Q1 2024 Renasant Corporation Earnings Call
Good morning, and welcome to the Renaissance Corporation 'twenty 'twenty four first quarter earnings conference call. All participants will be in listen only mode should you just a sense. Please signal conference specialist by Christmas, Turkey, followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question Press Star then one on your telephone keypad to withdraw from the question queue. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Kelly Hudson Sonic Corporation. Please go ahead.
Good morning, and thank you for joining us for Renaissance corporations, 'twenty 'twenty four 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 filed earnings release, which has been pasted to our corporate site W. W.
We die Renaissance dotcom 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 Officer, Mitch Waycaster. Thank you Kelly. Good morning, We appreciate you joining the call and your interest in Renova.
This quarter's results reflect loan and deposit growth plus continued expense management.
Mitchell Waycaster: We continued to build the strength of the balance sheet and believe this will be beneficial as we progressed through 'twenty 'twenty four.
Our south eastern markets remain economically Barbara and lead us to see continued growth in the near term.
The combination of deposit rich markets and the higher growth areas is one of the keys to our financial success.
Yesterday, our board of directors implemented the next step of our company's management succession plan by designating Kevin Chapman to become our CEO in May 'twenty, 'twenty Fob and I look forward to working closely with Kevin and this leadership transition as I will continue as is.
Zack Vice chairman when he assumes his new role as CEO.
Having worked with Kevin for nearly 20 years no Renaissance is in great hands with Kevin guiding our company and look forward to a bright future under his leadership I will now turn the call over to Kevin.
Thank you Mitch I appreciate the trust and confidence our board shareholders and company Hasnt me and look forward to your wisdom and guidance as I prepare to take on this new role looking at our first quarter results. Our earnings were $39.4 million or 70 cents per diluted share in the first quarter, we sold a portion of our mortgage servicing rights portfolio.
Oh for a $3.5 million gain the carrying value at the time of the sale was $19 $5 million and represented 2 billion in unpaid principal amount. Excluding this gain and one smaller item. Our adjusted EPS was <unk> 65 cents for the quarter, we experienced another quarter of solid loan growth, which went.
Coupled with an increase in loan yields of 12 basis points resulted in an increase of $3.9 million in loan interest income on a linked quarter basis under.
Mitchell Waycaster: On the deposit side, we remained focus on growing our core funding base and continue to see good momentum during the quarter with core deposit growth of $280 million on a linked quarter basis. With this continued growth we were able to allow $119 million of broker deposits to mature pricing for deposits remains competitive throughout our footprint.
And although deposit interest expense has continued to increase the pace of increase continues to slow as reflected during the quarter included in noninterest income for the first quarter or two one time items the gain on the sale of the mortgage servicing rights of $3.5 million and a gain of $56000 on extinguishment of debt excluding.
Mitchell Waycaster: These one time items adjusted noninterest income decreased $688000 quarter over quarter.
Income from our mortgage division, excluding the MSR gain increased $1.3 million from the fourth quarter interest rate lock volume increased $102 million quarter over quarter and our gain on sale margin increased 64 basis points.
Noninterest expense increased $1 million from the fourth quarter and the first quarter of 2024, we recorded expense of $700000 related to the FDIC Special assessment. After the 2.7 million dollar assessment in the fourth quarter of 2023.
We also made contributions totaling $1.1 million to certain charitable organizations, which qualify as tax credits and will provide a one to one offset in tax income expense.
I will now turn the call over to Jim.
Thank you Kevin as they walk through the quarter's results I will reference slides from the earnings deck, while the size of our balance sheet is essentially unchanged. We continue to see excess liquidity deployed into loans and deposit growth has generally kept pace with loan growth loan growth in the first quarter was $149 million and represented.
An annualized growth rate of 5%, we experienced another quarter of strong core deposit growth, which allowed us to continue to shift our reliance 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 $31000 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 contributed to an increase in the tangible common equity ratio, which now.
Now exceeds 8% intangible book value per share turning to asset quality the record a credit loss provision of $2.4 million net charge offs of $164000, which represents an annualized rate of one basis point in the ACL as a percentage of total loans was flat at 1.61% asset.
All the metrics are presented on page nine our criticized loans increased quarter over quarter. The loans added in the quarter. Our current on payments and we currently do not anticipate any loss on these loans all other metrics were relatively stable underscoring our emphasis on prudent underwriting we continue to remain vigilant in monitoring credit including early identification.
The vacation of potential problem loans in order to mitigate loss our profitability metrics are presented on slides 10, and 11, excluding one time items adjusted pre provision net revenue declined $4.4 million on a linked quarter basis pressure on our net interest income is the primary driver of the decrease turning to slide <unk>.
12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries was 3.28% down one basis point from Q4.
Mitchell Waycaster: Adjusted loan yields increased 12 basis points, while the cost of total deposits increased 18 basis points deposit pricing pressures remain and will likely cause deposit costs to continue to increase in the near term Kevin comment on the highlights within noninterest income and expense while uncertainty in the rate environment continues to be a challenge the focus for me.
<unk> and improving operating leverage.
I will now turn the call back over to Mitch.
Thank you Jim we believe Renaissance is well positioned to prosper and look forward to providing you updates on the progress I will now turn the call over to the operator for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Mitchell Waycaster: If you're using a speakerphone please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Katherine Miller with K B W.
Catherine Mealor: No go ahead.
Thanks, Good morning.
Good morning Catherine.
And congrats to both units and Kevin for Anthony.
This will be a.
A great transition for Renaissance, Alex that if our best idea.
Our first question is just starting.
Catherine Mealor: Starting on credit.
Jim You mentioned the increase in classified just wanted to see if you could just give us a flavor of what was in there and what gives you confidence that you don't expect to see a loss.
Catherine Mealor: Yep.
Good morning, this is David.
Also our Gabon in Washington.
Hi, good morning, So we in Q1, we as we received a year at nine times 24 year in 'twenty three we set out on a to make sure. We were reviewing all of our loans not just theory, but as well as our C&I credits during the quarter and we saw some tightening in just a handful of C&I credits, which.
All of US to go ahead and downgrade downgrade does loss was primarily driven by by C&I credit downgrades and just the I will call. It behind that it was you know there was a net downgrade of around 77 million, but that said.
That's inclusive of some upgrades and some downgrades, we continue to cycle through those loans here.
As you know our history is to be very proactive in the management of our problem assets, which is what we did in Q1.
We think to identify where there's weakness to provide the opportunity to to restructure their credit to get back to a two and a proved status words are not classified or provide the opportunity to get out of the bank before deterioration dwarf them is which is what we did in Q. Once you identify those lounges as a perfect example, already in Q2, we walk out of one of those.
As loans that was $23 million will continue to work those those assets out of the bank Jim mentioned in his comment there all current there's no there's no concerns about losses. So there's.
So again, we don't have a level of concern it was purely driven by what we feel is early identification of abstracts on a handful of lines to identify those loans and work them out of the bank proactively.
Great.
And then one question on the margin.
What's your outlook for the margin over the next couple of quarters he ever for that outside of any rate cuts.
Do you feel like we're at or near the bottom and maybe specifically on just deposit cost a little bit more than I was expecting this quarter. How close do you think we are through a peak there.
Good morning, Kevin This is Jim so.
Good morning, So if if we assume a.
No cuts.
And go with that outlook for <unk> for 2024 at least in the near term.
Jim: We're hopeful that the margins can stabilize roughly where it's at.
As you point out our main we've had nice increases in loan yields.
But the relief on the deposit pricing side has just been yeah.
It's been stubborn.
We hope for more progress there and so we'll see how that plays out.
Twenty-four breath.
And I'm very encouraged what we're seeing on loan yields and what we're getting there and I think the key is really what happens when that funding cost.
And you know where.
Jim: Our net incremental cost on new deposits is running at four and a half to four and three quarters.
And hopefully we get you know.
More stabilization and then I'd be we had I think our outflows from Q3 to Q4 were like 169, and then in Q4 to Q1. It was closer to 65 or 70 million said the trends there and encouraging and hopefully we can we can continue to see that progress, which are which will help.
Some of the margin so.
I'd say overall.
A flattish outlook, if we do get cuts.
Yeah, I'm not sure I mean, generally cuts are going to be modestly and.
In the near term hurtful to the margin, but given the current outlook. If those cuts occur later in the year, there's only a couple of them.
I don't know what the impact would be that significant.
Okay, Great and maybe just one follow up to your point on loan yields being better new deposit costs. She said, we're between four and a half a 0.3 quarters, where incremental loan yields coming on right now.
So if you exclude our B C, where we're comfortable in the low eights I think that I think for the quarter was like eighth quarter somewhere around there for the month I Wanna say Katherine is like about 830.
So nice progress there.
Jim: I think now we've got it's been two or three quarters that new and renewed is been at eight or better.
So really encouraged what we're seeing there and you know hopefully we can keep that keep that up RBC definitely adds to that so it's closer to I think 830 turned into like 850 860 mm mm for the month of March if he at RBC.
Perfect great. Thank you.
Thank you Catherine.
Again, if you have a question. Please press Star then one.
Our next question will come from Michael Rose with Raymond James You May now go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Michael Rose: And congratulations to both you and Kevin and Mitch.
Forward.
See what the future brings for Renaissance.
I missed the first day of the prepared remarks, so sorry, if you. If you missed this but did want to just touch on.
Michael Rose: You know loan growth expectations for the year, we've seen some banks are.
You know kind of reduce their outlooks are maybe reiterate off of lower first quarter expectations. I don't think you've given us kind of a formal guide, but Mitch you usually talk us through kind of the the pipelines and what they look like and would just be curious as to you know.
What the pull through rate looks like relative to pipeline and if you think that will increase through the year and if you know something in the mid single digit.
Growth is kind of in the cards for for this year. Thanks.
Mitch: Very good and good morning, and thank you for your comments Michael Yeah. So let's start with pipeline. So we're going in to this quarter, where the pipeline of $142 million.
That compares to 122 million started the first quarter. So we see that up a modest debt as we start the quarter and I would first say that.
Just coming back and I will eventually get to your specific question, but governing body the pipeline and certainly the production is our discipline in pricing you just heard Jim talk about the results for the quarter and what we where we see rates coming in but also the funding.
Mitch: Both pricing and funding and then underwriting.
Certainly that's something we're very prudent about you just heard David are in an earlier question. You may have not heard he was talking about administration, and then I would come to demand but.
That that demand, we continued to see and we simply operate in good Barbara.
<unk> markets and.
And we continue to serve and grow relationships and that's that's driving what I'm, referring to here in both production and pipeline.
All of that's evidenced by the growth that we saw this past quarter $150 million, a roughly 5% and also on the deposit side, we had as Jim just mentioned, we had very good bonding and deposit growth.
The other thing I would say about production and its continued this quarter. The last number of quarters. It is coming from each of our markets or regions or business lines. They continue to contribute in a meaningful way and it and it's coming from across the footprint and business lines as I mentioned.
Just to give you some percentages.
This past quarter, we had 13% in Tennessee, 10% in Alabama, Florida, Panhandle, 15%, Georges Central Florida, 26% in Mississippi, Mississippi had a very good quarter. This quarter, and then 36% from our commercial corporate business lines.
And and I would say just import as important as the geographic distribution in those loan types is the slides of credit we have a very granular.
Asset based loan portfolio, if you look at the production this quarter.
419 million, 7% of that once and what I would call consumer whether that be he locks one to four family portfolio, which we've seen that pull back a touch with mortgage production inventory, but 30.
Mitch: <unk>, 32% was in small business business banking loans under $2.5 million Theyre also deposit rich great relationship type credits and another 31% and commercial credits greater than 2.5, C&I, David mentioned C&I earlier about owner occupied.
Commercial real estate.
And then another 30% to round out their production for this quarter came in our corporate banking group some larger C&I commercial real estate.
Asset based lending equipment finance senior housing.
Also we've mentioned.
Mitch: Our Republic business credit, Jim mentioned that our factoring business all of that say, our average credit still around 260000 or so so as you can see we continue to hit on many different cylinders evidencing our ability to.
Prudently and continue to produce a very diverse.
Portfolio, but back to your question relative to just looking forward.
Yeah, I would say for this quarter and just looking out to 'twenty four.
Mitch: I would say what the expectation would be that be in line with our past quarters and more in that mid single digit type net another variable always as pay offs we.
Mitch: We saw payoffs pull back a little this quarter, that's going to ebb and flow. So that'll that'll ultimately play out and the net result that we see quarter to quarter.
Yeah.
Speaker Change: That's great color I always appreciate your commentary, it's very insightful.
Switch gears to fee income and mortgage which is.
A nice upside this quarter with the gain on sale margin.
Jumping higher.
Speaker Change: I know, it's hard to predict there's lots of variations quarter to quarter with timing of block and realization of income, but maybe if you can just walk us through expectations.
For mortgage revenue and maybe specifically.
If you can just give us some dynamics on what the profitability of that business looks like maybe current efficiency ratio in the quarter.
Things like that and.
I know the MBA is forecasting a.
And in volumes. This year just wanted to see if you would expect normal seasonal patterns and you know if we can expect a little bit better a mortgage income as we move through the year. Thanks.
Hey, Hey, Michael cabin third kind of answer to your last question first.
We.
We are anticipating mortgage revenues.
To continue to hold strong maybe even pick up as.
We get into the as we get into the summer months I think we're all very cautious of trying to understand what's happening in mortgage.
Coming out of 'twenty, and 'twenty, one and maybe normalizing in 'twenty two 'twenty three and even now it's hard to say that the normal cyclicality of mortgage.
Is bayer inventory constraints continue to be a headwind in the industry, we actually still see a lot of demand.
Limited supply.
If you look at some of our trends.
You saw the pipeline grow in Q1 compared to Q4. The pipeline currently in Q2 was holding steady if not up slightly and we recognize that that is that's going against the trend, but the mortgage bankers Association is seeing nationwide permit applications and sales of <unk>.
Flat to kind of pulling back so.
Speaker Change: We're optimistic about our mortgage team are we have been opportunistic in some key hiring in Q1 of the producers.
In certain markets that gives us optimism about.
Speaker Change: Higher levels of performance outperformance in our mortgage space.
And the look.
The division continues to to remain profitable.
Despite all these headwinds it does continue to remain profitable we've gone through now 18 24 months of really looking at the business restructuring the business we've implemented a new.
Operating platform a.
Speaker Change: We're on the backend of that now.
Speaker Change: And as well as more of our expense coming from mortgage is becoming more and more variable. If you just look at expenses for example in Q1 for mortgage salaries are down 300000.
Because of the cost cutting efforts that were taken in Q4 commissions are up.
The four to 500000, but that's against revenue.
Core revenue if you exclude the gain on mortgage servicing rights coal revenues up over a million so getting the right structure, there and mortgage of having that right balance of variable revenue against variable expenses had been key effort of our team and we.
We think they've done a really good job and we're optimistic about mortgage that I say that to say, it's a tough environment out there and mortgage we all know that but I think the investments we've made.
As well as the improvements we've been making over the last two years, we're positioned well for mortgage to continue to be profitable.
Thanks, guys I appreciate the color and congrats again.
Thank you Mike Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mitch Waycaster.
Pardon me, there's actually another question from Stephen Scouten with Piper Sandler.
No go ahead.
Hey, everyone. Thanks for taking my question there.
Just wanted to follow up on that.
A comment.
Stephen Kendall Scouten: Around new loan yields potentially moving up to that 850 860 range.
Stephen Kendall Scouten: Do you think there's incremental cost of deposits can kind of stay in that range. You were speaking to and that we could see some some widen spreads on.
Stephen Kendall Scouten: Incremental production.
Good morning, David This is Jim so yes.
Again, nice improvements in new and renewed yields in the H 60 did include RBC ex RBC was around 830 for the for the.
The month of March as the snapshot.
I would like to be optimistic and and and I think that you know.
Those spreads are good stay where they are or potentially widen but I think the reality is we're still just a tough deposit market. So.
I would take with what we're seeing on the on the loan yield side and feel good about that and really like those trends.
Stephen Kendall Scouten: Cautious in and baking it too much.
Hum too much that will go to the bottom line, Steven and that's why I think overall margin.
I think our best outlook here with a no rate cut.
Environment is for.
A pretty stable margin at least near term.
Speaker Change: Okay. That's helpful. Jim and then just maybe one other question for me if I could.
Your loan loss reserve I mean, 161 relative to peers is it fair bit higher than credit quality looks stable only one basis point in net charge offs here in the quarter I mean, how.
Speaker Change: How do you think about that reserve moving forward I mean is it really mathematical based on.
The economic scenarios and kind of how you weight those things or.
Is there any kind of visibility you could give us into how that percentage might change moving forward.
Hi, Stephen Good morning, this is David.
And so to answer the second part of your question. It is mathematical and it takes into account a different economic factors in this quarter. There was some movement in that number also we had loan growth we had to fund for loan growth as well as we talked about earlier, we had some some negative credit migration in a category that we had to allocate for so that that number is is Matt.
Speaker Change: Medical we have we have occasionally we've kept that number up where it is based on the economic forecast while we can.
Speaker Change: Continue to believe there is an economic event that we're going through and so some of this economic variables within our Q factors are a little bit on the memorial day to say outside guests as we work through it as we continue to see things settle out in the near future.
Speaker Change: We forecast the past, we would expect to see that number migrate down but it will just be looking for the changes in those economic factors to us to drive a change in all our ratios.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks for letting me sneak in here late and Kevin and Mitch Congrats on the transitions and all what's the comp I appreciate the time.
Thank you Stacy stated.
Our next question will come from Jordan, Kent with Stephens, Inc. You May now go ahead.
Hey, good morning, I, just kind of add up.
Follow up question to your comments on the variable expenses and just wondering where you see in expenses kind of go from here and kind of on a quarterly basis through 'twenty four.
Yeah, Hey, Hey, Jordan, Kevin Thank you.
For the question so as we look at expenses and let's just let's kind of take Q1 expenses at that one 113 range.
Hum.
Speaker Change: He brought in if you look at each of individual components.
All of the line items are trending downwards X, excluding kind of one.
Speaker Change: What one or two of them and that advertising, that's one of them, but increase but again, that's where we had that million to $1 $1 million charitable contribution that's going to flow through taxes.
And the other line item, that's where you had the 700000.
Dollar increase related to the special assessment so.
So if you back those out our.
Kind of a run rate is in the <unk>.
As in the $111 million range and just as we look out kind of in the short term.
Q2, we're going to be we're going to be in that 111, 112 range 111 to 113 range. We've got merit increases that went into effect late in our Q1 there'll be a full quarter impact and then as we get as we get into the latter half of the year.
That's one that's when we'd see that there could be some opportunity for relief on the expenses I'm just with the initiatives that were taken internally, we could see some relief there, but just in the short run if we get into Q2.
We again, we more normalized run rate related for the merit increases that that could be flattish to what we see this quarter.
Perfect. Thank you.
Thank you Jordan.
This concludes our question and answer session I would like to turn the conference back over to Mitch Waycaster for any closing remarks.
Well, thank you Anthony and thank each of you for joining the call today, We next plan to meet with investors at the Gulf South Conference in New Orleans, beginning on April 29.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.