January 13, 2018
How Pinnacle Is Making a Name for Itself in Memphis
The Commercial Appeal
Bankers in Memphis and Nashville have been natural rivals for decades, but Memphis rarely has seen anything like this bank.
In the three years since they pushed into the Memphis banking market, they have laid out cash to sponsor Memphians’ pride and joy — the Memphis Grizzlies basketball team.
They weathered a lawsuit accusing them of poaching prized employees from First Tennessee Bank.
They just moved into the newest office building in East Memphis, putting up their sign in the heart of the city’s corporate row across the street from FedEx Chairman Fred Smith’s offices.
They just recorded the largest percentage increase in customer deposits of any of the 56 banks running 368 branch offices in Greater Memphis.
Who is “they”?
Pinnacle Financial Partners and, more precisely, Terry Turner.
From zero to No. 2
Graced with a white shock of hair, a traditional blue banker’s suit and a straight forward manner of speaking, Turner strides into the blond-wood hallway of the new Pinnacle office at 949 Shady Grove.
Setting out in 2000 to launch Pinnacle as a community bank in Nashville, Turner rode the Nashville boom, a string of acquisitions and his own aggressive instincts. Pinnacle now ranks as the largest homegrown bank in the state after First Tennessee, the 153-year-old bank based in Memphis.
Turner, whose office is in Nashville in the 29-story tower named Pinnacle at Symphony Place, traveled to Memphis last week to meet with clients. I interviewed him in the Shady Grove office. He talked for an hour about Pinnacle’s growth from essentially nothing to No. 2.
Even though it doesn’t hang ads on the side of buses or boast of its services on television, Pinnacle has quickly established a presence in Memphis since entering the market in 2015.
It has only five branch offices, but given its Grizzlies ties and timely philanthropy such as the $800,000 donation to the Senior Housing Crime Prevention Foundation and $1 million commitment to the loan pool of low-income lender United Housing Inc., the name is hard to miss. Pinnacle also has done something else.
It’s caught the attention of business executives hunting for commercial loans, the kind used to buy equipment and pay for expansions.
Big Memphis corporations including FedEx and AutoZone are now Pinnacle borrowers by virtue of what are called syndicate loans. Pinnacle teams with New York banks in making loans to large companies. It’s also looking for small and midsize borrowers and preparing to ramp up a medical loan specialty to tap into the city’s large health care industry.
We’re out there asking for the business,” said Kirk Bailey, chairman of Pinnacle’s Memphis operations.
Stepping into Memphis
Pinnacle entered Memphis with the $83 million purchase of a quiet east-side institution named Magna Bank.
Magna was to banking what a barbecue place was in the restaurant world, a specialist rather than a full-menu steakhouse. Magna’s specialty was real estate loans to hotel, store and warehouse developers.
Board members included the well-known Memphis real estate entrepreneurs Harold Crye and Dick Leike. Its top executive was Kirk Bailey.
Just as Alabama banking conglomerate AmSouth acquired First American National Bank of Nashville, AmSouth also bought Leader Federal, a major real estate lender in Memphis.
The deal disgorged Terry Turner from First American, then the largest homegrown bank in Nashville. He was in charge of the retail banking and investment unit. He went on to found Pinnacle. Bailey, an executive vice president at Leader Federal, went out and helped form Magna.
Had Magna been located in fast-growing Nashville it might have become as large as Leader Federal someday. Situated in Memphis, Magna grew but not as fast.
By 2015, Magna loans totaled $460 million. By mid-summer 2017, under the Pinnacle name, the loan volume had doubled to almost $1 billion in the Memphis market, Bailey said, up 45.5 percent from the year before.
What led the growth was the new emphasis instilled by the Nashville bankers. Pinnacle was a full-service bank on the lookout for commercial loans.
In three years, the company added about 50 lenders, investment advisers, trust officers and similar positions responsible for generating profits. This year plans call for hiring 15 more, bringing Pinnacle’s employment level in Memphis to 171 jobs.
Why Pinnacle grew
Seated in a conference room at 949 Shady Grove, Turner listens intently. I ask why Pinnacle grew.
I don’t spell this out, but I wonder why Pinnacle and Magna both opened about the same time and one is now the state’s No. 2 homegrown bank and the other has gone the way of Leader Federal, Morgan Keegan, National Bank of Commerce and Union Planters National Bank — big Memphis financial names that are no more (Union Planters, Morgan Keegan and Leader Federal were wrapped up in Regions Financial, the new name of the old AmSouth, while SunTrust of Atlanta bought NBC).
My thought is Pinnacle grew largely because Nashville grew. If you put cash in a bank, the bankers quickly loan out the money or invest it on the bank’s behalf in stocks and bonds. Bankers call these loans and investments assets (loans are considered an asset because the bank earns profit on the borrower’s interest payments).
Pinnacle’s assets now exceed $22 billion, second among the Tennessee-based banks to First Tennessee’s $29 billion. About half the assets trace to acquisitions of banks folded into Pinnacle. The other half is growth — bringing in deposits and loaning out the money.
Given the Nashville surge, it seemed deposits would flood into Pinnacle as soon as it opened its door. Any competent banker could pile up profitable assets.
After all, banks in Nashville held $57.4 billion last year in customer deposits, up from $18.1 billion in 2000, FDIC reports show. That’s a lot of money to loan out and stash in stocks and bonds considering Memphis banks have gone to $30 billion in total deposits from $18.7 billion in the same period.
Right off I asked Turner whether bank acquisitions or Nashville’s extraordinary rise paved way for Pinnacle’s growth. He said it was both and quickly steered to another reason. More than either, he said, it was customers coming from established banks.
“There’s no doubt Nashville has grown, but we’ve also grown by taking on a significantly bigger piece of market share,” Turner said.
Taking market share
Turner explains how that’s done. What’s clear is Nashville’s banking market and Memphis’ were once much different.
Back when Bailey was at Leader Federal, Memphis’ big hometown banks held about 75 percent of all the bank deposits and made about 75 percent of the loans. Out-of-town banks accounted for the remainder.
Nashville was the opposite. Its big banks were acquired before Memphis’. By the late 1990s these big out-of-town players controlled 75 percent of deposits and loans in Nashville.
Turner said the out-of-town banks were slow to make decisions. And turnover was rife in the big banks. Customers were frustrated by green bankers.
“We felt like service of the large regional banks wasn’t good,” Turner said.
Backed by Nashville entrepreneurs including prominent office developer John Eakins, Turner and a bevy of ex-First American bankers set out to create a bank built around local decision-making and mature professionals.
“There’s almost nothing we need to go to Nashville for to get approved,” said Bailey, whose office can make loans up to $10 million.
Rather than train a new team, Pinnacle hires seasoned bankers, which led to a pair of legal conflicts. First Tennessee filed a lawsuit accusing the bank of staffing its Memphis office with one of its experienced crews of wealth advisers. The case was eventually settled and Pinnacle apologized but the strategy continues. Regions filed a lawsuit accusing former employees in Nashville of violating contracts when they went to Pinnacle.
“Most people bank with the banker, not the bank,” Bailey said. “The Pinnacle model is based on recruiting the key people in a city who have the experience and the customers loyal to them. That’s the best way to get a strong foothold in a city.’’
To attract workers, Pinnacle uses a compensation system unusual in the Leader Federal era. Almost every employee receives 10 percent to 20 percent of their pay in the form of a cash bonus based on the bank’s performance. The key metric is earnings per share. That tracks profits and the stock price.
Today, 35 percent of the employees leave the typical bank every year. Pinnacle’s turnover: 7 percent.
The strategy has paid off. Companies and individuals are moving their deposits to Pinnacle. In Memphis alone, Pinnacle’s deposits swelled to $786 million last year, compared with Magna’s final year of $447 million.
It’s true First Tennessee, Regions and SunTrust remain far larger. But no bank in the city has grown deposits over the last years as fast as Pinnacle.
Ted Evanoff, business columnist of The Commercial Appeal, can be reached at firstname.lastname@example.org and (901) 529-2292.