Chip Dudley and Susan Stephenson are co-chairmen of Independent Bank.  Photo: Lance Murphey

Unlike their Wall Street brethren who for years made big bets chasing millions in quick profits, the management of Independent Bank has for 12 years followed a simple rule.

If the bank’s co-chairs, Susan Stephenson and Chip Dudley, are left scratching their heads after listening to an investment pitch, they tend to steer clear.

Even if that offer is for almost $20 million and it comes from the federal government.

Independent Bank more than a year ago turned down an invitation from regulators to participate in the taxpayer-funded bank bailout program. Among other things, that decision let the bank control its destiny without the government as a powerful new shareholder.

That decision also puts in context the strong financial footing with which Independent Bank – the second-largest bank based in Memphis – began 2010.

The bank over the past 12 months grew its deposits 22 percent and boosted its assets to nearly $800 million. The bank’s net income more than doubled.

By comparison, most banks in Tennessee started the year stuck in a rut of either unprofitability or flat earnings.

Dudley has a snappy response to sum up why much of the industry is still floundering while Independent is flying high.

“When your competition gets crippled, you tend to make hay,” he said. “We’ve stuck to the banking basics and really haven’t strayed from that and have no intention of doing so.”

Its leaders say Independent Bank, founded in 1998 and headquartered in White Station Tower, has also succeeded by adhering closely to the conservative business plan Dudley and Stephenson sketched out one day over lunch.

The plan called for largely avoiding real estate, not worrying about quick growth and focusing on a retail strategy.

Along the way, Independent got approached with pitches for complicated financial products like structured investment vehicles – the same kinds of arcane creations that sank more cavalier Wall Street firms.

Independent’s latest results suggest they made the right call in taking a pass on those deals, including the one that came not long ago from Uncle Sam.

Dudley and Stephenson last week revisited the steps Independent Bank took in reaching that decision. Their thought process carries extra relevance at the moment, with the government now extending its reach deeper than ever into large swaths of the private sector like health care.

Early on, regulators told the bank accepting an infusion of Troubled Asset Relief Program (TARP) capital was the “patriotic” thing to do.

That Independent Bank didn’t need the money was a bonus. It meant regulators expected they’d deploy it faster and stimulate the economy – a goal of the program.

“They said it’s time for you all to stand up and be Americans and take this money,” Dudley said.

Looking closer at the deal, however, Independent’s leadership soon got cold feet.

Stephenson said they delayed closing a deal for the TARP infusion about three times. The last straw: learning the terms of the arrangement could change at any time.

“We looked at each other and said, ‘How do you sign a contract where you’re obligated to perform under the contract but they can change the rules along the way?’” Stephenson said.

During the home stretch, Independent was still skittish. This deal, like others they’d considered and turned down, didn’t have reasonable upside.

Dudley said he and Stephenson are what he calls “handshake people.”

“We said, let’s get this straight,” Dudley recounted. “A deal’s not a deal. We’re going to be ‘Americans,’ and to reward us you’re going to cut our compensation by a third when we’ve done nothing but run a good bank during this whole time?

‘The answer was, ‘Yes.’ We said, ‘We pass.’”