Business context and reporting period
Renasant Corporation, a regional bank holding company operating across Mississippi, Tennessee, Georgia, Alabama and northern Florida, reported unaudited results for the quarter and nine months ended September 30, 2019. Unless noted otherwise, figures below are in millions of dollars. Comparisons with 2018 are affected by the Brand acquisition, completed September 1, 2018, so 2019 includes a larger portion of Brand’s operations.
Financial performance and condition
- Earnings: Third-quarter net income was $37.4 million, up 17% from $32.0 million; diluted EPS was $0.64 versus $0.61. Nine-month net income was $129.2 million, up 26% from $102.5 million; diluted EPS was $2.21 versus $2.03.
- Revenue and margin: Net interest income was $108.8 million for the quarter, up 9%, and $334.8 million year to date, up 19%. Fully taxable-equivalent net interest margin was 3.98% for the quarter (4.07% in 2018) and 4.14% for the nine months (unchanged). Noninterest income was $38.0 million for the quarter, essentially flat, and $115.8 million for the nine months, up 8%.
- Expenses and efficiency: Noninterest expense rose 2% to $96.5 million for the quarter and 11% to $278.6 million for the nine months. GAAP efficiency ratios were 65.10% and 61.25%, respectively; adjusted non-GAAP ratios were 62.53% and 59.47%.
- Balance sheet and funding: At September 30, total assets were $13.04 billion, loans net of unearned income were $9.31 billion, and deposits were $10.29 billion. Compared with December 31, 2018, loans increased 2.5% and deposits 1.6%. Cash and cash equivalents were $409.7 million, down from $569.1 million at year-end. Short-term borrowings were $205.6 million and long-term debt $228.1 million. Noninterest-bearing deposits increased $288.5 million in the first nine months.
- Credit and capital: The allowance for loan losses was $50.8 million; nine-month provision was $4.1 million versus $5.8 million in 2018. Net charge-offs were $2.3 million, or 0.03% of average loans annualized. Nonperforming loans were $36.2 million, or 0.39% of loans, compared with $26.0 million and 0.29% at year-end. Total capital ratios were 14.07% at the holding company and 13.70% at the Bank. Shareholders’ equity was $2.12 billion.
- Cash flow and shareholder returns: Nine-month operating cash flow was $29.9 million; investing activities used $52.2 million and financing activities used $137.1 million. The company paid $38.2 million in dividends and repurchased $41.6 million of shares during the period. The quarterly dividend was $0.22 per share.
Changes, outlook, and notable items
- Management attributed higher net interest income primarily to Brand-related earning assets and organic loan growth. Deposit pricing pressure increased funding costs: the nine-month cost of total deposits was 0.82%, compared with 0.51% in 2018.
- The company transferred approximately $134.3 million of acquired non-mortgage consumer loans from held for sale to held for investment during the quarter. It also redeemed $30 million of Brand-acquired subordinated notes bearing 8.50% interest.
- A $3.1 million mortgage servicing rights valuation adjustment reduced third-quarter mortgage banking income; management cited faster-than-assumed mortgage prepayments. Management also reported that the Durbin Amendment reduced third-quarter interchange fees by approximately $3.0 million.
- Management said it expects the efficiency ratio to improve from reported levels through revenue growth and expense control; no specific earnings or revenue guidance was provided. The filing describes the company as asset-sensitive in its interest-rate simulations, but results depend on assumptions about rates, deposit repricing, prepayments and customer behavior.
- Risks highlighted include acquisition integration and retention, economic and interest-rate changes, credit quality and loan concentrations, competition, regulation, cybersecurity, and natural disasters. The company was preparing for CECL implementation, required for it beginning in 2020.
- After quarter-end, the company completed its prior $50 million repurchase program in early October and approved a new authorization of up to $50 million on October 15, 2019.
Most important facts for investors to verify
- Whether loan growth and earnings remain strong as acquisition-related comparisons normalize, and whether the Brand integration delivers expected benefits.
- Whether higher deposit costs continue to pressure net interest margin, and how actual results compare with management’s interest-rate sensitivity scenarios.
- The drivers of the increase in nonperforming loans and the adequacy of reserves, particularly given lower coverage of nonperforming loans than at year-end.
- The sustainability of mortgage banking results amid prepayment-driven MSR valuation changes, and the ongoing revenue impact of interchange-fee limits.
- Capital and liquidity effects of the new repurchase authorization, dividends, and forthcoming CECL adoption.