Renasant Corporation (NASDAQ:RNST) Q3 2016 Earnings Conference Call October 19, 2016 10:00 AM ET
John Oxford - First VP, Director of Corp Communication
Robinson McGraw - Chairman and CEO
Kevin Chapman - CFO, EVP
Mitchell Waycaster - President, COO of the Company and Bank
Mike Ross - Chief Commercial Officer
Jim Gray - EVP
Catherine Mealor - KBW
Michael Rose - Raymond James
Matt Olney - Stephens
Andy Stapp - Hilliard Lyons
John Rodis - FIG Partners
Good day, and welcome to the Renasant Corporation 2016 Third Quarter Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to John Oxford. Please go ahead.
Thank you, Nicole. Good morning. Thank you, all for joining us for Renasant Corporation's 2016 third quarter earnings 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 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. These 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.
Now, I will turn the call over to E. Robinson McGraw, Chairman and CEO of Renasant Corporation. Robin?
Thank you, John. Good morning, everyone. Thank you again for joining us today. We're pleased with our third quarter financial results. Annualized linked quarter non-acquired loan growth of 21.64% and strong revenue growth driven from our mortgage operations were large contributing factors to our third quarter net income of approximately $23.18 million or diluted EPS of $0.55 as compared to $0.40 for the third quarter of '15.
During the quarter, we incurred pre-tax merger and conversion expenses of $268,000, which had an immaterial impact on reported diluted EPS as compared to pre-tax merger and conversion expenses incurred during the third quarter of '15 of $7.75 million, which reduced diluted EPS by $0.13.
In connection with the prepayment of approximately $38.89 million and long-term advances from the Federal Home Loan Bank, we incurred prepayment penalties of $2.21 million, which reduced diluted EPS by $0.04. We did not incur any FHLB prepayment penalties in the third quarter of '15. Excluding the impact of after-tax merger and conversion expenses and debt prepayment penalties incurred during each quarter, diluted EPS was $0.59 for the third quarter of '16 as compared to $0.53 for the third quarter of '15.
Our balance sheet and results of operations as of and for the three months ending September 30 of '16, include the impact of our acquisition of KeyWorth Bank, headquartered in Atlanta, Georgia, which was completed on April 1, '16.
On August 22, '16, we completed the public offering and sale of $60 million of our 5% fixed-to-floating rate subordinated notes due September 1, 2026, and $40 million of our 5.5% fixed-to-floating rate subordinated notes due September 1, 2031. These notes were sold at par, resulting in net proceeds, after deducting underwriting discounts and estimated expenses of approximately $98.17 million. We intend to use the net proceeds from these note offerings for general corporate purposes, which may include providing capital to support our growth organically or through strategic acquisitions, repaying indebtedness and financing investments and capital expenditures and for investments in the bank as regulatory capital.
During the third quarter of '16, our return on average assets and return on average equity were 1.08% and 8.12%, respectively. Our ‘16 third quarter return on average tangible assets and return on average tangible equity were 1.20% and 15.15%, respectively.
Focusing on our balance sheet, total assets at June 30, '16 were approximately $8.54 billion as compared to approximately $7.93 billion at December 31 of '15. Total loans, including loans acquired in our KeyWorth, Heritage and First M&F acquisitions, or in FDIC-assisted transactions, which we collectively refer to as acquired loans, were approximately $6.11 billion at September 30 of '16, as compared to $5.41 billion at December 31, '15. Excluding acquired loans, loans grew 18.16% to $4.53 billion at September 30, '16, as compared to $3.83 billion at December 31, '15. Non-acquired loans were $3.61 billion at September 30, '15.
Looking at net loan growth geographically. Net loans in our Western region, which includes our Mississippi markets, increased by 4.53% year-over-year, while our Central region, which includes our Alabama and Florida markets, and our Northern region, which includes our Tennessee markets, grew net loans by 13.77% and 13.06% respectively, during the same period.
In Georgia, during the third quarter of '16, we grew non-acquired loans by $107.35 million, which offset a $46.87 million decrease in acquired loans. These loans on an annualized linked quarter growth rate of 15.3% of total loans in the state of Georgia. These geographic loan growth metrics include the contribution from our specialty lines of business, which include health care, equipment financing and asset-based lending.
Total deposits were $6.82 billion at September 30 of '16 as compared to $6.22 billion on December 31. Our cost of funds was 40 basis points for the third quarter of '16 as compared to 33 basis points for the same quarter in '15 and 32 basis points when compared to December 31 of '15. Our noninterest-bearing deposits averaged approximately $1.51 billion or approximately 22.32% of average deposits for the third quarter of '16 as compared to $1.27 billion or approximately 20.38% of average deposits for the third quarter of '15.
Looking at our capital ratios at September 30 of '16, our tangible common equity ratio was 8.03%. Our Tier 1 leverage capital ratio was 9.38%. Our common equity Tier 1 risk-based capital ratio was 10.16%. Our Tier 1 risk-based capital ratio was 11.57%, and our total risk-based capital ratio was 13.84%.
Net interest income was $75.73 million for the third quarter of '16 as compared to $68.61 million for the third quarter of '15. Net interest margin was 4.15% for the third quarter of '16 as compared to 4.09% for the same quarter in '15. Additional interest income recognized in connection with the acceleration of pay downs and payoffs from acquired loans increased net interest margin by $3.40 million or 18 basis points in the third quarter of '16 and $766,000 or 4 basis points in the third quarter of '15.
Our noninterest income is derived from diverse lines of business, which primarily consist of originations and sales of mortgage loans, wealth management and insurance revenue sources, along with income from deposit and loan products. Total noninterest income was $38.27 million for the third quarter of '16 as compared to approximately $32.08 million for the same quarter in '15. Our overall increase in noninterest income for the third quarter as compared to the same period in the prior years is primarily attributable to an increase in mortgage banking income and the KeyWorth acquisition.
Noninterest expense was $76.47 million for the third quarter of '16 as compared to approximately $75.98 million for the same quarter in '15. We recorded merger and conversion expenses of approximately $268,000 and $7.75 million during the third quarter of '16 and '15, respectively. During the current quarter, we recognized a prepayment penalty charge of $2.21 million in connection with the prepayment of approximately $38.89 million of borrowings from the Federal Home Loan Bank. No such charge was incurred during the third quarter of '15. After considering these expenses, which are typically nonrecurring, our overall growth in noninterest expense for the third quarter as compared to the same period in the prior year is primarily attributable to the addition of KeyWorth operations.
Looking at our credit quality metrics and trends, at September 30 of '16, we recorded a provision for loan losses of $2.65 million for the third quarter of '16 as compared to $750,000 for the third quarter of '15. The increase in the provision is primarily attributable to our loan growth during the period.
Annualized net charge-offs as a percentage of average loans were 5 basis points for the third quarter of '16 as compared to 4 basis points in the same quarter of '15. Total nonperforming loans, which are loans 90 or more days past due, and nonaccrual loans were $41.91 million, and total OREO was $26.33 million. Our nonperforming loans and OREO that were acquired either through previous acquisitions or in connection with FDIC-assisted transactions, which we collectively refer to as acquired nonperforming assets, were $27.14 million and $17.90 million, respectively, at September 30 of '16.
Since acquired nonperforming assets were recorded at fair value at the time of acquisition and are subject to loss-share agreements with the FDIC, which significantly mitigates our actual loss unless otherwise noted, the remaining information on nonperforming loans, OREO and the related asset quality ratios excludes these non-acquired - these acquired nonperforming assets.
Nonperforming loans consisting of loans 90 days or more past due and nonaccrual loans were $14.77 million at September 30 of '16 as compared to $14.97 million at December 31 of '15. Nonperforming loans as a percentage of total loans were 33 basis points at September 30 of '16 as compared to 39 basis points at December 31 of '15.
The allowance for loan losses totaled $45.9 million at September 30 of '16 as compared to $42.44 million at December 31 of '15. The allowance for loan losses as a percentage of total loans was 1.01% at September 30 of '16 as compared to 1.11% at December 31 of '15. Early-stage delinquencies or loans 30 to 89 days past due as a percentage of total loans were 22 basis points at September 30 of '16 as compared to 19 basis points at December 31 of '15.
OREO was $8.43 million at September 30 of '16 as compared to $12.99 million at December 31 of '15. We continue to proactively market these properties held in OREO and currently have $4.4 million on the contract for sale during the fourth quarter of '16. We continue to see many positives, specifically healthy commercial loan pipelines and sustainable mortgage loan pipelines, which support our annual loan growth goals, both of which should drive continued revenue growth.
This now concludes my prepared remarks, and I'll turn the call back over to Nicole for any questions that anyone may have.
Thank you. [Operator Instructions] Our first question comes from Catherine Mealor of KBW. Please go ahead.
Thanks. Good morning, everyone. Robin, can you - or Kevin, can you give us an update as to how you’re thinking about forward growth in, first, the legacy book, and then what you - how you expect the acquired book to run off over time? I think you've guided for that to net out at a kind of low double-digit net loan growth pace. But it feels like the legacy growth continues to be really strong and maybe even continues to come in higher than expectations, but then the acquired book, I feel like continues to fall off a little bit higher than at least we were expecting. And so can you just kind of walk us through how you foresee that combined trend going for the back half of the year and into next? Thanks.
Catherine, Kevin and Mitch and Mike might kick in here a little bit on that.
Yes, Catherine, just looking at the non-acquired book first. That's what we originate through our channels. We continue to experience strong loan growth. You saw it again in Q3, where we had 18% growth since the beginning of the year. If you annualize that, that's greater than 20% on the non-acquired book. We would still guide - we've been giving guidance in the high teens, maybe low 20s. We would still guide in that range. That nets out to - and for the last - for the last year, four to six quarters, it has been resulting in net loan growth in the 9% to 12% range.
So the acquired book is obviously bringing the - the acquired book run-off is obviously bringing the net loans down, but we - I don't think we're at a point yet where we're able - that we're going to say we won't change estimates. We still expect net loan growth to be in that low double digit, high single digit, 9% to 12% range, with the non-acquired growth fueling that. The acquired book, and just to remind you, that acquired book is going to continue to decline. We separate it just purely for accounting purposes, and as we have pay downs, payoffs, it's going to cause that balance to just steadily decrease.
I would say, in the acquired and the non-acquired book, we have experienced accelerated payoffs over the last six to eight months - six to eight quarters, and that's really just being more disciplined and not - as we’ve seen competition being willing to take more credit risk, changed structures or more interest rate risk than what we're willing to take, we've been willing to let some opportunities walk. That has caused higher levels of prepayments but that's been in the non-acquired and acquired book. That hasn't just been in the acquired book.
Mitch, do you want to talk about pipeline, and Mike, what you all are seeing?
Yes, Catherine, the current pipeline continues to support strong loan growth. It currently stands at $147 million. And if we break that down by state or business line, 12% would be in Tennessee, 20% in Alabama, 4% in Florida, 25% in Georgia, 25% in Mississippi, with an additional 14% in the commercial specialty lines. So looking at the $147 million over the next, say, 30 days, it should be approximately $52 million growth in non-acquired loans. So back to Kevin's point, at $147 million, we continue to experience a strong pipeline as we enter the fourth quarter.
Mike, you want to.
Yes. And Catherine, to Kevin's point earlier, really, the way to think about us, remembering that the acquired book is simply an accounting convention, if we make a loan, a new loan to an existing customer, it counts as legacy loan growth. So the way to think about it is net loan growth. And so - and we think based on what we're seeing in pipelines and what we're looking at every day is that we think that high single digit to low double digit in net loan growth is what we should continue to experience.
Great. Really helpful. Thank you so much for the color. And then one other thing is on the margin. Kevin, can you talk about your outlook for the margin? It seems like it kind of came in as expected this quarter. But any change just given what you're seeing in terms of trends in the acquired book to how you think the accretable yield piece will flow through over time. Thanks.
Yes, no, really no change other than what we've discussed in the past and just go ahead and kind of reconciling our margins for this quarter just with the accounting adjustments. We had a reported margin of a 4.15% that included 18 basis points of accelerated accretion just due to pay downs, payoffs, coming out of the acquired books. So that puts the - that brings the margin, excluding that accelerated under 3.97%. That number compares to a 4.03% in Q2. So we did see about 5 to 6 basis points of margin compression. That same level of compression is what we experienced if we exclude all purchase accounting adjustments.
So if we exclude all the purchase accounting adjustments, including the accretable yield, our margin was a 3.70% in Q3 compared to 3.75% in Q2. So we continue to experience some compression on the margin in Q3 of 5 basis points just for the outlook. If we stay in the current rate environment, I would continue to guide for further margin compression in the 3 to 5 basis points range.
That's 3 to 5 basis points per quarter?
Just for Q4.
Just for Q4, okay.
Yes, we'll see what the rate environment is in January.
Excellent. All right. Great. Thank you.
Our next question comes from Michael Rose of Raymond James. Please go ahead.
Hey, good morning, guys. How are you? Hey, just wanted to follow up on the loan growth question. So I think what I heard you say is 9% to 12% all-in for the year, and that would imply, I think, a slowdown in the non-acquired loan growth that you've seen really over the past five quarters, which has been in excess of 20% annualized rate. Is that the way to think about? Obviously, Mitch gave a pipeline number and it's down to 147 from 195 point to point. How should we kind of reconcile the comments?
Well, so let me start off first. We're still guiding to - we have, for the past two quarters, had 20% non-acquired loan growth, if you annualized. So over an annual period, I guess, is what we're guiding towards is 18 to high-teens, low-20s, so 18% to 22%, which has been in line with what we've experienced. I do want to recognize that as we get into Q4, sometimes, we - Renasant experiences some seasonal slowdown. We have some line balance fluctuations, utilizations. So that may call as Q4 to be maybe not - it maybe on the 18% side of that range rather than the 22% side, but we still are very optimistic and view our potential to grow total loans as one of our strengths and would guide over the course of a year to be more in the 20% range.
I don’t know if that clarified, but Mitch, can you talk about.
Michael, let Mitch pipeline '15 and '16. I think that is somewhat indicative of what Kevin was talking about in cyclicality.
Yes, Michael, back to that point, we do typically see some slow down as we enter the fourth quarter but Robin mentioned that 147 compares to 111, same period last year. So actually, pipeline remains strong as compared to same period prior year.
And I think, too, as you look at it from a percentage drop from the third to fourth quarter, the same percentage drop occurred this year as occurred last year. It seems to be the same trend.
Okay, fair point. Also cognizant that you've done a deal since then. Okay, so understood. Just in terms of client behavior and customer behavior, just on the growth side, have the elections or the upcoming election cause any trepidation for investment on your customers or what are you guys hearing?
Michael, this is Mike. We are hearing and have seen in the third quarter and going into the fourth that particularly our C&I customers there has seen a little bit of slowdown and capital expenditure and just seems to be a little sense of uncertainty surrounding what the environment's going to look like. So we have seen a little slow down. And then, however, overall, we're still again, seeing good activity. And the other thing to remember about those pipeline numbers that you get from us is those are deals that have been credit approved and been accepted by the customer. We're looking at many, many more deals every day. And every day, there's another acceptance of a deal from a customer. So while that's a really good indicator as far as that pipeline, sometimes, the growth exceeds depending upon what time in the cycle that you catch us and what day we run that pipeline report.
Understood. Thanks for the color. Maybe just one more for me and, Kevin, it's back to the margin. Obviously, you guys raised some sub debt. What sort of impact did bringing on that debt this quarter have on the margin this quarter? And obviously, you've paid down some higher-cost borrowings. How should we think about that impact as you deploy the capital over subsequent quarters?
Sure. So yes, just with sub debt, we raised it back in August, so in Q3, we did not have a full quarter impact but the net increase to interest expense just from the sub-debt raised, including some payoffs of FHLB advances, the net impact on interest expense was around $390,000. That has about a basis point impact to the margin, and that's rounded, a basis point rounded up. As we look just a full run rate, as we get into Q4, the impact will remain about a basis point, a full basis point. As we get into Q1 of '17, we have plans to pay off some high cost in trust preferred securities that we're going to have until Q1 at the next interest payment date and that will bring the interest - the run rate, the net cost of the sub-debt up to about $570,000 just on a full run rate basis. So after we're able to execute all the debt pay-off, the FHLB advances the troughs, the net run rate will be $570,000 per quarter increase in interest expense, which would be a basis point rounded.
Okay, that's helpful. And then maybe if I could just sneak in one more, on mortgage. Obviously, this quarter, good activity, good gains on sale. How should we think about that going into a seasonally slower quarter? I assume you guys are still taking market share, things like that. How should we think about over the next couple quarters that mortgage line item? Thanks.
Yes, Michael, this is Jim Gray. Yes, we do have a strong quarter as far as refi. Refi was about 38% of our volume in the third quarter. Going into fourth quarter, just as like on our loan portfolio, our loan volume, our mortgage volume, we would expect to see a seasonal slowdown. Looking at our pipeline, our pipeline roughly $210 million at the end of the third quarter versus about $265 million at the end of the second quarter. So that would signify roughly about a $50 million slowdown in volume. And then as we look at the refi with rates being up roughly a quarter since the end of the third quarter and throughout the third quarter, we would see - we would anticipate seeing a little bit of slowdown in refinance activity. I did want to make a comment on the third quarter. We did actually have a slowdown in volume between the third quarter and the second quarter of about $30 million, but you can tell the revenue was up pretty substantially. That was primarily due to better pricing and better execution as we consolidated the two divisions as we've been working to do through the second quarter. We kind of really got the benefits of that in the third quarter. And with the refi boom, we were able to have a little bit of latitude pricing. But we would see carrying through into the fourth quarter and into next year better margins due to that better pricing and better execution going forward.
Our next question comes from Matt Olney of Stephens.
I wanted to ask about the operating expenses, and last quarter I think there was some discussion about some incremental cost saves from the consolidation of some mortgage operations. What is the update with that and what is the outlook for the operating expenses from current levels? Thanks.
Hey, Matt, this is Kevin. So just looking at total net interest expenses at $76.5 million, backing out the prepayment penalties one-time non-recurring prepayment penalties and merger expenses, that gets us to $73 million - about $73.9 million. So a couple of items I would like to point out. OREO expenses were a little bit elevated this quarter, and we had about $1 million of impairments. We do not anticipate that level of impairments as we go into future quarters. There was a couple of pieces of property that OREO impairment is tied up in just a handful of properties that as we got updated appraisals, we brought each of those, those five properties, their values down a little bit. The other thing I'll point out in occupancy and equipment expense if you notice it's up $300,000, that is really - that's really attributable to an increase in utilities that we experienced in Q3 that we don't expect to incur going forward. So that puts our operating expenses our run rate more in the high 72s to $73 million range, which we - that's what we expect in Q4 is around $73 million in non-interest expenses.
On the efficiency initiatives, specifically additional costs to carve-out from previous acquisition, there's - there are some expenses that will - some expense saves that will show up in Q4. We kept a small team from KeyWorth just to help post-conversion and integration. Their last days was at the end of the quarter, at the end of Q3, beginning of Q4. So their expenses will be out. That will equate - quarterly run rate, that would equate to about $200,000 of expense saves. One thing we also experienced in salaries and employee benefits, we did see an increase in compensation, I'm sorry, commission-based and incentive-based compensation. We saw a net increase in those two line items of about $1 million compared to Q2 and really that's just reflective of the strong growth that we've had in loans or any of our production whether it's mortgage, whether it's commercial loans or just adjusting our incentive accruals. So I would just say, we guide towards the $73 million range as we look at Q4.
That's helpful, Kevin. And then, where are we as far as the spend on DFAST compliance stress testing? How much is in the 3Q run rate and what is remaining?
So right now, it's in the Q3 run rate, it's still roughly that 1.2 million to 1.3 million per quarter. And as far as amounts - future amounts, there will be some incremental amounts. We don't believe it would be anything that would show up that would cause a significant increase in the expenses. We feel that we can cover the cost of those with other expense production. But I would say that we are 70% to 75% complete with our spend as it relates to preparation on growing over $10 billion. Mitch, anything you want to add to that?
No, I think that's on target, and we still have plans to make that first run sometime early in '17.
And also just to clarify, I want to talk about the cost going over 10 billion. I'm talking about compliance calls, stress testing, infrastructure to be able to gather data to stress test. It's not just DFAST . There are other calls that we would tie into that and a large portion of it would also be compliance.
And then, I also wanted to ask about the outlook for loan-loss provision expense. Robin, I believe you said that 3Q provision expense was just from the strong loan production. How should we be thinking about that provision expense going forward? And is that 1% allowance something you are trying to stay above or is there a chance you could dip below that at some point in the next few quarters? Thanks.
Matt, that point we're going to provide for our loan production, so that will obviously that portion of our provision will be strictly based on production. We also want to provide any charge-offs we have during the quarter. Obviously, most charge-offs we have already provided for. So it's more of a replenishing of the allowance in most cases in that regard. We do like being above 1% in answer to your question. But as to whether or not we remain there that's all dependent on what happens in the future as far as loan growth and/or charge-offs down that line.
Matt, just to build on that. We don't look at any single ratio that we try to target as we look at our allowance adequacy, adequacy of our allowance. As we calculate our allowance, there is an entire process that drives that calculation, has driven off early warning signs and early communication of potential problem credits. So we don't target just the single metric. I will say just the whole industry is experiencing better credit quality metrics, and we're just trying to be cognizant of the fact that we have experienced those things. We feel our credit quality is very strong, yet we also want to make sure that we're capturing all of our risk associated with new business lines, new loans, new geographies that we've entered to ensure that we're capturing all the inherent risks not only just the known risk. So we would take a more pragmatic approach to ensure that we are capturing all the risk in light of the entire industry experiencing an improvement in credit quality over, say, the last five, six years.
Our next question comes from Andy Stapp of Hilliard Lyons.
Just a follow-up on the loan loss, the increase in loan-loss provision. I'm just trying to better understand it. I know you had talked about strong loan growth driving it, but you had a similar level of loan growth in Q2. Just if you could provide some more color to help us understand.
Sure. So just as we look at adequacy of our allowance, it factors in new loan growth. Robin mentioned charge-offs. With our allowance process, when it works the way it's supposed to we're providing for future charge-offs well in advance of them showing up in an NPL or a 90-day past due. So the portion - some portion of that $2.6 million was due to risk rating changes. I think that amount was about $200,000 to $300,000, wasn't a significant amount, and also all loans that we downgrade just due to risk rating doesn't mean it will end up in a charge-off category. Again, I think with our process, it encourages early warning and early identification of problem credits. Often times, those don't result in charge-offs. So just breaking down the allowance, about 60% or breaking down the provision, about 60% of our provision went to new loan growth. The rest of would have been to replenish some charge-offs that were in a consumer or mortgage category that weren't risk rated. The rest of it would just be due to downgrades of us looking at credits and moving them on our scale of risk rating. But the majority of it was loan growth.
[Operator Instructions] Our next question comes from John Rodis of FIG Partners. Please go ahead.
Kevin, maybe just a follow-up for you on operating expenses. You said roughly $73 million in the fourth quarter. As we look to 2017, should we use sort of that $73 million as a run rate and then some modest growth off of that, or how should we think about it?
Yes, just over the course of the year, breaking that down on a quarterly basis, I think you should use the $73 million as your baseline. There could be some modest increases but I think the challenge in front of not only Renasant but the industry is to identify ways to achieve operating leverage on their expenses. Just as we may face some headwinds as it relates to revenue growth, is to find ways to find operating leverage of that expense base, but I do think that if you just want to start your baseline in that $73 million range, there will be some incremental growth beyond that just as we go through the course of the year. But on a quarterly average, yes, I would say the $73 million is your baseline.
Kevin, when we look at the third-quarter results, salary, benefits, they were down slightly, yet you had a pretty big - an increase in mortgage revenues. I would have thought maybe salaries would have been - compensation would have been up a little bit more. I know last quarter you talked about health insurance claims were up some. I think you said like $900,000. Was that part of the offset or what were the dynamics there?
Really, what it is, is that some of the offset of that is our - I'll go back to the commission and incentive. Yes, the commission and the incentive-based compensation, there was a $1 million increase in that. If you exclude with that, salaries and employee benefits was done over $1 million, about $1.5 million. So we have made significant progress on our salaries and employee benefits that's a little bit mass this quarter just because of higher levels of incentives and you see it reflected in the results whether it's the balance sheet growth, whether it's the mortgage income, whether it's the wealth management income, and insurance income, all of those are up and they're all largely commission-based. But we did - we did experience larger reductions in our salaries and employee benefits than maybe what is shown in the GAAP reported numbers just because of adjustments that we had in incentive-based compensation.
Okay, fair enough. And then, Kevin, just one final question, the tax rate. I guess it ticked up a little bit, 33.5% this quarter. What should we use going forward?
I think that 33.5% is a tax run rate.
Our next question is a follow-up question from Matt Olney of Stephens. Please go ahead.
I think in the past you have given us some mortgage detail as far as mortgage production, mortgage sales, and gain on sale margin. Do you have that in front of you from the third quarter and then how that changed from the second quarter?
Yes, Matt. This is Jim. In the second quarter, and really where we have been running for the year is in the more of the margin of more in the 1.75, 2 range. We were able to boost that margin for the reasons I mentioned earlier to more in the 2, 2.25 range, and believe that will be more a range we can maintain going forward.
And any more detail, Jim, as far as the production volume and sales volume in 3Q versus 2Q?
Sure, as I mentioned, we were down about 30 million in volumes. 605 was our volume for Q2. We were 575 million for Q3. In Q2, we were 31% wholesale. We were 42% wholesale in Q3. And that was somewhat by design, in the Q2, we were going through some conversion, and we actually backed off a little in some of our wholesale clients just not to risk any degradation of service to them and brought them back online during the third quarter, so that boosted our wholesale back up to about 42%. We try to run in that 60/40, 60% retail, 40% wholesale work, so that kind of got us more back into that range. Refi percentage, we were 27% in Q2 and we're 38% in Q3 as a result of - we were down about a quarter on average in rate during Q2 after really we had a surge after the Brexit vote, but we have seen that right go back up to more in the 30-year fixed being in the - fixed rate mortgage being in the 3.5 range and the 15-year fixed in the 2.875 [ph] range.
This concludes our question-and-answer session. I would like to turn the conference back over to Robin McGraw for any closing remarks.
Thank you, Nicole. We appreciate everyone's time and the interest that you've expressed in Renasant Corporation. And we look forward to speaking with you again in the near future. Thank you, everyone.
The conference is now concluded. Thank you for attending today's presentation, you may now disconnect.
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