No new state-chartered banks have started up in Tennessee since Nashville’s Capstar Bank opened in 2008, and it’s been about four years since the state’s Department of Financial Institutions received any applications from groups seeking to launch a bank.

Compare that to five years ago, when nearly a half-dozen state-chartered banks were launched. The lack of interest in starting a new bank can be blamed on the uncertain economic environment, says Greg Gonzales, commissioner of the Department of Financial Institutions, and a second equally pervasive reason.

“I think also because of the uncertain regulatory environment with a lot of changes coming out of Washington,” says Gonzales, “of course, waiting to see about all the developments with respect to Dodd-Frank (Dodd-Frank Wall Street Reform and Consumer Protection Act).”

Davidson and Williamson counties’ de novo, state-chartered banks (banks that are less than five years old), likely would have had a tough time raising capital or getting through regulatory hurdles if they hadn’t done so just before the recent recession reared its head.

The difficult economic and regulatory environment, which has been hard on all banks, has been especially harsh on the de novo banks since they’re trying to secure their footing. Assets and deposits are growing, but the pace has slowed.

“It’s a challenging time for banks,” says Richard Herrington, president and CEO of Franklin Synergy Bank ($367,178,000 in assets, $327,239,000 in deposits as of June 30, 2011) in Franklin, “but we’re doing very well.”

Franklin Synergy opened in November 2007. It hit the market as a new bank just prior to the beginning of the recession, which Herrington views as actually a good time to launch a bank.

“Banks started becoming more careful with their lending,” he says. “Because of that, we’re not stuck with any legacy loans that we made four, five, six years ago. Our portfolio is not longer than four years. So timing worked for us very effectively.”

Also helping Franklin Synergy is the relatively healthy Midstate market, which hasn’t been impacted as much by the recession as other parts of the nation. And Williamson County, where the bank is headquartered, has fared much better than the rest of Middle Tennessee. The third component sustaining Franklin Synergy’s growth, Herrington says, is the bank’s highly experienced team of lenders and deposit gatherers.

“I don’t want to imply that it’s been easy,” he explains. “These are more difficult times for banking and for businesses as a whole. But we’ve been able to have really good asset growth since we opened. It’s been pretty meticulous, methodical growth.”

Still, Herrington is not entirely pleased that, as of June 30, 2011, his bank had .86 percent of the Middle Tennessee market share of deposits.

“In normal times, we probably would have expected even more growth than we had,” he says. “These aren’t normal times.”

So over the past four years, instead of making growth the number one priority – as a de novo bank would normally – Franklin Synergy has been focusing on soundness first and growth second. The challenge of a de novo bank is to build critical mass through loans, deposits, and relationships.

“The faster you build that critical mass,” Herrington says, “the stronger your bank’s going to be. But at this period of time, it’s been more important for us to focus on safety and soundness and wait until the economy improves a little bit more, so we can begin to focus more on building that critical mass.

“Having said all that, we have built that critical mass. We’ve been profitable for 11 consecutive quarters. That’s a pretty darn good record for a de novo bank. There are a lot of mature banks that can’t brag about that.”

Nashville’s Avenue Bank ($571,930,000 in assets, $460,392,000 in deposits) isn’t technically a de novo bank, even though it opened in July 2007. The bank bought its charter from Planters Bank of Tennessee and is often listed as a 100-year-old bank. However, Ron Samuels, president and CEO of Avenue Bank, says he considers the bank to be a de novo because it sold Planters’ $25 million in assets and essentially started from scratch.

Samuels says growth in the Middle Tennessee banking market has been flat but is positioned well to expand once the recovery arrives.

“So what you’re seeing is it’s sort of a zero-sum game,” he says. “If my loans and deposits are going up, the likelihood is that some other bank’s loans and deposits are going down.”

Many banks have had to shrink their balance sheets to get the correct capital ratio, common in a difficult banking environment. The banks didn’t renew some of their loans and relinquished some of their more expensive deposits.

Samuels isn’t fretting about his bank’s 1.21 percent deposit market share of the Middle Tennessee market since, in his opinion, deposit share is constantly in flux and isn’t the best measure of the bank’s success. That’s because the area’s three major banks control about 50 percent of the market, leaving the other 50 percent to be shared by the market’s other 60 banks, none of which will probably ever have a considerable market share.

Nashville-based Capstar Bank ($612,607,000 in assets, $528,898,000 in deposits) opened in July 2008 and was the last bank formed in Tennessee. Unlike other start-up banks in Middle Tennessee, Capstar’s assets and deposits are growing rapidly, despite the poor economy.

“It’s not an easy time to be a banker,” says Claire Tucker, Capstar’s president and CEO, “but we’ve got a lot of things working for us.”

One of those things is the amount of capital that the bank raised when it was getting off the ground. The capital gave the bank the ability to flourish and grow.

“For example, Avenue raised $75 million,” Tucker says. “We raised $88 (million), so they were pretty close to us, but other banks at about that time like Franklin Synergy (over $26 million) just did not raise as much capital. Out of the gate, we had the capacity.”

When Capstar launched, many other banks were retreating from the loan business. Capstar was able to be selective about the business it went after, both on the loan and deposit side. Capstar also placed a premium on the right staff.

“The mix of assets is a bit different than what we had originally planned,” Tucker says. “By that I mean if you look at the proportion of our assets that are loans vs. investments, we have more in the investment category than what we would have originally preferred.

“We’d much rather have more loans than to be putting our deposits into investment pools, but with that said, it is by design in terms of making sure that we’re not incurring more risk on the loan side of the books. That’s been our mantra; the first thing we want to do is make sure the bank is sound from an asset quality standpoint.”

Brentwood’s Reliant Bank ($394,821,000 in assets, $343,569,000 in deposits) came out of its de novo status in January, which means there will be less red tape when the bank wants to get things done, such as constructing a new branch. It is one of the Middle Tennessee banks where growth in assets and deposits has slowed in the past year. DeVan Ard Jr., president and CEO of Reliant Bank, says the slower growth is a function of the sluggish economy.

“Nationally GDP is growing at about 1 to 1½ percent a year,” Ard says. “Our slower growth is just a reflection of the local economy. As an industry, the state of Tennessee’s banks as a whole have actually shrunk in the last three years. So anybody that’s just kind of maintaining their size or growing a little bit is probably doing very well.”

Reliant is meeting its goals for assets, deposits and market share. To grow its assets and deposits, it has worked to identify its best and most-valued customers. The bank has about 500 customers in that category and is touching base with them to make sure that it is meeting their needs through a full banking relationship. So if one of those customers has deposits with the bank and no loans, Reliant will see if it can offer some lending services to them. If Reliant has loans with customers and no deposits, then it will try to get their deposits.

“We feel that we can meet our growth targets just by building out the relationships we already have,” Ard says.