A Banker’s Tale: family, strategic acquisition and customer service

Sam Scott ran the family-owned Scott State Bank for many years, recently earning "outstanding member" recognition from the Community Bankers Association of Illinois where he served as 2001-2002 chairman. The $160 million bank in Bethany, Ill., (pop 1,300) has grown strategically over the decades by staying true to its family roots and focusing on great customer service. .Scott's great-grandfather, A.R. Scott, ended up in banking more by accident than by design. In the late 1800s, he owned a grain mill which had a safe. His customers asked him to safeguard their money from time to time and cash grain checks. In 1887, he officially opened The Exchange Bank in the grain mill, where it ran for 12 years. Later the bank became Scott State Bank..Sam Scott retired as president and CEO in 2012 and was succeeded by his nephew, Tod Jeffers, one of three Scott family members who represent the fifth Scott generation at the bank. Like his great-great-grandfather, Jeffers kind of fell into banking. "It was always felt that my older brother, who is a national bank examiner for the Office of the Comptroller of the Currency, would work in the family business," Jeffers said. "But my boss [Sam] and my mother [Sam's sister] talked to each other almost every week…I mentioned in passing that I might be interested. He called me and took me up on it.".Jeffers had been working as an auditor at a public accounting firm in Texas. He accepted the position in 1989, starting in bookkeeping and doing teller work. He told Sam Scott he'd give it a few years and see how he liked it. Jeffers has since married his high school sweetheart and is father to three children, the oldest of whom is a high school senior and interested in finance so a sixth generation of the Scott family in banking is a possibility..While Scott State Bank has always had a strong commitment to family, there are challenges unique to such an institution, such as "the pressure of continuing the family business, and tradition and reputation. We all want good reputations, but it seems there's more on the line when it's family," Jeffers said..Of course, emotions can run high when a tough decision needs to be made at board meetings with five family members on the board—Sam, his wife Barbara, Jeffers, Sam's daughter Alyssa Pagel, and Art Wilkinson. "You're family and you're board members—it can be tricky as far as trying to be cordial if discussion gets [heated]," Jeffers said..The bank now has seven locations with many of them flanking Decatur, Ill., a community of 90,000 people located about 20 miles from Bethany. The location in Sullivan, just southeast of Bethany, also "has done a lot for our growth in the last 10 years," Jeffers added..Scott State Bank's growth began with its first acquisition in 1982: State Bank of Niantic. "It was the first one we purchased and the most recent one we merged," Jeffers said. "It's the history of it. My grandfather, Joe Scott, his first banking job was at State Bank of Niantic [which was owned by the Pritchett family]. And he left there when World War II started. After the war, he came back to Scott State Bank. [There is a] strong connection between the Pritchett and Scott families going back to the 1940s. The last Pritchett left the board last year" making it a good time to merge the banks and the banking families..The Scott family created Scott Bancshares in 1982. The holding company purchased the $12 million Hight State Bank in Dalton City, Ill., in 1989. Bank of Maroa was purchased in 1995 and merged with Scott State Bank in 2011..Because of these transactions, Scott State Bank has an incredible amount of banking experience on its board. Two directors, Lawrence Thicksten and Larry Otis, were past presidents and directors of the Maroa bank. However, unusual to any bank board is the fact that one member, Wilkinson, is president of a bank unaffiliated with Scott State Bank.."Art Wilkinson is part of the Scott family lineage and runs State Bank of Bement. It's delicate having a banker from another bank on our board. He's very careful on what information he shares. I don't think we would ask another local banker to be on our board," Jeffers chuckled. "There's always been a Wilkinson on the board."."The board, especially over the last few years and with changes in the exam process, they understand what the bank management is going through. They also understand our loan to deposit ratio isn't where we want it to be, but they understand we can grow that pretty quick if you want to make bad loans. They understand why we're struggling now, and you also get a lot of insight into opportunities and things to look at," Jeffers said..In looking at annual figures, Scott State Bank is holding its own, but the last five years haven't been without its difficulties. State Bank of Niantic had losses in 2010 with a lot of rental property loans on its books. "When the economy turned, those turned pretty quick. Luckily, they had very strong capital. But ever since, the effect is that we're much more cautious on making loans. As our loan-to-deposit ratio goes, so goes our income. And, new regulations on real estate lending haven't helped," Jeffers said..Last year will also show a drop in income based on low interest rate spreads and low loan demand. Decatur is industrial with Caterpillar being its main employer, Jeffers said. "They've struggled the last few years." And agriculture has had such a strong showing recently, farmers haven't needed any financing..But Scott State Bank continues to have a vital role in central Illinois with an emphasis on what's right for the customer. "I think one of the advantages we've got is that we're local, so decisions are made quickly. We're also very flexible on terms. I think we're loyal to our customers. I think a lot of our farmers who struggled back in the 1980s and Farm Credit wasn't so nice to them, they came back and have never left us," Jeffers said. "People have always felt comfortable with us…trusted us.".Recently, a customer came to Scott State Bank with a dilemma. Scott State Bank had a second mortgage on his home to cover some business debt. The customer wanted to re-finance his first mortgage with a national lender. "They said [refinancing] wouldn't be possible because the second mortgage would have to subordinate the debt. We were able to [subordinate the debt] that afternoon," Jeffers said. "I think he got a 2.5 percent interest rate. We felt confident in our borrower, and we knew his character so we weren't concerned." Jeffers concluded by saying his main concern is doing what's best for the customer.