Renasant Corporation (NASDAQ:RNST) Q4 2023 Earnings Call Transcript January 24, 2024
Renasant Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everybody, and welcome to the Renasant Corporation 2023 Fourth Quarter Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Kelly Hutcheson with Renasant Corporation. Please go ahead.
Kelly Hutcheson: 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 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 Executive Vice Chairman and Chief Executive Officer, Mitch Waycaster.
Mitchell Waycaster: Thank you, Kelly. Good morning. We appreciate you joining the call and your interest in Renasant. This quarter’s results reflects long growth across the company, steady asset quality, and good expense control. Capital strength continues to build and affords us added optionality heading into 2024. I’m especially proud of our team for the results this quarter and for the year. The industry faced a number of challenges and our employees responded by remaining focused on serving our customers and supporting each other throughout the year. I will now turn the call over to Kevin.
Kevin Chapman: Thanks, Mitch. Our fourth quarter earnings were $28.1 million or $0.50 per diluted share. Included in our results is an after-tax impairment charge of $15.7 million, or $0.28, as we elected to sell a portion of our security portfolio shortly after year-end. The sale generated $177 million in proceeds, excluding this charge and two smaller one-time income items, our adjusted EPS was $0.76, which represents a $0.2 increase from the previous quarter. We experienced another quarter of solid loan growth, and when coupled with an increase in loan yields of 12 basis points, resulted in an increase of $7.4 million in loan interest income on a link quarter basis. On the deposit side, competitive pressures on pricing persisted.
Growing core deposits and managing our funding costs through this rate cycle continues to remain a top priority. The efforts of our team and their commitment to protect and grow our core funding base resulted in core deposit growth of $215 million on a linked quarter basis. Additionally, we were able to allow $295 million in broker deposits to mature this quarter. This mitigated the rise in deposit interest expense this quarter, which only increased $6.3 million from the previous quarter. Included in noninterest income for the fourth quarter are several one-time items, including the $19.4 million pre-tax impairment charge on our securities, a $620,000 benefit from the extinguishment of a portion of our [subdebt] (ph), and a $547,000 gain related to a holdback on previously sold mortgage servicing right assets.
Excluding these one-time items, adjusted noninterest income increased $341,000 quarter-over-quarter. Income from our mortgage division, excluding the MSR gain, declined $1.5 million from the third quarter. Interest rate lock volume declined $152 million quarter-over-quarter, and our gain on sale margin decreased 41 basis points. Non-interest income for the fourth quarter also included a $2.3 million payment related to our participation in a loan recovery agreement, which we assumed as part of a previous acquisition. Non-interest expense increased $3.5 million from the third quarter, the accrual of the $2.7 million FDIC insurance special assessment, and higher salaries and benefits contributed to the increase. Our adjusted efficiency ratio was 66.18% for the quarter.
I will now turn the call over to Jim.
James Mabry: Thank you, Kevin. As we walk through the quarter’s results, I will reference slides from the earnings deck. Total footings increased just under $180 million for the quarter. Loan growth in the fourth quarter was $183 million and represents an annualized growth rate of 6%. We experienced another strong quarter of core deposit growth, which allowed us to continue to shift our reliance away from non-core funding sources. As you can see on Slides 6 and 7, the company’s core deposit base and overall liquidity position remains strong. The deposit base is diverse and granular. The average deposit account is $28,000 and there are no material concentrations. Referencing Slide 8, all regulatory capital ratios are in excess of required minimums to be considered well capitalized, and each of these ratios improved from the prior quarter.
Earnings for the quarter, coupled with an improvement in the unrealized loss position of our securities portfolio contributed to an increase in the tangible common equity ratio and tangible book value per share. Turning to asset quality, we recorded a credit loss provision of $2.5 million. Net charge-offs were $1.79 million, which represents an annualized rate of 6 basis points, and the ACL, as a percentage of total loans, decreased 2 basis points to 1.61%. Our reserve for unfunded commitments remain unchanged during the quarter. Asset quality metrics are presented on page 9. Our criticized loans improved quarter-over-quarter, and past dues were up from the previous quarter and were 44 basis points of total loans. All other metrics were relatively stable, underscoring our emphasis on asset quality.
We continue to remain vigilant in monitoring credit, including early identification of potential problem loans in order to mitigate loss. Our profitability metrics are presented on Slides 10 and 11. Excluding one-time items, adjusted pre-provision net revenue declined $4.6 million on a link quarter basis. Pressure on our net interest income and declines in the mortgage division are the key drivers to the decrease. Turning to Slide 12, adjusted net interest margin, which excludes purchase accounting accretion and interest recoveries was 3.29%, down 6 basis points from Q3. Adjusted loan yields increased 10 basis points, while the cost of deposits increased 19 basis points. Deposit pricing pressures remain and will likely cause deposit costs to increase in the near term.
Kevin commented on the highlights within non-interest income and expense. While the revenue headwinds are a challenge, the focus remains on improving operating leverage. And now, I’ll turn the call back over to Mitch.
Mitchell Waycaster: Thank you, Jim. We are positioned for a successful 2024 and look forward to keeping you updated on the progress. I will now turn the call over to the operator for questions.
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