Renasant Corporation (RNST) — Q1 2024 Form 10-Q
Business context and period. Renasant is a Southeast-focused bank and financial services company, with insurance, wealth management, mortgage banking and nationwide factoring and asset-based lending operations. This unaudited report covers the three months ended March 31, 2024; comparative income and cash-flow figures are for Q1 2023. Unless noted, dollar amounts below are in millions.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior date |
|---|---|---|
| Net interest income | $123.3 | $135.8 in Q1 2023 |
| Noninterest income | $41.4 | $37.3 in Q1 2023 |
| Net interest income plus noninterest income | $164.7 | $173.1 in Q1 2023 |
| Net income; diluted EPS | $39.4; $0.70 | $46.1; $0.82 in Q1 2023 |
| Net interest margin, tax-equivalent | 3.30% | 3.66% in Q1 2023 |
| Efficiency ratio | 67.52% | 62.11% in Q1 2023 |
| Total assets | $17,345.7 | $17,360.5 at December 31, 2023 |
| Loans held for investment, net of unearned income | $12,500.5 | $12,351.2 at December 31, 2023 |
| Total deposits | $14,237.2 | $14,076.8 at December 31, 2023 |
| Cash and cash equivalents | $844.4 | $801.4 at December 31, 2023 |
| Total shareholders’ equity | $2,322.4 | $2,297.4 at December 31, 2023 |
- Cash flow: Operating activities provided $65.1 million and investing activities provided $30.0 million; financing activities used $52.0 million. Cash and cash equivalents increased $43.0 million during the quarter.
- Borrowings: Short-term borrowings were $108.1 million, down from $307.6 million at year-end. Long-term debt was $428.0 million, versus $429.4 million. The filing reports $2,851.0 million available on FHLB lines and $592.2 million of Federal Reserve Discount Window availability, with no Discount Window borrowings.
- Capital: At March 31, the company’s CET1, Tier 1 risk-based, total risk-based and leverage ratios were 10.59%, 11.37%, 15.00% and 9.75%. The Bank’s respective ratios were 12.31%, 12.31%, 13.56% and 10.57%.
Material changes and management commentary
- Net income fell about 14% year over year, and net interest income declined about 9%. Management attributed the net interest income decline chiefly to higher funding costs: interest expense rose to $89.9 million from $48.3 million, while tax-equivalent interest income increased to $215.7 million from $186.8 million. Average earning-asset yield rose to 5.66% from 4.94%, but the cost of interest-bearing liabilities rose to 3.24% from 1.89%.
- Noninterest income increased, led in part by a $3.5 million pretax gain on the sale of mortgage servicing rights (MSRs). Mortgage banking income was $11.4 million versus $8.5 million. The MSR sale related to loans with $2.0 billion of unpaid principal balance; management disclosed an after-tax EPS benefit of $0.05.
- Noninterest expense increased to $112.9 million from $109.2 million. Management cited lower deferred mortgage origination expense and a $0.7 million FDIC deposit-insurance special assessment among the drivers of higher other expense. The efficiency ratio worsened.
- Loans grew $149.3 million from year-end, with commercial mortgage loans—particularly non-owner-occupied loans—contributing to growth. Deposits rose $160.4 million. Noninterest-bearing deposits declined to 24.70% of deposits from 25.46%; management said customers shifted balances to interest-bearing accounts. Brokered deposits decreased $119.1 million during the quarter.
- The allowance for credit losses on loans was $201.1 million, or 1.61% of loans, compared with $198.6 million, or 1.61%, at year-end. Q1 provision was $2.6 million versus $8.0 million a year earlier, which management primarily attributed to loan growth. Net charge-offs were $0.2 million, or 0.01% of average loans annualized, versus $4.7 million, or 0.16%, in Q1 2023.
- Nonperforming loans were $74.2 million, 0.59% of loans, versus $69.4 million, 0.56%, at year-end. Nonperforming assets were $83.4 million, or 0.48% of assets. The allowance covered 270.87% of nonperforming loans, down from 286.26% at year-end.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Its interest-rate sensitivity analysis indicates an asset-sensitive modeled position: an immediate 100-basis-point increase was estimated to raise net interest income 1.86% over months 1–12 and 3.02% over months 13–24; a 100-basis-point decrease was estimated to reduce it 2.52% and 3.66%, respectively. Management cautions that actual results may differ because the model relies on uncertain assumptions and does not account for future balance-sheet actions.
- Key disclosed risks include interest-rate and funding-cost changes, deposit mix and outflows, credit deterioration and loan concentrations, economic conditions and collateral values, securities valuation, competition, regulation, cybersecurity, and execution and integration of acquisitions. Management reported no material changes to the risk factors in its 2023 Form 10-K.
- Available-for-sale securities had $146.3 million of gross unrealized losses at quarter-end; the company reported no related credit impairment and said it did not intend, and was not more likely than not required, to sell those securities before recovery. A January securities sale generated $177.2 million of proceeds; the related $19.4 million impairment had been recognized in December 2023, with no additional Q1 loss.
- The company’s $100 million share-repurchase authorization remained in effect through October 2024, but no shares were repurchased under that program in Q1. Shares reported as purchased in the quarter were withheld to cover taxes on restricted-stock awards.
- Management stated that disclosure controls were effective and that there was no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit pricing and mix continue to pressure net interest margin, and how actual funding costs compare with management’s modeled assumptions.
- Trends in nonperforming loans, criticized commercial real estate exposures, charge-offs and allowance coverage, particularly as commercial mortgage balances grow.
- Liquidity and deposit concentration, including uninsured and uncollateralized deposits reported at $4,392.8 million, public fund deposits of $2,006.4 million, and reliance on brokered deposits or wholesale funding.
- The sustainability of mortgage banking and other noninterest income, including the one-time $3.5 million MSR-sale gain, and the effect of the MSR portfolio reduction.
- Future operating expenses, the FDIC special assessment, efficiency-ratio progress, and capital ratios relative to regulatory requirements.