RENASANT CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In Thousands, Except Share Data) This Form 10-Q may contain or incorporate by reference statements regarding Renasant Corporation (referred to herein as the “Company”, “we”, “our”, or “us”) that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “projects,” “anticipates,” “intends,” “estimates,” “plans,” “potential,” “focus,” “possible,” “may increase,” “may fluctuate,” “will likely result,” and similar expressions, or future or conditional verbs such as “will,” “should,” “would” and “could,” are generally forward-looking in nature and not historical facts. Forward-looking statements include information about the Company’s future financial performance, business strategy, projected plans and objectives and are based on the current beliefs and expectations of management. The Company’s management believes these forward-looking statements are reasonable, but they are all inherently subject to significant business, economic and competitive risks and uncertainties, many of which are beyond the Company’s control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ from those indicated or implied in the forward-looking statements, and such differences may be material. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and, accordingly, investors should not place undue reliance on these forward-looking statements, which speak only as of the date they are made. Important factors currently known to management that could cause our actual results to differ materially from those in forward-looking statements include the following: (i) the Company’s ability to efficiently integrate acquisitions into its operations, retain the customers of these businesses, grow the acquired operations and realize the cost savings expected from an acquisition to the extent and in the timeframe anticipated by management; (ii) the effect of economic conditions and interest rates on a national, regional or international basis; (iii) timing and success of the implementation of changes in operations to achieve enhanced earnings or effect cost savings; (iv) competitive pressures in the consumer finance, commercial finance, insurance, financial services, asset management, retail banking, factoring and mortgage lending and auto lending industries; (v) the financial resources of, and products available from, competitors; (vi) changes in laws and regulations as well as changes in accounting standards; (vii) changes in policy by regulatory agencies; (viii) changes in the securities and foreign exchange markets; (ix) the Company’s potential growth, including its entrance or expansion into new markets, and the need for sufficient capital to support that growth; (x) changes in the quality or composition of the Company’s loan or investment portfolios, including adverse developments in borrower industries or in the repayment ability of individual borrowers or issuers of investment securities, or the impact of interest rates on the value of our investment securities portfolio; (xi) an insufficient allowance for credit losses as a result of inaccurate assumptions; (xii) changes in the sources and costs of the capital we use to make loans and otherwise fund our operations, due to deposit outflows, changes in the mix of deposits and the cost and availability of borrowings; (xiii) general economic, market or business conditions, including the impact of inflation; (xiv) changes in demand for loan and deposit products and other financial services; (xv) concentrations of credit or deposit exposure; (xvi) changes or the lack of changes in interest rates, yield curves and interest rate spread relationships; (xvii) increased cybersecurity risk, including potential network breaches, business disruptions or financial losses; (xviii) civil unrest, natural disasters, epidemics (including the re-emergence of the COVID-19 pandemic) and other catastrophic events in the Company’s geographic area; (xix) the impact, extent and timing of technological changes; and (xx) other circumstances, many of which are beyond management’s control. Management believes that the assumptions underlying the Company’s forward-looking statements are reasonable, but any of the assumptions could prove to be inaccurate. The Company undertakes no obligation, and specifically disclaims any obligation, to update or revise forward-looking statements, whether as a result of new information or to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, except as required by federal securities laws. Financial Condition The following discussion provides details regarding the changes in significant balance sheet accounts at September 30, 2023 compared to December 31, 2022. Assets Total assets were $17,181,621 at September 30, 2023 compared to $16,988,176 at December 31, 2022. Investments 44 Table of Contents The securities portfolio is used to provide a source for meeting liquidity needs and to supply securities to be used in collateralizing certain deposits and certain types of borrowings. The securities portfolio also serves as an outlet to deploy excess liquidity and generate interest income rather than hold such excess funds as cash. The following table shows the carrying value of our securities portfolio by investment type and the percentage of such investment type relative to the entire securities portfolio as of the dates presented: September 30, 2023 December 31, 2022 Balance Percentage of Portfolio Balance Percentage of Portfolio Obligations of other U.S. Government agencies and corporations $ — — % $ 164,660 5.76 % Obligations of states and political subdivisions 322,592 14.97 436,788 15.28 Mortgage-backed securities 1,705,596 79.16 2,122,855 74.28 Other debt securities 126,547 5.87 133,711 4.68 $ 2,154,735 100.00 % $ 2,858,014 100.00 % Allowance for credit losses - held to maturity securities (32) (32) Securities, net of allowance for credit losses $ 2,154,703 $ 2,857,982 During the nine months ended September 30, 2023, the Company purchased $9,646 in investment securities, with mortgage-backed securities and collateralized mortgage obligations (“CMOs”) comprising all of these purchases, which occurred in the third quarter of 2023. CMOs are included in the “Mortgage-backed securities” line item in the above table. The mortgage-backed securities and CMOs held in our investment portfolio are primarily issued by government sponsored entities. During the nine months ended September 30, 2022, we purchased $800,260 in investment securities, with mortgage-backed securities and CMOs, in the aggregate, comprising approximately 62% of these purchases. Obligations of other U.S. Government agencies and corporations comprised approximately 21% of purchases made during the first nine months of 2022. Obligations of state and political subdivisions comprised approximately 5% of purchases made during the first nine months of 2022. Other debt securities in our investment portfolio, consisting of corporate debt securities, issuances from the Small Business Administration (“SBA”) and subordinated debt issuances, comprised the remaining 12% of purchases made during the first nine months of 2022. Our purchases of securities in the first nine months of 2023 substantially declined from the levels during the same period in 2022 as the proceeds of our securities portfolio was used to fund loan growth rather than being reinvested in the securities portfolio. During the third quarter of 2022, the Company transferred, at fair value, $882,927 of securities from the available for sale portfolio to the held to maturity portfolio as the Company has the intent and ability to hold these securities until their maturity. The related net unrealized losses of $99,675 (after tax losses of $74,307) remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. At September 30, 2023, the net unrealized after tax losses remaining to be amortized in accumulated other comprehensive income (loss) was $61,086. No gains or losses were recognized at the time of transfer. Proceeds from maturities, calls and principal payments on securities during the first nine months of 2023 totaled $208,095. The Company sold from the available for sale portfolio agency securities, municipal securities, residential mortgage backed securities and commercial mortgage backed securities with a carrying value of $511,419 at the time of sale for net proceeds of $488,981, resulting in a net loss on sale of $22,438 for the nine months ended September 30, 2023. Proceeds from the maturities, calls and principal payments on securities during the first nine months of 2022 totaled $372,484. The Company did not sell any securities during the first nine months of 2022. For more information about the Company’s security portfolio, see Note 2, “Securities,” in the Notes to Consolidated Financial Statements of the Company in Item 1, Financial Statements, in this report. Loans Held for Sale Loans held for sale, which consist of residential mortgage loans being held until they are sold in the secondary market, were $241,613 at September 30, 2023, as compared to $110,105 at December 31, 2022. Mortgage loans to be sold are sold either on a “best efforts” basis or under a mandatory delivery sales agreement. Under a “best efforts” sales agreement, residential real estate originations are locked in at a contractual rate with third party private investors or directly with government sponsored agencies, and the Company is obligated to sell the mortgages to such investors only if the mortgages are closed and funded. The risk we assume is conditioned upon loan underwriting and market conditions in the national mortgage market. Under a 45 Table of Contents mandatory delivery sales agreement, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price and delivery date. Penalties are paid to the investor if we fail to satisfy the contract. Gains and losses are realized at the time consideration is received and all other criteria for sales treatment have been met. Our standard practice is to sell the loans within 30-40 days after the loan is funded. Although loan fees and some interest income are derived from mortgage loans held for sale, the main source of income is gains from the sale of these loans in the secondary market. Loans Total loans, excluding loans held for sale, were $12,168,023 at September 30, 2023 and $11,578,304 at December 31, 2022. The tables below set forth the balance of loans outstanding, net of unearned income and excluding loans held for sale, by loan type and the percentage of each loan type to total loans as of the dates presented: September 30, 2023 December 31, 2022 Total Loans Percentage of Total Loans Total Loans Percentage of Total Loans Commercial, financial, agricultural $ 1,819,891 14.96 % $ 1,673,883 14.46 % Lease financing, net of unearned income 120,724 0.99 115,013 0.99 Real estate – construction: Residential 300,238 2.47 355,500 3.07 Commercial 1,107,126 9.10 974,837 8.42 Total real estate – construction 1,407,364 11.57 1,330,337 11.49 Real estate – 1-4 family mortgage: Primary 2,405,703 19.77 2,222,856 19.20 Home equity 509,394 4.19 501,906 4.33 Rental/investment 353,613 2.91 334,382 2.89 Land development 130,166 1.07 157,119 1.36 Total real estate – 1-4 family mortgage 3,398,876 27.94 3,216,263 27.78 Real estate – commercial mortgage: Owner-occupied 1,588,174 13.04 1,539,296 13.29 Non-owner occupied 3,610,578 29.67 3,452,910 29.82 Land development 114,414 0.94 125,857 1.09 Total real estate – commercial mortgage 5,313,166 43.65 5,118,063 44.20 Installment loans to individuals 108,002 0.89 124,745 1.08 Total loans, net of unearned income $ 12,168,023 100.00 % $ 11,578,304 100.00 % Loan concentrations are considered to exist when there are amounts loaned to a number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At September 30, 2023, there were no concentrations of loans exceeding 10% of total loans which are not disclosed as a category of loans separate from the categories listed above. Deposits The Company relies on deposits as its primary source of funds. Total deposits were $14,157,110 and $13,486,966 at September 30, 2023 and December 31, 2022, respectively. Noninterest-bearing deposits were $3,734,197 and $4,558,756 at September 30, 2023 and December 31, 2022, respectively, while interest-bearing deposits were $10,422,913 and $8,928,210 at September 30, 2023 and December 31, 2022, respectively. Interest-bearing deposits included brokered deposits of $757,775 and $233,133 at September 30, 2023 and December 31, 2022, respectively. Management continues to focus on growing and maintaining a stable source of funding, specifically noninterest-bearing deposits and other core deposits (that is, deposits excluding brokered deposits and time deposits greater than $250,000). Noninterest-bearing deposits represented 26.38% of total deposits at September 30, 2023, as compared to 33.80% of total deposits at December 31, 2022. The decrease in noninterest-bearing deposits as a percentage of total deposits reflects both deposit customers transferring noninterest-bearing deposits to interest-bearing deposits such as money market funds offered by the Company, other financial institutions and other financial services companies, and the impact of our increase in brokered 46 Table of Contents deposits in the first nine months of 2023 as compared to brokered deposits at December 31, 2022, as management elected to maintain a high level of on-balance sheet liquidity in light of the conditions affecting financial institutions nationwide. Under certain circumstances, management may elect to acquire non-core deposits (in the form of brokered deposits) or public fund deposits (which are deposits of counties, municipalities or other political subdivisions). The source of funds that we select depends on the terms of the deposits and how those terms assist us in mitigating interest rate risk, maintaining our liquidity position and managing our net interest margin; business factors, described in the following paragraph, may cause us to obtain public deposits. Accordingly, funds are acquired to meet anticipated funding needs at the rate and with other terms that, in management’s view, best address our interest rate risk, liquidity and net interest margin parameters. Public fund deposits may be readily obtained based on the Company’s pricing bid in comparison with competitors. Because public fund deposits are obtained through a bid process, these deposit balances may fluctuate as competitive and market forces change. Although the Company has focused on growing stable sources of deposits to reduce reliance on public fund deposits, it participates in the bidding process for public fund deposits when pricing and other terms make it reasonable given market conditions or when management perceives that other factors, such as the public entity’s use of our treasury management or other products and services, make such participation advisable. Our public fund transaction accounts are principally obtained from public universities and municipalities, including school boards and utilities. Public fund deposits were $1,879,215 and $1,760,460 at September 30, 2023 and December 31, 2022, respectively, and represented 13.27% and 13.05% of total deposits as of September 30, 2023 and December 31, 2022, respectively. Borrowed Funds Total borrowings include federal funds purchased, securities sold under agreements to repurchase, advances from the FHLB, subordinated notes and junior subordinated debentures and are classified on the Consolidated Balance Sheets as either short-term borrowings or long-term debt. Short-term borrowings have original maturities less than one year and typically include federal funds purchased, securities sold under agreements to repurchase, and short-term FHLB advances. The following table presents our short-term borrowings by type as of the dates presented: September 30, 2023 December 31, 2022 Security repurchase agreements $ 7,662 $ 12,232 Short-term borrowings from the FHLB 100,000 700,000 $ 107,662 $ 712,232 Long-term debt typically consists of long-term FHLB advances, our junior subordinated debentures and our subordinated notes. The following table presents our long-term debt by type as of the dates presented: September 30, 2023 December 31, 2022 Junior subordinated debentures $ 112,744 $ 112,042 Subordinated notes 314,655 316,091 $ 427,399 $ 428,133 Long-term funds obtained from the FHLB are used to match-fund fixed rate loans in order to minimize interest rate risk and to meet day-to-day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. There were no long-term advances from the FHLB outstanding at September 30, 2023 or December 31, 2022. All advances from the FHLB are collateralized by a blanket lien on the Bank’s loans. The Company had $3,111,063 of availability on unused lines of credit with the FHLB at September 30, 2023, as compared to $3,651,678 at December 31, 2022. The Company has issued subordinated notes, the proceeds of which have been used for general corporate purposes, including providing capital to support the Company’s growth organically or through strategic acquisitions, repaying indebtedness and financing investments and capital expenditures, and for investments in Renasant Bank as regulatory capital. The subordinated notes qualify as Tier 2 capital under current regulatory guidelines. The Company owns the outstanding common securities of business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities to third-party investors. The trusts used the proceeds from the issuance of their preferred capital securities and common securities (collectively referred to as “capital securities”) to buy floating rate junior subordinated debentures issued by the Company (or by companies that the Company subsequently acquired). The debentures are the trusts’ only assets and interest payments from the debentures finance the distributions paid on the capital securities. 47 Table of Contents Results of Operations Net Income Net income for the third quarter of 2023 was $41,833 compared to net income of $46,567 for the third quarter of 2022. Basic and diluted earnings per share (“EPS”) for the third quarter of 2023 were $0.75 and $0.74, respectively, as compared to basic and diluted EPS of $0.83 for the third quarter of 2022. Net income for the nine months ended September 30, 2023, was $116,554 compared to net income of $119,792 for the same period in 2022. Basic and diluted EPS were $2.08 and $2.07, respectively, for the first nine months of 2023 as compared to $2.14 and $2.13, respectively, for the first nine months of 2022. From time to time, the Company incurs expenses and charges or recognizes valuation adjustments in connection with certain transactions with respect to which management is unable to accurately predict when these items will be incurred or, when incurred, the amount of such items. The following table presents the impact of these items on reported EPS for the dates presented. Three Months Ended September 30, 2023 September 30, 2022 Pre-tax After-tax Impact to Diluted EPS Pre-tax After-tax Impact to Diluted EPS Gain on sale of MSR $ — $ — $ — $ (2,960) $ (2,292) $ (0.04) Nine Months Ended September 30, 2023 September 30, 2022 Pre-tax After-tax Impact to Diluted EPS Pre-tax After-tax Impact to Diluted EPS Merger and conversion expenses $ — $ — $ — $ 687 $ 541 $ 0.01 Gain on sale of MSR — — — (2,960) (2,330) (0.04) Restructuring charges — — — 732 576 0.01 Loss on sale of securities 22,438 17,859 0.31 — — — Net Interest Income Net interest income, the difference between interest earned on assets and the cost of interest-bearing liabilities, is the largest component of our net income, comprising 77.31% of total revenue (i.e., net interest income on a fully taxable equivalent basis and noninterest income) for the third quarter of 2023. The primary concerns in managing net interest income are the volume, mix and repricing of assets and liabilities. Net interest income was $127,383 and $393,374 for the three and nine months ended September 30, 2023, as compared to $130,318 and $343,462 for the same periods in 2022. On a tax equivalent basis, net interest income was $130,131 and $401,745 for the three and nine months ended September 30, 2023, as compared to $132,435 and $349,139 for the same periods in 2022. The following table sets forth average balance sheet data, including all major categories of interest-earning assets and interest-bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category on a tax-equivalent basis for the periods presented: 48 Table of Contents Three Months Ended September 30, 2023 2022 Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Assets Interest-earning assets: Loans held for investment $ 12,030,109 $ 183,521 6.06 % $ 10,829,137 $ 124,614 4.57 % Loans held for sale 227,982 3,751 6.58 143,837 2,075 5.77 Securities: Taxable 2,053,113 9,218 1.80 2,773,924 12,439 1.79 Tax-exempt (1) 329,760 1,807 2.19 449,927 2,664 2.37 Interest-bearing balances with banks 729,049 10,128 5.51 663,218 3,458 2.07 Total interest-earning assets 15,370,013 208,425 5.39 14,860,043 145,250 3.89 Cash and due from banks 180,708 191,358 Intangible assets 1,012,460 967,154 Other assets 672,232 626,926 Total assets $ 17,235,413 $ 16,645,481 Liabilities and shareholders’ equity Interest-bearing liabilities: Deposits: Interest-bearing demand (2) $ 6,520,145 $ 41,464 2.52 % $ 6,462,940 $ 6,061 0.37 % Savings deposits 942,619 793 0.33 1,134,665 155 0.05 Brokered deposits 947,970 12,490 5.23 — — — Time deposits 2,001,923 16,159 3.20 1,240,439 1,025 0.33 Total interest-bearing deposits 10,412,657 70,906 2.70 8,838,044 7,241 0.33 Borrowed funds 545,105 7,388 5.40 572,376 5,574 3.88 Total interest-bearing liabilities 10,957,762 78,294 2.84 9,410,420 12,815 0.54 Noninterest-bearing deposits 3,800,160 4,867,314 Other liabilities 245,886 194,339 Shareholders’ equity 2,231,605 2,173,408 Total liabilities and shareholders’ equity $ 17,235,413 $ 16,645,481 Net interest income/net interest margin $ 130,131 3.36 % $ 132,435 3.54 % (1) U.S. Government and some U.S. Government Agency securities are tax-exempt in the states in which the Company operates. (2) Interest-bearing demand deposits include interest-bearing transactional accounts and money market deposits. 49 Table of Contents Nine Months Ended September 30, 2023 2022 Average Balance Interest Income/ Expense Yield/ Rate Average Balance Interest Income/ Expense Yield/ Rate Assets Interest-earning assets: Loans held for investment $ 11,866,662 $ 523,040 5.89 % $ 10,474,305 $ 329,227 4.20 % Loans held for sale 175,100 8,478 6.46 233,266 7,524 4.30 Securities: Taxable 2,356,962 34,361 1.94 2,653,735 31,576 1.59 Tax-exempt (1) 395,394 6,844 2.31 446,762 8,018 2.39 Interest-bearing balances with banks 573,498 22,536 5.25 1,041,145 6,076 0.78 Total interest-earning assets 15,367,616 595,259 5.18 14,849,213 382,421 3.44 Cash and due from banks 189,324 201,436 Intangible assets 1,012,613 967,023 Other assets 674,476 640,403 Total assets $ 17,244,029 $ 16,658,075 Liabilities and shareholders’ equity Interest-bearing liabilities: Deposits: Interest-bearing demand (2) $ 6,235,322 $ 90,947 1.95 % $ 6,556,454 $ 13,306 0.27 % Savings deposits 999,436 2,432 0.33 1,123,433 441 0.05 Brokered deposits 720,022 26,898 4.99 — — — Time deposits 1,768,827 34,886 2.64 1,305,800 4,149 0.42 Total interest-bearing deposits 9,723,607 155,163 2.13 8,985,687 17,896 0.27 Borrowed funds 1,007,844 38,351 5.08 534,296 15,386 3.84 Total interest-bearing liabilities 10,731,451 193,514 2.41 9,519,983 33,282 0.47 Noninterest-bearing deposits 4,073,265 4,745,409 Other liabilities 227,114 192,744 Shareholders’ equity 2,212,199 2,199,939 Total liabilities and shareholders’ equity $ 17,244,029 $ 16,658,075 Net interest income/net interest margin $ 401,745 3.49 % $ 349,139 3.14 % (1) U.S. Government and some U.S. Government Agency securities are tax-exempt in the states in which the Company operates. (2) Interest-bearing demand deposits include interest-bearing transactional accounts and money market deposits. The average balances of nonaccruing assets are included in the tables above. Interest income and weighted average yields on tax-exempt loans and securities have been computed on a fully tax equivalent basis assuming a federal tax rate of 21% and a state tax rate of 4.45%, which is net of federal tax benefit. Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes in volume and mix and pricing decisions. External factors include changes in market interest rates, competition and other factors affecting the banking industry in general, and the shape of the interest rate yield curve. The largest contributing factor to the increase in net interest income for the nine months ended September 30, 2023, as compared to the same period in 2022, was the rising rate environment throughout 2022 and thus far in 2023. The higher interest rates benefited yields on earning assets, which, coupled with steady loan growth, resulted in an increase in interest income year over year. This increase was offset to some degree by an increase in interest expense. The rising interest rates negatively impacted both the cost and mix of our funding sources, and the Company’s decision to increase on-balance sheet liquidity following the bank failures in March 2023 has also resulted in higher cost of funds and interest expense. The Company has continued its efforts to mitigate increases in the cost of funding through maintaining noninterest-bearing deposits, staying disciplined yet competitive in pricing on interest-bearing deposits in the current rising rate environment and accessing alternative sources of liquidity, such as brokered 50 Table of Contents deposits. In the first nine months of 2023, however, ensuring the safe and sound operation of the Bank in light of industry-wide conditions was management’s paramount concern, which led to the Company significantly increasing its brokered deposits and borrowed funds in the first nine months of 2023 as compared to the same period in 2022 in order to maintain robust on-balance sheet liquidity. The following tables set forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the three and nine months ended September 30, 2023, as compared to the same period in 2022 (the changes attributable to the combined impact of yield/rate and volume have been allocated on a pro-rata basis using the absolute value of amounts calculated): Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 Volume Rate Net Interest income: Loans held for investment $ 14,993 $ 43,914 $ 58,907 Loans held for sale 1,351 325 1,676 Securities: Taxable (3,336) 115 (3,221) Tax-exempt (670) (187) (857) Interest-bearing balances with banks 376 6,294 6,670 Total interest-earning assets 12,714 50,461 63,175 Interest expense: Interest-bearing demand deposits 54 35,349 35,403 Savings deposits (31) 669 638 Brokered deposits 12,490 — 12,490 Time deposits 990 14,144 15,134 Borrowed funds (281) 2,095 1,814 Total interest-bearing liabilities 13,222 52,257 65,479 Change in net interest income $ (508) $ (1,796) $ (2,304) Nine months ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022 Volume Rate Net Interest income: Loans held for investment $ 48,155 $ 145,658 $ 193,813 Loans held for sale (2,182) 3,136 954 Securities: Taxable (3,783) 6,568 2,785 Tax-exempt (898) (276) (1,174) Interest-bearing balances with banks (3,866) 20,326 16,460 Total interest-earning assets 37,426 175,412 212,838 Interest expense: Interest-bearing demand deposits (684) 78,325 77,641 Savings deposits (53) 2,044 1,991 Brokered deposits 26,898 — 26,898 Time deposits 1,959 28,778 30,737 Borrowed funds 16,840 6,125 22,965 Total interest-bearing liabilities 44,960 115,272 160,232 Change in net interest income $ (7,534) $ 60,140 $ 52,606 51 Table of Contents Interest income, on a tax equivalent basis, was $208,425 and $595,259 for the three and nine months ended September 30, 2023, as compared to $145,250 and $382,421 for the same periods in 2022. The increase in interest income, on a tax equivalent basis, for the three and nine months ended September 30, 2023, as compared to the same time periods in 2022 is due primarily to additional interest rate increases by the Federal Reserve since March 2022, coupled with an improved mix of earning assets as excess cash was deployed into higher yielding assets since March 2022. The following table presents the percentage of total average earning assets, by type and yield, for the periods presented: Percentage of Total Average Earning Assets Yield Three Months Ended Three Months Ended September 30, September 30, 2023 2022 2023 2022 Loans held for investment 78.27 % 72.87 % 6.06 % 4.57 % Loans held for sale 1.48 0.97 6.58 5.77 Securities 15.50 21.69 1.85 1.87 Other 4.75 4.47 5.51 2.07 Total earning assets 100.00 % 100.00 % 5.39 % 3.89 % Percentage of Total Average Earning Assets Yield Nine Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Loans held for investment 77.22 % 70.54 % 5.89 % 4.20 % Loans held for sale 1.14 1.57 6.46 4.30 Securities 17.91 20.88 2.00 1.70 Interest-bearing balances with banks 3.73 7.01 5.25 0.78 Total earning assets 100.00 % 100.00 % 5.18 % 3.44 % For the third quarter of 2023, interest income on loans held for investment, on a tax equivalent basis, increased $58,907 to $183,521 from $124,614 for the same period in 2022. For the nine months ended September 30, 2023, interest income on loans held for investment, on a tax equivalent basis, increased $193,813 to $523,040 from $329,227 in the same period in 2022. The Federal Reserve began to raise interest rates in March 2022, which positively impacted the Company’s loan pricing, and the year-to-date average balance of loans held for investment increased $1,392,357 from September 2022, thereby resulting in the increase in interest income on loans held for investment for the three and nine months ended September 30, 2023, as compared to the same periods in 2022. The impact from interest income collected on problem loans and purchase accounting adjustments on loans to total interest income on loans held for investment, loan yield and net interest margin is shown in the following table for the periods presented. Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net interest income collected on problem loans $ (820) $ 78 $ (64) $ 2,788 Accretable yield recognized on purchased loans (1) 1,290 1,317 3,049 4,573 Total impact to interest income on loans $ 470 $ 1,395 $ 2,985 $ 7,361 Impact to loan yield 0.02 % 0.05 % 0.03 % 0.09 % Impact to net interest margin 0.01 % 0.04 % 0.02 % 0.07 % (1) Includes additional interest income recognized in connection with the acceleration of paydowns and payoffs from purchased loans of $821 and $713 for the third quarter of 2023 and 2022, respectively. The impact was $1,371 and $2,269 52 Table of Contents for the nine months ended September 30, 2023 and 2022, respectively. This additional interest income increased total loan yield by three basis points for both the third quarter of 2023 and 2022, while increasing net interest margin by two basis points for the same respective periods. For the nine months ended September 30, 2023 and 2022, the additional interest income increased total loan yields by two and three basis points, respectively, while increasing net interest margin by one and two basis points, respectively. For the third quarter of 2023, interest income on loans held for sale (consisting of mortgage loans held for sale) increased $1,676 to $3,751 from $2,075 for the same period in 2022. For the nine months ended September 30, 2023, interest income on loans held for sale (consisting of mortgage loans held for sale), increased $954 to $8,478 from $7,524 for the same period in 2022. Investment income, on a tax equivalent basis, decreased $4,078 to $11,025 for the third quarter of 2023 from $15,103 for the third quarter of 2022. Investment income, on a tax equivalent basis, increased $1,611 to $41,205 for the nine months ended September 30, 2023 from $39,594 for the same period in 2022. The tax equivalent yield on the investment portfolio for the third quarter of 2023 was 1.85%, down 2 basis points from 1.87% for the same period in 2022. The tax equivalent yield on the investment portfolio for the nine months ended September 30, 2023 was 2.00%, up 30 basis points from 1.70% in the same period in 2022. The decrease in taxable equivalent yield on securities for the three months ended September 30, 2023 as compared to the same period in 2022 was due to the aforementioned sale of securities during the first nine months of 2023. The increase in taxable equivalent yield on securities for the nine months ended September 30, 2023 as compared to the same period in 2022 was due to purchases of higher yielding securities during 2022. The increase in yield led to the growth in investment income, on a tax equivalent basis. Interest expense was $78,294 for the third quarter of 2023 as compared to $12,815 for the same period in 2022. Interest expense for the nine months ended September 30, 2023 was $193,514 as compared to $33,282 for the same period in 2022. The following tables present, by type, the Company’s funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented: Percentage of Total Average Deposits and Borrowed Funds Cost of Funds Three Months Ended Three Months Ended September 30, September 30, 2023 2022 2023 2022 Noninterest-bearing demand 25.75 % 34.09 % — % — % Interest-bearing demand 44.18 45.27 2.52 0.37 Savings 6.39 7.95 0.33 0.05 Brokered deposits 6.42 — 5.23 — Time deposits 13.57 8.69 3.20 0.33 Short term borrowings 0.78 0.99 1.24 1.30 Subordinated notes 2.15 2.23 5.91 4.55 Other borrowed funds 0.76 0.78 8.25 5.24 Total deposits and borrowed funds 100.00 % 100.00 % 2.11 % 0.36 % 53 Table of Contents Percentage of Total Average Deposits and Borrowed Funds Cost of Funds Nine Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Noninterest-bearing demand 27.51 % 33.27 % — % — % Interest-bearing demand 42.12 45.96 1.95 0.27 Savings 6.75 7.88 0.33 0.05 Brokered deposits 4.86 — 4.99 — Time deposits 11.95 9.15 2.64 0.42 Short-term borrowings 3.90 0.66 4.24 0.98 Long-term Federal Home Loan Bank advances — — — 1.88 Subordinated notes 2.15 2.30 5.61 4.39 Other long term borrowings 0.76 0.78 7.93 4.66 Total deposits and borrowed funds 100.00 % 100.00 % 1.75 % 0.31 % Interest expense on deposits was $70,906 and $7,241 for the three months ended September 30, 2023 and 2022, respectively. The cost of total deposits was 1.98% and 0.21% for the same respective periods. Interest expense on deposits was $155,163 and $17,896 for the nine months ended September 30, 2023 and 2022, respectively, and the cost of total deposits was 1.50% and 0.17% for the same respective periods. The increase in both deposit expense and cost is attributable to the Company’s efforts to offer competitive deposit rates in the rising interest rate environment and its decision to maintain additional on-balance sheet liquidity following the bank failures and broader industry concerns about bank liquidity that arose in March 2023. The Company has continued its efforts to maintain non-interest bearing deposits. Low cost deposits continue to be the preferred choice of funding; however, the Company may rely on brokered deposits or wholesale borrowings when advantageous or otherwise deemed advisable due to market conditions. Interest expense on total borrowings was $7,388 and $5,574 for the three months ended September 30, 2023 and 2022, respectively. Interest expense on total borrowings was $38,351 and $15,386 for the nine months ended September 30, 2023 and 2022, respectively. The increase in interest expense is a result of higher average borrowings and interest rates primarily due to an increase in short-term FHLB borrowings during the first nine months of 2023. The repayment of FHLB borrowings during the second and third quarters of 2023 had a nominal impact to interest expense for the three and nine months ended September 30, 2023. A more detailed discussion of the cost of our funding sources is set forth below under the heading “Liquidity and Capital Resources” in this Item. Noninterest Income Noninterest Income to Average Assets Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 0.88% 0.98% 0.72% 0.93% Total noninterest income includes fees generated from deposit services and other fees and commissions, income from our insurance, wealth management and mortgage banking operations, realized gains and losses on the sale of securities and all other noninterest income. Our focus is to develop and enhance our products that generate noninterest income in order to diversify revenue sources. Noninterest income was $38,200 for the third quarter of 2023 as compared to $41,186 for the same period in 2022. Noninterest income was $92,719 for the nine months ended September 30, 2023 as compared to $115,858 for the same period in 2022. The decrease over the three and nine month periods is primarily due to the decrease in mortgage banking income during the three and nine month periods and, with respect to the nine month period, the $22,438 loss on the sale of securities during June 2023. Service charges on deposit accounts include maintenance fees on accounts, per item charges, account enhancement charges for additional packaged benefits and overdraft fees (which encompasses traditional overdraft fees as well as non-sufficient funds fees). Service charges on deposit accounts were $9,743 and $10,216 for the third quarter of 2023 and 2022, respectively, and $28,596 and $29,512 for the nine months ended September 30, 2023 and 2022, respectively. Overdraft fees, the largest component of service charges on deposits, were $5,065 for the three months ended September 30, 2023, as compared to $5,540 54 Table of Contents for the same period in 2022. These fees were $14,734 for the nine months ended September 30, 2023 compared to $15,967 for the same period in 2022. The Company eliminated consumer non-sufficient funds fees as well as transfer fees to linked customer accounts effective January 1, 2023. The fees eliminated totaled approximately $1,500 for the third quarter of 2022 and $4,100 for the first nine months of 2022. Fees and commissions were $4,108 during the third quarter of 2023 as compared to $4,148 for the same period in 2022, and were $13,771 for the first nine months of 2023 as compared to $12,798 for the same period in 2022. Fees and commissions include fees related to deposit services, such as ATM fees and interchange fees on debit card transactions, and lending services, such as collateral management fees and unused commitment fees. For the third quarter of 2023, interchange fees were $2,337 as compared to $2,341 for the same period in 2022. Interchange fees were $7,130 for the nine months ended September 30, 2023 as compared to $7,419 for the same period in 2022. Through Renasant Insurance, we offer a range of commercial and personal insurance products through major insurance carriers. Income earned on insurance products was $3,264 and $3,108 for the three months ended September 30, 2023 and 2022, respectively, and was $8,519 and $8,253 for the nine months ended September 30, 2023 and 2022, respectively. Contingency income is a bonus received from the insurance underwriters and is based both on commission income and claims experience on our clients’ policies during the previous year. Increases and decreases in contingency income are reflective of corresponding increases and decreases in the number of claims paid by insurance carriers. Contingency income, which is included in “Other noninterest income” in the Consolidated Statements of Income, was $7 and $10 for the three months ended September 30, 2023 and 2022, respectively, and $963 and $559 for the nine months ended September 30, 2023 and 2022, respectively. Our Wealth Management segment has two divisions: Trust and Financial Services. The Trust division operates on a custodial basis, which includes administration of benefit plans, as well as accounting and money management for trust accounts. The division manages a number of trust accounts inclusive of personal and corporate benefit accounts, IRAs, and custodial accounts. Fees for managing these accounts are based on changes in market values of the assets under management in the account, with the amount of the fee depending on the type of account. The Financial Services division provides specialized products and services to our customers, which include fixed and variable annuities, mutual funds, and stocks offered through a third party provider. Wealth Management revenue was $5,986 for the third quarter of 2023 compared to $5,467 for the same period in 2022, and was $16,464 for the nine months ended September 30, 2023 compared to $17,102 for the same period in 2022. The market value of assets under management or administration was $4,999,504 and $4,842,723 at September 30, 2023 and September 30, 2022, respectively. Mortgage banking income is derived from the origination and sale of mortgage loans and the servicing of mortgage loans that the Company has sold but retained the right to service. Although loan fees and some interest income are derived from mortgage loans held for sale, the main source of income is gains from the sale of these loans in the secondary market. Interest rate lock commitments and originations of mortgage loans to be sold totaled $494,442 and $397,355, respectively, in the third quarter of 2023 compared to $636,987 and $359,444, respectively for the same period in 2022. Interest rate lock commitments and originations of mortgage loans to be sold totaled $1,734,035 and $1,057,277 in the nine months ended September 30, 2023 compared to $2,677,181 and $1,436,158 for the same period in 2022. The decrease in both interest rate lock commitments and, for the nine month comparative period, mortgage loan originations was due to material increases in mortgage interest rates from historically low rates, significantly dampening demand for mortgages nationwide. In the third quarter of 2022, the Company sold a portion of its mortgage servicing rights portfolio with a carrying value of $15,565 for a pre-tax gain of $2,960. The table below presents the components of mortgage banking income included in noninterest income for the periods presented. Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Gain on sales of loans, net (1) $ 3,297 $ 5,263 $ 12,713 $ 14,800 Fees, net 2,376 2,405 7,041 8,522 Mortgage servicing income, net 1,860 5,007 6,067 7,302 Mortgage banking income, net $ 7,533 $ 12,675 $ 25,821 $ 30,624 (1) Gain on sales of loans, net includes pipeline fair value adjustments Bank-owned life insurance (“BOLI”) income is derived from changes in the cash surrender value of the bank-owned life insurance policies and proceeds received upon the death of covered individuals. BOLI income was $2,469 for the three months ended September 30, 2023 as compared to $2,296 for the same period in 2022, and $7,874 for the nine months ended September 30, 2023 as compared to $6,780 for the same period in 2022. The Company purchased an additional $80,000 in BOLI policies during the first quarter of 2022. No such purchases were made in the first nine months of 2023. 55 Table of Contents Other noninterest income was $5,097 and $3,276 for the three months ended September 30, 2023 and 2022, respectively, and was $14,112 and $10,789 for the nine months ended September 30, 2023 and 2022, respectively. Other noninterest income includes income from our SBA banking division, our capital markets division and other miscellaneous income and can fluctuate based on production in our SBA banking and capital markets divisions and recognition of other seasonal income items. Noninterest Expense Noninterest Expense to Average Assets Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 2.48% 2.42% 2.52% 2.36% Noninterest expense was $107,669 and $101,574 for the third quarter of 2023 and 2022, respectively, and was $324,542 and $293,873 for the nine months ended September 30, 2023 and 2022, respectively. Salaries and employee benefits increased $2,995 to $69,458 for the third quarter of 2023 as compared to $66,463 for the same period in 2022. Salaries and employee benefits increased $15,645 to $209,927 for the nine months ended September 30, 2023 as compared to $194,282 for the same period in 2022. The increase in salaries and employee benefits is primarily due to increases in the minimum wage we pay our employees that were implemented in May 2022 along with annual merit increases implemented in April 2023. The acquisition of RBC added $4,682 to salaries and employee benefits expense in the first nine months of 2023. Data processing costs were $3,907 in the third quarter of 2023 as compared to $3,526 for the same period in 2022 and were $11,224 for the nine months ended September 30, 2023 as compared to $11,379 for the same period in 2022. The Company continues to examine new and existing contracts to negotiate favorable terms to offset the increased variable cost components of our data processing costs, such as new accounts and increased transaction volume. Net occupancy and equipment expense for the third quarter of 2023 was $11,548, as compared to $11,266 for the same period in 2022. These expenses for the first nine months of 2023 were $34,818, as compared to $33,697 for the same period in 2022. For the third quarter of 2023 the Company experienced a net gain of $120 related to other real estate owned as compared to expenses of $34 for the same period in 2022. The Company experienced a net gain of $39 for the nine months ended September 30, 2023 as compared to a net gain of $394 for the same period in 2022. Expenses on other real estate owned included write downs of the carrying value to fair value on certain pieces of property held in other real estate owned of $18 and $110 for the first nine months of 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, other real estate owned with a cost basis of $2,544 and $1,847, respectively, was sold, resulting in a net gain of $289 and $611, respectively. Professional fees include fees for legal and accounting services, such as routine litigation matters, external audit services as well as assistance in complying with newly-enacted and existing banking and governmental regulations. Professional fees were $3,338 for the third quarter of 2023 as compared to $3,087 for the same period in 2022, and $10,817 for the nine months ended September 30, 2023 as compared to $9,016 for the same period in 2022. Advertising and public relations expense was $3,474 for the third quarter of 2023 as compared to $3,229 for the same period in 2022, and $11,642 for the nine months ended September 30, 2023 as compared to $10,694 for the same period in 2022. During the nine months ended September 30, 2023 and 2022, the Company contributed approximately $1,292 and $1,350, respectively, to charitable organizations throughout Mississippi, Alabama and Georgia, which contributions are included in our advertising and public relations expense, for which it received a dollar-for-dollar tax credit. Amortization of intangible assets totaled $1,311 and $1,251 for the third quarter of 2023 and 2022, respectively, and $4,106 and $3,927 for the nine months ended September 30, 2023 and 2022, respectively. This amortization relates to finite-lived intangible assets which are being amortized over the useful lives as determined at acquisition. These finite-lived intangible assets have remaining estimated useful lives ranging from approximately 1 year to 8 years. Communication expenses, those expenses incurred for communication to clients and between employees, were $2,006 for the third quarter of 2023 as compared to $1,999 for the same period in 2022. Communication expenses were $6,212 for the nine months ended September 30, 2023 as compared to $5,930 for the same period in 2022. Other noninterest expense includes the provision for unfunded commitments, business development and travel expenses, other discretionary expenses, loan fees expense and other miscellaneous fees and operating expenses. Other noninterest expense was $12,747 and $35,835 for the three and nine months ended September 30, 2023 as compared to $10,719 and $23,923 for the same periods in 2022. The increase in other noninterest expense is primarily attributable to lower deferred loan origination 56 Table of Contents expense in the first nine months of 2023 compared to the same period in 2022. The amount of loan origination expense deferred is directly correlated to the volume and mix of our loan production during the period. A negative provision (recovery) for unfunded commitments of $700 and $3,200 was recorded for the three and nine months ended September 30, 2023. There was no provision for unfunded commitments recorded for the third quarter of 2022 and a recovery of provision for unfunded commitments of $100 for the nine months ended September 30, 2022. Efficiency Ratio Efficiency Ratio Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Efficiency ratio 63.96 % 58.50 % 65.64 % 63.20 % The efficiency ratio is a measure of productivity in the banking industry. (This ratio is a measure of our ability to turn expenses into revenue. That is, the ratio is designed to reflect the percentage of one dollar that we must expend to generate a dollar of revenue.) The Company calculates this ratio by dividing noninterest expense by the sum of net interest income on a fully tax equivalent basis and noninterest income. The loss on the sale of securities reduced the efficiency ratio by 2.84 basis points for the nine months ended September 30, 2023. We remain committed to aggressively managing our costs within the framework of our business model. Our goal is to improve the efficiency ratio over time from currently reported levels as a result of revenue growth while at the same time controlling noninterest expenses. Income Taxes Income tax expense for the third quarter of 2023 and 2022 was $10,766 and $13,563, respectively, and $28,722 and $32,355 for the nine months ended September 30, 2023 and 2022, respectively. The Company recognized tax credits of approximately $1,292 in the first nine months of 2023 (as mentioned above in the advertising and public relations discussion) as compared to approximately $1,350 in the first nine months of 2022. Risk Management The management of risk is an on-going process. Primary risks that are associated with the Company include credit, interest rate and liquidity risk. Credit risk and interest rate risk are discussed below, while liquidity risk is discussed in the next subsection under the heading “Liquidity and Capital Resources.” Credit Risk and Allowance for Credit Losses on Loans and Unfunded Commitments Management of Credit Risk . Inherent in any lending activity is credit risk, that is, the risk of loss should a borrower default. Credit risk is monitored and managed on an ongoing basis by our credit administration department, our problem asset resolution committee and the Board of Directors Credit Review Committee. Oversight of the Company’s lending operations (including adherence to our policies and procedures governing the loan approval and monitoring process), credit quality and loss mitigation are major concerns of credit administration and these committees. The Company’s central appraisal review department reviews and approves third-party appraisals obtained by the Company on real estate collateral and monitors loan maturities to ensure updated appraisals are obtained. This department is managed by a State Certified General Real Estate Appraiser and employs three additional State Certified General Real Estate Appraisers and four real estate evaluators. In addition, we maintain a loan review staff to independently monitor loan quality and lending practices. Loan review personnel monitor and, if necessary, adjust the grades assigned to loans through periodic examination, focusing their review on commercial and real estate loans rather than consumer and small balance consumer mortgage loans, such as 1-4 family mortgage loans. In compliance with loan policy, the lending staff is given lending limits based on their knowledge and experience. In addition, each lending officer’s prior performance is evaluated for credit quality and compliance as a tool for establishing and enhancing lending limits. Before funds are advanced on consumer and commercial loans below certain dollar thresholds, loans are reviewed and scored using centralized underwriting methodologies. Loan quality, or “risk-rating,” grades are assigned based upon certain factors, which include the scoring of the loans. This information is used to assist management in monitoring credit quality. Loan requests of amounts greater than an officer’s lending limit are reviewed for approval by senior credit officers. For loans with a commercial purpose, internal risk-rating grades are assigned by lending, credit administration and loan review personnel, based on an analysis of the financial and collateral strength and other credit attributes underlying each loan. Loan grades range from 10 to 95, with 10 being loans with the least credit risk. 57 Table of Contents Management’s problem asset resolution committee and the Board of Directors’ Credit Review Committee monitor loans that are past due or those that have been downgraded to criticized due to a decline in the collateral value or cash flow of the borrower. This information is used to assist management in monitoring credit quality. When the ultimate collectability of a loan’s principal is in doubt, wholly or partially, the loan is placed on nonaccrual. After all collection efforts have failed, collateral securing loans may be repossessed and sold or, for loans secured by real estate, foreclosure proceedings initiated. The collateral is sold at public auction or private sale for fair market value (based upon recent appraisals as described above), with fees associated with the foreclosure being deducted from the sales price. The purchase price is applied to the outstanding loan balance. Any remaining balance is charged-off, which reduces the allowance for credit losses on loans. Charge-offs reflect the realization of losses in the portfolio that were recognized previously through the provision for credit losses on loans. The Company’s practice is to charge off estimated losses as soon as management believes the uncollectability of a loan balance is confirmed and such losses are reasonably quantified. Net charge-offs for the first nine months of 2023 were $10,566, or 0.12% of average loans (annualized), compared to net charge-offs of $4,763, or 0.06% of average loans (annualized), for the same period in 2022. The charge-offs were fully reserved for in the Company’s allowance for credit losses on loans. Subsequent recoveries, if any, are credited to the allowance for credit losses on loans. Allowance for Credit Losses on Loans; Provision for Credit Losses on Loans . The allowance for credit losses is available to absorb credit losses inherent in the loans held for investment portfolio. Management evaluates the adequacy of the allowance on a quarterly basis. The appropriate level of the allowance is based on an ongoing analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including loans evaluated on a collective (pooled) basis and those evaluated on an individual basis as set forth in ASC 326. The credit loss estimation process involves procedures to appropriately consider the unique characteristics of the Company’s loan portfolio segments. Credit quality is assessed and monitored by evaluating various attributes, and the results of those evaluations are utilized in underwriting new loans and in the Company’s process for the estimation of expected credit losses. Credit quality monitoring procedures and indicators can include an assessment of problem loans, the types of loans, historical loss experience, new lending products, emerging credit trends, changes in the size and character of loan categories, and other factors, including our risk rating system, regulatory guidance and economic conditions, such as the unemployment rate and change in GDP in the national and local economies as well as trends in the market values of underlying collateral securing loans, all as determined based on input from management, loan review staff and other sources. This evaluation is complex and inherently subjective, as it requires estimates by management that are inherently uncertain and therefore susceptible to significant revision as more information becomes available. In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and provision for credit loss in those future periods. The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components: first, a collective or pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics; and second, an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans. • The allowance for credit losses for loans that share similar risk characteristics with other loans is calculated on a collective (or pooled) basis, where such loans are segregated into loan portfolio segments. In determining the allowance for credit losses on loans evaluated on a collective basis, the Company further categorizes the loan segments based on risk rating. The Company uses two CECL models: (1) for the Real Estate - 1-4 Family Mortgage, Real Estate - Construction and the Installment Loans to Individuals portfolio segments, the Company uses a loss rate model, based on average historical life-of-loan loss rates, and (2) for the Commercial, Real Estate - Commercial Mortgage and Lease Financing portfolio segments, the Company uses a probability of default/loss given default model, which calculates an expected loss percentage for each loan pool by considering (a) the probability of default, based on the migration of loans from performing (using risk ratings) to default using life-of-loan analysis periods, and (b) the historical severity of loss, based on the aggregate net lifetime losses incurred per loan pool. The historical loss rates calculated as described above are adjusted, as necessary, for both internal and external qualitative factors where there are differences in the historical loss data of the Company and current or projected future conditions. Internal factors include loss history, changes in credit quality (including movement between risk ratings) and/or credit concentration and the nature and volume of the respective loan portfolio segments. External factors include current and reasonable and supportable forecasted economic conditions and changes in collateral values. These factors are used to adjust the historical loss rates (as described above) to ensure that they reflect management’s expectation of future conditions based on a reasonable and supportable forecast period. To the extent the lives of the loans in the portfolio extend 58 Table of Contents beyond the period for which a reasonable and supportable forecast can be made, when necessary, the models immediately revert to the historical loss rates adjusted for qualitative factors related to current conditions. • For loans that do not share similar risk characteristics with other loans, an individual analysis is performed to determine the expected credit loss. If the respective loan is collateral dependent (that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral), the expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of collateral is initially based on external appraisals. Generally, collateral values for loans for which measurement of expected losses is dependent on the fair value of such collateral are updated every twelve months, either from external third parties or in-house certified appraisers. Third-party appraisals are obtained from a pre-approved list of independent, third-party, local appraisal firms. The fair value of the collateral derived from the external appraisal is then adjusted for the estimated cost to sell if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. Other acceptable methods for determining the expected credit losses for individually evaluated loans (typically used for loans that are not collateral dependent) is a discounted cash flow approach or, if applicable, an observable market price. Once the expected credit loss amount is determined, an allowance equal to such expected credit loss is included in the allowance for credit losses. In addition to its quarterly analysis of the allowance for credit losses, on a regular basis management and the Board of Directors review loan ratios. These ratios include the allowance for credit losses as a percentage of total loans, net charge-offs as a percentage of average loans, nonperforming loans as a percentage of total loans and the allowance coverage on nonperforming loans, among others. Also, management reviews past due ratios by officer, community bank and the Company as a whole. The following table presents the allocation of the allowance for credit losses on loans by loan category and the percentage of loans in each category to total loans as of the dates presented: September 30, 2023 December 31, 2022 September 30, 2022 Balance % of Total Balance % of Total Balance % of Total Commercial, financial, agricultural $ 44,444 14.96 % $ 44,255 14.46 % $ 30,503 13.63 % Lease financing 3,355 0.99 % 2,463 0.99 % 2,314 0.93 % Real estate – construction 19,656 11.57 % 19,114 11.49 % 18,744 10.94 % Real estate – 1-4 family mortgage 45,799 27.94 % 44,727 27.78 % 43,532 28.17 % Real estate – commercial mortgage 75,233 43.65 % 71,798 44.20 % 69,267 45.17 % Installment loans to individuals 9,286 0.89 % 9,733 1.08 % 9,996 1.16 % Total $ 197,773 100.00 % $ 192,090 100.00 % $ 174,356 100.00 % The provision for credit losses on loans charged to operating expense is an amount which, in the judgment of management, is necessary to maintain the allowance for credit losses on loans at a level that is believed to be adequate to meet the inherent risks of losses in our loan portfolio. The Company recorded a provision for credit losses of $5,315 in the third quarter of 2023 and $16,275 in the first nine months of 2023, as compared to $9,800 in the third quarter of 2022 and $13,300 in the first nine months of 2022. The Company’s allowance for credit losses model considers economic projections, primarily the national unemployment rate and GDP, over a reasonable and supportable period of two years. The provision activity during the first nine months months of 2023 as compared to the same period in 2022 was primarily driven by loan growth coupled with a slight deterioration in our economic forecast. The table below reflects the activity in the allowance for credit losses on loans for the periods presented: 59 Table of Contents Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Balance at beginning of period $ 194,391 $ 166,131 $ 192,090 $ 164,171 Impact of purchased credit deteriorated loans acquired during the period — — (26) 1,648 Charge-offs Commercial, financial, agricultural 2,252 373 7,720 4,714 Lease financing 641 — 641 7 Real estate – construction — — 57 — Real estate – 1-4 family mortgage 130 208 345 532 Real estate – commercial mortgage — 1,956 5,512 2,670 Installment loans to individuals 607 722 1,997 2,351 Total charge-offs 3,630 3,259 16,272 10,274 Recoveries Commercial, financial, agricultural 690 415 2,689 1,982 Lease financing 2 113 13 136 Real estate – construction 48 — 48 — Real estate – 1-4 family mortgage 181 378 375 725 Real estate – commercial mortgage 208 50 697 397 Installment loans to individuals 568 728 1,884 2,271 Total recoveries 1,697 1,684 5,706 5,511 Net charge-offs 1,933 1,575 10,566 4,763 Provision for credit losses on loans 5,315 9,800 16,275 13,300 Balance at end of period $ 197,773 $ 174,356 $ 197,773 $ 174,356 Net charge-offs (annualized) to average loans 0.06 % 0.06 % 0.12 % 0.06 % Net charge-offs to allowance for credit losses on loans 0.98 0.90 5.34 2.73 Allowance for credit losses on loans to: Total loans 1.63 1.57 Nonperforming loans 282.24 312.10 Nonaccrual loans 284.40 321.23 60 Table of Contents The table below reflects annualized net charge-offs (recoveries) to daily average loans outstanding, by loan category, during the periods presented: Nine Months Ended September 30, 2023 September 30, 2022 Net Charge-offs (Recoveries) Average Loans Annualized Net Charge-offs to Average Loans Net Charge-offs (Recoveries) Average Loans Annualized Net Charge-offs to Average Loans Commercial, financial, agricultural $ 5,031 $ 1,740,424 0.39% $ 2,732 $ 1,474,633 0.25% Lease financing 628 119,564 0.70 (129) 93,838 (0.18)% Real estate – construction 9 1,336,385 — — 1,124,713 —% Real estate – 1-4 family mortgage (30) 3,373,754 — (193) 2,976,081 (0.01)% Real estate – commercial mortgage 4,815 5,183,733 0.12 2,273 4,670,508 0.07% Installment loans to individuals 113 112,802 0.13 80 134,532 0.08% Total $ 10,566 $ 11,866,662 0.12% $ 4,763 $ 10,474,305 0.06% The following table provides further details of the Company’s net charge-offs (recoveries) of loans secured by real estate for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Real estate – construction: Residential $ (48) $ — $ 9 $ — Total real estate – construction (48) — 9 — Real estate – 1-4 family mortgage: Primary (91) (59) (156) 98 Home equity (20) (44) 79 (92) Rental/investment 66 (19) 65 (40) Land development (6) (48) (18) (159) Total real estate – 1-4 family mortgage (51) (170) (30) (193) Real estate – commercial mortgage: Owner-occupied (205) (36) 113 490 Non-owner occupied (3) 1,951 4,702 1,949 Land development — (9) — (166) Total real estate – commercial mortgage (208) 1,906 4,815 2,273 Total net charge-offs (recoveries) of loans secured by real estate $ (307) $ 1,736 $ 4,794 $ 2,080 Allowance for Credit Losses on Unfunded Commitments; Provision for Credit Losses on Unfunded Commitments . The Company maintains a separate allowance for credit losses on unfunded loan commitments, which is included in the “Other liabilities” line item on the Consolidated Balance Sheets. Management estimates the amount of expected losses on unfunded loan commitments by calculating a likelihood of funding over the contractual period for exposures that are not unconditionally cancellable by the Company and applying the loss factors used in the allowance for credit losses on loans methodology described above to unfunded commitments for each loan type. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company. A roll-forward of the allowance for credit losses on unfunded commitments is shown in the tables below. 61 Table of Contents Three Months Ended September 30, 2023 2022 Allowance for credit losses on unfunded loan commitments: Beginning balance $ 17,618 $ 19,935 Recovery of provision for credit losses on unfunded loan commitments (included in other noninterest expense) (700) — Ending balance $ 16,918 $ 19,935 Nine Months Ended September 30, 2023 2022 Allowance for credit losses on unfunded loan commitments: Beginning balance $ 20,118 $ 20,035 Recovery of provision for credit losses on unfunded loan commitments (included in other noninterest expense) (3,200) (100) Ending balance $ 16,918 $ 19,935 Nonperforming Assets . Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans are those on which the accrual of interest has stopped or loans which are contractually 90 days past due on which interest continues to accrue. Generally, the accrual of interest is discontinued when the full collection of principal or interest is in doubt or when the payment of principal or interest has been contractually 90 days past due, unless the obligation is both well secured and in the process of collection, but loans may also be placed on nonaccrual status at an earlier date if collection of principal or interest is considered doubtful. Management, the problem asset resolution committee and our loan review staff closely monitor loans that are considered to be nonperforming. Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure. These properties are carried at the lower of cost or fair market value based on appraised value less estimated selling costs. Losses arising at the time of foreclosure of properties are charged against the allowance for credit losses on loans. Reductions in the carrying value subsequent to acquisition are charged to earnings and are included in “Other real estate owned” in the Consolidated Statements of Income. The following table provides details of the Company’s nonperforming assets as of the dates presented. September 30, 2023 December 31, 2022 Nonaccruing loans $ 69,541 $ 56,545 Accruing loans past due 90 days or more 532 331 Total nonperforming loans 70,073 56,876 Other real estate owned 9,258 1,763 Total nonperforming assets $ 79,331 $ 58,639 Nonperforming loans to total loans 0.58 % 0.49 % Nonaccruing loans to total loans 0.57 % 0.49 % Nonperforming assets to total assets 0.46 % 0.35 % The following table presents nonperforming loans by loan category as of the dates presented: 62 Table of Contents September 30, 2023 December 31, 2022 September 30, 2022 Commercial, financial, agricultural $ 7,745 $ 12,543 $ 5,299 Lease financing 1,048 — — Real estate – construction: Residential — 77 232 Commercial — — 1 Total real estate – construction — 77 233 Real estate – 1-4 family mortgage: Primary 42,072 30,076 25,130 Home equity 2,598 1,909 1,842 Rental/investment 2,647 1,014 1,240 Land development 169 82 1,448 Total real estate – 1-4 family mortgage 47,486 33,081 29,660 Real estate – commercial mortgage: Owner-occupied 3,370 5,499 8,554 Non-owner occupied 9,920 5,342 11,725 Land development 247 71 93 Total real estate – commercial mortgage 13,537 10,912 20,372 Installment loans to individuals 257 263 301 Total nonperforming loans $ 70,073 $ 56,876 $ 55,865 Total nonperforming loans as a percentage of total loans were 0.58% as of September 30, 2023 as compared to 0.49% and 0.50% as of December 31, 2022 and September 30, 2022, respectively. The Company’s coverage ratio, or its allowance for credit losses on loans as a percentage of nonperforming loans, was 282.24% as of September 30, 2023 as compared to 337.73% as of December 31, 2022 and 312.10% as of September 30, 2022. Management has evaluated loans classified as nonperforming and believes that all nonperforming loans have been adequately reserved for in the allowance for credit losses at September 30, 2023. Management also continually monitors past due loans for potential credit quality deterioration. Total loans 30-89 days past due but still accruing interest were $13,641, or 0.11% of total loans, at September 30, 2023 as compared to $58,703, or 0.51% of total loans, at December 31, 2022 and $26,103, or 0.25% of total loans, at September 30, 2022. Certain modifications of loans made to borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension, excluding covenant waivers and modification of contingent acceleration clauses are required to be disclosed in accordance with ASU 2022-02. At September 30, 2023, these loan modifications were performing in accordance with their modified terms and unused commitments totaled $721. Upon the Company’s determination that a modified loan has been subsequently deemed uncollectible, the loan, or portion of the loan, is charged off, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted accordingly. See Note 4, “Allowance for Credit Losses,” in the Notes to Consolidated Financial Statements of the Company in Item 1, Financial Statements for more information on the allowance for credit losses. The following table presents the amortized cost basis of loans that were both experiencing financial difficulty and modified during the nine months ended September 30, 2023, which are required to be disclosed under ASU 2022-02, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of loans is also presented below. 63 Table of Contents Nine Months Ended Interest Rate Reduction Term Extension Payment Delay Total % Total Loans by Class Commercial, financial, agricultural $ — $ 1,209 $ — $ 1,209 0.07 % Real estate – construction: Residential — 3,751 — 3,751 1.25 Total real estate – construction — 3,751 — 3,751 0.27 Real estate – 1-4 family mortgage: Home equity 7 — — 7 — Total real estate – 1-4 family mortgage 7 — — 7 — Real estate – commercial mortgage: Owner-occupied 149 96 277 522 0.03 Non-owner occupied 1,008 — — 1,008 0.03 Total real estate – commercial mortgage 1,157 96 277 1,530 0.03 Loans, net of unearned income $ 1,164 $ 5,056 $ 277 $ 6,497 0.05 % The following table presents the weighted average financial effect of the loan modifications requiring disclosure under ASU 2022-02 by class of financing receivable for the nine months ended September 30, 2023. Nine Months Ended Interest Rate Reduction (in basis points) Term Extension (in months) Payment Delay (in months) Commercial, financial, agricultural — 2.1 — Real estate – construction: Residential — 4.7 — Real estate – 1-4 family mortgage: Home equity 300 — — Real estate – commercial mortgage: Owner-occupied 68 8.4 3.0 Non-owner occupied 12 — — The following table provides details of the Company’s other real estate owned, net of valuation allowance and direct write-downs, as of the dates presented: September 30, 2023 December 31, 2022 September 30, 2022 Residential real estate $ 1,045 $ 699 $ 913 Commercial real estate 8,182 62 62 Residential land development 4 246 246 Commercial land development 27 756 1,191 Total other real estate owned $ 9,258 $ 1,763 $ 2,412 Changes in the Company’s other real estate owned were as follows: 64 Table of Contents 2023 2022 Balance at January 1 $ 1,763 $ 2,540 Transfers of loans 10,073 1,828 Impairments (18) (110) Dispositions (2,544) (1,847) Other (16) 1 Balance at September 30 $ 9,258 $ 2,412 Other real estate owned with a cost basis of $2,544 was sold during the nine months ended September 30, 2023, resulting in a net gain of $289, while other real estate owned with a cost basis of $1,847 was sold during the nine months ended September 30, 2022, resulting in a net gain of $611. Interest Rate Risk Market risk is the risk of loss from adverse changes in market prices and rates. The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Our market risk arises primarily from interest rate risk inherent in lending, investing and deposit-taking activities. Management believes a significant impact on the Company’s financial results stems from our ability to react to changes in interest rates. A sudden and substantial change in interest rates may adversely impact our earnings because the interest rates borne by assets and liabilities do not change at the same speed, to the same extent or on the same basis. Changes in rates may also limit our liquidity, making it more costly for the Company to generate funds to make loans and to satisfy customers wishing to withdraw deposits. Because of the impact of interest rate fluctuations on our profitability and liquidity, we actively monitor and manage our interest rate risk exposure. We have an Asset/Liability Committee (“ALCO”), which is comprised of various members of senior management and is authorized by the Board of Directors to monitor interest rate sensitivity and liquidity risk, over the short-, medium-, and long-term, and to make decisions relating to these processes. The ALCO’s goal is to structure our asset/liability composition to maximize net interest income while managing interest rate risk and preserving adequate liquidity so as to minimize the adverse impact of changes in interest rates on net interest income, liquidity and capital. We regularly monitor liquidity and stress our liquidity position in various simulated scenarios, which are incorporated in our contingency funding plan outlining different potential liquidity environments. The ALCO uses an asset/liability model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model is used to perform both net interest income forecast simulations for multiple year horizons and economic value of equity (“EVE”) analyses, each under various interest rate scenarios, which could impact the results presented in the table below. Net interest income forecast simulations measure the short- and medium-term earnings exposure from changes in market interest rates in a rigorous and explicit fashion. Our current financial position is combined with assumptions regarding future business to calculate future net interest income under various hypothetical rate scenarios. EVE measures our long-term earnings exposure from changes in market rates of interest. EVE is defined as the present value of assets minus the present value of liabilities at a point in time for a given set of market rate assumptions. An increase in EVE due to a specified rate change indicates an improvement in the long-term earnings capacity of the balance sheet assuming that the rate change remains in effect over the life of the current balance sheet. The following table presents the projected impact of a change in interest rates on (1) static EVE and (2) earnings at risk (that is, net interest income) for the 1-12 and 13-24 month periods commencing October 1, 2023, in each case as compared to the result under rates present in the market on September 30, 2023. The changes in interest rates assume an instantaneous and parallel shift in the yield curve and do not account for changes in the slope of the yield curve. Percentage Change In: Immediate Change in Rates of (in basis points): Economic Value Equity (EVE) Earning at Risk (Net Interest Income) Static 1-12 Months 13-24 Months +100 2.11% 2.33% 3.56% -100 (2.96)% (2.96)% (4.17)% -200 (7.32)% (6.72)% (9.35)% 65 Table of Contents The rate shock results for the net interest income simulations for the next 24 months produce an asset sensitive position at September 30, 2023. The preceding measures assume no change in the size or asset/liability compositions of the balance sheet, and they do not reflect future actions the ALCO may undertake in response to such changes in interest rates. The scenarios assume instantaneous movements in interest rates in increments described in the table above. As interest rates are adjusted over a period of time, it is our strategy to proactively change the volume and mix of our balance sheet in order to mitigate our interest rate risk. The computation of the prospective effects of hypothetical interest rate changes requires numerous assumptions, including asset prepayment speeds, the impact of competitive factors on our pricing of loans and deposits, the impact of market conditions on the securities yields and interest rates of our borrowings, how responsive our deposit repricing is to the change in market rates and the expected life of non-maturity deposits. These business assumptions are based upon our experience, business plans and published industry experience; however, such assumptions may not necessarily reflect the manner or timing in which cash flows, asset yields and liability costs respond to changes in market rates. Because these assumptions are inherently uncertain, actual results will differ from simulated results. The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, collars, caps and/or floors, forward commitments, and interest rate lock commitments, as part of its ongoing efforts to mitigate its interest rate risk exposure. For more information about the Company’s derivatives, see the information under the heading “Loan Commitments and Other Off-Balance Sheet Arrangements” in the Liquidity and Capital Resources section below and Note 9, “Derivative Instruments,” in the Notes to Consolidated Financial Statements of the Company in Item 1, Financial Statements. The Liquidity and Capital Resources section also details our available sources of liquidity, both on and off-balance sheet. Liquidity and Capital Resources Liquidity management is the ability to meet the cash flow requirements of customers who may be either depositors wishing to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Core deposits, which are deposits excluding brokered deposits and time deposits greater than $250,000, are the major source of funds used by the Bank to meet cash flow needs. Maintaining the ability to acquire these funds as needed in a variety of markets is the key to assuring the Bank’s liquidity. We may also access the brokered deposit market where rates are favorable to other sources of liquidity (especially in light of collateral requirements for certain borrowings) and core deposits are not sufficient for meeting our current and anticipated liquidity needs. During the first nine months of 2023, brokered deposits increased by $524,642 as compared to the balance at December 31, 2022. The Bank obtained brokered deposits in the amount of $1,206,856 during the first nine months of 2023 and paid down $682,214. Management continually monitors the Bank’s liquidity and non-core dependency ratios to ensure compliance with targets established by the ALCO. Our investment portfolio is another alternative for meeting liquidity needs. These assets generally have readily available markets that offer conversions to cash as needed. Within the next twelve months, the securities portfolio is forecasted to generate cash flow through principal payments and maturities equal to approximately 10.40% of the carrying value of the total securities portfolio. Securities within our investment portfolio are also used to secure certain deposit types, short-term borrowings and derivative instruments. At September 30, 2023, securities with a carrying value of $807,284 were pledged to secure government, public fund and trust deposits and as collateral for short-term borrowings and derivative instruments as compared to securities with a carrying value of $842,601 similarly pledged at December 31, 2022. Other sources available for meeting liquidity needs include federal funds purchased, short-term and long-term advances from the FHLB and borrowings from the Federal Reserve Discount Window. Interest is charged at the prevailing market rate on federal funds purchased and FHLB advances. There were $100,000 in short-term borrowings from the FHLB at September 30, 2023, as compared to $700,000 at December 31, 2022, as we used the proceeds of our sale of securities in the third quarter to pay down our short-term FHLB advances. Long-term funds obtained from the FHLB are used to match-fund fixed rate loans in order to minimize interest rate risk and also are used to meet day-to-day liquidity needs, particularly when the cost of such borrowing compares favorably to the rates that we would be required to pay to attract deposits. There were no outstanding long-term advances with the FHLB at September 30, 2023 or December 31, 2022. The total amount of the remaining credit available to us from the FHLB at September 30, 2023 was $3,111,063. The credit available at the Federal Reserve Discount Window at September 30, 2023 was $585,406, with no borrowings currently outstanding. We also maintain lines of credit with other commercial banks totaling $180,000. These are unsecured lines of credit with the majority maturing at various times within the next twelve months. There were no amounts outstanding under these lines of credit at September 30, 2023 or December 31, 2022. Finally, we can access the capital markets to meet liquidity needs. The Company maintains a shelf registration statement with the Securities and Exchange Commission (“SEC”). The shelf registration statement, which was effective upon filing, allows the Company to raise capital from time to time through the sale of common stock, preferred stock, depositary shares, debt 66 Table of Contents securities, rights, warrants and units, or a combination thereof, subject to market conditions. Specific terms and prices will be determined at the time of any offering under a separate prospectus supplement that the Company will file with the SEC at the time of the specific offering. The proceeds of the sale of securities, if and when offered, will be used for general corporate purposes or as otherwise described in the prospectus supplement applicable to the offering and could include the expansion of the Company's banking, insurance and wealth management operations as well as other business opportunities. In previous years, we have accessed the capital markets to generate liquidity in the form of common stock and subordinated notes. We have also assumed subordinated notes as part of acquisitions. The carrying value of subordinated notes, net of unamortized debt issuance costs, was $314,655 at September 30, 2023. The following table presents, by type, the Company’s funding sources, which consist of total average deposits and borrowed funds, and the total cost of each funding source for the periods presented: Percentage of Total Average Deposits and Borrowed Funds Cost of Funds Nine Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Noninterest-bearing demand 27.51 % 33.27 % — % — % Interest-bearing demand 42.12 45.96 1.95 0.27 Savings 6.75 7.88 0.33 0.05 Brokered deposits 4.86 — 4.99 — Time deposits 11.95 9.15 2.64 0.42 Short-term borrowings 3.90 0.66 4.24 0.98 Long-term Federal Home Loan Bank advances — — — 1.88 Subordinated notes 2.15 2.30 5.61 4.39 Other borrowed funds 0.76 0.78 7.93 4.66 Total deposits and borrowed funds 100.00 % 100.00 % 1.75 % 0.31 % The estimated amount of uninsured and uncollateralized deposits at September 30, 2023 was $4,204,524. Collateralized public funds over the FDIC insurance limits were $1,451,674 at September 30, 2023. Our strategy in choosing funds is focused on minimizing cost in the context of our balance sheet composition, interest rate risk position and liquidity forecast. Accordingly, management targets growth of core deposits, focusing on noninterest-bearing deposits. While we do not control the types of deposit instruments our clients choose, we do influence those choices with the rates and the deposit specials we offer. We constantly monitor our funds position and evaluate the effect that various funding sources have on our financial position. Cash and cash equivalents were $741,156 at September 30, 2023, as compared to $479,500 at September 30, 2022. Cash provided by investing activities for the nine months ended September 30, 2023 was $89,172, as compared to cash used in investing activities of $1,587,457 for the nine months ended September 30, 2022. Proceeds from the sale, maturity or call of securities within our investment portfolio were $697,076 for the nine months ended September 30, 2023, as compared to $372,484 for the same period in 2022. A portion of the securities portfolio was sold during the second quarter, resulting in proceeds of $488,981 which were used to pay off short-term FHLB borrowings. Other proceeds were primarily used to fund loan growth in 2023, while they were primarily reinvested into the investment portfolio in 2022. Purchases of investment securities were $9,646 during the first nine months of 2023, as compared to $800,260 for the same period in 2022. Cash provided by financing activities for the nine months ended September 30, 2023 was $27,868, as compared to cash used in financing activities of $274,115 for the same period in 2022. Deposits increased $670,144 and decreased $473,600 for the nine months ended September 30, 2023 and 2022, respectively. Restrictions on Bank Dividends, Loans and Advances The Company’s liquidity and capital resources, as well as its ability to pay dividends to its shareholders, are substantially dependent on the ability of Renasant Bank to transfer funds to the Company in the form of dividends, loans and advances. Under Mississippi law, a Mississippi bank may not pay dividends unless its earned surplus is in excess of three times capital stock. A Mississippi bank with earned surplus in excess of three times capital stock may pay a dividend, subject to the approval of the Mississippi Department of Banking and Consumer Finance (the “DBCF”). In addition, the FDIC also has the authority to prohibit the Bank from engaging in business practices that the FDIC considers to be unsafe or unsound, which, depending on 67 Table of Contents the financial condition of the bank, could include the payment of dividends. Accordingly, the approval of the DBCF is required prior to the Bank paying dividends to the Company, and under certain circumstances the approval of the FDIC may be required. Federal Reserve regulations also limit the amount the Bank may loan to the Company unless such loans are collateralized by specific obligations. At September 30, 2023, the maximum amount available for transfer from the Bank to the Company in the form of loans was $186,960. The Company maintains a $3,000 line of credit collateralized by cash with the Bank. There were no amounts outstanding under this line of credit at September 30, 2023. These restrictions did not have any impact on the Company’s ability to meet its cash obligations in the nine months ended September 30, 2023, nor does management expect such restrictions to materially impact the Company’s ability to meet its currently-anticipated cash obligations. Loan Commitments and Other Off-Balance Sheet Arrangements The Company enters into loan commitments and standby letters of credit in the normal course of its business. Loan commitments are made to accommodate the financial needs of the Company’s customers. Standby letters of credit commit the Company to make payments on behalf of customers when certain specified future events occur. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies, including establishing a provision for credit losses on unfunded commitments. Collateral (e.g., securities, receivables, inventory, equipment, etc.) is obtained based on management’s credit assessment of the customer. Loan commitments and standby letters of credit do not necessarily represent future cash requirements of the Company in that while the borrower has the ability to draw upon these commitments at any time, these commitments often expire without being drawn upon. The Company’s unfunded loan commitments and standby letters of credit outstanding were as follows as of the dates presented: September 30, 2023 December 31, 2022 Loan commitments $ 3,138,292 $ 3,577,614 Standby letters of credit 114,173 98,357 The Company closely monitors the amount of remaining future commitments to borrowers in light of prevailing economic conditions and adjusts these commitments and the provision related thereto as necessary; the Company also reviews these commitments as part of its analysis of loan concentrations within the loan portfolio. The Company will continue this process as new commitments are entered into or existing commitments are renewed. For a more detailed discussion related to the allowance and provision for credit losses on unfunded loan commitments, refer to the “Risk Management” section above. The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, collars, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to facilitate the needs of its customers. The Company enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into an offsetting derivative contract position with other financial institutions. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. At September 30, 2023, the Company had notional amounts of $404,646 on interest rate contracts with corporate customers and $401,910 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts and certain fixed rate loans. Additionally, the Company enters into interest rate lock commitments with its customers to mitigate the interest rate risk associated with the commitments to fund fixed-rate and adjustable rate residential mortgage loans and also enters into forward commitments to sell residential mortgage loans to secondary market investors. The Company also enters into interest rate swap contracts and interest rate collars on its FHLB borrowings and its junior subordinated debentures that are accounted for as cash flow hedges. Under interest rate swap contracts, the Company pays a fixed rate of interest and receives a variable rate of interest, while the collar hedging strategy stabilizes interest rate fluctuation by setting both a floor and a cap. The Company entered into an interest rate collar on forecasted borrowings in June 2022 with a 2.25% floor and 4.57% cap, which is accounted for as a cash flow hedge. The Company entered into a second interest rate collar in October 2022 with a 2.75% floor and 4.75% cap. Additionally, the Company entered into an interest rate swap contract on its subordinated notes that is accounted for as a fair value hedge. Under this contract, the Company pays a variable rate of interest and receives a fixed rate of interest. 68 Table of Contents For more information about the Company’s derivatives, see Note 9, “Derivative Instruments,” in the Notes to Consolidated Financial Statements of the Company in Item 1, Financial Statements. Shareholders’ Equity and Regulatory Matters Total shareholders’ equity of the Company was $2,233,323 at September 30, 2023 compared to $2,136,016 at December 31, 2022. Book value per share was $39.78 and $38.18 at September 30, 2023 and December 31, 2022, respectively. The growth in shareholders’ equity was attributable to reductions in accumulated other comprehensive loss and current period earnings, offset by dividends declared. In October 2022, the Company’s Board of Directors approved a stock repurchase program, authorizing the Company to repurchase up to $100,000 of its outstanding common stock, which expired in October 2023 and was replaced with a new stock repurchase program, authorizing the Company to repurchase up to $100,000 of its outstanding common stock, either in open market purchases or privately-negotiated transactions. The new repurchase program will remain in effect for one year or, if earlier, the repurchase of the entire amount of common stock authorized to be repurchased. The Company did not repurchase any of its common stock under the stock repurchase plan in the first nine months of 2023. The Company has junior subordinated debentures with a carrying value of $112,744 at September 30, 2023, of which $109,153 is included in the Company’s Tier 1 capital. Federal Reserve guidelines limit the amount of securities that, similar to our junior subordinated debentures, are includable in Tier 1 capital, but these guidelines did not impact the debentures we include in Tier 1 capital at September 30, 2023. Although our existing junior subordinated debentures are currently unaffected by these Federal Reserve guidelines, on account of changes enacted as part of the Dodd-Frank Act, any new trust preferred securities are not includable in Tier 1 capital. Further, if we make any acquisition of a financial institution now that we have exceeded $15,000,000 in assets, we will lose Tier 1 treatment of our junior subordinated debentures. The Company has subordinated notes with a par value of $340,000 at September 30, 2023, of which $336,551 is included in the Company’s Tier 2 capital. The Federal Reserve, the FDIC and the Office of the Comptroller of the Currency have issued guidelines governing the levels of capital that bank holding companies and banks must maintain. Those guidelines specify capital tiers, which include the following classifications: Capital Tiers Tier 1 Capital to Average Assets (Leverage) Common Equity Tier 1 to Risk - Weighted Assets Tier 1 Capital to Risk - Weighted Assets Total Capital to Risk - Weighted Assets Well capitalized 5% or above 6.5% or above 8% or above 10% or above Adequately capitalized 4% or above 4.5% or above 6% or above 8% or above Undercapitalized Less than 4% Less than 4.5% Less than 6% Less than 8% Significantly undercapitalized Less than 3% Less than 3% Less than 4% Less than 6% Critically undercapitalized Tangible Equity / Total Assets less than 2% 69 Table of Contents The following table provides the capital and risk-based capital and leverage ratios for the Company and for Renasant Bank as of the dates presented: Actual Minimum Capital Requirement to be Well Capitalized Minimum Capital Requirement to be Adequately Capitalized (including the Capital Conservation Buffer) Amount Ratio Amount Ratio Amount Ratio September 30, 2023 Renasant Corporation: Risk-based capital ratios: Common equity tier 1 capital ratio $ 1,449,367 10.46 % $ 900,405 6.50 % $ 969,667 7.00 % Tier 1 risk-based capital ratio 1,558,521 11.25 1,108,191 8.00 1,177,453 8.50 Total risk-based capital ratio 2,065,992 14.91 1,385,238 10.00 1,454,500 10.50 Leverage capital ratios: Tier 1 leverage ratio 1,558,521 9.48 821,665 5.00 657,332 4.00 Renasant Bank: Risk-based capital ratios: Common equity tier 1 capital ratio $ 1,698,680 12.23 % $ 902,615 6.50 % $ 972,047 7.00 % Tier 1 risk-based capital ratio 1,698,680 12.23 1,110,911 8.00 1,180,343 8.50 Total risk-based capital ratio 1,869,600 13.46 1,388,639 10.00 1,458,071 10.50 Leverage capital ratios: Tier 1 leverage ratio 1,698,680 10.33 821,813 5.00 657,450 4.00 December 31, 2022 Renasant Corporation: Risk-based capital ratios: Common equity tier 1 capital ratio $ 1,372,747 10.21 % $ 874,093 6.50 % $ 941,331 7.00 % Tier 1 risk-based capital ratio 1,481,197 11.01 1,075,807 8.00 1,143,045 8.50 Total risk-based capital ratio 1,968,001 14.63 1,344,758 10.00 1,411,996 10.50 Leverage capital ratios: Tier 1 leverage ratio 1,481,197 9.36 790,853 5.00 632,683 4.00 Renasant Bank: Risk-based capital ratios: Common equity tier 1 capital ratio $ 1,630,389 12.10 % $ 876,066 6.50 % $ 943,455 7.00 % Tier 1 risk-based capital ratio 1,630,389 12.10 1,078,235 8.00 1,145,624 8.50 Total risk-based capital ratio 1,781,312 13.22 1,347,794 10.00 1,415,183 10.50 Leverage capital ratios: Tier 1 leverage ratio 1,630,389 10.30 791,299 5.00 633,040 4.00 The Company elected to take advantage of transitional relief offered by the Federal Reserve and FDIC to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transitional period to phase out the capital benefit provided by the two-year delay. The three-year transitional period began on January 1, 2022. For more information regarding the capital adequacy guidelines applicable to the Company and Renasant Bank, please refer to Note 14, “Regulatory Matters,” in the Notes to the Consolidated Financial Statements of the Company in Item 1, Financial Statements. Critical Accounting Estimates We have identified certain accounting estimates that involve significant judgment and estimates which can have a material impact on our financial condition or results of operations. Our accounting policies are more fully described in Note 1, 70 Table of Contents “Significant Accounting Policies,” in the Notes to Consolidated Financial Statements of the Company in Item 8, Financial Statements and Supplementary Data, in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 24, 2023. Actual amounts and values as of the balance sheet dates may be materially different than the amounts and values reported due to the inherent uncertainty in the estimation process. Also, future amounts and values could differ materially from those estimates due to changes in values and circumstances after the balance sheet date. The critical accounting estimates that we believe to be the most critical in preparing our consolidated financial statements relate to the allowance for credit losses and acquisition accounting, which are described under “Critical Accounting Policies and Estimates” in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the year ended December 31, 2022. Since December 31, 2022, there have been no material changes in these critical accounting estimates. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in our market risk since December 31, 2022. For additional information regarding our market risk, see our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 24, 2023.