Good day and welcome to the Renasant Corporation 2020 First Quarter Earnings Conference Call and Webcast. [Operator Instructions] 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. Please go ahead.

Good morning, and thank you for joining us for Renasant Corporation's 2020 first quarter webcast and conference call. Participating in this call today are members of Renasant's Executive Management team. Before we begin, many of our comments during this call will be forward-looking statements, which involve risks 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. Obviously the impact of the COVID-19 pandemic the federal, state and local measures taken to arrest the virus as well as all of the follow-on effects from this pandemic situation are the most significant factors that will impact our future financial condition and operating results. Other factors include but are not limited to 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 renasant.com under the Investor Relations tab in the News & Market Data section. Furthermore, the COVID-19 pandemic could magnify the impact of these factors on it. 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 we may discuss this morning may be non-GAAP financial measures, a reconciliation of the non-GAAP measures to the most comparable GAAP measure can be found in our earnings release. And now I will turn the call over to Renasant Corporation, Executive Chairman, Robin McGraw.

Thank you, Kelly. Good morning everyone and thank you for joining us today. We ordinarily begin our earnings conference call with robust discussion of our financial highlights from the quarter, but we will be remiss not to remark on the pandemic that has quickly spread across the globe and comment on its effect on each of our stakeholders. We will discuss our preparedness and specific response in greater detail later in the prepared remarks but it's worth highlighting that our highest priority at this time is to support the health and well-being of our employees, our clients and our communities. While continuing to implement our growth strategy in this new operating reality. Surplus efforts of our entire team at every level and across our footprint to provide essential banking services and meet the needs of our clients during these challenging times have been truly remarkable and we commend their service and loyalty to the company and to our communities. There is no doubt the COVID-19 outbreak had a material impact on our first quarter results. Our net income for the quarter was $2 million which represents basic and diluted earnings per share of $0.04. Our net income included $2.2 million and after-tax expense specifically attributable to the pandemic, these expenses reduced our diluted EPS by $0.04. Furthermore because of the continued uncertainty remaining and because we cannot accurately predict the depth and length of the economic impact resulting from the pandemic and the government's response to it. During the first quarter, we recorded an additional $26.4 million in provision for credit losses and added $3.4 million to our reserve for unfunded commitments. In addition to the impact of COVID-19 which includes our enhanced provision we recorded a negative valuation adjustment to our mortgage servicing rights of $6.9 million or an…

Thank you, Robin. I'll echo Robin's remarks on the efforts of our team in response to the pandemic. One of our core values states, we are dependent on and responsible to each other and well at all times work together as one team. As one team, our employees across our entire footprint and throughout our banks back office functions have provided critical services to our clients who are experiencing the economic impact of the pandemic. We are and have remained throughout open for business. Our employees' efforts in recent weeks are the reason for this. They have been truly extraordinary and we applaud their service and commitment. Our team has been incredibly innovative and flexible in this rapidly changing environment, but we were also prepared. In late February, in light of reports from abroad about the spread of COVID-19 our senior management team began meeting to formulate and implement plans on how we would navigate a pandemic in our markets and shortly thereafter in early March, our pandemic planning committee was activated. These senior management and pandemic committee meetings focused on the steps necessary to provide a central banking services in a pandemic environment while at the same time ensuring the health and well-being of our employees and our clients and also promoting community efforts to limit the transmission of the disease. First and foremost, our employees are our primary asset. We took immediate steps to support the health and well-being of our team members by implementing alternative staffing models such as splitting and relocating staff within our markets or enabling a large portion of our employees to work remotely. For those team members who cannot perform their duties from home, we have been creative and proactive in procuring and distributing facial coverings and self sanitizing products across our footprint…

Thank you Mitch and good morning everyone. For the first quarter, we reported a net interest income of $106.6 million, which was down $2 million quarter-over-quarter. Accretable yield recognized on purchased loans and interest income collected on problem loans was down $1 million from the prior quarter accounted for over half of the decrease in net interest income. Reported net interest margin was 3.75% for the first quarter of 2020 as compared to 390 for the fourth quarter of '19. Our core margin decreased 10 basis points over the same period. The decrease in core margin was primarily driven by the decline in asset yields as long-term and short-term rates fell during the quarter. During the first quarter, we began to take aggressive action to continue to reduce our interest bearing deposit rates while we did see the cost of deposits decreased by 4 basis points during the first quarter, we continued to expect to see a decrease throughout 2020 with over $2 billion of time deposits and money market deposits maturing over the next four quarters we are confident in our ability to reduce these rates in order to mitigate the pressure on our asset yields. Non-interest income continues to be a great source of income for us representing over 25% of our total revenues. Non-interest income was fairly consistent on a linked quarter basis. As we've discussed in previous quarters, I'll remind everyone that our year-over-year comparison of non-interest income continues to be impacted by limitations on our interchange fees imposed by the Durbin Amendment, which reduced our fees and commissions line item $3 million during the first quarter of this year and the same amount for the third and fourth quarter of last year. In the first quarter of 2020 we recognized the valuation adjustment on our…

Thank you, Kevin. In closing, we begin the second quarter with a great deal of uncertainty. We are unable to adequately predict the long-term impact that the virus and other broad economic shut down issues will have on our stakeholders, but our commitment to the safety and security of our employees to the understanding and then meeting the need for our clients and being a good citizen in our communities will support our success through this cycle and ultimately provide value to our shareholders. Now Jason, I'll turn the call back over to you for Q&A.

[Operator Instructions] The first question comes from Jennifer Demba from SunTrust. Please go ahead.

Could you talk about what you're seeing in terms of reopening efforts in your primary markets.

Jennifer, this is Mitch and you know I commented earlier we are open for business, I think and that being with those things that I've described that we put in place as we went through the month of March and relative to Banking we see people consistent in that regard in course that varies across our footprint the degree at which others are returning. I think ultimately that is really defined by the consumer and those that are using those services and in our company we see that people are continuing to be cautious and following the CDC guidelines and certainly, that's what we will do as a company as we continue to focus on our employees and our clients but as you know, across our five states it somewhat varies but we see people continuing to be very cautious as we work our way through the pandemic that's not fully defined at this point.

Jennifer, this is Kevin, I'll add a comment. We limited the activities in our lobbies, we did that on March 20 and that was before any governor or any mayor issued an executive order to do so, to Mitch's point we didn't close, we just changed the access to the branch lobby. Throughout this period, we've seen digital and technology adoption to increase exponentially mobile deposits were up 2 or 3 times, the rate of Zelle enrollment is our P2P solution. Our treasury management teams continue to do a phenomenal job as they did last year having high success rates in our commercial clients of treasury management products, electronic banking. So all of that is that business is still going on and it's just not being done in the lobby. We enhanced the capabilities of the drive through so that basically anything other than checking your safe deposit box can be done through the draft or it will be done digitally and I make the comment about closing the branches before any executive order because we know there's a lot of conversations out there at least in the southeast of states or municipalities considering dates to reopen, we're going to reopen much like we did when we elected to close the lobbies, we're going to reopen the lobbies based on when we feel comfortable and that is safe for our customers and employees to do so and, but also I would say we never closed the banking capabilities any of our clients and in fact throughout this period we may have enhanced them by empowering them to do their own banking outside of the branch.

And Jennifer to Kevin's point, it's very clear, our investments over the years, in technology and the enhancement of our digital capabilities, we're certainly recognizing those during this time and I believe, I mean, we're hearing the same from our clients. We're simply doing business, but we're delivering the product and service to Kevin's point differently.

Could you talk a bit about the economic assumptions you made with your provision for the first quarter. And also, could you talk about what kind of expense control, you might be looking at over the next few quarters? Thanks.

We will. Thank you. So just looking at the assumptions, we used and the great thing about assumption is that every time we make over the last 45 days, the market change so quickly that we were humbled, how quickly we could be wrong in our assumptions, but ultimately what we ended with on our forecast was they had level of unemployment that unemployment would peak middle of the year at about 30% and then start to improve thereafter. We're not assuming a V-shaped recovery. We are assuming more of a U-shape. We are assuming just from a economic forecast GDP growth to be negative. Over the next 12 months and again a weak Q2 with the opportunity to start rebounding some as we get into the later half of the year. On the expense controls, let's say, everything is in place as it relates to expense controls. I just want to mention a couple of things, on salaries employee benefits although we did a lot of hiring last year so I think that masked the effort that we were doing on salaries and employee benefits to reduce that cause, you saw that somewhat in Q1 where if you back out just the increase in salary employee benefits directly attributable mortgage salaries were flat. And then if you back up overtime or the accruals that we made for the accommodations, that Mitch mentioned on COVID-19 salaries and employee benefits were actually down. We will continue to have a heightened focus on reducing expenses. The loss came in other non-interest expense. We report our reserve for unfunded commitments in other liabilities, we don't include it in the allowance for loan loss and as a result the provisioning $3.4 million we view as a credit cost, not necessarily an operating costs that contributed to it. The biggest swing within the FAS 91 and last quarter we had net growth of I think 13%-14% may be higher, this quarter it was 3%. So the swing in that was directly correlated to the growth. We think that looking forward that levels out and other non-interest expenses comes down a couple of million dollars as the growth rate normalizes in the current environment. Aside from that every expense within the company is up for review. And also I think we've learned that we can operate in a different business model, different banking model. And so I think, this is not that we want to go through this. So this I think has opened our eyes to the level of change that we as a company can absorb and react too quickly and I think that's a mindset we're going to carry out of this pandemic if we have a return to a normal operating environment, we are going to resist the urge to return to normal

Jennifer, I want to add this as well. In relation to expense and as you know, we were very opportunistic in adding some very strong talent to an already strong team in the past several quarters that continued this quarter. We had 12 additions, but also we have been saying that we are very disciplined in managing expenses and making sure that people are accountable and producing. So during the quarter with those 12 additions we also had 14 just in that relationship manager area that exited the company either from retirement, but certainly from accountability where we hold people to certain expectations. So we actually to Kevin's point just in managing expenses actually in the quarter just in relation to relationship managers, we saw a pretty good decrease in salary expense. So while we remain opportunistic we also make sure we're accountable and managing those expenses as we operate in a new environment.

The next question comes from Michael Rose from Raymond James. Please go ahead.

Wanted to start on, I know it's a tough topic, but on the loan growth. You guys have obviously brought on a bunch of new hires, you built the pipelines you guys had previously we're targeting some pretty robust growth numbers in part because of those new hires in the pipelines that they we're building. I know it's hard to kind of look out at this point, but any nearer term expectations for what we could expect for loan trends.

Sure. Michael and you're correct, it's hard to predict, but let me let me start with what we're seeing currently in the pipeline reflect on our production and talk about the results that we're seeing out of the additions and of course with Jennifer's question I just commented on the accountability around expenses and expectations. Our current pipeline, currently is $177 million if you know comparing that to where we began the prior quarter, it was 240. If I look at the pipeline, mid-March, it was more in the 250 range, probably 200 in early April. So considering the pandemic, we still got good but cautious deal flow in that pipeline and that's across the markets in our business lines. I will probably talk about triple pay in a moment, there is no triple pay dollars in that pipeline as I referred we originated, over a billion dollars in triple pay in 13 days that's 6 months worth of production in 13 days. So during this time period, that I am reflecting on pipeline that business occurred So at $177 million, like site, we continue to see good deal flow if you break that but by region, about 13% in Tennessee, 14% Alabama, Florida, Panhandle; 16% in Georgia and Central Florida, 11% in Mississippi and 46% in our corporate and commercial business lines. Looking at production and then we'll kind of reflect going forward, to the extent that is prudent to do that today. But looking at the prior quarter we had production of $516 million, that compares to over $800 million in the prior quarter, you will remember in that quarter we had some pull through late in December. So at 516, considering the time of year, that was good production that compares with $374 million, the prior year at same period. So the 516 produced about 11% loan growth and non-acquired and which about $214 million, which resulted in about 3.3% net growth or $80 million for the quarter. If you look at that production, it sounds much like our pipeline, we saw again across all geographies, particularly in the corporate commercial areas almost 15% of that production came from the new hires. So we continue to see good production, good investment and again good geographic production. I keep referring to an already strong team. We're just simply continuing to hit on many different cylinders. If you take the pipeline of 177 that would, should result in non-purchase outstanding in 30 days increase of about $48 million. Again, if you look at that tight pipeline across the quarter that would indicate production in the $500 million to $550 million range which would or should equate to low to mid single annualized growth. However, as you began the conversation until we begin to see sustained resolution of the pandemic, it's very difficult to give that got certainly that could be less, it could be more depending on the duration of what we continue to see develop.

No, I certainly appreciate it, it's challenging, but that is, that's fantastic color. Maybe just one follow-up as it relates to the BBB program maybe mechanically, Kevin, if you can let us know what the expected fees are that you'd expect to generate from at least around one of the $1 billion. And then if that's going to flow through either NII and NIM or fee income and then finally, if you can give some thoughts on the margin. Thanks.

Sure. So, before I talk about BBB and accounting and margin. I want to make a comment that somewhat related to BBB that Mitch mentioned that goes back to the hiring and one thing that we found in the BBB program is that we were able to provide service to customers that weren't our customer at the beginning of BBB program that we think won that customer over because their access to the company they were using the access BBB program couldn't meet their capabilities or at that time may not have even been participating in BBB program. And I used that as an example because we're seeing signs where some of customers are being left in the lurch because of their financial institution reacting to the current economic environment and that provides us an opportunity to win clients. It also provides us the opportunity to win additional talent and so as we see the opportunity for good talent we're probably going to move on that talent if they get displaced because again what's happening is where they are, they are not able to meet the needs of their customers and that's the common theme that led to our hiring strategy 10 years ago, as well as to what led to our strategy over the last nine months as things like that might continue to play out. And so I would just add to Mitch's comment we may still be opportunistic in the hiring if good talent gets displayed. On the BBB, a little bit early to tell what the gross fees are? I'll just tell you, we've been averaging or estimating what the range could be and let's just call it 3% on a gross fee. We don't have a number yet on what the agent fee would be…

[Operator Instructions] The next question comes from Stuart Lotz from KBW. Please go ahead.

Kevin, maybe you get start on your life early decision to account for the reserve for unfunded commitments through non-interest expense and I think all the banks that we've seen reports so far have kind of lumped that into the provision. So I just want to kind of wanted that process and how much until you guys expect around that under seasonal and as the pipeline changes in the next couple of quarters.

Sure. So let's just let's start off with just the geography as to where that flows through and really we've had a reserve for unfunded commitments for metro, and it is not CECL didn't create that, it's always had some small impact on non-interest expenses and that reserve has always been in other liabilities that is historically how we accounted for it, and I believe that's consistent with what the accounting literature requires. I'm not aware of a change under CECL that requires unfunded commitment to be in "the allowance for loan loss" but we can go back and reevaluate that and if we need to adjust the geography, we challenged and researched how that the unfunded commitment should be reported, we came to that conclusion on our own, but then we also saw there was inconsistencies in some of the reporting of companies and so maybe that's why we elected to just to keep it where we had been, which was historically in other liabilities with the expense flowing through other non-interest expense. As long as it stays in other non-interest expenses It will create volatility in that line item. And I do think though, if you look at the correlation between the provisioning that we had during the quarter that gives you a good guideline as to the impact on potential non-interest expense, as it relates to the unfunded commitments. I don't know exactly what that ratio is, but that gives you a good correlation of the relationship between the provisioning and how that affects unfunded commitments, at least in a credit environment. Now if we have a period where we have a significant increase in commitments then without a significant increase in loan balances, funded loan balances that may cause this correlation but the non-interest expense will be affected by any reserve build unless - of course we change the reporting of that is short as a true provisioning expense.

Thanks for all the detail there. Maybe one follow-up, I know you guys gave some color on some of the other items that were buried in the other non-interest expense

As we think about the core obviously there's is going to be a lot of volatility in a quarterly basis. we are Just trying to kind of hammered out run core in operating expense run rate to drive forward from here and if we back out those $3.5 million related to the reserve from 2020 commitments as well as some of the deferred origination costs. How are you guys thinking about the expense, the quarter run rate go into 2Q. Yes. So we, if you take, if you take the current, the current quarter's, other non-interest expenses, which I think was roughly, call it $20 million back out $3.5 million for the credit costs associated for unfunded commitments. What we believe is that number comes down a couple of million on a quarterly basis as 91 normalizes this quarter as well as we implement cost cutting measures, but really that line item has a lot of discretionary expenses in it and that's where our focus and effort is going to be is on that. And so take Q1 as a baseline back out the credit cost for unfunded commitments and then our expectation is that number comes down a million or two with normalization of FAS 91 and cost cutting measures.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Robin McGraw for any closing remarks.

Thank you, Jason. We appreciate everyone's time and interest in Renasant Corporation and look forward to speaking with you again next quarter.

Thank you.

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