Q2 2024 Renasant Corp Earnings Call
Good morning, and welcome to the run assault Corporation 2024 second quarter earnings Conference call and webcast. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone key.
Pat.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I'd now like to turn the conference over to Kelly Hutcheson, Chief Accounting Officer with Renaissance 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.
They 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 posted to our corporate site Www Dot 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 results for the quarter showed solid progress the balance sheet remained strong led by growth in traditional deposits that funded an increase in loans asset quality metrics continued to reflect our strong credit culture and credit reserves remain at historically.
High levels. The income statement reflects ongoing work on expense control and margin stabilization.
After the quarter, we announced the sale of Renaissance insurance Renaissance insurance has been a valued part of the company for a long time, while we felt market conditions made this an attractive move for our shareholders. We look forward to maintaining a relationship with our former colleagues going forward.
Sure.
The financial impact of the sale will be reflected in third quarter results I will now turn the call over to Kevin.
Thank you Mitch looking at our second quarter results, our earnings were $38 $9 million or 69 cents per diluted share recall in the first quarter. We sold a portion of our mortgage servicing rights asset for a gain of $3 $5 million and we recognized a $56000 gain on the extinguishment of debt. Excluding these items our earnings per share in.
Speaker Change: The second quarter increased five cents on a linked quarter basis loan yields increased 11 basis points quarter over quarter, which when coupled with solid loan growth drove an increase of $6 million in loan interest income during the second quarter from the first quarter.
Speaker Change: Deposits continue to perform well traditional retail deposits increased just over $200 million from the first quarter, which afforded us the opportunity to allow 184 million in broker deposits to mature.
Speaker Change: Included in our retail deposit growth was $23 million in growth in noninterest bearing deposits. Our business model is built on relationship banking and our team has done a tremendous job executing on this strategy with a goal of funding loan growth with core deposit growth.
Pricing for deposits remains competitive throughout our footprint and although deposit interest expense has continued to increase the pace of increase slowed this quarter with total deposit cost increasing 12 basis points during the quarter. The continued hard work in managing our deposit base was especially rewarded in the second quarter as noninterest income increased on a linked quarter basis.
Speaker Change: For the first time since Q1 of twenty-three ripped.
Reported noninterest income declined $2 $6 million from the first quarter, excluding the aforementioned gains on the sale of MSR assets and the extinguishment of debt in the first quarter adjusted noninterest income increased $900000 quarter over quarter.
Speaker Change: Income from our mortgage division, excluding the MSR gain in the first quarter increased $1.8 million on a linked quarter basis, which was driven by an increase in interest rate lock volume of $116 million offset to some degree by a decline in gain on sale margin of nine basis points reported noninterest expense decreased one.
Million dollars from the first quarter and the first quarter 'twenty four we recorded expense of $700000 related to the FDIC special assessment and.
And we also made contributions totaling $1 $1 million to certain charitable organizations, which qualify as tax credits. After adjusting for these items noninterest expense increased approximately $800000 from the first quarter. The increase in mortgage volumes resulted in higher levels of expense in that division, which were somewhat offset by savings in other areas.
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 grew $164 million loan growth in the second quarter was $104 million and represents an annual growth rate of 3.5%, we experienced another quarter of strong core deposit growth, which allowed us to continue to ship.
Shift 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 and with a strong core deposit growth our loan to deposit ratio remained steady at 88%.
Speaker Change: 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.
Turning to asset quality, we recorded a credit loss provision of $3.3 million net charge offs were $5.5 million, which was primarily comprised of a single credit in the ACL as a percentage of total loans declined two basis points to 1.59%.
Asset quality metrics are presented on page nine.
Speaker Change: Our criticized loans declined quarter over quarter, while nonperforming assets ticked up.
We remain vigilant in monitoring credit risk our strategy is to identify potential losses early in.
Speaker Change: And we're quickly towards resolution in order to mitigate loss Ah.
Our profitability metrics are presented on slides 10, and 11 <unk>.
Speaker Change: Excluding one time items adjusted pre provision net revenue increased $3.6 million on a linked quarter basis, driving an increase in all other profitability metrics as well.
Turning to slide 12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries was 3.29%, which represents an increase of one basis point from the first quarter core deposit growth coupled with diligent loan pricing drove the increase in both net interest income.
And net interest margin quarter over quarter.
We continue to focus on growing our core deposit funding base and being diligent pricing on both the asset and liability sides of the balance sheet, Kevin comment on the highlights within noninterest income and expense while the sale of the insurance agency will impact these categories beginning in the third quarter, we don't expect a material impact to the bottom line I will now.
Ill turn the call back over to Mitch.
<unk> Jam results through the first six months form a good foundation to build upon we are excited about the future and believe opportunities to add relationships market share and scale and southeastern markets will enable us to grow shareholder value in the years ahead I will now turn the call.
Over to the operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys.
If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Stephen Scouten with Piper Sandler. Please go ahead.
Yeah. Good morning, thanks, everyone.
I guess, maybe I'm curious first from a capital perspective kind of if theres any specific plans with the incremental capital from the insurance sale and kind of what what your overall capital priorities might might be today, whether that's organic growth.
New hires things of that nature, or maybe even potentially M&A.
Good morning, Steven This is Jim so yeah.
Yes, we're going to book in Q3 about $36 million gain from the sale of the insurance company or a couple of points I'd want to make about that before I got your question.
Speaker Change: I would I would say it's not a.
It was an important part of the company, but in terms of dollars. It's obviously not as big as what we've seen elsewhere in the industry the impact of that sale be very slightly.
Negative to E. P S. But the second half of the year are again, very slightly but modestly negative E. P. S.
The other thing I'd want to point out is the tax rate in Q3 that you'll see because of that gain will be slightly elevated from what historically, it's something around 23% versus say a normal rate of 22%. So not much difference, but you'll see a slight difference there.
As it relates to the use of those.
The capital gain I think our priorities remain the same first and foremost we want to target that capital or any incremental capital through retained earnings or sell like this to capitalize organic growth. That's priority number one and as you said, whether that's lift outs or organic growth. That's priority number one I'd say party.
Number two would be M&A, you know, we don't know when or if that's been a return, but if it if it does we'd certainly like to participate in that would be a good use of that capital as well.
Near term.
Yeah.
Speaker Change: The amount of buybacks, we don't take that off the table, but don't envision that the near term.
Okay very helpful.
And then maybe just thinking about the.
Trends from here Bill, obviously don't know exactly what the fed's going to do and what the curve is going to look like but.
Do you still kind of think we if we get the first couple of rate cuts that the margin can kind of remain stable, especially based on relative stability, you're seeing on the deposit cost side of things this quarter.
Lee: And I think it mean Lee.
Since the start of the year, we've assumed sort of a flat rate environment and that's still how we're.
Lee: Managing and thinking about the balance sheet, but if we get that let's say, we get a 25 basis point cut September.
Adult in terms of EPS that don't see impact in Q3, and again, maybe very modestly impact in Q4, but it would be slightly negative Stephen.
Speaker Change: In terms of the margin I would say that our outlook would be again in a flat rate environment and outlook for the margin is roughly flat for the balance of the year.
Stephen: Okay, Great and maybe just lastly for me I mean credit metrics ticked up a little bit but still remain.
Strong in your reserve is obviously strong I think when we spoke.
Earlier. This year you guys noted that you really work.
All that concerned about maybe some of the.
Stephen: Theory exposure, but but your internal team with maybe a little more focused on <unk>.
The exposure is there anything to note there around busy or anything.
Is that just on a relative basis for you or is there anything to note there that that gives you any concern.
Stephen Good morning, This is David there and in this quarter.
Our changes in asset quality mix wasn't a result of anything in our residential portfolio that remains heightened area.
Of course, our fourth Justin as far as watching it.
Just like all of that's in the bank, but that the change in asset quality was not residential it was what we saw as far as that inquiries in M. P age with 100% direct loans, we have to offer our commercial customers that are out there that we've yeah. We've been working with those customers for a while and large we just felt like it was time to go ahead and move on those assets when you start to see it.
Parents about valuation of some of the collateral underlying those loans with acres best to go ahead and move on both asset and whether it be a note sale or foreclosure. Just go ahead and try to remedy that and get them out of the way, but it was not due to residential.
Residential for this quarter.
Speaker Change: Yeah very helpful. Thank you all for the time and the color. This morning appreciate it.
Thank you Steven.
The next question comes from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, guys how are you.
Good morning, Michael.
Good morning.
Speaker Change: Mitch maybe we can just start.
As you normally do you just kind of an update on on the pipeline and sorry, if I missed it.
But you know what you guys are kind of contemplating for for loan growth as we move here both from a production standpoint, and also if you would expect that a decrease in pay downs as we as we move forward, particularly if.
You know rates don't come down thanks.
Speaker Change: Sure I'll I'll begin with pipeline and then go to production maybe a comment on payoffs we experienced another good quarter and we started the quarter with 130 million and the 30 day.
Speaker Change: Pipeline, which continues to reflect the good vibrant would say yet markets that we're operating in that.
That did yield this quarter.
Speaker Change: 104 million growth net growth in loans roughly three 5%.
Both Kevin and Jim commented on the growth of both loans and deposits. So while I'm there I want to point out as well we had a very good math.
But relative to the balance sheet on both sides of it.
With our deposit growth as well.
Speaker Change: The production this quarter was roughly 390 million that does compare to 418 million in the prior quarter.
So it was that 390 that resulted in the 104 net.
Speaker Change: That net compared to 150 million prior quarter, you mentioned payoffs, we did see and as we've said in the past.
As many times as the governor own caliber where the NAD ends up we saw pay offs bump up modestly this quarter.
Speaker Change: I wouldn't say anything unusual there out out of the ordinary just timing of payoffs, but just going back to production and looking forward I mentioned our markets.
All of our markets our regions our business lines continue to contribute well, they're reflected in our pipeline and our production and.
I'll break that down for you to that 390 million. This past quarter, 23% was in Tennessee, another 17% in Alabama, Florida Panhandle, another 14% in Georgia, and Central Florida, 22% in Mississippi, and 23% and our.
Commercial corporate business lines. So you can see both geographically and just how it distributes to throughout the business lines and the long types I'll touch on that and I think again it speaks to the granularity that Jim and Kevin mentioned this past quarter.
If you take that production about 20% was in our one to four short duration.
Type assets and another area, we usually do very well in and really saw it this past quarter, 31%.
Speaker Change: In small business.
Type credits less than $2 5 million and then an additional 30, 32% and commercial credits 2.5 and above and that would be your traditional C&I owner occupied type commercial real estate and then the corporate commercial business lines rounded out that production at 18%.
This quarter so.
As we've seen in the past and we consistently continue to hit on so many different cylinders and that I think is the evidence of our ability to I would say prudently produce relative to pricing and underwriting credit and I guess going to ultimately to your question just.
Speaker Change: Relative to looking forward, we remain optimistic about our ability to continue to produce and bond loan growth. The mob I would continue to.
Been reflected throughout this year somewhere in the mid single digit type net growth going forward.
Mitch very thorough answer as usual.
Maybe just as a follow up it was it was good to see.
Speaker Change: And I'd be deposits.
Speaker Change: Babelized.
Can you just talk about some of the push pull there I know there's there's several other banks that I've referenced our outsized competition from a few players.
Players in some of your markets just wanted to get some some color there and then when do you think we could actually begin to see a peak.
And and deposit costs. Thanks.
Michael This is Jim so as you point out at it I mean, it remains a very competitive environment.
Speaker Change: It does feel like the competition, maybe isn't as fierce or if you will irrational as it was irrational is the right word, but it felt that way at times going back a couple of quarters. So the pressures are still there. They just moderating some and that was as you were asking the question.
I was just looking at this might be.
This doesn't speak just a N I b, but the deposits as a whole.
Speaker Change: Our cost of deposits in the second quarter was $2 47. If you look at June. It's just a data point was $2 49. So I think that just further evidence of that of the increases in deposit costs moderating.
I will also say that as we look at <unk> I mean in internally worsening.
Or managing the balance sheet, such that we anticipate we we budgeted for a mentally prepared for some additional one off on and I'd be I don't know that we'll see it we were really pleased with what we saw in Q2 as Mitch referenced but.
Speaker Change: It is a competitive environment and.
Speaker Change: Whether it's our deposits across the board, but we're not seeing the same.
Yes.
You know.
Our competitive pricing that we saw a couple of quarters go and win that.
Speaker Change: Sort of.
You know stabilize as it bottoms out on I don't know, but we're certainly seeing some encouraging trends there.
Very helpful. And then maybe just finally for me following up on Steven's question on.
On M&A you guys are about $17 5 billion in assets just describe kind of what in theory, you would be looking for in a deal would you potentially do something larger would it be end market.
They're not necessarily in favor right now would you look to expand the footprint.
Just any sort of color you can provide in terms of what you would be looking for and maybe an asset size that you know we could think about both with organic and an opportunistic M&A over the medium to long term. Thanks.
Sure Michael the one thing I would just start by answering that question is just our discipline around valuation.
Opportunities and certainly we're focused on building scale and density within the markets that we operate in and we would certainly say that an opportunity and.
I would say a sweet spot relative to size, probably something a billion.
You know our above like site focused on scale and density within the footprint and.
As we think about being opportunistic as Jim mentioned earlier, certainly we began with that thought with the organic growth.
Speaker Change: Our talent and we had five additions this quarter actually on the talent front, just staying focused on organic type opportunities also I would say new markets relative to talent lift outs, but just coming back to strategic partners.
Whether that be banks or nonbanks.
Speaker Change: We continue to evaluate those opportunities, we always began with culture and business model and risk appetite.
I will say, we do believe we're well positioned with a strong balance sheet, we have a capable team.
To take advantage of all.
All of those opportunities.
Great. Thanks for taking my questions.
Thank you.
Speaker Change: The next question comes from Catherine Mealor with <unk>. Please go ahead.
Thanks, Good morning, I, just had one follow up on the.
On the margin conversation your loan yields increase I'm more this quarter than we've seen just wanted to get updated thoughts on kind of the pace of loan yield increases that we should see for the back half of the year.
Speaker Change: Yeah.
Speaker Change: Good morning, Catherine This is Jim good morning, Jim.
Good morning, Kevin I would say, yes, we've been really pleased with.
The new and renewed rates you've been getting in the last couple of quarters.
It does feel like.
At least in the near term the increases in that new and renewed.
Could plateau.
So we're definitely seeing some pressures there and so is that as I think about new and remain for the balance of the year I think you could see some pressures in new and renewed yields.
Great and actually I'm.
Taking a step further Kathryn if you look at it it's one month, so a month doesn't make a trend, but on new and renewed for June were off a little bit from what we saw for the quarter and again it doesn't necessarily make a trend, but but we're seeing some pressures there.
Speaker Change: What do you think some of that's mix or just new same kind of same kind of category of land, you'll have a lower incremental yield.
I don't it's not really I wouldn't say that what we're seeing are expenses due to mix. It just its just overall.
Speaker Change: I think theres a lot of competition for for loan growth and it feels like it's showing up in pricing pressures.
Okay that makes sense, Okay, and then maybe one on expenses your expenses have been flat for the past couple of quarters any update on your outlook for the back half of the year.
Speaker Change: Sure.
Yeah, Hey, Kathryn good morning, Kevin So, they're really not a whole lot of change there I think we do have to adjust for for insurance coming out so that will affect the run rate will bring it down about $2 million, but still if you back that out off of what our run rate was in Q2, Oh, that's what we're thinking and that's what we're modeling.
For the back half of the year continue to be mindful of expenses, our work to reduce them, where we can and continue to find ways to improve profitability, whether that is more scale on the balance sheet and drive more revenue the repricing.
The opportunity on repricing of assets and liabilities as Jim discussed in the margin.
We're also looking at greater accountability measures to reduce our expenses.
Speaker Change: It's been our focus it will continue to be our focus.
Great Alright, thank you.
Thank you Beth.
The next question comes from Dave Bishop with hub group.
Go ahead.
Hey, good morning, gentlemen.
Good morning des.
Speaker Change: Hey.
Speaker Change: Jim or Kevin just want to make sure a follow up.
Catherine's questions I hear that the.
Speaker Change: <unk> expense impact from the insurance sale is about 2 million per quarter did I hear that correct.
That's correct.
Speaker Change: Got it and then turn it back on the credit side.
Gus.
Some of the impact in terms of the increase of Ftes, but any granularity you can give us there in terms of segments was that C&I commercial real estate, maybe any any sort of granularity if it was CRE.
Speaker Change: Second that's what's driving that and some of the issues. Thanks.
David: Sure Nighthawk back more of this David It was it was all commercial related increase in M. P H quarter over quarter and it wasn't it wasn't a.
Broadly it was really three credits that are impacted and they work.
But at 80% to 85% of those does does those two larger credits where CRE in nature, one wasn't senior housing property and another one was.
Like it was kind of an assortment of a little bit of retail but office.
David: Both of them are credits that we've had identified as classified assets for a long period of time.
Assets, we continue to work with the borrowers on and we just felt like do the valuations in some of these asset types Jacob of office space in the senior housing space War.
Those assets, where we have occupancy issues in the markets not necessarily as favorable on those assets, where we see some valuation concerns. We thought it was just better off in our normal philosophy to be proactive go ahead and seek to resolve those loans, whether it be to a note sale or whether it be through foreclosure.
As you know we would typically like to identify the problem loan, which we did a while ago when we kind of get to the point, where we think there's a long term problem. One that we won't be able to walk out of or some potential valuation concerns. If we're going to go ahead and say to remedy that in this case for what had put those loans on nonaccrual and we'll work to expedite the resolution of those.
Eileen's as quickly as possible.
Eileen: Got it I appreciate the color.
Sure. The next the next question comes from Jordan, Kent with Stephens. Please go ahead.
Hey, good morning, I just had a quick question on the allowance it looks like it's kind of been ticking down for the last few quarters and just kind of wondering if you guys could give a little info around where you kind of see that go in or.
It's gonna be stabilizing or continues to track lower thanks.
Okay.
George Good morning, it's David.
Yes.
We've not changed our philosophy on all our faithful model, we feel strong about our to come out of the way it's working at it.
We reserve and with what told US to reserve a few years ago. When it's at this point is required.
Eileen: Held steady based on where the model comes out.
We set it based on a number of factors at the asset level and the kind of let our model got us where we are and so in Q2 that number reduced a little bit largely driven by the one pay down but the model that.
Built on where we need to charge off a little bit the dollar amount came down but that was really impart due to we reserve for new loan growth, but that portfolio derisked, a little bit, especially in the senior housing space, we talked about that one senior housing loan that we put on NPA and we had the charge down related to that one asset that de risked that.
Eileen: Senior housing asset type and cause a little bit of a reduction in the required reserve for that that particular, but all in all we continue to follow a model a model quarter over quarter.
And I think we would continue to see that until we see some change in some of those factors that droppable.
Eileen: And that would get hurt.
Yeah.
I'm sorry, George is going to add to what David said I think implicit in your question too I think.
And David suggested that.
We've talked for a couple of quarters I mean, it feels like again things can always change, but it feels like.
That allow it.
Slowly drift down during the balance of the year.
Visions and circumstances.
Take that but.
I think we built it for a reason.
We hadn't seen the charge offs and they remain very low, but we sort of.
Eileen: Built it for a reason and anticipate that it will gravitate down towards the 150 ish range by year end.
Circumstances and conditions hold where they are.
Okay. Thank you.
Eileen: Yeah.
Thank you again.
Speaker Change: Again, if you have a question. Please press Star then one.
The next question comes from John <unk> with <unk> Partners. Please go ahead.
Hey, good morning, guys.
Jim maybe just a quick question on the securities portfolio was down a little bit again this quarter, it's 11% of assets, how should we think about that going forward.
Jim: Good morning, John Yeah, I think you know I think internally, we sort of think about it's not a it's not a bright line of hard line. When you think about a level of around 10%.
And and we've got obviously plenty of.
External sources of liquidity available to us so it's something that we're we're comfortable where it is.
But generally wouldn't see it drifting much blow if at all below 10%, so well sort of watch that between now and year end, but that's that's our philosophy on sort of how do we how do we manage that securities position.
Okay makes sense thanks, guys.
Thank you John.
This concludes our question and answer session I would like to turn the conference back over to Mitch Waycaster Renaissance CEO for any closing remarks.
Well. Thank you drew thank you to each of you who do you want this morning's call and your interest in Renaissance.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Goodbye.
Jim: Yes.
Yes.
[music].
Jim: Okay.
Yeah.
Yeah.