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spk08: Good day and welcome to the Renaissance Corporation 2022 First Quarter Earnings Conference Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kelly Hutchison with Renaissance Corporation. Please go ahead.
spk00: Good morning and thank you for joining us for Renaissance Corporation's 2022 First Quarter Webcast and Conference Call. Participating in this call today are members of Renaissance Executive Management Team. Before we begin, please note that many of our comments during this call will be forward-looking statements which involve risk and uncertainty. There are many factors 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, 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.renaissance.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 President and Chief Executive Officer, Mitch Waycaster.
spk06: Thank you, Kelly. Good morning. We appreciate you joining the call today. Before Kevin and Jim discuss the results for the first quarter, I would like to offer observations on the start of the year and the outlook for the balance of 2022. Loan growth accelerated in the quarter as payoffs moderated and production remained very strong. We also showed continued progress in expense management. And while economic conditions are presenting headwinds, we remain hopeful that further improvement can be accomplished. We are fortunate to operate in a number of growth markets where in-migration and business development activities are strong. Operating in dynamic markets with a team that I am very proud of leads us to be optimistic about our ability to grow. Maintaining a strong balance sheet that emphasizes core deposits, capital, and credit quality are important operating principles at Renasant that we believe are important for shareholder value creation. I will now turn the call over to Kevin.
spk01: Thanks, Mitch. Our first quarter earnings were $34 million or $0.60 per diluted share compared to $37 million or $0.66 per diluted share in the fourth quarter of 2021. Our core banking operations and our other lines of business strengthened this quarter and mitigated to some degree the volatile return to normal operating environment of our mortgage division. On the banking side, strong loan production and moderating payoffs contributed to our solid loan growth for the quarter. We also successfully closed the acquisition of Southeastern Commercial Finance, an asset-based lending company headquartered in Birmingham, Alabama, which added $28 million in loans on the acquisition date. Excluding these acquired loans, we experienced 11% annualized loan growth for the quarter. Our insurance and wealth management divisions produced strong results for the quarter, and our continued focus of expense discipline resulted in expenses falling for the fifth consecutive quarter. We aren't immune to the inflationary pressures present in the broader markets, but we are focusing on finding offsets for any expense increases resulting from these pressures. Although there may be some linked quarter increase in the second quarter due to our full quarter realization of merit increases, and operations of Southeastern, we still anticipate total non-interest expense for the full year of 2022 to be less than 2021. In a separate release yesterday, we also announced our plans to eliminate consumer non-sufficient fund fees and certain other consumer deposit-related fees. These changes will take effect January 1, 2023. These eliminated fees total $1.3 million in the first quarter of 2022. I will now turn the call over to Jim.
spk05: Thank you, Kevin. As we walk through the quarter's results, I will reference slides from the earnings deck. Starting with the balance sheet, total footings grew modestly. We continued to invest some of our excess liquidity in our securities portfolio, increasing the portfolio just over $220 million from the previous quarter. Rising interest rates had a negative impact on the value of our portfolio, resulting in a fair market value adjustment of $135 million. Total loans increased $293 million from Q4 of 21. The first quarter was another strong quarter in terms of production, with $863 million in new loan production and $588 million of advances driving net growth in nearly all categories. Our Triple P portfolio declined $50 million during the quarter, with only $8 million outstanding as of March 31st. All of our regulatory capital ratios remain in excess of required minimums to be considered well-capitalized and reflect the strength of our capital position. We recorded a credit provision of $1.5 million and net charge-offs of $851,000. Provision expense attributable to the acquisition of Southeastern Commercial Finance was $582,000, with the remainder attributable to loan growth. The ACL is the percentage of total loans declined from 1.64% to 1.61%. We record a release from our reserve for unfunded commitments of $550,000, which is reflected in other non-interest expense. Credit quality metrics are shown on pages 14 through 16. Past dues, criticized, and non-performing asset measures all remained relatively stable, and net charge-offs were inconsequential. Net interest income declined $1.8 million quarter-over-quarter, primarily due to two fewer days of interest income recognition. Increased interest income from our securities portfolio helped offset the full quarter of interest expense on our sub-debt issuance from November of 2021. Our core margin, which excludes purchase accounting accretion and interest recoveries, was down two basis points from Q4. Although loan yields continue to come under pressure in Q1, We believe we are poised for margin improvement as more on-balance sheet liquidity is put to work and as interest rates rise. We are focused on retaining our core funding base and maintaining a low cost of funds, which we believe provides us leverage in this rising rate environment. As expected, income from our mortgage division declined from Q4 of 21 from a combination of higher rates and the seasonality of the business. But new business in our wealth management and insurance divisions provided growth in income in each of these lines of business from the previous quarter. Non-interest expenses with exclusions We're down approximately $700,000 for the quarter. We mentioned in our last earnings call that salaries and benefits in Q4 of 21 benefited from one-time items. The decline in expenses in our mortgage division this quarter helped offset the return to normal of certain other expenses. We also contributed approximately $1 million to charitable organizations throughout Mississippi and Georgia, for which we received a dollar-for-dollar tax credit during the first quarter. I will now turn the call back over to Mitch.
spk06: Thank you, Jim. We are pleased with our results for the first quarter and look forward to the opportunities ahead of us for the remainder of the year. I will now turn the call over to the operator for Q&A.
spk08: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are 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 your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And the first question will be from Brad Millsaps with Piper Sandler. Please go ahead.
spk03: Hey, good morning. Thanks for taking my questions.
spk06: Good morning, Brad.
spk03: Just wanted to maybe start on expenses. I appreciate the guidance around expenses being lower in 22 than 21, which is consistent with what you said last quarter. Maybe if you could give us a little more sense of the magnitude. I know at one point, Jim, you talked about expenses kind of reverting back to the third quarter run rate. It seems like, as we said today, with the last two quarters, you're a long way from there. So Just wanted to ask, you know, maybe, you know, trajectory-wise, you know, kind of where you think maybe some of the increase would come from as you move through the year, if, in fact, you know, you do think expenses will get back to that 3Q level.
spk01: Hey, Brad, Kevin. So, yeah, as we look at our expenses going forward and really the progress we made in Q1, A couple of things as we look out for the rest of the year, just using Q1 as a baseline. So I think total expenses are around $94 million. Merit increases in a full quarter of Southeastern is going to cause salaries and employee benefits to tick up. Outside of that, we're expecting most of the other expenses to be somewhat in line, if not continue to see decreases. Some of the decreases are going to come on the occupancy and equipment side. Just our ongoing efforts to look at our either branches or our facilities and look for ways to consolidate and be more mindful of the use of those facilities and eliminate some space that's no longer being used post pandemic. and just on the on the salaries employee benefits would expect that um as far as the merit increases and some of the wage inflation that we're seeing i would expect that to increase um you know upwards of two to three million dollars as as we go throughout on a quarterly run rate uh as we go throughout the rest of the year uh so as we look at our expenses just using it as a baseline we expect expenses to be up maybe um in that two to three million dollar range on a quarterly basis based on the 94 million run rate in Q1.
spk03: Thanks, Kevin. That's helpful. And you've, you know, before laid out, you know, maybe some efficiency targets, you know, as you kind of get to the end of 22 into 23. Can you just kind of update us on kind of your thinking around, you know, maybe an efficiency ratio, you know, towards the end of the year into 23, I guess, against the backdrop of, you know, what should be, you know, you know, better interest rate environment and, you know, looks like what's building, you know, better loan growth momentum for you guys?
spk01: Yeah, so I think everything that you just mentioned is the culmination of what we laid out. As far as what's going to drive that efficiency ratio working its way down, we still have the target, short-term target of getting to 60%. And it's going to be largely dependent on what interest rates do. and how quickly we get there. But we're still on our plan related to that. I will mention, if you look at the efficiency ratio for Q1, it's going to be heavily impacted by just the return to normal, the rapid return to normal of mortgage. Mortgage efficiency did increase significantly in Q1, upwards of 80%, 90%. if you exclude mortgage from, from, from the total company efficiency ratio, our efficiency ratio saw another percentage or two improvement, uh, and is, um, hovering around that 62, 63, 64% range, uh, if you exclude mortgage. So the things that we're doing on expenses, the momentum we see on loan growth, the prospects of future rate increases are all going to play to our advantage in driving, um, in bringing revenue into the efficiency equation and complement all the work that we've done on expenses.
spk03: Great. Thank you, guys. I'll pod back into you. Thanks. Thank you, Brad.
spk08: The next question comes from Catherine Miller from KBW. Please go ahead.
spk07: Thanks. One follow-up on the expense conversation is how much of a reduction in mortgage expenses did we see this quarter? Is the lower the mortgage revenue environment, do you think, fully reflected in the expense basis, or is there more savings that we could see there?
spk01: I think as we look at just volatility due to production, I think the expenses are fully baked. We are looking at what does the mortgage operations look like based on the prospects of lower volumes, maybe tighter margins. So there could be further expense reductions there. But just looking at the levels of production, the reduction in expenses we saw, I think, are an accurate reflection of what the run rate would be, but that doesn't take into consideration the effort that mortgage is doing to become more efficient in light of some of the revenue pressures.
spk07: Okay, great. And then can you give us any outlook on the margin, maybe kind of thinking about how you think the margin could expand from here, just thinking about the forward curve and maybe some color around increase in the margin per rate hike or anything around some asset sensitivity. Give us some color there. Thanks.
spk05: Good morning, Katherine. This is Jim. So as you saw in Q1, our margin was down a couple basis points from the fourth quarter. As I said a few minutes ago, I think we're poised for both margin and NII growth from here and that's without rate hikes. For example, if we look at new and renewed rates, they're almost equal with the core loan yields that we've got today. I think as we look into Q2, 3, and 4, we feel optimistic about the margin and NII rising, again, without any further rate cuts, or rate increases, excuse me.
spk07: Okay, great. And then as a reminder, and then you've given this to us before, but just as an update for percentage of loans that are variable and how quickly we move through the floors if we get under 50 that move in May.
spk05: Percentage of loans is variable, it's about 40%.
spk07: And does that, and the impact of floors?
spk05: Yeah, floors, so currently where we stand is that on that portfolio, 80% of the portfolio is no longer subject to floors, and another 25 basis points takes that to about 90%.
spk07: Maybe one more thing on the variable piece. How much of that is floating, so it's actually floating immediately versus variable that may reprice over a longer period of time?
spk05: Let me get back to you on that, Catherine.
spk07: Okay. No worries. Thank you so much.
spk05: Catherine?
spk08: And the next question will be from Kevin Fitzsimmons from DA Davidson. Please go ahead.
spk04: Hey, good morning, guys. Good morning, Kevin. Just wanted to talk a little more broadly about expectations for loan growth. So, Mitch, in your earlier comments, I think you made the observation that, you know, the economic growth potential in the region is very healthy, but there's also been a pullback I think one of the big headwinds for you guys in prior quarters have been payoffs and paydowns, and I'm guessing that softened a bit this quarter. So I'm just trying to, looking ahead, based on what you think about production, what you think about paydowns, payoffs, how you feel about the pace of loan growth going forward, because it improved this quarter, and just wondering if you guys feel that's sustainable going forward.
spk06: Thank you, Kevin. Let me begin with pipeline. I'll talk a bit about production this quarter and prior quarters and then go to pay off and reflect on kind of how we see net going forward. So to begin that discussion, we'll talk just a minute about our pipeline. We entered this quarter at 290 million. That was up from 284 million the prior quarter. and $240 million the prior year, which kind of plays into what we're seeing in production because the pipeline does reflect what we have experienced. And it's good to see in our pipeline that we continue to experience good deal flow across the markets and the various business lines, which I'll talk a bit about when I get into production. So If we go to production this quarter, we saw $892 million in production. If you adjust for Southeastern Commercial Finance, which came into the company in the quarter, that would bring that, which you take out about $28 million, as we mentioned, that would bring that down to $863 million for the quarter. That's about 5% ahead of what we produced in 4Q, which was record production of $820 million. Um, and if I look back over the prior year, uh, just looking at pipelines in production, I mentioned pipeline, our production, uh, Q2 of 21 was up 7% and Q3 of 21, it was up 22% and Q4 up 17%, which was a record for the company. And like I say, this quarter that increased another 5%. Um, What really is encouraging is that we're seeing this production from across all of our markets and our business lines. And I think equally important is the granularity. I've mentioned this on prior calls, but we continue to be encouraged because if I take that $863 million, this prior Q1, about 29 of that was in the group of consumer non-real estate heloc one to four family residential type product short duration that we hold on the books so about 29 there another 22 percent was in small business and business banking loans less than 2.5 million um and then another 21% in commercial loans greater than 2.5 million. Just core CNI owner-occupied commercial real estate type transactions. And then the remaining 28% in our corporate banking group, larger CNI commercial real estate, ABL equipment financed, senior housing, all to say we continue from a production standpoint, not only geographically, but hitting on many different cylinders relative to our product types and product lines. Which comes to part of your question was payoffs. And we did see that moderate quite a bit in Q1. Payoffs reduced by 245 million. I think a key point there, that was about 21 million under the 21 average. So as We noted on the Q4 call, payoffs in Q4 were quite high. We felt like we had some pull forward to Q4. And when I look at the reasons for those payoffs, where we saw a lot of that moderation was in sale of the underlying asset, which you might remember last quarter was around 60% of total payoffs. This quarter, that reduced to 34%. So we saw quite a bit of change there. We continued to expect at some point that would moderate. I would say to the permanent market, those remain fairly high as the permanent market are taking things sooner than expected. I think we're basically seeing that across the industry. So you would assume that would pull back at some point, but that remained fairly high this quarter. But albeit payoffs moderated, production, as I described, continued and continued to increase quite well, which resulted in our net growth of 293 million or about 12% annualized. Again, if you adjust for southeastern commercial, about 265 million are annualized at about 11%. We feel good as we look forward relative to our ability to produce given our strong markets, talent and various product lines. You know, we entered this year with expectations that loan growth would be in that mid single digit and range net and we continue to feel good about that and certainly as evidenced by the last number of quarters and this quarter, our ability to produce well throughout our geography and our product lines. So very optimistic on all of those fronts. And it's good to see payoffs begin to normalize.
spk04: Okay, thanks, Mitch. And just, I guess a question on the purchase of Southeastern Commercial. So it It didn't seem like it added too much in terms of loans, so it's a relatively small unit. But how big can that get in terms of what's bolting on to you and your balance sheet and capital? Can that get a lot larger and more expansive? And or are there other such opportunities out there that you could be looking at kind of asset-based type lending opportunities Um, opportunities. Thanks.
spk06: Yeah. So Kevin, that's a good question related to Southeastern commercial, certainly. And it's a very insightful as, as far as us continuing to be opportunistic about, uh, various business lines that align with our risk appetite and fit within our business model. And that certainly is the case with Southeastern commercial, uh, asset based lending company based out of Birmingham, 26 year old company. and people that we've known for quite some time. It brought to the company very good leadership in that area of our company and was very added to the talent relative to combining that with already very good ABL group, but what they bring to the table. And we have been very pleased with the results that we have seen in a short period of time. Certainly, I think it fits well within the company and fits well with our other business lines and fits well within the core and the corporate bank. And like I say, we're seeing that early on. As far as your question, we certainly remain opportunistic in regards to looking at other business lines, whether in some cases non-bank type, additions that fit quite well to the business model, as well as continuing to add talent. We were fortunate to add seven additional members. As part of that's inclusive of Southeastern Commercial this quarter as well. So certainly we will continue to look for those opportunities that closely align with the business model.
spk04: Great.
spk06: Thanks so much, Mitch. Thank you, Kevin.
spk08: And again, if you have a question, please press star then one. The next question will be from Jennifer Demba from Truist Securities. Please go ahead.
spk02: Hey, this is Brandon King on for Jenny. Good morning. Hey, Brandon. Hey, I wanted to touch on deposit growth. I saw there was some growth in the quarter, but I wanted to know what your expectations were for the rest of the year. And if you're anticipating a sort of mixed change in what deposits actually come in as interest rates continue to increase, and if you're anticipating more of those money market savings accounts as opposed to those demand deposits.
spk05: Good morning, Brandon. This is Jim. So we are hopeful that deposit growth will continue throughout the year. And to your question about that mix, I mean, it seems reasonable that as we have you know, these rates moving up that we'll see some shifts in that mix. You know, exactly what that looks like and when it occurs, you know, is hard to predict, but it seems like a reasonable assumption you will see some behavior changes in terms of customers and what that does to deposit mix.
spk02: Okay. And as far as those deposits, what are the beta assumptions that you have currently? Has that kind of lowered based off of where you saw deposit betas in the beginning of the year, based off of the higher magnitude in Fed rate increases?
spk05: So where we stand, we haven't changed our deposit beta input recently. It stands at about 43. And, you know, I think your question is a good one. I mean, we feel like that's a conservative number. and that, you know, for the first, you know, couple of rate hikes, it's probably going to, you know, be a little lower than that. So, again, we feel like that's a conservative look at our sensitivity, and we'll see how it plays out, but expect these first couple of rate hikes to not have a lot of influence. I mean, if you look at our cost, total cost of deposits around 17 basis points, we see that generally behaving you know, sort of flattish here in the near term. We haven't seen a lot of exceptions to pricing in the field. So, again, it's an important asset, if you will, of the company. We value core deposit, and we're going to protect that deposit base and seek to grow it.
spk02: Thanks. And then lastly, I saw that three branches were closed in the quarter. I was curious, where do you see that branch rationalization efforts going for the rest of the year and if that's actually included in your plan to have expenses lower this year compared to last year?
spk01: Yeah. Hey, good morning. It's Kevin. And there is some further, there'll be further branch rationalization efforts that are done. And some of that is included in the comments about the lower expectation on occupancy and equipment. Some of them we actually are in the process of closing. Some of them may yet to be identified. But that's just going to be an ongoing effort as we look at our branches, look at what we need to, what we've identified as the proper level of scale, as well as how we manage and implement technology and other ways to deliver banking services in certain markets that may not require as much brick and mortar. to be able to meet the needs of those markets. So that will be an ongoing effort. And specifically, yes, as we look forward, looking at the profitability of branches will be one of those initiatives.
spk02: All right. That's all I had. Thank you very much. Thank you, Brandon.
spk08: Ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Mitch Waycaster for any closing remarks.
spk06: Thank you and thank you to those who joined the call this morning. We appreciate the interest and look forward to speaking again soon. We next plan to participate in the Gulf South and the D.A. Davidson conferences in early May.
spk08: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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