In October of 2001, in Henderson, Tenn., a small town of some 10,000 souls 18 miles southwest of Jackson, the First State Bank put itself up for sale. This event, worthy of note locally though of little impact beyond that, nonetheless drew the personal attention of two principle players in the state’s community banking scene.

Jim Ayers was the first to arrive in town. A hometown boy, Ayers had grown up and then prospered in nearby Parsons (40 miles away), becoming the area’s major domo as he built a respectable fortune in the nursing home business before turning his formidable attention to banking. After meeting with members of the board, Ayers offered $172.84 per share for the very small bank. The board accepted the offer, unanimously.

Then Jim Clayton came to town. Though based in Knoxville, Clayton, like Ayers, traces his roots to the area around Henderson—his father was a cotton-picking sharecropper in nearby Finger, pop. 350. Clayton had made an even larger fortune than Ayers—in manufactured housing in this case—and he, too, was interested in buying the First State Bank.

Clayton countered Ayers’ original offer with $191 per share. Ayers matched. Clayton countered again at $200. Not surprisingly, Ayers withdrew. “I don’t want anybody to cry for us,” Ayers comments, “but I thought we had the deal sewed up. I don’t want to get in a bidding war with anybody.”

Both men left Henderson with more than they arrived. Clayton came away with a new bank, and Ayers with a reminder that even in small-town business, a definitive agreement can be less than definite. (Ayers now requires a breakup fee as part of any contract he signs with a bank.)

From one perspective, the somewhat genteel struggle for Henderson’s small bank can be seen as an opening skirmish in a contest between two banking dynasties, a contest in which an escalation in frequency, if not intensity, is certain.

Since the Henderson episode, Clayton has expanded his First State Bank operation by buying the Bank of Tullahoma, and then by opening a branch in Knoxville. Meanwhile, Ayers’ FirstBank has situated a “loan production office” in Knoxville, promising to follow with a full-service facility should business warrant. Ayers also bought the Bank of Murfreesboro, 36 miles from Clayton’s Tullahoma facility.

More to the point, the Ayers-Clayton rivalry is also a clear demonstration of something known to every banker in the state: These are vigorous, interesting times for community banking in Tennessee.

There are some simple reasons for the vigor. First, banking has been good business since the Resolution Trust Corp. cleaned up the aftermath of the real estate debacle in the late 1980s.

Second, and of a more cyclical nature, 2004 stands to see the demise of two of Tennessee’s few remaining big homegrown banking institutions. Completed in July, Birmingham-based Regions Bank purchased Union Planters, and Atlanta-based SunTrust Bank’s intended purchase of National Commerce Financial (the holding company behind the National Bank of Commerce branches found in your local Kroger) is expected to be approved by year’s end.

Such acquisitions bring the inevitable “reduction of redundancies”—a bank doesn’t need two presidents, after all—releasing numerous members of veteran management teams back into the job pool. With capital easy to procure (some of it coming from buyouts) and a wealth of talent looking for work, it’s fairly easy to start a new bank and staff it with recently released loan officers. Finally, no matter the sensitivity with which acquisitions are handled, consumers eventually become aware that their “local” bank is no longer really local—that decisions on loans might no longer be made by someone who has any real knowledge of the loan-seeker as an individual. As a result, the demand for community banking services rises.

Beyond the industry’s more dramatic, though not unusual, cyclical motions, a larger current has become discernible that places the state’s community banking environment in a still more interesting context. Brad Barrett, president of the Tennessee Bankers Association, points out that de novo activity is strong. During the past five years, a new bank has been formed in Tennessee about every two months. That’s 30 new banks.

Yet ten or fifteen years ago, pundits predicted that the United States would have just three to five banks by now, that we would follow the European example, get out of the mom-and-pop model of friendly home-town banking and live in a more centralized, efficient distribution system. It hasn’t happened.

Instead, there remain some 200 independent banks in the state of Tennessee. Many of these are the locals—institutions with maybe a single location, or maybe a couple of branches, or maybe a small network in nearby towns. Charmingly, some of them still close on Wednesday afternoon or sometimes all day Thursday.

In a way, they seem like vestigial institutions that hearken back to an agricultural past, a time before the urban sprawl of suburbia when connections were more personal. Is invoking the model of community banking just some nostalgic yearning for something that never was?

Amar Gande, assistant professor of finance at the Owen Graduate School of Management at Vanderbilt University, says the community banking concept has validity: part of a loan decision can be based on “soft, not easy to quantify” data, not just some mechanical formula. And besides, he points out, the local business climate also must be considered—and a North Carolina bank, say, may not be sensitive to this.

In the midst of this robust environment—and certainly doing their part to make it more so—are Ayers and Clayton. At first blush, the men could hardly seem more different. Trained as an accountant, Ayers has always had a practical view of money. In 1950, when he was six, he accompanied his father to the bank of Scott’s Hill, Tenn. When the teller, making nice with the tagalong kid, asked little Jimmy if he had questions, Ayers responded, “Show me the money,” straight and to the point. So the teller did, taking him into the vault, showing him some wads of bills. In 1984, some thirty-four years after the experience, Ayers bought the edifice itself, the Scott’s Hill bank. At the time, the bank had $15 million in assets. Today, Ayers’ banking empire has $1.1 billion in assets.

Ayers traditionally looks for distressed merchandise and keeps the general level of euphoria for even the best deal restrained and rational. “We don’t get emotional about it,” Ayers says about prospective purchases. Such restraint is sound business. After all, there can be only so many solid deals out there among the chaff at any one time, so, as Ayers points out, “About two-thirds of [the deals proferred] don’t make sense.” Adds Ted Welch, a member of Ayers’ board and his sometime business partner (together they own the building housing the offices of Business Tennessee), laconically: “Ayers likes to get his money’s worth. Both buying and selling.”

Nothing in Ayers’ past shows he’s likely to change what has been a winning approach. He made his money by controlling costs. In the nursing home business, revenues came mostly from Medicaid, on a fixed-rate, so-many-dollars-per-patient-day basis. By the time Ayers sold his business, he had approximately one million patient days. Thus, saving a nickel per patient every day meant $50,000 to his bottom line. His devotion to cost-cutting was sufficiently intense that, even in corporate headquarters, he used old Xerox copies as notepaper.

Clayton, on the other hand, began his business life as an auto dealer, promoting his cars on a weekly television show modeled on the Ted Mack Amateur Hour. His first love was singing—his ex-partner Fred Lawson says Clayton would rather be Eddy Arnold than anybody—so if Clayton himself got a chance to sing, he didn’t mind.

In 1960, when he was getting his start as an auto dealer, Clayton had aggressive plans for growth, but he was sometimes held back by the pinstripes at his local bank. So he switched to Hamilton National, a bank that would accommodate his growth plans. Unfortunately, Hamilton got into regulatory trouble, summarily called in his loans, and Clayton faced a bankruptcy early in his career.

Undeterred, Clayton eventually moved on to building a mobile home business. In doing so, he seemed disinclined to give a dollar to anyone else, and so his enterprise became a marvel of vertical integration, including a bank-like financing division. In fact, Clayton Homes, which started as a sales office for other lines of manufactured housing, then began building its own units, also owned trailer parks to house the homes, did mortgage pass-throughs in its Vanderbilt Mortgage subsidiary, and even insured the mortgagees against death and/or loss of income, a boon for both mortgagee and mortgager.

At the time of the bank sale, Clayton Homes was listed on the NYSE. In 2003, Warren Buffet bought the whole thing for $1.7 billion, of which some 28%, or $475 million, went to Clayton himself, creating for him a river of liquidity like unto the Mississippi River come spring.

Yet for all their differences, a closer look at Ayers and Clayton reveals some less obvious similarities. Beneath his flamboyant façade, Clayton is surprisingly detail-oriented. Banker Fred Lawson, who helped Clayton shepherd First Heritage from the small two-bank, $4 million enterprise of the first acquisition into a $215 million buyout by BB&T in 2001, calls him “meticulous.”

Sure, Clayton may love to fly his beloved six-passenger Bell 407 helicopter (named “Black Beauty”), but Ayers likes to hunt large game an ocean away—certainly a striking, Hemingway-esque departure from the ledgers and balance sheets of the banking business.

More germane to Tennessee community banking—while the majors are playing with other people’s money, Ayers and Clayton are investing their own. This, according to Nashville attorney Steve Eisen of Baker, Donaldson, Bearman Caldwell & Berkowitz, gives them an edge over another merger-minded rival, Greene County Bancshares, which is publicly owned, traded on NASDAQ and, therefore, gives stock when it wants to make an acquisition. Ayers and Clayton can pay in cash. If their banks don’t have sufficient equity, each mogul can just transfer in cash from someplace else.

Since, as Eisen notes, cash is king, both Ayers and Clayton are well-positioned to beat out bigger, public rivals. “With the capital gains tax down to 15%, investors don’t have a large incentive to defer the tax.” Essen says. “They are often selling because they want to diversify their holdings anyway.”

If cash is king, for both Ayers and Clayton at least, the “community” in community banking is an influential advisor.

Nowhere is this more evident than in Ayer’s standard operating procedure with banks he buys. Following an acquisition, he puts on a hiring freeze, maintains the people who present the bank’s public face, and upgrades the back office. Then, he goes out to find “the best banker in the town, the guy who’s been president of the local Lion’s Club two or three times”—a leader in the community, both in terms of business and community spirit. Like Clayton, Ayers believes the banks must be deeply rooted in the community.

While the concept of a statewide community bank may sound like an oxymoron, both moguls believe in the tenet, and the industry’s view of itself seems likely to adapt.

Subtle similarities aside, Ayers and Clayton are certain to cross paths—and swords—again in their respective efforts at empire-building. Regardless who wins, those in Tennessee’s banking industry can point to the conflict as evidence of what they already knew: Interesting times beget interesting players, and for the foreseeable future, things are very interesting in community banking.