Renasant Corporation (NASDAQ:RNST) Q1 2023 Earnings Call Transcript
Renasant Corporation (NASDAQ:RNST) Q1 2023 Earnings Call Transcript April 26, 2023
Renasant Corporation beats earnings expectations. Reported EPS is $0.82, expectations were $0.81.
Operator: Good morning, and welcome to the Renasant Corporation 2023 First Quarter Earnings Conference Call. All participants will be in listen-only mode. Please note the event is being recorded. I'd now like to turn the call over to Kelly Hutchinson, Chief Accounting Officer. Please go ahead.
Kelly Hutcheson: Good morning and thank you for joining us for Renasant Corporation's quarterly webcast and conference call. Participating in this call today are members of Renasant's executive management team. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Such factors include, but are not limited to, changes in the mix and cost of our funding sources, interest rate fluctuation, regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, www.renasant.com at the press release's 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.
Mitch Waycaster: Thank you, Kelly. Good morning. We appreciate you joining the call today and your interest in Renasant. Before Kevin and Jim discuss the results for the first quarter, I would like to reflect on the environment and the outlook for the balance of the year. The baseline of all decision-making at Renasant Bank is the safe and sound operation of our institution. Only after that box is checked, do we turn to considerations of profitability and growth in that order. Recent events in the banking industry reinforced how essential it is that we continue to approach our operations in this manner. Although sometimes this approach can weigh on near-term profitability, I believe it helps insulate the company and our shareholders from adversity.
We are not immune from our industry pressures, but I believe Renasant is well situated to serve our customers and produce attractive results for shareholders. While the economic outlook is unclear, Renasant has granular core funding, a diverse loan portfolio and strong capital base. Our goal is to further build upon these balance sheet strengths and to continue pursuing profitability improvement. We have reduced cost in recent periods, but I believe there is more to accomplish. There are also ways for us to enhance revenue growth and our efforts to increase operating leverage. We look forward to the rest of the year. And now I will turn the call over to Kevin.
Kevin Chapman: Thanks, Mitch. Our first quarter earnings were $46.1 million or $0.82 per diluted share compared to $46.3 million or $0.82 per diluted share in the fourth quarter. Breaking down net interest income, we experienced an increase in loan interest income of over $16 million on a linked quarter basis, driven by another quarter of strong loan growth coupled with nearly a 50-basis point increase to our loan yields. However, while loan yields increased, competitive pressures on deposit pricing impacted both our deposit mix and deposit costs this quarter, leading to a $15.6 million increase in deposit interest expense from the fourth quarter of last year. Further, in response to the developments in the industry, we carried an excess level of liquidity, which negatively impacted our net interest margin by 2 basis points for the quarter.
Our long-term focus on building and maintaining a strong core funding base during our 119-year history positions us well in times of volatility, and we did not experience significant deposit runoff. In fact, deposits excluding broker deposits increased in February and in March. As we return to a more normal operating environment, we will adjust the level of operating cash accordingly while still focusing heavily on growing core deposits and managing our funding costs in this volatile environment. Our capital markets, treasury solutions, wealth management and insurance lines all continued to deliver solid results. Our mortgage division had a strong quarter's income from the division increased $3.3 million on a linked-quarter basis. Interest rate lock volume increased $145 million from Q4.
Our investment in new talent, coupled with an already strong production team positions us to grow market share when the industry returns to a more normal operating environment. As we previously announced, effective January 1, we eliminated consumer nonsufficient fund fees and certain consumer overdraft charges. This impacted noninterest income of $1.3 million during the first quarter in line with our expectations. Noninterest expense increased $6.1 million from the fourth quarter. The acquisition of Republic Business Credit, which closed on December 30 of last year, added $2.7 million to our noninterest expense. We also experienced lower deferred loan origination fees and a seasonal increase in both payroll taxes and company's match of 401(k) contributions.
Our efficiency ratio was 61.3% for the quarter. The increase on a linked-quarter basis was driven by the compression in our margin coupled with the increase in our expenses, managing this ratio down continues to be a key focus of ours and all levels of management are aligned in our goal of improving operating leverage. I will now turn the call over to Jim.
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Jim Mabry: Thank you, Kevin. As we walk through the quarter's results, I will reference slides from the earnings deck. Our balance sheet grew nearly $500 million from December 31, we carried excess liquidity at the end of the quarter, which accounted for about $300 million of the growth. And we also experienced another solid quarter of loan growth. Loan growth in the first quarter was $188 million and represents an annualized growth rate of 6.6%. Referencing Slide 8 and additional slides in the appendix, we have a very diverse loan portfolio with no significant concentrations in loan type or industry and specific to our construction and non-owner occupied commercial real estate portfolios, our exposure to individual sectors is granular and the portfolios are performing well.
Competition for deposits within our markets continued to pick up this quarter. We experienced a decline in noninterest-bearing deposits of $314 million from the fourth quarter, most of which occurred during January, and increased our broker deposit position by $623 million during the quarter. The company's core deposit base and overall liquidity position remains strong. Similar to our loan portfolio, the deposit portfolio is diverse and granular. The average deposit account is $29,000, and we have no material concentrations. Slide 13 shows the available sources of liquidity. And as you can see, our availability significantly exceeds the balance of uninsured and uncollateralized deposits. All regulatory capital ratios are in excess of required minimums to be considered well capitalized and reflect the strength of our capital position.
Turning our attention to asset quality. We recorded a credit loss provision of $8 million and a recovery of credit losses on unfunded commitments of $1.5 million, which is recognized in noninterest expense. Net charge-offs were $4.7 million in the ACL as a percentage of total loans remained flat at 1.66% and credit quality metrics remained stable and are presented on Page 17 through 20. The increase in nonperforming loans is attributable to 2 relationships, both of which are well collateralized and therefore, we expect no loss. Net income remained flat at $46 million on a linked-quarter basis, while our pre-provision net revenue declined $8 million. Profitability was impacted by the compression in our net interest margin and the increase in noninterest expense during the quarter.
Core margin, which excludes purchase accounting accretion and interest recoveries, was 3.63%, down 13 basis points from Q4, although loan yields were up 49 basis points, deposit pricing pressures and excess liquidity impacted us more heavily this quarter. Total cost of funding increased 57 basis points to 1.33% for the quarter. We expect competitive pressures to persist and believe funding costs will continue to increase in coming quarters. Kevin touched on the highlights within noninterest income and expense. We are encouraged by the results of our mortgage division. Although there was an uptick in our overall noninterest expenses this quarter, we remain committed to improving our operating leverage and managing our expense base remains a priority.
And I will now turn the call back over to Mitch.
Mitch Waycaster: Thank you, Jim. The focus at Renasant remains on basic banking principles and the pursuit of efficiency gains. We also believe the company is positioned to consider opportunities that may develop in the quarters ahead. I will now turn the call over to the operator for Q&A.
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