Maybe one of the most hoary adages in banking is that “banks are sold, not bought.” I think the common understanding of this old chestnut is that, as a general matter, (a) a bank’s decision whether and when to sell is a decision that is uniquely and solely the provenance of the selling bank (and, in reality, often the selling bank CEO) and (b) that any attempts to force or hasten that decision are likely to be unsuccessful. Taking a page from Missy Elliot, I think it is time that confident bank CEOs take that conventional wisdom and “flip it and reverse it.”
A perfect example would be Pinnacle Financial Partners (Nasdaq:PNFP). On their earnings call on Tuesday, Pinnacle’s CEO Terry Turner (who I consider to be one of the absolute best in the business) said “I believe banks are sold, they’re not bought, which is just another way of saying that you have to buy it when they are for sale.” While he was saying this in the context of explaining that (a) Pinnacle didn’t really have any need to do any acquisitions because its organic growth prospects were so strong and (b) they would always have plenty of deal opportunities to look at—both of which I agree with wholeheartedly—I don’t think Pinnacle has to wait for a bank to be for sale to be able to buy it.
Part of this is due to Pinnacle’s strong currency, which theoretically would allow them to pay enough to get someone otherwise not interested to sell. Part of it is their unique culture, which would make it an attractive place for people to work, taking some of the sting out of an unsolicited approach. However, I think the biggest reason why Pinnacle would be excellent at buying banks (rather than waiting for them to sell) is what I consider to be the cornerstone of their success to date: their relentless focus on identifying, recruiting, motivating and retaining the best bankers in their markets.
Basically, I think it would be pretty easy, especially given the expansion of their footprint as a result of the BNC transaction, for Pinnacle to identify a deposit rich franchise (likely in a more rural area) and pursue a transaction with them, whether or not they are for sale, and combine that transaction with a lift out (for lack of a better term) of some talented bankers in that market or just use the deposits to fund loans in their high growth urban markets.
Indeed, this is essentially the template that Pinnacle used when it entered the Memphis market, combining the acquisition of (in my mind) an ok banking franchise with a lift out of a good sized team of experienced bankers from the dominant regional bank in the market.
While I generally prefer the organic part of the Pinnacle story, their impressive loan growth has made their ability to grow deposits at both an acceptable pace and cost a little bit of an issue. I am generally pretty confident that Pinnacle will be able to address this issue—I think that Terry Turner is tremendous at both managing and motivating—but (even discounting any misplaced modesty and recognizing that he was somewhat trying to minimize the importance of M&A to Pinnacle’s strategy or prospects), he is selling his ability to buy banks (rather than wait for them to sell) short and may want to turn those abilities towards securing additional low cost, sticky deposits.