Renasant Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; balance-sheet comparisons are to December 31, 2011 unless noted. Renasant provides banking, insurance and wealth-management services across Mississippi, Tennessee, Alabama and Georgia. Amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net interest income | $32.843 | $31.136 |
| Net interest margin, tax-equivalent | 3.85% | 3.55% |
| Noninterest income | $16.387 | $20.995 |
| Noninterest expense | $36.621 | $35.993 |
| Net income | $5.974 | $7.553 |
| Diluted earnings per share | $0.24 | $0.30 |
| Cash dividends per common share | $0.17 | $0.17 |
| Operating cash flow | $62.609 | $45.499 |
- Net interest income rose 5.5%, as lower funding costs more than offset lower interest income. Interest expense fell to $7.662 million from $12.707 million; tax-equivalent net interest margin improved 30 basis points.
- Net income declined 20.9%. Q1 2011 included an $8.774 million bargain-purchase gain from the American Trust acquisition; that gain was absent in 2012. The effective tax rate was 23.5%, versus 29.0%.
- The efficiency ratio increased to 72.19% from 67.08%; the 2011 ratio benefited from the American Trust gain. Q1 2012 included $0.898 million of debt prepayment penalties.
Financial condition, liquidity and credit
- Total assets were $4,176.5 million, down from $4,202.0 million. Total loans increased to $2,600.0 million from $2,581.1 million; deposits rose to $3,473.2 million from $3,412.2 million.
- Cash and cash equivalents were $174.7 million, down from $209.0 million at year-end. Cash declined $34.3 million during the quarter. Investing activities used $70.9 million and financing activities used $26.1 million; operating activities provided $62.6 million.
- Total liabilities were $3,686.9 million. Long-term debt fell to $163.9 million from $243.2 million, including repayment of a $50 million TLGP note at maturity and $24 million of FHLB advances. The company incurred $0.898 million in FHLB prepayment penalties. FHLB borrowing availability was $1,025.8 million; additional bank lines totaled $70 million and were undrawn.
- Shareholders’ equity was $489.6 million; book value per share was $19.50 versus $19.44 at year-end. Renasant Bank reported capital ratios of 9.21% Tier 1 leverage, 13.07% Tier 1 risk-based and 14.32% total risk-based, and was classified as well capitalized.
- Nonperforming loans, excluding FDIC-covered assets, were $30.4 million, or 1.33% of loans, compared with $34.9 million, or 1.56%, at year-end and 2.61% a year earlier. Including covered assets, nonperforming loans were $110.2 million; total nonperforming assets including OREO and nonaccruing securities were $223.5 million, or 5.35% of assets.
- The allowance for loan losses was $44.2 million, about 1.70% of total loans. Quarterly provision was $4.8 million; net charge-offs were $5.0 million, or an annualized 0.76% of average loans, versus 0.54% a year earlier.
- Other real estate owned declined to $100.4 million from $113.2 million. Q1 included $4.2 million of OREO impairments, of which part increased the FDIC indemnification asset, and $16.4 million of dispositions.
Changes, outlook and risks
- Growth in non-covered loans reflected residential mortgage, commercial real estate and commercial and industrial lending, including production from recently opened locations. Covered loans declined to $318.1 million; eligible covered losses are generally shared 80% with the FDIC.
- Noninterest income fell 22.0%, chiefly because the prior-year acquisition gain did not recur. Fees and commissions and wealth-management revenue increased; deposit service charges declined. Wealth-management revenue benefited from the 2011 RBC trust-department acquisition.
- Management cited ongoing efforts to resolve problem credits and improve the funding mix through core deposits and lower-cost funding. It reported no significant subsequent events and no material changes to previously disclosed risk factors or market risk. Disclosure controls were considered effective.
- The filing provides no specific earnings or financial guidance. Forward-looking risks include economic and interest-rate conditions, acquisition integration and customer retention, competition, regulatory or accounting changes, loan and investment credit quality, credit concentrations, funding and liquidity, and the adequacy of the loan-loss allowance. Management notes that interest-rate simulations depend on assumptions and actual outcomes may differ.
- Investment risk includes pooled trust-preferred securities with $29.5 million amortized cost and $12.9 million fair value; all four positions were nonaccrual. No additional impairment was recorded in Q1, but management had previously recognized credit-related impairment on the holdings.
- Off-balance-sheet commitments included $418.5 million of loan commitments and $46.7 million of standby letters of credit. The filing notes these may not be fully drawn and carry credit risk.
Important facts for investors to verify
- Whether lower funding costs and the 3.85% net interest margin can be sustained as asset yields and interest rates change.
- Underlying earnings excluding the prior-year $8.774 million acquisition gain and comparing recurring expenses, including expansion-related costs and OREO charges.
- Credit trends in commercial real estate, residential land development, nonperforming and restructured loans, and whether charge-offs remain covered by the allowance.
- Valuation, cash-flow assumptions and potential impairment exposure in pooled trust-preferred securities; also monitor FDIC loss-share reimbursements and the indemnification asset.
- Liquidity and funding mix, including deposit stability, pledged securities, debt maturities and actual use of undrawn credit facilities.
- Regulatory capital and the constraints on bank-to-parent dividends, alongside the company’s stated intention to file a replacement shelf registration before the existing registration expires in July 2012.