Every CEO will tell you that culture is important, but few of them seem to actually mean it. Terry Turner is an exception. He's leveraged culture as the CEO of Pinnacle Financial Partners (NASDAQ: PNFP) to produce the second-best total shareholder return over the past 17 years in the bank industry. Listen in to this segment of Industry Focus: Financials, where we discuss what makes Turner one of the best bankers of the modern era.
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This video was recorded on Aug. 7, 2017.
Gaby Lapera: Let's turn to Terry Turner, haha, of Pinnacle Financial Group, who has bet the farm on culture. This bank, to give you guys some context, this bank didn't exist 20 years ago. And now, it's a huge bank.
John Maxfield: Terry Turner, he's the CEO and founder of Pinnacle Financial Group, which is this Bank based in Nashville, Tennessee. Here's an interesting point about Nashville, Tennessee. There was a time when it was known as the Wall Street of the South because it had all these major regional financial companies headquartered there. Well, through the consolidation wave that we talked about in the context of Hugh McColl, all these banks that were based in Nashville and financial companies that were based in Nashville where eventually bought by all these other companies headquartered elsewhere. And 1999 was the year that the last major regional bank that was headquartered in Nashville was bought out by a bank named AmSouth Bank, which was later bought out by Regions Financial, they're based in Alabama. Terry Turner and two of what he calls his running mates, a guy named Rob McCabe and another guy named Hugh Queener, they were top-level executives of First American, which was the Nashville-based bank that was bought out by AmSouth. They were top-level executive at the time. And one of the things that Terry and Hugh and Rob noticed at the time was that, in this consolidation wave, customer satisfaction at banks went down. And when customer satisfaction at banks goes down, market share becomes vulnerable, and it can move to other banks. So, these guys got together and said, "Why don't we start our own bank? And we're going to predicate the entire strategy, the entire culture at this company on stealing market share from these larger regional competitors. And what we're going to do is, we're going to set up our control system, the way we compensate people, the environment in which they're able to work, there's going to be minimization of micromanagement, and what we're going to do is go and recruit the top bankers from these other banks, bring them over, bring over their teams, and bring over their books of business. And by doing that, we're going to be able to grow at a very, very rapid pace."
But not only grow at a very rapid pace, because in the banking industry, one of the things that you'll learn is -- and, Dick Kovacevich, who was the former CEO of Wells Fargo, which Wells Fargo's reputation has been somewhat destroyed over the past few years, but he still made the very good point ... it's hard to say, I don't want this to come across wrong, but he was a very good banker, even though they made very significant mistakes, as we're learning right now. But, he had this great saying -- "If it's growing like a weed, it probably is one." And that's so true in the banking industry. If you're growing too fast, it means you're probably cutting on your lending standards, and then you'll eventually get caught up in one of these cycles that we talked about. Well, Terry Turner, I was talking to him a couple weeks ago, and he made this great point. He said, "Look, when these really experienced bankers bring over their books of business," and the average banker at Pinnacle has 33 years worth of experience. When these bankers and these groups come over with their books of business from these larger regional banks, not only does that let them grow quickly. But then, they can leave the bad loans at the bigger banks. So, it's almost reverse adverse selection. Not only can you grow rapidly, but you can also grow safely. And that is why Pinnacle Financial has been able to go from $0 in assets in the year 2000 to more than $20 billion in assets today.
Lapera: And it's because they care, right? That's the whole point with Terry Turner. He and his running mates, as you called them, they really, really care about making a great bank, and they really care about having a great environment for the bankers as well. And they have, again, this thing that you've heard over and over again, they have these standards and they really hue to them, and that's how they've basically been able to make something from nothing.
Maxfield: And they only hire the best bankers. He told me, literally, if you go in to Pinnacle Financial and you bring a resume and you reach out to them, there's basically a 0% chance you're going to be hired. What they do is identify the top bankers and go after them. And sometimes, it'll take six or seven years to convince these people to come over. But, one of the reasons they're able to convince these top revenue producers to come over to Pinnacle Financial is because they can set up their control system in a different way. A control system is like your credit risk management system. They set it up in a way where there is much less bureaucracy involved because you're dealing with all these bankers who have 30 years worth of experience, and in many cases, they're bringing over existing books of businesses from clients that they know really well and have dealt with for decades. So, it's reducing that bureaucracy that has made it such an attractive place for bankers who really want to serve their customers, grow their business, and be excellent bankers, as opposed to spending all of your time dotting I's and crossing T's.
Gaby Lapera has no position in any of the stocks mentioned. John Maxfield owns shares of Wells Fargo. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.