Renasant Corp (RNST) 2024 Q4 法說會逐字稿

Good morning, and welcome to the Renasant Corporation 2024 fourth-quarter and year-end earnings conference call and webcast. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Kelly Hutcheson, Chief Accounting Officer for Renasant. 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.

Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements.

Such factors include, but are not limited to, changes in the mix and cost of our funding sources, interest rate fluctuation, regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, www.renasant.com at the Press Releases link under the News and Market Data tab.

We undertake no obligation, and we specifically disclaim any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release.

And now I will turn the call over to our Executive Vice Chairman and Chief Executive Officer, Mitch Waycaster.

Thank you, Kelly. Good morning. We appreciate you joining the call and your interest in Renasant. The fourth quarter results marked the end to a successful year for Renasant. After announcing a transformative merger in July and diligently working on the planning necessary for a successful combination, our team maintained a focus on generating loan growth, disciplined pricing on both sides of the balance sheet and steady credit performance. We still anticipate completing our merger with The First in the first half of 2025.

I will now turn the call over to Kevin.

Thank you, Mitch. To echo Mitch's comments, 2024 was a successful year for Renasant and one of transformation as our team worked diligently to improve our financial performance and prepare for a successful merger with First. This work has positioned Renasant for continued growth and success in 2025 and beyond.

I will now turn our attention to our fourth-quarter financial results. Our earnings were $44.7 million or $0.70 per diluted share. Net interest income was $135.5 million, an increase of $1.9 million on a linked-quarter basis. This increase was driven by solid loan growth of $257 million on a linked-quarter basis, bolstered by a significant decrease to our cost of deposits.

On the liability side of the balance sheet, we have continued to see strong deposit growth, especially in interest-bearing deposits, which increased by $189 million. Total deposits increased by $63 million, which includes a $127 million reduction of broker deposits. We did not hold any broker deposits by year-end. This deposit growth happened even as our total deposit costs decreased 16 basis points during Q4 compared to a 4 basis point increase during Q3.

Noninterest income decreased $55.1 million for the third quarter. The third quarter included a onetime pretax gain of $53.3 million from the sale of our insurance agency. Excluding the aforementioned gain on the sale of the insurance agency, adjusted noninterest income decreased $1.7 million quarter-over-quarter due primarily to seasonal declines in mortgage volume and the corresponding decline in mortgage revenue.

Noninterest expense was $114.7 million for the fourth quarter, a $7 million quarter-over-quarter decrease, driven largely by a $9.2 million decrease in merger and conversion expenses from Q3. Excluding merger and conversion expenses, noninterest expense was $112.7 million for the quarter, representing an increase of $1.9 million on a linked-quarter basis.

We will work to continue to diligently manage our expenses as we work to efficiently integrate The First this year. Overall, we had a strong quarter as we continue to execute on our pricing, expense management and continued deposit growth.

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 assets grew $76.1 million due in large part to our strong loan growth of $257.4 million, which was partially offset by a decrease in cash of $183.6 million as we deployed our liquidity to, among other things, paying off our remaining brokered deposits.

On the liability side, we experienced another quarter of strong deposit growth, which allowed us to continue to shift away from noncore funding sources. Referencing slide 8, all regulatory capital ratios are in excess of required minimums to be considered well capitalized. These ratios increased meaningfully in Q3 with our capital raise and the gain on the sale of the insurance agency. The ratio showed moderate declines in the fourth quarter.

Turning to asset quality. We recorded a credit loss provision on loans of $3.1 million. Net charge-offs were $1.7 million and the ACL as a percentage of total loans decreased 2 basis points quarter-over-quarter to 1.57%.

Asset quality metrics are presented on page 9. Our criticized loans and total nonperforming assets decreased for the quarter with criticized loans as a percent of total loans decreasing by 13 basis points to 2.89%, and nonperforming assets as a percentage of total assets decreasing 3 basis points to 68 basis points. Our strategy is to proactively identify underperforming loans early and work quickly towards resolution in order to mitigate loss.

Turning to slide 12. Adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries, increased 2 basis points to 3.34% for the quarter. Adjusted loan yields decreased 14 basis points to 6.27%, and the total cost of deposits decreased by 16 basis points to 2.35%.

Kevin commented on the highlights within noninterest income and expense. We are encouraged by the expense trends we saw in the quarter and believe it positions us to build on that momentum in 2025. As a reminder, we will have considerable merger and conversion expenses in '25 related to the combination with the First.

I will now turn the call back over to Mitch.

Thank you, Jim. We are excited about the company's prospects for this upcoming year. The First merger application is proceeding and once completed, will meaningfully strengthen the balance sheet and earnings profile of Renasant. We look forward to our teams coming together to form a top-performing regional bank in the Southeast.

I will now turn the call over to the operator for questions.

(Operator Instructions) Joe Yanchunis, Raymond James.

Good morning. So the reported 4Q NIM came in ahead of your prior outlook, which called for some modest compression. So given the current rate backdrop, how should we think about near-term trends for the NIM?

This is Jim. You're right. Our guidance was for some modest compression in the margin. And I would say just -- let's say a couple of things. One, our funding base, the pricing on our deposits behaved better than we anticipated.

So that was a real bright spot for us. We had a higher beta there than we anticipated and those costs came down more than we expected. So and loan yields certainly came down, but held in pretty well. So I would say now our outlook for '25, even with the two cuts is we're going to sort of flip that on its head a little bit. And as opposed to modest compression, we -- our outlook is for some modest expansion in the margin.

I appreciate that. That was pretty helpful. And then kind of shifting over to loan growth here. So it was notably stronger in the quarter. And given the general increase in sentiment, how should we think about loan growth trends in the near term? And then just to kind of follow back up on your prior answer, what were new loan origination yields in the quarter?

Jim, you want to touch on yields and I'll talk about --

Sure, Joe. If you look at new and renewed in the quarter, it was around 7.35% for the quarter. And if it's helpful, the spot new and renewed in December was about -- was a little above 7%, about 7.05%.

And Joe, this is Mitch. Going to production, we're quite pleased with our ability to price on both sides of the balance sheet. Jim just reflected on that on both. But coming back to production, maybe let's start with the pipeline. We entered the fourth quarter with a pipeline of $176 million.

We entered Q1 with $174 million. So we continue to see in the 30-day pipeline very strong across each geography, each business line. That was reflected in production, to your point, in Q1, it was $572 million. That was up from $507 million in 3Q, which yielded a net loan growth of a little over 8%, $257 million.

One thing that I would note, which we've always pointed to as kind of a governor on the net. We did see payoffs this quarter decrease to $471 million, down from $551 million. In relation to that $572 million, the -- if you look at the average over the year, it's going to be in the -- kind of in that about $450 million range. So payoffs were more in line.

But as we've said before, the variability there does affect net. But just going back to production, we had strong production. And even if payoffs had remained as they were in the prior quarter, we would still had some 5.5% net growth. So just looking to the future, each of our markets, our regions, our business lines continue to contribute in a meaningful way to both production and if we look at that current pipeline.

And just going back to production, about 14% of that was from Tennessee markets, another 10% in Alabama, the Florida Panhandle, 28% this past quarter was in Mississippi, 15% in Georgia and Central Florida and another 33% in our commercial corporate business lines.

And I would say, as we usually point to in this discussion, not only the geographic distribution, but really the loan types and the sides credits. And it gets back to the granularity, the many cylinders that we continue to hit on when we look at production.

And we saw that -- if you take that $572 million, we saw that again this quarter with roughly 12% in the consumer, HELOC, 1 to 4 family, 23% in small business and business banking, which has always been strong for us across our markets. Another 34% of that came from commercial credit. C&I, we had a very good quarter there.

We continue to build that book. Owner-occupied was good this past quarter. And the rounding out the last 32% came from the corporate banking group, which was -- you'd find their larger C&I, commercial real estate, ABL, equipment finance, factoring.

So again, geographically and by type, by business line, continuing to perform well in all of those that's reflected in the current pipeline. We're optimistic about Q1.

That was a very thorough answer. Thank you very much for taking my questions.

Stephen Scouten, Piper Sandler.

Yeah, thanks. Good morning, everyone. I guess curious about the pending merger and any color you can give around still expecting to close later in the first half, if you've had any specific updates from the approval process anything that can, I don't know kind of give confidence around that time line?

Sure. Stephen, I'll just go back to our prepared remarks and maybe expand the touch there. We reflected on the fact that we announced in July. Since that time, both companies, teams in both companies have worked and continue to work diligently on planning the integration conversion as well as completing the application and the approval process.

I would say regulators throughout the process have been very engaged and responsive, and we are pleased with how all of those things are progressing. And I would just point back relative to timing as we originally announced, we and planned, we anticipate completing the merger in The First half of this year.

Got it. Appreciate the color there. And then maybe outside of regulators potentially getting more, I don't know, favorable around M&A time lines. Do you guys think about any specific potential regulatory changes or improvements that might help your bank in particular, things you look to that could maybe make life easier for Renasant if we get some additional regulatory relief?

Hey, Stephen, it's Kevin. So we're paying close attention to appointees, nominations, their picks there is some -- it appears that there's going to be changes in the regulatory environment in a lot of different ways. How that ultimately impacts, say, a bank of our size or a bank with our business model, a lot is to be learned there.

But I don't think -- I think if you look at the last four years and the environment banks have been in the next four years arguably are going to be a lot different. And again, a lot of the some of the changes coming, it may be good, it may be negative.

But overall, I think we're expecting that some of the regulatory changes being proposed will be net positive to the industry as well as positive to Renasant. And so I think just a lot more to stay tuned there and way too early to tell with specificity how it will impact us. But overall, we're trying to stay close and make sure we understand that as things evolve, we understand how it could impact our business model.

Got it. Appreciate that, Kevin. And then just last for me. I know, Jim, you said a little bit ahead of schedule and where you thought you'd be from a NIM perspective, largely related to better betas, lower deposit costs in the quarter. And we've seen that a lot industry wide here this quarter which is great.

Do you think that's more a kind of a pull forward and the lack of maybe lag effect that we all thought we might see with deposits going back down with rate cuts, or do you think the destination actually changed and we can get to a lower point as we get through this potential easing cycle here?

I think the direction changed. I mean I think there obviously, I want to guard against being overly optimistic. But I think there was just there's a change in direction. And I almost would look at and we'll see how it plays out over time. But there are a couple of things that worked really well for us in the quarter.

And I would say, notably just to get some slope in the yield curve was a nice thing to see. I mean I think we were modestly inverted when we had our Q3 call and to see that change. And of course, trying to predict that's a difficult task.

But I mean, I think we're as -- I mean, again, it's not going to be -- I would -- I'm certainly not advertising a sea change in our margin, but I do think the outlook there is very encouraging, and we'll see how it plays out, but very hopeful there.

Got it, very helpful. Thank you, guys, for all the color, and congrats on a great quarter.

Will Jones, KBW.

Yeah. Hey, thanks. Good morning, guys. I wanted to start with expenses this quarter. The narrative around expense this year really has been very positive. So I was maybe a bit surprised to see just this core operating expense jump up in the fourth quarter here, especially when the comp line is hitting a low watermark for the year.

Was there anything chunky or kind of more onetime-ish in nature that happened this quarter? And do you feel like this is kind of a good jumping off run rate as we look into the first quarter of next year?

Hey, good morning, Will, this is Kevin. So yeah, on expenses and just specific in the quarter, we did have a couple of things that were a little bit they were large, and they've been somewhat persistent throughout the year and really in two categories. One is just operational losses, fraud losses, Reg E disputes. Those have been elevated all year.

I don't think that's specific to Renasant. I think that's a bit of an industry issue. But it was abnormally high in Q4. It was up in the $1.5 million, $2 million range in Q4 compared to Q3. We don't necessarily think that's going to happen every quarter, but the trend line in that has been up in '24 compared to '23.

The other item, and it's in salaries and employee benefits is health and life. We're a self-funded plan. And so as we incur health expenses, we pay for that. And we've had an unusually large expense there, which means our claims history is up. And it's just been an outlier this year.

Year-to-date, accrued health and life is up $5 million compared to Q3. So those are kind of the two outliers that are somewhat masking those improvements that we've been talking about in the expense run rate. If you look year-to-date and you include those items, but you back out merger expenses, our expenses are up about 2%.

So if you kind of smooth out the quarterly volatility, it's up about 2%. If you back out accrued health and life, we're roughly flat year-to-date. And so we are not taking our eye off the ball as it relates to expenses. Although we've had some unusual items pop up in '24, and we'll work to get those down back to historical levels.

But as we look out into 2025, we think that, that 2% to 3% increase in expenses is a good run rate as we look out into '25. Q1 will have some volatility in it. It has less days. There's merit increases that will come into play at the back half -- or the back end of Q1.

But we think overall, as we look for 2025, a 2% to 3% increase in expenses is kind of what we're guiding. But again, we'll work hard to keep that number lower, flat and again, continue to work on our expenses as we've done in the last couple of years.

Yeah, Kevin, that's really helpful color. I appreciate the thoughtful response there. And I don't want to underscore, you guys have done a really nice job on the expense base this year. So thank you for all that helpful color.

And maybe, Jim, one for you. Just any -- I know it's a bit of a sliding scale with some of the rate volatility, but any updated thoughts on where rate marks with The First stand today? Is there any material change there in your view?

I mean it definitely has moved some well from when we announced the deal, and it's the movements have been -- I was going to say positive or negative, but actually, they sort of net out to roughly de minimis change to the earn back. But to your point, if you look at the marks and you look at the impact to capital and the EPS, that's sort of been toggling back and forth within a range, I would say, because we look at this probably monthly.

But at the end of the day of course, when we get some regulatory clarity, we'll update these numbers. But at the end of the day, it has -- it does not have a meaningful impact on earn-back. They sort of offset one another. So we'll keep you updated, but that's the way I would describe the merger math.

Yeah. Okay. That's great. And then, Mitch, maybe finally for you, just if you look at the First, they also had a really nice quarter of growth. And so it feels like the two combined companies are really carrying nice momentum into 2025.

Is there a way to think about what the right growth rate is for the combined company or where you kind of earmark an achievable level for growth as you think about the two companies combined?

Maybe I should have mentioned that earlier, just reflecting on our ability to grow organically. To your point, we're seeing the same thing in The First. And I have no reason to believe that, that won't continue, just considering their markets.

And if you look at everything from culture to our business models, how we complement each other, how we go to market in very similar ways, but some of the things I think as a combined company that Renasant can bring to them that I think will be additive to customer bases. We don't have a lot of overlap in customers.

I just see it's really one of those better together stories when you put it together and you look at our ability to go to market. So we view that quite favorably, and I think it would be in line with what I described earlier. I would say also in the planning of integration and conversion, naturally, a lot of those conversations continue, and we're quite encouraged, and I think you would hear the same thing from that team.

Okay. Well, thanks for the question, guys. I appreciate it.

Thank you, Will.

Matt Olney, Stephens.

Thanks. Good morning, guys. I think you already highlighted the new and renewed loan yields earlier. Just remind us of the volume of loans that will reprice this year, that variable fixed rate loans that we should expect over the next few quarters?

Variable rate book is about $6 billion. And the vast majority of that, 90%-plus of that reprices within a month of the rate change. I will say this about that variable book is 75% of that is at a rate of 6.5% or less. So it will be interesting to see what the real impact is to yields as we get that repricing, but that will give you a sense of the size of the variable rate book. And then and actually, I can't remember the second part of your question.

The fixed rate book, kind of similar question as far as repricing dynamics of that fixed rate book.

Yeah, sorry. So we've got, call it, $600 million of fixed rate loans that reprice within the next 12 months. And I would say that's probably at a blended rate of about 5.5%. And actually, it's closer to $700 million that reprice over the next 12 months. And then we've also got -- bear in mind, we've got, call it, $200 million of securities that will reprice, and that's probably carrying a yield in the mid-2s.

Okay. That is helpful. And also on the credit front, I think we did see classified loans tick a little bit higher in the quarter. Any color behind that, the uptick in classified loans?

Hey, good morning, Matt. This is David. It was -- those were loans that were transitioning within the criticized bucket. They went -- there was about $27 million of loans that were criticized that were OAM special mention that were reclassified to classified. So there were loans that we had already highlighted where there were stress on them, but we just in our normal ongoing portfolio management, we migrated those down to substandard. So not anything materially new in that criticized classified bucket.

Just following up on that. I guess, I mean, it would imply, I guess, there's incremental stress on those borrowers compared to maybe last quarter. Was there incremental stress or are you just suggesting there maybe was a lag in terms of how those were graded internally versus what we discussed back in October?

It would be more of the former. It would be as we continue to watch. And when we look at a without getting into detail, we look at a special mention type asset, a criticized asset, we'll watch performance. And if that performance the negative performance extends longer, we'll look at downgrading as a classification properly to move from special mention to classified.

So it's not incremental deterioration in the portfolio, just probably loans that have stayed within that criticized bucket a little bit longer. There's a little bit of a transitory element to loans that are in special mention that there's some level of stress, but there may be a shorter-term view where they may be upgradable. As that stress continues, then we'll look at what's the proper classification as it stay in OEM or does it need to move to substandard.

Okay. Well, I appreciate the color. And that's all for me. Thank you.

(Operator Instructions)

David Bishop, Hovde Group.

Yeah. Good morning. Sort of staying on Matt's last question with credit. I'm curious as the interest rate and the economy evolves here, from a credit perspective or loan segment perspective, are there any changes that are forcing you or driving your change in appetite to grow any certain loan segments? Just curious if there's been any change in the appetite for growth? Thanks.

David, good morning. I would say in short, there's not. We continue to watch all segments of the economy, be it commercial real estate, C&I to determine what the impacts are going to be. And as at this point, we're not making any change. We're going to remain cognizant of impacts, obviously, on our markets due to the potential for changes due to administrative reasons, whether it be tariffs or whatever.

But we'll continue to look at the impact. But as of today, we're staying fairly consistent with our thoughts around appetite as we've had for, I'd say, really pretty much the past four quarters. And we're pretty positive on most elements of our markets in the Southeast. We continue to see strong performance in our marketplace in most aspects of CRE and most aspects of C&I. So we maintain a positive outlook.

And in our risk guidance to our lending teams, we have a positive outlook towards most asset classes.

Got it. And then turning back to the balance sheet side. It looks like this quarter, maybe some seasonality or funding flows, you leaned into cash a little bit more. Looking at the first quarter, if we do see the continuing of loan growth, is there any resumption of loan growth you're assuming or you think you still lean into liquidity a little bit here in the first quarter into the merger?

I mean we as you know, we've sort of -- we have leaned into liquidity. And I would say this is -- what's interesting -- what struck me about this quarter was it was the first quarter, I think, in four or five, Dave, where we didn't have core deposit growth exceed loan growth. And yet we still have a really good core deposit growth quarter.

I think we were roughly 5% on the core deposit side. And we're down -- we've got no -- as you know, no wholesale borrowings except for a very small amount, the Federal Home Loan Bank, which we're not going to pay off because it's got a sub-1% rate on it.

But I would say this, as we look to Q1 -- as we look at the first half, I mean, we feel really good about our deposit engine. I mean it's just performed really well for us, and we expect that to continue. And so we'll see how loan demand plays out for the quarter, the first half.

But I would say one side of that is that we're probably going to be a net purchaser of securities in the first quarter. And we haven't done that in, I don't know, probably a year or more. So I think those things sort of tell the story about the movements from the balance sheet and just the great work we've done on the deposit side to give us that flexibility if we don't have the loan growth to put it in the securities.

Great. I appreciate the color. My last question, sort of staying on the deposit side. You talked about the loan maturities repricing. Just curious if there's any update in terms of deposit repricing maybe on the fixed CD side in the first half of the year? Thanks.

On the CD side, we've got probably in the first half, roughly, call it, $2 billion of CDs that mature and those will be -- the blended rate on that is probably low 4s. And if you look at the pricing that we're getting now, it's, call it, 3.75% to 4%. So that will give you a sense of how that might impact the income statement.

Appreciate the color.

Thank you , Dave

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

Well, thank you, Nick, and thank you to each of you for joining the call today. We appreciate your interest in Renasant.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.