Borrowers, be prepared for a little sticker shock.
With no definitive signs that the regional economy is close to returning to health, the leaders of Pinnacle Financial Partners have placed profitability squarely above growth, saying they will raise prices considerably on loans and pay a good bit less on deposits.
The emphasis on a more lucrative pace of growth – CEO Terry Turner told analysts on a conference call today he still expects Pinnacle to post mid-single-digit numbers – marks a definitive shift from the grow-and-the-big-profits-will-come-later approach it has used to become the fourth-largest bank in Middle Tennessee in just nine years.
Turner and CFO Harold Carpenter told analysts this morning that, along with resolving their growing pool of nonperforming loans, their primary focus in the coming six months is to raise rates on $457 million worth of loans that are repricing during that time.
Currently, those loans – which account for almost 13 percent of Pinnacle's portfolio – are yielding between 3.9 percent and 4.3 percent on average. Carpenter said renewals will come with a floor of 5 percent, a strategy many other banks have adopted during this recession.
"It's no secret that, in comparing loan pricing with our peer group, we are at the bottom," Carpenter said. "We have room to get up there."
On the flip side, Pinnacle's depositors should expect to receive less in the way of interest going forward. More than $800 million in certificates of deposits will mature in the coming six months and Pinnacle plans to lower the rates it pays on those by a full percentage point or more.
The two-pronged pricing strategy will help lift Pinnacle's net interest margin, which one analyst three months ago described as "not very bank-like." During the third quarter, it rose to 3.05 percent from 2.75 percent, which Carpenter said was a little more than he had expected.
Investors received Pinnacle's numbers well, pushing the shares up more than 5 percent. Year to date, the stock (Ticker: PNFP) is down about 58 percent.
Among the other topics discussed during today's call were:
• Pinnacle's efforts to resolve its troubled loans. Asked if the bank might slow the pace of residential property disposals and wait for spring's buying season, Carpenter said that won't happen and that charge-offs as a whole will stay at their current levels – if not rise slightly – until at least the spring.
"There are alternatives where we could accelerate those things coming off our balance sheet where we would observe more losses," he said. "We want our financials to reflect the aggressive writing down of those assets."
• Pinnacle's effort to bring in more so-called core deposits rather than paying for brokered money. Since the end of 2008, core deposits have risen from 69 percent of total deposits to 74 percent. Carpenter said his team is looking to top 80 percent soon.
• The shrinking of the bank's construction and development portfolio, much of which stems from the acquisitions of Cavalry Banking and Mid-America Bancshares. Since Dec. 31, Turner said Pinnacle has reduced its exposure to residential speculative builders by $37 million and to residential development by $29 million.
• The state of Middle Tennessee's economy, which Turner said won't strengthen significantly until employment growth returns in earnest. Until then, many businesses are struggling more each with each passing month.
"This is a fast-moving economy and we’re operating in real time. We continue to see financial statements that are worse this period than in the prior period," he said.
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