Renasant Corporation — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; balance-sheet comparisons are to December 31, 2015. Renasant provides banking, insurance and wealth-management services across the southeastern United States. Unless stated otherwise, dollar amounts below are in millions.
Financial and operating results
| Metric | Q1 2016 / March 31, 2016 | Comparable period / prior date |
|---|---|---|
| Net interest income | $70.1 | $48.8 in Q1 2015 |
| Noninterest income | $33.3 | $21.9 in Q1 2015 |
| Net income | $21.2 | $15.2 in Q1 2015 |
| Diluted EPS | $0.52 | $0.48 in Q1 2015 |
| Net interest margin, tax-equivalent | 4.21% | 4.02% in Q1 2015 |
| Efficiency ratio | 66.42% | 65.36% in Q1 2015 |
| Total assets | $8,146.2 | $7,926.5 at December 31, 2015 |
| Loans, net of unearned income | $5,572.7 | $5,413.5 at December 31, 2015 |
| Deposits | $6,431.4 | $6,218.6 at December 31, 2015 |
| Cash and cash equivalents | $218.5 | $211.6 at December 31, 2015 |
| Shareholders’ equity | $1,053.2 | $1,036.8 at December 31, 2015 |
Reported net interest income rose about 44% and net income about 39% year over year. Growth reflects the Heritage acquisition, completed July 1, 2015, as well as loan growth and higher mortgage-banking activity; therefore, reported year-over-year comparisons are not like-for-like. The filing’s unaudited pro forma presentation, which assumes Heritage was acquired before both periods, shows net income of $21.2 million in Q1 2016 versus $19.9 million in Q1 2015, while diluted EPS was $0.52 versus $0.59.
Mortgage-banking income increased to $11.9 million from $5.4 million, including $5.8 million of net gains on loan sales. Total noninterest expense rose to $69.8 million from $47.3 million, primarily reflecting Heritage, higher mortgage commissions and other operating costs. The efficiency ratio increased; merger and conversion costs were $0.9 million versus $0.5 million. The provision for loan losses was $1.8 million versus $1.1 million. Cash dividends were $0.17 per common share in both periods.
Cash flows were $40.7 million used in operating activities, $149.4 million used in investing activities and $197.0 million provided by financing activities, producing a $6.9 million increase in cash. Operating cash use reflects, in part, mortgage-loan funding and sales activity. Total short- and long-term borrowings were approximately $561.7 million at quarter-end, comprising $414.3 million short-term borrowings and $147.4 million long-term debt.
Credit, liquidity and capital
- Total nonperforming loans were $44.4 million, or 0.80% of total loans; nonperforming assets were $87.8 million, or 1.08% of total assets. Excluding FDIC-covered assets, nonperforming loans were $37.4 million, or 0.68% of loans.
- The allowance for loan losses was $42.9 million. Net charge-offs were $1.4 million, or 0.10% of average loans on an annualized basis. Management said it considered the allowance adequate; estimates remain subject to change.
- Management reported $1.55 billion of unused FHLB availability and $75 million of unsecured lines with other banks, none drawn at quarter-end. Unfunded loan commitments were $1.05 billion and standby letters of credit were $34.1 million.
- At March 31, the Company’s CET1, Tier 1 risk-based, total risk-based and leverage ratios were 9.88%, 11.38%, 12.17% and 9.19%, respectively. The Bank’s corresponding ratios were 10.98%, 10.98%, 11.76% and 8.86%.
Material changes, outlook and risks
- KeyWorth acquisition: Completed April 1, 2016, after the reporting date. The transaction was valued at approximately $59 million; the Company issued 1,680,021 shares and paid approximately $3.6 million to option and warrant holders. KeyWorth was expected to add approximately $399.3 million of assets, $284.4 million of loans, $347.0 million of deposits and six Atlanta-area locations. Purchase accounting remained subject to finalization.
- Management outlook: No specific earnings or revenue guidance is provided. Management said it expects the efficiency ratio, excluding merger-related costs, to continue improving from 2014 levels through revenue growth and expense control.
- Interest-rate exposure: Management described the balance sheet as slightly asset-sensitive. Its model estimated that an immediate 100-basis-point increase would raise net interest income by 0.75% over 1–12 months and 1.47% over 13–24 months; model assumptions and actual outcomes may differ. The filing did not model a rate decrease.
- Other risks and unusual items: Results depend on acquisition integration and customer retention, credit quality, economic and interest-rate conditions, competition, regulation, and the ability to fund growth. One pooled trust-preferred security remained nonaccrual, with a $5.8 million unrealized loss across the three holdings; no additional impairment was recorded in the quarter. Renasant also sold mortgage servicing rights tied to $1.83 billion of unpaid loan principal for net proceeds of $18.5 million.
- Management reported no material change in market-risk disclosures or risk factors from the 2015 Form 10-K, and said disclosure controls were effective with no material change in internal control over financial reporting.
Important facts for investors to verify
- How Heritage and KeyWorth integration, acquired loan marks and purchase-accounting adjustments affect earnings, capital and customer retention.
- Whether mortgage-banking revenue and gains remain sustainable, and the effect of the mortgage-servicing-rights sale on future servicing income.
- Subsequent credit trends, particularly nonperforming loans, past-due loans, charge-offs and allowance adequacy as the loan portfolio expands.
- Funding mix, deposit stability, short-term FHLB borrowing and liquidity needs, including the scale of unfunded commitments.
- Interest-rate sensitivity and capital headroom as Basel III capital-conservation requirements phase in.