Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q2 2018 Earnings Presentation
56 slides from Pinnacle Financial Partners's earnings presentation, Jul 18, 2018
Slide 1: Second Quarter 2018 Investor Call
Second Quarter 2018 Investor Call M. Terry Turner, President and CEO Harold R. Carpenter, EVP and CFO July 18, 2018
Slide 2: Safe Harbor Statements
Safe Harbor Statements Forward Looking Statements All statements, other than statements of historical fact, included in this presentation, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section
Slide 3: Safe Harbor Statements: Non-GAAP Financial Matters
Safe Harbor Statements Non-GAAP Financial Matters This presentation contains certain non-GAAP financial measures, including, without limitation, revenues per diluted share, earnings per diluted share, efficiency ratio, core noninterest income and the ratio of core noninterest income to total average
Slide 4: 2Q18 Summary Results of Key GAAP Measures
2Q18 Summary Results of Key GAAP Measures Total Revenues FD EPS Book Value per Share Total Loans Total Deposits ROTCE (millions) (millions) Classified Asset Ratio NCOs NPA/ Loans & OREO 4
Slide 5: 2Q18 Summary Results of Key Non-GAAP Measures
2Q18 Summary Results of Key Non-GAAP Measures Total Revenues FD EPS* $1.15 Tangible Book Value per Share $25.28 $230,175 $22.58 $141,684 CAGR 22.0% $0.84 CAGR 14.5% $107,756 $0.75 $19.58 $71,293 $0.64 $16.56 $59,820 $14.53 $0.49 Total Loans Total Core Deposits ROTCE* $15,400 (millions) $17,042 (mill
Slide 6: Today's Agenda
Today’s Agenda 1. Review 2Q18 financial performance 2. Update component targets in our strategic profitability model 3. Highlight our continued success with the BNCN integration 4. Continue to provide clarity regarding PNFP’s M&A stance 5. Address several important questions that distinguish PNFP fr
Slide 7: Total Revenues
Loan and Deposit Growth are Keys to Top and Bottom Line Growth Strong performance continues in both total revenues and revenues per share* $2.97 $250 $3.00 Revenues per diluted share* $200 $2.60 Total Revenues* (millions) $150 $2.20 $100 $1.80 $50 $1.40 $- $1.00 Fee income NII Total revenue per shar
Slide 8: Y/Y Revenue per Share Growth and LTM Revenue per Share
Loan and Deposit Growth are Keys to Top and Bottom Line Growth PNFP has continued to grow rev/share during significant transition periods LTM Revenue Per Share Growth vs. Peers $12.00 20% System $11.42 Conversion $11.14 Y/Y Revenue per Share Growth BNCN Deal BNCN Deal Announced Closed $10.85 $11.00
Slide 9: Average Loans
Average Loans (millions) $16,000 $20,000 $12,000 $- $4,000 $8,000 $3,191 $3,212 $3,207 4.88% $3,262 $3,280 $3,403 $3,489 $3,580 $3,682 $3,845 $3,932 $3,981 $4,130 Avg. Loans $4,251 $4,358 $4,436 $4,625 $4,737 $5,690 $6,458 CPMK / Magna $6,742 $6,998 $8,233 AVNU Linked-quarter loan growth remains str
Slide 10: PNFP continues to transition to more variable rate assets
Loan and Deposit Growth are Keys to Top and Bottom Line Growth PNFP continues to transition to more variable rate assets June 30, 2018 Loan Pricing Allocation • $525 mm Fixed to Floating 3-month LIBOR Forward Swap • Executed early 2Q 2018 33.6% • Moves additional 3% of loans from fixed to floating L
Slide 11: Quarterly Loan Growth % - Annualized
Loan and Deposit Growth are Keys to Top and Bottom Line Growth Our loan growth continues to significantly outperform peers 30% 25% 24.3% Quarterly Loan Growth % - Annualized 20% 20.1% 18.0% 17.6% 17.2% 16.3% 15% 14.1% 11.7% 11.5% 10% 10.0% 9.8% 9.8% 5% 0% 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 20
Slide 12: Cost of Deposits and Average Deposits
Loan and Deposit Growth are Keys to Top and Bottom Line Growth Average deposit balances continued to grow $18,000 Deposit Rate Tranches June 30, 2018 June 30, 2018 2.25% % of Totals Rate 2.00% $16,949 $16,000 Noninterest bearing 24.4% 0.00% 2.00% $16,281 $16,092 $15,828 $14,000 Rate sheet 18.8% 0.27
Slide 13: Loan/Deposit Ratio
Loan and Deposit Growth are Keys to Top and Bottom Line Growth PNFP had significant deposit growth in 2Q18 – L/D ratio decreased to 95% 35.00% 120.00% 32.9% 115.00% 30.00% Quarterly Deposit Growth % - Annualized 110.00% 25.00% 23.8% 105.00% Loan/Deposit Ratio 22.5% 22.5% 20.00% 100.00% 16.8% 15.00%
Slide 14: PNFP's net beta is strong versus peers
Loan and Deposit Growth are Keys to Top and Bottom Line Growth PNFP’s net beta is strong versus peers Strong loan growth requires focus on …But also results in strong asset yields deposit acquisition… in comparison to peers. Cost of Deposits & Cumulative Beta Earning Asset Yield & Cumulative Beta 0.
Slide 15: Fee Businesses also Contribute to Earnings Growth
Fee Businesses also Contribute to Earnings Growth Fee businesses produce another strong quarter 2Q18 1Q18 4Q17 3Q17 2Q17 Service charges $6,065 $5,820 $6,078 $5,921 $4,179 Investment services 4,906 5,107 4,723 3,660 3,110 Insurance commissions 2,048 3,119 1,961 2,124 1,461 Gain on mortgage loans sol
Slide 16: PNFP Focuses on Strategic Expense Management, not Reductions
PNFP Focuses on Strategic Expense Management, not Reductions 2Q18 core expense results reflect enviable operating leverage 2Q18 1Q18 4Q17 3Q17 2Q17 Salaries and benefits $64,112 $63,719 $ 63,347 $64,288 $43,674 Equipment and occupancy 18,208 17,743 17,114 16,590 10,713 Other real estate owned 819 (7
Slide 17: Strategic Outlook Going Forward
Strategic Outlook Going Forward Pinnacle continues to set and deliver against lofty strategic profitability targets UPDATED Pinnacle Targeted GAAP Non-GAAP (1) Operating Range For the second quarter of 2018 Return on Average Assets 1.50% to 1.70% 1.50% 1.54% Net Interest Margin 3.55% to 3.75% 3.69%
Slide 18: BNCN Integration has been Highly Successful
BNCN Integration has been Highly Successful Thesis: Accelerate double-digit growth by building a C&I platform 18
Slide 19: BNCN Integration: C&I and Private Banking hiring ahead of plan
BNCN Integration has been Highly Successful Our C&I and Private Banking hiring is actually 46% ahead of plan C&I, Private Banking FAs Projected Timeline C&I and Private Banking actual hires since 7/1/17 19
Slide 20: BNC Integration - Key Measures of Success
BNCN Integration has been Highly Successful “BNC has a high-growth CRE lending practice that we expect to continue at its previous pace. However, the key to realizing our potential in the Carolinas and Virginia is to build out a large C&I platform – the thing we do best.” PNFP 2017 Annual Report BNC
Slide 21: Carolinas and Virginia loan and deposit growth
BNCN Integration has been Highly Successful The Carolinas and Virginia have successfully grown both loans and deposits Carolinas and Virginia Organic Annualized Loan and Deposit Growth Since Y/E 2017 Loan growth 14.0% Deposit growth 16.9% 0% 5% 10% 15% 20% 21
Slide 22: M&A criteria and target markets
PNFP’s Approach to M&A is Strategic and Disciplined M&A criteria have long been publicly stated and adhered to Existing and Targeted New Markets M&A Criteria Negotiated deals Management continuity >3 - 5% EPS accretion in first full year for smaller deals and 8-10% for larger deals Commercia
Slide 23: Most advantaged markets in the Southeast
PNFP’s Approach to M&A is Strategic and Disciplined PNFP is amassing the most advantaged markets in the Southeast Source: SNL Financial; deposit data as of June 30, 2017 Note: Blue highlight denotes markets of operation for PNFP; Yellow highlight denotes markets of interest 23 Note: Region defined a
Slide 24: M&A not a necessity to achieve growth plans
PNFP’s Approach to M&A is Strategic and Disciplined M&A for PNFP not a necessity to achieve growth plans 1. We expect double digit growth in our existing footprint for several years, so we need no M&A to hit growth or profitability targets 2. Strategically, we desire to compete in large urban market
Slide 25: Questions regarding Pinnacle's distinctive model
PNFP’s Model Makes it Distinctive Among its Peers There are several important questions regarding Pinnacle’s distinctive model 1. Can PNFP continue to grow loans at a mid-double-digit pace? How long does it take to build out the C&I program in the Carolinas and Virginia? 2. Can PNFP gather relations
Slide 26: Can PNFP Continue to Grow Loans at a Double-Digit Pace?
Can PNFP Continue to Grow Loans at a Double-Digit Pace? PNFP has consistently grown at a double-digit-pace throughout the BNCN integration Total Loans ($ in millions) $17,500 System Conversion $17,042 $17,000 Brand Change $16,500 $16,326 Merger announcement $16,000 $15,633 $15,500 $15,260 $15,000 $1
Slide 27: Differentiating practices yield client advocacy and market penetration
Can PNFP Continue to Grow Loans at a Double-Digit Pace? PNFP’s differentiating practices yield client advocacy and market penetration Nashville Knoxville 25% 20% Lead Relationships as % of Market Pinnacle 20% 15% Bank #4 15% Bank #1 Bank #1 10% Bank #3 10% Pinnacle Bank #3 Bank #4 Bank #5 Bank #2 5%
Slide 28: PNFP grows by attracting market best talent
Can PNFP Continue to Grow Loans at a Double-Digit Pace? PNFP grows by attracting “market best” talent and moving share 28
Slide 29: Potential impact of bolting on the C&I business
Can PNFP Continue to Grow Loans at a Double-Digit Pace? What is the potential impact of “bolting on” the C&I business? INCREMENTAL AVG LOAN VOLUME (000’S) INCREMENTAL AVG DEPOSIT VOLUME(000’S) Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Year 1 Class $52 $210 $420 $628 $836 $44 $178 $357 $534 $
Slide 30: Relationship funding from C&I FAs in Nashville
Can PNFP Gather Relationship-Based Funding to Support Loan Growth C&I FAs in Nashville with > 5 years tenure produce 85% relationship funding 1. PNFP’s model requires core funding of 75-85% 2. PNFP gathers funding primarily through a relationship strategy – not traditional mass market strategies 3.
Slide 31: PNFP added high value consumers faster than norm
Can PNFP Gather Relationship Based Funding to Support Loan Growth PNFP added high value consumers 30% faster than norm with no promotion New consumer clients Percentage of new households to total Average balances nearly twice that of the clients is 30% higher than norm. norm. 9.84 100 12.84 195 0.00
Slide 32: Tactics to gather deposits
Can PNFP Gather Relationship Based Funding to Support Loan Growth PNFP has and will continue to utilize focused tactics to gather deposits 1. Hire RMs and CSAs that are net providers of funds 2. Focus existing RMs on sectors/clients that are net providers of funds 3. Augment branch distribution with
Slide 33: NII per share growth vs. deposit cost increase
Can rapid balance sheet growth produce rapid NII and EPS growth? Funding strong growth is not free but it can produce double-digit NII and EPS growth PNFP Peer Group NII Per Share Growth vs. Deposit Cost Increase (1Q18) 0.35% Cost of Total Deposits - Y/Y Change 0.30% 0.25% PNFP 0.20% 0.15% 0.10% 0.0
Slide 34: Long-Term Shareholder Value
Long-Term Shareholder Value PNFP is focused on rapid growth of NII and EPS more than deposit betas 1. Maintain the margin where possible, but accept volatility within reason (3.55% – 3.75%) 2. Continue to add “market best” bankers at a rapid pace 3. Continue to grow loans and NII at mid-double-digit
Slide 35: Q&A – Second Quarter 2018 Investor Call
Q&A – Second Quarter 2018 Investor Call
Slide 36: Supplemental Information
Supplemental Information Chart • Balance Sheet 37 • Asset Quality 48 • Income Statement 49 • Peer Group 55 36
Slide 37: Balance Sheet: Loan portfolio is well diversified
Balance Sheet Loan portfolio is well diversified Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 2Q18 2Q18 1Q18 1Q18 2Q17 2Q17 2Q16 2Q16 C&I $4,821.3 28.3% $4,490.9 27.5% $3,688.4 25.0% $2,492.0 35.1% CRE – Owner Occ. 2,504.9 14.7% 2,427.9 14.9% 2,368.7 16.0% 1,120.1 15.8% Total C&I & O/O CRE 7,
Slide 38: Loan portfolio is well diversified by region
Balance Sheet Loan portfolio is well diversified Total Pinnacle Tennessee Loans Carolinas/ VA Loans Other Unit Loans Amts. Amts. Amts. Amts. Amts. Amts. Amts. Amts. 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 C&I $4,821.3 $4,141.3 $3,829.8 $3,312.4 $616.7 $475.9 $374.8 $353.0 CRE – Owner Occ. 2,504.9 2,
Slide 39: Loan portfolio across the franchise
Balance Sheet Loan portfolio across the franchise Total Pinnacle C&I & O/O CRE CRE & Construction Other Loans Amts. Amts. Amts. Amts. Amts. Amts. Amts. Amts. 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 Nashville $6,273.2 $5,633.5 $3,067.7 $2,682.8 $1,943.9 $1,719.1 $1,261.6 $1,231.6 Knoxville 1,483.4 1,
Slide 40: Construction portfolio reflects discipline
Balance Sheet Construction portfolio reflects discipline Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 2Q18 2Q18 1Q18 1Q18 2Q17 2Q17 2Q16 2Q16 Residential – Spec $294.9 1.7% $288.0 1.8% $243.0 1.6% $128.9 1.8% Residential – Custom 137.6 0.8% 123.0 0.7% 153.3 1.0% 92.6 1.3% Residential – Condo
Slide 41: Construction portfolio by region
Balance Sheet Construction portfolio reflects discipline Total Pinnacle Tennessee Loans Carolinas/VA Loans Other Unit Loans Amts. Amts. Amts. Amts. Amts. Amts. Amts. Amts. 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 Residential – Spec $294.9 $278.7 $218.8 $206.7 $75.7 $71.1 $0.4 $0.9 Residential – Custo
Slide 42: CRE NOO and Construction Allocation
Balance Sheet CRE NOO and Construction Allocation Total NOO and Total Construction Total NOO and Multifamily Construction Amts. Amts. Amts. Amts. Amts. Amts. 2Q18 1Q18 2Q18 1Q18 2Q18 1Q18 Apartments $738.6 $644.8 $405.0 $375.4 $1,143.6 $1,020.2 Hotels 643.9 568.7 106.3 119.1 750.2 687.8 Retail 1,295
Slide 43: Total CRE loan portfolio exceeds 300 guidelines
Balance Sheet As projected, total CRE loan portfolio exceeds 300 guidelines Description 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Loans secured by real estate: Construction, land development, and other loans: 1-4 family residential construction loans $488,893 $475,979 $445,077 $423,988 $408
Slide 44: PNFP remains focused on relationship funding
Balance Sheet PNFP remains focused on relationship funding 44
Slide 45: PNFP remains focused on relationship funding: deposits by market
Balance Sheet PNFP remains focused on relationship funding Public Funds and Total Pinnacle Transaction and MMDA CD's Other Noncore Deposits 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 2Q18 4Q17 Nashville $6,852,829 $6,488,394 $6,169,027 $5,906,866 $435,272 $375,618 $248,530 $205,911 Knoxville 1,361,724 1,260,290
Slide 46: Securities book yields increase with more variable rate bonds
Balance Sheet Securities book yields increase with more variable rate bonds 4.00% 40.00% 3.50% 35.00% 2.91% 3.00% 3.58% 30.00% 2.50% 25.00% 2.00% 20.00% 1.50% 12.40% 15.00% 20.75% 1.00% 10.00% 0.50% 5.00% 0.00% 0.00% Bond Yields % of Total Assets Bond Portfolio Pricing 78% 71% 29% 22% Sept. 2017 Jun
Slide 47: Conservative bond portfolio
Balance Sheet Conservative bond portfolio Portfolio: June 30, 2018 3% 1% Total Investments $2.975 billion Unrealized Gain (Loss) $(47.7) million 34% 41% Quarter Duration Avg. Yield- TE 13% 2Q18 3.9% 2.9% 8% 1Q18 3.5% 2.9% 4Q17 3.5% 2.7% 3Q17 3.5% 2.6% Agency Corporates MBS 2Q17 3.3% 2.5% Asset Backe
Slide 48: Asset quality remains very sound
Asset Quality Asset quality remains very sound (000’s) June 30, 2018 As a % of total loans Dec. 31, 2017 As a % of total loans June 30, 2017 As a % of total loans Past Due Loans (*) Nonaccrual loans $16,438 0.10% $11,691 0.07% $17,602 0.12% Accruing loans 38,382 0.23% 60,159 0.38% 28,893 0.20% Total
Slide 49: Income Statement: Discount Accretion and Tax Rate
Income Statement Actual/Anticipated Discount Accretion Through Dec 2019 Life to date accretion $25,000,000 approximates original Actuals / Current Projection Original Consultant Projections projections. Anticipate $20,000,000 continued reduction in accretion income in $15,000,000 future periods. $10
Slide 50: Mortgage volumes rise in 2Q18
Income Statement Mortgage volumes rise in 2Q18 $325,000 6.00% $275,000 5.00% $225,000 4.00% $175,000 3.00% $125,000 2.00% $75,000 1.00% $25,000 0.00% Purchase Money Refinance Gross fees as a % of loans originated 50
Slide 51: Reconciliation of Non-GAAP measures
Income Statement Reconciliation of Non-GAAP measures 2Q18 1Q18 4Q17 3Q17 2Q17 Net interest income $182,236 $174,471 $174,731 $173,182 $106,627 Total noninterest income 47,939 44,183 36,488 42,977 35,057 Total revenues $230,175 $218,654 $211,219 $216,159 $141,684 Less: Investment (gains) losses on sa
Slide 52: Reconciliation of Non-GAAP measures
Income Statement Reconciliation of Non-GAAP measures 2Q18 1Q18 4Q17 3Q17 2Q17 Net income $86,865 $83,510 $26,798 $64,442 $43,086 Merger-related charges 2,906 5,353 19,103 8,847 3,221 Investment (gains) losses on sales of securities - (30) 8,265 - - Tax effect on merger-related charges and investment
Slide 53: Reconciliation of Non-GAAP measures
Income Statement Reconciliation of Non-GAAP measures 2Q18 1Q18 4Q17 3Q17 2Q17 Net income $86,865 $83,510 $26,798 $64,442 $43,086 Merger-related charges 2,906 5,353 19,103 8,847 3,221 Investment (gains) losses on sales of securities - (30) 8,265 - - Tax effect on merger-related charges and investment
Slide 54: Reconciliation of Non-GAAP measures
Income Statement Reconciliation of Non-GAAP measures 2Q18 1Q18 4Q17 3Q17 2Q17 Net income $86,865 $83,510 $26,798 $64,442 $43,086 Merger-related charges 2,906 5,353 19,103 8,847 3,221 Investment (gains) losses on sales of securities - (30) 8,265 - - Tax effect on merger-related charges and investment
Slide 55: 2018 Peer Group
2018 Peer Group Institution Name Ticker City, State Pinnacle Financial Partners PNFP Nashville, TN Associated Banc-Corp ASB Green Bay, WI BancorpSouth, Inc. BXS Tupelo, MS Bank of the Ozarks, Inc. OZRK Little Rock, AR Chemical Financial Corporation CHFC Midland, MI Cullen/Frost Bankers, Inc. CFR San
Slide 56: Second Quarter 2018 Investor Call
Second Quarter 2018 Investor Call M. Terry Turner, President and CEO Harold R. Carpenter, EVP and CFO July 18, 2018
Pinnacle Financial Partners — Q2 2018 Earnings Presentation on 6ix