Okay, thanks Harold.
As most of you know, we’ve generally targeted the largest, fastest growing urban markets in the southeast.
For some time, we’ve used this map to illustrate our desired geographies. There are 15 urban markets that were originally targeted in this triangle, from Memphis to D.C., and from Memphis to Charleston, South Carolina. Today, we’re operating in 10 of the 15 and it’s our expectation that we can generally produce double digit loan growth with no further market extension; in other words, we expect double digit growth from the 10 blue markets in which we currently operate. That’s a pretty enviable position, to have built a current market presence that should yield double digit growth.
In general, we’ve been operating right through the core of this triangle but not at the fringes, so the remaining targets include Atlanta, Georgia and Columbia, South Carolina to the south and the Hampton Roads area of Virginia, Richmond, Virginia, and Washington D.C. to the north. In my judgment, easily the most attractive of those remaining targeted markets is Atlanta.
Obviously we’ve chosen these southeastern markets because of their size and growth dynamics. They support our aspirations to build a large high growth bank, and we’ve chosen them because they’re familiar to us. We understand how business is done in them. Frankly, I love our model but I’m not completely sure if it would be as effective in, say, New England as an example.
Beyond our familiarity with them, we’ve chosen these markets because of our confidence in our ability to attract the best bankers and provide distinctive service to their clients, and that yields huge market share takeaway specifically from those large vulnerable competitors that currently dominate all these markets.
In short, from a strategic standpoint, we target large high growth urban markets that are dominated by Wells Fargo, SunTrust, Bank of America and Regions. That’s why I say in my judgment, Atlanta is easily the most attractive market to which we can extend. It’s the largest fast-growing market and is dominated by Truist, Bank of America, and Wells Fargo.
All of them seem incredibly vulnerable at this time. Honestly, I view this as a once-in-a-generation opportunity to grow a big bank in one of the nation’s most attractive markets, perhaps even more exciting than the opportunity we saw and have seized in Nashville.
I don’t really want to spend a lot of time selling the Atlanta market - I expect most everyone is familiar with its size and growth dynamics; but quickly, it’s the ninth largest MSA in the country by population, it’s the number one moving destination in the nation for the ninth consecutive year, its median household income is consistently more than 50% higher than the southeast MSA median - more than 50% higher, and it’s an extremely rich market for businesses, which is the thrust of our firm. There are 26 Fortune 1000 companies headquartered there, 16 Fortune 500 companies, and 200 of the nation’s fastest growing private companies.
Specifically, there are nearly 24,000 businesses with sales from $1 million to $500 million, which is our target market and where we excel.
Not only are the size and growth dynamics of the Atlanta market overwhelmingly attractive, frankly the more compelling attribute is the competitive landscape. It’s a market in a dramatic state of turmoil and diminished brand loyalty across the board. Sixty percent of the top 20 banks in 2009 are no longer in the market.
Forty percent of today’s top 20 are there by way of acquisition, and many still exhibit the vulnerability typically associated with merger and integration.
Not only that, but I’m in possession of the Greenwich research on client satisfaction with banks in the Atlanta market. It would suggest that even prior to the announcement of the SunTrust-BB&T merger, the client satisfaction at those big banks that dominate the Atlanta market is even worse there than it is for them in Nashville, where we’ve been so successful taking their share, so the opportunity is ripe.
Instead of wasting a lot of time building a case for the obvious, the attractiveness of the Atlanta market, I’d really prefer to spend more time on our vision for Atlanta, what we intend to build and how we intend to do it. The best illustration of that is what we’ve already actually done in Nashville, another relatively large high growth market absolutely dominated by Bank of America, SunTrust, and Regions or its predecessor, AmSouth back in 2000 when we started Pinnacle on a de novo basis. Many of you will recall that the catalyst for our forming Pinnacle was the sale of First American Corporation, a $20 billion bank holding company headquartered in Nashville and the last large locally owned bank to be rolled up by out-of-state headquartered banks, in that case AmSouth.
It seems to me the parallel to Atlanta is obvious. Bank of America, SunTrust and Regions each had 15% to 22% deposit market share in Nashville when we started. I personally will never forget Don Kennedy of Kennedy Roofing Company coming in and opening our first checking account and our first line of credit. That was it on October 27, 2000 - one client. In other words, we had nothing when we set our sights on those three dominant banks, so this chart paints a pretty vivid picture of what we’ve been able to do since that time and how we’ve done it.
In terms of what we’ve done, at June 30, 2019 we continued to top the FDIC deposit share chart, where we’ve been for a few years now. My goal is not to gloat about our success or disparage our competitors, but I need to make sure I’m clear about the magnitude of the market share takeaway because it bears on the success we’re targeting in Atlanta due to competitive vulnerabilities we just discussed.
As you can see on the FDIC chart, today Regions has roughly 12% of deposit market in Nashville. Regions today represents the combination of what was once Regions, Union Planners and AmSouth, which on a combined basis had north of 30% market share in Nashville when we started in 2000, so that’s an 18% market share give-up by Regions and its predecessors since we started. I’m not going to go through and highlight each competitor, but suffice it to say virtually all the big banks that dominated the market when Pinnacle started from scratch in Nashville have given up market share, from which we have successfully grown.
More importantly, look at the Greenwich Associate data on the top right of the slide.
First of all, this is data regarding businesses with annual sales from $1 million to $500 million. What’s plotted here is lead bank share for the five banks, with the largest business share in Nashville and the level of satisfaction that their clients express about them.
Let me start with the lead share position.
As you can see, today we’re in a first position at the top of the chart and not by a little, by a lot. Roughly 26% of the businesses in Nashville view Pinnacle as their lead bank.
Our next closest competitor has just 10% share. That’s a pretty amazing lead for having started at zero.
Then focusing on what our clients think about the differentiated level of service we provide them, roughly 90% give us a top box rating while some of our competitors are seeing the percentage of top box scores from their clients down in the 50s range, which is a phenomenon that suggests to me, regardless of our already dominant position, there is still meaningful ongoing market share takeaway opportunity in Nashville, which I’ll develop further in just a minute.
Now at the bottom left of the slide, we focus on how we take so much share from these large vulnerable competitors. According to Greenwich, the attributes down the left side of the chart are the things that are most valued by business clients.
As you can see from the key, the darker green the box, the more dominant you are versus competitors on those items that matter most to businesses, and the brighter red the box, the more vulnerable you are to competitors on those same items.
As you can see, we dominate the Nashville business market in terms of how easy we are to do business with, how effectively we’re able to demonstrate that we value long-term relationships, the net promoter score which is generally the measure of a client’s desire and willingness to recommend us to their peers, and our overall digital experience.
I don’t want to get too far from my central message here, but there’s one I can’t resist highlighting - that’s our clients’ view of our digital channel offering.
As a business-focused bank, I love our number one position in the Nashville market as it relates to our business clients’ overall regard for our digital channel offering versus how the business clients at Truist, Bank of America and Wells Fargo regard their digital channel offerings.
All right, that’s enough of that.
Setting aside that, as you continue on down the chart, you can see the power of our unique hiring model as our relationship managers dominate, and then finally our treasury management systems also dominate the national market against these larger regional and national franchises.
Looking now to the lower right of that chart, I won’t walk you through each aspect of our execution in the market, but you can see that businesses who aren’t currently our clients hold us in extremely high regard, which speaks to the ongoing share takeaway potential I mentioned a minute ago, and our existing clients favor us with more business than the clients of our competitors favor them with their business.
As I mentioned a couple of times now, it appears to me that despite our dominant position, we still have meaningful market share takeaway opportunity in Nashville.
Our ability to seize vulnerabilities of these large banks is still picking up speed.
As you can see, our lead banks here in Nashville grew 3% last year - 3% lead bank share just last year. This model of hiring the best bankers in the market away from those large vulnerable competitors and then getting them to move their book of business by enabling them to focus on what clients value most continues to be a winning play against the banks that used to dominate Nashville and currently dominate Atlanta.
This is our aspiration in Atlanta in the next five years.
We expect to aggressively recruit and hire the best bankers in the market from the large vulnerable regional and national competitors. More specifically, not dissimilar to the hiring approach we took to building our C&I focus in the Carolinas and Virginia, we expect to hire at least 10 relationship managers a year or 50 over a five-year period of time. We intend to arm them with the same treasury management, wealth management, and differentiated back office service levels that have been so effective against those banks that dominate the Atlanta market.
Specifically, that would entail hiring roughly 15 to 20 additional revenue producers over the five-year period as treasury management consultants, wealth managers, brokers, mortgage originators, SBA loan originators, and the like.
We expect in general to open an office a year in the business-rich trade areas of Atlanta, places like East Cobb County, Buckhead, north Fulton County, just to name a few. We think we can build out a $3 billion bank in the Atlanta market over the five-year period.
We expect to invest $0.03 to $0.40 in EPS during 2020 and cross breakeven in the third quarter of ’21, about an 18-month breakeven period.
After a lot of dialog with a number of candidates, we’ve selected Rob Garcia to build out our bank there.
Over the years, as I’ve discussed the Atlanta opportunity, I’ve always indicated our goal wasn’t just to build an LPO or to just hire a small sales team, but to hire management that’s capable of operating across all banking disciplines and is capable of building a $2 billion to $3 billion bank. Rob has demonstrated an ability to do that. He’s a longstanding banker in the Atlanta market. He has been the Atlanta market president for Synovus, where he was running a roughly $5 billion bank. Prior to joining Synovus, by way of acquisition Rob was instrumental in starting Riverside Bank, a notable start-up there that was sold to Synovus in 2005, so Rob is uniquely qualified from our perspective. He’s well known to Pinnacle’s national base chief credit officer based on their previous work and relationship in Atlanta. He’s worked in a larger regional bank environment, which gives him fluency in all the sophisticated products provided by Pinnacle and those large regional and national franchises, but he has a thorough understanding of the community banking model that Pinnacle uses to differentiate itself from those larger banks.
Since joining us in late December, he’s already hired three highly successful relationship managers - one C&I lender, one private banker, and one CRE lender, along with their key support personnel, and the hiring pipelines appear to be filling up pretty rapidly, so we’re off to a fast start and excited about the incremental growth opportunity the Atlanta market provides us.
As I said earlier, we view this as a once-in-a-generation opportunity and we intend to make the necessary investments to seize it.
So we’re extremely excited about our prospects in 2020.
Here’s what we’re targeting: continued double digit loan growth, similar double digit growth in core deposits while we continue to bid our cost of funds down, and low double digit fee growth. Longer term, we intend to capitalize on the economic and competitive landscape in our target markets, which is fabulous; continue hiring revenue producers throughout the footprint and additionally in Atlanta - that’s always been our revenue growth engine and, honestly, it’s never looked better; and finally, to continue to grow tangible book value because it’s my belief that companies that can compound tangible book value grow their share price meaningfully.
Sherree, with that, we’ll stop and take questions.