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 (NYSE: 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 ratings and outlook are supported by historically stable returns with ROA averaging 1.02% over a six-year period which has been well defended with a very diverse revenue stream of noninterest income relative to total revenue of 24%-36% over the same period. Also contributing to the ratings are RNST's historically sound, community banking fundamentals found in a grounded deposit base (core deposits increased 4% from 1Q23 to 1Q24). However, like other banks, the higher for longer interest rate environment has caused a meaningful increase to the cost of interest bearing deposits (3.28% 2Q24 vs 1.06% YE19), though NIM has remained relatively in line with the peer group at 3.30% vs 3.26% at 1Q24. If rates continue to remain elevated, RNST will benefit from the slightly asset sensitive balance sheet as management is expecting deposit cost to plateau in 2H24 as average loan yields have increased modestly above peers starting in 2023, reflective of 6.29% vs peers of 6.10% as of 1Q24. The ratings also reflect the company’s history of sound credit performance through various economic cycles which is demonstrated in RNST's NCO to average loans of below 2% going back to the GFC. This reflects the institution’s experienced management team and effective business strategies in our view. However, we will continue to monitor credit quality as the company’s NPA ratio has increased modestly compared to the peer group to 0.65% vs 0.59% at 1Q24, although we highlight that loan loss allowance to total loans remains strong at 1.61% vs 1.22% peer. KBRA also acknowledges RNST's tenured and granular core deposit base, with modest increases in total core deposits during 2023 and 2024 all while maintaining noninterest bearing to total deposits of 25% at 2Q24. The liquidity profile remains healthy, including a loan-to-deposit ratio of 88% and 15.9% of cash and securities to total assets at 2Q24. RNST continues to improve capital levels as CET1 increased to 10.8% and total risk based capital increased to 15.2% as of 2Q24. The diverse lines of revenue and strong credit discipline continue to be the drivers of core earnings and capital accretion. The capital levels and the additional loss absorption capacity of 1.59% should be sufficient cushion against most any potential credit cycle, and we expect the company to continue to modestly build capital.

Rating Sensitivities

A rating upgrade in the near term is not likely. Over time, positive rating momentum could emanate from asset quality ratios which remain strong despite concerns in CRE concentration limits, in conjunction with continued solid access to secondary sources of liquidity and the core deposit base remaining strong. We will also continue to monitor the continued accretion of capital. Conversely, a rating downgrade in the near term is not anticipated. However, negative earnings trends, or a material deterioration in asset quality or capital metrics beyond expectations could pressure the ratings.

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