Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Joseph H. Towell – President and Chief Executive Officer

Edwin H. Shuford – Executive Vice President and Chief Credit Officer

Wm. Mark DeMarcus – Executive Vice President and Chief Operating Officer

Jan H. Hollar – Executive Vice President and Chief Financial Officer

Analysts

Brady Gailey – Keefe, Bruyette & Woods

Mike Turner – Compass Point Research & Trading, LLC

Charlie Wohlhuter – Raymond James & Associates, Inc.

Yadkin Valley Financial Corporation (YAVY) Q1 2013 Earnings Call April 25, 2013 10:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the Yadkin Valley First Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Later we’ll have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded for replay purposes.

Before we begin this call, I would like to remind everyone that this call may involve certain forward-looking statements such as projections or revenue earnings and capital structure as well as statements on the plans and objectives of the company or its management, statements on economic performance and statements regarding underlying assumptions of the company’s business.

The company’s actual results could differ materially from any forward-looking statements made today due to several important factors described in the company’s latest Securities and Exchange Commission filing. The company assumes no obligation to update any forward-looking statements made during this call. If anyone does not already have a copy of the press release issued by Yadkin Valley Financial today, you can access it at the company’s website. www.yadkinvalleybank.com.

It is now my pleasure to turn the floor over to your host, Joe Towell, Chief Executive Officer. Sir, you may begin.

Joseph H. Towell

Thank you, Mary. Good morning, everyone, and thank you for joining us. I am very excited to report first quarter earnings for Yadkin Valley as well as to talk about a few other initiatives that we have underway. In summary, so we’ve had a great quarter, and we started out strong for 2013. I’ve got Jan Hollar here with me, our Chief Financial Officer; Ed Shuford, our Chief Credit Officer, and Mark DeMarcus, our Chief Operating Officer. We have had a great start to 2013 at the Yadkin Valley, and I am pleased to report solid financial performance alongside our announcement about our rebranding initiatives.

First on financial performance, the company delivered $4.2 million in net income this quarter or $0.10 per share. This is right in line with our internal expectations and it’s a great positive way to start the year. We’ve also had continued credit quality improvement this quarter. Our asset disposition plan is now complete with the execution of the bank Owned Real Estate auction in the first quarter.

Also, our net interest margin improved exactly as we expected this quarter increasing almost 30 basis points on a quarterly average. The mortgage division continued to deliver strong results, contributing significantly to our non-interest income for the quarter. We’re also beginning to realize the success of our calling efforts as loan production continue to increase. This will eventually achieve – help us achieve our projected long growth targets for the year.

Overall, I believe we’ve hit our mark this quarter in terms of performance. I’m very proud of our team and look forward to continued strong results in 2013.

Now I want to take just a moment to talk with you about a couple of other important items going on at the bank. First is our rebranding initiative. As you know, we’ve operated for many years under different names, from our TARP banks, to our mortgage division, to our investment and insurance subsidiary. As the company has grown, each entity has retained its original name and we are very proud of the strong heritage in each of these legacy names.

However, now the timing is right to capitalize on the synergy we can create by moving to one brand and one name. In light of this, I’m very happy to announce that on May 28 we will be doing business at the holding company level as Yadkin Financial Corporation and as the bank as the Yadkin Bank.

To align with this new brand, we are also going to change our trading symbol to YDKN beginning May 28 and we’ll continue to trade on NASDAQ.

Additionally, you may have also seen that we intend effect a one-for-three reverse stock split to increase the liquidity and demand for our stock. We’re seeking the report approval for this action at our annual shareholders meeting to be held on May 23. Following that approval, we will execute to split on or about May 28.

In summary, from our commentary, we’ve continued the credit quality improvement, solid financial performance, launch of our rebranding initiatives, and the reserve stock split. I believe we’re well on our way to achieving top quartile performance among community banks in the Carolina.

While there is still work ahead of us and we have uncertain economic times, we continue to build in our franchise value, return value to our shareholders, and provide superior financial solutions to our customers.

I believe our future is bright, our team is dedicated, and management and the board are 100% focused on delivering meaningful profitability in 2013.

And now I’ll turn it over to Ed for some further detail in credit quality for the quarter.

Edwin H. Shuford

Thanks, Joe. As Joe mentioned, we continue to maintain a very attractive credit profile following the execution of our asset distribution plan. Our (Inaudible) to that plan was a completed this quarter when we sold approximately 59 properties in public auctions. We mark these properties according to our best estimate of a nice surprise through the fourth quarter of 2012; we did not experience any further loss once the auction was completed.

Our first quarter had (Inaudible) ratio decreased to 27% of Tier 1 capital and loan loss reserve. With that our reserve did not perform (Inaudible) to the 103% and our 30 day (Inaudible) total loans. We’re confident in our current credit quality profile and about our ability to maintain going forward.

Turning to our run-loss reserve, our model continues to call for conservative reserve level due to many economic uncertainty and other external factors in our markets. Average credit quality continues to improve our coverage of 198% of loans held-for-investment insurance to be well reserved.

We have made some organizational changes to ensure that we have increased lending opportunities. We are well staffed to support our partners in underwriting those loans in the most prudent way. We built our credit underwriting group focused on C&I lending, and cash flow loans and we are going to (Inaudible) to getting our small business lending center up and running.

That group will focus on small business loans and SBA firms. To lead both of these things we have moved one our most experienced credit professionals into the role of Senior Lending Executive. This thing will help centralize and streamline our underwriting processes and when our bank has sort of small business acquisition and development.

I’ll now turn it over to Mark for some commentary on the General Bank.

Wm. Mark DeMarcus

Thank you, Ed. I’d like to focus on several items from the retail side of the business. Our continued positive loan production results, mortgage income and lowering deposit costs. First on loan production, our total loan production numbers are up 18% quarter-over-quarter led by an increase in C&I loan production of 57%. Our pipeline continues to build nicely particularly in the C&I and owner occupied real estate and consumer loan categories. In fact, our pipeline is as robust as it has been over the past five years. We continue to believe based on our first quarter results that we will hit our loan growth targets for the year as our banker aggressively pursue quality relationship lending opportunities in our markets.

Next, let’s look at mortgage. Our mortgage performance was strong again this quarter and I want to give you just a few details on that. First, our core revenue and mortgage was $2 million for the quarter, an increase from last quarter and the last year. Second, our purchase to refi ratio was 45% purchase to 55% refi for the quarter. Our purchase money pipeline continued to build throughout the first quarter while our refinance pipeline remained relatively flat.

We’re pleased to see our originators progress on – progress on purchase money closings as first quarter’s total closed volume increased by 15% compared to the first quarter of 2012. Finally, as we continue to focus on growing our servicing portfolio, mortgage servicing increased by 25% compared to Q1 of 2012. We’re very pleased with our improvement in deposit cost this quarter as we realize an additional 13 basis point reduction compared to the fourth quarter.

We continue to have additional opportunity to reduce deposit costs further as our time deposit both matures during the remainder of ‘13. We ended the quarter at 0.71% of cost of deposits.

I’ll now turn it over to Jan for an overview of our financials.

Jan H. Hollar

Thank you, Mark. Earnings for the quarter correlated nicely to our internal projections. Net income available to common share holders for the quarter was $4.2 million or $0.10 per diluted share. Now that our asset disposition plan is complete and we’ve disposed of many non-earning assets, we are returning to a more normalized earnings level. Our net interest margin expanded nicely as we expected it would do following the asset disposition.

The average margin for the first quarter was 3.57%, an increase of almost 30 basis points compared to the prior quarter. This increase is due primarily to the continued re-pricing of our time deposits. the reduction in non-earning assets, the reinvestment of cash and the continued shift in our deposit mix.

In addition, we’ve expanded the yield on our securities portfolios. Non-interest income increased nicely, although if you will recall it was impacted negatively by losses related to the assets disposition last quarter. As Mark mentioned, mortgage income of $2 million contributed to this increase. The remaining mortgage income this quarter was related to negative provisions on mortgage loans sold due to the dissolution of our mortgage subsidiary as we previously announced.

Turning to non-interest expense, the salary and benefits line item increased approximately $400,000 compared to the prior quarter. While our core salary expenses remained flat, we began accruing for performance-based incentives in the first quarter. Also like many other companies, we experienced higher benefits and tax expense, beginning in January. The capital ratios for the company for Tier 1 leverage, Tier 1 risk-based and total risk-based capital were 10%, 12.2% and 13.8% respectively. One other important item to note is that as of March 31, our tangible common equity to tangible assets ratio was 7.83%.

This concludes my prepared remarks. And I’ll now turn the call back over to Joe.

Joseph H. Towell

Thank you, Jan. Now we’d like to open it up to any questions that you may have. Mary, we’re ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Brady Gailey from KBW. Your line is open.

Brady Gailey – Keefe, Bruyette & Woods

Thank you. Good morning, guys.

Joseph H. Towell

Good morning, Brady.

Brady Gailey – Keefe, Bruyette & Woods

So time deposit – cost of time deposits came down pretty nicely in the quarter, about 20 basis points. When you look at that going forward, it came down 20 basis points and it’s still roughly 1.5%, which I’d say is kind of high, how fast do you think you can get that 1.5% down to below 1% or I mean, the 20 basis points of decline is on 1Q, is that a good run rate for the next couple of quarters?

Joseph H. Towell

Brady, that’s probably too aggressive a run rate for a next couple of quarters. There is more yield out of that that we expect. However, it will slow down as we get deeper into the year.

Brady Gailey – Keefe, Bruyette & Woods

Okay.

Joseph H. Towell

I do expect second quarter will be – substantial curve will be less and so on.

Brady Gailey – Keefe, Bruyette & Woods

Okay. And then core expenses that came a little higher than I had modeled, some of that in occupancy, some of that in comp. I guess the question for Jan, you had some seasonal issues, you started accruing for the incentive, but that $7.4 million of compensational benefits, is that roughly a good run rate for the next couple of quarters going forward?

Jan H. Hollar

Yeah, that’s not a bad run rate. There are few salary related expenses that gets closer to the first quarter and then they kind of drift off into the payroll tax kind of things, but we’re going to see a little bit of improvement in some of the core items. If we had a few expenses associated with the capital raise back last fall that flowed over into the first quarter some additional expenses related to discount of the first quarter debt will follow through for the whole year.

Brady Gailey – Keefe, Bruyette & Woods

Okay. And then finally, the $1.3 million negative provision in the mortgage line sounds like you just released some like rep and warranty reserves. Will that be repeated at all or is that benefit fully captured in 1Q?

Unidentified Company Representative

That will not be repeated, Brady, that’s pretty much done in 1Q.

Brady Gailey – Keefe, Bruyette & Woods

Okay. All right, thank you, guys.

Unidentified Company Representative

Thank you, Brady

Operator

Thank you. Our next question comes from Mike Turner from Compass Point.

Mike Turner – Compass Point Research & Trading, LLC

Hi, thank you. Good morning.

Unidentified Company Representative

Hi, Mike.

Mike Turner – Compass Point Research & Trading, LLC

Just if you could maybe touch on competition in the C&I space, just hearing a lot of other North Carolina banks and also larger banks kind of targeting North Carolina in competition, it’s getting a lot more intense. But any color there on pricing and sounds like demand is real strong with your pipeline, but color there would be helpful.

Unidentified Company Representative

You’re reading it correctly that it is a very competitive market. The pricing is the focus point. I think we have a very strong pipeline. Our pipeline is as robust as it has been in years, and if that pipeline delivers what we think it will in terms of closing and fundings, we’ll be right on target for our loan growth expectations.

In regard to pricing, we have a pretty good risk-based total return pricing model that we are working from. We’re trying to avoid irrational pricing. We’re trying to price with targeted yields and returns on relationship and on individual loans, but pricing is very competitive and they will bring a handful of deals that we will have to, if we want to keep them or win them, we’ll have to price it tighter than perhaps, we want to. But we are trying to avoid that as much as possible. Mark, do you want – anything you want to add to the competitive landscape goal?

Wm. Mark DeMarcus

I think, you’re right. It is very competitive in Carolinas. But we have – I think we’ve proven that we’re not going to be a price later that we’re going to be value later relative to relationship. And so far our customers and the prospects that we call on a value that relationship where it would be cash management, deposits, loans, mortgage or investments and that I believe along with the long tenure that we have in our sales force has helped us along the way.

Edwin H. Shuford

Mike, this is Ed. We’ve also added some key personnel in Q1, some safe ion C&I larger loan underwriters. I think in addition to getting the pricing right, we are going to be a little bit fairly going to be a structure in term life, which is also affecting competition. So that the organizational changes we’ve had in underwriting will bolster our ability to peak time (inaudible).

Mike Turner – Compass Point Research & Trading, LLC

Thanks. And then what are kind of maybe a weighted average growth origination yield in the first quarter, is that something you have handy?

Edwin H. Shuford

Well, let me take about that. This is Ed, and you are looking at kind of all and (Inaudible) what it might be.

Mike Turner – Compass Point Research & Trading, LLC

Just closed, figuring loan yield, I guess I’ll call it the gap yield, because I know you probably amortizing loan fees in there?

Joseph H. Towell

Yeah. Let me answer it this way. We’re pricing off of the model that I mentioned to you and its risk-based model that also factors in deposits and the entire relationship. (Inaudible) there depends on the risk rating and the loan type collateral type and so on, but think of it in terms of 18% to 20% ROE and that’s pretty much what we are shooting for. Now, there are some exceptions in current time, but broadly speaking, think of it as 18% to 20% ROE on a loan and that’s kind of what we are hitting and mark hitting in that loan growth today.

Mike Turner – Compass Point Research & Trading, LLC

Okay, it’s helpful. And down to the OREO cost, I mean, now, it’s great to actually see a gain, the execution on the disposition and in fact, a gain, what’s a good assumption for OREO costs going forward. I mean, should there presumably be some lingering cost or is it going to be minimal going forward or I imagine it would be nice to see gains, but I don’t imagine that would be the norm.

Unidentified Company Representative

I think that you should view it as OREO costs would be minimal going forward. We are not budgeting any gains. If we have any gains going forward, there will be kind of fair money to the upside. But net-net, we expect our OREO to be well managed and at a reasonably low level compared to historical levels and a fairly consistent level throughout the year. I would also just as a footnote add that we feel like the demand for the OREO is still improving and getting stronger.

Mike Turner – Compass Point Research & Trading, LLC

Great, thank you very much.

Joseph H. Towell

Thank you, Mike.

Operator

Thank you. (Operator Instructions) Our next question comes from William Wallace from Raymond James. Your line is open.

Charlie Wohlhuter – Raymond James & Associates, Inc.

Good morning, everyone. This is actually Charlie Wohlhuter calling in for Wally.

Joseph H. Towell

Good morning, Charlie.

Charlie Wohlhuter – Raymond James & Associates, Inc.

Good morning, Joe, if I could just kind of circle back and go back to the mortgage loan line item in the quarter. So if I back out the $1.3 million negative provision, I’ll come out with about $2 million or so in mortgage revenue, that’s about 33% increase sequentially. So I assume volumes were up, did you also hire more mortgage originators, could you just kind of give me a little more color on that why the game was pretty dramatic on a sequential basis?

Joseph H. Towell

Yeah, I’ll start and then Mark can fill in a little bit of detail, but first of all, your numbers the way you’re looking at it are correct. The answer to that is, about maybe a few more originators, we do have plans to hire more originators, couple may have come on board in the first quarter, volume has been solid for us.

William Mark DeMarcus

Yeah, I would just add to that as we have said in previous calls that our plan will be to continue to increase our sales stuff or mortgage originators. In Q1, we had the most significant gain in our purchase money production, which is exactly what we had forecasted and so we had about, I am rounding, about 30% gain year-over-year if you look at Q1 2012 to 2013 and we had a nice gain in refi as well. So those things are coming in as we anticipated, maybe slightly ahead now. It’s hard to forecast rates and what’s going to happen with refi, but again, we’ve pinned our production and our success off of what we’re doing, both in expansion of our existing NOL franchise as well as shifting more into purchase as we get.

Charlie Wohlhuter – Raymond James & Associates, Inc.

Okay, great, thank you.

Unidentified Company Representative

Thanks, Charlie.

Operator

Thank you. I show no further questions and would like to turn the conference back to Mr. Joe Towell for closing remarks.

Joseph H. Towell

Thank you, Mary. In closing, I’d like to state again that I’m really pleased with the first quarter financial performance. We look forward to producing a strong 2013 with emphasis on earnings as a priority as we move through the year. I’m also very excited about our rebranding effort and rolling that out in late May and I very much appreciate the support on rebranding and the support on the reverse stock split initiatives that we have underway.

So in summary, I feel like we did hit our mark for the first quarter, we will continue to hit our marks as we move throughout the year. Thank you for your support, please call if you have any questions.

Operator

Ladies and gentlemen, thank you for your participation on today’s conference. This does conclude the program, and you may all disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Yadkin Valley Financial's CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts