KBRA Affirms Ratings for Renasant Corporation

KBRA affirms the senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and the short-term debt rating of K2 for Tupelo, Mississippi-based Renasant Corporation (NASDAQ: RNST) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, and the short-term deposit and debt ratings of K2 for its subsidiary, Renasant Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The strength of Renasant’s liquidity profile led by its branch-based, granular deposit platform was demonstrated by the limited impact from the deposit volatility for the industry in 1Q23. Also supporting the company’s ratings are its consistent earnings track record, solid low-cost deposit franchise (~27% noninterest bearing), stable credit quality metrics, and diversified revenue streams (noninterest income generally accounts for 25%-35% of total revenue) relative to similarly situated peers. In addition, the ratings reflect the company’s history of sound performance through various economic cycles, reflective of the institution’s experienced management team and effective business strategies. The company's favorable credit quality performance includes peak losses post-GFC of less than 2%. NCOs have averaged just 6 bps over the last five years, despite the challenges from the pandemic, although NPAs have slightly increased since 4Q19 to 0.77% at 2Q23. RNST maintains an above peer LLR of 1.63% and an additional 0.24% for unfunded commitments and purchase accounting discounts for total loss absorption of 1.87% of total loans at 2Q23. Balancing these strengths is RNST’s relatively high concentration in real estate loans, as well as its C&D loan book (11%), though these portfolios are granular, appear to be conservatively underwritten, and have performed well over time. KBRA views RNST’s capital levels and its additional loss absorption capacity (LLRs, reserve for unfunded commitments, and credit mark) of 1.87% as of 2Q23 as sufficient cushion for any foreseeable credit losses. We expect the company to maintain consistent levels of capital commensurate with the rating category and that can adequately support its organic growth strategy as well as potential M&A activity.

Rating Sensitivities

In KBRA’s view, a rating upgrade in the near future is not anticipated. Nonetheless, greater density in RNST’s new urban markets and growth in the core earnings profile, in tandem with continued strong asset quality and capital metrics through the cycle, could lead to positive rating momentum over time. The ratings incorporate a certain degree of resilience based upon KBRA’s stress testing; therefore, a rating downgrade in the near term is not expected. However, negative earnings trends, or a material deterioration in asset quality or capital metrics could pressure the ratings.

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This press release has been updated on July 28, 2023 to revise text relating to the key credit considerations to update with correct information.

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