Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q2 2014 Earnings Presentation
55 slides from Pinnacle Financial Partners's earnings presentation, Jul 16, 2014
Slide 1: Second Quarter 2014 Investor Call
Second Quarter 2014 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 16, 2014
Slide 2: Safe Harbor Statements
Safe Harbor Statements Forward-looking statements Certain of the statements in this presentation 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 "expec
Slide 3: 2Q14 Summary Results
2Q14 Summary Results Execution of fundamentals fuels exceptional growth in key valuation drivers Balance Sheet Growth Total Loans Avg Trans Accts Tangible Book Value per Share Up 9.9% yr/yr (millions) (millions) $2,115 $14.53 $4,182 $4,316 Up 17.3% yr/yr $2,050 Up 13.7% yr/yr $13.93 $4,144 $3,925 $3
Slide 4: 2Q14 Summary Results
2Q14 Summary Results 11.5% actual net loan CAGR equals the stated three year growth target 2012-2014 Previously Reported Growth Anticipated Net Loan Growth Current Quarter Growth 11.5% CAGR (1/1/2012- 6/30/2014) Financial Advisor Capacity Thru 2Q2014 $1.02 billion net growth thru 2Q14 11.5% CAGR FA
Slide 5: Annual loan growth is reliable despite wide quarterly variation
Loan, Deposit and Fee Growth Yield Operating Leverage Annual loan growth is reliable despite wide quarterly variation Annual Net Loan Growth Quarterly Net Loan Growth $500 $425 $434 $411 $200 $400 Loan Volumes Loan Volumes ($ millions) $221 ($ millions) $150 $300 $272 $200 $243 $100 $50 $100 $153 $2
Slide 6: Net interest income grew as loan and deposit volumes increased
Loan, Deposit and Fee Growth Yield Operating Leverage Net interest income grew as loan and deposit volumes increased in 2Q14 $48 4.00% $47.2 3.90% $46 $45.9 3.80% $45.0 $44 $44.6 3.70% Net Interest Income Net Interest Margin $43.6 3.71% $42.8 $42 3.60% $42.2 (millions) 3.50% $40.9 $40 $40.2 $39.5 3.
Slide 7: Average loans grew meaningfully; loan yields contracted slightly
Loan, Deposit and Fee Growth Yield Operating Leverage Average loans grew meaningfully; loan yields contracted slightly 6.00% $4,200 $4,251 $4,130 5.50% $4,000 $3,981 $3,932 Average Loans $3,800 Loan Yields 4.88% 5.00% $3,845 (millions) $3,682 $3,600 4.50% $3,580 $3,489 $3,400 $3,403 4.27% 4.00% $3,2
Slide 8: Floors have provided meaningful earnings and are manageable
Loan, Deposit and Fee Growth Yield Operating Leverage Floors have provided meaningful earnings and are manageable going forward $1,360 6.00% $1,340 5.00% $1,320 1.33% 0.96% 0.93% 0.84% 0.81% 0.72% 4.00% $1,300 Loan Volumes ($ millions) $1,280 3.00% $1,260 2.00% $1,240 1.00% $1,220 $1,200 0.00% Dec 2
Slide 9: Deposits continued to grow while cost of funds declined
Loan, Deposit and Fee Growth Yield Operating Leverage Deposits continued to grow while cost of funds declined in 2Q14 $4,600 1.20% $4,500 1.01% 1.10% $4,519 $4,509 $4,400 1.00% $4,408 $4,300 0.90% $4,200 0.80% Deposit Costs $4,199 Avg. Deposits $4,100 0.70% $4,000 (millions) (%) 0.60% $3,900 $3,963
Slide 10: Noninterest income to asset ratio remains in high end of target range
Loan, Deposit and Fee Growth Yield Operating Leverage The ‘noninterest income to asset’ ratio remains in the high end of the target range 2Q14 1Q14 4Q13 3Q13 2Q13 Service charges $2,966 $2,791 $2,739 $2,797 $2,541 Investment services 2,164 2,128 2,394 1,956 1,895 Insurance commissions 1,145 1,385 1,
Slide 11: Core noninterest expense to average assets ratio declining toward target
Loan, Deposit and Fee Growth Yield Operating Leverage The core ‘noninterest expense to average assets’ ratio is declining toward target 2Q14 1Q14 4Q13 3Q13 2Q13 Salaries and benefits $21,772 $21,750 $21,494 $21,010 $20,570 Equipment and occupancy 5,823 5,709 5,543 5,413 5,204 Other real estate owned
Slide 12: Growth in Core Earnings Capacity
Growth in Core Earnings Capacity The adjusted PTPP expanded at a 7.9% annualized rate in 2Q14 (000’s) 2Q14 1Q14 4Q13 3Q13 2Q13 Net interest income $47,226 $45,908 $44,969 $44,573 $43,599 Total noninterest income 12,597 12,732 12,488 11,387 11,326 Total revenue 59,823 58,644 57,457 55,960 54,925 Tota
Slide 13: Future Outlook
Future Outlook 1. Aspirations remain high – top quartile performance 2. Nashville and Knoxville are advantaged markets 3. PNFP is uniquely positioned to capitalize on businesses’ “willingness to switch” 4. Client retention supports outsized share growth 13
Slide 14: PNFP targets and has delivered top quartile performance
Future Outlook PNFP targets and has consistently delivered top quartile performance Total Shareholder Return - 1 yr. Total Shareholder Return - 3 yr. Total Shareholder Return - 5 yr. 250.0% 250.0% 250.0% 200.0% 200.0% 200.0% 84th percentile 150.0% 150.0% 150.0% 89th percentile 100.0% 100.0% 100.0% 5
Slide 15: Increased long-term return targets in the 2014-2016 plan
Future Outlook PNFP has increased the long-term return targets in the 2014-2016 plan Net Interest Margin Noninterest Income/ Average Assets (1) 3.95% 1.05% 3.90% Return on Average Assets 3.90% 1.00% 0.97% 0.96% 0.93% 0.94% 1.50% 0.95% 0.92% 3.85% 0.89% 0.89% 3.80% 0.90% 3.78% 0.86% 1.40% 3.80% 3.76%
Slide 16: Nashville and Knoxville are healthy business markets
Future Outlook Nashville and Knoxville are healthy business markets TENNESSEE • Tennessee ranks No. 2 in the annual list of the most competitive states for economic development success Site Selection magazine • Tennessee ranks No. 6 in the “Top 10” nationwide for small business friendliness Thumbtac
Slide 17: PNFP is uniquely positioned to capitalize on willingness to switch
Future Outlook PNFP is uniquely positioned to capitalize on “willingness to switch” Primary Reasons for Primary Reasons for Small Business Mid-Size Business Switching Switching Pinnacle’s Ability to Harvest Dissatisfaction Competitor Unsatisfied with representitive or 25% Ranking Pricing of loans or
Slide 18: Client retention supports outsized share growth
Future Outlook Client retention supports outsized share growth Competitor Ranking Overall Client Satisfaction 1 Ease of Doing Business 1 Values Long-Term Relationships 1 Loyalty – Likelihood to Recommend 1 Source: Greenwich Associates 18 Pinnacle Financial – Nashville - $1-500 MM as of 3/31/14
Slide 19: 2Q14 Conclusion
2Q14 Conclusion 1. Operating leverage strategy is working 2. Double-digit growth in EPS, loans, DDAs and tangible book value per share 3. On track to hit long-term growth and profitability targets by 4Q14 4. Continue to target and deliver top quartile performance • Advantaged markets • Ability to ca
Slide 20: Q&A – Second Quarter 2014 Investor Call
Q&A – Second Quarter 2014 Investor Call 20
Slide 21: Supplemental Information
Supplemental Information Second Quarter 2014 Investor Call 21
Slide 22: Supplemental Information
Supplemental Information Chart • Balance Sheet 23 • Asset Quality 35 • Income Statement 41 • Pinnacle Financial Partners profile 46 • Economic and Market Conditions 51 22
Slide 23: Balance Sheet
Supplemental Information Balance Sheet 23
Slide 24: Loan portfolio components are within targeted ranges
Balance Sheet Loan portfolio components are within targeted ranges Amts. %’s Amts. %’s Amts. %’s Amts. %’s 2Q14 2Q14 1Q14 1Q14 2Q13 2Q13 2Q12 2Q12 C&D and Land $292.9 6.8% $294.1 7.0% $298.5 7.6% $289.1 8.4% Consumer RE 698.5 16.2% 703.6 16.8% 697.5 17.7% 687.0 19.9% CRE – Owner Occ. 702.9 16.3% 701
Slide 25: Exposure to residential land development is limited
Balance Sheet Exposure to residential land development is limited Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 2Q14 2Q14 1Q14 1Q14 2Q13 2Q13 2Q12 2Q12 Residential – Spec $35.6 0.8% $34.0 0.8% $21.1 0.5% $ 12.4 0.4% Residential – Custom 36.2 0.8% 31.7 0.8% 22.2 0.6% 11.8 0.3% Residential – Con
Slide 26: The C&I loan portfolio is highly diversified
Balance Sheet The C&I loan portfolio is highly diversified Transportation & Utilities, 0.1% Accomodation and Food Warehousing, 7.1% Services, 3.4% Administrative & Support & Waste Management & Remediation Services, 3.2% Retail Arts, Entertainment & Trade, Recreation, 1.7% Real Estate & Rental & 5.2%
Slide 27: Loan growth is a function of improving demand and market share
Loan, Deposit and Fee Growth Yield Operating Leverage Loan growth is a function of improving demand and market share movement New Loans YTD Q214 New clients, 36.2% Existing clients, 63.8% Source: Internal loan records, new loans to new clients based on review of new tax ID’s recorded during 2014. Al
Slide 28: Loan growth is primarily funded by growth in low cost deposits
Balance Sheet Loan growth is primarily funded by growth in low cost deposits % of Deposits by Type to Total Deposits Avg. Loan & Trans, Savings and MMA Account Growth 800 100.00% 70.0% 700 95.00% 60.0% 600 90.00% 500 50.0% 85.00% 400 80.00% 40.0% 300 75.00% 200 30.0% 70.00% 100 65.00% 20.0% 0 -100 6
Slide 29: PNFP has limited dependence on non-relationship funding
Balance Sheet PNFP has limited dependence on non-relationship funding 6/30/2014 Percent 6/30/2013 Percent Core Funding: Transaction accounts 2,211,677 44.40% 1,903,486 41.03% Money Market accounts 1,671,108 33.54% 1,424,910 30.71% Time deposits less than $250,000 362,960 7.29% 443,028 9.55% Total Co
Slide 30: Line commitments are up over 2Q13 but utilization remains low
Balance Sheet Line commitments are up 12.9% over 2Q13 but utilization remains low 60% 56.15% 56.32% $2,500 55% $1,046 $1,028 $1,024 $989 $2,000 $926 Total Commitments $941 50% $865 $787 Funded % $815 $808 $779 $747 $685 $715 $1,500 45% (millions) $1,000 40% $1,349 $1,247 $1,216 $1,190 $1,166 $1,138
Slide 31: Bond volumes rise while yields contract
Balance Sheet Bond volumes rise while yields contract; declining impact on overall margin $1,050 3.58% 3.70% $1,000 3.50% $1,010 $973 $950 3.30% $940 Average Securities $924 $900 3.10% Bond Yields $876 $850 2.90% (000’s) (%) 2.93% $800 $819 2.70% $782 $750 $767 2.50% $749 $746 $739 $732 $700 $720 2.
Slide 32: Conservative bond portfolio
Balance Sheet Conservative bond portfolio 1.4% Portfolio: June 30, 2014 15.5% 22.8% Total Investments $782 million Unrealized Gain (Loss) $ 9.7 million 7.6% QTD Purchases $38.8 million 2.0% 50.7% QTD Sales $ 0.0 million Duration Avg Yield - TE June 2014 3.1 % 2.9% Agency Corporates MBS Dec 2013 4.6
Slide 33: The municipal portfolio contains minimal risk
Balance Sheet The municipal portfolio contains minimal risk Municipal Bond Portfolio Statistics Muni Allocation % 2Q14 2Q13 Weighted Average Life 3.8 years 4.2 years % State Agency Holdings 5.14% 5.30% 24% Tax equivalent yield 4.60% 4.69% 76% FMV as % of Cost 104.6% 104.2% Location # of Issuances Ma
Slide 34: Elevated tangible common is available for deployment
Balance Sheet Elevated tangible common is available for deployment Tangible Common Ratio Return on Tangible Common Equity 12.72% 9.27% 9.31% 9.18% 9.03% 13.47% 8.96% 8.75% 12.71% 12.41% 12.80% 12.72% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 34
Slide 35: Asset Quality
Supplemental Information Asset Quality 35
Slide 36: Past due loans remain very low
Asset Quality Past due loans remain very low June 30, As a % March 31, As a % June 30, As a % of 2014 of total 2014 of total 2013 total (000’s) loans loans loans Past Due Loans (*) Managed by special assets: Nonaccrual loans $4,958 0.11% $4,847 0.12% $9,610 0.24% Accruing loans 17,372 0.40% 11,917 0
Slide 37: Percentage of potential problem loans remain low
Asset Quality Percentage of potential problem loans remain low Potential Problem Loans June 30, As a % Mar. 31, As a % June 30, As a % of 2014 of total 2014 of total 2013 total (000’s) loans loans loans PNFP 77,066 1.79% 83,859 2.01% 82,473 2.11% Peer Median* - - 81,558 2.12% 82,855 2.89% *: Substan
Slide 38: NPLs remain very low
Asset Quality NPLs remain very low NPLs Expressed as a % of Total Loans within each Category PNFP NPLs and >90 days June 30, As a % of Mar. 31, As a % of June 30, As a % of (000’s) 2014 total loans 2014 total loans 2013 total loans Const. and land development $978 0.33% $ 1,137 1.53% $1,319 0.61% CR
Slide 39: Classified assets are contained
Asset Quality Classified assets are contained (in thousands) Balances Balances Balances June 30, 2014 March 31, 2014 June 30, 2013 Classified loans and ORE: - Substandard commercial loans $95,007 $110,768 $118,046 - Doubtful commercial loans - - - - Other impaired loans 5,723 4,848 1,940 - 90 days p
Slide 40: Current OREO valuations are reasonable
Asset Quality Current OREO valuations are reasonable Average Appraisal Balances Fair value as a % of Age (dollars in thousands) June 30, 2014 book value* in Months ORE categories: Developed lots $ 508 299.3% 4.77 Undeveloped land 10,556 160.7% 3.64 Other 1,883 125.7% 5.01 Total ORE $ 12,947 161.0% 4
Slide 41: Income Statement
Supplemental Information Income Statement 41
Slide 42: Net interest margin built on success with clients
Income Statement Pinnacle’s net interest margin has been built on success with clients 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% Treasury Margin Client Margin Net Interest Margin Client Margin – Measures the ratio of interest earnings of the loan portfolio as supported by non-collateralized customer
Slide 43: Mortgage volumes rise as yield spreads improve
Income Statement Mortgage volumes rise as yield spreads improve 140,000 3.50% 120,000 3.00% 100,000 2.50% 80,000 2.00% 64.7% 60,000 1.50% 49.7% 69.1% 40,000 63.4% 1.00% 39.1% 66.2% 52.4% 33.4% 25.9% 29.8% 46.7% 23.2% 24.3% 23.4% 20,000 0.50% 0 0.00% Purchase Money Refinance Gross fees as a % of loan
Slide 44: PNFP efficiency remains stable
Income Statement PNFP efficiency remains stable 2Q14 1Q14 4Q13 3Q13 2Q13 Net interest income $47,226 $45,908 $44,969 $44,573 $43,599 Total non-interest income $12,598 $12,732 $12,488 $11,387 $11,326 Less: Securities (gains) losses - - - 1,441 25 Less: Net noncredit related loan losses - - - - 771 No
Slide 45: Pinnacle Financial Partners Profile
Supplemental Information Pinnacle Financial Partners Profile 45
Slide 46: PNFP operates in two great banking markets
PNFP Profile PNFP operates in two great banking markets Headquarters: Nashville, TN Offices: 29 in 8 Middle-TN counties 4 in Knox County Founded: 2000 Avg. daily trading volume **: 179,967 shares Total assets: $ 5.788 Billion (6/30/14) % Institutional ownership: 71.9% (3/31/14) Shareholders’ equity:
Slide 47: PNFP has an extraordinarily experienced management team
PNFP Profile PNFP has an extraordinarily experienced management team Name Title Age Years in Years at Banking Pinnacle Industry M. Terry Turner President and Chief Executive Officer 59 36 14 Robert A. McCabe, Jr. Chairman of the Board 63 38 14 Hugh M. Queener Chief Administrative Officer 58 27 14 Ha
Slide 48: PNFP compares favorably to high performing peers
PNFP Profile PNFP compares favorably to high performing peers • Pinnacle Financial Partners (PNFP) • Sandy Springs Bancorp, Inc. (SASR) • 1st Source Corporation (SRCE) • SCBT Financial Corp (SCBT) • Brookline Bancorp, Inc. (BRKL) • Sterling Bancorp (STL) • Columbia Banking System, Inc. • TowneBank (
Slide 49: Track record for best-in-market share movement
PNFP Profile PNFP has a track record for “best-in-market” share movement Nashville-Davidson-Rutherford MSA Knoxville MSA Top 10 Holding Market Market Change Top 10 Holding Market Market Change Market Company Share Share in Market Company Share Share in Share 6/30/13 6/30/00 Share Share 6/30/13 6/30/
Slide 50: Economic & Market Conditions
Supplemental Information Economic & Market Conditions 50
Slide 51: Rapid job growth leads to rapid real estate absorption
PNFP operates in advantaged markets Rapid job growth leads to rapid real estate absorption Nashville Home Sales 2Q2014 1Q2014 2Q2013 % Change Avg. Qtrly. Median Home $212,268 $193,000 $201,650 5.3% Price Quarterly Closings 7,541 4,992 7,402 1.9% Quarter end 10,553 9,439 10,555 0.0% Inventory Months
Slide 52: Future Outlook-Nashville
Future Outlook-Nashville Nashville MSA Projected Population Growth (2012-2017)* 7.64% Median HHI Change (2012-2017)* 11.20% Cost of Living Index** 88.7 In Market Deposits* $40.8 B Market Share* 8.9% * Retail office locations Sources: *SNL ** c2er-ACCRA Cost of Living Index
Slide 53: Future Outlook-Knoxville
Future Outlook-Knoxville Knoxville MSA Projected Population Growth* (2012-2017) 4.33% Median HHI Change* (2012-2017) 18.9% Cost of Living Index** 89.0 In Market Deposits* $14.6 B Market Share* 3.1% * Retail office locations Sources: *SNL ** c2er-ACCRA Cost of Living Index
Slide 54: Nashville's commercial vacancy rates indicate a healthy market
PNFP Operates in Advantaged Markets Nashville’s commercial vacancy rates indicate a healthy market Nashville CRE National Vacancy Rates CRE Vacancy Rates 2Q YE 2013 YE 2012 YE 2011 YE 2010 YE 2009 YE 2008 1Q 2014(**) (**) (**) (**) (**) (***) (***) 2014 (**) Industrial / 7.8% 8.7% 9.1% 10.1% 10.2% 1
Slide 55: Second Quarter 2014 Investor Call
Second Quarter 2014 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 16, 2014
Pinnacle Financial Partners — Q2 2014 Earnings Presentation on 6ix