Tennessee Bank Keeps Faith in Dying Business Model

Security Bancorp of Tennessee in Halls still clings to a belief that its pays to have multiple banks, even if doing so assures management of more regulatory headaches.

The $852 million-asset company, led by 74-year-old Warren Nunn, operates six banks across Tennessee, adding three through acquisitions and two by receiving new charters. If you figure that Nunn wearies of dealing with regulations, you're right.

"I'll be the first to tell you that it's a real pain to have six bank examinations," said Nunn, Security Bancorp's president and chief executive.

There is no doubt life for the soft-spoken Nunn would get easier if he decided to collapse charters, but there are no plans to do so. He is content to limit his qualms to sotto voce muttering since he is convinced the benefits of Security's unwieldy structure outweigh any headaches caused.

For Nunn, it all boils down to loyalty.

Security largely does business in agricultural western Tennessee markets, where people remain fiercely loyal to tractor brands and banks.

"The areas where we operate are pretty rural," said Nunn, who also owns a John Deere dealership. "Families have been at their banks for two, three, four generations. Some move away and still want to continue banking with their hometown banks. "

While Nunn prefers to avoid complaining too much about regulatory burden, some industry experts marvel at his willingness to subject himself to seemingly never-ending scrutiny.

"With six institutions ... over an 18-month cycle, assuming things are evenly distributed, basically that means every three months you are going through a new exam," said Robert Klingler, a lawyer at Bryan Cave in Atlanta. "You're in a continuous exam mode."

At least Nunn has family to depend on. The Nunns helped found Bank of Halls in 1899. His father ran the bank for four decades and his sons now serve in key management roles.

Given such strong attachments, consolidating charterers was not a preferred option when Bank of Halls bought Security State Bank, along with subsequent deals for Gates Banking and Trust and Bank of Crockett. The company founded two banks in the 1990s.

Regulation was simpler in those days, too.

Bank of Halls — then run by Nunn's father — expressed interest in buying Security State in 1978 after hearing from a local lawyer that Security State's owner wanted to retire. The bank sent an employee who had been an examiner to review the seller's books and, after a clean bill of health, a deal was struck. It was that simple.

"We didn't contact any regulators until about week after we had bought the bank," Nunn said. "We were talking and someone said, `Maybe we ought to tell the state.' So we wrote a letter and they wrote back and said, 'thank you for notifying us.'"

Over the years, Security stood pat as its charters stacked up and the financial crisis set in, serving as a contrast to other multibank holding companies that decided to shed charters. For instance, the $28.2 billion-asset Synovus Financial in Columbus, Ga., collapsed its 30 charters in the wake of the financial crisis. The $57 billion-asset Zions Bancorp in Salt Lake City said in June that it would consolidate its seven charters.

The trend is being driven by cost and regulatory issues, industry observers said.

"It's definitely a nationwide trend," Klingler said. "There are fewer and fewer multibank holding companies."

Still, some companies continue to make the multi-charter model work.

The $21 billion-asset Wintrust Financial in Rosemont, Ill., earned $43.2 million in the second while maintaining 15 charters. The goal for Wintrust, and other multibank companies, is to marry the high-touch service associated with community banks to the capacity of bigger institutions.

"It works extremely well for us," Edward Wehmer, Wintrust's president and chief executive, said at a recent conference hosted by Raymond James. "Community focus — that is how we deliver. Our research … shows that 50% of the people still want that type of delivery mechanism as opposed to the big banks."

The preference for hometown banks is as strong — or stronger — in Tennessee, Nunn said.

"Do you even know who your teller is at a big bank?" Nunn said. "In a small town, people like to come to the bank because it gives them an opportunity to gossip. You just can't do that in a large bank. People value the relationships."

Some holding companies "are excessively concerned about the effect" consolidating charters will have on operations," Klingler said, adding that customers care more about high-touch service and quick lending decisions than "the name on the door."

Solid financial results "are hard to argue with," Klingler said. "One does not obtain and maintain a dominant market position without doing something right."

While Security can't match Wintrust's numbers, its performance is solid enough, based on Federal Deposit Insurance Corp. statistics. That is sufficient for Nunn, who said he is not in the business of trying "to see how big we can get."

Security's banks rank first or second in deposit share in four of the six counties where it does business. The bank also has a presence in Jackson, one of Tennessee's fastest-growing cities, and Shelby County, which includes Memphis, but there are no major expansion plans on the horizon.

"I'd rather be a big shot in Halls than be lost in the woods in Memphis," Nunn said. "We're pretty content to operate the way we do now."