Pinnacle's real estate fallout

When Pinnacle Financial Partners got started 10 years ago, the bank's executives, who had survived many a past real estate collapse, pledged to focus lending on business and industry — not real estate development.
Now, the bank is beset by loan problems linked to real estate and homebuilding plans gone awry across Middle Tennessee, quite the opposite of its original goals.

This much seems clear: A series of acquisitions of suburban banks in the past few years shifted a larger concentration of the bank's loans into real estate development in fast-growing areas around Nashville, leading to questions about how smart its bank purchases truly were.

The fallout has been severe.

RelatedPinnacle shares drop 23 percent on weak quarter

Pinnacle surprised investors with a nearly $30 million second-quarter loss a few weeks ago, and the stock fell more than 20 percent in one day. Wall Street analysts downgraded the company, with one bemoaning ever recommending it to investors.

By the end of last week, the stock price had dropped to $9.06 a share in trading on Nasdaq, down 41 percent in the past three months.

A review of foreclosures in Nashville and nearby counties shows that Pinnacle and the banks it acquired had been giving loans to developers in Nashville's fast-growing suburban areas, including Rutherford and Wilson counties and Antioch in Davidson County, as late as 2007. The subsequent real estate bust hit those areas hard.

Pinnacle President and CEO Terry Turner has blamed many of his bank's loan problems on acquisitions of suburban banks, including Bank of the South in Wilson County in 2007 and Cavalry Bancorp in Rutherford County a year earlier. Both institutions had benefited from years of a real estate boom and were purchased by Pinnacle shortly before the bottom fell out of the housing market.

After the acquisitions, Pinnacle went from having about 10 percent of its loan portfolio in construction and land development to nearly 20 percent by the end of 2007.

Sterne Agee bank analyst Peyton Green called Pinnacle's acquisitions "a deviation from discipline." He added: "Long-term, they will have a benefit. Short-term, it's come at a dear cost."

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