Renasant (NYSE:RNST) reported third-quarter results that management said reflected continued momentum in loan production, core deposit growth, expense control and asset-quality improvement, while also announcing an agreement to acquire Commercial Bank & Trust Company.
President and Chief Executive Officer Kevin Chapman said adjusted earnings per share were $0.86, up 12% from a year earlier. Adjusted return on average assets was 1.16%, compared with 1.09% in the prior-year quarter, while adjusted return on tangible common equity increased to 14.5% from 14.2%. The company’s efficiency ratio improved to 57.7%.
Loan Growth Outpaced Reported Deposit Growth
Senior Executive Vice President and Chief Financial Officer Jim Mabry said loans increased $555.9 million from the second quarter, equivalent to 11.5% annualized growth. Deposits declined $73.2 million, or 1.3% annualized, largely due to public-fund deposit outflows and the exit of several larger, non-core higher-cost relationships.
Underlying consumer and commercial deposit growth was about 8% annualized, Mabry said. Chapman added that core deposits increased by slightly more than $300 million during the quarter, while approximately 60% of core deposit growth came from customers that were new to Renasant.
Management said public-fund deposit seasonality was expected to reverse late this year or early next year. Chapman said the company is also working to reduce its reliance on public funds, which can carry higher costs, and to bring deposit costs closer to peer levels through a greater mix of core deposits.
Renasant’s reported net interest margin declined six basis points sequentially to 3.77%, while adjusted margin decreased two basis points to 3.58%. Excluding accelerated bond discount accretion recorded in the prior quarter, core net interest margin increased two basis points.
Total deposit costs rose one basis point to 1.97%, while adjusted loan yields rose five basis points to 6.08%. Mabry said the company expects modest margin improvement over the next quarter or two under its interest-rate assumptions. He said Renasant’s near-term assumed interest-bearing deposit beta is in the upper-40% to low-50% range, increasing to the mid-50% range over time.
Management said competition remains intense for both loans and deposits. Chapman said core deposits added during the quarter were priced in the mid-2% range, below wholesale funding rates and some deposit products available in the market. He also said the company does not intend to pursue growth by compromising either credit quality or loan yields.
Commercial Bank & Trust Deal Targets Deposits and Wealth Management
Renasant announced plans to merge with Commercial Bank & Trust Company, a transaction that Chapman said will strengthen its Memphis presence and add longstanding deposit and wealth-management relationships across western Tennessee.
Mabry said the transaction is valued at approximately $140 million and consists of roughly 75% stock and 25% cash. The company expects the acquisition to be about 4% accretive to earnings per share and 1.5% dilutive to tangible book value per share, with an estimated earn-back period of just under two years. Closing is anticipated during the first quarter of 2027.
The deal is expected to result in modest reductions to regulatory capital ratios, with the common equity tier 1 ratio projected at approximately 11% at closing, according to Mabry. All of Renasant’s current regulatory capital ratios remain above the minimum levels required to be considered well capitalized.
Chapman described Commercial’s low-cost, core-funded deposit base as a strategic fit for Renasant’s funding priorities. He also highlighted Commercial’s wealth-management business, which has more than $1 billion in assets under management and is concentrated in trust services. Renasant did not model revenue synergies from the transaction, but Chapman said the combined company could expand trust capabilities and learn from Commercial’s growth strategies.
Management said Commercial has a granular loan portfolio similar to Renasant’s and could benefit from Renasant’s capacity to serve larger relationships and offer specialty products, including asset-based lending, SBA lending and factoring.
Expenses, Credit and Capital Allocation
Third-quarter net interest income was $228.6 million, up $0.9 million sequentially. Excluding fair-value accretion and prior-quarter accelerated bond discount accretion, core net interest income rose $5.8 million, or 11% annualized. Noninterest income declined $1.9 million to $49.3 million, primarily due to lower mortgage banking income.
Noninterest expense fell $1.2 million sequentially to $160.3 million, mainly reflecting lower deferred-compensation accruals. Mabry said expenses are expected to increase slightly in the fourth quarter because of hiring, along with likely merger-related costs tied to Commercial.
Renasant added 11 revenue producers during the third quarter, Chapman said. The company continues to recruit bankers, wealth-management professionals and treasury-management personnel, though some hires are replacing existing positions rather than adding net headcount.
The company recorded a $13.3 million provision for credit losses on loans, including $10.1 million for funded loans and $3.2 million for unfunded commitments. Net charge-offs were $10 million, and the allowance for credit losses declined four basis points from the prior quarter to 1.50% of total loans.
Chief Credit Officer David Meredith said criticized and classified loans had declined for four consecutive quarters, while nonperforming assets had decreased for two quarters. He said the higher charge-offs included a single C&I credit that had been identified as a problem loan during the first quarter and was written down to its estimated realizable value after the company completed its asset valuation.
Renasant’s board reauthorized a $175 million share-repurchase program. Mabry said the company intends to remain active in repurchases, though the cash component of the Commercial transaction could moderate buyback activity over the next 12 months.
About Renasant (NYSE:RNST)
Renasant Corporation is a financial services holding company headquartered in Tupelo, Mississippi. Through its principal subsidiary, Renasant Bank, the company provides banking and related financial services to individuals, families, small businesses, commercial clients and other organizations.
Renasant Bank offers deposit accounts, consumer and commercial lending, residential mortgages, treasury management and other business banking services. Its broader offerings also include wealth management, trust and investment services, financial planning and insurance-related solutions.
Renasant traces its banking history to 1904 and has expanded through organic growth and acquisitions.
