Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Renasant Corp (RNST, Financial) reported solid progress with a strong balance sheet, driven by growth in traditional deposits and an increase in loans.
- Loan yields increased by 11 basis points quarter-over-quarter, contributing to a $6 million rise in loan interest income.
- Core deposit growth remained robust, allowing the company to shift away from non-core funding sources.
- Non-interest income increased on a linked-quarter basis for the first time since Q1 2023, driven by higher mortgage division income.
- All regulatory capital ratios are in excess of required minimums, indicating a strong capital position.
Negative Points
- The sale of Renasant Insurance will have a slightly negative impact on EPS for the second half of the year.
- Deposit interest expense continues to rise, although the pace of increase has slowed.
- Net charge-offs were $5.5 million, primarily due to a single credit, and non-performing assets ticked up.
- The allowance for credit losses as a percentage of total loans declined by 2 basis points to 1.59%.
- Competitive pressures in deposit pricing and loan growth remain high, potentially impacting future margins and yields.
Q & A Highlights
Q: From a capital perspective, what are the plans with the incremental capital from the insurance sale, and what are your overall capital priorities?
A: (James Mabry, CFO) We will book a $36 million gain from the sale of the insurance company in Q3. The impact will be slightly negative to EPS for the second half of the year. Our priorities remain to capitalize organic growth, potentially participate in M&A, and we do not envision near-term buybacks.
Q: What are your thoughts on NIM trends, especially if the Fed cuts rates?
A: (James Mabry, CFO) We assume a flat rate environment. If there is a 25-basis-point cut in September, it would slightly negatively impact Q4 EPS. Our outlook for the margin is roughly flat for the balance of the year.
Q: Are there any concerns about residential exposure in your credit metrics?
A: (David Meredith, Chief Credit Officer) The changes in asset quality were not due to residential exposure but were related to commercial loans. We remain vigilant in monitoring credit risk and addressing potential losses early.
Q: Can you provide an update on the loan pipeline and expectations for loan growth?
A: (C. Mitchell Waycaster, CEO) We started the quarter with a $130 million pipeline, resulting in $104 million net loan growth. Production was $390 million, with payoffs slightly increasing. We remain optimistic about mid-single-digit net growth going forward.
Q: What are your thoughts on the competitive environment for deposits and when might deposit costs peak?
A: (James Mabry, CFO) The competitive environment has moderated. Our cost of deposits in June was 2.49%, indicating a slowing pace of increase. We are managing the balance sheet with the expectation of some additional NIB run-off but are seeing encouraging trends.
Q: What would you be looking for in a potential M&A deal?
A: (C. Mitchell Waycaster, CEO) We focus on building scale and density within our markets, targeting opportunities of $1 billion or above. We evaluate strategic partners based on culture, business model, and risk appetite, and we are well-positioned to take advantage of opportunities.
Q: What are your updated thoughts on the pace of loan yield increases for the back half of the year?
A: (James Mabry, CFO) We have been pleased with new and renewed rates but expect pressures to plateau. June's new and renewed rates were slightly off from the quarter, indicating potential pricing pressures.
Q: What is your outlook for expenses in the back half of the year?
A: (Kevin Chapman, President & COO) We expect expenses to remain flat, adjusting for the insurance sale, which will reduce the run rate by about $2 million. We continue to focus on expense management and improving profitability.
Q: Can you provide more granularity on the increase in NPAs?
A: (David Meredith, Chief Credit Officer) The increase was due to commercial-related loans, particularly in senior housing and mixed-use properties. We proactively address problem loans to mitigate potential losses.
Q: What is your outlook for the allowance for credit losses?
A: (David Meredith, Chief Credit Officer) We follow our CECL model, which guided a slight reduction in Q2 due to portfolio derisking. We expect the allowance to slowly drift down towards the 1.50% range by year-end if conditions remain stable.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
