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Loan demand, which bankers say remained weak well after the recession, is picking up, and the industry is adjusting business models to meet it. But banks may want to act fast.
February 16 -
Pinnacle Financial Partners posted strong fourth-quarter numbers thanks to loan growth centered around its Nashville and Knoxville markets in Tennessee.
January 22
Pinnacle Financial Partners' investment in a health care lender is expected to boost earnings, and it could provide the Nashville, Tenn., company with invaluable know-how in online lending.
The $6 billion-asset Pinnacle announced earlier this month that it paid
The investment should help the high-performing Pinnacle improve in the one area where it was a bit light: fee income. Pinnacle, which has historically avoided big acquisitions over its 14-year history, has been more comfortable developing its own fee businesses in areas such as wealth, trust and insurance.
Bankers Healthcare offered a chance to break that pattern. Pinnacle has a long relationship with the Florida lender, so management jumped at the chance to meet with Al Crawford, Bankers Healthcare's chief executive, to discuss ways to provide liquidity.
For Pinnacle, the deal is about more than just capturing 30% of the lender's income. "This is not just a pure investment play," said Hugh Queener, Pinnacle's chief administrative officer.
"We see it as an opportunity to penetrate other types of markets from a banking perspective," Queener said, adding that Pinnacle could pursue deposit relationships and offer other banking services to Bankers Healthcare's clients.
Fee income makes up about 0.97% of Pinnacle's average assets, well within its target of 0.8% to 1%, but Queener said the company would like to eventually push that ratio up to 1.2%. Fees represented about 22% of total revenue in the fourth quarter, which is fairly average for a community bank, where fees typically make up 20% to 30% of revenue.
"We think this investment is going to enable both companies to do better from a financial standpoint and a delivery standpoint," Queener said.
Financially, Pinnacle's investment is expected to boost its 2015 earnings by 7% to 9%. Several analysts endorsed the deal, calling the investment an opportunistic way to
Pinnacle is "focused on getting more fees because that is where they're deficient," said Brian Martin, an analyst at FIG Partners. "Expenses, margin, credit quality all of those things are in line."
"Management teams are being more opportunistic finding earnings-per-share growth where they can, even when it is outside the box," said Jefferson Harralson, an analyst at Keefe, Bruyette & Woods.
Pinnacle's investment "is going to give them a lot of insight into a new platform that they could possibly find other uses for down the line," Harralson added. "This could be a validation of banks looking more toward technology and things like marketplace lending."
Community banks recently have been eyeing ways to get into marketplace lending. Lending Club, perhaps the largest and most well-known marketplace lender, recently
Bankers Healthcare is also in early talks with Lending Club about a joint venture, Crawford said.
"We're looking to dive deeper into the space," Crawford said. "It is all very premature right now, but there are real discussions and we hope there's something to come out of it."
Deloitte Corporate Finance approached Bankers Healthcare a few years ago about selling a minority stake, Crawford said. The company wasn't interested at that time, but began exploring the option again last year.
Days before meeting with potential private equity partners in Dallas in November, Crawford said his team began feeling uneasy about pairing with strangers, so it reached out to Pinnacle. "More than anything, we knew them and they knew us," he said.
As for traditional lending, Pinnacle is firing on all cylinders, industry experts said.
"There are plenty of banks out there buying [other banks] for loan growth," Martin said. "Pinnacle is not one of them. They're taking market share in markets that are growing."
