Renasant Corporation (RNST) Earnings Call Transcript & Summary

Good day, and welcome to Renasant Corporation's 2026 Second Quarter Earnings Conference Call and Webcast. [Operator Instructions] Also, please be aware that today's call is being recorded. I would now like to turn the call over to Kelly Hutcheson, Executive Vice President and Chief Accounting Officer. Please go ahead.

Good morning, and thank you for joining us for Renasant Corporation's quarterly webcast and conference call. Participating in the 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 fluctuations, 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 President and Chief Executive Officer, Kevin Chapman.

Thank you, Kelly, and good morning. Our performance in the second quarter continued at the pace we set in the first quarter. Operating results across the company were strong as we continue to focus on organic growth as well as disruption in many of our markets. Adjusted earnings per share in the second quarter were $0.94, up 36% from a year ago. Adjusted return on average assets was 1.3% compared to 1.01% in the same period last year. Similarly, adjusted return on average tangible common equity was 16.25% versus 13.5% in the second quarter of 2025. The efficiency ratio also improved from 67.6% a year ago to 57.9% this quarter. By focusing on increasing core banking relationships and adding talent throughout the company, Renasant is in a great position to capitalize on growth opportunities throughout the back half of the year. I will now turn the call over to Jim to provide more details on our financial results.

Thank you, Kevin, and good morning. Looking at the balance sheet, loans were up $220.9 million on a linked quarter basis, or 4.7% annualized. Deposits were down $398.4 million from the first quarter, or 7.2% annualized, primarily due to seasonal outflows of public fund deposits. Reported net interest margin decreased 4 basis points to 3.83%, while adjusted margin remained flat at 3.61%. Our adjusted total cost of deposits increased by 2 basis points to 1.96%, while our adjusted loan yields decreased 1 basis point to 6.03%. From a capital standpoint, all regulatory capital ratios remain in excess of required minimums to be considered well capitalized. We recorded a credit loss provision on loans of $3.8 million, comprised of $1.2 million for funded loans and $2.6 million for unfunded commitments. Net charge-offs were $2.8 million and the ACL as a percentage of total loans declined 2 basis points quarter-over-quarter to 1.54%. Turning to the income statement. Our preprovision net revenue was $112.4 million. Net interest income was $227.7 million, a decrease of $0.8 million quarter-over-quarter. Noninterest income was $51.2 million in the second quarter, a linked quarter increase of $0.9 million. Noninterest expense was $161.5 million for the second quarter, a linked quarter increase of $6.2 million, mostly driven by deferred compensation accruals tied to market valuations, higher health insurance claims and annual merit increases. We look forward to the second half of 2026. I will now turn the call back over to Kevin.

Thank you, Jim. We believe that Renasant is in a great position to continue to improve on its high levels of performance. We appreciate your interest in Renasant and look forward to discussing our results with you. I will now turn the call over to the operator for questions.

[Operator Instructions] And our first question here will come from Michael Rose with Raymond James.

I wanted to start on loan growth. Obviously, really good production this quarter. Can you just talk about the expectations as we think about the back half of the year because it looks like if I either include or exclude Republic, you guys were a little short of my expectations and consensus. And just want to get a sense for production levels from here, scheduled payoffs and what you would expect out of Republic business as we move forward.

Michael, it's Kevin. So if you broke down several of the components of the growth, we were pleased with the uptick in production that we had in Q3. As you noted, that was offset by some headwinds in payoffs and still think payoffs are going to continue to be something we have to overcome. But as we look at our pipeline, as we look at our efforts, we look at our conversations with customers, production is ramping and it's ramping -- in fact if we look at our pipeline today, it's up about 6% to 10% from where it was at the beginning of Q2. So we're seeing where we've guided to that mid-single-digit growth number, we're seeing that fully in scope and fully in range as we get into Q3 and into the back half of the year.

Very helpful, Kevin. And then maybe one for Jim on expenses. Expenses were maybe a little bit higher than I think what I was looking for, but any change to the trajectory that you guys had previously talked about? And maybe if you can just balance some of the investments that you guys are making in both people and technology along with other cost-saving opportunities that you guys may have.

Sure, Michael. So yes, we had a couple of onetime or nonrecurring items in the expense bucket. And when we look at our core expense run rate, we feel really good with where it is. And again, of course, we can't -- these are obviously the results are results, but the underlying trends in expenses, we feel is good. And I would say our outlook from here is that what we saw in Q1 in terms of expenses probably will moderate downward a little bit in Q3 and be steady for the balance of the year. And that does reflect, as you talked about, investments we're making in people. And we continue to make those investments in people and the guidance that I'm sharing in terms of that trajectory allows for some of that. If we're more successful then -- we think in terms of some of those hires, then that might change a little bit. But I think the core NIE rate will, again, come down a little bit and then remain steady for the balance of the year.

Michael, I may just add -- before you hop off, I may just add to that. Jim talked about the new hires, and we've talked about our activity in new hires that we've had going back to Q3 of last year. So just to remind you, in Q1, we had 18 new revenue-producing new hires. In Q2, that number was 5. We added 5. And so, far in Q3, we've added 7. And so we've talked about the opportunities that we've had in the markets to hire talent. We continue to execute on that, and we will continue to look for opportunities to add and augment to our team. And those hires as well as the activity that we're having in our markets from our existing team is showing up in results. Mike, you talked about the loan growth. We talked about the headwinds from the payoffs, the production activity is offsetting the headwinds. I'll just give you a data point of what we're seeing so far in Q3. We've seen elevated payoffs in Q3, but production is outpacing that. And right now, we're up net loans about $40 million, and that's on elevated payoffs. So our teams are continuing to focus on taking market share, serving customers, and that continues to show up in the numbers even as we get into Q3.

And our next question will come from Catherine Mealor with KBW.

Moving to the other side of the balance sheet. I know some of the outflows in deposits were seasonal this quarter with public funds. Can you give us any update on what you're seeing on your core underlying deposit trends and expectations for deposit growth in the second half of the year?

Catherine, this is Jim. Maybe I'll start. Go ahead, Kevin.

No, Jim, you go ahead.

So a couple of things, and I know Kevin can add some really good color, Catherine, as it relates to some recent trends. But yes, as you noted, seasonal outflows in public funds were really the driver in terms of the change from Q1 to Q2. And as you probably recall from prior quarters with us, we'll start to see those flows reverse here in the second half. And so as opposed to being a headwind, those inflows will be a tailwind. And then I guess, most importantly and really probably to the main point of your question, the underlying performance in core deposits, we're very encouraged about. And so not only do we expect to see the public fund trend shift, but I think the underlying trends in core deposits are really strong. And Kevin, you may want to pick up on that.

So Catherine, I think if you go back to this call in Q2 back in April, we shared some of the numbers we'd seen at that time about new account openings. And we're interested and excited to see how that would play out through the remainder of the quarter. So just refresh you on what we achieved as far as core deposit growth, looking through that public fund noise. Just core deposit growth and new account openings that we had in Q2, new account openings, new customers to the bank did not have an existing account with us, did not have existing dollars with us, we opened up over 10,000 new accounts in Q2, and that equates to roughly $380 million in new deposits. If you break that down, about half of it was CDs, which means the other half was checking accounts. And we believe those accounts -- those checking accounts are sticky core deposits that we didn't go and get because of rate. We got it due to relationship. And that's also commercial accounts as well as consumer accounts. As we look at that activity into Q3, that activity hasn't slowed down. Just through July, we've opened up over 2,000 net new accounts. And that represents $86 million in new fundings. And some of these accounts, we don't think all the money has moved into yet. We think that those accounts are still being funded. Activity and reassigning deposits or bill pay, all of that activity is still going on, and we expect to continue to see deposits build into some of these accounts as we get into Q3 and Q4.

Great. And then how about the rate on new deposit growth? I assume I guess we saw a couple of basis points increase in deposit costs this quarter. These are [ especially maybe ] the CD piece is coming on with a little bit of a higher rate. Curious maybe where that ended the quarter. And maybe the public funds might mess that up if we're looking at an exit run rate. But curious what you're thinking about deposit cost increases in the next couple of quarters.

Yeah...

Yes. So our deposits...

Go ahead, Kevin.

Yes. Our deposits are coming in at market rates. We're not -- we don't have a special out there. We're not paying above average to get them. I think the weighted average rate of those new accounts are going to be in the high 2s and low 3s.

And our next question will come from Matt Olney with Stephens.

I want to go back to the loan growth discussion and the loan production sounds great. Any more color on loan pricing competition? I think when we talked in April, you highlighted just increasing pressure back then. So curious, any update since that April timeframe?

Jim, do you want to talk about new and renewed?

Sure. So as you recall, you were talking about April, the pressures that were present then are still there. It is very competitive on both sides. And on the loan side, I think in terms of new and renewed, we're generally looking in the low 6s, Matt. And so, there's certainly a lot of competitive pressures there, and it varies by region, and we're seeing it in certain markets and maybe not so much in others. And the same thing on the deposit side. You saw our costs inched up a bit on deposits, and we do have some tailwinds that will help us in terms of NIM. But yes, those pressures remain as they were back in April.

And then I guess as a follow-up, just thinking more about the interest rate sensitivity if the Fed funds were to move up this week or in September, would love to know what your thoughts are as far as the balance sheet and overall impact to higher Fed funds.

I would say that as it relates to the profitability side of that and margin, we don't -- in our outlook, we're not budgeting or planning on any cut or increase as we sit here today. And generally, I would say that a few -- 25 basis points here that's not going to make a big difference in our outlook in terms of the profitability impact. And I would say that's generally be true on the balance sheet in terms of dollars. So absent a meaningful change -- a more meaningful change in rates, I don't see it having a major impact on the balance sheet or the income statement.

And our next question will come from Dave Bishop with Hovde Group.

Since Matt opened the door in terms of the NIM discussion, just curious, is the bias for stability still here? Or maybe I think you mentioned maybe some tailwinds on the deposit side, you see a little bit of bias up. Just curious how you're thinking about the margin.

Sure. As we discussed in the answer to Matt's question, our outlook is that generally, it's going to be fairly stable for the second half. We've got certainly the deposit pricing pressures. But on the -- I'd say on the asset side, we've got a couple of things working for us. As you probably noted, most of our loan growth in the quarter came at the very end of the quarter. So there's a significant difference between average balances and period-end balances for us, and that will be a nice tailwind going into Q3. The other thing is we've got roughly $1.25 billion in loans that mature over the next 12 months and the rate on that is about 4.95%. So that will be another tailwind that will benefit and help offset deposit pricing pressures. And then lastly, not as significant, but still meaningful, we've got $50 million to $60 million a month rolling off the securities book, and that's coming off at the low 3s, Dave, and coming back on the upper 4s or close to 5%. So we feel good about the outlook of a stable margin, a core stable margin here in the back half.

Maybe Kevin or Jim, you talked about the paydowns and the payoff headwinds continuing. Just curious if you could ring-fence maybe what vintages those are coming from? And from a snake-through-the-tunnel perspective, do you think you're in the seventh, eighth inning or still midway through? Just curious how you view the paydown pipeline.

Kevin?