Renasant Corporation — Q3 2013 Form 10-Q
Business context and period. Renasant provides banking, insurance and wealth-management services across Mississippi, Tennessee, Alabama and Georgia. This unaudited report covers the quarter and nine months ended September 30, 2013. Comparisons with 2012 and year-end 2012 are affected by the September 1 acquisition of First M&F Corporation; acquired results are included from the acquisition date. Unless stated otherwise, financial amounts below are in millions.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Net interest income | $38.7 | $33.1 | $106.5 | $99.4 |
| Provision for loan losses | $2.3 | $4.6 | $8.4 | $14.1 |
| Noninterest income | $18.9 | $18.1 | $53.6 | $50.8 |
| Noninterest expense | $46.6 | $38.7 | $121.9 | $112.1 |
| Net income | $6.6 | $7.0 | $22.2 | $19.4 |
| Diluted EPS | $0.24 | $0.28 | $0.85 | $0.77 |
| Tax-equivalent net interest margin | 3.86% | 3.94% | 3.87% | 3.93% |
- Q3 reported net income declined 5.7%; nine-month net income increased 14.8%. Results included after-tax First M&F merger costs of $2.8 million in Q3 and $3.1 million year to date. Excluding those costs, management reported Q3 EPS of $0.34 and nine-month diluted EPS of $0.97.
- Q3 net interest income rose with higher average loan balances, while lower asset yields reduced the margin. Nine-month net interest income also increased; lower funding costs partly offset the decline in earning-asset yields.
- At September 30, total assets were $5,736.0 million, up from $4,178.6 million at year-end 2012; loans were $3,881.5 million versus $2,810.3 million; deposits were $4,834.8 million versus $3,461.2 million. Management attributed much of the growth to First M&F.
- Cash and cash equivalents were $233.1 million. Nine-month operating cash flow was $124.1 million; cash increased $100.7 million from the beginning of the period.
- Long-term debt was $170.5 million and short-term borrowings were $6.6 million. FHLB advances were $76.4 million, with $1,193.4 million of reported unused FHLB availability. Total shareholders’ equity was $657.3 million; book value per share was $20.96.
- Renasant Bank was reported well capitalized: Tier 1 leverage 8.39%, Tier 1 risk-based capital 10.99%, and total risk-based capital 12.12%. The company projected it would remain above well-capitalized requirements under new capital rules effective after January 1, 2015.
Material changes and credit quality
- First M&F was acquired for an aggregate transaction value of approximately $156.8 million, primarily in 6.18 million Renasant shares. It brought 43 banking and insurance locations, and its acquisition-date assets included $899.2 million of loans and $1,325.9 million of deposits. Purchase accounting was preliminary; $90.5 million of goodwill and $25.0 million of core deposit intangible were recorded.
- Q3 efficiency ratio was 78.82%, compared with 73.44% a year earlier; excluding merger costs, management reported 72.46%. The nine-month ratio was 74.17%, or 71.64% excluding merger costs, versus 72.41% in 2012.
- Nonperforming loans were $81.0 million, or 2.09% of loans, including covered loans; nonperforming assets were $154.9 million, or 2.70% of assets. Excluding FDIC-covered assets, nonperforming loans were $30.9 million, or 0.84% of loans. The allowance was $46.3 million, 1.19% of total loans; nine-month net charge-offs were $6.4 million versus $14.4 million in 2012.
- Other real estate owned declined to $57.2 million from $90.3 million at year-end, reflecting dispositions, partly offset by acquired property and transfers from loans. Commercial real estate represented 50.5% of total loans.
Outlook, risks and unusual items
- The filing provides no quantified earnings or revenue guidance. Management highlighted acquisition integration, customer retention, realization of cost savings, economic and interest-rate conditions, credit quality, competition, regulation, and capital needs as factors that could affect results.
- Management said First M&F made the balance sheet less asset-sensitive. In its rate-shock model, a 400-basis-point increase was estimated to raise 12-month net interest income 2.29%; a 100-basis-point decrease was estimated to reduce it 1.65%. Results rely on assumptions and may differ from actual outcomes.
- Four pooled trust preferred securities were nonaccrual, with $27.6 million amortized cost and $16.8 million fair value; their $10.9 million unrealized loss remained a valuation and credit risk. No additional impairment was recognized in the quarter.
- A First M&F shareholder class-action settlement was provisionally approved, subject to a December 19, 2013 court hearing. It involved supplemental disclosures and could result in $435,000 of attorneys’ fees and costs if approved. The filing reported no material change in previously disclosed risk factors, no significant subsequent events, and no material changes to internal control over financial reporting.
Investor verification priorities
- Track First M&F integration, retained customers, cost synergies, and final purchase-accounting adjustments against the preliminary amounts.
- Assess underlying earnings and operating efficiency excluding merger costs, and monitor whether loan growth offsets continuing margin pressure.
- Review credit trends in commercial real estate, delinquent loans, acquired credit-impaired loans, OREO, and allowance adequacy, separating FDIC-covered from uncovered exposures.
- Monitor trust preferred security valuations and cash flows, deposit mix and funding costs, liquidity availability, and capital ratios under new regulatory rules.
- Confirm the court’s final action on the shareholder settlement and any resulting fees or further obligations.