XNAS:RNST Renasant Corp Quarterly Report 10-Q Filing - 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended June 30, 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   (I.R.S. Employer
incorporation or organization)   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  þ    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  þ    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   þ
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  þ

As of July 31, 2012, 25,113,894 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 June 30, 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

     36   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     60   

Item 4. Controls and Procedures

     60   

PART II Other Information

  

Item 1A. Risk Factors

     61   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     61   

Item 6. Exhibits

     62   

SIGNATURES

     63   

EXHIBIT INDEX

     64   


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Renasant Corporation and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Data)

 

     (Unaudited)        
     June 30,     December 31,  
     2012     2011  

Assets

    

Cash and due from banks

   $ 69,893      $ 85,684   

Interest-bearing balances with banks

     126,513        123,333   
  

 

 

   

 

 

 

Cash and cash equivalents

     196,406        209,017   

Securities held to maturity (fair value of $305,183 and $344,618, respectively)

     290,050        332,410   

Securities available for sale, at fair value

     386,671        463,931   

Mortgage loans held for sale

     25,386        28,222   

Loans, net of unearned income:

    

Covered under loss-share agreements

     289,685        339,462   

Not covered under loss-share agreements

     2,392,349        2,241,622   
  

 

 

   

 

 

 

Total loans, net of unearned income

     2,682,034        2,581,084   

Allowance for loan losses

     (44,779     (44,340
  

 

 

   

 

 

 

Loans, net

     2,637,255        2,536,744   

Premises and equipment, net

     57,958        54,498   

Other real estate owned:

    

Covered under loss-share agreements

     37,951        43,156   

Not covered under loss-share agreements

     58,384        70,079   
  

 

 

   

 

 

 

Total other real estate owned, net

     96,335        113,235   

Goodwill

     184,879        184,879   

Other intangible assets, net

     6,739        7,447   

FDIC loss-share indemnification asset

     54,473        107,754   

Other assets

     176,225        163,871   
  

 

 

   

 

 

 

Total assets

   $ 4,112,377      $ 4,202,008   
  

 

 

   

 

 

 

Liabilities and shareholders’ equity

    

Liabilities

    

Deposits

    

Noninterest-bearing

   $ 539,237      $ 531,910   

Interest-bearing

     2,866,959        2,880,327   
  

 

 

   

 

 

 

Total deposits

     3,406,196        3,412,237   

Short-term borrowings

     7,700        11,485   

Long-term debt

     162,279        243,224   

Other liabilities

     44,668        47,860   
  

 

 

   

 

 

 

Total liabilities

     3,620,843        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; 25,113,894 and 25,066,068 shares outstanding, respectively

     133,579        133,579   

Treasury stock, at cost

     (26,038     (26,815

Additional paid-in capital

     217,640        217,477   

Retained earnings

     174,874        171,108   

Accumulated other comprehensive loss, net of taxes

     (8,521     (8,147
  

 

 

   

 

 

 

Total shareholders’ equity

     491,534        487,202   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 4,112,377      $ 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
June  30,
    Six Months Ended
June 30,
 
     2012      2011     2012      2011  

Interest income

          

Loans

   $ 34,016       $ 36,245      $ 68,298       $ 72,189   

Securities

          

Taxable

     3,735         5,342        7,745         10,905   

Tax-exempt

     2,173         2,069        4,301         4,199   

Other

     54         163        139         369   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest income

     39,978         43,819        80,483         87,662   

Interest expense

          

Deposits

     4,969         8,776        10,388         18,858   

Borrowings

     1,599         2,377        3,842         5,002   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total interest expense

     6,568         11,153        14,230         23,860   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income

     33,410         32,666        66,253         63,802   

Provision for loan losses

     4,700         5,350        9,500         10,850   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan losses

     28,710         27,316        56,753         52,952   

Noninterest income

          

Service charges on deposit accounts

     4,495         5,036        9,020         9,877   

Fees and commissions

     4,322         3,118        8,250         6,049   

Insurance commissions

     842         792        1,740         1,629   

Wealth management revenue

     1,551         1,139        3,493         2,195   

Gains on sales of securities

     869         4        1,773         16   

Other-than-temporary-impairment losses on securities available for sale

     —           (15,445     —           (15,445

Non-credit related portion of other-than-temporary impairment on securities, recognized in other comprehensive income

     —           15,183        —           15,183   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net impairment losses on securities

     —           (262     —           (262

BOLI income

     654         883        1,765         1,478   

Gains on sales of mortgage loans held for sale

     2,390         949        3,671         2,100   

Gain on acquisition

     —           —          —           8,774   

Other

     1,115         721        2,913         1,519   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest income

     16,238         12,380        32,625         33,375   

Noninterest expense

          

Salaries and employee benefits

     19,871         16,173        38,520         32,410   

Data processing

     2,211         1,657        4,251         3,445   

Net occupancy and equipment

     3,582         3,367        7,197         6,585   

Other real estate owned

     3,370         2,122        7,369         5,633   

Professional fees

     1,015         1,208        1,986         2,022   

Advertising and public relations

     1,302         1,124        2,499         2,120   

Intangible amortization

     349         510        707         1,025   

Communications

     926         1,212        2,029         2,374   

Merger-related expenses

     —           —          —           1,325   

Extinguishment of debt

     —           —          898         1,903   

Other

     4,084         4,272        7,875         8,796   
  

 

 

    

 

 

   

 

 

    

 

 

 

Total noninterest expense

     36,710         31,645        73,331         67,638   
  

 

 

    

 

 

   

 

 

    

 

 

 

Income before income taxes

     8,238         8,051        16,047         18,689   

Income taxes

     1,893         2,294        3,728         5,379   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net income

   $ 6,345       $ 5,757      $ 12,319       $ 13,310   
  

 

 

    

 

 

   

 

 

    

 

 

 

Basic earnings per share

   $ 0.25       $ 0.23      $ 0.49       $ 0.53   
  

 

 

    

 

 

   

 

 

    

 

 

 

Diluted earnings per share

   $ 0.25       $ 0.23      $ 0.49       $ 0.53   
  

 

 

    

 

 

   

 

 

    

 

 

 

Cash dividends per common share

   $ 0.17       $ 0.17      $ 0.34       $ 0.34   
  

 

 

    

 

 

   

 

 

    

 

 

 

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
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Net income

   $ 6,345      $ 5,757      $ 12,319      $ 13,310   

Other comprehensive income, net of tax:

        

Securities available for sale:

        

Unrealized holding gains on securities

     1,090        14,378        2,108        14,655   

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

     —          (9,376     —          (9,376

Reclassification adjustment for (gains) losses realized in net income

     (537     159        (1,095     152   

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

     (91     (221     (193     (390
  

 

 

   

 

 

   

 

 

   

 

 

 

Total securities available for sale

     462        4,940        820        5,041   

Derivative instruments:

        

Unrealized holding losses on derivative instruments

     (1,027     —          (1,138     —     

Reclassification adjustment for gains realized in net income

     (94     (94     (188     (187
  

 

 

   

 

 

   

 

 

   

 

 

 

Totals derivative instruments

     (1,121     (94     (1,326     (187

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        66        132        137   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total defined benefit pension and post-retirement benefit plans

     66        66        132        137   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income

     (593     4,912        (374     4,991   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 5,752      $ 10,669      $ 11,945      $ 18,301   
  

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

Renasant Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

      Six Months Ended June 30,  
     2012     2011  

Operating activities

    

Net cash provided by operating activities

   $ 101,300      $ 72,148   

Investing activities

    

Purchases of securities available for sale

     (83,426     (48,586

Proceeds from sales of securities available for sale

     86,850        —     

Proceeds from call/maturities of securities available for sale

     74,681        84,781   

Purchases of securities held to maturity

     (69,564     (56,684

Proceeds from sales of securities held to maturity

     —          13,033   

Proceeds from call/maturities of securities held to maturity

     111,391        21,917   

Net (increase) decrease in loans

     (128,965     2,447   

Purchases of premises and equipment

     (6,012     (2,747

Proceeds from sales of premises and equipment

     45        77   

Net cash received in acquisition

     —          148,443   
  

 

 

   

 

 

 

Net cash (used in) provided by investing activities

     (15,000     162,681   

Financing activities

    

Net increase in noninterest-bearing deposits

     7,327        79,792   

Net decrease in interest-bearing deposits

     (13,368     (293,531

Net (decrease) increase in short-term borrowings

     (3,785     680   

Repayment of long-term debt

     (80,864     (68,994

Cash paid for dividends

     (8,554     (8,535

Cash received on exercise of stock-based compensation

     333        255   
  

 

 

   

 

 

 

Net cash used in financing activities

     (98,911     (290,333
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (12,611     (55,504

Cash and cash equivalents at beginning of period

     209,017        292,669   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 196,406      $ 237,165   
  

 

 

   

 

 

 

Supplemental disclosures

    

Noncash transactions:

    

Transfers of loans to other real estate

   $ 21,999      $ 27,828   

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, 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 accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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 June 30, 2012 but prior to the issuance of these financial statements that would have a material impact on its Consolidated Financial Statements.

 

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 serves 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 the Bank acquired all of the ownership interests in the subsidiary, which was subsequently merged into the Bank. In connection with the acquisition, the Company recognized a gain of $570, which was 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.

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 Financial Accounting Standards Board Accounting Standards Codification Topic (“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 six months ended June 30, 2011.

 

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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 or six months ended June 30, 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 under 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 as of the acquisition date 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

     13,013   

Reimbursements received

     (65,828

Accretion

     (466
  

 

 

 

Balance at June 30, 2012

   $ 54,473   
  

 

 

 

 

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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
 

June 30, 2012

          

Obligations of other U.S. Government agencies and corporations

   $ 54,150       $ 191       $ (71   $ 54,270   

Obligations of states and political subdivisions

     235,900         15,198         (185     250,913   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 290,050       $ 15,389       $ (256   $ 305,183   
  

 

 

    

 

 

    

 

 

   

 

 

 

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 $13,017, and the Company recognized a net gain of $16 on the sale during the six months ended June 30, 2011. No securities classified as held to maturity were sold during the six months ended June 30, 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
 

June 30, 2012

          

Obligations of other U.S. Government agencies and corporations

   $ 2,181       $ 252       $ —        $ 2,433   

Residential mortgage backed securities:

          

Government agency mortgage backed securities

     170,588         6,462         —          177,050   

Government agency collateralized mortgage obligations

     125,401         2,805         (257     127,949   

Commercial mortgage backed securities:

          

Government agency mortgage backed securities

     34,333         2,828         (32     37,129   

Government agency collateralized mortgage obligations

     5,131         281         —          5,412   

Trust preferred securities

     29,459         —           (16,787     12,672   

Other debt securities

     20,361         878         (3     21,236   

Other equity securities

     2,355         435         —          2,790   
  

 

 

    

 

 

    

 

 

   

 

 

 
   $ 389,809       $ 13,941       $ (17,079   $ 386,671   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

8


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 realized gains and gross realized losses on sales of securities available for sale for the three and six months ended June 30, 2012 and 2011 were as follows:

 

                                       
     Three Months Ended
June  30,
     Six Months Ended
June  30,
 
     2012     2011      2012     2011  

Gross gains on sales of securities available for sale

   $ 946      $ —         $ 1,850      $ —     

Gross losses on sales of securities available for sale

     (77     —           (77     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Gain on sales of securities available for sale, net

   $ 869      $ —         $ 1,773      $ —     
  

 

 

   

 

 

    

 

 

   

 

 

 

At June 30, 2012 and December 31, 2011, securities with a carrying value of $356,499 and $305,746, respectively, were pledged to secure government, public and trust deposits. Securities with a carrying value of $10,363 and $20,206 were pledged as collateral for short-term borrowings at June 30, 2012 and December 31, 2011, respectively.

 

9


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note C—Securities (continued)

 

The amortized cost and fair value of securities at June 30, 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

   $ 9,310       $ 9,380       $ —         $ —     

Due after one year through five years

     38,456         39,504         —           —     

Due after five years through ten years

     99,124         102,748         2,181         2,433   

Due after ten years

     143,160         153,551         29,459         12,672   

Residential mortgage backed securities:

           

Government agency mortgage backed securities

     —           —           170,588         177,050   

Government agency collateralized mortgage obligations

     —           —           125,401         127,949   

Commercial mortgage backed securities:

           

Government agency mortgage backed securities

     —           —           34,333         37,129   

Government agency collateralized mortgage obligations

     —           —           5,131         5,412   

Other debt securities

     —           —           20,361         21,236   

Other equity securities

     —           —           2,355         2,790   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 290,050       $ 305,183       $ 389,809       $ 386,671   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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:

               

June 30, 2012

               

Obligations of other U.S. Government agencies and corporations

   $ 20,570       $ (71   $ —         $ —        $ 20,570       $ (71

Obligations of states and political subdivisions

     12,607         (185     —           —          12,607         (185
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 33,177       $ (256   $ —         $ —        $ 33,177       $ (256
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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:

               

June 30, 2012

               

Obligations of other U.S. Government agencies and corporations

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

Residential mortgage backed securities:

               

Government agency mortgage backed securities

     —           —          —           —          —           —     

Government agency collateralized mortgage obligations

     38,095         (257     —           —          38,095         (257

Commercial mortgage backed securities:

               

Government agency mortgage backed securities

     —           —          1,231         (32     1,231         (32

Government agency collateralized mortgage obligations

     —           —          —           —          —           —     

Trust preferred securities

     —           —          12,672         (16,787     12,672         (16,787

Other debt securities

     —           —          2,414         (3     2,414         (3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 38,095       $ (257   $ 16,317       $ (16,822   $ 54,412       $ (17,079
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

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 an amortized cost basis of $29,459 and $30,410 and a fair value of $12,672 and $12,785, at June 30, 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 340 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 June 30, 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 or six months ended June 30, 2012.

However, based on the qualitative factors discussed above, each of the four pooled trust preferred securities was classified as a nonaccruing asset at June 30, 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 June 30, 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       $ 786       $ (430     Ca         32

XXIII

     Pooled         B-2         10,599         5,093         (5,506     Ca         22

XXIV

     Pooled         B-2         12,076         4,675         (7,401     Ca         34

XXVI

     Pooled         B-2         5,568         2,118         (3,450     Ca         32
        

 

 

    

 

 

    

 

 

      
         $ 29,459       $ 12,672       $ (16,787     
        

 

 

    

 

 

    

 

 

      

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

     —          (262

Increases in credit loss for which OTTI was previously recognized

     —          —     
  

 

 

   

 

 

 

Balance at June 30

   $ (3,337   $ (3,337
  

 

 

   

 

 

 

 

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:

 

     June 30,
2012
    December 31,
2011
 

Commercial, financial, agricultural

   $ 293,273      $ 278,091   

Lease financing

     254        343   

Real estate—construction

     79,202        81,235   

Real estate—1-4 family mortgage

     862,766        824,627   

Real estate—commercial mortgage

     1,387,217        1,336,635   

Installment loans to individuals

     59,331        60,168   
  

 

 

   

 

 

 

Gross loans

     2,682,043        2,581,099   

Unearned income

     (9     (15
  

 

 

   

 

 

 

Loans, net of unearned income

     2,682,034        2,581,084   

Allowance for loan losses

     (44,779     (44,340
  

 

 

   

 

 

 

Net loans

   $ 2,637,255      $ 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
 

June 30, 2012

                        

Commercial, financial, agricultural

   $ 657       $ 6       $ 288,389      $ 289,052      $ 4       $ 3,997       $ 220       $ 4,221       $ 293,273   

Lease financing

     30         —           224        254        —           —           —           —           254   

Real estate—construction

     —           601         72,508        73,109        —           6,093         —           6,093         79,202   

Real estate—

1-4 family mortgage

     9,264         2,481         822,369        834,114        1,378         20,493         6,781         28,652         862,766   

Real estate—commercial mortgage

     15,061         737         1,319,161        1,334,959        420         48,872         2,966         52,258         1,387,217   

Installment loans to individuals

     223         238         58,609        59,070        14         217         30         261         59,331   

Unearned income

     —           —           (9     (9     —           —           —           —           (9
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,235       $ 4,063       $ 2,561,251      $ 2,590,549      $ 1,816       $ 79,672       $ 9,997       $ 91,485       $ 2,682,034   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
 

June 30, 2012

              

Commercial, financial, agricultural

   $ 6,735       $ 1,600       $ 2,078       $ 3,678       $ 727   

Lease financing

     —           —           —           —           —     

Real estate—construction

     15,924         —           6,093         6,093         —     

Real estate—1-4 family mortgage

     89,824         26,590         19,943         46,533         5,666   

Real estate—commercial mortgage

     139,704         34,885         50,600         85,485         7,296   

Installment loans to individuals

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 252,187       $ 63,075       $ 78,714       $ 141,789       $ 13,689   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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
June 30, 2012
     Three Months Ended
June 30, 2011
 
     Average
Recorded

Investment
     Interest
Income
Recognized(1)
     Average
Recorded

Investment
     Interest
Income
Recognized(1)
 

Commercial, financial, agricultural

   $ 3,667       $ 7       $ 4,860       $ 19   

Lease financing

     —           —           —           —     

Real estate—construction

     6,093         —           7,006         (28

Real estate—1-4 family mortgage

     48,109         274         67,439         283   

Real estate—commercial mortgage

     89,510         558         108,157         926   

Installment loans to individuals

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 147,379       $ 839       $ 187,462       $ 1,200   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Includes interest income recognized using the cash-basis method of income recognition of $100 and $184, 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)

 

 

     Six Months Ended
June 30, 2012
     Six Months Ended
June 30, 2011
 
     Average
Recorded

Investment
     Interest
Income
Recognized(1)
     Average
Recorded

Investment
     Interest
Income
Recognized(1)
 

Commercial, financial, agricultural

   $ 3,730       $ 15       $ 4,542       $ 26   

Lease financing

     —           —           —           —     

Real estate—construction

     6,141         —           5,391         —     

Real estate—1-4 family mortgage

     48,755         598         61,480         612   

Real estate—commercial mortgage

     90,995         1,077         101,600         1,495   

Installment loans to individuals

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 149,621       $ 1,690       $ 173,013       $ 2,133   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) 

Includes interest income recognized using the cash-basis method of income recognition of $314 and $350, 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)

 

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
 

June 30, 2012

        

Commercial, financial, agricultural

     —         $ —         $ —     

Lease financing

     —           —           —     

Real estate—construction

     —           —           —     

Real estate—1-4 family mortgage

     18         19,941         17,572   

Real estate—commercial mortgage

     14         18,808         18,322   

Installment loans to individuals

     1         184         177   
  

 

 

    

 

 

    

 

 

 

Total

     33       $ 38,933       $ 36,071   
  

 

 

    

 

 

    

 

 

 

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

     6        3,215   

Reductions due to:

    

Reclassified as nonperforming

     (2     (1,258

Charge-offs

       (183

Transfer to other real estate owned

     (1     (419

Principal paydowns

       (916

Lapse of concession period

     (1     (679
  

 

 

   

 

 

 

Totals at June 30, 2012

     33      $ 36,071   
  

 

 

   

 

 

 

The allocated allowance for loan losses attributable to restructured loans was $5,887 and $5,994 at June 30, 2012 and December 31, 2011, respectively. The Company had $344 and $194 in remaining availability under commitments to lend additional funds on these restructured loans at June 30, 2012 and December 31, 2011, respectively.

 

17


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  

June 30, 2012

           

Commercial, financial, agricultural

   $ 205,013       $ 2,400       $ 3,886       $ 211,299   

Real estate—construction

     48,116         2,851         —           50,967   

Real estate—1-4 family mortgage

     82,068         31,290         36,417         149,775   

Real estate—commercial mortgage

     931,150         54,222         37,400         1,022,772   

Installment loans to individuals

     22         —           —           22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,266,369       $ 90,763       $ 77,703       $ 1,434,835   
  

 

 

    

 

 

    

 

 

    

 

 

 

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  

June 30, 2012

        

Commercial, financial, agricultural

   $ 68,732       $ 250       $ 68,982   

Lease financing

     254         —           254   

Real estate—construction

     22,142         —           22,142   

Real estate—1-4 family mortgage

     613,805         5,307         619,112   

Real estate—commercial mortgage

     178,179         825         179,004   

Installment loans to individuals

     55,841         58         55,899   
  

 

 

    

 

 

    

 

 

 

Total

   $ 938,953       $ 6,440       $ 945,393   
  

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

 

 

18


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  

June 30, 2012

           

Commercial, financial, agricultural

   $ 38       $ 12,720       $ 234       $ 12,992   

Lease financing

     —           —           —           —     

Real estate—construction

     3,900         2,193         —           6,093   

Real estate—1-4 family mortgage

     10,654         80,951         2,274         93,879   

Real estate—commercial mortgage

     37,681         141,479         6,281         185,441   

Installment loans to individuals

     —           69         3,341         3,410   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 52,273       $ 237,412       $ 12,130       $ 301,815   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 June 30, 2012:

 

     Impaired
Covered

Loans
    Other
Covered
Loans
    Not
Covered
Loans
    Total  

Contractually-required principal and interest

   $ 81,679      $ 273,376      $ 14,566      $ 369,621   

Nonaccretable difference(1)

     (29,381     (26,772     (1,233     (57,386
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows expected to be collected

     52,298        246,604        13,333        312,235   

Accretable yield(2)

     (25     (9,192     (1,203     (10,420
  

 

 

   

 

 

   

 

 

   

 

 

 

Fair value

   $ 52,273      $ 237,412      $ 12,130      $ 301,815   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Represents contractual principal and interest cash flows of $44,764 and $12,622, respectively, not expected to be collected.

(2) 

Represents contractual interest payments of $6,054 expected to be collected and purchase discount of $4,366.

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   $ (9,757   $ (746   $ (10,543

Reclasses from nonaccretable difference

     —          (757     (1,092     (1,849

Accretion

     15        1,322        635        1,972   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ (25   $ (9,192   $ (1,203   $ (10,420
  

 

 

   

 

 

   

 

 

   

 

 

 

 

19


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 June 30, 2012

            

Allowance for loan losses:

            

Beginning balance

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

Provision for loan losses

     504        119        2,590        1,358        129        4,700   

Charge-offs

     (645     (38     (2,674     (1,144     (132     (4,633

Recoveries

     156        3        172        172        33        536   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,235      $ 966      $ 18,980      $ 20,765      $ 833      $ 44,779   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2012

            

Allowance for loan losses:

            

Beginning balance

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

Provision for loan losses

     893        (68     6,004        2,588        83        9,500   

Charge-offs

     (2,033     (42     (4,548     (3,026     (203     (9,852

Recoveries

     178        3        333        224        53        791   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,235      $ 966      $ 18,980      $ 20,765      $ 833      $ 44,779   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-End Amount Allocated to:

            

Individually evaluated for impairment

   $ 727      $ —        $ 5,666      $ 7,296      $ —        $ 13,689   

Collectively evaluated for impairment

     2,508        966        13,314        13,469        833        31,090   

Acquired with deteriorated credit quality

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,235      $ 966      $ 18,980      $ 20,765      $ 833      $ 44,779   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

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

 

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

Three Months Ended June 30, 2011

            

Allowance for loan losses:

            

Beginning balance

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

Provision for loan losses

     1,662        192        1,620        1,879        (3     5,350   

Charge-offs

     (1,139     (569     (3,084     (823     (33     (5,648

Recoveries

     36        31        221        52        24        364   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,841      $ 1,389      $ 19,864      $ 21,518      $ 959      $ 47,571   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Six Months Ended June 30, 2011

            

Allowance for loan losses:

            

Beginning balance

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

Provision for loan losses

     2,322        41        5,272        3,244        (29     10,850   

Charge-offs

     (1,284     (798     (6,615     (1,374     (89     (10,160

Recoveries

     178        31        337        869        51        1,466   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,841      $ 1,389      $ 19,864      $ 21,518      $ 959      $ 47,571   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Period-End Amount Allocated to:

            

Individually evaluated for impairment

   $ 754      $ 16      $ 8,264      $ 7,938      $ —        $ 16,972   

Collectively evaluated for impairment

     3,087        1,373        11,600        13,580        959        30,599   

Acquired with deteriorated credit quality

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 3,841      $ 1,389      $ 19,864      $ 21,518      $ 959      $ 47,571   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

Includes lease financing receivables.

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  

June 30, 2012

                 

Individually evaluated for impairment

   $ 3,678       $ 6,093       $ 46,533       $ 85,485       $ —         $ 141,789   

Collectively evaluated for impairment

     276,603         67,016         722,354         1,116,291         56,166         2,238,430   

Acquired with deteriorated credit quality

     12,992         6,093         93,879         185,441         3,410         301,815   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Ending balance

   $ 293,273       $ 79,202       $ 862,766       $ 1,387,217       $ 59,576       $ 2,682,034   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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.

 

21


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, net of valuation allowances and direct write-downs:

 

     Covered
OREO
     Not Covered
OREO
     Total
OREO
 

June 30, 2012

        

Residential real estate

   $ 5,599       $ 11,046       $ 16,645   

Commercial real estate

     7,914         11,877         19,791   

Residential land development

     4,200         29,001         33,201   

Commercial land development

     20,238         6,460         26,698   
  

 

 

    

 

 

    

 

 

 

Total

   $ 37,951       $ 58,384       $ 96,335   
  

 

 

    

 

 

    

 

 

 

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

     16,418        5,581        21,999   

Capitalized improvements

     —          382        382   

Impairments(1)

     (5,849     (2,997     (8,846

Dispositions

     (15,818     (14,844     (30,662

Other

     44        183        227   
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2012

   $ 37,951      $ 58,384      $ 96,335   
  

 

 

   

 

 

   

 

 

 
(1) 

Of the total impairment charges of $5,849 recorded for covered OREO, $1,170 was included in the Consolidated Statements of Income for the six months ended June 30, 2012, while the remaining $4,679 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
June  30,
    Six Months Ended
June 30,
 
     2012     2011     2012     2011  

Carrying costs

   $ 756      $ 1,330      $ 1,791      $ 2,319   

Impairments

     2,069        655        4,167        1,624   

Net losses on OREO sales

     659        205        1,650        1,836   

Rental income

     (114     (68     (239     (146
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 3,370      $ 2,122      $ 7,369      $ 5,633   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

22


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
June  30,
    Three Months Ended
June  30,
 
     2012     2011     2012      2011  

Service cost

   $ —        $ —        $ 6       $ 9   

Interest cost

     215        222        16         15   

Expected return on plan assets

     (298     (329     —           —     

Prior service cost recognized

     —          —          —           —     

Recognized actuarial loss

     89        75        18         33   

Recognized curtailment loss

     —          —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ 6      $ (32   $ 40       $ 57   
  

 

 

   

 

 

   

 

 

    

 

 

 
     Six Months Ended
June 30,
    Six Months Ended
June 30,
 
     2012     2011     2012      2011  

Service cost

   $ —        $ —        $ 12       $ 18   

Interest cost

     430        458        32         38   

Expected return on plan assets

     (596     (616     —           —     

Prior service cost recognized

     —          —          —           —     

Recognized actuarial loss

     178        152        36         72   

Recognized curtailment loss

     —          —          —           —     
  

 

 

   

 

 

   

 

 

    

 

 

 

Net periodic benefit cost

   $ 12      $ (6   $ 80       $ 128   
  

 

 

   

 

 

   

 

 

    

 

 

 

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 six month periods ended June 30, 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.

In April 2012, an amendment to the Company’s long-term incentive compensation plan was adopted that allows non-employee members of the Board of Directors to participate in the plan. Under this provision, the Company awarded 9,684 shares of time-based restricted stock to non-employee directors which are earned 100% upon the completion of one year of service measured from the grant date. The fair value of the restricted stock grants on the date of the grant was $15.49 per share.

 

23


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note F—Employee Benefit and Deferred Compensation Plans (continued)

 

During the six months ended June 30, 2012, the Company reissued 47,826 shares from treasury in connection with the exercise of stock-based compensation. The Company recorded total stock-based compensation expense of $316 and $300 for the three months ended June 30, 2012 and 2011, respectively, and $608 and $605 for the six months ended June 30, 2012 and 2011, respectively.

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.

 

24


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note G—Segment Reporting (continued)

 

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

 

     Community
Banks
     Insurance      Wealth
Management
    Other     Consolidated  

Three Months Ended June 30, 2012

            

Net interest income

   $ 33,661       $ 24       $ 341      $ (616   $ 33,410   

Provision for loan losses

     4,723         —           (23     —          4,700   

Noninterest income

     13,753         901         1,563        21        16,238   

Noninterest expense

     34,139         793         1,646        132        36,710   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     8,552         132         281        (727     8,238   

Income taxes

     2,055         51         63        (276     1,893   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 6,497       $ 81       $ 218      $ (451   $ 6,345   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 4,054,647       $ 10,186       $ 38,125      $ 9,419      $ 4,112,377   

Goodwill

     182,096         2,783         —          —          184,879   

Three Months Ended June 30, 2011

            

Net interest income

   $ 32,925       $ 30       $ 320      $ (609   $ 32,666   

Provision for loan losses

     5,360         —           (10     —          5,350   

Noninterest income

     10,408         798         1,155        19        12,380   

Noninterest expense

     29,804         734         991        116        31,645   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     8,169         94         494        (706     8,051   

Income taxes

     2,375         38         152        (271     2,294   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 5,794       $ 56       $ 342      $ (435   $ 5,757  &