Renasant Corp (RNST) Q4 2020 Earnings Call Transcript

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Renasant Corp (RNST 3.58%)
Q4 2020 Earnings Call
Jan 27, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Renasant Corp 2020 Fourth Quarter Earnings Conference Call and Webcast. [Operator Instructions]

Now I'd like to turn the conference over to Kelly Hutcheson, Chief Accounting Officer. Please go ahead.

Kelly Hutcheson -- Chief Accounting Officer

Good morning and thank you for joining us for Renasant Corporation's 2020 Fourth Quarter 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. Obviously, the continuing impact of the COVID-19 pandemic, the pace of the distribution and administration of the COVID-19 vaccine; the federal, state and local measures taken to arrest the virus, as well as all of the follow-on effects from this pandemic, are the most significant factors likely to 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 investors.renasant.com, at the press releases link under the News & Market Data tab. Furthermore, the COVID-19 pandemic has magnified and likely will continue to magnify the impact of these factors on us. 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, Mitch Waycaster.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Kelly. Good morning. We appreciate you joining the call today. Before Kevin and Jim discuss results for the fourth quarter and our near-term outlook, I want to offer our reflections on the past year and the opportunities ahead of us. At Renasant, we emphasize being one team, going to market as one bank. We live that every day; working together as we serve our customers. 2020 was a great example of how we came together as one team to respond to the crisis. As difficult as the year was, I will forever be proud of the way our employees responded to the challenges. I believe 2021 holds considerable promise for the company. We start with a great team Renasant employees are actively engaged in our communities and continually strive to provide distinguished levels of service to customers. Additionally, we operate in a number of high growth markets that we believe are positioned for accelerated economic activity in the future. Finally, our baseline principles; the importance of core funding, asset quality, and strong levels of capital are unchanged. We have a diverse product line and expect to make meaningful strides in our efficiency. All of this causes me to be optimistic about the year ahead.

Now, I'll turn it over to Kevin.

Kevin Chapman -- Chief Operating Officer

Thank you, Mitch. We are pleased to report fourth quarter earnings of $31.5 million or $0.56 per diluted share. Our earnings for the full year were $83.7 million or $1.48 per diluted share. Our mortgage division outperformed once again this quarter and our margin improved as a result of our ongoing deposit repricing efforts and PPP fee income recognized on loan forgiveness. We continue to focus on building a sound and stable balance sheet, which saw improved capital strength and a meaningful build, an allowance for credit losses, while significantly reducing overall credit cost and maintaining stable credit metrics. We've been focused on efficiency, recognizing our plan will be driven by both revenue enhancement and expense containment.

Expanding on expense containment, I'd like to highlight two initiatives we undertook during the fourth quarter. First, we offered a voluntary early retirement incentive to a select group of employees. Second, we initiated a systemwide branch evaluation effort to better align our workforce and our branch network with a more efficient operating model. During the fourth quarter of 2020, we recognized a $7 million restructuring charge in connection with both of these initiatives. These initiatives will result in an annual cost savings of approximately $9 million with around 75% of that amount realized in 2021. We also incurred a $2 million charge in connection with the termination of two swaps that will reduce interest expense over the remaining terms, which were originally scheduled to mature in June of 2022 and 2023. More work remains and we continue to implement initiatives that will result in further reductions to the expense run rate.

At the same time, we won't shy away from additional investments in talent or technology, if these investments improve our operating leverage in the long run. We believe continued focus on revenue growth, whether through balance sheet growth, stabilizing net interest margin or enhancements to fee income, coupled with continued reductions and expenses provide guidance on how we plan to improve operating leverage in the future quarters.

We are focused on finding ways to deliver our services more conveniently and efficiently. We made significant technological investments before the pandemic and our clients and employees are benefiting from those investments today. For example, the dollar volume of digital payments through the Zelle platform have more than doubled from a year ago. Likewise, our interactive teller machines have seen a $1 volume increased 80% in the last year. Like the rest of the country, we saw rise and confirm cases throughout our footprint during the fourth quarter, but our retail and operations teams are working diligently through COVID fatigue. Their rapid and flexible responses continue to mitigate the adverse impact of higher case numbers that we see throughout the region with our suite of digital and online products and services that we believe rival any of our larger competitors. We feel our clients have experienced little to no disruption in their banking experience even during these worst weeks of the pandemic.

Touching a little on our PPP activity, we are focused on assisting our customers through the forgiveness phase of the first round of PPP loans with around $185 million hasn't been forgiven through the end of the year and we are ready to serve our customers again during this recently announced second round.

I will now turn it over to Jim for further comments.

James Mabry -- Chief Financial Officer

Thank you, Kevin and good morning. I will refer to the earnings deck by commenting on key things for the quarter. I will start with a review of the balance sheet.

Deposits continue to see growth in the quarter and were up $126 million or 4.2% annualized. For the year, total deposits were up $1.8 billion and most of that growth has been a non-interest bearing accounts, 96% of deposits are core, and the company has virtually no wholesale funding. Total loans were 10.9 billion at December 31. During the quarter, loans excluding PPP, grew $28 million, which represents an annualized growth rate of about 1%. PPP loans declined $179 million from the previous quarter and we accelerated the recognition of $3.1 million in deferred fees associated with the early payoff of these loans. This trend is expected to continue with the next two quarters likely to see material declines in PPP loans, which will result in the associated deferred income to be recognized on an accelerated basis.

Asset quality measures are reflected on Slides 13 through 15. Non-performing assets represented 44 basis points of total assets, excluding PPP and were up modestly from the previous quarter. Loans 30 to 89 days past due represented 27 basis points of loans, again excluding PPP and were also up slightly compared to the previous quarter. All of our credit metrics remain near historically low levels and loan deferrals continue to decline. As of December 31, deferrals represent 1.5% of total loans outstanding excluding PPP.

Credit costs are considerably lower this quarter. The provision for credit losses was $10.5 million for the quarter, which resulted in the allowance for credit losses increasing modestly to 1.8% of loans excluding PPP. The allowance for credit losses is meaningfully influenced by qualitative factors attributable to the pandemic's impact on the general economy.

Although economic projections continue to trend in a positive direction, there remains considerable uncertainty. For the quarter, return on average assets and return on tangible equity were 0.84% and 11% respectively. Net interest income for the quarter was a $108 million and was up marginally from the third quarter. Reported margin in the fourth quarter was 3.3% as compared to 3.29% for the third quarter. The improvement was driven by our deposit repricing efforts and the accelerated recognition of PPP fee income. Core margin was down by one basis point compared to the third quarter. As seen on Slide 22, non-interest income declined $8 million from the previous quarter, with the decrease largely coming from mortgage. Wealth and insurance, continue to be stable sources of non-interest income and service charges continue to improve, but are still below pre-pandemic levels. Non-interest expenses were up $5.6 million to $122.2 million. As Kevin mentioned earlier, we recognized a $7 million restructuring charge and a $2 million swap termination fee. The core efficiency ratio for the quarter was 64% and was up marginally from the third quarter.

I will now turn the call back over to Mitch.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Jim. In closing, we start 2021 with a heightened sense of optimism. Our commitment to the safety and security of our employees to meeting the needs of our clients and to being good citizens in our communities will help us build shareholder value. Now I will turn the call over to the operator for Q&A.

Questions and Answers:

Operator

Now begin the question-and-answer session. [Operator Instructions]

The first question is from Jennifer Demba of Truist Securities. Please go ahead.

Jennifer Demba -- Truist Securities -- Analyst

Thank you. Good morning.

Mitch Waycaster -- President and Chief Executive Officer

Good morning. Jennifer.

Jennifer Demba -- Truist Securities -- Analyst

Thanks for the information on the efficiency initiative. Is there any thought to giving -- to doing any four on that front as you progress through 2021, depending on how the revenue growth environment looks?

And also, just wanted to see what your interest is in acquisitions at this point. Thanks. Sure. Thank you, Jennifer. And I'll ask Kevin to begin with the expense efficiency focus and I'll circle back on acquisitions. Kevin?

Kevin Chapman -- Chief Operating Officer

Yeah. Thank you, Mitch. And good morning, Jennifer. Yes, so, when we look at our efficiency efforts that we rolled out in Q4, this is the first phase of many things. We are not done. We continue to look at ways to be more efficient. We like looking at the efficiency ratio because that encompasses both revenue growth and expenses. And so, to your point, we still think that there is some headwinds on revenue. We think we can overcome them.

As we look at the opportunity for revenue growth, that's going to be built off how we are positioned to grow the balance sheet. We're optimistic that we -- what we started to see in Q3 about margin stabilizing, that continues to be -- that that continues to be a reality. So, growth coupled with the stabilized margin will help lift revenue. When we look at non-interest income, mortgage continues to have some strength in it. Again, we all know that mortgage can be volatile, but right now, it is still -- it still has a lot of tailwinds, pushing mortgage production. Aside from mortgage though, we feel that we've got some opportunities in the fee income collection side whether it is loan fees or some of our more commercial-oriented deposit fees. As on the revenue front, we feel that there is going to be an opportunity for some growth there.

On the expense side, you should continue to expect us to look at ways to reduce expenses, whether that comes through evaluating the branches -- but when we look at branches, the locations that we are looking to close coming out of Q4, are more in market consolidations. And that's why we're trying to take the average size of our foot -- our branches and our footprint and increase some. We're really taking multiple markets where we have multiple locations and see if there is an opportunity to consolidate on and not disrupt customer service. A couple of things that we have in 2021, that we think will help on the expense initiative is; our focus is really in our two our line items that are those that are the largest in the noninterest expense of salaries, employee benefits, and occupancy and equipment. The third largest line item is data processing.

And we do have an opportunity this year to do some renegotiation with our core provider. We are expecting some level of concessions in that expense. We can't quantify that right now. We're in the early stages of it. So, when we look at what we've done in Q4, which you should expect more of those types of initiatives around salaries and employee benefits, occupancy and equipment, as well as an opportunity on data processing. So, I would just say, there is still more to come and more work to do on our efficiency ratio.

Mitch, I do you want to -- any questions -- Mitch, do you want to address the question about just appetite for acquisition?

Mitch Waycaster -- President and Chief Executive Officer

Sure. And thank you, Kevin. As Kevin just explained, while we are clearly focused today on the challenges, the headwinds, the opportunities as Kevin described, while we walked through the pandemic as we have done in the past consistently, we're opportunistic. Whether that be talent, we had the opportunity to add eight new relationship managers during 4Q. Would that be new markets or Jennifer to your question, M&A partners.

We continue to evaluate opportunities that drive shareholder value. And as always, beginning with culture and business model and making sure alignment exist, always to answer that question, are we better together? And I've stated before, I believe the pandemic offers opportunity to have those discussions and we have, we will, we'll continue to evaluate these opportunities as the opportunities present themselves.

Jennifer Demba -- Truist Securities -- Analyst

Thanks so much. All helpful. That's very helpful.

Mitch Waycaster -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Next question is from Michael Rose of Raymond James. Please go ahead.

Michael Rose -- Raymond James -- Analyst

Good morning. Hope you all are well. I wanted to go back to mortgage. One of your larger in market banks yesterday guided mortgage revenue down 40% to 50% this year. It's a smaller piece of their business. It's a much bigger piece of your business, and I'm just trying to kind of reconcile why you think you could do better?

And then, some of the initiatives that you laid out, do you have sort of a gross number that you can kind of throw out there that might offset some of that decline in revenue? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Sure. Thank you, Michael. And we do continue to feel good about our mortgage business that's been built over a number of years and we consider that a key financial service of our company. But, Jim, you want to expand on the mortgage business?

James Mabry -- Chief Financial Officer

Sure. Yes, Michael. So, as we look at mortgage, I guess a couple of things that might be instructive as we think about mortgage. So, going into the fourth quarter, we knew there'd be some seasonality, and we thought we'd see that. We didn't see it as much as we thought, so we were pleased with Q4. Margins were generally steady although volumes were off a touch. So, with that, as sort of a starting point for '21. Clearly, we don't know what it holds. But I will say very early on that we're pleased with mortgage. It's off to a good start. We're certainly not expecting it to have the year that it did in ' 20, but I think our hopes are up that it can have, nonetheless, a good year.

I think some of the dynamics in the business -- I mean you're likely to see refinanced volume come off from what it was in ' 20 but purchase activity should be solid and a lot of that's going to depend upon inventory and naturally tied to the pace of the vaccine distribution and how that unfolds. But I would say that we're hopeful. It's an important business to us. We do a nice job in that area. We continue to recruit. So don't know where it will end up, but we're hopeful as we look at '21 and what mortgage could represent.

Michael Rose -- Raymond James -- Analyst

Okay. So, would the expectation be that you guys could potentially do better than the MBA forecast?

Mitch Waycaster -- President and Chief Executive Officer

I mean, we would like to think we could, Michael. We don't clearly know what we're going to do relative to that forecast, but we've got a really good unit. We continue to recruit there. And so, I don't know how it will play out versus that forecast. I've seen those forecast, but we like the business and we feel like we're poised to have a good year and we'll see what the environment gives us.

Michael Rose -- Raymond James -- Analyst

Okay, thanks. And then, maybe, just on loan growth. You guys had a pretty good history being able to recruit talent. You've spent the better part of the last two years recruiting talent, obviously the environment's challenged, but any sense for kind of what loan growth could look like this year? I assume there's going to be some more pay downs and things like that, but any sort of first dab at initial 2021 outlook? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Sure. Thank you, Michael, and let me start with a little backdrop to your question, and then maybe some thoughts on going forward. And I'll start with pipeline and make a few comments about production and what we saw in 4Q, and maybe just reflecting on how we're starting the year in that regard.

So, we're beginning the quarter with a pipeline of 238 million, that's up from where we started 4Q at 219 million. We did see in 4Q, we saw our pipeline continue to build, which was encouraging. Again, as we saw in the fourth quarter and as we start first quarter. The pipeline is reflective of our core bank that's hitting on multiple cylinders. So, as I look across the markets in the business line, for example, 17% is in Tennessee 14% in Alabama, Florida Panhandle, 23% in Georgia, Central Florida, 14% in Mississippi, and 32% in our corporate and commercial business lines.

You mentioned us being opportunistic, and I mentioned that earlier when I answered Jennifer, and new hires. And again, in the fourth quarter, the individuals that have joined the company over the last, we'll say 18 to 24 months produced 20% of that production. So, we are continuing to benefit from that, as well as a strong legacy team. But going back to your question, just looking over the dashboard, if you will, the pipeline of 138 million should result in about 71 million growth in non-purchase outstanding in 30 days. That pipeline would be indicating a production for the quarter in the 5-75, 6-25 range. We did see an increase in production, is with the 4Q actually, had production of over 700 million in 4Q. But to your point, one of the headwinds was payoffs and we, for instance, this past quarter, they were up some 140 million over-caliber, last four quarter average. I don't know that that repeats itself but certainly when you look at the nature of pay-downs today; borrowers selling the underlying assets, some cases, we lose it to term in right. And one thing we will not step away from is our fundamental of underwriting, that will be prudent.

And then, the permanent market, of course, is quite active. So, all of those things were somewhat of a headwind, but with all of those things we saw net loan growth for the quarter. So, back to your question, we feel very good about our markets. We feel very good about our team and we expect positive loan growth going forward. That's hard to predict at this point walking through the pandemic as it's been in the past, but as we've seen over the last quarter or two, now that our -- excluding PPP, we do expect to see continued net growth.

Michael Rose -- Raymond James -- Analyst

I appreciate all the color. Mitch. Thanks for taking my questions.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Michael.

Operator

Thank you. Next question is from Kevin Fitzsimmons with DA Davidson. Please go ahead.

Kevin Fitzsimmons -- D.A. Davidson -- Senior Research Analyst

Good morning, everyone.

Mitch Waycaster -- President and Chief Executive Officer

Good morning, Kevin.

Kevin Fitzsimmons -- D.A. Davidson -- Senior Research Analyst

I was -- I know there are a lot of different variables in the margin. I was hoping maybe we could just focus on the core margins so taking purchase accounting and PPP fees out of it, and I think you said it was down 1 bps, so fairly stable. And wondering if you can talk about some of the headwinds and tailwinds there. I would assume continuing to take funding cost down but excess liquidity remains a drag, are some of the ones I can think of. And then, maybe, translate that into how you're looking at that core margin going forward. Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Sure, absolutely. Jim, do you want to start with margin? And, Kevin, you may have some follow-up relative to PPP. Jim?

James Mabry -- Chief Financial Officer

Sure. Yes, Kevin. So I think you hit it on. So we, as we look at margin and think about that core margin going forward, the two variables in '21 are the biggest variables, if you will, will be loan growth and liquidity and how much of that liquidity is absorbed by that loan growth. And so, what that liquidity tax ends up being in '21, I don't know, but as we think about it now -- and again, ex accretable yield, ex PPP, I would think we see that core margin flattish to down slightly.

Again, the biggest thing is how that liquidity plays out. I will say in a couple of other points about the margin, we do still have some opportunities. You mentioned deposit cost. We've got about $1 billion of deposit repricing over the next six months or so. The average rate on that is roughly 1%, so that represents an opportunity. And we -- so, we still see some room in deposit costs coming down. I think total deposit costs for us were just above 30 basis points in Q4. 25 basis points is probably roughly the area where we're going to sort of bottom out, would be my guess just based upon what we've done historically there.

So again, I think the biggest variables, what can we do with that liquidity and hopefully there is that, as Mitch referred to, we are optimistic about the ability to grow loans. How much? We'll see. But that's the biggest variable going into 2021.

Kevin Fitzsimmons -- D.A. Davidson -- Senior Research Analyst

All right. Thanks, Jim. And then, just one follow-up with the focus being on the expenses and cost containment and these initiatives that are just really starting, I was wondering if you would characterize this as really offsetting spending that's going on, like I know you talked about the digital focused earlier in the call, or whether some or any of this will follow the bottom line. So, in other words, just in terms of looking at that -- the expense run rate we have today, whether your outlook is for that to be stable or whether it can actually decline over the course of the year? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Sure. Kevin, do you want to follow up on expenses. Jim, you may want to follow-on there as well.

Kevin Chapman -- Chief Operating Officer

Yeah, I'll be glad to. Good morning, Kevin. So, we are -- so yes, our goal in light of compressing revenues has been to see the expense initiatives fall to the bottom line to offset revenue compression. And I think you know it's not long enough and well enough that we recognize that our efficiency had been -- one of the spots in our story that that garners a lot of attention. We've been working to -- we've been working for years to get that number down. With the rate cuts and the revenue compression that we saw toward the end of '19 and throughout 2020, it just highlighted the need to accelerate the momentum in the expense savings side of the efficiency equation.

So, we recognize that we're going to be taking some of these savings and reinvesting them in either digital or technology solutions. We're going to reinvest some of the savings in new talent, but there is an expectation that the expense saves a portion, if not a significant portion, it saves flow through to pre-tax income, flow through to the bottom line.

Kevin Fitzsimmons -- D.A. Davidson -- Senior Research Analyst

Thanks, Kevin. When you guys talk about efficiency, I realize it's such a focus and we're coming off a year where mortgage was so impactful in a positive way. Do you have any kind of soft realistic target that you guys are pegging a year or so out on efficiency, on where to take it?

Kevin Chapman -- Chief Operating Officer

Yeah. So, it's similar to the story that we had four or five years ago but this is on the stair-step down and it's going to be a continual effort of improvement. So, three to four years ago we set a target of getting below 60% efficiency and we had gotten down into the 57-58% range, right as we crossed over 10. Unfortunately, we crossed over 10, lost debit card income, about the same time that the interest rate environment started to change. So, mortgage has been a significant tailwind. We recognize that. We have to overcome that dynamic in our efficiency. But again, with some balance sheet growth -- some of this is going to be timing. I'm not saying that we can replicate every dollar of mortgage revenue that's lost, if we do start to see compression in mortgage revenue, but over time, we feel very confident that the expense savings. balance sheet growth, other types of fee income collection, can help mitigate that perceived headwind that's embedded in our mortgage operation right now.

Kevin Fitzsimmons -- D.A. Davidson -- Senior Research Analyst

Great. Thanks, Kevin.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Kevin.

Operator

[Operator Instructions] The next question is from Catherine Mealor, KBW. Please go ahead.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Thanks, good morning.

Mitch Waycaster -- President and Chief Executive Officer

Good morning, Catherine.

Catherine Mealor -- KBW -- Managing Director-Equity Research

I want to follow up on the expense conversation. Is there a way that you could remind us where -- what the current mortgage efficiency ratio is or how much of the expense base is tied to mortgage, and in trying to think about what may be the core bank run rate is and where that could go next year, and then we can kind of model mortgage volatility outside of that?

Mitch Waycaster -- President and Chief Executive Officer

Kevin, you want to expand on mortgage, maybe the variable expense of mortgage as well.

Kelly Hutcheson -- Chief Accounting Officer

Sure. So, yes, so mortgage this year with the growth that we had, we had an inflection point where mortgage had typically been a drain -- what was a drain on the corporate efficiency with the growth that we had, we are actually crossed over to where it benefited the company efficiency ratio. So, right now, I would say that it's benefiting the company ratio by a couple of percentage points, two to three percentage points. And so, that -- historically that mortgage company had been running ahead of company, so it weighed. But I will say, the improvements that the mortgage company has made during the pandemic, we have an expectation that they will come out of the cycle, this round of high production, high growth. The efficiencies that have been made within the mortgage company, we expect them to come out being a more efficient operation. So, that drag that's historically there will either be less of a drag or will be more in line with the company's efficiency ratio.

So, right now. Catherine, to answer your question, mortgage is probably contributing a couple of points to the efficiency ratio.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Okay. So, then, is there a way to know what the mortgage efficiency ratio is on a stand-alone basis? I think I've ever historically -- I think you were saying that it was kind of in the 80% range. I'm assuming now it's significantly lower, just given the higher gain on sale margins?

Kevin Chapman -- Chief Operating Officer

Yeah. So, typically through the course of the year, the mortgage company has been in the high 60 range.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Okay.

Kevin Chapman -- Chief Operating Officer

Right now, this past quarter, it was about 57%.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Okay. That's really helpful. And then, how about on buybacks? Do you view the buyback as a way to be opportunistic if your stock price pulled back or would you have the intention of being aggressive on the buyback even at these current valuation?

Mitch Waycaster -- President and Chief Executive Officer

Jim as we -- and good question, Catherine -- as we prudently manage capital, Jim, you want to expand on the buyback topic?

James Mabry -- Chief Financial Officer

Sure. Good morning, Catherine.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Good morning.

James Mabry -- Chief Financial Officer

I think we -- obviously, our capital has continued to build and we've got -- I think we're in a good position from a capital point of view. And as I also think about capital, our allowances are I think in a good position. So, as I think about those capital levers and buybacks being one, as you know, we've got a $15 million authorization in place. It's something that we continue to think about, not just buybacks, of course, but M&A, as well as another logical source or another logical use of capital. So, I would say to you that, as we go through the year, and we continue to build capital, that thinking is going to become more prominent -- or that focus is going to become more prominent on buybacks and we will continue to evaluate the merits and the returns of that. Obviously, we're charged with putting that capital to good use. And I would not be surprised if that analysis yields or results in favorable metrics as it relates to buybacks.

So, we'll see how the year unfolds but we certainly will not hesitate if we see an attractive opportunity in utilizing that capital on buybacks.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Got it. Thank you so much. And I might slip in one more if I'm able to just on your credit outlook. Your ACL increased this quarter and we've seen a lot of your peers, keep it flat to a decline, it looks like a lot of your reserve build was in the commercial real estate and the construction book. So, just curious what drove the increase and what your thoughts are for reserve release as we move into this year? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Yeah. Thank you, Catherine. And it certainly reflects our prudent approach. David, do you want to expand on credit and our thoughts there?

David Meredith -- Renasant Corporation -- Chief Credit Officer

Sure, would be happy to had. Good morning, Catherine. So, our thoughts were in Q4 was just with the continued level of uncertainty in the marketplace and the continued direction. While we saw some many positive trends in Q4, as we got later in the quarter, and saw some slowdown and unemployment numbers, we thought it probably prudent to just to make sure to stick on the conservative path from a continual reserve standpoint. And so, that's kind of I think our motto is. We're just going to continue to be conservative with an unknown outlook at this point. As things progress throughout the year, there is the potential for from much lower provisioning levels at this point. But again, we're just, we're watching to see what the quantitative and qualitative metrics are in '21. And hopefully, loan growth will continue to be a factor that we have to continue to reserve for and look for opportunities to utilize our current level of reserves. So, that was kind of our fall behind container reserve in the fourth quarter.

Catherine Mealor -- KBW -- Managing Director-Equity Research

Got it. Makes sense. Thanks for the clarity.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Catherine.

Operator

This concludes our question-and-answer session. Now, I'd like to turn the conference back over Mr. Mitch Waycaster, President and Chief Executive Officer. Please go ahead.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Nick. And to each of you on the call, we appreciate your time, your interest in Renasant Corporation. We look forward to speaking with you again soon and look forward to participating in the KBW Virtual Winter Financial Services Conference on February 11, and the D.A. Davidson Southeast Bank tour on February 18. Thank you.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Kelly Hutcheson -- Chief Accounting Officer

Mitch Waycaster -- President and Chief Executive Officer

Kevin Chapman -- Chief Operating Officer

James Mabry -- Chief Financial Officer

Jennifer Demba -- Truist Securities -- Analyst

Michael Rose -- Raymond James -- Analyst

Kevin Fitzsimmons -- D.A. Davidson -- Senior Research Analyst

Catherine Mealor -- KBW -- Managing Director-Equity Research

David Meredith -- Renasant Corporation -- Chief Credit Officer

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