(EDGAR Online via COMTEX) -- 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") that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements preceded by, followed by or that otherwise include the words "believes," "expects," "projects," "anticipates," "intends," "estimates," "plans," "potential," "possible," "may increase," "may fluctuate," "will likely result," and similar expressions, or future or conditional verbs such as "will," "should," "would" and "could," are generally forward-looking in nature and not historical facts. Forward-looking statements include information about the Company's future financial performance, business strategy, projected plans and objectives and are based on the current beliefs and expectations of management. The Company's management believes these forward-looking statements are reasonable, but they are all inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond the Company's control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ from those indicated or implied in the forward-looking statements, and such differences may be material. Prospective investors are cautioned that any such forward-looking statements are not guarantees for future performance and involve risks and uncertainties and, accordingly, investors should not place undue reliance on these forward-looking statements, which speak only as of the date they are made. In the current environment, one of the most important factors that could cause the Company's actual results to differ materially from those in forward-looking statements is the continued impact of the COVID-19 pandemic and related governmental measures to respond to the pandemic on the United States economy and the economies of the markets in which the Company operates and its participation in government programs related to the pandemic. In this Form 10-Q, the Company addresses the historical impact of the pandemic on certain aspects of the Company's operations and sets forth certain expectations regarding the COVID-19 pandemic's future impact on the Company's business, financial condition, results of operations, liquidity, asset quality, capital, cash flows and prospects. The Company believes that its statements regarding future events and conditions in light of the COVID-19 pandemic are reasonable, but these statements are based on assumptions regarding, among other things, how long the pandemic will continue, the pace at which the COVID-19 vaccine can be distributed and administered to residents of the markets the Company serves and the United States generally, the duration, extent and effectiveness of the governmental measures implemented to contain the pandemic and ameliorate its impact on businesses and individuals throughout the United States, and the impact of the pandemic and the government's virus containment measures on national and local economies, all of which are out of the Company's control. If the Company's assumptions underlying its statements about future events prove to be incorrect, the Company's business, financial condition, results of operations, liquidity, asset quality, capital, cash flows and prospects may be materially different from what is presented in the Company's forward-looking statements. Important factors other than the COVID-19 pandemic currently known to management that could cause actual results to differ materially from those in forward-looking statements include the following: (1) the Company's ability to efficiently integrate acquisitions into its operations, retain the customers of these businesses, grow the acquired operations and realize the cost savings expected from an acquisition to the extent and in the timeframe anticipated by management; (2) the effect of economic conditions and interest rates on a national, regional or international basis; (3) timing and success 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 from, competitors; (6) changes in laws and regulations as well as 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 credit losses as a result of inaccurate assumptions; (12) general economic, market or business conditions, including the impact of inflation; (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 relationships; (16) increased cybersecurity risk, including potential network breaches, business disruptions or financial losses; (17) natural disasters, epidemics and other catastrophic events in the Company's geographic area; (18) the impact, extent and timing of technological changes; and (19) other circumstances, many of which are beyond management's control. The COVID-19 pandemic has exacerbated, and is likely to continue to exacerbate, the impact of any of these factors on the Company. Management believes that the assumptions underlying the Company's forward-looking statements are reasonable, but any of the assumptions could prove to be inaccurate. Table of Contents The Company undertakes no obligation, and specifically disclaims any obligation, to update or revise forward-looking statements, whether as a result of new information or to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by federal securities laws.
March 31, 2021 December 31, 2020 Percentage of Percentage of Balance Portfolio Balance Portfolio U.S. Treasury securities $ 3,050 0.20 % $ 7,079 0.53 % Obligations of other U.S. Government agencies and corporations 1,004 0.07 1,009 0.08 Obligations of states and political subdivisions 328,818 21.41 305,201 22.72 Mortgage-backed securities 1,139,970 74.21 955,549 71.12 Trust preferred securities - - 9,012 0.67 Other debt securities 63,199 4.11 65,607 4.88 $ 1,536,041 100.00 % $ 1,343,457 100.00 %
During the three months ended March 31, 2021, we purchased $465,245 in investment securities. Mortgage-backed securities and collateralized mortgage obligations ("CMOs"), in the aggregate, comprised approximately 93% of these purchases. CMOs are included in the "Mortgage-backed securities" line item in the above table. The mortgage-backed securities and CMOs held in our investment portfolio are primarily issued by government sponsored entities. Obligations of state and political subdivisions comprised approximately 7% of purchases made during the first three months of 2021.
March 31, 2021 Total Percentage of Non Purchased Purchased Loans Total Loans Commercial, financial, agricultural (1) $ 2,105,444 $ 143,843 $ 2,249,287 21.04 % Lease financing, net of unearned income 75,256 - 75,256 0.70 Real estate - construction: Residential 252,795 2,561 255,356 2.39 Commercial 680,791 19,771 700,562 6.55 Total real estate - construction 933,586 22,332 955,918 8.94 Real estate - 1-4 family mortgage: Primary 1,576,212 190,539 1,766,751 16.53 Home equity 432,207 72,413 504,620 4.72 Rental/investment 256,979 28,800 285,779 2.67 Land development 115,522 13,389 128,911 1.21 Total real estate - 1-4 family mortgage 2,380,920 305,141 2,686,061 25.13 Real estate - commercial mortgage: Owner-occupied 1,344,154 300,616 1,644,770 15.39 Non-owner occupied 2,221,206 546,663 2,767,869 25.90 Land development 110,800 25,588 136,388 1.28 Total real estate - commercial mortgage 3,676,160 872,867 4,549,027 42.57 Installment loans to individuals 121,136 51,723 172,859 1.62 Total loans, net of unearned income $ 9,292,502 $ 1,395,906 $ 10,688,408 100.00 %
(1)Includes Paycheck Protection Program ("PPP") loans of $860,864 as of March 31, 2021. Table of Contents
December 31, 2020 Total Percentage of Non Purchased Purchased Loans Total Loans Commercial, financial, agricultural (1) $ 2,360,471 $ 176,513 $ 2,536,984 23.20 % Lease financing, net of unearned income 75,862 - 75,862 0.69 Real estate - construction: Residential 243,814 2,859 246,673 2.26 Commercial 583,338 28,093 611,431 5.59 Total real estate - construction 827,152 30,952 858,104 7.85 Real estate - 1-4 family mortgage: Primary 1,536,181 214,770 1,750,951 16.02 Home equity 432,768 80,392 513,160 4.69 Rental/investment 264,436 31,928 296,364 2.71 Land development 123,179 14,654 137,833 1.26 Total real estate - 1-4 family mortgage 2,356,564 341,744 2,698,308 24.68 Real estate - commercial mortgage: Owner-occupied 1,334,765 323,041 1,657,806 15.16 Non-owner occupied 2,194,739 552,728 2,747,467 25.13 Land development 120,125 29,454 149,579 1.37 Total real estate - commercial mortgage 3,649,629 905,223 4,554,852 41.66 Installment loans to individuals 149,862 59,675 209,537 1.92 Total loans, net of unearned income $ 9,419,540 $ 1,514,107 $ 10,933,647 100.00 %
(1)Includes PPP loans of $1,128,703 as of December 31, 2020. Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At March 31, 2021, 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. Deposits
Borrowed Funds Total borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the FHLB, subordinated notes and junior subordinated debentures and are classified on the Consolidated Balance Sheets as either short-term borrowings or long-term debt. Short-term borrowings have original maturities less than one year and typically include federal funds purchased, securities sold under agreements to repurchase, and short-term FHLB advances. The following table presents our short-term borrowings by type as of the dates presented: March 31, 2021 December 31, 2020 Balance Balance Security repurchase agreements $ 12,154 $ 10,947 Federal funds purchased - 10,393 $ 12,154 $ 21,340
At March 31, 2021, long-term debt consists of long-term FHLB advances, our junior subordinated debentures and our subordinated notes. The following table presents our long-term debt by type as of the dates presented:
March 31, 2021 December 31, 2020 Balance Balance Long-term FHLB advances $ 152,124 $ 152,167 Junior subordinated debentures 110,939 110,794 Subordinated notes 204,597 212,009 $ 467,660 $ 474,970
Long-term funds obtained from the FHLB are used to match-fund fixed rate loans in order to minimize interest rate risk and also are used to meet day-to-day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. At March 31, 2021, there were $89 in outstanding long-term FHLB advances scheduled to mature within twelve months or less. The Company had $3,681,061 of availability on unused lines of credit with the FHLB at March 31, 2021, as compared to $3,784,520 at December 31, 2020.
Results of Operations
Three Months Ended March 31, 2021 March 31, 2020 Impact to Impact to Pre-tax After-tax Diluted EPS Pre-tax After-tax Diluted EPS MSR valuation adjustment $ (13,561) $ (10,497) $ (0.19) $ 9,571 $ 6,911 $ 0.12 Restructuring charges 292 226 0.01 - - - COVID-19 related expenses 785 608 0.01 2,903 2,096 0.04
Net Interest Income
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May 07, 2021
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