Renasant (RNST) - 2022 Q3 - Quarterly Report

PART I Financial Information Item 1. Financial Statements (Unaudited) The unaudited consolidated financial statements for the period ended September 30, 2022, detail the company's financial position and performance, reflecting asset shifts, mixed income trends, and impacts from rising interest rates Consolidated Balance Sheets Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $16,471,099 | $16,810,311 | ($339,212) | | Cash and cash equivalents | $479,500 | $1,877,965 | ($1,398,465) | | Loans, net | $10,930,648 | $9,856,743 | $1,073,905 | | Total Securities (AFS & HTM) | $2,922,744 | $2,802,409 | $120,335 | | Total Liabilities | $14,378,818 | $14,600,458 | ($221,640) | | Total Deposits | $13,432,124 | $13,905,724 | ($473,600) | | Total Shareholders' Equity | $2,092,281 | $2,209,853 | ($117,572) | | Accumulated other comprehensive loss | ($216,052) | ($10,443) | ($205,609) | - Total assets decreased by $339.2 million from year-end 2021, primarily due to a significant reduction in cash and cash equivalents, which was partially offset by growth in net loans[9] - Shareholders' equity declined by $117.6 million, largely driven by a $205.6 million increase in accumulated other comprehensive loss, reflecting unrealized losses on securities in a rising interest rate environment[9] Consolidated Statements of Income Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $130,318 | $103,292 | $343,462 | $322,519 | | Provision for Credit Losses | $9,800 | ($1,200) | $13,300 | ($1,200) | | Noninterest Income | $41,186 | $50,755 | $115,858 | $179,402 | | Noninterest Expense | $101,574 | $103,999 | $293,873 | $328,711 | | Net Income | $46,567 | $40,063 | $119,792 | $138,838 | | Diluted EPS | $0.83 | $0.71 | $2.13 | $2.46 | - Net income for Q3 2022 increased by 16.2% YoY, driven by higher net interest income. However, for the nine months ended Sep 30, 2022, net income decreased by 13.7% YoY, primarily due to a significant reduction in mortgage banking income from $94.9 million in 2021 to $30.6 million in 2022[11] - The company recorded a provision for credit losses of $9.8 million in Q3 2022, a reversal from the $1.2 million recovery of provision in Q3 2021, reflecting changes in economic outlook and loan growth[11] Consolidated Statements of Comprehensive Income - The company experienced a comprehensive loss of $14.1 million in Q3 2022, compared to a comprehensive income of $31.5 million in Q3 2021. For the nine-month period, the comprehensive loss was $85.8 million versus an income of $124.5 million in the prior year[13] - The significant driver of the comprehensive loss was a large other comprehensive loss of $205.6 million for the first nine months of 2022, primarily from unrealized holding losses on available-for-sale securities, which amounted to $221.0 million (pre-tax)[13] Consolidated Statements of Changes in Shareholders' Equity - Total shareholders' equity decreased from $2.21 billion at the start of 2022 to $2.09 billion at September 30, 2022[16] - Key drivers for the change in shareholders' equity during the first nine months of 2022 include net income of $119.8 million, offset by other comprehensive loss of $205.6 million and cash dividends of $37.5 million[16] Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $463,107 | $90,171 | | Net Cash used in Investing Activities | ($1,587,457) | ($372,260) | | Net Cash (used in) from Financing Activities | ($274,115) | $1,125,027 | | Net (Decrease) Increase in Cash | ($1,398,465) | $842,938 | - There was a significant net decrease in cash and cash equivalents of nearly $1.4 billion in the first nine months of 2022, a sharp contrast to the $842.9 million increase in the same period of 2021. This was primarily driven by a net increase in loans of $1.06 billion and purchases of securities[21] Notes to Consolidated Financial Statements - On March 1, 2022, the Bank acquired Southeastern Commercial Finance, LLC ("SCF"), an asset-based lending company[25] - In September 2022, the Bank formed Renasant Capital Funding Corporation, a real estate investment trust (REIT), to purchase eligible real estate loans in Georgia and Florida for tax benefits and liquidity management[26] - During Q3 2022, the company transferred $882.9 million of securities from the available-for-sale portfolio to the held-to-maturity portfolio, as it has no intention to sell these securities. The related net unrealized loss of $99.7 million remained in accumulated other comprehensive income[35] - The company determined that all unrealized losses on its securities portfolio as of September 30, 2022, resulted from non-credit related factors, and therefore no impairment was recorded[48] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q3 2022 earnings growth from loan expansion and rising rates, offset by a nine-month decline due to normalized mortgage banking income, with stable credit quality and strong capital ratios Financial Condition - Total assets decreased to $16.47 billion at September 30, 2022, from $16.81 billion at December 31, 2021. The acquisition of Southeastern Commercial Finance, LLC on March 1, 2022, added $43.9 million in total assets[201] - Total loans grew by $1.08 billion to $11.11 billion at September 30, 2022, from $10.02 billion at year-end 2021, reflecting strong organic growth[210] - Total deposits decreased by $473.6 million to $13.43 billion. However, noninterest-bearing deposits grew by $109.1 million and represented 35.94% of total deposits, up from 33.93% at year-end 2021[214][215] - On March 1, 2022, the company redeemed the remaining $30.0 million of its 5.00% fixed-to-floating rate subordinated notes[220] Results of Operations Quarterly and YTD Performance Summary | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $46.6M | $40.1M | $119.8M | $138.8M | | Diluted EPS | $0.83 | $0.71 | $2.13 | $2.46 | | Net Interest Income | $130.3M | $103.3M | $343.5M | $322.5M | | Net Interest Margin (Tax-equivalent) | 3.54% | 2.93% | 3.14% | 3.16% | - The increase in net interest income was driven by loan growth and the rising interest rate environment. The net interest margin expanded to 3.54% in Q3 2022 from 2.93% in Q3 2021[229][233] - Mortgage banking income decreased significantly to $12.7 million in Q3 2022 from $23.3 million in Q3 2021. For the nine-month period, it fell to $30.6 million from $94.9 million, as originations normalized toward pre-pandemic levels and margins compressed[253] - Salaries and employee benefits decreased for both the three and nine-month periods, primarily due to lower mortgage commissions and incentives, which offset increases in the company's minimum wage[259] - The GAAP efficiency ratio improved to 58.50% in Q3 2022 from 66.77% in Q3 2021[268] Risk Management Credit Quality Metrics | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Nonperforming Loans (NPLs) | $55,865 | $50,805 | | NPLs to Total Loans | 0.50% | 0.51% | | Allowance for Credit Losses (ACL) | $174,356 | $164,171 | | ACL to NPLs | 312.10% | 323.14% | | Net Charge-offs (YTD Annualized) | 0.06% | N/A | - Net charge-offs for the first nine months of 2022 were $4.8 million, or 0.06% of average loans (annualized), consistent with the same period in 2021[275] - The company's interest rate risk profile is asset sensitive, with a projected 4.72% increase in net interest income over 12 months given an instantaneous +100 basis point rate shock[301] Liquidity and Capital Resources - The company's primary source of funds is core deposits. At September 30, 2022, the company had $3.82 billion of available credit with the FHLB and $180 million in unsecured lines of credit with other banks[305][307][308] Regulatory Capital Ratios (Renasant Corporation) | Ratio | Sep 30, 2022 | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Common Equity Tier 1 | 10.64% | 6.50% | | Tier 1 Capital | 11.47% | 8.00% | | Total Capital | 15.15% | 10.00% | | Tier 1 Leverage | 9.39% | 5.00% | - The company did not repurchase any common stock under its repurchase plan in the first nine months of 2022. A new $100 million stock repurchase program was approved in October 2022[324] Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk since December 31, 2021, referring to its 2021 Annual Report on Form 10-K for detailed information - There have been no material changes in the company's market risk since December 31, 2021[335] Controls and Procedures The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures are effective[337] - No changes in internal control over financial reporting occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[337] PART II Other Information Risk Factors The company reports no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - There have been no material changes from the risk factors set forth in the company's Annual Report on Form 10-K for the year ended December 31, 2021[339] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period, with share repurchases limited to tax-related withholdings for vested restricted stock awards, separate from its public repurchase plan - No unregistered sales of equity securities occurred during the period[340] - During Q3 2022, 8,897 shares were repurchased at an average price of $31.69 per share. These were shares withheld to satisfy tax liabilities on vested restricted stock awards, not open market repurchases under the public plan[341] - The $50.0 million stock repurchase program from October 2021 expired in October 2022 and was replaced with a new $100.0 million program[341] Exhibits This section lists the exhibits filed with the Form 10-Q, including required certifications from the Principal Executive Officer and Principal Financial Officer, and financial data formatted in Inline XBRL - The report includes required certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[342] - Financial statements and notes were formatted in Inline XBRL as part of the filing[342] Signatures