Renasant Corporation Announces Earnings For The Fourth Quarter Of 2017

TUPELO, Miss., Jan. 16, 2018 /PRNewswire/ -- Renasant Corporation (NASDAQ: RNST) (the "Company") today announced earnings results for the fourth quarter of 2017. Although the Company expects to realize material tax savings in the future as a result of the Tax Cuts and Jobs Act, the Company was required to revalue its net deferred tax assets in the fourth quarter of 2017 to reflect the corporate tax rate reduction implemented by this legislation. This revaluation, addressed in more detail later in this release, resulted in an approximately $14.5 million after-tax write-down of the Company's net deferred tax assets, which was charged against fourth quarter earnings and is reflected in the following discussion of the Company's results of operations for the fourth quarter and full year of 2017.

Net income for the fourth quarter of 2017 was approximately $16.5 million, as compared to $23.6 million for the fourth quarter of 2016. Basic and diluted earnings per share ("EPS") were $0.33 for the fourth quarter of 2017, as compared to basic and diluted EPS of $0.56 and $0.55, respectively, for the fourth quarter of 2016. The write down of the Company's net deferred tax assets resulted in a $14.5 million decrease to net income, or $0.30 in diluted EPS, for the fourth quarter of 2017.

Net income for the year ending December 31, 2017, was $92.2 million, as compared to $90.9 million for the same period in 2016. Basic and diluted EPS were $1.97 and $1.96, respectively, for 2017, as compared to basic and diluted EPS of $2.18 and $2.17, respectively, for the same period in 2016.  The write down of the Company's net deferred tax assets resulted in a $14.5 million decrease to net income, or $0.31 in diluted EPS, for 2017.

The Company's balance sheet and results of operations as of and for the year ended December 31, 2017, include the impact of the Company's acquisition of Metropolitan BancGroup, Inc. ("Metropolitan"), which was completed on July 1, 2017. As of the acquisition date, Metropolitan operated eight offices in Nashville and Memphis, Tennessee and the Jackson, Mississippi MSA and had approximately $1.4 billion in assets, which included approximately $968 million in total loans, including mortgage loans held for sale, and approximately $942 million in total deposits. The assets acquired and liabilities assumed have been recorded at estimated fair value and are subject to change pending finalization of all valuations.

Impact from the Tax Cuts and Jobs Act and Other Infrequent or Nonrecurring Items

The Tax Cuts and Jobs Act, which was enacted on December 22, 2017, among other things, permanently lowers the federal corporate tax rate, effective for tax years including or beginning January 1, 2018. United States generally accepted accounting principles require the Company to revalue its net deferred tax assets on the date of enactment based on the reduction in the overall future tax benefit expected to be realized at the lower tax rate implemented by the new legislation. After reviewing the Company's inventory of deferred tax assets and liabilities on the date of enactment and giving consideration to the future impact of the lower corporate tax rates and other provisions of the new legislation, the Company's estimated write-down of its net deferred tax assets was approximately $14.5 million, which is inclusive of an approximately $2.0 million write-down of deferred tax items accounted for in accumulated other comprehensive income ("AOCI"). This write-down is reflected in the Company's operating results for the fourth quarter of 2017 as an increase to the provision for income taxes. The Company's initial estimate of the net deferred tax assets write-down and the components thereof may be adjusted in future periods based on a number of factors and uncertainties, including the finalization of the Company's 2017 tax returns, further clarification from the Financial Accounting Standards Board on the proper treatment of the tax effects of items presented in AOCI and additional guidance released on the new legislation.

In addition to the write-down of net deferred tax assets, the Company incurred other expenses and charges in connection with certain transactions that are considered to be infrequent or non-recurring in nature. The following table presents the impact of these charges on reported earnings for the dates presented (in thousands):

Managing Assets Below $10 Billion at December 31, 2017

As a result of the acquisition of Metropolitan, coupled with organic balance sheet growth, the Company's assets exceeded $10 billion at the end of the third quarter of 2017. In order to delay the adverse impact of the Durbin Amendment to the Dodd-Frank Act, which, among other things, imposes limitations on the amount of debit card interchange fees certain banking institutions may collect, the Company initiated several strategic initiatives to manage its consolidated assets below $10 billion at December 31, 2017, which is the threshold at which bank holding companies would be subject to the Durbin Amendment. More specifically, the Company sold certain investment securities and shortened the holding period of mortgage loans held for sale. The proceeds from these initiatives were used to reduce certain wholesale funding sources. The pre-tax cost of the overall initiative for the fourth quarter of 2017, which includes interest income foregone on the securities and mortgage loans sold, was approximately $450 thousand, which amount was slightly offset by a pre-tax gain of $91 thousand resulting from the sale of certain investment securities.  The Company had previously disclosed the estimated impact of the Durbin Amendment on the Company's interchange fee income in 2018 would be approximately $2.1 million to $2.3 million per quarter beginning in the third quarter. During the first quarter of 2018, the Company intends to lengthen the holding period of our mortgage loans held for sale portfolio and purchase securities to reestablish the balance of our investment securities portfolio at a level consistent with amounts reported in previous periods.

"Excluding the immediate impact from the Tax Cuts and Jobs Act, the Company closed the year with very strong results. Our continuous efforts to grow net interest income while focusing on efficiency contributed to our profitability during the year. Furthermore, neither our strategies to deleverage the balance sheet during the fourth quarter nor the conversion and integration of Metropolitan's operations during the third quarter significantly impacted our day-to-day operations, as evidenced by our strong loan growth during the year," commented Renasant Chairman and Chief Executive Officer, E. Robinson McGraw. "Our continued success in 2017 was a leading factor considered by our Board of Directors this past November when approving an increase to our quarterly dividend which boosts our annual cash dividend from $0.72 to $0.76."

"We believe we are well positioned for greater success as we enter 2018. Continued focus on our key strategic initiatives, coupled with further benefits to be realized from the Tax Cuts and Jobs Act, is expected to contribute to our success in the coming year," said C. Mitchell Waycaster, Renasant President and Chief Operating Officer. "We look to share with our associates, communities, clients and our company any benefits realized from the new tax law as we continue to focus on these constituencies that have provided us with the success we've enjoyed as a company for more than 114 years."

Profitability Metrics

The following table presents the Company's profitability metrics for the three and twelve months ended December 31, 2017, including and excluding the impact of the write-down of net deferred tax assets, after-tax merger and conversion expenses and, for the twelve-month period, debt prepayment penalties:

The above profitability metrics, excluding return on average assets and return on average equity as reported, are non-GAAP financial measures. A reconciliation of these financial measures from GAAP to non-GAAP is included in the table at the end of this release.

Other financial highlights from the fourth quarter of 2017 and the year ended December 31, 2017 include the following:

• Total assets were $9.8 billion at December 31, 2017, as compared to $8.7 billion at December 31, 2016.
• Loans not purchased increased to $5.6 billion at December 31, 2017, from $4.7 billion at December 31, 2016, which represents an annual growth rate of 18.56%. Excluding loans acquired in the Metropolitan acquisition, the fair value of which was $965.0 million at the acquisition date, net loan growth for 2017 was 7.31%. The following tables reconcile the reported loan yield to the adjusted loan yield excluding the impact from interest income collected on problem loans and purchase accounting adjustments on purchased loans for the periods presented (in thousands):  

• Total deposits increased to $7.9 billion at December 31, 2017, from $7.1 billion at December 31, 2016. For the fourth quarter of 2017, the cost of total deposits was 36 basis points, as compared to 33 basis points for the third quarter of 2017 and 28 basis points for the fourth quarter of 2016. The cost of total deposits was 32 basis points for the year ending December 31, 2017, as compared to 27 basis points for 2016. The following tables present the mix and cost of total funding sources for the fourth quarter of 2017 as compared to the same period in 2016 and for the year 2017 as compared to 2016.

• Net interest income was $93.3 million for the fourth quarter of 2017, as compared to $90.0 million for the third quarter of 2017 and $78.0 million for the fourth quarter of 2016. Net interest margin was 4.25% for the fourth quarter of 2017, as compared to 4.08% for the third quarter of 2017 and 4.24% for the fourth quarter of 2016. The following table reconciles reported net interest margin to adjusted net interest margin excluding the impact from interest income collected on problem loans and purchase accounting adjustments on purchased loans for the periods presented (in thousands):

• Net interest income was $336.9 million for 2017, as compared to $301.0 million for 2016. Net interest margin was 4.16% for 2017, as compared to 4.22% for 2016. The following table reconciles reported net interest margin to adjusted net interest margin excluding the impact from interest income collected on problem loans and purchase accounting adjustments on purchased loans for the periods presented (in thousands):

• Noninterest income for the fourth quarter of 2017 was $32.4 million, as compared to $30.3 million for the fourth quarter of 2016. Noninterest income for the year ended December 31, 2017 was $132.1 million, as compared $137.4 million for the same period in 2016. Mortgage banking income for the fourth quarter of 2017 was $9.9 million, compared to $8.3 million for the fourth quarter of 2016. Mortgage banking income for the year ended December 31, 2017 was $43.4 million, compared to $49.4 million for the same period in 2016. The year-over-year decrease in mortgage banking income was driven by lower mortgage loan originations in the current year when compared to the prior year due to a reduction in mortgage refinancing as interest rates have risen. This decrease was slightly offset by the increase in service charges on deposit accounts and fees and commission on loans and deposits. The addition of Metropolitan, coupled with growth in fee income on legacy Renasant loan and deposit products, contributed to the growth in service charges on deposits and fees and commissions on loans and deposits for the twelve months ending December 31, 2017 compared to the same period in 2016.
• Noninterest expense was $76.8 million for the fourth quarter of 2017, as compared to $71.6 million for the fourth quarter of 2016. Noninterest expense for the year ended December 31, 2017 was $301.6 million, as compared $295.1 million for the same period in 2016. Excluding nonrecurring charges for merger and conversion expenses, debt extinguishment penalties and the loss share termination charge, the Company's efficiency ratio was 57.75% and 59.55% for the fourth quarter and full year of 2017, respectively, which exceeded the Company's goal of achieving an efficiency ratio below 60%.

Asset Quality Metrics

Total nonperforming assets were $39.4 million at December 31, 2017, a decrease of $19.4 million from December 31, 2016, and consisted of $23.4 million in nonperforming loans (loans 90 days or more past due and nonaccrual loans) and $15.9 million in other real estate owned ("OREO").

The Company's nonperforming loans and OREO that were purchased in previous acquisitions, including the Metropolitan acquisition (collectively referred to as "purchased nonperforming assets"), were $10.2 million and $11.5 million, respectively, at December 31, 2017, as compared to $22.2 million and $17.4 million, respectively, at December 31, 2016. The purchased nonperforming assets were recorded at fair value at the time of acquisition, which significantly mitigates the Company's actual loss. As such, the remaining information in this release on nonperforming loans, OREO and the related asset quality ratios focuses on non-purchased nonperforming assets.

• Net loan charge-offs were $470 thousand, or 0.02% on an annualized basis of average total loans, for the fourth quarter of 2017, as compared to $4.8 million, or 0.31% on an annualized basis of average total loans, for the fourth quarter of 2016.
• The provision for loan losses was $2.2 million for the fourth quarter of 2017, as compared to $1.7 million for the fourth quarter of 2016. The provision was $7.6 million for the full year of 2017, as compared to $7.5 million for the same time period in 2016.
• Excluding purchased loans, nonperforming loans decreased to $13.3 million, or 0.24% of total loans, at December 31, 2017, from $13.4 million, or 0.28% of total loans, at December 31, 2016. Early stage delinquencies, or loans 30-to-89 days past due, as a percentage of total loans were 0.30% at December 31, 2017, as compared to 0.23% at December 31, 2016.
• Excluding purchased OREO, OREO was $4.4 million at December 31, 2017, as compared to $5.9 million at December 31, 2016. OREO sales totaled $3.0 million for 2017 and $6.5 million for 2016.
• The allowance for loan losses was 0.61% of total loans at December 31, 2017, as compared to 0.69% at December 31, 2016. The allowance for loan losses was 0.83% of non-purchased loans at December 31, 2017, as compared to 0.91% at December 31, 2016.

Capital Metrics

• At December 31, 2017, Tier 1 leverage capital ratio was 10.16%, Common Equity Tier 1 ratio was 11.32%, Tier 1 risk-based capital ratio was 12.37%, and total risk-based capital ratio was 14.43%. All regulatory ratios exceed the minimums required to be considered "well-capitalized."
• Tangible common equity ratio was 9.56% at December 31, 2017, as compared to 9.00% at December 31, 2016.

CONFERENCE CALL INFORMATION:

A live audio webcast of a conference call with analysts will be available beginning at 10:00 AM Eastern Time on Wednesday, January 17, 2018.

The webcast can be accessed through Renasant's investor relations website at www.renasant.comor http://services.choruscall.com/links/rnst180117.html. To access the conference via telephone, dial 1-877-513-1143 in the United States and request the Renasant Corporation Fourth Quarter Earnings Webcast and Conference Call. International participants should dial 1-412-902-4145 to access the conference call.

The webcast will be archived on www.renasant.combeginning one hour after the call and will remain accessible for one year. Replays can also be accessed via telephone by dialing 1-877-344-7529 in the United States and entering conference number 10115657 or by dialing 1-412-317-0088 internationally and entering the same conference number. Telephone replay access is available until January 31, 2018.

ABOUT RENASANT CORPORATION:

Renasant Corporation is the parent of Renasant Bank, a 114-year-old financial services institution. Renasant has assets of approximately $9.8 billion and operates more than 175 banking, mortgage, wealth management and insurance offices in Mississippi, Tennessee, Alabama, Florida and Georgia.

NOTE TO INVESTORS:

This news release may contain, or incorporate by reference, statements which may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward looking statements usually include words such as "expects," "projects," "anticipates," "believes," "intends," "estimates," "strategy," "plan," "potential," "possible," "approximately," "should" and variations of such words and other similar expressions. In this release in particular, the Company's statements about the outlook and expectations with respect to the enactment of H.R.1, commonly known as the Tax Cuts and Jobs Act, including, among other things, the expected impact of this legislation on the Company's net deferred tax assets and the impact of the revaluation of such net deferred tax assets on the Company's fourth quarter 2017 earnings, are forward-looking statements.

Prospective investors are cautioned that any such forward-looking statements are not guarantees for future performance and involve risks and uncertainties, including uncertainties in the Company's preliminary review of, and additional analysis with respect to, the impact of the Tax Cuts and Jobs Act and the risk that the Company may not be able to realize the value of its net deferred tax assets. Actual results may differ materially from those contemplated by such forward-looking statements. In addition to the risks and uncertainties arising in connection with the impact of the Tax Cuts and Jobs Act, important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include significant fluctuations in interest rates, inflation, economic recession, significant changes in the federal and state legal and regulatory environment in addition to the recent tax legislation, significant underperformance in the Company's portfolio of outstanding loans, and competition in the Company's markets. Management believes that the assumptions underlying the Company's forward-looking statements are reasonable, but any of the assumptions could prove to be inaccurate. Investors are urged to carefully consider the risks described in the Company's filings with the Securities and Exchange Commission (the "SEC") from time to time, including its most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, which are available at www.renasant.com and the SEC's website at www.sec.gov.  The Company expressly disclaims any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time.

NON-GAAP FINANCIAL MEASURES:

In addition to results presented in accordance with generally accepted accounting principles in the United States of America (GAAP), this press release contains non-GAAP financial measures. Certain non-GAAP financial measures that the Company uses exclude purchase accounting adjustments and interest income collected (foregone) on problem loans from loan interest income and net interest income when calculating the Company's taxable equivalent loan yields and net interest margin, respectively. The most directly comparable GAAP financial measure is presented with these non-GAAP measures. The Company's management uses these non-GAAP financial measures to evaluate ongoing operating results and to assess ongoing profitability.

Certain other non-GAAP financial measures (namely, return on average tangible shareholders' equity, return on average tangible assets, the ratio of tangible equity to tangible assets (commonly referred to as the "tangible capital ratio") and the efficiency ratio) adjust GAAP financial measures to exclude intangible assets and certain charges that the Company considers to be non-recurring in nature. Management uses these non-GAAP financial measures when evaluating capital utilization and adequacy. In addition, the Company believes that these non-GAAP financial measures facilitate the making of period-to-period comparisons and are meaningful indications of its operating performance, particularly because these measures are widely used by industry analysts for companies with merger and acquisition activities. Also, because intangible assets, such as goodwill and the core deposit intangible, and non-recurring charges can vary extensively from company to company and, as to intangible assets, are excluded from the calculation of a financial institution's regulatory capital, the Company believes that the presentation of this non-GAAP financial information allows readers to more easily compare the Company's results to information provided in other regulatory reports and the results of other companies. Reconciliations of these other non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the table at the end of this release under the caption "Reconciliation of GAAP to Non-GAAP."

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