Renasant Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Financial statements are unaudited. Dollar amounts below are in thousands, except per-share data and ratios.
Business context and financial results
Renasant is a regional bank holding company operating banking, insurance and wealth-management businesses across Mississippi, Tennessee, Alabama and Georgia. The comparison period is the three months ended March 31, 2014.
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Net income | $15,240 | $13,597 |
| Diluted EPS | $0.48 | $0.43 |
| Net interest income | $48,842 | $49,971 |
| Net interest margin, tax-equivalent | 4.03% | 4.04% |
| Noninterest income | $21,904 | $18,616 |
| Noninterest expense | $47,414 | $47,645 |
| Efficiency ratio | 65.41% | 67.85% |
| Cash dividends per share | $0.17 | $0.17 |
Net income increased 12.1% year over year. Higher mortgage-sale gains and lower funding costs helped offset lower net interest income. Mortgage-loan sale gains rose to $4,633 from $1,585; mortgage originations for sale increased to $185,595 from $104,353. Management attributed earnings improvement to lower funding costs, higher noninterest income, expense discipline and improved credit trends.
Balance sheet, cash flow and liquidity
- Total assets were $5.882 billion at March 31, 2015, up from $5.805 billion at year-end 2014. Total loans were $3.954 billion, down from $3.988 billion; deposits rose to $4.943 billion from $4.838 billion.
- Cash and cash equivalents were $174,379, compared with $161,583 at year-end. Operating cash flow was negative $54,344, versus positive $20,260 a year earlier, largely reflecting increased mortgage-loan funding for sale. Financing activities provided $72,261, including $104,351 of deposit growth; investing activities used $5,121.
- Short-term borrowings declined to $6,732 from $32,403; long-term debt was $155,581. The Bank had $1.571 billion available on unused FHLB lines and $70,000 in other bank credit lines, with no amounts drawn on the latter at quarter-end.
- Shareholders’ equity was $723,196; book value per share was $22.88. The Company’s total risk-based capital ratio was 13.51%, and the Bank’s was 13.16%; both exceeded the filing’s well-capitalized thresholds.
Material changes and asset quality
- Interest expense fell to $5,324 from $6,206 as deposit costs declined and the funding mix shifted toward lower-cost deposits. However, tax-equivalent loan yield fell to 4.81% from 5.19%, and net interest income declined by $1,129.
- Provision for loan losses decreased to $1,075 from $1,450. Net charge-offs were $1,062, or 0.11% of average loans, essentially unchanged from the prior-year rate. The allowance was $42,302, about 1.07% of total loans.
- Nonperforming loans excluding FDIC-covered assets were $30,175, or 0.79% of loans, versus $30,889, or 0.80%, at year-end. Including covered loans, reported nonperforming loans were $48,215; total nonperforming assets, including OREO and nonaccruing securities, were $92,738, or 1.58% of assets.
- Restructured loans performing under modified terms rose to $21,333 from $14,337, primarily due to one acquired customer relationship. OREO declined to $31,686 from $34,472.
- The FDIC loss-share indemnification asset declined to $8,934 from $12,516. Covered assets are subject to 80% loss-sharing, with commercial-asset claim periods for the Crescent and American Trust portfolios ending in 2015 and 2016, respectively.
Outlook, risks and unusual items
- Management said it expects the efficiency ratio to continue improving from 2014 levels through revenue growth and expense control. No numerical earnings or revenue guidance was provided.
- The proposed all-stock acquisition of Heritage Financial Group was awaiting shareholder approvals after regulatory approvals were received in Q1. The filing cited approximately $1.8 billion of assets, $1.1 billion of loans, $1.4 billion of deposits and 48 offices for the transaction’s footprint, based on the stated December 31, 2014 figures. A shareholder class-action lawsuit seeks damages and an injunction blocking the merger vote and consummation.
- Mortgage production and related gains were unusually strong compared with Q1 2014; the sustainability of those gains depends partly on rates and mortgage-market activity. Management also cited credit, interest-rate, liquidity, competition, regulatory and acquisition-integration risks.
- Two of four pooled trust-preferred securities remained nonaccrual; their aggregate fair value was $20,126 against amortized cost of $26,057. Management recorded no additional other-than-temporary impairment in the quarter. Interest-rate sensitivity models showed projected 12-month net interest income increasing 1.24% in a +100-basis-point shock and decreasing 2.51% in a −100-basis-point shock; management cautioned that actual outcomes may differ from model assumptions.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no significant subsequent event through issuance of the statements.
Key facts for investors to verify
- Whether the Heritage merger received shareholder approval, closed as proposed, and achieved expected integration and financial benefits.
- Whether mortgage originations and sale gains remain elevated, and how their variability affects earnings and operating cash flow.
- Trends in loan growth, nonperforming and restructured loans, charge-offs, OREO dispositions and allowance adequacy, distinguishing FDIC-covered from non-covered assets.
- Deposit mix and pricing, net interest margin, and actual sensitivity to changes in market rates relative to management’s simulations.
- Valuation, payment status and impairment assumptions for pooled trust-preferred securities, plus developments in the merger-related shareholder lawsuit.