RENASANT CORPORATION (RNST) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited consolidated results. Renasant provides banking, insurance, wealth-management, factoring and asset-based lending services, primarily in the Southeast.
Financial results and position
Unless otherwise noted, dollar amounts below are in millions; the filing presents financial statements in thousands.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $127.4 | $130.3 | $393.4 | $343.5 |
| Net interest margin, tax-equivalent | 3.36% | 3.54% | 3.49% | 3.14% |
| Provision for loan credit losses | $5.3 | $9.8 | $16.3 | $13.3 |
| Noninterest income | $38.2 | $41.2 | $92.7 | $115.9 |
| Noninterest expense | $107.7 | $101.6 | $324.5 | $293.9 |
| Net income | $41.8 | $46.6 | $116.6 | $119.8 |
| Diluted EPS | $0.74 | $0.83 | $2.07 | $2.13 |
- Balance sheet at September 30: Assets were $17.18 billion, loans held for investment net of allowance were $11.97 billion, and deposits were $14.16 billion. Total loans before allowance, excluding loans held for sale, grew to $12.17 billion from $11.58 billion at December 31, 2022.
- Funding, liquidity and debt: Cash and cash equivalents were $741.2 million. Deposits rose $670.1 million from year-end, while noninterest-bearing deposits fell to $3.73 billion (26.4% of deposits) from $4.56 billion (33.8%). Brokered deposits were $757.8 million, up from $233.1 million. Short-term borrowings declined to $107.7 million from $712.2 million; long-term debt was $427.4 million. Available capacity included $3.11 billion on FHLB lines, $585.4 million at the Federal Reserve Discount Window, and $180 million in other bank lines; none was drawn at the Fed or under the other bank lines.
- Cash flows, nine months: Operating activities provided $48.1 million, investing activities provided $89.2 million, and financing activities provided $27.9 million. Cash increased $165.2 million to $741.2 million. These figures include substantial mortgage-loan funding and sale flows.
- Credit and capital: Allowance for loan losses was $197.8 million, or 1.63% of loans. Nonperforming loans were $70.1 million (0.58% of loans), versus $56.9 million (0.49%) at year-end; nonperforming assets were $79.3 million. Nine-month net charge-offs were $10.6 million, or 0.12% of average loans, versus $4.8 million and 0.06% in 2022. Renasant Corporation’s CET1 ratio was 10.46%, and the Bank’s was 12.23%; both exceeded applicable well-capitalized thresholds.
- Equity and distributions: Shareholders’ equity was $2.23 billion; book value per share was $39.78. The quarterly dividend was $0.22 per share. A new $100 million repurchase authorization was approved in October 2023; the company reported no repurchases under the prior plan during the first nine months of 2023.
Material changes versus comparable periods
- Q3 net income declined 10% year over year and diluted EPS fell from $0.83 to $0.74. Nine-month net income declined about 3%.
- Loan yields and balances supported higher nine-month interest income, but sharply higher deposit and borrowing costs pressured Q3 results. Q3 interest expense increased to $78.3 million from $12.8 million; the tax-equivalent net interest margin narrowed year over year. For the nine-month period, margin and net interest income improved from 2022.
- Noninterest income fell, reflecting lower mortgage banking revenue and, for the nine-month comparison, a $22.4 million securities-sale loss. The securities were sold in the first half of 2023; no securities were sold in Q3. The loss reduced nine-month diluted EPS by $0.31.
- Noninterest expense increased, including higher salaries, professional fees and other expenses. The efficiency ratio worsened to 63.96% for Q3 from 58.50%, and to 65.64% for the nine-month period from 63.20%.
- The securities portfolio declined to $2.15 billion from $2.86 billion at year-end, mainly reflecting securities sales and cash flows used for loan growth and liquidity management. Available-for-sale securities had $196.6 million of gross unrealized losses at quarter-end; management said it did not intend or expect to be required to sell loss-position securities before recovery or maturity.
Outlook, commentary and risks
- The filing provides no specific earnings or financial guidance. Management emphasized liquidity and safe-and-sound operations following industry bank failures, while continuing to seek stable core deposits and manage funding costs.
- Management attributed nine-month net interest income growth to higher rates and loan growth, partly offset by higher funding costs. The company reported an asset-sensitive position in its rate simulations: a parallel 100-basis-point increase projected a 2.33% increase in net interest income over months 1–12 and 3.56% over months 13–24; a 100-basis-point decline projected decreases of 2.96% and 4.17%, respectively. These are modeled estimates, not forecasts, and depend on assumptions about rates, deposit repricing and balance-sheet behavior.
- Key risks include deposit competition and outflows, reliance on higher-cost brokered deposits and wholesale funding, interest-rate and securities valuation exposure, credit deterioration (including real estate lending), economic conditions, mortgage-market weakness, and acquisition integration. Management specifically cautioned that continuing banking-sector liquidity concerns could adversely affect customer confidence, funding costs and results.
- Uninsured and uncollateralized deposits were estimated at $4.20 billion. Unfunded loan commitments totaled $3.14 billion and standby letters of credit $114.2 million. The allowance for credit losses on unfunded commitments was $16.9 million.
Most important facts for investors to verify
- Whether deposit mix, brokered-deposit usage and funding costs stabilize, and how those trends affect margin and earnings.
- Whether nonperforming loans, charge-offs and commercial real estate credit quality continue to worsen; review the portfolio detail and allowance assumptions.
- How securities portfolio values and unrealized losses evolve, and whether liquidity needs could require further securities sales.
- Whether loan growth remains profitable after funding costs and credit provisions, and whether mortgage and other fee income recover.
- Whether capital ratios, liquidity sources and dividend capacity remain adequate under stressed conditions; assess modeled rate sensitivity against actual results.