Renasant Corp

NYSE:RNST

Earnings Call Transcript 2019-Q4

[Operator]

Good morning and welcome to the Renasant Corporation 2019 Fourth Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kelly Hutcheson. Please go ahead.

[Kelly Hutcheson, Investor Relations]

Good morning and thank you for joining us for Renasant Corporation’s 2019 fourth quarter webcast and conference call. Participating in this call today are members of Renasant’s executive management team.

Before we begin, let me remind you that some of our comments during this call maybe forward-looking statements, which involve risk and uncertainty. A number of factors could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Those 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. We 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 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, which has been posted to our corporate site renasant.com under the Investor Relations tab in the News & Market Data section.

And now, I will turn the call over to Renasant Corporation Executive Chairman, Robin McGraw?

[Robin McGraw, Executive Chairman]

Thank you, Kelly. Good morning, everyone and we thank all of you for joining us today. We closed the fourth quarter and the year with solid results and I am excited about the momentum we have heading into 2020. As we discuss in more detail later, we enjoyed a robust loan growth in the second half of the year and in the fourth quarter in particular, while at the same time remaining steadfast in our commitment to strong credit quality even while we have seen our competition – some of our competition beginning to loosen their underwriting standards. Our return on average assets, with exclusions, was 1.14% for the quarter and 1.32% for the year. Our return on tangible equity, with exclusions, was 13.52% for the quarter and 15.54% for the year.

During the third quarter, we announced a $50 million stock repurchase plan, which began in October 2019 following the completion of our previous $50 million repurchase plan. We repurchased $20 million of our common stock under the new plan during the fourth quarter at a weighted average price of $35.23. Year-to-date, under the current and prior plans, we have repurchased $62.9 million of common stock at a weighted average price of $34.58. We mentioned last quarter that we redeemed the subordinated notes that we assumed as part of our brand acquisition for which preferential capital treatment begin to phase out at the end of the second quarter of ‘19. We also increased our dividend by $0.01 during the second quarter of ‘19. The repurchase plans, the debt redemption and the dividend increase all support our strategy for ‘19 of returning value to our shareholders while prudently deploying our capital. As we look ahead to 2020, we believe this capital management strategy, coupled with our continued efforts to effectively manage the growth and profitability of our core business in light of economic pressures that we face will continue to drive shareholder returns.

Now, I will turn the call over to our President and Chief Executive Officer, Mitch Waycaster to discuss in greater detail this quarter’s financial results. Mitch?

[Mitch Waycaster, President and Chief Executive Officer]

Thank you, Robin. Looking at our results for the fourth quarter of ‘19, net income was $38.7 million compared to $44.4 million in the fourth quarter of ‘18. Our basic and diluted EPS were $0.68 and $0.67 respectively for the fourth quarter. Basic and diluted EPS were both $0.76 for the fourth quarter of ‘18. During the quarter, we were able to recapture $1 million of the $2.4 million after-tax valuation adjustment we recognized on our mortgage servicing rights during the third quarter of ‘19. This recapture increased diluted EPS in the fourth quarter by $0.01. Further, our fourth quarter net income includes approximately $3.5 million and after-tax expense related to new production team members that have joined the company during ‘19. The expense related to these strategic hires decreased diluted EPS by $0.06 for the quarter.

Turning our focus to our balance sheet, total assets at December 31, ‘19 were $13.4 billion as compared to $12.9 billion at December 31, ‘18. Total loans held for investment were $9.7 billion at the end of the year as compared to $9.3 billion at September 30, ‘19 representing annualized net loan growth on a linked quarter basis of 16%. The balance at the end of the year includes a portfolio of non-mortgage consumer loans transferred from our held-for-sale portfolio during the third quarter. Excluding these net loans, net loan growth was 5.46% for 2019. We have continued to emphasize our significant investments in production talent across our footprint during the year and I just noted the impact of this hiring on our expenses. We feel the transition to the Renasant team has been seamless for our new partners and the returns on these investments are beginning to show in our results for this quarter.

I want to emphasize though that our entire team both new hires and legacy employees have been successful in executing our growth strategy during the fourth quarter. Total loan production for the quarter was $837 million with $171 million of that production generated by our new production team members hired during the year. All of our producers, both new and legacy have committed themselves to our plan and their hard work is evidenced by our results for the quarter. Notwithstanding that the returns on our investments in new talent have arrived sooner than anticipated consistent with previous guidance, we still expect net loan growth for the company to be in the mid single-digits for the first quarter of ‘20 and grow to high single or low double-digits towards the latter part of ‘20. Further, consistent with our growth strategy, we will continue to seek opportunities to add talent to our team. We believe the market disruptions that were present in ‘19 have not yet been resolved and other events have created the potential for other disruption and we plan to target opportunities to build out our teams across our entire footprint which will support our growth and expansion in all markets and across all lines of business. We have emphasized the success of our team with respect to loan growth, but we were also successful in ‘19 in managing the liability side of the balance sheet to support profitable growth.

Total deposits were up year-over-year with growth in non-interest bearing deposits exceeding $230 million during the year. To emphasize this achievement further, non-interest bearing deposits represented 25% of total deposits at the end of ‘19 as compared to 22.9% at the end of ‘18. We remain committed to growing low cost stable deposit base to fund our loan growth and in a year highlighted by interest rate volatility we evaluated all of our funding sources to identify the proper mix that would yield the lowest cost. We have great momentum heading into 2020 and are optimistic about growth on both sides of our balance sheet by remaining disciplined in our pricing strategy and emphasizing profitability our growth into 2020 and beyond will continue to deliver the value our shareholders have come to expect.

Now, I will turn the call over to Renasant Chief Operating and Financial Officer, Kevin Chapman for additional discussion of our financial results. Kevin?

[Kevin Chapman, Chief Operating and Financial Officer]

Thank you, Mitch. Overall, the company had a solid quarter. Net interest income was $109.3 million, up $0.5 million on a linked quarter basis. The accretable yield recognized on purchased loans in interest income collected on problem loans was relatively flat compared to the prior quarter. Net interest margin was $390 million for the fourth quarter of ‘19 as compared to $398 million for the third quarter of ‘19 and a core margin decrease of 9 basis points over the same period. The decrease is primarily driven by decline in earning asset yields following the three rate decreases by the Federal Reserve since August.

In order to mitigate the impact on our margin, we focused on reducing deposit cost and continue to execute on our strategy of growing non-interest bearing deposits and managing the mix and cost of our interest bearing liabilities. As a result, we were able to lower the cost of our deposits by 9 basis points and lower the total cost of our funding by 10 basis points from the previous quarter. 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 discussed last quarter, our non-interest income in Q3 and Q4 reflects the limitations on our interchange fees imposed by the Durbin Amendment, which reduced fees and commissions on loans and deposits by approximately $3 million during each of the quarters.

On the positive side, mortgage banking income had a strong quarter even when adjusting for the seasonal pullback we have typically experienced in Q4. During the quarter, our locked mortgage volume was $900 million, which was down from the previous quarter, but up $300 million when compared to the fourth quarter of ‘18. During 2019, we locked $3.7 billion in mortgage commitments compared to $2.7 billion in 2018. Refi volume accounted for 41% of our production during the fourth quarter and has remained consistent between quarters, which is anticipated in the current interest rate environment. Additionally and as Mitch mentioned during the quarter, we recaptured $1.3 million of mortgage servicing right valuation adjustment that we recognized in Q3.

Non-interest expense remained consistent between quarters. Our adjusted efficiency ratio was 63.43% for the quarter and 60.4% for the year. The cost associated with the producers we hired during the year along with the previously discussed margin compression impact on Durbin Amendment have continued to put pressure on our efficiency ratio. But as we have mentioned previously, the success of our new producers is beginning to show in our results and their portfolios continue to mature. We will expect our investment to yield this return not only in net interest income, but also in the efficiency ratios.

Shifting to our asset quality, at year end, our overall credit quality metrics continued to remain strong as a percentage of total assets. All credit quality metrics, including NPAs, loans 30 to 89 days past due in our internal watch list are at or near historic lows. Net loan charge-offs were $1.6 million or 7 basis points on an annualized basis for the fourth quarter of ‘19 and we provided roughly $2.9 million in provision during the quarter. As we move into a new year, we have renewed our commitment to remain – to maintain strong credit quality. We will continue to remain disciplined in our underwriting standards, including margin and structure and we will remain committed to our business model, which has proven successful over the years. We have emphasized the addition of the producers that we have hired to support our growth strategy, but would like to remind you that at the same time we have added talent to our credit team to reinforce our commitment to credit quality. For more information and details on our financials, I will refer you to our press release for specific numbers or ratios.

Now, I will pass the call to Robin for any closing comments.

[Robin McGraw, Executive Chairman]

Thank you, Kevin. In closing, we finished the year with tremendous momentum and we are excited about our trajectory for 2020 by focusing on growth and profitability, while at the same time emphasizing quality. We can operate through this cycle and provide value for all of our stakeholders. Now, Carrie, I will turn the call back over to you for questions and answers.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Daniel Mannix of Raymond James.

[Daniel Mannix, Raymond James]

Hey, good morning guys.

[Mitch Waycaster, President and Chief Executive Officer]

Good morning, Daniel.

[Daniel Mannix, Raymond James]

Yes, just wanted to start with loan, so speaking about the momentum, great quarter on the loan growth front, just wondering if your previous guide of that high single to low double-digit range still holds for 2020 or is there some upward pressure on that now?

[Mitch Waycaster, President and Chief Executive Officer]

Yes. Daniel, as I have mentioned earlier and thank you we did experience a strong quarter, we particularly going into Q1 and I will talk a little more about pipeline as we look forward, but as we go into Q1, we still have the expectation of production that would generate net loan growth in the mid single and as I commented in the opening comments trending to high single possibly low double later in the year. More particular to Q4, as I mentioned, we had $837 million in production that was up some $275 million from the $562 million in Q3. During Q3, our new hires bolstered that amount by $83 million or an additional 15%. In Q4, we did see that increase from that same group by $170 million or 20% of total production. I think equally important is the production that we are also seeing from legacy and we just simply had a good quarter we hit on all cylinders whether that be in business, commercial business lines, corporate. We did see two as well, I think some loans closed later in the quarter that could have or was originally expected to go into Q1 as well, but overall, a strong quarter, but our expectation would be again as I stated continued good production. We have a strong pipeline of $240 million, but continuing to see more Q1 mid single trending to high single possibly low double as we get into ‘20.

[Daniel Mannix, Raymond James]

Got it. That’s helpful. And then talking about the hiring pipeline, so it sounds like you guys are still pretty active on that front, what kind of impact could we expect this year, I mean, you mentioned the $0.06 hit in fourth quarter, just kind of I guess a rough range of what kind of potential drag that is understanding that the 2019 hires will start to ramp up and offset that a little bit and then how that impacts the efficiency ratio? So I know you previously mentioned that it was going to turn the corner in the first quarter, but it looks like actually did in fourth quarter, do you expect that improvement to continue in 1Q?

[Kevin Chapman, Chief Operating and Financial Officer]

Hi, Daniel, this is Kevin. We do expect that improvement to continue. So as we look at just the business that’s been generated by the new hires. And let me also say the hiring that we did this year, particularly in Q2, is above average and that’s all we just pointed out. I don’t think we are going to have, although we welcome the opportunity to hire another team that would approximate 31 in a quarter, I don’t know if we are going to have that opportunity but would welcome it. And that we wouldn’t shy away from it either, but as we look at the teams that we brought in and looked at where their portfolios were, the fees that they brought in, right now 25% to roughly a third of them are breakeven or better as it relates to the revenue, they are contributing to the company. And so we would expect that to continue as we get into Q1 with more of that were hired, crossing over that inflection point of going from costing to breaking even and then contributing to the company. So we see momentum in that. Investors just to come with the portfolio deal. As we look at expenses in ‘20, clearly, our goal is to be very stringent and manage our expenses wisely. But I would also make the case that some of these expenses we have added with hires. There are more investments. They are not expenses. And that there is going to be part of our run-rate that will include some amount of new hires. I don’t know – we are going to get to the point we are not going to call these out and reconcile the expenses for every single hire that we do, we just felt in 2019 with the hiring we did we want to show that amount just to capture what’s in the run-rate, so that we could set expectations as far as what the return would be. As we look at just excluding hires it be our goal to keep expenses within a 3% increase, but again, if we see the opportunity to add and invest the new talent we are going to jump on that immediately, although we may put pressure on our expenses if it meets our return metrics.

[Daniel Mannix, Raymond James]

Yes, got it. Great color. That’s it for me. Thanks gentlemen.

[Mitch Waycaster, President and Chief Executive Officer]

Thank you, Daniel.

[Operator]

The next question will come from Stuart Lotz of KBW.

[Stuart Lotz, KBW]

Hey, guys. Good morning.

[Mitch Waycaster, President and Chief Executive Officer]

Good morning, Stuart.

[Stuart Lotz, KBW]

Really nice quarter, obviously on the loan side, but I guess I wanted – Kevin, I wanted to dig into the margin a little bit here. I think 7 or 8 basis points core compression matched your guidance heading into the quarter and then if we did into that, it looks like core loan yields were down about 17 basis points, but you are also able to match that on the deposit side. So kind of what is your, sorry, outlook for the margin this quarter specifically if the Fed remains on pause and what that core margin will look like going into 1Q and then throughout 2020?

[Kevin Chapman, Chief Operating and Financial Officer]

So the reality is, is that even if the Fed is on pause we are still at a lower rate environment. And so we are seeing – we are seeing compression in headwinds just on the yield side, just as assets re-price as cash flows come in as re-pricing just at lower rate environment. So the reality is that we are going to continue to have downward pressure on the margin. If there are no rate changes, that margin compression could be somewhere between 3 and 5 basis points for the quarter. It is our goal to offset that on the funding side, but also just the reality that we are growing a balance sheet and in the short run that growth might put some pressure on margin with the expectation it would be accretive and additive to net interest income. So in the short run, we may – if you have noticed, our wholesale borrowings, our FHLB advances did pickup a little bit. We are being selective on our deposits and using the capacity we have from the FHLB as a bridge until deposit growth somewhat normalizes with the asset growth that we are having. And so in the short run that’s going to put some downward pressure on margin but again fully expected to be accretive to net interest income.

[Stuart Lotz, KBW]

Got it. Appreciate the color there. And I guess further, strong production this year, I was curious where new production loan yields are coming on the books and how that compares to I guess the weighted average of the portfolio currently?

[Kevin Chapman, Chief Operating and Financial Officer]

Sure. Great question. So new and reneweds are coming into 430 to 450 range. The core portfolio yields are in the 490 range. So, that’s that asset compression that I am – the asset yield compression that I am talking about. Clearly, try to strive to get every basis point, every fee that we can, but I think we also need to recognize that, I mean, just the shift in the curve that we have experienced over the last year is bringing the absolute yields down, but our focus just internally is not only – is finding that right balance between the proper level of growth and mitigating the impact of margin to maximize that lift in net interest income.

[Stuart Lotz, KBW]

Got it. Thanks for the color there. I guess turning to fees, obviously pretty nice quarter from mortgage, all things considered, given the weaker seasonality, I am just curious what your outlook is for that business in 2020 and I guess overall your outlook for fees for the full year?

[Kevin Chapman, Chief Operating and Financial Officer]

So just from the fee standpoint, really don’t see a lot of move or volatility in our fees outside of mortgage banking income. As I mentioned, mortgage had a great year. So, it was a good hedge against the pressure we saw on the margin although it was not a perfect hedge, but as we look at 2020, I am just looking at Q1. Q1 appears that production continues to remain strong at Q4 levels. So, typically in the quarters where we are seasonally weak, Q1 and Q4 compared to other periods we are seeing above average production. This is driven by the low rate environment. And so if rates stay where they are we would continue to expect a strong year from mortgage just purely due to the rate environment and production from what we are seeing early on in January, just through the first 21 days of January.

[Stuart Lotz, KBW]

Anything else, your other fee businesses whether it’s insurance or your wealth management, where does the – any outlook for growth this year in those businesses or is it just kind of business as usual with kind of steady low single-digit growth?

[Mitch Waycaster, President and Chief Executive Officer]

Yes, Stuart. This is Mitch. I will give a little color on both wealth and insurance. Actually, this year, ‘19 we saw assets under management and wealth increase about 8%, total revenues, up about 6%, insurance would be in the 5% to 6% range as well. We continue particularly in the wealth business to expand that across our footprint. Leading with brokerage employee benefits has seen very positive growth 401(k) products this year, followed by our fiduciary asset management trust operations. So we continue to expand that line of business. We see opportunity as we look across our footprint relative to insurance, about a 4% increase this year in total commissions. That’s primarily currently within our Mississippi footprint, but in both of those lines we continue to do a better job integrating that particularly with our business and commercial relationship managers, but see continued steady growth and opportunity in both those lines of business.

[Stuart Lotz, KBW]

Alright. Thanks, Mitch. Sorry, last one for me. Just tying all that together, what’s kind of a good core growth rate for your total fee business this year? I think the Street or now has pretty flat growth. So is it safe to say, based on your commentary we could see that kind of the low single-digits even up to call it 3% to 5%?

[Kevin Chapman, Chief Operating and Financial Officer]

Yes. I would stay in the low single-digit. The wildcard is going to be mortgage. And if we see any change in rates that can put pressure on the mortgage income, but flat to slightly up is a reasonable assumption, assuming that rates stay where they are and mortgage has the year that we project that they have based on the rate environment right now.

[Stuart Lotz, KBW]

Well, thanks for taking my questions guys and congrats on a nice quarter.

[Kevin Chapman, Chief Operating and Financial Officer]

Thank you, Stuart.

[Operator]

The next question will come from Matt Olney of Stephens.

[Adam Freyaldenhoven, Stephens]

Hey, guys. This is Adam Freyaldenhoven on for Matt. How is it going?

[Mitch Waycaster, President and Chief Executive Officer]

Hey, Adam.

[Adam Freyaldenhoven, Stephens]

Hey, so I wanted to start on the LLP expense. So of the 4Q amount, how much was from negative credit migration versus just the strong organic growth?

[Kevin Chapman, Chief Operating and Financial Officer]

Yes. So just breaking down the provision, about $700,000 of the provision was just risk rate downgrades. That just based on our review, we felt it was prudent to just migrate that down on the watch list and reserve force about $700,000. And I think that was about four credits that made up that $700,000. The rest of it was growth. So if you take our net growth roughly $350 million, $360 million, we basically provided about 80 basis points of provision against that new growth and that’s typically just on growth. We typically provide somewhere between 70 and 80 basis points, just the way the math works in our model. So, the vast majority of it was related to the growth that we incurred and as we look out to the future, that’s the way the model is going to work as we have growth, we will be providing for it in the quarter that we have the growth. And so maybe as the growth materializes, it will be a little bit outweighted provision just related to providing forward.

[Adam Freyaldenhoven, Stephens]

So that 80 basis point range on the new growth with it staying robust could drive that provision a little higher in 2020 and 2021 maybe?

[Kevin Chapman, Chief Operating and Financial Officer]

It’s all a variable based on the current effort [ph] in the risk rating, but I think that’s a reasonable range. And under CECL, it may – it’s going to be different and maybe slightly higher in some cases could be slightly lower, but I think that’s a reasonable range to assume.

[Adam Freyaldenhoven, Stephens]

And then on CECL is there anymore update you can provide for CECL or can we expect that in the K?

[Kevin Chapman, Chief Operating and Financial Officer]

So we will have some more robust disclosure in the K, but really as it relates to CECL and what we have mentioned in previous discussions or previous calls is that post-CECL Day 1, we expect our allowance to be roughly in the 1% range. And so that’s where we are guiding to. Some of that’s going to be funded by just some of the re-class that we have coming out of the purchase accounting, the purchase accounting, the credit impaired loans, with the rest being impact to capital. But overall, we expect our allowance to roughly land around plus or minus 10 basis points 1% of total loans.

[Adam Freyaldenhoven, Stephens]

Okay, thank you. That’s helpful. And then last question for me on operating expenses, I know it’s difficult to nail it down with all the new hires, but assuming there is not another phenomenally quarter like 2Q, is the 4% to 6% range – growth range pretty realistic?

[Kevin Chapman, Chief Operating and Financial Officer]

If you are looking year-over-year, that may be on the higher side. Again, I would say outside of hires, it would be our goal to stay within 3%, but again, we would be opportunistic if the opportunity arises to take advantage of hires as they become available.

[Adam Freyaldenhoven, Stephens]

Okay, thank you for taking my question.

[Mitch Waycaster, President and Chief Executive Officer]

Thank you, Adam.

[Operator]

[Operator Instructions] The next question will come from Brad Milsaps of Sandler O'Neill.

[Brad Milsaps, Sandler O'Neill]

Hey, good morning guys.

[Mitch Waycaster, President and Chief Executive Officer]

Good morning, Brad.

[Brad Milsaps, Sandler O'Neill]

Kevin, just wanted to follow-up on mortgage, I know 4Q is typically seasonally weak for you guys, but if I make an adjustment in kind of the third quarter and the fourth quarter for the MSR activity, I think your mortgage rates were down maybe 25%, which is maybe more than I thought they would be even given the seasonality. Could you talk a little bit more maybe about some of the moving parts in the quarter? Was it more pressure on the gain on loan sale margin than is typical or anything else that might have been driving the change between the two quarters?

[Kevin Chapman, Chief Operating and Financial Officer]

Yes, I will let Jim Gray give a little bit more detail about mortgage.

[Jim Gray, Executive Vice President]

Hey, Brad. Actually, our margin held up pretty strongly through the fourth quarter. There is about a 2 to 3 basis point difference which we generally have that kind of fluctuation in margin. It was mostly just slowdown in lock activity, particularly during that week between Christmas and New Year’s. We always see a slowdown then. It had been actually pretty strong up to about the middle of December. This as we got into the holiday period it did slow down. However, January 2, our lock volume kicked back up and has remained strong all through January. So I think we can just attribute it to that holiday period.

[Brad Milsaps, Sandler O'Neill]

Okay. And with the folks you brought on from FBK, do you – would you anticipate you could do a little bit better than maybe what the MBA forecast would lead you to believe in 2020?

[Jim Gray, Executive Vice President]

That is definitely our anticipation that we will be able to – the FirstBank wholesale is where we are fully realizing what we anticipated out of that in both volume and banking income. Our consumer direct channel is starting to mature. We – our volume out of this consumer direct channel was $110 million this year. We are anticipating it to be stronger this next year. As we shift more from this last year, it was pretty off, well all driven by external leads. We are now doing some things, which we intended to do is starting generating more internal leads mining our own client database and that’s where we really see the benefit coming from consumer direct. So we anticipate more contribution consumer direct next year as well as our entire wholesale channel, including the first, the South Carolina piece of our wholesale. And then we are continuing to recruit, we probably have 20, 30 recruits right now that we are working heavily in all of our markets and have a lot of potential given disruptions in different markets to anticipate to continue to be able to pick up origination talent.

[Brad Milsaps, Sandler O'Neill]

Great. Thanks. And Kevin just to follow-up on expenses, the other expense line item was down maybe $3.5 million linked quarter, I know you had some true-up in the third quarter with the FDIC credit. Just curious anything else in the fourth quarter this year, this past quarter that would – that drove that decline?

[Kevin Chapman, Chief Operating and Financial Officer]

Yes. So just another, we have some volatility. As you can see, that number bounces all around. There is some volatility in there just with some FAS 91 expenses and how we account for that. And the volatility is really going to be linked to production and growth. But really, that’s more salaries, employee benefits and we are actually looking at whether or not we need to re-class up that into salaries, employee benefits now, but we held off on doing that this quarter just because of the hiring we have done. We did not want to mask the optics of what’s happening in salaries and employee benefits just as we re-class that. Overall, the other expense category, if you exclude that volatility it’s been increasing slightly, but that’s – there is a little bit of volatility in there just because of what I mentioned.

[Brad Milsaps, Sandler O'Neill]

Got it. Thanks, Kevin. And then just final question to follow-up on the CECL discussion, Kevin had you been operating under CECL this quarter, would have implied the $2.4 million provision for growth. However, you also had $4 million of non-accretable income. Would that have resulted in a negative provision for the fourth quarter based on kind of how you guys approach the methodology or am I thinking about that incorrectly as it kind of relates to CECL going forward?

[Kevin Chapman, Chief Operating and Financial Officer]

It would have – so a lot of moving parts, but let’s just look at it from as it looks right now. Of that $4 million in non-accretable difference that we recaptured, I guess the 2.9%, yes, it would have resulted in. I don’t know if we have a clear picture on what our provision would have been under CECL, what the provision would have been, but if we just take for the two knowns, which was a provision of 2.9% versus accretable recapture of roughly $4 million that would have resulted in a net provision – a negative provision. Going forward, it’s all going to be, CECL is going to result in different numbers than what we generate under our current allowance as it relates to the provision. I mentioned to you right now, we are providing roughly 80 basis points for new production outside of any downgrades. As I mentioned to you, the allowance is going to land somewhere around 1%. So let’s just for simple math say that our allowance would have been 1% as our provision would have been 1% of the production as opposed to 80 basis points that may have resulted in maybe no provision or a slight amount of provision if it would have been under that scenario. But I just said, there is a lot of moving parts, so those things being equal, there would have been 2.9% provision versus the $4 million that would have netted to a negative. And I will also say just on that $4 million of recapture there is volatility in that number. As you have seen just in this past year we have seen large swings in that and that’s the nature of that number. It’s all dependent on the performance of the underlying nonperforming or the credit impaired assets. If they perform better, there will be recapture. And just historically they have performed better. And so we have had that positive impact to margin. If they continue to perform better, there would be a positive impact to provision, rather than margin.

[Brad Milsaps, Sandler O'Neill]

Great, that’s helpful. I really appreciate it. Thank you, guys.

[Mitch Waycaster, President and Chief Executive Officer]

Thank you, Brad.

[Operator]

The next question will come from John Rodis of Janney.

[John Rodis, Janney]

Good morning, guys.

[Mitch Waycaster, President and Chief Executive Officer]

Good morning, John.

[John Rodis, Janney]

Kevin just – Kevin back to – just back to your comment on CECL and not to get into too much detail, but as far as if you talked about the core margin being under some added pressure, I think you said maybe down 3 to 5 basis points all things equal. What sort of level of yield accretion should we assume next in 2020, I guess impacting the reported margin, so you saw 23, 24 basis points of yield accretion in the third and fourth quarter, how should we think about that yield accretion going forward?

[Kevin Chapman, Chief Operating and Financial Officer]

Yes. So just for right now remove the non-accretable difference out of the margin calculation, because under CECL – the assumption under the CECL right now is all of that comes out. What will remain is the accretable yield and some pieces of what’s in that non-accretable difference maybe re-class to accretable yield, but just for the sake of this discussion is just looking at that non-accretable difference comes out. The accretable yield that’s in there, for the most part that’s going to continue to incrementally decline over the course of the year. That’s a declining balance and has been since date of acquisition is just – that’s something that will trail off over time. As it relates to how much will be recognized in 2020, I may need to follow-up with you on that number as it relates to the accretable yield, but I would think it would be an amount similar to what we had in 2019 with a declining trend that you would have seen compared to ‘18 versus ‘19.

[John Rodis, Janney]

That makes sense. And Kevin, just one other one on tax rate, it was lower in the fourth quarter. I am assuming maybe some year-end true-ups and stuff, what sort of – it was closer to 23% for the first part of the year, is 23% a good rate used for next year?

[Kevin Chapman, Chief Operating and Financial Officer]

Yes, 22%, 23%, yes, 22%, 23%. We did have some true-up. There is a couple of state matters that we got some favorable opinions and results on. And so there is a little bit of a true-up on that overall expected tax rate to be in that 22% to 23% range.

[John Rodis, Janney]

Okay, super. Thanks guys.

[Mitch Waycaster, President and Chief Executive Officer]

Thank you, John.

[Operator]

And this concludes our question-and-answer session. I would now like to turn the conference back over to Robin McGraw for any closing remarks.

[Robin McGraw, Executive Chairman]

Thank you, Carrie. We appreciate everyone’s time and interest in Renasant Corporation and look forward to speaking with you again soon. Thank you.

[Operator]

Thank you, sir. The conference has now concluded. Thank you all for attending today’s presentation. You may now disconnect your lines. Have a great day.