Renasant Corporation

Good morning and welcome to the Renaissance Corporation 2025 Second Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. 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 Hutcherson, Chief Accounting Officer for Renaissance Court. Please go ahead.

Good morning, and thank you for joining us for Renaissance Corporation's quarterly webcast and conference call. Participating in the call today are members of Renaissance Executive Management Team. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve 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. Thank you so much for joining us. 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, Kevin Chapman.

Thank you, Kelly, and good morning. We appreciate you joining the call and look forward to sharing results that reflect our merger with the first bank shares and the successes we've enjoyed since the two companies came together. We closed the transaction on April 1st, and our second quarter numbers reflect a full quarter of operations from both companies. I am proud of the results and believe they are a great reflection on the hard work of our employees in bringing the companies together. While we still have systems conversion in early August, the cultural integration of our employees and customers have gone well. The teamwork and collaboration from employees in all areas of both companies has put us right where we need to be from an overall perspective of the merger. We are very encouraged by these early results and we will continue to remain focused on the work of meeting the needs of our customers by successfully integrating teams from both the companies. I will now highlight a few of our second quarter financial results. Our reported earnings were $1 million or one cent per diluted share. Adjusted earnings were approximately $66 million or 69 cents per diluted share. Importantly, both sides of the balance sheet demonstrated positive growth for the company and reveal the work done to solidify employee and customer relationships. Loans were up $312 million or 7% from what the combined companies reported on March 31st. Likewise, deposits were up $361 million or 7%. We also saw meaningful expansion in the core net interest margin from 3.42% to 3.58%. Reported margin, which reflects purchase accounting adjustments, rose from 3.45% to 3.85% for the quarter. Our adjusted total cost of deposits decreased 18 basis points to 2.04%, while our adjusted loan yields decreased only one basis point to 6.18%. As you can see, our earnings trajectory and balance sheet strength are evident in the second quarter results. We are well positioned for the second half of the year and are on track to realize the benefits of the combination. I will now turn the call over to Jim.

Thank you, Kevin. The merger creates an exciting but noisy quarter. I'll begin with highlights from the merger. The fair value of assets acquired totaled $7.9 billion and included total loans of $5.2 billion. The fair value of liabilities assumed totaled $6.9 billion and included total deposits of $6.4 billion. Core deposit intangibles totaled $159.6 million and preliminary goodwill arising from the transaction totaled $428.7 million. From a capital standpoint, all regulatory capital ratios remain in excess of required minimums to be considered well capitalized. Turning to asset quality, we experienced improvement in our past due loan percentage and non-performing loans were flat. There was an uptick in classified loans that was largely driven by layering in the portfolio from the first and not due to deterioration. Excluding day one provisions, we recorded a credit loss provision on loans of $14.7 million, comprised of $13.2 million for funded loans and $1.5 million for unfunded commitments. Net charge-offs were $12.1 million, largely comprised of two credits, And the ACL as a percentage of total loans increased one basis point quarter over quarter to 1.57%. Turning to the income statement, our adjusted pre-provision net revenue was $103 million. Net interest income growth was driven by improvement in the net interest margin and balance sheet growth. Non-interest income was $48.3 million in the second quarter. a linked quarter increase of $11.9 million. $9.7 million of this increase was attributable to the first, while our mortgage division drove much of the remaining increase. Mortgage experienced a solid quarter in terms of volume, resulting in an increase in income of $1.6 million from the first quarter after excluding a gain on sale of MSR assets. Non-interest expense was $183.2 million for the second quarter, excluding merger and conversion expenses of $20.5 million. Non-interest expense was $162.7 million for the quarter. With systems conversion a couple of weeks away, we expect to see additional conversion-related expenses in the third quarter. We remain on track to achieve model synergies by year-end. The improvement in net revenue coupled with cost containment from the combined companies resulted in an improvement in our adjusted efficiency ratio of about 7 percentage points. We are encouraged by the results of the second quarter and the momentum for the remainder of 2025. I will now turn the call back over to Kevin.

Thank you, Jim. We began the process of this merger over a year ago. There has been a tremendous effort by employees from both companies to create the new, higher-performing Renasant. We are excited about capitalizing on the opportunities ahead of us and delivering strong financial performance to our shareholders. I'll now turn the call back over to the operator for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then two. Our first question will come from Michael Rose with Raymond James. Please go ahead.

Hey, good morning, everyone. Thanks for taking my question. Just have a couple for you. Just, Jim, maybe if we can just kind of walk through the margin. I think the total amount of accretion is is higher than the core margin was, was obviously up. Can you just give us some color on kind of expect a, I know there's a lot of moving parts still including a full, you know, another quarter of the combination, but how, what are the puts and takes for the kind of the core, you know, margin as we kind of think about the combination as we move forward. And then what should we think about in terms of the schedule accretion for the next couple of quarters? Thanks.

Good morning, Michael. Thanks for the question. So a couple of things. We focus on core, and I'll certainly touch on the purchase accounting influence on overall margin. But I would say in core, our outlook includes two rate cuts later this year, I think September and December. And so we've got that in there, but I would say they have a de minimis impact on our guidance or expectations for margin, a core margin. I would say in terms of the core looking forward and certainly in Q3 and maybe to a lesser extent in Q4, we do see room for some modest expansion in that core margin. So we were at 358, as you know, for Q2. I'm cautious to use a spot margin number, but I would say I would offer this. Our spot margin in June was 360. So that'll give you a sense of, you know, some upside there. Although, again, cautionary note there, you know, monthly margins can be a little misleading. So I'd say that in the core. Some modest expansion expected here in the near term. In terms of the accretion, And, you know, think about in two buckets, you know, interest and credit. And, of course, interest, we view that over time as that accretion coming into core. So that will transition from, you know, purchase accounting into core NIM over time. And I think that, you know, for the quarter, the credit, or excuse me, the interest accretion was about just a little shot, $10 million over time. And I would say for both interest and credit, in terms of trying to predict how that will come in an income statement in future quarters, on the normal part of that, I would say you can use Q2 as a pretty good proxy for what Q3 and 4 will look like. As it relates to the accelerated pieces of that accretion, that's just a really tough thing to project. So stop there and happy to elaborate if it's helpful.

Yeah, so obviously you had some purchase time deposit amortization and long-term borrowing amortization this quarter. But if I just take the kind of the 17.8 million, is that what you're talking about should be, you know, kind of in the ballpark for the next couple quarters?

Yeah, I would say so we had roughly $16 million of purchase accounting accretion in the quarter, roughly. And maybe it's 17 if you include some other things. And the normal part of that was about 13 million plus or minus. And I would think that's a pretty good indicator of what you're likely to see in the next quarter or two. The accelerated piece, which is, again, a little less than maybe $5 million, is just a tougher thing to project. Michael, trying to predict that is a tough thing to do.

Totally got it. Just wanted to understand some of the pieces. Okay, perfect. And then maybe just as a follow-up, just as we think about the loan growth of the combined company, obviously, you know, pretty solid again this quarter. Can you just touch on pipelines, hiring efforts, and, you know, some of the, you know, the benefits, you know, as we think about the combined company, larger balance sheet, et cetera, you know, from a growth perspective as we move forward? Thanks.

Yeah. Hey, Michael. It's Kevin. So if you look at what both companies did in Q4, you saw balance sheet growth, both loans and deposits in that 6% to 7% range. And I know we all know this, but it was on the backdrop of probably one of the most disruptive times in the company. So commend the efforts of everybody throughout the company to integrate, plan for a conversion, and also continue to grow in our markets. We're extremely excited of the work that was done to just grow the balance sheet in a very disruptive time. As we look at the pipeline, the pipeline's holding flat. If we look at our historical pipeline, if we look at our pipeline in Q2, compared to where it would have been in Q1, the Renasant Legacy pipeline's flat as well as the first. So when you put both of them together, we still have a very strong pipeline. And would caveat that with that the past two quarters, both companies' pipeline was up compared to prior quarters. So as far as opportunities, we still see it. We still see, we firmly believe we're in some of the best markets in the country, some of the best markets in the Southeast. And I think that's reflected in the pipeline. As we look out for the rest of the year, we're still guiding towards mid-single-digit loan and deposit growth. A couple things could weigh on that or could factor into that, the payoffs. I think we've communicated in the past that we anticipate, we've anticipated payoffs to pick up throughout the course of the year. That hasn't really materialized yet. Um, but, but at any point in time, depending on the shape of the yield curve or volatility in the yield curve that that could accelerate. Uh, so, so we were still guiding in that mid single digit and we've intentionally tried to get ahead of that at the beginning of this year, towards the end of last year, having production that would keep us in that mid single digit. Um, but, but we'll just say pipelines are good and our team is focused on capturing market share opportunities throughout, throughout all of our markets. I think it's reflective in Q2.

Okay, great. Thanks for taking my questions. I'll step back.

Thanks, Michael.

The second question comes from Matt Olney with Stevens. Please go ahead.

Hey, good morning. Thanks for taking the question. I want to ask more about expense levels, and I think the core expenses that you mentioned look really good in the second quarter, and it sounds like we should anticipate more non-core expenses in the next few quarters as you get the as you integrate. But as far as the core levels and as you layer in the cost savings, I'm curious about the expectations for the core expense levels the next few quarters. I think before we said that the first full quarter of fully loaded cost savings wouldn't be till first quarter of next year. Just looking for additional color if that's still the case.

Thanks. Yes. As it relates to the expense outlook for the, you know, next couple of quarters, I'd say this. There's really no, as you would expect, there's virtually no efficiencies really reflected in Q2 from the merger. And that'll start to show up in Q3. As you know, we've got our conversion, systems conversion slated for early August. And so sometime after that, we'll start to see those efficiencies show up. So the way I would think about it is Q3, you'll see some efficiencies show up in the expense line, and then you'll see a little bit more show up in Q4. And then we still believe that when we get to Q1, our goal is to have a clean income statement that reflects all the efficiencies that we sought in the deal. The other thing I would add is you saw we had, I think it's roughly $20 million in merger expenses in Q2. Pardon me. I think you'll see about $25 million in the second half of the year in terms of merger expenses, and most of that will come in in Q3.

Okay. That's helpful, Jim. Appreciate that. And then just as a follow-up, Maybe a bigger picture question. I think a year ago we talked about getting the efficiencies from the transaction and strategic goals, you know, ROA of 125, 130, and efficiency ratio down to 56%. So as you just look at the overall landscape now and kind of the first full quarter with the transaction, any updates as far as your longer-term strategic goals with respect to profitability, ROA, and efficiency?

Hey Matt, it's Kevin. No real update other than to say we're tracking right in line with what we laid out a year ago. If you look at the efficiency ratio for Q2, we are right on track. We've busted through the 60% hurdle that we've talked about a long time. We're comfortably below that. And that doesn't include any of the cost saves yet to be realized in Q3 or Q4. The balance sheet growth that we expected, that will drive revenue. That's occurring. And so what we laid out was, you know, the combination would unlock potential on both sides of the company. And we think that's occurring. So no real update other than we are right on target with where we plan to be. If you look at the balance sheet that we projected in July of last year, We came in really on both sides, both Renaissance and the first, came in right on top of where we expected to be. So everything is lining up the way that we want it to, and it'll be our focus and our goal to continue to work and extract incremental improvements on the goals we laid out. But right now we feel very comfortable about the guidance that we laid out over a year ago about ROA, ROE, and efficiency, those profitability metrics that we key in on.

Okay. Thanks for taking the questions. Thank you, Matt.

The third question comes from Catherine Miller with KBW. Please go ahead.

Thanks. Good morning.

Good morning, Catherine.

Just one follow-up on the margin. Jim, can you tell us the duration of the amortization that we'll see on the time deposit secretions? I'm assuming that runs off pretty quickly.

It's about five months, Catherine.

Okay, perfect. And then this quarter, we saw a little bit of elevated charge-offs of problem loans. That was up $2 million or so. Can you give us a little color on what that was and kind of what a fair run rate for that is moving forward? I know it's a neat question.

Good morning, Catherine. Hey, David. Good morning, David. Hey, good morning. So on those two credits, those were both credits that we have had identified as problem loans, carried them as rated assets for a period of time. Both of them were on the C&I side of the house. They were not necessarily systemic. They were individual scenarios that drove each one of those. And Happy to provide color if needed on the individual situations, but they were one-off credit opportunities or credits that we needed to go ahead and remove from the balance sheet. One of them we had, the charge-off was almost fully impaired. The other one was a little bit more of a change from a company standpoint, and we went ahead and charged that one off. Again, so those weren't deemed to be systemic of our C&I portfolio of our loan book. And if you look historically, we've historically had a couple of bumpy quarters here and there as we've removed problem assets from our balance sheet. But, again, normally those numbers kind of revert back to. If you look at the last 12 months, I think we were 8 to 10 basis points on average the last 12 months. And that number, somewhere around 10 basis points is plus or minus a couple percentage kind of where we've been for the past few years, and I would expect on a go-forward that that number would probably be somewhere in that ballpark, maybe just a tad higher, just based on the economic environment we're in, but somewhere plus or minus 10 basis points, maybe no higher than 15 basis points.

Okay, great. And maybe one more, if I could, on just the buyback activity. Just kind of curious, now that you've got the deal closed and You know, marks are set, and you've still got high levels of capital, and certainly at your higher levels of ROTCE, you're creating capital pretty quickly. Just curious how you kind of balance thoughts on potential buybacks.

Sure, Catherine. This is Jim again. So, again, it's going to sound like a broken record, but, you know, first and foremost, it's, you know, that capital that we're creating is there to support organic growth. And as Kevin mentioned, we're really pleased with the growth that we've had, and we've We've had good growth for a number of quarters and so really pleased with that. So that's first and foremost. And then I would say certainly any bolt-on, and we've talked about this from time to time, any bolt-on sort of small acquisitions that add to our expertise and knowledge in specialty finance areas, factoring, asset-based lending, whatever, that's something we continue to look at. I don't envision that being significant, but we remain very interested in adding to what we've got there. And I would say talent, too. I mean, it's part of the organic growth picture, but always thinking about addition of talent to the team and hope that those opportunities will continue to be available to us. The other thing I will add is we continue to look at – we did, I think, two legacy renaissance restructures in the securities portfolio. We can do that in the next. And then certainly buybacks are there, but you can sort of walk through those that buybacks aren't necessarily at the top of the list, but they certainly are on the list given the way we're going to create capital. And lastly, in the back of our minds, although it's probably not anything in the near term at all, but we want to think about, you know, maintaining capital for future bank M&A on the road. So that's, I think, the way we sort of think about the pecking order in terms of capital levers.

It's very helpful. Thank you.

The fourth question will come from Steven Scouten with Piper Sandler. Please go ahead.

Thanks. And maybe just to follow up on some of the things you just said, Jim, about capital allocation longer term. I mean, appreciating that you haven't even gotten to the quarter conversion on FDMS yet. But when would you guys be open to thinking about the whole bank M&A again if the opportunity arose? And would there be an area of focus or a size of focus at some point down the line, or is it, again, just too early to think about that?

I'll take this. I think it's a little bit too early to really plan for anything definitive. We still have conversations with a variety of different management teams, have continued those conversations even as we've been focused on the FERS. But we'll just reemphasize, and I think you and I have had this conversation, the focus is the first. This has the most meaningful impact for both companies, both shareholders, and that's where our focus is. I know there's a lot of focus on the cost stage. There's a lot of focus on conversion. We as a management team are focused on the balance sheet and the revenue that it drives. That's where our attention is, and it's ongoing. And we don't want anything in front of us that's going to derail us or take us off track from the benefits that are available to us with the first. So that's where our focus is. As we get past conversion, as we continue to fully and successfully integrate both companies, then maybe we'll be a little bit more. Maybe we'll change our position on what our focus will be in M&A. But right now, I would just say we are squarely focused on the largest acquisition we've done with the most customers, the most branches, most employees. That, for our focus, is because it has the most impact to both shareholders. And honestly, anything that would be on our radar screen wouldn't be as positive and impactful as what the opportunity is. So that's why our focus is there. And right now, we're so close to the finish line. We don't want to do anything that would self-inflict, you know, an error or anything that would cause us to subtract from this opportunity. So that's where we're focused right now. That will change over time. Right now we're focused on wrapping up the successful conversion and successful integration of the first.

Yeah, that makes a lot of sense. Appreciate that, Culler. And then on the – remaining securities from the first, and I think you guys sold about a little less than half of their book. Was that kind of always the, the, the plan for that securities book or did you end up changing the path to any degree in terms of what you, what you sold and what you kept? And, and, you know, could that, is that still in the cards potentially to evaluate moving forward?

So I would say we, as you say, we, we, sold roughly 50% of the securities at the first. And our team had, I think, pretty early on, done a lot, did a lot of work early on. And that number may have moved around a little bit over time. Frankly, not very much. And so what we ended up selling and executing on was sort of planned for a while. And I don't see... you know, never preclude anything. But I think if there's additional work to do in the securities portfolio, it would, of course, it's really all, all Renaissance. That's the way I sort of think about it. But any addition, any future in terms of repositioning, I would likely be on the legacy Renaissance side.

Got it. Perfect. And, and then just last thing for me, you guys give, give a lot of good credit color and it sounds like some of the, maybe noise this quarter was just kind of deal related and nothing to, to, be overly worried about moving forward, but the, the provision was still obviously a bit higher than it has been X, even the, the kind of one-time accounting noise. So was that, is that more about just how the model worked with the combined balance sheet and keeping the loan losses or percentage, you know, relatively flat? Is that the way we should think about it? The, the reserve percentage kind of staying in this, you know, mid one fifties range or, or what were the other dynamics kind of led to that, um, I guess the $14.7 million in kind of, I don't know what to call it, like core provision, if you will.

Hey, Stephen, this is David. So there's, as you know, there's, as you pointed out, there's a lot of noise in that CECL number this quarter. As we noted, the PCD-9, PCD marks is related to the first. If we remove those from the conversation, the other part of the provision in Q2 was largely related just to how our model works, as you pointed out, particularly with a couple of losses that we had for the quarter that was charged off. It just impacted our factors, and I'll say a couple of factors of our model. In particular, those two drove our historical loss within those respective books, particularly the C&I and Unoccupied Theory, and that historical loss ratio was modified relative to those loans, and so that just caused a change in our model. There was a relook as with every quarter in our Q factors. It had a reflection on our reserves and our model. That wasn't necessarily specific to those two credits. That's something we do consistently on a quarterly basis. And then the third attribute I would just say, our loan growth, obviously the level of loan growth in the quarter would have had a material impact on our model as well from a provisioning standpoint. So all three of those, but it was a model-driven model. size that drove the increase in production for the quarter.

That's great. That's extremely helpful. Thank you guys for all the time this morning.

Appreciate it. Thank you, Stephen. What the?

Hey, do we still have anybody in the queue?

Are we ready for the next question?

We are ready for the next question, yes.

The next question comes from David Bishop at Hufti Group.

Thank you. Hey, good morning, Justin. I'm not sure what happened there. Hey, a question for Jim. Just curious, the interest rate risk position, you know, post-close of the first acquisition, maybe how the balance sheet sets up for a potential 25 basis point Fed rate cut. Just curious what your sensitivity looks like post-merger.

Sure. Good morning, Dave. So, as you probably recall, the first really implemented our balance sheet in that it would starve our sensitivity position a little bit. So, you know, if you look at the rate cuts, of course, they occur late in the year, but they really have... virtually no impact on the margin guidance that we would give. Now, full year would probably be a little different, but I can say this, that without the first, it would have been a little bit different story. So the first definitely benefits our sensitivity position in that we're a little less sensitive. So that sort of came across as we thought in terms of merging the balance sheet together.

Got it. And then, Kevin, Jim, just curious, you talked about the opportunities on the expense side of the equation. Are there any opportunities on the feeing comes out of the house that really haven't been tapped yet that aren't in the numbers yet that has you pretty excited as you look forward?

Yeah, Dave, I think there's a couple. And I think you're seeing start to build in the numbers. One, I know we've had to apologize for being in the mortgage business for the last couple of years, but mortgage had a nice rebound in Q2. And I think actually we were contrary to maybe what was happening nationally, just some of the data coming in to mortgage bankers. And, you know, the opportunity we have and the new footprint with the first, there's a lot of inbound migration. There's a lot of rooftops. That will only help and assist mortgage. On the treasury management side, You know, we talk about a conversion in 10 days of our system. We've been slowly converting our traffic management solutions into the first. And so that's been ongoing. And so we think that has a potential upside in the future in regards to income that can be off that. And then also other things like capital markets and things that we've done with management. the real desk that we operate now. So these numbers are, in some cases, two of those numbers may be buried in other non-interest income that are growing at a fairly appreciable rate. And there's been really good adoption, really good interest from our team members at the firm about those products, what they offer, how it will differentiate them in the market. And so I think there's several opportunities in that non-interest income line item that are bright spots and should help drive additional incremental revenue as we continue to fully integrate. There is opportunities at the top line net interest income with some of the secured business lines or business lines that we provide, lending lines that we provide that maybe the first didn't have yet. ABL factoring, equipment leasing, a larger loan limit, some of our expertise in specific real estate or middle market C&I. We've seen early wins, early successes in the first quarter in all those business lines of partnering up with bankers from the first as well as some of our team up with our teammates over at the on the Renaissance side, to keep the market opportunity that otherwise either one of us wouldn't have had the opportunity to win. So we're seeing early successes and early wins just in the first quarter and excited about what that indicates can happen in future quarters and future periods.

Got it. Appreciate that, Collin.

Thank you, Dave.

Again, sorry for the technical difficulties. If you have a question, please press star then one. We'll wait a moment temporarily in the case someone joins. With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Kevin Chapman, CEO, for any closing remarks.

and appreciate all that were able to join the call today. Look forward to having future conversations at conferences come up in Q3. And again, appreciate everybody that joined the call today. Thank you.

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