Renasant Corporation (RNST) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021 unless stated otherwise. Renasant provides banking, insurance and wealth-management services across the southeastern United States. Financial amounts below are in millions of dollars unless noted.
Financial performance and condition
- Earnings and revenue: Net income was $33.5 million, down 42% from $57.9 million in Q1 2021. Diluted EPS was $0.60 versus $1.02. Net interest income was $99.6 million, down 9%; noninterest income was $37.5 million versus $81.0 million. Combined net interest and noninterest income was $137.1 million versus $190.7 million.
- Key drivers and margins: Mortgage banking income fell to $9.6 million from $50.7 million, reflecting lower originations and sale margins, and the prior-year period included a $13.6 million positive mortgage-servicing-rights valuation adjustment. Tax-equivalent net interest margin was 2.76%, down from 3.37%. The GAAP efficiency ratio increased to 67.78% from 60.29%; the adjusted ratio was 67.02% versus 63.85%.
- Expenses and credit costs: Noninterest expense declined to $94.1 million from $115.9 million, principally as mortgage-related compensation fell. The company recorded a $1.5 million loan-loss provision, versus none a year earlier. Net charge-offs were $0.9 million, or 0.03% of average loans on an annualized basis, compared with $3.0 million and 0.11%.
- Loans and credit quality: Loans held for investment, net of unearned income, rose to $10.31 billion from $10.02 billion. The allowance for credit losses was $166.5 million, or 1.61% of loans. Nonperforming loans were $52.2 million, 0.51% of loans, broadly unchanged as a share of loans from year-end; nonperforming assets were 0.32% of total assets. Commercial real-estate mortgage loans represented 44.4% of loans, including 28.2% in non-owner-occupied commercial mortgages.
- Liquidity, funding and debt: Total assets were $16.86 billion; deposits were $13.99 billion, up $85.2 million from year-end. Cash and cash equivalents were $1.61 billion, down from $1.88 billion at year-end. Short-term borrowings rose to $111.3 million from $13.9 million, including $100 million of FHLB borrowing; long-term debt was $435.4 million versus $471.2 million. Available FHLB credit lines were $4.05 billion, and the company reported $180 million of unused lines with other banks.
- Cash flow: Operating activities provided $205.8 million, compared with $56.8 million used in Q1 2021. Investing activities used $584.8 million, including securities purchases and an $80 million purchase of bank-owned life insurance; financing activities provided $108.5 million. Cash and cash equivalents decreased $270.5 million during the quarter.
- Capital and shareholder returns: Company CET1, Tier 1 and total risk-based capital ratios were 10.78%, 11.67% and 15.50%, respectively; the Bank’s were 12.95%, 12.95% and 14.04%. These exceeded disclosed well-capitalized thresholds. The quarterly dividend remained $0.22 per share. Shareholders’ equity fell to $2.14 billion from $2.21 billion, chiefly due to a $94.1 million after-tax other-comprehensive loss, largely from securities valuation changes.
Material changes and notable items
- Renasant acquired Southeastern Commercial Finance, an asset-based lender, effective March 1, 2022. The acquisition added $43.9 million of assets, including $28.1 million of loans, and $6.6 million of goodwill; the cash paid, net of cash acquired, was $10.1 million.
- Rising interest rates contributed to a $134.8 million pretax fair-value decline in available-for-sale securities during Q1. Management said the unrealized losses were not credit-related, did not intend to sell the securities and did not expect to be required to sell them before recovery.
- On March 1, the company redeemed the remaining $30 million of its 5.00% fixed-to-floating subordinated notes at par. It also announced plans to eliminate consumer non-sufficient-funds fees and linked-account transfer fees effective January 1, 2023; the affected fees totaled approximately $1.3 million in Q1 2022.
- Loan commitments were $3.25 billion and standby letters of credit were $89.7 million at quarter-end. These are off-balance-sheet commitments and may not all be drawn.
Outlook, commentary and risks
- The filing provides no numerical earnings or revenue guidance. Management described an asset-sensitive position in its rate simulations: an immediate parallel 100-basis-point increase was modeled to raise net interest income by 8.20% over months 1–12 and 10.21% over months 13–24. These are scenario estimates, not forecasts, and depend on assumptions about deposit repricing, prepayments and other behaviors.
- Management noted that rising rates could constrain further reductions in deposit costs or raise funding costs, while mortgage volumes and sale margins had weakened. It aims to grow stable, low-cost deposits, manage expenses and improve efficiency over time.
- Disclosed risks include acquisition integration and retention, economic and interest-rate changes, inflation and monetary policy, credit quality and concentration, funding and liquidity, competition, cybersecurity, regulation, and catastrophic events. The filing reported no material changes to previously disclosed risk factors or market-risk disclosures.
- Available-for-sale securities had $152.5 million of gross unrealized losses at quarter-end. Management’s view that losses were not credit-related does not eliminate potential effects of further rate changes or liquidity needs. The filing also notes that credit-loss estimates rely on uncertain economic forecasts and assumptions.
Important facts for investors to verify
- Whether loan growth and the Southeastern Commercial Finance acquisition produce expected returns without weakening credit quality or increasing integration costs.
- How net interest margin, deposit pricing and borrowing costs respond as market rates change, compared with management’s modeled sensitivity.
- Whether mortgage banking income continues to normalize and how the planned fee changes affect recurring noninterest income.
- Whether unrealized securities losses, including accumulated other comprehensive loss, affect capital, liquidity or the ability to hold investments through recovery.
- How nonperforming loans, restructured loans, commercial real-estate exposures and the allowance for credit losses evolve.
- The share-repurchase disclosure: the filing says no shares were repurchased under the announced $50 million program; 68,688 shares reported as purchased were withheld for taxes on restricted-stock awards.