Renasant Corporation — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Renasant operates a regional bank, insurance agency and wealth-management business across Mississippi, Tennessee, Alabama and Georgia. Unless noted otherwise, dollar amounts below are in millions.
Financial performance and condition
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Net interest income | $33.4 | $32.7 | $66.3 | $63.8 |
| Net interest margin, tax-equivalent | 3.98% | 3.76% | 3.92% | 3.65% |
| Noninterest income | $16.2 | $12.4 | $32.6 | $33.4 |
| Noninterest expense | $36.7 | $31.6 | $73.3 | $67.6 |
| Net income | $6.3 | $5.8 | $12.3 | $13.3 |
| Diluted EPS | $0.25 | $0.23 | $0.49 | $0.53 |
| Cash dividends per share | $0.17 | $0.17 | $0.34 | $0.34 |
- Q2 net income rose about 10% year over year; first-half net income fell about 7%. First-half 2011 included an $8.8 million American Trust acquisition gain, absent in 2012.
- Q2 efficiency ratio increased to 71.76% from 67.96%, reflecting faster expense growth. First-half ratio was 3.53% of average assets versus 3.13%.
- At June 30, total assets were $4.11 billion, down from $4.20 billion at year-end 2011. Loans grew to $2.68 billion from $2.58 billion; deposits were nearly unchanged at $3.41 billion.
- Cash and cash equivalents were $196.4 million. First-half operating cash flow was $101.3 million; investing activities used $15.0 million and financing activities used $98.9 million, producing a $12.6 million net cash decrease.
- Short-term borrowings were $7.7 million and long-term debt $162.3 million, down from $11.5 million and $243.2 million, respectively, at year-end. The company repaid a $50 million TLGP note at maturity and prepaid $24 million of FHLB borrowings. The bank reported $1.04 billion of unused FHLB credit availability.
Changes, outlook and material risks
- Management attributed improved net interest margin to lower funding costs and a shift toward loans and lower-cost core deposits. Q2 interest expense fell 41% year over year, while earning-asset yields declined.
- Loan growth was driven by residential and commercial real estate, commercial lending and newer branches; de novo locations contributed $68.6 million of first-half loan growth. Growth and acquisitions also contributed to higher salaries, data processing and occupancy costs.
- Credit measures improved: nonperforming loans excluding FDIC-covered assets were $30.0 million, or 1.25% of loans, versus $34.9 million, or 1.56%, at year-end. Total nonperforming assets, including covered assets and nonaccruing securities, were $204.6 million, or 4.97% of assets, compared with $250.1 million, or 5.95%, at year-end. The allowance was $44.8 million; first-half net charge-offs were $9.1 million, up from $8.7 million a year earlier.
- Other real estate owned totaled $96.3 million. First-half OREO expense was $7.4 million, including $4.2 million of impairments; property sales and impairments remain potential sources of earnings volatility.
- The four pooled trust-preferred securities were nonaccrual. Their $12.7 million fair value compared with $29.5 million amortized cost; no additional impairment was recorded in the first half of 2012. Management said it did not expect to be required to sell them before recovery, but their estimated cash flows and valuations remain a risk.
- FDIC loss-share agreements cover eligible losses on specified acquired assets, generally reimbursing 80%; the agreements have limited terms. The related indemnification asset fell to $54.5 million from $107.8 million at year-end, principally reflecting $65.8 million of reimbursements received.
- The bank was classified as well capitalized. At June 30, its Tier 1 leverage, Tier 1 risk-based and total risk-based capital ratios were 9.51%, 12.90% and 14.15%. Proposed Basel III rules could affect future capital requirements and the treatment of trust preferred securities; the company said the impact could not yet be meaningfully assessed.
- No numerical earnings guidance was provided. Management identified economic conditions, interest rates, credit quality, loan and investment concentrations, competition, regulatory changes, acquisition integration and the timing of cost-saving actions as risks to results. It reported no material change in market risks or risk factors from the prior annual filing.
Important facts for investors to verify
- Whether credit-quality improvement continues, particularly in commercial real estate, nonperforming loans and OREO, and how charge-offs compare with provisions.
- The performance, nonaccrual status and recoverable value of the trust-preferred holdings and FDIC-covered assets, including the remaining duration and terms of loss-share protection.
- Whether margin gains can persist as asset yields fall, and whether expense growth from expansion and acquisitions moderates.
- The final effect of Basel III capital rules, especially on capital ratios and trust-preferred securities treatment.