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Pinnacle Bank CEO M. Terry Turner, left, and Capital Bank CEO R. Craig Holley talk about the merger of the two entities Wednesday, April 8, 2015, in the executive offices at 801 Broad St.

Pinnacle Bank

Headquarters: Nashville
Founded: 2000
Assets: $6 billion
Offices: 34 in metro Nashville and Knoxville
Staff: 800 employees
Distinction: The second highest performing bank stock in the country since 2000

CapitalMark
Headquarters: Chattanooga
Founded: 2007
Assets: $968 million
Offices: Four (Chattanooga, Cleveland, Oak Ridge and Knoxville)
Staff: 115 employees
Distinction: The largest locally owned bank in Chattanooga and one of the five most profitable of more than 130 bank startups in 2007.

 

True to its name, CapitalMark has put its mark on the banking scene as one of the nation's fastest-growing and top-performing banks since its founding in 2007 just before the last recession hit.

In less than eight years -- with only four bank offices -- CapitalMark has grown into Chattanooga's biggest locally based bank with assets of nearly $1 billion. Among more than 130 banks started in 2007, CapitalMark also has been one of the five most profitable in the entire country.

That growth and success attracted Nashville's fastest-growing bank this week to offer $187 million to acquire CapitalMark to expand into the Chattanooga market. Pending approval of the purchase by regulators and shareholders, officials expect the bank merger to be completed by September.

Already on Wednesday as Pinnacle CEO M. Terry Turner arrived in Chattanooga to talk with the CapitalMark employees about the purchase agreement, he was preparing plans to add new branches to grow Pinnacle's presence in Chattanooga beyond the CapitalMark footprint.

"We're going to be looking at expanding the branch profile and add an office a year over the next several years to provide more convenience and retail presence for our clients," Turner said. "We see tremendous opportunities to continue the great growth that CapitalMark has had."

Pinnacle Financial Partners Inc., which now operates 34 bank offices in Nashville and Knoxville, has set a goal of doubling in size with expansions into Chattanooga and Memphis. Turner said Pinnacle, which now has assets of $7 billion, wants to have top-performing banks in each of the state's biggest markets.

"This is really important puzzle piece for us," Turner told industry analysts Wednesday. "Finding our way to Chattanooga is a critical component in our desire to build a $13 billion to $15 billion bank."

Shareholders of both banks welcomed the deal Wednesday. Shares of Pinnacle rose $1.08 per share, or more than 2.4 percent, to close Wednesday at $45.69 per share.

Under terms of the purchase, Wednesday's closing price would put the per-share value for CapitalMark stockholders at $22.81, or nearly double the average $12 to $12.50 per share the stock has traded on in recent private transactions among the 850 stockholders of the Chattanooga bank.

The Pinnacle purchase price is more than triple the initial $6.67 per share price of CapitalMark when it began in August 2007.

"Our shareholders are very pleased," Holley said.

Holley said the board looked at either issuing stock and becoming a publicly traded company on its own or merging with another bank. CapitalMark shareholders were looking for liquidity and the bank wanted to raise more capital to continue to expand.

The Chattanooga bank also wanted to pay off its loan from the federal Small Business Lending Fund loan, which provided $18.2 million for the bank at an initial 1 percent rate that would rise to 9 percent in 2016 if the loan is not repaid by then.

"I tell you there is only one bank that we would have done this with and that is Pinnacle because the companies just fit so well together," he said. "This is a great company, paying a very fair price for our shareholders and offering one of the best places to work for our associates."

Indeed, American Banker magazine recognized Pinnacle as the best bank to work for anywhere in the country in 2013 and the second best bank to work for anywhere in 2014.

By hiring experienced bankers, Turner said Pinnacle employees are given more flexibility and authority. Pinnacle also gives all of its employees stock and cash incentives.Since its start in 2000, Pinnacle employees have been given $162 million in equity to its associates.

"I think giving everyone the chance to participate in cash incentives and to get equity in the company is really important and creates a real sense of team play," Turner said.

By merging with Pinnacle, CapitalMark will increase its lending limits, add more wealth management and brokerage services and build more branches over time, Turner said.

"We're going to add a lot of services to take the $136 million we now have in trust assets up to a much higher level," Holley said.

Both Pinnacle and CapitalMark have grown by hiring experienced bankers and offering a local alternative to regional and national banks.

"Having experienced bankers is the only way I know to be able to profitably grow a bank quickly," Turner said. "What we do is get up underneath the regional competitors and take their best people and best clients. We expect to grow as fast, if not faster, than what CapitalMark has and we anticipate adding branches and staff here over time."

The average experience of CapitalMark's bank staff is more than 20 years, with the top three officers -- Holley, Kenny Dyer and R. Ryan Murphy -- each with more than 33 years of banking experience. At Pinnacle, the average employee experience is 26 years.

"The business mix between the companies is remarkably similar," Pinnacle's Chief Financial Officer Harold Carpenter told analysts. "For me, (these are) two of the most closely aligned franchises that have entered a merger."

The purchase of CapitalMark is the third in the past nine years for Pinnacle, which has grown to become Nashville' fourth biggest bank. Previous acquisitions grew Pinnacle in the metro Nashville market and Pinnacle opened de novo bank offices in Knoxville.

Pinnacle raised $18 million in its intial offering to begin the bank in 2000 and has since grown the bank's market capitalization to $1.6 billion through a couple of additional stock offerings, two acquisitions and internal growth of the bank

CapitalMark was initially capitalized with $35 million of investment and added another $15 million in equity through two subsequent stock offerings.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.

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