Renasant Corporation — Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the quarter and six months ended June 30, 2011. Renasant operates community banking and insurance businesses across Mississippi, Tennessee, Alabama and Georgia. Results include American Trust Bank, acquired from the FDIC on February 4, 2011, and Crescent Bank & Trust, acquired in July 2010. Unless stated otherwise, dollar amounts below are in thousands.
Financial performance and position
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Interest income | $43,775 | $38,381 | $87,578 | $78,089 |
| Net interest income | $32,622 | $23,680 | $63,718 | $48,090 |
| Provision for loan losses | $5,350 | $7,000 | $10,850 | $13,665 |
| Noninterest income | $13,334 | $14,344 | $35,099 | $26,828 |
| Noninterest expense | $32,555 | $26,188 | $69,278 | $51,822 |
| Net income | $5,757 | $3,796 | $13,310 | $7,403 |
| Diluted EPS | $0.23 | $0.18 | $0.53 | $0.35 |
- Q2 net income rose 51.7%; first-half net income rose 79.8%. First-half results included an $8,774 pretax acquisition gain from American Trust.
- Tax-equivalent net interest margin was 3.76% for Q2 and 3.65% for the first half, versus 3.15% and 3.21%, respectively, in 2010. The filing attributes higher net interest income primarily to acquired balances and lower funding costs; earning-asset yields declined.
- Q2 efficiency ratio was 68.59%, compared with 66.75% a year earlier; first-half ratio was 67.99%, versus 67.02%. Higher expenses reflected acquired operations, staffing and other costs.
- Cash from operating activities was $72,148 for the first half. Investing activities provided $162,681, including $148,443 net cash received in the American Trust acquisition; financing activities used $290,333. Cash and cash equivalents ended at $237,165, down from $292,669 at year-end 2010.
- At June 30, total assets were $4.259 billion, total loans $2.563 billion, deposits $3.477 billion, total borrowings $263.1 million and shareholders’ equity $480.1 million. Long-term debt was $247.0 million on the balance sheet, down from $301.1 million at year-end.
- Noninterest-bearing deposits increased to $458.7 million from $368.8 million at year-end, while interest-bearing deposits fell to $3.019 billion from $3.099 billion. Total deposits were broadly stable. Available FHLB credit was $868.1 million; the company also had $85 million in undrawn bank credit lines.
Material changes and asset quality
- Loans increased $38.0 million from year-end, primarily due to American Trust; commercial real estate loans rose while 1–4 family mortgage loans declined. Total assets decreased $38.1 million.
- Borrowings declined $53.4 million from year-end. The company repaid $50 million of FHLB advances and recorded a $1,903 prepayment penalty during the first quarter.
- The allowance for loan losses was $47.6 million, up from $45.4 million at year-end. First-half net charge-offs were $8.7 million, down from $11.7 million in 2010; annualized net charge-offs were 0.68% of average loans, versus 1.01%.
- Nonperforming loans, including FDIC-covered loans, were $141.4 million and nonperforming assets were $269.6 million at June 30. Management’s asset-quality measures excluding covered assets showed nonperforming loans of $52.0 million, or 2.38% of loans, compared with $53.9 million and 2.46% at year-end. Restructured loans excluding covered assets increased to $40.2 million from $32.6 million.
- Other real estate owned and repossessions totaled $128.2 million, slightly above year-end. First-half OREO expense included $1.6 million in write-downs; sales of OREO with $25.2 million cost basis resulted in a $1.8 million net loss.
Outlook, commentary, risks and unusual items
- The filing provides no quantified earnings or margin guidance. Management describes active cost, liquidity and interest-rate risk management; actual outcomes may differ from simulations and forward-looking statements.
- Renasant announced an agreement to acquire RBC Bank (USA)’s Birmingham-based trust department, with approximately $680 million of assets under management. Account and personnel transition was expected to be completed in Q3 2011.
- American Trust was acquired under an FDIC loss-share agreement covering approximately $73.7 million of loans; the FDIC reimburses 80% of eligible losses. Covered acquired loans are carried at acquisition-date fair value and excluded from the allowance calculation; deterioration in expected cash flows could require future provisions. The filing also reports a $149.7 million FDIC loss-share indemnification asset.
- A notable securities item was a $15.445 million gross other-than-temporary impairment charge on available-for-sale securities, substantially offset by $15.183 million recognized in other comprehensive income; the resulting net impairment loss was $262, related to pooled trust preferred securities. Those securities had $30.4 million cost basis and $1.5 million fair value, with significant credit deterioration and uncertain cash-flow assumptions.
- Other risks cited include acquisition integration and customer retention, regional economic conditions, borrower and real-estate credit quality, interest rates, competition, regulation, deposit and funding conditions, and the adequacy of loan-loss estimates. The bank was reported well capitalized; its Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 8.91%, 13.29% and 14.55%.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The filing reported no material changes to the risk factors in the 2010 Form 10-K.
Important facts for investors to verify
- Whether nonperforming, past-due and restructured loans—and elevated OREO—continue to improve, particularly in real-estate categories.
- The assumptions, valuation and potential further impairment of pooled trust preferred securities, and the sensitivity of FDIC-covered loan cash flows and indemnification recoveries.
- How much reported earnings growth reflects recurring operations versus the American Trust acquisition gain, and whether acquired franchises deliver expected integration benefits.
- Deposit mix, cash levels, borrowing reductions and remaining liquidity capacity, including collateral pledged and access to FHLB and bank lines.
- Completion and economics of the RBC trust-department acquisition, and the effect on future revenue and expenses.