Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q4 2011 Earnings Presentation
60 slides from Pinnacle Financial Partners's earnings presentation, Jan 18, 2012
Slide 1: Fourth Quarter 2011 Investor Call
Fourth Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO January 18, 2012
Slide 2: Safe Harbor Statements
Safe Harbor Statements Forward-looking statements Certain of the statements in this release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "expect," "
Slide 3: Two Primary Priorities
Two Primary Priorities • Build core earnings capacity • Aggressively deal with credit issues 3
Slide 4: Fourth Quarter 2011 Highlights: Build Core Earnings Capacity
Fourth Quarter 2011 Highlights Priority: Build the Core Earnings Capacity of the Firm Linked Qtr Quarterly Change Year over Year Change Total loans 1.6% 2.5% C&I and owner occupied CRE loans 4.7% 11.9% Avg. Noninterest bearing deposits 5.0% 22.6% Net interest margin 1.4% 9.2% Noninterest income excl
Slide 5: Fourth Quarter 2011 Highlights: Credit Issues
Fourth Quarter 2011 Highlights Priority: Aggressively Deal with Credit Issues Linked Qtr Year over Consecutive Decrease Year Qtrs. of Decrease Progress Credit losses (NCO’s + ORE expense) (2.6%) (29.9%) 6 NPLs (12.4%) (40.8%) 7 NPAs (12.6%) (37.7%) 6 Classified Loans (1.5%) (38.5%) 6 Potential probl
Slide 6: Net Interest Margin Continues Significant Expansion
Building Core Earnings Capacity Net Interest Margin Continues Significant Expansion Net Interest Margin Trend Key Margin Drivers: 3.70% • NPA resolutions 3.65% • Higher loan volumes reduced excess cash 3.60% 3.60% • Higher % of core deposit volumes 3.55% and repricing existing accounts 3.50% 3.40% (
Slide 7: Reduction in Cost of Deposits is Driving Margin Expansion
Building Core Earnings Capacity Reduction in Cost of Deposits is Driving Margin Expansion 1.50% 3.65% 3.70% 1.43% 3.60% 1.40% 3.55% 3.60% 1.30% 3.50% 3.40% 1.20% 3.40% 3.29% 1.10% 3.25% 3.30% 3.23% 3.23% 1.00% 3.20% 0.90% 3.10% 0.80% 3.00% 0.62% 0.70% 2.90% 0.60% 2.80% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Slide 8: Margin Improvement is Built on Success with Clients
Building Core Earnings Capacity Margin Improvement is Built on Success with Clients 4.50% • Continued progress on 4.00% reducing cost of funds and maximizing loan yields 3.50% • Treasury yields influenced heavily by 3.00% rapid pay downs and repricing of bond 2.50% portfolio as well as maintenance o
Slide 9: COF Reduction Opportunities Remain in Maturing CDs
Building Core Earnings Capacity COF Reduction Opportunities Remain in Maturing CDs • CD repricing opportunities - $175mm in Client CD’s maturing over next three months. Goal at renewal should be near average fourth quarter renewal rate (0.65%). Client CD’s – Avg. Rate Average Renewal Rates (%) 3rd Q
Slide 10: COF Reduction Opportunities Remain in MMDAs
Building Core Earnings Capacity COF Reduction Opportunities Remain in MMDAs • MMDA pricing opportunities - $335mm in MMDA accounts with current rates above 1.00%. Target rate should approximate 0.60%. Avg Quarterly Quarterly MMDA Rates Reduction 3rd Quarter 2010 1.36% 0.06% 4th Quarter 2010 1.21% 0.
Slide 11: Adjusted PTPP Expands 7.1% in 4Q11
Building Core Earnings Capacity Adjusted PTPP Expands 7.1% in 4Q11 (000’s) 4Q11 3Q11 2Q11 1Q11 4Q10 Net interest income $39,293 $38,356 $37,795 $36,020 $36,056 Total noninterest income 9,727 10,080 9,809 8,324 8,666 Total revenue 49,020 48,436 47,604 44,344 44,722 Total noninterest expense 34,374 35
Slide 12: Past Due Loans are Low and Continue to Decline
Aggressively Dealing with Credit Issues Past Due Loans are Low and Continue to Decline Dec. 31, As a % Sept. 30, As a Dec. 31, As a 2011 of 2011 % of 2010 % of total total total (000’s) loans loans loans Past Due Loans (*) Managed by special assets: Nonaccrual loans $22,339 0.68% $29,158 0.90% $47,6
Slide 13: Credit Losses Continue to Decline
Aggressively Dealing with Credit Issues Credit Losses Continue to Decline $18,000 $16,000 ORE Expense $14,000 Net Charge Offs $12,000 $8,522 $4,334 $7,874 $3,826 $10,000 $4,193 $8,000 $5,079 $6,000 $9,726 $4,000 $7,346 $7,146 $8,605 $5,732 $6,335 $2,000 $0 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 13
Slide 14: Allowance Coverage Increases as NPLs Decline
Aggressively Dealing with Credit Issues Allowance Coverage Increases as NPLs Decline $140,000 $131,381 154.6% 160% $120,000 $118,331 140% Total Nonperforming Loans $103,127 Allowance to NPL’s $100,000 $76,368 120% $80,863 $80,000 100% (000’s) $59,727 $60,000 $54,640 80% $47,855 68.5% 60% $40,000 40%
Slide 15: Despite Shrinking NPAs, NPA Dispositions Have Achieved Target
Aggressively Dealing with Credit Issues Despite Shrinking NPAs, NPA Dispositions Have Achieved Target $151,837 $80,000 $160,000 $70,000 $140,000 NPA Dispositions $60,000 $120,000 NPA Average Balances (000’s) $50,000 $43,096 $87,569 $100,000 $37,251 $38,693 $40,000 $33,461 $80,000 $32,256 $29,517 $30
Slide 16: OREO Valuations are More Conservative than Actual Results
Aggressively Dealing with Credit Issues OREO Valuations are More Conservative than Actual Results ORE Dispositions (*) thru ORE Balance at Dec. 31, 2011 Dec. 31, 2011 Loan balances prior to charge offs 100.0% 100.0% Charge off’s prior to foreclosure 21.8% 22.2% Balance @ foreclosure 78.2% 77.8% Valu
Slide 17: OREO Disposition Plans Suggest Limited Unresolved Issues
Aggressively Dealing with Credit Issues OREO Disposition Plans Suggest Limited Unresolved Issues (dollars in thousands) Balances Near-term Active Other Dec. 31, 2011 liquidation Projects Properties (1) (2) (3) ORE categories: New home construction/condo’s $ 2,733 $ 1,895 $ 838 $ - Developed lots 7,0
Slide 18: Slide 18
Slide 19: Longer Term Potential Margin Expansion Opportunities Exist
Expanding the margin Longer Term Potential Margin Expansion Opportunities Exist 4Q 2011 Net Interest Margin 3.65% Opportunities: 1. NPA resolution 0.02% to 0.04% 2. Continued reduction in COF 0.03% to 0.07% 3. Balance sheet expansion 0.02% to 0.04% Potential Margin Range 3.72% to 3.80% Notes: 1. Exc
Slide 20: Positive DDA Trends Reflect an Ability to Gain Clients
Growing Balance Sheet Volumes Positive DDA Trends Reflect an Ability to Gain Clients $750 $706 $700 DDA Average Balances (in millions) $672 $650 $629 $595 $600 $576 $550 $534 $496 $504 $500 $450 $400 $350 $300 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 20
Slide 21: Momentum Continues to Build in Net Loan Volumes
Growing Balance Sheet Volumes Momentum Continues to Build in Net Loan Volumes Net Quarterly Loan Growth (in millions) $100 $50 $0 Total Loans -$50 C&I and O/O CRE -$100 Loans -$150 -$200 21
Slide 22: Existing and New Advisors Have Capacity to Take Share
Enhancing our Capacity for Growth Existing and New Advisors Have Capacity to Take Share # of Loans Deposits • Existing advisors should Advisors consolidate owners and employees of current business clients totaling $100 million in loans and $150 Current million in deposits. 109 $900 million $700 mill
Slide 23: Nashville's and Knoxville's Job Recovery Outpaces the Nation
Improving Economic Factors Nashville’s and Knoxville’s Job Recovery Outpaces the Nation • USA job recovery of jobs lost since peak in early 2008 has amounted to almost 27%. • Nashville and Knoxville have recovered approximately twice as fast as the nation 23 Source: BERC – MTSU & Bureau of Labor Sta
Slide 24: Strong Capital Should Eliminate or Limit Common Dilution
Redeeming the Remainder of TARP Strong Capital Should Eliminate or Limit Common Dilution Dec. 31, Sept. 30, Dec. 31, • Small quarterly decrease in 2011 2011 2010 risk based capital ratio is Tangible common equity 8.4% 8.2% 7.1% due primarily to 25% TARP redemption Tangible common to risk weighted as
Slide 25: Strong Capital Should Eliminate or Limit Common Dilution
Redeeming the Remainder of TARP Strong Capital Should Eliminate or Limit Common Dilution At December 31 Tier 1 Tier 1 Leverage Total Risk Total RBC % Capital $’s % Based-Capital $’s PNFP capital $ 523,277 11.4% $ 579,876 15.3% Less: TARP (71,250) (1.6%) (71,250) (1.8%) Pro Forma capital 452,027 9.8%
Slide 26: Looking Forward
Looking Forward Management’s Expectations for 1Q12 (*) • Increasing lending opportunities, particularly C & I • Continued emphasis on core funding and funding costs • Continued expansion of margin and net interest income • Continued improvement in asset quality metrics (*) As of January 18, 2012 26
Slide 27: Q&A – Fourth Quarter 2011 Investor Call
Q&A – Fourth Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO January 18, 2012 27
Slide 28: Supplemental Information
Supplemental Information Fourth Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO January 18, 2012 28
Slide 29: Supplemental Information
Supplemental Information Chart • Asset Quality 30 • Balance Sheet 44 • Income Statement 49 • Economic Conditions 54 29
Slide 30: Supplemental Information: Asset Quality
Supplemental Information Asset Quality 30
Slide 31: Loan Categories
Loan Categories Comparison of 4Q11 to 3Q11, 4Q10 and 4Q09 • Continued reduction in C&D exposure Amts. %’s Amts. %’s Amts. %’s Amts. %’s 4Q11 4Q11 3Q11 3Q11 4Q10 4Q10 4Q09 4Q09 C&D and Land $274.2 8.3% $278.7 8.6% $331.3 10.3% $ 525.3 14.7% Consumer RE 695.8 21.1% 712.0 22.0% 705.5 22.0% 756.0 21.2%
Slide 32: Construction and Land Categories
Construction and Land Categories Comparison of 4Q11 to 3Q11, 4Q10 and 4Q09 • PNFP continues to reduce exposure to residential construction and development Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 4Q11 4Q11 3Q11 3Q11 4Q10 4Q10 4Q09 4Q09 Residential – Spec $ 12.4 0.4% $ 12.1 0.4% $ 19.9 0.6
Slide 33: Construction and Land Categories
Construction and Land Categories • Almost 25.3% of C&D book managed by Special Asset Group personnel. • Almost 38.2% of land categories managed by SAG. Total Total Total NPLs NPLs NPLs Performing Performing Performing Portfolio Portfolio Portfolio Criticized Criticized Criticized 4Q11 3Q11 4Q10 4Q11
Slide 34: Construction and Land Categories
Construction and Land Categories Analysis of Pass-rated AC&D loans • Pass rated credits have minimal past dues. Avg. ticket size of about $443,000. Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 4Q11 3Q11 4Q10 Fail Fail Fail 4Q11 3Q11 4Q10 During During During 4Q
Slide 35: Potential Problem Loans Continue to Decline
Aggressively Dealing with Credit Issues Potential Problem Loans Continue to Decline 10.0% Potential Problem loans/Total loans 9.30% 9.0% 8.63% 8.23% 8.0% 6.95% 7.0% 6.0% 5.31% 5.0% 4.62% 4.04% 3.96% 4.0% 3.0% 2.0% 1.0% 0.0% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Note: Classified loans (or loans wit
Slide 36: Reduced Classified Assets in 4Q11
Aggressively Dealing with Credit Issues Reduced Classified Assets in 4Q11 Balances Balances Balances Balances Dec. 31, 2011 Sept. 30, 2011 Dec. 31, 2010 Dec. 31, 2009 (dollars (dollars (dollars (dollars in thousands) in thousands) in thousands) in thousands) Classified loans and ORE: - Substandard c
Slide 37: Asset Quality Metrics
Asset Quality Metrics Nonaccrual Loans $47.9 MM nonaccruing loans Resid 1.45% of loan balances Const Other 0.2% 1.1% Land Develop C&I 26.9% 24.9% CRE 20.8% 1-4 Family 26.1% As of December 31, 2011 37
Slide 38: NPLs Continue to Decline Ahead of Peers
Nonperforming Loan Trends NPLs Continue to Decline Ahead of Peers NPLs Expressed as a % of Total Loans within Category Peer PNFP PNFP PNFP NPLs and NPLs and NPLs and NPLs and > 90 days > 90 days > 90 days > 90 days (*) 4Q11 3Q11 4Q10 3Q11 Const. and land 4.73% 7.68% 13.15% 9.53% development CRE – Ow
Slide 39: Nonperforming Loans
Nonperforming Loans • Largest NPLs • #1 - $3.4 million consumer real estate • #2 - $2.9 million commercial land development • #3 - $2.5 million residential land development • #4 - $2.2 million consumer real estate • #5 - $1.8 million C&I • Approximately 110 accounts make up remaining NPLs • Represen
Slide 40: ORE is 45.4% of NPAs with Resolution in Bank's Control
Aggressively Dealing with Credit Issues ORE is 45.4% of NPAs with Resolution in Bank’s Control Balances Fair value as a % Average Dec. 31, 2011 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: New home construction/condo’s $ 2,733 101.7% 3.90 Developed lots 7,091 132.5%
Slide 41: OREO Properties
OREO Properties • Largest OREO Properties: • #1 - $4.2 million mixed-use development • #2 - $4.1 million industrial park • #3 - $3.6 million mixed-use development • #4 - $3.2 million residential development • #5 - $3.0 million residential developments • These balances make up 45% of the total OREO b
Slide 42: Land Loan and Land-related ORE locations
Land Loan and Land-related ORE locations 4.3% 10.1% Middle TN East TN Other 85.6% > $250,000 properties, approx. $180.6 mm balances 42
Slide 43: Net Charge-off's
Net Charge-off’s • Largest Charge-offs During 4Q11 • #1 - $1.3 million C&I • #2 - $1.2 million construction & land development • #3 - $0.7 million construction & land development • #4 - $0.6 million construction & land development • #5 - $0.6 million C&I • These credits make up 68% of net charge off
Slide 44: Supplemental Information: Balance Sheet
Supplemental Information Balance Sheet 44
Slide 45: Funding is Almost Exclusively Relationship Based
Building Core Earnings Capacity Funding is Almost Exclusively Relationship Based 12/31/2011 Percent 12/31/2010 Percent Core Funding: Noninterest-bearing deposit accounts 717,379 17.46% 586,517 14.0% Interest-bearing demand accounts 637,203 15.51% 573,670 13.7% Savings and money market accounts 1,585
Slide 46: Core Funding Remains Primary Funding Source
Building Core Earnings Capacity Core Funding Remains Primary Funding Source Core Funding Relationship Based Non-Core Funding Wholesale Funding 100% 6% 5% 5% 7% 8% 8% 90% 13% 13% 11% 9% 8% 17% 80% 70% 60% 50% 40% 82% 82% 84% 83% 84% 76% 30% 20% 10% 0% 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 46
Slide 47: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.2% (TEY) 0.0% 1.2% Average life = 4.25 years Municipals Effective Duration = 2.45% 21.8% (millions) QTD Agency Notes Purchases $ 16.0 5.0% MBS pass Sales ($ 8.0) thrus Mat/Calls ($ 6.5) Agency
Slide 48: Investment Portfolio
Investment Portfolio Credit ratings # of Issuances Balances % Municipal portfolio “A” or better 321 $198,321 100.0% Baa3/BBB- to Baa1/BBB+ - - - Noninvestment grade - - - Unrated - - - Totals 321 $198,321 100.0% As of Dec. 31, 2011 Location # of Issuances Balances % Other information: Tennessee 87 $
Slide 49: Supplemental Information: Income Statement
Supplemental Information Income Statement 49
Slide 50: Noninterest Income
Building Core Earnings Capacity Noninterest Income 4Q11 3Q11 2Q11 1Q11 4Q10 Service charges $ 2,291 $ 2,362 $ 2,330 $ 2,261 $ 2,353 Investment services 1,402 1,699 1,637 1,508 $ 1,264 Insurance commissions 944 1,002 1,004 1,049 $ 907 Net gains on mortgage loan sales 1,461 1,295 789 610 $ 1,352 Trust
Slide 51: Expense Down 5.7% from 4Q10
Building Core Earnings Capacity Expense Down 5.7% from 4Q10 4Q11 3Q11 2Q11 1Q11 4Q10 Salaries and benefits $16,230 $15,951 $15,870 $16,985 $15,708 Incentive expense 2,733 3,065 2,654 938 - Equipment and occupancy 4,977 4,943 5,060 5,007 4,988 Other real estate owned 4,193 5,079 3,826 4,334 7,874 Mar
Slide 52: Non-GAAP Financial Measures – Net Interest Margin
Non-GAAP Financial Measures – Net Interest Margin 4Q11 3Q11 2Q11 1Q11 4Q10 Avg. net earning assets $4,347,352 $4,308,710 $4,347,552 $4,387,331 $4,441,671 Net interest income $39,293 $38,356 $37,795 $36,020 $36,056 Impact of tax exempt 0.06% 0.07% 0.06% 0.07% 0.07% instruments Net interest margin 3.6
Slide 53: Non-GAAP Financial Measures – Efficiency Ratio
Non-GAAP Financial Measures – Efficiency Ratio 4Q11 3Q11 2Q11 1Q11 4Q10 Net interest income $39,293 $38,356 $37,795 $36,020 $36,056 Total non-interest income $9,727 $10,080 $9,809 $8,324 $8,666 Less: Securities (gains) losses (133) (377) (610) 159 - Non-interest income, excluding securities $9,594 $
Slide 54: Supplemental Information: Economic Conditions
Supplemental Information Economic Conditions 54
Slide 55: Nashville and Knoxville are Poised for Expansion
Market Opportunities Nashville and Knoxville are Poised for Expansion 2010 – 2011 Year to Date (Jan – Aug) Percentage Change in Employment Forbes: Next Big Boom Towns (July, 2011) 1. Austin 2. Raleigh 3. Nashville 4. San Antonio 5. Houston 6. Washington, DC 7. Dallas 8. Charlotte 9. Phoenix 10. Orla
Slide 56: Unemployment Trends
Unemployment Trends • Knoxville continues to outperform at < 7%, Nashville at approx. 7.5% currently. • Tennessee unemployment at approximate historical norms of > USA results by approximately 0.4% to 0.6% 56 Source: BERC – Middle Tennessee State University & Bureau of Labor Statistics
Slide 57: Nashville's Real Estate Market Continues to Improve
Nashville Residential Real Estate Market Nashville’s Real Estate Market Continues to Improve 4Q 2011 4Q 2010 % Change Avg. Qtrly. Median Home $166.0 $171.0 (2.9)% Price Quarterly 4,268 3,629 17.6% Closings Year end 10,574 12,146 (12.9)% Inventory Months of 7.04 9.82 (28.3)% Inventory (*) 57 Source:
Slide 58: Residential Real Estate Trends
Residential Real Estate Trends • Zillow.com Home Value Index (i.e., “Zestimate”) trends 12/1996 thru 11/2011 for single family homes • Chart compares volatility in home prices in Nashville and Knoxville to select other US markets • As we have mentioned numerous times, similar to many other smaller m
Slide 59: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates Vacancy Rates Q4 Q3 YE 2010 YE 2009 YE 2008 YE 2007 Q4 2011 (*) 2011 (*) (*) (**) (**) (**) 2011 (*) Industrial / 9.7% 9.6% 10.2% 10.6% 9.6% 8.9% 9.5% Warehouse Multifamily 7.2%(***) 7.0%(***) 6.7% 9.6% 7.6% 5.2% 6.6% (**)
Slide 60: Fourth Quarter 2011 Investor Call
Fourth Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO January 18, 2012
Pinnacle Financial Partners — Q4 2011 Earnings Presentation on 6ix