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Renasant Corp (RNST) Q2 2019 Earnings Call Transcript

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Renasant Corp (NASDAQ: RNST)
Q2 2019 Earnings Call
Jul 23, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone. And welcome to the Renasant Corporation 2019 Second Quarter Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the conference call over to Mr. John Oxford with Renasant Corporation. Please go ahead.

John Oxford -- Senior Vice President and Director of Marketing

Thank you, Jamie. And good morning, and thank you for joining us for Renasant Corporation's 2019 second quarter and year -- well, second 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 may be forward-looking statements, which involve risks 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 undertake no 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 measures can be found in our earnings release, which has been posted on 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?

Edward Robinson Mcgraw -- Executive Chairman

Thank you, John. Good morning everyone, and thanks for joining us today. We closed the second quarter with strong results while navigating through the uncertainty around the direction of interest rates and other macroeconomic factors during the first half of the year. Our continued effort to effectively manage our core business in light of the economic pressures we face has consistently driven greater shareholder value.

Our return on average assets for the quarter was 1.47% and our return on tangible equity was 17.15%. These profitability metrics continue to be strong, and as we generate higher levels of capital we will continue to evaluate opportunities to return value to our shareholders. We previously announced a $50 million stock purchase program, which began in October of 2018. $12.9 million of common stock was repurchased in the second quarter of '19 at a weighted average price of $35.57.

In July, we purchased about $740,000, leaving just under $30 million of our stock of availability under the plan. The purchase -- the repurchase program will remain in effect until the earlier of October of 2019 or the repurchase of the total amount authorized by our Board of Directors.

Now I'll turn our 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 second quarter of '19, net income was $46.6 million, an increase of 27% when compared to the second quarter of '18. Our basic and diluted EPS were $0.80 for the second quarter as compared to $0.74 for the second quarter of '18. As I'll discuss in greater detail later, our net income for the second quarter of 2019 includes approximately $1.1 million, in after-tax expense related to new production team members that have joined the Company in the first half of 2019. The expense related to these strategic hires decreased diluted EPS by $0.02 for the quarter and year.

Turning our focus to our balance sheet, total assets at June 30, '19 were approximately $12.89 billion as compared to approximately $12.93 billion at December 31, 2018. Total loans held for investment were $9.05 billion at the end of the quarter, as compared to $9.08 billion at December 31, '18. In addition to the tremendous talent that already makes up our team, we made significant investments in production talent during the quarter, which has enhanced our long-term growth expectations.

As I mentioned previously, although this hiring strategy will have an immediate impact on our short-term expense outlook, we anticipate our new teammates to generate robust loan portfolios over the next 9 to 12 months, and provide additional loan growth into 2020 and beyond, which we believe will significantly enhance our revenue growth and profitability.

To elaborate further on these strategic hires, we previously announced that Curtis Perry has joined our Company as Chief Corporate Banking Officer. Curtis brings to us more than 34 years of corporate banking experience with regional banks in the Southeastern United States, with many of these years, serving in a leadership role. And we expect that his knowledge and connections will broaden the reach and depth of our corporate banking group. Since joining our team, Curtis has successfully recruited 13 corporate bankers and other revenue producers throughout our footprint.

In addition to the corporate hires by Curtis, we hired 18 revenue producers, including new market presidents, commercial relationship managers and retail bankers, across the footprint during the second quarter. These new team members complement our already strong team, both geographically and from a line of business standpoint. We've added teams in Atlanta, Nashville, Memphis and Birmingham. And we've added relationship managers or market leaders in South Georgia, Central Florida, the Florida Panhandle, South Alabama and East Tennessee. These new team members have specialties extending across all of our lines of business, including healthcare lending, equipment leasing, asset-based lending, senior housing, commercial real estate, C&I middle-market lending and business retail bankers. The production from these new team members won't be fully reflected in our balance sheet until 2020.

As the portfolios mature over the next 9 to 12 months, we expect net loan growth for the Company to be in the low to mid-single digits this quarter, mid-single digits in Q4, and high-single to low-double digits or better in 2020. Further, we plan to stay opportunistic in our hiring efforts to bolster our long-term growth goals. We believe that taking advantage of various market disruptions, whether due to organizational restructuring, or merger activity presents a great opportunity for our Company.

Although, we are capitalizing on this market disruption to accelerate the pace of building out our corporate and commercial teams, we believe that we have the right team in place to support growth and expansion from all lines of business and markets. We remain committed to growing a low cost stable deposit base to fund our loan growth.

Total deposits increased slightly from year-end to $10.2 billion at the end of the quarter. Even as interest rates on deposits increased in the first half of '19, we experienced success in growing our non-interest bearing deposits by $90 million, when compared to December 31 of '18. Looking forward, we are both excited and optimistic about future loan production and growth on both sides of our balance sheet. Adding talent to our already strong team of associates has us positioned well for continued success.

Now, I'll 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 strong quarter. Net interest income was relatively flat at $113 million quarter-over-quarter, and up $21 million when compared to the second quarter of '18. Net interest margin was 4.19% for the second quarter of '19 down 8 basis points as compared to 4.27% for the first quarter of '19.

Core margin followed the similar trend. Several factors led to the decreased margin quarter-over-quarter. On the asset side of the balance sheet, a decrease in the yield on mortgage loans held for sale, had a negative impact to margin of 3 basis points to 4 basis points, while an increase in prepayment speeds on mortgage-backed securities had a negative impact of 1 basis points to 2 basis points.

Turning to the liability side of the balance sheet, our cost of deposits increased 4 basis points, negatively impacting margin. While cost of deposits increased during the quarter, we are beginning to see deposit cost moderate also as Mitch previously mentioned, we have been successful in growing non-interest bearing deposits in the first half of '19, while we will continue to look at ways to manage our deposit cost in the current rate environment. It is also worth mentioning that although loan yields -- portfolio loan yields were relatively flat, the weighted average rate on new and renewed loan in the second quarter of '19 represents more than half of new and renewed loan yields we have experienced in the current cycle.

Non-interest income continues to be a great source of income for us, representing almost 30% of our total revenue. On a linked quarter basis, we grew non-interest income by $6 million, nearly all of which was generated by our mortgage division. I should note that as of July 1st, we are now subject to the Durbin limitations on interchange fees. Based on debiting -- debit card income for Q2, we expect the impact from Durbin to decrease our non-interest income by $11 million to $12 million annually. As interest rates declined during the quarter, our mortgage division had a great quarter. We saw an increase in our mortgage production and experienced higher margins on that production.

During the quarter, our lock [Phonetics] volume was $941 million, which was up approximately $285 million from the first quarter. The previously announced acquisition of FirstBank's wholesale mortgage operations was completed on July 7 of '19. Given the closing date of the transaction being so late in the quarter, the acquired FirstBank operations did not have a material impact on our results for the second quarter, while we are looking forward to the boost that these operations will give to our mortgage division going forward.

Non-interest expense increased quarter-over-quarter by $4.5 million. This increase is primarily attributable to an increase in salaries and employee benefits, which is being driven by the new hires previously mentioned by Mitch, and a $3 million increase in mortgage commissions related to the increased mortgage production. Our efficiency ratio was 58.3% for the second quarter of '19, which represents the fifth consecutive quarter during which we've maintained an efficiency ratio below 60%.

Shifting to our asset quality at June 30 of '19, our overall credit quality metrics continue to remain strong. As a percentage of total assets, all credit metrics, including NPAs, loans 30 to 89 days past due, and our internal watch list are at or near historic lows. Net loan charge-offs were $676,000 or 3 basis points on an annualized basis of average total loans for the second quarter of '19. We provided $900,000 in provision for loan losses during the quarter. Though our strategy is focused on long-term growth, we will not sacrifice credit quality for the growth. We remain disciplined in our underwriting standards, including margin and structure, and will not concede to competition if we believe the structure and terms are too aggressive for our risk appetite. We have discussed in detail during this call, the hiring of production, which will drive long-term growth. It is worth noting that during the quarter, we've added three senior credit officers and other credit support staff to our already strong credit team to support our new production team members.

For more information or specific on our financials, I'll refer you to our press release for specific numbers or ratios. Now, I'll pass the call back to Robin for closing comments.

Edward Robinson Mcgraw -- Executive Chairman

Thank you, Kevin. In closing, we see a healthy loan pipeline. And with the addition of new banking talent, we expect to experience a strong second half of '19, while we continue to remain -- maintain our credit quality metrics at or near historic lows.

Now Jamie, I'll turn the call back over to you for Q&A.

Questions and Answers:

Operator

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Catherine Mealor from KBW. Please go ahead with your question.

Catherine Mealor -- KBW -- Analyst

Thanks, good morning.

Kevin Chapman -- Chief Operating and Financial Officer,

Good morning, Catherine.

Catherine Mealor -- KBW -- Analyst

I wanted to start with your outlook for the margin. Can you talk a bit about how you're thinking on the margin moving forward particularly if the Fed does cut in the back half of this year? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Hey, good morning, Catherine. So...

Catherine Mealor -- KBW -- Analyst

Hey. Good morning.

Mitch Waycaster -- President and Chief Executive Officer

So we are -- we're preparing for two rate cuts, two 25 basis point rate cut. And so we're actually taking steps now to start the process of mitigating that. As I mentioned, the prepayment speeds on the security portfolio that weighed on margin, but also we've positioned our portfolio, our security portfolio for raising rate environment to generate cash flow. So that is -- that's weighing our margin at the current time. So some of the efforts, we're going to do to help mitigate margin is reinvest and restructure the security portfolio to extend the life of it.

We are actively managing the deposit cost today in advance of rate cuts. If we look at our deposit cost that increased during the quarter, they increased 4 bps compared to last year that's a win, where we were increasing 9 basis points to 12 basis points per quarter. But we are seeing real signs that pressure on deposit costs are slowing. If we break that 4 basis points down, the 4 basis points really came from increase in time deposit and money market. And that's where we are taking initiatives now to address pressure on funding going forward.

And then last of all, I would say that we continue to be disciplined in our pricing to ensure that we are getting compensated. And not only trying to get it all on the liability side, although we're structuring in pricing on the asset side with new and renewed pricing to help mitigate any margin compression. And, but also just remind again in our prepared remarks that our new and renewed rates for some of the assets that we had experienced at least in the recent history in the current are in the current rate side.

Catherine Mealor -- KBW -- Analyst

And with all that in mind, I mean we saw I think more than expected core NIM pressure this quarter. Is it fair to say that you've got enough of these levers to kind of keep the core NIM fairly stable even with lower rates? Or you still feel like there is additional compression from here off of this lower rate?

Mitch Waycaster -- President and Chief Executive Officer

Yes, there could be additional pressure we think we can mitigate, a significant portion of that. The pressure we experienced on the margin in Q2, really was as a result of the long end of the curve, not the short end of the curve. The mortgage loans held for sale, the security portfolio that's all reflective of just the flatness or the inversion or the movement on the longer end of the curve. With the shorter end of the curve moving that gives us the opportunity to move deposits. That will help us mitigate any rate cuts that would impact rate sensitive loans. But what we experienced in Q2 was more on the longer end of the curve.

Catherine Mealor -- KBW -- Analyst

Okay. And then one more on the margin. The accretable yield was higher this quarter. How are you thinking about how we should model that for the back half of this year and then as we get into 2020 post-CECL?

Kevin Chapman -- Chief Operating and Financial Officer,

So just breaking it down between the two components, the total accretable yield, some portion of that being the accretable yield. We expect that piece of it, more of the interest rate mark. We expect that portion to stay in the margin post-CECL, and throughout 2020, decline a little bit, but at a fairly close rate to what we have today. The non-accretable difference is the wildcard, that's where we -- loans that we had identified as credit impaired at date of acquisition and then anticipated losses and then our actual performance in cash flow have exceeded with our -- that the performance has done better than what we expected. And we recaptured that discount. That's a non-accretable difference recapture that throws a lot of volatility in our margin. As we project or as we look at it and as we understand CECL today, the discount on those non-accrete -- those purchased impaired loans that discount goes into the allowance. But if the performance of that portfolio continues to be as it has historically been, which means better cash flow, then that discount will free up much like it has this quarter and previous quarters. But rather than flowing through the margin, it flows through the provision. And so we may have a more stable margin, but going forward, we may have a little bit more volatile provision for loan losses just as we continue to work out that acquired portfolio. So as we view, we don't see a material change in pre-tax income as we implement CECL and isolate that component of the implementation related to the purchase credit impaired loans.

Catherine Mealor -- KBW -- Analyst

Got it. Basically, if we were a pre-CECL assuming some level of accelerated accretable yield in 2020, and if you're going to take that out in 2020 with CECL you would need to at least offset it in the provisions?

Kevin Chapman -- Chief Operating and Financial Officer,

Correct,

Catherine Mealor -- KBW -- Analyst

Okay, that's helpful. All right, great. Thank you.

Mitch Waycaster -- President and Chief Executive Officer

Thanks Catherine.

Operator

Our next question comes from Michael Rose from Raymond James. Please go ahead with your question.

Michael Rose -- Raymond James -- Anlayst

Hey, good morning guys.

Kevin Chapman -- Chief Operating and Financial Officer,

Morning, Michael.

Michael Rose -- Raymond James -- Anlayst

Good morning. So obviously a lot of hires brought on team too with Curtis coming on. Just wanted to get your thoughts on additional hiring from here. And as it relates to expenses, it kind of sounded in the prepared remarks that there would be some further upward pressure on expenses as we move into the back half of the year. Is that the kind of the right way to think about it? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Yeah. Michael, this is. Mitch, I'll begin and let me make a few comments just on the hires today, and I'll let Curtis, maybe expand on what we are building in corporate and follow that -- with that -- Bartow can make some other comments on our continued hiring across the commercial space. So, as I had mentioned earlier, if you just think about the -- across the -- just geographic spread, Atlanta, Nashville, Memphis, Birmingham and then I mentioned other markets across our footprint, we continue to the first point that you asked, we continue to see opportunity and that has continued even early in Q3. We expect that to continue as we continue to build out the corporate -- the commercial space. And as I mentioned as well, we're also seeing opportunity in other business lines, in the retail bank and in the business bank. So we expect that to continue as we go forward. But Curtis, if you want to expand on the corporate piece and then Bartow, little bit more on the commercial.

Curtis Perry -- Chief Corporate Banking Officer

Absolutely. Mitch. So, Michael, we've been focused on adding talent to an already outstanding team across the major markets within the Southeast. And our focus has been on acquiring bankers with deep experience in their particular business line within the corporate segment. Bankers that have long-term relationships with a number of prospects and customers that they serve. In many cases, over 15 years or 25 years -- they and we found that the opportunity to present Renasant and style of delivery to focus on the customer and the opportunity to practice disciplined delivery of credit services, and the origination of other fee-based businesses, fee-based revenue in deposit services are a good fit with the folks that we've been focused on recruiting. So in all fairness, hiring good people is a little bit opportunistic and so it ebbs and flows. And I think typically toward the latter part of the year, the hiring activity drops off a bit and picks up again late first quarter, second quarter. That has been my experience over time, and I would think it would look something like that here as well.

Bartow Morgan -- Chief Commercial Banking Officer

So Michael, I would concur with what Curtis said with the opportunistic with hiring. If we jump back to when I came on from Brand and execute on what Robin and Mitch had asked me to on building out the commercial, I had thrown out that number to keep the growth rate where we wanted to be as a company that we were going to need to add six new commercial bankers every quarter. As I begin to have the conversation with Curtis and the relationship he had, we knew that we were going to get some of those in one quarter. But as a go-forward, and if you think about the second quarter where we had about $1.5 million worth of expense associated with the new hires, some of those hires came later in the quarter. And so the full run rate of those hires are going to be $2 million to $2.2 million per quarter, and think about that in the third and fourth quarter. That's not excluded that we will have to continue to hire future -- RMs in the future as we interview them in order to keep the growth rate at the number that we have signaled out to the market.

Mitch Waycaster -- President and Chief Executive Officer

[Multiple Speakers]

I was going to add and I will underscore Kevin mentioned it, Curtis referred to it as well. We are remaining very disciplined in underwriting in pricing. Kevin mentioned that earlier and as we've added three senior credit officers this past quarter. And I would say too to an already outstanding credit team, as I'll say that about our production team, we did simply to Curtis' point, the people that's joining the company, I think is driven by culture, is driven by relationships, is driven by platforms that's positioned all for product and service. And we are simply just being available to have those conversations across our footprint.

Michael Rose -- Raymond James -- Anlayst

No, that's great color. But maybe circling back to the expenses, it seems like there would be from all the hires and what you're planning. I appreciate all the color, some upward pressure on expenses. And then if I look at the other expense category, Kevin was there, was there anything in there that was non-recurring because it did jump up from the first quarter level?

Kevin Chapman -- Chief Operating and Financial Officer,

Not so much that was non-recurring. We did have some in and out in some accrual adjustments, probably the most significant item. Was about a $1 million increase in our FDIC insurance premiums. Just what's going over $10 billion and paying over $10 billion for four consecutive quarters. The increase in FDIC insurance premiums kicked in, in Q2. That's not one time, that run rate is going to be with us -- that's the most significant item that's in -- that other non-interest expense line item that calls the increase quarter-over-quarter.

Michael Rose -- Raymond James -- Anlayst

Okay, maybe just switching gears a little bit to the loan growth outlook that you provided, Mitch. I think you said low to mid-single digits this quarter. Is that on an annualized basis? Or is that just quarter-to-quarter? What you would expect? And I think you said mid-single digits in the fourth quarter and then well or if you can repeat the guidance that would be great to clarify? Thanks.

Mitch Waycaster -- President and Chief Executive Officer

Sure. Good point. That is on an annualized basis and what I mentioned in Q3 this quarter, we expect low to mid-single digit annualized. That's with the understanding are likely that payoffs remain at the current level as well, and then in Q4, mid-single annualized. And then in 2020 high single to low double or higher.

Michael Rose -- Raymond James -- Anlayst

And that's on the non-purchased portfolio? Correct.

Mitch Waycaster -- President and Chief Executive Officer

That is near, those numbers that I've mentioned there...

Michael Rose -- Raymond James -- Anlayst

Okay.

Mitch Waycaster -- President and Chief Executive Officer

It's net loan growth.

Michael Rose -- Raymond James -- Anlayst

Okay. And then one final one for me, just as we think about the efficiency ratio, you guys have obviously done a very good job keeping it below 60% now for five quarters, but given the hiring effort, it seems like a little bit more margin pressure. Do you think you can get close to the 60% level or maintain below it at this point? Thanks.

Kevin Chapman -- Chief Operating and Financial Officer,

Yeah, Michael, Kevin. Good question. Efficiency, we are looking at -- we look at it hard. And we use that as our guidance as to whether or not we are being -- giving the right returns off of our investments. So thanks to your specific question. Beyond what we're doing, we will put pressure on the efficiency ratio but we knew that going into it. We view that very similar if you remember our de novos that we did back in '10, '11 and '12, we were willing to invest and put pressure on the efficiency ratio but invest a couple of pennies this quarter to get more than enough of a payback in future quarters and beyond. We view this as a very similar strategy. As Curtis mentioned, Bartow mentioned, being opportunistic to pick up team members that will exponentially increase our growth but also will more than sufficiently return EPS in future quarters to offset what may be one or two quarters of expense pressure. So that is a very similar strategy to what we deployed several years ago on the de novos. But we also were doing it, recognized this and to put some pressure on efficiency, but we will see outsized improvement on the efficiency ratios as we get into next year and their portfolios, the lender's portfolios fully maturing as we get into the back half of next year.

Michael Rose -- Raymond James -- Anlayst

That's great color. Kevin. Thanks for taking my questions guys.

Kevin Chapman -- Chief Operating and Financial Officer,

Thank you, Michael.

Mitch Waycaster -- President and Chief Executive Officer

Thank you.

Operator

Our next question is Jennifer Demba from SunTrust. Please go ahead with your question. Ms. Demba, your line is open. It's possible your phone is on mute.

Jennifer Demba -- SunTrust -- Analyst

Yes, thank you so much. Question on M&A interest at this point given your hiring opportunities seem to be so significant.

Mitch Waycaster -- President and Chief Executive Officer

Jennifer. Yes, this is Mitch. As we've stated in the past, we continue to evaluate opportunities that would drive shareholder value. And I would say that certainly has not changed with the recent hiring activity and the metrics that we've looked out in the past, first beginning with culture and business model and making sure that line that exist and then being immediately accretive to EPS, TBV earn back three years or less, and then internal rate of return of 18% to 22% just all the -- answer the question, are we better together. And we continue to evaluate those opportunities.

Operator

Our next question comes from Will Curtiss from Hovde Group. Please go ahead with your question.

Will Curtiss -- Hovde Group -- Analyst

Hey, good morning everyone. I wanted to maybe go back real quickly on the hires that you made and wanted to see, is there or was there a specific concentration geographically or maybe as you -- as your prepared comments allude that this is, was in fact broad based in terms of where most of these hires were made?

Mitch Waycaster -- President and Chief Executive Officer

Yeah. Will, good question. And it was broad based. As we have talked about for some time now being very intentional to build out the commercial and corporate bank, which in large part takes us -- they are larger markets of Atlanta, Nashville, Memphis, Birmingham in particular but also, as I mentioned, we continue to grow our various lines of business. We continue to grow in the commercial business and retail segments which really spreads across the footprint. We see opportunity as a company and it's -- as we have done in the past and the ability to hit on many different cylinders. And we continue to build out a core bank. We certainly will remain focused on that, but at the same time we're very intentional and focused on building out what Curtis and Bartow described earlier, which is a true commercial and corporate bank. And we see that very much as an opportunity. So we are focused on all of those areas across our five states.

Will Curtiss -- Hovde Group -- Analyst

Thank you. And then in terms of the loan growth outlook. I just want to make sure I understand that kind of the progression that you laid out. What does that include or assume in terms of run-off of the purchase loans? Because I think this quarter it was pretty consistent with what you guys laid out last quarter. So just curious how the -- what the expectations are for the run-off there?

Mitch Waycaster -- President and Chief Executive Officer

Absolutely. So you are correct. If you go back and look at the purchase loans, I think this quarter it was around $172 million, prior quarter it was I think $171 million, and prior to that, it was around $219 million. And as we typically see right after a transaction that could be somewhat elevated, but we have seen that leveled out. So as to other payoffs that we've discussed in the past, we do remain to see those currently in the level that they've been in the past. Prior quarter, we were about $20 million below the fourth quarter average.This quarter, we were about $20 million above that, but still generally in the same range on those payoffs, still largely driven by where the borrowers selling the underlying asset or we lose the deal loan terms that we were unwilling to match. And I think that just gives testimony to our discipline that we have in place in our company in underwriting and pricing. But the net production that I quoted is taking into consideration the stabilization, which we believe it has of the acquired book, the typical run-off there as well as the current level of payoffs that we're seeing and really is driven by the increased production, both from our key -- I mentioned earlier, the outstanding talent that's already in place in the company. That as well as those that have joined the company and will be to Bartow's point that will be joining the company.

Will Curtiss -- Hovde Group -- Analyst

All right, thanks for the help, guys.

Mitch Waycaster -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Brad Milsaps from Sandler O'Neill. Please go ahead with your question.

Brad Milsaps -- Sandler O'Neill -- Analyst

Hey, good morning guys.

Kevin Chapman -- Chief Operating and Financial Officer,

Morning, Brad.

Brad Milsaps -- Sandler O'Neill -- Analyst

You guys have addressed most everything, but Kevin, I wanted to follow up on a couple of small items. You mentioned last quarter, there might be few troughs or debt issuances that might get phased out as you've gotten larger, that you might take a look at refinancing or paying off. Just kind of curious where you are in that process? And in terms of kind of how you're thinking about the capital debt stack?

Kevin Chapman -- Chief Operating and Financial Officer,

Sure, so yeah, we did disclose, we've got some sub-debt that became callable in the third quarter. Also became callable July 1st, we are in the process of calling it. That is -- it's debt that we assumed in an acquisition as stated rate is much higher than its effective rate, its purchase accounting rate. But the effective rate on that or the rate that rolls through the income statement is about 5% to 5.5%. We're in the process of calling that. We view that very similarly to how we are managing our capital with the buyback as Robin mentioned, we've got roughly $30 million of availability in our buyback and would plan to be as active if not, maybe a little bit more active in Q3 as we approach the expiration of that in October.

But are looking at several ways to just manage our capital and our capital stack to leverage just our returns right now as well as keep a little bit of capital in reserve for some of the future growth that we expect as we get into 2020.

Brad Milsaps -- Sandler O'Neill -- Analyst

That's helpful. And then just to follow up on the accretion discussion, I think we're all getting our arms around CECL slowly but surely. But could you envision, if you had a quarter similar to this quarter where you would have a negative provision in 2020 under the CECL framework? In other words, you had about $1 million provision this quarter but you had about a little over $4 million in non-accretable loan discount accretion income. Is that the correct way to think about it? Or do you think that's too aggressive?

Kevin Chapman -- Chief Operating and Financial Officer,

No, I think that -- I don't think that that would be a frequent occurrence, but it could be a possibility. And it just simply goes to how you're recapturing that discount. Right now that discount flows through the margin. It's enhancing net interest income. It would enhance provision but it would -- it could result in an abnormally low or even possibly a negative provision. That is a possibility.

Brad Milsaps -- Sandler O'Neill -- Analyst

Great that's helpful. Thank you so much.

Mitch Waycaster -- President and Chief Executive Officer

Thank you, Brad.

Operator

[Operator Instructions] Our next question comes from John Rodis from Janney Montgomery. Please go ahead with your question.

John Rodis -- Janney Montgomery Scott -- Analyst

Good morning. Kevin, just back to your comment on the buyback in response to Brad's question, I think you just said, in third quarter, you expect it to be active. Is it active in the second quarter or I just didn't hear that?

Kevin Chapman -- Chief Operating and Financial Officer,

Yeah. As active in Q2. I think we started off in Q4, purchased roughly $7 million, purchased another $13 million in Q2 and we would expect to be as active as we were in Q2.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. And then just back to expenses and I'm sorry if I missed this, but, so you had a I guess, a small amount of merger expenses in the quarter. Very small. So expenses were about roughly $93 million and then you said mortgage was higher by roughly $3 million and then you've got new hires coming on still. So from on an absolute basis, if you assume mortgage maybe slows a little bit, but then you've got new lenders and so forth. Is core operating expenses around $93 million, $94 million, is that sort of a good area?

Kevin Chapman -- Chief Operating and Financial Officer,

Yes. So couple of variables. It's going to be largely dependent on mortgage -- again mortgage will ebb and flow. So mortgage has started off the quarter strong. Their production is strong. We expect, typically Q3 is seasonally strong. So we expect an equally strong quarter from mortgage, which means their commissions and in salary expenses will remain at an elevated level compared to Q1, Q4. It may be in line with Q2, but at the same and we will be opportunistic to bring on hiring if available. So just trying to forecast expenses, we have a couple of moving pieces, but with the ins and outs, you could see it being relatively stable at $93 million depending on what happens with mortgage. If mortgage has a good quarter and we are successful in hiring that could bump up in the $94 million, $95 million range. But where the expenses are going, are being -- the increases in expenses are more being tied to revenue producers rather than the expenses being tied to expenses or debt costs. As I did mentioned, we did have an increase in the FDIC insurance. We somewhat anticipated that but as going forward to really get the efficiency ratio, leverage that we expect is going to be investing those expenses that salary burden in revenue producers. And so it's hard to really pin a number, solid $93 million, or if we are successful at being -- in the hiring being more $94 million, $95 million. But the distribution of that expense being more weighted toward revenue producers and the opportunity to grow revenue at a faster pace in 2020.

John Rodis -- Janney Montgomery Scott -- Analyst

And the higher FDIC premiums that doesn't go away. Correct?

Kevin Chapman -- Chief Operating and Financial Officer,

Wish to be that it does not. The kind of thesis that there might be a rebate, that rebate didn't show up this quarter. We'll save that coupon for future quarters.

John Rodis -- Janney Montgomery Scott -- Analyst

Got you. And then one final question, Kevin, just on the tax rate just sort of been running around 23% for the first half of the year. Is that sort of a good level going forward?

Kevin Chapman -- Chief Operating and Financial Officer,

It is, that's where we are approximately right now. And so that 23% range is a good effective tax rate.

John Rodis -- Janney Montgomery Scott -- Analyst

Okay. Thank you.

Operator

[Operator Instructions] I'm showing no additional questions. I'd like to turn the conference call back over to Robin McGraw for any closing remarks.

Edward Robinson Mcgraw -- Executive Chairman

Thank you, Jamie. I want to thank everyone for joining us today. We appreciate your time and interest in Renasant Corporation. And we look forward to speaking with you again soon. Thanks.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

John Oxford -- Senior Vice President and Director of Marketing

Edward Robinson Mcgraw -- Executive Chairman

Mitch Waycaster -- President and Chief Executive Officer

Kevin Chapman -- Chief Operating and Financial Officer,

Curtis Perry -- Chief Corporate Banking Officer

Bartow Morgan -- Chief Commercial Banking Officer

Catherine Mealor -- KBW -- Analyst

Michael Rose -- Raymond James -- Anlayst

Jennifer Demba -- SunTrust -- Analyst

Will Curtiss -- Hovde Group -- Analyst

Brad Milsaps -- Sandler O'Neill -- Analyst

John Rodis -- Janney Montgomery Scott -- Analyst

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