Renasant Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Renasant is a regional financial services company operating in seven southeastern states through community banking, insurance and wealth management businesses. Amounts below are in millions unless otherwise noted.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net interest income | $103.3 | $106.3 | $322.5 | $318.7 |
| Noninterest income | $50.8 | $70.9 | $179.4 | $172.7 |
| Noninterest expense | $104.0 | $116.5 | $328.7 | $349.8 |
| Net income | $40.1 | $30.0 | $138.8 | $52.1 |
| Diluted EPS | $0.71 | $0.53 | $2.46 | $0.92 |
| Net interest margin, tax-equivalent | 2.93% | 3.29% | 3.16% | 3.47% |
- Profit and revenue: Q3 net income rose about 34% year over year, while nine-month net income rose about 166%. Nine-month results benefited from much lower credit-loss provisions than in 2020. Q3 noninterest income fell 28%, principally as mortgage banking income declined to $23.3 million from $49.7 million.
- Margins and operating costs: Net interest margin contracted year over year amid low loan yields and a larger share of lower-yielding cash and securities. Deposit and borrowing costs fell, supporting net interest income. The GAAP efficiency ratio was 66.77% in Q3 and 64.85% for nine months; adjusted ratios were 66.06% and 65.66%, respectively.
- Balance sheet and liquidity: Total assets were $16.16 billion at September 30, up from $14.93 billion at year-end 2020. Cash and cash equivalents were $1.48 billion; available-for-sale securities were $2.54 billion. Deposits were $13.25 billion, up $1.20 billion from year-end, including noninterest-bearing deposits of $4.49 billion. Loans held for investment were $10.02 billion, down from $10.93 billion, with PPP loans declining to $67.5 million from $1.13 billion.
- Cash flow and debt: Nine-month operating cash flow was $90.2 million, investing cash outflow $372.3 million and financing cash inflow $1.13 billion; cash increased $842.9 million. Short-term borrowings were $11.3 million and long-term debt $468.9 million at quarter-end. Available FHLB borrowing capacity was $3.98 billion, in addition to $180 million of unused bank lines.
- Credit and capital: The company recorded a $1.2 million recovery of loan-loss provision in Q3 and for the nine-month period, versus provisions of $23.1 million and $76.4 million in the comparable 2020 periods. The allowance was $170.0 million, or 1.70% of loans; nonperforming loans were $56.7 million (0.57% of loans), and nonperforming assets were $61.4 million (0.38% of assets). The company’s CET1 ratio was 11.02% and the Bank’s was 12.45%; both exceeded stated well-capitalized thresholds.
Material changes and management commentary
- Mortgage banking income decreased year over year as loan-sale gains and originations moderated; nine-month income also reflected a $13.6 million positive MSR valuation adjustment, compared with a $13.7 million negative adjustment in 2020. Management said mortgage margins had compressed as rates began to rise and housing inventories remained below demand.
- Management attributed deposit growth partly to government stimulus payments and customers’ preference for liquidity. Noninterest-bearing deposits increased to 33.89% of total deposits from 30.56% at year-end.
- Management reported stable credit metrics overall but noted monitoring of pandemic-sensitive borrowers, particularly hospitality and senior living. At September 30, 41 loans totaling approximately $3.36 million remained on deferral; the deferral program had been discontinued.
- The securities portfolio expanded as the company invested excess liquidity: purchases totaled $1.74 billion in the first nine months. The portfolio had $14.6 million of gross unrealized losses at quarter-end; management said it did not intend to sell the affected securities and did not expect forced sales before recovery or maturity.
Outlook, risks and unusual items
- Guidance: The filing provides no specific earnings or revenue guidance. Management said it aims to improve the efficiency ratio over time through revenue growth and expense control, and continues to evaluate ways to mitigate margin pressure.
- Interest-rate sensitivity: The company described its modeled position as asset-sensitive. A modeled immediate +100-basis-point parallel rate shock indicated net interest income increases of 8.57% over months 1–12 and 12.20% over months 13–24. Results rely on assumptions about repricing, prepayments and deposit behavior; actual outcomes may differ.
- Subsequent events: On October 1, the company redeemed $15 million of subordinated notes at par. On October 27, it prepaid a $150 million FHLB advance and incurred a $6.1 million penalty; it also terminated related swaps and recognized a $4.7 million gain. The filing reports these as post-quarter events.
- Capital returns: The company repurchased approximately $21.3 million of shares in the first nine months. On October 26, the Board authorized a new $50 million repurchase program for up to one year.
- Key risks: The filing identifies pandemic and economic conditions, borrower repayment capacity and credit-loss estimates, interest rates and inflation, competition, acquisition integration, regulation, cybersecurity, and concentration of credit exposure as factors that could affect results. It reports no material change in risk factors from the 2020 Form 10-K and no material change in market risk since year-end 2020.
Important facts for investors to verify
- Whether mortgage banking income and MSR valuations remain sensitive to mortgage rates, prepayment speeds and housing-market activity.
- Whether improving economic forecasts continue to support credit-loss allowance releases, particularly as nonperforming loans rose from 0.51% of loans at year-end to 0.57%.
- Whether deposit growth driven partly by stimulus and liquidity preferences persists, and how the larger cash and securities balances affect future margins.
- The realized cost and interest savings from the October FHLB prepayment, considered alongside the $6.1 million penalty and $4.7 million swap-termination gain.
- Progress under the new $50 million repurchase authorization and the effect of repurchases on capital and per-share results.