Timing, Market Prove Perfect for Tenn. De Novo Bank

Dennis Walker and Steve Conner are an unlikely tandem.

They had spent most of their 25-year banking careers going toe-to-toe for commercial business at competing banks in Franklin County, Tenn. But they wound up as partners and now spend much of their time together, as they had done in 1970 while roommates at Louisiana State University.

Their new venture, Citizens Community Bank, Winchester, Tenn., has been more successful than they could have anticipated in their most sanguine college daydreams.

Citizens Community's combination of stellar earnings, loan quality, expense control, and capital strength made it the most successful bank formed in 1992.

"We spent most of our lives in this community," said Mr. Walker, 47, chief executive officer. "We felt that we knew what the community needed, and that we could provide it. Other banks in town had been bought up or were closely held private affairs. So in that sense, we knew we'd do well."

If you had to pick a market for a new bank, you'd be hard put to find a better one than Franklin County in southern Tennessee. The region is enjoying a boom that shows no sign of easing. Nissan is on the verge of building a new plant nearby, real estate values have been soaring, and small businesses are eager to expand. It's been rated by Rand McNally as one of the best places to retire in the United States, with low taxes, almost no crime, and a mild climate.

The only blot on the picture, said Mr. Collins, 46, the bank's executive vice president and director, is a slightly overbuilt apartment market.

"Nothing was there to stop us from building a good book of business," he said.

Or from building it fast. In its first full year, Citizens Community more than doubled its portfolio, to $26 million of assets. It grew another 32% in 1994 and at a 17% clip in the first three quarters of 1995, to $40 million of assets.

Total loans stand at $26 million, half of them real estate-related. The other half are an even mix of consumer, business, and agricultural loans. Socking its considerable net income - the bank made $500,000 the first nine months of last year - into capital has allowed the bank to grow as Mr. Walker and Mr. Collins saw fit.

"From the beginning, we wanted this bank to be loan-driven," Mr. Walker said. "We maintained a 70% to 80% loan-to-deposit ratio since soon after we opened the doors."

Their lending has so far been nearly flawless. A few tiny consumer loan delinquencies in 1993 and 1994 were the only pimples.

"I'd like to think we made most of our mistakes before we got here," Mr. Collins said.

Both men have spent their careers as journeyman Tennessee bankers, and both had chief executive experience. Citizens Community, for that reason, shares a key element with most high-performing de novo banks: experienced local management and a cherry-picked staff of 17 from the banks they've run.

Mr. Walker spent most of his career at another local bank and was CEO when it was bought by what was then Dominion Bancshares in 1988. He remained CEO of the Dominion subsidiary until Dominion was bought by First Union Corp. in 1992, when he quit to form Citizens Community.

"I saw pretty quickly that I could not do what I wanted to do in that organization," Mr. Walker said.

Mr. Collins was a dentistry major when he roomed with Mr. Walker at LSU. But a part-time job turned into a career in banking. He spent most of the '70s and '80s climbing the ladder as a lender at two community banks in the Winchester area, and competed for many of the same loans as Mr. Walker.

He was an executive at First National Bank of Manchester, a short drive north of Winchester, when he joined Dominion in October 1991.

Six months later, he and Mr. Walker walked out the door.

In nine months, ending in November 1992, they raised $4 million at $10 a share from 480 local stockholders for their new bank. Today, if you can find a seller, it goes for $20 a share, Mr. Walker said.

"About 90% of our staff was from the banks we had worked at before," Mr. Collins said. "So from the day we opened our doors, we had a staff that had a sure handle on all the operations. Dennis and I could concentrate on making loans instead of start-up operations."

The duo, still relatively young, say it was the perfect time for them to start a bank. Though they had had friendly conversations over the years about going into business together, they agree that having done so any sooner would have been worse than later.

"We had to gain enough confidence," Mr. Walker said. "You can't start a bank like this without knowing not only which business to go after but which business to stay away from."

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