MEMPHIS - Merger mania in the banking industry?

Thomas M. Garrott just shrugs off the phenomenon. "All the press, all the hype, I would say is manic and makes absolutely no sense to me," says the chairman, president, and CEO of National Commerce Bancorp.

Mr. Garrott practices what he preaches. The Memphis-based bank has not made a single bank acquisition in the 12 years he has been with the company.

"I think some bankers have panicked," Mr. Garrott says, delivering one of his typically unvarnished opinions. "They've lost the ability to control the outcome of their own businesses. They've lost options, so the consolidation is a function of necessity."

Mr. Garrott's view of bank consolidation arises from his pessimistic assessment that the overregulated industry is in danger of going the way of the dinosaur. Since he has little faith that Congress will ever grant banks the wider powers they need to survive, he doesn't believe it makes a lot of sense to purchase banking assets - except in an in-market transaction where substantial cost savings can be extracted.

National Commerce has purchased a few scattered S&L and bank branches over the years, but Mr. Garrott adamantly refuses to plunk down a premium for somebody else's bank. Citing the old adage that the seller always knows more than the buyer, he adds, "Until we get on top of all our business segments, I cannot imagine the challenge of buying somebody else's business."

When National Commerce does make investments, it's either in more supermarket branches or in nonbank businesses. In recent years, National Commerce has purchased an investment management company, Brooks, Montague & Associates Inc.; acquired part interest in a payments processing company for truck drivers, Transplatinum Service Corp.; and started up its own consumer finance subsidiary, which now has seven offices in Tennessee and Mississippi.

"I have no clue what the future of banking is," Mr. Garrott says. "But I'm preparing for the worst eventuality and redeploying our capital into nonbanking businesses rather than buying more banks."

Mr. Garrott scorns the notion that banks need to get bigger to be more efficient. He says he doesn't know of one example where an acquirer's return on assets and equity actually improved after a merger.

He also believes that management compensation in banking is geared toward asset size. "The system is rigged to reward management for size and not performance," he says.

At National Commerce, which has $3.1 billion of assets, Mr. Garrott doesn't receive a bonus if return on assets dips below 18%. His salary of $334,000 is modest by superregional standards, but Mr. Garrott makes up for it in stock options. He currently holds just over one million shares, 4% of the total.

Insider ownership is a major factor in National Commerce's performance. Officers and directors as a group own 21% of the company. Directors emeriti hold another 10% and the employee ESOP 5%. Counting discretionary trust assets, insider control rises to 45%.

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