is in a Chapter 11 re-organization. We met with that individual and his attorney about a week ago. We have in principal an agreement that, of course, has to be improved through the bankruptcy court, whereby that loan would then go on an interest only basis and we would start accruing interest on that loan. That should help our margin further. We feel we're adequately reserved for that credit. This would give that individual time to work out of his problems by liquidation of some of the assets.

I mean Corky, do you have a 100% of that exposure or is that participation with several other institutions?

Well, he is borrowing from other institutions. The exposure we have is direct. He's direct with some other institutions, also.

Great. Thanks very much.

Thank you, Wilson.

Thank you. And our next question comes from Peyton Greene from FTN Midwest Research. Please proceed sir.

Hi. Good morning.

Hello, Peyton.

I have got a couple of questions for you. One, what do you think the UPC effect might be on your M & A strategy and then also just on your de novo? How does that change things around for you all?

We obviously have been looking at that this morning as everyone else has. And at this stage of the game, until we look at it a little more closely, we don't see any real major impact one way or the other. We do feel like it will be a positive thing for us going forward.

OK. And then out of the commission and fee income line, how much of that is the agency business versus the mortgage?

I'm going to let Stuart give you that answer.

The mortgage business, when you look at it, as far as gross fees, our insurance business on insurance commission is going to be about 50% higher than our total mortgage business.

OK. So I mean are you saying that the -

We had about $3.5 million of commission income coming in off of our insurance agency.

OK.

And we made about 2.2 gross fees in our mortgage business.

OK. And then in terms of the fourth quarter, what -- I mean the number was a good bit lower and that's not a total surprise. But I mean, how much of that would have been because the insurance agency was slow versus the mortgage business dropping off?

Let me just give you a general comment on that, Peyton.

OK.

December is generally the slowest month of insurance commissions that we have.

Sure.

Just by nature, not because of any loss of income.

Right. Right.

And obviously, during the fourth quarter, our mortgage loan income slowed down also. I think going forward that you will continue to see the insurance agency being a larger portion of the income derived from those two sources.

Sure. I guess what I was trying to get at was just what was the year-over-year growth in terms of the insurance agency business and how did you feel about that in '03 versus '02?

I'm going to let Jim Gray respond to that.

Peyton, the insurance agency, we were up close to 8% in gross commissions on the insurance agency for the year.

OK. And what do you think a good number is looking at it in '04, could it be double-digit or do you think kind of a high single digit.

I think single digit, we're not really looking for double-digit increase but we are looking for good solid increase in the single digits.

OK, great.

Mid to upper single digits.

OK. Thank you very much.

Thank you Peyton

[OPERATOR'S INSTRUCTIONS] Our next question comes from Sam Caldwell from KBW, please go ahead.

Good morning, gentlemen. My question was on the 90 days past due loans. I noticed that they ticked down. Obviously the non-performing loans picked up. And I'm speaking third quarter to fourth quarter. Can you comment on that, where those just 90 days past due moving on to non-performing loan status?

Sam, some of that was one that was 90 days we put on non-accrual. But our past due percentage, this is 30-day or more past due loans, we ended the month of December I think in 2.13, 2.15, somewhere in that range.

OK.

Of total past due loans of 30 days or more. We had hit a low in October of 2%. It jumped up to about a 2.35. And then was back down in December. We've spent a lot of time and effort over the last two or three years centralizing collections. It has worked very well. We've gone from -- and I'm going from memory now. In '99 thereabouts to a 4 or 4.5% past due percentage ratio, 30 days or more past dues, down to the current low (inaudible). We believe our credit quality, both on putting the credits on the books through our scoring systems, our monitoring systems, and now our collection systems, have been greatly responsible for reboosting our net charge-offs percentage down to the .2% that it is now.

OK. Thank you.

Thanks, Sam.

And no further questions at this time, sir. Any additional comments or closing remarks sir?

Thank you, operator. We appreciate everyone's time today and the interest that you have expressed in the The Peoples Holding Company. We look forward to speaking with you again when we report our first quarter 2004 results in April. Good-bye every one.