Prepared remarks
Good day, and welcome to Renasant Corporation's 2026 Second Quarter Earnings Conference Call and Webcast. All participants will be in a listen-only mode for the duration of the call. And should you need any assistance today, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. 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 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 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. 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 $221 million on a linked quarter basis or 4.7% annualized. Deposits were down $398 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 pre-provision net revenue was $112 million. Net interest income was $228 million, a decrease of $800,000 quarter-over-quarter. Noninterest income was $51.2 million in the second quarter, a linked quarter increase of $900,000. Noninterest expense was $162 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.
Questions and answers
We will now begin the question-and-answer session. At this time, we will pause just momentarily to assemble our roster. And our first question here will come from Michael Rose with Raymond James. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions. 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? 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? Thanks.
Yeah. Hey, Michael. Good morning. It is Kevin. If you break down several of the components of the growth, we were pleased with the uptick in production that we had in Q2. As you noted, that was offset by some headwinds and payoffs. We still think payoffs are going to continue to be something we have to overcome. But as we look at our pipeline, our efforts, and our conversations with customers, production is ramping. Our pipeline today is up about 6% to 10% from where it was at the beginning of Q2. So we are seeing the mid-single-digit growth number we have guided to fully in scope and fully in range as we get into Q3 and 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 what I was looking for. 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? Thanks.
Sure. Good morning, Michael. So yes, we had a couple of one-time or non-recurring items in the expense bucket. When we look at our core expense run-rate, we feel really good with where it is. The underlying trends in expenses we feel are good. Our outlook from here is that what we saw in Q2 will moderate downward a little bit in Q3 and then be steady for the balance of the year. That does reflect the investments we are making in people, and we continue to make those investments. The guidance I am sharing allows for some of that. If we are more successful than we think in terms of some of those hires, then that might change a little bit. But I think the core noninterest expense run rate will come down a little bit and then remain steady for the balance of the year.
Very helpful. I will step back. Thanks for taking my questions, guys.
Michael, I may just add before you hop off to that. Jim talked about the new hires and we have had activity in new hires going back to Q3 of last year. In Q1, we had 18 new revenue-producing hires. In Q2, that number was five; we added five. And so far in Q3, we have added seven. We have talked about the opportunities in the markets to hire talent. We continue to execute on that. Those hires as well as the activity that we have in our market from our existing team is showing up in results. Regarding loan growth and payoffs, production is offsetting headwinds. A data point: so far in Q3 we have seen elevated payoffs, but production is outpacing that. Right now, we are up net loans about $40 million and that is on elevated payoffs. Our teams are focusing on taking market share and serving customers, and that continues to show up in the numbers even as we get into Q3.
Appreciate all that color, Kevin. Thanks again. I will step back.
And our next question will come from Catherine Mealor with KBW. Please go ahead.
Thanks. Good morning.
Good morning, Catherine.
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 are 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 will start and Kevin can add color. As you noted, seasonal outflows in public funds were really the driver of the change from Q1 to Q2. As you probably recall from prior quarters with us, we will start to see those flows reverse in the second half. So as opposed to being a headwind, those inflows will be a tailwind. Most importantly, the underlying performance in core deposits we are very encouraged about. We expect to see the public fund trend shift and the underlying trends in core deposits are also strong. Kevin, you may want to pick up on that.
Catherine, if you go back to this call in Q1, we shared numbers about new account openings. Just to refresh on what we achieved in Q2, looking through the public fund noise, we opened over 10,000 new accounts in Q2. That equates to roughly $380 million in new deposits. About half was CDs, so the other half was checking accounts. We believe those checking accounts are sticky core deposits we obtained through relationships. That includes commercial and consumer accounts. Through July in Q3, we have opened over 2,000 net new accounts representing $86 million in new fundings. Some of these accounts are still funding as customers reassign deposits or set up bill pay. We expect deposits to continue to build into these accounts in Q3 and Q4.
Great. And then how about the rate on new deposit growth? I assume we saw a couple of basis points increase in deposit costs this quarter. Especially the CD piece is coming on with a little bit of a higher rate. Curious where that ended the quarter and maybe the public funds might kind of mess that up before looking at an exit run-rate. But curious what you are thinking about deposit cost increases in the next couple of quarters?
So, our deposit ... Catherine, go ahead, Kevin.
Our deposits are coming in at market rates. We are not paying above average to get them. The weighted average rate of those new accounts is going to be in the high twos and low threes.
That is great. Great. Thank you.
And our question will come from Matt Olney with Stephens. Please go ahead.
Thanks. Good morning. Appreciate taking my question. I want to go back to the loan growth discussion and the loan production sounds great. Any more color on loan pricing competition? When we talked in April, you highlighted increasing pressure back then. Any update since that April timeframe? Thanks.
Jim, you want to talk about new and renewed?
Sure. The pressures that were present in April are still there. It is very competitive on both sides. On the loan side, in terms of new and renewed, we are generally looking in the low sixes. There is certainly a lot of competitive pressure and it varies by region. We are seeing it in certain markets and less so in others. The same thing on the deposit side. You saw our costs inch up a bit on deposits and we do have some tailwinds that will help us in terms of NIM. Those pressures remain as they were back in April.
Okay. Appreciate that, Jim. And then as a follow-up, thinking more about interest rate sensitivity, if the Fed funds rate were to move up this week or in September, what are your thoughts as far as the balance sheet and overall impact to a higher Fed funds rate? Thanks.
As it relates to profitability and margin, we are not budgeting or planning on any cut or increase as we sit here today. Generally, a few basis points, a 25-basis-point move, is not going to make a big difference in our outlook in terms of profitability impact. Absent a more meaningful change in rates, I do not see it having a major impact on the balance sheet or the income statement.
Okay. Thanks, guys.
Thank you, Matt.
And our next question will come from David Bishop with Hovde Group. Please go ahead.
Hey, good morning, gentlemen.
Good morning, David.
Since Matt opened the door, in terms of the discussion, just curious, is the bias for stability still here? Or maybe you mentioned some tailwinds on the deposit side. Curious how you are thinking about the margin.
As we discussed earlier, our outlook is that margins will be generally fairly stable for the second half. We have deposit pricing pressures, but on the asset side we have a couple of things working for us. Most of our loan growth in the quarter came at the very end of the quarter, so there is a significant difference between average balances and period end balances for us, and that will be a tailwind moving into Q3. We also have roughly $1.2 billion in loans maturing over the next 12 months with an average rate of about 4.95%, which will be another tailwind to help offset deposit pricing pressures. Lastly, we have $50 million to $60 million a month rolling off the securities book coming off at the low threes and coming back on in the upper fours or close to 5%. We feel good about the outlook of a stable core margin in the back half.
Great. Appreciate that color. And then maybe Kevin or Jim, you talked about the paydowns and the payoff headwind continuing. If you could ring-fence where those are coming from and from a through-the-tunnel perspective, do you think you are in the seventh or eighth inning or still midway through? How do you view the payoff pipeline?
Dave, what we are seeing is largely coming in some commercial real estate asset classes. There has been an above-average payoff in some multifamily and some office. It is also coming largely from sale of assets or, in some cases, sale of the business. In Q3 we have seen some early payoffs in our C&I book from sale of the underlying business. It is not that we are losing loans to competition; borrowers are choosing to sell or liquidate collateral. As they redeploy that liquidity, we expect to get first shot at future opportunities. Largely, payoffs are in commercial real estate. We anticipated some elevated payoffs as rates bottomed out in Q1 and the 10-year increased. We expect some easing on payoffs, but it can be very lumpy as customers make decisions about collateral. Across the book, outside of the concentration in commercial real estate, we are not seeing a concentration in a certain market. It is broad-based within that asset class.
Got it. One final question. Kevin, you noted the strong deposit account openings. Any of that coming from merger disruption within your footprint?
It is a handful of things, but market disruption is one of the main underliers. We have had a focus on deposits going back to 2023 to maintain a moderate loan-to-deposit ratio in the mid-80% range, so we have had a heightened focus. Market opportunity allowed us to lean into that focus. Our teams respond to opportunity in the market, and we do not think that opportunity is abating. There is a lot of disruption and opportunity. We are not doing a major merger or transformational integration, so we can be stable and focus on client needs. Our teams know who their credit person is, who to go to, and they have good support in the back office. That shows well in front of customers that have uncertainty or are unhappy with their current provider.
Perfect. Appreciate the color.
Thank you, David.
And our next question will come from Janet Lee with TD Cowen. Please go ahead.
Morning. Not to be too nitpicky on the public fund seasonal outflows. For the third quarter, should we expect any of those to come back to the bank in Q3 or Q4? I get that you are getting good traction on the core deposit growth side, but just wanted to see how your forecast pans out in the second half of 2026?
Janet, good morning. If you look at deposit growth in the second half, both loans and deposits, we target mid-single-digit growth through the cycle. That outlook has not changed. Our expectation is that you will see good deposit growth in the second half, and public funds will be relatively stable with some possible inflows.
Public fund deposits, can you give us what the cost there is relative to your average cost of deposits at 1.96%?
It would be somewhat higher, probably roughly 100 basis points higher.
Okay. Can you share the spot cost of deposits at the end of June?
For total cost of deposits at end of June, it was 1.96%.
Oh, so the same as the average for the quarter?
That is correct.
Okay. And lastly, could you give us a refresh on the Basel III proposal impact to your CET1? And is CET1 a range or target beyond 2026?
Our expectation is it will reduce risk-weighted assets somewhere around $1 billion to $1.3 billion, which is roughly a 55 to 65 basis point positive impact to CET1. We have that projected in our budget. I do not think it changes our underlying capital goals. We would like CET1 to be in the low 11s, and I do not think that will change. As for capital deployment implications, we will see, but it is not going to change how we think about our capital base relative to the balance sheet.
Our next question here will come from Stephen Scouten with Piper Sandler. Please go ahead.
Maybe one follow-up first on just the trajectory. Jim, you said expenses could potentially go down a little in Q3. Is that some of the slight jump in other noninterest expense driving some of that? What was embedded within that increase quarter-over-quarter in that line item?
Morning, Stephen. There are a couple of things. Some merit increases were contemplated as part of that increase. There was an increase associated with deferred compensation expense and we do not expect that to be part of the second half, so that will be a benefit. Health and life claims, because we are self-insured, were a little higher in Q2 than anticipated. That is why our outlook for the second half is moderately lower expenses, while still baking in opportunistic hiring.
Okay. Great. And then on the opportunistic hiring front, Kevin, you said there are markets where you feel you need more people. Any updates on geographically where you would add people? Given dislocation in your markets and around them, would you look at moving towards Texas for loan production offices or otherwise to take advantage of that disruption?
Stephen, our primary focus is building out in our existing footprint. For new markets, it will be facts and circumstances. There are a couple of markets where we may have a single location in a large market and we need to build infrastructure or accelerate our relevance in those markets. That will be the focus before opening a new market. Regarding Texas, there is a lot to learn. To be relevant in places like Dallas, Houston, or San Antonio, we would have to have significant scale. So Texas is not a primary focus at the moment. We will focus on our existing markets where the Southeast performance is strong, with high inbound migration, high median household income, and high economic growth potential. We have ample opportunity in our footprint before launching into another market.
That makes sense. Appreciate the color. Lastly, curious about lending competition: what are you seeing in terms of aggressiveness from competitors around rate or terms? Is there a bigger tension point on one versus the other, and does any of this give you trepidation about the ability to hit growth targets if competition moves further down the risk curve than you'd want?
Stephen, we are seeing pressures across various elements. Beyond pricing, we are seeing pressure on structure, guarantor support, proceeds, and loan covenants. As you progress through a competitive environment, it moves from price to terms. We are starting to see that on terms. Regarding impact on loan growth, we will remain disciplined. We will lean into opportunities with customers and markets we know well where we have institutional knowledge across front-line lenders, credit, and management. We will protect relationships where deposits are at risk. For new customers or opportunities we are less comfortable with, we may pull back. We will remain disciplined in underwriting and that will continue to drive our positive credit metrics. We are seeing competition and will choose when to lean in and when to not lean in.
Got it. Very helpful. Thank you for the color.
Hey, Stephen, Kevin. To your point about competition, does it cause us to relook at our guidance? Short answer is no. Our guidance is based on the competitive environment. We firmly believe we can be a mid-single-digit grower, and that factors in what it takes to be competitive in our markets. There is competition all around us for good loan growth and we can be competitive. At some point, when it comes to rate, there has to be a question about return on capital. Growth that looks good on the balance sheet may take us off track from profitability goals in the long term. But the mid-single-digit target allows us to get proper returns with proper underwriting and not put pressure on funding costs. It allows us to keep margins stable. All of that is baked into the calculus behind being a mid-single-digit grower. If we press beyond that, it could change our outlook on margin or profitability, but at this time we do not feel a need to change the guidance.
And our next question is a follow-up from Matt Olney with Stephens. Please go ahead.
Hey, thanks guys. Just a few follow-ups. On the fee side, I did not hear much about fees this morning. It looked a little softer than expectations. We typically have a seasonal pull-through in Q2. Anything to call out in Q2 or the near-term outlook?
Matt, if you break down fee income, we had really good SBA numbers in the first half; they were strong and will probably moderate in the second half, which will be a headwind. Capital markets was strong in Q1 but softened in the first half, impacted by hostilities in the Middle East. We feel good about capital markets in the second half and hope it rebounds to historic levels. Mortgage continues to be weak and could be a little weaker than Q2. Wealth is very steady and growing and benefits from dislocation in our markets. All in all, Q2 run rate is probably close to what we will do in the second half, plus or minus a little bit.
Okay. Appreciate that. And on the expense discussion, you mentioned Q2 levels were elevated due to certain items. You expect Q3 to be lower. Any more detail beyond that? Is there a range? There was a big range from Q1 to Q2.
I do feel good about Q2's $161.5 million coming down in Q3. How far it comes down depends on the success of opportunistic hiring, which we have baked in. Items in Q2 such as health and life claims can be difficult to project; Q2 was over $1 million more than Q1 in that area. We are hopeful and optimistic it will come down and then stabilize. What we see in Q3 will be a good indicator for Q4. Internally, we were angling toward roughly a $161 million number for Q2 when we ended Q1; absent some items we called out, we would have been right on the mark.
Okay. Understood. Thanks, guys.
Thank you, Matt.
And this concludes our question-and-answer session. I would like to turn the conference back over to Kevin Chapman for any closing remarks.
Thank you, Joe, and thank you to all of those that have joined us this morning. We appreciate your interest in Renasant and look forward to meeting with you throughout the quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect your lines.