Renasant Corporation — Q3 2011 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2011; balance-sheet comparisons are to December 31, 2010. Renasant provides banking, insurance and trust services across Mississippi, Tennessee, Alabama and Georgia. The period includes American Trust Bank, acquired in February under FDIC loss-share agreements, and the RBC Bank (USA) trust division, acquired August 31.
Financial performance and condition
Amounts below are in millions except per-share data.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Net interest income | $32.9 | $27.1 | $96.6 | $75.2 |
| Provision for loan losses | $5.5 | $11.5 | $16.4 | $25.2 |
| Noninterest income | $19.6 | $54.5 | $54.7 | $81.4 |
| Noninterest expense | $38.1 | $39.6 | $107.4 | $91.4 |
| Net income | $6.5 | $19.6 | $19.8 | $27.0 |
| Diluted EPS | $0.26 | $0.81 | $0.79 | $1.21 |
- Tax-equivalent net interest margin rose to 3.92% in Q3 from 3.12% a year earlier; nine-month margin was 3.74% versus 3.20%. Lower funding costs contributed: Q3 cost of interest-bearing liabilities fell to 1.15% from 1.93%.
- Q3 efficiency ratio was 70.64% versus 47.68%; nine-month ratio was 68.90% versus 57.01%. The prior-year ratios benefited from the $42.2 million Crescent acquisition gain.
- At September 30, total assets were $4,136.5, loans net of unearned income $2,564.8, deposits $3,342.4, total borrowings $262.6 and shareholders’ equity $487.4. Since year-end 2010, assets fell $160.9, deposits fell $125.8, loans rose $40.2 and borrowings fell $53.9.
- Cash and cash equivalents were $235.3, down from $292.7 at year-end. For the nine months, operating cash flow was $104.7, investing cash flow was $268.0 and financing cash use was $430.1; cash declined $57.4.
- Allowance for loan losses was $48.5, or 1.89% of loans; nine-month net charge-offs were $13.2, down from $19.2 in 2010. Nonperforming loans excluding covered assets were $49.0 (2.22% of loans), versus $53.9 at year-end; nonperforming assets including nonaccruing trust-preferred securities were $272.5, or 6.59% of assets.
- Nonperforming and restructured loans excluding covered assets totaled $84.8, versus $86.5 at year-end. Other real estate owned and repossessions totaled $116.8, down from $126.5.
- Book value per share was $19.45 and tangible book value per share $11.76. The Bank met regulatory capital requirements and was classified as well capitalized; its Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.29%, 13.35% and 14.61%.
Material changes, outlook and risks
- Net income fell 66.6% in Q3 and 26.4% for the nine months year over year. The comparison is materially affected by the $42.2 million Crescent acquisition gain recognized in 2010. 2011 included an $8.8 million American Trust gain for the nine-month period and a $0.6 million gain on the RBC trust acquisition.
- American Trust added $74.4 million of loans and $223.0 million of deposits at acquisition; approximately $73.7 million of acquired loans were covered by FDIC loss-share agreements, which reimburse 80% of eligible losses. The RBC trust division brought approximately $680 million of assets under management.
- Q3 securities-sale gains were $5.0 million. Nine-month other real estate expense rose to $12.0 million and included $6.8 million of write-downs; sales of OREO generated net losses. Q3 OREO expense included $5.2 million of write-downs.
- Available-for-sale pooled trust-preferred securities had $30.4 million amortized cost and $10.0 million fair value, a $20.4 million unrealized loss. Management said it did not intend to sell and did not believe settlement below amortized cost was likely; valuations depend on issuer credit conditions and assumptions about defaults and deferrals.
- Management cited integration and customer-retention risk for acquisitions, economic and interest-rate conditions, credit quality, loan concentrations, competition, regulation and funding needs. It warned that debit-card interchange restrictions effective October 1, 2011 could adversely affect fees, but could not estimate the impact. The filing provides no quantified earnings or margin guidance.
- Liquidity sources included $847.9 million of remaining FHLB credit availability and $85.0 million of unused bank lines. Unfunded loan commitments were $366.2 million and standby letters of credit $35.3 million. The filing states no material changes in market risk or risk factors from the prior annual report; disclosure controls were reported effective.
Investor verification priorities
- Assess underlying earnings excluding acquisition gains, securities-sale gains and other unusual items, and reconcile reported net interest margin with tax-equivalent measures.
- Review nonperforming, restructured and covered loans; allowance adequacy; OREO valuations and write-downs; and the assumptions behind FDIC loss-share reimbursements.
- Examine the trust-preferred portfolio’s credit performance, valuation inputs and possible future impairment.
- Track deposit trends, liquidity and funding costs, capital ratios, and the integration and retention results from the acquisitions.
- Evaluate the prospective effect of debit interchange regulation and the potential draw on loan commitments and standby letters of credit.