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EX-3.(II) - BYLAWS OF RENASANT CORPORATION, AS AMENDED - RENASANT CORPdex3ii.htm
EX-32.(I) - CERTIFICATION OF CEO SECTION 906 - RENASANT CORPdex32i.htm
EX-31.(I) - CERTIFICATION OF CEO SECTION 302 - RENASANT CORPdex31i.htm
EX-32.(II) - CERTIFICATION OF CFO SECTION 906 - RENASANT CORPdex32ii.htm
EX-31.(II) - CERTIFICATION OF CFO SECTION 302 - RENASANT CORPdex31ii.htm
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 March 31, 2011

Or

 

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

For the transition period from              to             

Commission file number 001-13253

 

 

RENASANT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Mississippi   64-0676974

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

209 Troy Street, Tupelo,

Mississippi

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

(662) 680-1001

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  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  ¨    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 April 29, 2011, 25,056,431 shares of the registrant’s common stock, $5.00 par value per share, were outstanding. The registrant has no other classes of securities outstanding.

 

 

 


Table of Contents

RENASANT CORPORATION AND SUBSIDIARIES

Form 10-Q

For the quarterly period ended March 31, 2011

CONTENTS

 

PART I - FINANCIAL INFORMATION

  

Item 1.

   Financial Statements (Unaudited)   
   Consolidated Balance Sheets      3   
   Consolidated Statements of Income      4   
   Condensed Consolidated Statements of Cash Flows      5   
   Notes to Consolidated Financial Statements      6   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      28   

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk      46   

Item 4.

   Controls and Procedures      46   

PART II - OTHER INFORMATION

  

Item 1A.

   Risk Factors      47   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      47   

Item 6.

   Exhibits      48   

SIGNATURES

     49   

EXHIBIT INDEX

     50   


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Renasant Corporation and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share Data)

 

     (Unaudited)
March 31,
2011
    December 31,
2010
 

Assets

    

Cash and due from banks

   $ 68,885      $ 47,705   

Interest-bearing balances with banks

     257,140        244,964   
                

Cash and cash equivalents

     326,025        292,669   

Securities held to maturity (fair value of $260,811 and $228,157, respectively)

     259,850        230,786   

Securities available for sale, at fair value

     620,532        603,686   

Mortgage loans held for sale

     9,399        27,704   

Loans, net of unearned income:

    

Covered under loss-share agreements

     386,811        333,681   

Not covered under loss-share agreements

     2,190,376        2,190,909   
                

Total loans, net of unearned income

     2,577,187        2,524,590   

Allowance for loan losses

     (47,505     (45,415
                

Loans, net

     2,529,682        2,479,175   

Premises and equipment, net

     51,702        51,424   

Other real estate owned and repossessions:

    

Covered under loss-share agreements

     59,036        54,715   

Not covered under loss-share agreements

     71,415        71,833   
                

Total other real estate owned and repossessions

     130,451        126,548   

Goodwill

     184,879        184,879   

Other intangible assets, net

     6,702        6,988   

FDIC loss-share indemnification asset

     164,104        155,657   

Other assets

     138,838        137,811   
                

Total assets

   $ 4,422,164      $ 4,297,327   
                

Liabilities and shareholders’ equity

    

Liabilities

    

Deposits

    

Noninterest-bearing

   $ 486,676      $ 368,798   

Interest-bearing

     3,158,198        3,099,353   
                

Total deposits

     3,644,874        3,468,151   

Short-term borrowings

     10,892        15,386   

Long-term debt

     249,257        301,050   

Other liabilities

     43,787        43,231   
                

Total liabilities

     3,948,810        3,827,818   

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, respectively; 25,056,431 and 25,043,112 shares outstanding, respectively

     133,579        133,579   

Treasury stock, at cost

     (26,975     (27,187

Additional paid-in capital

     217,278        217,011   

Retained earnings

     165,834        162,547   

Accumulated other comprehensive loss

     (16,362     (16,441
                

Total shareholders’ equity

     473,354        469,509   
                

Total liabilities and shareholders’ equity

   $ 4,422,164      $ 4,297,327   
                

See Notes to Consolidated Financial Statements.

 

3


Table of Contents

Renasant Corporation and Subsidiaries

Consolidated Statements of Income (Unaudited)

(In Thousands, Except Share Data)

 

     Three Months Ended
March 31,
 
     2011      2010  

Interest income

     

Loans

   $ 35,872       $ 32,429   

Securities

     

Taxable

     5,595         5,899   

Tax-exempt

     2,130         1,335   

Other

     206         45   
                 

Total interest income

     43,803         39,708   

Interest expense

     

Deposits

     10,082         10,333   

Borrowings

     2,625         4,965   
                 

Total interest expense

     12,707         15,298   
                 

Net interest income

     31,096         24,410   

Provision for loan losses

     5,500         6,665   
                 

Net interest income after provision for loan losses

     25,596         17,745   

Noninterest income

     

Service charges on deposit accounts

     4,880         5,090   

Fees and commissions

     4,138         3,721   

Insurance commissions

     832         834   

Trust revenue

     613         584   

Gains on sales of securities

     12         —     

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

     —           (1,281

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

     —           1,121   
                 

Net impairment losses on securities

     —           (160

BOLI income

     595         574   

Gains on sales of mortgage loans held for sale

     1,151         1,329   

Gain on acquisition

     8,774         —     

Other

     770         512   
                 

Total noninterest income

     21,765         12,484   

Noninterest expense

     

Salaries and employee benefits

     16,237         13,197   

Data processing

     1,788         1,426   

Net occupancy and equipment

     3,234         2,931   

Other real estate owned

     3,511         736   

Professional fees

     898         866   

Advertising and public relations

     1,163         890   

Intangible amortization

     515         476   

Communications

     1,434         1,086   

Extinguishment of debt

     1,903         —     

Other

     6,040         4,026   
                 

Total noninterest expense

     36,723         25,634   
                 

Income before income taxes

     10,638         4,595   

Income taxes

     3,085         988   
                 

Net income

   $ 7,553       $ 3,607   
                 

Basic earnings per share

   $ 0.30       $ 0.17   
                 

Diluted earnings per share

   $ 0.30       $ 0.17   
                 

Cash dividends per common share

   $ 0.17       $ 0.17   
                 

See Notes to Consolidated Financial Statements.

 

4


Table of Contents

Renasant Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In Thousands)

 

     Three Months Ended
March 31,
 
     2011     2010  

Operating activities

    

Net cash provided by operating activities

   $ 45,499      $ 32,245   

Investing activities

    

Purchases of securities available for sale

     (48,586     (100,070

Proceeds from call/maturities of securities available for sale

     39,227        75,396   

Purchases of securities held to maturity

     (36,547     (5,372

Proceeds from sales of securities held to maturity

     5,041        —     

Proceeds from call/maturities of securities held to maturity

     2,140        1,735   

Net decrease in loans

     1,219        27,988   

Purchases of premises and equipment

     (1,276     (373

Proceeds from sales of premises and equipment

     10        2   

Net cash received in acquisition

     148,443        —     
                

Net cash provided by (used in) investing activities

     109,671        (694

Financing activities

    

Net increase in noninterest-bearing deposits

     107,782        10,102   

Net (decrease) increase in interest-bearing deposits

     (154,066     127,646   

Net decrease in short-term borrowings

     (4,494     (647

Repayment of long-term debt

     (66,779     (134,141

Cash paid for dividends

     (4,266     (3,592

Cash received on exercise of stock-based compensation

     9        —     
                

Net cash used in financing activities

     (121,814     (632
                

Net increase in cash and cash equivalents

     33,356        30,919   

Cash and cash equivalents at beginning of period

     292,669        148,560   
                

Cash and cash equivalents at end of period

   $ 326,025      $ 179,479   
                

Supplemental disclosures

    

Noncash transactions:

    

Transfers of loans to other real estate

   $ 18,555      $ 6,844   

See Notes to Consolidated Financial Statements.

 

5


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note A – Significant Accounting Policies

(In Thousands, Except Share Data)

Basis of Presentation: 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 and insurance services to its retail and commercial customers through its subsidiaries and full service offices located throughout north and north central Mississippi, west and middle Tennessee, north and north central Alabama and north Georgia.

The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information regarding the Company’s 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, 2010.

The Company has evaluated subsequent events that have occurred after March 31, 2011 through the date of issuance of its financial statements for consideration of recognition or disclosure.

Impact of Recently-Issued Accounting Standards and Pronouncements: In January 2010, the Financial Accounting Standards Board (“FASB”) issued an update to Accounting Standards Codification Topic (“ASC”) 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) that requires a reporting entity to present separately information about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using Level 3 inputs. These disclosures are effective for interim and annual reporting periods beginning after December 15, 2010. See Note J, “Fair Value Measurements,” in these Notes to Consolidated Financial Statements for further disclosures regarding the Company’s adoption of this update.

In July 2010, FASB issued an update to ASC 310, “Receivables,” (“ASC 310”) that requires enhanced and additional disclosures that will provide financial statement users with greater transparency about a reporting entity’s allowance for credit losses and the credit quality of its financial receivables. A reporting entity must provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in its portfolio of financing receivables, explaining how that risk is analyzed and assessed in arriving at the allowance for credit losses, and detailing the changes and reasons for those changes in the allowance for credit losses. To achieve those objectives, a reporting entity should provide disclosures by portfolio segment and/or by class of financing receivable. This update to ASC 310 amends existing disclosures to require a reporting entity to provide a rollforward schedule of the allowance for credit losses on a portfolio segment basis, with the ending balance further segregated by impairment method. A reporting entity must also present nonaccrual, past due 90 days or more and still accruing and impaired financing receivables by class. Additional disclosures include (i) credit quality indicators of financing receivables at the end of the reporting period presented by class, (ii) the aging of past due financing receivables at the end of the reporting period presented by class, (iii) the nature and extent of troubled debt restructurings that occurred during the period presented by class and their effect on the allowance for credit losses, (iv) the nature and extent of financing receivables modified as troubled debt restructurings within the previous twelve months that defaulted during the reporting period presented by class and their effect on the allowance for credit losses, and (v) significant purchases and sales of financing receivables during the reporting period presented by portfolio segment. The disclosures as of the end of a reporting period became effective for the Company’s financial statements at December 31, 2010. The disclosures about activity that occurs during a reporting period became effective for the Company’s financial statements beginning on January 1, 2011. See Note D, “Loans and the Allowance for Loan Losses,” in these Notes to Consolidated Financial Statements for disclosures reflecting the Company’s adoption of this update. An update issued in January 2011 temporarily deferred the effective date for the disclosures related to troubled debt restructurings to be concurrent with the effective date of the then-proposed update which is discussed in the following paragraph.

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note A – Significant Accounting Policies (continued)

 

In April 2011, FASB issued an update to ASC 310 that clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that the restructuring constitutes a concession by the creditor to the borrower, and the borrower is experiencing financial difficulties. This update to ASC 310 is effective for interim and annual reporting periods beginning on or after June 15, 2011 and applied retrospectively to troubled debt restructurings occurring on or after the beginning of the fiscal year of adoption. The Company is currently in the process of evaluating the impact of adopting this update on its financial statements.

Note B – FDIC-Assisted Acquisitions

(In Thousands)

FDIC-Assisted Acquisition of Certain Assets and Liabilities of American Trust Bank

On February 4, 2011, the Bank entered into a purchase and assumption agreement with loss-share agreements with 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 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 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 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. Acquisition costs related to the American Trust acquisition of $1,325 were recognized as other noninterest expense in the Consolidated Statements of Income for the three months ended March 31, 2011.

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

 

Assets Acquired

  

Cash and due from banks

   $ 148,443   

Securities available for sale

     7,060   

Federal Home Loan Bank stock

     1,192   

Loans

     74,399   

FDIC loss-share indemnification asset

     11,926   

Core deposit intangible

     229   

Other assets

     4,256   
        

Total assets acquired

     247,505   

Liabilities Assumed

  

Deposits:

  

Noninterest-bearing

     10,096   

Interest-bearing

     212,911   
        

Total deposits

     223,007   

Advances from the Federal Home Loan Bank

     15,020   

Accrued expenses and other liabilities

     704   
        

Total liabilities assumed

     238,731   
        

Net assets acquired

     8,774   

Deferred tax liability

     3,356   
        

Net assets assumed, including deferred tax liability

   $ 5,418   
        

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note B – FDIC-Assisted Acquisitions (continued)

 

The Company’s operating results for the three months ended March 31, 2011 include the operating results of the assets acquired and liabilities assumed in the American Trust acquisition subsequent to the February 4, 2011 closing date. The significance of the fair value adjustments recorded as well as the nature of the loss-share agreements in connection with an FDIC-assisted transaction are integral to accurately assessing the impact of the acquired operations on the operations of the Company. Disclosure of pro forma financial information is made more difficult by the troubled nature of American Trust prior to the date of the acquisition. Therefore, the Company has determined that pro forma financial information in relation to the acquisition of American Trust is neither practical nor meaningful.

FDIC-Assisted Acquisition of Certain Assets and Liabilities of Crescent Bank & Trust

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. For more information regarding the Crescent acquisition, please refer to Note B, “FDIC-Assisted Acquisition of Certain Assets and Liabilities of Crescent Bank & Trust,” in the Notes to Consolidated Financial Statements of the Company in Item 8, Financial Statements and Supplementary Data, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note C – Securities

(In Thousands)

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2011

          

Obligations of other U.S. Government agencies and corporations

   $ 42,699       $ —         $ (662   $ 42,037   

Obligations of states and political subdivisions

     217,151         3,113         (1,490     218,774   
                                  
   $ 259,850       $ 3,113       $ (2,152   $ 260,811   
                                  

December 31, 2010

          

Obligations of other U.S. Government agencies and corporations

   $ 24,703       $ —         $ (404   $ 24,299   

Obligations of states and political subdivisions

     206,083         1,408         (3,633     203,858   
                                  
   $ 230,786       $ 1,408       $ (4,037   $ 228,157   
                                  

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

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

 

     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 

March 31, 2011

          

Obligations of other U.S. Government agencies and corporations

   $ 63,654       $ 82       $ (1,209   $ 62,527   

Obligations of states and political subdivisions

     766         —           (15     751   

Mortgage-backed securities

     512,825         11,016         (3,191     520,650   

Trust preferred securities

     33,175         132         (28,072     5,235   

Other equity securities

     30,838         531         —          31,369   
                                  
   $ 641,258       $ 11,761       $ (32,487   $ 620,532   
                                  

December 31, 2010

          

Obligations of other U.S. Government agencies and corporations

   $ 73,656       $ 266       $ (1,170   $ 72,752   

Mortgage-backed securities

     489,068         10,819         (3,377     496,510   

Trust preferred securities

     32,452         150         (28,019     4,583   

Other equity securities

     29,674         167         —          29,841   
                                  
   $ 624,850       $ 11,402       $ (32,566   $ 603,686   
                                  

There were no sales of securities available for sale for the three months ended March 31, 2011 or 2010, respectively.

 

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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 March 31, 2011, 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

   $ 9,177       $ 9,195       $ —         $ —     

Due after one year through five years

     45,666         46,116         2,990         3,023   

Due after five years through ten years

     78,029         78,474         60,664         59,504   

Due after ten years

     126,978         127,026         33,941         5,986   

Mortgage-backed securities

     —           —           512,825         520,650   

Other equity securities

     —           —           30,838         31,369   
                                   
   $ 259,850       $ 260,811       $ 641,258       $ 620,532   
                                   

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

 

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

Held to Maturity:

               

March 31, 2011

               

Obligations of other U.S Government agencies and corporations

   $ 42,037       $ (662   $ —         $ —        $ 42,037       $ (662

Obligations of states and political subdivisions

     56,309         (1,488     332         (2     56,641         (1,490
                                                   

Total

   $ 98,346       $ (2,150   $ 332       $ (2   $ 98,678       $ (2,152
                                                   

December 31, 2010

               

Obligations of other U.S Government agencies and corporations

   $ 15,104       $ (404   $ —         $ —        $ 15,104       $ (404

Obligations of states and political subdivisions

     97,367         (3,633     —           —          97,367         (3,633
                                                   

Total

   $ 112,471       $ (4,037   $ —         $ —        $ 112,471       $ (4,037
                                                   

Available for Sale:

               

March 31, 2011

               

Obligations of other U.S Government agencies and corporations

   $ 38,966       $ (1,209   $ —         $ —        $ 38,966       $ (1,209

Obligations of states and political subdivisions

     751         (15     —           —          751         (15

Mortgage-backed securities

     185,628         (3,173     2,248         (18     187,876         (3,191

Trust preferred securities

     —           —          2,103         (28,072     2,103         (28,072

Other equity securities

     —           —          —           —          —           —     
                                                   

Total

   $ 225,345       $ (4,397   $ 4,351       $ (28,090   $ 229,696       $ (32,487
                                                   

December 31, 2010

               

Obligations of other U.S Government agencies and corporations

   $ 39,513       $ (1,170   $ —         $ —        $ 39,513       $ (1,170

Mortgage-backed securities

     148,867         (3,359     2,254         (18     151,121         (3,377

Trust preferred securities

     —           —          1,433         (28,019     1,433         (28,019

Other equity securities

     —           —          —           —          —           —     
                                                   

Total

   $ 188,380       $ (4,529   $ 3,687       $ (28,037   $ 192,067       $ (32,566
                                                   

 

10


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.

When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within noninterest income in the Consolidated Statements of Income. When impairment of a debt security is considered to be other-than-temporary, the security is written down to its fair value. The amount of OTTI recorded as a loss within noninterest income depends on whether an entity intends to sell the debt security and whether it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis. If an entity intends to, or has decided to, sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI must be recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, OTTI is separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss is recognized in earnings. The amount related to other market factors is recognized in other comprehensive income, net of applicable taxes.

The Company holds investments in pooled trust preferred securities and those from a single issuer. The investments in pooled trust preferred securities had a cost basis of $30,175 and $29,452 and a fair value of $2,103 and $1,433 at March 31, 2011 and December 31, 2010, respectively. The investment in pooled trust preferred securities consists of four securities representing interests in various tranches of trusts collateralized by debt issued by over 321 financial institutions. Management’s determination of the fair value of each of its holdings in pooled trust preferred securities is based on the current credit ratings, the known deferrals and defaults by the underlying issuing financial institutions and the degree to which future deferrals and defaults would be required to occur before the cash flow for the Company’s tranches is negatively impacted. In addition, management continually monitors key credit quality and capital ratios of the issuing institutions. This determination is further supported by quarterly valuations of each security obtained by the Company performed by third parties. The Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of the investments’ amortized cost, which may be maturity. At March 31, 2011, management did not, and does not currently, believe such securities will be settled at a price less than the amortized cost of the investment and that no additional impairment was required.

The following table provides information regarding the Company’s investments in pooled trust preferred securities at March 31, 2011:

 

Name

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

Rating
     Issuers
Currently in
Deferral or
Default
    Projected
Additional

Deferrals  or
Defaults
 
XXIV      Pooled         B-2       $ 12,511       $ 101       $ (12,410     Caa3         41     13
XXVI      Pooled         B-2         5,661         1,048         (4,613     Ca         38     9
XXIII      Pooled         B-2         10,768         841         (9,927     Ca         28     9
XIII      Pooled         B-2         1,235         113         (1,122     Ca         32     12
                                       
         $ 30,175       $ 2,103       $ (28,072       
                                       

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:

 

     2011     2010  

Balance at January 1

   $ (3,075   $ —     

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

     —          (160

Increases in credit loss for which OTTI was previously recognized

     —          —     
                

Balance at March 31

   $ (3,075   $ (160
                

 

11


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note D – Loans and the Allowance for Loan Losses

(In Thousands)

The following is a summary of loans:

 

     March 31,
2011
    December 31,
2010
 

Commercial, financial, agricultural

   $ 273,853      $ 265,276   

Lease financing

     484        533   

Real estate – construction

     85,406        82,361   

Real estate – 1-4 family mortgage

     854,630        872,382   

Real estate – commercial mortgage

     1,299,599        1,239,843   

Installment loans to individuals

     63,241        64,225   
                

Gross loans

     2,577,213        2,524,620   

Unearned income

     (26     (30
                

Loans, net of unearned income

     2,577,187        2,524,590   

Allowance for loan losses

     (47,505     (45,415
                

Net loans

   $ 2,529,682      $ 2,479,175   
                

Loans acquired in FDIC-assisted acquisitions were 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 were excluded from the calculation of the allowance for loan losses and no provision for loan losses was recorded for these loans during the three months ended March 31, 2011 or for the year ended December 31, 2010 because the fair value measurement incorporates an estimate of losses on acquired loans. The Company will continue to monitor future cash flows on these loans; to the extent future cash flows deteriorate below initial projections, the Company may be required to reserve for these loans in the allowance for loan losses through future provision for loan losses.

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 “loans not covered by loss-share agreements.”

A summary of loans acquired in FDIC-assisted acquisitions at fair value follows:

 

     Impaired
Covered

Loans
     Other
Covered
Loans
     Not
Covered
     Total
Loans
 

March 31, 2011

           

Commercial, financial, agricultural

   $ 47       $ 22,917       $ 17       $ 22,981   

Real estate – construction

     7,408         6,439         —           13,847   

Real estate – 1-4 family mortgage

     20,568         103,202         82         123,852   

Real estate – commercial mortgage

     64,889         161,149         1,182         227,220   

Installment loans to individuals

     —           192         7,142         7,334   
                                   

Total

   $ 92,912       $ 293,899       $ 8,423       $ 395,234   
                                   

December 31, 2010

           

Commercial, financial, agricultural

   $ 10       $ 20,911       $ 3       $ 20,924   

Real estate – construction

     8,313         7,250         —           15,563   

Real estate – 1-4 family mortgage

     20,293         102,225         —           122,518   

Real estate – commercial mortgage

     67,445         107,128         —           174,573   

Installment loans to individuals

     —           106         8,052         8,158   
                                   

Total

   $ 96,061       $ 237,620       $ 8,055       $ 341,736   
                                   

 

12


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 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 by portfolio segment and the related recorded investment in loans, net of unearned income:

 

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

March 31, 2011

            

Allowance for loan losses:

            

Beginning balance

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

Provision for loan losses

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

Charge-offs

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

Recoveries

     142        —          116        817        27        1,102   
                                                

Ending balance

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

Period end amount allocated to:

            

Individually evaluated for impairment

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

Collectively evaluated for impairment

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

Loans acquired with deteriorated credit

quality

     —          —          —          —          —          —     
                                                

Ending balance

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

Loans, net of unearned income:

            

Individually evaluated for impairment

   $ 8,494      $ 8,254      $ 86,649      $ 90,693      $ —        $ 194,090   

Collectively evaluated for impairment

     242,378        63,305        644,129        981,686        56,365        1,987,863   

Loans acquired with deteriorated credit

quality

     22,981        13,847        123,852        227,220        7,334        395,234   
                                                

Ending balance

   $ 273,853      $ 85,406      $ 854,630      $ 1,299,599      $ 63,699      $ 2,577,187   
                                                

December 31, 2010

            

Allowance for loan losses:

            

Beginning balance

   $ 4,855      $ 4,494      $ 15,593      $ 12,577      $ 1,626      $ 39,145   

Provision for loan losses

     (1,351     1,734        18,467        12,181        (366     30,665   

Charge-offs

     (1,161     (4,181     (14,189     (6,512     (319     (26,362

Recoveries

     282        68        999        533        85        1,967   
                                                

Ending balance

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

Period end amount allocated to:

            

Individually evaluated for impairment

   $ 549      $ 20      $ 10,349      $ 6,611      $ —        $ 17,529   

Collectively evaluated for impairment

     2,076        2,095        10,521        12,168        1,026        27,886   

Loans acquired with deteriorated credit

quality

     —          —          —          —          —          —     
                                                

Ending balance

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

Loans, net of unearned income:

            

Individually evaluated for impairment

   $ 7,361      $ 8,837      $ 94,883      $ 81,288      $ —        $ 192,369   

Collectively evaluated for impairment

     236,991        57,961        654,981        983,982        56,570        1,990,485   

Loans acquired with deteriorated credit

quality

     20,924        15,563        122,518        174,573        8,158        341,736   
                                                

Ending balance

   $ 265,276      $ 82,361      $ 872,382      $ 1,239,843      $ 64,728      $ 2,524,590   
                                                

 

(1) 

Includes lease financing receivables.

 

13


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

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

 

Credit Quality

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

 

     Pass      Watch      Substandard      Total  

March 31, 2011

           

Commercial, financial, agricultural

   $ 189,061       $ 3,941       $ 4,553       $ 197,555   

Real estate – construction

     45,814         5,938         2,316         54,068   

Real estate – 1-4 family mortgage

     107,878         51,295         35,354         194,527   

Real estate – commercial mortgage

     849,606         59,255         31,438         940,299   
                                   

Total

   $ 1,192,359       $ 120,429       $ 73,661       $ 1,386,449   
                                   

December 31, 2010

           

Commercial, financial, agricultural

   $ 184,125       $ 3,536       $ 3,825       $ 191,486   

Real estate – construction

     40,129         6,528         2,309         48,966   

Real estate – 1-4 family mortgage

     121,896         47,911         46,972         216,779   

Real estate – commercial mortgage

     856,819         49,408         31,880         938,107   
                                   

Total

   $ 1,202,969       $ 107,383       $ 84,986       $ 1,395,338   
                                   

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 Company’s loan portfolio by historical loss:

 

     Performing      Non-Performing      Total  

March 31, 2011

        

Commercial, financial, agricultural

   $ 53,099       $ 218       $ 53,317   

Lease financing

     458         —           458   

Real estate – construction

     17,491         —           17,491   

Real estate – 1-4 family mortgage

     527,120         9,131         536,251   

Real estate – commercial mortgage

     131,255         825         132,080   

Installment loans to individuals

     55,844         63         55,907   
                          

Total

   $ 785,267       $ 10,237       $ 795,504   
                          

December 31, 2010

        

Commercial, financial, agricultural

   $ 52,866       $ —         $ 52,866   

Lease financing

     503         —           503   

Real estate – construction

     17,832         —           17,832   

Real estate – 1-4 family mortgage

     527,086         5,999         533,085   

Real estate – commercial mortgage

     127,068         95         127,163   

Installment loans to individuals

     55,996         71         56,067   
                          

Total

   $ 781,351       $ 6,165       $ 787,516   
                          

 

14


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 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 loans, segregated by class:

 

     30-89 Days
Past Due
     90 Days or
More

Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
     Accruing
90 Days  or
More

Past Due
 

March 31, 2011

                 

Commercial, financial, agricultural

   $ 2,355       $ 7,157       $ 9,512       $ 264,341       $ 273,853       $ 1,425   

Lease financing

     —           —           —           458         458         —     

Real estate – construction

     919         10,588         11,507         73,899         85,406         111   

Real estate – 1-4 family mortgage

     27,878         47,792         75,670         778,960         854,630         9,028   

Real estate – commercial mortgage

     22,335         56,881         79,216         1,220,383         1,299,599         7,778   

Installment loans to individuals

     725         1,010         1,735         61,506         63,241         314   
                                                     

Total

   $ 54,212       $ 123,428       $ 177,640       $ 2,399,547       $ 2,577,187       $ 18,656   
                                                     

December 31, 2010

                 

Commercial, financial, agricultural

   $ 2,916       $ 3,869       $ 6,785       $ 258,491       $ 265,276       $ 224   

Lease financing

     —           —           —           503         503         —     

Real estate – construction

     667         11,419         12,086         70,275         82,361         128   

Real estate – 1-4 family mortgage

     22,255         45,971         68,226         804,156         872,382         4,794   

Real estate – commercial mortgage

     8,905         46,152         55,057         1,184,786         1,239,843         2,016   

Installment loans to individuals

     751         205         956         63,269         64,225         34   
                                                     

Total

   $ 35,494       $ 107,616       $ 143,110       $ 2,381,480       $ 2,524,590       $ 7,196   
                                                     

The following table presents nonaccrual loans, including those that are not considered past due, segregated by class:

 

     March 31,
2011
     December 31,
2010
 

Commercial, financial, agricultural

   $ 5,804       $ 5,508   

Lease financing

     —           —     

Real estate – construction

     10,708         11,980   

Real estate – 1-4 family mortgage

     55,133         60,203   

Real estate – commercial mortgage

     52,941         50,719   

Installment loans to individuals

     729         645   
                 

Gross loans

   $ 125,315       $ 129,055   
                 

 

15


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, segregated by class, were as follows.

 

     Recorded
Investment
     Unpaid
Principal

Balance
     Related
Allowance
     Average
Recorded

Investment(1)
 

March 31, 2011

           

With a related allowance recorded:

           

Commercial, financial, agricultural

   $ 2,537       $ 2,712       $ 674       $ 2,638   

Real estate – construction

     2,424         2,424         711         2,420   

Real estate – 1-4 family mortgage

     41,778         42,477         7,931         42,384   

Real estate – commercial mortgage

     29,221         29,919         6,819         29,287   
                                   

Total

   $ 75,960       $ 77,532       $ 16,135       $ 76,729   

With no related allowance recorded:

           

Commercial, financial, agricultural

   $ 2,706       $ 3,419       $ —         $ 2,706   

Real estate – construction

     10,544         18,970         —           10,544   

Real estate – 1-4 family mortgage

     36,284         55,214         —           36,284   

Real estate – commercial mortgage

     77,225         114,608         —           77,226   
                                   

Total

   $ 126,759       $ 192,211       $ —         $ 126,760   
                                   

Totals

   $ 202,719       $ 269,743       $ 16,135       $ 203,489   
                                   

December 31, 2010

           

With a related allowance recorded:

           

Commercial, financial, agricultural

   $ 2,298       $ 2,547       $ 549       $ 2,684   

Real estate – construction

     181         181         20         906   

Real estate – 1-4 family mortgage

     42,889         43,654         10,349         44,756   

Real estate – commercial mortgage

     26,582         27,775         6,611         28,784   
                                   

Total

   $ 71,950       $ 74,157       $ 17,529       $ 77,130   

With no related allowance recorded:

           

Commercial, financial, agricultural

   $ 10       $ 10       $ —         $ 10   

Real estate – construction

     8,313         8,313         —           8,315   

Real estate – 1-4 family mortgage

     26,611         29,086         —           30,455   

Real estate – commercial mortgage

     68,132         68,132         —           69,989   
                                   

Total

   $ 103,066       $ 105,541       $ —         $ 108,769   
                                   

Totals

   $ 175,016       $ 179,698       $ 17,529       $ 185,899   
                                   

 

(1) 

Average recorded investment reported on a year-to-date basis.

 

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 totaled $33,816 and $32,615 at March 31, 2011 and December 31, 2010, respectively. The allocated allowance for loan losses attributable to restructured loans included in the table above was $5,378 and $5,138 at March 31, 2011 and December 31, 2010. The Company had $1,112 and $1,122 in remaining availability under commitments to lend additional funds on these restructured loans at March 31, 2011 and December 31, 2010, respectively.

Certain loans acquired in connection with prior acquisitions (excluding FDIC-assisted acquisitions) exhibited, at the date of acquisition, evidence of deterioration of the credit quality since origination, and it was probable that all contractually required payments would not be collected. The amount of such loans included in the Consolidated Balance Sheets under the line item “Loans - Not covered under loss-share agreements” at March 31, 2011 were as follows:

 

Commercial, financial, agricultural

   $ 1,563   

Real estate – 1-4 family mortgage

     4,346   

Real estate – commercial mortgage

     239   
        

Total outstanding balance

     6,148   

Nonaccretable difference

     (1,213
        

Cash flows expected to be collected

     4,935   

Accretable yield

     (92
        

Fair value

   $ 4,843   
        

Changes in the accretable yield of these loans were as follows:

 

Balance at January 1, 2011

   $ 172   

Additions

     —     

Reclassifications from nonaccretable difference

     63   

Accretion

     (143
        

Balance at March 31, 2011

   $ 92   
        

The following table presents the fair value of loans covered by loss-share agreements determined to be impaired at the time of acquisition and determined not to be impaired at the time of acquisition at March 31, 2011:

 

     Impaired
Loans
    Non-impaired
Loans
    Total Covered
Loans
 

Contractually-required principal and interest

   $ 149,710      $ 399,055      $ 548,765   

Nonaccretable difference(1)

     (53,995     (92,339     (146,334
                        

Cash flows expected to be collected

     95,715        306,716        402,431   

Accretable yield(2)

     (2,803     (12,817     (15,620
                        

Fair value

   $ 92,912      $ 293,899      $ 386,811   
                        

 

(1) 

Represents contractual principal and interest cash flows of $136,324 and $10,010, respectively, not expected to be collected.

(2) 

Represents future interest payments of $9,412 expected to be collected and purchase discount of $6,208.

Changes in the accretable yield of covered loans were as follows:

 

     Impaired
Loans
    Non-impaired
Loans
    Total Covered
Loans
 

Balance at January 1, 2011

   $ (3,626   $ (15   $ (3,641

Additions through acquisition

     —          (3,405     (3,405

Reclassifications from nonaccretable difference

     —          —          —     

Accretion

     823        15        838   
                        

Balance at March 31, 2011

   $ (2,803   $ (3,405   $ (6,208
                        

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note E – Other Real Estate and Repossessions

(In Thousands)

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

 

     Covered
OREO
     Not Covered
OREO
     Total
OREO
 

March 31, 2011

        

Residential real estate

   $ 12,797       $ 13,858       $ 26,655   

Commercial real estate

     11,076         13,400         24,476   

Residential land development

     12,742         38,863         51,605   

Commercial land development

     22,421         4,999         27,420   

Other

     —           295         295   
                          

Total other real estate and repossessions

   $ 59,036       $ 71,415       $ 130,451   
                          

December 31, 2010

        

Residential real estate

   $ 12,029         15,445         27,474   

Commercial real estate

     8,360         18,266         26,626   

Residential land development

     13,280         33,172         46,452   

Commercial land development

     21,046         4,501         25,547   

Other

     —           449         449   
                          

Total other real estate owned and repossessions

   $ 54,715       $ 71,833       $ 126,548   
                          

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, 2011

   $ 54,715      $ 71,833      $ 126,548   

Transfers of loans

     8,300        10,255        18,555   

Capitalized improvements

     —          17        17   

Impairments

     —          (969     (969

Dispositions

     (3,978     (10,363     (14,341

Other

     (1     642        641   
                        

Balance at March 31, 2011

   $ 59,036      $ 71,415      $ 130,451   
                        

Note F – FDIC Loss-Share Indemnification Asset

(In Thousands)

As part of the loan portfolio fair value estimation in connection with the Crescent and American Trust acquisitions, the Bank established a FDIC loss-share indemnification asset, which represents the present value of the estimated losses on loans to be reimbursed by the FDIC. The estimated losses were based on the same cash flow estimates used in determining the fair value of the loans. The FDIC loss-share indemnification asset will be reduced as losses are recognized on loans and loss-share payments are received from the FDIC. Realized losses in excess of estimates as of the dates of the respective acquisitions will increase the FDIC loss-share indemnification asset. Conversely, if 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 will be amortized to interest income using the effective interest method.

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

 

Balance at January 1, 2011

   $ 155,657   

Additions through acquisition

     11,926   

Reimbursable expenses claimed

     8,596   

Reimbursements received

     (12,075

Accretion

     —     
        

Balance at March 31, 2011

   $ 164,104   
        

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note G – Employee Benefit and Deferred Compensation Plans

(In Thousands, Except Share Data)

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

 

     Pension Benefits     Other Benefits  
     Three Months Ended
March  31,
    Three Months Ended
March  31,
 
     2011     2010     2011      2010  

Service cost

   $ —        $ —        $ 9       $ 9   

Interest cost

     236        247        23         23   

Expected return on plan assets

     (287     (252     —           —     

Prior service cost recognized

     —          5        —           —     

Recognized actuarial loss

     77        93        39         30   

Recognized curtailment loss

     —          —          —           —     
                                 

Net periodic benefit cost

   $ 26      $ 93      $ 71       $ 62   
                                 

In January 2011 and 2010, 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 2011 and 2010 for the three month periods ended March 31, 2011 and 2010:

 

     2011 Grant     2010 Grant  

Shares granted

     170,000        138,500   

Dividend yield

     4.02     4.74

Expected volatility

     36     34

Risk-free interest rate

     1.97     2.48

Expected lives

     6 years        6 years   

Weighted average exercise price

   $ 16.91      $ 14.22   

Weighted average fair value

   $ 3.93      $ 3.01   

In addition, the Company awarded 7,500 shares of time-based restricted stock and 34,500 shares of performance-based restricted stock in January 2011. 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. The fair value of the restricted stock grants on the date of the grants was $16.91 per share.

During the three months ended March 31, 2011, the Company reissued 13,319 shares from treasury in connection with the exercise of stock-based compensation. The Company recorded total stock-based compensation expense of $305 and $135 for the three months ended March 31, 2011 and 2010, respectively.

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note H – Segment Reporting

(In Thousands)

The Company’s internal reporting process is currently organized into four segments that account for the Company’s principal activities: the delivery of financial services through its community banks in Mississippi, Tennessee and Alabama and the delivery of insurance services through its insurance agency. In order to give the Company’s regional management a more precise indication of the income and expenses they can control, the results of operations for the geographic regions of the community banks and for the insurance company reflect the direct revenues and expenses of each respective segment. The Company believes this management approach will enable its regional management to focus on serving customers through loan originations and deposit gathering. Indirect revenues and expenses, including but not limited to income from the Company’s investment portfolio, as well as certain costs associated with other data processing and back office functions, are not allocated to the Company’s segments. Rather, these revenues and expenses are shown in the “Other” column along with the operations of the holding company and eliminations which are necessary for purposes of reconciling to the consolidated amounts. The operations of Crescent and American Trust are included in the operations of the Tennessee community bank. Management believes future strategic opportunities in eastern Tennessee will result from the operations acquired in Georgia.

The following table provides financial information for the Company’s operating segments for the periods presented:

 

     Community Banks                      
     Mississippi      Tennessee      Alabama      Insurance      Other     Consolidated  

Three Months Ended March 31, 2011

  

             

Net interest income

   $ 13,041       $ 13,071       $ 6,913       $ 32       $ (1,961   $ 31,096   

Provision for loan losses

     2,031         2,704         765         —           —          5,500   

Noninterest income

     7,154         10,630         1,964         1,143         874        21,765   

Noninterest expense

     8,206         9,627         5,044         723         13,123        36,723   
                                                    

Income before income taxes

     9,958         11,370         3,068         452         (14,210     10,638   

Income taxes

     2,962         2,920         890         174         (3,861     3,085   
                                                    

Net income (loss)

   $ 6,996       $ 8,450       $ 2,178       $ 278       $ (10,349   $ 7,553   
                                                    

Total assets

   $ 1,653,183       $ 1,989,185       $ 762,919       $ 9,062       $ 7,815      $ 4,422,164   

Goodwill

     2,265         133,316         46,515         2,783         —          184,879   

Three Months Ended March 31, 2010

                

Net interest income

   $ 13,266       $ 7,669       $ 5,186       $ 33       $ (1,744   $ 24,410   

Provision for loan losses

     2,276         3,146         1,243         —           —          6,665   

Noninterest income

     7,358         1,480         2,041         1,057         548        12,484   

Noninterest expense

     7,717         4,637         3,977         735         8,568        25,634   
                                                    

Income before income taxes

     10,631         1,366         2,007         355         (9,764     4,595   

Income taxes

     2,441         314         461         137         (2,365     988   
                                                    

Net income (loss)

   $ 8,190       $ 1,052       $ 1,546       $ 218       $ (7,399   $ 3,607   
                                                    

Total assets

   $ 1,565,979       $ 1,329,983       $ 732,819       $ 8,238       $ 4,690      $ 3,641,709   

Goodwill

     2,265         133,316         46,520         2,783         —          184,884   

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note I – Derivative Instruments

(In Thousands)

Beginning in the first quarter of 2011, the Company began entering into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into an offsetting derivative contract position. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. At March 31, 2011, the Company had notional amounts of $14,948 on interest rate contracts with corporate customers and $14,948 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts.

In May 2010, the Company terminated two interest rate swaps, each designated as a cash flow hedge, designed to convert the variable interest rate on an aggregate of $75,000 of loans to a fixed rate. As of the termination date, there were $1,679 of deferred gains related to the swaps, which are being amortized into interest income over the designated hedging periods ending in August 2012 and August 2013. For the three months ended March 31, 2011, deferred gains related to the swaps of $150 were amortized into net interest income.

The Company enters into mortgage loan commitments with its customers to mitigate the interest rate risk associated with the commitments to fund fixed-rate mortgage loans. These mortgage loan commitments are recorded at fair value, with gains and losses arising from changes in the valuation of the commitments reflected under the line item “Gains on sales of mortgage loans held for sale” on the Consolidated Statements of Income and do not qualify for hedge accounting. The notional amount of commitments to fund fixed-rate mortgage loans was $8,284 and $31,685 at March 31, 2011 and December 31, 2010, respectively.

The following table provides details on the Company’s derivative financial instruments:

 

     March 31, 2011      December 31, 2010  
     Balance Sheet
Location
     Fair
Value
     Balance Sheet
Location
     Fair
Value
 

Derivative assets:

           

Not designated as hedging instruments:

           

Interest rate swaps

     Other Assets       $ 890         Other Assets       $ 941   

Mortgage loan commitments

     Other Assets         116         Other Assets         316   
                       

Totals

      $ 1,006          $ 1,257   
                       

Derivative liabilities:

           

Not designated as hedging instruments:

           

Interest rate swaps

     Other Liabilities       $ 890         Other Liabilities       $ 941   
                       

Totals not designated as hedging instruments

      $ 116          $ 316   
                       

The effect of the Company’s derivative financial instruments on the Consolidated Statements of Income was as follows:

 

     Income  Statement
Location
     Three Months Ended
March  31,
 
            2011     2010  

Derivatives designated as cash flow hedging instruments:

       

Interest rate swaps

     Interest on Loans       $ —        $ 336   

Interest rate swaps

     Interest on Borrowings         —          (225
                   

Total

      $ —        $ 111   
                   

Derivatives not designated as hedging instruments:

       

Interest rate swaps

     Interest on Loans       $ 49      $ —     

Mortgage loan commitments

    

 

Gains on Mortgage Loans

Held for Sale

  

  

     (200     93   
                   

Total

      $ (151   $ 93   
                   

 

21


Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note J – Fair Value Measurements

(In Thousands)

Fair Value Measurements and the Fair Level Hierarchy

ASC 820 provides guidance for using fair value to measure assets and liabilities and also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to a valuation based on quoted prices in active markets for identical assets and liabilities (Level 1), moderate priority to a valuation based on quoted prices in active markets for similar assets and liabilities and/or based on assumptions that are observable in the market (Level 2), and the lowest priority to a valuation based on assumptions that are not observable in the market (Level 3).

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

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

Derivative instruments: Interest rate swaps are extensively traded in over-the-counter markets at prices based upon projections of future cash payments/receipts discounted at market rates. The fair value of the Company’s interest rate swaps is determined based upon discounted cash flows. The fair value of the mortgage loan commitments is based on readily available fair values, obtained in the open market from mortgage investors. These fair values reflect the values of mortgage loans having similar terms and characteristics to the mortgage loan commitments entered into by the Company.

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

Mortgage loans held for sale: Mortgage loans held for sale are carried at the lower of cost or fair value. If fair value is used, it is determined using current secondary market prices for loans with similar characteristics, that is, using Level 2 inputs. Mortgage loans held for sale were carried at cost on the Consolidated Balance Sheets at March 31, 2011 and December 31, 2010.

Impaired loans: Loans considered impaired are reserved for at the time the loan is identified as impaired taking into account the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including but not limited to equipment, inventory and accounts receivable. The fair value of real estate is determined based on appraisals by qualified licensed appraisers. The fair value of the business assets is generally based on amounts reported on the business’s financial statements. Appraised and reported values may be adjusted based on changes in market conditions from the time of valuation and management’s knowledge of the client and the client’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified as Level 3. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified. Impaired loans covered under loss-share agreements were recorded at their fair value upon the acquisition date, and no fair value adjustments were necessary through March 31, 2011 or for the year ended December 31, 2010.

Other real estate owned: OREO is comprised of commercial and residential real estate obtained in partial or total satisfaction of loan obligations. OREO not covered under loss-share agreements acquired in settlement of indebtedness is recorded at the fair value of the real estate less estimated costs to sell. Subsequently, it may be necessary to record nonrecurring fair value adjustments for declines in fair value. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for management’s estimates of costs to sell. Accordingly, values for OREO are classified as Level 3. OREO covered under loss-share agreements were recorded at their fair value upon their acquisition date, and no fair value adjustments were necessary through March 31, 2011 or for the year ended December 31, 2010.

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note J – Fair Value Measurements (continued)

 

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

 

     Quoted Prices
In Active
Markets for
Identical Assets
     Significant
Other
Observable
Inputs
     Significant
Unobservable
Inputs
        
     (Level 1)      (Level 2)      (Level 3)      Totals  

March 31, 2011

           

Securities available for sale:

           

Obligations of other U.S. Government agencies and corporations

   $ —         $ 62,527       $ —         $ 62,527   

Obligations of states and political subdivisions

     —           751         —           751   

Mortgage-backed securities

     —           520,650         —           520,650   

Trust preferred securities

     —           3,132         2,103         5,235   

Other equity securities

     —           —           31,369         31,369   
                                   

Total securities available for sale

     —           587,060         33,472         620,532   

Derivative instruments:

           

Interest rate swaps, net

     —           —           —           —     

Mortgage loan commitments

     —           116         —           116   
                                   

Total derivative instruments

     —           116         —           116   
                                   
   $ —         $ 587,176       $ 33,472       $ 620,648   
                                   

December 31, 2010

           

Securities available for sale:

           

Obligations of other U.S. Government agencies and corporations

   $ —         $ 72,752       $ —         $ 72,752   

Mortgage-backed securities

     —           496,510         —           496,510   

Trust preferred securities

     —           3,150         1,433         4,583   

Other equity securities

     —           —           29,841         29,841   
                                   

Total securities available for sale

     —           572,412         31,274         603,686   

Derivative instruments:

           

Interest rate swaps, net

     —           —           —           —     

Mortgage loan commitments

     —           316         —           316   
                                   

Total derivative instruments

     —           316         —           316   
                                   
   $ —         $ 572,728       $ 31,274       $ 604,002   
                                   

The following table provides a reconciliation for assets and liabilities measured at fair value on a recurring basis using Level 3 inputs during the three months ended March 31, 2011:

 

     Securities available for sale  
     Trust preferred
securities
    Other equity
securities
    Total  

Balance at January 1, 2011

   $ 1,433      $ 29,841      $ 31,274   

Transfers in and/or out of Level 3

     —          —          —     

Realized gains (losses) included in net income

     6        (29     (23

Unrealized gains (losses) included in other comprehensive income

     (53     365        312   

Additions through acquisition

     —          1,192        1,192   

Purchases

     717        —          717   
                        

Balance at March 31, 2011

   $ 2,103      $ 31,369      $ 33,472   
                        

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note J – Fair Value Measurements (continued)

 

The following table presents assets measured at fair value on a nonrecurring basis that were still held in the Consolidated Balance Sheets at those respective dates:

 

     Level 1      Level 2      Level 3      Totals  

March 31, 2011

           

Impaired loans

   $ —         $ —         $ 80,430       $ 80,430   

Other real estate owned

     —           —           3,803         3,803   

December 31, 2010

           

Impaired loans

   $ —         $ —         $ 78,954       $ 78,954   

Other real estate owned

     —           —           15,150         15,150   

Impaired loans not covered under loss-share agreements with a carrying value of $80,430 and $78,954 had an allocated allowance for loan losses of $16,135 and $17,529 at March 31, 2011 and December 31, 2010, respectively. The allocated allowance is based on the carrying value of the impaired loan and the fair value of the underlying collateral less estimated costs to sell.

OREO not covered under loss-share agreements with a carrying amount of $4,772 was written down to $3,803, resulting in a loss of $969, which was included in the results of operations for the three months ended March 31, 2011. OREO with a carrying amount of $18,816 was written down to $15,150, resulting in a loss of $3,666, which was included in the results of operations for the year ended December 31, 2010.

Fair Value of Financial Instruments

The carrying amounts and estimated fair values of the Company’s financial instruments, including those assets and liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis, were as follows:

 

     March 31, 2011      December 31, 2010  
     Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Financial assets:

           

Cash and cash equivalents

   $ 326,025       $ 326,025       $ 292,669       $ 292,669   

Securities held to maturity

     259,851         260,811         230,786         228,157   

Securities available for sale

     620,532         620,532         603,686         603,686   

Mortgage loans held for sale

     9,399         9,399         27,704         27,704   

Loans covered under loss-share agreements

     386,811         391,477         333,681         334,096   

Loans not covered under loss-share agreements

     2,142,870         2,127,894         2,145,494         2,123,169   

FDIC loss-share indemnification asset

     164,104         164,104         155,657         155,657   

Derivative instruments

     1,006         1,006         1,257         1,257   

Financial liabilities:

           

Deposits

     3,644,874         3,644,993         3,468,151         3,468,574   

Short-term borrowings

     10,891         10,891         15,386         15,386   

Federal Home Loan Bank advances

     123,366         128,356         175,119         181,909   

Junior subordinated debentures

     75,891         24,282         75,931         25,073   

TLGP Senior Note

     50,000         51,361         50,000         50,361   

Derivative instruments

     890         890         941         941   

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above.

Cash and cash equivalents: Cash and cash equivalents consists of cash and due from banks and interest-bearing balances with banks. The carrying amount reported in the Consolidated Balance Sheets for cash and cash equivalents approximates fair value based on the short-term nature of these assets.

 

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Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note J – Fair Value Measurements (continued)

 

Securities held to maturity: For securities held to maturity, fair values for debt securities are based on quoted market prices, where available, or a discounted cash flow model. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.

Loans covered under loss-share agreements: The fair value of loans covered under loss-share agreements is based on the net present value of future cash proceeds expected to be received using discount rates that are derived from current market rates and reflect the level of interest risk in the covered loans.

Loans not covered under loss-share agreements: For variable-rate loans not covered under loss-share agreements that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values of fixed-rate loans not covered under loss-share agreements, including mortgages, commercial, agricultural and consumer loans, are estimated using a discounted cash flow analysis based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

FDIC loss-share indemnification asset: The fair value of the FDIC loss-share indemnification asset is based on the net present value of future cash flows expected to be received from the FDIC under the provisions of the loss-share agreements using a discount rate that is based on current market rates for the underlying covered loans. Current market rates are used in light of the uncertainty of the timing and receipt of the loss-sharing reimbursement from the FDIC.

Deposits: The fair values disclosed for demand deposits, both interest-bearing and noninterest-bearing, are, by definition, equal to the amount payable on demand at the reporting date. The fair values of certificates of deposit and individual retirement accounts are estimated using a discounted cash flow based on currently effective interest rates for similar types of accounts.

Short-term borrowings: Short-term borrowings consist of treasury, tax and loan notes and securities sold under agreements to repurchase. The fair value of these short-term borrowings approximates the carrying value of the amounts reported in the Consolidated Balance Sheets for each respective account.

Federal Home Loan Bank advances: The fair value for FHLB advances is determined by discounting the future cash flows using the current market rate.

Junior subordinated debentures: The fair value for the Company’s junior subordinated debentures is determined by discounting the future cash flows using the current market rate.

TLGP Senior Note: The fair value for the Company’s senior note guaranteed by the FDIC under the Temporary Liquidity Guarantee Program (“TLGP”) is determined by discounting the future cash flows using the current market rate.

 

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Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note K – Other Comprehensive Income

(In Thousands)

The components of other comprehensive income were as follows:

 

     Three Months Ended
March  31,
 
     2011     2010  

Net income

   $ 7,553      $ 3,607   

Other comprehensive income:

    

Unrealized holding gains on securities, net of tax expense of $332 and $622

     536        1,004   

Non-credit related portion of other-than-temporary impairment on securities, net of tax benefit of $160 and $429

     (259     (692

Reclassification adjustment for gains realized in net income, net of tax expense of $110 and $57

     (176     (93
                

Net change in unrealized losses on securities

     101        219   

Unrealized holding losses on derivative instruments, net of tax benefit of $8

     —          (12

Reclassification adjustment for gains realized in net income, net of tax expense of $57

     (93     —     
                

Net change in unrealized gains on derivative instruments

     (93     (12

Net change in defined benefit pension and post-retirement benefit plans, net of tax expense of $44 and $49

     71        78   
                

Other comprehensive income

     79        285   
                

Comprehensive income

   $ 7,632      $ 3,892   
                

The accumulated balances for each component of other comprehensive income, net of tax, were as follows

 

     March 31,
2011
    March 31,
2010
 

Net unrealized gains (losses) on securities

   $ 2,314      $ (1,152

Net non-credit related portion of other-than-temporary impairment on

securities

     (13,533     (692

Net unrealized gains on derivative instruments

     720        867   

Net unrecognized defined benefit pension and post-retirement benefit plans obligations

     (5,863     (6,194
                

Total accumulated other comprehensive loss

   $ (16,362   $ (7,171
                

 

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Table of Contents

Renasant Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

 

Note L – Net Income Per Common Share

(In Thousands, Except Share Data)

Basic and diluted net income per common share were as follows:

 

     Three Months Ended
March 31,
 
     2011      2010  

Basic

     

Net income applicable to common stock

   $ 7,553       $ 3,607   

Average common shares outstanding

     25,052,126         21,082,991   

Net income per common share - basic

   $ 0.30       $ 0.17   
                 

Diluted

     

Net income applicable to common stock

   $ 7,553       $ 3,607   

Average common shares outstanding

     25,052,126         21,082,991   

Effect of dilutive stock-based compensation

     120,284         125,943   
                 

Average common shares outstanding - diluted

     25,172,410         21,208,934   

Net income per common share - diluted

   $ 0.30       $ 0.17   
                 

 

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Table of Contents
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(In Thousands, Except Share Data)

This Form 10-Q may contain or incorporate by reference statements regarding Renasant Corporation (referred to herein as the “Company”, “we”, “our”, or “us”) 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,” “proposes,” “anticipates,” “believes,” “intends,” “estimates,” “strategy,” “plan,” “potential,” “possible” and other similar expressions. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those contemplated by such forward-looking statements.

Important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include (1) the Company’s ability to efficiently integrate its acquisitions of Crescent Bank & Trust Company and American Trust Bank (described below) into its operations, retain the customers of these institutions and grow the acquired franchises; (2) the effect of economic conditions and interest rates on a national, regional or international basis; (3) the timing of the implementation of changes in operations to achieve enhanced earnings or effect cost savings; (4) competitive pressures in the consumer finance, commercial finance, insurance, financial services, asset management, retail banking, mortgage lending and auto lending industries; (5) the financial resources of, and products available to, competitors; (6) changes in laws and regulations, including changes in accounting standards; (7) changes in policy by regulatory agencies; (8) changes in the securities and foreign exchange markets; (9) the Company’s potential growth, including its entrance or expansion into new markets, and the need for sufficient capital to support that growth; (10) changes in the quality or composition of the Company’s loan or investment portfolios, including adverse developments in borrower industries or in the repayment ability of individual borrowers; (11) an insufficient allowance for loan losses as a result of inaccurate assumptions; (12) general economic, market or business conditions; (13) changes in demand for loan products and financial services; (14) concentration of credit exposure; (15) changes or the lack of changes in interest rates, yield curves and interest rate spread relationship; and (16) other circumstances, many of which are beyond management’s control. Management undertakes no 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.

Overview

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

On February 4, 2011, the Bank acquired specified assets and assumed specified liabilities of American Trust Bank, a Georgia-chartered bank headquartered in Roswell, Georgia (“American Trust”), from the FDIC, as receiver for American Trust. American Trust operated, and the Company acquired and retained, 3 branches in the northwest region of Georgia. The Bank acquired assets with a fair value of $247,505, including loans with a fair value of $74,399, and assumed liabilities with a fair value of $238,731, including deposits with a fair value of $223,007. At the acquisition date, approximately $73,657 of acquired loans were covered by loss-share agreements between the FDIC and the Bank. The acquisition of American Trust resulted in a pre-tax gain of $8,774. For more information regarding this transaction, please refer to Note B, “FDIC-Assisted Acquisitions,” in the Notes to Consolidated Financial Statements included in Item 1, “Financial Statements,”

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 Federal Deposit Insurance Corporation (the “FDIC”), as receiver for Crescent. Crescent operated, and the Company acquired and retained, 11 branches in the northwest region of Georgia. The Bank acquired assets with a fair value of $959,307, including loans with a fair value of $371,100, and assumed liabilities with a fair value of $917,096, including deposits with a fair value of $890,103. At the acquisition date, approximately $361,472 of acquired loans and $50,168 of other real estate owned were covered by loss-share agreements between the FDIC and the Bank. For more information regarding this transaction, please refer to Note B, “FDIC-Assisted Acquisition of Certain Assets and Liabilities of Crescent Bank & Trust,” in the Notes to Consolidated Financial Statements included in Item 8, “Financial Statements and Supplementary Data,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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Table of Contents

Financial Condition

The Company’s total assets were $4,422,164 at March 31, 2011 as compared to $4,297,327 on December 31, 2010.

Cash and cash equivalents increased to $326,025 at March 31, 2011 from $292,669 at December 31, 2010 as a result of the cash received in connection with the American Trust acquisition. Cash and cash equivalents represented 7.37% of total assets at March 31, 2011 compared to 6.81% of total assets at December 31, 2010.

Investments

The following table shows the carrying value of our securities portfolio by investment type, and the percentage of such investment type relative to the entire securities portfolio, for the periods presented:

 

     March 31,
2011
     Percentage of
Portfolio
    December 31,
2010
     Percentage of
Portfolio
 

Obligations of other U.S. Government agencies and corporations

   $ 105,226         11.95   $ 97,455         11.68

Mortgage-backed securities

     520,650         59.14        496,510         59.50   

Obligations of states and political subdivisions

     217,902         24.75        206,083         24.70   

Trust preferred securities

     5,235         0.60        4,583         0.54   

Other equity securities

     31,369         3.56        29,841         3.58   
                                  

Total investments

   $ 880,382         100.00   $ 834,472         100.00
                                  

The balance of our investment portfolio at March 31, 2011 was $880,382 compared to $834,472 at December 31, 2010. The acquisition of American Trust increased the investment portfolio by $8,252. During the first quarter of 2011, we also purchased $85,133 in investment securities. The purchases were primarily mortgage-backed securities and collateralized mortgage obligations (“CMO’s”), which in the aggregate made up approximately 57.07% of the purchases. CMO’s are included in the “Mortgage-backed securities” line item in the above table. The mortgage-backed securities and CMO’s held in our investment portfolio are primarily issued by government sponsored entities. U.S. Government Agency securities and municipal securities accounted for approximately 21.14% and 21.79%, respectively, of the remainder of the securities purchased in the first quarter of 2011. The carrying value of securities sold during the first three months of 2011, totaled $5,029, consisting solely of municipal securities. Maturities and calls of securities during the first three months of 2011 totaled $41,367. At March 31, 2011, unrealized losses of $32,487 were recorded on investment securities with a carrying value of $229,696.

Loans

The table below sets forth the balance of loans outstanding by loan type:

 

     March 31,
2011
     Percentage of
Total Loans
    December 31,
2010
     Percentage of
Total Loans
 

Commercial, financial, agricultural

   $ 273,853         10.63   $ 265,276         10.51

Lease financing

     458         0.02        503         0.02   

Real estate – construction

     85,406         3.31        82,361         3.26   

Real estate – 1-4 family mortgage

     854,630         33.16        872,382         34.56   

Real estate – commercial mortgage

     1,299,599         50.43        1,239,843         49.11   

Installment loans to individuals

     63,241         2.45        64,225         2.54   
                                  

Total loans, net of unearned income

   $ 2,577,187         100.00   $ 2,524,590         100.00
                                  

At March 31, 2011, loans increased $52,597 from December 31, 2010 which is a result of the acquisition of American Trust. The loans acquired in the American Trust acquisition were, for the most part, covered under loss-share agreements with the FDIC. For loans covered under the loss-share agreements (referred to as “covered loans”), the FDIC will reimburse the Bank 80% of the losses incurred on these loans.

 

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The following table provides a breakdown of loans covered and not covered under a loss-share agreement:

 

     March 31, 2011      December 31, 2011  
     Covered
Loans
     Not Covered
Loans
     Total
Loans
     Covered
Loans
     Not Covered
Loans
     Total
Loans
 

Commercial, financial, agricultural

   $ 22,964       $ 250,889       $ 273,853       $ 20,921       $ 244,355       $ 265,276   

Lease financing

     —           458         458         —           503         503   

Real estate – construction:

                 

Residential

     4,947         34,459         39,406         6,476         31,143         37,619   

Commercial

     8,900         31,665         40,565         9,087         30,638         39,725   

Condominiums

     —           5,435         5,435         —           5,017         5,017   
                                                     

Total real estate – construction

     13,847         71,559         85,406         15,563         66,798         82,361   

Real estate – 1-4 family mortgage:

                 

Primary

     22,291         340,176         362,467         19,786         343,712         363,498   

Home equity

     19,884         162,468         182,352         21,454         161,973         183,427   

Rental/investment

     49,839         143,629         193,468         51,065         148,308         199,373   

Land development

     31,756         84,587         116,343         30,214         95,870         126,084   
                                                     

Total real estate – 1-4 family mortgage

     123,770         730,860         854,630         122,519         749,863         872,382   

Real estate – commercial mortgage:

                 

Owner-occupied

     102,785         515,883         618,668         71,455         522,288         593,743   

Non-owner occupied

     45,868         453,629         499,497         24,863         432,872         457,735   

Land development

     77,385         104,049         181,434         78,254         110,111         188,365   
                                                     

Total real estate – commercial mortgage

     226,038         1,073,561         1,299,599         174,572         1,065,271         1,239,843   

Installment loans to individuals

     192         63,049         63,241         106         64,119         64,225   
                                                     

Total loans, net of unearned income

   $ 386,811       $ 2,190,376       $ 2,577,187       $ 333,681       $ 2,190,909       $ 2,524,590   
                                                     

Excluding the loans acquired from American Trust, total loans at March 31, 2011 decreased by $21,802 compared to December 31, 2010. During the first quarter of 2011, loans in our Alabama and Tennessee regions increased $7,979 and $760, respectively, while loans in our Mississippi region decreased $15,002 from December 31, 2010. Excluding the loans attributable to the American Trust acquisition, loans in our Georgia markets decreased $15,539 during the first quarter of 2011. While loans were relatively flat during the first quarter of 2011, the Company grew net loans in certain of its key markets during the first quarter of 2011.

Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions. At March 31, 2011, there were no concentrations of loans exceeding 10% of total loans which are not disclosed as a category of loans separate from the categories listed above.

Mortgage loans held for sale were $9,399 at March 31, 2011 compared to $27,704 at December 31, 2010. Originations of mortgage loans to be sold totaled $96,510 for the first three months of 2011 as compared to $101,571 for the same period in 2010. Gains and losses are realized at the time consideration is received and all other criteria for sales treatment have been met. These loans are typically sold within thirty days after the loan is funded. Although loan fees and some interest income are derived from mortgage loans held for sale, the main source of income is gains from the sale of mortgage loans in the secondary market.

 

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Table of Contents

Deposits

The Company relies on deposits as its major source of funds. Total deposits were $3,644,874 at March 31, 2011 compared to $3,468,151 at December 31, 2010. Noninterest-bearing deposits were $486,676 at March 31, 2011 compared to $368,798 at December 31, 2010, while interest-bearing deposits were $3,158,198 at March 31, 2011 compared to $3,099,353 at December 31, 2010. The acquisition of American Trust increased noninterest-bearing and interest-bearing deposits by $11,045 and $142,885, respectively, at March 31, 2011. Deposits in the Mississippi region increased $103,103 in the first three months of 2011, while deposits in the Alabama and Tennessee regions decreased $17,507 and $41,853, respectively, in the first three months of 2011. Deposits in our Georgia markets totaled $797,870 at March 31, 2011.

Borrowed Funds

Total borrowings, which include federal funds purchased, treasury, tax and loan notes, securities sold under agreements to repurchase, advances from the Federal Home Loan Bank (“FHLB”), debt guaranteed by the FDIC under its Temporary Liquidity Guarantee Program and junior subordinated debentures, were $260,149 at March 31, 2011 compared to $316,436 at December 31, 2010. FHLB advances were $123,666 at March 31, 2011 compared to $175,119 at December 31, 2010. The Company assumed $15,020 in long-term FHLB advances in connection with the American Trust acquisition, all of which were repaid during the first quarter of 2011. The Company repaid $50,000 of long-term FHLB borrowings during the first three months of 2011 and incurred prepayment penalties of $1,903.

Results of Operations

Net Income

Net income for the three month period ended March 31, 2011 was $7,553, which represents an increase of $3,946, or 109.40%, from net income of $3,607 for the three month period ended March 31, 2010. Basic and diluted earnings per share increased $0.13 to $0.30 for the three month period ended March 31, 2011 as compared to $0.17 for the prior year. The increase in earnings per share for the first quarter of 2011 as compared to the first quarter of 2010 is due primarily to the acquisition of American Trust and the related one-time gain the Company recorded in connection with the acquisition.

 

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Table of Contents

Net Interest Income

Net interest income, the difference between interest earned on assets and the cost of interest-bearing liabilities, is the largest component of our net income. The primary concerns in managing net interest income are the mix and the repricing of rate-sensitive assets and liabilities. Net interest income increased 27.39% to $31,096 for the first quarter of 2011 compared to $24,410 for the same period in 2010. Net interest margin, the tax equivalent net yield on earning assets, increased to 3.55% for the first three months of 2011 from 3.27% for the same period in 2010. Net interest margin and net interest income are influenced by several factors, primarily changes in interest rates, competition and the shape of the interest rate yield curve.

The following table sets forth average balance sheet data, including all major categories of interest-earning assets and interest-bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category for the periods presented:

 

     Three Months Ended March 31,  
     2011     2010  
     Average
Balance
     Interest
Income/
Expense
     Yield/
Rate
    Average
Balance
     Interest
Income/
Expense
     Yield/
Rate
 

Assets

                

Interest-earning assets:

                

Loans(1)

   $ 2,556,572       $ 36,061         5.72   $ 2,354,443       $ 32,668         5.63

Securities:

                

Taxable(2)

     660,119         5,686         3.45        557,439         5,996         4.30   

Tax-exempt

     221,689         3,418         6.17        140,474         2,220         6.24   

Interest-bearing balances with banks

     284,039         206         0.29        108,264         44         0.17   
                                        

Total interest-earning assets

     3,722,419         45,371         4.93        3,160,620         40,900         5.23   

Cash and due from banks

     64,249              56,004         

FDIC loss-share indemnification asset

     161,121              —           

Intangible assets

     191,740              190,881         

Other assets

     283,559              213,856         
                            

Total assets

   $ 4,423,088            $ 3,621,361         
                            

Liabilities and shareholders’ equity

                

Interest-bearing liabilities:

                

Deposits:

                

Interest-bearing demand(3)

   $ 1,367,955         2,988         0.89      $ 959,503         2,797         1.18   

Savings deposits

     204,322         246         0.49        112,835         151         0.54   

Time deposits

     1,576,204         6,848         1.76        1,260,403         7,385         2.38   
                                        

Total interest-bearing deposits

     3,148,481         10,082         1.30        2,332,741         10,333         1.80   

Borrowed funds

     290,201         2,625         3.63        530,654         4,965         3.79   
                                        

Total interest-bearing liabilities

     3,438,682         12,707         1.50        2,863,395         15,298         2.17   

Noninterest-bearing deposits

     476,115              310,726         

Other liabilities

     37,416              35,108         

Shareholders’ equity

     470,875              412,132         
                            

Total liabilities and shareholders’ equity

   $ 4,423,088            $ 3,621,361         
                            

Net interest income/net interest margin

      $ 32,664         3.55      $ 25,602         3.27
                            

 

(1)

Includes mortgage loans held for sale and shown net of unearned income.

(2)

U.S. Government and some U.S. Government Agency securities are tax-exempt in the states in which we operate.

(3) 

Interest-bearing demand deposits include interest-bearing transactional accounts and money market deposits.

 

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The average balances of nonaccruing loans are included in the table above. Interest income and weighted average yields on tax-exempt loans and securities have been computed on a fully tax-equivalent basis assuming a federal tax rate of 35% and a state tax rate of 3.3%, which is net of federal tax benefit.

Interest income, on a tax equivalent basis, was $45,371 for the first quarter of 2011 compared to $40,900 for the same period in 2010. The increase in interest income was driven primarily by an increase in the average balance of interest earning assets offset by a decline in the yield on interest-earning assets. The tax equivalent yield on interest-earning assets decreased 30 basis points in first quarter of 2011 compared to the first quarter of 2010. The change in the mix of interest-earning assets from higher yielding loans to lower yielding interest bearing cash balances further contributed to the decline in tax equivalent yield.

The following table presents the percentage of total average earning assets, by type and yield, at March 31 for each of the years presented:

 

     Percentage of Total     Yield  
     2011     2010     2011     2010  

Loans

     68.68     74.49     5.72     5.63

Securities

     23.69        22.08        4.13        4.69   

Other

     7.63        3.43        0.29        0.17   
                                

Total earning assets

     100.00     100.00     4.93     5.23
                                

Interest expense was $12,707 for the first quarter of 2011, a decrease of $2,591, or 16.94%, as compared to the same period in 2010. The decrease in interest expense was due to the decrease in the cost of interest-bearing liabilities as a result of the declining interest rate environment and a change in the mix of our interest-bearing liabilities in which we utilized lower cost deposits to replace higher costing liabilities. The cost of interest-bearing liabilities was 1.50% for the first quarter of 2011 as compared to 2.17% for the same period in 2010.

The following table presents the Company’s funding sources which consists of total average deposits and borrowed funds, by type, and total cost of funds, at March 31 for each of the years presented:

 

     Percentage of Total     Cost of Funds  
     2011     2010     2011     2010  

Noninterest-bearing demand

     12.16     9.79     —       —  

Interest-bearing demand

     34.94        30.23        0.89        1.18   

Savings

     5.22        3.55        0.49        0.54   

Time deposits

     40.26        39.71        1.76        2.38   

Federal Home Loan Bank advances

     3.84        12.07        4.05        3.68   

Other borrowed funds

     3.58        4.65        3.18        4.07   
                                

Total deposits and borrowed funds

     100.00     100.00     1.31     1.95
                                

Noninterest Income

Noninterest income was $21,765 for the three months ended March 31, 2011, an increase of $9,281, or 74.34%, as compared to 2010. The increase in noninterest income for the first quarter of 2011 compared to 2010 is attributable to the $8,774 gain from the acquisition of American Trust.

Charges for deposit services, the primary contributor to noninterest income, were $4,880 and $5,090 for the first quarter of 2011 and 2010, respectively. The operations of Crescent and American Trust increased service charges on deposit accounts by $245 during the first quarter of 2011. Overdraft fees, the largest component of service charges on deposits, were $4,320 for the three month period ended March 31, 2011 compared to $4,553 for the same period in 2010.

Fees and commissions (which includes fees charged for both deposit services and loan services) increased 11.21% to $4,138 during the first quarter of 2011 as compared to $3,721 for the first quarter of 2010. The operations of Crescent and American Trust increased fees and commissions by $191 during the first quarter of 2011. Fees charged on loans include origination, underwriting, documentation and other administrative fees. Loan fees were $1,533 during the first quarter of 2011 as compared to $1,436 for the first quarter of 2010. With respect to fees related to deposit services, interchange fees on debit card transactions continue to be a strong source of noninterest

 

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income. For the first quarter of 2011, fees associated with debit card usage were $1,696, an increase of 8.43% as compared to $1,564 for the same period of 2010. The Company also provides specialized products and services to our customers through our Financial Services division. Specialized products include fixed and variable annuities, mutual funds, and stocks offered through a third party provider. Revenues generated from the sale of all of these products, which are included in the Consolidated Statements of Income in the account line “Fees and commissions,” were $444 for the first quarter of 2011 compared to $344 for the same period of 2010.

Income earned on insurance products was $832 and $834 for the three months ended March 31, 2011 and 2010, respectively. Contingency income is a bonus received from the insurance underwriters and is based both on commission income and claims experience on our client’s policies during the previous year. Increases and decreases in contingency income are reflective of corresponding increases and decreases in the amount of claims paid by insurance carriers. Contingency income, which is included in “Other noninterest income” in the Consolidated Statements of Income, was $308 and $221 for the three months ended March 31, 2011 and 2010, respectively.

The trust department operates on a custodial basis which includes administration of benefit plans, as well as accounting and money management for trust accounts. The trust department manages a number of trust accounts inclusive of personal and corporate benefit accounts, self-directed IRA’s, and custodial accounts. Fees for managing these accounts are based on changes in market values of the assets under management in the account, with the amount of the fee depending on the type of account. Trust revenue was $613 for the first quarter of 2011 compared to $584 for the same period in 2010. The market value of trust assets under management was $455,479 and $438,912 at March 31, 2011 and 2010, respectively.

Gains on sales of securities for the first quarter of 2011 were $12, resulting from the sale of approximately $5,029 in securities. For the three months ended March 31, 2010, the Company recognized other-than-temporary-impairment losses of $160 related to investments in pooled trust preferred securities.

Gains on the sale of mortgage loans held for sale for the first quarter of 2011 were $1,151, a decrease of $178, or 13.39%, from the first quarter of 2010. The decrease in gains on the sale of mortgage loans is attributable to higher volumes of loans sold during 2010 compared to 2011. Originations of mortgage loans to be sold totaled $96,510 for the first three months of 2011 as compared to $101,571 for the same period in 2010.

Noninterest Expense

 

Noninterest Expense to Average Assets

2011

   2010
3.37%    2.87%

Noninterest expense was $36,723 and $25,634 for the first quarter of 2011 and 2010, respectively, an increase of $11,089, or 43.26%. The operations of Crescent and American Trust increased noninterest expenses by $4,168 during the first quarter of 2011. Noninterest expense for the first quarter of 2011 includes $1,325 of acquisition related costs associated with the American Trust acquisition and $1,903 in prepayment penalties associated with paying off $50,000 of FHLB borrowings.

Salaries and employee benefits increased $3,040, or 6.29%, to $16,237 during the first quarter of 2011 as compared to $13,197 for the first quarter of 2010. The operations of Crescent and the acquisition of American Trust increased salaries and employee benefits $1,950 during the first quarter of 2011.

Data processing costs increased $362 to $1,788 for the first quarter of 2011 as compared to the first quarter of 2010. The increase in data processing costs is reflective of increased loan and deposit processing from growth in the number of loans and deposits and from the completion of the Crescent conversion in the first quarter of 2011. The American Trust conversion is scheduled for completion during the second quarter of 2011.

Net occupancy and equipment expense for the first quarter of 2011 was $3,234, up $303 from the first quarter of 2010. This increase is attributable to occupancy costs associated with the operations of Crescent and the American Trust acquisition offset by lower depreciation expense.

Expenses related to other real estate owned for the first quarter of 2011 were $3,511, an increase of $2,774 compared to the same period in 2010. Expenses on other real estate owned for the three months ended March 31, 2011 include a $969 write down of the carrying value to fair value on certain pieces of property held in other real estate owned. Other real estate owned with a cost basis of $14,340 was sold during the three months ended March 31, 2011, resulting in a net loss of $1,631.

 

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Professional fees include fees we paid our directors as well as fees for legal and accounting services. Professional fees were $898 and $866 for the first quarter of 2011 and 2010, respectively. The higher levels of professional fees are attributable to legal fees associated with loan workouts and foreclosure proceedings.

Advertising and public relations expense was $1,163 for the first quarter of 2011 compared to $890 for the first quarter of 2010. This increase is attributable to advertising and marketing costs associated with our expansion into our north Georgia markets.

Amortization of intangible assets increased $39 to $515 for the first quarter of 2011 compared to $476 for the first quarter of 2010. This amortization relates to finite-lived intangible assets which are being amortized over the useful lives as determined at acquisition. These finite-lived intangible assets have remaining estimated useful lives ranging from one to ten years.

Communication expenses are those expenses incurred for communication to clients and between employees. Communication expenses were $1,434 for the first quarter of 2011 as compared to $1,086 for the first quarter of 2010.

Other noninterest expense was $6,040 and $4,026 for the first quarter of 2011 and 2010, respectively. Other noninterest expense for the first quarter of 2011 includes $1,325 of acquisition related costs associated with the American Trust acquisition.

 

Efficiency Ratio

2011

   2010
67.47%    67.31%

The efficiency ratio is one measure of productivity in the banking industry. This ratio is calculated to measure the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. The Company calculates this ratio by dividing noninterest expense by the sum of net interest income on a fully taxable equivalent basis and noninterest income. Our efficiency ratio remained flat for the three month period ended March 31, 2011 as compared to the same period in 2010. The increase in noninterest income attributable to the gain arising from the American Trust acquisition was offset by an increase in noninterest expense. We remain committed to aggressively managing our costs within the framework of our business model.

Income Taxes

Income tax expense for the first quarter of 2011 was $3,085 as compared to $988 for the first quarter of 2010. The effective tax rates for those periods were 29.00% and 21.50%, respectively. The increase in the effective tax rate for the first quarter of 2011 as compared to the same period in 2010 is attributable to higher levels of taxable income in 2011 as a result of the gain arising from the American Trust acquisition.

Risk Management

The management of risk is an on-going process. Primary risks that are associated with the Company include credit, interest rate and liquidity risk. Credit and interest rate risk are discussed below, while liquidity risk is discussed in the next subsection under the heading “Liquidity and Capital Resources.”

Credit Risk and Allowance for Loan Losses

The allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on a quarterly analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as recognized under Accounting Standards Codification Topic (“ASC”) 450, “Contingencies.” Other considerations in establishing the allowance include the risk rating of individual credits, the size and diversity of the portfolio, economic conditions reflected within industry segments, the unemployment rate in our markets, loan segmentation, historical losses that are inherent in the loan portfolio and the results of periodic credit reviews by internal loan review and regulators.

 

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The provision for loan losses charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for loan losses at a level that is believed to be adequate to meet the inherent risks of losses in our loan portfolio. Factors considered by management in determining the amount of provision for loan losses to charge to current operations include the internal risk rating of individual credits, historical and current trends in net charge-offs, trends in nonperforming loans, trends in past due loans, trends in the market values of underlying collateral securing loans and the current economic conditions in the market in which we operate.

Loans acquired in the Crescent and American Trust acquisitions were 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. Because the fair value measurement incorporates an estimate of losses on acquired loans, these loans were excluded from the calculation of the allowance for loan losses and no provision for loan losses was recorded for these loans during the three months ended March 31, 2011 or for the year ended December 31, 2010. The Company will continue to monitor future cash flows on these loans; to the extent future cash flows deteriorate below initial projections, the Company may be required to reserve for these loans in the allowance for loan losses through future provision for loan losses.

The table below reflects the activity in the allowance for loan losses, in thousands, for the periods presented:

 

     Three Months Ended
March 31,
 
     2011     2010  

Balance at beginning of period

   $ 45,415      $ 39,145   

Provision for loan losses

     5,500        6,665   

Charge-offs

    

Commercial, financial, agricultural

     145        77   

Lease financing

     —          —     

Real estate – construction

     229        435   

Real estate – 1-4 family mortgage

     3,531        1,882   

Real estate – commercial mortgage

     551        2,371   

Installment loans to individuals

     56        115   
                

Total charge-offs

     4,512        4,880   

Recoveries

    

Commercial, financial, agricultural

     142        21   

Lease financing

     —          —     

Real estate – construction

     —          47   

Real estate – 1-4 family mortgage

     116        80   

Real estate – commercial mortgage

     817        6   

Installment loans to individuals

     27        10   
                

Total recoveries

     1,102        164   
                

Net charge-offs

     3,410        4,716   
                

Balance at end of period

   $ 47,505      $ 41,094   
                

Net charge-offs to average loans (annualized)

     0.54     0.81

Allowance for loan losses to:

    

Loans

     2.17     1.78

Nonperforming loans

     82.99     75.26

 

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The following table provides further details of the Company’s net charge-offs (recoveries) of loans secured by real estate for the periods presented:

 

     Three Months Ended
March  31,
 
     2011     2010  

Real estate – construction:

    

Residential

   $ 229      $ 388   

Commercial

     —          —     

Condominiums

     —          —     
                

Total real estate – construction

     229        388   

Real estate – 1-4 family mortgage:

    

Primary

     443        79   

Home equity

     80        410   

Rental/investment

     430        325   

Land development

     2,462        988   
                

Total real estate – 1-4 family mortgage

     3,415        1,802   

Real estate – commercial mortgage:

    

Owner-occupied

     200        1,084   

Non-owner occupied

     (715     1,278   

Land development

     249        3   
                

Total real estate – commercial mortgage

     (266     2,365   
                

Total net-charge-offs of loans secured by real estate

   $ 3,378      $ 4,555   
                

The following table quantifies the amount of the specific reserves component of the allowance for loan losses and the amount of the allowance determined by applying allowance factors to graded loans for the periods presented:

 

     March 31,
2011
     December 31,
2010
 

Specific reserves for impaired loans

   $ 16,135       $ 17,529   

Allocated reserves for remaining portfolio

     31,370         27,886   
                 

Total

   $ 47,505       $ 45,415   
                 

Nonperforming loans are those on which the accrual of interest has stopped or loans which are contractually past due 90 days, on which interest continues to accrue. Generally, the accrual of interest is discontinued when the full collection of principal or interest is in doubt or when the payment of principal or interest has been contractually 90 days past due, unless the obligation is both well secured and in the process of collection. 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.

Due to the significant difference in the accounting for the loans and other real estate owned covered by loss-share agreements (“covered assets”) and loss mitigation offered under the loss-share agreements with the FDIC, the Company believes that excluding the covered assets from its asset quality measures provides a more meaningful presentation of the Company’s asset quality. Purchased impaired loans had evidence of deterioration in credit quality prior to acquisition, and thus the fair value of these loans as of the acquisition date included an estimate of credit losses. These loans, as well as acquired loans with no evidence of credit deterioration at acquisition, are accounted for on a pool basis, and these pools are considered to be performing. Purchased impaired loans were not classified as nonperforming assets at March 31, 2011 or December 31, 2010 as the loans are considered to be performing under ASC 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”). As a result, interest income, through the accretion of the difference between the carrying value of the loans and the expected cash flows, is being recognized on all purchased loans accounted for under ASC 310-30.

 

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The following table provides a detail of the Company’s nonperforming assets covered and not covered under loss-share agreements:

 

     Covered
Assets
     Not Covered
Assets
     Total
Assets
 

March 31, 2011

        

Nonaccruing loans

   $ 78,909       $ 46,406       $ 125,315   

Accruing loans past due 90 days or more

     7,817         10,839         18,656   
                          

Total nonperforming loans

     86,726         57,245         143,971   

Other real estate owned

     59,036         71,415         130,451   
                          

Total nonperforming assets

   $ 145,762       $ 128,660       $ 274,422   
                          

Nonperforming loans to total loans

           5.59

Nonperforming assets to total assets

           6.21

Allowance for loan losses to total loans

           1.84

December 31, 2010

        

Nonaccruing loans

   $ 82,393       $ 46,662       $ 129,055   

Accruing loans past due 90 days or more

     —           7,196         7,196   
                          

Total nonperforming loans

     82,393         53,858         136,251   

Other real estate owned

     54,715         71,833         126,548   
                          

Total nonperforming assets

   $ 137,108       $ 125,691       $ 262,799   
                          

Nonperforming loans to total loans

           5.40

Nonperforming assets to total assets

           6.12

Allowance for loan losses to total loans

           1.80

The asset quality measures surrounding the Company’s nonperforming loans and nonperforming assets discussed in the remainder of this section exclude covered assets relating to the Crescent and American Trust acquisitions.

The following table shows the principal amounts of nonperforming and restructured loans for the periods presented:

 

     March 31,     December 31,  
     2011     2010     2010  

Nonaccruing loans

   $ 46,406      $ 44,688      $ 46,662   

Accruing loans past due 90 days or more

     10,839        9,916        7,196   
                        

Total nonperforming loans

     57,245        54,604        53,858   

Restructured loans

     33,816        37,569        32,615   
                        

Total nonperforming and restructured loans

   $ 91,061      $ 92,173      $ 86,473   
                        

Nonperforming loans to:

      

Loans – period end

     2.61     2.37     2.46

Loans – average

     2.24     2.32     2.20

All loans where information exists about possible credit problems that would cause us to have serious doubts about the borrower’s ability to comply with the current repayment terms of the loan have been reflected in the table above. At March 31, 2011, we did not hold any other interest-bearing assets that would be included in the table above if such assets were loans.

 

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The following table presents nonperforming loans by loan category for each of the periods presented.

 

     March 31,      December  31,
2010
 
     2011      2010     

Commercial, financial, agricultural

   $ 3,185       $ 4,870       $ 2,422   

Lease financing

     —           —           —     

Real estate – construction

     108         6,978         333   

Real estate – 1-4 family mortgage

     31,149         27,712         35,893   

Real estate – commercial mortgage

     21,774         14,898         14,539   

Installment loans to individuals

     1,029         146         671   
                          

Total

   $ 57,245       $ 54,604       $ 53,858   
                          

The following table provides further details of the Company’s nonperforming loans secured by real estate for the periods presented:

 

     March 31,      December 31,  
     2011      2010      2010  

Real estate – construction:

        

Residential

   $ 108       $ 1,368       $ 333   

Commercial

     —           —           —     

Condominiums

     —           5,610         —     
                          

Total real estate – construction

     108         6,978         333   

Real estate – 1-4 family mortgage:

        

Primary

     4,615         4,317         6,514   

Home equity

     1,433         844         829   

Rental/investment

     13,105         8,300         10,942   

Land development

     11,996         14,251         17,608   
                          

Total real estate – 1-4 family mortgage

     31,149         27,712         35,893   

Real estate – commercial mortgage:

        

Owner-occupied

     10,876         6,498         6,336   

Non-owner occupied

     7,131         2,954         4,300   

Land development

     3,767         5,446         3,903   
                          

Total real estate – commercial mortgage

     21,774         14,898         14,539   
                          

Total nonperforming loans secured by real estate

   $ 53,031       $ 49,588       $ 50,765   
                          

Management has evaluated the aforementioned loans and other loans classified as nonperforming and believes that all nonperforming loans have been adequately reserved for in the allowance for loan losses at March 31, 2011. Management also continually monitors past due loans for potential credit quality deterioration. Total loans past due 30-89 days were $18,875 at March 31, 2011 as compared to $21,520 at December 31, 2010 and $41,618 at March 31, 2010.

 

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As shown above, restructured loans totaled $33,816 at March 31, 2011 as compared to $32,615 at December 31, 2010 and $37,569 at March 31, 2010. At March 31 2011, total loans restructured that included an interest rate concession represented 76.63% of total restructured loans, while loans restructured by a concession in payment or terms represented the remainder. The following table provides further details of the Company’s restructured loans secured by real estate for the periods presented:

 

     March 31,      December 31,  
     2011      2010      2010  

Real estate – construction:

        

Residential

   $ —         $ 2,356       $ —     

Commercial

     2,316         —           —     

Condominiums

     —           —           —     
                          

Total real estate – construction

     2,316         2,356         —     

Real estate – 1-4 family mortgage:

        

Primary

     5,276         1,456         4,313   

Home equity

     —           —           —     

Rental/investment

     1,630         1,365         1,969   

Land development

     13,932         22,897         14,834   
                          

Total real estate – 1-4 family mortgage

     20,838         25,718         21,116   

Real estate – commercial mortgage:

        

Owner-occupied

     3,107         6,259         3,844   

Non-owner occupied

     5,410         295         5,510   

Land development

     1,839         2,189         1,839   
                          

Total real estate – commercial mortgage

     10,356         8,743         11,193   
                          

Total restructured loans secured by real estate

   $ 33,510       $ 36,817       $ 32,309   
                          

Changes in the Company’s restructured loans were as follows:

 

Balance at January 1, 2011

   $  32,615   

Additional loans with concessions

     4,518   

Reductions due to:

  

Reclassified as nonperforming

     (2,546

Transfer to other real estate owned

     —     

Charge-offs

     —     

Paydowns

     (139

Lapse of concession period

     (632
        

Balance at March 31, 2011

   $ 33,816   
        

Other real estate owned and repossessions consist of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure. These properties are carried at the lower of cost or fair market value based on appraised value less estimated selling costs. Losses arising at the time of foreclosure of properties are charged against the allowance for loan losses. Reductions in the carrying value subsequent to acquisition are charged to earnings and are included under the line item “Other real estate owned” in the Consolidated Statements of Income. Other real estate owned with a cost basis of $10,363 was sold during the three months ended March 31, 2011, resulting in a net loss of $1,373.

 

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The following table provides details of the Company’s other real estate owned and repossessions:

 

     March 31,
2011
     December 31,
2010
 

Residential real estate

   $ 13,858       $ 15,445   

Commercial real estate

     13,400         18,266   

Residential land development

     38,863         33,172   

Commercial land development

     4,999         4,501   

Other

     295         449   
                 

Total other real estate owned and repossessions

   $ 71,415       $ 71,833   
                 

Changes in the Company’s other real estate owned and repossessions were as follows:

 

Balance at January 1, 2011

   $ 71,833   

Transfers of loans

     10,255   

Capitalized improvements

     17   

Impairments

     (969

Dispositions

     (10,363

Other

     642   
        

Balance at March 31, 2011

   $ 71,415   
        

Interest Rate Risk

Market risk is the risk of loss from adverse changes in market prices and rates. The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Our market risk arises primarily from interest rate risk inherent in lending and deposit-taking activities. Management believes the most significant impact on the Company’s financial results stems from our ability to react to changes in interest rates. To that end, management actively monitors and manages our interest rate risk exposure.

We have an Asset/Liability Committee (“ALCO”) which is authorized by the Board of Directors to monitor our interest rate sensitivity and to make decisions relating to that process. The ALCO’s goal is to structure our asset-liability composition to maximize net interest income while managing interest rate risk so as to minimize the adverse impact of changes in interest rates on net interest income and capital. Profitability is affected by fluctuations in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. We monitor the impact of changes in interest rates on our net interest income and economic value of equity (“EVE”) using rate shock analysis. Net interest income simulations measure the short-term earnings exposure from changes in market rates of interest in a more rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate net interest income under varying hypothetical rate scenarios. The EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time. A decrease in EVE due to a specified rate change indicates a decline in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet.

 

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The following rate shock analysis depicts the estimated impact on net interest income and EVE of immediate changes in interest rates at the specified levels at:

 

     Percentage Change In:  
Change in Interest Rates(1)    Net Interest Income(2)     Economic Value of Equity (3)  

(In Basis Points)

   March 31,
2011
    December 31,
2010
    March 31,
2011
    December 31,
2010
 

+200

     (1.65 %)      (3.25 %)      16.72     10.70

+100

     (1.61 %)      (3.37 %)      13.53     6.63

-100

     (0.47 %)      (1.12 %)      (6.10 %)      (4.94 %) 

 

(1) 

On account of the present position of the target federal funds rate, the Company did not perform an analysis assuming a downward movement in rates of 200 bps.

(2) 

The percentage change in this column represents net interest income for 12 months in a stable interest rate environment versus the net interest income in the various rate scenarios.

(3) 

The percentage change in this column represents our EVE in a stable interest rate environment versus the EVE in the various rate scenarios.

The preceding measures assume no change in asset/liability compositions. Thus, the measures do not reflect actions the ALCO may undertake in response to such changes in interest rates. The balance sheet structure at March 31, 2011 and December 31, 2010 indicates we are liability sensitive. The above results of the interest rate shock analysis are within the limits set by the Board of Directors. The scenarios assume instantaneous movements in interest rates in increments of 100 and 200 basis points. With the present position of the target federal funds rate, the declining rate scenarios seem improbable. Furthermore, it has been the Federal Reserve’s policy to adjust the target federal funds rate incrementally over time. As interest rates are adjusted over a period of time, it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk. The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions regarding characteristics of new business and the behavior of existing positions. These business assumptions are based upon our experience, business plans and published industry experience. Key assumptions employed in the model include asset prepayment speeds, competitive factors, the relative price sensitivity of certain assets and liabilities and the expected life of non-maturity deposits. Because these assumptions are inherently uncertain, actual results will differ from simulated results.

Beginning in the first quarter of 2011, the Company began entering into derivative instruments not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into an offsetting derivative contract position. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. At March 31, 2011, the Company had notional amounts of $14,948 on interest rate contracts with corporate customers and $14,948 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts.

The Company enters into mortgage loan commitments with its customers. Under the mortgage loan commitments, interest rates for a mortgage loan are locked in with the customer for a period of time, typically thirty days. Once a mortgage loan commitment is entered into with a customer, the Company enters into a sales agreement with an investor in the secondary market to sell such loan on a “best efforts” basis. As such, the Company does not incur risk if the mortgage loan commitment in the pipeline fails to close.

For more information about the Company’s derivative financial instruments, see Note I, “Derivative Instruments,” in the Notes to Consolidated Financial Statements of the Company in Item 1, “Financial Statements,” in this report.

Liquidity and Capital Resources

Liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs.

Core deposits, which are deposits excluding time deposits, are a major source of funds used by the Bank to meet cash flow needs. Maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring the Bank’s liquidity. Management continually monitors the liquidity and non-core dependency ratios to ensure compliance with ALCO targets.

 

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Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. Securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings. At March 31, 2011, securities with a carrying value of approximately $464,559 were pledged to secure public fund deposits and as collateral for short-term borrowings as compared to $348,392 at December 31, 2010. Higher levels of public fund deposits at March 31, 2011 as compared to December 31, 2010 resulted in the increase in the amount of pledged investment securities at March 31, 2011.

Other sources available for meeting liquidity needs include federal funds purchased and advances from the FHLB. Interest is charged at the prevailing market rate on federal funds purchased and FHLB advances. There were no outstanding federal funds purchased at March 31, 2011 or December 31, 2010. Funds obtained from the FHLB are used primarily to match-fund real estate loans and other longer-term fixed rate loans in order to minimize interest rate risk and may be used to meet day to day liquidity needs, primarily when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. At March 31, 2011, the balance of our outstanding advances with the FHLB was $123,366. The total amount of the remaining credit available to us from the FHLB at March 31, 2011 was $853,007. We also maintain lines of credit with other commercial banks totaling $85,000. These are unsecured lines of credit maturing at various times within the next twelve months. There were no amounts outstanding under these lines of credit at March 31, 2011 or December 31, 2010.

The following table presents the percentage of total average deposits and borrowed funds, by type, and total cost of funds, as of March 31 for each of the three months presented:

 

     Percentage of Total     Cost of Funds  
     2011     2010     2011     2010  

Noninterest-bearing demand

     12.16     9.79     —       —  

Interest-bearing demand

     34.94        30.23        0.89        1.18   

Savings

     5.22        3.55        0.49        0.54   

Time deposits

     40.26        39.71        1.76        2.38   

Federal Home Loan Bank advances

     3.84        12.07        4.05        3.68   

Other borrowed funds

     3.58        4.65        3.18        4.07   
                                

Total deposits and borrowed funds

     100.00     100.00     1.31     1.95
                                

Our strategy in choosing funds is focused on attempting to mitigate interest rate risk, and thus we utilize funding sources that are commensurate with the interest rate risk associated with the assets. Accordingly, management targets growth of noninterest bearing deposits. While we do not control the types of deposit instruments our clients choose, we do influence those choices with the rates and the deposit specials we offer. For example, we could obtain time deposits based on our aggressiveness in pricing and length of term. We constantly monitor our funds position and evaluate the effect various funding sources have on our financial position.

Cash and cash equivalents were $326,025 at March 31, 2011 compared to $179,479 at March 31, 2010. Cash provided by investing activities for the three months ended March 31, 2011 was $109,671 compared to cash used in investing activities of $694 for the same period of 2010. The net cash proceeds received from the acquisition of American Trust were $148,443 for the three months ended March 31, 2011. Purchases of investment securities were $85,133 for the three months ending March 31, 2011 compared to $105,442 for the three months ending March 31, 2010. Proceeds from the sale, maturity or call of securities within our investment portfolio were $46,408 for the three months ending March 31, 2011 compared to proceeds from the maturity or call of securities of $77,131 for the three months ending March 31, 2010. Cash provided by a net decrease in loans for the three months ended March 31, 2011 was $1,219 compared to $27,988 for the same period in 2010.

Cash used in financing activities for the three months ended March 31, 2011 was $121,814 compared to $632 for the same period of 2010. Cash used to reduce total borrowings was $71,273 for the three months ended March 31, 2011. Cash flows from the generation of deposits of $137,748 during the three months ended March 31, 2010 were primarily used to reduce total borrowings by $134,788.

 

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Restrictions on Cash, Bank Dividends, Loans or Advances

The Company’s liquidity and capital resources, as well as its ability to pay dividends to our shareholders, are substantially dependent on the ability of Renasant Bank to transfer funds to the Company in the form of dividends, loans and advances. Under Mississippi law, a Mississippi bank may not pay dividends unless its earned surplus is in excess of three times capital stock. A Mississippi bank with earned surplus in excess of three times capital stock may pay a dividend, subject to the approval of the Mississippi Department of Banking and Consumer Finance. Accordingly, the approval of this supervisory authority is required prior to Renasant Bank paying dividends to the Company.

Federal Reserve regulations also limit the amount Renasant Bank may loan to the Company unless such loans are collateralized by specific obligations. At March 31, 2011, the maximum amount available for transfer from Renasant Bank to the Company in the form of loans was $38,178. There were no loans outstanding from Renasant Bank to the Company at March 31, 2011. These restrictions did not have any impact on the Company’s ability to meet its cash obligations in the first three months of 2011, nor does management expect such restrictions to materially impact the Company’s ability to meet its currently-anticipated cash obligations.

Off-Balance Sheet Transactions

The Company enters into loan commitments and standby letters of credit in the normal course of its business. Loan commitments are made to accommodate the financial needs of the Company’s customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies. Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management’s credit assessment of the customer.

Loan commitments and standby letters of credit do not necessarily represent future cash requirements of the Company in that while the borrower has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon. The Company’s unfunded loan commitments and standby letters of credit outstanding at March 31, 2011 and December 31, 2010 were as follows:

 

     March 31,
2011
     December 31,
2010
 

Loan commitments

   $ 345,863       $ 325,309   

Standby letters of credit

     27,074         28,105   

The Company closely monitors the amount of remaining future commitments to borrowers in light of prevailing economic conditions and adjusts these commitments as necessary. The Company will continue this process as new commitments are entered into or existing commitments are renewed.

Market risk resulting from interest rate changes on particular off-balance sheet financial instruments may be offset by other on- or off-balance sheet transactions. Interest rate sensitivity is monitored by the Company for determining the net effect of potential changes in interest rates on the market value of both on- and off-balance sheet financial instruments.

Contractual Obligations

There have not been any material changes outside of the ordinary course of business to any of the contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010.

Shareholders’ Equity and Regulatory Matters

Shareholders’ Equity

Total shareholders’ equity of the Company at March 31, 2011 increased to $473,354 compared to $469,509 at December 31, 2010. The change in shareholders’ equity was attributable to earnings retention offset by dividends declared and changes in accumulated other comprehensive income.

On July 8, 2009, the Company filed a shelf registration statement with the Securities and Exchange Commission (“SEC”). The shelf registration statement, which the SEC declared effective on July 13, 2009, allows the Company to raise capital from time to time, up to an aggregate of $150,000, through the sale of common stock, preferred stock, warrants and units, or a combination thereof, subject to market conditions. Specific terms and prices will be

 

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determined at the time of any offering under a separate prospectus supplement that the Company will be required to file with the SEC at the time of the specific offering. The proceeds of the sale of securities, if and when offered, will be used for general corporate purposes as described in any prospectus supplement and could include the expansion of the Company’s banking, insurance and wealth management operations as well as other business opportunities.

The following table sets forth the Company’s book value per share, tangible book value per share, capital ratio and tangible capital ratio for the periods presented:

 

     March 31,
2011
    December 31,
2010
 

Book value per share

   $ 18.89      $ 18.75   

Tangible book value per share

     11.25        11.09   

Capital ratio

     10.70     10.93

Tangible capital ratio

     6.66     6.76

Regulatory Matters

Renasant Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Renasant Bank to maintain minimum balances and ratios. All banks are required to have core capital (Tier I) of at least 4% of risk-weighted assets, Tier I leverage of 4% of average assets, and total capital of 8% of risk-weighted assets (as such ratios are defined in Federal regulations). To be categorized as well capitalized, banks must maintain minimum Tier I leverage, Tier I risk-based and total risk-based ratios of 5%, 6%, and 10%, respectively. At March 31, 2011, Renasant Bank met all capital adequacy requirements to which it is subject.

At March 31, 2011, the most recent notification from the FDIC categorized Renasant Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The following table includes the capital ratios and capital amounts for the Company and the Bank at March 31, 2011:

 

     Actual     Minimum Capital
Requirement to be

Well Capitalized
    Minimum Capital
Requirement to be
Adequately
Capitalized
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  

Tier I Capital to Average Assets

               

Renasant Corporation

   $ 371,135         8.77   $ 211,575         5.00   $ 169,260         4.00

Renasant Bank

     347,563         8.23     211,237         5.00     168,989         4.00

Tier I Capital to Risk-Weighted Assets

               

Renasant Corporation

   $ 371,135         13.59   $ 163,869         6.00   $ 109,246         4.00

Renasant Bank

     347,563         12.76     163,461         6.00     108,974         4.00

Total Capital to Risk-Weighted Assets

               

Renasant Corporation

   $ 405,355         14.84   $ 273,114         10.00   $ 218,491         8.00

Renasant Bank

     381,783         14.01     272,435         10.00     217,948         8.00

 

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk since December 31, 2010. For additional information regarding our market risk, see our Annual Report on Form 10-K for the year ended December 31, 2010.

 

Item 4. CONTROLS AND PROCEDURES

Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective for ensuring that information the Company is required to disclose in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes in the Company’s internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II. OTHER INFORMATION

 

Item 1A. RISK FACTORS

Information regarding risk factors appears in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Unregistered Sales of Equity Securities

None.

Issuer Purchases of Equity Securities

The Company did not repurchase any shares of its outstanding stock during the three month period ended March 31, 2011.

Please refer to the information discussing restrictions on the Company’s ability to pay dividends under the heading “Liquidity and Capital Resources” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this report, which is incorporated by reference herein.

 

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Item 6. EXHIBITS

 

Exhibit
Number

 

Description

(3)(i)   Articles of Incorporation of Renasant Corporation, as amended(1)
(3)(ii)   Bylaws of Renasant Corporation, as amended
(4)(i)   Articles of Incorporation of Renasant Corporation, as amended(1)
(4)(ii)   Bylaws of Renasant Corporation, as amended
(10)(i)   Renasant Corporation 2011 Long-Term Incentive Compensation Plan(2)
(31)(i)   Certification of the Chief Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31)(ii)   Certification of the Chief Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)(i)   Certification of the Chief Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(32)(ii)   Certification of the Chief Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

(1) 

Filed as exhibit 3.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 9, 2005 and incorporated herein by reference.

(2) 

Filed as Appendix A to the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on March 9, 2011 and incorporated herein by reference.

The Company does not have any long-term debt instruments under which securities are authorized exceeding ten percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company will furnish to the Securities and Exchange Commission, upon their request, a copy of all long-term debt instruments.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

May 10, 2011     RENASANT CORPORATION
      /s/    E. ROBINSON MCGRAW        
    E. Robinson McGraw
    Chairman, President &
    Chief Executive Officer
    (Principal Executive Officer)
      /s/    STUART R. JOHNSON        
    Executive Vice President and
    Chief Financial Officer
    (Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
Number

 

Description

(3)(ii)   Bylaws of Renasant Corporation, as amended
(4)(ii)   Bylaws of Renasant Corporation, as amended
(31)(i)   Certification of the Chief Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31)(ii)   Certification of the Chief Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(32)(i)   Certification of the Chief Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(32)(ii)   Certification of the Chief Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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