Renasant Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports fourth-quarter results. Amounts below are in millions of dollars unless otherwise noted. Renasant is a regional banking and financial services company operating in seven southeastern states, with Community Banks, Insurance and Wealth Management segments.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Interest income | $498.1 | $542.6 |
| Net interest income | $426.8 | $443.7 |
| Provision for credit losses | $86.9 | $7.1 |
| Noninterest income | $235.5 | $153.3 |
| Noninterest expense | $472.0 | $374.2 |
| Income before taxes | $103.5 | $215.7 |
| Net income | $83.7 | $167.6 |
| Diluted EPS | $1.48 | $2.88 |
- Margins and returns: Net interest margin fell to 3.44% from 4.08%. Return on average assets was 0.58% versus 1.30%; the GAAP efficiency ratio increased to 70.53% from 62.03%. Management’s non-GAAP adjusted efficiency ratio was 64.00% versus 60.48%.
- Balance sheet: Assets were $14.93 billion, up from $13.40 billion. Loans were $10.93 billion versus $9.69 billion; excluding $1.13 billion of Paycheck Protection Program (PPP) loans, loans grew 1.19%. Deposits increased to $12.06 billion from $10.21 billion.
- Liquidity and funding: Cash and cash equivalents rose to $633.2 million from $414.9 million. Noninterest-bearing deposits were 30.56% of deposits, compared with 24.99%. Short-term borrowings declined to $21.3 million from $489.1 million; total borrowings were $496.3 million versus $865.6 million. Available FHLB lines were $3.78 billion.
- Credit quality: Allowance for credit losses on loans was $176.1 million, or 1.61% of loans (1.80% excluding PPP loans), versus $52.2 million and 0.54% in 2019. Nonperforming loans were $55.5 million, or 0.51% of loans, versus $36.3 million and 0.37%. Net charge-offs remained 0.04% of average loans.
- Cash flow: Operating activities provided $82.2 million, investing activities used $1.27 billion, and financing activities provided $1.40 billion. The large financing inflow primarily reflected deposit growth.
- Capital and debt: Shareholders’ equity was $2.13 billion and book value per share was $37.95. The Company’s total risk-based capital ratio was 15.07%; the Bank’s was 13.73%. In September 2020, the Company issued $100 million of 4.50% fixed-to-floating subordinated notes due 2035.
- Fourth quarter: Net income was $31.5 million and diluted EPS was $0.56, compared with $38.4 million and $0.67 in fourth-quarter 2019. Net interest income was $108.1 million versus $108.9 million; provision for credit losses was $10.5 million versus $3.0 million.
Changes, outlook and material items
- Annual net income and diluted EPS fell approximately 50% year over year. Net interest income declined as pandemic-related Federal Reserve rate cuts reduced asset yields; lower funding costs partly offset the pressure.
- Noninterest income rose 53.7%, largely on mortgage banking. Mortgage originations for sale increased to $4.48 billion from $2.38 billion, and mortgage banking income rose to $150.5 million from $57.9 million. Lower rates and faster prepayments also drove an $11.7 million negative mortgage-servicing-rights valuation adjustment.
- The $86.9 million credit-loss provision reflected adoption of CECL on January 1, 2020—including a $42.5 million increase in the loan allowance and $10.4 million reserve increase for unfunded commitments—as well as pandemic-related economic uncertainty. Net charge-offs remained low; management noted that future credit costs depend on the pandemic, economic recovery and borrower performance.
- Expenses included $10.3 million of COVID-related costs, $7.4 million of restructuring charges tied to branch reviews and a voluntary early-retirement program, and $2.0 million to terminate two swaps. Management expected elevated pandemic-related expenses to continue into 2021 and said growth would remain challenged as the economy recovered; the filing provides no specific earnings or revenue guidance.
- At year-end, the Company reported PPP loans of $1.13 billion and continuing loan deferrals. Management identified the pandemic, borrower defaults, commercial real estate exposure, interest-rate movements, cybersecurity and the LIBOR transition among key risks. Commercial real estate loans were approximately 49.5% of total loans; CRE concentration measures were below the stated 100/300 regulatory screening thresholds.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls, while identifying the allowance for credit losses as a critical audit matter because of its estimation complexity and management judgment. No material pending legal proceedings were reported; the notes state that pending claims are not expected to materially affect the financial statements.
Investor verification priorities
- Reconcile COVID loan-deferral disclosures: the MD&A cites 906 loans and approximately $145 million at year-end, while notes cite 622 non-purchased loans/$112 million and 284 purchased loans/$33 million. Confirm the definitions, timing and whether the totals are consistent.
- Review CECL assumptions and subsequent allowance changes, particularly forecasts, commercial real estate, hospitality and healthcare exposures, and purchased loans newly classified as nonaccrual.
- Assess sustainability of mortgage-related earnings and the sensitivity of mortgage servicing rights to prepayments and rates.
- Monitor commercial real estate concentration, uninsured deposits ($3.35 billion), and the maturity and pricing of subordinated notes and other funding.
- Evaluate the effect of continued low rates, economic recovery and the transition away from LIBOR on net interest margin, liquidity and credit quality.