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VOL. 39 | NO. 20 | Friday, May 15, 2015

Small banks find ways to compete with giants

By Hollie Deese

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Nashville’s InsBank began 15 years ago, founded by a group of insurance agents. Originally, it was known as Insurors Bank of Tennessee, its target market was independent insurance agents in the state. But that has changed somewhat over the years as the bank has evolved from that particular niche.

“Over those first few years of our being in business, we slowly and steadily grew with that model, but also observed along the way that banks didn’t really make formidable competitors in their world,” says Jim Rieniets, CEO and president of InsBank.

Rieniets

“We have really morphed over the years. We maintain a good relationship with that community and still have it as kind of a niche, but we have really evolved into a more general, small commercial bank.”

They also had a joint venture partner for the first seven years of existence, but raised enough capital in 2007 to buy out that partner, allowing growth and change as needed.

“We are one of the few banks who probably grew even during the downturn,” he adds. “Not by leaps and bounds, but we have always been somewhat conservative and managed to keep a pretty clean balance sheet over the years. And that has paid off the last five years in terms of our ability to be able to grow.”

InsBank now has around $280 million in assets and has maintained just one office in Green Hills. But in the last month, it has acquired a piece of property for a second location and is waiting on regulatory approval before moving forward with specific plans.

Rieniets says being all things to all people isn’t Insbank’s goal, but offering more inclusive services was necessary.

“The reality is, it is hard for a small company to compete with a big regional,” he says. “We have $280 million in assets, but we meet the definition of small business by a lot of standards. We have 35 employees, and there are only so many things we can do for our customers – let alone do well – and generate some sort of reasonable profit for our shareholders.”

And while branch presence is no longer necessary, Reiniets says community presence is.

“It helps demonstrate to the community that you are part of the community, and that is good for business,” he says.

Bigger banks take notice

First State Bank established its roots in Union City in West Tennessee more than 125 years ago, then moved into Middle Tennessee in 2000 when 13 bankers were tasked with starting operations in the area.

“Our first location was in Goodlettsville, and then, instead of just opening branches, we would find a team of bankers who already had a customer base, and then we would build a branch for them,” says Ken Anderson, regional president of First State Bank. “That way, the branch would, hopefully, be profitable by the time it was opening.”

Anderson

The second operation was in White House, then Hendersonville and Gallatin. There is a branch on West End and two in the Brentwood/Cool Springs area. Another will open soon in Columbia.

But their growth could be amped up even more since First State Bank was purchased last year by Simmons Group out of Pine Bluff, Arkansas. The transaction closed last month.

“It is a great fit for us because they are publically traded on the NASDAQ, but their roots are community roots also,” adds Anderson. “This is their first journey into Tennessee, so there are no branch overlaps, but what that did is make us an $8 billion dollar community bank.”

Banking boom

There is no denying that Nashville is the place to be, and for banks it’s no different.

“Tennessee is one of the states leading the nation in acquisitions right now,” says Colin Barrett, president of the Tennessee Bankers Association. “We have a great city to have a bank in.”

Brisk business growth and home sales are just a few of the reasons why there are more than 60 banks in the area, and none that have closed in the last few years.

“There is a lot going on in Nashville and throughout Middle Tennessee that has made it a really good market, and that is why you are looking at so many banks who would really like to be here,” explains Barrett.

“You see a lot of banks opening up that are from out of area. With First State Bank, that is a strong Tennessee bank that has a Nashville presence which is definitely appealing to a bank like Simmons First.”

And it goes both ways.

“It has put our banks here in a really strong position to make acquisitions in other markets and that is what we’ve seen over the last few months,” continues Barrett. “It is definitely a mix. You have local banks who are looking to expand, and a lot of acquisitions throughout the state for the last couple of years have been from banks out of state who want a presence in the Tennessee market for as strong as it is.”

Barrett points out there are a few factors that could be the reason for the boost in acquisitions, one being we are far enough behind the financial crisis of 2008

Barrett

“Banks had some bad marks on their books, and a lot of that is behind us now,” he says. “When the balance sheets are cleaned up, it makes it a whole lot easier for a bank to make an acquisition.”

Increased regulation has also led to banks consolidating, and a boost has also come as there is fulfillment of a backlog leftover from the recession.

“Without having a lot of activity since 2008, there was a lot of pent up demand for strong banks looking at growing, and it is a really good time for them to do that,” adds Barrett.

Considering all banks have to follow the same regulatory guidelines, big and small, it makes sense for smaller banks to want to join forces with another bank. Being part of a larger bank also helps to defray the constant cost of security.

“If you are a $100 million bank or a $9 billion bank, you are abiding by the same regulations,” he says. “There is some real value to be found in the larger institutions to be able to absorb the cost, just through the economies of scale.”

Some banks are consumer focused, others are more geared to cater to small business, but no matter the niche, most local banks cater to more than just one kind of client.

“I think every business likes to look at what their strengths are and try to build around that,” Barrett notes. “But for the most part, to be a successful bank, you have to have a blend of all of that.”

Community loyalty

Randall Clemons, CEO of Wilson Bank and Trust, says his bank prides itself on being a community bank, and his staff makes sure it is involved in each of the eight counties where their 26 branches are located.

“We strongly believe that each community we serve should be a better community because of Wilson Bank and Trust being there,” he says. “We believe in giving back to the community. We are involved in all types of community activities, and we take that a little bit further than most banks do.”

After AmSouth merged with First American and Regions merged with Memphis-based Union Planters, those two entities combined in 2006 to become Regions. So while Regions has a presence in 16 states, its Middle Tennessee roots go back more than 130 years.

And now that consumer confidence is back up after a low during the recession, the focus is not so much on luring new customers with talk of no fees and free checking, but on financial education that can be a boost to community members.

“Providing financial education to the people and communities we serve is one of the most important ways – and also one of the most enjoyable – that Regions associates can fulfill our mission to make life better,” says Brian O’Meara, vice president/marketing director for Regions.

“People of all income levels and life stages stand to benefit when they increase their knowledge of basic financial principles and improve money management skills.

“That’s why we’ve made it a priority to proactively offer financial education in schools, workplaces, and other venues; not just in the Nashville area, but across our company’s entire footprint.”

Anderson said they are continuing to transition as far as looking at how to incorporate the best of both Simmons and First State, but the customer will always come first.

And that means offering a wide variety of services.

“We have always had customer service standards, and one is I will treat the customer as I would like to be treated as a customer,” he says. “I have been in banking since 1975, and things have obviously changed since then. But you still put the customer first.”

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