Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q3 2012 Earnings Presentation
57 slides from Pinnacle Financial Partners's earnings presentation, Oct 17, 2012
Slide 1: Third Quarter 2012 Investor Call
Third Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 17, 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: Third Quarter 2012 Highlights
Third Quarter 2012 Highlights 3Q results match previous guidance • Continued improvement in asset quality metrics • Increased lending opportunities • Core funding growth and reduced funding costs • Continued expansion p of net interest income 3
Slide 4: Third Quarter 2012 Highlights: Asset quality continued to improve
Third 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) (21 3%) (21.3%) (59 9%) (59.9%) 9 NPLs (10.4%) (33.1%) 10 NPAs (11.9%) (41.7%) 9 Classified loans (9.7%) (
Slide 5: Nonperforming loans and reserve coverage continued to improve
Third Quarter 2012 Highlights Nonperforming loans and reserve coverage continued to improve $70.0 $ $140.0 $ $132 4 $132.4 $120 200% 188.9% $60.0 $120.0 orming loans (in millions) $100 167% nflows and Dispositions (in milllions) $50.0 $100.0 $80 133% wance to NPL’s $38.7 NPA Balances $40.0 $80.0 $33
Slide 6: Core earnings capacity continued to expand
Third Quarter 2012 Highlights Core earnings capacity continued to expand Linked Qtr Quarterly Year Change g over Year Change Total loans 2.3% 8.8% C&I & and d owner occupied i d CRE loans l 2.9% % 14.0% % Avg. noninterest‐bearing deposits 5.7% 18.6% Net interest income 1.9% 6.7% Net interest margin
Slide 7: Net interest income and margin continued to expand
Expanding the Core Earnings Capacity Net interest income and margin continued to expand Key Revenue Drivers: • Reduced funding costs Net Interest Margin Trend • Improving deposit mix 3.90% • Higher loan volumes 3.76% 3.78% 3.80% 3.74% • NPA resolutions 3.70% (in millions) Net Interest Income 3.65% 3
Slide 8: Reduction in cost of deposits drove margin expansion
Expanding the Core Earnings Capacity Reduction in cost of deposits drove margin expansion $3,600 1.10% 1.01% $3,575 $3,500 0.95% $3,524 posits (milliions) %) osit costs (% $3,442 2 8 $3,438 $3,400 0.80% $3,406 $3,389 $3,383 $3,300 0.65% Depo Core Dep $3,200 0.43% 0.50% $3,100 0.35% $3,000 0.20% 1Q11
Slide 9: Cost of deposits is enhanced by DDA growth
Expanding the Core Earnings Capacity Cost of deposits is enhanced by DDA growth $1,000 $ , 50,000 , 46,036 millions) $800 40,000 unts 36,781 er of Accou DDA Balaances (in m $600 30,000 $400 $ 00 20,000 0,000 Numbe $200 10,000 $0 ‐ Business Consumer Total Accounts 9
Slide 10: Loans grew meaningfully with only 3 basis points in yield compression
Expanding the Core Earnings Capacity Loans grew meaningfully with only 3 basis points in yield compression $3,500 $3,489 5.60% $3,403 $3,400 5.20% 4.88% 4.87% Averaage Loans 4.78% 4.74% Loan Yields 4.74% $3,300 4.65% 4.80% 4.62% ((millions) $3,280 $3,212 $3,262 $3,207 $3 191 $3,191 $3,200 4.40% $3,1
Slide 11: Cash flows from bonds are being reinvested in loan growth
Expanding the Core Earnings Capacity Cash flows from bonds are being reinvested in loan growth 3.67% $1,050 3.70% 3.58% 3.54% $1,000 3.50% $1,010 3.31% 3.27% 973 3.26% $950 3 30% 3.30% $9 3.19% Average Securities $940 elds (%) $924 $900 3.10% 76 $87 Bond Yie $ $850 2.90% $819 $800 2.70% $767 $750 2.
Slide 12: Credit costs continued to decline in concert with NPA reductions
Expanding the Core Earnings Capacity Credit costs continued to decline in concert with NPA reductions $16 $16.0 0 $14.0 $12 0 $12.0 $4 3 $4.3 Credit Losses (in millions) $3.8 $10.0 $8 0 $8.0 $5.1 $5. $4.2 $6.0 $4.7 $9.7 $4 0 $4.0 $8.6 $ $3 1 $3.1 $5.7 $6.3 $2.4 $2.0 $3.6 $2.4 $1.9 $‐ 1Q11 2Q11 3Q11
Slide 13: Deposit accounts and mortgage sales success leads to rapid fee growth
Expanding the Core Earnings Capacity Deposit accounts and mortgage sales success leads to rapid fee growth 3Q12 2Q12 1Q12 4Q11 3Q11 Service charges $ 2,532 $ 2,439 $ 2,324 $ 2,291 $ 2,362 Investment services 1 677 1,677 1 611 1,611 1 581 1,581 1 402 1,402 1 699 1,699 Insurance commissions 987 1,141
Slide 14: Operating leverage continues to expand
Expanding the Core Earnings Capacity Operating leverage continues to expand 3Q12 2Q12 1Q12 4Q11 3Q11 Salaries and benefits $19,470 $19,237 $19,793 $18,963 $19,016 Equipment and occupancy 5,156 5,053 4,374 4,977 4,943 Other real estate owned 2,399 3,104 4,676 4,193 5,079 Marketing and Bus. Dev. 835 7
Slide 15: Adjusted PTPP expands 5.9% in 3Q12
Expanding the Core Earnings Capacity Adjusted PTPP expands 15.9% in 3Q12 over the same period prior year (000’ ) (000’s) 3Q12 2Q12 1Q12 4Q11 3Q11 Net interest income $40,932 $40,185 $39,504 $39,293 $38,356 Total noninterest income 10,430 9,910 9,949 9,727 10,080 Total revenue 51 362 51,362 50 095 50
Slide 16: Pinnacle is progressing toward its long-term profitability targets
Future Outlook Pinnacle is progressing toward its long‐term profitability targets Ratio PNFP PNFP PNFP PNFP 1Q12 2Q12 3Q12 Long‐term Targets NIM 3.74% 3.76% 3.78% 3.70%‐3.90% Net Charge Charge‐offs offs 0.44% 0.28% 0.22% 0.20%‐0.35% 0.20% 0.35% Noninterest Fees/Total 0.83% 0.82% 0.85% 0.70%‐0.90% Av
Slide 17: Existing lenders have incremental capacity to take share and grow loans
Future Outlook Existing lenders have incremental capacity to take share and grow loans 2012 ‐ 2014 Anticipated Net Loan Growth Previously $234 Million YTD Reported Growth YTD 2012 Current Quarter Growth FA Capacity $1.27 Billion Capacity $1 27 Billi $1.27 Billion TTargett 17
Slide 18: Margin outlook contains opportunities and threats
Future Outlook Margin outlook contains opportunities and threats 3Q 2012 Net Interest Margin 3.78% Opportunities: 1. Loan growth 0.01% to 0.03% 2. Continued reduction in COF 0.02 to 0.05% 3. NPA resolution 0.00% to 0.02% Threats: 4. Market pressures on earnings asset yields (0.10% ) to (0.11%) Poten
Slide 19: Management's Focus for 4Q12
Future Outlook Management’s Focus for 4Q12 • Continued progress on asset quality metrics • Continued loan growth 19
Slide 20: Q&A – Third Quarter 2012 Investor Call
Q&A – Third Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 17, 2012 20
Slide 21: Supplemental Information
Supplemental Information Third Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 17, 2012 21
Slide 22: Supplemental Information
Supplemental Information Chart • Asset Quality 23 • Balance Sheet 31 • Income Statement 41 • Economic Conditions & Other 45 • Pinnacle Financial Partners profile 52 22
Slide 23: Supplemental Information: Asset Quality
Supplemental Information Asset Quality 23
Slide 24: Past due loans remain very low
Aggressively Dealing with Credit Issues Past due loans remain very low March 31, 31 As a % December 31, 31 As a % 2012 of total 2011 of total (000’s) loans loans Past Due Loans (*) Managed by special assets: Nonaccrual loans $23,448 0.67% $22,339 0.68% Accruing loans 8,592 0.24% 7,437 0.23% Managed
Slide 25: 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% 8.23% 8.0% 7.24% 7.18% 6.95% 7.0% 6 0% 6.0% al Problem lo 5.31% 5.0% 4.62% 4.04% 3.96% 3.78% 4.0% 3.21% 2.86% 3 0% 3.0% Potentia 2.0% 1.0% 0 0% 0.0% Note: Classified loa
Slide 26: Classified assets decreased in 3Q12
Aggressively Dealing with Credit Issues Classified assets decreased in 3Q12 (in thousands) Balances Balances Balances Balances Sept. 30, 2012 Dec. 31, 2011 Sept. 30, 2011 Sept. 30, 2010 Classified loans and ORE: ‐ Substandard commercial loans $ 157,483 $ 197,581 $ 199,053 $ 367,280 ‐ Doubtful commer
Slide 27: 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 each Category Peer PNFP NPLs PNFP NPLs PNFP NPLs NPLs and PNFP NPLs and > 90 and > 90 and > 90 > 90 days and > 90 days days days (*) days 3Q12 2Q12 1Q12 4Q11 2Q12 Const. and land development
Slide 28: ORE is 37.4% of NPAs with resolution in bank's control
Aggressively Dealing with Credit Issues ORE is 37.4% of NPAs with resolution in bank’s control Balances Fair value as a % Average Sept. 30, 2012 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: Developed lots $ 3,139 159.0% 5.92 Undeveloped land 14,026 145.0% 4.71 Other
Slide 29: OREO valuations remain below actual results
Aggressively Dealing with Credit Issues OREO valuations remain below actual results ORE Dispositions (*) thru ORE Balance at September 30, 2012 September 30, 2012 Loan balances prior to charge offs 100 0% 100.0% 100 0% 100.0% Charge off’s prior to foreclosure 21.1% 22.3% Balance @ foreclosure 78.9%
Slide 30: 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 Sept. 30, 2012 liquidation Projects Properties (1) (2) (3) ORE categories: Developed lots 3,139 376 2,763 ‐ Undeveloped land 14,026 726 11,055 2,245
Slide 31: Supplemental Information: Balance Sheet
Supplemental Information Balance Sheet 31
Slide 32: Knoxville provides disproportionate percentage loan growth
Expanding the Core Earnings Capacity Knoxville provides disproportionate percentage loan growth $3 500 000 $3,500,000 $2,930,987 $3,000,000 $2 500 000 $2,500,000 Nashville loans up 8.2% in last twelve months millions) $2,000,000 (in m $1 500 000 $1,500,000 Knoxville loans up 11.8% in last twelve mon
Slide 33: Reduced working capital utilization represents $70 million in outstandings
Expanding the Core Earnings Capacity Reduced working capital utilization represents $70 million in outstandings $2,000 $ , 60.00% 59.4% $1,800 $815 $787 $808 $779 $747 $1,600 58.00% $685 $715 57.3% 57 3% 57.3% mmitmentss $1,400 $1 400 $1,200 56.2% 56.4% 56.00% 55.5% (miillions) $1,000 55.6% Total Co
Slide 34: Portfolio components are within targeted ranges
Loan Categories Portfolio components are within targeted ranges Amts. %’s Amts. %’s Amts. %’s Amts. %’s 3Q12 3Q12 2Q12 2Q12 4Q11 4Q11 4Q10 4Q10 C&D and Land $312.8 8.9% $289.1 8.4% $274.2 8.3% $331.3 10.3% Consumer RE 680.9 19.3% 687.0 19.9% 695.8 21.1% 705.5 22.0% CRE – Owner Occ. 602.7 17.1% 601.5
Slide 35: Commercial C&D is growing
Construction and Land Categories Commercial C&D is growing Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 3Q12 3Q12 2Q12 2Q12 4Q11 4Q11 4Q10 4Q10 Residential – Spec $ 13 13.6 6 0 4% 0.4% $ 12 12.4 4 0 4% 0.4% $ 12 12.4 4 0 4% 0.4% $ 19 19.9 9 0 6% 0.6% Residential – Custom 14.5 0.4% 11.8 0.3% 8
Slide 36: The C&I Portfolio is highly diversified
C&I and Owner‐occupied CRE portfolio The C&I Portfolio is highly diversified Accommodation and Administrative and Support Food Services, 4.83% and Waste Management and Wholesale Trade, 10.77% Remediation Services, 4.00% Transportation & Arts, Entertainment, and Warehousing 5.90% Recreation 4.00% Con
Slide 37: The bond portfolio is considered conservative
Investment Portfolio The bond portfolio is considered conservative Treasuries Corporates 0.0% 1.5% QTD Bond Activity (millions) QTD AVG rate Agency Notes Municipals Purchases $ 6.5 1.63% 1.6% 24.2% Sales ($ 2.9) 0.14% Mat/Calls ($ 11.4) 2.98% MBS pass Pre‐pays Pre pays ($ 44 44.7) 7) 2 2.68% 68% Age
Slide 38: Municipal portfolio
Investment Portfolio Municipal portfolio Municipal Bond Portfolio Statistics Muni Allocation % 3Q12 3Q11 Weighted Average Life 4.3 years 6.4 years % State Agency Holdings 5.18% 4.51% 18% Tax equivalent yield 5.60% 5.53% 82% FMV as % of Cost 108.8% 106.7% All municipals are “A” rated or better. L ti
Slide 39: PNFP has limited dependence on non-relationship funding
Core Deposits vs Non‐Core Deposits PNFP has limited dependence on non‐relationship funding 9/30/2012 Percent 12/31/2011 Percent Core Funding: d Transaction accounts 1,517,563 36.55% 1,354,582 32.96% Money Market accounts 1,606,698 38.70% 1,585,260 38.58% Time deposits less than $250,000 452,164 10.8
Slide 40: PNFP has strong capital ratios
Capital Ratios PNFP has strong capital ratios Leverage Ratio Total Risk Based Capital p Ratio 11.89% 11.68% 15.88% 15.44% 11.37% 15.34% 10.46% 10.53% 13.50% 13.36% 3Q11 4Q11 1Q12 2Q12 3Q12 3Q11 4Q11 1Q12 2Q12 3Q12 Tangible Common Ratio Tier 1 Common Ratio 10.20% 9.94% 10.30% 8.70% 9.20% 9.80% 9.90%
Slide 41: Supplemental Information: Income Statement
Supplemental Information Income Statement 41
Slide 42: Mortgage originations and yield spread premium are growing
Mortgage Lending Mortgage originations and yield spread premium are growing $2,500,000 $150,000 es sold, net $2,000,000 $120,000 Gross Loans SSold $1 500 000 $1,500,000 $90 000 $90,000 (dollars)) n on mortgage $1,000,000 $60,000 Gain $500,000 $30,000 $‐ $‐ Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2
Slide 43: Non-GAAP Financial Measures – Efficiency Ratio
Non‐GAAP Financial Measures – Efficiency Ratio PNFP continues to improve operating leverage 3Q12 2Q12 1Q12 4Q11 3Q11 Net interest income $40,932 $40,185 $39,504 $39,293 $38,356 Total non‐interest income $10,430 $9,909 $9,949 $9,727 $10,080 Less: Securities gains 50 (99) (113) (133) (377) Non‐interes
Slide 44: Non-GAAP Financial Measures – Expense/Total Average Assets
Non‐GAAP Financial Measures – Expense/Total Average Assets 3Q12 2Q12 1Q12 FY 2011 4Q11 3Q11 Total non non‐interest interest $33 578 $33,578 $33 915 $33,915 $35 820 $35,820 $139 107 $139,107 $34 374 $34,374 $35 676 $35,676 expense Less: ORE expenses 2,399 3,104 4,676 17,432 4,193 5,079 Non‐Interest e
Slide 45: Supplemental Information: Economic Conditions & Other
Supplemental Information EEconomic i Conditions C di i & Other 45
Slide 46: Nashville's and Knoxville's job recovery outpaces the nation
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 51.3% • Nashville has replaced 78% while Knoxville has replaced 98% Source: BERC – MTSU & Bureau of Labor Statistics 46
Slide 47: Unemployment Trends
Unemployment Trends • Both Nashville and Knoxville continue to outperform f the h nation i at 7.1% and 6.8%, respectively. Down from 2Q12. Q • State of Tennessee unemployment continues to approximate USA unemployment 47 Source: BERC – Middle Tennessee State University & Bureau of Labor Statistics
Slide 48: Nashville Residential Real Estate Market
Nashville Residential Real Estate Market Nashville’s Real Estate Market Continues to Improve 3Q Q 2012 3Q Q 2011 % Change g Avg. Qtrly. Median Home $177,083 $171,600 3.2% Price Quarterly 6,190 4,916 25.9% Closings Quarter end 11 005 11,005 12 912 12,912 (14 8%) (14.8%) Inventory Months of 5.9 8.5 (3
Slide 49: PNFP serves large, high-growth markets
Market Data PNFP serves large, high‐growth markets Area Total Population Projected Median HH Projected Population Change Population HH Income Income HH Income 2011 2000‐2011 Change 2011 Actual Change Change Actual (%) 2011‐2016 ($) 2000‐2010 2011‐2016 (%) (%) (%) Davidson County 634,152 11.28% 4.79%
Slide 50: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates Vacancy Rates Q3 YE 2011 (*) YE 2010 (*) YE 2009 YE 2008 YE 2007 Q3 2012(*) (**) (**) (**) 2012 (*) Industrial / 9.6% 10.1% 10.2% 10.6% 9.6% 8.9% 9.1% Warehouse Multifamily** 6 9% 6.9% 6 6% 6.6% 6 7% 6.7% 9 6% 9.6% 7 6% 7.
Slide 51: Nashville and Knoxville are healthy business markets
Achieving Long Term Targets Nashville and Knoxville are healthy business markets NASHVILLE “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 distri
Slide 52: Supplemental Information: Pinnacle Financial Partners Profile
Supplemental Information Pi Pinnacle l Financial Fi i l Partners P Profile P fil 52
Slide 53: Associate engagement drives customer satisfaction
Offering an engaging experience Associate engagement drives customer satisfaction 5 00 5.00 100% er Satisfactiion Scores ent Scores 4.50 98% 4.00 96% e Engageme 3.50 94% 3.00 92% 2.50 90% Custome Associate 2.00 88% 1.50 86% 1.00 84% Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3
Slide 54: PNFP has proven experience in market share take-away
Deposit Market Share PNFP has proven experience in market share take‐away Nashville‐Davidson‐Rutherford MSA Knoxville MSA Rank Holding Market Market Change Holding Market Market Change Company Share Share in Company Share Share in 6/30/12 6/30/00 Share 6/30/12 6/30/07 Share 1 Regions 18.1% 30.5% ‐12
Slide 55: Company Profile
Company Profile Headquarters: Nashville, TN Offices: 29 in 8 Middle‐TN counties/3 in Knoxville Founded: 2000 Avg. daily trading vol.: 120,495 shares Total assets: $ 4.870 Billion (9/30/12) % Institutional ownership: 65.9% Shareholders’ equity: $ 672.9 Million (9/30/12) 55
Slide 56: Experienced Management Team
Experienced Management Team Name Title Age Years in Years at Banking Pinnacle Industry M. Terry Turner President and Chief Executive Officer 58 33 12 Robert A. McCabe, Jr. Chairman of the Board 62 36 12 Hugh M. M Queener Chief Administrative Officer 57 25 12 Harold R. Carpenter, Jr. Chief Financial
Slide 57: Third Quarter 2012 Investor Call
Third Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 17, 2012
Pinnacle Financial Partners — Q3 2012 Earnings Presentation on 6ix