Q1 2025 Renasant Corp Earnings Call

Speaker Change: Good day and welcome to the Renasant Corporation 2025 First Quarter Earnings Conference Colin Webcast.

Speaker Change: All participants will be in listen only mode. Should you need assistance, please signify a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded.

Kelly Hutchinson: I would now like to turn the conference over to Kelly Hutcheson

Speaker Change: Chief Accounting Officer. Please go ahead. Good morning, and thank you for joining us for Renasant Corporation's quarterly webcast and conference call. Participating in the call today are members of Renasant's Executive Management Team.

Speaker Change: 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. [inaudible]

Speaker Change: Interstrict Flexuation, Regulatory Changes, Portfolio Performance, and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, www.renasant.com, at the press releases link under the news and market data tab.

Speaker Change: We undertake no obligation and we specifically describe any obligation to update or revise forward-looking statements to reflect change to assumptions, the occurrence of an anticipated events or changes to future operating results over time.

Speaker Change: 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 Wakeaster.

Mitch Waycaster: Thank you, Kelly. Good morning. We appreciate you joining the call. The first quarter results reflect a good start to the year with solid profitability and growth and loans and deposits.

Mitch Waycaster: As you know, on April 1st, we completed the merger with the first bank shares, and we welcome their team to Renasant on.

Mitch Waycaster: Our focus remained steadfast on successfully bringing two strong companies together and achieving higher profitability with solid organic growth.

Speaker Change: While the economic outlook contains uncertainty, we are excited about the prospects for Renaissance to perform well in the periods ahead. I will now turn the call over to Kevin.

Thank you, Mitch.

Kevin: Before we dive into the quarter's results, I too want to welcome the team from the first to Renasant, which successfully closed the merger less than a month ago and the conversion and integration teams have been hard at work to orient our new team members, align our management teams and continue to meet the needs of our customers.

Kevin: I want to commend all employees of the combined company for their diligence, patience and flexibility throughout these past several weeks. With the early success we're experiencing, I'm excited about the future opportunities for Renasant.

Kevin: Similar to last quarter, solid loan growth of $170.6 million linked quarter, coupled with a sizable decline in our cost of deposits was the driver behind the increase in that interest in income.

Kevin: The liability side of the balance sheet presents another positive growth story. Total deposits increase to approximately $200 million dollars, link quarter, with growth in non-interspaned deposits accounting for $137 million dollars of growth.

Kevin: The improvement in deposit makes, along with discipline pricing as rates have fallen, resulted in a decrease in total cost of deposits of 13 basis points from the prior quarter.

Kevin: Non-interest income, increased $2.2 million from the fourth quarter of last year. See the now the in our Mortars division drove an increase in Mortars banking income of $1.3 million, accounting for the majority of overall increase in non-interest income.

Kevin: Non-interested expense was $113.9 million for the first quarter, excluding murder and conversion expenses, non-interested expense was $113.1 million for the quarter representing an increase of $415,000 link quarter.

Kevin: We will continue to work diligently to manage our expenses as we work to efficiently integrate the first this year.

Kevin: Overall, we had a strong quarter marked by solid bouncy growth, discipline pricing, and expensive management.

Speaker Change: Before turning the call over to Jim to discuss financials, I would like to thank Mitch for his service and outstanding leadership as CEO of Renasant during the past seven years.

Speaker Change: During Mitch's leadership, Renasant Bank grew to become a 26 billion dollar financial services company with more than 300 locations and over 3100 employees throughout the Southeast.

Speaker Change: Additionally, Mitch's steady hand in calming approach helped us navigate several significant events during his tenure such as the pandemic and the bank failures of 2023. On behalf of our employees, customers, communities and shareholders.

Speaker Change: Mitch, we congratulate you on your success during your tenure as CEO and are excited that you will remain a part of the team as Executive Vice Chair.

I will now turn the call over to Jim

Speaker Change: Thank you, Kevin, and I echo your comments about Mitch and his leadership. I have really enjoyed and benefited from serving under Mitch these past five years.

Speaker Change: I'll begin with highlights on the balance sheet. Total footings grew 237 million dollars on a link quarter basis.

Speaker Change: We experience another quarter of strong loan growth, driving an increase to our loan portfolio of $171 million, which represents a 5.4% annualized growth rate.

Speaker Change: This asset growth was primarily funded by growth in deposits, which increased $200 million on link quarter basis.

Speaker Change: This growth came in the form of either non-interest bearing or otherwise lower costing deposits as we reduced higher costing time deposits from year end.

Speaker Change: From a capital standpoint, all regulatory capital ratios are an excess of required minimums to be considered well capitalized, and our book value per share, intangible book value per share increased 1.6 and 2.7% respectively quarter of a quarter.

Speaker Change: Touring the asset quality, we experienced improvement in all of our credit quality metrics.

Speaker Change: A cornerstone of our Credit Risk Management Strategy is to proactively identify underperforming loans early and work quickly towards resolution in order to mitigate loss and our team executed this strategy well during the quarter. We record a credit-loss provision on loans of $4.8 million.

Speaker Change: Comprise of $2.1 million attributable to funded loans and $2.7 million attributable to unfunding commitments.

We experience growth in our commitments to finance construction projects.

Speaker Change: which we expect to find on the next 12 to 24 months, driving the need for provision for unfunded commitments in the first quarter. Net recovery is $125,000.

Speaker Change: and the ACL as a percentage of total loans decreased one basis point, quarter over quarter, to 1.56%. Turning to the income statement are adjusted pre-provision net revenue increased $3.3 million.

Speaker Change: driven by growth in both net interest income and non-interest income and effective management of non-interest expense.

Speaker Change: Our Adjusted Net Interest Margin, which excludes purchase accounting accretion and interest recoveries increased 8 basis points to 3.42% for the quarter.

Speaker Change: Adjusted loan yields decreased 8 basis points to 6.19%, and the total cost of deposits decreased by 13 basis points to 2.22%.

Speaker Change: Kevin commented on the highlights within non-trust income and expense. The improvement in net revenue, coupled with stable expenses, resulted in an improvement in our adjusted efficiency ratio of 1.4 percentage points.

Speaker Change: We are encouraged by the results of the first quarter and the momentum building for the remainder of 2025. We look forward to bringing you results of our combination with the first at the end of the second quarter.

I will now turn the call back over to Mitch Judge.

Mitch Waycaster: Thank you, Jim. As Kevin noted, we have made good progress on merger integration. Renasant not only operates in some of the best banking markets in the country, but is also positioned to accelerate profitability improvement in upcoming quarters.

Kevin: On a personal note, I appreciate the kind words from Kevin and Jim.

Mitch Waycaster: It's been a blessing serving with this outstanding team for 46 years, and I look forward to continuing my service as Executive Vice Chair in semi-retirement. I will now turn the call over to the operator for questions.

We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Stephen Scouten with Piper Samler. Please go ahead.

Hey guys, good morning. I appreciate it.

Stephen Skelton: Good morning. So I'm curious one, first in seed, it looked like another really strong quarter and wealth management. Have there been any larger scale changes to that business or anything that's kind of changed the run rate or the potential of revenues overall? Anything, anything kind of notable there based on the last couple of words? Yeah.

Speaker Change: David, good morning. I think it's more a story of consistency in that space.

Stephen Skelton: We find ourselves today just over six billion in assets under management and as you look across those various business lines our ability to integrate that delivery particularly in the small business commercial space. [inaudible]

Stephen Skelton: Has has continued to produce well far as we see a lot of upside going forward as we continue to grow that business in the future.

Speaker Change: Okay, great. And then maybe as we think about the deal having closed curious if it's probably still very early, but as you've gotten into it, anything you look at within the loan book of the combined company and you think maybe you want to work a part of the loan book down or de-emphasize anything throughout the footprint.

Speaker Change: Good morning, this is David Meredith. We real live through our due diligence, just a comfort level in their loan book.

Speaker Change: It's very similar to our loan book from a geographic standpoint, asset concentration standpoint, the type of transactions they chase . . .

Speaker Change: The metrics they use in underwriting, performance, everything lined up very well with what we do. So we don't see any changes. Hopefully just it's a springboard to continue to grow further.

Speaker Change: Would there any major changes to marks with the deal that you guys have disclosed and then timing of cost stage and integration? Have there been any changes or has any of that been able to be pulled forward with the closing of the deal?

Stephen, good morning. It's Jim Mabry. No, no.

Speaker Change: No changes in terms of timing, and as you know, we've got conversions slated for early August , and so we'll start to see

Speaker Change: But I would say generally the purchase accounting assumptions that we laid out last July .

Speaker Change: a relatively unchanged, except for the rate mark, rates are a little different, and so that mark is not likely to be as large as it was in July , but otherwise pretty much tracking into what we laid out last summer.

Speaker Change: Okay, that's helpful and something a little lower than a little less dilution but maybe a little less forward accretion as well, but not a major change. Is that regular?

That's correct.

Speaker Change: Perfect, thanks for the time, it's morning guys, congrats on the great core [inaudible]

Thank you, Steve.

Speaker Change: And the next question comes from Michael Rose with Raymond James. Please go ahead.

Michael Rose: Hey, good morning, guys. Thanks for taking my questions. I'd be remiss if I didn't ask Mitch one more time to give an update on the loan pipelines as you normally do.

Michael Rose: Well, thank you, Michael, and happy to do that this morning. I'll start with the pipeline and maybe...

Michael Rose: Repliked on production this past quarter, and just some thoughts going forward. But, um,

Michael Rose: We started this quarter with a 30-day pipeline of 189 million, that's...

A modest increase from 174th. So

Park Order, I would also add, Kevin reflected earlier.

Kevin: in opening remarks about the integration and the success at the first early on in legacy markets of the first they're starting with a pipeline of 83 million, that's up from 53 million at the beginning of the year of the prior quarter.

Kevin: Of course, and as you say, we're starting the quarter with a strong pipeline, just reflecting on the first quarter on production.

Kevin: We saw a nice increase in production, $645 million compared to $572, the prior quarter of

Kevin: You know, as we usually do, just looking forward, we always comment on payoffs and likely that being the kind of the governor on what net could be in any given quarter. We did see an increase in payoffs this quarter, not unexpected. That was up.

Speaker Change: about $86 million, so it resulted in a net of $171 million, as Kevin mentioned earlier, about five and a half percent.

Speaker Change: As we think about pipeline and production in the company, we continue...

Speaker Change: to see meaningful contribution from across our markets, our various business lines, as well as the type and the size credits. We saw that again this past quarter with

Speaker Change: One-to-four family, contributing about 18%, small business, business banking, about 24%.

Speaker Change: Commercial Credits in this category would be roughly 3.5 million or greater about 33% and then our corporate banking group, larger CNI, commercial, real estate, ABL, equipment, finance.

Speaker Change: Another 25%. So, again, we're certainly not looking just thinking about the pipeline and looking forward. We're not looking past. We're not looking past.

Speaker Change: The potential economic uncertainties in the coming days, certainly we're here to understand and meet the...

Camus customer financial service needs, and as we've done in the past, we'll certainly remain disciplined in our underwriting.

Speaker Change: and our pricing and I would mention again, just looking forward with the economic uncertainty and the timing of payoffs and that was reflected in this quarter's net and given those considerations just expanding on your question. Thank you very much.

Speaker Change: Q2 could be more in the net growth somewhere in that low single digit range, most likely.

Speaker Change: and maybe just another one on expenses, obviously with the deal closed. Jim, can you give us any sense of a good starting point?

Speaker Change: Just with the two companies combined, has a starting point and then just giving them a good expense control this quarter and whatever is going on at the first, which is just be helpful for a starting point. Thanks.

Jim: Sure, Michael, as you sort of mentioned, it's early and we don't have the clarity that we're going to have in coming quarters.

Speaker Change: But if you look at their quarter and look at our quarter, we were pleased with their quarter, both on the income statement and balance sheet side, so nothing about their quarter changed any of our [inaudible]

Speaker Change: Thoughts about the model, or how things will go from here. As it relates to expensive minutes,

Speaker Change: Q2, I suspect it won't be as straightforward as this Michael, but I would suspect you could really take the two expense bases, the most recent, you know, quarterly expense bases for both companies.

Speaker Change: Probably layer in a little bit of an increase above that for merit increases. And that's pretty much what you would probably see. Again, it won't be perfect, but that's pretty much what you'd probably see in Q2. Thank you.

Speaker Change: from that forge you'll start to see the benefit of...

of the efficiencies, and our goal is...

Speaker Change: We've sort of had our internal goals to have a very clean Q1 of 26 and certainly I would say in Q4 of 25.

Speaker Change: Well, we'll provide, you know, investors will get a really good look at the progress we've made in terms of efficiency, so...

Speaker Change: You know, each quarter will get a little more, give a little more clarity and transparency in terms of our progress, but not so much of that in Q2, I would expect.

Healthful, and what was their Q1 expenses.

Gab and Andy.

Speaker Change: I don't have them handy. I don't know what the expense number was, but around $45, $46 million is what they've been running at.

Speaker Change: Okay, perfect. And maybe just one final one for me. I know you guys are tied up with the deal, but you know, any thoughts on, you know, share references, you know, is we kind of moved through the year. I know you guys have the authorization, but just didn't know you're a willingness or ability to buy just the might of the deal. Thanks.

Speaker Change: Sure, you're correctly. We do have the authorization. We did not have any activity under the authorization in Q1 and

Speaker Change: It's a topic like other uses of capital that we discussed regularly. In fact, yesterday in our board meeting, we went through sort of a look at our capital and the

Speaker Change: and I think as you appreciate the thing that's different for us here in future periods as opposed to our recent history is that we're going to have more capital flexibility.

Speaker Change: We're going to start out with some, you know, with good ratio, strong ratios, and we're going to creak capo rather nicely.

Speaker Change: in the coming periods, roughly 60 to 80 basis points a year. And that's going to provide the optionally for us. And buybacks would be one of those possible levers.

Speaker Change: What we do and what we'll be doing in the quarters ahead is evaluating the returns, the merits of a buyback versus other possible uses. I don't know.

Speaker Change: You know, how that's going to play out, but I would say this, you know, we clearly have that, we'll have the Capitol wear with all we want to be good stewards of that Capitol and make sure it's providing returns for Cheryl or so. Well, that's bybacks.

Speaker Change: or other uses. And of course, number one goal is to support the organic growth of the companies.

Speaker Change: Perfect. I appreciate you taking all my questions and Mitch, thank you for all you've done over the past many years. It's been a pleasure working with you and congrats as you move forward.

Thank you, Michael.

Speaker Change: And the next question comes from Catherine Mealor with KBW. Please go ahead.

Thanks. Good morning.

Good morning, Catherine.

Speaker Change: What question just fell in the margin with curious, Jim, if you could give us [inaudible]

Speaker Change: just an updated view on where the margins should come together, pro-form. I know there's a little bit of change in race but not too much, but just kind of curious what you're thinking there, especially given the greater margin performance that you had on a basis quarter. And then maybe as a kind of side note to that question on just the bond book that you're buying from...

The first, I know you've talked about. [inaudible]

Speaker Change: Kind of selling or remixing that by about 60% or so of their bonds you've talked about selling and then reinvesting. I know the yield or the market's been all over the place So just kind of curious if you already knocked some of that out earlier in the month and kind of how you're thinking about that with the volatility and rates. [inaudible] I'm sorry, I'm sorry, I'm sorry

Thanks.

Speaker Change: Sure, good morning, Catherine. And as you know, we're early in this, but I would say

Speaker Change: Again, we really don't see anything in their numbers or our numbers, or the environment. There have been, obviously, there have been changes.

Speaker Change: I think our guidance on margin from what we laid out last July is pretty close to what we feel today, so I'll give you some ranges and hopefully that's helpful and I'll see you next time.

I think I'll call them if you take our...

R. Cornam for Q1. [inaudible]

Speaker Change: and this won't be exact, but this will give you, I guess, the sense of the impact. I think Kornam could expand 10 to 15 basis points in Q2 from Q1.

Speaker Change: All in them would benefit another roughly 10 to 15 basis points.

from what we saw in Q1. [inaudible]

and as you appreciate, [inaudible]

Speaker Change: I mean, in periods going forward, there's going to be some lumpiness in that.

Speaker Change: in that number just because of pre-payment behavior. But I think roughly 10 to 15 on core and another 10 to 15 all in. So call it, you know, 20 to 30 basis points all together for all in them. Thank you.

on the Bond book, you're correct.

Speaker Change: Engage with their bond book and well, I think we were pretty much close to being finished with that, not 100% but pretty close and at the end of the day we will have sold probably a little over 50% of their bond book and reinvested it and

Speaker Change: and the other 50% we like those securities and they met our policies, they had good yields, they had CRI benefits or otherwise.

Speaker Change: So that is pretty much completed and I would say we're even though the equity markets were obviously very turbulent during this period, the bond markets had some change in some volatility but the execution there went really well, we're pleased with how that went.

Speaker Change: So, I think it was a good first step in terms of remixing the ballad sheet.

Ray, very helpful. Thank you.

Thank you, Captain.

Dave Bishop: And the next question comes from Dave Bishop with a hoved group. Please go ahead.

Yeah, good morning, gentlemen.

Thanks for joining us. Have a great morning or day.

Speaker Change: Just curious, guys, as you sort of scrubbed up the loan book for exposure to any segments or any industries that have exposure to the tariffs or

Dave Bishop: out of the economic policies coming out of DC. Just curious, you know, how far along you are that and maybe what what you're seeing in terms of a deeper dots within your commercial portfolio. Thanks.

We have very little exposure and the um...

Dave Bishop: The primary government, Marcus D.C., Northern Park, Virginia, I think we'll have a couple of transactions in that marketplace, so we don't have a Mercurial Direct Impact there.

Dave Bishop: but opposite tariffs and immigration issues are much farther reaching and impact everything. So we continue to have ongoing conversations with each of our opportunities, each of our customers to see what the impact of them individually is because each one's going to be a little bit different. [inaudible]

Determined. Um.

Dave Bishop: You know, is there elasticity within their income statement they can absorb cost of goods sold are when we have new loan conversations, you know, what's the break even? What's the reserves within construction project is a very robust. Thank you.

Dave Bishop: Conversations to make sure we understand the risks within each individual transaction at this point. We're doing some things more specifically. We're looking at, we're calling our foreign wires and ACHS just to see which customer do more foreign exposure. We'll go to your...

M. Make a more pinpointed target at this point. [inaudible]

Dave Bishop: David, as you know, I guess at any point in time, this could change the next week, and so we're just doing a very broadverse look at all of our customers and the impact, and obviously putting up, putting plans in place if this continues the volatility, continues economics certainly continues, we made that to do things more specific, and that may include things as...

Dave Bishop: You know, modifications to underwriting, modifications to guarantee requirement and so forth. And so those are their contingency plans for putting in place just to determine what the most we assess what the longer term impact is of the economic changes. [inaudible]

Speaker Change: and then maybe just, you know, Salt and Resilience in the mortgage backing group. Just curious, you know, really read into the second quarter, maybe the summer, do you expect a sort of a rebound? I know there's been a lot of, you know, more abundant terms, the activity, just curious what you're seeing in a raw activity in your footprint. Thanks.

Speaker Change: Yeah, hey Dave, it's Kevin. So more mortgages right in the wave of just the volatility of the rates that you're seeing in the 10 year 30 year volatility. We did see an uptick leading in to quarter in. We saw the pipelines build, chalked that up to seasonality that we typically see. And we still continue to see, although there's rate volatility, we do continue to see activity in the mortgage business. And we're going to continue to see. We're going to continue to see.

Speaker Change: You know, particularly in the first week of April , when rates kind of bottomed out, you saw an immediate pop in the pipeline that an increase in the pipeline.

Speaker Change: You've seen seen that pull back a little bit, but we still have some good activity in mortgage. It's time.

Speaker Change: We'll continue to see how Q2 plays out, but we feel good about how we're positioned with mortgage with the hiring we did last year with the products we have the delivery that we can provide. We feel very good about mortgage. [inaudible]

Speaker Change: But it's going to be very dependent on what happens with rates. And as we all know, we're expecting that to be volatile throughout Q2.

Got it. Appreciate the call. Thanks.

Matt Olney: And the next question comes from Matt Olney with Stevens. Please go ahead.

Matt Olney: Hey, thanks. Good morning. I just want to go back to the capital discussion and the potential for the loan mark to be a little bit less at closing. Just any color on what this could mean for capital at closing. I think we talked around the CET-1

Matt Olney: being just below 11% of closing. Is this still the thanking, or could this be a little bit higher, given those comments about the loan mark?

Jim: Good morning, Matt. This is Jim. And you're correct. You're spot on. I mean,

Jim: If we take a look at the variances between what we announced last July and what the balance she looks like now, and of course we're still going through some of those entries, but

Generally, higher capital, and I would say that...

Q2, CET-1 would be probably a touch above 11%

and of course we're closing. Thank you very much.

Jim: quarter earlier than what we had modeled back last July . So capital will be a bit higher.

The EPS accretion will be a touch lower.

Jim: and, of course, slightly lower TBV dilution, and the urmback, just to give you that as well, is really unchanged. I think it's up a tenth of a point in terms of urmback.

Jim: But hopefully that gives you a sense of capital and the movement between announcement and when we closed.

Speaker Change: Yeah, that's that's helpful, Jim, and it sounds like you'll have more just capital optionality.

then maybe when we first forecasted the deal.

Speaker Change: So, and you address the buyback appetite, you've also got some subdebt tranches that become culpable, I think later on this year and into next year, curious just what the appetite is to call those, or refund against those later on this year and into next year.

[inaudible]

Speaker Change: So you're correct. We do have those opportunities and that's part of what we had in discussion yesterday with the board was looking at the various.

Speaker Change: Opportunities, we've got for deployment of capital, and so that's on the list as well. It's nice to be in a position where we've got capital flexibility, and Renasant got that today. The other thing I'd add to that, which

Speaker Change: which helps consider what you're talking about. And calling any debt is that we carry a considerable amount of cash at the parent. We've got about three years worth of cash at the parent.

Speaker Change: and that just provides, you know, even more flexibility in terms of how we think about that debt and what pieces we want to keep and what pieces we want to go ahead and redeem. So, all that's in the mix and I think as we...

Speaker Change: as Renasant does for them in the coming quarters and year or so, particularly the debt. You'll see some changes and I think those things will be additive to the earnings of the company. Thank you very much.

Okay.

Speaker Change: and then also I got on the call of humans, ladies, you may have already hit on this just any broader comments on deposit competition and loan pricing competition and your core markets just compared to when we talked back in January .

Now it's I think like others, we it's it's certainly very competitive still [inaudible]

But, you know, our funding price, [inaudible]

for Fronting Pricing as Behave, better than we anticipated. [inaudible]

Speaker Change: and that continues. The real pressure is more on the asset side of the books.

I will also add that...

The first had a really good deposit order.

Speaker Change: Public Funds, but they had a really strong quarter in terms of their balance sheet and their deposit growth, so it's really nice that both companies had good quarters going into the closing of the deal, but yeah, we're very pleased what we're seeing on the funding side from both companies.

Okay, thank you guys.

Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Mitch Waycaster for any closing remarks.

Speaker Change: Thank you, Dave, and thank each of you for joining today's call, and we appreciate your interest in Renasant.