Q4 2023 Renasant Corporation Earnings Call
Good day everybody and welcome to the Renasant Corporation 2023 4th Quarter Earnings Conference Call and Webcast.
Good day, everybody and welcome to the Renaissance Corporation 2023 fourth quarter earnings Conference call and webcast. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero on your telephone keypad after.
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Speaker Change: I would now like to turn the conference over to Kelly Hutcheson with Renaissance Corporation. Please go ahead.
I would now like to turn the conference over to Kelly Hutcheson with Renaissance Corporation. Please go ahead.
Kelly Hutcheson: Thank you for joining us for Renasant Corporation's quarterly webcast and conference call. Participating in this call today are members of Renasant's 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, changes in the mix and costs of our funding sources, 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.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 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 Executive Vice Chairman and Chief Executive. Executive Officer, Mitch Waycaster.
Thank you for joining us for rent is that corporations 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. 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 changes in the mix and cost of our funding sources interest rate fluctuation regulatory changes portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently saw the earnings release, which has been posted to our corporate site double.
W. W. Dot Renaissance dotcom at the press releases link under the news and market data that 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 executive Vice Chairman and Chief Executive Officer, Mitch Waycaster.
Mitch Waycaster: Thank you, Kelly. Good morning. We appreciate you joining the call and your interest in Renasant. This quarter's results reflect long growth across the company, steady asset quality, and good expense control. Capital strength continues to build and affords us added optionality heading into 2024.
Thank you Kelly good morning, we appreciate you joining the call and your interest in the Renaissance. This quarter's results reflects loan growth across the company steady asset quality and good expense control capital strength continues to build and affords us added optionality.
The headache into 'twenty 'twenty four.
Mitch Waycaster: I'm especially proud of our team for the results this quarter and for the year. The industry faced a number of challenges, and our employees responded by remaining focused on serving our customers and supporting each other throughout the year. I will now turn the call over to Kevin.
I'm, especially proud of our team for the results this quarter and for the year the.
The industry faced a number of challenges and our employees responded by remaining focused on serving our customers and supporting each other throughout the year I will now turn the call over to Kevin.
Kevin: Thanks, Mitch. Our fourth quarter earnings were $28.1 million, or 50 cents per diluted share. Included in our results is an after-tax impairment charge of $15.7 million, or 28 cents, as we elected to sell a portion of our security portfolio shortly after year-end.
Kevin: Thanks, Mitch our fourth quarter earnings were <unk> 28 per $1 million or <unk> 50 per diluted share.
Included in our results is an after tax impairment charge of $15 $7 million or 28 cents as we elected to sell a portion of our security portfolio. Shortly after year end.
Kevin: The sale generated $177 million in proceeds, excluding discharge and two smaller one-time income items are just a DPS of 76 cents, which represents a two-cent increase from the previous quarter.
The sale generated a $177 million in proceeds excluding this charge and two smaller one time income items. Our adjusted EPS was <unk> 76, which represents a two cent increase from the previous quarter.
Kevin: We experienced another quarter of solid loan growth, and we coupled with an increase in loan yields of 12 basis points, resulted in an increase of $7.4 million in loan interest income on the linked quarter basis.
We experienced another quarter of solid loan growth and when coupled with an increase in loan yields of 12 basis points resulted in an increase of $7.4 million in loan interest income on a linked quarter basis on the deposit side competitive pressures on pricing persistent growing core deposits and managing our funding costs through this rate cycle continues to remain a top priority.
Kevin: On the deposit side, competitive pressures on pricing persisted. Growing core deposits and managing our funding costs through this rate cycle continues to remain a top priority.
Kevin: The efforts of our team and their commitment to protect and grow our core funding base resulted in core deposit growth of $215 million on a week-quarter basis. Additionally, we were able to allow $295 million in broker deposits to mature this quarter. This mitigated the rise in deposit interest expenses this quarter, which only increased $6.3 million from the previous quarter. Included in non-interest income for the fourth quarter are several one-time items, including the $19.4 million pre-tax impairment charge on our securities, a $620,000 benefit from the extinguishment of a portion of our sub-debt, and a $547,000 gain related to a holdback on previously sold mortgage servicing right assets.
Yeah.
The efforts of our team and their commitment to protect and grow our core funding base.
<unk> and core deposit growth of $215 million on a linked quarter basis.
This week, we were able to allow a $295 million in broker deposits to mature this quarter. This mitigated the rise in deposit interest expense this quarter, which only increased $6 $3 million from the previous quarter.
The noninterest income for the fourth quarter or several one time items, including the $19 4 million dollar pre tax impairment charge on our securities.
620000 dollar benefit from the extinguishment of a portion of our sub debt and a $547000 gain related to a hold back on previously sold mortgage servicing right asset.
Kevin: Excluding these one-time items, adjusted non-interest income has increased $341,000 quarter over quarter.
Kevin: Excluding these onetime items adjusted noninterest income increased $341000 quarter over quarter.
Kevin: Income from our mortgage division, excluding the MSR gain, declined $1.5 million from the third quarter. Interest rate lock volume declined $152 million quarter over quarter. And our gain on sale margins decreased 41 basis points.
Income from our mortgage division, excluding the MSR gain declined $1.5 million from the third quarter interest rate lock volume declined $152 million quarter over quarter and our gain on sale margin decreased 41 basis points.
Kevin: Non-interest income for the fourth quarter also included a $2.3 million payment related to Howard's participation in a loan recovery agreement which we assumed as part of a previous acquisition.
Noninterest income for the fourth quarter also included the $2.3 million payment related to our participation in a long recovery agreement, which we assumed as part of a previous acquisition.
Kevin: Non-interest expense increased $3.5 million from the third quarter, the accrual of the $2.7 million FDIC insurance special assessment, and higher salaries and benefits contributed to the increase.
Noninterest expense increased $3.5 million from the third quarter, the accrual of the $2 7 million dollar FDIC insurance special assessment.
And higher salaries and benefits contributed to the increase our adjusted efficiency ratio was 66.18% for the quarter I will now turn the call over to Jim. Thank you Kevin.
Kevin: Our adjusted efficiency ratio was 66.18% for the quarter. 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. Total footings increased just under $180 million for the quarter.
As we walk through the quarter's results I will reference slides from the earnings deck total footings increase just under $180 million for the quarter.
Jim: Loan growth in the fourth quarter was $183 million and represents an annualized growth rate of 6%.
Loan growth in the fourth quarter was $193 million and represents an annualized growth rate of 6%.
Jim: We experienced another strong quarter of core deposit growth, which allowed us to continue to shift our reliance away from non-core funding sources. As you can see on slides 6 and 7, the company's core deposit base and overall liquidity position remains strong. The deposit base is diverse and granular. The average deposit account is $28,000, and there are no material concentrations.
We experienced another strong quarter of core deposit growth, which allowed us to continue to shift our alliance away from noncore funding sources as you can see on slides six and seven the company's core deposit base and overall liquidity position remains strong the deposit base is diverse and granular the average deposit accounts.
$28000 and there are no material concentrations referencing slide eight all regulatory capital ratios are in excess of required minimums to be considered well capitalized and each of these ratios improved from the prior quarter earnings for the quarter, coupled with an improvement in the unrealized loss position of our securities portfolio.
Jim: Referencing slide 8, all regulatory capital ratios are in excess of required minimums to be considered well capitalized, and each of these ratios improved from the prior quarter. Earnings for the quarter, coupled with an improvement in the unrealized loss position of our securities portfolio, contributed to an increase in the tangible common equity ratio and tangible book value per share. Turning to asset quality, we record a credit loss provision of $2.5 million. Net charge-offs were $1.7 million, which represents an annualized rate of 6 basis points, and the ACL, as a percentage of total loans, decreased 2 basis points to 1.61%. Our reserve for unfunded commitments remained unchanged during the quarter. Asset quality metrics are presented on page 9. Our criticized loans improved quarter over quarter, and past dues were up from the previous quarter and were 44 basis points of total loans. All other metrics were relatively stable, underscoring our emphasis on asset quality. We continue to remain vigilant in monitoring credit, including early identification of potential problem loans in order to mitigate loss.
Contributed to an increase in the tangible common equity ratio and tangible book value per share turning to asset quality, we recorded a credit loss provision of $2.5 million net charge offs were 1.7, $9, which represents an annualized rate of six basis points in the ACL as a percentage of total loans.
Decreased two basis points to 1.61% our reserve for unfunded commitments remained unchanged during the quarter asset quality metrics are presented on page nine our criticized loans improved quarter over quarter and past dues were up from the previous quarter and were 44 basis points of total loans all other <unk>.
<unk> were relatively stable underscoring our emphasis on asset quality, we continue to remain vigilant in monitoring credit, including early identification of potential problem loans in order to mitigate loss.
Jim: Our profitability metrics are presented in slides 10 and 11. Excluding one-time items, adjusted pre-provisioned net revenue declined $4.6 million on a linked quarter basis.
Our profitability metrics are presented on slides 10 and 11.
Excluding one time items adjusted pre provision net revenue declined $4.6 million on a linked quarter basis.
Jim: Pressure on our net interest income and declines in the mortgage division are the key drivers to the decrease. Turning to slide 12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries, was 3.29%, down 6 basis points from Q3.
Pressure on our net interest income and declines in the mortgage division are the key drivers to the decrease turning to slide 12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries was 3.29% down six basis points from Q3 <unk>.
Jim: Adjusted loan yields increased 10 basis points, while the cost of deposits increased 19 basis points.
Adjusted loan yields increased 10 basis points, while the cost of deposits increased 19 basis points.
Jim: Deposit pricing pressures remain and will likely cause deposit costs to increase in the near term.
Deposit pricing pressures remain and will likely cause deposit costs to increase in the near term.
Jim: Kevin commented on the highlights within non-interest income and expense. While the revenue headwinds are a challenge, the focus remains on improving operating leverage. And now I'll turn the call back over to Mitch.
Kevin commented on the highlights within non interest income and expense while the revenue headwinds are a challenge the focus remains on improving operating leverage and now I'll turn the call back over to Mitch. Thank.
Mitch Waycaster: Thank you Jim. We are positioned for a successful 2024 and look forward to keeping you updated on the progress. I will now turn the call over to the operator for questions.
Thank you Jim we are positioned for a successful 'twenty 'twenty four and look forward to keeping you updated on the progress I will now turn the call over to the operator for questions.
Speaker Change: Thank you. We will now begin the question and answer session.
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 answered and you would like to withdraw your question. Please press <unk>.
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Saar than two at this time, we will pause momentarily to assemble our roster.
Speaker Change: At this time, we will pause momentarily to assemble our rock.
And our first question today comes from Catherine Mealor with K B W. Please proceed with your question.
Speaker Change: And our first question today comes from Catherine Mealor with KDW. Please proceed with your question.
Yeah.
Catherine Mealor: Catherine, your line is live into the call. If you would like to proceed with your question, please go ahead.
Catherine Your line is live into the call.
You'd like to proceed with your question. Please go ahead.
Catherine Mealor: Could you check if your line is on mute, please?
Could you check if your line is on mute please.
Okay.
Kevin: Yeah.
Once again, if you would like to ask a question. Please press <unk>.
Catherine Mealor: Once again, if you would like to ask a question, please press star then 1 on your telephone keypad.
Star then one on your telephone keypad.
Speaker Change: Our next question comes from John Rodis with Jamie. Please proceed with your question.
Our next question comes from John Rowan with Janney. Please proceed with your question.
John Rodis: Hey, good morning, guys. Nice quarter.
John Rodis: Hey, good morning, guys nice quarter.
Speaker Change: Good morning, John. Thank you.
Good morning, John Thank you.
Speaker Change: If you guys are doing well, maybe Jim, just start out on the margin, you know, down three basis points this quarter. Maybe your thoughts on, you know, do you think it's bottomed out or do you think maybe there's still a little bit more down?
Hope you guys are doing well, maybe maybe Jim just stop start out on the margin down three basis points. This quarter, maybe maybe your thoughts on do you think it's bottomed out or do you think maybe theres still a little bit more downside.
Jim: Good morning John. It was encouraging to see the trends that we saw in Q4. A nice change after living through what we did in 23. I would say this.
Good morning, John and it was it was encouraging to see the trends that we saw in Q4.
A nice change after after living through what we did in 'twenty three I I would say this.
Jim: The way we're thinking about margin, and I should say at the top, we're assuming no cuts, and I can comment on certainly if there are cuts, but just to sort of set that as a base, assuming no cuts in 24, I think there is a case that the margin probably is close to bottom and could show some moderate upside in 24 if we have no cuts.
The way, we're thinking about margin and I should say at the top.
We're assuming no no cuts and I can comment on certainly if there are cuts, but just to sort of set that as a base assuming no cuts in 'twenty four I think there is a case that the margin.
He has close to bottom.
And could show some.
Some moderate upside in 'twenty four if we have no cuts.
Okay, and then with cuts or.
Speaker Change: Okay, and then what's that?
Speaker Change: I mean, cuts are going to weigh on that, John. So if you have, let's say you've got three cuts and it's sort of June, September, December, of course, December wouldn't really matter too much with that backdrop.
I mean cuts cuts are going to weigh on that John So if we if you. If you have let's say you've got you have three cats and had seen them sort of June September December of course December wouldn't really matter too much in that with that backdrop.
Speaker Change: Then whatever expansion that we would experience in the near term would be somewhat muted by those cuts, but I still think that if cuts happen roughly along that timeline that you'd see some slight improvement in the margin would be something we would hope for.
Then the whatever expansion that we would experience in the near term would be somewhat muted by those cuts.
But I still think that it cuts happened roughly along that timeline that there you'd see some slight improvement in the margin would be something we would we would hope for.
Okay. Okay.
Speaker Change: Okay. And then Jim, did I hear you correctly? Or maybe it was Kevin in your prepared remarks. I think in other non-interest income, the $6.9 million, you said there was a recovery in there of roughly $2.3 million. Did I hear that correctly?
And then Jim did I hear you correctly or maybe it was Kevin in your prepared remarks, I think in other noninterest income to $6 9 million. You said there was a recovery in there of roughly $2 3 million did I hear that correctly.
Jim: Yes, that's correct. There was a recovery. It was part of a relationship an acquired bank of ours had and I really view that as likely one time in nature. I mean, there could be future recovery, but I sort of view that as a one time item.
Yes, that's correct there was a recovery.
It was yeah.
Yeah. It was part of a relationship on acquired bank of ours had an M I.
They view that as a likely one time in nature, I mean, there could be future recoveries, but I sort of view that as a one time.
Item.
Jim: And then switching to expenses, you highlighted the FDIC special assessment of $2.7 million, so if we back that out, expenses were approximately $109 million. Is that sort of a good base to work off of with some modest growth for this year?
And then wishing to expenses you you highlighted the FDIC special assessment of $2 7 million. So if you back if we back that out expenses were approximately $109 million does that is that sort of a good base to work off work off of with some modest growth for this year.
Speaker Change: It's a good base to work off of as we talked about last quarter. We felt that Q4 and Q1 are going to be relatively flat. And as we get into Q2, we'll see how expenses look for remainder of the year. So, yeah, as we look at the baseline for this year, we think that's a good run rate if you back out that special FDIC assessment.
It's a good base to work off of as we talked about last.
Last quarter.
We felt that our Q4 and Q1 are going to be relatively flat.
And as we get into Q2 are what will but we'll see how see how expenses look for remainder of the year. So yeah. As we look at the baseline for this year. We think that's a good run rate. If you back out that are special FDIC assessment.
Okay.
Speaker Change: Okay, thanks, Kevin. And then finally, guys, just one other question, and probably for you, Jim, that the tax rate was lower this quarter. How should we think about the – I guess I'm assuming there was some sort of true-up or something this quarter, but how should we think of the tax rate going forward?
Okay. Thanks, Kevin and then finally guys just one other question and probably for your agenda. The tax rate was lower this quarter, how should we think about the I guess I'm, assuming there was some sort of true up or something this quarter, but how should we think of the tax rate going forward.
Jim: Yeah, so you're right. The using Q4 effective tax rate would not be a good proxy for 24 and that was really largely influenced by the impairment. I would say for 24, John, something in that 21 to 22 percent effective tax rate range would work.
Yeah, So you're right the use in Q4.
The tax rate would not be a good proxy for twentyfold and and that was really largely influenced by the by.
By the impairment of I would say for 'twenty for John something in that 21% 22%.
John Rodis: Our effective tax rate range would work.
John Rodis: Okay, sounds good. Thank you, guys.
Okay sounds good thank you guys.
Speaker Change: Thank you, John.
Thank you John.
Speaker Change: Our next question comes from Catherine Mealor with KBW. Please proceed with your question.
Our next question comes from Catherine Mealor with K B W. Please proceed with your question.
Catherine Mealor: Thanks, good morning.
Thanks, Good morning.
Catherine Mealor: Good morning, Catherine.
Good morning Catherine.
Catherine Mealor: A follow-up to the margin question for you, Jen. Can you talk to us about the fixed rate pricing opportunity, and do you happen to know the amount of loans that are fixed rate that will reprice this year and maybe the next if you got it?
A follow up to the margin question for you can talk to us about the fixed rate pricing opportunity and do you happen to know.
None of loans.
John Rodis: That are fixed rate that will reprice this year and maybe the next to be got it.
Jen: So this year, Catherine, it's just under $700 million that will be priced in 24. I don't have a number for 25, but I think the yield on that book is just under 6%. I want to say it's 5.8% or something thereabouts. And you didn't ask, but I was just adding up the liability side. There's a fair amount that would be priced here in the near term.
So this year Kathryn it's just under $709 that will reprice in 'twenty four.
Don't have the number for 'twenty five, but I think the the yield on that book is just under 6% I want to say, it's five 8% or something thereabouts.
And you didn't ask but I would just add in the liability side, there's a fair amount of debt.
Would be price here in the near term.
Catherine Mealor: Great, okay.
Great Okay.
Catherine Mealor: and generally that Catherine I'm sorry I was just going to say I was looking at my notes it's $500,025,000 on the fixed rate okay
And Dan on that.
That Kathryn.
I'm, sorry, I'm, just going to say I'm looking at my notes, it's 500 main and twenty-five Catherine on the fixed rate side.
Catherine Mealor: Okay, great.
Okay great.
Catherine Mealor: and generally that
And generally that Devin.
Catherine Mealor: $700 million is going from $5.8 to about what?
700 million is going from 5.8 to about what.
Catherine Mealor: So...
So.
Catherine Mealor: I mean, if we look at new and renewed in December, we were running 821, and there was a question earlier about our outlook for rates. I mean, what we're using right now are no cuts in the way we're looking at 24, fully mindful that there could be cuts.
I mean, if I look at it if we look at new and renewed in December we were running 821.
And I own it and there was a question earlier about our outlook for.
John Rodis: For for rates.
John Rodis: What were using right now.
No cuts and the way we're looking at it at 24 fully mindful that there could be cuts.
Speaker Change: So that would weigh on, I guess, the way I would answer that question, Catherine, but I would think, you know, upper 7s, 8% would be a reasonable, you know, yield to look at for 24.
So that that would weigh on I guess the way I'd answer that question, Kathryn, but I would think in our upper sevens, 8% would be a reasonable you know yield to look at for 24.
Speaker Change: And you mentioned that you thought Cuts was way on.
John Rodis: And in your <unk>, you mentioned that you thought cuts would weigh on.
Speaker Change: Your margin outlook for this year, as you think about that, how are you, what kind of deposit data are you thinking on the way down as you
Your margin outlook for this year as you think about that how are you what kind of deposit beta are you thinking about on the way down.
Speaker Change: Thank you so much for joining us today.
They kind of cuts will weigh on your margin.
As semen with that you are being fairly conservative with your ability to lower deposit cost.
We are I mean, I think currently we've got our.
Speaker Change: We are. I mean, I think currently we've got our interest-bearing beta peaking somewhere in the upper 50s in 24. So I just, I think, as we think about, you know, to the extent that we have a number of cuts in 24, at least near term, I would think that's going to be a little bit of a headwind on margin. You know, where we end up for the year, I don't know. Because there's so many, you know, variables that go into that, Catherine. But I do think right now we're poised, if we've got a stable rate outlook in the near term, I think we're poised for some modest margin expansion here in the near term and in the rest of the year. We'll see how, you know, if we get cuts, when they happen, what the velocity and frequency of those are. But it's a little hard to predict.
Interest bearing beda, taking somewhere in the upper fifties and 24.
So I just think as we think about it at the extent that we have a number of cuts in 'twenty for the at least near term I would think that that's that's going to be at a little bit of a headwind on margin.
You know, where where we end up for the year I don't know, but because there's so many.
Variables that go into that Catherine, but I do think right now we're poised if we if we've got a stable rate outlook in the near term I think we're poised for some.
Some modest margin expansion here in the near term and in the rest of the year well, we'll see how the well you know forget cards when they happen what the velocity and frequency of that is our but until it's a little hard to predict.
Speaker Change: Yes, that makes sense.
Next the hint that makes sense.
Speaker Change: And then maybe you want to credit that you're, um...
And then maybe one on credit.
Speaker Change: You know, credit has just been really strong and very stable with charge-offs, kind of stable NPAs, stable classifieds, you know, but you've got a really big reserve. So, as we think about this next year, is there a potential if we really kind of move through the year and we hit this off-landing that we could start to see reserve relief for you, which would, you know, kind of be a tailwind to EPS estimates, or...
Credit has just been really strong and very stable the charge offs are stable and Tas table classifieds.
But you've got a really big reserve. So as we think about this next year is is there a potential if we really can move through the year and we hit the soft landing that we could start to see reserve release for you which would.
It can be a tailwind to EPS estimates or.
Speaker Change: You know, you kind of fight as hard as you can just to kind of keep that more stable just, you know, just in case. Just want to curious your thoughts on kind of provisioning year over year and outlook for credit.
Yeah, you can kind of fight as hard you can't just to kind of keep that more stable. Just you know just in case, just kind of curious your thoughts on kind of provisioning year over year and outlook for credit.
Speaker Change: Good morning, Catherine. This is Dave. I don't think you'll see us release. You know, we've kind of forecasted in the past that...
Yes, good morning, Catherine yesterday.
And I don't think I don't think I don't think you'll see us roll as you know, we we kind of forecasted in the past that.
Dave: Asset quality staying consistent, that our preference would be to use our provision for loan growth opportunities. And, you know, I think at this point we would continue to forecast that way. So I would hesitate to think that there's going to be a release at some point in the near future. And we also know that 24, there's probably going to be some volatility in asset quality just as we continue to work through loans repricing and cycling and so forth. So I think your firm will probably see us.
Asset quality staying consistent that our preference would be to use our provision for loan loan growth opportunities and you know I think at this point, we will continue to exchange a forecast that way.
So I would I would hesitate to think that theres going to be a release at some point in the near future and we also know that 24 hours.
So probably going based on volatility in asset quality, just as we continue to work through loan repricing cycle and so forth. So I think near term, you'll probably see us.
Dave: Stay fairly consistent with our methodology and just determine the impact of our provision based on how our loan portfolio holds up and how our loan growth.
I'd say fairly consistent with our methodology and just determine the impact of our provisioning based on the how our loan portfolio holds up and how our loan growth is.
Speaker Change: And Catherine, I'll just add to that. I do think, given what David just said, if you look at that percentage on ACL,
And Catherine I'll, just add to that I do think given you know what.
What David just said if you look at that percentage on a C L.
Catherine Mealor: and, of course, that model is a dynamic model, the CISO model, so there's a lot that goes into it. But I think it's reasonable, as we see here at the start of 2024, to assume that that percentage would moderate downward. As David said, I don't anticipate any releases, but I think that percentage, just given loan growth and whatever charge-offs we're going to have in 2024, it wouldn't surprise us to see that moderate down a little bit as we go through the year. I mean, it came down two basis points, of course, in Q4, but I think that's a reasonable outlook that we see here a year from now that that ACL percentage will be a little bit lower than it is now.
And of course that that model is it is a dynamic model that the seasonal models, though.
There's a lot that goes into a bread think it's reasonable as we sit here at the start of 24 to assume that that percentage would moderate downward.
And as David said out you know don't anticipate.
Dissipate any releases, but I think that percentage, just given loan growth and whatever charge offs. We're gonna have in 'twenty four it it it wouldn't surprise us to see that moderate down a little bit as we go through the year I mean, we it came down two basis points of course in Q4.
But I think that's a reasonable outlook that we sit here a year from now that that ACL percentage will be a little bit lower than it is now.
Great that makes sense alright. Thank you.
Speaker Change: Great. That makes sense. All right. Thank you.
Speaker Change: Thank you, Catherine.
Thank you Catherine.
Speaker Change: Thank you very much. This concludes our question and answer session. I would now like to turn the conference back over to Mitch Waycaster for any closing remarks.
Thank you very much. This concludes our question and answer session I would now like to turn the conference back over to Mitch Waycaster for any closing remarks.
Mitch Waycaster: Thank you, Eric, and thank each of you for joining the call today. We next plan to participate in the KBW conference beginning on February 15.
Well, thank you Eric and thank each of you for joining the call today. We next plan to participate in the K B W. A conference beginning on February 15.
Mitch Waycaster: The conference is now concluded. Thank you everybody very much for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you everybody very much for attending today's presentation. You may now disconnect.
Mitch Waycaster: Milsaps, Catherine Mealor, David Bishop, Jennifer Demba, Michael Rodis, Stephen Chapman, James Mabry
Okay.
Yeah.
[music].
John Rodis: Okay.
Sure.
Speaker Change: Thank you for watching!
[music].
Host: Good day, everybody, and welcome to the Renasant Corporation 2023 Fourth Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. Good day, everybody, and welcome to the Renasant Corporation 2023 Fourth Quarter Earnings Conference Call and Webcast. All participants will be in a listen-only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. I would now like to turn the conference over to Kelly Hutcheson with Renasant Corporation. Please go ahead.
After today's presentation, there will be an opportunity to ask questions. Thank you for joining us for Renasant Corporation's Quarterly Webcast and Conference Call. Participating in this call today are members of Renasant's Executive Management Team. To ask a question, you may press star, then 1 on your telephone keypad.
Operator: To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like to turn the conference over to Kelly Hutcheson from Renaissance Corporation. Please go ahead.
Before we begin, please note that many of our comments during this call will be forward-looking statements that 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 forward-looking statements. Such factors include, but are not limited to, changes in the mix and cost of our funding sources, interest rate fluctuations, 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.renasant.com, at the Press Releases link under the News and Market Data tab. Thank you for joining us for Renasant Corporation's quarterly webcast and conference call.
Participating in this call today are members of Renasant's executive management team. Before we begin, please note that many of our comments during this call will be forward-looking statements that 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, changes in the mix and costs of our funding sources, interest rate fluctuations, 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.renasant.com, We undertake no obligation to do so.
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. Now, I will turn the call over to our Executive Vice Chairman and Chief Executive Officer. Executive Officer Mitch Waycaster
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. Now, I will turn the call over to our Executive Vice Chairman and Chief Executive Officer, Mitch Waycaster. Thank you, Kelly. Good morning.
We appreciate you joining the call and your interest in Renasant. Thank you, Kelly. Good morning.
We appreciate you joining the call and your interest in Renasant. This quarter's results reflect long-term growth across the company, steady asset quality, and good expense control. Capital strength continues to build and affords us added optionality heading into 2024. This quarter's results reflect loan growth across the company, steady asset quality, and good expense control. Capital strength continues to build and affords us added optionality heading into 2024. I'm especially proud of our team for the results this quarter and for the year. I'm especially proud of our team for the results this quarter and for the year.
The industry faced a number of challenges, and our employees responded by remaining focused on serving our customers and supporting each other throughout the year. I will now turn the call over to Kevin. The industry faced a number of challenges, and our employees responded by remaining focused on serving our customers and supporting each other throughout the year. I will now turn the call over to Kevin. Thanks, Mitch.
Kevin: Our fourth-quarter earnings were $28.1 million, or 50 cents per diluted share. Included in our results is an after-tax impairment charge of $15.7 million, or 28 cents, as we elected to sell a portion of our security portfolio shortly after year-end. Thanks, Mitch.
Kevin: Our fourth-quarter earnings were $28.1 million, or $0.50 per diluted share. Included in our results is an after-tax impairment charge of $15.7 million, or $0.28, as we elected to sell a portion of our security portfolio shortly after year-end. The sale generated $177 million in proceeds.
Kevin: The sale generated $177 million in proceeds, excluding discharge and two smaller one-time income items. This represents just a DPS of 76 cents, which represents a two-cent increase from the previous quarter. Excluding this charge and smaller one-time income items, our adjusted EPS was $0.76, which represents a $0.02 increase from the previous quarter. We experienced another quarter of solid loan growth, and we, coupled with an increase in loan yields of 12 basis points, resulted in an increase of $7.4 million in loan interest income on a linked quarter basis. We experienced another quarter of solid loan growth, and we, coupled with an increase in loan yields of 12 basis points, resulted in an increase of $7.4 million in loan interest income on a linked quarter basis. On the deposit side, competitive pressures on pricing have persisted.
Kevin: Growing core deposits and managing our funding costs through this rate cycle continues to remain a top priority. The efforts of our team and their commitment to protect and grow our core funding base resulted in core deposit growth of $215 million on a weekly basis. Additionally, we were able to allow $295 million in broker deposits to mature this quarter.
Kevin: This mitigated the rise in deposit interest expenses this quarter, which only increased $6.3 million from the previous quarter. Also included in non-interest income for the fourth quarter are several one-time items, including the $19.4 million pre-tax impairment charge on our securities, a $620,000 benefit from the extinguishment of a portion of our sub-debt, and a $547,000 gain related to a holdback on previously sold mortgage servicing right assets On the deposit side, competitive pressures on pricing have persisted.
Kevin: Growing core deposits and managing our funding costs through this rate cycle continues to remain a top priority. The efforts of our team and their commitment to protect and grow our core funding base resulted in core deposit growth of $215 million on a linked quarter basis. Additionally, we were able to allow $295 million in broker deposits to mature this quarter.
Kevin: This mitigated the rise in deposit interest expense this quarter, which only increased $6.3 million from the previous quarter. Included in noninterest income for the fourth quarter are several one-time items, including the $19.4 million pretax impairment charge on our securities, a $620,000 benefit from the extinguishment of a portion of our sub debt, and a $547,000 gain related to a holdback on previously sold mortgage servicing right assets. Excluding these one-time items, adjusted non-interest income increased $341,000 quarter over quarter. However, income from our mortgage division, excluding the MSR gain, declined $1.5 million from the third quarter. Interest rate lock volume declined $152 million quarter over quarter.
Kevin: And our gain on sale margins decreased 41 basis points. Non-interest income for the fourth quarter also included a $2.3 million payment related to Howard's participation in a loan recovery agreement which we assumed as part of a previous acquisition. Excluding these onetime items, adjusted noninterest income increased $341,000 quarter-over-quarter. Income from our mortgage division, excluding the MSR gain, declined $1.5 million from the third quarter.
Kevin: Interest rate lock volume declined $152 million quarter-over-quarter, and our gain on sale margin decreased 41 basis points. Non-interest expense increased $3.5 million from the third quarter. The accrual of the $2.7 million FDIC insurance special assessment, and higher salaries and benefits contributed to the increase. Noninterest income for the fourth quarter also included a $2.3 million payment related to our participation in the joint venture and a loan recovery agreement, which we assumed as part of the previous acquisition. Our adjusted efficiency ratio was 66.18% for the quarter. 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. Total revenue increased just under $180 million for the quarter. Noninterest expense increased $3.5 million from the third quarter; the accrual of the $2.7 million FDIC insurance special assessment and higher salaries and benefits contributed to the increase.
Jim: Our adjusted efficiency ratio was 66.18% for the quarter. Loan growth in the fourth quarter was $183 million, and this represents an annualized growth rate of 6%. We experienced another strong quarter of core deposit growth, which allowed us to continue to shift our reliance away from non-core funding sources. As you can see on slides 6 and 7, the company's core deposit base and overall liquidity position remain strong. The deposit base is diverse and granular. The average deposit account is $28,000, and there are no material concentrations.
Jim: 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. Total revenue increased just under $180 million for the quarter.
Jim: Loan growth in the fourth quarter was $183 million, and this represents an annualized growth rate of 6%. Referencing slide 8, all regulatory capital ratios are in excess of required minimums to be considered well capitalized, and each of these ratios improved from the prior quarter. Earnings for the quarter, coupled with an improvement in the unrealized loss position of our securities portfolio, contributed to an increase in the tangible common equity ratio and tangible book value per share. Turning to asset quality, we recorded a credit loss provision of $2.5 million. Net charge-offs were $1.7 million, which represents an annualized rate of 6 basis points, and the ACL, as a percentage of total loans, decreased 2 basis points to 1.61%. However, our reserve for unfunded commitments remained unchanged during the quarter.
Jim: Asset quality metrics are presented on page 9. Our criticized loans improved quarter over quarter, and past dues were up from the previous quarter and were 44 basis points of total loans. All other metrics were relatively stable, underscoring our emphasis on asset quality.
Jim: We continue to remain vigilant in monitoring credit, including early identification of potential problem loans in order to mitigate loss. We experienced another strong quarter of core deposit growth, which allowed us to continue to shift our alliance away from noncore funding sources. As you can see on Slides 6 and 7, the company's core deposit base and overall liquidity position remain strong. The deposit base is diverse and granular. The average deposit account is $28,000, and there are no material concentrations.
Jim: Referencing Slide 8, all regulatory capital ratios are in excess of required minimums to be considered well capitalized, and each of these ratios improved from the prior quarter. Earnings for the quarter, coupled with an improvement in the unrealized loss position of our securities portfolio, contributed to an increase in the tangible common equity ratio and tangible book value per share. Turning to asset quality, we recorded a credit loss provision of $2.5 million.
Jim: Net charge-offs were $1.7 million, which represents an annualized rate of 6 basis points, and the ACL as a percentage of total loans decreased 2 basis points to 1.61%. Our profitability metrics are presented in slides 10 and 11. Excluding one-time items, adjusted pre-provisioned net revenue declined $4.6 million on a linked quarter basis. Pressure on our net interest income and declines in the mortgage division were the key drivers to the decrease. Turning to slide 12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries, was 3.29%, down 6 basis points from Q3. Our reserve for unfunded commitments remained unchanged during the quarter. Asset quality metrics are presented on Page 9. Our criticized loans improved quarter-over-quarter, and past dues were up from the previous quarter and were 44 basis points of total loans. All other metrics were relatively stable, underscoring our emphasis on asset quality.
Jim: Adjusted loan yields increased 10 basis points, while the cost of deposits increased 19 basis points. Deposit pricing pressures remain and will likely cause deposit costs to increase in the near term. We continue to remain vigilant in monitoring credit, including early identification of potential problem loans in order to mitigate loss. Kevin commented on the highlights within non-interest income and expense. While the revenue headwinds are a challenge, the focus remains on improving operating leverage. Now, I'll turn the call back over to Mitch. Our profitability metrics are presented on Slides 10 and 11. Excluding one-time items, adjusted preprovision net revenue declined $4.6 million on a linked-quarter basis. Pressure on our net interest income and declines in the mortgage division are the key drivers of the decrease.
Thank you, Jim. We are positioned for a successful 2024 and look forward to keeping you updated on the progress. I will now turn the call over to the operator for questions. Turning to Slide 12, the adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries, was 3.29%, down 6 basis points from Q3. Adjusted loan yields increased 10 basis points, while the cost of deposits increased 19 basis points. Deposit pricing pressures remain and will likely cause deposit costs to increase in the near term.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keypad.
Kevin: If at any time your question has been answered and you would like to withdraw your question, please press star then to enter. At this time, we will pause momentarily to assemble our rock. Kevin commented on the highlights within noninterest income and expense. While the revenue headwinds are a challenge, the focus remains on improving operating leverage.
And our first question today comes from Catherine Mealor with KDW. Please proceed with your question. And now I'll turn the call back over to Mitch.
Operator: Thank you, Jim. We are positioned for a successful 2024 and look forward to keeping you updated on the progress. Catherine, your line is live into the call.
Operator: If you would like to proceed with your question, please go ahead. I will now turn the call over to the operator for questions. We will now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Catherine Mealor with KBW. [Operator Instructions] Our next question comes from John Rodis with Janney. Could you check if your line is on mute, please?
John Rodis: Nice quarter. John, thank you. I hope you guys are doing well.
Jim: Maybe, Jim, just to start out on the margin, down 3 basis points this quarter. Maybe your thoughts on -- do you think it's bottomed out? Or do you think maybe there's still a little bit more downside?
Operator: It was encouraging to see the trends that we saw in Q4, a nice change after living through what we did in '23. I would say this, the way we're thinking about margin, and I should say, at the top, we're assuming no cuts, and I can comment on that certainly if there are cuts, but just to sort of set that as a base. Once again, if you would like to ask a question, please press star then 1 on your telephone keypad.
Jim: Assuming no cuts in '24, I think there is a case that the margin is probably close to the bottom and could show some moderate upside in '24 if we have no cuts. Our next question comes from John Rodis with Jamie. Please proceed with your question. Hey, good morning, guys. Nice quarter. Good morning, John.
John Rodis: Thank you. If you guys are doing well, maybe Jim, just start out on the margin, you know, down three basis points this quarter. Maybe your thoughts on, you know, do you think it's bottomed out, or do you think maybe there's still a little bit more down? Okay. And then with cuts?
Jim: I mean, cuts are going to weigh on that, John. So if we -- if you have -- you have 3 cuts and it's sort of June, September, December, of course, December wouldn't really matter too much with that backdrop, then the -- whatever expansion that we would experience in the near term would be somewhat muted by those cuts. Good morning, John.
Jim: It was encouraging to see the trends that we saw in Q4. A nice change after living through what we did in 23. I would say this. The way we're thinking about margin, and I should say at the top, we're assuming no cuts, and I can comment on that certainly if there are cuts, but just to sort of set that as a base, assuming no cuts in 24, I think there is a case that the margin probably is close to the bottom and could show some moderate upside in 24 if we have no cuts. But I still think that if cuts happen roughly along that time line, you'd see some slight improvement in the margin. That would be something we would hope for. Okay. And then, Jim, did I hear you correctly, or maybe it was Kevin, in your prepared remarks? I think in the other noninterest income, the $6.9 million, you said there was a recovery in there of roughly $2.3 million. Did I hear that correctly?
John Rodis: Okay, and then what's that? I mean, cuts are going to weigh on that, John. So if you have, let's say you've got three cuts and it's sort of June, September, December, of course, December wouldn't really matter too much with that backdrop. Yes, that's correct. There was a recovery. It was part of a relationship and an acquired bank of ours had. And I really view that as a once-in-a-lifetime event in nature.
Kevin: I mean, there could be future recoveries, but I sort of view that as a one-time item. Then whatever expansion that we would experience in the near term would be somewhat muted by those cuts, but I still think that if cuts happen roughly along that timeline, you'd see some slight improvement in the margin would be something we would hope for. Okay. And then, switching to expenses.
John Rodis: You highlighted the FDIC special assessment of $2.7 million. So if we back that out, expenses were approximately $109 million. Is that sort of a good base to work off of with some modest growth for this year? Okay. And then Jim, did I hear you correctly? Or maybe it was Kevin in your prepared remarks.
Kevin: I think in the other non-interest income, the $6.9 million, you said there was a recovery in there of roughly $2.3 million. Did I hear that correctly? It's a good base to work off of, as we talked about last quarter. We felt that Q4 and Q1 were going to be relatively flat. And as we get into Q2, we'll see how expenses look for the remainder of the year. Yes, that's correct. There was a recovery. It was part of a relationship an acquired bank of ours had, and I really view that as likely one-time in nature.
John Rodis: I mean, there could be future recovery, but I sort of view that as a one-time item. So yes, as we look at the baseline for this year, we think that's a good run rate if you back out that special FDIC assessment. And then switching to expenses, you highlighted the FDIC special assessment of $2.7 million, so if we back that out, expenses were approximately $109 million. Is that sort of a good base to work off of with some modest growth for this year? Okay. And then finally, guys, just one more question and probably for you, Jim. The tax rate was lower in this quarter.
Kevin: How should we think about the -- I guess I'm assuming there was some sort of true-up or something this quarter, but how should we think of the tax rate going forward? It's a good base to work off of, as we talked about last quarter. We feel that Q4 and Q1 are going to be relatively flat, and as we get into Q2, we'll see how expenses look for the remainder of the year. So, yeah, as we look at the baseline for this year, we think that's a good run rate if you back out that special FDIC assessment. So you're right.
John Rodis: Using Q4's effective tax rate would not be a good proxy for '24, and that was really largely influenced by the impairment. Okay, thanks, Kevin. And then finally, guys, just one other question, and probably for you, Jim, about the tax rate being lower this quarter. How should we think about the – I guess I'm assuming there was some sort of true-up or something this quarter, but how should we think of the tax rate going forward? I would say for '24, John, something in that 21% to 22% effective tax rate range would work.
Jim: Our next question comes from Catherine Mealor with KBW. A follow-up to the margin question for you, Jim. Can you talk to us about the fixed rate pricing opportunity, and do you happen to know the amount of loans that are fixed rate that will reprice this year and maybe the next if you have it? Yeah, so you're right. The using Q4 effective tax rate would not be a good proxy for 24, and that was really largely influenced by the impairment. I would say for 24, John, something in that 21 to 22 percent effective tax rate range would work.
Jim: So this year, Catherine, it's just under $700 million that will reprice in '24. I don't have a number for '25, but I think the yield on that book is just under 6%. I want to say it's 5.8% or something thereabouts. Okay, sounds good. Thank you, guys. Thank you, John.
Catherine Mealor: Our next question comes from Catherine Mealor with KBW. Please proceed with your question. Thanks. Good morning.
Jim: And you didn't ask, but I would just add on the liability side, there's a fair amount that would be priced here in the near term. A follow-up to the margin question for you, Jen. Can you talk to us about the fixed rate pricing opportunity, and do you happen to know the amount of loans that are fixed rate that will reprice this year and maybe the next, if you have it? Great. Okay. And generally... And Catherine, just -- I'm sorry.
Jim: I was just going to say, I was looking at my notes, it's $500 million in [ '25, ] Catherine, on the fixed rate loan side. So this year, Catherine, it's just under $700 million that will be priced in 24. I don't have a number for 25, but I think the yield on that book is just under 6%. I want to say it's 5.8% or something thereabouts. And you didn't ask, but I was just adding up the liability side.
Jim: There's a fair amount that would be priced here in the near term. Okay. Great. And generally, that $700 million is going from 5.8 to about what? So -- I mean, if we look at new and renewed in December, we were running [ 8 21 ] and there was a question earlier about our outlook for rates. I mean, what we're using right now are no cuts in the way we're looking at '24, fully mindful that there could be cuts. Great, okay, and generally, Catherine I'm sorry I was just going to say I was looking at my notes. It's $500,025,000 on the fixed rate. Okay, great, and generally that $700 million is going from $5.8 to about what? So that would weigh on, I guess, the way I would answer that question, Catherine. But I would think the upper 7s, 8% would be a reasonable yield to look at for '24. So...
Jim: I mean, if we look at new and renewed in December, we were running 821, and there was a question earlier about our outlook for rates. I mean, what we're using right now are no cuts in the way we're looking at 24, fully mindful that there could be cuts. Okay.
Catherine Mealor: And you mentioned that you thought cuts would weigh on your margin outlook for this year. As you think about that, how are you -- what kind of deposit beta are you thinking about on the way down, as you say, kind of cut the way down on your margin, assuming with that you're being fairly conservative with your ability to lower deposit costs? So that would weigh on, I guess, the way I would answer that question, Catherine, but I would think, you know, the upper 7s or 8% would be a reasonable yield to look at for 24. And you mentioned that you thought Cuts was way over.
Jim: We are. I mean, currently, I think we've got our interest-bearing beta peaking somewhere in the upper 50s in '24. So I just -- I think as we think about the extent that we have a number of cuts in '24, that at least near term, I would think that's going to be a little bit of a headwind on margin. Your margin outlook for this year, as you think about that, how are you, what kind of deposit data are you thinking on the way down as you, Thank you so much for joining us today. We are.
Jim: I mean, currently, we've got our interest-bearing beta peaking somewhere in the upper 50s in 24. So I just think, as we think about, you know, to the extent that we have a number of cuts in 24, at least near term, I would think that's going to be a little bit of a headwind on margin. You know, where we end up for the year, I don't know. Because there are so many, you know, variables that go into that, Catherine.
Jim: But I do think right now we're poised, if we've got a stable rate outlook in the near term, I think we're poised for some modest margin expansion here in the near term and in the rest of the year. We'll see how, you know, if we get cuts, when they happen, what the velocity and frequency of those are. But it's a little hard to predict. Where will we end up for the year? I don't know.
Jim: But because there are so many variables that go into that, Catherine. But I do think right now we're poised, if we've got a stable rate outlook in the near term, I think we're poised for some modest margin expansion here in the near term and in the rest of the year. We'll see how the -- if we get cuts, when they happen, what the velocity and frequency of those are, but it's a little hard to predict. That makes sense. And then maybe one on credit.
Catherine Mealor: Your credit has just been really strong and very stable charge-offs are kind of stable, NPAs, and stable classifieds. You've got a really big reserve. Yes, that makes sense. And then maybe you want to say that you're, um... Credit has just been really strong and very stable with charge-offs, kind of stable NPAs, stable classifieds, you know, but you've got a really big reserve. So, as we think about this next year, is there the potential, if we really kind of move through the year and we hit this off-landing, that we could start to see reserve relief for you, which would, you know, kind of be a tailwind to EPS estimates, or... So as we think about this next year, is there a potential, if we really kind of move through the year and we hit this soft landing, that we could start to see reserve relief for you, which would kind of be a tailwind to EPS estimates? Or do you kind of fight as hard as you can just to kind of keep that more stable just in case?
David: Just kind of curious, your thoughts on kind of provisioning year-over-year and the outlook for credit. You know, you kind of fight as hard as you can just to kind of keep that more stable just, you know, just in case. Just want to curiously your thoughts on the kind of provisioning year over year and the outlook for credit. Good morning, Catherine. This is Dave.
David: I don't think you'll see us release. You know, we've kind of forecasted in the past that... Catherine, this is David. I don't think you'll see us release.
David: We've kind of forecasted in the past that asset quality would stay consistent, and our preference would be to use our provision for loan growth opportunities. With asset quality staying consistent, our preference would be to use our provision for loan growth opportunities. And, you know, I think at this point, we would continue to forecast that way. So I would hesitate to think that there's going to be a release at some point in the near future.
David: And we also know that 24, there's probably going to be some volatility in asset quality just as we continue to work through loans repricing and cycling and so forth. So I think your firm will probably see us. And I think at this point, we will continue to continue to forecast that way. So I would hesitate to think that there's going to be a release at some point in the near future.
David: And we also know the '24 -- there's probably going to be some volatility in asset quality just as we continue to work through the loan repricing and cycle and so forth. We stay fairly consistent with our methodology and just determine the impact of our provision based on how our loan portfolio holds up and how our loan growth. And Catherine, I'll just add to that. I do think, given what David just said, if you look at that percentage on ACL, so I think, near term, we'll probably see us stay fairly consistent with our methodology and just determine the impact of our provisioning based on the -- our loan portfolio holds up and how our loan growth is, and, of course, that model is a dynamic model, the CISO model, so there's a lot that goes into it.
David: But I think it's reasonable, as we see here at the start of 2024, to assume that that percentage would moderate downward. As David said, I don't anticipate any releases, but I think that percentage, just given loan growth and whatever charge-offs we're going to have in 2024, it wouldn't surprise us to see that moderate down a little bit as we go through the year. I mean, it came down two basis points, of course, in Q4, but I think that's a reasonable outlook that we can see here a year from now that that ACL percentage will be a little bit lower than it is now. And Catherine, I'll just add to that. I do think, given what David just said, if you look at that percentage on ACL, of course, that model is a dynamic model, the CECL model.
Jim: So -- there's a lot that goes into it. But I think it's reasonable, as we sit here at the start of '24, to assume that percentage would moderate downward. As David said, I don't anticipate any releases, but I think that percentage, just given loan growth and whatever charge-offs we're going to have in '24, wouldn't surprise us to see that moderate down a little bit as we go through the year
Jim: Great. That makes sense. All right. Thank you. Thank you, Catherine. Thank you very much.
Catherine Mealor: This concludes our question and answer session. I would now like to turn the conference back over to Mitch Waycaster for any closing remarks. I mean, it came down 2 basis points, of course, in Q4, but I think that's a reasonable outlook that we sit here a year from now and that ACL percentage will be a little bit lower than it is now.
Thank you, Eric, and thank each of you for joining the call today. We next plan to participate in the KBW conference beginning on February 15. The conference is now concluded. Thank you everybody very much for attending today's presentation. You may now disconnect.
Operator: Thank you, Catherine. Thank you very much. This concludes our question-and-answer session. Mr. Milsaps, Catherine Mealor, David Bishop, Jennifer Demba, Michael Rodis, Stephen Chapman, James Mabry, I would now like to turn the conference back over to Mitch Waycaster for any closing remarks. Well, thank you, [ Eric, ] and thank each of you for joining the call today. We next plan to participate in the KBW conference beginning on February 15. Thank you for watching!