Renasant Corp (RNST) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2004 The Peoples Holding Company earnings conference call. My name is Kristi and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator about be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Jim Gray, Executive Vice President of The Peoples Holding Company. Please proceed, sir.

Thank you, Kristi. I would like to welcome you to the The Peoples Holding Company's first quarter 2004 earnings conference call. With me today are Robin McGraw, President and Chief Executive Officer; Stuart Johnson, Executive Vice President and Chief Financial Officer; and Harold Livingston, Executive Vice President and Chief Credit Quality 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 fluctuations, 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. I'm pleased to advise you that 2004 is starting out as another good year for our Company. We are beginning to see a rebound in economic activity in our markets and this is leading to loan and net interest income growth. This net interest income growth coupled with continuing growth in noninterest income has resulted in record earnings for the first quarter of 2004.

Our primary markets, which has been fairly resilient given the national economic turndown for the past year, are continuing to show signs of improvement. During the first quarter companies in our Lee County home base have added manufacturing jobs, expanded operations and have established two new plants. Site work has begun on a 302,000 square foot plant for Advanced Innovations, a manufacturer of contour bed pillows and mattress pads. It is anticipated that the Company will employ 250 people.

Cooper Tire and Rubber Company, the international tire manufacturer located in Tupelo, has added 200 new jobs in 2003 and in the first quarter of this year has created 35 new jobs and invested $7.5 million toward the purchase of cutting edge tire manufacturing equipment. IB Industries, a subcontractor for Cooper is constructing a 27,000 square foot facility in Lee County and will employ around 60 people. For the past 20 years, Lee County has averaged 1,070 new jobs per year.

We are very excited about our current and expanding presence in DeSoto County, Mississippi. By joining Memphis, Tennessee. It is one of Mississippi's top five counties in retail sales and is a leading growth market for our Company. During 2003, DeSoto County attracted eight new companies and recorded 12 industrial expansions. In the first quarter of this year, Federal Express announced that it would build a hub in Olive Branch, one of the four DeSoto County cities where we have a bank. This 330,000 square foot facility will bring 600 jobs to the area. This level of development in the region is expected to continue.

Through February, DeSoto County's unemployment rate was 3.2% compared to 5.6% for Mississippi and 6% for the rest of the country. I should also note that according to a recent census bureau report, DeSoto County is ranked 39th nationally on estimated population increases since the 2000 census. The County's population has grown 16% since the 2000 census and is anticipated to grow more than 11% over the next five years.

In the city of Horn Lake, where we have just opened our fourth DeSoto County bank, a major 440-acre multi-use medical and retail development is well underway along Interstate 55 in close proximity to our bank. Another indicator of its economic vitality is that Horn Lake now leads all DeSoto County cities in the number of residential building permits with 90 through the month of February.

We continue to be strategically focused on increasing our share of the market for investment, insurance and banking services for DeSoto County and the suburban Memphis market. In addition to opening the new DeSoto County bank in Horn Lake during our first quarter, we opened a DeSoto County financial services office in the Deerchase complex in Southhaven and hired several key commercial lenders in this market.

Of course, our greatest source of excitement comes from the announcement of our merger with Renasant Bancshares, a $226 million bank located in the affluent Memphis suburb of Germantown, Tennessee.

We're pleased to announce that our diluted earnings per share for the first quarter of 2004 increased 5.5% to 57 cents, from 54 cents for the first quarter of 2003. Net income increased from $4,552,000 for the first quarter of 2003 to $4,647,000 for the first quarter of 2004. The annualized return on average equity increased from 13.15% for the first quarter of 2003, to 13.27% this year. While our annualized return on average assets remained at 1.29%.

Noninterest income grew 5.5% for the first quarter of 2004, compared to the same period in 2003, while net interest income was basically unchanged. Noninterest income grew 4% compared to the fourth quarter of 2003, while net interest income grew more than 2.5%. This is the first time that we have had back-to-back quarterly growth in net interest income since 2002.

While margin was down 7 basis points from the fourth quarter of 2003 to 4.09%, it was primarily due to a temporary large overnight funds position that has now been deployed into loans. This should help to improve our margin in the future. We were able to lower our provision for loan losses to $505,000 for first quarter 2004 from $767,000 for first quarter of 2003 due to continued low chargeoffs. Net chargeoffs as a percentage of average loans was 21 basis points annualized for first quarter of 2004. Which is consistent with our strategic goal.

The allowance for loan losses as a percentage of loans was 1.50% at the end of the first quarter of 2004. Nonperforming loans as a percentage of total loans was 1.05% at March 31, 2004 and the nonperforming loan coverage ratio was 143% at the end of the first quarter of 2004. As I noted in our last conference call, while nonperforming loans are higher than targeted, nearly one half of the amount relates to one credit. We are making progress on resolving this credit and continue to believe that it will not have a significant impact on our operating results.

Noninterest income continued to increase as a result of the strong growth in service charges, fees related to the sale of insurance, and investment products, loan fees and debit card uses. Noninterest income increased 5.5% to $8,171,000 for the first quarter of 2004. Noninterest income continues to represent almost 40% of our net operating revenue and is extremely important to our Company from a strategic standpoint.

Noninterest expense grew slightly more than 5% for the first quarter of 2004 compared to the first quarter of 2003. This was due primarily to salary and benefits related to strategic commercial lending and wealth management hires. Also data processing expenses incurred due to the implementation of a thin client network and market expenses related to a checking account program started in the second quarter of 2003. We believe that each of these expenses is an investment that will pay future dividends in the form of an increased revenue and reduced expenses. It is important to note that despite the increased expenses, our net overhead ratio improved to 1.55% for the first quarter of 2004 from 1.65% last year.

In addition to the initiatives in DeSoto County and suburban Memphis, we continued to advance our strategic plan with the opening of our Private Client Financial Services center in the Fair Park district of Tupelo, Mississippi. This facility will serve affluent clients with a full range of financial products and services including financial planning. Additionally, our high performance checking program implemented in May of 2003 continues to generate more than double the DDA openings of comparable periods prior to the program.

Assets as of March 31, 2004, were up almost 5.5% from a year-ago to nearly $1.5 billion. And deposits grew almost 3.5% to $1.2 billion. Loans grew to $882 million at the end of the first quarter of 2004 from $851 million a year ago. Particularly encouraging is the fact that loans have grown over 9% annualized for the last two quarters.

I would like to end my comments today by saying that I believe with strong capital and liquidity, the increased level of talent that we have achieved through these strategic hires that I mentioned and our improved footprint through our partnership with Renasant Bancshares, we are better positioned now than ever before to take advantage of a rebounding economy and move our Company to the next level.

Now, we will be glad to answer any questions that anyone has.

Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch-tone telephone. If your question has been answered, or you wish to withdraw your question, press star followed by two. Questions will be taken in the order received. Please press star one to begin. Please stand by for your first question. Your first question comes from David Honold of KBW. Please proceed, sir.

Good morning.

Good morning, David.

Two questions. The first is on just related to the net inflows this quarter to nonaccrual, if you could give us some color on those. And along with that, just an update on the one large nonperformer that is sitting there.

Right. Actually, the net inflows came from what turns out to be basically one client, a related client, and that one is in the process of being resolved and would anticipate that it would be out of a nonperformance rather quickly.

The one large one that we are talking about, we have made significant progress on. It is still in bankruptcy but we have made significant progress to the point that we are in a much better position than we were last quarter on this loan. We anticipate it will probably still show in the nonperformings for awhile until the client can work his way out of the bankruptcy situation that he is in, but again, we are very optimistic about the final results of this particular loan.

Okay. And the increase in 90 days past due this quarter. Was that granular or?

David, you had two credits that showed up on the 90-day list this quarter that are related to each other. One of them, in fact, one of them has a total of like 27 different notes that are secured by real estate. We have been in the process of working with this customer. We don't feel like there is any loss facing us and we think that those will come out of the 90 days within probably the end of next week.

So even though they did hit 90 days, we have reviewed the situation with the customers, we are very familiar with them and we feel like they will have the wherewithal to get these loans current. We've met with them and explained the situation if they don't, and I fully expect that they will bring them current within another week.

That's great. Finally, if I could, could you give us any new news on the Renasant front? Still planning for a July 1 close, I would imagine? And then, Stuart, maybe you could remind us what the pro forma tangible capital ratios are going to look like? Thanks.

David, this is Robin. We are still anticipating a July 1 closing on that. We are progressing as well or better than anticipated as far as regulatory approval. And I'll let Stuart go ahead and answer the tangible capital question.

We will be, David, into 7 -- just a little bit less than 8% on tangible capital after the transaction.

Thank you.

Your any question is from Peyton Green with FTN Midwest Research. Please proceed, sir.

Hi, good morning.

Good morning, Peyton.

I was wondering if you all are seeing any change in customer activity on the deposit side or if you're actually changing your behavior in trying to lock in money longer term?

Peyton, we are not really seeing that much difference. We have seen a run up in deposits, but a lot of it has been in the area of public funds, which we normally see during the first quarter of the year. That in turn had an impact on our margin because of the nature of the funds. We are really -- although we do have some specials out there to attract some longer-term deposits, we are not really seeing that much change in our customers' patterns on the deposit side right now.

Okay.

Peyton, look in our CDs it has been reprised over the last 6 months, we have had a couple of weeks that we have averaged maybe 36 months. I would say on that period of time that the bulk of our deposits when you look at the CDs are being reprised at ann average of about nine months. That is kind of what the average of people go into right now at our bank.

Okay. And I guess a follow-up to that. Is there in I opportunity in the second quarter particularly to re-price, maybe some past stuff that was at higher rates, down that would give you a possible positive benefit or is margin pressure still going to be a thing to deal with until rates start to head higher?

I think what you see, we kind of flattened out on the deposit side. If you looked at fourth quarter compared to first quarter, it was pretty flat as far as impacts on margins. What we are seeing that we are very excited about, is a turn in our total interest income, that it is starting to exceed the prior period. And we have got, again the second quarter improvement in margin and most of that is going to be hitting on the asset side.

Okay, but I mean, that's a volume issue not a rate issue.

Right.

Peyton, we do see some pockets of time deposits that are re-pricing in the second quarter and particularly the third quarter that are at some pretty high rates, so we do see some continued benefits from that.

Okay. I mean I guess getting at this, do you think the margin slips a little further into the second and third quarter but net interest income continues to go up because of volume?

No. Quite the contrary, Peyton, we see your margin increasing.

Okay.

We lost in the first quarter, and some of it will still be with us in the second quarter because of the trust preferreds that were issued, we lost about 16 basis points in margin in the first quarter related to the large increase in overnight funds that I mentioned because of these public fund deposits that we had.

Okay.

And also because of the funds on hand for the Renasant cash portion of the Renasant purchase.

Okay.

That we are getting very little margin on. That cost us about 16 basis points this quarter.

Okay. That clears it up.

So, yeah, we see about at least the overnight part of it have been redeployed into loans. And also, as Jim just mentioned a minute ago, over the next six months we see some higher rate CDs being reprised so we should -- plus the increase in loan volume that we experienced and continue to experience, we anticipate our margin going back up.

Okay.

Peyton, this is Jim. One final comment. Most of our loan growth that we saw in the first quarter occurred in the latter half of the first quarter, so a lot of that improvement in margin, or that really had not had that much of an impact on margin in the first quarter, but we see that continuing through to the second quarter.

Okay. And then from a geography perspective, I mean where did the loan growth come from? Was it in Tupelo or across --

Basically in our two big markets. The Tupelo market and the DeSoto County market is where most of it is coming from. We also, as you may have noticed in the past, have a strong commercial loan base in the Westpoint, Mississippi market that we are in and the related areas, the Westpoint/Starkville area.

Great. Okay. And then any color on how Renasant is doing so far this year?

They are on budget.

Okay. Good enough. Thank you very much.

Thank you, Peyton.

Uh-huh.

Again, ladies and gentlemen, please press star followed by one for questions. Again, that is star followed by one. Sir, you have no questions at this time.

Thank you, Kristi. We appreciate everyone's time today. And also your interest in The Peoples Holding Company. We look forward to speaking with you again when we report our second quarterly results of 2004 in July. Thank you again for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.