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March 28, 2015

Pinnacle's investment example of innovative bank venture

Pinnacle Bank recently purchased a minority stake in an online health care lender, and this strategic move should provide the Nashville-based bank with numerous benefits. Pinnacle Bank, a subsidiary of Pinnacle Financial Partners, Inc., made this move at a time when traditional banks are facing numerous headwinds and online lending has been experiencing impressive growth. Garnet Capital believes this is a positive trend and is helping other banks and lenders create partnerships.

Challenging lending environment
In the current environment, many banks are having a hard time increasing their revenue and earnings. While the credit markets have thawed out a bit, this development has created new challenges. Defaults have been rising, and the proliferation of non-banks, such as online lenders, has provided banks with a new source of competition.

Fortunately, some more traditional financial institutions have made use of the growing prominence of online lenders, working with these firms in this burgeoning industry and benefiting from their innovative approaches.

Pinnacle's new minority stake
For example, Pinnacle's new 30 percent equity interest in Bankers Healthcare Group will provide the bank greater fee income, helping support an area where the company has been facing challenges, according to American Banker.

Pinnacle announced the deal in February, revealing it had paid $75 million for this minority stake. At the time, M. Terry Turner, president and CEO of Pinnacle Financial Partners, emphasized the strong record of Bankers Healthcare Group in a statement.

'Strong partnership'
"BHG's reputation in the medical community, growth trajectory and solid leadership make for a strong partnership," stated Turner. "We have enjoyed partnering with BHG over the last few years on several initiatives and look forward to working more closely together."

He also spoke to the business development opportunities that have opened up through the venture, emphasizing that Pinnacle could market its services through BGH's distribution channels. The health care lender, which brought in $49 million in income during 2014, currently sources loan originations through a wide range of methods and then sells to roughly 200 community banks through an online auction process.

Finally, Turner emphasized how the venture would positively impact Pinnacle's fee income, which is an important consideration for the firm.

While Pinnacle is expecting many benefits from this investment, this venture may simply be one of many similar opportunities. To take advantage of the proliferation of such alternative lenders, financial institutions can either buy the loans they generate or alternatively, buy stakes in the organizations themselves. Garnet Capital can assist parties in making these partnerships beneficial to both sides.