Q1 2022 Renasant Corp Earnings Call
Good day and welcome to the Renaissance Corporation, 2022, first quarter earnings conference call and webcast.
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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 Renaissance corporations, 2022 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 risk 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 such factors include but are not limited to interest rate.
<unk> 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 at their 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.
[noise] 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.
The results for the first quarter I would like to offer observations on the start of the year and the outlook for the violence of 2022 loan growth accelerated in the quarter as pay offs moderated in production remained very strong. We also showed continued progress in expense management and.
While economic conditions are presenting headwinds we remain hopeful that further improvement can be accomplished we are fortunate to operate in a number of growth markets, where in migration and business development activities are strong operating in dynamic markets with a team that I am.
Very proud of leads us to be optimistic about our ability to grow maintaining a strong balance sheet that emphasizes core deposits capital and credit quality are important operating principles that Renaissance that we believe are important for shareholder value creation.
I will now turn the call over to Kevin. Thanks, Mitch Our first quarter earnings were $34 million or 60 cents per diluted share compared to $37 million or <unk> 66 cents per diluted share in the fourth quarter 2021, our core banking operations in our other lines of business strengthened this quarter and mitigated to some degree.
Free the volatile return to normal operating environment of our mortgage division on the banking side strong loan production and moderating payoffs contributed to our solid loan growth for the quarter. We also successfully closed the acquisition of southeastern commercial finance and asset based lending company headquartered in Birmingham, Alabama, which added $28 million in.
Loans on the acquisition date, excluding these acquired loans, we experienced 11% annualized loan growth for the quarter, our insurance and wealth management divisions produced strong results for the quarter and our continued focus on expense discipline resulted in expenses falling for the fifth consecutive quarter, we aren't immune to the inflationary pressures present in the broader markets but.
We are focusing on finding offsets for any expense increases, resulting from these pressures. Although there may be some linked quarter increase in the second quarter due to a full quarter realization of merit increases and operations of South Eastern we still anticipate total noninterest expense for the full year of 2022 to be less in 2020 one.
In a separate release yesterday, we also announced our plans to eliminate consumer non sufficient fund fees and certain other consumer deposit related fees. These changes will take effect January one 2023. These eliminated fees totaled $1.3 million in the first quarter of 2022 I will now turn the call.
Over to Jim Thank.
Thank you Kevin as we walk through the quarter's results I will reference slides from the earnings deck, starting with the balance sheet total footings grew modestly we continued to invest some of our excess liquidity in our securities portfolio, increasing the portfolio of just over $220 million from the previous quarter.
Rising interest rates had a negative impact on the value of our portfolio, resulting in a fair market value adjustment of $135 million.
Total loans increased $293 million from Q4 of 'twenty one the first quarter was another strong quarter in terms of production with $863 million in new loan production and $588 million of advances driving net growth in nearly all categories.
Our triple P portfolio declined $15 million during the quarter with only $8 million outstanding as of March 31st all of our regulatory capital ratios remain in excess of required minimums to be considered well capitalized and reflect the strength of our capital position, we recorded a credit provision of one point.
$5 million and net charge offs of $851000.
Provision expense attributable to the acquisition of southeastern commercial finance was $582000 with the remainder attributable to loan growth the.
The a C L. As a percentage of total loans declined from 1.64% to 1.61%. We recorded a release from our reserve for unfunded commitments of $550000, which is reflected in other non interest expense credit quality metrics are shown on pages 14 through sixth.
<unk> past dues criticized and nonperforming asset measures all remain relatively stable and net charge offs were inconsequential net interest income declined $1.8 million quarter over quarter, primarily due to two fewer days of interest income recognition increased interest income from our securities portfolio.
Follow helped offset the full quarter of interest expense on our sub debt issuance from November of 2021 our core margin, which excludes purchase accounting accretion and interest recoveries was down two basis points from Q4, although loan yields continue to come under pressure in Q1, we believe we are poised for margin.
Proved meant is more on balance sheet liquidity is put to work and as interest rates rise. We are focused on retaining our core funding base and maintaining a low cost of funds, which we believe provides us leverage in this rising rate environment as expected income from our mortgage division declined from Q4 of 'twenty one from a combination.
Of higher rates and the seasonality of the business, but new business in our wealth management and insurance divisions provided growth and income in each of these lines of business from the previous quarter noninterest expenses with exclusions were down approximately $700000 for the quarter. We mentioned in our last earnings call that salaries and benefits and.
Q4 of 'twenty, one benefited from one time items the decline in expenses in our mortgage division. This quarter helped offset the return to normal of certain other expenses. We also contributed approximately $1 million to charitable organizations throughout Mississippi, and Georgia for which we received a dollar for dollar tax credit during the first quarter.
I will now turn the call back over to match. Thank you. Jim We are pleased with our results for the first quarter and look forward to the opportunities ahead of us for the remainder of the year 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 you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And the first question will be from Brad Millsaps with Piper Sandler. Please go ahead.
Hey, good morning, Thanks for taking my questions.
Good morning, Brad.
Just wanted to maybe start on expenses.
Appreciate the guidance around expenses.
Expenses being lower.
In 'twenty, two and 'twenty, one which is consistent with what you said last quarter, just maybe if you could give us a little more sense of the magnitude I know at one point, Jim you talked about expenses kind of reverting back to a to the third quarter run rate. It seems like you know as we sit today with the last few quarters, you're you're a long way from there. So just wanted to ask Guy you know maybe you know traject.
<unk> wise, you know kind of where you think maybe some of that.
The increase would come from as you move through the year. If in fact, you do you think expenses will get back to that to requeue level.
Hey, Brad Kevin So so yeah as we look at our expenses going forward.
And really the progress we made in Q1, a couple of things as we look out for the rest of the year, just using Q1 of the baseline so I.
I think total expenses around 94 million.
But merit increases and a full quarter of south eastern.
On the call salaries employee benefits to pick up.
Outside of that we're expecting most of the other expenses to be somewhat in line. If not continue to see decreases some of the decreases are going to come on the occupancy and equipment side.
Just our ongoing efforts to look at our either branches or our facilities and look for ways to consolidate and be a.
More mindful of the use of those those facilities and eliminate some space that's no longer being used post pandemic.
And just on the on the salaries and employee benefits, we would expect that as far as the merit increases and some of the wage inflation that we're seeing I would expect that to increase.
Upwards of $2 million to $3 million as we go throughout on a quarterly run rate as we go throughout the rest of the year.
So as we look at our expenses just using that as a baseline we expect expenses to be up maybe.
In that $2 million to $3 million range on a quarterly basis based on the 94 million run rate in Q1.
Thanks, Kevin that's helpful and you know before laid out maybe some efficiency targets you know as you kind of get to the end of 'twenty two into 'twenty three can you.
Just kind of update us on kind of your thinking around.
Maybe an efficiency ratio.
Towards the end of the year to 23, I guess against the backdrop of you know what should be you know.
You know a better interest rate environment and it looks like what's building better loan growth no matter for you guys.
Yeah. So I think everything that you just mentioned is the culmination of what we laid out as.
As far as what's going to drive that efficiency ratio working its way down we still have the targets short term target of getting to 60%.
And it's going to be largely dependent on what interest rates do and how quickly we get there, but we're still on our we're still own our plan related to that I will mention if you look at the efficiency ratio.
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For Q1, it's going to be heavily impacted by just the the return to normal the rapid return to normal of mortgage our mortgage efficiency did increase significantly in Q1 upwards of 80, 90%. If you exclude mortgage from from from the total company.
Efficiency ratio, our efficiency ratio saw another percentage or two improvement.
And as a bit of.
Hovering around that 62 63, 64% range.
You exclude mortgage so the things that we're doing on expenses the momentum we see on loan growth the prospects of future rate increases are all going to play to our advantage and driving them.
And bringing revenue into the efficiency equation.
And complement all the work that we've done on expenses.
Great. Thank you guys I'll hop back in queue. Thanks.
Thank you Brad.
The next question comes from Catherine Mealor from K B W. Please go ahead.
Thanks, Tom.
On the expense conversation.
And a reduction in mortgage expenses could we see this quarter and.
Is the lower.
In mortgage revenue.
Environment, you think fully reflected in the expense base there as they are more stable.
Sure.
I think as we look at just volatility due to production I think the expenses are fully baked.
We are looking at what does the mortgage operations look like based on the prospects of lower volumes may be tighter margins. So there could be further expense reductions there, but just looking at the normal just looking at the levels of production are the.
The reduction in expenses, we saw I think our art an accurate reflection of what the run rate would be but that doesn't take into consideration the effort that mortgage is doing to.
To become more efficient in light of some of the revenue pressures.
Okay, Great and then.
No.
Look on the margin maybe kind of thinking about.
How you think the margin can expand from here just thinking about it.
Forward curve and.
Maybe some color around.
Increasing the margin per rate hike or anything around that.
Thanks.
Yeah.
Good morning, Catherine this is Jim so.
As you saw good morning, as you saw in Q1, our margin was down a couple of basis points.
From the fourth quarter, and and as I said, a few minutes ago I think we're poised for both margin and NII growth from here and that's without rate hikes and so for example, if we look at new and renewed rates there, they're almost equal with.
The core loan yields that we've got today, so I think as we look into Q2 three and four.
We feel optimistic about the margin and NII rising again without any further rate cuts a rate increase excuse me.
Okay, Great and then as a reminder, and then they can get it just because you have an update for percentage of bonds that are variable.
And how quickly we missed it of course, if we get out and if it doesn't there are minimal.
Percentage of loans is variable it's about 40%.
And is that the.
And you can take up the board.
You have floor. So currently.
Where we stand is that oh on that portfolio.
80% of the portfolio is no longer subject to floors and another 25 basis points. It takes up to about 90%.
Okay.
Maybe one more thing on the variable piece, how much of that is loading till it's actually flooding immediately versus variable.
No.
Over a longer period of time.
Let me get back to you in that Kathryn.
Okay No worries.
So much.
Pat.
And the next question will be from Kevin Fitzsimmons from D. A Davidson. Please go ahead.
Hey, good morning, guys.
Good morning, Kevin.
Just wanted to.
Talk a little more broadly about expectations for loan growth.
Mitch in your earlier comments I think you made the observation that.
Economic growth potential in the region is.
Healthy, but there's also been a pullback.
I think one of the big headwinds for you guys in prior quarters have been payoffs and Paydowns and I'm guessing that softened a bit this quarter. So I'm just trying to looking ahead based on what you think about production, what you'd think about pay downs pay offs.
What how.
How you feel about the pace of loan growth going forward because it improved this quarter and just wondering if you guys feel that's sustainable going forward.
Sure. Thank you Kevin let.
Let me began with pipeline I'll talk a bit about production this quarter and prior quarters, and then go to pay off and reflect on kind of how we see net going forward. So.
To began that discussion, we'll talk just a minute about our pipeline.
We entered this quarter at 290 million that was up from 284 million in the prior quarter.
And 240 million the prior year, which kind of plays into what we're seeing in production because the pipeline does reflect what we have experienced.
And it's good to see in our pipeline that we continue to experience good deal flow.
Ross the markets and the various business lines, which I'll talk a bit about when I get into production. So.
If we go to production this quarter, we saw $892 million in production, if you adjust for southeastern commercial finance, which.
Came into the company in the quarter that would bring that which you would take out about $28 million as we mentioned that would bring that down to $863 million for the quarter.
That's about 5% ahead of what we produced in <unk>, which was record production of 820 <unk>.
And if I look back over the prior year.
Just looking at pipelines and production I mentioned pipeline our production Q2 of 'twenty, one was up 7% in Q3 of 'twenty. One it was up 22% in Q4 were up 17%, which was a record for the company and he likes to say this quarter that increased another five per.
<unk>.
What really is encouraging is that we're seeing this production from across all of our markets and our business lines and I think equally important is the granularity I've mentioned this on prior calls, but we continue to be encouraged because if I take that 863 million.
Prior Q1.
About 29% of that was in the group of consumer non real estate HELOC, one to four family residential type product short duration that we hold on the books. So the about 29% layer. Another 22% was in small business and business banking loans.
So less than $2 5 million.
And then another 21% and commercial loans greater than 2.5 million are just core C&I owner occupied commercial real estate type transactions and then the remaining 28% and our corporate banking group larger C&I commercial real estate.
ABL equipment finance, our senior housing oldest say, we continue from a production standpoint, not only geographically, but hitting on many different cylinders cylinders relative to our product types and product lines.
Which comes to a part of your question was payoffs and we did see that moderate a.
Quite a bit in Q1 payoffs reduced by 245 million.
Think a key point there that was about 21 million under the 21 average.
So as we noted on the Q4 call payoffs in Q4 were quite high we felt like we had some pull forward.
Q4, and when I look at the reasons for those pay offs, where we saw a lot of that moderation was in sale of the underlying asset, which you might remember last quarter was around 60% of total payoffs this quarter that reduced to 34%.
So we saw quite a bit of change there. We continued to expect at some point that would moderate.
I would say to the permanent market those remain fairly high as the permanent market are taking things.
Sooner than.
And then expecting a spect it I think we're basically seeing that across the industry.
So you would assume that would pull back at some point, but that remain fairly high this quarter, but albeit paid payoffs moderated.
Production as Rob described continued and continued in increased quite well, which resulted in our net growth of 293 million or about 12% annualized again, if you adjust for southeastern commercial.
About $265 million of annualized at about 11%. So we feel good as.
As we look forward relative to our ability to produce given our strong markets talent in various product lines.
We entered this year with the expectations that.
Loan growth would be in that mid single digit and range.
Net and we continue to feel good about that and certainly.
As evidenced by the last number of quarters and this quarter, our ability to produce well throughout our geography and our product line. So very optimistic on all of those fronts and it's good to see payoffs again to normalize.
Okay. Thanks Mitch.
Just I.
I guess a question on the purchase of southeastern commercial so it.
It didn't seem like it added too much in terms of loan so it just.
Yes.
Relatively small unit, but.
Al.
How big can that get in terms of with bolting on to you and your balance sheet and capital cannot.
Get a lot larger and more expansive and or are there other.
Such opportunities out there that you could be looking at.
Kind of asset based type lending.
Opportunities. Thanks.
Yeah. So Kevin that's a good question related to southeastern commercial certainly and it's a very insightful as far as us continuing to be opportunistic about our.
Various business lines that align with our risk appetite and fit within our business model and that certainly is the case with southeastern commercial asset base lending company based out of Birmingham 26 year old company and people that we've known for quite some time it brought to the company very good.
Leadership in that area of our company and was very additive to the talent relative to combining that with already very good ABL group, but what they bring to the table and we have been very pleased with the.
Results that we have seen.
In a short period of time, so certainly I think it fits well within the company and fits well with our other business lines and fits well within the core and the corporate bank and like I say, we're seeing that early on.
As far as your.
Your question, we certainly remain opportunistic.
And in regards to looking at other business lines whether in.
In some cases non bank type additions that fit quite well to the business model as well as continuing their talent. We were fortunate to add seven additional members as part of that is inclusive of southeast South Eastern commercial. This this this quarter as well so.
Certainly we will continue to look for those opportunities that closely align with the business model.
Great. Thanks, Thanks, so much.
Thank you Kevin.
And again, if you have a question. Please press Star then one.
The next question will be from Jennifer Denver from Truest Securities. Please go ahead.
Hey, this is Brandon King on for Ginny Good morning.
Hey, Brandon.
Hey, I wanted to touch on deposit growth I saw there was some growth in the quarter, but I want to know what your expectations were for the rest of the year and if you are anticipating a sort of a mix change in what deposits actually come in as interest rates continue to increase and if you anticipate any more of those money market savings accounts.
As opposed to those demand deposits.
Good morning, Brandon. This is Jim. So we are hopeful that deposit growth will continue throughout the year and to your question about that mix I mean, it seems reasonable that is we have these.
These rates moving up that we'll see some shifts in that mix.
<unk>, what that looks like and when it occurs you know it's hard to predict but it seems like a reasonable assumption you will see some some behavior changes in terms of.
Customers and what that does to the deposit mix.
Okay and as far as those deposits what are the beta assumptions that you have currently has that kind of lowered based off of where you saw deposit beta is in the beginning of the year based off of the higher magnitude than federal rate increases.
So where do we stand we haven't we haven't changed our deposit beta input recently and it stands at about 43.
And you know.
I think your question's a good one.
We feel like that's a conservative number and that you know for the first couple of rate hikes, that's probably going to be a little lower than that so again, we feel like that's a conservative look at it our sensitivity and we'll see how it plays out but expect these first couple of.
Of rate hikes did not have a lot of a lot of influence.
If you look at our cost our total cost of deposits at around 17 basis points.
We see that generally behaving.
Sort of flattish here in the near term, we haven't seen a lot of.
Exceptions to pricing in the field. So again, it's a it's an important.
Asset if you will the company, we value core deposits and we're going to we're going to protect that deposit base and seek to grow it.
Thanks, and then lastly, I saw that three branches were closed in the quarter I'm, just curious where do you see that branch rationalization efforts going for the rest of the year and if that's actually included in your plan.
Planning to have expenses lower this year compared to last year.
Yeah, Hey, good morning, it's cabin and there is some further though there'll be further branch rationalization efforts that are done.
And some of that is included in the comments about the lower expectation on occupancy and equipment.
Some of them, we actually are in the process of closing some of them may yet to be identified but that's just that's just going to be an ongoing effort as we look at our branches look at what we need are what we've identified is the proper level of scale as well as how we how we manage and implement technology in <unk>.
Other ways to deliver banking services in certain markets.
That may not require as much brick and mortar.
To be able to meet the needs of those markets. So that that will be an ongoing effort and specifically, yes, as we look forward.
Looking at the profitability of branches will be one of those initiatives.
Alright, that's all I had thank you very much.
Thank you Brian .
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Mitch Waycaster for any closing remarks.
Thank you and thank you to those who joined the call. This morning. We appreciate the interest and look forward to speaking again soon we next plan to participate in the Gulf South and the D. A Davidson conferences in early May.
Thank you Sir.
<unk> has now concluded. Thank you for attending today's presentation you may now disconnect.
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