Pinnacle Financial Partners Inc. (PNFP)
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Financial Partners believes a critical component of distinctive service is people, but
also includes innovative approaches such as courier deposit pick-up and system support
Pinnacle Financial Partners goal is to provide a different financial experience by offering distinctive advice and unparalleled service to each of its clients. A number of Pinnacles senior financial advisors provide comprehensive wealth management services to help clients protect and distribute their assets The Learning Center provides information and insights on a variety of financial service subjects from its seasoned professionals on topics of interest. The most important part of any personal financial plan is the advisor that helps clients make decisions. That's why virtually every Pinnacle financial advisor has at least ten years of banking experience and can assist with checking and savings accounts, money market accounts, lending, investment services, insurance, financial planning and wealth management services. Pinnacle provides superior client solutions from advisors who understand each clients business needs. They provide their business clients with a variety of corporate accounts and cash management services including automated investments and borrowings, automated payables funding, direct deposit of payroll and online banking. Pinnacle Asset Management, a division of Pinnacle Financial Partners, provides full service securities brokerage services.
CEOCFOinterviews: Mr. Turner, please tell us about Pinnacle Financial Partners Inc., - how the company was started and the segments that you serve.
Mr. Turner: It is important to understand the background and environment in which we started this company. Going back to the mid-eighties, Nashville was billed as a center for financial services, specifically banking and insurance. By the mid-nineties, all the banks and insurance companies of consequence had been consolidated. Because of that consolidation, community banks were taking market share from large regional banks, most of which were headquartered out of state. The founding group at Pinnacle included a number of people who had been executives and directors at First American Corporation, a 20 billion-dollar holding company headquartered here in Nashville that was the last of the large locally owned banks to be acquired. Those three things: the trend of consolidation, the trend of community banks taking share from large out of state regional banks, and finally, the acquisition of the last locally owned bank led us to believe that it was a once-in-a-lifetime opportunity to start and build a large bank here in Nashville.
We set out to distinguish our company based on distinctive service quality and effective financial advice. There was comprehensive research that indicated client satisfaction and service quality at the larger regional institutions continued to diminish every year, and consumers and business owners felt that they could not get effective financial advice even from their banks or their brokers. The segments that we try to serve are owner managed businesses and affluent consumers.
We feel like the opportunity today is even better than when we started the company. Today, we are roughly a 500 million-dollar bank after only three years in business. Of all the banks chartered in the Unites States in the year 2000, we are the largest. That will give you a sense that what we are doing has been well received in the marketplace. The profitability has also worked very well; the original proforma indicated that it would take us 23 months to break even, and it only took 13 months.
CEOCFOinterviews: How have the economic conditions of the last few years affected the success of the bank?
Mr. Turner: The economic landscape has generally been difficult. The economy itself has been recessionary and then slow. The rate environment has been a difficult one with unprecedented rate cuts; in this business, the lower the rates go typically the more margin compression occurs. Generally speaking, to have a slow economy diminishes loan demand, and a declining rate environment diminishes margins. From that perspective, it was not an ideal time to start a bank and try to build significant volumes and profitability.
The other side of that is, from a loan underwriting standpoint, it has been an ideal time to start a bank because the most important variable that determines a banks success is the soundness of its loan portfolio. When you underwrite loans at low points in the market, generally the performance of those loans is better than that of loans underwritten at a peak time in the economy. Thats because if the economy slows down and moves into recession, a lot of credit that could have performed well in a strong economy goes bad. I think the economic environment has been mixed for us; it has diminished loan demand and has suppressed our margins, but it has enabled us to underwrite a very sound loan portfolio, which is extremely important in determining our success.
CEOCFOinterviews: What is Pinnacle doing to differentiate itself from other banking centers?
Mr. Turner: Banking is still a people business, so the most important ingredient of providing distinctive service is ensuring that you have a workforce that is excited, engaged and capable of providing excellent service. One of the things that we said early-on was that we would only hire individuals with at least 10 years of financial services experience in this market. We attempted to apply that rule to everybody, both client contact people as well as operations personnel. Today, we have hired around 95 associates and probably only made an exception to that rule about four times. When you hire this very experienced workforce, they know and understand how processes are supposed to work. Simply said, if the transaction shows up in the wrong place in operations, you have experienced people there to recognize it and get it to the right place.
There are other components to our distinctive service, such as a courier deposit pick-up system. We go to commercial clients locations to pick up their deposits and bringthem to the bank. That has been an outstanding component of our service equation and it is different from what the large regional banks do.
Additionally, we are blessed by the fact that when we started the company in the year 2000, we started with state-of-the-art systems, which are all online, real-time, Oracle database systems. The point of that is, the information that we are able to provide clients is real-time and so robust that the quality of information they are able to retrieve from our company is far superior to what they can receive from a large regional bank and most community banks.
Distinctive service takes on a number of components, the most critical of which is people, but also includes innovative approaches to distribution such as courier deposit pick-up and state-of-the-art system support.
CEOCFOinterviews: Who makes up the core clientele for Pinnacle?
Mr. Turner: If you look at the mix of business, we largely serve owner-managed businesses. Generally, the business mix is 70% commercial and 30% affluent consumer. When we further define the target for owner-managed business, we look at things like sales volume, and we believe that the sweet spot for Pinnacle is companies with sales from one to twenty-five million dollars. What is important about that measurement is that Nashville is a small business market. There are roughly 30,000 businesses in Nashville and 99% of those businesses have sales of less than twenty-five million dollars, so Nashville is an owner-managed market.
CEOCFOinterviews: Where do you see Pinnacle in the future? Will you expand by opening additional branches?
Mr. Turner: Today, we have five offices scattered around Nashville and we believe we can cover the entire Nashville MSA with around ten locations. To give you an ability to gauge that level of distribution, this market is dominated by three large out-of-state regional holding companies. All of the holding companies have 45-55 branch offices to cover that geographic territory. When we say that we can cover it with ten, obviously we are deploying significantly less branch distribution than those regional bank holding companies. We believe that we can serve the market with that limited physical distribution because of things like our courier deposit pick-up system. That enables us to say to a commercial client No matter where you bank, if we are going to come and get the deposit, we are more convenient, even if you are banking at a branch next door.
We also think that our information systems, which are widely viewed to be more sophisticated than most regional banks, enable us to offer convenience with less physical branch distribution. But perhaps the single biggest reason we can cover the market with less is because we are tightly focused on owner-managed business and affluent consumers, and those segments require less distribution points than if we were serving a mass market consumer segment.
CEOCFOinterviews: What do you do in the way of community involvement for the bank?
Mr. Turner: Community involvement is an important piece of any financial services firm but is particularly important here at Pinnacle. In the early years of the company, we said that the largest component of our community involvement would be the time and effort that the bank and its associates contribute to the community in terms of their board involvement and civic involvement. In the early going, as we have built out the profitability of the company, we have focused on making our contribution through our people and their efforts as opposed to financial contributions. Over time we will be active with monetary contributions for a variety of civic, health and human services, and economic development type of activities.
We have an associate here who is very dedicated to ensuring that we are well integrated into the community as it relates to affordable housing, and that is also an important aspect of what we do. We have folks who proctor our involvement with things like the Special Olympics, which has been an important project to the associates of this company. We take one day a year and provide supervision and refereeing for Bocce Ball at the Special Olympics. We have also helped build houses for clients of of the Downs Syndrome Association.
CEOCFOinterviews: Please tell us about the financial advice side of Pinnacle.
Mr. Turner: There are several things that are important in terms of how we go about distinguishing ourselves in the area of effective advice. The first and most critical is the quality and caliber of people that we have hired; we call our client contact associates financial advisors. The financial advisors at Pinnacle have on average about 22 years of experience as a banker or a broker. Their sheer level of experience would indicate that they have worked with a myriad of clients in a variety of financial situations, have had the opportunity to learn first-hand what does and doesnt work, and therefore are capable of offering effective advice.
Beyond that, we encourage all of our associates to be trained, educated and licensed in as many financial service areas that they are willing to pursue. The vast majority of those financial advisors hold securities licenses, insurance licenses, real estate brokerage licenses or certificates such as Certified Financial Planning certificates. We encourage their involvement in and mastery of a variety of financial service fields. Many of our associates who hold a securities license are not selling securities, but they hold the license because they pursued that avenue of education. The point is not that they can sell securities but that they are fluent on a broad range of financial issues. We are able to distinguish ourselves through effective advice, both by the quality and experience of our associates and the fact that they have a broader education than pure commercial banking or brokerage.
CEOCFOinterviews: Do many of your customers take advantage of the financial advice, and the variety of your services?
Mr. Turner: We think all of our clients take advantage of financial advice in some way, shape, or form. By virtue of being a banker or a broker, people are going to seek your advice in terms of how to form capital for a business or what responsible debt ratios are.
We actually have reasonable penetration among people who wish to develop a comprehensive financial plan that would include accumulating wealth, protecting wealth and ultimate distribution of wealth. We work with people not only in what their investment strategies ought to be in the early part of their life cycle, but once wealth has been accumulated, we work with clients on estate planning, tax planning, and the like. These services are being consumed by owner-managed businesses, as well as affluent consumers. We penetrate that market through a relationship based approach. We hire very experienced people with large amounts of business, and when they join Pinnacle, their clients want to move their business to Pinnacle with the financial advisor. Most people find it incomprehensible that we could build a 500 million-dollar bank in three years and never run an ad, but weve been able to do it through this relationship-based approach.
CEOCFOinterviews: Why should potential investors be interested in Pinnacle?
Mr. Turner: There are a number of reasons that Pinnacle makes an attractive investment; number one is that we are located in Nashville, which is a high growth market. The most recent census data shows Nashville as the 18th fastest growing major metropolitan market in the United States over the last decade. It was the fourth fastest growing in terms of per capita income. Not only is the volume growth excellent but the (inaudible) quality of growth is excellent as well.
Secondly, the competitive landscape here is particularly attractive. By that I mean the market is dominated by three large regional bank holding companies, all of which have given up significant market share going back into the mid nineties. It is a rapidly growing market, and the competitive landscape is particularly attractive for a community bank.
The third thing I think makes Pinnacle significantly attractive is that the company is built on a management team that has been successful running another large bank holding company headquartered here in Nashville. When you look at the factors, they really ensure the continued and dramatic rapid growth of the company. Management is unusually capable of seizing the opportunities.
CEOCFOinterviews: What are your challenges as you go forward?
Mr. Turner: The number one issue that banks have to be careful about is credit quality; my sense is that the economy has found a floor and it is beginning to head upward. Typically, when economies begin to escalate and grow, there are opportunities to participate in loans that might not be done at a more conservative time in the cycle. I think it is critical for us to continue to ensure the soundness of our loan portfolio.
I believe that we are a rapidly growing company with phenomenal success, but as we continue to grow and add people, there are certain growing pains with managing our culture relative to engaging people and relative to connecting (inaudible) with all the associates and constituents. Just managing growth is a second issue that we are sensitive to and work on daily.
In terms of our preparedness for the future, it is important to know that when the company was founded in the year 2000, we developed 20 important measures that we felt ensured the success of the company. Those measures come in the categories of soundness, profitability, growth, and market effectiveness--measures such as market share, service quality and so forth. For those 20 measures, we established targets for the year 2010. We also developed a three-year plan and roll it out every year so that we have short and intermediate term targets that drive us to be a high performing company. We update that plan every year. That planning process is where we pursue these issues that I just described, and make sure that we have appropriate measures for ensuring continued soundness, profitability, the growth of the balance sheet, and marketing effectiveness that we feel is important in achieving our 2010 targets.
CEOCFOinterviews: As CEO, what do you typically do during the day?
Mr. Turner: At one point I was president of the General Bank of First American, which was a 20 billion-dollar holding company here in Nashville. Unfortunately, in that role I spent most of my time on planning, on projects, on presentations and governance. I almost never talked to a client; in the last three years that I was there I probably did not participate in a single call at a clients location. Here, I talk with clients on a daily basis on the telephone. I participate in credit underwriting decisions, which obviously involves clients. There is much more of a client focus than when I was at a larger regional bank.
I spend time on governance. We have an active twelve-member board whose members have participated as an executive officer or director at local banks, so it is a relatively sophisticated group with a high requirement for appropriate governance. I spend time not only in the designing of governance but in the administration of various governance programs.
I spend a great deal of time on what I call associate engagement. I have a planning grid (inaudible) that I use for the various forms, techniques and frequencies for communicating with and engaging associates in what we are doing. For instance, at live meetings once a month, we review all the financial plans of the company with 100% of the associates. During quarterly listing sessions, I meet with people of various levels within the organization and seek their feedback. I am the proctor of the work and environment survey that we do here on an annual basis, which gathers feedback of all the associates, and we use that to build programs or initiatives that address matters that are important to the associates.
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