EXHIBIT 99.1
REPRINTED FROM SEPTEMBER 2003
THE WALL STREET
TRANSCRIPT
QUESTIONING MARKET LEADERS FOR LONG TERM INVESTORS
Pinnacle Financial Partners, Inc. (PNFP)
(PHOTO)
M. TERRY TURNER is President and Chief Executive Officer of Pinnacle
Financial Partners, Inc. Mr. Turner is a graduate of the Georgia Institute of
Technology where he received his Bachelor's degree in Industrial Management in
1976. Following his graduation, Mr. Turner worked for Arthur Andersen & Company
as a Consultant in Atlanta, Georgia, and joined one of his clients, Park
National Bank, Knoxville, Tennessee, in 1979 where he held various management
positions including Senior Vice President of the bank's commercial division. In
1985, Mr. Turner joined First American National Bank, Nashville, Tennessee, as
a result of its acquisition of Park National Bank. During his tenure as First
American, he served as President of the Investment Services Group and President
of the General Bank. In this capacity, Mr. Turner had oversight responsibility
for $11.9 billion in deposits, $6.7 billion in loans, 391 branches and 4,600
employees. Mr. Turner's banking career in Nashville has covered 17 years and
has entailed executive level responsibilities for almost all aspects of banking
and investment operations. During Mr. Turner's tenure in Nashville, he has
served as Chairman of the Board of Trustees at Brentwood Academy, Advisory
Board Chairman for the Salvation Army, Vice Chairman for the Southern Baptist
Foundation and as a member of the Board of Trustees of Belmont University. Mr.
Turner currently serves on the executive committee of the Nashville Credit
Bureau, the board of trustees for Brentwood Academy and chair-elect of the
Nashville Sports Council. Mr. Turner is an active member in the Young
President's Organization and is also a member of numerous local clubs and
organizations including Leadership Nashville, the Board of Directors, and
executive committee for the Nashville Sports Council and a member of the
nominating committee for the Girl Scouts.
(RAT206) TWST: COULD WE START OFF WITH A BRIEF HISTORY AND OVERVIEW OF PINNACLE
FINANCIAL PARTNERS?
MR. TURNER: Pinnacle's founding management team all came out of a bank
holding company called First American Corporation, which was a $20 billion
holding company headquartered in Nashville. We started this company at the same
time AmSouth acquired First American. We actually put our founder group
together in February 2000. We capitalized the company with an IPO in August
2000 and opened for business on October 27, 2000. So we have now been in
business just under three years and currently have a balance sheet in excess of
$400 million. It has been a very fast growing franchise here in Nashville.
TWST: WHAT IS THE DIRECTION OF THE COMPANY? WHAT'S THE GOAL?
MR. TURNER: We are focused on owner managed businesses and affluent
consumers in Nashville and middle Tennessee. Nashville is a large market. It is
the 38th largest major metropolitan area in the United States. It's a fast
growing market; specifically, it was the 18th fastest growing in terms of
population and the fourth fastest growing in terms of per capita income during
the 1990s -- and it was projected to do the same during the period from 2000 to
2005. So we are operating in a large, fast growing market with a focus on
owner-managed businesses and affluent consumers.
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C O M P A N Y I N T E R V I E W
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COMPANY INTERVIEW ------------------ PINNACLE FINANCIAL PARTNERS, INC.
We try to distinguish ourselves in this market primarily based on
offering effective advice and giving distinctive service. Nashville is a market
that is dominated by large regional banks, all of which are headquartered
outside of the city. As a result of some of the issues associated with the
consolidation in the banking industry and the service breakdowns typically
associated with mergers and acquisitions, we have a great opportunity to
demonstrate how we're different from the folks who dominate the market.
TWST: IS THE MARKET TRULY DOMINATED BY THOSE REGIONAL PLAYERS?
MR. TURNER: Yes, it is. Amsouth, SunTrust and Bank of America, on a
combined basis, would have market share north of 50%. As I said, they all have
negative market share trends in this market and that is whom we would view to
be our primary competitors.
TWST: WHAT IS IT THAT YOU CAN DO BETTER THAN THE BIG GUYS THAT HAVE
BEEN AROUND FOR A LONG TIME?
MR. TURNER: That's a great question. First of all, an over-arching
trend in the industry is consolidation. Invariably there are service breakdowns
that have to do with system installations, disempowering people and so forth.
There are a lot of processes that break down when you try to spread them across
those broad geographics.
So from the client's perspective what should be simple ends up being
needlessly complicated. As an example, getting a copy of a check that has been
deposited to your account or getting a copy of a check that has been paid
against your account should be relatively simple processes. But for folks here
in Nashville, they find they have to call somebody in another city, and
sometimes it's a six- to eight-week proposition to get an image of a check.
Here we have built state of the art systems that really let our clients get
online images of checks they have written any time they want them. For a
deposited item, we can bring it up, clarify that it is the item they want and
fax it to them within minutes as opposed to a six- or eight-week delay.
Obviously, I could name more, but those are examples of our service
delivery that are really better than what regional banks offer as a result of
our state-of-the-art systems and processes. The most important thing at
Pinnacle, however, has been that we decided early on that we would not hire
anybody who had not been in the banking or brokerage business in Nashville,
Tennessee, for at least 10 years. This has applied to the front end (client
contact people) and the back end (operations people). When you have people with
that experience level, if something is not right, they are able to make it
right. I think, quite honestly, that may be the most important way we are able
to differentiate ourselves in terms of service quality. Our clients are dealing
with very experienced people who know how to solve their problems.
TWST: HOW DOES THE BUSINESS BREAK DOWN AT THIS POINT BETWEEN BUSINESS
AND CONSUMER?
MR. TURNER: In general terms, roughly 70% of our business mix comes
from the commercial segment and 30% from affluent consumers.
TWST: IS THAT THE MIX YOU WANT?
MR. TURNER: It is essentially the mix that we want. We might dial the
mix a little more toward the affluent consumer. For a community bank the number
one challenge is gathering core deposits, so we feel that if we dial it
slightly more toward the affluent consumer we can drive up the mix of core
deposits versus lending opportunities. In fact, we have recently hired two very
experienced financial advisors to enhance our wealth management practice
focusing on affluent consumers.
TWST: HOW MANY BRANCHES DO YOU HAVE AT THIS POINT?
MR. TURNER: Today we will open our fifth branch office.
TWST: WHAT IS THE PLAN LOOKING FORWARD?
MR. TURNER: I mentioned earlier, three large regional banks dominate
this market, each of which has somewhere between 45 and 55 branch offices to
cover the Nashville SMA. Our long-range plan would not contemplate building out
nearly that many branches. Frankly, we think we can cover that geographic
territory with about 10 branch offices. We think we can do that because of the
segments that we are serving. We are serving owner-managed businesses and
affluent consumers, and they don't require nearly as many distribution points
as the mass-market consumer segment would require.
So we feel that we can get by with significantly fewer branches.
Perhaps more important than that is the fact that we have tried to think
creatively about alternative distribution. Specifically, we run a courier
deposit pickup system where we go to our commercial and large consumer clients
to pick up their deposits and bring them to the bank. That puts us in a
position of saying to the clients that we are more convenient than whomever
they are banking with - even if they are banking at a branch next door.
On the consumer side, we rebate the surcharge that somebody would
encounter if they used another bank's ATM. That lets us say to our consumers,
"You can use any ATM that you want for free," which is more convenient than
whoever the largest provider of ATMs is. So with the combination of customer
segments that we are trying to serve and the creative thinking on alternative
distribution, we feel that we can get by in Nashville with about 10 branch
offices.
TWST: WHAT HAS BEEN THE RESPONSE TO THAT APPROACH?
MR. TURNER: It has been great. When we first started calling on
potential clients in the commercial segment, they would ask about branch
locations and we would say that you don't need one because we are going to come
and pick up your deposit. The first few people weren't sure whether that was a
good thing or a bad thing. But it has absolutely turned into an offensive
weapon for us.
We were recently selected as the primary bank for an agency of the
city of Nashville in a competitive bid situation against virtually all the
large regional banks in Nashville primarily because of our sophisticated online
cash management capabilities and our courier deposit pickups. So in the course
of the first three years, we have moved from having a defensive approach of
using alternative distribution channels to an offensive approach.
TWST: AS YOU LOOK AT THE MARKET, WHERE GEOGRAPHICALLY ARE YOUR
OPPORTUNITIES TO GROW?
MR. TURNER: We at Pinnacle would say that we are an urban community
bank. By that I mean that we are focused on urban markets, but we provide a
community bank style of service. Having said that, we will only operate in the
urban markets here in Tennessee. There are three of those: Nashville, Memphis
and Knoxville. We don't have any specific plans to go to those outlying
markets, Memphis and Knoxville, simply because we believe Nashville is a
dramatically better market than either of the other two. At this point, we are
going to invest precious capital only in Nashville or middle Tennessee.
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COMPANY INTERVIEW -- PINNACLE FINANCIAL PARTNERS, INC.
In the not too distant future we expect to be at a point where we are
generating capital in excess of what's needed to support the growth in this
market, and at that time we would love to pursue those other urban markets of
Tennessee. Frankly, a number of us who are part of the leadership team here at
Pinnacle have done business as bankers in Knoxville and Memphis, so we know and
understand those markets. We believe we've got a world of opportunity to grow
there, but right now we'll focus our energy right here in Nashville, which is
by far the most lucrative banking market in the state.
TWST: WHAT IS YOUR LENDING MIX?
MR. TURNER: Let me talk about that in two ways if I can, going back to
the question you asked earlier about our business mix. Generally speaking, our
business mix would be about 70% commercial and 30% consumer. That is one way to
look at it. A second way to look at the loan portfolio is to break it down
including a real estate component.
The real estate loans that we have on our balance sheet are largely
loans to businesses for their property and plant and are to be repaid from the
cash flows of the business. We are not a large lender on income producing
properties. The thrust of our business, as I said before, is related to
owner-managed businesses. So the real estate loans that you see on our balance
sheet, for the most part, would be loans to owner-managed businesses for their
own use.
TWST: WHAT'S YOUR EXPOSURE TO THE HOME MORTGAGE MARKET?
MR. TURNER: We have very modest exposure on our balance sheet that is
home mortgage-related exposure. Typically, what are booked on our balance sheet
are one-,three- and five-year ARMs. Additionally, we originate conventional and
jumbo product that is sold in the secondary market. So, as I said, if you think
about our balance sheet and say 30% of our loans are consumer loans, I would
guess 20% or so might be secured by consumer mortgages.
TWST: WHAT IS YOUR INTEREST RATE EXPOSURE AT THIS POINT?
MR. TURNER: Technically, our balance sheet is positively gapped;
nevertheless, we believe we would actually be advantaged if we had an upward
movement in rates because of the lag typically associated with rates for
interest checking and money market deposit accounts in an escalating rate
environment. I think that is true not only in terms of the general direction of
rates, but the absolute level of rates. In other words, a lift in the absolute
level of rates would be advantageous for us simply because margins typically
widen during periods of higher rates.
TWST: IF WE LOOK OUT OVER THE NEXT TWO OR THREE YEARS, WHAT ARE THE
GOALS THAT HAVE BEEN SET FOR THE COMPANY?
MR. TURNER: We did a follow-on public offering last June and set a
number of targets to help potential investors see and size the opportunities
that we are looking at. We said last June that we would be at $300 million in
assets by the end of 2003, $400 million in assets by the end of 2004 and that
we would have a 1% ROA by the second quarter of 2004. I ramble through those
numbers so you can see that we are well ahead of target.
We crossed $400 million in assets this June, which would have been 18
months ahead of schedule. We have also been on track to produce the 1% ROA. We
filed a Form 8-K several months ago, which really documented our performance on
those balance sheet and ROA measures. Having said that, we believe that the
opportunity today is even greater than we saw a year ago and believe we will
continue to produce the net earnings that you would have interpolated from the
aforementioned asset and ROA targets; however, we will delay hitting the 1% ROA
probably by 12 months or so because we have some significant opportunities to
acquire people and to build out our branch distribution system faster than we
had originally planned. So I think the targets for us will be aimed at
achieving the 1% ROA by the end of 2004 or early 2005.
TWST: DO YOU HAVE THE MANAGEMENT TEAM IN PLACE YOU NEED TO MEET THOSE
GOALS?
MR. TURNER: We definitely have the management team in place. I have
already mentioned that the founding management team came out of First American
Corporation, which was a $20 billion holding company headquartered here in
Nashville. I was President of First American's General Bank for a number of
years, which primarily consisted of their retail businesses and would have
accounted for about $12 billion in assets. My partner and Chairman of Pinnacle
was Vice Chairman of that company and effectively served as the Chief Operating
Officer. Additionally, he ran all our investment businesses.
Two other partners had major line units in that company that would
have had $2-6 billion in assets for which they were responsible. We probably
have four or five people in this company that have run banking organizations
much larger than this company is or likely will be in the near future.
TWST: AS YOU BUILT THE COMPANY, HOW WOULD YOU DESCRIBE THE CULTURE YOU
TRIED TO PUT TOGETHER?
MR. TURNER: It has been a great thing, I think, to start a new
company. We have enjoyed starting with a clean sheet of paper. As I mentioned
at the outset, we have made a decision that we will not hire anything but
experienced people, folks with at least 10 years experience. We have hired only
the best people, many of whom I either worked with at First American or
competed against with some of these other large regional banks.
Everybody who has been hired is mature, they are experienced and they
don't need a lot of supervision. So we built a company that I think has
tremendous appeal to folks who want to get out of the large regional bank
experience and get into something where they feel like they are part of a team
and are influencing the direction of the company. It's a very participative
work environment. We spend a lot of time focusing on things like employee
surveys and so forth to make sure that we are involving everybody in the
company.
It has been a real treat to see the kind of excitement that you can
build in a company when you start with a clean sheet of paper, particularly
given our backgrounds coming out of large regional banks.
TWST: WERE YOU ABLE TO TIE COMPENSATION TO PERFORMANCE GIVEN THAT
CLEAN SHEET OF PAPER?
MR. TURNER: We were. That's a great question, and I think we do that
better than any other place that I am familiar with. Every employee of Pinnacle
has some number of stock options granted -- some more than others, but every
employee participates in ownership by virtue of having stock options. Also,
every employee here participates in an annual cash incentive system. There are
some soundness thresholds that have to be achieved, but beyond that the only
measure of whether the incentive is paid is net income.
COMPANY INTERVIEW - PINNACLE FINANCIAL PARTNERS, INC.
So the teller, the branch manager, the commercial banker, the CFO and
I all get paid based on the reported net income of the company. There is no way
for me to win and them not win, or for them to win and me not win; everybody is
aimed at net income. So it has created great excitement, focus and teamwork,
which is generally unparalleled in a large regional bank.
TWST: IS THE BALANCE SHEET WHERE YOU WANT IT TO BE TODAY?
MR. TURNER: I think so. I hesitate just a bit in that you are never
completely satisfied. You always want it to be bigger and better, but we are
ahead of our proformas and ahead of our commitments. The momentum or marketing
pipeline continues to be strong. So, in short, we are very pleased with our
balance sheet.
TWST: IS THE MARKET GIVING YOU RECOGNITION FOR THE PROGRESS YOU HAVE
MADE?
MR. TURNER: As you know, that's always a matter of perspective. Our
stock has performed very well. I think I mentioned at the outset that we
brought the stock in August 2000 at $10. For the last few months it has
generally been trading in a range of $18 to 19. So that performance would be
far in excess of virtually any index you want to look at over the same period,
whether it's the NASDAQ, Dow, S&P, Bank Index, etc. So we are please with that.
On the other hand, I would say that there 181 commercial banks
chartered in the United States in 2000. We began very late in that year, but we
are the largest by far of those de novo banks. So my belief is that to be the
best in the nation warrants some premium. My sense is that we are getting good
recognition. But in a company that's growing as fast as ours, it's almost
impossible for the marketplace to assimilate and understand what the future
growth is going to be.
TWST: WHEN YOU TALK TO INVESTORS TODAY, WHAT'S THEIR KEY CONCERN OR
QUESTION FOR YOU?
MR. TURNER: I believe that people are going to focus on two things
when they talk to us. The first question I always get is, "Tell me about credit
quality. You are a fast growing company; how do you feel about your credit
quality?" Of course, we feel that our credit quality is excellent. We're almost
three years old, so we're beginning to make believers out of people that we can
book a high volume of credit at a rapid pace and get it done on a sound basis.
TWST: SO LOAN LOSS EXPERIENCE HAS BEEN GOOD.
MR. TURNER: Loan loss experience has been excellent. Any of the
measures you want to look at - non-performers, charge-offs or any other credit
quality measures - would stack up excellently. The reason that we have been
able to do that, and this was hard to get people to understand early on, is by
virtue of hiring only experienced people who've been in business a long time in
Nashville, Tennessee, and who controlled large books of business at their
previous employer. We're really moving loans that were performing well from
another bank to this bank. We're not out here trying to meet somebody new to
loan money, which would be an entirely different proposition.
Probably the other question that we hear is, "Are those regional banks
going to react to you and stop you from growing as fast as you have? Don't you
expect the growth to slow down?" As I said earlier, our outlook continues to be
great. We feel that the growth that we've achieved thus far is likely to
continue for sometime into the future. We believe that we'll continue to have
opportunities to add top people who are anxious to leave large regional holding
companies and get involved in something that's smaller and more fun. At this
point, in our local market we're receiving quite a bit of attention, and so
there's some cachet associated with working here. So we believe we'll continue
to be able to hire good people who can bring good clients.
TWST: WHEN YOU SIT DOWN WITH POTENTIAL INVESTORS, WHAT TWO OR THREE
REASONS WOULD YOU GIVE THEM TO TAKE A LOOK AT THE BANK?
MR. TURNER: First of all, Nashville is a great market. As I
mentioned, it's the 38th largest metropolitan area. It's fast growing based on
virtually all the census data such as population, per capita income and so
forth. So Nashville is a big, fast growing market.
Secondly, the competitive landscape is unusual here. As I said earlier,
it's dominated by three large regional banks all of which have declining share
trends. We are the largest locally-owned bank, but you have this regional bank
experience which is not working well. So not only is the market large and fast
growing, but the competitive landscape is tailor-made for a small bank that can
maneuver, that can hire good people, that can give good service, and that can
give effective advice. We've been pretty effective in moving this market share
and should be able to continue to do that in the future if you can believe that
the same market conditions will persist.
The third reason is the management team. You've got a large group of
seasoned managers who have worked in small banks, who have elevated to
executive leadership in large regional holding companies and who have a lot of
experience running highly successful companies in this market. So I'd say those
three things would be why somebody would be interested in Pinnacle.
TWST: THANK YOU.
M. TERRY TURNER
President & CEO
Pinnacle Financial Partners, Inc.
211 Commerce Street
Suite 300
Nashville, TN 37201
(615) 744-3700
(615) 744-3861 - FAX
www.mypinnacle.com
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