Renasant Corporation (RNST) Q3 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the Renasant Corporation 2025 Third Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I'd now like to the conference over to Kelly Hutcheson. Please go ahead.

Good morning, and thank you for joining us for Renasant Corporation's quarterly webcast and conference call. Participating in the call today are members of Renasant's executive management team. Before we begin, please note that many of our comments during this call will be forward-looking statements, which involve risk and uncertainty. There are many factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. Such factors include, but are not limited to, changes in the mix and cost of our funding sources, interest rate fluctuation, regulatory changes, portfolio performance and other factors discussed in our recent filings with the Securities and Exchange Commission, including our recently filed earnings release, which has been posted to our corporate site, www.renasant.com at the Press Releases link under the News and Market Data tab. We undertake no obligation and we specifically disclaim any 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. In addition, some of the financial measures that we may discuss this morning are non-GAAP financial measures. A reconciliation of the non-GAAP measures to the most comparable GAAP measures can be found in our earnings release. And now I will turn the call over to our President and Chief Executive Officer, Kevin Chapman.

Thank you, Kelly, and good morning. We appreciate you joining the call and look forward to sharing results for the quarter. Renasant's financial performance in the third quarter reflects good loan growth and profit improvement that keeps us on the path to meet the financial goals of the merger. The integration with The First continues to go well. Systems conversion took place in early August, and I believe we have made great strides in operating as one team. As you know, in July 2024, Renasant and The First announced a partnership that would maximize our strengths and create a high-performing Southeast bank. At that time, we established profitability goals related to return on assets, return on tangible common equity and our efficiency ratio. We knew that the third quarter of 2025 would be an important measuring stick for our progress against these expectations. Q3 results position us to achieve our goals. Additionally, it is very gratifying to see our team despite going through the largest conversion either company has gone through produced loan growth of almost 10% during the quarter. I want to thank all of our employees for their tremendous effort this quarter in completing systems conversion while continuing to understand and meet the needs of our customers. I will now highlight financial results for the quarter. The company's net income was $59.8 million or $0.63 per diluted share. Adjusted earnings, excluding merger charges, were $72.9 million or $0.77 per diluted share. Loans were up $462 million on a linked quarter basis or 9.9% annualized. Deposits were down $158 million from the second quarter, which was driven by a seasonal decrease in public funds of $169 million on a linked quarter basis. Reported net interest margin was flat at 3.85%, while adjusted margin was up 4 basis points to 3.62% on a linked-quarter basis. Our adjusted total cost of deposits increased by 4 basis points to 2.08%, while our adjusted loan yields increased 5 basis points to 6.23%. We look forward to seeing additional profitability improvements in upcoming quarters as efficiency savings are realized. I will now turn the call over to Jim.

Thank you, Kevin, and good morning. As Kevin mentioned, we are encouraged by the integration efforts of our employees and the positive impact on results this quarter. Our adjusted return on average assets of 1.09% for the quarter is an improvement of 12 basis points from a year ago, and our adjusted return on tangible common equity of 14.22% for the quarter is an improvement of 296 basis points. From a capital standpoint, all regulatory capital ratios remain in excess of required minimums to be considered well capitalized. We recorded a credit loss provision on loans of $10.5 million, comprised of $9.7 million for funded loans and $800,000 for unfunded commitments. Net charge-offs were $4.3 million and the ACL as a percentage of total loans declined 1 basis point quarter-over-quarter to 1.56%. Turning to the income statement. Our adjusted pre-provision net revenue was $103.2 million. Net interest income growth was driven by the improvement in the net interest margin and loan growth. Noninterest income was $46 million in the third quarter, a linked quarter decrease of $841,000, excluding the gain on sale of MSR assets in Q2. Noninterest expense was $183.8 million for the third quarter. Excluding merger and conversion expenses of $17.5 million noninterest expense was $166.3 million for the quarter, a linked quarter increase of $3.6 million. With systems conversion now complete, we expect modeled synergies to be more evident in our results going forward. Regarding conversion-related expenses, we believe the majority have been recorded through the third quarter with a modest amount expected to come in the fourth quarter. There was a decline in our adjusted efficiency ratio of about 0.4 percentage points, and we expect to see additional improvements in the coming quarters. We are encouraged by the results of the third quarter and the positive momentum going into the fourth quarter. I will now turn the call back over to Kevin.

Thank you, Jim. We look forward to closing out a successful year for Renasant. We have come a long way on our goal of improving profitability. The combination of a strong balance sheet plus added profitability puts us in a position to capitalize on opportunities in our vibrant banking footprint. I will now turn the call over to the operator for questions.

[Operator Instructions] And the first question comes from Stephen Scouten with Piper Sandler.

Everyone. Really nice quarter here. Loan growth was particularly encouraging. Can you give any color around what you're seeing from a pipeline perspective? And maybe also around specifically the legacy SBMS markets, maybe in and around the Gulf Coast potential strength you're seeing there that's helping fuel the strong growth?

It's Kevin. So yes, we -- looking at loan growth for the quarter, I know we've been guiding more towards, call it, the mid-single digits. We've been expecting payoffs to increase. Our production has been all year long. I think for Q1, Q2, we've been more in the 7% range if you look at the net loan growth. Again, this looming potential of payoffs -- can you -- it feels like it continues to be out there. But getting to the current quarter, what I'd tell you what we're excited about is the growth happened all throughout our footprint whether you look at as a breakdown from a geography, whether you look at it from, say, our credit channels, whether it's our small business lending units or our business banking lending units or even some of our larger units like corporate or commercial lending units. All categories, we saw good distributed growth in all of them. And even if you break it down by asset classes, we saw good growth. So going to where we were back in July of '24 when we contemplated merging with The First, one we thought we could do is unlock some potential in both companies. I think Q3 is... [Technical Difficulty] Specific to The First in the Gulf Coast. What we've seen is we've seen good growth there as well. And the opportunities that Renasant can provide to The First lenders with being able to expand relationships now that they have a little bit bigger balance sheet, we have a bigger balance sheet. We have more lending capabilities or the ability to do specialized lending with some of our secured lending lines. That team has immediately gravitated to it, has made referrals, and we've seen immediate successes as a result of, again, the combination. So again, as we look we're excited about what Q3 indicates, how we're positioned. And again, I think we've got the opportunity to continue growth in Q4 and beyond.

Great. Appreciate that color, Kevin. Maybe just curious about pace of expense saves from here kind of how much maybe you've been able to extract so far and kind of what we can think about in terms of further expense states from the deal and kind of the path as we maybe look at a good 1Q '26 run rate, that sort of thing?

Stephen, it's Jim. So just to touch on Q3 for a second. So you saw in core NIE, we were up about $3 million ex the merger expenses. And our -- and I would say actually, let me comment on the increase and what we saw in Q3. There was -- there were 3 buckets where we saw the increase, and they were about equally weighted. You had an increase in health and life, you had increase in occupancy, and you saw an increase in health and life occupancy in the FAS 91. So 2 of those are sort of uncontrollable, so we'll see how those play out in future quarters. But as it relates more particularly to your question, our sense is that in Q4, we'll see about a $2 million or $3 million decrease in core NIE for Q4 and then another $2 million or $3 million decrease in core NIE in Q1.

Okay. Fantastic. That's really helpful, Jim. And then just lastly for me, I really appreciate how you guys broke out kind of accretion in your slide deck. What's kind of a good baseline assumption of the normal accretion expected? Is it around that, I guess, it was $12.4 million. Is that right? Or maybe the interest rate component of that was about $9.8 million, if I'm doing the math right. Is that a good way to think about forward accretion?

Well, it obviously is going to vary the accelerated part is going to vary given loan prepayments. So it's a hard thing to predict. But I think that scheduled accretion is going to track pretty closely to what you saw in Q3.

And the next question comes from Matt Olney with Stephens.

I want to ask more about that core margin in the third quarter, saw some good expansion with that. Any more color on the drivers of that expansion? And then I guess if we look forward, I think you mentioned on a previous call that you thought it could -- core margin would maybe flatten out as we got towards the fourth quarter. Is that still the view of the fourth quarter core margin.

Matt, this is Jim. So yes, we were pleased to see a little expansion in Q3. Looking forward, I would say, in Q4, probably some modest contraction in the margin in Q4. And then for '26, I would say, modest expansion. So not a lot of change, but that would be a general outlook and that assumes 4 rate cuts. between now and year-end of '26.

Just to clarify, you said that assumes 4 rate cuts between -- including today, I assume, between now and the end of next year. Is that right?

That's correct.

Okay. That's helpful. And then I guess switching over to credit quality. We did see criticized loans jump up in the third quarter. Any color on the driver of that jump up of criticized loans?

This is David. So it was a broad-based increase for the quarter. There was a little bit of commercial real estate, a little bit of C&I. If we get into the weeds a little bit, we had a single multifamily transaction that does make up about 1/4 of it. that we feel very strong. This is a good asset, just was underperforming relative to our original budget. We expect that loan to pay off the ordinary course probably early '26. We had 2 C&I transactions that made up roughly 1/3 of that number. One of them is the Tricolor credit that we've talked about that made up a large percentage of that asset type. A little bit of migration in our self-storage portfolio and then a little bit of migration in one asset in our senior housing. So it was broad-based within our downgrades to criticized. We don't feel that we have any loss exposure in that increase, but it's broad-based. And Matt, I know you know we do a fairly aggressive job of looking at our loan portfolio from the health portfolio, risk-rating loans proactively to make sure we're identifying risk so we can find those loans and migrate them out of the bank as quick as possible. So I think that's just a testament to our early identification of problem loans so we can manage them proactively.

And the next question comes from Michael Rose with Raymond James.

Just on the new buyback that you guys announced, -- good to see you guys are going to be building capital, but you haven't bought back really any stock since 2021. Just wanted to see where that currently plays in your thought process, particularly given the fact that you've just here recently completed a deal, there's probably other deals out there. It seems like the environment is good. Just wanted to kind of run down the thought process on capital as we move forward.

Michael, it's Jim. So the third quarter was an important quarter for us because we obviously got the deal closed, and that was reflected in Q2. And then to go through systems conversion and just see Q3 come out like it did. And of course, Kevin's comments, I thought were spot on. I mean it was just really nice to see all that momentum that we've got and the fact that our teams remain focused. I say that because I think it's important to have that backdrop as we think about capital because we -- I think we feel like we've got pretty good visibility into Q4 and into '26 in terms of the prospects for us to continue to grow that capital. Our sense is that we could grow those capital ratios anywhere between 60 and 70 basis points between now and year-end '26. And so the capital levers, including buyback, are much more in focus for us. And we are putting a lot of thought into that. And I think are mindful of the fact that we're going to have a growing capital base. We've taken a couple of steps here recently. One, notably, right after the quarter, we redeemed $60 million of sub debt. You saw the dividend announcement, the common dividend announcement. So -- and we wanted to think about that authorization. And one of the things -- one of the reasons we increased it is just proportionate. I mean, we're 50% larger in terms of market cap and capital. But also, it's a lever that we're increasingly inclined to think about. So I think whether it's the buyback supporting organic growth, which, of course, has been strong, remains the #1 goal. But we're going to bear down on uses of capital. And I think buyback is certainly high on that list in terms of levers we might pull in the coming quarters.

Very helpful. And then maybe if I can just ask a question on deposits. You guys' loan to deposit ratio is now kind of approaching 90%. It's the highest it's been since basically the beginning of COVID. Can you just talk about some of the deposit growth strategy? I know there's always some seasonality with muni deposits, too, but the general trend has been upward over the past few years. And just wanted to get a better sense of your plans for deposit growth juxtaposed with the rate environment?

I think we've been spoiled because I think out of the last 10 quarters, we've had deposit growth that's equal or better loan growth. And so to not have that in a quarter is certainly something that caught our attention. But as you point out, a lot of that was seasonal, had to do with public funds. And our goal is to grow deposits, core deposits in line with loan growth. And that remains a focus of ours and the way we incentivize our teams, what we motivate our teams and so as we go forward in '26, we want that core deposit growth to equal whatever loan growth we produce. As we look to Q4 some of the public outflows that we saw in Q3, there might be just given the seasonality of the way some of the municipalities behave, we could see some of that come back in the latter part of Q4, so we'll see how that plays out. But I would tell the funding loan growth remains a top priority here. And we know we can generate deposits. We've got a great record of doing that, and it's a focus of the company, whether it's this quarter or next quarter or for the next decade. That is a paramount focus at Renasant to grow the deposit base regardless of what loan growth is.

Really appreciate the color. Maybe if I could just sneak one last one in. I appreciate the near-term color on expenses. I know it's something we all struggle with in modeling as we go through a deal, especially at the size. But just as we think about kind of the combined franchise now that systems conversion has happened, are there other areas and levers that you guys can pull to kind of generate the positive operating leverage as we kind of move forward? I'm just trying to better appreciate some of the opportunities, maybe at legacy Renasant now that you have the cost saves from the deal and the accretion from the deal?

Yes. Michael, Kevin. So the short answer is yes. right? If we go back 16, 18 months ago, Renasant on a stand-alone basis, The First on a stand-alone basis, both of us were looking at either adding expenses for the assets where we were at or we needed scale for the expenses and infrastructure we have built. So combining both companies unlock potential. And I think we laid out some goals when we launched this of an ROA in the 120s, mid-teens ROE and a mid-50s efficiency ratio. And I think, again, you saw it in Q2, you see it in Q3, we are right on top on path to meet those goals. But as we've talked about or as we've tried to communicate, that's not where we're stopping. There's real momentum in the company, not only around expenses, but driving higher levels of profitability on our expenses. So that operating leverage that's there is going to continue to come in 2 places. It will come from discipline and management on the expense side, but it's also going to be getting the right return on the expenses we have. So we've had probably above average loan growth now for a couple of quarters. We want to have above-average loan growth. It doesn't have to be 20% loan growth. It just needs to be a couple of multiples above the average so that we can get the scale. So we can get the revenue that's generated off those expenses. And that's been an effort that's been ongoing. I know on the Renasant. And now I think you're seeing it on the combined company. But there's still going to be a continued effort to look at our expenses, create efficiencies. Accountability is prevalent all throughout the company and we hold each other accountable, but the expectations for the company internally have been raised, I would say, further than where expectations are for external estimates. And so we really -- the momentum we have around our financial performance and our focus and that leads with profitability that has been embraced by the company, and I think it's unleashed some pent-up excitement, pent-up demand within the company as we start -- as we're achieving the success that we felt we could achieve. So the operating leverages will be not only on the expense side, but it's also going to come on the revenue side. Our provision was elevated this quarter, not because of credit but because we had twice the loan growth we thought we were going to have. So that revenue that's going to come from that above average loan growth is going to be there in the future quarters. And that's what excites us about the past couple of quarters and some of the balance sheet growth that we've had is it's in line with our plan and really kind of reemphasizes what we thought could happen combining both Renasant and The First is unlocking some of that potential that was there. Unlocking it on a -- when we combined as opposed to us not being able to unlock it or struggle a little bit if we remained independent.

And the next question comes from Dave Bishop of the Hovde Group.

Kevin, quick question in the preamble. It sounded like maybe you were surprised in terms of the lack of payoffs this quarter? And maybe last, just curious if you have like line of sight into potential payoffs into the next quarter? And if they didn't occur, maybe what's delaying or are there borrowers sort of waiting for lower rates? Just curious if there's any way to ring-fence maybe potential headwinds into the coming quarter or next, if that's possible.

Yes. No, it is. To be honest with you, we are -- I am, and I think we are a little bit surprised that payoffs have been a little bit muted. But we've also been -- we've set an indicator that we've been looking at the 10-year. If the 10-year -- as it approached 4% or dropped below 4%, we think the risk of prepayments, payoffs for us increase. Q3, the -- I don't know the exact number on the 10-year, but it was probably in the [ 4% 10s or the 4% 20s ] and didn't really approach the 4% range until we got into October. So as we look at, say, fourth quarter, we are more focused on and ensuring that we have good line of sight into customers, our lenders getting updates as to where potential payoffs, prepayments could occur only because we had set towards the end of last year, beginning of this year, that 4% 10-year is an important benchmark for us that as we approached it or we got below it, that could elevate payoffs in our commercial real estate book.

Got it. And then obviously, you're cognizant of the significant amount of M&A activity in your backyard or backyard, so to speak, Just curious how aggressive you think you're going to be in terms of recruiting some of that talent and commercial clients that could dislodge from those acquisitions. And is the opportunity set big enough to -- I know The First merger just closed, but is the opportunity there to sort of replace whole bank M&A with lift out of talent?

Yes. So David, I'm not sure it replaces it, but it provides an interesting and unique opportunity for us. And in some cases, there may be opportunity to hire with some of the overlap we may have the opportunity to pick up customers without any additional hires. So I think we find ourselves in a very unique position and we like where we sit with all the disruption. And again, I don't necessarily think this is going to be the last disruption. That's what we've seen, there's going to be further disruption in the Southeast. And I think we sit in a very unique position to potentially benefit from that. And again, it may come in the form of hiring in -- just for example, in Q3, I think we hired 10 new either market presidents or prominent lenders throughout the footprint. We've also been actively hiring in Q4. But again, in some cases, we have the opportunity to pick up potential business and we won't have to hire -- we don't feel like we'll have to hire to do that. So it's going to be -- again, we're excited that we're not in the middle of a conversion. We're not in the middle of approvals. We're not in the middle of anything that we're on the other side of our conversion, other side of our integration and really focus to what we want to do, which is get business and gain market share. And so we're excited about where we stand right now as it relates to that.

And the next question comes from Catherine Mealor with KBW.

I want just to circle back on expenses, just to kind of be on maybe looking at the expense trajectory into '26. So if I lower expenses per what you're talking about, Jim, kind of somewhere around $2 million to $3 million each of the next 2 quarters. I'm kind of starting next year at a $161 million base. And if I just annualize that number, basically where consensus is for '26 in expenses, which is $645 million. And so as I'm thinking about that, I mean, do you feel like we're in a position where you're where you're lowering expenses in the next 2 quarters and then were flat? Or should we actually grow a little bit off of that base in the first quarter of '26, just kind of given better revenue growth and opportunities in your markets?

Catherine, I would say -- I would guide you towards that consensus number or a touch better for '26. I think that's a reasonable outlook for us. And we sort of got the crosswinds of the efficiencies from the deal. And then the things that Kevin mentioned, we sit in a really good spot right now geographically and just as a company, having gotten the conversion behind us. The integration, still there's work to do, but it's gone really well. And so -- but I think what you laid out, I mean, we'll end up with a Q1 run rate, and I think it will be a pretty clean quarter overall in terms of expenses. There may be some a little noise in there, but I think it will be pretty clean. And then we'll have a merit that will impact our numbers a little bit towards the middle of the year. But I think that consensus number is probably a pretty good number, maybe a touch better.

Okay. That's awesome. Very helpful. And then on the deposit side, it was interesting to see deposits up a little bit this quarter. And I know that's the mix change, and now we'll have the benefit of 2 cuts. But we're hearing from a lot of other banks this quarter, the deposit costs are getting more and more competitive. And so just curious on how you're kind of thinking about deposit costs and betas over the next few cuts relative to what we've seen over the past 100 basis points of cuts?

Well, certainly, on the deposit pricing side where we've seen the most pressures, I mean the loan side is always competitive, but I feel it's the -- any sort of improvement in the deposit side has been grudgingly so. I mean it just -- it feels really tough there. So I think our betas interest-bearing deposits and loans are probably roughly the same in the mid-30s for '26, between now and year-end '26. And the key variable there is just -- is what we see in the deposit side and people's thirst for that funding. So as you said, we had a little bit of increase in the cost in Q4. I don't think our CD special or 5-month special, I don't think that's changed in pricing in, I don't know, 4 or 5 quarters. And then there's -- and we hope to see that change. But right now, I wouldn't say there's the prospect of that near-term. So we'll just see what the -- we'll see what the market and the competition gives us, but it's been tough to eke out gains on the funding cost side.

[Operator Instructions] And the next question comes from Janet Lee with TD Cowen.

Clearly, driving improved returns and increasing profitability, it looks like that is one of the key goals for you, Kevin. In terms of like expectations being raised further on your internally, I guess, for Renasant and leading with that increased profitability. Aside from the expense side on the revenue side, can you just give us like what you mean by that? And like what kind of examples are there that -- is it employees like the bankers bringing in more like low-cost deposits or bringing in more like fee income products? What does that mean?

Yes. So thank you. So great question. Let's break that down. So one thing that's weighed on our profitability maybe is really a little bit of a lack of scale. So we made investments, but we didn't quite get the scale that we needed, whether it's our average loan to lender, loan to relationship manager, our average deposit to branch. And so we've been focusing on looking at performance at the individual or the market level to improve that. And so when we see our growth happening all throughout our footprint, that's encouraging to us because we're actually doing it with less headcount right now. But if we look at what the full-time employees were of Renasant and The First before we announced the acquisition and where we are at 9/30, we're down over 300 employees. So we're doing it with less. We're having above-average growth, and we're dealing with less employees. Now some of that's part of cost saves, but some of it is not part of cost saves. It's been the ongoing accountability measures we've had. So when we talk about the need for improvement and improved profitability, it's absolutely on the expense side, but it's also on the revenue side and getting more scale where we should have it. And so whether that's at an individual market level, whether that's in Nashville or the coastal region and Atlanta, where those are good markets where there's opportunity to grow or whether it's at an individual lender level, we're holding everybody accountable for a higher level of expectations to support their cost. And we really focus on the return of the individual, the return of the market to determine our success. And we've increased our expectations and our teams are responding to that. So I don't know if that provides enough color, but that gives a little bit of a glimpse as to what we're talking about as it relates to improving the accountability and improving the revenue growth, the performance that comes along with the efforts to reduce expenses.

Got it. And in terms of your -- on the loan and deposit growth. So you mentioned mid-single-digit sort of growth for you guys on a normalized basis. I get that the payoffs were a little elevated -- I mean, not elevated the other way around, were smaller than expected. So do you still think that mid-single digits is sort of a good run rate for you? Or could we expect little bit higher in terms of both deposit and loan growth.

Yes. So I think right now, just given -- I'd like to get through Q4 before we set any new expectations just given where the tenure is and where we think that some payoff elevation could happen in Q4. But before we change that. So we're still looking at the mid-single digit which bakes in an uptick of payoffs, prepayments happening in Q4 just due to a lower rate environment, particularly on the 5- and the 10-year spot on the curve. So we're still targeting mid-single digit. But I can tell you, our focus is continue to find every good opportunity we can and find a banking relationship with that opportunity, whether it's on the loan or deposit side. But I think Q4 is going to be interesting, at least for us to see how prepayment speeds react to where we find ourselves in the current curvature of the interest rate curve, current slope of the interest rate curve.

And this does conclude the question-and-answer session. I would like to turn the floor to Kevin Chapman for any closing comments.

Thank you. We appreciate your interest in Renasant this morning, and we look forward to continuing our conversations with you throughout the quarter. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.