Renasant Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Renasant provides banking, insurance and wealth-management services across the southeastern United States. Amounts below are in millions unless noted. Southeastern Commercial Finance, an asset-based lender, was acquired effective March 1, 2022.
Financial performance
- Q2 results: Net income was $39.7 million, down 2.9% from $40.9 million a year earlier; diluted EPS was $0.71 versus $0.72. Net interest income was $113.5 million, up 3.6%; noninterest income was $37.2 million, down 21.8%. Combined net interest and noninterest income was $150.7 million versus $157.2 million.
- First-half results: Net income was $73.2 million, down 25.9% from $98.8 million; diluted EPS was $1.30 versus $1.75. Net interest income was $213.1 million, down 2.8%, and noninterest income was $74.7 million, down 42.0%. Combined net interest and noninterest income was $287.8 million versus $347.9 million.
- Margins and expenses: Tax-equivalent net interest margin was 3.11% in Q2 versus 3.19% a year earlier, and 2.94% for the first half versus 3.28%. Q2 noninterest expense fell to $98.2 million from $108.8 million; first-half expense fell to $192.3 million from $224.7 million. GAAP efficiency ratio was 64.37% for Q2 and 66.00% for the first half.
- Key revenue shift: Mortgage banking income fell to $8.3 million in Q2 from $20.9 million, and to $17.9 million for the first half from $71.6 million. Management attributed the decline to normalized mortgage production and compressed secondary-market margins as rates rose. Service charges and wealth-management revenue increased.
Financial position, cash flow and capital
- Total assets were $16.62 billion at June 30, down from $16.81 billion at year-end 2021. Loans held for investment, net of unearned income, grew 5.8% to $10.60 billion; total deposits declined 1.0% to $13.76 billion. Noninterest-bearing deposits were 34.45% of deposits.
- Cash and cash equivalents were $1.01 billion, down from $1.88 billion at year-end. First-half operating cash flow was $349.7 million; investing activities used $1.09 billion and financing activities used $130.0 million, producing a net cash decrease of $867.5 million.
- Short-term borrowings were $112.6 million and long-term debt was $431.6 million, for total borrowings of $544.2 million. Available FHLB borrowing capacity was $4.04 billion; the company also had $180 million in unused bank lines.
- Shareholders’ equity was $2.12 billion, down from $2.21 billion, largely reflecting a $145.0 million first-half after-tax other comprehensive loss, principally unrealized securities losses. Book value per share fell to $37.85 from $39.63.
- At June 30, company capital ratios included 10.74% CET1, 11.60% Tier 1 risk-based capital and 15.34% total risk-based capital. The bank’s corresponding ratios were 12.81%, 12.81% and 13.87%; both were above stated well-capitalized thresholds.
Credit quality and material changes
- The allowance for credit losses was $166.1 million, or 1.57% of loans, versus $164.2 million at year-end. The company recorded $3.5 million of first-half loan-loss provision, compared with none in the prior-year period; management cited loan growth and a slightly weaker economic forecast.
- First-half net charge-offs were $3.2 million, or 0.06% of average loans, versus $3.8 million, or 0.07%, a year earlier. Nonperforming loans were $44.5 million, or 0.42% of loans, down from $50.8 million and 0.51% at year-end. Nonperforming assets were 0.28% of total assets.
- Restructured loans performing under modified terms rose to $30.0 million from $20.3 million at year-end. Commercial real estate represented 44.49% of total loans; commercial real estate and 1–4 family mortgages together represented about 73%.
- Available-for-sale securities had $227.2 million of gross unrealized losses at quarter-end, versus $31.0 million at year-end. Management said it did not intend to sell loss-position securities, expected to recover amortized cost, and attributed losses to non-credit factors. Held-to-maturity securities had $64.3 million of gross unrealized losses and a $424.7 million fair value versus $488.9 million amortized cost.
Outlook, commentary and risks
- The filing gives no quantified earnings or revenue guidance. Management said rising rates may limit further deposit-cost reductions and could increase deposit costs. The company described itself as asset-sensitive in its modeled rate scenarios: an immediate +100 basis-point shock increased projected net interest income 6.40% over 1–12 months, while a −100 basis-point shock reduced it 11.51%. These estimates rely on assumptions and are not forecasts.
- The company purchased $701.6 million of securities in the first half, deploying excess liquidity amid rate-driven valuation declines. It also purchased $80 million of bank-owned life insurance and redeemed $30 million of subordinated notes in March.
- Consumer non-sufficient-funds and linked-account transfer fees are scheduled to be eliminated January 1, 2023; the eliminated fees totaled approximately $2.6 million in the first half of 2022. The $50 million share-repurchase authorization remained in place, but no shares were repurchased under it during Q2.
- Disclosed risks include interest-rate and liquidity exposure, inflation and economic deterioration, credit concentration and borrower repayment capacity, acquisition integration, competition, cybersecurity, regulation, and catastrophic events. The filing reported no material changes to previously disclosed risk factors or market risk since year-end. Disclosure controls were considered effective; no material internal-control change was reported.
Investor verification priorities
- Track the effect of further rate increases on net interest margin, deposit pricing and funding mix.
- Assess securities valuation changes, AOCI and potential capital sensitivity if liquidity needs require sales.
- Monitor loan growth, commercial real estate concentrations, criticized and restructured credits, provisions and charge-offs.
- Separate recurring earnings from the sharp mortgage-banking decline and prior-year MSR valuation benefit.
- Review integration and performance of Southeastern Commercial Finance and the future impact of fee eliminations.