Renasant Corporation Announces Earnings For the Third Quarter of 2020

TUPELO, Miss., Oct. 27, 2020 (GLOBE NEWSWIRE) -- Renasant Corporation (NASDAQ: RNST) (the “Company”) today announced earnings results for the third quarter of 2020. Net income for the third quarter of 2020 was $30.0 million, as compared to $37.4 million for the third quarter of 2019. Basic and diluted earnings per share (“EPS”) were $0.53 for the third quarter of 2020, as compared to basic and diluted EPS of $0.65 and $0.64, respectively, for the third quarter of 2019.

Net income for the nine months ending September 30, 2020, was $52.1 million, as compared to net income of $129.2 million for the same time period in 2019. Basic and diluted EPS were $0.93 and $0.92, respectively, for the first nine months of 2020, as compared to basic and diluted EPS of $2.21 for the first nine months of 2019.

“Our third quarter results continue to reflect the strong core earnings of our Company and highlight our team members’ commitment to the core operations of the bank,” commented C. Mitchell Waycaster, Renasant President and Chief Executive Officer. “We are proud of the commitment of our team during these uncertain times and the dedication that they have shown to the communities we serve. Our team members have worked countless hours over the past seven months ensuring that our clients’ needs were met, whether by closing a PPP loan or working through our internal deferral process, and they have done this while maintaining the quality that is central to our core ideals. During the third quarter, we continued to build credit reserves and issued subordinated debt, which enhanced our already strong capital position. Looking ahead, we are excited about our Company’s position and our future prospects as we continue to prudently manage our balance sheet by focusing on profitable growth without sacrificing credit quality.”

Paycheck Protection Program and COVID-19 Response Update

Over the course of the Paycheck Protection Program (“PPP”) the Company closed over 11,000 PPP loans in the aggregate amount of $1.31 billion.

The Company reopened its branch lobbies to the public on October 19, 2020, subject to capacity limitations, mask-wearing and social distancing requirements designed to promote the safety of clients and employees. Also, the additional measures the Company implemented to minimize Company employees’ exposure to COVID-19, such as working remotely, reconfiguring work spaces to promote social distancing and adjusting staff levels, remain in place. As discussed in more detail below, in the third quarter of 2020, the Company continued to incur expenses, primarily related to employee overtime and other employee benefit costs, in its response to the COVID-19 pandemic and expects that these elevated expenses will continue in future periods even while conditions presenting significant challenges to growth persist.

Impact of Certain Expenses and Charges

From time to time, the Company incurs expenses and charges in connection with certain transactions with respect to which management is unable to accurately predict when these expenses or charges will be incurred or, when incurred, the amount of such expenses or charges. The following table presents the impact of these expenses and charges on reported EPS for the third quarter of 2020 and for the same period in 2019. The “COVID-19 related expenses” line item in the table below primarily consists of (a) employee overtime and employee benefit accruals directly related to the Company’s response to both the COVID-19 pandemic itself and federal legislation enacted to address the pandemic, such as the CARES Act, and (b) expenses associated with supplying branches with protective equipment and sanitation supplies (such as floor markings and cautionary signage for branches, face coverings and hand sanitizer) and more frequent and rigorous branch cleaning.

A reconciliation of all non-GAAP financial measures disclosed in this release from GAAP to non-GAAP is included in the tables at the end of this release. The information below under the heading “Non-GAAP Financial Measures” explains why the Company believes the non-GAAP financial measures in this release provide useful information and describes the other purposes for which the Company uses non-GAAP financial measures.

Profitability Metrics
The following tables present the Company’s profitability metrics, including and excluding the impact of the mortgage servicing rights (MSR) valuation adjustment, debt prepayment penalties, merger and conversion expenses and COVID-19 related expenses, as applicable, for the dates presented:

Financial Condition

Total assets were $14.81 billion at September 30, 2020, as compared to $13.40 billion at December 31, 2019. Total loans held for investment were $11.08 billion at September 30, 2020, as compared to $9.69 billion at December 31, 2019. Loans held for investment at September 30, 2020 included $1.31 billion in PPP loans.

Total deposits increased to $11.93 billion at September 30, 2020, from $10.21 billion at December 31, 2019. Non-interest bearing deposits increased $1.21 billion to $3.76 billion, or 31.49% of total deposits, at September 30, 2020, as compared to $2.55 billion, or 24.99% of total deposits, at December 31, 2019. The growth in non-interest bearing deposits during the year was primarily driven by the Company’s PPP lending (as loan proceeds have been held as Company deposits until utilization), other government stimulus and client sentiment to maintain liquidity.

Continued Focus on Prudent Capital Management

The Company remains committed to maintaining a strong capital and liquidity position. On October 20, 2020, the Company’s Board of Directors approved a new stock repurchase program (the previous program having just expired), authorizing the Company to repurchase up to $50.0 million of its outstanding common stock, either in open market purchases or privately-negotiated transactions. The new repurchase program will remain in effect for one year or, if earlier, the repurchase of the entire amount of common stock authorized to be repurchased. Notwithstanding the Board’s action, the Company currently has no plans to initiate stock repurchases.

On September 3, 2020, the Company completed the public offering and sale of $100 million of its 4.50% fixed-to-floating rate subordinated notes due September 1, 2035. The subordinated notes were sold at par, resulting in net proceeds, after deducting underwriting discounts and expenses, of approximately $98.3 million. The Company intends to use the net proceeds from this offering for general corporate purposes, which may include providing capital to support the Company’s organic growth or growth through strategic acquisitions, repaying indebtedness, financing investments, capital expenditures and for investments in Renasant Bank as regulatory capital.

At September 30, 2020, Tier 1 leverage capital was 9.17%, Common Equity Tier 1 ratio was 10.80%, Tier 1 risk-based capital ratio was 11.79%, and total risk-based capital ratio was 14.89%. All regulatory ratios exceed the minimums required to be “well-capitalized.”

The Company’s ratio of shareholders’ equity to assets was 14.21% at September 30, 2020, as compared to 15.86% at December 31, 2019. The Company’s tangible capital ratio (non-GAAP) was 8.19% at September 30, 2020, as compared to 9.25% at December 31, 2019.

The PPP loans originated and held on the Company’s balance sheet at September 30, 2020, negatively impacted the Company’s tangible capital ratio by 85 basis points and its leverage ratio by 94 basis points.

Results of Operations

Net interest income was $106.3 million for the third quarter of 2020, as compared to $105.8 million for the second quarter of 2020 and $108.8 million for the third quarter of 2019. Net interest income was $318.7 million for the first nine months of 2020, as compared to $334.8 million for the first nine months of 2019.

The Company continued to experience margin pressure during the third quarter of 2020 as a result of the Federal Reserve’s decision to cut interest rates as well as changes in the mix of earning assets during the quarter due to PPP loans and the excess liquidity on the balance sheet. The Company continued to focus on lowering the cost of funding by growing noninterest-bearing deposits and aggressively lowering interest rates on interest-bearing deposits. The following tables present the percentage of total average earning assets, by type and yield, for the periods presented:

The following tables present reported taxable equivalent net interest margin and yield on loans, including loans held for sale, for the periods presented (in thousands).

PPP loans reduced margin and loan yield by 12 basis points and 23 basis points, respectively, in the third quarter of 2020 and 6 basis points and 14 basis points, respectively, in the first nine months of 2020.

The impact from interest income collected on problem loans and purchase accounting adjustments on loans to total interest income on loans, including loans held for sale, loan yield and net interest margin is shown in the following tables for the periods presented (in thousands).

(1) Includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $2,286, $1,731 and $2,564 for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively. This additional interest income increased total loan yield by 8 basis points, 6 basis points and 11 basis points for the same periods, respectively, while increasing net interest margin by 7 basis points, 5 basis points and 9 basis points for the same periods, respectively.

(1) Includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $6,205 and $10,594 for the nine months ended September 30, 2020 and 2019, respectively. This additional interest income increased total loan yield by 8 basis points and 15 basis points for the same periods, respectively, while increasing net interest margin by 7 basis points and 13 basis points for the same periods, respectively.

For the third quarter of 2020, the cost of total deposits was 40 basis points, as compared to 49 basis points for the second quarter of 2020 and 84 basis points for the third quarter of 2019. The cost of total deposits was 53 basis points for the first nine months of 2020, as compared to 82 basis points for the same period in 2019. The tables below present, by type, the Company’s funding sources and the total cost of each funding source for the periods presented:

Noninterest income for the third quarter of 2020 was $70.9 million, as compared to $64.2 million for the second quarter of 2020 and $38.0 million for the third quarter of 2019. Noninterest income for the first nine months of 2020 was $172.7 million, as compared to $115.8 million for the same period in 2019. Although service charges on deposit accounts increased slightly quarter over quarter, these remain lower year over year and have not yet returned to the pre-pandemic levels. Effective July 1, 2019, the Company became subject to the limitations on interchange fees imposed by the Durbin Amendment under the Dodd-Frank Act, which is reflected in the reduction in fees and commissions on loans and deposits in the first nine months of 2020 as compared to the first nine months of 2019. Mortgage banking income continued to be a strong source of noninterest income for the Company with mortgage production during the third quarter of 2020 of approximately $1.74 billion and year-to-date production of $5.32 billion. The following tables present the components of mortgage banking income for the periods presented (in thousands):

Noninterest expense was $116.5 million for the third quarter of 2020, as compared to $118.3 million for the second quarter of 2020 and $96.5 million for the third quarter of 2019. Noninterest expense was $349.8 million for the first nine months of 2020, as compared to $278.6 million for the same period in 2019. Salaries and benefits expense was $75.4 million for the third quarter of 2020, which represents a decrease of $4.0 million from the previous quarter. Although compensation related to the continued strong mortgage production during the quarter remained elevated, expenses related to overtime and other accruals for employee benefits provided in response to the COVID-19 pandemic decreased. The Company recorded a $2.7 million provision for unfunded commitments in other noninterest expense in the third quarter of 2020, as compared to a $2.6 million provision for unfunded commitments in the second quarter of 2020 and $3.4 million in the first quarter of 2020.

Asset Quality Metrics

At September 30, 2020, the Company’s credit quality metrics remained strong. The Company has continued to monitor borrowers throughout the loan portfolio, with enhanced monitoring of loans remaining on deferral. The Company also continues to focus on those industries more highly impacted by the pandemic, primarily the hospitality and healthcare industries. To provide necessary relief to the Company’s borrowers – both consumer and commercial clients – the Company established loan deferral programs allowing qualified clients to defer principal and interest payments. As of June 30, 2020, approximately 21.5% of the Company’s loan portfolio (excluding PPP loans) was in deferral. The deferral percentage decreased to approximately 5.1% and 2.9%, respectively, as of September 30, 2020 and October 23, 2020.

The Company’s credit quality in future quarters may be impacted by both external and internal factors related to the pandemic in addition to those factors that traditionally affect credit quality. External factors outside the Company’s control could include items such as federal, state and local government measures, the re-imposition of “shelter-in-place” orders, the economic impact of government programs, including additional fiscal stimulus or the re-opening of the Paycheck Protection Program, and the future impact of COVID-19. Internal factors that will potentially impact credit quality include items such as the Company’s loan deferral programs, involvement in government offered programs and the related financial impact of these programs. The impact of each of these items are unknown at this time and could materially and adversely impact future credit quality.

The table below shows nonperforming assets, which includes nonperforming loans (loans 90 days or more past due and nonaccrual loans) and other real estate owned, as well as early stage delinquencies (loans 30-89 days past due) for the periods presented (in thousands).

The implementation of CECL on January 1, 2020, which required purchased credit deteriorated loans to be classified as nonaccrual based on performance, contributed approximately $4.7 million as of September 30, 2020 to the increase in purchased nonaccrual loans.

The table below shows the allowance transition from the former incurred loss allowance model at December 31, 2019 through the day one transition to CECL on January 1, 2020 and the subsequent reserve build-up through the first three quarters of 2020 and the ending allowance under the CECL model at September 30, 2020 (in thousands).

The Company recorded a provision for credit losses of $23.1 million and a reserve for unfunded commitments, which is recorded in other noninterest expense (and discussed above), of $2.7 million for the third quarter of 2020. Net loan charge-offs were $389 thousand, or 0.01% of average loans held for investment on an annualized basis. The continued elevated provision and reserve are driven by qualitative factors related to the uncertainty concerning the COVID-19 pandemic, with limited GDP growth and elevated unemployment rates projected for the remainder of 2020 and into 2021 and 2022, and a potential prolonged economic recovery period.

The provision for credit losses recorded during the third quarter of 2019 was $1.7 million with net charge-offs of $945 thousand, or 0.04% of average loans held for sale on an annualized basis. The Company’s coverage ratio, or the allowance for credit losses to nonperforming loans, was 367.05% as of September 30, 2020, as compared to 329.65% as of June 30, 2020 and 143.61% as of December 31, 2019.

CONFERENCE CALL INFORMATION:

A live audio webcast of a conference call with analysts will be available beginning at 10:00 AM Eastern Time (9:00 AM Central Time) on Wednesday, October 28, 2020.

The webcast can be accessed through Renasant’s investor relations website at www.renasant.com or https://services.choruscall.com/links/rnst201028.html . To access the conference via telephone, dial 1-877-513-1143 in the United States and request the Renasant Corporation 2020 Third Quarter Earnings Conference Call and Webcast. International participants should dial 1-412-902-4145 to access the conference call.

The webcast will be archived on www.renasant.com beginning one hour after the call and will remain accessible for one year. Replays can also be accessed via telephone by dialing 1-877-344-7529 in the United States and entering conference number 10149030 or by dialing 1-412-317-0088 internationally and entering the same conference number. Telephone replay access is available until November 11, 2020.

ABOUT RENASANT CORPORATION:

Renasant Corporation is the parent of Renasant Bank, a 116-year-old financial services institution. Renasant has assets of approximately $14.8 billion and operates more than 200 banking, lending, mortgage, wealth management and insurance offices in Mississippi, Tennessee, Alabama, Florida and Georgia.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS:

This press release may contain, or incorporate by reference, statements about Renasant Corporation that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “projects,” “anticipates,” “intends,” “estimates,” “plans,” “potential,” “possible,” “may increase,” “may fluctuate,” “will likely result,” and similar expressions, or future or conditional verbs such as “will,” “should,” “would” and “could,” are generally forward-looking in nature and not historical facts. Forward-looking statements include information about the Company’s future financial performance, business strategy, projected plans and objectives and are based on the current beliefs and expectations of management. The Company’s management believes these forward-looking statements are reasonable, but they are all inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ from those indicated or implied in the forward-looking statements, and such differences may be material. Prospective investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties and, accordingly, investors should not place undue reliance on these forward-looking statements, which speak only as of the date they are made.

Currently, the most important factor that could cause the Company’s actual results to differ materially from those in forward-looking statements is the continued impact of the COVID-19 pandemic and related governmental measures to respond to the pandemic on the United States economy and the economies of the markets in which the Company operates. In this press release, the Company has addressed the historical impact of the pandemic on the operations of the Company and set forth certain expectations regarding the COVID-19 pandemic’s future impact on the Company’s business, financial condition, results of operations, liquidity, asset quality, capital, cash flows and prospects. The Company believes that its statements regarding future events and conditions in light of the COVID-19 pandemic are reasonable, but these statements are based on assumptions regarding, among other things, how long the pandemic will continue, the duration, extent and effectiveness of the governmental measures implemented to contain the pandemic and ameliorate its impact on businesses and individuals throughout the United States, and the impact of the pandemic and the government’s virus containment measures on national and local economies, all of which are out of the Company’s control. If the Company’s assumptions underlying its statements about future events prove to be incorrect, the Company’s business, financial condition, results of operations, liquidity, asset quality, capital, cash flows and prospects may be materially different from what is presented in the Company’s forward-looking statements.

Important factors other than the COVID-19 pandemic currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following: (i) the Company’s ability to efficiently integrate acquisitions into its operations, retain the customers of these businesses, grow the acquired operations and realize the cost savings expected from an acquisition to the extent and in the timeframe anticipated by management; (ii) the effect of economic conditions and interest rates on a national, regional or international basis; (iii) timing and success of the implementation of changes in operations to achieve enhanced earnings or effect cost savings; (iv) competitive pressures in the consumer finance, commercial finance, insurance, financial services, asset management, retail banking, mortgage lending and auto lending industries; (v) the financial resources of, and products available from, competitors; (vi) changes in laws and regulations as well as changes in accounting standards, such as the adoption of the CECL model as of January 1, 2020; (vii) changes in policy by regulatory agencies; (viii) changes in the securities and foreign exchange markets; (ix) the Company’s potential growth, including its entrance or expansion into new markets, and the need for sufficient capital to support that growth; (x) changes in the quality or composition of the Company’s loan or investment portfolios, including adverse developments in borrower industries or in the repayment ability of individual borrowers; (xi) an insufficient allowance for credit losses as a result of inaccurate assumptions; (xii) general economic, market or business conditions, including the impact of inflation; (xiii) changes in demand for loan products and financial services; (xiv) concentration of credit exposure; (xv) changes or the lack of changes in interest rates, yield curves and interest rate spread relationships; (xvi) increased cybersecurity risk, including potential network breaches, business disruptions or financial losses; (xvii) natural disasters, epidemics and other catastrophic events in the Company’s geographic area; (xviii) the impact, extent and timing of technological changes; and (xix) other circumstances, many of which are beyond management’s control. The COVID-19 pandemic has exacerbated, and is likely to continue to exacerbate, the impact of any of these factors on the Company.

Management believes that the assumptions underlying the Company’s forward-looking statements are reasonable, but any of the assumptions could prove to be inaccurate. Investors are urged to carefully consider the risks described in the Company’s filings with the Securities and Exchange Commission (the “SEC”) from time to time, including its most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are available at www.renasant.com and the SEC’s website at www.sec.gov.

The Company undertakes no obligation, and specifically disclaims any obligation, to update or revise forward-looking statements, whether as a result of new information or to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by federal securities laws.

NON-GAAP FINANCIAL MEASURES:

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains non-GAAP financial measures, namely, earnings, with exclusions, return on average tangible shareholders’ equity, return on average tangible assets, the ratio of tangible equity to tangible assets (commonly referred to as the “tangible capital ratio”), tangible book value per share and the adjusted efficiency ratio. These non-GAAP financial measures adjust GAAP financial measures to exclude intangible assets and/or certain charges (such as, when applicable, COVID-19 related expenses, merger and conversion expenses, debt prepayment penalties and asset valuation adjustments) with respect to which the Company is unable to accurately predict when these charges will be incurred or, when incurred, the amount thereof. With respect to COVID-19 related expenses in particular, management added these expenses as a charge to exclude when calculating non-GAAP financial measures because the expenses included within this line item (as discussed earlier in this release) were readily quantifiable and possess the same characteristics with respect to management’s inability to accurately predict the timing or amount thereof as the other charges excluded when calculating non-GAAP financial measures. Management uses these non-GAAP financial measures when evaluating capital utilization and adequacy. In addition, the Company believes that these non-GAAP financial measures facilitate the making of period-to-period comparisons and are meaningful indicators of its operating performance, particularly because these measures are widely used by industry analysts for companies with merger and acquisition activities. Also, because intangible assets such as goodwill and the core deposit intangible and charges such as merger and conversion expenses and COVID-19 related expenses can vary extensively from company to company and, as to intangible assets, are excluded from the calculation of a financial institution’s regulatory capital, the Company believes that the presentation of this non-GAAP financial information allows readers to more easily compare the Company’s results to information provided in other regulatory reports and the results of other companies. Reconciliations of these other non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the table at the end of this release under the caption “Reconciliation of GAAP to Non-GAAP.”

None of the non-GAAP financial information that the Company has included in this release is intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. Investors should note that, because there are no standardized definitions for the calculations as well as the results, the Company’s calculations may not be comparable to similarly titled measures presented by other companies. Also, there may be limits in the usefulness of these measures to investors. As a result, the Company encourages readers to consider its consolidated financial statements in their entirety and not to rely on any single financial measure.