Q4 2022 Renasant Corp Earnings Call
Speaker 3: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad.
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Speaker 5: Please note that this event is being recorded today.
Speaker 6: I would now like to turn the conference over to Kelly Hutchison, Chief Accounting Officer. Please go ahead.
Speaker 7: Good morning and thank you for joining us for Renaissance Corporation's quarterly 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.
Speaker 8: 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 fluctuation, regulatory changes, portfolio performance, application process Browser 7.
Speaker 9: 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.renasant.com, at the press releases link under the News and Market Data tab. We undertake no obligation, and we specifically disclaim any obligation, to update or update our
Speaker 10: 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 Wacaster. Thank you, Kelly. Good morning. We appreciate you joining the call today and your interest in Renasant.
Speaker 11: Before Kevin and Jim discuss results for the fourth quarter, I want to reflect on the past year and the opportunities ahead. 2022 was a successful year for our company. We produced solid core earnings attributable to margin expansion, expense management, loan growth, and the benefits of a good core deposit.
Speaker 12: The management and sales teams have a history of managing a profitable and credit-worthy portfolio of assets, and we look forward to their contributions in the years ahead. We end the year with a liquid and strong balance sheet that positions us well for 2023.
Speaker 13: While economic uncertainties are present, we operate in attractive markets that continue to show growth and meaningful net in migration. We are optimistic about the year and look forward to sharing the results with you. I will now turn the call over to Kevin.
Speaker 14: Thanks Mitch. Our fourth quarter earnings were $46.3 million or 82 cents per diluted share compared to $46.6 million or 83 cents per diluted share in the third quarter. Excluding certain items, which we will cover later in our remarks, our adjusted diluted EPS for the fourth quarter was 89 cents.
Speaker 15: We recently announced that we completed our acquisition of Republic Business Credit, or RBC, on December 30, 2022, which added $77.5 million in loans on the date of acquisition. Consistent with our acquisition of Southeastern Commercial Finance earlier in 2022, this transaction advances our strategies of building more...
Speaker 16: legacy business another quarter of strong long growth coupled with the Fed rate increases drove an increase in interest income of nearly $22 million on a linked quarter basis. Competitive pressures on deposit pricing impacted our deposit costs this quarter driving an increase of $14.4 million in interest expense from the third quarter.
Speaker 17: We don't expect these pressures to abate in the near term and anticipate that our funding costs will continue to increase. But we still boast a strong core deposit base and believe it positions us to manage our deposit costs in this volatile rate environment. Our capital markets, treasury solutions, wealth management and insurance lines of businesses were solid contributors to our earnings this quarter.
Speaker 18: And consistent with recent quarters, our mortgage division continues to experience volatility. Although we see some indications that volumes are beginning to normalize, margins remain unpredictable. In response to the rapid decrease in volumes during the year, we have prudently managed our expenses in this division. Nevertheless, while overall headcount is down for the year, we are still investing in strong production talent.
Speaker 19: and expect our mortgage team to continue to be an important part of our business model. Noninterest expense was essentially flat on a late quarter basis. We incurred $1.1 million in merger expenses associated with our acquisition of RBC and we recognize expense of $1.3 million dollars related to the FDIC's recently issued guidance to banks.
Speaker 20: regarding re-presemment NSF fees. We expect to make a voluntary reimbursement of such fees previously charged to customers in 2023. With the revenue lift from margin expansion coupled with our expense discipline, our adjusted efficiency ratio, which excludes nonrecurring income and expense items, continue to improve once necessary.
Speaker 21: coming in at 56.3% for the fourth quarter. Our improvement on the linked quarter and year-over-year basis provides evidence of our commitment to improving operational efficiency. We are not immune to inflationary pressures and expect non-interest expense to increase somewhat in 2023 before consideration of RBC.
Speaker 22: However, with continued expense discipline and appropriate attention to loan and deposit pricing, we maintain our goal of operating with an efficiency ratio below 60%. 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 stack.
Speaker 23: an annualized growth rate of 14.4%. Competition for deposits within our markets picked up significantly this quarter. We experienced a decline in non-interest-bearing deposits of $268 million from the third quarter, and we borrowed $233 million in brokered-time deposits.
Speaker 24: in the month of November . The company's core deposit base and our overall liquidity position remains strong. All regulatory capital ratios are in excess of required minimums to be considered well capitalized and share the strength of our capital position. The decline quarter over quarter is directly attributable.
Speaker 25: to the acquisition of RBC. We record a credit provision of $10.5 million, which includes $2.6 million for loans acquired from RBC and experience net charge-offs of $2.6 million. The ACL as a percentage of total loans increased quarter over quarter to 1.66 percent.
Speaker 26: were nominal. Net interest income increased $7.5 million quarter over quarter. Our core margin, which excludes purchase accounting accretion, income recognized on Triple P loans and interest recoveries was 3.75%, up 25 basis points from Q3 and 104 basis points from the low and Q3.
Speaker 27: believe funding costs will continue to increase in the coming quarters. Non-interest income is down $7.8 million quarter over quarter. The decline is largely linked to our mortgage division. You may recall that we sold a portion of our mortgage servicing rights portfolio in the third quarter for a $3 million gain. There was no such sale in Cuba.
Speaker 28: in this environment and remain committed to improving operational efficiency. However, we do expect expenses to increase modestly from these levels given persistent inflationary pressures in the market. I will now turn the call back over to Mitch. Thank you, Jim. Our focus remains on the basic tenets of sound banking, retaining attractive core funding, maintaining...
Speaker 29: We will now begin the question and answer session.
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At this time, we will pause just momentarily to assemble our roster.
And our first question here will come from Michael Rose with Raymond James. Please go ahead. You know, just as a normal twisted document, so I'm going to have this—I want to work
Mr. Rose, is your line muted?
All right, our next question will come from Catherine Miller with KBW. Please go ahead. It has usually been an ensemble of 2 individuals, and allaughter you could think of..
Thanks, good morning.
Good morning, Kathleen.
I want to see if you all could provide us an outlook on how you're thinking about the margin. A lot of other banks have seen reports so far thinking about this quarter's margin as the peak, you know, and our forecasting and prediction of the end declines as we move through next year. How are you thinking about it, both in terms of NII growth and also just the margin trajectory? Thanks.
Good morning, Catherine. This is Jim. So, good morning. So, you know, I don't know if it was the peak, but if it wasn't, it was certainly close to it. A couple of data points that may be helpful to you as you think about origin as we think about...
for the for 23 is that I would characterize it as flat to slightly down.
probably behaving, no surprise to you, but probably behaving better in the first half of 23 than the second half. And I would say it's a similar story on NII, Catherine. I would say flat to slightly down for 2023.
And I know deposit costs have been higher for everybody. Have you changed your view on what you think the cumulative over the cycle beta will be for Renovant?
So we're using a deposit beta of about in the low 40s for the cycle for Renasant and loan betas are a touch higher than that. So that's probably up from where we were six months ago, Catherine, but that's what we're using.
Okay, great. And that's the data on interest bearing, correct?
That's correct. Okay, great.
And then moving over to expenses, I know you've mentioned in your prepared remarks that you expect growth from this level. What is there a...
but you're also managing that 60% efficiency ratio goals. Is there a kind of a range of expense growth that you think is appropriate to think about this year, and how much flexibility do you have in that outlook if revenue comes in lighter than expected?
Hey, Catherine, Kevin. Good morning. So as we look at expenses, that continues to be one of our main initiatives. And again, not so much to just eliminate expenses, but to maximize the return on them.
I think you've seen that over the last couple of quarters as rates have helped us help bring margin back in through, or revenue back in through the margin. Our efficiency ratio now sits in the mid-50s. As we look at our expense outlook, and again, we're going to have inflationary pressures on our expenses. Save a lipoprofiedo.
Just if you take our non-interest expenses of 101.5 for the quarter, if you're using that as a baseline, again, there's some non-recurring items in there. There's 1.3 million that we called out on refunding, some NFF fees, there's a million one in merger expenses. But if you're just using the reported as your baseline,
We think expenses are up.
close to 2%, 1.5%, 2.5%. If you back out those items, kind of our core run rate of expenses are going to be closer to 3.5 to 4% increase. And all of that is before RBC. That's just the legacy Renison expenses. So we will have some pressure on expenses as we look at
how to continue.
Great. All right. Thank you so much.
Thank you, Catherine.
Our next question will come from Michael Rose with Raymond James.
Please go ahead. Sorry about that.
Good morning. Just wanted to kind of touch on mortgage. Good morning. Just wanted to touch on mortgage here. It's down to about 3% of revenues, obviously, a lot of headwinds, but a lot higher a couple of years ago. It seems like the headwind has been fully absorbed, but how should we be thinking about it?
the mortgage business here both on the expense side and then on the origination side just given expectations for gain on sale margins. Hopefully we'll see some rebound in the back half of the year but just wanted to get some broad color and commentary on mortgage. Sorry if I missed it in the prepared remarks. Thank you for joining us today forweights on market FAR
You're good. Look, as we look at mortgage, and you're right, if you go back a couple of years ago, mortgage as a percentage of revenues was much higher than the 3 to 4 percent that it is today. If you look at it on a more normalized basis, so if we go back to pre-20, mortgage revenues represented about 6 to 8 percent of total revenues. Mr. Chairman, I speak on the Twitter and the social media. What is your comment on banks Fish, onEveryone, on foreign Leave, on Hulk storying with tile anduc OK onbecca and logging, who is responsible for this and the morning then cyanaka and gentler and playing Kanheimer, Dennis White, Greta is a criminal in Alabama.
And we expect mortgage to revert back to that average, revert back to that mean.
It's still a volatile time. I don't think that's a surprise or a secret that mortgage is still volatile. But we are actually seeing opportunity that comes with that volatility. The disruption in the markets created opportunity for hiring. And we recognize that that's a little bit counter to maybe what the trend should be.
We have reduced our headcount in mortgage since the end of 21. We've reduced our headcount about 30 percent, and that includes some hiring, some strategic hiring that we've done on the production side. And as we see that strategic opportunity, the hiring of strategic opportunities, we'll continue to look at that.
We're seeing some positive trends just in the beginning of the year. Margins continue to be tight, but we have seen our pipeline grow about 30% since the beginning of the year. Our mortgage pipeline is about 130 right now, about 100 million at the beginning of the year. So there are some signs.
that production is coming back, but again, it's variable on rate and it's variable on product and inventory. And all of those just feel a little bit volatile right now, but we feel good with where we're positioned for mortgage, and I think back over, as we look over time.
mortgage revenue is going to, again, come back to about that 6% range of total revenues from its current position in that 3-4% range.
Very helpful. And then just wanted to dig in, and again, sorry if I missed this, into the reserve build this quarter. If I look at slide 17, it looks like the reserve was built in the commercial space, which I guess I was a little surprised about and actually down in construction. Can you just give some color?
on the reserve build, you know, you guys are pretty healthy. Was this more of a kind of a proactive conservative move just given that credit metrics are still pretty benign or?
Is there something greater that you're seeing either in your pipeline or just more broadly in the economy? Thanks.
Good morning, Michael, this is David. And I can address page 17. But I'll direct you first to page 19, just to kind of give you a high level overview of the build quarter over quarter. And you can see it kind of breaks down into from a from a legacy Renaissance standpoint charge offs.
2.6 million provision legacy 7.9 million. And so on a pre RBC basis, if we were to exclude RBC, our provision went from 157 last quarter to 156 this quarter. So basically it was flat quarter over quarter from a legacy, land design standpoint. The difference being that the building PCD and non-PCD loans related to RBC, and that's really what you're seeing in that.
Mitch, I'm sorry I missed the update on the pipelines and the prepared remarks, but what does more moderate growth mean to me and how much of it is you guys pulling back in either certain asset classes versus what the market is maybe giving you in terms of opportunities? Thanks.
Yeah, Michael, maybe the best way to have that discussion as we look forward is maybe look at the prior quarter. We did indicate there would be moderation and we have seen that.
We started the quarter with a 30-day pipeline of 200 million. That's down from 270 at the beginning of the prior quarter. The production for 4Q was 700 million, and that moderated down from 753 million. So what we expected occurred.
And of course that 700 in production yielded, as Jim mentioned earlier, $396 million in net growth.
I think the important thing here just thinking about our ability to produce the granularity both from a geographic as well as our various business lines.
I'll give you some percentages of that 700 million in production. 17% came from Tennessee markets, 18% from Alabama, Florida, Panhandle, 20% Georgia, Central Florida, 19% in Mississippi, and 28% came from our corporate commercial business lines. So-
of our ability to produce. And our consumer, which is more one to four family, that represented about 26% of that 700 million small business credits, which continues to be a strength in our markets and that's loans.
that would be less than 2.5 million in size represented another 10 percent and then larger commercial credits above 2.5 million just core C&I owner occupied type credits was another 35 percent. And then as we've continued to build out and grow our corporate and our specialty line.
mentioned here as we think about going forward while production, while pipeline production had moderated, so it payoffs and we saw that again this past quarter for the last two quarters. We've saw payoffs below what we've saw on average in 22.
and well below what we saw in the year 21. So we certainly remain disciplined in underwriting as well as pricing, and we remain optimistic about our ability to produce driven by markets.
business lines talent. I mentioned in opening comments just the in migration that continues in our markets. I think also you know previous economic development activity and manufacturing distribution medical government.
Education, it's a good definition of where we do business. And certainly that's not looking past at all the economic uncertainties that exist today, but just a testament to where we do business and our talent.
I appreciate the colors. So balancing the puts and takes is something like a high single digit from this quarter's 14% annualized growth.
you know somewhat in the ballpark.
Yeah, so Michael, it's hard to be that specific given the variability that we're seeing in pipeline and production, but I think, and the component of payoffs, but I think if you just look at the current pipeline and the change quarter over quarter, I mean it would lead you to that type of conclusion.
Thanks for taking my questions.
Thanks for taking my questions. Thank you.
Again, if you have a question, you may press star then one to join the queue.
Our next question will come from Thomas Winlet with Stevens. Please go ahead. Okay how am
Hey, good morning everyone.
Morning, Thomas.
We saw a bit of a tick up in past due loans in 4Q. Can you give us any color there?
Hey Thomas, this is David. Good morning. A little bit of color. For the most part, that was made up for when we turn to the first of the year. When we look at the first of January , the amount of loans that paid current kind of brought us consistent back with where we would have been in prior quarters. So we don't think it's at this point a long-term trend.
It was largely in the consumer space. Our commercial book continues to hold relatively flat quarter over quarter. So it's largely driven at consumer. Again, we saw that number return to more of our normalized quarter and past dues after the turn of the law.
All right, thank you. And then just a bit of a modeling question here for me. With the RBC acquisition, I'm just kind of thinking about the purchase of county accretion in one queue. Give me any color there, what we should expect.
Thomas, this is Jim. There likely will be some in terms of the amount of that. I would say it would not be material, but there will be some as we go through 23. All right, thank you for that. That's all my questions. Thanks.
that have joined the call today. We welcome your interest and look forward to talking again soon. We next plan to participate in the Jannie CEO Forum next week.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.