Renasant Corporation

Q3 2021 Earnings Conference Call

10/28/2021

spk_0: the morning and thank you for joining us for renaissance that corporations twenty twenty one third quarter webcast and conference call participating in this call today are members of renaissance executive management team before we began please note that many of our comments during this call will be forward looking statements which involve risk and uncertainty they are many factors that could cause actual results to differ materially from the anticipated result or other expectations expressed in the forward looking statements although the market in which we operate reopened over the first half of twenty twenty one in connection with the rollout of the cave nineteen vaccine the spread of the delta variant during much of the third quarter reminds us that the impact of the pandemic and the federal state and local measures taken to arrest the virus may remain significant factor impacting or financial condition and operating results for the foreseeable future other factors include but are not limited to interest rate fluctuation regulatory changes portfolio performance and other factors discussed in our recent filing with the securities and exchange commission including our recently filed earnings release which had been posted to our corporate site that we w w dot reddit dot dot calm at a press release of went 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 change the sumption the occurrence of unanticipated event or change the future operating results over time in addition some of the financial measures that we may discuss this morning or non gap financial measures a reconciliation of a non gap measures to the most comparable gap measures can be found in our earnings really and now i will turn the call over to our president and chief executive officer mitch wake after bike you clearly good morning we
spk_1: i appreciate you joining the cold today before kevin a gym discuss the results for the third quarter i'll offer reflections on the quarter and their outlook for the fourth quarter as we entered twenty twenty one there was still considerable uncertainty and although that remains today we are seeing increasing signs of business activity and our markets in the face of these conditions i am very proud of our team for results through the first man much we see all areas of the by contributing to performance the company's financial condition is strong and marked by the liquid court funded and well capitalized biology earnings were up year over year and we have initiatives underway that was further improve profitability and future periods the markets in which runs on operate continue to rebound in terms of economic activity there is considerable net immigration into many of the places we do business these demographic trends accelerated during the pandemic and this bodes well for long growth in the coming quarters i will now turn the call over to kevin
spk_2: thanks marriage or second quarter earnings were forty million dollars for seventy one cents per diluted share compared to forty one million dollars or seventy two cents per delusion the second quarter forgiveness of our triple p loan portfolio slowed this quarter and was the largest contributor factor to the decline and editors to income quarter over quarter we were expecting the contribution from up a to decline and have been focused on growth and other large businesses booth efficiency initiative to mitigate the impact our insurance and wealth management lines of business to for strong results and stabilizing pricing and ball internal pipeline help boost result in our mortgage divisions oil or previously announced efficiency is continue to provide be the food on the spoon fed as evidence bar expenses trending down to the lowest level in the last five quarters further respect the contributions from these and other nation is to reduce expenses an upcoming porters operationally speaking we continue to adapt or customers evolving needs and preferences for service delivery the rise in bar irs cases during the third quarter brought back levels and uncertainty that we experience early in the pandemic are branches remained open during this most recent wave and on mobile and digital matters continue to increase we must remain nimble and is rapidly changing environment and provide our customers would quickly can be accessed the banking or
spk_1: isn't whether to physical or digital channels we are focused on innovation i continue to seek cumbersome the deliver the technology security that our customers have come to expect our now turn it over the gym thank you kevin as we walk through the corners results are reference slides from the earnings deck starting with the balance sheet assets grew about one hundred
spk_3: thirty million dollars in the quarter deposits increased again the score albeit at a slower pace with much of the growth and non interest bearing accounts we invested some of the excess liquidity and our securities portfolio increase in the balance three hundred and eighty million dollars in the previous quarter at the end of the quarter we had approximately one point five billion dollars in cash we anticipate the combination of additional growth in the securities portfolio and loans to reduce his cash position in the near term we experienced another quarter of loan growth with loans x triple pay up forty seven million dollars from que to representing an annualised loan growth of about two percent true apple pay loan forgiveness total one hundred and eighty million dollars for the quarter with only sixty eight million dollars and triple pay loans outstanding a quarter and all of our regulatory capital ratios are an excess of required maryland's to be considered well capitalise and share the strength of our capital position during the quarter the capri repurchase twenty one my
spk_2: dollars of common stock at a weighted average price of just under thirty five dollars per share although our board renewed or repurchase plan which now extends to october twenty twenty two we currently have no plans for additional stock purchases in the near term we had a credit provision release of one point two million dollars
spk_3: as and net charge offs of one point one million dollars as a consequence the a c l as a percentage of loans x triple pay moved down slightly from one point seven four percent to one point seven one percent we also had a release from are reserved for unfunded commitments of two hundred thousand dollars which is reflected and other non interest expense credit quality metrics or shown on pages fourteen to sixteen past is classified and nonperforming as it measures all remain relatively steady and natural jobs were low though at for basis points of loans extra puppy kobe related deferrals are now below five basis points with nearly all deferrals and are wonderful family mortgage portfolio net interest income declined six point three million dollars quarter of a quarter was substantially all of that decline attributable to triple people on off triple pay revenue was three point five million dollars for the quarter of the triple p income accelerated recognition of deferred fees represented two point six million dollars and we have approximately one million dollars in remaining deferred fees to be recognized our core margin which excludes purchase accounting accretion and interest recoveries was down twenty four basis points from que to of the twenty four basis points the impact from triple pay accounted for approximately eight basis points the decline and margin is the result of long pricing measures and the considerable on balance sheet liquidity or other lines of business each contributed strong results for the quarter in our mortgage business production volume and loan pricing and our pipeline began to stabilize and que three drive in the increase in income quarter over quarter non interest expenses with exclusions or down four point five million dollars for the quarter part of that decline is attributable to the embers asian of a tax credit investment and cute too but as kevin mentioned we can pay to see the benefits of expense initiatives and now than late twenty twenty and expect continued realization and queue for and into twenty twenty two i will now turn a call back over to match thank you jam we look forward to a successful finish to the year and increasingly have our sights on the op
spk_1: unity is ahead of us and twenty twenty two now will turn the call over to the operator for q and a
spk_4: we will now become the question and answer session question i'm impressed start them one on your touchstone for using speaker phone please pick up your handset before pressing the cave withdraw your question please post or them to at this time we will pass momentarily to assemble a roster or first question comes from brad know phelps with piper sandler please go
spk_5: they get more yards
spk_1: good morning breath
spk_6: mention gym just one of the maybe start balance sheet a dub maybe if you could cut to quantify how to how you're thinking about it alone growth in a over the next few corners and into twenty twenty two in sort of you know how that you know be planned to handle in a some of the billion five look where the same feel kind of based on the page you're on right now with the run off of the of the acquired book and the growth in that in the legacy book it you know they they're almost one for one not quite but that seems to be tough to put a dent in it what you see up a a big acceleration long road or you you start to build the barbed with foil either more aggressively so the guy curator yasir are picky about that
spk_1: purebred let me to approach your question let me talk about our current pipeline i'm also gonna talk about production and cute story and then as we look forward are we really feel good about our ability and our position to continue to drop that production and also so will reflect on the off switch it has been the head man but let let's start let's start with the current pipeline it's two hundred and eighty million and that compared to two hundred and sixty one million as we started the third quarter so as we experienced in cute three we do continue to say good and i would say growing deal flow and pipeline across our markets and our business lands as we have seen in the past and we we saw in cute three and we see that looking forward in this car a pipeline each of our region's our business lines continued to contribute in a meaningful way to the pipeline and and the production you know just think in a back as we started cute three and we started what the pipeline up to sixty one as i said this quarter to eighty we expected them to see production and the bob hundred and seventy five six hundred million range we actually produce seven hundred million in production this past quarter actually one of the one of the highest we've seen in the company and as the pipeline indicated them and and as we do entering into coupons or we're seeing this come from across the footprint at like equally important as the geographic distribution are the loan types in size of credit and our ability to produce let me reflect on that a beard out our use cute three but also will reflect on that ability going forward i'll start with our our wonderful family residential long products that would include consumer products that accounted for about nineteen percent of our production and que three and then when i go to small business and business banking try credits and that's credit for that range from a key thousand dollars up to two point five million dollars i was about fifteen percent of that production and then i'll go to commercial credit sloan's two point five million in greater which represents see an owner occupied commercial real estate tax credits that accounted for thirty nine percent and then on to our corporate banks
spk_7: in group
spk_1: where you find a larger see and our commercial roles day and then our special the lines a business that was about twenty seven percent of that production all to say and i'll give you those examples just say that we're hitting on many different so cylinders relative to our ability we saw that in que three and i would say that's yeah that's a representation of our ability going forward so in que three we solve production increase about twenty two percent or say of one of the highest levels and the company's history the the other side of that you referred to it in your question is just pay off says as we've seen and prior quarters that was the governor if you were alone net growth for example if pay offs had remained at the current levels that we saw in queue to neck growth this quarter would have been seven and a half percent versus two percent and as i look at the reasons for those pay offs and we examine that closely about forty six percent of those where where the more so the underlying asset another thirty three percent was last term array and a good portion of that to the permanent market
spk_8: you know at some point we will begin to see pay off normalize
spk_1: and but i would say despite those pay offs and just speaking to the liquidity that we have in the use of that those bonds i'm optimistic about our future growth as we continue to see progress and economic activity and we were saying quite a bit of progress across the markets wound way which we operate and i think that's evidenced by this past quarters production yams you want to comment on their own just the securities portfolio and what we're doing their sure good morning brad so is is you point out we got about a billion and a half and cash at the end of the quarter and and
spk_3: we put to work a fair amount of that quality and insecurities and que three and i think it was just under four hundred million dollars our expectation and queue for is that we will continue to grow that securities but probably not quite the same pace
spk_9: the and then looking into the into the new year local container we evaluate deposition see how alone growth is panning out and and make those determinations says we get the twenty two
spk_1: right that that's very helpful i appreciate all the color of an interesting one follow up on expenses
spk_6: you guys you know as they can point out the continue to try lower your doubt about eight or nine million dollars you have a year and are you retargeting nine or so million dollars to start the year so that probably been helped by you know i had went and more and more his bag banking can you can you guys just kind of quantify will bit more kind of what you're thinking about in terms of kind of where the expense trajectory you know can had to hear
spk_10: yeah i brag or morning kevin
spk_2: we picked it goes lower know so if you if you're not only look at the income statement it compare to park here is a lot of noise in the prior periods weather's mortgage or whether it's pandemic whether some root beer restructuring the bouncy within the prior year i think the best look as if you look at page twenty of our press release that give you the expenses that we use for the adjust to the fish is the ratio and as you see that landed been turning i own appreciably and it's not all coming from mortgage is paid the that veteran line on the bank sad is occurring as well
spk_10: in in as as we vindicated
spk_2: in the past our focus is driving that expense number down further so we expect the trim line of expected to continue to decline we announced a couple of initiative last year those are the those religion is a really almost fully baked into our run writing cute three we've had many other initiatives that we haven't announced publicly and we will continue to focus on expenses some of the initiatives we emit moot we may announced publicly some of them we may just let you see the results of that in the expense run rate has declined would also add that there's a lot of pressures on expenses right now whether whether there's a pressure to reinvest in technology or just wage inflation pressures are guidance a clues any of those pressures as well we we we feel that we've got the opportunity in the capacity in our expenses to continue to see declined despite the commentary around reallocating spitzer the technology or what were the conversation about wage inflation we feel that those are coming down and i can tell your management he has a conviction around our fish is the ratio bringing it down as well as the the denominator of that of that calculation been expenses that expenses are coming down as well
spk_1: and brad i'll just follow kevin's comments relative to expenses and yeah we're were very optimistic you can hear that and kevin's comments were committed is well to continuing to reduce our expense space and at the same time we will continue his kevin mention to and
spk_8: ten so far initiatives to enhance both revenue and to minimize expanse
spk_11: great thank you guys are backing you
spk_12: thank you brian
spk_4: on a question comes from kevin fitzsimmons with the a davidson please go ahead
spk_13: he got the morning
spk_14: good morning cab
spk_6: his tongue looking the switching to credit for second looking at the hcl ratio x p v now one point seven one percent if i'm correct
spk_1: seems like that leaves use still a fair amount of room for credit leverage going forward despite the uncertainty in assuming they're uncertainty you mentioned before doesn't get worse but but gets better clears up can you remind us again what we should be you know not a target but what's your what was your jay one so ratio and what what are your thoughts on timing of
spk_2: how quickly you could bring that down and and whether we we could still have a number of quarters of negative provisions in front of us banks
spk_15: a cabin good morning this is dave america
spk_1: i'll take a stab at with what jim follow up as well so you know how we we've chosen a look at our long lost provision it's kind of a longer term method is you mention he talked about kind of some unknown in the marketplace ideal of we forget before we're going to use it to absorb loan grow on ago for basis and from that that
spk_15: dillard thought and hasn't changed much we're gonna look longer term before we start pulling that number down material that with you still still think we've got but good asset calling our book but our our joy to better use of dollar for continued long road and then just can't see save yourself and happened the marked by to nikita dollars out there for a final the you'll see
spk_1: a material change and how we approach long off provisioning in the near future
spk_9: not a totally grey and as i think kevin we would we would say that
spk_8: at least the expectation as we see here they would be first similar results in terms of what you've seen recently alice in terms of going forward if we if we have stable credit metrics and in a sort of generally consistent economic indicators and nom nom alone growth i would expect that you'd see
spk_3: you know love miner or no releases but of course will continue to analyze quarter to quarter the model what the rick what results we get our cecil so model and mechanism terminations
spk_16: but a great appreciate that
spk_17: and then
spk_1: mitch you know maybe we could just get your updated thoughts about them in a i know you you have said in a path that you you know
spk_16: he look to be opportunistic and you have optionality you know we are you more
spk_1: would you say and like a capitol building mode right now before you look to the word de gaulle are you optimistic there could be
spk_6: the a creative deals for you guys and you could get a card that up anywhere you bought in terms of bank versus non bank we've seen a lot of thanks bolt on acid generators given the excess liquidity and then and then on bank opportunities whether you know you'd be open to something transformational although you know is one the close just
spk_1: today in our backyard or or did already think you know he also maybe not necessarily likely given the opportunity you might have for hiring and funny another cooperate just to get your updated got thanks let know kevin good question happy to comment on each of those and it it's more of your latter part of your comments we as we have consistently done in the past we we will remain we we are remaining opportunistic i'll i'll start with tower one of the last things
spk_18: you you mentioned
spk_1: we had five additions this quarter that brings us to twenty four this year or we had thirty two and twenty and fifty two and nineteen and we continue to see very good results from that tower adding to our already strong towel in the company so certainly will remain active they are we continue to see those opportunities new markets as we've done in the past we will continue to evaluate those and certainly strategic partners you use the term banks and banks and i would include both of those you know you mentioned relative to size certainly a more optimal faster us would the kalyan that save one to five job not that we wouldn't go down stream if there was meaningful and a market where we were operating today
spk_8: we continue to evaluate all of those opportunities both banks and nonbanks and i would expand it to nonbanks were that the fan tech other business salons things that compliment our business model that
spk_1: either grow or business line or introduce a new business salon and certainly all of those remaining in line with our risk appetite we always start these conversations with culture exploring business models how either a kid the new or additive to i one of the lands are businesses that we have today but just making sure alignment exist and certainly hitting financial metrics that we would they looking to here and always use the term me ah that's all to answer you better together so to the dance your question about being opportunistic the answer is yes and i would say that is consistent will be in our future as it's been in our past he met just given given that openness to still remaining active on a new hires
spk_19: when and if they come up
spk_6: can you help kind of marry that with just the past few few minutes with talk you you gotta talk about being
spk_13: committed in focused on taking expenses down for probably it's probably a high bar to to in in that environment when you're so focused on take an expensive down to being open to new strategic hires or do you feel it it the right teacher cows come in you complete you can you can find places to cut
spk_1: elsewhere yeah so excellent question the i would answer this way and now i would say our results are a good reflection of our ability to up to bring in new talent unlike say you're morning and already strong team if you look at that hundred plus that are mentioned over the last three years where net up about a third of that number so accountability it certainly there and it's very important and i would say over that same charm i just talked about production in this passport quarter being one of the has production periods in the company the loans generated by were saying that increase so
spk_8: i think we demonstrated our their ability to recruit an hour
spk_10: an inner great and grow the company as we add new talent but also manages man's yeah
spk_20: i have to kevin i'm i just had bad
spk_2: when that the question asked about the use of capital whether it's you know external in the form of acquisition or new hires he didn't make it interesting that we bismarck all of our metres basically get to fame they're all of our opportunity get the same metrics around earn back and the loosen the capital dilution the tangible book value and how quickly we are in that bag what were some what i'd gnostic as to which way we go as long as it needs are are are metrics the the conversation around harry if it made conflict a little bit with our with our discussion round expenses but it it but it can land with our discussion round efficiency to drive our efficiency lower it took to do that part of the strategy is reduce the expensive but also part of the strategy is growing revenue which will require balance sheet growth to do that so the as we look at efficiency and i know questions oftentimes expenses and efficiency the quite aggressive the same time
spk_13: but but our but our strategies or and efficiencies will require revenue growth and the opportunity to hire good talent is absolutely consistent with that we recognize that as we are we have have the returns that we expect and it may it may
spk_21: we require us to be equally as a tune of on the expense had to overcome the short term calls of a new har
spk_4: now kept their point thanks very much for clarifying that great thank you
spk_16: thank you care or next question comes from michael rose with raymond james please go ahead
spk_8: a good morning of one thanks for i take my questions the the cost of deposits continue to calm down to just how to go thanks for letting you know how much remix saying is is shot yoga happening in your we get close to bottom and in terms of up as a costs thanks
spk_3: damn good morning michael jail
spk_22: come more my going to add a think you're you're correct and we were getting close there's still some opportunity on on deposit pricing and we entered sort of this period would probably a longer duration on our funding sad and some of our peers and so we've been in a well when i look at it versus period of gaining ground
spk_23: and i'd say the next couple of course we've we've got that opportunity we're currently i think it twenty one basis point in terms of cost of the positives and our expectation is that that would buy the and a queue to that's probably something less than twenty basis points so there's there's some room there but but yeah that that those benefits are going to start to
spk_24: ab are gonna start the way ah understood in then maybe just on the on the buyback
spk_25: you're good to see that every up there
spk_16: you can you talk about you what's your view is kind of intrinsic value maybe extensive a pace yeah think he recalls so a bit more than maybe some oh it's remodeling ah this this past quarter would you have in the near term should we expect to see
spk_26: fairly healthy level of activity just given
spk_9: yeah the starts performance period a life
spk_3: i would say
spk_27: that eric our expectations there are we're going to take a look at you know it's sort of a it's some it's an analysis we we spent a lot time on it and is what gives us the the best relative return on capital and i think near term arm modeling suggests that probably not and repurchases
spk_25: you know you eat out you know close the door their breath i get and other places and whether that emanate or and some of the and some balance sheet growth opportunities that we have so our expectation is that near term it would not be in the repurchase sad but and other eat organic or external growth op
spk_28: returnees
spk_4: okay great i you take my question thank you michael
spk_29: again if you like her question that a star than one star than one to ask a question
spk_9: the next question comes from catherine miller with kbw please go ahead take more than to follow up on the margin depression and gym if they're a target guy but you would be comfortable bringing the security portfolio a to as you deploy them bit of cash i'm i'm the morning have on another that we we gotta talk yeah yeah another gonna target first day we have you you know
spk_8: well if we if we look at if i look appears for example we still probably a little under way the securities and which is boy that's helpful but also look at it uses of the of that recorded he
spk_9: so i think is the there's we said earlier i expect in the near term will continue to put some money to work and that secure his portfolio but
spk_29: i like are optimism around balance sheet growth entering twenty two is good and so the the hope is that we sort of taper off those security purchases as we get into twenty two and we got other places to deploy that cap also there's no there's no hard and fast number there and and
spk_3: and they were were up for optimistic that instead of putting that my to work at one point two five percent we can put that money to work at something closer to three
spk_9: great italian and and they don't i that reference to three and he talk about are lonely old and where you're seeing a production come on on on average right now
spk_8: sure whether it's definitely been impacted image may was big to the competitive environment but of course like everybody else
spk_30: there's two we faced a lot of competition on loan pricing and that's not abated
spk_3: that's continued in if you think it's probably more fierce here recently the than it was earlier in the year so we can pay to feel that are new and renewed loan rates are down thirty or forty basis points from few to and they're close to call it three and a half percent so obviously that that puts pressure on that margin
spk_1: and i hope that one that's gonna one that's gonna in a stabilizer a bait but we certainly feel that that pressure i'm in terms of loan pricing and it's impact on our margin
spk_29: catherine now i would add to that as i mentioned earlier just a relative to pay offs the you know thirty percent or so we're in and that term rate i would like more that is term them right we are very focused on relationship and in most cases from a relations
spk_31: yo pricing standpoint weekend the successful but it is very competitive the other thing i would point to just going forward i went through the granularity and our ability to produce a many different soldiers and when you you know when you're in that small business business banking and some of our come
spk_4: marshall space you're gonna see a little better yield on some of those credits and possibly in some of the other more commercial business ones that were and so i i think we have opportunity they are as as we go forward relative to pricing great thank you very much
spk_1: thank you
spk_4: ladies and gentlemen this concludes our question and answer session
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