Renasant Corporation — Q1 2021 Form 10-Q
Business context and reporting period. Renasant is a regional banking, insurance and wealth-management company operating across seven southeastern states. This unaudited report covers the three months ended March 31, 2021; comparative income and cash-flow figures are for Q1 2020. Balance-sheet comparisons are to December 31, 2020. Dollar amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2021 / March 31, 2021 | Comparable period / prior date |
|---|---|---|
| Net interest income | $109.6 | $106.6 in Q1 2020 |
| Noninterest income | $81.0 | $37.6 in Q1 2020 |
| Net income; diluted EPS | $57.9; $1.02 | $2.0; $0.04 in Q1 2020 |
| Net interest margin | 3.37% | 3.75% in Q1 2020 |
| Noninterest expense | $115.9 | $115.0 in Q1 2020 |
| Efficiency ratio (GAAP; adjusted non-GAAP) | 60.29%; 63.85% | 78.86%; 68.73% in Q1 2020 |
| Net cash used in operating activities | $(56.8) | $(123.0) in Q1 2020 |
| Total assets; shareholders’ equity | $15,622.6; $2,173.7 | $14,929.6; $2,132.7 at Dec. 31, 2020 |
| Total loans, excluding loans held for sale; allowance | $10,688.4; $173.1 | $10,933.6; $176.1 at Dec. 31, 2020 |
| Total deposits; cash and cash equivalents | $12,736.9; $1,261.9 | $12,059.1; $633.2 at Dec. 31, 2020 |
| Short-term borrowings; long-term debt | $12.2; $467.7 | $21.3; $475.0 at Dec. 31, 2020 |
| Common equity Tier 1 ratio (company; bank) | 11.05%; 12.52% | 10.93%; 12.49% at Dec. 31, 2020 |
Material changes and drivers
- Net income increased sharply from Q1 2020. Key contributors were a $26.4 million credit-loss provision in the prior-year quarter versus none in Q1 2021, and mortgage banking income of $50.7 million versus $15.5 million.
- The mortgage banking result included a positive $13.6 million mortgage-servicing-rights (MSR) valuation adjustment, compared with a negative $9.6 million adjustment a year earlier. Management attributed the 2021 adjustment mainly to higher mortgage rates and slower prepayments. Mortgage originations rose to $1,143.3 million from $715.8 million, while management noted that margins had compressed as rates rose and housing inventories remained constrained.
- Net interest income rose, but net interest margin declined. Lower funding costs supported results, while low asset yields and increased balance-sheet liquidity weighed on margin. Average total earning-asset yield fell to 3.74% from 4.57%; total funding cost fell to 0.38% from 0.85%.
- Deposits increased $677.8 million from year-end, with noninterest-bearing deposits rising to 32.47% of deposits from 30.56%. Management linked deposit growth partly to government stimulus payments and customers’ preference for liquidity. Loans declined $245.2 million from year-end, including PPP loans falling to $860.9 million from $1,128.7 million.
- Operating cash flow remained negative, largely reflecting the timing and volume of mortgage-loan funding and sales. Cash and cash equivalents increased by $628.7 million during the quarter, with financing activities providing $656.0 million, principally from deposit growth.
Outlook, risks and unusual items
- The filing provides no specific earnings or revenue guidance. Management stated a goal of improving the efficiency ratio over time through revenue growth and expense control.
- Management reported stable credit-quality metrics but continued enhanced monitoring of borrowers affected by COVID-19, particularly hospitality and senior living. At March 31, 592 loans totaling approximately $94 million remained on deferral; the program had been discontinued. The filing says these loans were not classified as restructured loans.
- Nonperforming loans were $56.1 million, or 0.52% of total loans, versus $55.5 million and 0.51% at year-end. Net charge-offs were $3.0 million, or 0.11% of average loans annualized, compared with $0.8 million and 0.03% in Q1 2020. The allowance was 1.62% of loans, or 1.76% excluding PPP loans (non-GAAP).
- The allowance for credit losses declined to $173.1 million. Management said improved economic forecasts, principally for unemployment and GDP over its two-year forecast period, meant no additional provision was needed in Q1 2021. Future allowance estimates remain sensitive to economic conditions, borrower performance and management assumptions.
- Interest-rate modeling indicated an asset-sensitive position: an immediate +100-basis-point scenario projected net interest income increases of 9.25% over months 1–12 and 13.19% over months 13–24. These are modeled estimates based on assumptions, not forecasts or guarantees. Management cautioned that actual results may differ.
- Unfunded loan commitments were $2,886.6 million and standby letters of credit were $92.5 million. The company reported $3,681.1 million of available FHLB lines and $180 million in other bank lines, with no amounts drawn on the latter at quarter-end.
- Important earnings-quality items include the MSR valuation change, $1.4 million net gain on securities sales, $2.3 million of PPP referral fees and $0.9 million of life-insurance proceeds included in BOLI income. The company also recorded $0.3 million of restructuring charges and $0.8 million of COVID-related expenses.
- Risks highlighted include COVID-19 and its economic effects, credit deterioration and loan concentrations, interest-rate and liquidity exposure, competition, acquisition integration, regulatory or accounting changes, cybersecurity and natural disasters. The company said there were no material changes to its previously disclosed risk factors or market risk since year-end. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether mortgage banking income and the favorable MSR valuation adjustment are sustainable as mortgage rates, prepayments, origination volumes and margins change.
- Performance of deferred loans, particularly the remaining COVID-19 deferrals and exposures to hospitality and senior living, and any resulting changes in nonperforming loans, charge-offs or provisions.
- How quickly PPP balances run off and whether underlying loan growth offsets the reported decline in loans.
- Whether deposit growth driven partly by stimulus and customer liquidity persists, and how liquidity, funding costs and net interest margin respond as rates change.
- Reconcile reported earnings with adjusted efficiency measures and other non-GAAP figures; confirm the impact of unusual items and the allowance assumptions in subsequent filings.