Pinnacle Financial Partners' (PNFP) CEO Terry Turner on Pinnacle and Avenue to Combine Forces - Conference Call Transcript

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Pinnacle Financial Partners (NASDAQ:PNFP)

Pinnacle and Avenue to Combine Forces Conference Call

January 29, 2016, 9:30 AM ET


Terry Turner – President and Chief Executive Officer

Harold Carpenter – Executive Vice President and Chief Financial Officer


Michael Rose – Raymond James

Will Curtiss – SunTrust

Jefferson Harralson – KBW

Peyton Green – Piper Jaffray

Tyler Stafford – Stephens

Nancy Bush – NAB Research

Sachin Shah – Albert Fried


Good morning everyone, and welcome to the Pinnacle Financial Partners’ Avenue Financial Holdings Merger Investor Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; and Mr. Harold Carpenter, Chief Financial Officer.

Please note the release announcing the proposed merger and this morning’s presentation are available on the Investor Relations page of Pinnacle’s website at Today’s call is being recorded and will be available for replay on Pinnacle’s website for the next 90 days. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. [Operator Instructions] Before we begin, Pinnacle does not provide earnings guidance or forecasts.

During this presentation, we may make comments, which may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties and other facts that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements.

Many of such factors are beyond Pinnacle Financial’s ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risk is contained in the press release announcing the transaction and in Pinnacle Financial’s most recent Annual Report on Form 10-K.

Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by the SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial website at

I would like now to turn the call to Mr. Terry Turner, Chief Executive Officer. You may begin.

Terry Turner

Thank you, operator. But I don’t think Nashville is really a very well-kept secret anymore. But let me give this as a backdrop for the transaction we’re discussing this morning, which is Nashville is literally one of the most attractive markets in the United States and consequently it’s a great place for us to continue our investment. Area Development ranked Tennessee number 4 on their list of top states for doing business.

There are a number of reasons for Tennessee’s outsized growth including the fact it’s a low business tax state. It’s a no income tax state, a business friendly environment, a right to work state and so forth. As these companies flock to Tennessee from the high tax unfriendly to business states, Nashville is disproportionately the winner. The Milken Institute listed Nashville on their best-performing cities index. Business Insider listed Nashville as one of the hottest American cities for 2016. And Business Facilities listed Nashville as a leading city for economic growth potential

So Nashville is a vibrant high-growth market by virtually any measure. Of course we in the founders of Avenue Bank recognized that opportunity a long time ago and it developed remarkably similar responses to it. First, we both have a deep held belief that genuinely drives us. That Nashville needs and deserves a strong local bank. Ron Samuels Avenue’s Chairman and CEO and I are both old enough to remember when Nashville Chamber of Commerce, built Nashville as the financial center.

Back then there were several large locally owned banks that dominated the State of Tennessee and several local insurance companies like the old life and casualty insurance company with a meaningful national presence. First American which was the last of those financially consequential firms was sold in 1999. And so we formed Pinnacle in 2000. Avenue was formed just six years later and both of us have been aggressively in pursuit of serving this fabulous market. Second one of odds that a bank in Nashville, Tennessee would build such an engaging workplace to be recognized by American banker as one of the top five best banks to work for in the country? And if you think about that I bet ours are the two banks from Nashville would be in the top five in the country. Both we and Avenue have received national recognition for our engaging workplaces. We both have staked our franchises on the idea that it all begins with the associate experience. Get it right and they will deliver an extraordinary and differentiated client experience. Get that right and shareholders will make a lot of money. For virtually any other acquirer with a less engaging work environment to acquire Avenue and it’s highly engaged associates would be a disaster.

Thirdly, as I just mentioned market share takers like Avenue and Pinnacle have to have a differentiated client experience. Clients just won’t leave their existing bank and relationship without one. Greenwich Associates recognized Pinnacle for building one of the best brands in the country for ease of doing business and trustworthiness. Their research made in clients truly defined the distinctive level of service at Pinnacle. Avenue has been as creative and effective as any bank I know with their concierge banking a truly distinctive touch and feel for clients and their branches.

And so we will seek to take the best of both banks. And both banks are fiercely competitive in terms of business development. In another words taking share. Both banks have exceptional records for organic growth in market share movement. Both of us have been primarily aimed at taking share from the large regionals.

But we’ve noticed over the last year or two that a number of the high-profile deals in Nashville have come down to just us and Avenue. It’s just another example of why we will be better together than apart. Those of you who have followed our company for a long time know that we’ve been pretty disciplined acquirers. We have a very distinctive culture and business model. So a lot of the banks in Tennessee just don’t fit for us.

So we have lots of opportunities that many of which we just decline to look at, some we look at and never be it. But as you can see Avenue is a perfect fit for us. They are a commercially focused bank. As an example our C&I loans makeup 34% of our loan book. Their C&I loans makeup 34% of their loan book. Secondly, Pinnacle has been one of the most reliable and rapid organic growers in the country. Avenue’s organic growth rates match or exceed ours. Again, they are just one of many banks that don’t dilute our growth rate. So Avenue is a great fit from that perspective.

Thirdly, Pinnacle has been in the great spot for quite some time with dramatic operating leverage. I remember when Pinnacle crossed over from just high-growth to highly profitable growth. It’s one of the things that make CapitalMark and Chattanooga so attractive to us last year. We caught them just as they were crossing over and I believe we are catching Avenue at exactly the same point. For those of you who have seen their 2015 numbers, you saw a nice slope on profitability and efficiency ratios.

And finally, both banks have pristine asset quality. Avenue’s non-performers to assets were just 0.1%. And their net charge-off rate for the last two years is just 10 basis points. So Avenue is actually at the very top of our short list of remaining potential acquisitions. Of course, all of that only makes a difference between translated into shareholder value, which is you can see here we believe we can. We expect to close in late second or early third quarter. We anticipate that will bring our total assets to roughly $10.8 billion.

This transaction is accretive to 2016 earnings by about 1%. More importantly, it’s approximately 4% accretive to 2017 earnings. And that’s even after netting out all the incremental costs and foregone revenues associated with crossing the $10 billion threshold. I want to slow down and make sure everybody gets there. There have been so much dialogue about crossing the $10 billion threshold in trying to save the potential negative impacts of that.

But obviously this transaction results in us crossing over that threshold and the 4%, 2017 accretion that we’re showcasing is after netting out all of the direct and indirect costs associated with crossing that threshold and all of the foregone revenues associated with the Durbin Amendment and going over the $10 billion threshold. It’s a fabulous transaction. I guess in the last week or so, we have seen deals with seven-year to nine-year earned backs on the tangible book value dilution. This deal is less than 1% diluted and has a roughly two-year our earned back period.

And using a pretty conservative term to multiple to IRR is greater than 20%. Again, my judgment is this is a fabulous deal. Look at Avenue’s organic growth rate since 2009. All of them faster than ours. Asset growth with 20% CAGR, loan growth with the 22% CAGR, deposit growth with the 23% CAGR and tangible common equity with a 13% CAGR.

I mentioned earlier the fact that most good banks will reach a point where the operating leverage really accelerates. I believe Avenue is just crossing over. You see here the great growth in net income have done a nice job of widening their margin out from 2.3% to 3.3%. The ROAA is headed north and look at the improvement in their efficiency ratio.

Here you get a picture of their asset quality NPL’s to loans at 0.1%. NPA’s to assets at 0.1%, 1.2% ALLL and NCO’s at just 10 basis points the last couple of years. This is the loan pie chart you’ll probably see in almost every merger presentation.

Hopefully you will agree that the business mix between our two companies is remarkably similar if you compare this, similar charts from other deals at least for me, this pie represents two of the most closely aligned franchises that have entered into a merger transaction since we announced the CapitalMark deal a year ago.

As I said earlier both banks have roughly 34% of their loans books allocated to C&I principal difference are that Avenue has a little more income producing, real estate and little less consumer. As we’ve discussed now, over the last five or six quarters, we’ve set out to dominate the CRE segment in our market like we’ve done in C&I. So deal is added give that regard Avenue has developed a fabulous reputation in this market for this CRE expertise.

So you see the assets out our balance sheets fit together very nicely. On the funding side, if you are in here you see two firms that have a very similar business mix and compete very day for high quality business operating accounts. Avenue’s got a deep funding base loyal clients, I am particularly impressed with their allocation to DDAs 27% funding from DDA rate, indicative of their success in gathering commercial clients not just making commercial loans.

With that I’m going to turn it over to Harold and let him talk about the transaction in more detail.

Harold Carpenter

Thanks, Terry. We wont spent a lot of time here.

As there is much information on the slide, obviously, the due diligence process is all about risk, identification and mitigation. We design the process along the same lines as our own enterprise wide risk management process. So that we can analyze risk in a manner similar to how we carry out our EWRM process.

As you might expect much of due diligence occurred via an online data room as well as numerous one on one meetings with Avenue leadership. What may be a little different from other merger transactions, is that other firms is that the leadership of Pinnacle basically carried out, our due diligence effort.

Even the Chief Financial Officer was engaged, as you might expect Pinnacle and Avenue personnel are very familiar with one and other and in some case have been co-workers at previous Boards, this helped the process to evolve even more smoothly.

Avenue is an exceptional company with a very enviable track record, our due diligence process resulted in the conclusions supporting a well-run organization with a strong risk management culture.

Now getting more into the details of the transaction the primary consideration items are detailed on the slide and for the most part were in last nights press release. We began discussions as to pricing a few weeks ago and settled on the fixed exchange ratio as the most appropriate pricing methodology.

Obviously, the boards of both companies have been over-whelmed with comparables from recent M&A transactions. So it’s basically want to picking the pier group, but generally the tangible book value ratio and PE multiples are slightly higher than median.

We are pricing the transaction at 219% tangible book and 23 times forward earnings. It is a slight premium to most pier metrics but in no way excessive, when you consider the quality of an end market deal like this one.

As to the business case, with a 90\10 transaction structure we believe the close, we’re looking at 3.7 million Pinnacle shares with a cash of around $20 million. The stock component amounts to around $180 million. We also have 263,000 outstanding options with the weighted average exercise price of $10, which for any unexercised options will be cashed out it close at a negotiated price of $20. As a result stock options make up only about $3 million of the total transaction value.

We believe we have a very fair transaction given the high quality of the Avenue franchise. All in all, we feel both shareholder groups are being rewarded. We got contracts with Ron and Kent and I looking to add another independent director, and Marty Dickens who would join the Pinnacle Board with Ron. Outside the framework of the definitive agreement, we’ve also offered Board seats to two other Avenue directors David Ingram and Joe Galante who bring added strength and various commercial disciplines particularly music and entertainment.

You can see the expected closing in second or third quarter of this year with a targeted technology conversion in the fourth quarter, which is a key date for our synergy case estimates. We’re not anticipating any significant speed bumps regarding the combination of these two firms as both have worked hard and built strong reputations and relationships with various regulatory agencies. We did not consider revenue opportunities in our modeling, but the slide details some ideas that we have that should excite the relationship managers at both firms.

Obviously larger credit limits are a big plus, but also our expanded commercial real estate platform that came with our Memphis acquisition last year should provide additional products for Avenue clients as well as new revenue opportunities. We’re also jazzed up about the music business as well as Avenue’s niche product of balance sheeting select residential mortgage loans for sales to private investors. We thank wealth management including our capital markets unit who will represent a meaningful opportunity for the combined firm as well.

We also believe that the two firms will be Nashville’s Bank and are optimistic that together will accelerate not only our business development efforts, but our recruiting as well. The primary purchase accounting assumptions we used in our modeling are detailed above and we believe they are conservative. We’ll be focusing on getting to a more precise answer for these items over the next few months as the close date becomes more in focus.

The synergy case involving an anticipated 40% in cost saves. As to expenses, we focused on 2016 and 2017 expense forecast and have a high degree of confidence that we can achieve our targets. We’ve had numerous meetings with the leadership at Avenue going through the expense book line by line.

Like I said, we’re very confidence about our synergy case. As I mentioned systems conversions are currently slated for the fourth quarter of this year. As to merger related costs, the customary items included here, including executive contracts, system conversion expenses, settlement of various leases and of course, the fees that will eventually go to the investment bankers and the lawyers.

Now, the good stuff EPS accretion in 2016 of around 1% and then 4% in 2017 post technology conversion.

This is incremental to the accretion we announced last week with a BHG transaction and in each case, we’ve excluded the anticipated merger cost, but have anticipated incremental costs related to Durbin Amendment and other cost associated with exceeding $10 billion in assets.

There is additional information regarding our estimated incremental impact across in the $10 billion threshold in the appendix to the slide deck. Net, net with the additional stake in BHG, we should be looking at 8% to 9% accretion increase in 2017. We’re incurring [indiscernible] solution to tangible book and expect that we’ll earn it back over the next two years or so. Capital ratios remain in very strong shape and for the cost to capital for us, as Terry mentioned a significant internal rate of return of 24% with a 14 P\E multiple as the terminal base.

With that, I’ll turn it over to Terry to wrap up.

Terry Turner

Thanks, Harold. Last year and then again last week I reviewed our five-year outlook with you. I think I said last week looking out over the next five years, we generally expected more of the same. Specifically, we expected to deepen our market penetration in all four Tennessee markets. Obviously, this transaction does that in spades and in our largest most vibrant market. We indicated our desire to expand in our four urban Tennessee markets through rapid organic growth and potential end market acquisitions, which obviously this is a compelling end market transaction.

To truly form Nashville’s bank in my opinion, we expected to continue the expansion of the CRE segment in our geographic markets, which this transaction helps us do given Avenue’s intense focus on and reputation in that segment since its inception. We’ve long indicated our intent to increase our asset size to roughly $13 billion to $15 billion. This transaction obviously accelerates that and specifically accelerates across in the $10 billion threshold. It pays for all our incremental cost and foregone revenue associated with going over $10 billion.

Let me say that one more time, I will tell you all our incremental costs and foregoing revenues associated with the $10 billion threshold and still yields 4% EPS accretion to 2017. So I’d say that’s an effective way to cross $10 billion. We’ve been intentional about finding fee businesses like BHG that helps us grow our core earnings capacity and diversify our revenue stream. As you recall, we just announced an incremental investment in BHG last week that we expect to be roughly 5% accretive to 2017 earnings.

So in a little more than a week now, we’ve announced two deals, which when taken together we expect to cover the impact of the Durbin Amendment and to provide 8% to 9% EPS accretion in 2017. Net of that with roughly 1% dilution to tangible book value and less than roughly I guess a two-year earn back period for the combined investments. So the Avenue mergers are tremendously exciting transaction for Pinnacle and it continues to move us forward on our five-year plan.

Operator, I’ll stop there and we’ll be go ahead to take any questions.

Question-and-Answer Session


Thank you, Mr. Turner. The floor is now open for your questions. [Operator Instructions] And our first question is from the line of Michael Rose from Raymond James. Your line is now open.

Michael Rose

Hey, good morning, guys. How are you?

Terry Turner

Hey Michael, how are you?

Michael Rose

Good. Maybe we can just start on, how this all kind of came together. I mean is this something you guys have been talking about for a while, Terry at the outset of your comments, you mentioned that Avenue was really starting to hit the stride and you talked about that margin and the leverage in that model. How do did this all I guess from the background perspective kind of come together.

Terry Turner

Yes. I think Harold made a comment on one of the slides just a fact that we all operate in this market. We know each other well. I would say there are lots of people in our company, that know lots of people in their company. We’ve worked together. We – many people have literally worked for each other, sat next to each other, those kinds of thing. So there is a great overlap between our firms. Ron Samuels has been a great friend of mine for a long period of time. We both have largely grown up in the banking business with a little background outside Nashville, but primarily grew our careers here at Nashville in a completing institutions. We worked on Chamber Drive together. We went to leadership at Nashville, which is the cities program to develop the future leaders of the city. Ron and I went through that together back in 1991. And so I don’t mean to go on and on but there is a deep personal relationship between Ron and I.

And Kent and I and – Kent and other people in our company and Ron and other people in our company just long deep relationships. We have watched and we’ve worked well together. I think lot of analysts who frequently ask about our competitors in the market. I think most of them would say I’ve always tipped my hat particularly to Avenue because I’ve admired what they’ve done. I felt like they had the real similar strategy where they hired great bankers and went after the same kinds of clients we did. Their strategy always made sense to me and I thought they were good at it, very creative.

We were at events together both here in the city and industry events and things. I’ve always tried to indicate to Ron and Kent that if they were ever ready, we would love to try to put the companies together. And they got particularly attractive most recently following their IPO. You and a lot of other people I think have observed, this profitability and efficiency curve we’re starting to move pretty dramatically in the right direction.

And obviously that is a trend we recognized having gone through it and made a couple of other acquisitions it looked like that. And specifically around the Thanksgiving time, it just seemed important to me and so I reached out and we began a dialogue we are able to put a transaction together.

As Harold pointed out it’s full price which is great for the Avenue shareholders. But it is a fabulous deal for our company to cover all our expenses in foregone revenue from crossing $10 billion and still leave 4% EPS accretion on the table is a cool thing. It’s just a great transaction, Mike.

Michael Rose

All right I appreciate the color. Maybe one for Harold. You talked about the revenue synergies have you guys tried to size any of those in terms of potential and how would that maybe relate to kind of your five-year targets is there? If you were to expand upon their capabilities, I mean would you expect to maybe approach some of those loans that you’ve laid out maybe a little bit sooner? I’m just trying to size kind of what the potential revenue impact.

Harold Carpenter

Yes. Michael, thanks for the question. We’ve obviously kind of put a pencil down and tried to do some back of a napkin kind of work on those. I’m hesitant to lay out some numbers yet because the people who are going to be responsible for getting the numbers don’t know what the numbers are yet. We will be over the next few months getting with Kent and Ron and with our line of business leaders here and we will see if we can come to some agreement on what we think those revenue synergies might develop into.

Michael Rose

Okay. And then maybe just one more for me. It seems like a pool of potential M&A candidates at least in Nashville is probably limited after this maybe throughout the state. Given your size, obviously you’ve done a lot in the past few years? In the past year and half after how should we think about the phase of the M&A from here, do expect to slow down a little bit and focus on integrating everything and grow from an organic perspective from here?

Terry Turner

Michael. I think it is a fair and right thing to say that the list of potential candidates is pretty short. But it’s not zero. I would just – so I would say there is potential that we might do other end market deals. I think we’ve proven that we’re pretty disciplined. We’ve got a model and a culture that is important to us in the deals that we’ve done. Fall into that and are additive to what we’re doing. And again that keeps the list pretty short. So I guess I always say and believe I really think of us primarily as an organic grower.

We’re not – we don’t set out to be an acquisitive company. But we do have an advantage stock and we’re serious about trying to dominate core urban markets that we operate in. And specifically that we intend to grow into the top three banks from an FDIC deposit share standpoint in all four of those markets. And so to the extent that we find a deal or two that move us in that direction, increase our dominance in the market, provide outsized cost takeouts or deal synergies and so forth. We will consider those. But again I think from a characterization standpoint, I don’t think you ought to believe that we’re out here trying to figure out how to spend our currency. We’re not trying to do that. It would be pretty limited set of things would be willing to do. And quite honestly Michael, they are binary. You hit them or you don’t. Again there is no doubt we will be focused on integration and deal synergies.

Michael Rose

Okay. Thanks for taking my question. Congrats.

Terry Turner

All right, see you Michael.


And our next question is from the line of Will Curtiss from SunTrust. Your line is now open.

Will Curtiss

Hey, good morning, guys.

Terry Turner

Hi, Will.

Will Curtiss

Maybe starting out I think in the slide presentation, you had a comment about some dilution to the margin. Just curious if you could maybe give us a sense for what you are expecting there.

Terry Turner

Yes. We think there will be some dilution in the margin. Will, it may be 5 basis points or 10 basis points, but we’ve also got some other ideas that may help fill some of that gap.

Will Curtiss

Got it, okay. And then maybe on Avenue’s music and entertainment portfolio I think that’s by one of things that from my understanding, it makes them unique and you guys mentioned it a couple of times in the comments. But just curious what’s kind of the outlook there may be a little bit of background on that business for us.

Terry Turner

Yes. I will just comment quickly. It is a specialty business. It takes I think a couple of things to be successful. Obviously one is the knowledge and understanding of the business and how it works and where it’s going. It’s impossible to participate effectively without a deep understanding of how that business works and it is a unique business. And the guys at Avenue have that knowledge. Second thing is really required to be successful is a network of those people. It is a pretty tightknit community. They know and admire each other and work well together. And it is I think a business segment that is hard to penetrate without a strong network deep personal connections and so forth. And of course Avenue it possesses that as well.

Avenue had set out to build a music vertical really on a national basis. A lot of people talk about three coast New York, LA and Nashville. And so there’s a lot that goes on here. I think in terms of the business again to be effective, obviously you have to succeed to some extent with entertainers. But I think a large part of the possibility one of things that they like and we like his really publishing financing catalogs and so forth.

And the publishing business honestly is similar to the real estate business in terms of having documented cash flows and appraised values for catalogs and so forth. So folks no one understand that have a big opportunity and clearly the folks at Avenue do. In my judgment there are really only three banks in the country who really are just major players in it. And of course Avenue is one and City National is one and SunTrust is one. And so again, we are excited about a chance to really accelerate what Avenue has set out to do and capitalize on their knowledge and understanding of the business as well as their network connections in that industry.

Will Curtiss

Okay, great. That’s very helpful. And then may be the last one from me, it is kind of similar to the one you just got but in terms of what the $13 billion to $15 billion or so goal may be what is more of the appetite for future deals in the near term as you progress with this deal? Are you comfortable with the right opportunity coming up entering into another agreement? Or would you kind of want to kind of progress along with this one before may be going back out there.

Terry Turner

Well. Let me say this. I am content to never make another acquisition. I mean that’s not a critical part the $13 billion to $15 billion target. Honestly, was a target that we established assuming no M&A activity. And so this transaction accelerates us if we were to do another one that would was accelerate as well. Probably increase the target size of the company. But so I guess I wanted to see if I can get this in perspective. It’s not important to me to make any further acquisitions. And so I guess that’s really important. That said, I don’t object to making other acquisitions. I’ve said it’s a short list of potential candidates. I mean it’s a really short list. In my experience with deals, I mean we tend to view them pretty strategically.

I think you can see we’ve not been added. We’ve had tons of opportunities to acquire all kinds of banks. And we just don’t do it unless it’s something that is in our real house. But again my experience is you do deals when you can and not just when you want to. And so I don’t know. I guess the best thing I can tell you is we are not anxious to make other acquisitions. We don’t need to make other acquisitions. But there are a couple that make some sense and if they were to materialize, we would be willing to undertake them. But again I don’t think you ought to have an expectation that will be back in 30 days with another announcement.

I just again think you ought to expect that we will do what we always do which is focus on executing our business plan and our business model and producing organic growth in some pretty cool markets.

Will Curtiss

Perfect, thank you very much.

Terry Turner

Okay, Will.


And our next question is from the line of Jefferson Harralson from KBW. Your line is now open.

Jefferson Harralson

Hi, thanks. I was going to ask you guys about healthcare. I know that Avenue has a healthcare niche. You guys do business in healthcare. Are they kind of overlapping? Do they do some things that you don’t do? How do you see that two healthcare initiatives coming together?

Terry Turner

I think we’re actually in pretty similar businesses from a healthcare perspective. It’s a standard approach to C&I doing business with generally larger middle-market companies for the most part owner managed companies. Avenue might have a little more business with large national or public companies where they are participating, deal syndications and those kinds of things. They might have a little more of that. But again it’s a pretty similar approach to the business. I think the relationship managers in those areas will fit together nicely.

Jefferson Harralson

Okay. And follow-up here on culture. I know it’s a huge thing with you, Terry. And you guys have a special culture. Avenue also has a very special culture. You’re going to blend it together they’re also going to grab 14% cost savings at the same time. So how do you protect their culture and environment where you are taking such a huge cost savings out?

Harold Carpenter

That’s a great question. I would say that would be the single largest risk in this transaction. I think that you are right and I tried it to hear one that earlier in the presentation we been intentional about the culture we’ve built, they’ve been intentional about the culture that they have built.

And while, they’re really based on the same ideas, the execution of them is not identical. And so we will have to work through that. I think, Jefferson, you’ve followed our company for a long time. You’ve seen us buy banks that have come at a thrift background and had a pretty different personality and culture to what we’ve had. You’ve seen us buy commercially oriented banks that while they reigned at the same thing, the way they built it was different than ours.

And I think, we have developed a reputation for being able to work with folks and figure out what the best way to blend it together and be pragmatic about getting that done. And so I think that’s the way we will go with this. I think, Jefferson, one thing that it is hard for folks to understand the benefit for us of being a high-growth company. And what I’m getting at there is, if you just said okay what we’re going to do is just in here and get 40% cost takeout out of Avenue. That would be a little harder.

We are not for the fact that we are a rapid grower. And so the fact that we add jobs at a pretty dramatic pace that we have plans and he watched our salary bills over the last year or two and you know we hire. I’ve talked in the last call about last year we hired 36 folks that were revenue producers but we did not spend a lot of time talking about that fact. We actually hired 84 people because we’re hiring back office support to go with those revenue producers. So I rambled through that to say that yes I’ve got to get a cost takeout on the one side but I have lots of jobs to add back, which dampen the feel of that cost takeout when you know you are adding back these positions at a rapid pace.

And so we have agreed that for those back-office positions will put a hiring freeze zone in our company so those positions remain open to folks that might otherwise lose a job in a transaction like this. You’re on the right point. It’s a hard thing but my guess is between us and Avenue’s leadership nobody will get that done in a more systematic and compassionate way.

Jefferson Harralson

All right. And then just one final one. I had this wrong in my note this morning. Just to put everything together, the deal if you just ignore going over $10 billion, this deal would’ve been 8% to 9% accretive and that adds to about 4% with the going over $10 billion cost is that – that’s a fair statement to bring all that together?

Terry Turner

Yes. I think that’s a fair thing, Jefferson. So yes, that is accurate.

Jefferson Harralson

Okay. Thanks, guys.

Terry Turner

All right.


And our next question is from the line of Peyton Green from Piper Jaffray. Please go ahead.

Peyton Green

Great, thank you. Congratulations on a very fine acquisition announcement from both sides. This would seem to be a great cultural fit on both ends. But maybe just from Avenue’s perspective, I don’t know if you are friends there are not, but this would seem to accelerate their growth rate potentially. And giving them the ability to move up market kind of like Pinnacle has been moving up market over the past year. May be Terry, you could address that. I mean wouldn’t this help your growth rate in the Nashville MSA over the next year or two years?

Terry Turner

Yes. That’s my opinion. It will accelerate our growth rate in the Nashville market and will accelerate Avenue ‘s growth rate in the market as well. To some extent, you get the idea of eliminating a competitor and you say okay, how does it produce net growth, but the idea of bigger credit limits, a more full product set, all those sorts of things. There is no doubt we will – no doubt in my mind that we will accelerate our growth in Nashville and not slow the growth in Nashville.

Harold Carpenter

Yes, Peyton, I will just tag on here both firms Pinnacle, Avenue run up a pretty detailed sophisticated aggressive recruiting strategy and so we’re obviously excited about what that’s going to do for us too.

Peyton Green

Okay, great. And then maybe as you think about other potential opportunities, I know it’s a fairly limited list but how does this limit what you might do over the balance of 2016 either organically or externally?

Harold Carpenter

Peyton, I would say that again I guess I’ve tried to hit it though this. I’m not trying to waffle on my answer. I’m just trying to give you a candid answer. We do strategic deals and we do strategic deals when those opportunities materialize. You can’t do them before and you can’t do them before and you can’t do them after. And so that is when we do them I don’t want you to take that comments and Terry is telling me he’s getting ready to do another deal. I’m not saying that at all. I’ve just been trying to give you the real answer that it is more about when opportunities materialize. I do have a belief that banks are sold not bought. And so that will be more the determinant. I will say we’re not a peer ring in our hands saying my gosh, we can’t do anything else. That’s not our outlook at all.

But again, you just take the opportunities as they come and deal with them in that way. So I don’t know, I feel like it may sound like I’m trying to hedge. I’m not communicating at all. We’re about to do another deal. That’s not what I’m saying, but I do just want to be clear. We do deals when the strategic opportunities exist and not before or after.

Peyton Green

Okay. But I mean there is nothing constraining your capacity to do anything should an opportunity come up.

Harold Carpenter

I think that’s right. Peyton, I think we have a fabulous group of people that are capable of doing these back-office integrations. We’ve done a nice job at Magna. We’re moving well along in CapitalMark. This deal will follow on to that. And same if we add another deal there is obviously some time lapse that will let you get this one done before you do that one. And again I don’t take that as a signal, there is another one coming when we get done with this. I am just not constrained. I guess that’s the best way to say it.

Peyton Green

Okay, fair enough. Thank you very much for taking my questions.

Harold Carpenter

Okay, all right. Thanks, Peyton.


And our next question is from Tyler Stafford from Stephens. Your line is now open.

Tyler Stafford

Okay. All my questions have been asked and answered by now, thanks, guys. Congratulations.

Terry Turner

Okay. Thank you, Tyler.


And our next question is from the line of Nancy Bush from NAB Research. Your line is now open.

Nancy Bush

Good morning, gentlemen.

Terry Turner

Hi, Nancy.

Nancy Bush

A couple of questions for you. This quarter goes back to Jefferson’s question. I guess it sort of the one place I get tripped up in this is sort of their concierge culture and how you bring that into Pinnacle. I know it’s very early days. But can you just sort of give us some of the thoughts about the mechanics of how you do that? And whether you are anticipating any business loss in these numbers that you put out.

Terry Turner

Nancy, let me start I guess from 30,000 feet make sure you get this. Number one, we’ve developed a synergy case that we believe we will be able to achieve, it does require the consolidation offices and therefore it does require reductions in force. And that is always dangerous, it is always dangerous. And there is no doubt. There might be some modest business loss that goes along with that. So again, I don’t want anybody to think that we wouldn’t recognize that risk or potential and include that in our plan.

But I want to make sure that people understand this. I love what Avenue has done. I think as I’ve said in the call comments, they been creative and they have been earnest about creating a different client experience that I like and admire. And to the extent that some of that fits in and folds in for us, we’ll experiment with that. And try to get the best from that, that we can. But Nancy, I don’t want you that according to Greenwich Associates , no bank in Nashville Tennessee has a better reputation for what they do for clients and Pinnacle. No bank has a bad reputation for what they do for clients than Pinnacle.

And so the clients I believe are going to love what happens at Pinnacle and I can’t imagine where they would go, where they’re going to get something like this better than this or even. And so again I don’t know if that fits together for you are not. I’m certain we will – they’ve done creative things and we will look for ways to try to fold that into our company. But I don’t want you or anyone to underestimate the power of the experience that’s created by Pinnacle.

And again I’m not exaggerating Greenwich has recognized it as one of the best in the country in terms of the engagement that it is generated between the bank and the clients based on client experience. So I don’t know if that is addressing what you’re interested in or not.

Nancy Bush

Yes, thank you. Harold, a question for you. The timetable on the conversion I believe you said that was fourth quarter. That seems a bit extended. I would may be expect it third quarter conversion. Can you just kind of tell us due to the size of Avenue the two relative sizes, can you just tell us why it would be happening in the fourth quarter.

Harold Carpenter

Well. We are trying to be conservative the earlier the better. It’s a situation where we’re working with our technology vendors in trying to make sure they can get it scheduled. We obviously have a lot of confidence that we can get it done by the fourth quarter, but I would also think that we’ve got opportunities for third quarter conversions, so.

Nancy Bush

Okay. And secondly, the $12 million after-tax merger charges will that mostly come at time as conversion or how does that kind of bleed in just for modeling purposes?

Harold Carpenter

Yes. A lot of that will happen with the executive contracts, lease termination fees, asset impairment issues and those kinds of things but yes it will happen most of that will happen as of the merger date.

Nancy Bush

Okay. Great. Alright, thank you very much.

Terry Turner



And our next question is from the line of Sachin Shah from Albert Fried. Your line is now open.

Sachin Shah

Hi. Good morning. Congratulations on the deal. Happy Friday. So I want to find out the background. I think you kind of alluded to it but to clarify how this deal came about. In light of the premium. Was there an auction process or this was this a one on one? That’s the first part. And my understanding the regulatory approvals are Tennessee banking, FDIC, Fed. Just wanted to confirm that if there were any other regulatory approvals and I have another follow-up thank you.

Terry Turner

Yes. Sachin, thanks for the call. We’re not aware of there being an auction process. That would be a question for Avenue but we are not aware of there being an auction process from our position. We’ve also got migratory approvals that will be required from the Tennessee Department of financial institutions. The FDIC and the Federal Reserve Bank of Atlanta.

Sachin Shah

Okay. Thank you. And a macro question. So we have seen a lot of M&A activity in banking. The month is not even over yet. In light of your deal. There seems to be a discrepancy with the U.S. increasing rates. That is the perception based on the Fed but we’re seeing this deal activity and we’re seeing a dichotomy just as of this morning or last night where the Japanese central bank has actually made their rates negative.

The question is your thoughts on that and how it relates to M&A because it seems like the M&A is happening at a pretty serious pitch here in light of the fact that interest rates should be increasing and not potentially decreasing. How do think about that in light of some of the comments earlier on or questions about doing more deals? So, more deals would predicate potentially, that rates are not going to increase in some respects. So I just want to understand that macro aspect because we’re definitely seeing a lot of M&A activity in the banking sector. Thank you.

Harold Carpenter

Sachin, this is Harold. Obviously can’t get to all of that question there. What we can do is, sit here and talk about Pinnacle’s acquisition of Avenue and what went into that. I will tell you that the interest rate cycle was way down the list of priorities on our acquisition of this firm. This was a strategic transaction for us. It’s been one that we’ve thought about and dreamed about for a long time.

And so the fact we’re here in January and a Bank of Japan went negative last night is not of consequence to us. It’s all about trying to build a long-term franchise and that’s what we’re about. What’s going on in the macro world – I can’t –we can’t go there.

Sachin Shah

Okay fair enough congratulation again guys.


Thank you.


Ladies and gentlemen thank you for participating in today’s conference. This concludes the program. You may all disconnect. Have a wonderful day everyone.

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