XNAS:RNST Renasant Corp Quarterly Report 10-Q Filing - 3/31/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2012

Or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to             

Commission file number 001-13253

 

 

RENASANT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Mississippi   64-0676974

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

209 Troy Street,

Tupelo, Mississippi

  38804-4827
(Address of principal executive offices)   (Zip Code)

(662) 680-1001

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 30, 2012, 25,105,732 shares of the registrant’s common stock, $5.00 par value per share, were outstanding. The registrant has no other classes of securities outstanding.

 

 

 


Table of Contents

Renasant Corporation and Subsidiaries

Form 10-Q

For the Quarterly Period Ended March 31, 2012

CONTENTS

 

          Page  

PART I

   Financial Information   
   Item 1.   

Financial Statements (Unaudited)

  
     

Consolidated Balance Sheets

     1   
     

Consolidated Statements of Income

     2   
     

Consolidated Statements of Comprehensive Income

     3   
     

Condensed Consolidated Statements of Cash Flows

     4   
     

Notes to Consolidated Financial Statements

     5   
   Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     32   
   Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     51   
   Item 4.   

Controls and Procedures

     51   

PART II

   Other Information   
   Item 1A.   

Risk Factors

     52   
   Item 2.   

Unregistered Sales of Equity Securities and Use of Proceeds

     52   
   Item 6.   

Exhibits

     53   

SIGNATURES

     54   

EXHIBIT INDEX

     55   


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Renasant Corporation and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Data)

 

      (Unaudited)
March 31,
2012
    December 31,
2011
 

Assets

    

Cash and due from banks

   $ 83,107      $ 85,684   

Interest-bearing balances with banks

     91,571        123,333   
  

 

 

   

 

 

 

Cash and cash equivalents

     174,678        209,017   

Securities held to maturity (fair value of $370,205 and $344,618, respectively)

     358,039        332,410   

Securities available for sale, at fair value

     476,380        463,931   

Mortgage loans held for sale

     25,216        28,222   

Loans, net of unearned income:

    

Covered under loss-share agreements

     318,089        339,462   

Not covered under loss-share agreements

     2,281,957        2,241,622   
  

 

 

   

 

 

 

Total loans, net of unearned income

     2,600,046        2,581,084   

Allowance for loan losses

     (44,176     (44,340
  

 

 

   

 

 

 

Loans, net

     2,555,870        2,536,744   

Premises and equipment, net

     56,357        54,498   

Other real estate owned:

    

Covered under loss-share agreements

     35,461        43,156   

Not covered under loss-share agreements

     64,931        70,079   
  

 

 

   

 

 

 

Total other real estate owned, net

     100,392        113,235   

Goodwill

     184,879        184,879   

Other intangible assets, net

     7,089        7,447   

FDIC loss-share indemnification asset

     64,195        107,754   

Other assets

     173,395        163,871   
  

 

 

   

 

 

 

Total assets

   $ 4,176,490      $ 4,202,008   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Liabilities

    

Deposits

    

Noninterest-bearing

   $ 535,955      $ 531,910   

Interest-bearing

     2,937,211        2,880,327   
  

 

 

   

 

 

 

Total deposits

     3,473,166        3,412,237   

Short-term borrowings

     7,830        11,485   

Long-term debt

     163,923        243,224   

Other liabilities

     41,960        47,860   
  

 

 

   

 

 

 

Total liabilities

     3,686,879        3,714,806   

Shareholders’ equity

    

Preferred stock, $.01 par value – 5,000,000 shares authorized; no shares issued and outstanding

     —          —     

Common stock, $5.00 par value – 75,000,000 shares authorized, 26,715,797 shares issued; 25,105,732 and 25,066,068 shares outstanding, respectively

     133,579        133,579   

Treasury stock, at cost

     (26,171     (26,815

Additional paid-in capital

     217,324        217,477   

Retained earnings

     172,807        171,108   

Accumulated other comprehensive loss, net of taxes

     (7,928     (8,147
  

 

 

   

 

 

 

Total shareholders’ equity

     489,611        487,202   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,176,490      $ 4,202,008   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

1


Table of Contents

Renasant Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(In Thousands, Except Share Data)

 

      Three Months Ended
March  31,
 
     2012      2011  

Interest income

     

Loans

   $ 34,282       $ 35,944   

Securities

     

Taxable

     4,010         5,563   

Tax-exempt

     2,128         2,130   

Other

     85         206   
  

 

 

    

 

 

 

Total interest income

     40,505         43,843   

Interest expense

     

Deposits

     5,419         10,082   

Borrowings

     2,243         2,625   
  

 

 

    

 

 

 

Total interest expense

     7,662         12,707   
  

 

 

    

 

 

 

Net interest income

     32,843         31,136   

Provision for loan losses

     4,800         5,500   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     28,043         25,636   

Noninterest income

     

Service charges on deposit accounts

     4,525         4,841   

Fees and commissions

     3,928         2,931   

Insurance commissions

     898         837   

Wealth Management revenue

     1,942         1,056   

Gains on sales of securities

     904         12   

BOLI income

     1,111         595   

Gains on sales of mortgage loans held for sale

     1,281         1,151   

Gain on acquisition

     —           8,774   

Other

     1,798         798   
  

 

 

    

 

 

 

Total noninterest income

     16,387         20,995   

Noninterest expense

     

Salaries and employee benefits

     18,649         16,237   

Data processing

     2,040         1,788   

Net occupancy and equipment

     3,615         3,218   

Other real estate owned

     3,999         3,511   

Professional fees

     971         814   

Advertising and public relations

     1,197         996   

Intangible amortization

     358         515   

Communications

     1,103         1,162   

Merger-related expenses

     —           1,325   

Extinguishment of debt

     898         1,903   

Other

     3,791         4,524   
  

 

 

    

 

 

 

Total noninterest expense

     36,621         35,993   
  

 

 

    

 

 

 

Income before income taxes

     7,809         10,638   

Income taxes

     1,835         3,085   
  

 

 

    

 

 

 

Net income

   $ 5,974       $ 7,553   
  

 

 

    

 

 

 

Basic earnings per share

   $ 0.24       $ 0.30   
  

 

 

    

 

 

 

Diluted earnings per share

   $ 0.24       $ 0.30   
  

 

 

    

 

 

 

Cash dividends per common share

   $ 0.17       $
0.17
  
  

 

 

    

 

 

 

See Notes to Consolidated Financial Statements.

 

2


Table of Contents

Renasant Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Unaudited)

(In Thousands, Except Share Data)

 

     Three Months Ended
March  31,
 
     2012     2011  

Net income

   $ 5,974      $ 7,553   

Other comprehensive income, net of tax:

    

Securities available for sale:

    

Unrealized holding gains on securities

     1,018        277   

Non-credit related portion of other-than-temporary impairment on securities

     —          —     

Reclassification adjustment for gains realized in net income

     (558     (7

Amortization of unrealized holding gains on securities transferred to the held to maturity category

     (102     (169
  

 

 

   

 

 

 

Total securities available for sale

     358        101   

Derivative instruments:

    

Unrealized holding losses on derivative instruments

     (111     —     

Reclassification adjustment for gains realized in net income

     (94     (93
  

 

 

   

 

 

 

Totals derivative instruments

     (205     (93

Defined benefit pension and post-retirement benefit plans:

    

Net (loss) gain arising during the period

     —          —     

Less amortization of net actuarial loss recognized in net periodic pension cost

     66        71   
  

 

 

   

 

 

 

Total defined benefit pension and post-retirement benefit plans

     66        71   
  

 

 

   

 

 

 

Other comprehensive income

     219        79   
  

 

 

   

 

 

 

Comprehensive income

   $ 6,193      $ 7,632   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

Renasant Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

      Three Months Ended March 31,  
     2012     2011  

Operating activities

    

Net cash provided by operating activities

   $ 62,609      $ 45,499   

Investing activities

    

Purchases of securities available for sale

     (78,210     (48,586

Proceeds from sales of securities available for sale

     22,685        —     

Proceeds from call/maturities of securities available for sale

     43,433        39,227   

Purchases of securities held to maturity

     (53,899     (36,547

Proceeds from sales of securities held to maturity

     —          5,041   

Proceeds from call/maturities of securities held to maturity

     27,975        2,140   

Net (increase) decrease in loans

     (29,776     1,219   

Purchases of premises and equipment

     (3,139     (1,276

Proceeds from sales of premises and equipment

     45        10   

Net cash received in acquisition

     —          148,443   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (70,886     109,671   

Financing activities

    

Net increase in noninterest-bearing deposits

     4,045        107,782   

Net increase (decrease) in interest-bearing deposits

     56,884        (154,066

Net decrease in short-term borrowings

     (3,655     (4,494

Repayment of long-term debt

     (79,261     (66,779

Cash paid for dividends

     (4,275     (4,266

Cash received on exercise of stock-based compensation

     200        9   
  

 

 

   

 

 

 

Net cash used in financing activities

     (26,062     (121,814
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (34,339     33,356   

Cash and cash equivalents at beginning of period

     209,017        292,669   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 174,678      $ 326,025   
  

 

 

   

 

 

 

Supplemental disclosures

    

Noncash transactions:

    

Transfers of loans to other real estate

   $ 7,481      $ 18,555   

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note A – Summary of Significant Accounting Policies

Nature of Operations: Renasant Corporation (referred to herein as the “Company”) owns and operates Renasant Bank (“Renasant Bank” or the “Bank”) and Renasant Insurance, Inc. The Company offers a diversified range of financial, fiduciary and insurance services to its retail and commercial customers through its subsidiaries and full service offices located throughout north and north central Mississippi, west and middle Tennessee, north and central Alabama and north Georgia.

Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information regarding the Company’s significant accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on March 8, 2012.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Subsequent Events: The Company has evaluated, for consideration of recognition or disclosure, subsequent events that have occurred through the date of issuance of its financial statements, and has determined that no significant events occurred after March 31, 2012 but prior to the issuance of these financial statements that would have a material impact on its Consolidated Financial Statements.

Impact of Recently-Issued Accounting Standards and Pronouncements: In June 2011, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification Topic (“ASC”) 220, “Comprehensive Income,” (“ASC 220”) that eliminates the option to present components of other comprehensive income as part of the Statements of Changes in Shareholders’ Equity. This update requires that all nonowner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. In December 2011, FASB issued an update to defer the effective date for those changes related to the presentation of reclassifications of items out of accumulated other comprehensive income. While FASB continues to redeliberate whether the reclassification adjustments should be presented on the face of the financial statements, reclassifications out of accumulated other comprehensive income should be reported in accordance with presentation requirements in effect prior to FASB’s update. These updates to ASC 220 became effective for the Company on January 1, 2012. Please refer to the Consolidated Statements of Comprehensive Income and Note J, “Other Comprehensive Income,” in these Notes to Consolidated Financial Statements for disclosures reflecting the Company’s adoption of these updates.

 

5


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note B – Mergers and Acquisitions

(In Thousands)

Acquisition of RBC Bank (USA) Trust Division

On August 31, 2011, the Company acquired the Birmingham, Alabama-based trust department of RBC Bank (USA), which services clients in Alabama and Georgia. Under the terms of the transaction, RBC Bank (USA) transferred its approximately $680,000 in assets under management, comprised of personal and institutional clients with over 200 trust, custodial and escrow accounts, to a wholly-owned subsidiary, and Renasant Bank acquired all of the ownership interests in the subsidiary. In connection with the acquisition, the Company recognized a gain of $570, which is recognized under the line item “Gain on acquisition” in the Consolidated Statements of Income for the year ended December 31, 2011. Acquisition costs related to the transaction of $326 were recognized under the line item “Merger-related expenses” in the Consolidated Statements of Income for the year ended December 31, 2011.

 

6


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note B – Mergers and Acquisitions (continued)

 

FDIC-Assisted Acquisitions

On February 4, 2011, the Bank entered into a purchase and assumption agreement with loss-share agreements with the Federal Deposit Insurance Corporation (the “FDIC”) to acquire specified assets and assume specified liabilities of American Trust Bank, a Georgia-chartered bank headquartered in Roswell, Georgia (“American Trust”). American Trust operated 3 branches in the northwest region of Georgia.

In connection with the acquisition, the Bank entered into loss-share agreements with the FDIC that covered $73,657 of American Trust loans (the “covered ATB loans”). The Bank will share in the losses on the asset pools (including single family residential mortgage loans and commercial loans) covered under the loss-share agreements. Pursuant to the terms of the loss-share agreements, the FDIC is obligated to reimburse the Bank for 80% of all eligible losses with respect to covered ATB loans, beginning with the first dollar of loss incurred. The Bank has a corresponding obligation to reimburse the FDIC for 80% of eligible recoveries with respect to covered ATB loans.

The acquisition of American Trust resulted in a pre-tax gain of $8,774. Due to the difference in tax bases of the assets acquired and liabilities assumed, the Company recorded a deferred tax liability of $3,356, resulting in an after-tax gain of $5,418. Under the Internal Revenue Code, the gain will be recognized over the next six years. The foregoing pre-tax and after-tax gains are considered a bargain purchase gain under ASC 805, “Business Combinations,” since the total acquisition-date fair value of the identifiable net assets acquired exceeded the fair value of the consideration transferred. This gain was recognized as noninterest income in the Consolidated Statements of Income.

Acquisition costs related to the American Trust acquisition of $1,325 were recognized under the line item “Merger-related expenses” in the Consolidated Statements of Income for the three months ended March 31, 2011.

The following table sets forth the fair values of the assets acquired and liabilities assumed by the Bank in the acquisition of American Trust as of February 4, 2011:

 

Assets Acquired

  

Cash and due from banks

   $ 148,443   

Securities available for sale

     7,060   

Federal Home Loan Bank stock

     1,192   

Loans:

  

Covered under loss-share agreements

     73,657   

Not covered under loss-share agreements

     742   
  

 

 

 

Total loans

     74,399   

FDIC loss-share indemnification asset

     11,926   

Core deposit intangible

     229   

Other assets

     4,256   
  

 

 

 

Total assets acquired

     247,505   

Liabilities Assumed

  

Deposits:

  

Noninterest-bearing

     10,096   

Interest-bearing

     212,911   
  

 

 

 

Total deposits

     223,007   

Advances from the Federal Home Loan Bank

     15,020   

Accrued expenses and other liabilities

     704   
  

 

 

 

Total liabilities assumed

     238,731   
  

 

 

 

Net assets acquired

     8,774   

Deferred tax liability

     3,356   
  

 

 

 

Net assets assumed, including deferred tax liability

   $ 5,418   
  

 

 

 

 

7


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note B – Mergers and Acquisitions (continued)

 

On July 23, 2010, the Bank acquired specified assets and assumed specified liabilities of Crescent Bank & Trust Company, a Georgia-chartered bank headquartered in Jasper, Georgia (“Crescent”), from the FDIC, as receiver for Crescent. Crescent operated 11 branches in the northwest region of Georgia. The acquisition allowed the Company to expand its footprint into new markets in the State of Georgia. In addition, this acquisition gave the Company options to evaluate expansion opportunities in north Georgia and adjacent states.

In connection with the acquisition, the Bank entered into loss-share agreements with the FDIC that covered $361,472 of Crescent loans and $50,168 of other real estate owned (the “covered Crescent assets”). The Bank will share in the losses on the asset pools (including single family residential mortgage loans and commercial loans) covered under the loss-share agreements. Pursuant to the terms of the loss-share agreements, the FDIC is obligated to reimburse the Bank for 80% of all eligible losses with respect to covered Crescent assets, beginning with the first dollar of loss incurred. The Bank has a corresponding obligation to reimburse the FDIC for 80% of eligible recoveries with respect to covered Crescent assets.

Loans acquired in business combinations with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit impaired. Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, in accordance with ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Increases in expected cash flows to be collected on these loans are recognized as an adjustment of the loan’s yield over its remaining life, while decreases in expected cash flows are recognized as an impairment. Loans acquired through business combinations that do not meet the specific criteria of ASC 310-30, but for which a discount is attributable, at least in part, to credit quality, are also accounted for under this guidance. As a result, related discounts are recognized subsequently through accretion based on the expected cash flow of the acquired loans.

Acquired loans covered under loss-share agreements with the FDIC are recorded, as of their respective acquisition dates, at fair value. The fair value of these loans represents the expected discounted cash flows to be received over the lives of the loans, taking into account the Company’s estimate of future credit losses on the loans. These loans are excluded from the calculation of the allowance for loan losses because the fair value measurement incorporates an estimate of losses on acquired loans. The Company monitors future cash flows on these loans; to the extent future cash flows deteriorate below initial projections, the Company reserves for these loans in the allowance for loan losses through the provision for loan losses. With respect to the loans covered under loss-share agreements acquired in the Crescent and American Trust transactions, no provision for loan losses was recorded during the three months ended March 31, 2012 or 2011.

In these Notes to Consolidated Financial Statements, the Company refers to loans subject to the loss-share agreements as “covered loans” or “loans covered under loss-share agreements” and loans that are not subject to the loss-share agreements as “not covered loans” or “loans not covered by loss-share agreements.”

As part of the loan portfolio and other real estate owned fair value estimation in connection with FDIC-assisted acquisitions, a FDIC loss-share indemnification asset is established, which represents the present value of the estimated losses on covered assets to be reimbursed by the FDIC. The estimated losses are based on the same cash flow estimates used in determining the fair value of the covered assets. The FDIC loss-share indemnification asset is reduced as losses are recognized on covered assets and loss-share payments are received from the FDIC. Realized losses in excess of estimates as of the date of the acquisition increase the FDIC loss-share indemnification asset. Conversely, when realized losses are less than these estimates, the portion of the FDIC loss-share indemnification asset no longer expected to result in a payment from the FDIC is amortized into interest income using the effective interest method.

Changes in the FDIC loss-share indemnification asset were as follows:

 

Balance at January 1, 2012

   $  107,754   

Realized losses in excess of initial estimates

     7,083   

Reimbursements received

     (50,268

Accretion

     (374
  

 

 

 

Balance at March 31, 2012

   $ 64,195   
  

 

 

 

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note C – Securities

(In Thousands)

The amortized cost and fair value of securities held to maturity were as follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2012

          

Obligations of other U.S. Government agencies and corporations

   $ 121,144       $ 63       $ (392   $ 120,815   

Obligations of states and political subdivisions

     236,895         12,856         (361     249,390   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 358,039       $ 12,919       $ (753   $ 370,205   
  

 

 

    

 

 

    

 

 

   

 

 

 

December 31, 2011

          

Obligations of other U.S. Government agencies and corporations

   $ 107,660       $ 225       $ (74   $ 107,811   

Obligations of states and political subdivisions

     224,750         12,083         (26     236,807   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 332,410       $ 12,308       $ (100   $ 344,618   
  

 

 

    

 

 

    

 

 

   

 

 

 

In light of the ongoing fiscal uncertainty in state and local governments, the Company analyzes its exposure to potential losses in its security portfolio on at least a quarterly basis. Management reviews the underlying credit rating and analyzes the financial condition of the respective issuers. Based on this analysis, the Company sold certain securities representing obligations of state and political subdivisions that were classified as held to maturity during 2011. The securities sold showed significant credit deterioration in that an analysis of the financial condition of the respective issuers showed the issuers were operating at net deficits with little to no financial cushion to offset future contingencies. These securities had a carrying value of $5,029, and the Company recognized a net gain of $12 on the sale during the three months ended March 31, 2011. No securities classified as held to maturity were sold during the three months ended March 31, 2012.

The amortized cost and fair value of securities available for sale were as follows:

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2012

          

Obligations of other U.S. Government agencies and corporations

   $ 2,187       $ 202       $ —        $ 2,389   

Residential mortgage backed securities:

          

Government agency mortgage backed securities

     233,367         6,441         (233     239,575   

Government agency collateralized mortgage obligations

     152,507         3,288         (200     155,595   

Commercial mortgage backed securities:

          

Government agency mortgage backed securities

     34,483         2,110         (27     36,566   

Government agency collateralized mortgage obligations

     5,150         96         —          5,246   

Trust preferred securities

     29,459         —           (16,593     12,866   

Other debt securities

     20,922         565         (4     21,483   

Other equity securities

     2,340         320         —          2,660   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 480,415       $ 13,022       $ (17,057   $ 476,380   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

9


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note C – Securities (continued)

 

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

December 31, 2011

          

Obligations of other U.S. Government agencies and corporations

   $ 17,193       $ 202       $ —        $ 17,395   

Residential mortgage backed securities:

          

Government agency mortgage backed securities

     224,242         6,455         (30     230,667   

Government agency collateralized mortgage obligations

     133,369         3,700         (82     136,987   

Commercial mortgage backed securities:

          

Government agency mortgage backed securities

     34,635         2,054         (20     36,669   

Government agency collateralized mortgage obligations

     5,170         146         —          5,316   

Trust preferred securities

     30,410         —           (17,625     12,785   

Other debt securities

     21,351         527         (3     21,875   

Other equity securities

     2,341         —           (104     2,237   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 468,711       $ 13,084       $ (17,864   $ 463,931   
  

 

 

    

 

 

    

 

 

   

 

 

 

Gross gains on sales of securities available for sale for the three months ended March 31, 2012 were $904. No securities available for sale were sold at a loss during the same period. There were no sales of securities available for sale for the three months ended March 31, 2011.

At March 31, 2012 and December 31, 2011, securities with a carrying value of approximately $391,103 and $305,746, respectively, were pledged to secure government, public and trust deposits. Securities with a carrying value of $9,152 and $20,206 were pledged as collateral for short-term borrowings at March 31, 2012 and December 31, 2011, respectively.

The amortized cost and fair value of securities at March 31, 2012 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties.

 

     Held to Maturity      Available for Sale  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 

Due within one year

   $ 9,011       $ 9,068       $ —         $ —     

Due after one year through five years

     158,770         159,361         —           —     

Due after five years through ten years

     44,940         47,693         2,187         2,389   

Due after ten years

     145,318         154,083         29,459         12,866   

Residential mortgage backed securities:

           

Government agency mortgage backed securities

     —           —           233,367         239,575   

Government agency collateralized mortgage obligations

     —           —           152,507         155,595   

Commercial mortgage backed securities:

     —           —           

Government agency mortgage backed securities

     —           —           34,483         36,566   

Government agency collateralized mortgage obligations

     —           —           5,150         5,246   

Other debt securities

     —           —           20,922         21,483   

Other equity securities

     —           —           2,340         2,660   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 358,039       $ 370,205       $ 480,415       $ 476,380   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

10


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note C – Securities (continued)

 

The following table presents the age of gross unrealized losses and fair value by investment category:

 

     Less than 12 Months     12 Months or More     Total  
     Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
    Fair
Value
     Unrealized
Losses
 

Held to Maturity:

               

March 31, 2012

               

Obligations of other U.S. Government agencies and corporations

   $ 84,772       $ (392   $ —         $ —        $ 84,772       $ (392

Obligations of states and political subdivisions

     13,980         (361     —           —          13,980         (361
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 98,752       $ (753   $ —         $ —        $ 98,752       $ (753
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2011

               

Obligations of other U.S. Government agencies and corporations

   $ 19,919       $ (74   $ —         $ —        $ 19,919       $ (74

Obligations of states and political subdivisions

     4,301         (19     1,530         (7     5,831         (26
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 24,220       $ (93   $ 1,530       $ (7   $ 25,750       $ (100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Available for Sale:

               

March 31, 2012

               

Obligations of other U.S. Government agencies and corporations

   $ —         $ —        $ —         $ —        $ —         $ —     

Residential mortgage backed securities:

               

Government agency mortgage backed securities

     36,182         (233     —           —          36,182         (233

Government agency collateralized mortgage obligations

     30,199         (200     —           —          30,199         (200

Commercial mortgage backed securities:

               

Government agency mortgage backed securities

     —           —          1,242         (27     1,242         (27

Government agency collateralized mortgage obligations

     —           —          —           —          —           —     

Trust preferred securities

     —           —          12,866         (16,593     12,866         (16,593

Other debt securities

     —           —          2,634         (4     2,634         (4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 66,381       $ (433   $ 16,742       $ (16,624   $ 83,123       $ (17,057
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

December 31, 2011

               

Obligations of other U.S. Government agencies and corporations

   $ —         $ —        $ —         $ —        $ —         $ —     

Residential mortgage backed securities:

               

Government agency mortgage backed securities

     4,446         (30     —           —          4,446         (30

Government agency collateralized mortgage obligations

     16,806         (82     —           —          16,806         (82

Commercial mortgage backed securities:

               

Government agency mortgage backed securities

     —           —          1,255         (20     1,255         (20

Government agency collateralized mortgage obligations

     —           —          —           —          —           —     

Trust preferred securities

     —           —          12,785         (17,625     12,785         (17,625

Other debt securities

     —           —          2,662         (3     2,662         (3

Other equity securities

     2,237         (104     —           —          2,237         (104
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 23,489       $ (216   $ 16,702       $ (17,648   $ 40,191       $ (17,864
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

11


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note C – Securities (continued)

 

The Company evaluates its investment portfolio for other-than-temporary-impairment (“OTTI”) on a quarterly basis. Impairment is assessed at the individual security level. The Company considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis.

The Company holds investments in pooled trust preferred securities that had a cost basis of $29,459 and $30,410 and a fair value of $12,866 and $12,785, at March 31, 2012 and December 31, 2011, respectively. The investments in pooled trust preferred securities consist of four securities representing interests in various tranches of trusts collateralized by debt issued by over 345 financial institutions. Management’s determination of the fair value of each of its holdings in pooled trust preferred securities is based on the current credit ratings, the known deferrals and defaults by the underlying issuing financial institutions and the degree to which future deferrals and defaults would be required to occur before the cash flow for the Company’s tranches is negatively impacted. In addition, management continually monitors key credit quality and capital ratios of the issuing institutions. This determination is further supported by quarterly valuations of each security obtained by the Company performed by third parties. The Company does not intend to sell the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of the investments’ amortized cost, which may be maturity. At March 31, 2012, management did not, and does not currently, believe such securities will be settled at a price less than the amortized cost of the investment, but the Company did conclude that it was probable that there had been an adverse change in estimated cash flows for all four trust preferred securities and recognized credit related impairment losses on two of the four securities (XIII and XXIV in the table below) in 2010 and the remaining two securities in 2011. No additional impairment was required during the three months ended March 31, 2012.

However, based on the qualitative factors discussed above, each of the four pooled trust preferred securities was classified as a nonaccruing asset at March 31, 2012. Investment interest is recorded on the cash-basis method until qualifying for return to accrual status.

The following table provides information regarding the Company’s investments in pooled trust preferred securities at March 31, 2012:

 

Name

   Single/
Pooled
     Class/
Tranche
     Amortized
Cost
     Fair
Value
     Unrealized
Loss
    Lowest
Credit

Rating
     Issuers
Currently in
Deferral or
Default
 

XIII

     Pooled         B-2       $ 1,216       $ 678       $ (538     Ca         40

XXIII

     Pooled         B-2         10,599         5,163         (5,436     Ca         22

XXIV

     Pooled         B-2         12,076         4,747         (7,329     Ca         35

XXVI

     Pooled         B-2         5,568         2,278         (3,290     Ca         31
        

 

 

    

 

 

    

 

 

      
         $ 29,459       $ 12,866       $ (16,593     
        

 

 

    

 

 

    

 

 

      

The following table provides a summary of the cumulative credit related losses recognized in earnings for which a portion of OTTI has been recognized in other comprehensive income:

 

     2012     2011  

Balance at January 1

   $ (3,337   $ (3,075

Additions related to credit losses for which OTTI was not previously recognized

     —          —     

Increases in credit loss for which OTTI was previously recognized

     —          —     
  

 

 

   

 

 

 

Balance at March 31

   $ (3,337   $ (3,075
  

 

 

   

 

 

 

 

12


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses

(In Thousands, Except Number of Loans)

The following is a summary of loans:

 

     March 31,
2012
    December 31,
2011
 

Commercial, financial, agricultural

   $ 278,926      $ 278,091   

Lease financing

     313        343   

Real estate – construction

     73,425        81,235   

Real estate – 1-4 family mortgage

     838,534        824,627   

Real estate – commercial mortgage

     1,350,177        1,336,635   

Installment loans to individuals

     58,682        60,168   
  

 

 

   

 

 

 

Gross loans

     2,600,057        2,581,099   

Unearned income

     (11     (15
  

 

 

   

 

 

 

Loans, net of unearned income

     2,600,046        2,581,084   

Allowance for loan losses

     (44,176     (44,340
  

 

 

   

 

 

 

Net loans

   $ 2,555,870      $ 2,536,744   
  

 

 

   

 

 

 

 

13


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

Past Due and Nonaccrual Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Generally, the recognition of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Consumer and other retail loans are typically charged-off no later than the time the loan is 120 days past due. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful. Loans may be placed on nonaccrual regardless of whether or not such loans are considered past due. All interest accrued for the current year, but not collected, for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table provides an aging of past due and nonaccrual loans, segregated by class:

 

     Accruing Loans     Nonaccruing Loans     

 

 
     30-89 Days
Past Due
     90 Days
or More
Past Due
     Current
Loans
    Total
Loans
    30-89 Days
Past Due
     90 Days
or More
Past  Due
     Current
Loans
     Total
Loans
     Total
Loans
 

March 31, 2012

                        

Commercial, financial, agricultural

   $ 480       $ 307       $ 272,491      $ 273,278      $ 550       $ 4,942       $ 156       $ 5,648       $ 278,926   

Lease financing

     —           —           313        313        —           —           —           —           313   

Real estate— construction

     118         41         66,956        67,115        —           6,310         —           6,310         73,425   

Real estate—

1-4 family mortgage

     12,371         2,778         790,359        805,508        867         23,219         8,940         33,026         838,534   

Real estate— commercial mortgage

     6,833         1,585         1,281,666        1,290,084        353         56,797         2,943         60,093         1,350,177   

Installment loans to individuals

     419         121         57,802        58,342        8         303         29         340         58,682   

Unearned income

     —           —           (11     (11     —           —           —           —           (11
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,221       $ 4,832       $ 2,469,576      $ 2,494,629      $ 1,778       $ 91,571       $ 12,068       $ 105,417       $ 2,600,046   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

                        

Commercial, financial, agricultural

   $ 2,071       $ 165       $ 269,078      $ 271,314      $ 511       $ 5,474       $ 792       $ 6,777       $ 278,091   

Lease financing

     —           —           343        343        —           —           —           —           343   

Real estate— construction

     —           41         73,670        73,711        —           7,524         —           7,524         81,235   

Real estate— 1-4 family mortgage

     11,949         2,481         771,596        786,026        1,140         31,457         6,004         38,601         824,627   

Real estate— commercial mortgage

     6,749         2,044         1,262,068        1,270,861        2,411         62,854         509         65,774         1,336,635   

Installment loans to individuals

     473         163         59,020        59,656        10         480         22         512         60,168   

Unearned income

     —           —           (15     (15     —           —           —           —           (15
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 21,242       $ 4,894       $ 2,435,760      $ 2,461,896      $ 4,072       $ 107,789       $ 7,327       $ 119,188       $ 2,581,084   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

Impaired Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Impairment is measured on a loan-by-loan basis for commercial and construction loans above a minimum dollar amount threshold by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are evaluated collectively for impairment. When the ultimate collectability of an impaired loan’s principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been foregone, and then they are recorded as recoveries of any amounts previously charged-off. For impaired loans, a specific reserve is established to adjust the carrying value of the loan to its estimated net realizable value.

Impaired loans recognized in conformity with ASC 310, “Receivables” (“ASC 310”), segregated by class, were as follows:

 

     Unpaid
Contractual
Principal
Balance
     Recorded
Investment
With
Allowance
     Recorded
Investment
With No
Allowance
     Total
Recorded
Investment
     Related
Allowance
 

March 31, 2012

              

Commercial, financial, agricultural

   $ 9,707       $ 2,352       $ 2,902       $ 5,254       $ 868   

Lease financing

     —           —           —           —           —     

Real estate — construction

     16,650         108         6,202         6,310         16   

Real estate — 1-4 family mortgage

     93,618         25,541         23,347         48,888         5,722   

Real estate — commercial mortgage

     161,792         35,044         58,649         93,693         6,868   

Installment loans to individuals

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 281,767       $ 63,045       $ 91,100       $ 154,145       $ 13,474   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

              

Commercial, financial, agricultural

   $ 9,575       $ 3,358       $ 2,913       $ 6,271       $ 1,441   

Lease financing

     —           —           —           —           —     

Real estate — construction

     18,204         108         7,076         7,184         16   

Real estate — 1-4 family mortgage

     99,121         27,047         26,785         53,832         6,077   

Real estate — commercial mortgage

     168,341         35,505         63,900         99,405         7,876   

Installment loans to individuals

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

   $ 295,241       $ 66,018       $ 100,674       $ 166,692       $ 15,410   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the average recorded investment and interest income recognized on impaired loans for the periods presented:

 

     Three Months Ended
March 31, 2012
     Three Months Ended
March 31, 2011
 
     Average
Recorded

Investment
     Interest
Income
Recognized(1)
     Average
Recorded

Investment
     Interest
Income
Recognized(1)
 

Commercial, financial, agricultural

   $ 5,910       $ 8       $ 5,344       $ 7   

Lease financing

     —           —           —           —     

Real estate — construction

     6,474         —           12,964         28   

Real estate — 1-4 family mortgage

     51,005         324         78,668         329   

Real estate — commercial mortgage

     97,938         519         106,513         569   

Installment loans to individuals

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 161,327       $ 851       $ 203,489       $ 933   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Includes interest income recognized using the cash-basis method of income recognition of $214 and $166, respectively.

 

15


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

Restructured Loans

Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition. Such concessions may include reduction in interest rates or deferral of interest or principal payments. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest.

The following table presents restructured loans segregated by class:

 

     Number of
Loans
     Pre-
Modification
Outstanding
Recorded
Investment
     Post-
Modification
Outstanding
Recorded
Investment
 

March 31, 2012

        

Commercial, financial, agricultural

     —         $ —         $ —     

Lease financing

     —           —           —     

Real estate – construction

     —           —           —     

Real estate – 1-4 family mortgage

     17         19,612         16,794   

Real estate – commercial mortgage

     14         19,187         18,750   

Installment loans to individuals

     1         184         177   
  

 

 

    

 

 

    

 

 

 

Total

     32       $ 38,983       $ 35,721   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

        

Commercial, financial, agricultural

     —         $ —         $ —     

Lease financing

     —           —           —     

Real estate – construction

     —           —           —     

Real estate – 1-4 family mortgage

     18         20,313         18,089   

Real estate – commercial mortgage

     12         17,853         18,043   

Installment loans to individuals

     1         184         179   
  

 

 

    

 

 

    

 

 

 

Total

     31       $ 38,350       $ 36,311   
  

 

 

    

 

 

    

 

 

 

Changes in the Company’s restructured loans are set forth in the table below:

 

     Number of
Loans
    Recorded
Investment
 

Totals at January 1, 2012

     31      $ 36,311   

Additional loans with concessions

     4        2,620   

Reductions due to:

    

Reclassified as nonperforming

     (1     (686

Charge-offs

       (183

Transfer to other real estate owned

     (1     (419

Principal paydowns

       (1,243

Lapse of concession period

     (1     (679
  

 

 

   

 

 

 

Totals at March 31, 2012

     32      $ 35,721   
  

 

 

   

 

 

 

The allocated allowance for loan losses attributable to restructured loans was $6,337 and $5,994 at March 31, 2012 and December 31, 2011, respectively. The Company had $194 in remaining availability under commitments to lend additional funds on these restructured loans at March 31, 2012 and December 31, 2011, respectively.

 

16


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

Credit Quality

For commercial and commercial real estate secured loans, internal risk-rating grades are assigned by lending, credit administration or loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Management analyzes the resulting ratings, as well as other external statistics and factors such as delinquency, to track the migration performance of the portfolio balances of commercial and commercial real estate secured loans. Loan grades range between 1 and 9, with 1 being loans with the least credit risk. Loans that migrate toward the “Pass” grade (those with a risk rating between 1 and 4) or within the “Pass” grade generally have a lower risk of loss and therefore a lower risk factor. The “Watch” grade (those with a risk rating of 5) is utilized on a temporary basis for “Pass” grade loans where a significant risk-modifying action is anticipated in the near term. Loans that migrate toward the “Substandard” grade (those with a risk rating between 6 and 9) generally have a higher risk of loss and therefore a higher risk factor applied to those related loan balances. The following table presents the Company’s loan portfolio by risk-rating grades:

 

     Pass      Watch      Substandard      Total  

March 31, 2012

           

Commercial, financial, agricultural

   $ 196,147       $ 2,419       $ 4,527       $ 203,093   

Real estate—construction

     45,330         2,725         108         48,163   

Real estate—1-4 family mortgage

     86,150         32,610         36,016         154,776   

Real estate—commercial mortgage

     888,200         52,664         39,007         979,871   

Installment loans to individuals

     32         —           —           32   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,215,859       $ 90,418       $ 79,658       $ 1,385,935   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

           

Commercial, financial, agricultural

   $ 187,550       $ 2,929       $ 7,292       $ 197,771   

Real estate—construction

     52,593         2,362         108         55,063   

Real estate—1-4 family mortgage

     86,858         31,851         35,809         154,518   

Real estate—commercial mortgage

     873,614         54,949         41,874         970,437   

Installment loans to individuals

     199         —           —           199   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,200,814       $ 92,091       $ 85,083       $ 1,377,988   
  

 

 

    

 

 

    

 

 

    

 

 

 

For portfolio balances of consumer, consumer mortgage and certain other similar loan types, allowance factors are determined based on historical loss ratios by portfolio for the preceding eight quarters and may be adjusted by other qualitative criteria. The following table presents the performing status of the Company’s loan portfolio not subject to risk rating:

 

     Performing      Non-
Performing
     Total  

March 31, 2012

        

Commercial, financial, agricultural

   $ 59,863       $ 360       $ 60,223   

Lease financing

     313         —           313   

Real estate—construction

     19,061         —           19,061   

Real estate—1-4 family mortgage

     577,464         5,014         582,478   

Real estate—commercial mortgage

     169,013         596         169,609   

Installment loans to individuals

     54,559         166         54,725   
  

 

 

    

 

 

    

 

 

 

Total

   $ 880,273       $ 6,136       $ 886,409   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

        

Commercial, financial, agricultural

   $ 61,864       $ 198       $ 62,062   

Lease financing

     343         —           343   

Real estate—construction

     18,756         340         19,096   

Real estate—1-4 family mortgage

     554,702         5,951         560,653   

Real estate—commercial mortgage

     156,050         756         156,806   

Installment loans to individuals

     55,356         169         55,525   
  

 

 

    

 

 

    

 

 

 

Total

   $ 847,071       $ 7,414       $ 854,485   
  

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

Loans Acquired with Deteriorated Credit Quality

Loans acquired in business combinations that exhibited, at the date of acquisition, evidence of deterioration of the credit quality since origination, such that it was probable that all contractually required payments would not be collected, were as follows for the periods presented:

 

     Impaired
Covered

Loans
     Other
Covered
Loans
     Not
Covered
Loans
     Total  

March 31, 2012

           

Commercial, financial, agricultural

   $ 38       $ 15,168       $ 404       $ 15,610   

Lease financing

     —           —           —           —     

Real estate—construction

     4,012         2,189         —           6,201   

Real estate—1-4 family mortgage

     11,678         88,092         1,510         101,280   

Real estate—commercial mortgage

     42,162         154,592         3,944         200,698   

Installment loans to individuals

     —           158         3,766         3,924   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 57,890       $ 260,199       $ 9,624       $ 327,713   
  

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

           

Commercial, financial, agricultural

   $ 38       $ 17,765       $ 455       $ 18,258   

Lease financing

     —           —           —           —     

Real estate—construction

     4,031         3,045         —           7,076   

Real estate—1-4 family mortgage

     12,252         95,671         1,533         109,456   

Real estate—commercial mortgage

     44,994         161,498         2,900         209,392   

Installment loans to individuals

     —           168         4,276         4,444   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 61,315       $ 278,147       $ 9,164       $ 348,626   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents the fair value of loans determined to be impaired at the time of acquisition and determined not to be impaired at the time of acquisition at March 31, 2012:

 

     Impaired
Covered

Loans
    Other
Covered
Loans
    Not
Covered
Loans
    Total  

Contractually-required principal and interest

   $ 87,483      $ 303,435      $ 12,823      $ 403,741   

Nonaccretable difference(1)

     (29,558     (32,187     (1,088     (62,833
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows expected to be collected

     57,925        271,248        11,735        340,908   

Accretable yield(2)

     (35     (11,049     (2,111     (13,195
  

 

 

   

 

 

   

 

 

   

 

 

 

Fair value

   $ 57,890      $ 260,199      $ 9,624      $ 327,713   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Represents contractual principal and interest cash flows of $50,717 and $12,116, respectively, not expected to be collected.

(2) 

Represents future interest payments of $7,120 expected to be collected and purchase discount of $6,075.

Changes in the accretable yield of loans acquired with deteriorated credit quality were as follows:

 

     Impaired
Covered

Loans
    Other
Covered
Loans
    Not
Covered
Loans
    Total  

Balance at January 1, 2012

   $ (40   $ (2,973   $ (353   $ (3,366

Reclasses from nonaccretable difference

     —          (1,737     (1,926     (3,663

Accretion

     5        524        425        954   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ (35   $ (4,186   $ (1,854   $ (6,075
  

 

 

   

 

 

   

 

 

   

 

 

 

 

18


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

Allowance for Loan Losses

The allowance for loan losses is maintained at a level believed adequate by management to absorb probable credit losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as recognized under ASC 450, “Contingencies”. Collective impairment is calculated based on loans grouped by grade. Another component of the allowance is losses on loans assessed as impaired under ASC 310. The balance of these loans and their related allowance is included in management’s estimation and analysis of the allowance for loan losses. Management and the internal loan review staff evaluate the adequacy of the allowance for loan losses quarterly. The allowance for loan losses is evaluated based on a continuing assessment of problem loans, the types of loans, historical loss experience, new lending products, emerging credit trends, changes in the size and character of loan categories and other factors, including its risk rating system, regulatory guidance and economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The allowance for loan losses is established through a provision for loan losses charged to earnings resulting from measurements of inherent credit risk in the loan portfolio and estimates of probable losses or impairments of individual loans. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The following table provides a rollforward of the allowance for loan losses and a breakdown of the ending balance of the allowance based on the Company’s impairment methodology for the periods presented:

 

     Commercial     Real Estate  -
Construction
    Real Estate -
1-4 Family
Mortgage
    Real Estate  -
Commercial
Mortgage
    Installment
and  Other(1)
    Total  

Three Months Ended March 31, 2012

            

Allowance for loan losses:

            

Beginning balance

   $ 4,197      $ 1,073      $ 17,191      $ 20,979      $ 900      $ 44,340   

Provision for loan losses

     389        (187     3,414        1,230        (46     4,800   

Charge-offs

     (1,388     (4     (1,874     (1,882     (71     (5,219

Recoveries

     22        —          161        52        20        255   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,220      $ 882      $ 18,892      $ 20,379      $ 803      $ 44,176   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-End Amount Allocated to:

            

Individually evaluated for impairment

   $ 868      $ 16      $ 5,722      $ 6,868      $ —        $ 13,474   

Collectively evaluated for impairment

     2,352        866        13,170        13,511        803        30,702   

Acquired with deteriorated credit quality

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,220      $ 882      $ 18,892      $ 20,379      $ 803      $ 44,176   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Three Months Ended March 31, 2011

            

Allowance for loan losses:

            

Beginning balance

   $ 2,625      $ 2,115      $ 20,870      $ 18,779      $ 1,026      $ 45,415   

Provision for loan losses

     660        (151     3,652        1,365        (26     5,500   

Charge-offs

     (145     (229     (3,531     (551     (56     (4,512

Recoveries

     142        —          116        817        27        1,102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,282      $ 1,735      $ 21,107      $ 20,410      $ 971      $ 47,505   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-End Amount Allocated to:

            

Individually evaluated for impairment

   $ 674      $ 711      $ 7,931      $ 6,819      $ —        $ 16,135   

Collectively evaluated for impairment

     2,608        1,024        13,176        13,591        971        31,370   

Acquired with deteriorated credit quality

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,282      $ 1,735      $ 21,107      $ 20,410      $ 971      $ 47,505   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes lease financing receivables.

 

19


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses (continued)

 

The following table provides recorded investment in loans, net of unearned income, based on the Company’s impairment methodology as of the dates presented:

 

     Commercial      Real Estate  -
Construction
     Real Estate -
1-4 Family
Mortgage
     Real Estate  -
Commercial
Mortgage
     Installment
and Other  (1)
     Total  

March 31, 2012

                 

Individually evaluated for impairment

   $ 5,254       $ 6,310       $ 48,888       $ 93,693       $ —         $ 154,145   

Collectively evaluated for impairment

     258,062         60,914         688,366         1,055,786         55,060         2,118,188   

Acquired with deteriorated credit quality

     15,610         6,201         101,280         200,698         3,924         327,713   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 278,926       $ 73,425       $ 838,534       $ 1,350,177       $ 58,984       $ 2,600,046   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

December 31, 2011

                 

Individually evaluated for impairment

   $ 6,271       $ 7,184       $ 53,832       $ 99,405       $ —         $ 166,692   

Collectively evaluated for impairment

     253,562         66,975         661,339         1,027,838         56,052         2,065,766   

Acquired with deteriorated credit quality

     18,258         7,076         109,456         209,392         4,444         348,626   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 278,091       $ 81,235       $ 824,627       $ 1,336,635       $ 60,496       $ 2,581,084   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes lease financing receivables.

 

20


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note E – Other Real Estate Owned

(In Thousands)

The following table provides details of the Company’s other real estate owned (“OREO”) covered and not covered under a loss-share agreement:

 

     Covered
OREO
     Not Covered
OREO
     Total
OREO
 

March 31, 2012

        

Residential real estate

   $ 6,281       $ 11,733       $ 18,014   

Commercial real estate

     8,004         11,571         19,575   

Residential land development

     5,563         34,092         39,655   

Commercial land development

     15,613         7,355         22,968   

Other

     —           180         180   
  

 

 

    

 

 

    

 

 

 

Total

   $ 35,461       $ 64,931       $ 100,392   
  

 

 

    

 

 

    

 

 

 

December 31, 2011

        

Residential real estate

   $ 11,110       $ 15,364       $ 26,474   

Commercial real estate

     8,211         11,479         19,690   

Residential land development

     4,441         36,105         40,546   

Commercial land development

     19,394         7,131         26,525   
  

 

 

    

 

 

    

 

 

 

Total

   $ 43,156       $ 70,079       $ 113,235   
  

 

 

    

 

 

    

 

 

 

Changes in the Company’s OREO covered and not covered under a loss-share agreement were as follows:

 

     Covered
OREO
    Not Covered
OREO
    Total
OREO
 

Balance at January 1, 2012

   $ 43,156      $ 70,079      $ 113,235   

Transfers of loans

     3,850        3,631        7,481   

Capitalized improvements

     —          353        353   

Impairments(1)

     (2,666     (1,565     (4,231

Dispositions

     (8,873     (7,551     (16,424

Other

     (6     (16     (22
  

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

   $ 35,461      $ 64,931      $ 100,392   
  

 

 

   

 

 

   

 

 

 

 

(1) 

Of the total impairment charges of $2,666 recorded for covered OREO, $533 was included in the Consolidated Statements of Income for the three months ended March 31, 2012, while the remaining $2,133 increased the FDIC loss-share indemnification asset.

Components of the line item “Other real estate owned” in the Consolidated Statements of Income were as follows:

 

     Three Months Ended
March  31,
 
     2012     2011  

Carrying costs

   $ 1,035      $ 989   

Impairments

     2,098        969   

Net losses on OREO sales

     991        1,631   

Rental income

     (125     (78
  

 

 

   

 

 

 

Total

   $ 3,999      $ 3,511   
  

 

 

   

 

 

 

 

21


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note F – Employee Benefit and Deferred Compensation Plans

(In Thousands, Except Share Data)

The plan expense for the Company-sponsored noncontributory defined benefit pension plan (“Pension Benefits”) and post-retirement health and life plans (“Other Benefits”) for the periods presented was as follows:

 

     Pension Benefits     Other Benefits  
     Three Months Ended
March  31,
    Three Months Ended
March  31,
 
     2012     2011     2012      2011  

Service cost

   $ —        $ —        $ 6       $ 9   

Interest cost

     215        236        16         23   

Expected return on plan assets

     (298     (287     —           —     

Prior service cost recognized

     —          —          —           —     

Recognized actuarial loss

     89        77        18         39   

Recognized curtailment loss

     —          —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ 6      $ 26      $ 40       $ 71   
  

 

 

   

 

 

   

 

 

    

 

 

 

In January 2012 and 2011, the Company granted stock options which generally vest and become exercisable in equal installments of 33 1/3% upon completion of one, two and three years of service measured from the grant date. The fair value of stock option grants is estimated on the grant date using the Black-Scholes option-pricing model. The Company employed the following assumptions with respect to its stock option grants in 2012 and 2011 for the three month periods ended March 31, 2012 and 2011:

 

     2012 Grant     2011 Grant  

Shares granted

     172,000        170,000   

Dividend yield

     4.55     4.02

Expected volatility

     37     36

Risk-free interest rate

     0.79     1.97

Expected lives

     6 years        6 years   

Weighted average exercise price

   $ 14.96      $ 16.91   

Weighted average fair value

   $ 3.10      $ 3.93   

In addition, the Company awarded 7,500 shares of time-based restricted stock and 34,000 shares of performance-based restricted stock in January 2012. The time-based restricted stock is earned 100% upon completion of three years of service measured from the grant date. The performance-based restricted stock is earned, if at all, if the Company meets or exceeds financial performance results defined by the board of directors for the year in which the grant was made. The fair value of the restricted stock grants on the date of the grants was $14.96 per share.

During the three months ended March 31, 2012, the Company reissued 39,664 shares from treasury in connection with the exercise of stock-based compensation. The Company recorded total stock-based compensation expense of $292 and $305 for the three months ended March 31, 2012 and 2011, respectively.

 

22


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note G – Segment Reporting

(In Thousands)

The operations of the Company’s reportable segments are described as follows:

 

   

The Community Banks segment delivers a complete range of banking and financial services to individuals and small to medium-sized businesses including checking and savings accounts, business and personal loans, equipment leasing, as well as safe deposit and night depository facilities.

 

   

The Insurance segment includes a full service insurance agency offering all lines of commercial and personal insurance through major carriers.

 

   

The Wealth Management segment offers a broad range of fiduciary services which includes the administration and management of trust accounts including personal and corporate benefit accounts, self-directed IRA’s, and custodial accounts. In addition, the Wealth Management segment offers annuities, mutual funds and other investment services through a third party broker-dealer.

In order to give the Company’s divisional management a more precise indication of the income and expenses they can control, the results of operations for the Community Banks, the Insurance and the Wealth Management segments reflect the direct revenues and expenses of each respective segment. Indirect revenues and expenses, including but not limited to income from the Company’s investment portfolio, as well as certain costs associated with data processing and back office functions, primarily support the operations of the community banks and, therefore, are included in the results of the Community Banks segment. Included in “Other” are the operations of the holding company and other eliminations which are necessary for purposes of reconciling to the consolidated amounts.

The following table provides financial information for our operating segments for the periods presented:

 

     Community
Banks
     Insurance      Wealth
Management
    Other     Consolidated  

Three Months Ended

March 31, 2012

            

Net interest income

   $ 33,105       $ 24       $ 363      $ (649   $ 32,843   

Provision for loan losses

     4,794         —           6        —          4,800   

Noninterest income

     13,245         1,169         1,951        22        16,387   

Noninterest expense

     34,263         783         1,466        109        36,621   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     7,293         410         842        (736     7,809   

Income taxes

     1,732         159         226        (282     1,835   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 5,561       $ 251       $ 616      $ (454   $ 5,974   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,118,598       $ 10,377       $ 41,528      $ 5,987      $ 4,176,490   

Goodwill

     182,096         2,783         —          —          184,879   

Three Months Ended

March 31, 2011

            

Net interest income

   $ 31,395       $ 32       $ 316      $ (607   $ 31,136   

Provision for loan losses

     5,520         —           (20     —          5,500   

Noninterest income

     18,767         1,143         1,066        19        20,995   

Noninterest expense

     34,294         723         896        80        35,993   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     10,348         452         506        (668     10,638   

Income taxes

     3,011         174         155        (255     3,085   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 7,337       $ 278       $ 351      $ (413   $ 7,553   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,368,067       $ 9,067       $ 37,193      $ 7,837      $ 4,422,164   

Goodwill

     182,096         2,783         —          —          184,879   

In connection with the acquisition of American Trust, the Company recognized a gain on acquisition of $8,774 in the three months ended March 31, 2011, which is included in “Noninterest income” for the Community Banks segment in the table above.

 

23


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note H –Fair Value Measurements

(In Thousands)

Fair Value Measurements and the Fair Level Hierarchy

The following methods and assumptions are used by the Company to estimate the fair values of the Company’s financial assets and liabilities that are measured on a recurring basis:

Securities available for sale: Securities available for sale consist primarily of debt securities such as obligations of U.S. Government agencies and corporations, mortgage-backed securities, trust preferred securities, and other debt securities. For securities available for sale, fair values for debt securities are based on quoted market prices, where available, or a discounted cash flow model. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The fair value of equity securities traded in an active market is based on quoted market prices; for equity securities not traded in an active market, fair value approximates their historical cost.

Derivative instruments: Interest rate contracts, including swaps, caps and/or floors, are extensively traded in over-the-counter markets at prices based upon projections of future cash payments/receipts discounted at market rates. The fair value of the Company’s interest rate contracts is determined based upon discounted cash flows. The fair values of the Company’s interest rate lock commitments to fund fixed-rate residential mortgage loans and forward commitments to sell residential mortgage loans to secondary market investors are based on readily available quoted market prices.

The following table presents assets and liabilities that are measured at fair value on a recurring basis:

 

       Level 1        Level 2      Level 3      Totals  

March 31, 2012

           

Financial assets:

           

Securities available for sale:

           

Obligations of other U.S. Government agencies and corporations

   $ —         $ 2,389       $ —         $ 2,389   

Residential mortgage-backed securities:

           

Government agency mortgage backed securities

     —           239,575         —           239,575   

Government agency collateralized mortgage obligations

     —           155,595         —           155,595   

Commercial mortgage-backed securities:

           

Government agency mortgage backed securities

     —           36,566         —           36,566   

Government agency collateralized mortgage obligations

     —           5,246         —           5,246   

Trust preferred securities

     —           —           12,866         12,866   

Other debt securities

     —           21,483         —           21,483   

Other equity securities

     —           —           2,660         2,660   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

     —           460,854         15,526         476,380   

Derivative instruments:

           

Interest rate contracts

     —           1,881         —           1,881   

Interest rate lock commitments

     —           795         —           795   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments

     —           2,676         —           2,676   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ —         $ 463,530       $ 15,526       $ 479,056   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

           

Derivative instruments:

           

Interest rate swap

   $ —         $ 179       $ —         $ 179   

Interest rate contracts

     —           1,870         —           1,870   

Forward commitments

     —           66         —           66   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments

     —           2,115         —           2,115   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ —         $ 2,115       $ —         $ 2,115   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

24


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note H – Fair Value Measurements (continued)

 

$xxxxx.xx $xxxxx.xx $xxxxx.xx $xxxxx.xx
     Level 1      Level 2      Level 3      Totals  

December 31, 2011

           

Financial assets:

           

Securities available for sale:

           

Obligations of other U.S. Government agencies and corporations

   $ —         $ 17,395       $ —         $ 17,395   

Residential mortgage-backed securities:

           

Government agency mortgage backed securities

     —           230,667         —           230,667   

Government agency collateralized mortgage obligations

     —           136,987         —           136,987   

Commercial mortgage-backed securities:

           

Government agency mortgage backed securities

     —           36,669         —           36,669   

Government agency collateralized mortgage obligations

     —           5,316         —           5,316   

Trust preferred securities

     —           —           12,785         12,785   

Other debt securities

     —           21,875         —           21,875   

Other equity securities

     —           —           2,237         2,237   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

     —           448,909         15,022         463,931   

Derivative instruments:

           

Interest rate contracts

     —           2,132         —           2,132   

Interest rate lock commitments

     —           1,197         —           1,197   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments

     —           3,329         —           3,329   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

   $ —         $ 452,238       $ 15,022       $ 467,260   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial liabilities:

           

Derivative instruments:

           

Interest rate contracts

   $ —         $ 2,063       $ —         $ 2,063   

Forward commitments

     —           427         —           427   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total derivative instruments

     —           2,490         —           2,490   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

   $ —         $ 2,490       $ —         $ 2,490   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table provides a reconciliation for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs during the three months ended March 31, 2012:

 

     Securities available for sale  
     Trust preferred
securities
    Other equity
securities
     Total  

Balance at January 1, 2012

   $ 12,785      $ 2,237       $ 15,022   

Transfers out of Level 3

     —          —           —     

Realized gains (losses) included in net income

     —          —           —     

Unrealized gains included in other comprehensive income

     1,033        423         1,456   

Reclassification adjustment

     (952     —           (952

Settlements

     —          —           —     
  

 

 

   

 

 

    

 

 

 

Balance at March 31, 2012

   $ 12,866      $ 2,660       $ 15,526   
  

 

 

   

 

 

    

 

 

 

 

25


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note H – Fair Value Measurements (continued)

 

Certain assets may be recorded at fair value on a nonrecurring basis. These nonrecurring fair value adjustments typically are a result of the application of the lower of cost or market accounting or a write-down occurring during the period. The following methods and assumptions are used by the Company to estimate the fair values of the Company’s financial assets and liabilities measured on a nonrecurring basis:

Mortgage loans held for sale: Mortgage loans held for sale are carried at the lower of cost or fair value. If fair value is used, it is determined using current secondary market prices for loans with similar characteristics, that is, using Level 2 inputs. Mortgage loans held for sale were carried at cost on the Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, respectively.

Impaired loans: Loans considered impaired are reserved for at the time the loan is identified as impaired taking into account the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including but not limited to equipment, inventory and accounts receivable. The fair value of real estate is determined based on appraisals by qualified licensed appraisers. The fair value of the business assets is generally based on amounts reported on the business’s financial statements. Appraised and reported values may be adjusted based on changes in market conditions from the time of valuation and management’s knowledge of the client and the client’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified as Level 3. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified. Impaired loans covered under loss-share agreements were recorded at their fair value upon the acquisition date, and no fair value adjustments were necessary for the three months ended March 31, 2012 and 2011, respectively. The following table presents impaired loans measured at fair value on a nonrecurring basis:

 

     March 31,
2012
     December 31,
2011
 

Impaired loans

   $ 65,015       $ 66,018   

Specific reserve included in allowance for loan losses

   $ 13,474       $ 15,410   

The allocated allowance for loan losses for impaired loans is based on the carrying value of the impaired loan and the fair value of the underlying collateral less estimated costs to sell.

Other real estate owned: OREO is comprised of commercial and residential real estate obtained in partial or total satisfaction of loan obligations. OREO covered under loss-share agreements was recorded at its fair value at its acquisition date. OREO not covered under loss-share agreements acquired in settlement of indebtedness is recorded at the fair value of the real estate less estimated costs to sell. Subsequently, it may be necessary to record nonrecurring fair value adjustments for declines in fair value. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for management’s estimates of costs to sell. Accordingly, values for OREO are classified as Level 3. The following table presents OREO measured at fair value on a nonrecurring basis that was still held in the Consolidated Balance Sheets:

 

     March 31,
2012
    December 31,
2011
 

OREO covered under loss-share agreements:

    

Carrying amount prior to remeasurement

   $ 14,594      $ 7,111   

Impairment recognized in results of operations

     (459 &n