Renasant Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Renasant is a regional banking, insurance and wealth-management company operating across the Southeast. Unless otherwise noted, dollar amounts below are in millions.
Financial performance
- Net income: $45.1, up 33% from $33.8 in Q1 2018. Diluted EPS was $0.77, versus $0.68; the dividend was $0.21 per share, versus $0.19.
- Net interest income: $113.1, up 27%. On a fully taxable-equivalent basis, net interest income was $114.6 and net interest margin was 4.27%, compared with $90.8 and 4.20% a year earlier.
- Other income and expenses: Noninterest income was $35.9, up 6%; noninterest expense was $88.8, up 14%. The GAAP efficiency ratio improved to 59.02% from 62.48%; the adjusted, non-GAAP ratio was 57.62% versus 60.43%.
- Credit costs: Loan-loss provision was $1.5, compared with $1.8. Net charge-offs were $0.7, or 0.03% of average loans on an annualized basis, versus $1.6 and 0.08%.
- Cash flow: Operating activities provided $140.1, investing activities provided $24.9, and financing activities used $172.1. Cash and cash equivalents ended the quarter at $562.1, down $7.0 from year-end.
Financial position and liquidity
- Total assets were $12.86 billion, down from $12.93 billion at December 31, 2018. Loans excluding loans held for sale were $9.09 billion, essentially flat; growth in non-purchased loans was largely offset by reductions in purchased loans.
- Deposits rose to $10.27 billion from $10.13 billion. Short-term borrowings fell to $87.6 million from $387.7 million, while long-term debt was $263.3 million, broadly unchanged.
- Shareholders’ equity was $2.09 billion; book value per share was $35.63. The company’s CET1, Tier 1 and total capital ratios were 11.49%, 12.55% and 14.57%, respectively. The filing states the company exceeded the required capital conservation buffer.
- Available FHLB credit was $3.55 billion; the company also had $150 million in bank lines of credit, with none drawn. Cash, securities and borrowing capacity support liquidity, although public-fund deposits can fluctuate.
Changes, outlook and risks
- Brand acquisition: The September 2018 acquisition materially increased Renasant’s scale and contributed to year-over-year growth in earning assets, revenue and costs. Reported Q1 2018 results do not include Brand; the filing’s unaudited pro forma combined Q1 2018 net income was $40.3 million, versus reported $33.8 million. Comparisons therefore are not fully like-for-like.
- Management attributed higher net interest income mainly to acquired assets, organic loan growth and improved earning-asset yields. Funding costs also rose: total deposit cost was 0.79%, compared with 0.40% a year earlier. Management said it expects further efficiency-ratio improvement through revenue growth and expense control; no earnings or revenue guidance was provided.
- Beginning July 1, 2019, the Durbin Amendment interchange-fee limits are expected to reduce annual interchange income by approximately $10–$11 million. Management said it was developing strategies to offset the impact.
- Management described credit quality as strong, while nonperforming loans increased to $27.0 million from $26.0 million at year-end; the nonperforming-loan ratio was 0.30% versus 0.29%. The allowance was $49.8 million, or 184.83% of nonperforming loans. Brand contributed $3.9 million of nonperforming loans, recorded at acquisition-date fair value.
- Interest-rate modeling showed an asset-sensitive position: a hypothetical immediate 100-basis-point increase projected net interest income increases of 1.96% over 1–12 months and 3.08% over 13–24 months; a 100-basis-point decrease projected declines of 2.69% and 3.57%. The filing cautions that model assumptions are uncertain and actual results may differ.
- Other items include first-quarter adoption of lease accounting, which placed right-of-use assets and lease liabilities on the balance sheet; no material impact from specified newly effective accounting standards; and ongoing CECL implementation, with a preliminary calculation expected in Q2 2019. Management reported no material changes to risk factors or market risk and stated disclosure controls were effective.
Most important facts for investors to verify
- How much reported growth reflects Brand versus organic loan, deposit and fee growth, and how integration benefits compare with acquired expenses.
- Whether deposit-cost increases continue to outpace asset-yield gains and pressure net interest margin.
- Whether management can offset the projected $10–$11 million annual interchange-fee reduction.
- Trends in nonperforming and past-due loans, purchased-loan performance, allowance adequacy and the upcoming CECL estimate.
- Execution against management’s efficiency commentary, liquidity needs and capital plans; confirm the status and remaining capacity of the share-repurchase authorization.