On the first, we had to ensure our firm was prepared for the worst, even as we hoped for the best. That included a shift to defense: Protecting our balance sheet with a focus on asset quality and preparing our credit-loss reserves for a potentially devastating scenario. It also included taking care of our associates during a very difficult time.
On the second, we had to take care of our clients. Many in certain industries were quickly thrown into a vulnerable state. They didn’t know if they would make it to the summer, much less the other side of a global pandemic, and were depending on us to help.
Finally, we had to be ready to jump back into an offensive posture as soon as conditions permitted. We’d come too far and worked too hard over the previous 20 years to entrench ourselves in austerity. Typically there is a large opportunity to move market share following difficult economic times – particularly for banks like ours that have earned a reputation for valuing long-term relationships and being easy to do business with – so we wanted to be ready when the time was right.
To meet each of these priorities and overcome the challenges ahead, once again we zeroed in on strategies that were built on our philosophy of focusing on people, personal connections and doing the right thing for associates, clients and shareholders.
Credit Loss Reserves
We started by building enormous loss-taking capacity, effectively tripling our reserves for credit losses from 0.48% of total loans to 1.38%, exclusive of PPP loans. We also added $250 million in Tier 1 capital to further protect us from whatever the crisis threw at us.
Loan Deferrals
We immediately reached out to clients about deferring their loan payments until they better understood their new position and what the future held. Less client-focused banks attempted to minimize loan payment deferrals. Not us. At peak, we deferred 21% of our loan book and scheduled rapid and regular follow-ups. Once a deferral period ended, if a client needed more help because of pandemic impact, we worked with them on modifications under Section 4013 of the CARES Act. We, and our clients, got through it.
Credit Reviews
We immediately initiated a complete review of our entire risk-graded loan book--one borrower at a time--and re-risk graded them all. We established regular follow-ups to look at monthly statements and projections and get an idea of when the client might return to a more stable posture.
This took an incredible amount of work from our credit teams at a time when many of them were dealing with the personal effects of the pandemic and pitching in on the Paycheck Protection Program. Thanks to them, our asset quality is holding up much better than anyone predicted, even hard-hit sectors like hospitality and commercial real estate, which has enabled us to quickly shift back to offense.
Paycheck Protection Program
In 20 years, we have never seen our associates pull together and work harder than during the initial wave of PPP lending. It was an unbelievable effort, reminiscent of Vince Lombardi’s "finest hour" where we lay "exhausted on the field of battle, victorious"— simply because our associates were so committed to helping our clients in a time of desperate need.
People swarmed from all over the firm to help, literally working around the clock to take care of clients. We stood up a new loan application and review system in a matter of days, much more quickly than many of our peers. We educated and trained ourselves and our clients from scratch. Our communication effort to keep associates and clients in the loop during a period of great uncertainty and changing ground rules blew everyone away. Our financial advisors at the tip of the spear were phenomenal in helping anxious and stressed clients. It was a true differentiator, proving that Pinnacle can serve clients in a way that we believe few other banks can.
By May we had processed 14,000 loan applications totaling $2.4 billion in a matter of weeks. It was literally the life blood our clients and communities needed, and from our seats, it was awe inspiring to watch. Hundreds of associates working harder than they ever have because it was the right thing to do for our clients, our communities and our country.