That’s not to say national and regional banks are doing poorly—their deposits and loans, in most cases, are growing. Fortunately for all participants, the pie itself is expanding. But market share is seeping at varying rates to community banks, partly because it’s difficult for national and regional chains to offer the home-town appeal and “first-name basis” customer relationships that are the stock-in-trade of community banks.

Here’s our prognostication of recent market share shifts, by local market. We’ll post an update later this year after the June 2004 statistics are released.

Memphis
The shuffling of big Memphis banks National Commerce Financial and Union Planters into the respective coffers of Atlanta-based SunTrust and Birmingham-based Regions Financial Corp. has set the stage for some banking market turnover. “We are gaining market share from those acquisitions,” says Charles Burkett, president of retail financial services at First Tennessee Bank. The Memphis- based market share leader, a unit of First Horizon National, also held a leading $15 billion in deposits state- wide, as of June 2003.

Because First Tennessee is not focusing on external growth, it will need to compete effectively with community banks for any future pick-up in market share. To bolster this strategy, “we’ve already benefited from this consolidation by hiring 40 people in key areas from Union Planters and NBC,” Burkett says.

Taking the banking mergers-and-acquisitions crown away from Nashville, which from 1986 to 1999 sold off its four biggest banks, Memphis is poised to repeat Nashville’s experience by seeing the dilution of the 77% market share held last year by only four banks among a number of regional and national players. That trend is apparent in the recent sale of a smaller Memphis bank, Trust One, to Georgia-based Synovus Financial Corp., and this summer’s acquisition of Germantown-based Renasant Bank by Peoples Holding Co. of Mississippi.

Jackson
Bolivar-based First South bank is increasing its loan presence in Jackson, while Jim Ayers’ FirstBank is growing its deposits, observes Tim Wilson, senior vice president and senior lender at the Bank of Jackson. Wilson notes that his bank’s market share is growing at an even faster rate. Indeed, the eight-year-old community bank has done well since it broke off from Security Bancorp of Tennessee in 1995 with zero hold on the market. It since has been pecking away at the market shares of Union Planters and AmSouth.

This year, Bank of Jackson expects to reach 6% market share in the city from last year’s 5.17%. Replicating a strategy popular with other new small banks around the state, the Bank of Jackson is draping itself in local banking history with the recently hiring of Harbert Alexander Jr., whose father and grandfather championed Second National and Jackson National banks.

Clarksville
The uniqueness of Clarksville’s population has left the Tennessee-Kentucky border town with the most fragmented banking market in the state. Eleven banks juggle 92% of the city’s deposits. Eight of those institutions, primarily from surrounding states, each hold more than $100 million in deposits. “We’ve sliced that pie pretty good,” notes Sammy Stuard, president of locally based market share leader F&M Financial.

Clarksville bankers often forego a good number of local residents whilst pitching their services to those not employed by the legendary military outpost, the 101st Airborne Division in Ft. Campbell, Ky. Always on alert to take off when duty calls, and often dragging their out-of-state bank accounts with them, Clarksville’s active military population does not present the most stable prospects for the local banking industry. So local and regional banks especially hunt for the accounts of non-military clients, such as those in housing, retail and medical services businesses. However, Clarksville banks are always pleased to get the business of retired military folks, many of whom settle in Clarksville upon finishing their tours of duty.

Given the market’s fragmentation, it’s not surprising that no new banks have tried to enter Clarksville since the 2001 formation of Cumber- land Bank & Trust, which by last year had a smallish 2.3% market share. The absence of new external competitors is all the more reason for Stuard’s F&M to grow bigger by completing another branch in Clarks- ville this year and building another in Robertson or Wilson County in 2005.

Nashville
There was a changing of the guard last year at the top spot in the Nashville market with SunTrust surpassing AmSouth. FTN Midwest Research analyst Jeff Davis regards AmSouth’s loosening grip on Nashville as no surprise given the Birmingham company’s pre- sent concentration on de novo activity in Florida. He sees AmSouth as a possible acquisition target in four or five years, which would open up the market further to community banks.

“Nashville is a very good market, with high growth occurring in affluent Williamson County,” Davis adds. Furthering growth in Mid- state banking, the state recently approved the formation of Nashville Bank and Trust Co. and is reviewing the application of Civic Bank & Trust.

“For smaller banks, domination of the market by four banks is a great situation,” Davis says. “The leaders (SunTrust, AmSouth, Bank of America and Regions) tend to leak market share, and they tend to be extremely disciplined in setting deposit rates. You have the best of both worlds there to compete.”

Over time, Fifth Third Bancorp of Ohio promises to have an increasing presence in Nashville, Davis adds. “They have a very low-cost structure and tend to be aggressive in loan pricing, and even more aggressive in deposit pricing,” he says. The big, and as yet unanswered, question: Will Fifth Third use its pricing leverage to quickly gain local market share or will it look to follow up its June acquisition of Franklin Financial with another banking buyout?

First Tennessee is clear about its lofty goals for Nashville. “We are number one in West and East Tennessee, and we want to be number one in the Midstate, as well,” says Mike Edwards, president of First Tennessee Nashville. The bank hopes to achieve its goal by keeping extended hours (up to 52 hours a week) and by offering a rich portfolio of financial services.

Chattanooga
Very telling of the statewide trend, an out-of-state bank is leading the pack of four banks that control 71% of deposit market share in Chattanooga. SunTrust has successfully stayed a leg ahead for the past six years, but First Tennessee’s renewed commitment to achieving market share leadership in all metro markets in Tennessee promises to shake things up. Market share leaks from Alabama-based AmSouth Bank, third in Chattanooga with $1 billion in deposits, have aided local community banks, such as Cornerstone Bancshares. Frank Hughes, president of Cornerstone, says community banks are taking over small business accounts in Chattanooga as bigger banks concentrate on trusts, loans and other services. So as not to miss out on these small business accounts, Georgia-based Synovus Financial Corp. recently filed an application with the state to start a branch under the local charter of Cohutta Bank of Tennessee.

Knoxville
In contrast to Memphis, the banking merry-go-round in Knoxville appears stalled. “There was no major movement here in recent years except for Bank of America’s big move [to buy Fleet in 2003],” says Louis Moore, who runs East Tennessee operations of North Carolina-based BB&T, which entered Knoxville in 2000 with the purchase of locally based Bank First. “Nobody is making a huge market share gain here.”

In fact, some are seeing slippage. The market share of Knoxville-based Home Federal Bank of Tennessee, which has been in the city for 79 years, declined last year to 13.01% from 14.71% in 2002. Such banks are apt to face additional competition if Nashville community bank Pinnacle Financial commits to expand- ing into Knoxville.

“We see ourselves as an urban bank,” says Terry Turner, president of Pinnacle, which has been eyeing Knoxville and Memphis to complement its booming Midstate operation.

So far, however, “East Tennessee has been fairly quiet,” says FTN Midwest’s Davis, pointing out that the calm is not necessarily a sign of an upcoming acquisition. “There is nothing of size to acquire there.”

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