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. After today's presentation, there will be an opportunity to ask questions. 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.

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 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.

Thank you, Kelly. Good morning. We appreciate you joining the call and your interest in Renasant. This quarter's results reflect loan 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.

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, this resulted in an increase of $7.4 million in loan interest income on a linked quarter basis. On the deposit side, competitive pressures on pricing persisted. Growing core deposits and managing our funding costs through this rate cycle continue 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 non-interest 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 subordinated debt, and a $547,000 gain related to a holdback on previously sold mortgage servicing right assets. Excluding these one-time items, adjusted non-interest 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.

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 remain 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 allowance for credit losses, as a percentage of total loans, decreased 2 basis points to 1.61%. Our reserve for unfunded commitments remains 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 linked 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.

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.

Thank you. We will now begin the question-and-answer session. And our first question today comes from Catherine Mealor with KBW. Please proceed with your question.

Could you check if your line is on mute, please? Our next question comes from John Rodis with Janney. Please proceed with your question.

Hey, good morning, guys. Nice quarter.

Good morning, John. Thank you.

I hope you guys are doing well. Maybe, Jim, just start out on the margin, down 3 basis points this quarter. Maybe your thoughts on, do you think it's bottomed out or do you think maybe there's still a little bit more downside?

Good morning, John. It was encouraging to see the trends that we saw in Q4, a nice change after living through what we did in 2023. I would say this: the way we're thinking about margin — and I should say at the top, we're assuming no cuts. And I can comment on certainly if there are cuts, but just to sort of set that as a base, assuming no cuts in 2024, I think there is a case that the margin probably is close to bottom and could show some moderate upside in 2024 if we have no cuts.

Okay. And then with cuts?

I mean, cuts are going to weigh on that, John. So if you have, let's say, you have three cuts and it's in sort of June, September, December, of course December wouldn't really matter too much with that backdrop, then whatever expansion that we would experience in the near term would be somewhat muted by those cuts. But I still think that if cuts happen roughly along that timeline, that you'd see some slight improvement and the margin would be something we would hope for.

Okay. And then, Jim, did I hear you correctly, or maybe it was Kevin in your prepared remarks, I think in other noninterest income, the $6.9 million, you said there was a recovery in there of roughly $2.3 million. Did I hear that correctly?

Yes, that's correct. There was a recovery. It was part of a relationship our acquired bank had, and I really view that as likely one-time in nature. I mean, there could be future recoveries, but I sort of view that as a one-time item.

Okay. And then switching to expenses, you highlighted the FDIC special assessment of $2.7 million. So if we back that out, expenses were approximately $109 million. Is that sort of a good base to work off of with some modest growth for this year?

It's a good base to work off of, as we talked about last quarter. We felt that Q4 and Q1 are going to be relatively flat. Then as we get into Q2, we'll see how expenses look for the remainder of the year. So yes, as we look at the baseline for this year, we think that's a good run rate if you back out that special FDIC assessment.

Okay. Thanks, Kevin. And then finally, guys, just one other question, and probably for you, Jim. The tax rate was lower this quarter, how should we think about the— I guess, I'm assuming there was some sort of true-up or something this quarter, but how should we think of the tax rate going forward?

Yes, so you're right. Using Q4 effective tax rate would not be a good proxy for 2024, and that was really largely influenced by the impairment. I would say for 2024, John, something in that 21% to 22% effective tax rate range would work.

Okay. Sounds good. Thank you, guys.

Thank you, John.

Our next question comes from Catherine Mealor with KBW. Please proceed with your question.

Thanks. Good morning.

Good morning, Catherine.

A follow-up to the margin question for you, Jim. Can you talk to us about the fixed-rate pricing opportunity? And do you happen to know the amount of loans that are fixed-rate that will reprice this year and maybe the next if you got it?

So this year, Catherine, it's just under $700 million that will reprice in 2024. I don't have the number for 2025, but I think the yield on that book is just under 6%. I want to say it's 5.8% or something thereabouts. And you didn't ask, but I would just add, on the liability side, there's a fair amount that would reprice here in the near term.

Great, okay. And generally that...

I'm sorry, I was just going to say I was looking at my notes, it's $500 million in 2025, Catherine, on the fixed rate loan side.

Okay, great. And generally that $700 million is going from $5.8 million to about what?

So I mean if I look at, if we look at new and renewed in December, we were running $8.21 million. And there was a question earlier about our outlook for rates. What we're using right now are no cuts in the way we're looking at 2024, fully mindful that there could be cuts. So that would weigh on, I guess, the way I would answer that question, Catherine, but I would think upper 7%, 8% would be a reasonable yield to look at for 2024.

Okay. And you mentioned that you thought cuts would weigh on your margin outlook for this year. As you think about that, how are you—what kind of deposit beta are you thinking about on the way down as you say kind of cuts weigh on your margin? Assuming with that, you're being fairly conservative with your ability to lower deposit costs?

We are. I mean, I think currently we've got our interest-bearing beta peaking somewhere in the upper 50s in 2024. So I think as we think about it — to the extent that we have a number of cuts in 2024, at least near term, I would think that's going to be a little bit of a headwind on margin. Where we end up for the year, I don't know, but because there's so many variables that go into that, Catherine. But I do think right now we're poised, if we've got a stable rate outlook in the near term, we are poised for some modest margin expansion here in the near term and then the rest of the year we'll see how the — if we get cuts, when they happen, what the velocity and frequency of those are, but it's a little hard to predict.

That makes sense. And then maybe one on credit. Your credit has just been really strong and very stable, a charge-off stable NPAs, stable classified loans. But you've got a really big reserve. So as we think about this next year, is there a potential, if we really kind of move through the year and we hit the soft landing that we could start to see a reserve release for you, which would kind of be a tailwind to EPS estimates? Or you kind of fight as hard as you can just to kind of keep that more stable just in case. Just kind of curious your thoughts on kind of provisioning year-over-year and outlooks and credit. Thanks.

Yes, good morning, Catherine. This is— I don't think you'll see us release; we've kind of forecasted in the past that as asset quality stays consistent that our preference would be to use our provision for loan growth opportunities and I think at this point, we will continue to forecast that way. So, I would hesitate to think that there's going to be a release at some point in the near future. And we also know that in 2024, there's probably going to be some volatility in asset quality, just as we continue to work through loan repricing and cycle and so forth. So I think, near-term, we'll probably see us stay fairly consistent with our methodology and just determine the impact of our provisioning based on how our loan portfolio holds up and how our loan growth is.

And Catherine. I'll just add to that, I do think given what David just said, if you look at the percentage on the allowance for credit losses and, of course, that model is a dynamic model, the seasonal models, so there's a lot that goes into it, but I think it's reasonable as we sit here at the start of 2024 to assume that percentage would moderate downward. As David said, don't anticipate any releases, but I think that percentage just given loan growth and whatever charge-offs we're going to have in 2024, it wouldn't surprise us to see that moderate down a little bit as we go through the year. I mean, we came down 2 basis points, of course, in Q4, but I think that's a reasonable outlook, as we sit here a year from now that that allowance for credit losses percentage will be a little bit lower than it is now.

Great. That makes sense. All right, thank you.

Thank you, Catherine.

Thank you very much. This concludes our question-and-answer session. I would now like to turn the conference back over to Mitch Waycaster for any closing remarks.

Well, thank you, Eric, and thank each of you for joining the call today. We next plan to participate in the KBW Conference beginning on February 15.

The conference has now concluded. Thank you, everybody, very much for attending today's presentation. You may now disconnect.