Q4 2021 Renasant Corp Earnings Call
Good day and welcome to the Renaissance Corporation, 2021 year end and fourth quarter earnings conference call and webcast. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask.
Question You May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Kelly Hutcheson with Renaissance Corporation. Please go ahead.
Good morning, and thank you for joining us for vendors that corporations 2021 fourth quarter webcast and conference call participating in this call today are members of Renaissance Executive management team before.
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 in the forward looking statements, although business activity in the markets in which we operate increased.
Significantly relative to 'twenty 'twenty, the spread of multiple variance during 2021 , including the most recent immigrant bury it reminds us that the impact of the pandemic and the federal state and local measures taken to arrest. The virus may remain significant factors impacting our financial condition and operating results for the foreseeable future.
Other 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, including our recently filed earnings release, which has been posted to our corporate site Www Dot Renaissance dotcom.
The press releases link under the news and market data tab, 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 your joining.
<unk> the call today before Kevin and Jim discuss results for the fourth quarter and our near term outlook I want to reflect on 2021 and the opportunities ahead first I am so very proud of our team as they persevered through the challenges of the health crisis I want to.
Thank our team for their extraordinary efforts, putting each other and customers first throughout the year financially. We produced solid earnings strengthened capital levels and ended the year with considerable balance sheet liquidity. Additionally, we published in the ESG report in 'twenty, 'twenty, one which deal.
Documents, our efforts in a number of important areas, including diversity and inclusion we expect to issue a new ESG report in 2022 as we look to the new year, the economic strength of our markets is evident and the outlook for growth is good industries that remain hard.
By Covid in early 2021 have largely rebounded and are better positioned business activity across the footprint is vibrant and causes us to be hopeful on improving loan growth.
I am optimistic about the coming year and sharing with you. The results I will now turn the call over to Kevin. Thank you Mitch our fourth quarter earnings were $37 million or 66 cents per diluted share compared to $40 million or 71 cents per diluted share in the third quarter for the year.
We reported $3 12 per diluted share compared to $1 48 in 2020 forgiveness of our Triple P loan portfolio continued to slow this quarter and was the largest factor contributing to the decline in net interest income quarter over quarter, we utilized some of our on balance sheet liquidity to grow our securities portfolio and the additional income generated helped to offset.
The impact to interest income from Triple peaks, our insurance wealth management lines of business experienced seasonal slowdowns in the fourth quarter, but put forth strong results for the full year of 'twenty 'twenty. One similarly, a seasonal decline in mortgage volumes, coupled with further compression of gain on sale margins resulted in a lower contribution from our mortgage division for the fourth quarter.
We continue to make noticeable progress on our expense and efficiency initiatives and are pleased with our recent results while the fourth quarter benefited from some one time items the trajectory of expenses year over year or quarter over quarter are declining as expected and we expect the impact of ongoing and new initiatives to reduce noninterest expense.
For the year 2022 compared to 2021 our team is adaptive and innovative which have been key to driving our success customer behavior and preferences have evolved quickly over the past two years and our goal of understanding and meeting the needs of our customers, where the face to face or through mobile and digital applications remains on.
Changed technology and innovation have always been a high priority and we will continue to receive a great deal of focus from our team I will now turn the call 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 assets grew just over $650 million in the quarter.
With deposits growing by similar amount on the liability side non interest bearing deposits now represent 34% of total deposits as Kevin mentioned, we invested some of the excess liquidity in our securities portfolio as Kevin mentioned, we invested some of the excess liquidity in our securities portfolio, increasing the balance just over.
$250 million from the previous quarter. We also elected to classify approximately 15% of our portfolio has held the maturity and as a result of this classification, we will record a credit loss reserve of $32000 at the end of the quarter, we had approximately $1.9 billion in cash we.
<unk> the combination of additional growth in the securities portfolio and loans to reduce this cash position in the coming quarters loans ex Triple P increased $13 million from Q3 and $150 million year over year, which represents over 1.5% loan growth for the year Q4 was.
Another strong quarter in terms of production with $820 million in new loan production and $590 million of advances, but the challenges around payoffs that had been present during much of the pandemic did not subside in Q4 activity in our remaining triple P portfolio was nominal with balances declining.
$9 million for the quarter, we had $58 million in Triple P loans outstanding at quarter end all of our regulatory capital ratios are in excess of required minimums to be considered well capitalized and reflect the strength of our capital position during the quarter. The company issued $200 million of 10 year subordinated notes at a fixed rate of 3% for the.
First five years the proceeds of this offering replenished capital that we used to redeemed $45 million in callable subordinated notes related to this we have called for redemption of another $30 million of our subordinated notes, which will occur on March 1st we also repaid $150 million in long term F. H L. B.
Dancers and incurred a prepayment penalty charge of $6 $1 million, we had a credit provision release of $500000 in net charge offs of $5.4 million. The a C. L. A as a percentage of loans ex Triple P decrease from 1.71% to 1.65%. We also had a real.
From a reserve for unfunded commitments of $300000, which is reflected in other non interest expense credit quality metrics are shown on pages 14 through 16 past dues classified and nonperforming asset measures all remain relatively steady the uptick in net charge offs is largely comprised of a single.
Credit that was fully reserved at the time of charge off net interest income declined $1.8 million quarter over quarter, Kevin mentioned that our triple P. Forgiveness slowed this quarter with triple P interest and fees declining $3 million from Q3 interest income from our additional securities purchases help.
[noise] offset decline in Triple P revenue, our core margin, which excludes purchase accounting accretion and interest recoveries was down 11 basis points from Q3.
After also excluding the impact from Triple P. Our core margin was down only four basis points. The decline in margin is the result of loan pricing pressures and the considerable on balance sheet liquidity, our mortgage wealth management and insurance lines of business all experienced seasonal slowdowns in Q4, but produce strong.
Results for the year, our Treasury solutions and capital markets teams as well as our SBA team all outperformed this quarter and helped offset the decline for mortgage. It is also worth noting that we terminated for cash flow hedges linked to future F. H L. B borrowings that are no longer.
Spector to occur the swap terminations resulted in a gain of $4.7 million, which is recorded in non interest income non interest expenses with exclusions were down approximately $8.6 million for the quarter. A portion of that decline is attributable to the decline in expenses in our mortgage division.
As well as some other one time items, we continue to see the benefits of expense initiatives announced in late 2020, and expect continued realization from other initiatives and 2022 I will now turn the call back over to Mitch. Thank you Jam remaining committed to the fundamentals of sound banking with a focus on core.
Deposits asset quality capital strength, and improving profitability are the keys to building shareholder value.
I will now turn the call over to the operator for Q&A.
Thank you we will now begin the question and answer session.
To ask a question press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys. If you are in the question queue and would like to withdraw yourself. Please press Star then two at this time, we will pause momentarily to assemble the roster.
And the first question comes from Thomas Wendler with Stephens. Please go ahead.
Hey, good morning, everyone.
Oh.
On the earnings release. It says you guys have no current intent to repurchase stock.
Is this driven by the company's current valuation and then can you give us an idea of other pathways. The company, it's finding more attractive for capital deployment.
Good morning, Thomas This is Jim So a couple of thoughts on capital management.
Of course.
It's something that we spent a lot of time thinking about and really what we're doing and in that deliberation is thinking about the relative uses are the the different uses of capital, which one produced the best sort of returns on that capital and stock price as a factor in that but also another factor would be the the consideration of what sort.
Balance sheet growth, we might have and then lastly, I would say oh.
Acquisition opportunities. So it's a it's a constant sort of weighing the pros and cons of merits of each and right now we just see the best use for our capital being in those other alternatives away from share repurchases not something we'd rule out as we get go through the course of the year, but at this point, it's not something.
We envision in the near term.
That's great. Thank you and then just keeping on with that conversation and M&A can you give me any sort of color on the asset size geography, or if it would be a bank or non bank, where you guys might be focus there.
Thomas Good morning, again, this is Mitch and as we continue to evaluate those opportunities are certainly we would be looking at banks and nonbanks relative to size for us it would most likely be in that $1 billion to $5 billion range.
Range not to say, we wouldnt go below that.
That 1 billion, if if we were building out an existing market.
But certainly in the you mentioned non banks I would say in that space.
Particularly for those opportunities that would complement our.
Business line that we're already have.
I have in place today, and we're enjoying success there as I talk about production here in a moment, but also I would say new business lines that would align with you know.
Our business model and risk appetite and the opportunities that we see today across our footprint.
Alright, that's great I'll hop back in the queue. Thank you.
Thank you.
The next question comes from Joe <unk> with Raymond James. Please go ahead.
Hi, there.
And good morning.
Good morning.
I believe in your prepared remarks, you discussed.
So potentially increasing the securities portfolio in 2022.
At 18, 1% of aggregating assets in the quarter.
I was wondering if there is a kind of a cap that you had in your mind on that.
Right here.
Okay.
Jim.
I would say Theres no absolute cap that we have at our mine in and start with the fact that we view that portfolio is really a source of liquidity.
And.
Certainly liquidity is not it is not a concern, but we realize that things can change in deposit.
Deposit behavior can change so the way we envisioned at least the next quarter or two is that we will continue to slightly build.
That securities portfolio.
You know along the lines of what we've done in some prior quarters and then we'll reevaluate as we get further in the year, we'll see.
What we've got in a way of loan growth and also to the extent that there's been any change in deposit behavior.
So it's it's sort of a we'll play it as it as it comes but near term I do expect to see some growth in that securities portfolio.
Understood that's great I appreciate it.
And then I was also hoping to get your thoughts on you know where you think the NIM will trend from from here and when do you expect for it to.
It's a bottom out.
No.
Some of this at the end of at the in the third quarter call. We do see signs of a the NIM stabilizing and in those areas.
As trends and signs of continued so are our hope is and expectation is that as we get to the end of the second quarter.
Then we've got a stabilization in the margin.
And then I guess the other thing I'd comment on it in that regard is in terms of net interest income.
We do see that's something that we obviously you.
You know focused on a lot we do see the chance for that to grow in the coming quarters, and that's largely a function of balance sheet growth and.
The expectation that margin will start to stabilize but I would say for BOE part of that equation is the expectation that we do have improved loan growth as we go through the year. The other thing I'd say is both of these comments that are.
I just made about NIM and net interest income.
Ignore the benefit of any rate increases.
Got it and then kind of on that you know the interest rate sensitivity do you guys have an update for where things are trending in <unk> at 12 31.
The impact your NII from rising rates I believe.
You guys were at about eight 5%.
And three to you.
I would say this.
Obviously, we'll we're updating that data and when we put out there.
The key will will publish it but I would expect.
Even with no adjustment to our deposit betas at that eight 5% would probably go up a touch.
And then the other thing and it's it's obviously hard to compare but I.
I also think it's likely that our deposit betas are probably higher than in some of our peers.
So you.
Now our sensitivity is probably a little understated would be my guess as you look at.
Our interest rate sensitivity position.
Perfect I really appreciate it thank you for taking my questions.
Thank you Joe.
The next question comes from Jennifer Denver with Truest Securities. Please go ahead.
Thanks, Good morning.
Good morning, Jennifer.
You mentioned that our expenses are likely to be down in 'twenty. Two just wondered if you could give us a prop.
Profitable range, there and what kind of hiring an investment environment that contemplates.
Okay, Jamie Kevin.
As we look at our expenses and are.
Or are making guidance about them being lower looking at a couple of things. If you just look at the at the annual run rate of what we've done since 'twenty.
Each of the quarters last year expenses being down we know there's headwinds when it comes to hiring or even some wage inflation, but we still think that given where our base is our efficiency that we've got room to improve.
That's why we were comfortable and.
And projecting that that guidance be lower.
It's going to come from a variety of areas are the largest percentage of our expenses continued to be salaries employee benefits will be we will hire when the right opportunity the hires there.
So it's a we're not.
We're not going to not make a good hire for fear that it may cause a blip or an uptick in expenses will continue to be opportunistic in our hiring.
I would also say that when it comes to other expense line items, whether it's occupancy and equipment or data processing, we expect those to continue to trend down as well.
And it's going to come from our ongoing initiatives, whether it's branch closures contract renegotiation.
We're going to continue to be very disciplined.
Around around all of our line items as.
As we look out as far as guidance.
Hum.
<unk>.
I would just I would say that our trend line of what we are what you see whether year over year quarter over quarter is going to continue to continue to be there particular on a year to year basis. As we look at Q1, we will have a small uptick in salaries and employee benefits just due to.
Routine merit increases.
We mentioned in the call that Q4 was helped a little bit with some adjustments. If you just look at salaries employee benefits I think is down close to 7 million Boes adjustments comprised about 3 million. So there was still appreciable decrease in our in our salary and employee benefits line item.
It is.
So as we as we look out we think that if you take the year the year to date expenses.
As your baseline and assume a decrease.
I think that's going to be in line with where we ended up for 'twenty two.
Thanks, Ken.
Thank you Jennifer.
The next question comes from Brad Millsaps with Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Brad.
I Hope you guys are doing well.
Hopped on a little late but I just wanted to follow up on the expense question.
Just kind of curious you.
You know maybe in terms of total head count you know kind of where you were from.
From quarter to quarter, just wanted to get a sense of.
You know kind of how much of it was purely related to mortgage and maybe other efforts that.
You guys are taking.
Another way to reduce to reduce costs.
Sure. So good morning, Brad Hum.
On on the expenses and head count.
Let me first by saying.
With with what we're dealing with on the pandemic.
The head count I would just say we need every able body that we can have right now, particularly in certain areas, whether its branches of wires or call center.
There are some critical functions that just do two protocols, we just want to be absolutely certain we don't put too much strain on our employees and still be able to provide customer service, but if you look at our head count our head count's down year over year, probably probably about 100, a 100 employees.
But would also add that there are certain areas that we continue to hire.
And what again would also add that there is a lot of fatigue in the system and we want to make sure that we don't compound that fatigue and our employees are in our customers.
Because of what we're having to having to address when it comes to staffing just due to the pandemic.
As we look at where the expenses.
What are your expense reduction will come in.
Everything is on the table, whether it's so some long term benefits.
In Q4, we saw a nice reduction in our health and life insurance.
And I know, that's a little bit counterintuitive, considering some of the health care increases that we've seen but we've taken steps to change contractual obligations are just reevaluate our total benefit package to ensure that we're providing the maximum amount of benefit to our employees and not only minimizing the.
Company's calls by minimizing cost employee this is not an effort to shift cost from the from the employer to the employee, but actually maximize benefits and reduced employee costs as well, but at the same time or reduce the employer calls and I would say that in health care, that's another benefits as well.
And so as we look at salaries employee benefits.
It may be some head counts, but it's also going to be reevaluating all components of the.
Of that line item, which would include some of the benefits on mortgage mortgage did have a decrease in expenses.
Their salaries and employee benefits were down were down about a million and a half to $2 million largely coming from the commission line item, which is gonna be reflective as mortgage kind of returns to normal Gee, we started to see this at the end of Q2 Q3 and now in Q4, where mortgages is having its reversion back to <unk>.
<unk> operating environment and so some of the cyclicality is now back into mortgage that we didn't see for the past two years because of low rates.
Okay, great. Thank you, Kevin and you know just.
Just maybe as a follow up for Jim I apologize if I missed this but do you feel like your sort of.
Legacy loan yields have at more or less you know kind of stabilized here around 385, or so and secondly, just kind of curious.
I apologize if you mentioned this but where are you putting on new bonds.
As you buy them just you know I think your yield it's actually it was down around 129, just kind of curious what kind of improvement you think you could see there.
So good morning, Brad So you're you're correct I mean core loan yields.
I mean, they were down a touch Q4 over Q3, but not much at all which gives US which is part of the reason we've got the confidence in terms of Directionally, where the margin goes.
And then in terms of the securities portfolio in terms of what we're able to put that money to work at.
We're roughly 50 or 60 basis points higher than we were in Q3 in terms of Weibo.
You know put to work at and that's not and we're not extending duration with that generally we're running three and a half to four years in terms of the securities that were putting on the books. So a nice uptick there from Q3.
Great. Thank you guys.
Thank you Brad.
The next question comes from Kevin Fitzsimmons with D. A Davidson. Please go ahead.
Hey, good morning, everyone.
Good morning, Kevin.
It seems like payoffs pay downs have been been a real headwind for quite a while and it seems like it's been a little more.
For you all.
And I know, that's a tough thing to project, but when you think about what's causing that to happen and maybe.
You know that the anticipation of rates going up or potential tax changes.
You.
Do you I guess or do you hope that we may have hit a high point on <unk>.
That headwind and then maybe some of this strong loan production will.
I'll start translating into more substantial loan growth I'm, just curious how you feel about that.
Kevin This is Mitch and I think you make a key point in your question let.
Let me start with your last comment and reflecting on that and I'll start with production, but I'm going to end with <unk>.
Relative to pay off something we saw in the fourth quarter as we ended the year.
So just beginning with production we had record production this quarter.
We actually produced $820 million in production, that's up 17% from $700 million and three Q and actually for each quarter in 'twenty. One we saw increases in production. So a strong as I mentioned in the opening comments, we've seen really strong production and it.
To grow which is a reflection of our talent and some of the investments that Kevin was referring to earlier.
But one thing we saw with that strong production.
And for Q, we did see continued the elevated payoffs, but there was one segment of those payoffs that we saw increased quite a bit in the quarter.
Sale of asset the prior quarter had brought about 46% of those payoffs, we saw that accelerate to about 60% in the fourth quarter and we saw a lot of those come toward the end of year as people just took the opportunity.
The sale of the underlying asset.
Which I think in large part to your point is driven by cap rates and other things that we're seeing in the market right now driven just given where we are with rates, but if you are if you simply adjusted for that change and that.
That sale of asset our net growth this quarter would have been more in the range of say, 7% give it given the production.
So.
Yes, I would like to think that we're hopefully seeing some of that began to change or we will see that change going forward, but what I'm really optimistic about is our ability to produce and also the granularity.
Either geographically that we see in our pipeline going forward, which is evidenced by the production we're seeing but also the.
Granularity of types of loans that we're producing whether that be in.
The consumer one to four family, which was about 24% or in our small business commercial.
Which was about 15% and another 25% and commercial credits greater than $2 5 million and then on top of that our corporate banking group are larger C&I credits and some of our specialty lines.
We're about 36% so whether you look at it geographically or by type.
We're seeing really good results from production and may be some outliers back to your point and and payoffs that's driven by just sale of asset, which we are hopeful we see that changes would go into 'twenty two.
Okay. Thanks, Mitch that was that was really helpful. I'm just just want.
One follow on there's been a few questions on the margin, but just trying to think about all the different moving parts here. So is the way to think about it that you see it stabilizing but theres, probably further headwind to come at least in the first quarter from P. P. P.
With the remaining PPP going off and the income effectively going away.
Maybe partly offset by this mix shift right putting cash to work.
And then as it stabilizes.
Getting towards mid year.
That mix shift I would think would continue and then you'll have the dual tailwind of rising rates.
And so I think the margin benefit.
Does it is the optimal scenario that plays out for us.
Deposit growth moderates, but not to the degree of actually.
Declining so you would have.
You're building.
We're stabilizing your average earning assets, but take but now NII, maybe used to be being driven more by the.
The percentage NIM than it has been in the past few years. So I'm just trying to trying to put all that together I'm curious how you think about it.
I think you did a good job Kevin of putting it together.
Now all of those things.
I think underlying it I mean.
If we look at noon.
New and renewed loan rates or a Korea loan yields all that's sort of behaving and trending in the right direction I would say the biggest key for US on margin is is the outlook for loan growth I mean, that's probably the biggest variable again I'm ignoring sort of.
Potential rate increases that we may get a I think that's because we certainly have some remixing that we'll continue to do and take some of that excess liquidity, putting securities and that will help particularly at these at these higher.
Our rates that we're able to invest that money, but I as we run our models and look at it loan growth.
I'd say that.
The biggest sort of variable in nature and the optimism we have got around improving that net loan growth will be will be key to the to the margin outlook.
Great. Thanks, Jim.
Thank you Kevin.
The next question comes from Catherine Mealor with <unk>. Please go ahead.
Hey, good morning, I, just have a follow up.
Quick question on the margin and just thinking about loan yields and in line with repricing. What can you remind us what percentage of your loan portfolio is variable rate.
The impact of floor and just how quickly you see that benefit once rates start to move.
Good morning, Catherine it's Jim good.
Good morning, guys are roughly fit.
So roughly 50% of our portfolio is fixed just I think just a hair under that 40% is variable and about 11% is adjustable and around 75% of those variable rate loans have no floors are above the floor.
And of course, as we get moves in rates that that 75% ish number starts to go up and I'd say that you know with a 50 basis point move your you're up above 80% in terms of those.
Variable rates.
Alright loans being above the floor.
And the other thing I'd say and the other thing the other thing we've seen in our mix. If you look at our loan production over the last couple of quarters and this gets this ties back end and these questions about margin.
Our sensitivity, we have seen the percent of variable rate loans.
As a percent of production increase it's not dramatic but we've seen.
That increase over the last quarter or two and that's certainly helped.
Okay.
And then one thing back on expenses.
Is there a way to think about how much of the expense base.
Came from mortgage this quarter are the reduction came from mortgages.
I guess is there as we look forward to mortgage being a lower part of revenue next year.
Yeah, how do we kind of think about core efficiency ratio versus the mortgage efficiency ratio at Lee put together a model.
Sure So Kathryn good morning, Kevin.
When we look at.
When we look at mortgage.
If its reverting back to mortgage the cyclicality of it so.
Over the course of a year, we still expect mortgage to out of our mortgage company to outperform the industry and as everybody knows the industry's under headwinds.
Particularly kind of coming out of it.
Compared to the last two years.
But if we can look back to 19 or 18.
What's happened over the last couple of years is that mortgage has become more efficient.
The margins, although they may be down in Q4 compared to Q3, Theyre still higher than what they were in Q4 19 or Q4 of 2018. So there's some underlying trends that are positive around mortgage that said mortgages reverting back to its cyclicality.
And so there's a there are several times over the last two years, where mortgage benefited the efficiency ratio as opposed to the headwind.
And right now we're starting to see it it's now become a headwind again, so the efficiency ratio in mortgage for Q4 was about 75%.
It typically runs in that for the year. It will typically run in the high 60, low 70, so it's a little bit above that.
But we we expect cyclicality in that Q4 is probably going to be a little bit elevated on efficiency ratio and then in Q2 and Q3 of next year that would improve and not be as much of a drag but overall our corporate goal is to drive the company's efficiency ratio back down below 60 in the short run.
And then continue to improve it but mortgage is probably still going to be a headwind running went when running.
Over the course of the year well run by the way is still going to be in the high $60 70, So there's going to be a headwind.
Just some of the some of the initiatives that have gone on Bayer is not only the variable comp.
But mortgage he has taken steps to become continue to become more efficient there's been some head count reductions as production has.
Has has ebbed and flowed.
And and there's other investments that we're making lots of little bit of a quiet time to just improve.
How how mortgage will operate but at the end of the day, we still expect mortgage to outperform at least what the industry is doing and be a benefit to the company.
But it will it is reverting back to its normal state and will continue to be a headwind on efficiency doesn't mean, it's a bad business line.
It just means it's a less efficient business line and just for the benefit would while we're talking about efficiency. The company's efficiency ratio. There is about three to five percentage points of the efficiency ratio.
That is attributable to some some non bank business lines insurance mortgage wealth management again, good business lines, they're just less efficient and they will weigh on the.
Compare that they will weigh on the corporate our consolidated efficiency ratio.
While the bank is operating at a little bit more efficient efficient run rate.
And then the 60% corporate efficiency ratio that you're targeting do you think that.
Achievable.
I know, it's probably a higher margin with better rates.
As part of the ticket there and of course I'm sure improved loan growth two but is that they.
The thing that you see achievable and in a year and two years or how long do you think it takes you to get there.
Yeah. So so yeah.
If I can choose the environment will be there in a week or two but I don't think so.
The.
But I think if we don't have so let's talk about what we don't have we don't have rates, yes, I think it's a next year event. If we don't have rate increases if we have rate increases the timing and how many we.
We could be we could be scaring, 60% as we as we enter next year again, that's assuming rates.
Rates move and they move they move earlier on in the year that said our focus is still going to have to be on.
On the efficiency of the operating expenses of the company, regardless of what happens in the macro environment and so our focus whether we have rate increases.
60% is only a short term goal our longer term goal is to drive it to the mid fifties and if we're in the mid fifties that mean that means the bank a community bank model is operating and below $50 and we think that's about.
As efficient as a community bank model can operate.
So that's our longer term goals, but yes, if we have.
If we have rate increases.
Asset sensitivity that Jim mentioned.
Our core funding.
But what we arent talking about is what we've the deposit growth that we've had and now our noninterest bearing DDA as a percentage of total deposits are sitting at 35% plus.
So we continue to focus on some of the fundamentals.
And in as rates as the rate environment, maybe normalizes whatever normal is we do expect the value of those deposits that rate sensitivity to help drive maybe a little bit more outweighed it improvement in income.
When and if they ever do rise.
Yeah.
And to be clear the relic, you're talking of the relative efficiency ratio.
60 relative to today adjusted 64, that's on Apple to Apple.
That's correct.
Okay, Great Super helpful. Thank you.
Thank you Catherine.
Again, if you would like to ask a question. Please press Star then one to join the queue.
The next question is a follow up from Thomas Wendler from Stephens. Please go ahead.
Hey, guys. Just one final question from me, we're starting to see a lot of banks changing their policies around NSF fees is that something you've been looking at.
Yeah.
Thomas It's Kevin So yeah, we have and not to get historical on you, but may take you back to <unk>.
<unk>.
We saw at least to know nine the wins or the commentary around NSF fees or service charges around consumer deposits starting to change and at that time.
A large portion of our noninterest income was being driven by those exact line items and so at that time, we had a long term initiative to reduce our reliance on them or to to lessen the contribution of those to noninterest income and so we invested in insurance wealth management.
Mortgage.
All of those that I, just talked about how inefficient they were but they're also very good business plans to be in a very effective use of capital.
And so what we've seen over the last call. It 10 to 12 years is that our consumer service charges in NSF fees. Although the balance sheet has increased threefold. Those line items are flat to down and their contribution to the total company were down. So yes. This is something we've been looking at and talking about.
Not not only over the.
The last couple of months as we've seen some peers come out with a with commentary or changes to their model.
But we've just seen this as something that's building and a headwind that's been growing.
I would also add that even the steps that we've taken.
Sooner than 10 to 12 years ago to to help our customers more effectively manage their accounts, we've taken significant steps along the way.
To help provide more education and more benefit to the customers. So they can effectively manage those service charges would also say we've completely restructured our consumer deposit accounts and simplified the offerings that we have.
With less.
We have many less deposit options and there's also a variety of options in those but without the.
The customer can choose that help help tailored to their needs.
So I would just say, yes, it is top of mind with NSF fees and overcharged.
Fees and service charges were evaluating.
Right now how that looks in the <unk> and in the future. We don't have any definitive answer yet, but we would also add that over the last couple of years.
Our customers have acknowledged that they like how we interact with them. We have been named the best Bank in several of the markets in several of the states that we operate in.
And that is ultimately what drives our decisions is our customer feedback and their satisfaction. So that's going to be our god.
But would also say it is top of mind and it's something that we've been working on not only the last couple of months, but the last couple of years in almost a decade now around specifically NSF fees and service charges.
That was great. Thank you.
Thank you Thomas.
We have no further questions. So this concludes our question and answer session I'll now turn the conference back over to Mitch Waycaster for any closing remarks.
Thank you, Tom and to everyone, who joined the call. We appreciate your interest in Renaissance and look forward to talking again soon we next plan to participate in the K B W. A conference in February Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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