Executive Summary / Key Takeaways

• Renasant Corporation recently completed a transformative merger with The First Bancshares, Inc. (FFIN), significantly increasing its scale and market density across the Southeast, positioning it for enhanced profitability and organic growth.
• The company demonstrated solid standalone performance leading into the merger, marked by disciplined loan growth, effective management of deposit costs (which decreased more than anticipated as rates fell), and improving efficiency.
• Integration of the merger is a key near-term focus, with expense efficiencies expected to materialize post-conversion in August 2025, contributing to management's outlook for modest margin expansion and controlled expense growth in 2025.
• While asset quality remains generally strong, management is proactively monitoring and resolving stress in specific commercial real estate segments, particularly senior housing and non-medical office, believing existing reserves are adequate.
• The combined entity possesses increased capital flexibility and liquidity, providing optionality for future strategic actions, including continued organic investment, potential opportunistic M&A, and capital deployment decisions like debt redemption or share buybacks.

Setting the Scene: A Regional Powerhouse in the Making

Renasant Corporation, rooted in its community banking origins, has evolved into a diversified financial services provider operating across the vibrant Southeastern United States. Through its core Community Banks segment, the company offers a full suite of banking, lending, and treasury management services to individuals and businesses. Complementing this is the Wealth Management segment, providing fiduciary services, trust administration, and financial planning. While the company recently divested its insurance agency business in July 2024 to focus its strategic efforts, this move, alongside a capital raise, has paved the way for a more significant transformation.

The central narrative for Renasant today is its recently completed merger with The First Bancshares, Inc. , which closed on April 1, 2025. This strategic combination is explicitly designed to create a larger, more formidable regional bank, aiming to meaningfully strengthen the balance sheet and earnings profile. By merging operations and integrating teams, Renasant seeks to leverage increased scale and density within its key markets, enhancing its competitive standing and accelerating profitability improvement.

In the competitive landscape of the Southeast, Renasant operates alongside larger regional players like Regions Financial (RF), Truist Financial (TFC), Synovus Financial (SNV), and Fifth Third Bancorp (FITB), as well as numerous smaller community banks and increasingly, fintech alternatives. While Renasant's scale, even post-merger, remains smaller than the largest players, its strategy emphasizes a community-focused approach combined with diversified service offerings. This allows for potentially lower operating costs in niche markets and a focus on relationship banking to foster customer loyalty. The merger with The First is intended to close the scale gap somewhat, improving efficiency in areas like loan processing through integrated systems. However, larger competitors often possess advantages in technological innovation speed and broader market reach, which Renasant must counter through targeted investments and leveraging its regional strengths.

Renasant's operational foundation is supported by technology that enhances its service delivery. The company utilizes solutions like NCR Atleos (NCR)' Activate Enterprise to strengthen its self-service banking capabilities. By deploying this modern software across its ITM and ATM program, Renasant aims to better serve customers and support ongoing growth. While not a proprietary technological moat in the same vein as a unique software platform, this collaboration represents an investment in operational efficiency and customer convenience, crucial elements in maintaining competitiveness against rivals who are also investing heavily in digital channels. The stated goal is to enhance the self-service experience, which contributes to the broader strategy of improving efficiency and customer satisfaction within its community banking model.

Performance Reflecting Strategic Focus and Market Dynamics

Renasant's financial performance leading up to the merger demonstrated solid execution on its standalone strategy, providing a strong base for the combined entity. For the first quarter of 2025, net income rose to $41.5 million, or $0.65 per diluted share, compared to $39.4 million, or $0.70 per diluted share, in the first quarter of 2024 (note the EPS difference reflects share count changes). This improvement in net income was underpinned by growth in key areas and disciplined management.

Net interest income, the primary driver of profitability, increased to $134.2 million in Q1 2025 from $123.3 million in Q1 2024. This growth was fueled by solid loan expansion and a notable decrease in the cost of deposits. Total loans held for investment grew to $13.06 billion at March 31, 2025, up from $12.89 billion at December 31, 2024. This 5.4% annualized growth rate in Q1 2025 reflected strong production across diverse segments including commercial, real estate construction, 1-4 family mortgage, and installment loans, supported by pipelines that management described as strong across geographies and business lines.

Equally critical was the performance on the funding side. Total deposits increased by approximately $200 million linked quarter to $14.77 billion at March 31, 2025. Notably, noninterest-bearing deposits accounted for $137 million of this growth, reaching $3.54 billion. This improvement in deposit mix, coupled with disciplined pricing strategies as market rates eased in the latter half of 2024, resulted in a 13 basis point decrease in the total cost of deposits from the prior quarter. This ability to attract and retain lower-cost funding is a significant operational achievement in a competitive environment and directly contributed to the expansion of the net interest margin. Management noted that deposit pricing has behaved better than initially anticipated, suggesting a potential shift in the competitive intensity compared to prior quarters.

Noninterest income saw a decrease to $36.5 million in Q1 2025 from $41.4 million in Q1 2024, primarily due to the absence of income from the insurance agency business, which was sold in July 2024. However, other segments showed positive trends. Wealth Management revenue increased to $8.1 million in Q1 2025 from $6.6 million in Q1 2024, reflecting consistency and successful integration efforts in delivering services, particularly within the small business and commercial client base. Mortgage banking income decreased to $8.1 million from $11.4 million over the same period, although interest rate lock commitments saw an increase in Q1 2025 compared to Q1 2024, driven by a slight decrease in mortgage rates early in the year.

Noninterest expense increased to $113.9 million in Q1 2025 from $112.9 million in Q1 2024. This increase was primarily attributable to $791 thousand in expenses related to the merger with The First. Excluding these merger-related costs, core noninterest expense saw a modest linked-quarter increase. Despite the slight increase in overall expenses, the improvement in net interest income drove an improvement in the efficiency ratio to 65.53% in Q1 2025 from 67.52% in Q1 2024, reflecting management's focus on cost control within the context of revenue growth.

The balance sheet remained well-capitalized, with all regulatory capital ratios for both the company and the bank exceeding the minimums required to be considered well capitalized at March 31, 2025. The company's capital ratios fully reflect the impact of the CECL accounting standard. Total shareholders equity increased to $2.73 billion at March 31, 2025, from $2.68 billion at December 31, 2024, supported by current period earnings and a decline in accumulated other comprehensive loss, partially offset by dividends paid. Book value per share and tangible book value per share also increased quarter-over-quarter.

Managing Risks in a Dynamic Environment

Like all financial institutions, Renasant faces inherent risks, primarily credit risk, interest rate risk, and liquidity risk, compounded by the current focus on integrating a significant merger.

Credit risk is managed through a multi-layered approach involving loan origination, credit administration, and independent loan review, overseen by the Board's Credit Review Committee. The company employs internal risk ratings for commercial loans and utilizes a CECL model that incorporates economic projections (unemployment, GDP) over a two-year horizon to estimate expected credit losses. While overall asset quality metrics showed improvement in Q1 2025 compared to year-end 2024, with nonperforming loans decreasing to 0.76% of total loans from 0.88%, management remains vigilant. Specific areas of stress have been identified within the commercial real estate portfolio, particularly in senior housing and non-medical office segments. Management views these issues as isolated and has proactively downgraded and worked to resolve these credits, believing the allowance for credit losses, which stood at 1.56% of total loans at March 31, 2025, is adequate to cover inherent losses. The provision for credit losses on loans in Q1 2025 was $2.1 million, driven by loan growth and changes in credit metrics, while a $2.7 million provision for unfunded commitments reflected an increase in real estate construction commitments.

Interest rate risk is actively monitored and managed by the Asset/Liability Committee (ALCO) using modeling techniques to forecast net interest income and economic value of equity under various rate scenarios. As of March 31, 2025, the company's balance sheet showed an asset-sensitive position for the next 24 months, suggesting that falling rates could pressure margins, while rising rates could be beneficial. Derivative instruments, including swaps, collars, and forward commitments, are utilized both to manage the company's own interest rate exposure and to facilitate customer needs, helping to mitigate the impact of rate fluctuations.

Liquidity is managed to ensure the ability to meet cash flow needs from depositors and borrowers. Core deposits are the primary funding source, and the company has been successful in growing these, reducing reliance on wholesale funding. The investment portfolio provides secondary liquidity, with a portion pledged to secure deposits and borrowings. Additional liquidity sources include FHLB advances, the Federal Reserve Discount Window, and unsecured bank lines. At March 31, 2025, the company had significant unused borrowing capacity with the FHLB and the Federal Reserve. While uninsured and uncollateralized deposits represent a portion of the funding base, the company's strong core deposit franchise and diverse funding sources are key to maintaining a robust liquidity position.

The most significant near-term risk is the successful integration of The First Bancshares merger. While management reported early success and no identified operational issues that would interrupt plans, the process of combining systems, cultures, and operations inherently carries execution risk. The timing and realization of expected cost synergies are contingent on a smooth conversion, currently slated for early August 2025.

Outlook and Strategic Momentum

Management is optimistic about Renasant's prospects, particularly following the completion of The First merger. The focus for the remainder of 2025 is squarely on integrating the two organizations and realizing the strategic benefits of the combination.

From a financial perspective, management provided specific guidance for the second quarter of 2025, reflecting the initial impact of the combined entity. They anticipate that the all-in net interest margin could expand by approximately 20 to 30 basis points in Q2 2025 compared to Q1 2025, driven by the structure of the combined balance sheet and funding costs. This outlook for modest margin expansion in 2025 represents a shift from prior expectations of compression, partly attributed to the favorable behavior of deposit costs and the less asset-sensitive profile of the acquired balance sheet.

Regarding loan growth, while production remains strong across the combined footprint, management expects net loan growth in Q2 2025 to be in the low single-digit range. This cautious outlook reflects potential economic uncertainties and the variability introduced by loan payoffs, particularly from seasoned commercial real estate projects that may exit the balance sheet. However, the strong pipeline and diverse origination capabilities across the expanded network provide a foundation for future growth.

Expense management remains a priority, with management guiding for a 2% to 3% increase in core expenses (excluding merger-related costs) for the full year 2025. The significant expense efficiencies from the merger are expected to begin materializing after the August conversion, with a clearer view of the full impact anticipated in Q4 2025 and a target for a "very clean Q1 of 2026."

The merger significantly enhances Renasant's capital position and liquidity. Management noted that the combined entity will have increased capital flexibility and expects to accrete capital nicely in the coming periods. This provides optionality for various strategic uses, including supporting continued organic growth initiatives (such as talent lift-outs or investments in business lines like asset-based lending), evaluating opportunistic M&A focused on building scale and density within the footprint (with a potential sweet spot around $1 billion+ in size), and making decisions regarding capital deployment, such as debt redemption or share repurchases, based on a disciplined evaluation of returns.

Conclusion

Renasant Corporation stands at a pivotal point, having successfully completed a transformative merger that significantly enhances its scale and market position in the Southeast. The investment thesis hinges on the successful integration of The First Bancshares, leveraging the combined entity's strong core deposit franchise, disciplined credit culture, and expanded operational footprint to drive improved profitability and efficiency.

While challenges remain, including managing credit quality in specific stressed sectors and navigating a dynamic interest rate environment, management's proactive approach and clear strategic focus provide a credible path forward. The outlook for modest margin expansion and controlled expense growth in 2025, coupled with increased capital flexibility, positions Renasant to pursue both organic and potential opportunistic growth initiatives. Investors should closely monitor the progress of the merger integration, trends in loan growth and deposit costs, and the performance of the loan portfolio, particularly in commercial real estate, as key indicators of the company's ability to execute on its strategy and unlock the full value of this strategic combination.