Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q2 2012 Earnings Presentation
68 slides from Pinnacle Financial Partners's earnings presentation, Jul 18, 2012
Slide 1: Second Quarter 2012 Investor Call
Second Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 18, 2012
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: 2Q Results Match Previous Guidance
2Q Results Match Previous Guidance Management’s focus for 2Q12 • Increasing lending opportunities • Core funding growth and reduced funding costs • Continued expansion of margin and net interest income • Continued improvement in asset quality metrics 3
Slide 4: Other Significant 2Q Events
Other Significant 2Q Events There were two significant events during 2Q12 • TARP redemption • Charter conversion application 4
Slide 5: TARP Redemption
TARP Redemption PNFP fully redeemed TARP with no common dilution Key Facts 1. Principle and accrued dividends of $71.6 million on 6/20/12 2. Source of Funds • $21.6 million holding company cash • $25 million bank dividend to holding company • $25 million senior holding company indebtedness 3. Terms
Slide 6: Charter Conversion Application
Charter Conversion Application Pinnacle National Bank applied for a state banking charter Key Facts 1. Application is to become a state “non‐member” bank 2. Federal Reserve continues to regulate the holding company 3. FDIC becomes primary federal regulator for the bank 4. Approval anticipated in 90‐
Slide 7: Primary Priorities
Primary Priorities Pinnacle has consistently executed against its priorities 2010‐2012 • Aggressively deal with credit issues • Build core earnings capacity 2012 • Growing the balance sheet 7
Slide 8: Second Quarter 2012 Highlights
Second Quarter 2012 Highlights Asset quality continued to improve Linked Li k d Qt Qtr Year over Y Consecutive C ti Change Year Change Qtrs. of Progress Credit losses (NCO (NCO’ss + ORE expense) (33 7%) (33.7%) (55 7%) (55.7%) 8 NPLs (4.7%) (31.7%) 9 NPAs (13.8%) (40.9%) 8 Classified loans (2.6%) (2
Slide 9: Second Quarter 2012 Highlights
Second Quarter 2012 Highlights Core earnings capacity continued to expand Linked Qtr Quarterly Year Change g over Year Change Total loans 3.2% 7.4% C&I and owner occupied CRE loans 3.3% 14.3% Avg. Noninterest bearing deposits 7.7% 20.1% Net interest income 1.7% 6.3% Net interest margin 0 5% 0.5% 5 9
Slide 10: Building Core Earnings Capacity
Building Core Earnings Capacity Net interest income and margin continued to expand Key Revenue Drivers: Net Interest Margin Trend • Higher loan volumes 3.76% 3.80% • Reduced funding costs 3.74% • NPA resolutions 3.70% 3.65% 3.60% 3.60% 3.55% (in millions) Net Interest Income 3.50% $42 $40.2 3.40% 3.
Slide 11: Building Core Earnings Capacity
Building Core Earnings Capacity Reduction in cost of deposits drove margin expansion 1.45% 3 3.74% 74% 3.76% 3.80% 1.36% 3.65% 3.60% 1.25% 3.55% 3.60% %) Net Interesst Margin (% Costt of Funds 3.40% 1.05% 3.40% 3.29% 3.23% 3.23% 0.85% 3.20% 0.65% 3.00% N 0.47% 0.45% 2.80% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q
Slide 12: Building Core Earnings Capacity
Building Core Earnings Capacity COF reduction opportunities remain in maturing CDs • CD repricing opportunities ‐ $135mm in Client CD’s CD s maturing over next three months. Goal at renewal should be below or near average second quarter renewal rate (0.61%). Client CD’s CD s – Avg. Avg Rate Average
Slide 13: Building Core Earnings Capacity
Building Core Earnings Capacity COF reduction opportunities remain in MMDAs • MMDA pricing opportunities ‐ $215mm in MMDA accounts with current rates above 1.00%. Target rate should approximate 0.40% ‐ 0.60%. Avg Quarterly Quarterly MMDA Rates Reduction 1st Quarter 2011 1.04% 0.17% 2nd Quarter 2011
Slide 14: Building Core Earnings Capacity
Building Core Earnings Capacity Loan growth accelerates, but yield compresses in 2Q $3,500 5.00% 4.88% 4.87% $3,403 4.78% $3,400 4.74% 4.74% 4.80% 4.65% Averaage Loans Loan Yields $3,300 $3,280 4.60% $3,262 ((millions) $3,212 $3,207 $3 191 $3,191 $3,200 4.40% $3,100 4.20% $3,000 4.00% 1Q11 2Q11 3Q11
Slide 15: Building Core Earnings Capacity
Building Core Earnings Capacity Margin outlook contains opportunities and threats 2Q 2012 Net Interest Margin 3.76% Opportunities: 1. Loan growth 0.01% to 0.03% 2. Continued reduction in COF 0.02% to 0.06% 3. NPA resolution 0.00% to 0.02% Threats: 4. Declining loan yields (0.04% ) to (0.05%) 5. Decl
Slide 16: Building Core Earnings Capacity
Building Core Earnings Capacity Credit losses continue to decline $16,000 ORE Expense $14,000 Net Charge‐Offs $12,000 $4 334 $4,334 $3,826 $10,000 $5,079 $4,193 $8 000 $8,000 $6,000 $4,676 $9,726 $8,605 $4 000 $4,000 $3 104 $3,104 $6,335 $5,732 $2,000 $3,630 $2,399 $0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 1
Slide 17: Building Core Earnings Capacity
Building Core Earnings Capacity Adjusted PTPP expands 16.5% in 2Q12 over the same period prior year (000’s) 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 Net interest income $40,185 $39,504 $39,293 $38,356 $37,795 $36,020 Total noninterest income 9,910 9,949 9,727 10,080 9,809 8,324 Total revenue 50,095 49,453 49,0
Slide 18: Outlook for the Future
Outlook for the Future Beginning the next phase – growth and discipline 18
Slide 19: Company Profile – Phase 1 (2000-2008)
Company Profile – Phase 1 (2000‐2008) PNFP successfully moved quality share from large regionals BI Merger Loans & Deposits $4,000 MB $3,500 Cavalry Merger $3,000 $2,500 $2,000 Total Deposits (EOP) $1,500 Total Loans ((EOP)) $1,000 $500 $0 Net Charge‐off’s 0.30% 0.25% 0.20% Net Charge Offs 0.15% 0.1
Slide 20: Company Profile – Phase 1 (2000-2008)
Company Profile – Phase 1 (2000‐2008) Acquisitions significantly altered loan mix toward C&D 70% 7% 6% 59.7 59.6 54.8% 60% Commercial Mortgage 50% and C&I Construction and 40% Development 30% 21.2% 16.9% 20% 10.4% 10% 0% 2005 2006 2007 20
Slide 21: Company Profile – Phase 2 (2008–2012)
Company Profile – Phase 2 (2008 – 2012) Pinnacle’s loan portfolio outperformed during the recession Nonperforming Assets + 90 days delinquent Net Charge Charge‐offs offs to Total Loans as a percentage of loans and ORE 2008‐Q1 2012 9.00 14.00 12.48% 12.59% 8.00 12.00 11 19% 11.19% 7.00 10.00 9.26% 6.
Slide 22: Company Profile – Phase 3 (2012 and beyond)
Company Profile – Phase 3 (2012 and beyond) Pinnacle is progressing toward its long‐term profitability targets Ratio PNFP PNFP PNFP PNFP FY2011 1Q12 2Q12 Long‐term Targets ROAA 1.12%* 1.00%* 0.90%* 1.10%‐1.30% NIM 3.55% 3.74% 3.76% 3.70%‐3.90% 3.70% 3.90% Net Charge‐offs 0.69% 0.45% 0.28% 0.20%‐0.35
Slide 23: Achieving Long-term Targets
Achieving Long‐term Targets Nashville’s and Knoxville’s job recovery outpaces the nation • USA recovery of jobs lost since peak employment in 2008 has amounted to 43.9% • Nashville has replaced 86% while Knoxville has replaced 100% Source: BERC – MTSU & Bureau of Labor Statistics 23
Slide 24: Achieving Long Term Targets
Achieving Long Term Targets Nashville and Knoxville are healthy business markets “Music City” is a city on the move with its diverse economy, thriving cultural base, entertainment offerings and strong business community. Nashville’s central location in the U.S. makes it an unmatched distribution loc
Slide 25: Achieving Long-term Targets
Achieving Long‐term Targets Historical DDA trends reflect an ability to gain clients $800 • Year‐over‐year Year over year DDA $756 account balances up $750 21.3%. nces (in millions) $706 $702 $700 $672 • Year‐over‐year Year over year $650 $629 number of accounts $595 up 18.7%. $600 $576 $550 $534 er
Slide 26: Achieving Long-term Targets
Achieving Long‐term Targets Quarterly net loan growth is expanding $150 Quarterly Loan Growtth (000’s) $100 $50 $0 $50 ‐$50 ‐$100 ‐$150 $ Net Q ‐$200 26
Slide 27: Achieving Long-term Targets
Achieving Long‐term Targets Pinnacle has established a market leadership position Customers as a % of the Lead Relationships as a % of Total Market the Total Market 24% 19% Pinnacle Financial 17% 12% 22% 14% R i Regional lA Q2 2011‐Q1 2011 Q1 2012 27% 19% Q2 2010‐Q1 2011 22% 12% Regional g B 23% 15%
Slide 28: Achieving Long-term Targets
Achieving Long‐term Targets Pinnacle’s reputation supports continued share movement Client Score Change from Q2 2011-Q1 2012 Q2 2010-Q1 2011** Brand Image Values Long‐Term Relationships 99 (+) Ranks 1‐3 Broad Range of Products and Services 99 (+) Ranks 4‐5 Customer Service 99 (+) Ranks 6‐8 Business
Slide 29: Achieving Long-term Targets
Achieving Long‐term Targets Recent hires and existing advisors have incremental capacity to take share 2012 ‐ 2014 Anticipated Net Loan Growth YTD 2012 $153 Million YTD Previously Reported Growth Current Quarter Growth FA Capacity $1.27 Billion $1 27 Billi $1.27 Capacity Billion TTargett 29
Slide 30: Achieving Long-Term Targets
Achieving Long‐Term Targets Pinnacle is currently positioned for achieving targets • Strong, healthy markets • Current C and d historical hi i l performance f trends d • Track record and reputation for taking share • Existingg expenses p support pp meaningful g asset growth g 30
Slide 31: Achieving Long-Term Targets
Achieving Long‐Term Targets Additional opportunities exist – but are not required • Denovo market extensions • Memphis • Chattanooga Ch tt • In‐market acquisitions q • “Line‐of‐Business” acquisitions • Trust • Asset Management g • P&C Insurance Agencies 31
Slide 32: Looking to the Near-term
Looking to the Near‐term Management’s focus for 3Q12 • Continued improvement in asset quality metrics • Increasing lending opportunities • Core funding growth and reduced funding costs • Continued expansion p of net interest income 32
Slide 33: Q&A – Second Quarter 2012 Investor Call
Q&A – Second Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 18, 2012 33
Slide 34: Supplemental Information
Supplemental Information Second Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 18, 2012 34
Slide 35: Supplemental Information
Supplemental Information Chart • Asset Quality 36 • Balance Sheet 49 • Income Statement 58 • Economic Conditions 64 35
Slide 36: Asset Quality
Supplemental Information Asset Quality 36
Slide 37: Potential problem loans continue to decline
Aggressively Dealing with Credit Issues Potential problem loans continue to decline 10.0% oans 9.30% oans/Total lo 9 0% 9.0% 8 63% 8.63% 8.23% 8.0% 7.24% 7.18% 6.95% 7.0% 6 0% 6.0% al Problem lo 5.31% 5.0% 4.30% 4.62% 4.04% 3.96% 3.78% 4.0% 3.21% 3 0% 3.0% Potentia 2.0% 1.0% 0 0% 0.0% Note: Classifi
Slide 38: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues Classified assets decrease in 2Q12 Balances Balances Balances Balances June 30, 2012 Dec. 31, 2011 June 30, 2011 June 30, 2010 (dollars (dollars (dollars (dollars in thousands) in thousands) in thousands) in thousands) Cl ifi d lloans and Classified d ORE: ORE
Slide 39: Nonperforming Loan Trends
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 (*) 2Q12 1Q12 4Q11 1Q12 Const. and land development 2.09% 2.48% 4.73% 11.11% CRE – Ow
Slide 40: Nonperforming Loans
Nonperforming Loans • Largest NPLs • #1 ‐ $3.9 million consumer real estate • #2 ‐ $3.8 million owner occupied commercial real estate • #3 ‐ $3.4 million consumer real estate • #4 ‐ $2.8 million commercial land development • #5 ‐ $2.2 $2 2 million consumer real estate • Top five represent 39.1% of N
Slide 41: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues ORE is 38.4% of NPAs with resolution in bank’s control Balances Fair value as a % Average June 30, 2012 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: New home construction/condo’s $ 3 100.0% 5.08 Developed lots 4,136 207.8% 4.09
Slide 42: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues Allowance coverage increases as NPLs decline 170 53% 170.53% $140,000 160% $118,331 $120,000 ans 140% ance to NPL’’s TTotal Nonperrforming Loa $103 127 $103,127 $100,000 120% $80,863 $80,000 $76,368 100% 00’s) Allowa (00 $54 640 $54,640 80% $60,000 $59,727 $47
Slide 43: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues NPA inflows decrease consistent with NPAs $80 000 $80,000 $160 000 $160,000 $70,000 $132,368 $140,000 NPA Inflowss and Disposittions NPA Acctual Balancees $60,000 $ , $120,000 $ , $50,000 $100,000 ((000’s) $38,693 $40,000 $33,461 $66,272 $80,000 $32 256 $32,25
Slide 44: OREO Properties
OREO Properties • Largest OREO Properties: • #1 ‐ $4.1 $ million mixed‐use development • #2 ‐ $2.8 million residential development • #3 ‐ $1.8 million commercial development • #4 ‐ $1.4 million mixed‐use development • #5 ‐ $1.0 million residential developments • These balances make up 43% of the tot
Slide 45: Land Loan and Land-related ORE locations
Land Loan and Land‐related ORE locations 4.5% 11.0% Middle TN East TN Other 84.5% > $250,000 properties, approx. $181.1 mm balances 45
Slide 46: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues OREO valuations remain below actual results ORE Dispositions (*) thru ORE Balance at June 30, 2012 June 30, 2012 Loan balances p prior to charge g offs 100.0% 100.0% Charge off’s prior to foreclosure 21.0% 21.0% Balance @ foreclosure 79.0% 79.0% Valuation loss
Slide 47: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues OREO disposition plans suggest limited unresolved issues (dollars in thousands) Balances Near‐term Active Other June 30, 2012 liquidation Projects Properties (1) (2) (3) ORE categories: New home construction/condo’s $ 3 $ 3 $ ‐ $ ‐ Developed lots 4,136 551 3,0
Slide 48: Net Charge-off's
Net Charge‐off’s • Largest Charge‐offs During 2Q12 • #1 ‐ $1.4 million consumer real estate • #2 ‐ $0.7 million consumer real estate • #3 ‐ $0.7 million consumer real estate • #4 ‐ $ $0.5 million C&I • #5 ‐ $0.5 million consumer real estate • These credits make up 70.6% 70 6% of net charge offs for
Slide 49: Balance Sheet
Supplemental Information Balance Sheet 49
Slide 50: Loan Categories
Loan Categories Comparison of 2Q12 to 1Q12, 4Q11 and 4Q10 Amts. %’s Amts. %’s Amts. %’s Amts. %’s 2Q12 2Q12 1Q12 1Q12 4Q11 4Q11 4Q10 4Q10 C&D and Land $289.1 8.4% $281.6 8.4% $274.2 8.3% $331.3 10.3% Consumer RE 687.0 19.9% 688.8 20.6% 695.8 21.1% 705.5 22.0% CRE – Owner Occ. 601.5 17.5% 590.4 17.7%
Slide 51: Construction and Land Categories
Construction and Land Categories Comparison of 2Q12 to 1Q12, 4Q11 and 4Q10 Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 2Q12 2Q12 1Q12 1Q12 4Q11 4Q11 4Q10 4Q10 Residential – Spec $ 12 12.4 4 0 4% 0.4% $ 13 13.5 5 0 4% 0.4% $ 12 12.4 4 0 4% 0.4% $ 19 19.9 9 0 6% 0.6% Residential – Custom 11.8
Slide 52: Construction and Land Categories
Construction and Land Categories • At June 30, 2012, 20.8% of C&D book managed by Special Asset Group personnel, compared to 33.5% at June 30, 2011. • 36.0% and 39.0% at June 30, 2012 and 2011, respectively, of land categories managed by SAG. Total Total Total NPLs NPLs NPLs Performing Performing Pe
Slide 53: 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 $474,000. Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 2Q12 1Q12 4Q11 Fail Fail Fail 2Q12 1Q12 4Q11 During During During 2Q
Slide 54: Core Deposits vs Non-Core Deposits
Core Deposits vs Non‐Core Deposits 6/30/2012 Percent 12/31/2011 Percent Core Funding: Transaction accounts 1,504,450 35.56% 1,354,582 32.96% Money Market accounts 1,557,607 36.81% 1,585,260 38.58% Time deposits less than $250,000 461,600 10.91% 501,705 12.21% Total Core Funding 3,523,657 83.28% 3,44
Slide 55: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.27% (TEY) 0.0% 1.3% Average life = 3.45 years Agency Notes Municipals Effective Duration = 2.25% 2 25% 2.5% 23.2% ( ll (millions) ) QTD MBS pass Purchases $ 19.3 thrus Sales ($ 18.3) 63.8% Mat/
Slide 56: Investment Portfolio
Investment Portfolio Municipal portfolio Municipal Bond Portfolio Statistics 2Q12 2Q11 Weighted Average Life 4.4 years 7.4 years All municipals are “A” rated or better. % State Agency Holdings 5.20% 4.70% Tax equivalent yield 4.83% 5.04% FMV as % of Cost 108.30% 104.9% As of June 30, 2012 Location #
Slide 57: Diversified C&I and Owner-occupied CRE portfolio
Diversified C&I and Owner‐occupied CRE portfolio Construction, 5.7% Transportation and Warehousing, 6.0% Manufacturing, Accommodation and 8 1% 8.1% Food Services, 4.8% Finance and Insurance, 9.7% Consumer, 3.9% Retail Trade, 7.0% Professional, Multiples Sectors, Scientific, and each less than 1% Tec
Slide 58: Income Statement
Supplemental Information Income Statement 58
Slide 59: Building Core Earnings Capacity
Building Core Earnings Capacity Noninterest Income 2Q12 1Q12 4Q11 3Q11 2Q11 Service charges $ 2,439 $ 2,324 $ 2,291 $ 2,362 $ 2,330 Investment services 1,611 1,581 1,402 1,699 1,637 Insurance commissions 1 141 1,141 1 288 1,288 944 1 002 1,002 1 004 1,004 Gain on mortgage loans sold, net 1,457 1,494
Slide 60: Building Core Earnings Capacity
Building Core Earnings Capacity Second quarter expenses in line with expectations 2Q12 1Q12 4Q11 3Q11 2Q11 Salaries and benefits $17,214 $17,762 $16,230 $15,951 $15,870 Incentive expense 2,023 2,031 2,733 3,065 2,654 Equipment and occupancy 5,053 4,374 4,977 4,943 5,060 Other real estate owned 3,104
Slide 61: Non-GAAP Financial Measures – Efficiency Ratio
Non‐GAAP Financial Measures – Efficiency Ratio 2Q12 1Q12 4Q11 3Q11 2Q11 Net interest income $40,185 $39,504 $39,293 $38,356 $37,795 Total non‐interest income $9,909 $9,949 $9,727 $10,080 $9,809 Less: Securities gains (99) (113) (133) (377) (610) Non‐interest income, excluding securities $9,810 $9,83
Slide 62: Non-GAAP Financial Measures – ROAA Excluding OREO
Non‐GAAP Financial Measures – ROAA Excluding OREO 2Q12 1Q12 FY 2011 4Q11 3Q11 2Q11 Net Income available to common $ 7,785 $ 7,206 $37,073 $ 5,681 $ 24,537 $ 4,843 stockholders Other real estate owned expense 3,104 4,676 17,432 4,193 5,079 3,826 $ 10,889 $ 11,882 $54,505 $ 9,874 $ 29,616 $ 8,669 Net
Slide 63: Non-GAAP Financial Measures – Expense/Total Average Assets
Non‐GAAP Financial Measures – Expense/Total Average Assets 2Q12 1Q12 FY 2011 4Q11 3Q11 2Q11 1Q11 Total non‐interest expense $33,915 $35,820 $139,107 $34,374 $35,676 $34,357 $34,701 Less: ORE expenses 3 104 3,104 4 676 4,676 17 432 17,432 4 193 4,193 5 079 5,079 3 826 3,826 4 334 4,334 Non‐Interest e
Slide 64: Economic Conditions
Supplemental Information Economic Conditions 64
Slide 65: Unemployment Trends
Unemployment Trends 12.00 • Both Nashville and Knoxville continue to 11.00 outperform at 6.8% 6 8% and 6.4%, 10.00 respectively. 9.00 • State of Tennessee 8.00 unemployment approximates USA 7.00 Knoxville MSA unemployment 6.00 Nashville MSA Tennessee 5.00 US 4.00 65 Source: BERC – Middle Tennessee S
Slide 66: Nashville Residential Real Estate Market
Nashville Residential Real Estate Market Nashville’s Real Estate Market Continues to Improve 2Q Q 2012 2Q Q 2011 % Change g Avg. Qtrly. Median Home $175,500 $176,300 (0.5%) Price Quarterly 5,955 4,725 26.0% Closings Quarter end 11 812 11,812 13 988 13,988 (15 6%) (15.6%) Inventory Months of 5.7 8.2
Slide 67: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates Vacancy Rates Q2 YE 2011 (*) YE 2010 (*) YE 2009 YE 2008 YE 2007 Q2 2012(*) (**) (**) (**) 2012 (*) Industrial / 10.3% 10.1% 10.2% 10.6% 9.6% 8.9% 9.2% Warehouse Multifamily** 4 6% 4.6% 6 6% 6.6% 6 7% 6.7% 9 6% 9.6% 7 6% 7
Slide 68: Second Quarter 2012 Investor Call
Second Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 18, 2012
Pinnacle Financial Partners — Q2 2012 Earnings Presentation on 6ix