Renasant Corp. in Tupelo, Miss., is preparing for the day when it is nearly twice as big, even if it has a ways to go to get there.

The $5.8 billion-asset company is already investing in the personnel and systems necessary to comply with the added regulation and oversight that will kick in when it hits $10 billion in assets.

At the same time, management continues to looking for more in-market acquisitions to help it grow into the infrastructure being built. The company is focusing on four states: Mississippi, Tennessee, Alabama and Georgia. Its last acquisition — the $1.5 billion-asset First M&F in Kosciusko, Miss. — closed late last year.

"We think that there's opportunity out there for acquisitions," Robin McGraw, Renasant's chairman, president and chief executive, said in a recent interview, adding that the company is keen on buying banks with $500 million to $2.5 billion in assets. "We feel like banks in that range would be nice merger candidates for us."

Renasant's loan book expanded by 2% in the third quarter, compared to a year earlier, even after runoff of certain loans from First M&F and acquisitions of failed banks.

In a wide-ranging interview, McGraw and Kevin Chapman, Renasant's chief financial officer, discussed resurgent business in the Southeast, intense competition and how they are trying to maximize returns from the company's balance sheet. Here is an edited excerpt.

How is the economy in the states you are in?

ROBIN MCGRAW: We see the four-state region we're in as having some of the best economies in the Southeast. One of the big drivers is the automobile industry. Each state has automobile manufacturing facilities. They're all concentrated in a relatively small area and they have brought in a significant amount of jobs.

Then you have Atlanta, which was hit hard during the recession. In that market, north of I-285 is responding very well. The Buckhead pocket is doing really well.

Our metropolitan markets in Tennessee — Nashville and Knoxville — are doing well. Business has been slow, but it is starting to respond. One of my directors is in the building business, and he just told me that there's been a lot more positive activity. We're also seeing it in DeSoto County [in Mississippi], which is a Memphis suburb.

How is loan growth?

MCGRAW: We're seeing a good increase in originations spread out pretty evenly across the four-state area. In Georgia, it is a smaller book of non-acquired loans, but we've seen significant growth in the last two years.

Organic growth removes the pressure of pursuing acquisitions, right?

MCGRAW: It does, but we're still looking. We think there's opportunity out there. We feel like there are banks in the $500 million to $2.5 billion asset range that would be nice merger candidates for us. We're basically looking in the four-state area that we're in. But that's not to say that we'd avoid banks in those states with Carolinas or Florida presence. But, at this time, we're not looking to buy banks in the Carolinas or Florida.

Right now, we fell like there's still a lot of opportunity for in-market mergers. We feel like they are preferable to us as long as we can do them, though we'll venture outside that area at some point in time.

How's integration of the First M&F deal going?

MCGRAW: It has been exceptional, exceeding expectations. We've had accelerated runoff of special-asset-type credits in a couple of portfolios that didn't meet the criteria we have from a credit quality standpoint. We've been very fortunate to move a lot of those out rather quickly.

There were a lot of drivers to that deal. We felt like we could pick up significant earnings from cost savings, but we were very pleased with their core deposit base. We're beginning to see some deposit growth in the metropolitan Jackson, Miss., market, along with some loan growth. That was one of the attractions to us because it was one area of the state that we wanted to be in with mass. It was very overbanked to the point that I don't think you could be very successful from a de novo standpoint.

We keep hearing that deposit-rich banks are becoming more attractive.

KEVIN CHAPMAN: Deposits are probably undervalued today. We do not shy away from opportunities in markets that may provide less growth opportunity from a balance sheet perspective but have a good stable core deposit base.

MCGRAW: There are opportunities in metro markets for good loans, but too often the deposit market there is so aggressive in terms of rates. So it makes sense to go into less metropolitan markets for the deposits and pair it up with loans elsewhere.

What is the competitive landscape like?

MCGRAW: You find that a lot of the big banks are out making loans with very aggressive rates and terms to maturity. We're happy to make some tough decisions on whether to match some of those. To a large extent, we're letting them go. The good news is that we've had nice enough loan growth without having to do that.

How do you book loans when there's so much pressure on structure and price?

MCGRAW: We don't get into the large commercial space. We're more in the small business space. I think that, for the most part, those businesses expect service quality more than larger companies. A lot of smaller companies don't get the type of service quality that they want from the large superregionals and money center banks. We're able to be very consistent with the type of service quality that we give, whether it is Birmingham, Memphis or Nashville. As we get into C&I credits, they tend to be smaller, too.

How do you prepare Renasant for the regulatory environment?

MCGRAW: In anticipation of getting larger, we reinvested some of the cost savings from the First M&F merger to bring in a new information technology team to work with us to improve the company's IT backbone. We've added to our compliance team and our [Bank Secrecy Act] team. We've added to our general loan and deposit compliance teams with individuals from the M&F merger, along with additional staff. We feel like, as you approach the $10 billion mark, regulations will be pushed down a little bit more to you.

We have been proactive in treating ourselves like we already are a $10 billion bank by beefing up our staffs. We spend a whole lot of money on compliance.

CHAPMAN: We have also invested in data gathering. The infrastructure includes the speed and the databases to capture the data and quickly turn it. We look at it in several different ways to have complete data, which is having the ability to get all the information we need for thorough analysis. That is probably one of the biggest risks as banks get bigger and some of these best practices at larger banks are applied to everybody else. You have to be prepared for that.

What is causing consent orders or penalty boxes isn't necessarily an inability to implement new rules, mainly because there aren't new rules. The confusion comes from examiners' reinterpretation of existing rules. For example, you might go from getting a pass rating in a prior exam to immediately being noncompliant — without changing anything. The rules didn't change, but the opinion of what you should be doing changed. Some of the frustration includes a lack of clear guidance as to what is acceptable or unacceptable.

How will compliance and competition shape your markets?

MCGRAW: We're very cognizant of the CFPB's dissatisfaction for certain types of credits. We don't get into indirect lending and we shy away from banks that are in it as far as M&A is concerned. We don't get into small-loan financing because we know that there's quite a bit of scrutiny on those types of credits. We don't bank certain businesses because of BSA issues.

Regulation is pushing down. [Regulatory delays in M&T Bank's effort to buy Hudson City Bancorp] has made big headlines, but you'll find that some of the smaller banks that are getting a pass right now on BSA and fair lending issues will get more scrutiny as time goes on. We saw a lot more detail in our last exam towards compliance with BSA and other things. But we still feel comfortable about where we are in that regard.

The question for smaller banks will be whether they can afford to be in compliance or will they need to find a partner to help them out.

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