40 years after bank failure, First Tennessee grows into region's biggest bank

40 years after bank failure, First Tennessee grows into region's biggest bank

February 21st, 2016 by Dave Flessner in Business Around the Region

Staff Photo by Dan Henry / The Chattanooga Times Free Press- 2/17/16. James A. Miller, Vice President of the Retail Banking Division with the First Tennessee Bank in downtown Chattanooga, poses for a portrait on Wednesday, February 17, 2016.

Photo by Dan Henry /Times Free Press.

Gallery: 40 years after bank failure, First Tennessee grows into region's biggest bank

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First Tennessee at a glance

› History: With FDIC assistance, First Tennessee took over the failed Hamilton National Bank in Chattanooga on Feb. 16, 1976

› Parent company: First Horizon National Corp., in Memphis

› Chattanooga offices: 20

› Chattanooga deposits: $2.1 billion

› Share of local market: 23.5 percent, the biggest share among the 27 banks in metro Chattanooga

› Market president: Keith Sanford

› Local employees: 225

Advisory board

› Frank Schriner, chair, retired market president for First Tennessee in Chattanooga

› Charlie Arant, president of the Tennessee Aquarium

› Larry Buie, region manager at Chattanooga Gas Company

› Ben Brock, president of Astec Industries

› Elliott Davenport, managing partner for HomeTown Folks LLC

› Joanne Forman, owner Olsten Staffing

› Tom Glenn, president of Elder’s Ace Hardware

› Charles Lebovitz, chairman of CBL & Associates Properties

› Harshad Shah: president and CEO of Hamilton Plastics,

› Jim Steffner, president of Electric Motor Sales and Supply. Company Inc.

› Patrick Stowe, managing director at Pointer Management Company

James Miller still remembers federal agents unexpectedly entering the bank on a Monday afternoon in February of 1976, telling employees that the former Hamilton National Bank was insolvent and was being taken over by the Federal Deposit Insurance Corp. and its assets transferred to First Tennessee Bank.

"We were all shocked because we had been told 30 days earlier in employee meetings about how great Hamilton bank was doing," Miller said. "Our bank was doing fine, but the parent company, Hamilton Bancshares, was not, and that brought the whole business down."

Miller and other workers stayed that night to 11 p.m. working to sort through records and get ready to open the bank under a new flag the next day — not sure if their own jobs would survive or not.

Miller and all but a couple of the more than 400 others employed at Hamilton Bank when it collapsed ended up keeping their jobs with First Tennessee. For their unexpectedly long work day when ownership changed hands, they got paychecks for that day from three identities — the defunct Hamilton Bank, the FDIC and First Tennessee.

"We were all nervous and unsure that day because we didn't know if we would still have a job the next day or not," recalled Melinda Davidson, who had just begun as a teller at the bank a couple of months earlier in 1975. "But it all worked out, and this has been a great bank to work for through the years."

Four decades later, the Memphis-based First Tennessee Bank is not only still here, it is now Chattanooga's biggest bank and the oldest bank name now operating in town. Miller is a vice president of the retail division at First Tennessee and Davidson is now vice president of the bank's financial management center at Erlanger. They are among four employees who worked at Hamilton Bank but are still at First Tennessee.

First Tennessee has more than quadrupled its deposits in the Chattanooga market since 1976 to more than $2.1 billion — even as the number of bank employees has nearly fallen in half due to technology upgrades and changing banking behaviors in the past generation.

"Our operations have completely changed, but our commitment to service and the local community has not," said Keith Sanford, the market president for First Tennessee, who joined the Chattanooga bank in 1980. "Looking back, First Tennessee's expansion into Chattanooga proved to be a very smart move."

The collapse 40 years ago last week of Hamilton Bank — housed in what was then the city's tallest building — was the third biggest bank failure in U.S. history up to that point. The Hamilton bank, which was founded in 1905 as an outgrowth of the old South Chattanooga Savings Bank, was once Chattanooga's biggest bank.

Hamilton bank, which reported $408 million in deposits in its final financial report issued at the end of 1975, was the flagship bank for Hamilton Bancshares, which grew to $1.1 billion in assets as a multi-bank holding company.

Hamilton Bancshares expanded across East Tennessee and became an active lender in the booming Atlanta real estate market in the early 1970s through its mortgage subsidiary. But when the real estate market soured, the bank lost millions and was declared insolvent by the FDIC on Feb. 16, 1976.

Hamilton Bank had tried to reassure investors and employees before the collapse that the bank was still viable and strong, reporting capital funds of nearly $28.6 million just two weeks prior to the bank collapse. But bank examiners said past due loans — many made for the full value of the projected real estate projects in and around Atlanta — exceeded the net worth of the bank. Nearly 27 percent of the bank's loans were past due when it failed, according to bank examiners.

Hamilton Bank had to borrow $11.1 million from the Federal Reserve Bank the Friday before the collapse to keep the bank operating, but few employees knew about the severity of the problems.

Three banks bid to acquire the assets. First Tennessee, now the oldest bank still operating in Tennessee, submitted the winning bid by agreeing to pay $16.2 million to the FDIC to purchase the assets of the failed bank during a rushed court hearing shortly after the FDIC seized the failed bank.

For all of Hamilton's financial woes, the holding company ultimately did make a final payment to shareholders of the bank after a prolonged bankruptcy court battle with creditors.

The FDIC-assisted purchase of Hamilton Bank proved so successful for First Tennessee that the Memphis-based bank repeated the approach in 1983 with an even bigger acquisition of the failed United American Bank in Knoxville, previously headed by Jake and C.H. Butcher.

"First Tennessee's goal," Terry said at the time, "is to provide a geographical breadth of banking services unparalleled in Tennessee's history."

The 1976 purchase capped what then First Tennessee CEO Ron Terry described as the bank's "active acquisition program" which added a half dozen banks across the state in the early 1970s.

Today, First Tennessee has the top market position on all major markets, other than Nashville. The bank occupies the 27-story Nashville City Center, the 27-story First Tennessee Plaza in Knoxville and the 17-story First Tennessee Bank in Chattanooga.

First Tennessee has kept its Chattanooga headquarters in the same building at Market and 7th Streets that previously housed the Hamilton National Bank. Sanford even works out of the same second-story office suite that has always housed the bank president.

However, First Tennessee is selling the 105-year-old bank tower to a Memphis developer this year. Heritage Land and Development plans to lease the first three floors and the basement to First Tennessee and redevelop the upper 14 floors into rental apartments as part of a $14 million redevelopment of the 130,000-square-foot office building.

First Tennessee will keep its name on the structure, however.

First Tennessee's name is now the oldest among the banks operating in Chattanooga. Other banks that operated in Chattanooga when First Tennessee entered in the market in 1976 — American National Bank, Pioneer, United Bank, Northwest Georgia, First Federal Savings Bank, InterFed Savings Bank and others — have since been acquired by other banks.

"We're a bank that is big enough to offer big bank services, but we're headquartered in state and we still have a lot of local decision making," Sanford said. "In Chattanooga, we have bankers who can make up to a $25 million loan decision without having to go to Birmingham, Atlanta or Charlotte."

First Tennessee has been ranked as best in service among local banks for each of the past eight years in the annual Times Free Press "Best of the Best" competition. First Tennessee also has been ranked as one of the best places to work by Working Mother magazine for five consecutive years.

Mary L. Drazich, a vice president and senior trust officer at First Tennessee Bank, has been with the bank for 43 years. She began with the bank as a newlywed transplant from Atlanta at the former Hamilton Bank in 1973 and has stuck with First Tennessee, which she says she is proud of for giving so much back to the community through its foundation and matching contributions for employee gifts to area nonprofits.

"In a day when many of our local corporations are headquartered out of town, you just do not see those corporate dollars locally spent, that is not the case of First Tennessee.," she said. "I take great pride to see our Foundation listed as a supporter of many events I attend."

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340