Renasant Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Renasant is a regional financial services company operating through community banking, insurance and wealth management businesses across the southeastern United States. Dollar amounts below are in millions unless noted.
Financial results and condition
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net interest income | $109.6 | $105.8 | $219.2 | $212.4 |
| Provision for credit losses | $0 | $26.9 | $0 | $53.3 |
| Noninterest income | $47.6 | $64.2 | $128.6 | $101.7 |
| Noninterest expense | $108.8 | $118.3 | $224.7 | $233.3 |
| Net income | $40.9 | $20.1 | $98.8 | $22.1 |
| Diluted EPS | $0.72 | $0.36 | $1.75 | $0.39 |
| Net interest margin, fully taxable equivalent | 3.19% | 3.38% | 3.28% | 3.56% |
- Q2 total net interest income plus noninterest income was $157.2 million, down from $170.0 million a year earlier, primarily reflecting lower mortgage banking income. First-half total was $347.9 million, up from $314.1 million.
- At June 30, total assets were $16.02 billion, up from $14.93 billion at year-end 2020. Deposits were $13.12 billion, up $1.06 billion; noninterest-bearing deposits were $4.35 billion and 33.16% of deposits.
- Loans held for investment were $10.15 billion, down from $10.93 billion at year-end, including PPP loans falling to $246.9 million from $1.13 billion. Available-for-sale securities increased to $2.16 billion from $1.34 billion.
- Cash and cash equivalents were $1.61 billion, versus $633.2 million at year-end. First-half operating cash flow was $49.6 million, investing cash flow was negative $100.3 million, and financing cash flow was positive $1.02 billion, primarily reflecting deposit growth.
- Allowance for loan losses was $172.4 million, or 1.70% of loans (1.74% excluding PPP loans). Nonperforming loans were $56.5 million, 0.56% of loans; nonperforming assets were $61.5 million, 0.38% of assets. First-half net charge-offs were $3.8 million, or 0.07% of average loans annualized.
- Short-term borrowings were $14.9 million and long-term debt was $469.4 million. Available FHLB borrowing capacity was $3.86 billion, with an additional $180 million of bank lines undrawn. The company reported capital ratios above “well capitalized” thresholds: CET1 11.14% at the holding company and 12.59% at the bank.
Material changes and notable items
- Net income roughly doubled in Q2 year over year and increased substantially for the half-year. A major comparison factor was the absence of credit-loss provision expense in 2021, versus $26.9 million in Q2 2020 and $53.3 million in first-half 2020.
- Mortgage banking income declined to $20.9 million in Q2 from $45.5 million, as loan-sale gains fell to $17.6 million from $46.6 million amid compressed margins. First-half mortgage banking income increased to $71.6 million from $61.0 million, including a $13.6 million positive mortgage servicing rights (MSR) valuation adjustment, compared with a $14.5 million negative adjustment in 2020.
- Net interest margin compressed year over year despite higher net interest income. Management cited low market rates and increased liquidity shifting earning assets toward lower-yielding securities and bank balances. Deposit costs declined, while noninterest-bearing deposits grew.
- Noninterest expense declined year over year, notably from lower salaries and occupancy costs. The GAAP efficiency ratio was 68.49% in Q2 versus 68.92%; the adjusted ratio was 67.28% versus 60.89%. For the first half, GAAP efficiency improved to 64.00% from 73.49%, while the adjusted ratio increased to 65.47% from 64.56%.
- Q2 tax expense included a one-time $3.46 million state tax credit benefit; a $3.11 million related investment was fully amortized in noninterest expense. First-half effective tax rate was 22.21%, excluding discrete items as disclosed.
- COVID-19 loan deferrals had been discontinued, but 141 loans totaling about $20.6 million remained deferred at quarter-end. Management said credit metrics were stable, while continuing heightened monitoring of deferred borrowers and hospitality and senior-living exposures.
Outlook, risks and contingencies
The filing provides no quantitative earnings or revenue guidance. Management stated that its goal is to improve the efficiency ratio over time through revenue growth and expense control. Risks highlighted include COVID-19 effects and variants, economic conditions and inflation, interest rates and yield curves, borrower and industry deterioration, credit-loss estimate uncertainty, deposit competition, acquisition integration, regulation, cybersecurity and catastrophic events. The bank’s interest-rate simulations showed an asset-sensitive position under the modeled rising-rate scenarios, but results depend on assumptions about repricing, prepayments and deposit behavior; actual outcomes may differ. The filing reported no material change in market risk since year-end 2020 and no material change in internal controls.
Key investor verification points
- Assess whether the zero-provision period and credit-quality assumptions remain supportable as economic forecasts and borrower performance evolve; monitor nonperforming and restructured loans and remaining deferrals.
- Separate recurring mortgage results from MSR valuation movements, loan-sale gains and PPP fee accretion; evaluate the sustainability of first-half earnings and the one-time tax benefit.
- Track margin trends, deposit growth and mix, and the sustainability of stimulus-related liquidity; review rate sensitivity against actual changes in rates and funding costs.
- Review commercial real estate and other borrower concentrations, collateral assumptions, and the potential impact of deferred or modified loans.
- Confirm liquidity and capital capacity, including the availability and terms of borrowing facilities and restrictions on bank dividends to the holding company.