Q3 2024 Renasant Corp Earnings Call
Good day and welcome to the rent isn't corporation's third quarter earnings.
Speaker Change: Conference call and webcast all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on a touchtone phone to withdraw your question. Please press.
Speaker Change: Star then two please note. This event is being recorded I would like now to turn the conference over to Kelly Hutchinson Chief Accounting Officer Pherentasin. Please go ahead.
Kelly Hutchinson: Good morning, and thank you for joining us for Renaissance corporations, 'twenty 'twenty four quarterly webcast and conference call participating in the 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 rich.
Kelly Hutchinson: 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 regulus.
Kelly Hutchinson: Tori 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 Tat.
Kelly Hutchinson: 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.
Kelly Hutchinson: Our 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, we are pleased with the results for the third quarter. They reflect solid financial performance the sale of our insurance agency and the issuance of common equity earlier in the quarter.
Mitch Waycaster: I want to acknowledge the hard work by our team to remain focused on our core operations, while contributing to the successful achievement of a number of significant transactions for the company.
Mitch Waycaster: Turning to the merger with the first few weeks following the merger announcement, we filed applications with regulators seeking approval for the combination and yesterday shareholders of both Renaissance and the first approved the merger.
Mitch Waycaster: We believe we have made solid progress on the other tasks necessary to complete the merger and we still expect a closing in the first half up 2025, followed by a conversion in August.
Speaker Change: I will now turn the call over to Kevin for comments on financial trends in the quarter.
Kevin: Thank you Mitch before discussing our results for the quarter I would like to Echo Rich's praise of Renaissance team members for their outstanding efforts in the third quarter have been tremendously impressed by our employees of build Easter both successfully execute their day jobs, while also contributing meaningfully to the work necessary to successfully bring Renaissance and the first two.
Speaker Change: Gather.
Speaker Change: We're well underway in our integration plan to come together as one company and we have not yet identified any operational issues that would interrupt our plans.
Speaker Change: I will now turn our attention to the third quarter financial results of Renaissance.
Speaker Change: Our reported earnings were $72.5 million or one dollar and 18th cents per diluted share included in these results is the after tax gain on the sale of the assets of our insurance agency of $39 million or 63 cents in diluted EPS.
Speaker Change: As well as after tax merger and conversion expenses of $9 $5 million or 15 cents in diluted EPS.
Excluding these items, our adjusted earnings for the quarter were $43 million or 70 cents in diluted EPS compared to 69 cents and diluted EPS for the second quarter net interest income increased $6 million on a linked quarter basis. Some of this increase was driven from interest earned on the proceeds from our capital raise but the remainder is a true.
Speaker Change: Pivotal to the increase in loan yields outpacing the increase in deposit cost.
Speaker Change: Our team continues to be diligent in our loan pricing with yields increasing six basis points on a linked quarter basis.
Speaker Change: But the success of the team is truly evident on the liability side of the balance sheet.
Speaker Change: Traditional deposits increased over $295 million from the second quarter equally important to note noninterest bearing deposits were flat quarter over quarter, although pricing for deposits remains competitive throughout our footprint. The continued hard work in managing our deposit base has paid dividends.
Speaker Change: Our total deposit costs increased only four basis points during the quarter compared to an increase of 12 basis points. During the second quarter reported noninterest income increased $55 million from the second quarter, excluding the aforementioned gain on the sale of the insurance agency adjusted noninterest income decreased $2.8 million quarter over quarter.
Speaker Change: Primarily due to insurance commissions foregone as a result of the sale.
Speaker Change: Income from our mortgage division decreased $1.3 million on a linked quarter basis. Overall volume was relatively flat. However, an increase in the fallout percentage of our pipeline as rates begin to fall during the quarter, coupled with a decrease in the gain on sale margin of 13 basis points were the primary drivers of the decline in revenue.
Speaker Change: From the second quarter.
Speaker Change: Reported noninterest expense was $122 million for the third quarter, excluding merger and conversion expenses of $11.3 million on a pretax basis noninterest expense was $110.7 million for the quarter, representing a decrease of $2.2 million on a linked quarter basis.
Speaker Change: Discipline around expenses and leveraging our existing expense base continue to be top priorities as we progressed toward integration with the first I will now turn the call over to Jim.
Thank you Kevin as he walked through the quarters results I will reference slides in the earnings deck.
Total assets grew $450 million due in large part to the proceeds from our capital raise and the sale of the insurance agency.
Speaker Change: Loan growth in the second quarter was $23 million.
Speaker Change: Loan production was strong during the quarter, but we experienced higher levels of pay downs, which resulted in a lower growth.
Speaker Change: On the liability side, we experienced another quarter of strong core deposit growth, which allowed us to continue to shift away from noncore funding sources.
Speaker Change: Referencing slide eight all regulatory capital ratios are in excess of required minimums to be considered well capitalized.
Speaker Change: The capital raise gain on sale of the insurance agency and retained earnings contributed to a meaningful increase in these ratios on a linked quarter basis.
Speaker Change: Turning to asset quality, we recorded a credit loss provision on loans of $1.2 million.
Speaker Change: Net charge offs were $703000.
Speaker Change: And the ACL as a percentage of total loans remained flat at 1.59%.
Speaker Change: Asset quality metrics are presented on page nine.
Speaker Change: Our criticized loans and total nonperforming assets increased due to the downgrade of a few larger loans. We believe these loans are adequately reserved.
Speaker Change: Our strategy remains to proactively identify underperforming loans early.
Speaker Change: And work quickly towards resolution in order to mitigate loss.
Our profitability metrics are presented on slides 10, and 11 <unk>.
Excluding one time items, all profitability metrics with the exception of return on tangible equity improved from the second quarter largely due to growth in net income and discipline around expenses.
The capital raise had a negative impact on ROTC turning to slide 12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries increased three basis points to 3.32% for the quarter.
Speaker Change: Interest earned on the proceeds from our capital raise and the sale of the insurance agency contributed to the growth in net interest income and margin.
Speaker Change: And the good work by our team to grow core deposits and remain diligent in pricing continued a trend of declining increases in rates.
Speaker Change: We continue to focus on growing the core funding base.
Speaker Change: Kevin commented on the highlights within noninterest income and expense, we expect the balance of the year to include additional expenses related to the proposed merger with the first but we remain committed to improving the profitability of Renaissance on a standalone basis.
Speaker Change: I will now turn the call back over to Mitch.
Mitch Waycaster: Thank you Jim as you have heard we had a very active quarter, but do not want the noise of this activity to drowned out the success, we had during the quarter to improve the underlying financial performance, our adjusted efficiency ratio decreased 198 base.
Mitch Waycaster: This points and our adjusted return on average assets increased seven basis points on a linked quarter basis.
Mitch Waycaster: We are enthusiastic about the opportunities ahead for Renaissance as we work to create a top performing bank operating in some of the southeast most vibrant markets I will now turn the call over to the operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: Ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. It. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Apologies for that everyone.
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Speaker Change: Our first question comes from Catherine Mealor of K B W.
Speaker Change: Please go ahead.
Catherine Mealor: Thanks, Good morning.
Speaker Change: And Kathryn.
Catherine Mealor: I'm going to just start on the margin.
Speaker Change: Yeah.
Catherine Mealor: Nice expansion this quarter and just curious.
Catherine Mealor: As we think about next quarter would be helpful. But even as you kind of get into 25, how to think about your margin just with potentially more rate cuts coming than we had previously been talking about and then.
Catherine Mealor: Because if you could help us think about Renaissance as a standalone and then with FB enough as well what that does to your tier market outlook. Thanks.
Catherine Mealor: Yeah.
Catherine Mealor: Good morning, Catherine This is Jan good morning, Jim.
Catherine Mealor: Yeah.
Good morning so.
Catherine Mealor: We've talked the last couple of quarters.
Catherine Mealor: Weird word as we had these rate cuts.
Catherine Mealor: They didn't have intermediate near term those cuts are going to have a.
Catherine Mealor: Modestly negative impact on margin and still feel that way. So if we if we see two more cuts in Q4.
Catherine Mealor: Impact on it but the 50 basis point cut that we've had a we generally see that happen again.
Catherine Mealor: A modest negative impact on margin and that smooths out over time, but near term that that would be the case.
Catherine Mealor: 20 bodies.
Speaker Change: There's a lot to wrap our arms around there.
Speaker Change: You know certainly.
Speaker Change: Certainly standalone, but when you when you when you add the first to that mix.
Speaker Change: As I think we.
Speaker Change: I think we talked about some.
Speaker Change: Previously I mean, the first is less asset sensitive than we are.
Speaker Change: So I would I would say the top of the house.
Speaker Change: That's going to help our Nam.
Our response to further rate cuts and twenty-five generally they're going to they're going to moderate the negative impact.
Speaker Change: But to speak to.
Speaker Change: I'm not quite sure how nimble you can have behaved because it will depend upon the size and the pace of those cuts and it means that the first isn't there. There's just a lot I think.
Speaker Change: So.
Speaker Change: 25 is it as you know.
Speaker Change: We'll see how that plays out but near term again going to your first part of your question on D. C. Some modest negative impact in the short term on them.
Speaker Change: On the deposit side can you talk about what you've seen so far on your deposit cost just with the 50 basis point cut it was too late in the quarter, who really see the impact in the third but curious if you've got a spot rates or just kind of what data you're seeing so far.
Speaker Change: I mean, we've been really pleased with our deposit behavior I think it will start at the beginning of the year in the budgeting and sort of you know.
24.
Speaker Change: In our numbers and what we thought was going to happen when we envisioned out a very tough environment for noninterest bearing deposits in and we thought we would see a meaningful runoff there and in fact, it's.
Speaker Change: Essentially pretty close to flat for the year and I think this is the.
I think it is the fifth consecutive quarter that we've seen deposit growth outpace loan growth and we'd certainly would like to have more one growth, but the deposit trends have been really good we started.
Speaker Change: Cutting our specials back in June I think were down I think are five months specials around 4.25% and that was a 100 basis points higher in June. So we've we've been able to cut rates and certainly think will go or heading into a vibrant we'll going to see more.
Speaker Change: The benefit there so deposit bases behaved really well and much better than we thought so I am I'm.
Speaker Change: Mr gun on the deposit side.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from Michael Rose of Raymond James. Please go ahead.
Hey, good morning, everyone. Thanks for taking my questions.
Michael Rose: Maybe just going back to the one question before I think we've seen a lot of banks.
Michael Rose: See relatively muted growth this quarter, a lot or you know kind of citing.
Michael Rose: Certainly around the election and in the economy and things like that but still pipelines are good Mitch I was wondering if you could kind of give us your usual pipeline breakdown and kind of you know.
Michael Rose: At least what you would do.
Michael Rose: Expect to see from a from a net growth perspective, and if theres any paydowns upcoming that we should be aware of thanks.
Mitch Waycaster: Sure Good morning, Michael.
Mitch Waycaster: Excuse me so Ed as you suggest it will start with the pipeline and we go into the quarter are at 176 million, which is a good increase over where we started three Q at 130.
Mitch Waycaster:
Speaker Change: It's also Jim mentioned earlier in his opening comments that we saw good production and we did actually production within the quarter was $507 million up from 390 million I think both the pipeline and the production.
Speaker Change: Which grew throughout the quarter and we saw pipeline growing throughout the quarter.
Speaker Change: <unk> again is just a testament to the good vibrant resilient markets that we're operating in.
Speaker Change: Back to your other question and point brings us to payoffs and what we did see this quarter.
Speaker Change: We're in <unk>.
Speaker Change: Modest increase in payoffs they went up to $551 million.
Speaker Change: The prior quarter was 410.
Speaker Change: You look at the previous four quarters that average would be 400 million.
Speaker Change: I believe the change in rate.
Speaker Change: There we saw some sale of business, we saw some seasoned commercial real estate projects that.
Speaker Change: Acted on being able to move out to secondary market, we saw private equity bonds active in some of the sale of business.
Speaker Change: It's likely in the rate environment that payoffs could be Oh, moving up some as we go into future quarters.
Speaker Change: For Renaissance, though it comes back to our ability to produce in the markets, which.
Speaker Change: Again as reflected in this quarters production and it's reflected in the pipeline that we're seeing.
Speaker Change: And again I won't go through percentages of each market that if if I did you would see a pretty broad based.
Speaker Change: Both in the pipeline and production representation across the market and and as I. Usually comment is I think is important is the geography, it's the types.
Speaker Change: Again, this past quarter of that five or seven.
Speaker Change: Just under 15% of that was in consumer one to four those that we would hold on portfolio, but another and we always do well here another 26% was in that small business business banking.
Speaker Change: I would say less than $2.5 million in Sars, and then commercial credits above 2.5, C&I type credits owner occupied commercial real estate represented about 28% and then in our corporate banking larger C&I commercial real estate.
Asset based lending equipment finance S be a factoring a number of business lines contributing with an additional 34% all of that to say are our average loan size remains in the $300000 range. So we just we continue to hit on many.
Speaker Change: Different cylinders.
Speaker Change: So both geographically.
Speaker Change: And by product type.
Speaker Change: And we're doing that while remaining disciplined in our pricing and our underwriting Jim commented on the granularity of our deposit base that is true of our loan base of our asset base.
Speaker Change: We do remain optimistic.
Speaker Change: As we go forward with our ability to continue.
Speaker Change: Who are you know to grow a diversified loan and fund it with a diversified deposit portfolio and coming to your last question. Just looking forward I would continue to say much like we've seen this year in the low to mid single digit net which the variable there will be.
The payoffs, what what what we say incoming coming quarters.
Speaker Change: That's great color as always very very helpful. Maybe just a follow up.
Because I've got a headline that home sales hit the lowest level since 2010 and mortgage rates have actually moved.
Speaker Change: Over the past couple of weeks, Kevin If you can just give us kind of an update on.
Speaker Change: On the mortgage business and kind of the trends that you are you are seeing there and then assuming that we get some future additional rate cuts I would expect hopefully that.
Speaker Change: You'd see a pickup in activity, but just wanted to get some just broader call. It for me. Thanks.
Speaker Change: Yes.
Speaker Change: Michael Thank you for the question I think you summed it up oil as we've seen the short end of the curve come down.
Speaker Change: What isn't talked about may be as much are received as much attention as hell.
Speaker Change: With all the.
Speaker Change: The longer end of the curve or the mid range of the curve.
It continues to remain flat if not tick up a little bit. So it's good that we have steepness in the curve I think that helps us from a banking standpoint, but it absolutely puts pressure on mortgage so it more mortgage continues to be a tough environment, where we saw a pullback in rates early on in Q3.
Speaker Change: Are we.
Speaker Change: That said some of that momentum abated, a little bit as we got towards the end of the quarter.
We still are we still have a pipeline that hasnt gone to zero, we're seeing activity. It just continue that the pipeline isn't as building and building as much as maybe we expected on the anticipation of the fed cutting rates, but to your question if rates if longer term rates come down we do it we do expect an uptick in.
Speaker Change: Mortgage activity and that should flow and we do think as we've been talking about what.
Speaker Change: What we've done to rebuild our mortgage team our production we continue to be successful in hiring production talent throughout our markets, we expect that to be immediately realized as as rates cooperate.
Speaker Change: Okay, Great and maybe just one final quick one.
The deal the first acquisition expected to close in the first half of next year.
Speaker Change: I know, it's hard to predict these things, but obviously the shareholder votes.
Speaker Change: Any sort of refinement of when we could potentially see.
Speaker Change: The acquisition closed either first or second quarter at this point or is it just too soon still but really understand.
So Michael I think its more the ladder.
Speaker Change: Commented on in.
In the beginning just about the shareholder approval, which we both received yesterday, we were some 80 days at this point past the.
Speaker Change: <unk> and some 60 plus days past actually the act application and.
Speaker Change: It's a where we're early in the process, but as I commented earlier, we've made solid progress on the tasks necessary to complete the merger.
Speaker Change: You mentioned the shareholder vote, which are both receive yesterday, but.
Speaker Change: Things are going well, we still expect closing in the first half of 2025 pending.
Speaker Change: Regulatory approvals and a corresponding led by conversion in August.
Speaker Change: The next question comes from Matt Olney of Stephens. Please go ahead.
Matt Olney: Yeah. Good morning, Thanks for taking the question guys I'm going back to the margin discussion I was hoping to dig into the the the fixed asset repricing dynamic any more color you can provide on that fixed variable rate loans that will be repricing higher.
Matt Olney: For the next few quarters, and specifically I'm just looking for the dollar amount of these loans I don't know Jim if you have a three month or a 12 month.
Matt Olney: Schedule, just looking at the dollar amount of that and then also on the yield side kind of what they've been.
Matt Olney: Usually more recently and color on kind of the.
New new new yields on that.
Speaker Change: Good morning, Matt.
Speaker Change: So yes, hopefully there. So this will be helpful. So in terms of variable and adjustable at least in the near term, we're talking about roughly $5 5 billion on the loan side that reprice.
Speaker Change: And I think that that variable book today is yielding somewhere in the mid sevens.
Speaker Change: And.
Speaker Change: If you look at our our new and renewed we've been I think in Q3 were sort of upper sevens. So I don't know how that will play out exactly but that'll give you a sense for.
Speaker Change: The repricing on the fixed rate side, we do have.
Speaker Change: Call it $750 million or said that re price.
Speaker Change: Over the next 12 months that that.
Speaker Change: That piece of the fix bugs caring about a 5% yield.
Speaker Change: And I think about that plus we've got a couple of hundred million dollars of securities that will.
Speaker Change: Generate will.
Speaker Change: We'll generate a couple hundred million dollars in cash flows with and that that book is yielding about 2%.
Speaker Change: And then and I know you didn't ask this but I sort of think about what's the what's sort of the flip side of that and that's that's the deposit pricing and we've got about not quite four and a half billion dollars.
Speaker Change: Of funding and I include in that a small piece of our Oh that.
Speaker Change: Floating rate debt part of our funding.
Speaker Change: That reprice immediately so.
Speaker Change: Those are some of the offsets.
Speaker Change: Hope that's helpful and as you think about margin.
Speaker Change: Yeah, Jim that's helpful. Appreciate the details there and and.
Speaker Change: There are several moving parts there, but it sounds like based off here.
Speaker Change: This commentary you are expecting a little bit of margin compression in the first quarter as the as the balance sheet. This digest. The fed moved from September anyway. You can you can size that up for us as far as what to expect in the fourth quarter.
Speaker Change: Yeah.
Speaker Change: Hum.
Speaker Change: I'm going to go back to the to.
Speaker Change: The description of modest Matt because.
Speaker Change: And even though it's even though there were you know well into the quarter are predicting how that's going to play out.
Speaker Change: As you know is still I think more of an art than a science, but I don't think it's I don't think it's significant or material, but I do think it's it makes sense for us to think about there'll be some modest contraction.
Speaker Change: And then in Q1.
Speaker Change: If if we had no further rate cuts that would start to sort of even out and plateau.
Speaker Change: Uh huh.
Speaker Change: And of course 25, you know at some point, we'll have the first in the mix and am also have a better sense of further cuts in the magnitude of those cuts and the timing. So it's 25 as a as a.
Speaker Change: And.
Speaker Change: The outlook there as you know it was.
Speaker Change: Is cloudy in terms of how that's all going to piece together, but I again near term I don't want to be precise about it but I do think there's some modest contraction in that margin.
Speaker Change: Okay, No I appreciate that agenda definitely several moving parts.
Speaker Change: I appreciate the just the general commentary.
Speaker Change: Also want to ask about credit I think there was a mentioned in prepared remarks about the downgraded a few.
Larger loans, just any more color you can provide on those.
Speaker Change: Those downgrades as far as the industry or any any themes.
Speaker Change: Hum.
Speaker Change: Hey, Matt This is David good morning.
Speaker Change: Morning.
David: Like those those asset classes, where the asset classes that we're seeing we've seen stress in and we continue to see stress in there they've been they were dominated by loans in the senior housing space. There were three loans in the senior housing space and one loan in the non medical office space that really comprise the the downgrade.
David: For the quarter. So it's as Jim mentioned in opening comments, there's a it's a few loans that continues to be in the asset classes that we've seen some level of stress. We continue to monitor those loans aggressively to make sure. We're looking for to performance in so we can recognize those problems and work them out of the bank.
Speaker Change: Yeah. So I would I would say it says unit kind of notice of the senior housing. If you. If you took that asset class out of our criticized loans that that number dropped materially from little over 3% about 2.1%. So you can see there's a there's a stress level in one asset class and so it's we think it's pretty isolated it hasn't gone across to us.
Their asset classes at this point.
Speaker Change: Our next question comes from David Bishop of the Hovde Group.
Speaker Change: Please go ahead.
David Bishop: Yes, good morning, gentlemen.
David Bishop: Hey, Hey curious.
David Bishop: Staying on that the credit quality topic, obviously some.
Good capital inflows from the insurance sale just curious.
Speaker Change: It is a simple answer you know the seasonal accounting or the accounting prevents it but maybe why not file a little bit more of that back into the reserve provision given the recent trends.
Speaker Change: Criticized and classified or is that maybe commentary on the reserves already provided or loss potential maybe just thoughts there on the on the provision and reserve.
Speaker Change: Hi, David Good morning.
Speaker Change: When we ran our faithful model for the quarter, we kind of let that model play out based on what you know based on the on the inputs and loss rates and qualitative factors.
Speaker Change: And so we let that model play out and it's a as you know, it's a pretty healthy reserve at a $1 59 in quarter over quarter. It stayed at a 159, yeah. There's some repositioning within the assets quarter over quarter that kind of led that to be flat in spite of the increase in criticized we had some repositioning within asset classes.
Speaker Change: It really we let the model continued to drive the the output based on loss rates Q factors and yes.
Speaker Change: So again, it and we'll just leave it to be a very healthy number based on where it stands today at 159.
Speaker Change: Hey, David Kevin I May just add to that and I think if you look at our allowance.
Speaker Change: I know, we're talking about this year and maybe maybe last year, but I think it's worthwhile to go back to 2020, because that's when we really built our allowance and we built it.
Speaker Change: As a result of the pandemic and the lasting effects of the pandemic and what it did on certain asset classes, but there were there were paradigm paradigm shifts as it relates to work environments or senior housing and how that how that impacted those those asset.
Speaker Change: <unk> that would take it took time, we we felt it would take time for those stresses to play out in our portfolio, we weren't going to recognize real town losses with charge offs in the pandemic. It took time for these stresses to show up in the portfolio and I think I think what we're trying to say with our allowance.
Speaker Change: Methodology is.
Speaker Change: Is the provision we provided in 2021 to build the allowance it's playing out right now it may not we identify we had a lot of concern with a lot of different asset classes in 2020, one and some of those concerns have abated. Some of those concerns have been confirmed.
Speaker Change: But I think what we're seeing is in senior housing there continues to be stressed but we provided a lot for senior housing in 2020 one.
As it's evolved office has continued to be a persistent problem or not maybe not a problem, but a concern and we're just monitoring that concern and maintaining reserves and if we need to use the reserves, we will but I think we have a history of quick identification of problem loans work to <unk>.
Speaker Change: Solve it and minimize loss and that that is the process that kind of underlines not only the cecil but but also just our loss recognition most identification in loss recognition, which I think is the whole basis in theory behind seafood.
Speaker Change: Got it I appreciate that.
Color.
Speaker Change: And then final question for me.
Speaker Change: Slide a little bit of an uptick.
Speaker Change: And excess liquidity cash and liquidity.
Speaker Change: Given the given the sale do you think youre going to operate around that level into the merger.
Speaker Change: We use that for funding loan growth.
Jim: Dave This is Jim.
Speaker Change: I hope it's the latter.
Speaker Change: You know you heard <unk> comments about loan growth and we'll see how that plays out but we'd like to think that that liquidity will some.
Speaker Change: Some of that will will transfer to the loan bucket and if not then.
Speaker Change: You could see us potentially and I think this would probably maybe happen anyway, just given our deposit behavior, but you could see us purchasing some securities for the first time in quite a while but.
Speaker Change: Certainly our preference is to put to work in the loan book.
Speaker Change: Got it thank you.
Speaker Change: Our next question comes from Stephen Scouten of Piper Sandler.
Speaker Change: Please go ahead.
Stephen Scouten: Hey, good morning, everyone maybe.
Stephen Scouten: Maybe kind of a follow up to that line of question just kind of thinking about the securities balances moving forward.
Stephen Scouten: I assume maybe similar ideology and the cash balances a preference to put them into loans as possible, but it looks like they could elevate as a percentage of the balance sheet.
Speaker Change: Former with F. BMS I'm, just kind of wondering how youre thinking about securities kind of into the close and on a pro forma basis as a percentage of the balance sheet.
Speaker Change: Good morning, Stephen So you're you're correct I mean, as we sit here today.
Speaker Change: And certainly as of the June numbers that we haven't run as of September but adapted at I would think it's relatively unchanged.
Speaker Change: Where we were going to come out with a pretty healthy liquidity position pro forma for.
Speaker Change: For the first and so you.
Speaker Change: You know I don't know exactly what we'll do.
Speaker Change: We'll put that liquidity, but I do like the fact that we're gonna be sitting on considerable liquidity.
Speaker Change: And and how we put it to work, we'll see but again the hope would be that we did a lot of that liquidity will go into the loan book.
And as I sort of think that's at least as we think about the balance sheet I think that's sort of the theme with the first when we do get to closing the balance sheet.
Speaker Change: The Reynolds our balance sheet is just you know strengthened.
Speaker Change: Suitably by the first and certainly by the capital raise that we completed I mean liquidity is up considerably to your point capital.
Speaker Change: It will be quite strong pro forma and then.
Speaker Change: We've got the prospect of creating considerable capital as you know so whether it's liquidity capital I, just I feel like we're going to we'll be now.
Speaker Change: Little bit of a different place as we get to the latter half of 'twenty five 'twenty six than we've been the last couple of years and net.
Speaker Change: Meaningful excess liquidity and meaningful capital, which to me just opens doors for other.
Speaker Change: Other uses for for those.
Speaker Change: Dollars that we really I mean, they've been on the table historically, but are going to be a potentially more actionable as we get into the latter part of 'twenty five and 'twenty six.
Speaker Change: Okay, Great very helpful. There Jim appreciate that and then just Mitch I. Appreciate your earlier comments around loan pipeline and kind of how you're thinking about that relative to pay downs and such.
Speaker Change: With what you saw this quarter and elevated pay down do you think that could be a more persistent problem in the quarters ahead, just as rates continue to come down do you think there is a backlog of CRE pay downs potentially that we have to to work through before we can actually be maybe better loan growth trends and at some point in 'twenty five.
Speaker Change: So stay tuned I think likely.
Speaker Change: Likely for the industry for us and other banks it it would be logical that you could have Cree.
Speaker Change: I've referred to them as more season projects.
Speaker Change: That have been on the sidelines waiting.
Speaker Change: Uh huh.
Speaker Change: To to move and put that capital you know exit those projects and go into a new project, which in itself will create additional loan production. So.
Speaker Change: If someone like a treadmill it speeds up so both production will elevate some as well as pay off so I think that's logical and in.
Speaker Change: Future quarters I think.
Speaker Change: I think that you you make a good point I don't know that that would be over pronounced maybe would be another way to say it I was.
Speaker Change: Really in my comments, there I was reflecting on our ability to broadly both geographically and in our product types to produce but I think just in that <unk> space. I think you make a good point and that's that's likely to play out at our bank and probably and others as well.
Speaker Change: Yeah, Yeah, I think it would be an industry issue if anything for sure not specific to any to your bank for sure, but I guess if that were to happen I'm. Just curious kind of coupling. These two conversations together increased capital and liquidity more more fuel to put to work with the potential for some.
Speaker Change: You know larger Paydowns theoretically.
Speaker Change: Could other avenues b.
Speaker Change: For deployment of that liquidity I mean, do you think about loan purchases at any point or I don't know new verticals or team lift outs or just kind of thinking about what could be the next derivatives of.
Speaker Change: Growth if if if we do have that impediment, maybe to deploying that liquidity near term.
Speaker Change: Steve This is Jim I'll start and certainly.
Speaker Change: Welcome, Kevin or Mitch Chairman and Brett I think I think it's some of the things you said I mean.
Speaker Change: Whether it's team lift outs or how we think about them.
Speaker Change: You know.
Speaker Change: Remixing that balance sheet.
Speaker Change: Again, I think it's it's a it's sort of a different position than we've been in and we've really enjoyed a great balance sheet, a really strong balance sheet, but it just gets so much stronger and so we obviously the first goal here is to is to keep our eyes on the first and a very successful integration that's yeah.
Speaker Change: Job, one to bring out what that balance sheet in those earnings and and and and to execute that successfully but I think on top of that are away from that certainly.
Speaker Change: You know whether it's.
Speaker Change: So sort of a non bank.
Speaker Change: We've done a couple of small nonbank deals as you know Nate.
Speaker Change: That's gone extremely well.
Speaker Change: Really pleased with what's happened there, particularly at RBC. That's just been a really good story for us So excuse me whether it's.
Speaker Change: Smaller deals or lift outs and I think all of that is open to us and we're going to have as you point out we're going to have the capacity to act on it and if those things come along.
Steven This is Kevin I'll, just I'll just chime in I think you laid out a really good good answer.
Speaker Change:
Kevin Chairman: Good God kind of to your question. It is optionality that that cash and liquidity brings try everything you mentioned is on the table, because we have that cash and liquidity and it's only going to be in hand enhanced with the first and so but that that kind of sums up what why we've put such an emphasis on deposit growth.
Kevin Chairman: Road is cash is king, but liquidity is king it's a fundamental of banking not not necessarily lending, but the deposit generation is a fundamental banking and as an industry. Maybe we took our eye off that ball for 13 years. If you look over the last year 12 15 months.
Kevin Chairman: We are keenly focused on deposit growth and I think you've seen it in our numbers.
And we're okay, if that loan deposit ratio creeps down.
Kevin Chairman: Because our deposit generation is outpacing loan growth because it gives us optionality of everything you just mentioned.
Kevin Chairman: And that I think that's the position we want to be in but let's let's keep options on the table and then let let's evaluate what's best for us to execute on at that time, but it all starts with that optionality that the liquidity and cash bring to the equation.
Speaker Change: Yeah, that's yeah, the Optionality definitely cladding I appreciate all the color there. Thank you guys.
Speaker Change: This concludes our question and answer session I would now like to turn the conference back over to Mr. Mitch Waycaster for any closing remarks.
Mitch Waycaster: Well. Thank you Alan we will next meet with investors at the Piper Sandler Conference in Florida on November the 14th and thank you to each of you for joining the call today and for your interest and Renaissance.
Speaker Change: The conference has now concluded. Thank you for attending today's call. Today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.