Its recent deal for Capital Bancorp Inc. in Nashville extends $2.6 billion-asset Renasant Corp.'s march from sluggish markets in its home state of Mississippi to faster-growing regions across its borders.
In June 2004, the Tupelo company did not have a branch outside its home state. But the closing of its $135 million deal for $564 million-asset Capital would give Renasant 46% of its deposits and 57% of its loans in Tennessee and Alabama.
Chairman and chief executive officer E. Robinson McGraw, who took over the company in 2000, when it was still known as Peoples Holding Co., has spearheaded the expansion into neighboring states.
His July 2004 deal for the $226 million-asset Renasant Bancshares Inc. in Germantown, Tenn., got the company into the Memphis market just across the border from DeSoto County, Miss. — where it already had branches. (Peoples Holding was renamed Renasant Corp. in 2005.)
And the January 2005 purchase of the $539 million-asset Heritage Financial Holding Corp. in Decatur, Ala., gave entree to the Huntsville and Birmingham, Ala., markets.
But Mr. McGraw was not done yet.
"Nashville was the other leg of our stool that we found to be remaining," Mr. McGraw said in an interview last week. "As we looked, we felt like that Capital was in our opinion the best community bank in the Nashville market."
The Capital deal, announced Feb. 5, is expected to close in the third quarter; it would give Renasant seven Nashville-area branches and its first retail presence in the fast-growing market.
Upon completion of the deal, Renasant's loans in Tennessee would increase from 19% to 36% of its overall loan portfolio, and its Tennessee deposits would jump from 14% to 29% of the company's total.
"Considering that demographic growth trends are significantly better in [Tennessee] than [Alabama or Mississippi], we view the addition very favorably from a strategic and long-term growth perspective," Peyton Green, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said in a Feb. 12 research note.
Nashville's demographics are particularly appealing. Its population is expected to grow nearly 11% from 2006 to 2011, and the median household income is expected to rise almost 20% in the same period.
James Schutz, an analyst at Sterne, Agee & Leach Inc. in Birmingham, said Renasant's desire to get into higher-growth markets is not unusual for Mississippi-based banks.
The $11.9 billion-asset BancorpSouth Inc. in Tupelo has been expanding in Texas, Tennessee, and other southern states in recent years, and it entered Florida in September after buying a bank charter there. That same month, the $6.2 billion-asset Hancock Holding Co. in Gulfport, Miss., filed an application to charter a bank in Alabama.
The $8.8 billion-asset Trustmark Corp. in Jackson, Miss., has made two Texas purchases in the last three years, and it moved into Florida in 2003 through a deal for another bank's branches.
"All the banks in Mississippi … do feel compelled that in order to really jazz up their franchise they need to get exposure to higher-growth markets," Mr. Schutz said. "They don't come much higher-growth than Nashville."
Not that Renasant has any intention of departing Mississippi. Though loan demand is slower in its home state than in its other markets, deposit growth has been strong. Renasant's deposits increased by more than 11%, to $1.3 billion, from July 1, 2005, to June 30, 2006, according to Federal Deposit Insurance Corp. data.
"We are able to leverage those deposits into the growth markets, so it's a great combination," Mr. McGraw said.
Retaining Capital's key employees is essential if Renasant is to succeed in the Nashville market, he said. Capital's chairman and CEO, Rick Hart, has agreed to a five-year contract with Renasant and will lead the company's Nashville unit.
The Nashville market is cluttered with large national and superregional banks. Regions Financial Corp., SunTrust Banks Inc., and Bank of America Corp. are the market's top banks by deposit share, according to the FDIC.
"But frankly, for [Renasant] to be successful, they just have to get their fair share of the growth that should happen in the market over the next five years," FTN Midwest's Mr. Green said. "I don't think they have to dramatically take market share from one particular player or another to be successful."
As it integrates Capital, Renasant plans to take a break from dealmaking.
"Within the next two years, I don't see us expanding outside of markets that we are in," Mr. McGraw said. "We feel like that we want to concentrate ourselves in these markets through organic growth."
But "once we get past there, we'll look to some other markets," he added.
