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Edited Transcript of RNST earnings conference call or presentation 22-Jan-20 3:00pm GMT

Q4 2019 Renasant Corp Earnings Call

TUPELO Jan 28, 2020 (Thomson StreetEvents) -- Edited Transcript of Renasant Corp earnings conference call or presentation Wednesday, January 22, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* C. Mitchell Waycaster

Renasant Corporation - President, CEO & Director

* Edward Robinson McGraw

Renasant Corporation - Executive Chairman of the Board

* James W. Gray

Renasant Corporation - EVP

* Kelly Hutcheson

Renasant Corporation - Senior Manager, Accouting

* Kevin D. Chapman

Renasant Corporation - Executive VP, COO & CFO

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Conference Call Participants

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* Adam Paul Freyaldenhoven

Stephens Inc., Research Division - Research Associate

* Bradley Jason Milsaps

Piper Sandler & Co., Research Division - MD & Senior Research Analyst

* Daniel Raymond Mannix

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* John Lawrence Rodis

Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts

* Stuart Lotz

Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Renasant Corporation 2019 Fourth Quarter Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Kelly Hutcheson. Please go ahead.

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Kelly Hutcheson, Renasant Corporation - Senior Manager, Accouting [2]

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Good morning, and thank you for joining us for Renasant Corporation's 2019 Fourth Quarter Webcast and Conference Call. Participating in this call today are members of Renasant's executive management team.

Before we begin, let me remind you that some of our comments during this call may be forward-looking statements, which involve risk and uncertainty. A number of factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Those 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. We 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 may be non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measure can be found in our earnings release, which has been posted to our corporate site, renasant.com, under the Investor Relations tab in the News and Market Data section.

And now I will turn the call over to Renasant Corporation Executive Chairman, Robin McGraw.

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Edward Robinson McGraw, Renasant Corporation - Executive Chairman of the Board [3]

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Thank you, Kelly. Good morning, everyone, and we thank all of you all for joining us today. We closed the fourth quarter and the year with solid results, and I'm excited about the momentum we have heading into 2020. As we discussed in more detail later, we enjoyed a robust loan growth in the second half of the year and in the fourth quarter, in particular, while at the same time, remaining steadfast in our commitment to strong credit quality, even while we have seen our competition -- some of our competition beginning to loosen their underwriting standards.

Our return on average assets with exclusions was 1.14% for the quarter and 1.32% for the year. Our return on tangible equity with exclusions was 13.52% for the quarter and 15.54% for the year.

During the third quarter, we announced a $50 million stock repurchase plan which began in October 2019, following the completion of our previous $50 million repurchase plan. We repurchased $20 million of our common stock under the new plan during the fourth quarter at a weighted average price of $35.23. Year-to-date, under the current and prior plans, we've repurchased $62.9 million of common stock at a weighted average price of $34.58.

We mentioned last quarter that we redeemed these subordinated notes that we assumed as part of our brand acquisition, for which preferential capital treatment began to phase out at the end of the second quarter of '19. We also increased our dividend by $0.01 during the second quarter of '19.

The repurchase plans, the debt redemption and the dividend increase all support our strategy for '19 of returning value to our shareholders while prudently deploying our capital. As we look ahead to 2020, we believe this capital management strategy, coupled with our continued efforts to effectively manage the growth and profitability of our core business in light of economic pressures that we face will continue to drive shareholder return.

Now I'll turn the call over to our President and Chief Executive Officer, Mitch Waycaster, to discuss in greater detail this quarter's financial results. Mitch?

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C. Mitchell Waycaster, Renasant Corporation - President, CEO & Director [4]

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Thank you, Robin. Looking at our results for the fourth quarter of '19, net income was $38.7 million compared to $44.4 million in the fourth quarter of '18.

Our basic and diluted EPS were $0.68 and $0.67, respectively, for the fourth quarter. Basic and diluted EPS were both $0.76 for the fourth quarter of '18.

During the quarter, we were able to recapture $1 million of the $2.4 million after-tax valuation adjustment we recognized on our mortgage servicing rights during the third quarter of '19. This recapture increased diluted EPS in the fourth quarter by $0.01.

Further, our fourth quarter net income includes approximately $3.5 million and after-tax expense related to new production team members that have joined the company during '19. The expense related to these strategic hires decreased diluted EPS by $0.06 for the quarter.

Turning our focus to our balance sheet. Total assets at December 31, '19, were $13.4 billion as compared to $12.9 billion at December 31, '18.

Total loans held for investment were $9.7 billion at the end of the year as compared to $9.3 billion at September 30, '19, representing annualized net loan growth on a linked-quarter basis of 16%. The balance at the end of the year includes a portfolio of non-mortgage consumer loans transferred from our held-for-sale portfolio during the third quarter. Excluding these loans, net loan growth was 5.46% for 2019. We've continued to emphasize our significant investments in production talent across our footprint during the year. And I just noted the impact of this hiring on our expenses. We feel the transition to the Renasant team has been seamless for our new partners, and the returns on these investments are beginning to show in our results for this quarter.

I want to emphasize though that our entire team, both new hires and legacy employees have been successful in executing our growth strategy during the fourth quarter. Total loan production for the quarter was $837 million, with $171 million of that production generated by our new production team members hired during the year. All of our producers, both new and legacy, have committed themselves to our plan, and their hard work is evidenced by our results for the quarter. Notwithstanding that the returns on our investments in new talent have arrived sooner than anticipated, consistent with previous guidance, we still expect net loan growth for the company to be in the mid-single digits for the first quarter of '20 and grow to high single or low double digits towards the latter part of '20.

Further, consistent with our growth strategy, we will continue to seek opportunities to add talent to our team. We believe the market disruptions that were present in '19 have yet -- have not yet been resolved, and other events have created the potential for other disruption, and we plan to target opportunities to build out our teams across our entire footprint, which will support our growth and expansion in all markets and across all lines of business.

We've emphasized the success of our team with respect to loan growth, but we were also successful in '19 in managing the liability side of the balance sheet to support profitable growth.

Total deposits were up year-over-year, with growth in noninterest-bearing deposits exceeding $230 million during the year. To emphasize this achievement further, noninterest-bearing deposits represented 25% of total deposits at the end of '19 as compared to 22.9% at the end of '18. We remain committed to growing low-cost, stable deposit base to fund our loan growth. And in a year highlighted by interest rate volatility, we evaluated all of our funding sources to identify the proper mix that would yield the lowest cost.

We have great momentum heading into 2020 and are optimistic about growth on both sides of our balance sheet. By remaining disciplined in our pricing strategy and emphasizing profitability, our growth into 2020 and beyond will continue to deliver the value our shareholders have come to expect.

Now I'll turn the call over to Renasant Chief Operating and Financial Officer, Kevin Chapman, for additional discussion of our financial results. Kevin?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [5]

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Thank you, Mitch. Overall, the company had a solid quarter. Net interest income was $109.3 million, up by $0.5 million on a linked-quarter basis.

Accretable yield recognized on purchased loans and interest income collected on problem loans was relatively flat compared to the prior quarter.

Net interest margin was 3.90% for the fourth quarter of '19 as compared to 3.98% for the third quarter of '19. And a core margin decrease of 9 basis points over the same period. The decrease is primarily driven by a decline in earning asset yields following the 3 rate decreases by the Federal Reserve since August.

In order to mitigate the impact on our margin, we focused on reducing deposit costs and continue to execute on our strategy of growing noninterest-bearing deposits and managing the mix and cost of our interest-bearing liabilities. As a result, we were able to lower the cost of our deposits by 9 basis points and lower the total cost of our funding by 10 basis points from the previous quarter.

Noninterest income continues to be a great source of income for us, representing over 25% of our total revenues. Noninterest income was fairly consistent on a linked-quarter basis. As discussed last quarter, our noninterest income in Q3 and Q4, reflects the limitations on our interchange fees imposed by the Durbin Amendment, which reduced fees and commissions on loans and deposits by approximately $3 million during each of the quarters.

On the positive side, mortgage banking income had a strong quarter, even when adjusting for the seasonal pullback we typically experience in Q4. During the quarter, our locked mortgage volume was $900 million, which was down from the previous quarter, but up $300 million when compared to the fourth quarter of '18.

During 2019, we locked $3.7 billion in mortgage commitments compared to $2.7 billion in 2018.

Refi volume accounted for 41% of our production during the fourth quarter and has remained consistent between quarters, which is anticipated given the current interest rate environment. Additionally, and as Mitch mentioned, during the quarter, we recaptured $1.3 million of mortgage servicing right valuation adjustment that we recognized in Q3.

Noninterest expense remained consistent between quarters, our adjusted efficiency ratio was 63.43% for the quarter and 60.4% for the year. The costs associated with the producers we hired during the year, along with the previously discussed margin compression impact on Durbin Amendment have continued to put pressure on our efficiency ratio. But as we've mentioned previously, the success of our new producers is beginning to show in our results, and their portfolios continue to mature.

We will expect our investment to yield its return, not only in net interest income, but also in the efficiency ratios.

Shifting to our asset quality. At year-end, our overall credit quality metrics continue to remain strong as a percentage of total assets, all credit quality metrics, including NPAs, loans 30 to 89 days past due in our internal watch list are at or near historic lows.

Net loan charge-offs were $1.6 million or 7 basis points on an annualized basis for the fourth quarter of '19, and we provided roughly $2.9 million in provision during the quarter. As we move into a new year, we have renewed our commitment to remain -- to maintain strong credit quality. We will continue to remain disciplined in our underwriting standards, including margin and structure, and we will remain committed to our business model, which has proven successful over the years. We've emphasized the addition of the producers that we've hired to support our growth strategy, but I would like to remind you that at the same time, we've added talent to our credit team to reinforce our commitment to credit quality.

For more information and details on our financials, I'll refer you to our press release for specific numbers or ratios.

Now I'll pass the call to Robin for any closing comments.

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Edward Robinson McGraw, Renasant Corporation - Executive Chairman of the Board [6]

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Thank you, Kevin. In closing, we finished the year with tremendous momentum, and we're excited about our trajectory for 2020. By focusing on growth and profitability, whilst at the same time emphasizing quality, we can operate through this cycle and provide value for all of our stakeholders.

Now Carrie, I'll turn the call back over to you for questions and answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from Daniel Mannix of Raymond James.

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Daniel Raymond Mannix, Raymond James & Associates, Inc., Research Division - Senior Research Associate [2]

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Yes. I just wanted to start with loans. So speaking about the momentum, great quarter on the loan growth front. Just wondering if your previous guide of that high single to low double-digit range still holds for 2020? Or is there some upward pressure on that now?

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C. Mitchell Waycaster, Renasant Corporation - President, CEO & Director [3]

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Yes. Daniel, as I've mentioned earlier, and thank you, we did experience a strong quarter. We, particularly going into Q1, and I'll talk a little more about pipeline as we look forward. But as we go into Q1, we still have the expectation of production that would generate net loan growth in the mid-single. And as I commented in the opening comments, trending to high single, possibly low double later in the year, more particular to Q4, as I mentioned, we had $837 million in production. That was up some $275 million from the $562 million in Q3. During Q3, our new hires bolstered that amount by $83 million or an additional 15%. In Q4, we did see that increase from that same group by $170 million or 20% of total production. I think equally important is the production that we're also seeing from legacy. And we just simply had a good quarter. We hit on all cylinders, where whether that be in business, commercial business lines, corporate, we did see too as well, I think, some loans close later in the quarter that could have -- or was originally expected to go into Q1 as well.

But overall, a strong quarter. But our expectation would be, again, as I stated, continued good production. We have a strong pipeline at $240 million, but continuing to see more Q1 mid-single trending to high single possibly low double as we get into '20.

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Daniel Raymond Mannix, Raymond James & Associates, Inc., Research Division - Senior Research Associate [4]

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Got it. That's helpful. And then talking about the hiring pipeline. So it sounds like you guys are still pretty active on that front. What kind of impact can we expect this year? I mean you mentioned the $0.06 hit in fourth quarter. Just kind of, I guess, a rough range of what kind of potential drag that is, understanding that the 2019 hires will start to ramp up and offset that a little bit. And then how that impacts the efficiency ratio. So I know you previously mentioned that it was going to turn the corner in the first quarter, but it looks like actually did in fourth quarter, do you expect that improvement to continue in 1Q?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [5]

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Daniel, this is Kevin. We do expect that improvement to continue. So as we look at just the business that's been generated by the new hires. And let me also say, the hiring that we did this year, particularly in Q2 is above average. And that's why we just pointed out. I don't think we're going to have -- although we would welcome the opportunity to hire another team that would approximate 31 in the quarter, I don't know if we're going to have that opportunity, but we'd welcome it. And we wouldn't shy away from it either.

But as we look at the teams that we brought in and looked at where their portfolios were, the fees that they brought in, right now, 25% to roughly 1/3 of them are breakeven or better as it relates to the revenue they're contributing to the company. And so we would expect that to continue as we get into Q1 with more that were hired, crossing over that inflection point of going from costing to breaking even and then contributing to the company. So we do -- we see momentum in that. Investors just want to come with the portfolio build.

If we look at expenses in '20, clearly, our goal is to be very stringent and manage our expenses wisely. But I would also make the case that some of these expenses we've added with hires, they are more investments. They're not expenses. And in that, there's going to be part of our run rate that will include some amount of new hires. I don't know -- I don't -- we're going to get to the point, we're not going to call these out and reconcile the expenses for every single hire that we do, we just felt in 2019 with the hiring we did, we wanted to show that amount just to capture what's in the run rate, so that we could set expectations as far as what the return would be.

As we look at just excluding hires, it would be our goal to keep expenses within a 3% increase. But again, if we see the opportunity to add and invest in new talent, we're going to jump on that immediately, although it may put pressure on our expenses, if it meets our return metrics.

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Operator [6]

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The next question will come from Stuart Lotz of KBW.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [7]

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Really nice quarter, obviously, on the loan side. But I guess, I want to -- Kevin, I wanted to dig into the margin a little bit here. I think 7 or 8 basis points of core compression matched your guidance heading into the quarter. And then if we dig into that, it looks like core loan yields were down about 17 basis points, but you were also able to match that on the deposit side. So kind of what is your -- sorry, outlook for the margin this quarter, specifically, if the Fed remains on pause, and what that core margin will look like going into 1Q and throughout the 2020?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [8]

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Sure. So the reality is that even if the Fed is on pause, we're still at a lower rate environment. And so we're seeing compression and headwinds just on the yield side, just as assets reprice and as cash flows come in, it's repricing and it's just a lower rate environment. So the reality is, we're going to continue to have downward pressure on the margin. If we're in a -- if there are no rate changes, that margin compression could be somewhere between 3 and 5 basis points for the quarter. It is our goal to offset that on the funding side, but also just the reality that we are growing a balance sheet. And in the short run, that growth may put some pressure on margin with the expectation, it would be accretive and additive to net interest income.

So in the short run, we may -- if you've noticed, we've -- our wholesale borrowings, our FHLB advances did tick up a little bit. We're being selective on our deposits. And using the capacity we have from the FHLB as a bridge until deposit growth somewhat normalizes with the asset growth that we're having. And so in the short run, that's going to put some downward pressure on margin. But again, fully expect it to be accretive to net interest income.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [9]

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Got it. Appreciate the color there. And I guess further, strong production this quarter, just curious where new production's loan yields are coming on the books? And how that compares to, I guess, the weighted average of the portfolio currently?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [10]

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Sure. Great question. So new and reneweds are coming into 430 to 450 range. The core portfolio yields are in the 490 range. So that's that asset compression that I'm -- asset yield compression that I'm talking about.

We clearly try to strive to get every basis point, every fee that we can. But I think we also need to recognize that, I mean, just a shift in the curve that we've experienced over the last year is bringing the absolute yields down. But our focus just internally is not only -- is finding that right balance between the proper level of growth and mitigating the impact on margin to maximize that lift in net interest income.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [11]

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Got it. And I guess, turning to fees, obviously, a pretty nice quarter from mortgage, all things considered, given the weaker seasonality. Just curious what your outlook is for that business in 2020? And I guess, overall, your outlook for fees for the full year?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [12]

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So just from a fee standpoint, really don't see a lot of move or volatility in our fees outside of mortgage banking income. As I mentioned, mortgage had a great year. So it was a good hedge against the pressure we saw on the margin, although it was not a perfect hedge. But as we look at 2020, I'm just looking at Q1, Q1 appears that production continues to remain strong at Q4 levels. So typically, in the quarters where we're seasonally weak, Q1 and Q4, compared to other periods, we're seeing above average production. It's just driven by the low rate environment. And so if rates stay where they are, we would continue to expect a strong year for mortgage. Just purely due to the rate environment and production from what we're seeing early on in January, just through the first 21 days of January.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [13]

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And anything else, your other fee businesses whether it's insurance or your wealth management, where does the -- any outlook for growth this year in those businesses? Or is it just kind of business as usual, with kind of steady low single-digit growth?

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C. Mitchell Waycaster, Renasant Corporation - President, CEO & Director [14]

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Yes. Stuart, this is Mitch. I'll give a little color on both wealth and insurance. Actually, this year, '19, we saw assets under management in wealth increase about 8%, total revenues up about 6%, insurance would be in that 5% to 6% range as well. We continue, particularly in the wealth business to expand that across our footprint. Leading with brokerage, employee benefits has seen very positive growth, 401(k) products this year, followed by our fiduciary asset management trust operations. So we continue to expand that line of business. We see opportunity as we look across our footprint relative to insurance, about a 4% increase this year in total commissions. That's primarily currently within our Mississippi footprint. But in both of those lines, we continue to do a better job integrating that, particularly with our business and commercial relationship managers, but see continued steady growth and opportunity in both those lines of business.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [15]

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All right. Sorry, last one from me. Just tying all that together, what's kind of a good core growth rate for your total fee business this year? I think The Street for now has pretty flat growth. So is it safe to say, based on your commentary, we could see that kind of the low single digits, even up to, call it, 3% to 5%?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [16]

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Yes. I would stay in the low single digit. The wildcard is going to be mortgage. If we see any change in rates, that can put pressure on the mortgage income. But flat to slightly up is a reasonable assumption, assuming that rates stay where they are, and mortgage has the year that we project that they have based on the rate environment right now.

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Stuart Lotz, Keefe, Bruyette, & Woods, Inc., Research Division - Research Analyst [17]

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And congrats on a nice quarter.

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C. Mitchell Waycaster, Renasant Corporation - President, CEO & Director [18]

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Thank you, Stuart.

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Operator [19]

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The next question will come from Matt Olney of Stephens.

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Adam Paul Freyaldenhoven, Stephens Inc., Research Division - Research Associate [20]

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This is Adam Freyaldenhoven on for Matt. So I wanted to start on the LLP expense. So of the 4Q amount, how much was from negative credit migration versus just the strong organic growth?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [21]

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Yes. So just breaking down the provision. We -- about $700,000 of the provision was just risk rate downgrades. That just based on our review, we felt it was prudent to just migrate that down on the watch list and reserve force. It's about $700,000. And I think that was about 4 credits that made up that $700,000. The rest of it was growth. So if you take our net growth, roughly $350 million, $360 million, we basically provided about 80 basis points of provision against that new growth. And that's typically, just on growth, we typically provide somewhere between 70 and 80 basis points, just the way the math works in our model.

So the vast majority of it was related to the growth that we incurred. And as we look out to the future, that's the way the model is going to work as we have growth, we'll be providing for it in the quarter that we have the growth. And so maybe as the growth materializes, there'll be a little bit outweighted provision just related to providing for it.

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Adam Paul Freyaldenhoven, Stephens Inc., Research Division - Research Associate [22]

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So that 80 basis point range on the new growth with it staying robust could drive that provision a little higher, in 2020 and 2021, maybe?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [23]

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It's all a variable based on the current [credit] book and the risk rating, but I think that's a reasonable range. And under CECL, it may -- it's going to be different, it may be slightly higher, in some cases, could be slightly lower, but I think that's a reasonable range to assume.

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Adam Paul Freyaldenhoven, Stephens Inc., Research Division - Research Associate [24]

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And then on CECL, is there any more updates you can provide for CECL? Or can we expect that in the K?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [25]

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So we'll have some more robust disclosure in the K, but really as it relates to CECL, and what we've mentioned in previous discussions or previous calls is, is that post CECL day 1, we expect our allowance to be roughly in the 1% range. And so that's where we're guiding to. Some of that's going to be funded by just some of the reclass that we have coming out of the purchase accounting, the credit impaired loans, with the rest being impact to capital. But overall, we expect our allowance to roughly land around plus or minus 10 basis points, 1% of total loans.

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Adam Paul Freyaldenhoven, Stephens Inc., Research Division - Research Associate [26]

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Okay. That's helpful. And then last question for me. On operating expenses, I know it's difficult to nail it down with all the new hires. But assuming there's not another anomaly quarter like 2Q, is the 4% to 6% range -- growth range, pretty realistic?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [27]

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If you're looking year-over-year, that may be on the high side. Again, I would say, outside of hires, it would be our goal to stay within 3%. But again, we'd be opportunistic if the opportunity arises to take advantage of hires as they become available.

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Operator [28]

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(Operator Instructions) The next question will come from Brad Milsaps of Sandler O'Neill (sic) [Piper Sandler & Co.].

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Bradley Jason Milsaps, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [29]

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Kevin, just wanted to follow up on mortgage. I know 4Q is typically seasonally weak for you guys. But if I make an adjustment in kind of the third quarter and the fourth quarter for the MSR activity, I think you're mortgage revs were down maybe 25%, which was maybe more than I thought they would be, even given the seasonality. Could you talk a little bit more maybe about some of the moving parts in the quarter? Was it more pressure on the gain on loan sale margin than is typical? Or anything else that might have been driving the change between the 2 quarters?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [30]

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Yes. I'll let Jim Gray give a little bit more detail about mortgage.

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James W. Gray, Renasant Corporation - EVP [31]

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Brad, actually, our margin held up pretty strongly through the fourth quarter. There's about a 2 or 3 basis point difference, which we generally have that kind of fluctuation in margin. It was mostly just slowdown in lock activity, particularly during that week between Christmas and New Year's. We always see a slowdown then. It had been actually pretty strong up through about the middle of the December. Just as we got into the holiday period, it did slow down. However, January 2, our lock volume kicked back up and has remained strong all through January. So I think we can just attribute it to that holiday period.

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Bradley Jason Milsaps, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [32]

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Okay. And with the folks you brought on from FBK, would you anticipate you could do a little bit better than maybe what the MBA forecast would lead you to believe in 2020?

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James W. Gray, Renasant Corporation - EVP [33]

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That is definitely our anticipation that we'll be able to -- the FirstBank wholesale is where we're fully realizing what we anticipated out of that in both volume and banking income. Our consumer direct channel is starting to mature. We -- our volume out of this consumer direct channel was $110 million this year. We're anticipating it to be stronger this next year as we shift more from a -- this last year, it was pretty off, well, all driven by external leads. We're now doing some things, which we intended to do as far as generating more internal leads, mining our own client database. And that's where we really see the benefit coming from consumer direct. So we anticipate more contribution of consumer direct next year as well as the -- our entire wholesale channel, including the first -- the South Carolina piece of our wholesale. And then we are continuing to recruit. We probably have 20, 30 recruits right now that we're working heavily in all of our markets and have a lot of potential, given disruptions in different markets to anticipate to continue to be able to pick up origination talent.

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Bradley Jason Milsaps, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [34]

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Great. And Kevin, just to follow up on expenses. The other expense line item was down maybe $3.5 million linked quarter. I know you had some true-up in the third quarter with the FDIC credit. Just curious, anything else in the fourth quarter this year -- this past quarter that would -- that drove that decline?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [35]

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Yes. So just that we have some volatility. As you can see, that number bounces all around. There is some volatility in there just with some FAS 91 expenses and how we account for that. And the volatility is really going to be linked to production and growth. But really, that's more salaries, employee benefits, and we're actually looking at whether or not we need to reclass up that into salaries, employee benefits now, but we held off on doing that this quarter just because of the hiring we've done. We did not want to mask the optics of what's happening in salaries and employee benefits just as we reclass that. Overall, the other expense category, if you exclude that volatility, it's been increasing slightly. But that's -- there is a little bit of volatility in there just because of what I mentioned.

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Bradley Jason Milsaps, Piper Sandler & Co., Research Division - MD & Senior Research Analyst [36]

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Got it. And then just final question to follow up on the CECL discussion. Kevin, had you been operating under CECL this quarter, would have implied the $2.4 million provision for growth. However, you also had $4 million of nonaccretable income. Would that have resulted in a negative provision for the fourth quarter based on, kind of, how you guys approach the methodology? Or am I thinking about that incorrectly as it kind of relates to CECL going forward?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [37]

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It would have -- so a lot of moving parts, but let's just look at it from -- as it looks right now. Of that $4 million in nonaccretable difference that we recaptured against the 2.9%, yes, it would have resulted in. I don't know if we have a clear picture on what our provision would have been under CECL -- what the provision would have been. But if we just take for the 2 knowns, which was a provision of 2.9% versus accretable recapture of roughly $4 million, that would have resulted in a net provision -- a negative provision.

Going forward, it's all going to be -- I mean, CECL is going to result in different numbers than what we've generated under our current allowance as it relates to the provision. I mentioned to you right now, we're providing roughly 80 basis points for new production outside of any downgrades. As I mentioned to you, the allowance is going to land somewhere around 1%. So let's -- just for simple math, say that our allowance would have been 1% -- sorry, our provision would have been 1% of the production as opposed to 80 basis points, that may have resulted in maybe no provision or a slight amount of provision if it would have been under that scenario. But as I just said, there's a lot of moving parts. For those things being equal, there would have been 2.9% provision versus the $4 million that would have made it to a negative. And I'll also say, just on that $4 million of recapture, there's volatility in that number. As you've seen, just in this past year, we've seen large swings in that. And that's the nature of that number. It's all dependent on the performance of the underlying nonperforming or the credit impaired assets. If they perform better, there will be recapture. And just historically, they have performed better. And so we've had that positive impact to margin. If they continue to perform better, there would be a positive impact to provision rather than margin.

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Operator [38]

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The next question will come from John Rodis of Janney.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [39]

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Kevin, just coming back to -- just back to your comment on CECL and not to get into too much detail, but as far as -- you talked about the core margin being under some added pressure. I think you said maybe down 3 to 5 basis points, all things equal. What sort of level of yield accretion should we assume next -- in 2020? I guess impacting the reported margin. So you saw 23, 24 basis points of yield accretion in the third and fourth quarter, how should we think about that yield accretion going forward?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [40]

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Yes. So just for right now, remove the nonaccretable difference out of the margin calculation because under CECL -- the assumption under the CECL right now is all of that comes out. What will remain is the accretable yield and some pieces of what's in that nonaccretable difference may be reclassed to accretable yield. But just for the sake of this discussion is just looking at that nonaccretable difference comes out. The accretable yield that's in there, for the most part, that's going to continue to incrementally decline over the course of the year. That's a declining balance and has been since date of acquisition, it's just -- that's something that will trail off over time.

As it relates to how much will be recognized in 2020, I may need to follow up with you on that number as it relates to the accretable yield. But I would think it would be an amount similar to what we had in 2019 with a declining trend that you would have seen compared to '18 versus '19.

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John Lawrence Rodis, Janney Montgomery Scott LLC, Research Division - Director of Banks and Thrifts [41]

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That makes sense. And Kevin, just one other one on the tax rate, it was lower in the fourth quarter. I'm assuming maybe some year-end true-ups and stuff. What sort of -- it was closer to 23% for the first part of the year. Is 23% a good rate use for next year?

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Kevin D. Chapman, Renasant Corporation - Executive VP, COO & CFO [42]

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Yes. 22%, 23%. We -- yes, 22%, 23%. We did have some true-up. There's a couple of state matters that we got some favorable opinions and results on. And so there's a little bit of a true-up on that. Overall, we expect the tax rate to be in that 23% -- 22% to 23% range.

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Operator [43]

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And this concludes our question-and-answer session. I would now like to turn the conference back over to Robin McGraw for any closing remarks.

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Edward Robinson McGraw, Renasant Corporation - Executive Chairman of the Board [44]

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Thank you, Carrie. We appreciate everyone's time and interest in Renasant Corporation and look forward to speaking with you again soon. Thank you.

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Operator [45]

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Thank you, sir. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.