Renasant Corp (RNST) 2004 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to the Second Quarter 2004 The Peoples Holding Company Earnings Conference Call. My name is Ca0lara 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 the conference. If you require assistance at any time during the call, please press "*" followed by "0" and the coordinator will be happy to assist you. As a reminder, this conference is being recorded. I would now like to turn the presentation over to your host for today's call, Mr. Jim Gray, Executive Vice President. Please proceed, sir.

Thank you Calara . I would like to welcome you to the Peoples Holding Company's second quarter 2004 earnings conference call. With me today are Robinson McGraw, our 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 risk and uncertainty. A number of factors could cause the 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 Securities and Exchange Commission. And now our President and Chief Executive Officer, Robinson McGraw, will begin our discussion.

Thank you Jim. Good morning. Thank you everyone for joining us today. I would like to start our call today with an update on the economy in our area. I am happy to report that the economic development activity in our primary markets continues at a brisk pace in both service and manufacturing sectors. During the second quarter, companies in our Lee County home base which averages nearly1,100 new jobs per year have added manufacturing jobs, expanded operations, and consolidated operations from out of state location. Long-term Lee County [inaudible] company products has elected to consolidate all compressor production to Tupelo from Michigan and add 150 job. Lighting products manufacture Daybrite is adding a new production line and staffing up for an additional 60 employees. MTD Products, manufacturer of lawn and garden equipments, is investing additional $5 million in distribution of facilities in Lee County and creating 35 new jobs, a new 302,000 square foot plant for advanced innovations, a manufacturer of contour bed, pillows and mattress beds is nearing completion and will be operational in November. These developments are representative of the encouraging economic picture that we see here at our home base.

We’re also really excited about our country expanding presence in DeSoto County, Mississippi, and Shelby County, Tennessee, cities of Cordova and Germantown. All of these are joining Memphis. They're leading growth markets -- these are leading growth market for our company. As mentioned in our first quarter conference call this year, FedEx announced that it will build a hub in Olive Branch, one of four DeSoto County cities where we have a bank. This 330,000 square foot facility will bring 600 jobs to the areas.

Additionally. the distributions centers for three new companies are locating in the DeSoto County city of Southaven and three manufactures in Olive Branch and Hernando have expended.

On the service side, a $175 million capital expansion is underway at Baptist Memorial Hospital in DeSoto County. And also, construction is about to begin in two -- for two regional malls in DeSoto County. This level of development in region is expected to continue and the DeSoto County Economic Development Council reports that it is currently working with 12 manufacturing and 20 distribution prospects. Underscoring the [environment] DeSoto County economy, I might add that Southaven, now Mississippi's eighth largest city, has registered a 20% gain in residents since the 2000 census. Our location in Hernando, Olive Branch, and Horn Lake have also shown dramatic gains in population of up to 23% during the same period.

We are focused on increasing our share of the markets for investments, insurance and banking services in Lee and DeSoto County and the East Memphis market. During the first half of 2004, we opened three new banking and financial services offices. These include the new full-service bank and Horn Lake, which is in DeSoto County, Mississippi, the financial services office in Southaven, [Deerchase] Office Park which is also in DeSoto County and the Private Client Financial Services Center in the new Fair Park district of downtown Tupelo.

While the new facilities had an impact on non-interest expense, the Horn Lake and [Deerchase] offices will boost the Company's presence in the dynamic DeSoto County and Shelby County markets. And the Private Client Financial Services Center will serve affluent clients in the Tupelo and Lee County area with a full range of products and services including financial planning.

In addition, on July 1, 2004, we consummated our merger with Renasant Bancshares. This partnership now gives us a presence in the affluent and fast-growing east Memphis markets of Germantown and Cordova.

Our diluted earnings per share for the second quarter of 2004 increased 10.91% or 61 cents from 55 cents in the second quarter of 2003. Net income increased from just over $4.5 million for second quarter 2003 to more than $5 million for the second quarter of 2004. The annualized return on average equity improved to 14.02% for the second quarter of 2004 compared to 12.79% for the same period of 2003. Our annualized return on average assets was 1.40% for the second quarter of 2004 compared to 1.27% for the same period last year.

The second quarter of 2004 did include an after-tax gain of $617,500 as a result of the sale of a merchant card business to Atlanta-based Nova Information Systems which became effective on June 1. We will continue to receive revenue from Nova for new business referrals.

Non-interest income increased 13% to more than $9 million for the second quarter of 2004 from approximately $8 million for the second quarter of 2003. Excluding the gain related to the aforementioned merchant card sale, non-interest income growth was relatively flat reflecting the anticipated slowdown in mortgage activity due to higher interest rates.

Our comprehensive investment, insurance and traditional banking services that we provide to our clients, has resulted in the significant growth in non-interest income during the previous 14 quarters. We continue to generate strong diversified fee income which represents approximately 40% of our net operating revenue, reflecting our commitment to this strategic initiative.

Net interest margin improved a 4.10% for the second quarter of 2004 from 4.09% for the first quarter of 2003. Net interest income grew slightly from the second quarter of 2004 compared to the same period in 2003. The economic improvement in our region coupled with strategic hires has lead to loan growth for the first half of this year. This loan growth has in turn lead to 3 consecutive quarter increases in net interest income. We believe this improvement will be sustainable.

The allowance for loan losses as a percentage of a loans was 1.45% at the end of the second quarter 2004 compared to 1.52% at the end of the same period in 2003. Net charge-offs were $610,000 or 28 basis points annualized as a percentage of average loans for the second quarter of 2004 compared to $333,000 or 16 basis points for the second quarter of 2003.

Non-performing loans, as a percentage of total loans increased to 82 basis points as of June 30, 2004, from the.51 basis points that we had on June 30, 2003. The non-performing loan coverage ratio was 177% on June 30, 2004, compared to 296% on June 30, 2003.

Our continued relatively low level of net charge-offs is consistent with our strategic goal. As mentioned in prior conference calls, over one-half of our non-performing loan ratio is related to one credit. This client is currently in Chapter 11 Reorganization and we have restructured this debt. The client is performing under the restructure agreement and we believe that we're adequately reserved.

The provision for loan losses decreased to $488,000 for the second quarter of 2004 from $603,000 for the prior year. This reduction in expense resulted from an improvement in the overall quality of our loan portfolio from the first to the second quarter of 2004. Loans past due between 30 and 89 days are approximately $1.4 million less on June 30, 2004 than they were on March 31, 2004. In addition, past due -- loans past due for 90 days or more are down approximately $2 million for the same period.

Non-interest expense grew 3.91% for the second quarter of 2004 compared to the second quarter of 2003. This was due primarily to the salary and benefit expenses related to the strategic hiring of commercial lending and wealth management personnel, data processing expenses incurred due to the implementation of network enhancements, , continued marketing expenses related to a successful checking account problem introduced in the second quarter of 2003 and the cost of both the new banking new facilities that we mentioned earlier. We believe these expenses to be necessary investments for they are generating and we will continue to generate significant revenue in the future.

Assets as of June 30th 2004 were up more than 2.5% from June 30th 2003 to $1.4 billion and deposits grew to more than $1.1 billion.

Loans grew more than 6% to $906 million at the end of the second quarter of 2004 from $852 million on June 30th 2003. Loans grew at an annualized rate of nearly 11% from the end of the first quarter of 2004 representing the third consecutive quarter of loan growth.

On July 15th, 2004 our company signed to definitive agreement to acquire Heritage Financial Homing Corporation, the parent of Alabama-based Heritage Bank. Heritage has 8 banking locations in Decatur, Huntsville, and Birmingham, Alabama. At March 31, 2004, Heritage had total assets of $540 million, total deposits of $408 million and total stockholders' equity of $31 million. The acquisition of Heritage will allow us to gain a presence in some of Alabama's most attractive markets and to serve a broader customer base while enhancing shareholder value and future earnings potential. Heritage provides us with a natural extension of our current footprint and we are excited about the partnership as we share similar operating philosophies, cultures, and values. The acquisition is expected to close in the first quarter of 2005.

I believe with strong capital and liquidity, the increased level of talent that we have achieved through strategic hires, our blue footprint through our partnership with Renasant Bancshares in Tennessee and the impending expansion in the Alabama Heritage Financial Corporation, we are better positioned now than we have ever been to move our company to the next level.

Now Calara, we will be glad to answer any questions that anyone may have.

Certainly sir. Ladies and gentlemen if you wish to ask a question please key "*" "1" on your touchtone telephone at this time. If your question had been answered or you wish to withdraw your question, please key "*""2". Again ladies and gentlemen if you wish to ask a question please key "*""1" on your touchtone telephone.

Our first question comes from the line of David George (phonetic) with FTN Midwest Research. Please go ahead.

Good morning gentlemen.

Hi, David.

I was just wondering if you all could give through the line items that made up the non-interest income, and specifically, you know, where you see the most momentum?

Yeah, non-interest income line items?

Yes sir.

We can –

On the total, what you are going to see – the one thing is that gain in there -- but we [don’t see] on non-interest income, not just necessary on the line items on a quarter-to-quarter basis. Big improvement in our debit cards, has been very good this year. We have seen our annuity [and mutual sales] being extremely good. Those numbers were up substantially over the prior quarter. [inaudible] particularly our [inaudible] origination fee income have been up and these have been up in addition to [hand the cover] year–to-date about $700,000 of loss of mortgage revenues from our refinancing and [inaudible] and mortgage loan. In short we have had a very good year from standpoint of contingency; income was well up over the last year.

And that – then mortgage revenue was down linked quarter or on a year-over-year basis?

For year it is down about $700,000.

okay.

[Though] offset with other non-interest income.

Okay, how is the Memphis growth going?

Renasant or --

Just and the Denovo – how you all are doing in that area.

We're seeing as you – as we’d mentioned before in prior conversations David that the we have hired several new individuals in that DeSoto County market. We’ve hired new folks in Southaven and Olive Branch and in our Horn Lake location and also Hernando. In addition to that we've added two commercial lenders in that market to cover that area. It’s becoming, obviously, one of our fastest growing markets and we are starting to see some real increase in generation of loans in that area and we’re concentrating there. We're actually today doing this conference call from Memphis. We attended the Renasant Board meeting this morning prior to call. Again on July 1, they became the part of Peoples Holding Company, and we’re starting and will like to complete the integration here by the end of year. They’re starting to see loan growth in this market, in fact, yesterday at our loan committee meeting we saw several loans coming from the Renasant market down there. One of the real advantages is that they now have a much larger lending limit and go after larger credits in this market in Memphis.

That’s great. And if I could just one more thing on same thing, would you say would characterize that merger is going better than you all had planned or track?

We feel like the integration itself is going faster than we anticipated it would. We will have converted the data processing by the end of this quarter and we feel like that the total integration will be substantially complete by the end of the year, which is I think ahead of what we earlier had anticipated. So, we are very pleased with how well it is going.

Okay, thank you very much.

Thank you, Dave.

Once again ladies and gentlemen, if you do wish to ask a question, please key "*" "1" on your touchtone telephone. Your next question comes from the line of Andy Stapp with Cohen Brothers. Please go ahead.

Good morning.

Good morning, Andy.

How much the decrease do you expect from – in quarterly revenues from the sale of your merchant card business?

We actually -- I'll let Stuart answer that, but we actually -- it was not a large net revenue producer. And the reason for the sale actually, Andy, was that that income was going down. It was becoming more and more competitive. So our percentage return on new merchant customers was getting smaller and smaller to the point that it would have been a loss. We actually don't anticipate, after everything is said and done, the net revenue to be all [proportionately funded ] because if you take into consideration, the investment of the proceeds of the sale, plus the revenue we'll generate that they will pay us or new customers that we bring on in this area. It won't be in [inaudible].

Okay. All right.

We actually were only netting out about $100,000 a year.

We are right on the track as net of tax [inaudible] $50,000 net of tax that’s all we been making for first six months Andy.

So, we were only about $100,000 net of tax a year. So we’ve pretty much offset that

Right. Also in your press release, it indicates that the financial – more detailed financial information be available under your financial release section of Investor Relations, I didn’t see that..

I will be checking on that. It’s supposed to be out there on the website.

Okay.

It should be out.

We will make sure that it is out there shortly

Okay very good. That’s all I had.

Thank you, Andy.

Once again ladies and gentlemen if you do wish to ask a question please key "*" "1" at this time. Again ladies and gentlemen that's "*" "1" for questions. It seems that there are no further questions. Gentlemen please proceed with your closing remarks.

Thank you Calara. We appreciate everyone's time today your interest in the Peoples Holding Company. And we look forward to speaking with you again when we report our third quarterly results in October. Thank you.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the presentation you may now disconnect.