RNST Renasant Corporation

TUPELO, Miss., April 28, 2020 /PRNewswire/ -- Renasant Corporation (NASDAQ: RNST) (the "Company") today announced earnings results for the first quarter of 2020. Net income for the first quarter of 2020 was $2.0 million, as compared to $45.1 million for the first quarter of 2019. Basic and diluted earnings per share ("EPS") were $0.04 for the first quarter of 2020, as compared to basic and diluted EPS of $0.77 for the first quarter of 2019.

"Our results for this quarter were heavily impacted by the effect of the COVID-19 pandemic on our clients, employees and communities, which primarily occurred in the final three weeks of the quarter, as well as our adoption of the new CECL accounting standard," said Renasant Chairman, E. Robinson McGraw. "Demonstrating the quality and dedication of Renasant's team members, employees across our footprint responded quickly and selflessly to the needs of our constituents by providing the service and liquidity necessary to weather this global crisis. Looking through the impact of COVID-19 and the adoption of CECL, we had a solid first quarter, and we remain well positioned to continue supporting each of our stakeholders as we navigate the current operating environment."

"Excluding the impact of the pandemic and CECL adoption, our first quarter results reflect our team's commitment to the core operations of the bank," commented C. Mitchell Waycaster, Renasant President and Chief Executive Officer. "Throughout our footprint our team members are continuing to execute our long-term strategy, which is evidenced by our annualized net loan growth of 3.3% and deposit growth of 7.8% in the quarter. Our mortgage division had a tremendous quarter, with over $1.9 billion of production, proving the strength and diversity of our revenue streams. Our credit quality as we ended the quarter remained sound, and we've heightened our monitoring of our loan portfolio, especially the segments most likely to be impacted by shelter-in-place orders and similar measures, in an effort to proactively identify potential deterioration resulting from the impact of the pandemic. In response to the continued economic uncertainty stemming from the COVID-19 pandemic, during the first quarter, we recorded a $29.8 million provision for loan losses and unfunded commitments, which had a material impact to our financial results. Also, we've maintained strong capital and liquidity levels heading into the second quarter."

Response to COVID-19 Pandemic

In late February, in light of reports from abroad about the spread of COVID-19, senior management of the Company began meeting to formulate and implement plans for navigating the Company through a pandemic in its markets. In early March, the Company's Pandemic Planning Committee was formally activated. Throughout March, senior management and Pandemic Planning Committee meetings developed and refined the operational changes necessary to enable Renasant to continue to provide essential banking services in a pandemic environment while ensuring the health and well-being of the Company's employees and clients and promoting community efforts to limit the transmission of the disease.  On account of these early efforts, when the potential impact on the United States from COVID-19 began to become clear and "shelter-in-place" orders were issued throughout the Company's footprint, the Company was prepared to continue to fulfill its mission to serve its key constituents during these challenging times.  The following is a brief overview of some of the steps that the Company has taken in response to the COVID-19 pandemic:

• Our team members: The Company has provided special benefit assistance to minimize the economic impact on employees impacted by the pandemic, whether due to personal exposure, family illness, school closures or disruption in childcare. The Company has also leveraged its investments in its technology infrastructure to enable a significant portion of the Company's employees to work remotely. For employees whose job duties cannot be performed remotely, such as branch tellers, the Company has been creative and proactive in procuring and distributing across its branch network hand sanitizer, disinfectant wipes, face coverings and other supplies necessary to maintain a safe and clean workspace.  Related to this, management was quick to adopt new operating procedures, such as adjusting staffing levels, restricting access to branch lobbies and implementing branch cleaning and closure protocols, intended to minimize the potential of employee exposure to COVID-19.
• Our clients: As stated above, access to branch lobbies is by appointment only (and appointments are generally limited to services, such as access to a safe-deposit box to address a pressing need, that require access inside a branch).  All drive-thrus at the Company's branches remain open, and the Company's mobile and online banking products provide alternate means that clients may leverage to satisfy many of their banking needs.  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 for up to 90 days. Starting in April 2020, the Company has also approved over $1 billion in loans to nearly 4,500 small business clients as part of the SBA's Paycheck Protection Program.
• Our communities: The Company made targeted and intentional efforts to support the needs of the communities we serve across our footprint. From providing meals to underserved students at local schools to purchasing gift cards from local restaurant clients and gifting them to healthcare and other frontline workers, our commitment to the communities in which we operate extends far beyond providing essential banking and financial services.
• Our investors: The Company remains committed to maintaining a strong capital foundation and liquidity position and is proactively taking steps to monitor, address and reduce risks related to the pandemic. The Company has heightened the monitoring of its loan portfolio and believes that it is well positioned to face the uncertainty ahead.

"During the pandemic, we have undertaken tremendous efforts to protect our clients and employees. Through all of this, Renasant has remained open for business. Our Renasant team members, at every level of the Company, have worked tirelessly to adjust to this new operating environment, and we commend, and are deeply grateful for, their outstanding service throughout this challenging time," Waycaster said. "From adjusting our retail branch operations to drive-thru only services to effectively implementing the Paycheck Protection Program application process to provide relief to small businesses to guiding our clients through Economic Impact Payment deposits, Renasant has continued to deliver our banking and lending services both safely and efficiently for our clients." 

As discussed in more detail below, the Company incurred significant expenses in its response to the COVID-19 pandemic and expects that it will continue to incur elevated expenses even while conditions presenting significant challenges to growth persist. It is difficult to accurately predict at this time the duration of this new operating reality. Management's decision on when to return to pre-pandemic operating procedures will take into account the best interests of all of the Company's stakeholders.

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 first quarter of 2020 (in thousands, except per share data). There were no such expenses and charges during the first quarter of 2019. The "COVID-19 related expenses" line item in the table below primarily consists of employee overtime and employee benefit accruals directly related to the Company's response to the COVID-19 pandemic and expenses associated with supplying branches with protective equipment and sanitation supplies as well as 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 table presents the Company's profitability metrics, including and excluding the impact of the mortgage servicing rights (MSR) valuation adjustment, merger and conversion expenses and COVID-19 related expenses, as applicable, for the dates presented:

Financial Condition

Total assets were $13.90 billion at March 31, 2020, as compared to $13.40 billion at December 31, 2019. Total loans held for investment were $9.77 billion at March 31, 2020, as compared to $9.69 billion at December 31, 2019.

Total deposits increased to $10.41 billion at March 31, 2020, from $10.21 billion at December 31, 2019. Non-interest bearing deposits increased $90.3 million to $2.64 billion, or 25.37% of total deposits, at March 31, 2020, as compared to $2.55 billion, or 24.99% of total deposits, at December 31, 2019.

Continued Focus on Prudent Capital Management

The Company remains committed to maintaining a strong capital and liquidity position, while also serving the needs of each of its stakeholders during these uncertain times.

During the first quarter of 2020, the Company suspended its stock repurchase program in response to the COVID-19 pandemic. Prior to the suspension, the Company repurchased $24.5 million of common stock at a weighted average price of $30.00. There is $5.5 million of repurchase availability remaining under the $50.0 million stock repurchase program, which will remain in effect until the earlier of October 2020 or the repurchase of the entire amount of common stock authorized to be repurchased by the Board of Directors.

At March 31, 2020, Tier 1 leverage capital ratio was 9.90%, Common Equity Tier 1 ratio was 10.63%, Tier 1 risk-based capital ratio was 11.63%, and total risk-based capital ratio was 13.44%. All regulatory ratios exceed the minimums required to be considered "well-capitalized."

Our ratio of shareholders' equity to assets was 14.91% at March 31, 2020, as compared to 15.86% at December 31, 2019. Our tangible capital ratio (non-GAAP) was 8.48% at March 31, 2020, as compared to 9.25% at December 31, 2019.

The Company adopted the current expected credit loss accounting standard ("CECL") on January 1, 2020, which resulted in a $42.5 million increase to the allowance for credit losses and a $10.4 million increase to the reserve for unfunded commitments. The following table presents the impact to our balance sheet on the date of adoption:

The Company has elected to take advantage of transitional relief offered by the Federal Reserve and FDIC to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transitional period to phase out the capital benefit provided by the two-year delay. Therefore, the Company's regulatory capital ratios were not impacted by the adoption of CECL as of March 31, 2020.

Results of Operations

Net interest income was $106.6 million for the first quarter of 2020, as compared to $108.9 million for the fourth quarter of 2019 and $113.1 million for the first quarter of 2019. The Company experienced some pressure on margin during the first quarter of 2020 as a result of the Federal Reserve's decision to cut interest rates. To offset the negative impact of the rate cuts, the Company has continued to focus on lowering the cost of funding through growing noninterest-bearing deposits and lowering interest rates on interest-bearing deposits, while also continuing to be opportunistic when rates offered on wholesale borrowings are advantageous. The following table presents reported taxable equivalent net interest margin and yield on loans, including loans held for sale, for the periods presented (in thousands).

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 table for the periods presented (in thousands).

For the first quarter of 2020, the cost of total deposits was 72 basis points, as compared to 76 basis points for the fourth quarter of 2019 and 79 basis points for the first quarter of 2019. The table below presents, by type, our funding sources and the total cost of each funding source for the periods presented:

Noninterest income for the first quarter of 2020 was $37.6 million, as compared to $37.5 million for the fourth quarter of 2019 and $35.9 million for the first quarter of 2019.  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 quarter of 2020 and the fourth quarter of 2019 as compared to the first quarter of 2019. Mortgage banking income for the first quarter of 2020 was $15.5 million, compared to $15.2 million for the fourth quarter of 2019 and $10.4 million for the first quarter of 2019. The income generated from mortgage production during the first quarter of 2020, which approximated $1.9 billion, was partially offset by the negative MSR valuation adjustment. The following table presents the components of mortgage banking income for the periods presented:

Noninterest expense was $115.0 million for the first quarter of 2020, as compared to $95.6 million for the fourth quarter of 2019 and $88.8 million for the first quarter of 2019. Salaries and benefits expense was $73.2 million for the first quarter of 2020, which represents an  increase of $5.5 million from the previous quarter.  Mortgage commissions and incentives related to the increased mortgage production during the quarter increased $5.5 million dollars on a linked quarter basis, and during the quarter the Company recognized approximately $2.5 million in expense related to elevated overtime and other accruals for employee benefits provided in response to the COVID-19 pandemic. The increase in other noninterest expense on a linked quarter basis was driven by a $3.4 million provision for unfunded commitments due to the adoption of CECL and an increase of $1.2 million in FDIC assessments due to the exhaustion of certain credits. In addition, other noninterest expense increased due to volatility in deferred loan origination costs due to decreased loan production during the quarter when compared to the fourth quarter.

Asset Quality Metrics

At March 31, 2020, the  Company's credit quality metrics remained strong.  Due to the high levels of uncertainty in the economy, the Company is closely monitoring its entire loan portfolio to ascertain the impact of COVID-19 and the broad shut-down of the United States economy on the Company's borrowers.  The Company has placed heightened attention on borrowers in the hospitality (such as hotel/motel), restaurant, entertainment and retail trade industries, among others. It should be noted, the Company does not have material exposure to the energy industry.  Although the Company expects the COVID-19 pandemic and related federal, state and local governmental measures enacted to arrest the virus's spread to negatively impact the Company's credit quality, at this time it is difficult to accurately predict the extent of such impact.  Numerous COVID-19 related factors, such as the duration of "shelter-in-place" orders, the effect of government aid to borrowers as well as the Company's loan deferral program and other accommodations for its clients, and the speed and extent to which the United States and local economies recover, will contribute to the aggregate impact of the current economic circumstances on the Company's credit quality in future quarters.

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. 

The implementation of CECL on January 1, 2020, which required purchased credit deteriorated loans to be classified as nonaccrual based on performance, contributed approximately $5.7 million to the increase in purchased nonaccrual loans.

As mentioned above, the Company adopted CECL on January 1, 2020 and recorded an approximately $42.5 million increase to the allowance for credit losses and a $10.4 million increase in reserve for unfunded commitments. 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 to the ending allowance under the CECL model at March 31, 2020.

The Company recorded a provision for credit losses of $26.4 million and a reserve for unfunded commitments of $3.4 million for the first quarter of 2020. Net loan charge-offs were $811 thousand, or 0.03% of average loans held for investment on an annualized basis. The majority of the remainder of the first quarter 2020 provision is due to the uncertain economic conditions resulting from the COVID-19 pandemic with offsets due to both the government stimulus package and internal relief programs being offered to both commercial and consumer customers.

The provision for credit losses recorded during the first quarter of 2019 was $1.5 million with net charge-offs of $691 thousand, or 0.03% 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  240.19% as of March 31, 2020, as compared to 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 on Wednesday, April 29, 2020.

The webcast can be accessed through Renasant's investor relations website at www.renasant.com or https://services.choruscall.com/links/rnst200429.html. To access the conference via telephone, dial 1-877-513-1143 in the United States and request the Renasant Corporation 2020 First Quarter and Year-end Earnings Webcast and Conference Call. 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 10142131 or by dialing 1-412-317-0088 internationally and entering the same conference number. Telephone replay access is available until May 13, 2020.

ABOUT RENASANT CORPORATION:

Renasant Corporation is the parent of Renasant Bank, a 115-year-old financial services institution. Renasant has assets of approximately $13.9 billion and operates more than 200 banking, 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 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, 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 and extent 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, 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, 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 described herein effective 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 is likely 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, 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. 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 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.