10-Q 1 rnst10q3312015.htm 10-Q RNST 10Q 3.31.2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________________________
FORM 10-Q
 ________________________________________________________
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2015
Or
 
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission file number 001-13253
 ________________________________________________________
RENASANT CORPORATION
(Exact name of registrant as specified in its charter)
 ________________________________________________________
Mississippi
 
64-0676974
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
209 Troy Street, Tupelo, Mississippi
 
38804-4827
(Address of principal executive offices)
 
(Zip Code)
(662) 680-1001
(Registrant’s telephone number, including area code)
 ________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o
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  ý    No  o
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
ý
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  ý
As of April 30, 2015, 31,625,581 shares of the registrant’s common stock, $5.00 par value per share, were outstanding. The registrant has no other classes of securities outstanding.


Renasant Corporation and Subsidiaries
Form 10-Q
For the Quarterly Period Ended March 31, 2015
CONTENTS
 


PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Renasant Corporation and Subsidiaries
Consolidated Balance Sheets

(In Thousands, Except Share Data)
 
(Unaudited)
 
 
 
March 31,
2015
 
December 31, 2014
Assets
 
 
 
Cash and due from banks
$
78,716

 
$
95,793

Interest-bearing balances with banks
95,663

 
65,790

Cash and cash equivalents
174,379

 
161,583

Securities held to maturity (fair value of $486,624 and $442,488, respectively)
470,597

 
430,163

Securities available for sale, at fair value
545,797

 
553,584

Mortgage loans held for sale, at fair value
102,780

 
25,628

Loans, net of unearned income:
 
 
 
Acquired and covered by FDIC loss-share agreements ("covered loans")
125,773

 
143,041

Acquired and not covered by FDIC loss-share agreements ("acquired non-covered loans")
553,574

 
577,347

Not acquired
3,274,314

 
3,267,486

Total loans, net of unearned income
3,953,661

 
3,987,874

Allowance for loan losses
(42,302
)
 
(42,289
)
Loans, net
3,911,359

 
3,945,585

Premises and equipment, net
117,769

 
113,735

Other real estate owned:
 
 
 
Covered under FDIC loss-share agreements
4,325

 
6,368

Not covered under FDIC loss-share agreements
27,361

 
28,104

Total other real estate owned, net
31,686

 
34,472

Goodwill
274,705

 
274,706

Other intangible assets, net
21,348

 
22,624

FDIC loss-share indemnification asset
8,934

 
12,516

Other assets
222,495

 
230,533

Total assets
$
5,881,849

 
$
5,805,129

Liabilities and shareholders’ equity
 
 
 
Liabilities
 
 
 
Deposits
 
 
 
Noninterest-bearing
$
959,351

 
$
919,872

Interest-bearing
3,983,418

 
3,918,546

Total deposits
4,942,769

 
4,838,418

Short-term borrowings
6,732

 
32,403

Long-term debt
155,581

 
156,422

Other liabilities
53,571

 
66,235

Total liabilities
5,158,653

 
5,093,478

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, 32,656,166 shares issued; 31,604,937 and 31,545,145 shares outstanding, respectively
163,281

 
163,281

Treasury stock, at cost
(21,312
)
 
(22,128
)
Additional paid-in capital
344,119

 
345,213

Retained earnings
242,726

 
232,883

Accumulated other comprehensive loss, net of taxes
(5,618
)
 
(7,598
)
Total shareholders’ equity
723,196

 
711,651

Total liabilities and shareholders’ equity
$
5,881,849

 
$
5,805,129

See Notes to Consolidated Financial Statements.

1

Renasant Corporation and Subsidiaries
Consolidated Statements of Income (Unaudited)
(In Thousands, Except Share Data)

 
Three Months Ended
 
March 31,
 
2015
 
2014
Interest income
 
 
 
Loans
$
47,437

 
$
49,546

Securities
 
 
 
Taxable
4,415

 
4,243

Tax-exempt
2,254

 
2,189

Other
60

 
199

Total interest income
54,166

 
56,177

Interest expense
 
 
 
Deposits
3,438

 
4,373

Borrowings
1,886

 
1,833

Total interest expense
5,324

 
6,206

Net interest income
48,842

 
49,971

Provision for loan losses
1,075

 
1,450

Net interest income after provision for loan losses
47,767

 
48,521

Noninterest income
 
 
 
Service charges on deposit accounts
5,933

 
5,916

Fees and commissions
4,894

 
4,972

Insurance commissions
1,967

 
1,863

Wealth management revenue
2,190

 
2,144

BOLI income
848

 
731

Gains on sales of mortgage loans held for sale
4,633

 
1,585

Other
1,439

 
1,405

Total noninterest income
21,904

 
18,616

Noninterest expense
 
 
 
Salaries and employee benefits
28,260

 
28,428

Data processing
3,181

 
2,695

Net occupancy and equipment
5,559

 
4,847

Other real estate owned
532

 
1,701

Professional fees
824

 
1,200

Advertising and public relations
1,303

 
1,528

Intangible amortization
1,275

 
1,471

Communications
1,433

 
1,682

Merger-related expenses
478

 
195

Other
4,569

 
3,898

Total noninterest expense
47,414

 
47,645

Income before income taxes
22,257

 
19,492

Income taxes
7,017

 
5,895

Net income
$
15,240

 
$
13,597

Basic earnings per share
$
0.48

 
$
0.43

Diluted earnings per share
$
0.48

 
$
0.43

Cash dividends per common share
$
0.17

 
$
0.17


See Notes to Consolidated Financial Statements.

2

Renasant Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income (Unaudited)
(In Thousands, Except Share Data)
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Net income
$
15,240

 
$
13,597

Other comprehensive income, net of tax:
 
 
 
Securities:
 
 
 
Net change in unrealized holding gains on securities
2,624

 
2,784

Amortization of unrealized holding losses on securities transferred to the held to maturity category
(32
)
 
(44
)
Total securities
2,592

 
2,740

Derivative instruments:
 
 
 
Net change in unrealized holding losses on derivative instruments
(669
)
 
(419
)
Totals derivative instruments
(669
)
 
(419
)
Defined benefit pension and post-retirement benefit plans:
 
 
 
Amortization of net actuarial loss recognized in net periodic pension cost
57

 
45

Total defined benefit pension and post-retirement benefit plans
57

 
45

Other comprehensive income, net of tax
1,980

 
2,366

Comprehensive income
$
17,220

 
$
15,963


See Notes to Consolidated Financial Statements.

3

Renasant Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In Thousands)
 
Three Months Ended March 31,
 
2015
 
2014
Operating activities
 
 
 
Net income
$
15,240

 
$
13,597

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
1,075

 
1,450

Depreciation, amortization and accretion
3,772

 
2,542

Deferred income tax expense
6,408

 
5,284

Funding of mortgage loans held for sale
(185,595
)
 
(104,353
)
Proceeds from sales of mortgage loans held for sale
113,076

 
110,773

Gains on sales of mortgage loans held for sale
(4,633
)
 
(1,585
)
Losses (gains) on sales of premises and equipment
4

 
(12
)
Stock-based compensation
864

 
871

Decrease in FDIC loss-share indemnification asset, net of accretion
2,213

 
1,601

Decrease in other assets
7,664

 
5,885

Decrease in other liabilities
(14,432
)
 
(15,793
)
Net cash (used in) provided by operating activities
$
(54,344
)
 
$
20,260

Investing activities
 
 
 
Purchases of securities available for sale
(13,651
)
 
(76,282
)
Proceeds from call/maturities of securities available for sale
24,814

 
17,069

Purchases of securities held to maturity
(54,824
)
 
(128,684
)
Proceeds from call/maturities of securities held to maturity
13,922

 
57,890

Net increase in loans
30,542

 
12,038

Purchases of premises and equipment
(5,924
)
 
(2,293
)
Net cash used in investing activities
(5,121
)
 
(120,262
)
Financing activities
 
 
 
Net increase in noninterest-bearing deposits
39,479

 
58,944

Net increase in interest-bearing deposits
64,872

 
103,928

Net decrease in short-term borrowings
(25,671
)
 
(2,283
)
Repayment of long-term debt
(978
)
 
(989
)
Cash paid for dividends
(5,398
)
 
(5,372
)
Cash received on exercise of stock-based compensation
28

 
—

Excess tax (expense) benefit from stock-based compensation
(71
)
 
741

Net cash provided by financing activities
72,261

 
154,969

Net increase in cash and cash equivalents
12,796

 
54,967

Cash and cash equivalents at beginning of period
161,583

 
246,648

Cash and cash equivalents at end of period
$
174,379

 
$
301,615

Supplemental disclosures
 
 
 
Cash paid for interest
$
5,663

 
$
6,543

Cash paid for income taxes
$
1,368

 
$
4,993

Noncash transactions:
 
 
 
Transfers of loans to other real estate owned
$
5,559

 
$
2,497

Financed sales of other real estate owned
$
480

 
$
153

See Notes to Consolidated Financial Statements.

4

Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

Note A – Summary of Significant Accounting Policies
Nature of Operations: Renasant Corporation (referred to herein as the “Company”) owns and operates Renasant Bank (“Renasant Bank” or the “Bank”) and Renasant Insurance, Inc. The Company offers a diversified range of financial, fiduciary and insurance services to its retail and commercial customers through its subsidiaries and full service offices located throughout north and north central Mississippi, Tennessee, north and central Alabama and north Georgia.
Basis of Presentation: The accompanying unaudited consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information regarding the Company’s significant accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Securities and Exchange Commission on March 2, 2015.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Subsequent Events: The Company has evaluated, for consideration of recognition or disclosure, subsequent events that have occurred through the date of issuance of its financial statements, and has determined that no significant events occurred after March 31, 2015 but prior to the issuance of these financial statements that would have a material impact on its Consolidated Financial Statements.

Note B – Securities
(In Thousands, Except Number of Securities)
The amortized cost and fair value of securities held to maturity were as follows as of the dates presented:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
March 31, 2015
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
$
165,589

 
$
47

 
$
(957
)
 
$
164,679

Obligations of states and political subdivisions
305,008

 
17,062

 
(125
)
 
321,945

 
$
470,597

 
$
17,109

 
$
(1,082
)
 
$
486,624

December 31, 2014
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
$
125,081

 
$
10

 
$
(2,915
)
 
$
122,176

Obligations of states and political subdivisions
305,082

 
15,428

 
(198
)
 
320,312

 
$
430,163

 
$
15,438

 
$
(3,113
)
 
$
442,488





5
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The amortized cost and fair value of securities available for sale were as follows as of the dates presented:
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
March 31, 2015
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
$
6,113

 
$
170

 
$
(52
)
 
$
6,231

Residential mortgage backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
292,587

 
5,981

 
(486
)
 
298,082

Government agency collateralized mortgage obligations
151,075

 
2,131

 
(1,398
)
 
151,808

Commercial mortgage backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
42,019

 
1,583

 
(32
)
 
43,570

Government agency collateralized mortgage obligations
4,553

 
273

 
—

 
4,826

Trust preferred securities
26,057

 
79

 
(6,010
)
 
20,126

Other debt securities
16,999

 
537

 
(42
)
 
17,494

Other equity securities
2,331

 
1,329

 
—

 
3,660

 
$
541,734

 
$
12,083

 
$
(8,020
)
 
$
545,797

 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
December 31, 2014
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
$
6,119

 
$
147

 
$
(119
)
 
$
6,147

Residential mortgage backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
292,283

 
4,908

 
(832
)
 
296,359

Government agency collateralized mortgage obligations
158,436

 
1,523

 
(2,523
)
 
157,436

Commercial mortgage backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
45,714

 
1,608

 
(137
)
 
47,185

Government agency collateralized mortgage obligations
4,970

 
202

 
—

 
5,172

Trust preferred securities
26,400

 
137

 
(6,781
)
 
19,756

Other debt securities
17,517

 
487

 
(74
)
 
17,930

Other equity securities
2,331

 
1,268

 
—

 
3,599

 
$
553,770

 
$
10,280

 
$
(10,466
)
 
$
553,584


There were no held to maturity or available for sale securities sold during the three months ended March 31, 2015 or 2014.
 
 
 
 
 
At March 31, 2015 and December 31, 2014, securities with a carrying value of $694,737 and $617,189, respectively, were pledged to secure government, public and trust deposits. Securities with a carrying value of $18,840 and $16,410 were pledged as collateral for short-term borrowings and derivative instruments at March 31, 2015 and December 31, 2014, respectively.
The amortized cost and fair value of securities at March 31, 2015 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.
 

6
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Held to Maturity
 
Available for Sale
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due within one year
$
51,995

 
$
52,081

 
$
—

 
$
—

Due after one year through five years
78,507

 
80,593

 
1,059

 
1,127

Due after five years through ten years
213,069

 
218,280

 
5,054

 
5,104

Due after ten years
127,026

 
135,670

 
26,057

 
20,126

Residential mortgage backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
—

 
—

 
292,587

 
298,082

Government agency collateralized mortgage obligations
—

 
—

 
151,075

 
151,808

Commercial mortgage backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
—

 
—

 
42,019

 
43,570

Government agency collateralized mortgage obligations
—

 
—

 
4,553

 
4,826

Other debt securities
—

 
—

 
16,999

 
17,494

Other equity securities
—

 
—

 
2,331

 
3,660

 
$
470,597

 
$
486,624

 
$
541,734

 
$
545,797


7
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)



The following table presents the age of gross unrealized losses and fair value by investment category as of the dates presented:
 
 
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, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
5
 
$
11,478

 
$
(24
)
 
21
 
$
96,177

 
$
(933
)
 
26
 
$
107,655

 
$
(957
)
Obligations of states and political subdivisions
8
 
6,117

 
(38
)
 
7
 
4,091

 
(87
)
 
15
 
10,208

 
(125
)
Total
13
 
$
17,595

 
$
(62
)
 
28
 
$
100,268

 
$
(1,020
)
 
41
 
117,863

 
$
(1,082
)
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
2
 
$
1,000

 
$
(1
)
 
26
 
$
119,174

 
$
(2,914
)
 
28
 
$
120,174

 
$
(2,915
)
Obligations of states and political subdivisions
3
 
3,353

 
(29
)
 
16
 
10,052

 
(169
)
 
19
 
13,405

 
(198
)
Total
5
 
$
4,353

 
$
(30
)
 
42
 
$
129,226

 
$
(3,083
)
 
47
 
$
133,579

 
$
(3,113
)
Available for Sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
0
 
$
—

 
$
—

 
1
 
$
3,948

 
$
(52
)
 
1
 
$
3,948

 
$
(52
)
Residential mortgage backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government agency mortgage backed securities
3
 
7,688

 
(15
)
 
9
 
31,928

 
(471
)
 
12
 
39,616

 
(486
)
Government agency collateralized mortgage obligations
1
 
2,194

 
(2
)
 
16
 
60,066

 
(1,396
)
 
17
 
62,260

 
(1,398
)
Commercial mortgage backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government agency mortgage backed securities
0
 
—

 
—

 
2
 
5,863

 
(32
)
 
2
 
5,863

 
(32
)
Government agency collateralized mortgage obligations
0
 
—

 
—

 
0
 
—

 
—

 
0
 
—

 
—

Trust preferred securities
0
 
—

 
—

 
3
 
18,930

 
(6,010
)
 
3
 
18,930

 
(6,010
)
Other debt securities
0
 
—

 
—

 
2
 
4,186

 
(42
)
 
2
 
4,186

 
(42
)
Total
4
 
$
9,882

 
$
(17
)
 
33
 
$
124,921

 
$
(8,003
)
 
37
 
$
134,803

 
$
(8,020
)
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
0
 
$
—

 
$
—

 
1
 
$
3,881

 
$
(119
)
 
1
 
$
3,881

 
$
(119
)
Residential mortgage backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government agency mortgage backed securities
3
 
18,924

 
(39
)
 
13
 
49,612

 
(793
)
 
16
 
68,536

 
(832
)
Government agency collateralized mortgage obligations
6
 
32,169

 
(138
)
 
18
 
65,552

 
(2,385
)
 
24
 
97,721

 
(2,523
)
Commercial mortgage backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Government agency mortgage backed securities
0
 
—

 
—

 
3
 
10,651

 
(137
)
 
3
 
10,651

 
(137
)
Government agency collateralized mortgage obligations
0
 
—

 
—

 
0
 
—

 
—

 
0
 
—

 
—

Trust preferred securities
0
 
—

 
—

 
3
 
18,503

 
(6,781
)
 
3
 
18,503

 
(6,781
)
Other debt securities
0
 
—

 
—

 
2
 
4,175

 
(74
)
 
2
 
4,175

 
(74
)
Other equity securities
0
 
—

 
—

 
0
 
—

 
—

 
0
 
—

 
—

Total
9
 
$
51,093

 
$
(177
)
 
40
 
$
152,374

 
$
(10,289
)
 
49
 
$
203,467

 
$
(10,466
)
 


8
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)




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. Impairment is considered to be other-than-temporary if the Company intends to sell the investment security or if the Company does not expect to recover the entire amortized cost basis of the security before the Company is required to sell the security or before the security’s maturity.

The Company does not intend to sell any of the securities in an unrealized loss position, and it is not more likely than not that the Company will be required to sell any such security prior to the recovery of its amortized cost basis, which may be at maturity. Furthermore, even though a number of these securities have been in a continuous unrealized loss position for a period greater than twelve months, the Company has experienced an overall improvement in the fair value of its investment portfolio on account of the decrease in interest rates from the prior year and is collecting principal and interest payments from the respective issuers as scheduled. As such, the Company did not record any OTTI for the three month period ending March 31, 2015 or 2014.
The Company holds investments in pooled trust preferred securities that had an amortized cost basis of $26,057 and $26,400 and a fair value of $20,126 and $19,756, at March 31, 2015 and December 31, 2014, respectively. The investments in pooled trust preferred securities consist of four securities representing interests in various tranches of trusts collateralized by debt issued by over 310 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, which are performed by third parties, of each security obtained by the Company. 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 at maturity. At March 31, 2015, management did not, and does not currently, believe such securities will be settled at a price less than the amortized cost of the investment, but the Company previously concluded that it was probable that there had been an adverse change in estimated cash flows for all four trust preferred securities and recognized credit related impairment losses on these securities in 2010 and 2011. No additional impairment was recognized during the three months ended March 31, 2015.
The Company's analysis of the pooled trust preferred securities during the second quarter of 2014 supported a return to accrual status for two of the four securities (XIII and XXIII). An observed history of principal and interest payments combined with improved qualitative and quantitative factors described above justified the accrual of interest on these securities. However, one of the remaining securities (XXIV) is still in "payment in kind" status where interest payments are not expected until a future date, and, although the Company has received principal payments from the fourth security (XXVI), the Company's analysis of the qualitative and quantitative factors described above does not justify a return to accrual status at this time. As a result, pooled trust preferred securities XXIV and XXVI remain classified as nonaccruing assets at March 31, 2015, and investment interest is recorded on the cash-basis method until qualifying for return to accrual status.
The following table provides information regarding the Company’s investments in pooled trust preferred securities at March 31, 2015:
 
Name
Single/
Pooled
 
Class/
Tranche
 
Amortized
Cost
 
Fair
Value
 
Unrealized
Loss
 
Lowest
Credit
Rating
 
Issuers
Currently in
Deferral or
Default
XIII
Pooled
 
B-2
 
$
1,117

 
$
1,196

 
$
79

 
B3
 
27
%
XXIII
Pooled
 
B-2
 
8,630

 
6,093

 
(2,537
)
 
Baa3
 
18
%
XXIV
Pooled
 
B-2
 
12,076

 
9,447

 
(2,629
)
 
Ca
 
28
%
XXVI
Pooled
 
B-2
 
4,234

 
3,390

 
(844
)
 
B3
 
24
%
 
 
 
 
 
$
26,057

 
$
20,126

 
$
(5,931
)
 
 
 
 

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:
 

9
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
2015
 
2014
Balance at January 1
$
(3,337
)
 
$
(3,337
)
Additions related to credit losses for which OTTI was not previously recognized
—

 
—

Increases in credit loss for which OTTI was previously recognized
—

 
—

Balance at March 31
$
(3,337
)
 
$
(3,337
)


Note C – Loans and the Allowance for Loan Losses
(In Thousands, Except Number of Loans)
The following is a summary of loans as of the dates presented:
 
 
March 31,
2015
 
December 31, 2014
Commercial, financial, agricultural
$
474,788

 
$
483,283

Lease financing
11,863

 
10,427

Real estate – construction
201,449

 
212,061

Real estate – 1-4 family mortgage
1,239,455

 
1,236,360

Real estate – commercial mortgage
1,938,994

 
1,956,914

Installment loans to individuals
87,415

 
89,142

Gross loans
3,953,964

 
3,988,187

Unearned income
(303
)
 
(313
)
Loans, net of unearned income
3,953,661

 
3,987,874

Allowance for loan losses
(42,302
)
 
(42,289
)
Net loans
$
3,911,359

 
$
3,945,585


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

10
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The following table provides an aging of past due and nonaccrual loans, segregated by class, as of the dates presented:
 
 
Accruing Loans
 
Nonaccruing Loans
 
 
 
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Current
Loans
 
Total
Loans
 
30-89 Days
Past Due
 
90 Days
or More
Past Due
 
Current
Loans
 
Total
Loans
 
Total
Loans
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
684

 
$
1,506

 
$
471,674

 
$
473,864

 
$
34

 
$
545

 
$
345

 
$
924

 
$
474,788

Lease financing
—

 
—

 
11,441

 
11,441

 
—

 
422

 
—

 
422

 
11,863

Real estate – construction
71

 
37

 
201,070

 
201,178

 
—

 
271

 
—

 
271

 
201,449

Real estate – 1-4 family mortgage
7,806

 
1,852

 
1,216,794

 
1,226,452

 
309

 
5,244

 
7,450

 
13,003

 
1,239,455

Real estate – commercial mortgage
9,655

 
7,417

 
1,899,224

 
1,916,296

 
1,063

 
12,714

 
8,921

 
22,698

 
1,938,994

Installment loans to individuals
366

 
17

 
86,964

 
87,347

 
—

 
59

 
9

 
68

 
87,415

Unearned income
—

 
—

 
(303
)
 
(303
)
 
—

 
—

 
—

 
—

 
(303
)
Total
$
18,582

 
$
10,829

 
$
3,886,864

 
$
3,916,275

 
$
1,406

 
$
19,255

 
$
16,725

 
$
37,386

 
$
3,953,661

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
1,113

 
$
636

 
$
480,332

 
$
482,081

 
$
16

 
$
820

 
$
366

 
$
1,202

 
$
483,283

Lease financing
462

 
—

 
9,965

 
10,427

 
—

 
—

 
—

 
—

 
10,427

Real estate – construction
—

 
37

 
211,860

 
211,897

 
—

 
164

 
—

 
164

 
212,061

Real estate – 1-4 family mortgage
8,398

 
2,382

 
1,212,214

 
1,222,994

 
355

 
4,604

 
8,407

 
13,366

 
1,236,360

Real estate – commercial mortgage
6,924

 
7,637

 
1,912,758

 
1,927,319

 
1,826

 
16,928

 
10,841

 
29,595

 
1,956,914

Installment loans to individuals
269

 
21

 
88,782

 
89,072

 
—

 
59

 
11

 
70

 
89,142

Unearned income
—

 
—

 
(313
)
 
(313
)
 
—

 
—

 
—

 
—

 
(313
)
Total
$
17,166

 
$
10,713

 
$
3,915,598

 
$
3,943,477

 
$
2,197

 
$
22,575

 
$
19,625

 
$
44,397

 
$
3,987,874


Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans. There were no restructured loans contractually 90 days past due or more and still accruing at March 31, 2015 or December 31, 2014. The outstanding balance of restructured loans on nonaccrual status was $9,484 and $11,392 at March 31, 2015 and December 31, 2014, respectively.
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, consumer 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.

11
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Impaired loans recognized in conformity with Financial Accounting Standards Board Accounting Standards Codification Topic ("ASC") 310, “Receivables” (“ASC 310”), segregated by class, were as follows as of the dates presented:
 
 
Unpaid
Contractual
Principal
Balance
 
Recorded
Investment
With
Allowance
 
Recorded
Investment
With No
Allowance
 
Total
Recorded
Investment
 
Related
Allowance
March 31, 2015
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
5,722

 
$
944

 
$
1,936

 
$
2,880

 
$
1,095

Real estate – construction
104

 
104

 
—

 
104

 
5

Real estate – 1-4 family mortgage
21,043

 
13,783

 
3,115

 
16,898

 
4,841

Real estate – commercial mortgage
78,688

 
25,267

 
24,583

 
49,850

 
4,459

Installment loans to individuals
—

 
—

 
—

 
—

 
—

Total
$
105,557

 
$
40,098

 
$
29,634

 
$
69,732

 
$
10,400

December 31, 2014
 
 
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
4,871

 
$
984

 
$
1,375

 
$
2,359

 
$
171

Real estate – construction
164

 
164

 
—

 
164

 
—

Real estate – 1-4 family mortgage
31,906

 
18,401

 
7,295

 
25,696

 
4,824

Real estate – commercial mortgage
90,196

 
29,079

 
28,784

 
57,863

 
5,767

Installment loans to individuals
397

 
21

 
51

 
72

 
—

Totals
$
127,534

 
$
48,649

 
$
37,505

 
$
86,154

 
$
10,762


The following table presents the average recorded investment and interest income recognized on impaired loans for the periods presented:
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Three Months Ended
 
March 31, 2015
 
March 31, 2014
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
Average
Recorded
Investment
 
Interest
Income
Recognized
Commercial, financial, agricultural
$
4,416

 
$
8

 
$
7,745

 
$
5

Real estate – construction
104

 
—

 
2,037

 
2

Real estate – 1-4 family mortgage
17,636

 
72

 
27,754

 
34

Real estate – commercial mortgage
55,420

 
274

 
91,277

 
64

Installment loans to individuals
—

 
—

 
—

 
—

Total
$
77,576

 
$
354

 
$
128,813

 
$
105

Restructured Loans
Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition and which are performing in accordance with the new terms. Such concessions may include reduction in interest rates or deferral of interest or principal payments. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest.
The following table presents restructured loans segregated by class as of the dates presented:
 

12
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Number of
Loans
 
Pre-
Modification
Outstanding
Recorded
Investment
 
Post-
Modification
Outstanding
Recorded
Investment
March 31, 2015
 
 
 
 
 
Commercial, financial, agricultural
2

 
$
507

 
$
489

Real estate – construction
—

 
—

 
—

Real estate – 1-4 family mortgage
51

 
6,177

 
5,402

Real estate – commercial mortgage
23

 
17,067

 
15,442

Installment loans to individuals
—

 
—

 
—

Total
76

 
$
23,751

 
$
21,333

December 31, 2014
 
 
 
 
 
Commercial, financial, agricultural
2

 
$
507

 
$
507

Real estate – construction
—

 
—

 
—

Real estate – 1-4 family mortgage
35

 
5,212

 
4,567

Real estate – commercial mortgage
16

 
10,590

 
9,263

Installment loans to individuals
—

 
—

 
—

Total
53

 
$
16,309

 
$
14,337


Changes in the Company’s restructured loans are set forth in the table below:
 
 
Number of
Loans
 
Recorded
Investment
Totals at January 1, 2015
53

 
$
14,337

Additional loans with concessions
25

 
7,508

Reductions due to:
 
 
 
Reclassified as nonperforming
—

 
—

Paid in full
(2
)
 
(411
)
Charge-offs
—

 
—

Transfer to other real estate owned
—

 
—

Principal paydowns
—

 
(101
)
Lapse of concession period
—

 
—

Totals at March 31, 2015
76

 
$
21,333


The allocated allowance for loan losses attributable to restructured loans was $1,332 and $1,547 at March 31, 2015 and December 31, 2014, respectively. The Company had no remaining availability under commitments to lend additional funds on these restructured loans at March 31, 2015 or December 31, 2014.
Credit Quality
For loans originated for commercial purposes, 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 these 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 applied to the loan balances. The “Watch” grade (those with a risk rating of 5) is utilized on a temporary basis for “Pass” grade loans where a significant adverse 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 the related loan balances. The following table presents the Company’s loan portfolio by risk-rating grades as of the dates presented:
 

13
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Pass
 
Watch
 
Substandard
 
Total
March 31, 2015
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
333,160

 
$
6,731

 
$
2,259

 
$
342,150

Real estate – construction
142,470

 
556

 
—

 
143,026

Real estate – 1-4 family mortgage
124,635

 
3,497

 
12,981

 
141,113

Real estate – commercial mortgage
1,396,707

 
21,748

 
28,995

 
1,447,450

Installment loans to individuals
624

 
—

 
—

 
624

Total
$
1,997,596

 
$
32,532

 
$
44,235

 
$
2,074,363

December 31, 2014
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
337,998

 
$
5,255

 
$
1,451

 
$
344,704

Real estate – construction
150,683

 
855

 
—

 
151,538

Real estate – 1-4 family mortgage
122,608

 
6,079

 
11,479

 
140,166

Real estate – commercial mortgage
1,389,787

 
31,109

 
33,554

 
1,454,450

Installment loans to individuals
1,402

 
—

 
—

 
1,402

Total
$
2,002,478

 
$
43,298

 
$
46,484

 
$
2,092,260


For portfolio balances of consumer, consumer mortgage and certain other loans originated for other than commercial purposes, allowance factors are determined based on historical loss ratios by portfolio for the preceding eight quarters and may be adjusted by other qualitative criteria. The following table presents the performing status of the Company’s loan portfolio not subject to risk rating as of the dates presented:
 
 
Performing
 
Non-
Performing
 
Total
March 31, 2015
 
 
 
 
 
Commercial, financial, agricultural
$
111,612

 
$
369

 
$
111,981

Lease financing
11,560

 
—

 
11,560

Real estate – construction
58,220

 
203

 
58,423

Real estate – 1-4 family mortgage
1,016,755

 
1,295

 
1,018,050

Real estate – commercial mortgage
273,285

 
1,408

 
274,693

Installment loans to individuals
83,126

 
39

 
83,165

Total
$
1,554,558

 
$
3,314

 
$
1,557,872

December 31, 2014
 
 
 
 
 
Commercial, financial, agricultural
$
114,996

 
$
179

 
$
115,175

Lease financing
10,114

 
—

 
10,114

Real estate – construction
60,323

 
200

 
60,523

Real estate – 1-4 family mortgage
1,010,645

 
2,730

 
1,013,375

Real estate – commercial mortgage
266,867

 
1,352

 
268,219

Installment loans to individuals
83,744

 
39

 
83,783

Total
$
1,546,689

 
$
4,500

 
$
1,551,189


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

14
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Impaired
Covered
Loans
 
Other
Covered
Loans
 
Not
Covered
Loans
 
Total
March 31, 2015
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
—

 
$
3,917

 
$
16,740

 
$
20,657

Lease financing
—

 
—

 
—

 
—

Real estate – construction
—

 
—

 
—

 
—

Real estate – 1-4 family mortgage
420

 
42,338

 
37,534

 
80,292

Real estate – commercial mortgage
7,376

 
71,688

 
137,787

 
216,851

Installment loans to individuals
—

 
34

 
3,592

 
3,626

Total
$
7,796

 
$
117,977

 
$
195,653

 
$
321,426

December 31, 2014
 
 
 
 
 
 
 
Commercial, financial, agricultural
$
—

 
$
6,684

 
$
16,720

 
$
23,404

Lease financing
—

 
—

 
—

 
—

Real estate – construction
—

 
—

 
—

 
—

Real estate – 1-4 family mortgage
420

 
43,597

 
38,802

 
82,819

Real estate – commercial mortgage
7,584

 
84,720

 
141,941

 
234,245

Installment loans to individuals
—

 
36

 
3,921

 
3,957

Total
$
8,004

 
$
135,037

 
$
201,384

 
$
344,425


The references in the table above and elsewhere in these Notes to "covered loans" and "not covered loans" (as well as to "covered OREO" and "not covered OREO") refer to loans (or OREO, as applicable) covered and not covered, respectively, by loss-share agreements with the FDIC. See Note E, "FDIC Loss-Share Indemnification Asset," below for more information.

The following table presents the fair value of loans determined to be impaired at the time of acquisition and determined not to be impaired at the time of acquisition at March 31, 2015:
 
 
Impaired
Covered
Loans
 
Other
Covered
Loans
 
Not
Covered
Loans
 
Total
Contractually-required principal and interest
$
29,901

 
$
141,917

 
$
275,703

 
$
447,521

Nonaccretable difference(1)
(22,104
)
 
(21,766
)
 
(52,137
)
 
(96,007
)
Cash flows expected to be collected
7,797

 
120,151

 
223,566

 
351,514

Accretable yield(2)
(1
)
 
(2,174
)
 
(27,913
)
 
(30,088
)
Fair value
$
7,796

 
$
117,977

 
$
195,653

 
$
321,426

 
(1)
Represents contractual principal and interest cash flows of $90,475 and $5,532, respectively, not expected to be collected.
(2)
Represents contractual interest payments of $2,354 expected to be collected and purchase discount of $27,734.
Changes in the accretable yield of loans acquired with deteriorated credit quality were as follows:
 
 
Impaired
Covered
Loans
 
Other
Covered
Loans
 
Not
Covered
Loans
 
Total
Balance at January 1, 2015
$
(1
)
 
$
(2,623
)
 
$
(29,809
)
 
$
(32,433
)
Reclasses from nonaccretable difference
(23
)
 
(1,160
)
 
276

 
(907
)
Accretion
23

 
1,609

 
1,481

 
3,113

Chargeoff
—

 
—

 
139

 
139

Balance at March 31, 2015
$
(1
)
 
$
(2,174
)
 
$
(27,913
)
 
$
(30,088
)




15
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The following table presents the fair value of loans acquired from First M&F Corporation ("First M&F") as of the September 1, 2013 acquisition date.
At acquisition date:
 
September 1, 2013
  Contractually-required principal and interest
 
$
1,112,979

  Nonaccretable difference
 
70,334

  Cash flows expected to be collected
 
1,042,645

  Accretable yield
 
143,409

      Fair value
 
$
899,236


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


16
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The following table provides a roll forward of the allowance for loan losses and a breakdown of the ending balance of the allowance based on the Company’s impairment methodology for the periods presented:
 
 
Commercial
 
Real Estate -
Construction
 
Real Estate -
1-4 Family
Mortgage
 
Real Estate  -
Commercial
Mortgage
 
Installment
and  Other(1)
 
Total
Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
3,305

 
$
1,415

 
$
13,549

 
$
22,759

 
$
1,261

 
$
42,289

Charge-offs
(235
)
 
—

 
(485
)
 
(633
)
 
(50
)
 
(1,403
)
Recoveries
35

 
6

 
155

 
112

 
33

 
341

Net (charge-offs) recoveries
(200
)
 
6

 
(330
)
 
(521
)
 
(17
)
 
(1,062
)
Provision for loan losses
1,027

 
(63
)
 
618

 
(887
)
 
37

 
732

Benefit attributable to FDIC loss-share agreements
(25
)
 
—

 
—

 
(101
)
 
—

 
(126
)
Recoveries payable to FDIC
2

 
1

 
208

 
258

 
—

 
469

Provision for loan losses charged to operations
1,004

 
(62
)
 
826

 
(730
)
 
37

 
1,075

Ending balance
$
4,109

 
$
1,359

 
$
14,045

 
$
21,508

 
$
1,281

 
$
42,302

Period-End Amount Allocated to:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
4,227

 
$
2,293

 
$
—

 
$
6,520

Collectively evaluated for impairment
2,911

 
1,359

 
9,541

 
18,102

 
1,280

 
33,193

Acquired with deteriorated credit quality
1,198

 
—

 
277

 
1,113

 
1

 
2,589

Ending balance
$
4,109

 
$
1,359

 
$
14,045

 
$
21,508

 
$
1,281

 
$
42,302

 
 
Commercial
 
Real Estate -
Construction
 
Real Estate -
1-4 Family
Mortgage
 
Real Estate  -
Commercial
Mortgage
 
Installment
and  Other(1)
 
Total
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
3,090

 
$
1,091

 
$
18,629

 
$
23,688

 
$
1,167

 
$
47,665

Charge-offs
(119
)
 
—

 
(887
)
 
(60
)
 
(231
)
 
(1,297
)
Recoveries
37

 
5

 
151

 
30

 
7

 
230

Net (charge-offs) recoveries
(82
)
 
5

 
(736
)
 
(30
)
 
(224
)
 
(1,067
)
Provision for loan losses
183

 
13

 
496

 
480

 
243

 
1,415

Benefit attributable to FDIC loss-share agreements
(68
)
 
—

 
(69
)
 
5

 
—

 
(132
)
Recoveries payable to FDIC
5

 
—

 
158

 
4

 
—

 
167

Provision for loan losses charged to operations
120

 
13

 
585

 
489

 
243

 
1,450

Ending balance
$
3,128

 
$
1,109

 
$
18,478

 
$
24,147

 
$
1,186

 
$
48,048

Period-End Amount Allocated to:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
253

 
$
—

 
$
7,285

 
$
7,724

 
$
—

 
$
15,262

Collectively evaluated for impairment
2,665

 
1,002

 
10,823

 
14,133

 
1,184

 
29,807

Acquired with deteriorated credit quality
210

 
107

 
370

 
2,290

 
2

 
2,979

Ending balance
$
3,128

 
$
1,109

 
$
18,478

 
$
24,147

 
$
1,186

 
$
48,048


(1)
Includes lease financing receivables.

17
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The following table provides the recorded investment in loans, net of unearned income, based on the Company’s impairment methodology as of the dates presented:
 
 
Commercial
 
Real Estate  -
Construction
 
Real Estate -
1-4 Family
Mortgage
 
Real Estate  -
Commercial
Mortgage
 
Installment
and  Other(1)
 
Total
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
944

 
$
104

 
$
13,783

 
$
25,267

 
$
—

 
$
40,098

Collectively evaluated for impairment
453,187

 
201,345

 
1,145,380

 
1,696,876

 
95,349

 
3,592,137

Acquired with deteriorated credit quality
20,657

 
—

 
80,292

 
216,851

 
3,626

 
321,426

Ending balance
$
474,788

 
$
201,449

 
$
1,239,455

 
$
1,938,994

 
$
98,975

 
$
3,953,661

December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
984

 
$
164

 
$
18,401

 
$
29,079

 
$
21

 
$
48,649

Collectively evaluated for impairment
458,895

 
211,897

 
1,135,140

 
1,693,590

 
95,278

 
3,594,800

Acquired with deteriorated credit quality
23,404

 
—

 
82,819

 
234,245

 
3,957

 
344,425

Ending balance
$
483,283

 
$
212,061

 
$
1,236,360

 
$
1,956,914

 
$
99,256

 
$
3,987,874

 
(1)
Includes lease financing receivables.

Note D – Other Real Estate Owned
(In Thousands)
The following table provides details of the Company’s other real estate owned (“OREO”) covered and not covered under a loss-share agreement, net of valuation allowances and direct write-downs as of the dates presented:
 
 
Covered
OREO
 
Not Covered
OREO
 
Total
OREO
March 31, 2015
 
 
 
 
 
Residential real estate
$
753

 
$
3,482

 
$
4,235

Commercial real estate
1,904

 
11,288

 
13,192

Residential land development
491

 
4,235

 
4,726

Commercial land development
1,177

 
8,356

 
9,533

Total
$
4,325

 
$
27,361

 
$
31,686

December 31, 2014
 
 
 
 
 
Residential real estate
$
657

 
$
4,549

 
$
5,206

Commercial real estate
470

 
9,179

 
9,649

Residential land development
2,445

 
4,990

 
7,435

Commercial land development
2,796

 
9,386

 
12,182

Total
$
6,368

 
$
28,104

 
$
34,472



18
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


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, 2015
$
6,368

 
$
28,104

 
$
34,472

Transfers of loans
2,557

 
3,053

 
5,610

Impairments(1)
(68
)
 
(428
)
 
(496
)
Dispositions
(4,479
)
 
(3,379
)
 
(7,858
)
Other
(53
)
 
11

 
(42
)
Balance at March 31, 2015
$
4,325

 
$
27,361

 
$
31,686

 
(1)
Of the total impairment charges of $68 recorded for covered OREO, $14 was included in the Consolidated Statements of Income for the three months ended March 31, 2015, while the remaining $54 increased the FDIC loss-share indemnification asset.
Components of the line item “Other real estate owned” in the Consolidated Statements of Income were as follows for the periods presented:
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Repairs and maintenance
$
193

 
$
781

Property taxes and insurance
236

 
241

Impairments
442

 
838

Net gains on OREO sales
(288
)
 
(114
)
Rental income
(51
)
 
(45
)
Total
$
532

 
$
1,701


Note E – FDIC Loss-Share Indemnification Asset
(In Thousands)
As part of the loan portfolio and OREO fair value estimation in connection with FDIC-assisted acquisitions, a FDIC loss-share indemnification asset is established, which represents the present value as of the acquisition date of the estimated losses on covered assets to be reimbursed by the FDIC. Pursuant to the terms of both of our loss-share agreements, the FDIC is obligated to reimburse the Bank for 80% of all eligible losses with respect to covered assets, beginning with the first dollar of loss incurred. The Bank has a corresponding obligation to reimburse the FDIC for 80% of eligible recoveries with respect to covered assets. The estimated losses are based on the same cash flow estimates used in determining the fair value of the covered assets. The FDIC loss-share indemnification asset is reduced as losses are recognized on covered assets and loss-share payments are received from the FDIC. Realized losses in excess of estimates as of the date of the acquisition increase the FDIC loss-share indemnification asset. Conversely, when realized losses are less than these estimates, the portion of the FDIC loss-share indemnification asset no longer expected to result in a payment from the FDIC is amortized into interest income using the effective interest method.

19
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Changes in the FDIC loss-share indemnification asset were as follows:
 
Balance at January 1, 2015
$
12,516

Changes in expected cash flows from initial estimates on:
 
Covered Loans
(1,503
)
Covered OREO
(31
)
Reimbursable expenses
163

Accretion
—

Reimbursements received from the FDIC
(2,211
)
 
 
Balance at March 31, 2015
$
8,934


Note F – Mortgage Servicing Rights
(In Thousands)
The Company retains the right to service certain mortgage loans that it sells to secondary market investors. These mortgage servicing rights, included in “Other assets” on the Consolidated Balance Sheets, are recognized as a separate asset on the date the corresponding mortgage loan is sold. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income. These servicing rights are carried at the lower of amortized cost or fair market value. Fair market value is determined using an income approach with various assumptions including expected cash flows, prepayment speeds, market discount rates, servicing costs, and other factors. Impairment losses on mortgage servicing rights are recognized to the extent by which the unamortized cost exceeds fair value. No impairment losses on mortgage servicing rights were recognized in earnings for the three months ended March 31, 2015 or 2014.
Changes in the Company’s mortgage servicing rights were as follows:
 
Balance at January 1, 2015
$
11,662

Capitalization
649

Amortization
(432
)
 
 
Balance at March 31, 2015
$
11,879


Data and key economic assumptions related to the Company’s mortgage servicing rights as of March 31, 2015 are as follows:
 
Unpaid principal balance
$
1,212,711

 
 
Weighted-average prepayment speed (CPR)
8.98
%
Estimated impact of a 10% increase
$
(1,112
)
Estimated impact of a 20% increase
(1,532
)
 
 
Discount rate
10.76
%
Estimated impact of a 10% increase
$
(1,043
)
Estimated impact of a 20% increase
(1,395
)
 
 
Weighted-average coupon interest rate
3.84
%
Weighted-average servicing fee (basis points)
25.04

Weighted-average remaining maturity (in months)
291


Note G - Employee Benefit and Deferred Compensation Plans
(In Thousands, Except Share Data)
The Company sponsors a noncontributory defined benefit pension plan, under which participation and future benefit accruals ceased as of December 31, 1996. The Company also provides retiree health benefits for certain employees who were employed by the Company and enrolled in the Company's health plan as of December 31, 2004. To receive benefits, an eligible employee must retire from service with the Company and its affiliates between age 55 and 65 and be credited with at least 15 years of service

20
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


or with 70 points, determined as the sum of age and service at retirement. The Company periodically determines the portion of the premium to be paid by each eligible retiree and the portion to be paid by the Company. Coverage ceases when an employee attains age 65 and is eligible for Medicare. The Company also provides life insurance coverage for each retiree in the face amount of $5 until age 70. Retirees can purchase additional insurance or continue coverage beyond age 70 at their sole expense.
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
 
Three Months Ended
 
March 31,
 
March 31,
 
2015
 
2014
 
2015
 
2014
Service cost
$
—

 
$
—

 
$
4

 
$
6

Interest cost
271

 
318

 
15

 
23

Expected return on plan assets
(511
)
 
(539
)
 
—

 
—

Prior service cost recognized
—

 
—

 
—

 
—

Recognized actuarial loss
73

 
45

 
20

 
27

Net periodic benefit (return) cost
$
(167
)
 
$
(176
)
 
$
39

 
$
56


In March 2011, the Company adopted a long-term equity incentive plan, which provides for the grant of stock options and the award of restricted stock. The plan replaced the long-term incentive plan adopted in 2001, which expired in October 2011. The Company issues shares of treasury stock to satisfy stock options exercised or restricted stock granted under the plan. Options granted under the plan allow participants to acquire shares of the Company's common stock at a fixed exercise price and expire ten years after the grant date. Options vest and become exercisable in installments over a three-year period measured from the grant date. Options that have not vested are forfeited and canceled upon the termination of a participant's employment. There were no stock options granted during the three months ended March 31, 2015 and 2014.

The following table summarizes the changes in stock options as of and for the three months ended March 31, 2015:
 
 
Shares
 
Weighted Average Exercise Price
Options outstanding at beginning of period
 
830,950

 
$
18.70

Granted
 
—

 
—

Exercised
 
(8,374
)
 
17.92

Forfeited
 
(7,500
)
 
30.63

Options outstanding at end of period
 
815,076

 
$
18.60


The Company awards performance-based restricted stock to executives and time-based restricted stock to directors and other officers and employees under the long-term equity incentive plan. The performance-based restricted stock vests upon completion of a one-year service period and the attainment of certain performance goals. Performance-based restricted stock is issued at the target level; the number of shares ultimately awarded is determined at the end of each year and may be increased or decreased depending on the Company falling short of, meeting or exceeding financial performance measures defined by the Board of Directors. Time-based restricted stock vests at the end of the service period defined in the respective grant. The fair value of each restricted stock award is the closing price of the Company's common stock on the day immediately preceding the award date. The following table summarizes the changes in restricted stock as of and for the three months ended March 31, 2015:


21
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
 
Performance-Based Restricted Stock
 
Weighted Average Grant-Date Fair Value
 
Time- Based Restricted Stock
 
Weighted Average Grant-Date Fair Value
Nonvested at beginning of period
 
—

 
$
—

 
38,336

 
$
27.26

Awarded
 
81,950

 
28.93

 
24,450

 
28.93

Vested
 
—

 
—

 
—

 
—

Cancelled
 
—

 
—

 
—

 
—

Nonvested at end of period
 
81,950

 
$
28.93

 
62,786

 
$
28.21

During the three months ended March 31, 2015, the Company reissued 59,792 shares from treasury in connection with the exercise of stock options and award of restricted stock. The Company recorded total stock-based compensation expense of $864 and $871 for the three months ended March 31, 2015 and 2014, respectively.


Note H – Segment Reporting
(In Thousands)
The operations of the Company’s reportable segments are described as follows:
•
The Community Banks segment delivers a complete range of banking and financial services to individuals and small to medium-sized businesses including checking and savings accounts, business and personal loans, equipment leasing, as well as safe deposit and night depository facilities.
•
The Insurance segment includes a full service insurance agency offering all major lines of commercial and personal insurance through major carriers.
•
The Wealth Management segment offers a broad range of fiduciary services which includes the administration and management of trust accounts including personal and corporate benefit accounts, self-directed IRA’s, and custodial accounts. In addition, the Wealth Management segment offers annuities, mutual funds and other investment services through a third party broker-dealer.
In order to give the Company’s divisional management a more precise indication of the income and expenses they can control, the results of operations for the Community Banks, the Insurance and the Wealth Management segments reflect the direct revenues and expenses of each respective segment. Indirect revenues and expenses, including but not limited to income from the Company’s investment portfolio, as well as certain costs associated with data processing and back office functions, primarily support the operations of the community banks and, therefore, are included in the results of the Community Banks segment. Included in “Other” are the operations of the holding company and other eliminations which are necessary for purposes of reconciling to the consolidated amounts.
The following table provides financial information for the Company’s operating segments for the periods presented:

22
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Community
Banks
 
Insurance
 
Wealth
Management
 
Other
 
Consolidated
Three months ended March 31, 2015
 
 
 
 
 
 
 
 
 
Net interest income
$
49,593

 
$
69

 
$
415

 
$
(1,235
)
 
$
48,842

Provision for loan losses
1,075

 
—

 
—

 
—

 
1,075

Noninterest income
17,136

 
2,395

 
2,364

 
9

 
21,904

Noninterest expense
43,691

 
1,621

 
1,894

 
208

 
47,414

Income (loss) before income taxes
21,963

 
843

 
885

 
(1,434
)
 
22,257

Income taxes
7,256

 
320

 
—

 
(559
)
 
7,017

Net income (loss)
$
14,707

 
$
523

 
$
885

 
$
(875
)
 
$
15,240

 
 
 
 
 
 
 
 
 
 
Total assets
$
5,800,703

 
$
19,960

 
$
43,958

 
$
17,228

 
$
5,881,849

Goodwill
271,938

 
2,767

 
—

 
—

 
274,705

 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2014
 
 
 
 
 
 
 
 
 
Net interest income
$
50,636

 
$
63

 
$
311

 
$
(1,039
)
 
$
49,971

Provision for loan losses
1,389

 
—

 
61

 
—

 
1,450

Noninterest income
14,083

 
2,393

 
2,116

 
24

 
18,616

Noninterest expense
44,125

 
1,474

 
1,868

 
178

 
47,645

Income (loss) before income taxes
19,205

 
982

 
498

 
(1,193
)
 
19,492

Income taxes
5,978

 
380

 
—

 
(463
)
 
5,895

Net income (loss)
$
13,227

 
$
602

 
$
498

 
$
(730
)
 
$
13,597

 
 
 
 
 
 
 
 
 
 
Total assets
$
5,826,289

 
$
17,442

 
$
44,345

 
$
14,755

 
$
5,902,831

Goodwill
273,387

 
2,757

 
—

 
—

 
276,144

 
 
 
 
 
 
 
 
 
 

Note I – Fair Value Measurements
(In Thousands)
Fair Value Measurements and the Fair Level Hierarchy
ASC 820, “Fair Value Measurements and Disclosures,” 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).
Recurring Fair Value Measurements
The Company carries certain assets and liabilities at fair value on a recurring basis in accordance with applicable standards. The Company’s recurring fair value measurements are based on the requirement to carry such assets and liabilities at fair value or the Company’s election to carry certain eligible assets and liabilities at fair value. Assets and liabilities that are required to be carried at fair value on a recurring basis include securities available for sale and derivative instruments. The Company has elected to carry mortgage loans held for sale at fair value on a recurring basis as permitted under the guidance in ASC 825, “Financial Instruments” (“ASC 825”).
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:

23
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Securities available for sale: Securities available for sale consist primarily of debt securities, such as obligations of U.S. Government agencies and corporations, mortgage-backed securities, trust preferred securities, and other debt and equity securities. Where quoted market prices in active markets are available, securities are classified within Level 1 of the fair value hierarchy. If quoted prices from active markets are not available, fair values are based on quoted market prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active, or model-based valuation techniques where all significant assumptions are observable in the market. Such instruments are classified within Level 2 of the fair value hierarchy. When assumptions used in model-based valuation techniques are not observable in the market, the assumptions used by management reflect estimates of assumptions used by other market participants in determining fair value. When there is limited transparency around the inputs to the valuation, the instruments are classified within Level 3 of the fair value hierarchy.
Derivative instruments: The Company uses derivatives to manage various financial risks. Most of the Company’s derivative contracts are extensively traded in over-the-counter markets and are valued using discounted cash flow models which incorporate observable market based inputs including current market interest rates, credit spreads, and other factors. Such instruments are categorized within Level 2 of the fair value hierarchy and include interest rate swaps and other interest rate contracts such as interest rate caps and/or floors. The Company’s interest rate lock commitments are valued using current market prices for mortgage-backed securities with similar characteristics, adjusted for certain factors including servicing and risk. The value of the Company’s forward commitments is based on current prices for securities backed by similar types of loans. Because these assumptions are observable in active markets, the Company’s interest rate lock commitments and forward commitments are categorized within Level 2 of the fair value hierarchy.
Mortgage loans held for sale: Mortgage loans held for sale are primarily agency loans which trade in active secondary markets. The fair value of these instruments is derived from current market pricing for similar loans, adjusted for differences in loan characteristics, including servicing and risk. Because the valuation is based on external pricing of similar instruments, mortgage loans held for sale are classified within Level 2 of the fair value hierarchy.

24
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The following table presents assets and liabilities that are measured at fair value on a recurring basis as of the dates presented:
 
 
Level 1
 
Level 2
 
Level 3
 
Totals
March 31, 2015
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
$
—

 
$
6,231

 
$
—

 
$
6,231

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
—

 
298,082

 
—

 
298,082

Government agency collateralized mortgage obligations
—

 
151,808

 
—

 
151,808

Commercial mortgage-backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
—

 
43,570

 
—

 
43,570

Government agency collateralized mortgage obligations
—

 
4,826

 
—

 
4,826

Trust preferred securities
—

 
—

 
20,126

 
20,126

Other debt securities
—

 
17,494

 
—

 
17,494

Other equity securities
—

 
3,660

 
—

 
3,660

Total securities available for sale
—

 
525,671

 
20,126

 
545,797

Derivative instruments:
 
 
 
 
 
 
 
Interest rate swaps
—

 
—

 
—

 
—

Interest rate contracts
—

 
3,086

 
—

 
3,086

Interest rate lock commitments
—

 
4,293

 
—

 
4,293

Forward commitments
—

 
44

 
—

 
44

Total derivative instruments
—

 
7,423

 
—

 
7,423

Mortgage loans held for sale
—

 
102,780

 
—

 
102,780

Total financial assets
$
—

 
$
635,874

 
$
20,126

 
$
656,000

Financial liabilities:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Interest rate swaps
$
—

 
$
4,931

 
$
—

 
$
4,931

Interest rate contracts
—

 
3,086

 
—

 
3,086

Interest rate lock commitments
—

 
4

 
—

 
4

Forward commitments
—

 
917

 
—

 
917

Total derivative instruments
—

 
8,938

 
—

 
8,938

Total financial liabilities
$
—

 
$
8,938

 
$
—

 
$
8,938



25
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Level 1
 
Level 2
 
Level 3
 
Totals
December 31, 2014
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
 
 
Obligations of other U.S. Government agencies and corporations
$
—

 
$
6,147

 
$
—

 
$
6,147

Residential mortgage-backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
—

 
296,359

 
—

 
296,359

Government agency collateralized mortgage obligations
—

 
157,436

 
—

 
157,436

Commercial mortgage-backed securities:
 
 
 
 
 
 
 
Government agency mortgage backed securities
—

 
47,185

 
—

 
47,185

Government agency collateralized mortgage obligations
—

 
5,172

 
—

 
5,172

Trust preferred securities
—

 
—

 
19,756

 
19,756

Other debt securities
—

 
17,930

 
—

 
17,930

Other equity securities
—

 
3,599

 
—

 
3,599

Total securities available for sale
—

 
533,828

 
19,756

 
553,584

Derivative instruments:
 
 
 
 
 
 
 
Interest rate swap
—

 
—

 
—

 
—

Interest rate contracts
—

 
2,142

 
—

 
2,142

Interest rate lock commitments
—

 
1,584

 
—

 
1,584

Forward commitments
—

 
5

 
—

 
5

Total derivative instruments
—

 
3,731

 
—

 
3,731

Mortgage loans held for sale
—

 
25,628

 
—

 
25,628

Total financial assets
$
—

 
$
563,187

 
$
19,756

 
$
582,943

Financial liabilities:
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
Interest rate swaps
$
—

 
$
3,847

 
$
—

 
$
3,847

Interest rate contracts
—

 
2,143

 
—

 
2,143

Interest rate lock commitments
—

 
—

 
—

 
—

Forward commitments
—

 
303

 
—

 
303

Total derivative instruments
—

 
6,293

 
—

 
6,293

Total financial liabilities
$
—

 
$
6,293

 
$
—

 
$
6,293


The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company’s ability to observe inputs to the valuation may cause reclassification of certain assets or liabilities within the fair value hierarchy. Transfers between levels of the hierarchy are deemed to have occurred at the end of period. There were no such transfers between levels of the fair value hierarchy during the three months ended March 31, 2015.

26
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The following tables provide a reconciliation for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs, or Level 3 inputs, during the three months ended March 31, 2015 and 2014, respectively:
 
 
Securities available for sale
Three Months Ended March 31, 2015
Trust preferred
securities
 
Total
Balance at January 1, 2015
$
19,756

 
$
19,756

Accretion included in net income
8

 
8

Unrealized gains included in other comprehensive income
716

 
716

Purchases
—

 
—

Sales
—

 
—

Issues
—

 
—

Settlements
(354
)
 
(354
)
Transfers into Level 3
—

 
—

Transfers out of Level 3
—

 
—

Balance at March 31, 2015
$
20,126

 
$
20,126

 
 
Securities available for sale
Three Months Ended March 31, 2014
Trust preferred
securities
 
Total
Balance at January 1, 2014
$
17,671

 
$
17,671

Accretion included in net income
—

 
—

Unrealized gains included in other comprehensive income
1,724

 
1,724

Reclassification adjustment
—

 
—

Purchases
—

 
—

Sales
—

 
—

Issues
—

 
—

Settlements
(17
)
 
(17
)
Transfers into Level 3
—

 
—

Transfers out of Level 3
—

 
—

Balance at March 31, 2014
$
19,378

 
$
19,378

 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended March 31, 2015 and 2014, there were no gains or losses included in earnings that were attributable to the change in unrealized gains or losses related to assets or liabilities held at the end of each respective period that were measured on a recurring basis using significant unobservable inputs.
The following table presents information as of March 31, 2015 about significant unobservable inputs (Level 3) used in the valuation of assets and liabilities measured at fair value on a recurring basis:
 
Financial instrument
Fair
Value
 
Valuation Technique
 
Significant
Unobservable Inputs
 
Range of Inputs
Trust preferred securities
$
20,126

 
Discounted cash flows
 
Default rate
 
0-100%

Nonrecurring Fair Value Measurements
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 table provides the fair value measurement for assets measured at fair value on a nonrecurring basis that were still held on the Consolidated Balance Sheets as of the dates presented and the level within the fair value hierarchy each is classified:
 

27
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


March 31, 2015
Level 1
 
Level 2
 
Level 3
 
Totals
Impaired loans
$
—

 
$
—

 
$
6,979

 
$
6,979

OREO
—

 
—

 
3,048

 
3,048

Total
$
—

 
$
—

 
$
10,027

 
$
10,027

 
December 31, 2014
Level 1
 
Level 2
 
Level 3
 
Totals
Impaired loans
$
—

 
$
—

 
$
12,360

 
$
12,360

OREO
—

 
—

 
4,460

 
4,460

Total
$
—

 
$
—

 
$
16,820

 
$
16,820


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:

Impaired loans: Loans considered impaired are reserved for at the time the loan is identified as impaired taking into account the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including but not limited to equipment, inventory and accounts receivable. The fair value of real estate is determined based on appraisals by qualified licensed appraisers. The fair value of the business assets is generally based on amounts reported on the business’s financial statements. Appraised and reported values may be adjusted based on changes in market conditions from the time of valuation and management’s knowledge of the client and the client’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified as Level 3. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified. Impaired loans covered under loss-share agreements were recorded at their fair value upon the acquisition date, and no fair value adjustments were necessary for the three months ended March 31, 2015 and 2014, respectively. Impaired loans not covered under loss-share agreements that were measured or re-measured at fair value had a carrying value of $7,662 and $13,349 at March 31, 2015 and December 31, 2014, respectively, and a specific reserve for these loans of $683 and $989 was included in the allowance for loan losses as of such respective dates.
Other real estate owned: OREO is comprised of commercial and residential real estate obtained in partial or total satisfaction of loan obligations. OREO covered under loss-share agreements is recorded at its fair value on its acquisition date. OREO not covered under loss-share agreements acquired in settlement of indebtedness is recorded at the fair value of the real estate less estimated costs to sell. Subsequently, it may be necessary to record nonrecurring fair value adjustments for declines in fair value. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for management’s estimates of costs to sell. Accordingly, values for OREO are classified as Level 3.
The following table presents OREO measured at fair value on a nonrecurring basis that was still held in the Consolidated Balance Sheets as of the dates presented:
 
 
March 31,
2015
 
December 31, 2014
OREO covered under loss-share agreements:
 
 
 
Carrying amount prior to remeasurement
$
291

 
$
3,162

Impairment recognized in results of operations
(14
)
 
(185
)
Increase in FDIC loss-share indemnification asset
(54
)
 
(742
)
Receivable from other guarantor
—

 
(422
)
Fair value
$
223

 
$
1,813

OREO not covered under loss-share agreements:
 
 
 
Carrying amount prior to remeasurement
$
3,253

 
$
3,513

Impairment recognized in results of operations
(428
)
 
(866
)
Fair value
$
2,825

 
$
2,647


The following table presents information as of March 31, 2015 about significant unobservable inputs (Level 3) used in the valuation of assets and liabilities measured at fair value on a nonrecurring basis:

28
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
Financial instrument
Fair
Value
 
Valuation Technique
 
Significant
Unobservable Inputs
 
Range of Inputs
Impaired loans
$
6,979

 
Appraised value of collateral less estimated costs to sell
 
Estimated costs to sell
 
4-10%
OREO
3,048

 
Appraised value of property less estimated costs to sell
 
Estimated costs to sell
 
4-10%

Fair Value Option
The Company elected to measure all mortgage loans originated for sale on or after July 1, 2012 at fair value under the fair value option as permitted under ASC 825. Electing to measure these assets at fair value reduces certain timing differences and better matches the changes in fair value of the loans with changes in the fair value of derivative instruments used to economically hedge them.
Net gains of $27 and net losses of $64 resulting from fair value changes of these mortgage loans were recorded in income during the three months ended March 31, 2015 and three months ended March 31, 2014, respectively. The amount does not reflect changes in fair values of related derivative instruments used to hedge exposure to market-related risks associated with these mortgage loans. The change in fair value of both mortgage loans held for sale and the related derivative instruments are recorded in “Gains on sales of mortgage loans held for sale” in the Consolidated Statements of Income.
The Company’s valuation of mortgage loans held for sale incorporates an assumption for credit risk; however, given the short-term period that the Company holds these loans, valuation adjustments attributable to instrument-specific credit risk is nominal. Interest income on mortgage loans held for sale measured at fair value is accrued as it is earned based on contractual rates and is reflected in loan interest income on the Consolidated Statements of Income.
The following table summarizes the differences between the fair value and the principal balance for mortgage loans held for sale measured at fair value as of:
 
March 31, 2015
Aggregate
Fair  Value
 
Aggregate
Unpaid
Principal
Balance
 
Difference
Mortgage loans held for sale measured at fair value
$
102,780

 
$
102,382

 
$
398

Past due loans of 90 days or more
—

 
—

 
—

Nonaccrual loans
—

 
—

 
—


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 as of the dates presented:
 

29
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


 
 
 
Fair Value
As of March 31, 2015
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
174,379

 
$
174,379

 
$
—

 
$
—

 
$
174,379

Securities held to maturity
470,597

 
—

 
486,624

 
—

 
486,624

Securities available for sale
545,797

 
—

 
525,671

 
20,126

 
545,797

Mortgage loans held for sale
102,780

 
—

 
102,780

 
—

 
102,780

Loans covered under loss-share agreements
125,773

 
—

 
—

 
126,337

 
126,337

Loans not covered under loss-share agreements, net
3,827,888

 
—

 
—

 
3,745,570

 
3,745,570

FDIC loss-share indemnification asset
8,934

 
—

 
—

 
8,934

 
8,934

Mortgage servicing rights
11,879

 
—

 
—

 
12,213

 
12,213

Derivative instruments
7,423

 
—

 
7,423

 
—

 
7,423

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposits
$
4,942,769

 
$
3,372,943

 
$
1,227,259

 
$
—

 
$
4,600,202

Short-term borrowings
6,732

 
6,732

 
—

 
—

 
6,732

Federal Home Loan Bank advances
60,671

 
—

 
79,994

 
—

 
79,994

Junior subordinated debentures
94,684

 
—

 
80,971

 
—

 
80,971

Derivative instruments
8,938

 
—

 
8,938

 
—

 
8,938

 
 
 
 
Fair Value
As of December 31, 2014
Carrying
Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
161,583

 
$
161,583

 
$
—

 
$
—

 
$
161,583

Securities held to maturity
430,163

 
—

 
442,488

 
—

 
442,488

Securities available for sale
553,584

 
—

 
533,828

 
19,756

 
553,584

Mortgage loans held for sale
25,628

 
—

 
25,628

 
—

 
25,628

Loans covered under loss-share agreements
143,041

 
—

 
—

 
143,487

 
143,487

Loans not covered under loss-share agreements, net
3,844,833

 
—

 
—

 
3,751,727

 
3,751,727

FDIC loss-share indemnification asset
12,516

 
—

 
—

 
12,516

 
12,516

Mortgage servicing rights
11,662

 
—

 
—

 
12,378

 
12,378

Derivative instruments
3,731

 
—

 
3,731

 
—

 
3,731

Financial liabilities
 
 
 
 
 
 
 
 
 
Deposits
$
4,838,418

 
$
3,532,266

 
$
1,309,421

 
$
—

 
$
4,841,687

Short-term borrowings
32,403

 
32,403

 
—

 
—

 
32,403

Federal Home Loan Bank advances
61,611

 
—

 
92,532

 
—

 
92,532

Junior subordinated debentures
94,574

 
—

 
80,971

 
—

 
80,971

Derivative instruments
6,293

 
—

 
6,293

 
—

 
6,293


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 previously.
Cash and cash equivalents: Cash and cash equivalents consist 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.
Securities held to maturity: Securities held to maturity consist of debt securities such as obligations of U.S. Government agencies, states, and other political subdivisions. Where quoted market prices in active markets are available, securities are classified within Level 1 of the fair value hierarchy. If quoted prices from active markets are not available, fair values are based on quoted market

30
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


prices for similar instruments traded in active markets, quoted market prices for identical or similar instruments traded in markets that are not active, or model-based valuation techniques where all significant assumptions are observable in the market. Such instruments are classified within Level 2 of the fair value hierarchy. When assumptions used in model-based valuation techniques are not observable in the market, the assumptions used by management reflect estimates of assumptions used by other market participants in determining fair value. When there is limited transparency around the inputs to the valuation, the instruments are classified within Level 3 of the fair value hierarchy.
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 and 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-share reimbursement from the FDIC.

31
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)



Mortgage servicing rights: The Company retains the right to service certain mortgage loans that it sells to secondary market investors. These servicing rights are carried at the lower of amortized cost or fair value. Fair value is determined using an income approach with various assumptions including expected cash flows, market discount rates, prepayment speeds, servicing costs, and other factors. Because these factors are not all observable and include management’s assumptions, mortgage servicing rights are classified within Level 3 of the fair value hierarchy. Mortgage servicing rights were carried at amortized cost at March 31, 2015 and December 31, 2014, and no impairment charges were recognized in earnings for the three or three months ended March 31, 2015 and 2014, respectively.
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. Such deposits are classified within Level 1 of the fair value hierarchy. 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 deposits. These deposits are classified within Level 2 of the fair value hierarchy.
Short-term borrowings: Short-term borrowings consist of securities sold under agreements to repurchase and federal funds purchased. The fair value of these borrowings approximates the carrying value of the amounts reported in the Consolidated Balance Sheets for each respective account given the short-term nature of the liabilities.

Federal Home Loan Bank advances: The fair value for Federal Home Loan Bank (“FHLB”) advances is determined by discounting the expected future cash outflows using current market rates for similar borrowings, or Level 2 inputs.
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.

Note J – Derivative Instruments
(In Thousands)
The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to facilitate the needs of its customers. The Company also from time to time enters 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, 2015, the Company had notional amounts of $72,110 on interest rate contracts with corporate customers and $72,110 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts and certain fixed-rate loans.

In June 2014, the Company entered into two forward interest rate swap contracts on floating rate liabilities at the Bank level with notional amounts of $15,000 each. The interest rate swap contracts are each accounted for as a cash flow hedge with the objective of protecting against any interest rate volatility on future FHLB borrowings for a four-year and five-year period beginning June 1, 2018 and December 3, 2018 and ending June 2022 and June 2023, respectively. Under these contracts, Renasant Bank will pay a fixed interest rate of 3.593% and 3.738%, respectively, and will receive a variable interest rate based on the three-month LIBOR, with quarterly net settlements.
In March and April 2012, the Company entered into two interest rate swap agreements effective March 30, 2014 and March 17, 2014, respectively. The Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pays a fixed rate of interest. The agreements, which both terminate in March 2022, are accounted for as cash flow hedges to reduce the variability in cash flows resulting from changes in interest rates on $32,000 of the Company’s junior subordinated debentures.
In connection with its merger with First M&F, the Company assumed an interest rate swap designed to convert floating rate interest payments into fixed rate payments. Based on the terms of the agreement, which terminates in March 2018, the Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pays a fixed rate of interest. The interest rate swap is accounted for as a cash flow hedge to reduce the variability in cash flows resulting from changes in interest rates on $30,000 of the junior subordinated debentures assumed in the merger with First M&F.

32
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


The Company enters into interest rate lock commitments with its customers to mitigate the interest rate risk associated with the commitments to fund fixed-rate residential mortgage loans. The notional amount of commitments to fund fixed-rate mortgage loans was $166,308 and $62,288 at March 31, 2015 and December 31, 2014, respectively. The Company also enters into forward commitments to sell residential mortgage loans to secondary market investors. The notional amount of commitments to sell residential mortgage loans to secondary market investors was $155,000 and $52,000 at March 31, 2015 and December 31, 2014, respectively.
The following table provides details on the Company’s derivative financial instruments as of the dates presented:
 
 
 
 
Fair Value
 
Balance Sheet
Location
 
March 31,
2015
 
December 31, 2014
Derivative assets:
 
 
 
 
 
Not designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
Other Assets
 
$
3,086

 
$
2,142

Interest rate lock commitments
Other Assets
 
4,293

 
1,584

Forward commitments
Other Assets
 
44

 
5

Totals
 
 
$
7,423

 
$
3,731

Derivative liabilities:
 
 
 
 
 
Designated as hedging instruments:
 
 
 
 
 
Interest rate swap
Other Liabilities
 
$
4,931

 
$
3,847

Totals
 
 
$
4,931

 
$
3,847

Not designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
Other Liabilities
 
$
3,086

 
$
2,143

Interest rate lock commitments
Other Liabilities
 
4

 
—

Forward commitments
Other Liabilities
 
917

 
303

Totals
 
 
$
4,007

 
$
2,446


Gains (losses) included in the Consolidated Statements of Income related to the Company’s derivative financial instruments were as follows as of the periods presented:
 
Three Months Ended
 
March 31,
 
2015
 
2014
Derivatives not designated as hedging instruments:
 
 
 
Interest rate contracts:
 
 
 
Included in interest income on loans
$
557

 
$
779

Interest rate lock commitments:
 
 
 
Included in gains on sales of mortgage loans held for sale
2,705

 
566

Forward commitments
 
 
 
Included in gains on sales of mortgage loans held for sale
(575
)
 
189

Total
$
2,687

 
$
1,534


For the Company's derivatives designated as cash flow hedges, changes in fair value of the cash flow hedges are, to the extent that the hedging relationship is effective, recorded as other comprehensive income and are subsequently recognized in earnings at the same time that the hedged item is recognized in earnings. The ineffective portions of the changes in fair value of the hedging instruments are immediately recognized in earnings. The assessment of the effectiveness of the hedging relationship is evaluated under the hypothetical derivative method. There were no ineffective portions for the three months ended March 31, 2015 and 2014. The impact on other comprehensive income for the three months ended March 31, 2015 and 2014, can be seen at Note K, "Other Comprehensive Income."


33
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Offsetting

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet when the "right of setoff" exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company's derivative instruments are subject to master netting agreements; however, the Company has not elected to offset such financial instruments in the consolidated balance sheets. The following table presents the Company's gross derivative positions as recognized in the consolidated balance sheets as well as the net derivative positions, including collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:

 
Offsetting Derivative Assets
 
Offsetting Derivative Liabilities
 
March 31,
2015
 
December 31, 2014
 
March 31,
2015
 
December 31, 2014
Gross amounts recognized
$
44

 
$
5

 
$
7,678

 
$
5,182

Gross amounts offset in the consolidated balance sheets
—

 
—

 
—

 
—

Net amounts presented in the consolidated balance sheets
44

 
5

 
7,678

 
5,182

Gross amounts not offset in the consolidated balance sheets
 
 
 
 
 
 
 
Financial instruments
44

 
5

 
44

 
5

Financial collateral pledged
—

 
—

 
6,761

 
4,879

Net amounts
$
—

 
$
—

 
$
873

 
$
298

 



34
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Note K – Other Comprehensive Income
(In Thousands)
Changes in the components of other comprehensive income were as follows for the periods presented:
 
 
Pre-Tax
 
Tax Expense
(Benefit)
 
Net of Tax
Three months ended March 31, 2015
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
Unrealized holding gains on securities
$
4,249

 
$
1,625

 
$
2,624

Amortization of unrealized holding gains on securities transferred to the held to maturity category
(51
)
 
(19
)
 
(32
)
Total securities available for sale
4,198

 
1,606

 
2,592

Derivative instruments:
 
 
 
 
 
Unrealized holding losses on derivative instruments
(1,084
)
 
(415
)
 
(669
)
Total derivative instruments
(1,084
)
 
(415
)
 
(669
)
Defined benefit pension and post-retirement benefit plans:
 
 
 
 
 
Amortization of net actuarial loss recognized in net periodic pension cost
93

 
36

 
57

Total defined benefit pension and post-retirement benefit plans
93

 
36

 
57

Total other comprehensive income
$
3,207

 
$
1,227

 
$
1,980

Three months ended March 31, 2014
 
 
 
 
 
Securities available for sale:
 
 
 
 
 
Unrealized holding gains on securities
$
4,509

 
$
1,725

 
$
2,784

Amortization of unrealized holding gains on securities transferred to the held to maturity category
(71
)
 
(27
)
 
(44
)
Total securities available for sale
4,438

 
1,698

 
2,740

Derivative instruments:
 
 
 
 
 
Unrealized holding losses on derivative instruments
(679
)
 
(260
)
 
(419
)
Total derivative instruments
(679
)
 
(260
)
 
(419
)
Defined benefit pension and post-retirement benefit plans:
 
 
 
 
 
Amortization of net actuarial loss recognized in net periodic pension cost
73

 
28

 
45

Total defined benefit pension and post-retirement benefit plans
73

 
28

 
45

Total other comprehensive income
$
3,832

 
$
1,466

 
$
2,366


 
 
 
 
 
 
The accumulated balances for each component of other comprehensive income, net of tax, were as follows as of the dates presented:
 
 
March 31,
2015
 
December 31, 2014
Unrealized gains on securities
$
20,351

 
$
17,759

Non-credit related portion of other-than-temporary impairment on securities
(17,474
)
 
(17,474
)
Unrealized losses on derivative instruments
(2,303
)
 
(1,633
)
Unrecognized defined benefit pension and post-retirement benefit plans obligations
(6,192
)
 
(6,250
)
Total accumulated other comprehensive loss
$
(5,618
)
 
$
(7,598
)





35
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Note L – Net Income Per Common Share
(In Thousands, Except Share Data)
Basic net income per common share is calculated by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted net income per common share reflects the pro forma dilution of shares outstanding assuming outstanding stock options were exercised into common shares, calculated in accordance with the treasury method. Basic and diluted net income per common share calculations are as follows for the periods presented:
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Basic
 
 
 
Net income applicable to common stock
$
15,240

 
$
13,597

Average common shares outstanding
31,576,275

 
31,436,148

Net income per common share - basic
$
0.48

 
$
0.43

Diluted
 
 
 
Net income applicable to common stock
$
15,240

 
$
13,597

Average common shares outstanding
31,576,275

 
31,436,148

Effect of dilutive stock-based compensation
239,435

 
232,214

Average common shares outstanding - diluted
31,815,710

 
31,668,362

Net income per common share - diluted
$
0.48

 
$
0.43

 
 
 
 
Stock options that could potentially dilute basic net income per common share in the future that were not included in the computation of diluted net income per common share due to their anti-dilutive effect were as follows for the periods presented:
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
Number of shares
2,568
 
107,396
Range of exercise prices
$29.57 - $29.67
 
$17.63 - $29.67
 
 
 
 

Note M – Mergers and Acquisitions

Definitive merger agreement with Heritage Financial Group, Inc.

On December 10, 2014, the Company and Heritage Financial Group, Inc. (“Heritage”), a bank holding company headquartered
in Albany, Georgia, and the parent of HeritageBank of the South, a Georgia savings bank, jointly announced the signing of a definitive merger agreement pursuant to which the Company will acquire Heritage in an all-stock merger. As of March 31, 2015, the transaction will add to the Company approximately $1,807,828 in assets, $1,104,261 in loans and $1,394,111 in deposits, and 48 banking, mortgage and investment offices in Alabama, Georgia and Florida as of December 31, 2014, inclusive of Heritage’s acquisition of a branch in Norcross, Georgia with $37,000 in loans and $107,000 in deposits that was completed on January 20, 2015. All required regulatory approval was received during the first quarter of 2015. Consummation of the merger is subject to the receipt of approval from the Company’s and Heritage’s shareholders.

Acquisition of First M&F Corporation

On September 1, 2013, the Company completed its acquisition by merger of First M&F, a bank holding company headquartered in Kosciusko, Mississippi, and the parent of Merchants and Farmers Bank, a Mississippi banking corporation. On the same date, Merchants and Farmers Bank was merged into Renasant Bank. On August 31, 2013, First M&F operated 43 banking and insurance locations in Mississippi, Alabama and Tennessee. The acquisition of First M&F allowed the Company to further its strategic initiatives by expanding its geographic footprint into certain markets of Mississippi, Alabama and Tennessee. The Company issued 6,175,576 shares of its common stock for 100% of the voting equity interests in First M&F. The aggregate transaction value, including the dilutive impact of First M&F’s stock based compensation assumed by the Company, was $156,845.


36

The Company recorded approximately $115,159 in intangible assets which consist of goodwill of $90,127 and core deposit intangible of $25,032. The fair value of the core deposit intangible is being amortized on an accelerated basis over the estimated useful life, currently expected to be approximately 10 years. The intangible assets are not deductible for income tax purposes.

The Company assumed $30,928 in fixed/floating rate junior subordinated deferrable interest debentures payable to First M&F Statutory Trust I that mature in March 2036. The acquired subordinated debentures require interest to be paid quarterly at a rate of 90-day LIBOR plus 1.33%. The fair value adjustment on the junior subordinated debentures of $12,371 will be amortized on a straight line basis over the remaining life.

The following table summarizes the allocation of purchase price to assets and liabilities acquired in connection with the Company’s acquisition of First M&F based on their fair values on September 1, 2013. The change in the balance of goodwill from previously reported amounts is due to information obtained by the Company during the measurement period about facts and circumstances that existed at the acquisition date.

Allocation of Purchase Price for First M&F Corporation.
 
 
Purchase Price:
 
 
Shares issued to common shareholders
6,175,576

 
Purchase price per share
$
25.17

 
Value of stock paid
 
$
155,439

Cash paid for fractional shares
 
17

Fair value of stock based compensation assumed
 
68

Deal charges
 
1,321

  Total Purchase Price
 
$
156,845

Net Assets Acquired:
 
 
Stockholders’ equity at 9/1/13
$
79,440

 
Increase (decrease) to net assets as a result of fair value adjustments
to assets acquired and liabilities assumed:
 
 
  Securities
253

 
Loans, net of First M&F's allowance for loan losses(1)
(45,761
)
 
  Fixed assets
(3,254
)
 
  Core deposits intangible, net of First M&F’s existing core deposit intangible
21,158

 
Other real estate owned(1)
(5,797
)
 
Other assets
(443
)
 
  Deposits
(3,207
)
 
  Junior Subordinated Debt
12,371

 
  Other liabilities
1,748

 
  Deferred income taxes
10,210

 
     Total Net Assets Acquired
 
66,718

Goodwill resulting from merger(2)
 
$
90,127

(1) The fair value adjustments to acquired loans and other real estate owned reflect management’s expectations to more aggressively market and liquidate problem assets quickly.
(2) The goodwill resulting from the merger has been assigned to the Community Banks operating segment.

The following table summarizes the fair value of assets acquired and liabilities assumed at acquisition date in connection with the merger with First M&F.


37

Cash and cash equivalents
 
$
169,995

Securities
 
227,693

Mortgage loans held for sale
 
1,659

Loans, net of unearned income
 
899,236

Premises and equipment
 
32,075

Other real estate owned
 
13,527

Intangible assets
 
115,159

Other assets
 
57,259

Total assets
 
1,516,603

 
 
 
Deposits
 
1,325,872

Borrowings
 
25,346

Other liabilities
 
9,861


Acquisition of RBC Bank (USA) Trust Division

On August 31, 2011, the Company acquired the Birmingham, Alabama-based trust division of RBC Bank (USA), which served clients in Alabama and Georgia. Under the terms of the transaction, RBC Bank (USA) transferred its approximately $680,000 in assets under management, comprised of personal and institutional clients with over 200 trust custodial and escrow accounts, to a wholly-owned subsidiary, and the Bank acquired all of the ownership interests in the subsidiary, which was subsequently merged into the Bank.

FDIC-Assisted Acquisition

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 ATB loans”). The Bank will share in the losses on the asset pools (including single family residential mortgage loans and commercial loans) covered under the loss-share agreements. Pursuant to the terms of the loss-share agreements, the FDIC is obligated to reimburse the Bank for 80% of all eligible losses with respect to covered ATB loans, beginning with the first dollar of loss incurred. The Bank has a corresponding obligation to reimburse the FDIC for 80% of eligible recoveries with respect to covered ATB loans. The claim periods to submit losses to the FDIC for reimbursement ends February 5, 2016 for nonsingle family ATB loans and February 28, 2021 for single family, ATB loans.

On July 23, 2010, the Bank acquired specified assets and assumed specified liabilities of Crescent Bank & Trust Company, a Georgia-chartered bank headquartered in Jasper, Georgia (“Crescent”), from the FDIC, as receiver for Crescent. Crescent operated 11 branches in the northwest region of Georgia. In connection with the acquisition, the Bank entered into loss-share agreements with the FDIC that covered $361,472 of Crescent loans and $50,168 of other real estate owned (the “covered Crescent assets”). The Bank will share in the losses on the asset pools (including single family residential mortgage loans and commercial loans) covered under the loss-share agreements. Pursuant to the terms of the loss-share agreements, the FDIC is obligated to reimburse the Bank for 80% of all eligible losses with respect to covered Crescent assets, beginning with the first dollar of loss incurred. The Bank has a corresponding obligation to reimburse the FDIC for 80% of eligible recoveries with respect to covered Crescent assets. The claim periods to submit losses to the FDIC for reimbursement ends July 25, 2015 for non-single family Crescent assets and July 31, 2020 for single family Crescent assets.




38
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


Note N – Regulatory Matters
(In Thousands)
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 Renasant Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Renasant Bank must meet specific capital guidelines that involve quantitative measures of Renasant Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Renasant Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency have issued guidelines governing the levels of capital that banks must maintain. Those guidelines specify capital tiers, which include the following classifications:

Capital Tiers
Tier 1 Capital to
Average Assets
(Leverage)
 
Common Equity Tier 1 to
Risk - Weighted Assets

 
Tier 1 Capital to
Risk – Weighted
Assets
 
Total Capital to
Risk – Weighted
Assets
Well capitalized
5% or above
 
6.5% or above
 
8% or above
 
10% or above
Adequately capitalized
4% or above
 
4.5% or above
 
6% or above
 
8% or above
Undercapitalized
Less than 4%
 
Less than 4.5%
 
Less than 6%
 
Less than 8%
Significantly undercapitalized
Less than 3%
 
Less than 3%
 
Less than 4%
 
Less than 6%
Critically undercapitalized
 Tangible Equity / Total Assets less than 2%


The following table provides the capital and risk-based capital and leverage ratios for the Company and for Renasant Bank as of March 31:

 
2015
 
2014
 
Amount
 
Ratio
 
Amount
 
Ratio
Renasant Corporation
 
 
 
 
 
 
 
Tier 1 Capital to Average Assets (Leverage)
$
539,523

 
9.74
%
 
$
483,738

 
8.56
%
Common Equity Tier 1 Capital to Risk-Weighted Assets
448,027

 
10.35
%
 
—

 
—
%
Tier 1 Capital to Risk-Weighted Assets
539,523

 
12.47
%
 
483,738

 
11.54
%
Total Capital to Risk-Weighted Assets
584,916

 
13.51
%
 
532,549

 
12.70
%
Renasant Bank
 
 
 
 
 
 
 
Tier 1 Capital to Average Assets (Leverage)
$
523,505

 
9.48
%
 
$
467,944

 
8.30
%
Common Equity Tier 1 Capital to Risk-Weighted Assets
523,505

 
12.13
%
 
—

 
—
%
Tier 1 Capital to Risk-Weighted Assets
523,505

 
12.13
%
 
467,944

 
11.24
%
Total Capital to Risk-Weighted Assets
568,326

 
13.16
%
 
515,993

 
12.39
%

In July 2013, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency approved the implementation of the Basel III regulatory capital reforms and issued rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rules”) that call for broad and comprehensive revision of regulatory capital standards for U.S. banking organizations. The Basel III Rules implemented a new common equity Tier 1 minimum capital requirement (“CET1”), a higher minimum Tier 1 capital requirement and other items affecting the calculation of the numerator of a banking organization’s risk-based capital ratios. Additionally, the Basel III Rules apply limits to a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of CET1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements.

The new CET1 capital ratio includes common equity as defined under GAAP and does not include any other type of non-common equity under GAAP. When the Basel III Rules are fully phased in in 2019, banks will be required to have CET1 capital of 4.5%

39
Renasant Corporation and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)


of average assets, Tier 1 capital of 6% of average assets, as compared to the current 4%, and total capital of 8% of risk-weighted assets to be categorized as adequately capitalized.

Further, the Basel III Rules changed the agencies’ general risk-based capital requirements for determining risk-weighted assets, which affect the calculation of the denominator of a banking organization’s risk-based capital ratios. The Basel III Rules have revised the agencies’ rules for calculating risk-weighted assets to enhance risk sensitivity and to incorporate certain international capital standards of the Basel Committee on Banking Supervision set forth in the standardized approach of the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”.

The calculation of risk-weighted assets in the denominator of the Basel III capital ratios has been adjusted to reflect the higher risk nature of certain types of loans. Specifically, as applicable to the Company and Renasant Bank:

— Residential mortgages: Replaces the current 50% risk weight for performing residential first-lien mortgages and a 100% risk-weight for all other mortgages with a risk weight of between 35% and 200% determined by the mortgage’s loan-to-value ratio and whether the mortgage falls into one of two categories based on eight criteria that include the term, use of negative amortization and balloon payments, certain rate increases and documented and verified borrower income.

— Commercial mortgages: Replaces the current 100% risk weight with a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction loans.

— Nonperforming loans: Replaces the current 100% risk weight with a 150% risk weight for loans, other than residential mortgages, that are 90 days past due or on nonaccrual status.
The Final Rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios. In addition, the Final Rules provide for a countercyclical capital buffer applicable only to certain covered institutions. It is not expected that the countercyclical capital buffer will be applicable to Renasant Corporation or Renasant Bank. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased in over a 4-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

Generally, the new Basel III Rules became effective on January 1, 2015, although parts of the Basel III Rules will be phased in through 2019.

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 acquisitions into its operations, retain the customers of these businesses and grow the acquired operations; (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

40

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 relationships; 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.

Financial Condition
The following discussion provides details regarding the changes in significant balance sheet accounts at March 31, 2015 compared to December 31, 2014.
Assets
Total assets were $5,881,849 at March 31, 2015 compared to $5,805,129 at December 31, 2014.
Investments
The securities portfolio is used to provide a source for meeting liquidity needs and to supply securities to be used in collateralizing certain deposits and other types of borrowings. 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 as of the dates presented:
 
March 31, 2015
 
Percentage of
Portfolio
 
December 31, 2014
 
Percentage of
Portfolio
Obligations of other U.S. Government agencies and corporations
$
171,820

 
16.90
%
 
$
131,228

 
13.34
%
Obligations of states and political subdivisions
305,008

 
30.01

 
305,082

 
31.01

Mortgage-backed securities
498,286

 
49.03

 
506,152

 
51.45

Trust preferred securities
20,126

 
1.98

 
19,756

 
2.01

Other debt securities
17,494

 
1.72

 
17,930

 
1.82

Other equity securities
3,660

 
0.36

 
3,599

 
0.37

 
$
1,016,394

 
100.00
%
 
$
983,747

 
100.00
%

The balance of our securities portfolio at March 31, 2015 increased $32,647 to $1,016,394 from $983,747 at December 31, 2014. During the three months ended March 31, 2015, we purchased $68,475 in investment securities. Mortgage-backed securities and collateralized mortgage obligations (“CMOs”), in the aggregate, comprised 19.93% of the 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. U.S. Government Agency securities and municipal securities accounted for 73.02% and 7.05%, respectively, of total securities purchased in the first quarter of 2015. There were no securities sold during the first three months of 2015. Proceeds from maturities, calls and sales of securities during the first three months of 2015 totaled $38,736.
The Company holds investments in pooled trust preferred securities. This portfolio had a cost basis of $26,057 and $26,400 and a fair value of $20,126 and $19,756 at March 31, 2015 and December 31, 2014, 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 310 financial institutions. Management’s determination of the fair value of each of its holdings 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 our tranches is negatively impacted. The Company’s quarterly evaluation of these investments for other-than-temporary-impairment resulted in no additional write-downs during the first quarter of 2015 or 2014. Furthermore, the Company's analysis of the pooled trust preferred securities during the second quarter of 2014 supported a return to accrual status for two of the four securities. An observed history of interest payments combined with improved qualitative and quantitative factors described above justified the accrual of interest on these securities going forward. However, one of the remaining two securities is still in "payment in kind" status where interest payments are not expected until a future date, and, although the Company has received principal payments from the other security, the Company's analysis of the qualitative and quantitative factors described above does not justify a return to accrual status at this time. As a result, these two securities remain classified as nonaccruing with investment interest recorded on the cash-basis method. For more information about the Company’s trust preferred securities, see Note B, “Securities,” in the Notes to Consolidated Financial Statements of the Company in Item 1, “Financial Statements,” in this report.
Loans

41

The table below sets forth the balance of loans outstanding by loan type and the percentage of each loan type to total loans as of the dates presented:
 
March 31, 2015
 
Percentage of
Total Loans
 
December 31, 2014
 
Percentage of
Total Loans
Commercial, financial, agricultural
$
474,788

 
12.01
%
 
$
483,283

 
12.12
%
Lease financing
11,560

 
0.30

 
10,114

 
0.26

Real estate – construction
201,449

 
5.10

 
212,061

 
5.32

Real estate – 1-4 family mortgage
1,239,455

 
31.35

 
1,236,360

 
31.00

Real estate – commercial mortgage
1,938,994

 
49.04

 
1,956,914

 
49.07

Installment loans to individuals
87,415

 
2.21

 
89,142

 
2.23

Total loans, net of unearned income
$
3,953,661

 
100.01
%
 
$
3,987,874

 
100.00
%

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, 2015, 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.
Total loans at March 31, 2015 were $3,953,661, a decrease of $34,213 from $3,987,874 at December 31, 2014. Loans covered under loss-share agreements with the FDIC (referred to as “covered loans”) were $125,773 at March 31, 2015, a decrease of $17,268, or 12.07%, compared to $143,041 at December 31, 2014. For covered loans, the FDIC will reimburse Renasant Bank 80% of the losses incurred on these loans. Renasant Bank has a corresponding obligation to reimburse the FDIC for 80% of eligible recoveries with respect to these loans. Management intends to continue the Company’s aggressive efforts to bring those covered loans that are commercial in nature to resolution and thus the balance of covered loans is expected to continue to decline. The loss-share agreements applicable to this portfolio provide reimbursement for qualifying losses on single-family residential loans for ten years, which ends on July 31, 2020 for loans acquired from Crescent Bank & Trust Company ("Crescent") and February 28, 2021 for loans acquired from American Trust Bank ("American Trust"), and on commercial loans for five years, which ends July 25, 2015 for Crescent loans and February 5, 2016 for American Trust loans.
Loans not covered under loss-share agreements with the FDIC at March 31, 2015 were $3,827,888, compared to $3,844,833 at December 31, 2014. Loans acquired in connection with the Company's acquisition of First M&F Corporation ("First M&F") totaled $553,574 at March 31, 2015 compared to $577,347 at December 31, 2014. Excluding the loans acquired from First M&F, non-acquired loans increased $6,828 during the three months ended March 31, 2015. The increase in non-acquired loans was attributable to growth in owner and non-owner occupied commercial real estate loans and commercial loans, as well as loan production generated by our de novo expansion. Loans from our de novo locations in Columbus and Starkville, Mississippi, Tuscaloosa and Montgomery, Alabama and Maryville, Bristol, Jonesborough and Johnson City, Tennessee contributed $18,729 of the total increase in loans from December 31, 2014.

The following tables provide a breakdown of covered loans and loans not covered under loss-share agreements as of the dates presented:
 

42

 
March 31, 2015
 
 Not Acquired
 
 Acquired and Covered Under Loss Share
 
 Acquired and Non-covered
 
Total
Loans
Commercial, financial, agricultural
$
418,752

 
$
3,917

 
$
52,119

 
$
474,788

Lease financing
11,560

 
—

 
—

 
11,560

Real estate – construction:
 
 
 
 
 
 
 
Residential
97,555

 
—

 
363

 
97,918

Commercial
103,411

 
—

 
120

 
103,531

Condominiums
—

 
—

 
—

 
—

Total real estate – construction
200,966

 
—

 
483

 
201,449

Real estate – 1-4 family mortgage:
 
 
 
 
 
 
 
Primary
559,753

 
15,435

 
117,598

 
692,786

Home equity
264,752

 
7,845

 
30,077

 
302,674

Rental/investment
159,405

 
15,586

 
21,090

 
196,081

Land development
41,354

 
3,892

 
2,668

 
47,914

Total real estate – 1-4 family mortgage
1,025,264

 
42,758

 
171,433

 
1,239,455

Real estate – commercial mortgage:
 
 
 
 
 
 
 
Owner-occupied
656,992

 
37,963

 
164,137

 
859,092

Non-owner occupied
768,689

 
29,454

 
134,700

 
932,843

Land development
117,025

 
11,647

 
18,387

 
147,059

Total real estate – commercial mortgage
1,542,706

 
79,064

 
317,224

 
1,938,994

Installment loans to individuals
75,066

 
34

 
12,315

 
87,415

Total loans, net of unearned income
$
3,274,314

 
$
125,773

 
$
553,574

 
$
3,953,661



43

 
December 31, 2014
 
 Not Acquired
 
 Acquired and Covered Under Loss Share
 
 Acquired and Non-covered
 
Total
Loans
Commercial, financial, agricultural
$
418,501

 
$
6,684

 
$
58,098

 
$
483,283

Lease financing
10,114

 
—

 
—

 
10,114

Real estate – construction:
 
 
 
 
 
 
 
Residential
92,183

 
—

 
1,090

 
93,273

Commercial
116,129

 
—

 
134

 
116,263

Condominiums
2,525

 
—

 
—

 
2,525

Total real estate – construction
210,837

 
—

 
1,224

 
212,061

Real estate – 1-4 family mortgage:
 
 
 
 
 
 
 
Primary
563,750

 
15,827

 
122,158

 
701,735

Home equity
256,321

 
8,875

 
30,840

 
296,036

Rental/investment
153,230

 
15,618

 
22,031

 
190,879

Land development
41,111

 
3,697

 
2,902

 
47,710

Total real estate – 1-4 family mortgage
1,014,412

 
44,017

 
177,931

 
1,236,360

Real estate – commercial mortgage:
 
 
 
 
 
 
 
Owner-occupied
649,402

 
47,658

 
168,301

 
865,361

Non-owner occupied
775,364

 
29,737

 
139,327

 
944,428

Land development
114,184

 
14,909

 
18,032

 
147,125

Total real estate – commercial mortgage
1,538,950

 
92,304

 
325,660

 
1,956,914

Installment loans to individuals
74,672

 
36

 
14,434

 
89,142

Total loans, net of unearned income
$
3,267,486

 
$
143,041

 
$
577,347

 
$
3,987,874


Mortgage loans held for sale were $102,780 at March 31, 2015 compared to $25,628 at December 31, 2014. Originations of mortgage loans to be sold totaled $185,595 in the three months ended March 31, 2015 compared to $104,353 for the same period in 2014. Beginning in the second quarter of 2013 and continuing through the third quarter of 2014, mortgage rates increased from the historically low levels seen through early 2013, resulting in a slowdown in originations during this timeframe. Mortgage rates declined in the fourth quarter of 2014 and continued to remain low during the first quarter of 2015 prompting mortgage originations to increase.

Mortgage loans to be sold are sold either on a “best efforts” basis or under a mandatory delivery sales agreement. Under a “best
efforts” sales agreement, residential real estate originations are locked in at a contractual rate with third party private investors or directly with government sponsored agencies, and the Company is obligated to sell the mortgages to such investors only if the mortgages are closed and funded. The risk we assume is conditioned upon loan underwriting and market conditions in the national mortgage market. Under a mandatory delivery sales agreement, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are paid to the investor if we fail to satisfy the contract. 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 these loans in the secondary market.
Deposits

The Company relies on deposits as its major source of funds. Total deposits were $4,942,769 and $4,838,418 at March 31, 2015 and December 31, 2014, respectively. Noninterest-bearing deposits were $959,351 and $919,872 at March 31, 2015 and December 31, 2014, respectively, while interest-bearing deposits were $3,983,418 and $3,918,546 at March 31, 2015 and December 31, 2014, respectively. The increase in noninterest-bearing deposits at March 31, 2015 as compared to December 31, 2014 is primarily attributable to management’s focus on growing and maintaining a stable source of funding, specifically core deposits, and allowing more costly deposits, including certain time deposits, to mature. The source of funds that we select depends on the terms and how those terms assist us in mitigating interest rate risk, maintaining our liquidity position and managing our net interest margin. Accordingly, funds are only acquired when needed and at a rate that is prudent under the circumstances.

44

Deposits from our de novo locations in Columbus and Starkville, Mississippi, Tuscaloosa and Montgomery, Alabama and Maryville and Jonesborough, Tennessee totaled $386,255 at March 31, 2015 representing an increase of $1,139 from December 31, 2014.

Public fund deposits are those of counties, municipalities or other political subdivisions and may be readily obtained based on the Company’s pricing bid in comparison with competitors. Since public fund deposits are obtained through a bid process, these deposit balances may fluctuate as competitive and market forces change. The Company has focused on growing stable sources of deposits which has resulted in the Company relying less on public fund deposits. However, the Company continues to participate in the bidding process for public fund deposits. Our public fund transaction accounts are principally obtained from municipalities including school boards and utilities. Public fund deposits were $723,404 and $654,423 at March 31, 2015 and December 31, 2014, respectively.

Deposits in our Alabama and Tennessee markets decreased $33,642 and $2,154, respectively, at March 31, 2015 from December 31, 2014. Deposits in our Mississippi markets increased $36,935 at March 31, 2015 from December 31, 2014.
Borrowed Funds

Total borrowings include securities sold under agreements to repurchase, federal funds purchased, advances from the FHLB 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 securities sold under agreements to repurchase, federal funds purchased and FHLB advances. There was $6,732 of short-term borrowings, consisting solely of security repurchase agreements, on the balance sheet at March 31, 2015, which is a decrease of $25,671 from December 31, 2014.

At March 31, 2015, long-term debt totaled $155,581 compared to $156,422 at December 31, 2014. Funds are borrowed from the FHLB primarily to match-fund against certain loans, negating interest rate exposure when rates rise. Such match-funded loans are typically large, fixed rate commercial or real estate loans with long-term maturities. FHLB advances were $60,671 and $61,611 at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015, $5,503 of the total FHLB advances outstanding were scheduled to mature within twelve months or less. The Company had $1,571,161 of availability on unused lines of credit with the FHLB at March 31, 2015 compared to $1,592,550 at December 31, 2014. The cost of our FHLB advances was 4.16% and 4.19% for the first three months of 2015 and 2014, respectively.

Results of Operations
Three Months Ended March 31, 2015 as Compared to the Three Months Ended March 31, 2014
Net Income

Net income for the three months ended March 31, 2015 was $15,240 compared to net income of $13,597 for the three months ended March 31, 2014. Basic and diluted earnings per share for the three months ended March 31, 2015 were $0.48 and $0.48, respectively, as compared to $0.43 and $0.43, respectively, for the three months ended March 31, 2014. The increase in net income and earnings per share in the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 was due primarily to continued improvement in our cost of funds, improvement in non interest income while keeping noninterest expense flat and continued improvement in our credit risk profile.

Net Interest Income

Net interest income decreased to $48,842 for the three months ended March 31, 2015 compared to $49,971 for the same period in 2014. On a tax equivalent basis, net interest income was $50,586 for the three months ended March 31, 2015 as compared to $51,605 for the three months ended March 31, 2014. Net interest margin, the tax equivalent net yield on earning assets, decreased one basis point to 4.03% during the three months ended March 31, 2015 compared to 4.04% for the three months ended March 31, 2014. The accelerated accretion on the acquired M&F portfolio increased our loan yield by 6 basis points and increased the net interest margin by 5 basis points for the three months ended March 31, 2015. Accelerated accretion on the M&F loan portfolio increased our loan yield by 27 basis points and increased the net interest margin by 20 basis points for the three months ended March 31, 2014. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions. External factors include changes in market 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:


45

 
Three Months Ended March 31,
 
2015
 
2014
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
 
Average
Balance
 
Interest
Income/
Expense
 
Yield/
Rate
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans(1) 
$
4,020,161

 
$
47,719

 
4.81
%
 
$
3,888,673

 
$
49,767

 
5.19
%
Securities:
 
 
 
 
 
 
 
 
 
 
 
Taxable(2)
683,369

 
4,168

 
2.47
%
 
712,102

 
3,977

 
2.26

Tax-exempt
306,374

 
3,963

 
5.25

 
290,417

 
3,868

 
5.40

Interest-bearing balances with banks
83,320

 
60

 
0.29

 
286,877

 
199

 
0.28

Total interest-earning assets
5,093,224

 
55,910

 
4.45

 
5,178,069

 
57,811

 
4.53

Cash and due from banks
89,582

 
 
 
 
 
93,578

 
 
 
 
Intangible assets
296,682

 
 
 
 
 
303,599

 
 
 
 
FDIC loss-share indemnification asset
10,871

 
 
 
 
 
25,309

 
 
 
 
Other assets
331,399

 
 
 
 
 
327,329

 
 
 
 
Total assets
$
5,821,758

 
 
 
 
 
$
5,927,884

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand(3)
$
2,311,666


$
1,034

 
0.18
%
 
$
2,243,068

 
$
1,135

 
0.21

Savings deposits
365,658

 
70

 
0.08

 
336,655

 
72

 
0.09

Time deposits
1,264,539

 
2,334

 
0.75

 
1,495,022

 
3,166

 
0.86

Total interest-bearing deposits
3,941,863

 
3,438

 
0.35

 
4,074,745

 
4,373

 
0.44

Borrowed funds
168,758

 
1,886

 
4.53

 
170,091

 
1,833

 
4.37

Total interest-bearing liabilities
4,110,621

 
5,324

 
0.53

 
4,244,836

 
6,206

 
0.59

Noninterest-bearing deposits
932,011

 
 
 
 
 
949,317

 
 
 
 
Other liabilities
59,439

 
 
 
 
 
60,685

 
 
 
 
Shareholders’ equity
719,687

 
 
 
 
 
673,046

 
 
 
 
Total liabilities and shareholders’ equity
$
5,821,758

 
 
 
 
 
$
5,927,884

 
 
 
 
Net interest income/net interest margin
 
 
$
50,586

 
4.03
%
 
 
 
$
51,605

 
4.04
%
 
(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.
The average balances of nonaccruing assets 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.
The following table sets forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the three months ended March 31, 2015 compared to the same period in 2014:


46

 
Volume
 
Rate
 
Net(1)
Interest income:
 
 
 
 
 
Loans (2)
$
1,789

 
$
(3,837
)
 
$
(2,048
)
Securities:
 
 
 
 
 
Taxable
(149
)
 
340

 
191

Tax-exempt
200

 
(105
)
 
95

Interest-bearing balances with banks
(147
)
 
8

 
(139
)
Total interest-earning assets
1,693

 
(3,594
)
 
(1,901
)
Interest expense:
 
 
 
 
 
Interest-bearing demand deposits
36

 
(137
)
 
(101
)
Savings deposits
9

 
(11
)
 
(2
)
Time deposits
(454
)
 
(378
)
 
(832
)
Borrowed funds
(14
)
 
67

 
53

Total interest-bearing liabilities
(423
)
 
(459
)
 
(882
)
Change in net interest income
$
2,116

 
$
(3,135
)
 
$
(1,019
)
 
(1)
Changes in interest due to both volume and rate have been allocated on a pro-rata basis using the absolute ratio value of amounts calculated.
(2)
Includes mortgage loans held for sale and shown net of unearned income.

Interest income, on a tax equivalent basis, was $55,910 for the three months ended March 31, 2015 compared to $57,811 for the same period in 2014. This decrease in interest income, on a tax equivalent basis, is due primarily to lower levels of earning assets as well as smaller amounts of accelerated accretion caused by a slowdown in the number of loan payoffs from the First M&F portfolio. The following table presents the percentage of total average earning assets, by type and yield, for the periods presented:
 
 
Percentage of Total
 
Yield
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
 
2015
 
2014
 
2015
 
2014
Loans
78.93
%
 
75.10
%
 
4.81
%
 
5.19
%
Securities
19.43

 
19.36

 
3.33

 
3.17

Other
1.64

 
5.54

 
0.29

 
0.28

Total earning assets
100.00
%
 
100.00
%
 
4.45
%
 
4.53
%


For the three months ending March 31, 2015, loan income, on a tax equivalent basis, decreased $2,048 to $47,719 from $49,767 in the same period in 2014. The average balance of loans increased $131,488 for the three months ended March 31, 2015 compared to the same period in 2014 due in large part to increased production in the commercial and secondary mortgage loan market. The tax equivalent yield on loans was 4.81% for the three months ending March 31, 2015, a 38 basis point decrease from the same period in 2014. The decrease in loan yields was primarily a result of replacing higher rate maturing loans with new or renewed loans at current market rates which are generally lower due to the current interest rate environment as well as lower levels of accelerated accretion of nonaccretable difference due to lower levels of payoffs from the First M&F portfolio. The accelerated accretion on the acquired M&F portfolio increased our loan yield by 6 basis points and increased the net interest margin by 5 basis points for the first three months of 2015. Accelerated accretion on the M&F loan portfolio increased our loan yield by 27 basis points and increased the net interest margin by 20 basis points for the three months ended March 31, 2014.

Investment income, on a tax equivalent basis, increased $286 to $8,131 for the three months ended March 31, 2015 from $7,845 for the same period in 2014. The average balance in the investment portfolio for the three months ended March 31, 2015 was $989,743 compared to $1,002,519 for the same period in 2014. The decrease in the average balance of the investment portfolio is attributable to a decrease in short-term investments as well as lower levels of taxable securities. For the three months ended March 31, 2015, the Company maintained lower levels of cash available to invest as a result of our reduction in short term borrowings. The tax equivalent yield on the investment portfolio for the first three months of 2015 was 3.33%, up 16 basis points

47

from the same period in 2014. The increase in yield was primarily the result of a 21 basis point improvement in our taxable securities portfolio.

Interest expense for the three months ended March 31, 2015 was $5,324 as compared to $6,206 for the same period in 2014. The decline in interest expense was due to a modest decrease in the average balance of interest bearing liabilities as well as a decrease in the cost of interest-bearing liabilities as a result of the declining interest rate environment. The Company continues to seek changes in the mix of our interest-bearing liabilities in which we utilized lower cost deposits to replace higher costing liabilities, specifically time deposits. The cost of interest-bearing liabilities was 0.53% for the three months ended March 31, 2015 as compared to 0.59% for the same period in March 31, 2014.

The following table presents, by type, the Company’s funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented:
 
 
Percentage of Total
 
Cost of Funds
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
 
2015
 
2014
 
2015
 
2014
Noninterest-bearing demand
18.48
%
 
18.28
%
 
—
%
 
—
%
Interest-bearing demand
45.84

 
43.18

 
0.18

 
0.21

Savings
7.25

 
6.48

 
0.08

 
0.09

Time deposits
25.08

 
28.78

 
0.75

 
0.86

Federal Home Loan Bank advances
1.21

 
1.44

 
4.16

 
4.19

Other borrowed funds
2.14

 
1.84

 
4.74

 
4.47

Total deposits and borrowed funds
100.00
%
 
100.00
%
 
0.43
%
 
0.48
%

Interest expense on deposits was $3,438 and $4,373 for the three months ended March 31, 2015 and 2014, respectively. The cost of interest bearing deposits was 0.35% and 0.44% for the same periods. Interest expense on total borrowings was $1,886 and $1,833 for the first three months of 2015 and 2014, respectively. A more detailed discussion of the cost of our funding sources is set forth below under the heading “Liquidity and Capital Resources” in this item.

Noninterest Income
 
Noninterest Income to Average Assets
(Excludes securities gains/losses)
Three Months Ended March 31,
2015
 
2014
0.38%
 
0.31%

Noninterest income was $21,904 for the three months ended March 31, 2015 as compared to $18,616 for the same period in 2014. The increase in noninterest income and its related components is primarily attributable to a significant increase in mortgage revenue due to increased production as a result of continued decreases in interest rates and originator hires made in the latter part of 2014.

Service charges on deposit accounts include maintenance fees on accounts, per item charges, account enhancement charges for additional packaged benefits and overdraft fees. Service charges on deposit accounts were $5,933 and $5,916 for the three months ended March 31, 2015 and 2014, respectively. Overdraft fees, the largest component of service charges on deposits, were $4,387 for the three months ended March 31, 2015 compared to $4,631 for the same period in 2014.

Fees and commissions increased to $4,894 for the first three months of March 31, 2015 as compared to $4,972 for the same period in 2014. Fees and commissions include fees related to deposit services, such as interchange fees on debit card transactions, as well as fees charged on mortgage loans originated to be sold, such as origination, underwriting, documentation and other administrative fees. Mortgage loan fees decreased to $796 during the three months ended March 31, 2015 as compared to $1,445 for the same period in 2014 as the Company has lowered the fees it charges in connection with mortgage originations as a result of the competitive environment. Fees associated with debit card usage were $3,073 for the three months ending March 31, 2015 as compared to $2,730 for the same period in 2014.


48

Through Renasant Insurance, we offer a range of commercial and personal insurance products through major insurance carriers. Income earned on insurance products was $1,967 and $1,863 for the three months ended March 31, 2015 and 2014, respectively. Contingency income, which is included in "Other noninterest income" in the Consolidated Statements of Income, was $427 and $528 for the three months ended March 31, 2015 and 2014, respectively. The First M&F acquisition is a significant contributing factor to the increase in insurance commissions for 2015.

The Trust division within the Wealth Management segment operates on a custodial basis which includes administration of benefit plans, as well as accounting and money management for trust accounts. The division manages a number of trust accounts inclusive of personal and corporate benefit accounts, self-directed IRAs, 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. Additionally, the Financial Services division within the Wealth Management segment provides specialized products and services to our customers, which include fixed and variable annuities, mutual funds, and stocks offered through a third party provider. Wealth Management revenue was $2,190 for the three months ended March 31, 2015 compared to $2,144 for the same period in 2014. The market value of trust assets under management was $2,665,037 and $2,652,207 at March 31, 2015 and March 31, 2014, respectively.

There were no securities sold during the three months ended March 31, 2015 and 2014.

Gains on the sale of mortgage loans held for sale were $4,633 and $1,585 for the three months ended March 31, 2015 and 2014, respectively. Originations of mortgage loans to be sold totaled $185,595 for the three months ended March 31, 2015 as compared to $104,353 for the same period of 2014.
Noninterest Expense
 
Noninterest Expense to Average Assets
Three Months Ended March 31,
2015
 
2014
0.81%
 
0.80%

Noninterest expense was $47,414 and $47,645 for the three months ended March 31, 2015 and 2014, respectively. Merger expense related to the pending acquisition with Heritage Financial Group, Inc. was $478 for the three months ended March 31, 2015 compared to $195 of merger expenses that related to the First M&F acquisition for the same period in 2014.

Salaries and employee benefits decreased $168 to $28,260 for the three months ended March 31, 2015 as compared to $28,428 for the same period in 2014, which reflects management's continued focus on efficiency.

Data processing costs increased to $3,181 in the three months ended March 31, 2015 from $2,695 for the same period in 2014. The increase for the three months ended March 31, 2015 as compared to the same period in 2014 was primarily attributable to the addition of mobile banking, which was made available to customers in March 2014, and increased volume on our small business internet banking platform, which was first made available to our customers in November 2013.

Net occupancy and equipment expense for the first three months of 2015 was $5,559, up from $4,847 for the same period in 2014. The increase is attributable to the completion of full service banking facilities and an operations annex location during the fourth quarter of 2014 and the first quarter of 2015.

Expenses related to other real estate owned for the first three months of 2015 were $532 compared to $1,701 for the same period in 2014. Expenses on other real estate owned for the three months ended March 31, 2015 included write downs of $442 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 $7,858 was sold during the three months ended March 31, 2015, resulting in a net gain of $288. Expenses on other real estate owned for the three months ended March 31, 2014 included a $838 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 $5,573 was sold during the three months ended March 31, 2014, resulting in a net gain of $114.

Professional fees include fees for legal and accounting services. Professional fees were $824 for the three months ended March 31, 2015 as compared to $1,200 for the same period in 2014. While the Company experienced a decrease in professional fees year over year, professional fees remain elevated in large part due to additional legal, accounting and consulting fees associated with compliance costs of newly enacted as well as existing banking and governmental regulation. Professional fees attributable to legal fees associated with loan workouts and foreclosure proceedings remain at higher levels in correlation with the overall

49

economic downturn and credit deterioration identified in our loan portfolio and the Company’s efforts to bring these credits to resolution.

Advertising and public relations expense was $1,303 for the three months ended March 31, 2015 compared to $1,528 for the same period in 2014.

Amortization of intangible assets totaled $1,275 and $1,471 for the three months ended March 31, 2015 and 2014, respectively. 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 three months to twelve years.

Communication expenses, those expenses incurred for communication to clients and between employees, were $1,433 for the three months ended March 31, 2015 as compared to $1,682 for the same period in 2014.

 
Efficiency Ratio
Three Months Ended March 31,
2015
 
2014
65.41%
 
67.85%

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 tax equivalent basis and noninterest income. We remain committed to aggressively managing our costs within the framework of our business model. We expect the efficiency ratio to continue to improve from levels reported in 2014 from revenue growth while at the same time controlling noninterest expenses.

Income Taxes

Income tax expense for the three months ended March 31, 2015 and 2014 was $7,017 and $5,895, respectively. The effective tax rates for those periods were 31.53% and 30.24%, respectively. The increased effective tax rate for the three months ended March 31, 2015 as compared to the same period in 2014 is the result of the Company experiencing improvements in its financial results throughout 2014 and into the three months ended March 31, 2015 resulting in higher levels of taxable income.

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 risk 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

Inherent in any lending activity is credit risk, that is, the risk of loss should a borrower default. Credit risk is monitored and managed on an ongoing basis by a credit administration department, senior loan committee, a loss management committee and the Board of Directors loan committee. Credit quality, adherence to policies and loss mitigation are major concerns of credit administration and these committees. The Company’s central appraisal review department reviews and approves third-party appraisals obtained by the Company on real estate collateral and monitors loan maturities to ensure updated appraisals are obtained. This department is managed by a licensed real estate appraiser and employs an additional three licensed appraisers.

We have a number of documented loan policies and procedures that set forth the approval and monitoring process of the lending function. Adherence to these policies and procedures is monitored by management and the Board of Directors. A number of committees and an underwriting staff oversee the lending operations of the Company. These include in-house loan and loss management committees and the Board of Directors loan committee and problem loan review committee. In addition, we maintain a loan review staff to independently monitor loan quality and lending practices. Loan review personnel monitor and, if necessary, adjust the grades assigned to loans through periodic examination, focusing its review on commercial and real estate loans rather than consumer and consumer mortgage loans.


50

In compliance with loan policy, the lending staff is given lending limits based on their knowledge and experience. In addition, each lending officer’s prior performance is evaluated for credit quality and compliance as a tool for establishing and enhancing lending limits. Before funds are advanced on consumer and commercial loans below certain dollar thresholds, loans are reviewed and scored using centralized underwriting methodologies. Loan quality or “risk-rating” grades are assigned based upon certain factors, which include the scoring of the loans. This information is used to assist management in monitoring credit quality. Loan requests of amounts greater than an officer’s lending limits are reviewed by senior credit officers, in-house loan committees or the Board of Directors.

For commercial and commercial real estate secured loans, 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. Loan grades range from 1 to 9, with 1 being loans with the least credit risk. Allowance factors established by management are applied to the total balance of loans in each grade to determine the amount needed in the allowance for loan losses. The allowance factors are established based on historical loss ratios experienced by the Company for these loan types, as well as the credit quality criteria underlying each grade, adjusted for trends and expectations about losses inherent in our existing portfolios. In making these adjustments to the allowance factors, management takes into consideration factors which it believes are causing, or are likely in the future to cause, losses within our loan portfolio but which may not be fully reflected in our historical loss ratios. 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 loss management committee and the Board of Directors’ problem loan review committee monitor loans that are past due or those that have been downgraded and placed on the Company’s internal watch list due to a decline in the collateral value or cash flow of the debtor; the committees then adjust loan grades accordingly. This information is used to assist management in monitoring credit quality. In addition, the Company’s portfolio management committee monitors and identifies risks within the Company’s loan portfolio by focusing its efforts on reviewing and analyzing loans which are not on the Company’s internal watch list. The portfolio management committee monitors loans in portfolios or regions which management believes could be stressed or experiencing credit deterioration.

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 and interest when due according to the contractual terms of the loan agreement. Impairment is measured on a loan-by-loan basis for problem loans of $500 or greater 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. For real estate collateral, the fair market value of the collateral is based upon a recent appraisal by a qualified and licensed appraiser of the underlying collateral. When the ultimate collectability of a loan’s principal is in doubt, wholly or partially, the loan is placed on nonaccrual.

After all collection efforts have failed, collateral securing loans may be repossessed and sold or, for loans secured by real estate, foreclosure proceedings initiated. The collateral is sold at public auction for fair market value (based upon recent appraisals described in the above paragraph), with fees associated with the foreclosure being deducted from the sales price. The purchase price is applied to the outstanding loan balance. If the loan balance is greater than the sales proceeds, the deficient balance is sent to the Board of Directors’ loan committee for charge-off approval. These charge-offs reduce the allowance for loan losses. Charge-offs reflect the realization of losses in the portfolio that were recognized previously through the provision for loan losses.

Net charge-offs for the first quarter of 2015 were $1,062, or 0.11% of average loans, compared to net charge-offs of $1,067, or 0.11% of average loans, for the same period in 2014. The level of net charge-offs is a direct result of the prolonged effects of the economic downturn in our markets on borrowers’ ability to repay their loans coupled with the decline in market values of the underlying collateral securing loans, particularly real estate secured loans. The large inventories of both completed residential homes and land that had been developed for future residential home construction, coupled with declining consumer demand for residential real estate, caused a severe decline in the values of both homes and developed land. As a result, the credit quality of some of our loans in the construction and land development portfolios deteriorated. The levels of net charge-offs reflect the improved credit quality measures and the Company's continued efforts to bring these problem credits to resolution

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 an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as recognized under the Financial Accounting Standards Board Accounting Standards Codification Topic (“ASC”) 450, “Contingencies.” Collective impairment is calculated based on loans grouped by grade. Another component of the allowance is losses on loans assessed as impaired under ASC 310, “Receivables.” The balance of these loans and their related allowance is included in management’s estimation and analysis of the allowance for loan losses. Other considerations in establishing the allowance for loan losses include economic conditions reflected within industry segments, the unemployment rate in our markets, loan segmentation and historical losses that are inherent in the loan portfolio.

51

The allowance for loan losses is established after input from management, loan review and the loss management committee. An evaluation of the adequacy of the allowance is calculated quarterly based on the types of loans, an analysis of credit losses and risk in the portfolio, economic conditions and trends within each of these factors. In addition, on a regular basis, management and the Board of Directors review loan ratios. These ratios include the allowance for loan losses as a percentage of total loans, net charge-offs as a percentage of average loans, the provision for loan losses as a percentage of average loans, nonperforming loans as a percentage of total loans and the allowance coverage on nonperforming loans. Also, management reviews past due ratios by officer, community bank and the Company as a whole.

The following table presents the allocation of the allowance for loan losses by loan category as of the dates presented:
 
 
March 31,
2015
 
December 31, 2014
 
March 31,
2014
Commercial, financial, agricultural
$
4,109

 
$
3,305

 
$
3,128

Lease financing
1

 
—

 
2

Real estate – construction
1,359

 
1,415

 
1,109

Real estate – 1-4 family mortgage
14,045

 
13,549

 
18,478

Real estate – commercial mortgage
21,508

 
22,759

 
24,147

Installment loans to individuals
1,280

 
1,261

 
1,184

Total
$
42,302

 
$
42,289

 
$
48,048


For impaired loans, specific reserves are established to adjust the carrying value of the loan to its estimated net realizable value. 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 as of the dates presented:
 
 
March 31,
2015
 
December 31, 2014
 
March 31,
2014
Specific reserves for impaired loans
$
6,520

 
$
10,762

 
$
15,262

Allocated reserves for remaining portfolio
33,193

 
31,527

 
29,807

Total
$
39,713

 
$
42,289

 
$
45,069


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 the provision for loan losses 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 markets in which we operate. The Company experienced lower levels of classified loans and nonperforming loans in 2014 and through the first three months of 2015. In combination with lower levels of classified loans and nonperforming loans, the Company has experienced improving credit quality measures that has resulted in a decrease in the provision for loan losses for the three months ended March 31, 2015 as compared to the same period in 2014. The provision for loan losses was $1,075 and $1,450 for the first quarter of 2015 and 2014, respectively.

All of the loans acquired in the Company’s FDIC-assisted acquisitions and certain loans acquired in the First M&F merger and in previous acquisitions that are accounted for under ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), are carried at values which, in management’s opinion, reflect the estimated future cash flows, based on the facts and circumstances surrounding each respective loan at the date of acquisition. The Company continually monitors these loans as part of our normal credit review and monitoring procedures for changes in the estimated future cash flows; 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. As of March 31, 2015, the Company has increased the allowance for loan losses by $2,589 for loans accounted for under ASC 310-30. First M&F loans covered under ASC 310-30 accounted for $1,787 of the allowance.


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


52

 
Three Months Ended
 
March 31,
 
2015
 
2014
Balance at beginning of period
$
42,289

 
$
47,665

Charge-offs
 
 
 
Commercial, financial, agricultural
235

 
119

Lease financing
—

 
—

Real estate – construction
—

 
—

Real estate – 1-4 family mortgage
485

 
887

Real estate – commercial mortgage
633

 
60

Installment loans to individuals
50

 
231

Total charge-offs
1,403

 
1,297

Recoveries
 
 
 
Commercial, financial, agricultural
35

 
37

Lease financing
—

 
—

Real estate – construction
6

 
5

Real estate – 1-4 family mortgage
155

 
151

Real estate – commercial mortgage
112

 
30

Installment loans to individuals
33

 
7

Total recoveries
341

 
230

Net charge-offs
1,062

 
1,067

Provision for loan losses
1,075

 
1,450

Balance at end of period
$
42,302

 
$
48,048

Net charge-offs (annualized) to average loans
0.11
%
 
0.11
%
Allowance for loan losses to:
 
 
 
Total loans not covered under loss share agreements
1.11
%
 
1.30
%
Nonperforming loans not covered under loss share agreements
140.19
%
 
171.59
%


53

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,
 
2015
 
2014
Real estate – construction:
 
 
 
Residential
$
(6
)
 
$
(5
)
Commercial
—

 
—

Condominiums
—

 
—

Total real estate – construction
(6
)
 
(5
)
Real estate – 1-4 family mortgage:
 
 
 
Primary
414

 
93

Home equity
10

 
215

Rental/investment
(28
)
 
150

Land development
(66
)
 
278

Total real estate – 1-4 family mortgage
330

 
736

Real estate – commercial mortgage:
 
 
 
Owner-occupied
572

 
(7
)
Non-owner occupied
(45
)
 
(20
)
Land development
(6
)
 
58

Total real estate – commercial mortgage
521

 
31

Total net charge-offs of loans secured by real estate
$
845

 
$
762

Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned and nonaccruing securities available-for-sale. Nonperforming loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due 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. Management, the loss management committee and our loan review staff closely monitor loans that are considered to be nonperforming.

Debt securities may be transferred to nonaccrual status where the recognition of investment interest is discontinued. A number of qualitative factors, including but not limited to the financial condition of the underlying issuer and current and projected deferrals or defaults, are considered by management in the determination of whether a debt security should be transferred to nonaccrual status. The interest on these nonaccrual investment securities is accounted for on the cash-basis method until qualifying for return to accrual status. Nonaccruing securities available-for-sale consist of the Company’s investments in pooled trust preferred securities issued by financial institutions, which are discussed earlier in this section under the heading "Investments".


54

The following table provides details of the Company’s nonperforming assets that are not acquired and not covered by FDIC loss-share agreements (“Not Acquired”), nonperforming assets that have been acquired and are covered by loss-share agreements with the FDIC (“Covered Assets”), and nonperforming assets acquired through the First M&F merger and not covered by loss-share agreements with the FDIC (“Acquired and Non-covered”) as of the dates presented:
 
 
 Not Acquired
 
Acquired Covered Assets
 
 Acquired and Non-covered
 
 Total
March 31, 2015
 
 
 
 
 
 
 
Nonaccruing loans
$
17,719

 
$
18,040

 
$
1,627

 
$
37,386

Accruing loans past due 90 days or more
1,193

 
—

 
9,636

 
10,829

Total nonperforming loans
18,912

 
18,040

 
11,263

 
48,215

Other real estate owned
16,735

 
4,325

 
10,626

 
31,686

Total nonperforming loans and OREO
35,647

 
22,365

 
21,889

 
79,901

Nonaccruing securities available-for-sale, at fair value
12,837

 
—

 
—

 
12,837

Total nonperforming assets
$
48,484

 
$
22,365

 
$
21,889

 
$
92,738

Nonperforming loans to total loans
 
 
 
 

 
1.22
%
Nonperforming assets to total assets
 
 
 
 

 
1.58
%
 
 
 
 
 

 
 
December 31, 2014
 
 
 
 
 
 
 
Nonaccruing loans
$
18,781

 
$
24,172

 
$
1,443

 
$
44,396

Accruing loans past due 90 days or more
1,406

 
48

 
9,259

 
10,713

Total nonperforming loans
20,187

 
24,220

 
10,702

 
55,109

Other real estate owned
17,087

 
6,368

 
11,017

 
34,472

Total nonperforming loans and OREO
37,274

 
30,588

 
21,719

 
89,581

Nonaccruing securities available-for-sale, at fair value
12,347

 
—

 
—

 
12,347

Total nonperforming assets
$
49,621

 
$
30,588

 
$
21,719

 
$
101,928

Nonperforming loans to total loans
 
 
 
 
 
 
1.38
%
Nonperforming assets to total assets
 
 
 
 
 
 
1.76
%

Due to the significant difference in the accounting for the loans and other real estate owned covered by loss-share agreements 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. The asset quality measures surrounding the Company’s nonperforming assets discussed in the remainder of this section exclude covered assets relating to the Company’s FDIC-assisted acquisitions.

Another category of assets which contribute to our credit risk is restructured loans. Restructured loans are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition and are performing in accordance with the new terms. 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. Restructured loans that are not performing in accordance with their restructured terms that are either contractually 90 days past due or placed on nonaccrual status are reported as nonperforming loans.


55

The following table shows the principal amounts of nonperforming and restructured loans as of the dates presented. 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 below.
 
 
March 31,
2015
 
December 31, 2014
 
March 31,
2014
Nonaccruing loans
$
19,346

 
$
20,224

 
$
24,758

Accruing loans past due 90 days or more
10,829

 
10,665

 
3,244

Total nonperforming loans
30,175

 
30,889

 
28,002

Restructured loans in compliance with modified terms
21,333

 
14,337

 
19,802

Total nonperforming and restructured loans
$
51,508

 
$
45,226

 
$
47,804

 
 
 
 
 
 
Nonperforming loans to loans
0.79
%
 
0.80
%
 
0.76
%

Nonperforming loans from the First M&F acquisition totaled $11,263 at March 31, 2015 which consisted of $1,627 in loans of nonaccrual status and $9,636 in accruing loans past due 90 days or more. At December 31, 2014 nonperforming loans from the acquired First M&F portfolio were $10,702. Excluding the nonperforming loans from the First M&F merger, nonperforming loans were $18,912 at March 31, 2015 and $20,187 at December 31, 2014. The following table presents nonperforming loans, not subject to a loss-share agreement, by loan category as of the dates presented:

 
March 31,
2015
 
December 31, 2014
 
March 31,
2014
Commercial, financial, agricultural
$
2,543

 
$
1,279

 
$
1,264

Real estate – construction:
 
 
 
 
 
Residential
307

 
200

 
—

Commercial
—

 
—

 
—

Condominiums
—

 
—

 
—

Total real estate – construction
307

 
200

 
—

Real estate – 1-4 family mortgage:
 
 
 
 
 
Primary
5,278

 
5,616

 
3,844

Home equity
1,158

 
944

 
868

Rental/investment
2,404

 
2,884

 
1,597

Land development
1,039

 
558

 
2,876

Total real estate – 1-4 family mortgage
9,879

 
10,002

 
9,185

Real estate – commercial mortgage:
 
 
 
 
 
Owner-occupied
4,278

 
5,413

 
3,430

Non-owner occupied
10,101

 
10,506

 
12,987

Land development
2,981

 
3,398

 
903

Total real estate – commercial mortgage
17,360

 
19,317

 
17,320

Installment loans to individuals
86

 
91

 
233

Total nonperforming loans
$
30,175

 
$
30,889

 
$
28,002


Total nonperforming loans as a percentage of total loans were 0.79% as of March 31, 2015 compared to 0.80% as of December 31, 2014 and 0.76% as of March 31, 2014. The Company’s coverage ratio, or its allowance for loan losses as a percentage of nonperforming loans, was 140.19% as of March 31, 2015 as compared to 136.91% as of December 31, 2014 and 171.59% as of March 31, 2014. 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, 2015.

Management also continually monitors past due loans for potential credit quality deterioration. Total loans 30-89 days past due declined to $15,417 at March 31, 2015 as compared to $15,501 at December 31, 2014 and $20,993 at March 31, 2014. The acquisition of First M&F contributed $3,273 to loans 30-89 days past due at March 31, 2015 as compared to $5,132 at December 31, 2014 and $13,550 at March 31, 2014.


56

As shown below, restructured loans totaled $21,333 at March 31, 2015 compared to $14,337 at December 31, 2014 and $19,802 at March 31, 2014. The increase of $6,996 from December 31, 2014, was primarily attributable to one acquired customer relationship. At March 31, 2015, loans restructured through interest rate concessions represented 68% of total restructured loans, while loans restructured by a concession in payment terms represented the remainder. The following table provides further details of the Company’s restructured loans in compliance with their modified terms as of the dates presented:

 
March 31,
2015
 
December 31, 2014
 
March 31,
2014
Commercial, financial, agricultural
$
489

 
$
507

 
$
—

Real estate – construction:
 
 
 
 
 
Residential
—

 
—

 
—

Commercial
—

 
—

 
—

Condominiums
—

 
—

 
—

Total real estate – construction
—

 
—

 
—

Real estate – 1-4 family mortgage:
 
 
 
 
 
Primary
3,541

 
3,230

 
1,914

Home equity
18

 
—

 
—

Rental/investment
1,828

 
1,337

 
1,809

Land development
15

 
—

 
5,338

Total real estate – 1-4 family mortgage
5,402

 
4,567

 
9,061

Real estate – commercial mortgage:
 
 
 
 
 
Owner-occupied
2,654

 
2,896

 
3,564

Non-owner occupied
11,453

 
5,973

 
5,300

Land development
1,335

 
394

 
1,877

Total real estate – commercial mortgage
15,442

 
9,263

 
10,741

Installment loans to individuals
—

 
—

 
—

Total restructured loans in compliance with modified terms
$
21,333

 
$
14,337

 
$
19,802


Changes in the Company’s restructured loans are set forth in the table below:
 
 
2015
 
2014
Balance at January 1,
$
14,337

 
$
21,478

Additional loans with concessions
7,508

 
—

Reductions due to:
 
 
 
Reclassified as nonperforming
—

 
(331
)
Paid in full
(411
)
 
(190
)
Charge-offs
—

 
—

Transfer to other real estate owned
—

 
—

Paydowns
(101
)
 
(1,155
)
Lapse of concession period
—

 
—

Balance at March 31,
$
21,333

 
$
19,802



57

Other real estate owned consists 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 in “Other real estate owned” in the Consolidated Statements of Income. Other real estate owned with a cost basis of $7,858 was sold during the three months ended March 31, 2015, resulting in a net gain of $288, while other real estate owned with a cost basis of $5,573 was sold during the three months ended March 31, 2014, resulting in a net gain of $114.
The following table provides details of the Company’s other real estate owned as of the dates presented:
 
 
March 31,
2015
 
December 31, 2014
 
March 31,
2014
Residential real estate
$
3,482

 
$
4,549

 
$
6,466

Commercial real estate
11,288

 
9,179

 
8,514

Residential land development
4,235

 
4,990

 
10,418

Commercial land development
8,356

 
9,386

 
12,124

Total other real estate owned
$
27,361

 
$
28,104

 
$
37,522


Changes in the Company’s other real estate owned were as follows:
 
 
2015
 
2014
Balance at January 1,
$
28,104

 
$
39,945

Additions
3,053

 
1,554

Impairments
(428
)
 
(528
)
Dispositions
(3,379
)
 
(3,340
)
Other
11

 
(109
)
Balance at March 31,
$
27,361

 
$
37,522


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 a 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 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. 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.

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 for the dates presented:

 

58

 
 
Percentage Change In:
 
 
Net Interest Income(2)
 
Economic Value
of Equity (3)
Change in Interest Rates(1)
(In Basis Points)
 
March 31, 2015
 
December 31, 2014
 
March 31, 2015
 
December 31, 2014
+400
 
3.66
 %
 
0.51
 %
 
20.25
 %
 
16.69
 %
+300
 
3.19
 %
 
0.44
 %
 
18.21
 %
 
14.85
 %
+200
 
2.39
 %
 
0.20
 %
 
15.45
 %
 
12.50
 %
+100
 
1.24
 %
 
(0.06
)%
 
11.98
 %
 
9.91
 %
-100
 
(2.51
)%
 
(2.01
)%
 
(5.77
)%
 
(3.78
)%
 
(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 more than 100 bps.
(2)
The percentage change in this column represents the projected net interest income for 12 months on a flat balance sheet in a stable interest rate environment versus the projected 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 EVE in the various rate scenarios.

The rate shock results for the net interest income simulations for the next twelve months produce a slightly asset sensitive position at March 31, 2015 as compared to December 31, 2014. The Company’s interest rate risk strategy is to remain in a slightly asset sensitive position with a focus on balance sheet strategies that will result in a more asset sensitive position over time. To accomplish this strategy, the Company has focused on increasing variable rate loan production and generating deposits that are less sensitive to increases in interest rates.  In the first quarter of 2015 fixed rate loans declined while variable rate loans increased.  Additionally, strong deposit growth in non-rate sensitive or low cost management controlled rate deposits far outpaced the runoff in fixed rate time deposits.  The improved funding position provided for a decrease in short term borrowings and a modest increase in short term investments and shifted the balance sheet to a slightly more asset sensitive position.  Our long term interest rate risk position at March 31, 2015 when compared to December, 31, 2014, reflects improved earnings potential and an overall balance sheet shift to a more asset sensitive position.
The preceding measures assume no change in the size or asset/liability compositions of the balance sheet. Thus, the measures do not reflect actions the ALCO may undertake in response to such changes in interest rates. The above results of the interest rate shock analysis are within the parameters set by the Board of Directors. The scenarios assume instantaneous movements in interest rates in increments of 100, 200, 300 and 400 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.

The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to facilitate the needs of its customers. The Company also enters 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, 2015, the Company had notional amounts of $72,110 on interest rate contracts with corporate customers and $72,110 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts and certain fixed rate loans.

In March and April 2012, the Company entered into two interest rate swap agreements effective in March 2014. Under these agreements, the Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pays a fixed rate of interest of 4.42% and 5.49%. The agreements, which both terminate in March 2022, are accounted for as cash flow hedges to reduce the variability in cash flows resulting from changes in interest rates on $32,000 of the Company’s junior subordinated debentures. In connection with its acquisition of First M&F, the Company assumed an interest rate swap designed to convert floating rate interest payments into fixed rate payments. Based on the terms of the agreement, which terminates in March 2018, the Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and

59

pays a fixed rate of interest. The interest rate swap is accounted for as a cash flow hedge to reduce the variability in cash flows resulting from changes in interest rates on $30,000 of the junior subordinated debentures assumed in the merger with First M&F.

On June 5, 2014, the Company entered into two forward interest rate swap contracts on floating rate liabilities at the Bank level with notional amounts of $15,000 each. The interest rate swap contracts are each accounted for as a cash flow hedge with the objective of protecting against any interest rate volatility on future FHLB borrowings for a four-year and five-year period beginning June 1, 2018 and December 3, 2018 and ending June 2022 and June 2023, respectively. Under these contracts, Renasant Bank will pay a fixed interest rate of 3.593% and 3.738%, respectively, and will receive a variable interest rate based on the three-month LIBOR with quarterly net settlements.

The Company also enters into interest rate lock commitments with its customers to mitigate the Company’s interest rate risk associated with its commitments to fund fixed-rate residential mortgage loans. Under the interest rate lock commitments, interest rates for a mortgage loans are locked in with the customer for a period of time, typically thirty days. Once an interest rate lock commitment is entered into with a customer, the Company also enters into a forward commitment to sell the residential mortgage loan to secondary market investors. Accordingly, the Company does not incur risk if the interest rate lock commitment in the pipeline fails to close.

For more information about the Company’s derivative financial instruments, see Note J, “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 and public fund deposits, are a major source of funds used by Renasant 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 Renasant Bank’s liquidity. Management continually monitors the Bank's liquidity through review of a variety of reports.

Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. Within the next twelve months the securities portfolio is forecasted to generate cash flow through principal payments and maturities equal to 23.09% of the carrying value of the total securities portfolio. Securities within our investment portfolio are also used to secure certain deposit types and short-term borrowings. At March 31, 2015, securities with a carrying value of $713,577 were pledged to secure public fund deposits and as collateral for short-term borrowings and derivative instruments as compared to securities with a carrying value of $633,599 similarly pledged at December 31, 2014.

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. Federal funds are short term borrowings, generally overnight borrowings, between financial institutions that are used to maintain reserve requirements at the Federal Reserve Bank. There were no outstanding federal funds purchased at March 31, 2015. Outstanding federal funds purchased at December 31, 2014 were $26,300. Funds obtained from the FHLB are used primarily 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, 2015, the balance of our outstanding advances with the FHLB was $60,671. The total amount of the remaining credit available to us from the FHLB at March 31, 2015 was $1,571,161. We also maintain lines of credit with other commercial banks totaling $70,000. 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, 2015 or December 31, 2014.

The following table presents, by type, the Company’s funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented:
 

60

 
Percentage of Total
 
Cost of Funds
 
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
 
2015
 
2014
 
2015
 
2014
Noninterest-bearing demand
18.48
%
 
18.28
%
 
—
%
 
—
%
Interest-bearing demand
45.84

 
43.18

 
0.18

 
0.21

Savings
7.25

 
6.48

 
0.08

 
0.09

Time deposits
25.08

 
28.78

 
0.75

 
0.86

FHLB advances
1.21

 
1.44

 
4.16

 
4.19

Other borrowed funds
2.14

 
1.84

 
4.74

 
4.47

 
100.00
%
 
100.00
%
 
0.43
%
 
0.48
%

Our strategy in choosing funds is focused on minimizing cost along with considering our balance sheet composition and interest rate risk position. Accordingly, management targets growth of non-interest 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. We constantly monitor our funds position and evaluate the effect that various funding sources have on our financial position. Our cost of funds has decreased 5 basis points for the three months ended March 31, 2015 as compared to the same period in 2014 as management improved our funding mix using non-interest bearing or lower costing deposits and repaying higher costing funding including time deposits and borrowed funds.

Cash and cash equivalents were $174,379 at March 31, 2015 compared to $301,615 at March 31, 2014. Cash used in investing activities for the three months ended March 31, 2015 was $5,121 compared to $120,262 for the three months ended March 31, 2014. Proceeds from the maturity or call of securities within our investment portfolio were $38,736 for the three months ended 2015. These proceeds from the investment portfolio were primarily reinvested back into the security portfolio or used to fund loan growth. Proceeds from the maturity or call of securities within our investment portfolio during the three months ended March 31, 2014 were $74,959. These proceeds were primarily reinvested in the securities portfolio. Purchases of investment securities were $68,475 for the first three months of 2015 compared to $204,966 for the same period in 2014. There were no securities sold during the first three months of 2015 or 2014.

Cash provided by financing activities for the three months ended March 31, 2015 was $72,261 compared to $154,969 for the same period in 2014. Deposits increased $104,351 for the three months ended March 31, 2015 compared to an increase of $162,872 for the same period in 2014.

Restrictions on Bank Dividends, Loans and Advances

The Company’s liquidity and capital resources, as well as its ability to pay dividends to its shareholders, are substantially dependent on the ability of the 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, 2015, the maximum amount available for transfer from Renasant Bank to the Company in the form of loans was $56,833 The Company maintains a line of credit collateralized by cash with Renasant Bank totaling $3,023. There were no amounts outstanding under this line of credit at March 31, 2015. These restrictions did not have any impact on the Company’s ability to meet its cash obligations in three months ended March 31, 2015, 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.

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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 were as follows for the periods presented:
 
 
March 31, 2015
 
December 31, 2014
Loan commitments
$
726,526

 
$
706,972

Standby letters of credit
31,010

 
31,804


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.

Shareholders’ Equity and Regulatory Matters

Total shareholders’ equity of the Company was $723,196 at March 31, 2015 compared to $711,651 at December 31, 2014. Book value per share was $22.88 and $22.56 at March 31, 2015 and December 31, 2014, respectively. The growth in shareholders’ equity was attributable to earnings retention and changes in accumulated other comprehensive income offset by dividends declared.

On September 5, 2012, the Company filed a shelf registration statement with the Securities and Exchange Commission (“SEC”). The shelf registration statement, which the SEC declared effective on September 17, 2012, 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, debt securities, warrants and units, or a combination thereof, subject to market conditions. Specific terms and prices will be 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 Company has junior subordinated debentures with a carrying value of $94,684 at March 31, 2015, of which $91,496 are included in the Company’s Tier 1 capital. The Federal Reserve Board issued guidance in March 2005 providing more strict quantitative limits on the amount of securities that, similar to our junior subordinated debentures, are includable in Tier 1 capital. The new guidance, which became effective in March 2009, did not impact the amount of debentures we include in Tier 1 capital. In addition, although our existing junior subordinated debentures are unaffected, on account of changes enacted as part of the Dodd-Frank Act, any trust preferred securities issued after May 19, 2010 may not be included in Tier 1 capital.

The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency have issued guidelines governing the levels of capital that banks must maintain. Those guidelines specify capital tiers, which include the following classifications:
 
Capital Tiers
Tier 1 Capital to
Average Assets
(Leverage)
 
Common Equity Tier 1 to
Risk - Weighted Assets

 
Tier 1 Capital to
Risk – Weighted
Assets
 
Total Capital to
Risk – Weighted
Assets
Well capitalized
5% or above
 
6.5% or above
 
8% or above
 
10% or above
Adequately capitalized
4% or above
 
4.5% or above
 
6% or above
 
8% or above
Undercapitalized
Less than 4%
 
Less than 4.5%
 
Less than 6%
 
Less than 8%
Significantly undercapitalized
Less than 3%
 
Less than 3%
 
Less than 4%
 
Less than 6%
Critically undercapitalized
 Tangible Equity / Total Assets less than 2%



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The following table provides the capital and risk-based capital and leverage ratios for the Company and for Renasant Bank as of the dates presented:
 
 
Actual
 
Minimum Capital
Requirement to be
Well Capitalized
 
Minimum Capital
Requirement to be
Adequately
Capitalized
 
Amount
 
Ratio
 
Amount
 
Ratio
 
Amount
 
Ratio
March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
Renasant Corporation:
 
 
 
 
 
 
 
 
 
 
 
Risk-based capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital ratio
$
448,027

 
10.35
%
 
$
281,338

 
6.50
%
 
$
194,773

 
4.50
%
Tier 1 risk-based capital ratio
539,523

 
12.47
%
 
346,262

 
8.00
%
 
259,697

 
6.00
%
Total risk-based capital ratio
584,916

 
13.51
%
 
432,828

 
10.00
%
 
346,262

 
8.00
%
Leverage capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
539,523

 
9.74
%
 
277,002

 
0.05

 
221,602

 
4.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Renasant Bank:
 
 
 
 
 
 
 
 
 
 
 
Risk-based capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital ratio
$
523,505

 
12.13
%
 
$
280,621

 
6.50
%
 
$
194,276

 
4.50
%
Tier 1 risk-based capital ratio
523,505

 
12.13
%
 
345,379

 
8.00
%
 
259,035

 
6.00
%
Total risk-based capital ratio
568,326

 
13.16
%
 
431,724

 
10.00
%
 
345,379

 
8.00
%
Leverage capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
523,505

 
9.48
%
 
276,118

 
5.00
%
 
220,894

 
4.00
%
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Renasant Corporation:
 
 
 
 
 
 
 
 
 
 
 
Risk-based capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital ratio
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
Tier 1 risk-based capital ratio
$
521,135

 
12.45
%
 
$
251,129

 
6.00
%
 
$
167,419

 
4.00
%
Total risk-based capital ratio
566,515

 
13.54
%
 
418,548

 
10.00
%
 
334,839

 
8.00
%
Leverage capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
521,135

 
9.53
%
 
273,289

 
5.00
%
 
218,631

 
4.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Renasant Bank:
 
 
 
 
 
 
 
 
 
 
 
Risk-based capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital ratio
N/A
 
N/A
 
N/A
 
N/A
 
N/A
 
N/A
Tier 1 risk-based capital ratio
$
503,316

 
12.06
%
 
$
250,381

 
6.00
%
 
$
166,921

 
4.00
%
Total risk-based capital ratio
548,124

 
13.13
%
 
417,302

 
10.00
%
 
333,841

 
8.00
%
Leverage capital ratios:
 
 
 
 
 
 
 
 
 
 
 
Tier 1 leverage ratio
503,316

 
9.23
%
 
272,529

 
5.00
%
 
218,023

 
4.00
%

In July 2013, the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency approved the implementation of the Basel III regulatory capital reforms and issued rules effecting certain changes required by the Dodd-Frank Act (the “Basel III Rules”) that call for broad and comprehensive revision of regulatory capital standards for U.S. banking organizations. The Basel III Rules implemented a new common equity Tier 1 minimum capital requirement (“CET1”), a higher minimum Tier 1 capital requirement and other items affecting the calculation of the numerator of a banking organization’s risk-based capital ratios. Additionally, the Basel III Rules apply limits to a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a specified amount of CET1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements.

The new CET1 capital ratio includes common equity as defined under GAAP and does not include any other type of non-common equity under GAAP. When the Basel III Rules are fully phased in in 2019, banks will be required to have CET1 capital of 4.5%

63

of average assets, Tier 1 capital of 6% of average assets, as compared to the current 4%, and total capital of 8% of risk-weighted assets to be categorized as adequately capitalized.

Further, the Basel III Rules changed the agencies’ general risk-based capital requirements for determining risk-weighted assets, which affect the calculation of the denominator of a banking organization’s risk-based capital ratios. The Basel III Rules have revised the agencies’ rules for calculating risk-weighted assets to enhance risk sensitivity and to incorporate certain international capital standards of the Basel Committee on Banking Supervision set forth in the standardized approach of the “International Convergence of Capital Measurement and Capital Standards: A Revised Framework”.

The calculation of risk-weighted assets in the denominator of the Basel III capital ratios has been adjusted to reflect the higher risk nature of certain types of loans. Specifically, as applicable to the Company and Renasant Bank:

— Residential mortgages: Replaces the current 50% risk weight for performing residential first-lien mortgages and a 100% risk-weight for all other mortgages with a risk weight of between 35% and 200% determined by the mortgage’s loan-to-value ratio and whether the mortgage falls into one of two categories based on eight criteria that include the term, use of negative amortization and balloon payments, certain rate increases and documented and verified borrower income.

— Commercial mortgages: Replaces the current 100% risk weight with a 150% risk weight for certain high volatility commercial real estate acquisition, development and construction loans.

— Nonperforming loans: Replaces the current 100% risk weight with a 150% risk weight for loans, other than residential mortgages, that are 90 days past due or on nonaccrual status.
The Final Rules also introduce a new capital conservation buffer designed to absorb losses during periods of economic stress. The capital conservation buffer is composed entirely of CET1, on top of these minimum risk-weighted asset ratios. In addition, the Final Rules provide for a countercyclical capital buffer applicable only to certain covered institutions. It is not expected that the countercyclical capital buffer will be applicable to Renasant Corporation or Renasant Bank. Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The implementation of the capital conservation buffer will begin on January 1, 2016 at the 0.625% level and be phased in over a 4-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019).

Generally, the new Basel III Rules became effective on January 1, 2015, although parts of the Basel III Rules will be phased in through 2019.


Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk since December 31, 2014. For additional information regarding our market risk, see our Annual Report on Form 10-K for the year ended December 31, 2014.

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 Principal Executive Officer and Principal 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 1. LEGAL PROCEEDINGS
On December 31, 2014, a putative stockholder class action lawsuit, Stein v. Heritage Financial Group, Inc. et al., was filed in the Circuit Court for Baltimore City, Maryland, Civil Division, against Heritage Financial Group, Inc. ("Heritage"), the members of its board of directors, HeritageBank of the South, the Company and Renasant Bank. The complaint, which was amended on February 18, 2015, alleges that the Heritage directors breached their fiduciary duties and/or violated Maryland law in connection with the negotiation and approval of the merger agreement by failing to maximize shareholder value and failing to disclose material information in the February 9, 2015 preliminary joint proxy statement/prospectus and that Heritage, HeritageBank of the South, the Company and Renasant Bank aided and abetted those alleged breaches of fiduciary duties. In addition to monetary damages in an unspecified amount and other remedies, the lawsuit seeks to enjoin Heritage stockholders from voting on the merger at the Heritage special meeting to be held on June 16, 2015 and the Company's stockholders from voting on the merger at the Company's special meeting to be held on June 16, 2015 and to otherwise enjoin the directors from consummating the merger.

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, 2014. There have been no material changes in the risk factors disclosed in the 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, 2015.
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.















Item 6. EXHIBITS
 

65

Exhibit
Number
 
Description
 
 
(2)(i)
 
Agreement and Plan of Merger by and among Renasant Corporation, Renasant Bank, First M&F Corporation and Merchants and Farmers Bank dated as of February 6, 2013(1)
 
 
(2)(ii)
 
Agreement and Plan of Merger by and among Renasant Corporation, Renasant Bank, Heritage Financial Group, Inc. and HeritageBank of the South (2)
 
 
 
(3)(i)
 
Articles of Incorporation of Renasant Corporation, as amended(3)
 
 
(3)(ii)
 
Restated Bylaws of Renasant Corporation, as amended (4)
 
 
(4)(i)
 
Articles of Incorporation of Renasant Corporation, as amended(3)
 
 
(4)(ii)
 
Restated Bylaws of Renasant Corporation, as amended (4)
 
 
(31)(i)
 
Certification of the Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
(31)(ii)
 
Certification of the Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
(32)(i)
 
Certification of the Principal Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
(32)(ii)
 
Certification of the Principal Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
(101)
 
The following materials from Renasant Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements (Unaudited).
 
(1)
Filed as exhibit 2.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on February 11, 2013 and incorporated herein by reference.
(2)
Filed as exhibit 2.1 to the Form 8-K of the Company filed with the Securities and Exchange Commission on December 15, 2014 and incorporated herein by reference.
(3)
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.
(4)
Filed as exhibit 3(ii) to the Company's Form 10-Q filed with the Securities and Exchange Commission on May 8, 2013 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 its request, a copy of all long-term debt instruments.

66

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.
 
 
 
RENASANT CORPORATION
 
 
(Registrant)
 
 
 
Date:
May 8, 2015
/s/ E. Robinson McGraw
 
 
E. Robinson McGraw
 
 
Chairman of the Board, Director,
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
Date:
May 8, 2015
/s/ Kevin D. Chapman
 
 
Kevin D. Chapman
 
 
Executive Vice President and
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)

67

EXHIBIT INDEX
 
Exhibit
Number
 
Description
 
 
(31)(i)
 
Certification of the Principal Executive Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
(31)(ii)
 
Certification of the Principal Financial Officer, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
(32)(i)
 
Certification of the Principal Executive Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
(32)(ii)
 
Certification of the Principal Financial Officer, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
(101)
 
The following materials from Renasant Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements (Unaudited).

68