Q1 2021 Renasant Corp Earnings Call
Good morning, and welcome from my Hat's off Corp.
First quarter 2021 earnings call and webcast, all participants will be in listen only mode.
And if it was completely and Goldcorp for a specialist by Christmas are equal and advisory World.
After the presentation.
And I ask questions. Please note that there's a plan b.
And recorded.
And I would like to turn the call over to Kelly Hutcheson, Washington Corp. Please go ahead.
Good morning, and thank you for joining us for rent is that corporations 2021 first quarter webcast and conference call participating in this call today are members of Renaissance Executive management team before we begin. Please note that many of our comments. During this call will be forward looking statements, which involve risks and uncertainty.
There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed and the forward looking statements, even while conditions and our footprint and across the country appear to be improving as COVID-19 vaccines are administered to more people the impact of the pandemic and the federal.
State and local measures taken to a rest of the virus as well as all of the follow on effects from this pandemic remains significant factors likely to impact our future financial condition and operating results. Other factors include but are not limited to interest rate fluctuation regulatory changes portfolio performance and other factors discussed and are.
Recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site Www Dot Renaissance dotcom at the press releases link under the news and market day to tap. Furthermore, the COVID-19 pandemic has magnified and likely will continue to magnify the.
The impact of these factors on us we undertake no obligation and we specifically disclaim any obligation to update or revise forward looking statements to reflect changed assumptions the occurrence of unanticipated events or changes to future operating results over time. In addition, some of the financial measures that we may discuss this morning are non.
GAAP financial measures a reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release and now I will turn the call over to our President and Chief Executive Officer, Mitch Waycaster.
Thank you Kelly good morning, we appreciate you joining the call today before Kevin and Jim discuss results for the first quarter I will all for observations on the quarter and our outlook for the balance of the year.
First quarter results represent a good start to the year. The quarter was marked by stable credit metrics, a significant increase in deposits slight net loan growth and strong reported net income performance and the quarter reflects contributions across all of our business lines and markets. We can.
Continue to see signs of improving economic activity throughout our region. Our hope is that this activity begins to spur additional loan demand and the second half of the year at Renaissance and we talk often about one team going to market as one bank throughout the pandemic, we have remained <unk>.
True to that approach and serving our customers I believe our company has grown its reputation as a financial service provider of choice and these challenging times. We also remain committed to core principles, which emphasize core funding asset quality and capital structure.
I will now turn the call over to Kevin.
Thanks, Mitch our first quarter earnings were $58 million or one dollar and two cents per diluted share. Several factors contributed to the first quarter's EPS first our mortgage division experienced another strong quarter and production we fully recovered all impairment charges that we had recognized in previous quarters second.
Net interest income improved as a result of our ongoing deposit repricing efforts and Triple P fee income recognized upon loan forgiveness last our strong and stable asset quality metrics, coupled with an improved economic forecast resulted in additional credit provision expense this quarter being unnecessary efficiency continues to be top of mind.
And and in the first quarter of 2021 we began to see the positive effects of two initiatives, we introduced and the previous quarter aimed toward cost containment savings from our voluntary early retirement program are tracking according to our plan and we completed the closure of six branches in early April we still anticipate that these efforts will result in annual.
Cost savings of approximately $9 million with around 75% of those savings realized during 'twenty 'twenty. One our work on efficiency is not complete and we continue to evaluate our operating model and the profitability of our branch network and while short term gains are often attractive our efforts in this area, our deliberate and we consider the long.
Term impact of any decision before moving forward by focusing on balance sheet growth stabilizing margin leveraging our other lines of business to generate additional fee income and reducing excess cost. We believe our efficiency goals can be attained with vaccines, becoming more broadly available and virus cases declining from the winter peak, we are seeing more.
Gnomic activity in many markets throughout our footprint still our digital and mobile metrics are trending and a positive direction. This affirms our belief that customer behavior continues to evolve and expectations for quicker and more convenient access to banking services will continue to grow stronger rather than fade with the pandemic we.
We are focused on innovation and seek investments that provide our customers with the technology and security that they've come to expect and this day and age. The Paycheck protection program continues to be an important focus of our team. We are assisting our customers through the forgiveness phase of round, one triple P loans with around $268 million, having been forgiven during the first.
Quarter, we have approximately $861 million of round, one triple P loans remaining on our balance sheet, we entered into a referral relationship with another firm to utilize his technology platform to originate round two triple P loans for our customers. This arrangement allows our relationship managers to focus on traditional loan growth and serving our customers through.
Round, one triple P forgiveness, while ensuring we continue to meet the needs of our customers as they operate through the lasting effects of the pandemic and the first quarter, we realized approximately $2.3 million and referral fees from our partners and now I'll turn it over to Jim.
Thank you Kevin as we walk through the quarter's results I will reference slides from the earnings deck, starting with the balance sheet footings grew about $700 million and the quarter. This was largely driven by an increase in deposits as shown on page nine.
Since the beginning of the pandemic deposits are up about 20% and much of that growth has been and non interest bearing accounts.
Loans, excluding triple P were essentially flat for the quarter, which together with the deposit growth brought our average loan to deposit ratio to 88 per cent, there were $161 million and triple P loans outstanding at quarter end.
And while the pace of forgiveness has been slower than we anticipated we expect the process to accelerate over the next few quarters during the quarter capital ratios continued their build as seen on page 12, and provide the company with flexibility for possible loan growth buybacks or M&A opportunities in the quarter we.
Did not incur a credit provision expense and the ACL as a percentage of loans ex Triple P move down from 1.80 per cent to 1.7 and 6%.
Credit quality metrics are shown on pages 14 through 17.
Past dues classified and nonperforming asset measures all remain relatively steady net charge offs for the quarter were approximately $3 million COVID-19 related deferrals are now below 1% net.
Net interest income was up slightly and was aided by the recognition of a 2 million dollar recovery of a previously charged off purchased loan.
Triple P revenue was just under $11 million of the Triple P income <unk>.
Celebrated recognition of deferred fees represented for point $6 million, and we have approximately $11 million and remaining deferred fees to be recognized our core margin, which excludes purchase accounting accretion and interest recoveries was down one basis point from Q4 and after.
And also excluding the impact from Triple P was down approximately 10 basis points excess cash weighed on the margin about 20 basis points and the quarter non interest income benefited from another strong mortgage quarter that included the write up of our MSR asset by $13 million. We also recognized 1.4 million.
Of securities gains and fee income categories generally exhibited increases as well non interest expenses with exclusions were up approximately $3 million for the quarter.
Most of the increase was driven by an increase and mortgage compensation expense as a result of higher Q1 production as Kevin mentioned, we also began to see the benefits of expense initiatives announced in Q4 and expect continued realization throughout the balance of the year I will now turn the call back over to Mitch.
<unk>.
Thank you, Jim and closing we experienced a strong start to 2021 and we commend the drive and determination of all of our team members without which we wouldn't have earned this success, we remain committed to the safety and security of our employees to meeting the needs of our Clos.
Ads and to being a good citizen and our communities knowing that staying true to our core values will build long term value for our shareholders now will turn the call over to the operator for Q&A.
Well begin the question and answer session.
And a press Star then one on your thoughts going phone reusable and speakerphone. Please pick up your handset before pressing the keys.
Your question. Please press Star then through this.
This far and will pause momentarily to assemble our roster.
First question will come from Brad Milsap from Piper Sandler. Please go ahead.
Hey, good morning.
Morning, Brad.
Hey, Michelle Thanks for taking the questions and I was curious if you can maybe.
Just kind of talk a little bit about the kind of loan growth.
Environment and kind.
You know, what you're seeing kind of what your expectations are.
For the balance of the year and and importantly, you know kind of where our.
New loans coming on the books kind of relative to the current book yield.
Absolutely happy to do that Brad Let me start with our 30 day pipeline and then I'll.
And we reflect on the production for the.
Quarter just ended and.
Kind of how things flow going forward. So we began this quarter with the pipeline of $240 million.
That compares to $2 38 for the prior quarter.
We continue to see and I would say consider and being early into Q a good bet.
Would continue to describe the cautiously optimistic deal flow and pipeline and the good.
Good thing, we continue to see that across all of our markets and business lines.
If I break that down.
Market, 12% would be and Tennessee.
<unk> per sand in Alabama, and Florida, Panhandle, 22%, and Georgia, and Central, Florida, 19%, and Mississippi, and 34% and our corporate commercial business line. So I'm just looking at the.
Looking forward at this point based on that pipeline that should result in approximately 72 million growth and non purchase outstanding within 30 days.
To your question and pipe.
And in the cage.
Excuse me a production of about I would say 575 million to 625 range.
And in the coming quarter.
So we we continue to expect positive loan growth into Q.
Looking forward until the.
And the resolution of the pandemic.
As more and it remains difficult to give guidance.
I will say that.
And hopefully with the stabilize the stabilization of cases, the continued development and vaccines, Kevin referred to that and opening remarks, I'm hopefully will continue the positive momentum and the economic activity that we see one thing that we certainly feel good about.
Our markets and our talent and.
Like I say, we continue to see whether you reflect on the production, we have 534 million production past quarter, and if I look at that by region and it's reflective of our pipeline, we continue to see that across the various markets and the business line as well both for.
Existing talent and the new talent that we've invested in and the past number of quarters.
And that was close to 20% of our production and so again feel good about talent market and just the optimistic tone that we continue to hear from client base.
Thanks, Mitch and and just in terms of our rates on new loans and then just maybe as my follow up I think I heard Kevin mentioned and you guys still feel good about the cost savings that you outlined last quarter I'm. Just curious if there's any update on you know any future expense savings is maybe you fight a little bit you know.
Tougher mortgage comps as you get you get grew 21 or was that kind of that 9 million that the number we need to kind of think about you know over the near term. Thank you.
Sure I'll ask Jim to comment on the pricing and maybe mortgage and then Kevin can circle back from the expense base question, Jim sure Brad on a in terms of production and and current yields our current core yield ex accretable yield and extra book piece right about 4% I think it's for.
Warner for two and.
And if you look at the last few quarters and I'll start with Q1 'twenty. This will give you a sense of what production.
And is looking like in terms of its yield and go back to Q1 'twenty. We were for 36, 384, and Q2 and $3 76, 385, and Q4 and $3 70 in Q1.
And Kevin if you want to.
Pick up on his Oh.
Second part there sure be glad to hear good morning, Brad just on the expenses.
Thank Jim laid out in his comments, where we are as far as achieving the expense saves that we announced and the two initiatives we announced in Q4 as.
And as we look at further cost saves that there are still several options on the table for us as we move forward.
Just on the branch network, we continue to evaluate the branch network and we'd have a couple of items a couple of action items that will.
The debt that will occur in Q2, and Q3, where we're looking at taking a couple of closely located branches and consolidating them into one we have the potential for.
Three instances of that where we take two to three branches and consolidated them into one long term, we'll continue to evaluate that not only the branch network, but just our staffing model.
And look look look for ways to to be cognizant of of expense saves on the revenue side would highlight a couple of things just and the numbers. They may not have stuck out of it.
On the noninterest income a couple of things and we think are notable one is we saw an uptick and service charges and that's an uptick when we got another round of liquidity from stimulus checks and so that that went counterintuitive that we actually saw the uptick so we're starting to see some of our other fee income come back.
To us there.
That really declined significantly and.
In 2020, the other thing I'd highlight is our fees and commissions there up $300000 on a linked quarter basis and so.
As we look at our efficiency and as we look at the potential of headwinds and mortgage.
And later years some of other noninterest income lines, we expect to kick in as well as the the expense saving initiatives to help with the efficiency.
Thank you next question comes from Jennifer Dunbar, and <unk> Securities.
Please go ahead.
Thank you can you hear me.
Yes, good morning, Jennifer.
One morning question on Jim mentioned acquisition interest and his monologue.
So how are you thinking about that right now their hudson and uptick and activity over the past few months.
And how you think about it when you look at buyers price reactions over the short term how do you.
Think about that when you evaluate pricing on a deal or whether youre going to do a deal at all thanks.
Thank you Jennifer and let me start by saying as we have consistently done and our past we remain opportunistic so I.
And I mentioned talent when I was talking about loan production, we added and I'll circle back, particularly the M&A to your question, but we added six additional producers and Q1.
And in some cases, certainly that's new markets, but it certainly strategic partners for your question and we continue to evaluate opportunities that drive shareholder value.
And relative to how we get there we always begin with culture and business model and risk appetite and just making sure alignment.
And just as you are considering price and.
All of the things for the considerations that would go into that transaction, but really all to answer. The question are we better together and.
We see those opportunities we continue to evaluate those opportunities.
Thank you very much.
Thank you.
Yeah.
Thank you and the next question is from Kevin Fitzsimmons from D. A Davidson. Please go ahead.
Hey, good morning, guys.
Good morning, Kevin.
Hey.
On that topic on M&A, there theres a number of large bank acquisitions that are either pending or recently closed that are going on in or around your footprint and I'm. Just curious if you view those as.
Potential opportunities for.
Gaining tau and gaining business.
Or whether you know that it.
It's not necessarily going to be a big tailwind for you.
Yeah, So Kevin and.
Good question and of course, we've had this discussion and the past and as we have seen in the past maybe not specific to those that were recently announced but I think as the industry and the industry.
And certainly disruption in many cases per use.
Opportunities, but typically that comes from just relationships with people may be already and the company conversations that have been continuing for some length of time, and then and some cases.
That change causes people, possibly to make you know make a choice relative to their employment. So.
The main thing we do here is.
Yeah, we certainly have good talent and we continue to have those conversations as I. Just mentioned, we had six new producers don't warrant and the first quarter. So as.
As we do consistently.
We look for the opportunity to have those and to your point and sometimes those changes and the industry.
You know resolved and those conversations might be picking up or somebody making a decision. So.
So we do see it as a potential opportunity.
Okay. Thanks Mitch.
Just just maybe you know obviously from the whole group we're seeing.
This quarter, the drag of excess liquidity and what that means to the margin and perhaps even getting.
Getting larger Ah right with stimulus checks, but I'm just curious how philosophically how you're looking at that excess liquidity. It looks like you have stepped up securities purchases and and your your your asset base.
But I'm not sure where that is right now relative to your comfort level and at the same time, if you think loan demand and growth is going to pick up then maybe you feel you can put some of that cash that sticks around to work that way, but just curious like is that you know are there still levers you can pull.
To offset the drag of that on dollars of NII or is it just a matter of.
Waiting out this period thanks.
Sure. Thank you, Kevin and then I'll I'll, let Jim respond to the liquidity and putting it to work.
Good morning, Kevin and you know and I think you sort of alluded to the answer at the end of your question, but a couple of observations and.
So that you know that the deposits have been stickier I think than maybe all of us thought going into this and.
And the deposit growth numbers, we saw in Q1, we continue to see.
And early in Q2, so at this point it doesn't seem to be abating in terms of our.
And that liquidity challenge.
Our thoughts on deploying net liquidities, we want we want to pick up and sort of a thoughtful and.
And balanced approach, we're not going to put all of that liquidity to work.
And in one quarter and.
And and we also don't know the behavior.
Of those deposits and how they're going to behave in future quarters. So the hope is that as we get to the second half of the year and we'll start to see.
Increases.
And and loans and that'll absorbed debt liquidity, we clearly don't know I'd say the other thing is that well as you pointed out it does weigh on the margin. We're also focused on net interest income and and the goal there to try to keep debt.
And as steady as possible and so it's it's you have margin is definitely a focus but we're also thinking about the dollars. So we don't we don't have a silver bullet as it relates to to this.
But I think what youre going to see from US is probably some continued build and the securities book, but not dramatic.
Alright, Jim great. Thanks, Thanks, very much thank.
Thank you Kevin.
For next question comes from Catherine a kw. Please go ahead.
Thank you good morning, good morning Catherine.
And just a question on mortgage and your outlook for mortgage revenue and the back half for this year and and maybe also and update on how you think about algorithm marketing efficiency.
And here.
Jim.
And good morning Catherine.
Good morning, and terms of good morning, and so in terms of mortgage.
I guess, a couple of thoughts I mean, we had a good quarter there.
But we're mindful of what what's going on in that business and our expectations are that it certainly is not going to be what it was in 'twenty.
And that and the and the upcoming quarters of 21, and it's going to continue to.
To fall off and not be the tailwind.
And then it was in 'twenty.
And I think along those lines.
And this is something obviously that we and others anticipated as we went into the year. So we're not if things do turn around and they're great, but we're not we're not counting on that and we're thinking about other ways to try to replace that income and and the drag on efficiency. So whether it's other revenue things or as Kevin talked about other.
Initiatives, but.
With that with that mortgage.
For the ability is.
Not going to be probably what it was in 'twenty and so we'll see that gain on sale mortgage margin decline and the efficiency ratio go up which will be a drag on overall efficiency. So we will see inventories. The biggest I think the biggest issue there and as you know theres just not a lot of inventory out there and I think when you talked to are.
Our mortgage bankers. That's that's the that's the thing they are looking for is to see some improvement there because that would certainly drive volume and we're really a purchase shop and and that's what we're hoping for as we get into the second half of the year.
Okay that makes sense, Okay, and then maybe just from the reserve. There's a lot of talk about reserve levels heading back to kind of the day, one and see full number how do you think about that path, where you think Renaissance.
Yeah, they share essentially bottomed.
Thank you Catherine and Jim.
And <unk>.
Sure so.
As you saw we didn't have we didn't have and expense in Q1 and.
See what what the data shows for the ensuing quarters, but but mentally again I think like we've been in prior quarters and probably like others. We hope that we can absorb some of that cushion if you will through loan growth.
And and I think the other thing that weighs on US is that we're still we're still in a pandemic where still in uncertain times and we're not gonna be we don't want to be in a hurry to two to see that Atlanta and should go down and we I think we started when we when we adopted six that we were touch below 1%.
Day, one and I don't think that's I don't I don't see us getting back to that level anytime soon and just.
We'll see what the model yields, but but just mentally and I don't think that's something we're going to be comfortable with.
And know what that number is and we'll see what the what the data yields but.
I think as we go through here and we're really hoping for that loan growth to absorb debt to absorb that.
Allowance and so again I don't think we're gonna be.
We're probably not we're not anxious to release reserves and sort of I guess, the best way to say it.
Got it and that makes sense alright, and thank you.
Thank you Catherine.
And then I have a question. Please press Star then one.
Next question comes from Matt Stevens. Please go ahead.
Hey, Thanks, good morning, guys.
Good morning, Matt.
I wanted to circle back on the mortgage discussion and you guys gave some good disclosures on slide 23 or of your presentation.
I was surprised that debt locked volume increased from four Q20 to <unk> 21, it looks like it was around 20 per cent or so any different strategy with respect to your more which channels and and the first quarter just trying to appreciate why that increased.
Yeah, Matt I don't know that there was anything that was different about the way we did business from Q4 to Q1, we did fit that volume grow as you pointed out.
Came that you know smaller.
While our margin, but there was.
Nothing that we did dramatically different and pursuing the business that we got and Q1 and Kevin I don't know if there are any thoughts you want to add to that.
No.
Again, I don't think Theres anything that we did differently. We do continue to look at opportunities for new hires we do have multiple channels.
And.
As you can see wholesale picked up a little bit so I don't I'm not sure there's anything in particular other than just continuing to be and.
And markets, where we see a significant amount of inbound migration. If you look at the states that we operate in within our mortgage group.
They are there is above average inbound migration and those states and so it may just be the fact that the markets, where he and are just providing more opportunity.
And and and we expect that trend to continue we expect inbound migration and those states to continue so that that will be a tailwind.
And for US as we look out and the future on mortgage as Jim mentioned, the constraint supply its inventory outside of that.
We still remain optimistic about our outlook on mortgage.
Thanks for that and I hopped on the call a few minutes lights. He may disclose this but do you have with the.
Within mortgage with the originations and sales volume and the work and the first quarter.
Hum.
We've got the.
And.
And the locked volume of course is on page 23, the other day I have to get back to you on.
Okay. That's fine and then just largely just gain on sale margins and the first quarter I think some of your peers talk about.
For additional pressure on those can add some margins later in the quarter did you see any of this pressure and any thoughts on margins from here. Thanks.
We did see that and if you would if you were to look at debt. If you look at the Q1 by month, you would see exactly what you've talked about and in terms of the declines and the margins from January to February and February to March so.
We'll see what the year holds but yes, I think we're seeing the same thing and others are and and our expectation is that's going to continue absent some change and the rate environment.
Okay.
And then outside of mortgage but sticking with fees I think other fees are still a little elevated this quarter.
Shown around $10 million I think it was running and that $3 million to $4 million per quarter range.
I see you guys disclose around $2 million of fees from referrals around PPP and.
Anything else and the first quarter, we should think about with respect to fees within other.
Okay.
I don't know that anything sticks out.
And as Kevin mentioned in his comments earlier there was it was broad based I don't know that Theres any one category that sticks out triple pay you mentioned viewpoint that $3 3 million and triple pay.
And I would highlight one other thing and it's it's a normal occurrence and Q1 and that is and our insurance company. We have some contingency income.
One time item.
And one time line really occurs once a year typically in March and April are so if you look at year over year Q1 to Q1.
The impact isn't as drastic.
But if you look at Q4 to Q1.
But there's a pretty significant swing and.
And that's upwards of $750000 that will be recognized.
And.
In Q1, and contingency income and that.
Again normal recurring.
Coming out of our insurance company.
But it typically happens and the majority of it happens in Q1 of each year.
Okay.
And then on the PPP fees, the $2.3 million and and other.
And.
Could we see additional referral fees like that and the future or is this just a one time benefit from the originations that you got and <unk>.
So the way, we're while we're tracking I would I would expect that Q2 would look similar to Q1 and and terms of round two and we'll see how it plays out from there, but as we look at Q2, I would think you'd see a similar.
The impact on earnings and Q2.
And to clarify on talking about fee income with respect for the 2.3 million not the PPP fees that are.
Within net interest income is that the same thing youre talking about Jim, Yes, that's correct and I'm, referring to sort of round two of triple pay and the fee income we're getting off of that correct. Okay and is there a tail on that that could go beyond <unk> or once the program and shut down presumably here.
And a few weeks and then there wouldn't be a tail beyond that.
And it's I think likely after Q2, you won't see you would not see meaningful contribution from round to triple B.
And our fee income.
Okay.
Okay. That's all for me. Thank you guys.
Thank you Matt.
Yeah.
This concludes our question and answer session.
And I would like.
And maybe white catheter for closing remarks. Please go ahead.
Thank you Nick and we appreciate and each of your time your interest and Renaissance Corporation. We look forward to speaking with you again soon and look forward to participating in the Gulf South Bank conference on May the third and the D. A Davidson and the annual financial institutions conference on the six thank you.
Okay.
And now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.