As Nashville’s economy stays hot, local players enter banking

Monday, August 27, 2007 at 12:17am

Homegrown, community banks are increasingly taking aim at large, corporate competitors — and, apparently, making progress.

Two weeks ago, Pinnacle Financial Partners announced an acquisition that moves the now approximately $4 billion-asset bank into the number four position in terms of deposit market share.

And last week, leaders of new bank CapStar announced intentions to raise $85 million in capital for their institution. If they succeed, that’s $10 million higher than the record-setting $75 million recently raised for the new Avenue Bank, a burgeoning firm spearheaded by community and local banking industry leader Ron Samuels.

The area is not short on other strong performers, which include but are not limited to Tennessee Commerce Bank and Greene County Bancshares-owned Civitas.

The greater Nashville area’s community banks appear to be winning market share away from corporate players AmSouth, SunTrust and Bank of America, according to FDIC statistics. Combined deposit market share for those banks has declined from a little more than 70 percent in 1999 to about 55 percent in 2006.

In addition to winning deposits, the Nashville area’s community banks seem to have no problems attracting investors from both local and outside sources. Just less than half of Avenue’s massive capital raise came from out-of-town investors, according to Samuels.

Claire Tucker, president of CapStar, believes the local investment market is far from tapped out. CapStar only recently secured clearance from the FDIC to begin raising funds, so Tucker says she has primarily been able to gain interest from “casual conversations.” But CapStar’s business plan includes high capitalization, and Tucker believes it can be done.

“The reception has been phenomenal,” Tucker said.

Why the high activity? Local bankers point to several contributors, including recent corporate consolidation, Middle Tennessee’s booming economy, and national trends.

Corporate consolidation is widely linked to growth of independent banks. Brad Barrett, president of Tennessee Bankers Association, said recent consolidation in the local industry – the largest and most recent of which was the AmSouth-Regions merger last fall – has brought capital to the area as premiums are paid. Also, mergers often lead to staff reductions to create efficiencies, meaning a number of experienced, well-connected bankers are looking for work. And most of the professionals starting new banks are veterans of corporate banks.

“It’s not unusual to see a flurry of activity after major consolidation,” Barrett said.

Tucker said the Nashville MSA is far from alone in seeing independent banks enter the market. From 2000 to 2005, there were 700 start-up banks across the country. During that same period of time, only 24 banks – of any age – failed.

“It’s a safe investment,” Tucker said.

Although Middle Tennessee isn’t alone in seeing the trend, banks here may well be performing better than in other areas. Pinnacle, for example, was the nation’s third-best performing bank stock in the United States as of the end of 2006, according to Pinnacle CEO M. Terry Turner.

“The reason they like our stock is because we’re in a big, fast-growing market,” Turner said.

The area’s booming economy and projected population growth play a role both in encouraging the development of new banks, and attracting investment dollars from local and out-of-town sources. Samuels cited Nashville’s population growth – expected to increase faster than the U.S. average for the next 10 years – as well as relocation of corporate headquarters, expansions of numerous businesses (particularly in the health care industry) and the solid growth of Nashville-based entertainment enterprises as stand-out economic indicators.

“When you really look at Nashville, economic fundamentals are really good,” Samuels said. “We have very little reliance on any one particular economic sector.”

Total deposits in the MSA have increased 35 percent in the last three years alone, Samuels said, including growth of 13 percent just in the last 12 months.

As lucrative and promising as the local market may be, corporate banks still have the lion’s share of the local market.

AmSouth, SunTrust and Bank of America had 17 percent, 15.7 percent and 15.6 percent of deposit market share in the Nashville Metropolitan Statistical Area effective June 30, 2006, according to FDIC data. Coming in behind those three were Regions, First Tennessee, Pinnacle and Fifth Third, in that order, with 5.8, 5.75, 5.3 and 3.9 percent of deposit market share.

Pinnacle recently made big strides in its market share with the completed acquisition of Mid-America Bancshares Inc., a $1.1 billion bank holding company formed in 2006 for the purpose of combining Nashville-area community banks PrimeTrust Bank and Bank of the South, both founded in 2001.

Pinnacle’s Turner said the acquisition nearly doubled its Middle Tennessee office network market and gives Pinnacle the second-largest bank market share in both Wilson and Cheatham counties – after having had no presence there previously. Wilson County, especially, is an area Pinnacle had announced it planned to target.

In the Nashville area market, the transaction edged Pinnacle above First Tennessee to hold fourth largest share. Pinnacle now follows only Regions, SunTrust and Bank of America, in that order.

Turner said Pinnacle is gaining an average of 1 percentage point in deposit market share each year, while Regions, SunTrust and Bank of America have consistently lost points over the last few years.

“That’s a great place to be,” Turner said. “When we started the company, we aimed at those big three banks. They have most of the clients, and most of the vulnerability.”

Turner said Pinnacle is geared to compete more with the area’s large corporations than with other locally based financial institutions. But while many of Nashville’s independent banks do have their own specific target demographics consisting of several niche markets – for example, Avenue is gearing up to compete with heavy-hitters for entertainment industry business, as well as commercial real estate and residential construction – most share a common objective of catering, at least in part, to small- and medium-sized businesses based in the area.

Whether this commonality will dilute the ability of individual banks to take significant market share remains to be seen.

Local bankers are confident that there is enough business for everyone, especially as corporations continue to grow.

“Customers get lost in the shuffle out there, and it creates room for local, independent banks to position themselves for some growth,” Samuels said.

Filed under: City Business
Tagged:
By: Dragon on 12/31/69 at 6:00

My town has a lot of new "homegrown, community banks". I hope that they are stable and will not disappear if the economy takes a downturn. Think sub-prime mortgages.