A commercial customer had an appointment at Pinnacle Bank to sign loan closing documents. He called ahead and told his banker that he’d swing by her office’s drive-through and sign in his car seat. It was close to lunchtime. But he wasn’t touching ground.
He drove up and signed. But his banker popped out and brought him two burgers and a Coke, realizing the customer wasn’t going to have time to eat otherwise.
“I’m certain that that’s a client for life,” says M. Terry Turner, president and CEO at $8.2 billion-assets Pinnacle Financial Partners, a one-bank holding company based in Nashville, Tenn. This is one of dozens of examples of “wow” service that Turner likes to pull out of his pocket.
Pinnacle is one of 25 banks identified in June by Keefe, Bruyette & Woods as “America’s Challenger Banks.” These are mid-size companies with the potential to “challenge large financial institutions and traditional community bank business models.”
Writing about Pinnacle, KBW noted that it produces one of the fastest organic growth rates among banks. In the second quarter, its average loans grew by 11.4% over 2014’s second quarter, while making an ROA of 1.44%. KBW credits this to creating a highly desirable place to work that attracts quality bankers who consistently build market share.
Pinnacle was founded in 2000, and although it completed two major mergers over the summer, Turner’s preference is for organic growth.
Much thinking has gone into the looming $10 billion Dodd-Frank threshold, with its increased compliance costs and the Durbin amendment penalty on interchange income, but Turner doesn’t blink.
“We believe we have the opportunity to build a $15 billion company, so why would we stop at $9 billion?” says the regional-bank veteran. “It takes about $2 billion in assets to run you through breakeven, and then you continue growing the earnings stream.”
Pinnacle’s strategy from the beginning: To serve four key urban Tennessee markets—Chattanooga, Knoxville, Memphis, and Nashville. The mergers have cemented that structure in place.
As noted by KBW, people represent the key to Pinnacle’s story. “Our idea is create what feels like a local bank, and we want decision-making, particularly credit decision-making, to be largely made on a local basis,” says Turner. Pinnacle is predominantly a business bank, with a highly diversified credit mix.
Making that happen hinges on hiring experienced bankers only. “We won’t hire people who have less than ten years experience in our markets,” says Turner. “We’ve pledged to our clients that we won’t turn them over to trainees. That resonates with a lot of people.” The average Pinnacle employee has 26 years experience in banking.
Building and maintaining such a workforce means everything to Turner: “Our annual associate retention rate is 95%. We have new hires, but we don’t have people going out the back door.”
Q1. Over time, all your experienced people will be retiring. What’s the training challenge going to be then?
A. The biggest piece of turnover last year was retirements. But what people miss is that ten years experience for a college graduate makes you 32. So we can still hire younger people that have meaningful experience, rather than hiring them right out of school.
We hire them out of large regional banks. This is a great place to work. [Pinnacle has won national best place to work awards.] Half the formula is how much fun it is to work here, but the other half is how bad it is to work in a large regional company.
If you are a relationship manager in a large regional headquartered in some other state, if you’re doing anything of consequence, you’ve got to talk to somebody in another state to get your loan approved. They talk to you like you’re stupid. And that’s a hard existence.
When we hire these experienced people, they bring their book of business, and you get rapid growth. And you get great asset quality, because if they’ve been banking someone for ten years, they know them. And so they leave the bad credits behind.
We have lots of mechanisms here that are built to help us listen to people and make improvements as we go. We have made lots of changes over the years based on what our associates suggest.
Q2. Is there more to the preference for experience than the promise to your customers?
A. Yes, when you hire the more experienced, they are not job hoppers. Many young people start out unsure of what they want to do, and they can kind of bounce around. I did that myself. Through our hiring model, we eliminate folks who are unclear. The number one inhibitor to winning when you aim for distinctive service is turnover.
Q3. Do your relationship managers take part in underwriting?
A. Yes, our financial advisors, as we call them, participate in the lending decision. We run a signature system approval process, not a hunter-skinner program. They are involved from start to finish. Our financial advisors have a level of authority, and they can then go to their team leader for more, and they can get a credit professional involved for higher limits than that. Three or four people together can lend the house limit.
Our people on the ground in local markets can make lending decisions of up to $10 million in that market. As we are dealing with companies chiefly with sales between $5 million and $50 million, that meets 90%-95% of demand.
Financial advisors are responsible for the client connection and can meet with customers and talk about how to meet their financial situations and reach their objectives. Their specialty is almost always lending, but they also know treasury management, merchant payments, and international transfers. They’re able to bring in technical experts when they get into more specialized areas.
Our intent is to have people with a meaningful presence and power base to do business with clients in their market.
Q4. You’ve done two acquisitions recently. Is this a strategy shift?
A. Our strong preference, strategically, is organic growth. We have made acquisitions, but the value of Pinnacle has been organic growth. Acquisitions give us a toehold from which to launch. Our stock is highly valued, an advantaged currency to make acquisitions, so I wouldn’t be surprised if we made some more.
Q5. What do you think of the fintech movement today?
A. There are always early adopters. They are dramatic and predict the demise of everything. Back in the 1970s, I was in the bank systems consulting business, and all the drama was about how checks were going the way of the dodo bird. But 40 years later, there’s a ton of electronic stuff going on, and a lot of this stuff is really cool, but about 18 billion checks are still written.
We believe that when people make complicated financial decisions, most frequently they want to talk to somebody. We are commercially oriented, and I believe this is still a people business.
There will be continuing movement toward new channels, but in five years, a connection with a banker will still be very important.
Q6. What else keeps people interested besides autonomy and being listened to?
A. Compensation is important, but not most important. Experienced people—who many times are the most expensive—who are excited to work here results in unbelievable performance for clients and makes shareholders a lot of money.
All salaried and noncommissioned associates participate in annual cash incentives, and every associate receives equity grants. We used to use stock options; now we use restricted shares. They get shares when they come here, and there’s an annual grant going forward. Last January, we paid our approximately 800 associates a total of $15.2 million in cash incentives. Since we’ve started, in 15 years, the value of equity granted is roughly $200 million. It’s expensive. Our cost per associate is higher versus peers. But our revenue per associate—about $113,000 of net income—is very high among all sorts of financial companies. It is astounding how much our associates feel like this is their company. It makes a difference to them if we make foolish decisions, waste money, or have a loss.
Q7. Pinnacle recently formed a capital markets group. How does that fit?
A. We largely serve owner-managed businesses—generally underserved by investment banks, who help larger corporate clients with capital formation and M&A. Our group will help smaller companies in these areas and in exit strategies. We are forming a broker-dealer to facilitate that work, and this new group will work with our financial advisors. It will be a support mechanism. We serve a huge portion of our business communities and there’s a lot of demand for these services.
This interview originally appeared in the 7 Questions section of the October-November issue of Banking Exchange magazine.