Pinnacle Financial Partners Inc. of Nashville, the fastest-growing bank in Tennessee, announced its first acquisition deal Monday - an agreement to buy Cavalry Bancorp Inc. of Murfreesboro, Tenn., for $175 million.
Cavalry's $605 million of assets would nearly double Pinnacle's total, to $1.48 billion, making it the state's second-largest banking company.
The deal would also move Pinnacle into the attractive Rutherford County with eight branches, doubling its branch count in the Nashville metropolitan area. (Cavalry has one other branch, in neighboring Bedford County.)
Terry Turner, Pinnacle's chief executive officer, said that the company was planning to enter Rutherford County next year, with two new branches, but that this deal puts it 10 years ahead of schedule there.
"Obviously this is substantially better for us. Rather than investing in all of the start-up costs with modest expansion, we are going into one of the best counties in the state with a 22% market share," he said.
Rutherford County has the fastest-growing population of all counties in Tennessee, and in the last year it has also been one of the fastest-growing counties in job growth, according to the Bureau of Labor Statistics.
Mr. Turner said Pinnacle will not make another acquisition for 12 to 18 months and will probably not expand organically for at least a year.
Cavalry's attractions, besides its location, include a diverse revenue and deposit mix that complement Pinnacle's balance sheet, Mr. Turner said. At Pinnacle, core deposits are just 69% of total deposits, while Cavalry's are 84%. Consequently, Pinnacle's net interest margin in the second quarter was 3.57% and Cavalry's was 4.18%.
"Finding a lower cost of funding has been an intense focus for us," Mr. Turner said.
Finally, the deal would provide Pinnacle with a toehold in construction and development lending, in which Pinnacle hoped to get started in the next year, Mr. Turner said. Cavalry also has a large property and casualty insurance business, which would be a new business for Pinnacle.
Jeff Davis, an analyst with First Horizon National Corp.'s FTN Midwest Research in Nashville, said integration may prove difficult because Pinnacle and Cavalry are such different companies.
Cavalry was founded in 1929 as a savings and loan association; it became a mutual savings bank in 1991 and did not become a commercial bank until 2002. Mr. Turner started Pinnacle five years ago with colleagues from First American Corp. of Nashville (which AmSouth Bancorp of Birmingham, Ala., bought in 1999); it has a strong focus on the small-business market.
"There is going to be a negative with cultural differences," Mr. Davis said. "Pinnacle is entrepreneurial and high-growth, and Cavalry is an established institution that was once a thrift."
But Mr. Turner said that though Cavalry has a traditional thrift background, its culture is now much closer to Pinnacle's.
"The cultures are not the same, but they meld together very well," Mr. Turner said. "Cavalry is an urban community bank, and they know how to serve the sophisticated needs of the community."
Mr. Turner said Pinnacle courted Cavalry for a long time, so when Cavalry decided early this year to sell, it looked to Pinnacle first.
Ed C. Loughry Jr., Cavalry's chairman and CEO, said Pinnacle has attractive stock and Cavalry shareholders would still have a bigger say than if they sold to a larger regional company.
The deal price is 3.03 times Cavalry's book value and 21.4 times Cavalry's previous-year earnings. And when the deal is completed, as it is expected to be in the first quarter, Cavalry's shareholders would have about 42% of the outstanding Pinnacle stock.
Cavalry's stock shot up 18.32% Monday, to $23.19, in heavy trading. Pinnacle's stock was up 1.75% to $25.15.
