Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q3 2010 Earnings Presentation
49 slides from Pinnacle Financial Partners's earnings presentation, Oct 20, 2010
Slide 1: Third Quarter 2010 Investor Call
Third Quarter 2010 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer October 20, 2010
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: Opening Comments
Opening Comments • Aggressively dealing with credit issues • Building the core earnings capacity of the firm • Stabilizing St bili i market k t trends t d • Continuing to seize on competitive vulnerabilities 3
Slide 4: Third Quarter 2010 Highlights
Third Quarter 2010 Highlights Aggressively dealing with Building Core Credit Issues Earnings Capacity • NCOs • Net Interest Income • NPAs • DDAs • NPA inflows • Core Deposits • NPLs • EPS • Potential Problem Loans • Past Dues • C&D Exposure 4
Slide 5: Third Quarter 2010 Highlights
Third Quarter 2010 Highlights • Significant quarter to quarter reduction in NCOs from $33 5 $33.5mm to $7.3 $7 3 mm • 5.7% decrease in NPA’s in 3Q • Allowance at 2.60% at Sept. 30 compared to 2.61% at June 30 • Continued rapid reduction in C&D book • Core deposit growth of 20.7% • Growth in DDA’s up
Slide 6: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues • Routine regulatory exam completed • Construction book down $ $165.5 million since year y end ’09 • Including restructured loans, total NPA’s decreased from 5.05% to 5.01% between year end and September 30, 2010 • NPLs and ORE decreased by $9.1 million • Appr
Slide 7: Asset Quality Metrics – Risk Rating Trends
Asset Quality Metrics – Risk Rating Trends Risk rating trends reflect continued improvement 7
Slide 8: Asset Quality Metrics
Asset Quality Metrics Decline in potential problem loans and criticized and classified assets 10.5% $625 $700 Classified Asssets oans $614 $587 9 5% 9.5% $600 ntial Problem loans/Total lo $515 $518 9.30% 8.5% 8.63% $500 $364 8.23% 7.5% $400 Total Critticized and C 7.24% 7.18% 6.5% $300 5.5% $200 4 5
Slide 9: Asset Quality Metrics
Asset Quality Metrics Past Dues and NPLs Expressed as a % of Total Loans within Category PNFP Peer PNFP Peer 30-90 days 30-90 days NPLs and NPLs and past due past due p > 90 days > 90 days y 3Q10 (*) 3Q10 (*) Const. and land 2.03% 1.65% 15.28% 15.37% development CRE – Own Occupied 0 19% 0.19% 0 72%
Slide 10: Asset Quality Metrics
Asset Quality Metrics Past Dues > 30 Days Sept. 30, As a % of June 30, As a % of 2010 totall loans l 2010 totall loans l Nonaccrual loans past due $ 65,426 2.01% $ 90,424 2.72% Managed by Special Assets: > 90 days $ 3,100 0.10% $ 2,752 0.08% 30 to 89 days 12,712 0.39% 14,115 0.42% $ 15,812 , 0.49% $
Slide 11: Net Charge-off's
Asset Quality Metrics (dollars in thousands) $50,000 $44,579 $45,000 $40,000 Nett Charge ––off’s $35,000 $33,463 $30 000 $30,000 $25,000 $20,000 $15,123 $15,000 $10,000 $7,346 $6,789 $4,760 $5,228 $5 000 $5,000 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 11
Slide 12: Asset Quality Metrics – ORE Categories
Asset Quality Metrics ORE Categories Balances Fair value as a % Average September 30, 2010 of book value Appraisal Age in (dollars in thousands) (dollars in thousands) Months ORE categories: New home construction $2,811 103% 6.6 Developed lots 13,497 120% 6.6 Undeveloped land 13 029 13,029 119% 49 4
Slide 13: NPA Disposition Activity
NPA Disposition Activity (dollars in thousands) $80,000 $68,847 $70 $70,000 000 $60,000 $50,000 $50 000 $42,022 $43,096 $40,000 $33,566 $30 000 $30,000 $26 102 $26,102 $24,026 $20,000 $10 000 $10,000 $6 777 $6,777 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 13
Slide 14: Balance Sheet Strength
Balance Sheet Strength Strong capital base Sept. 30, Sept 30 June 30 30, March 31 31, Dec. 31,, Sept. 30, Sept 30 2010 2010 2010 2009 2009 Tangible common equity 7.2% 7.1% 7.4% 7.3% 7.5% Tangible common to risk weighted assets 9.3% 9.0% 9.1% 8.9% 9.1% Tier 1 leverage 10.5% 10.4% 10.7% 10.7% 10.9% Ti
Slide 15: Building Core Earnings Capacity
Building Core Earnings Capacity • Core funding growth at annualized rate of 20.7% during 3Q10 • 2Q10 core funding growth was 15.8% • Net N t iinterest t t iincome ffor 3Q10 off $36 $36.1M 1M compared d tto $35 $35.7M 7M att 2Q10 • Net interest margin of 3.23% at 3Q, declining cost of funds with mode
Slide 16: Positive Trends in Core Funding Continue
Positive Trends in Core Funding Continue Core Funding Relationship Based Non‐Core Funding Wholesale Funding 100% 12% 10% 7% 90% 16% 23% 24% 80% 24% 26% 24% 70% 26% 28% 24% 60% 50% 40% 66% 69% 30% 59% 62% 49% 51% 20% 10% 0% 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 16
Slide 17: Positive DDA trends
Positive DDA trends (dollars in millions) $550 $534 $517 $504 $ $496 $500 alances $456 $463 Average Ba $450 $418 $400 DDA A $350 $300 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 17
Slide 18: Net Interest Margin
Net Interest Margin Key Margin Drivers: • Excess cash holdingg resultingg in margin g dilution Net Interest Margin Trend 3.5% 3.45% • Higher renewal rates continue to drive core loan 3.40% 3.41% yields up 3.4% 3.35% • Increased core deposits help continue to help our 3.3% margins 3 19% 3.19% • Bond
Slide 19: Net Interest Margin Analysis
Net Interest Margin Analysis Key Takeaways: • Continued progress on loan yields and reducing cost of funds • Treasury yields influenced heavily by rapid pay downs and repricing p g of bond portfolio as well as maintenance of excess liquidity since early summer 19
Slide 20: Net Interest Income
Net Interest Income • CD repricing opportunities ‐ $220mm in Client CD’s maturing over next three months. Goal at renewal should be approx. 1.00% to 1.50% for client CD’ss or transfer borrowers to money market accounts. CD Average Renewal Rates Client CD’s – Avg. Rate (%) 1st Quarter 2010 2.03% 2nd
Slide 21: Fee income
Fee income (dollars in thousands) 3Q10 2Q10 1Q10 4Q09 3Q09 Service charges $2,444 $2,429 $2,365 $2,595 $2,559 Investment services 1,234 1,315 1,236 1,136 1,112 Insurance su a ce co commissions ss o s 954 95 904 90 1,099 ,099 895 906 Gains on loan sales 1,310 921 519 1,167 978 Trust fees 726 755 897
Slide 22: Expenses
Expenses (dollars in thousands) 3Q10 2Q10 1Q10 4Q09 3Q09 Salaries and benefits $ $16,069 $ $16,191 $ $16,659 $ $15,037 $ $14,245 Incentive Expense - (345) 345 - - Equipment and occupancy 5,231 5,493 5,366 5,064 4,446 Other real estate owned 8 522 8,522 7 411 7,411 5 402 5,402 8 393 8,393 1 250 1,250
Slide 23: Building Core Earnings Capacity
Building Core Earnings Capacity • Margin opportunities • Reducing our NPA’s from 4.60% to 1.50% could yield an additional $4.5 mm in interest i income (@ 4.5%) %) • At a 1.50% NPA level, NPA’s impact our margin by approx. 0.20% currently • Reduce deposit pricing by 0.20% in IB deposits could yield a
Slide 24: Building Core Earnings Capacity
Building Core Earnings Capacity • Expense opportunities • Branch buildout substantially complete in Nashville • Current staffing ffi off special i l asset group iis 28 FTE’s ’ • Ancillary costs associated with increased level of NPL’s • Excluding ORE expense and securities gains, YTD efficiency rati
Slide 25: The Case for Growth
The Case for Growth • Premier banking markets • Economic development momentum • Vulnerable l bl competitors i • 66% of middle market banking customers willing to consider new banking partner (Greenwich Research) • Largest locally‐owned bank in Nashville with 91% of clients willing to recommend Pinna
Slide 26: Market Stabilization
Market Stabilization Unemployment Information 11.00% 10.00% 9.00% 8.00% Nashville MSA 7.00% Knoxville MSA 6 00% 6.00% US 5.00% 4.00% * preliminary 26 Source: US Bureau of Labor Statistics “Not seasonally adjusted”
Slide 27: Client Satisfaction Results – 1Q10 and 2Q10
Client Satisfaction Results – 1Q10 and 2Q10 Pinnacle vs. Regional Competitors 30% Regional Regions BankA S Regional SunTrust T t B 25% 20% First Tennessee Regional C Customer Bank of America Regional D Pinnacle Financial Penetration 15% (%) 10% Wells Fargo/ Regional Wachovia F BB&T Regional E 5% Hom
Slide 28: Client Loyalty Results – 1Q10 and 2Q10
Client Loyalty Results – 1Q10 and 2Q10 Pinnacle vs. Regional Competitors Regions RegionalBank A SunTrust Regional B Regional C Pinnacle Bank of America Regional D Q1 & Q2 Q1 & Q2 Q1 & Q2 Q1 & Q2 Q1 & Q2 2009 '10 2009 '10 2009 '10 2009 '10 2009 '10 Base (83) (49) (109) (47) (66) (39) (55) (33) (44) (
Slide 29: Final Thoughts
Final Thoughts • Aggressively addressing problem credits • Pursue meaningful g NPA resolution • Continued reductions in exposure to C&D • Attractive markets • Economic stabilization and recovery • Ability to seize competitive vulnerabilities • Responsibly growing core earnings capacity • Continued c
Slide 30: Q&A Third Quarter 2010 Investor Call
Q&A Third Quarter 2010 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer October 20, 2010 30
Slide 31: Supplemental Information
S Supplemental l t l IInformation f ti Third Quarter 2010 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer October 20, 2010 31
Slide 32: Loan Categories
Loan Categories Comparison of 3Q10 to 2Q10, year end 2009, 2008 *Continued reduction in C&D exposure Amts. %’s Amts. %’s Amts. %’s Amts. %’s 3Q10 3Q10 2Q10 2Q10 4Q09 4Q09 4Q08 4Q08 C&D and Land $359.7 11.1% $ 411.5 12.4% $ 525.3 14.7% $ 645.4 19.2% Consumer RE 720.1 22.1% 709.1 21.3% 756.0 21.2% 675
Slide 33: Asset Quality Metrics – Nonaccrual Loans
Asset Quality Metrics Nonaccrual Loans $103.1 MM nonaccruing loans Other 2 1% 2.1% Resid Const 3.17% of loan balances 14.6% Land Develop 38.7% Nonaccrual loans $ 103.1 ORE 48.7 Total NPA’s $ 151.8 NPA’s as a % of C&I Total loans + ORE 4.60% 15.3% CRE 1‐4 Family 16.0% 13.3% As of September 30, 2010 3
Slide 34: Construction and Land Categories
Construction and Land Categories Comparison of 3Q10 to 2Q10, year end 2009, 2008 * PNFP continues to reduce exposure to residential construction and development Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s (*) 3Q10 3Q10 2Q10 2Q10 4Q09 4Q09 4Q08 4Q08 Residential – Spec $ 22 22.2 2 0 7% 0.7% $ 28
Slide 35: Construction and Land Categories
Construction and Land Categories * Almost 50% of C&D book managed by Special Asset Group personnel. * Almost 60% of land categories managed by SAG. Total Total Total NPL’s NPL’s NPL’s Performing Performing Performing Criticized Criticized Criticized Portfolio Portfolio Portfolio 3Q10 2Q10 1Q10 3Q10
Slide 36: Construction and Land Categories
Construction and Land Categories Analysis of Pass‐rated AC&D loans * Pass rated credits have minimal past dues with downgrades slowing. Avg. ticket size of about $400,000. Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 3Q10 2Q10 1Q10 Fail Fail Fail 3Q10 2Q10 1Q10
Slide 37: Land Loan and ORE locations
Land Loan and ORE locations > $250,000 properties, approx. $248 mm balances, 10% in ORE 37
Slide 38: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates (*) Vacancy Rates (*) 3Q YE YE YE YE YE 2010 2009 2008 2007 2006 2005 3Q 2010 Warehouse 10.8% 10.6% 9.6% 8.9% 8.6% 9.1% 14.0% Multifamily 7.5% 9.6% 7.6% 5.2% 5.5% 6.2% 7.1% Retail 8.5% 8.1% 6.3% 7.0% 6.3% 6.6% 10.9% Office
Slide 39: Net Charge-off's
Net Charge‐off’s • Largest Charge‐off’s during 3Q10 • #1 ‐ $1,608,000 land development • #2 ‐ $781,000 residential land development • #3 ‐ $453,000 retail sales • #4 ‐ $ $447,000 , commercial p property p y • #5 ‐ $431,000 condo development 39
Slide 40: Nonperforming Loans
Nonperforming Loans • Largest NPL’s • #1 ‐ $8.6 $8 6 million condo development ‐ $1.3 $1 3 million in paydowns were received in the 3rd quarter • #2 ‐ $5.0 million land development – foreclosure in process • #3 ‐ $4.8 million commercial land – contract pending for partial sale would reduce exposure
Slide 41: Historical ORE Disposition Activity
Historical ORE Disposition Activity Sales > $250,000 YTD 2010 ORE at Sept. 30, 2010 As a % ‐ original As a % ‐ F/C As a % ‐ ORE Bal As a % ‐ original As a % ‐ F/C loan amt loan amt Original loan amount 100% 100% Customer payments 11% 18% Charge off’s prior to foreclosure 18% 19% Balance @ foreclosur
Slide 42: OREO Properties
OREO Properties • Largest OREO Properties: • #1 ‐ $12.4 $12 4 million commercial real estate development – contract pending for partial sale would reduce exposure by 20% • #2 ‐ $5.7 million residential development – contract pending for partial i l sale l wouldld reduce d exposure by b 28% • #3 ‐ $3
Slide 43: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.97% (TEY) 1.1% 1.1% Average life = 4.35 years Municipals Effective Duration = 2 2.66% 66% 21.5% (millions) MTD QTD Agency MBS pass Purchases $37.7 174.8 Sales ‐ ‐ Notes thrus Mat/Calls (36.3) (
Slide 44: Funding sources
Funding sources Positive trends in funding continue Quarter over Quarter % Change 30‐Sep‐10 Percent 30‐Jun‐10 Percent Core Funding: Noninterest‐bearing deposit accounts 9.7% 581,181 13.7% 529,867 11.3% Interest‐bearing demand accounts ‐0.2% 526,164 12.4% 527,144 11.0% Savings and money market accoun
Slide 45: Taxes and Goodwill
Taxes and Goodwill (dollars in millions) Deferred for Current Future Totals DTA Key Points Amounts Periods A A. At June 30, 30 PNFP was in a 3 3‐year year cumulative loss position Tax related assets $11.9 $44.7 $56.6 B. In Q3, we increased the VA by the amount equal to the current Tax related liabil
Slide 46: Non-GAAP Financial Measures – Net Interest Margin
Non‐GAAP Financial Measures – Net Interest Margin 3Q10 2Q10 1Q10 4Q09 3Q09 Avg. net earning assets $4,519,955 $4,527,471 $4,651,695 $4,690,347 $4,576,473 Net interest income $36,060 $35,697 $36,560 $37,031 $34,548 Impact of tax exempt instruments 0.06% 0.07% 0.06% 0.06% 0.06% Net interest margin 3.2
Slide 47: Non-GAAP Financial Measures – Efficiency Ratio
Non‐GAAP Financial Measures – Efficiency Ratio 3Q10 2Q10 1Q10 4Q09 3Q09 Total non‐interest expense $ $37,774 $ $36,491 $ $36,167 $ $35,448 $ $27,280 Less: ORE expenses (8,522) (7,411) (5,402) (8,393) (1,250) Non‐Interest expense, excluding ORE $29,252 $29,080 $30,765 $27,055 $26,030 Total non‐intere
Slide 48: Market Stabilization
Market Stabilization Nashville Job Growth • Several Corporate Relocations / Expansions • Nissan – 1,300 jobs ‐ $1.7 billion expansion • Jackson J k N National ti l Life, Lif Omnicell, O i ll Lowes L Hotels H t l • 1,000 jobs through 2012 to 2013 • New Music City Convention center ‐ $600 mm, late 201
Slide 49: Market Stabilization
Market Stabilization Nashville Residential Real Estate Trends • Median home prices in Sept. 2010 up more than 7% over last Sept. 2009 • Residential inventories up only 1.2% in Sept Sept. 2009 from Sept Sept. 2008 • Sept 16, 2010 – Forbes ranks Nashville MSA as 4th nationally as to likelihood of home
Pinnacle Financial Partners — Q3 2010 Earnings Presentation on 6ix