Renasant Corporation announced earnings results for the three-month and nine-month periods ended September 30, 2018. Net income for the third quarter of 2018 was $32.0 million, an increase of 20.98%, as compared to $26.4 million for the third quarter of 2017. Basic and diluted earnings per share were $0.61 for the third quarter of 2018, as compared to basic and diluted EPS of $0.54 and $0.53, respectively, for the third quarter of 2017.

Net income for the nine months ending September 30, 2018, was $102.5 million, an increase of 35.44%, as compared to $75.7 million for the same time period in 2017. Basic and diluted EPS were $2.03 for the first nine months of 2018, as compared to basic and diluted EPS of $1.64 for the same time period in 2017.

Brand Acquisition

The Company completed its acquisition by merger of Brand Group Holdings, Inc. ("Brand") on September 1, 2018.  As of the acquisition date, Brand operated 13 locations throughout the greater Atlanta market and, prior to purchase accounting adjustments, had approximately $2.0 billion in assets, which included approximately $1.6 billion in loans, and approximately $1.7 billion in deposits. The Company's balance sheet and results of operations as of and for the three and nine months ended September 30, 2018, include the impact of the Company's acquisition of Brand since the acquisition date. The assets acquired and liabilities assumed, as presented in the table below, have been recorded at estimated fair value and are subject to change pending finalization of all valuations.

As part of the merger agreement, Brand agreed to divest the operations of its subsidiary Brand Mortgage Group, LLC ("BMG").  Prior to completing the merger, Brand had entered into an agreement to sell BMG, and the Company currently anticipates that this transaction will be completed in the fourth quarter of 2018 following the receipt of all necessary regulatory approvals.  As a result, the balance sheet and results of operations of BMG are included in the Company's results for the third quarter of 2018 since the acquisition date and will continue to be included in the Company's balance sheet and consolidated results of operations until the sale is completed.  The following table summarizes the significant assets acquired and liabilities assumed from BMG:

Impact of Certain Expenses and Charges

The Company incurred expenses and charges in connection with certain transactions with respect to which management is unable to accurately predict the timing of when these expenses or charges will be incurred or, when incurred, the amount of such expenses or charges. The following table presents the impact of these expenses and charges on reported earnings per share for the dates presented (in thousands, except per share data):

"We are pleased with our strong results for the third quarter of 2018, which are highlighted by a stable core margin and a significant improvement in our core efficiency ratio. After excluding the impact from merger and conversion expenses associated with our recent acquisition of Brand, we once again achieved record earnings and earnings per share," said Renasant Executive Chairman, E. Robinson McGraw.  "Our successful quarter is further evidenced by our strong profitability metrics as return on average tangible assets and average tangible equity, when excluding merger and conversion expenses, have continued to improve from prior quarters."

"As we look ahead, we anticipate strong future results as we continue to capitalize on opportunities for profitable organic balance sheet growth and focus on margin management, disciplined loan underwriting, prudent provisioning for loan losses and continued management of expenses to further improve our efficiency ratio," said C. Mitchell Waycaster, Renasant President and Chief Executive Officer.  "Additionally, we successfully completed the Brand merger during the third quarter.  The integration of Brand has gone smoothly, and we expect the same for the client conversion later this quarter."

Profitability Metrics

The following table presents the Company's profitability metrics for the three and nine months ending September 30, 2018, including and excluding the impact of after-tax merger and conversion expenses described above.  

A reconciliation of all non-GAAP financial measures disclosed in this release from GAAP to non-GAAP is included in the tables at the end of this release.

Financial Condition

Total assets were $12.7 billion at September 30, 2018, as compared to $9.8 billion at December 31, 2017.

Total loans increased to $9.1 billion at September 30, 2018, from $7.6 billion at December 31, 2017.  Loans not purchased increased to $6.2 billion at September 30, 2018, from $5.6 billion at December 31, 2017. Loan production for the third quarter and first nine months of 2018 was $404 million and $1.3 billion, respectively, as compared to $370 million and $1.1 billion for the same periods, respectively, in 2017. As of the acquisition date, Brand added $1.3 billion in loans held for investment.

Total deposits increased to $10.2 billion at September 30, 2018, from $7.9 billion at December 31, 2017. Non-interest bearing deposits averaged $1.9 billion, or 22.51% of average deposits, for the first nine months of 2018, compared to $1.7 billion, or 22.40% of average deposits, for the same period in 2017.  As of the acquisition date, Brand added $1.7 billion in deposits, which included $433.4 million in non-interest bearing deposits.

At September 30, 2018, Tier 1 leverage capital ratio was 9.85%, Common Equity Tier 1 ratio was 10.80%, Tier 1 risk-based capital ratio was 11.84%, and total risk-based capital ratio was 13.85%. All regulatory ratios exceed the minimums required to be considered "well-capitalized."

Our ratio of shareholders' equity to assets was 15.77% at September 30, 2018, as compared to 15.41% at December 31, 2017. Our tangible capital ratio (non-GAAP) was 8.80% at September 30, 2018, as compared to 9.56% at December 31, 2017.

Results of Operations

Net interest income was $99.4 million for the third quarter of 2018, as compared to $92.4 million for the second quarter of 2018 and $90.0 million for third quarter of 2017. The following table presents reported taxable equivalent net interest margin and yield on loans for the periods presented (in thousands).  

The impact from interest income collected on problem loans and purchase accounting adjustments on loans to total interest income on loans, loan yield and net interest margin is shown in the following table for the periods presented (in thousands).

Net interest income was $281.1 million for the first nine months of 2018, as compared to $243.6 million for the same period in 2017. The following table presents reported taxable equivalent net interest margin and loan yield for the periods presented (in thousands).  

The impact from interest income collected on problem loans and purchase accounting adjustments on loans to total interest income on loans, loan yield and net interest margin is shown in the following table for the periods presented (in thousands).  

For the third quarter of 2018, the cost of total deposits was 60 basis points, as compared to 52 basis points for the second quarter of 2018 and 33 basis points in the third quarter of 2017. The cost of total deposits was 51 basis points for the first nine months of 2018, as compared to 31 basis points for the same time period in 2017. The following tables present the mix and cost of all funding sources for the three and nine months ended September 30, 2018 and 2017 as well as for the three months ending June 30, 2018.  

Noninterest income for the third quarter of 2018 was $38.1 million, as compared to $35.6 million for the second quarter of 2018 and $33.4 million for the third quarter of 2017. Noninterest income for the first nine months of 2018 was $107.6 million, as compared to $99.7 million for the same period in 2017. The linked quarter increase is primarily attributable to the Brand acquisition. Mortgage banking income for the third quarter of 2018 was $14.4 million, compared to $12.8 million for the second quarter of 2018 and $10.6 million for the third quarter of 2017. Mortgage banking income for the first nine months of 2018 was $38.1 million, as compared to $33.5 million for the same period in 2017. BMG contributed $1.7 million to mortgage banking income during the three and nine months ended September 30, 2018.

Noninterest expense was $94.7 million for the third quarter of 2018, as compared to $79.0 million for the second quarter of 2018 and $80.7 million for the third quarter of 2017. Noninterest expense for the first nine months of 2018 was $251.7 million, as compared to $224.8 million for the same period in 2017. Noninterest expense for the three and nine months ended September 30, 2018 includes $2.0 million attributable to BMG.

Excluding charges for merger and conversion expenses, amortization of intangible assets and losses on the sale of securities, the Company's efficiency ratio (non-GAAP) was 58.84% and 59.55% for the third quarter and first nine months of 2018, respectively, which exceeded the Company's goal of maintaining an efficiency ratio below 60%.

Asset Quality Metrics

Total nonperforming assets were $38.9 million at September 30, 2018, as compared to $39.4 million at December 31, 2017, and at September 30, 2018, consisted of $26.3 million in nonperforming loans (loans 90 days or more past due and nonaccrual loans) and $12.6 million in other real estate owned ("OREO").

The Company's nonperforming loans and OREO that were purchased in previous acquisitions (collectively referred to as "purchased nonperforming assets") were $12.8 million and $7.9 million, respectively, at September 30, 2018, as compared to $10.2 million and $11.5 million, respectively, at December 31, 2017. The purchased nonperforming assets were recorded at fair value at the time of acquisition, which significantly mitigates the Company's actual loss. As such, the remaining information in this release on nonperforming loans, OREO and the related asset quality ratios focuses on non-purchased nonperforming assets.

• Non-purchased nonperforming loans were $13.5 million, or 0.22% of total non-purchased loans, at September 30, 2018, as compared to $13.3 million, or 0.24% of total non-purchased loans, at December 31, 2017. Early stage delinquencies, or loans 30-to-89 days past due, as a percentage of total loans were 0.24% at September 30, 2018, as compared to 0.30% at December 31, 2017.

• Non-purchased OREO was $4.7 million at September 30, 2018, as compared to $4.4 million at December 31, 2017. OREO sales totaled $1.3 million in the first nine months of 2018.

• The allowance for loan losses was 0.53% of total loans at September 30, 2018 and 0.61% of total loans at December 31, 2017. The allowance for loan losses was 0.78% of non-purchased loans at September 30, 2018, as compared to 0.83% at December 31, 2017.

• Net loan charge-offs were $995 thousand, or 0.05% of average total loans on an annualized basis, for the third quarter of 2018, as compared to $1.8 million, or 0.10% of average total loans on an annualized basis, for the third quarter of 2017.

• The provision for loan losses was $2.3 million for the third quarter of 2018 and $2.2 million for the third quarter of 2017. The provision was $5.8 million for the first nine months of 2018, as compared to $5.4 million for the same time period in 2017.