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Tennessee bank looks to take advantage of market disruption in Atlanta

A Nashville, Tenn.-based bank plans to take advantage of merger disruption in a high-growth Southeastern city by opening branches there rather than through M&A.

Pinnacle Financial Partners Inc. will move into the Atlanta metropolitan area with a de novo branch, the company announced Dec. 18.

The bank's growth strategy focuses on major metro markets in the Southeast, said CEO Michael Turner in an interview. Pinnacle has been an active acquirer as it has expanded across the region, acquiring four banks since 2015, but it chose instead to open a new branch in Atlanta.

"Atlanta is easily the most attractive market that we're not yet in," said Turner. The size of the market, its fast-paced growth and disruption in banking in the area make it very appealing, he added.

Prior to its merger with BB&T into the newly-named Truist Financial Corp., SunTrust Banks Inc. was headquartered in Atlanta, but the newly combined company is located in Charlotte, N.C.

"[T]he creation of Truist Financial is a game changer and [Pinnacle] is now keenly focused on capitalizing on this opportunity," wrote Janney Montgomery Scott analyst Brian Martin in a note.

By opening new branches instead of acquiring established companies, banks can bypass integration issues, open branches at their own pace and take advantage of disruption, said SunTrust Robinson Humphrey analyst Jennifer Demba in an interview.

"[Pinnacle is] very, very adept at hiring," said Demba. "They'll be successful at attracting at least a handful of quality local bankers in a fairly short period of time."

The bank is already building a team and starting to operate in Atlanta, said Rob Garcia, the firm's new Atlanta president.

Turner cited the bank's ability to recruit bankers away from larger competitors as one of Pinnacle's "core competencies."

"The attractiveness or ease with which we can hire people may outweigh the idea of acquiring a bank, paying a premium," he said.

Analysts were unsurprised by Pinnacle's decision, as the bank has expressed "strong interest in the Atlanta market for some time," wrote Martin.

Building a new brand name for the de novo bank could take longer without physical locations than if the bank acquired branches instead, said Demba.

She said it typically takes between 18 months to three years for a de novo to be profitable, and she expects it will take between one and three years for Pinnacle to make a profit in Atlanta.

"But if I were betting on Pinnacle, I'd say it's going to be closer to 12 [months] than 36," she said.

"We expect [Pinnacle] to have good success in deploying its relationship-oriented, commercial banking model in the vulnerable Atlanta market," wrote Martin. "The key to success for [Pinnacle] in Atlanta will be levering its ongoing recruitment competence."