Renasant Corporation (NASDAQ: RNST) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Renasant is a regional financial services company offering banking, insurance, wealth management, factoring and asset-based lending. Unless otherwise stated, dollar amounts below are in millions.
Financial performance and position
| Metric | Q1 2023 / March 31, 2023 | Comparable period / prior date |
|---|---|---|
| Net interest income | $135.8 | $99.6 in Q1 2022 |
| Net interest margin, tax-equivalent | 3.66% | 2.76% in Q1 2022 |
| Noninterest income | $37.3 | $37.5 in Q1 2022 |
| Noninterest expense | $107.7 | $94.1 in Q1 2022 |
| Net income / diluted EPS | $46.1 / $0.82 | $33.5 / $0.60 in Q1 2022 |
| Efficiency ratio | 61.26% | 67.78% in Q1 2022 |
| Total assets | $17,474.1 | $16,988.2 at Dec. 31, 2022 |
| Loans held for investment, net | $11,766.4 | $11,578.3 at Dec. 31, 2022 |
| Total deposits | $13,912.0 | $13,487.0 at Dec. 31, 2022 |
| Cash and cash equivalents | $847.7 | $576.0 at Dec. 31, 2022 |
| Short-term borrowings / long-term debt | $732.1 / $431.1 | $712.2 / $428.1 at Dec. 31, 2022 |
| Shareholders’ equity | $2,187.3 | $2,136.0 at Dec. 31, 2022 |
Interest income rose substantially with higher rates, loan growth and a shift of cash into higher-yielding assets. Higher funding costs partly offset the benefit: interest expense increased to $48.3 million from $10.6 million. The quarterly dividend was $0.22 per share, unchanged from Q1 2022. Cash flow from operations was negative $7.4 million, compared with positive $205.8 million a year earlier; investing activities used $153.2 million and financing activities provided $432.3 million. Cash and cash equivalents increased $271.7 million during the quarter.
Material changes and asset quality
- Deposits grew $425.1 million from year-end, but noninterest-bearing deposits declined $313.9 million. Brokered deposits increased $623.8 million to $856.9 million; noninterest-bearing deposits fell to 30.51% of total deposits from 33.80% at year-end.
- Loans increased $188.1 million from year-end. Commercial real estate mortgages were 43.23% of the loan portfolio; non-owner-occupied commercial real estate mortgages alone were 29.30%.
- Provision for loan credit losses was $8.0 million versus $1.5 million in Q1 2022. The allowance for credit losses was $195.3 million, or 1.66% of loans, compared with $192.1 million at year-end. Management attributed the higher provision to loan growth and a slight deterioration in its economic forecast.
- Net charge-offs were $4.7 million, or 0.16% of average loans on an annualized basis, versus $0.9 million and 0.03% a year earlier. Nonperforming loans increased to $75.3 million (0.64% of loans) from $56.9 million (0.49%) at year-end. Management said the increase was primarily due to two fully secured loans and expected no loss on them.
- Available-for-sale securities had a fair value of $1.508 billion; held-to-maturity securities had a carrying value of $1.300 billion and fair value of $1.204 billion. Management reported no credit impairment on securities in unrealized loss positions and said it did not intend, and was not likely required, to sell them before recovery or maturity. Accumulated other comprehensive loss improved to $192.3 million from $209.0 million at year-end.
- Operating cash flow was affected by mortgage loan funding and sales. Mortgage banking income declined to $8.5 million from $9.6 million, reflecting weaker mortgage activity, while mortgage loans held for sale rose to $159.3 million from $110.1 million at year-end.
Outlook, risks and notable items
The filing provides no specific earnings or financial guidance. Management emphasized liquidity and safe-and-sound operations amid March 2023 banking-sector stress, increasing brokered deposits and borrowings and choosing to hold more on-balance-sheet liquidity. It also described ongoing efforts to grow core deposits, manage deposit pricing and control expenses. Net interest income simulations indicate an asset-sensitive position: a 200-basis-point rate increase was modeled to raise net interest income 5.71% over months 1–12 and 5.76% over months 13–24; a 200-basis-point decrease was modeled to reduce it 8.80% and 10.33%, respectively. These are scenario estimates, not forecasts, and depend on assumptions including deposit repricing and prepayments.
Key disclosed risks include deposit outflows and higher funding costs, further banking-sector instability, interest-rate and securities valuation changes, credit deterioration and concentration, acquisition integration, economic conditions, cybersecurity and regulatory changes. Uninsured and uncollateralized deposits were estimated at $4.148 billion. The Company had $725.0 million of short-term FHLB borrowings, $2.923 billion of remaining FHLB availability, and $180 million of unsecured lines with other banks, none drawn at quarter-end. Regulatory capital ratios remained above stated well-capitalized thresholds: Company CET1 was 10.19% and Bank CET1 was 12.03%.
Noninterest expense increased $13.6 million year over year, including higher salaries and benefits and other expense; management cited wage increases, incentive and insurance costs, RBC acquisition-related compensation, and lower deferred loan origination costs. The first quarter had no merger or conversion expense, unlike $0.7 million in Q1 2022. The Company eliminated consumer nonsufficient-funds and linked-account transfer fees effective January 1, 2023; those fees totaled approximately $1.3 million in Q1 2022. A $100 million repurchase authorization remained in place, but no shares were repurchased under that program in Q1; shares withheld for employee tax obligations are reported separately.
Important facts for investors to verify
- Deposit mix, brokered-deposit levels, uninsured deposit exposure and the cost and availability of funding as conditions evolve.
- Whether higher net interest income can be sustained as deposit and borrowing costs reprice, and how actual results compare with the filing’s rate-shock scenarios.
- Developments in commercial real estate and other criticized or nonperforming loans, charge-offs, and the adequacy of the allowance for credit losses.
- Realized outcomes for securities liquidity and value, including the significant unrealized losses in the held-to-maturity portfolio.
- Trends in mortgage banking, noninterest expense and integration of Republic Business Credit, and any subsequent use of the share repurchase authorization.