Once determined to maintain its status as a multibank holding company with subsidiaries throughout Tennessee, Civitas Bankgroup Inc. in Franklin is changing course and selling its banks in smaller markets.
In the past six weeks the $881 million-asset company has completed the sale of one of the banks, announced an agreement to sell another, and put a third on the block. These moves followed the September merging of Civitas' two remaining subsidiaries, Cumberland Bank and Cumberland Bank South, into one bank that will focus primarily on the fast-growing Nashville market.
Chief executive Richard Herrington, who joined Civitas two years ago with a goal of retaining its structure while improving its efficiency, said he realizes now that the banks are too scattered and too different from one another to operate successfully as one unit. They range in asset size from $7.4 million for Bank of Mason in rural Tipton County to $644 million for Cumberland Bank near Nashville.
"We are looking at a much stronger and much more vibrant bank without our west Tennessee assets," Mr. Herrington said. "And middle Tennessee is a unique market not dominated by any bank, and it give us an opportunity to grow."
The selloff began in July when Civitas announced that the $55 million-asset Farmers and Merchants Bank in Dyer was buying Bank of Dyer, with assets of $39 million. That deal closed in late November.
On Nov. 22, Civitas announced it was selling the $193 million-asset BankTennessee in Collierville, a Memphis suburb, to an investor group led by Joel Porter, a Civitas board member and the chairman of BankTennessee. He had also been the holding company's part-time CEO until Mr. Herrington took over. The tax-free spinoff is valued at $17 million and is expected to be completed next quarter.
"We came to the proverbial fork in the road and the directors felt that for the long term the best prospect for the bank is to be independent as opposed to a subsidiary of a bank in middle Tennessee," Mr. Herrington said.
The spinoff will allow Mr. Porter to concentrate on returning BankTennessee to profitability. The bank lost $332,000 last year and $221,000 for the first three quarters of this year, in part because loans to out-of-market hotels went bad.
The third bank subsidiary Civitas is looking to sell is the tiny Bank of Mason. Civitas announced in August that the investment group 2nd Generation Capital would buy the bank, change its strategy, and move it to Nashville, where 2nd Generation is based. But the parties called the deal off two weeks ago, citing problems getting regulatory approval.
Attilio Galli, a former Nashville banker who is now with 2nd Generation, said that since the firm focuses on venture capital, the plan was to make "venture-capital-like returns" of more than 30% for investors in Bank of Mason. But regulators were uncomfortable with the structure in place to reach this goal.
Mr. Galli would not go into details about that structure but said 2nd Generation plans to make another bid for Bank of Mason. "There are many aspects of the transaction we need to work on," he said. "So we thought it would be better to take some time off to do that."
But Mr. Herrington said Civitas has already received several calls from people looking to start a bank and to buy Bank of Mason. "Many investors see it as a way to buy a charter very easily, so we won't have any problems making a sale," he said.
Civitas also has - and plans to keep - a 50% interest in two start-ups: Murray Bank in Kentucky, which has assets of $146 million, and the $62 million-asset Insurors Bank of Tennessee in Nashville.
Mr. Herrington joined what was then called Cumberland Bancorp from the $766 million-asset Franklin Financial Corp., which at the time had an agreement to sell itself to Fifth Third Bancorp. (The deal got held up but closed in June.)
One of Mr. Herrington's first moves was to rename the company Civitas. He also set out to make it more efficient by establishing uniform policies and centralizing back-room operations.
But after a year and a half, the efficiency ratio had actually increased, to about 89% at the end of this year's second quarter. There were other problems as well, notably the company's discovery in August that Mr. Herrington's son, who was also Civitas' investment officer, had signed off on $500,000 of fraudulent transactions. Mr. Herrington said it was at that point that he realized the company needed to go in a different direction and to tighten its focus.
