Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q2 2013 Earnings Presentation
59 slides from Pinnacle Financial Partners's earnings presentation, Jul 17, 2013
Slide 1: Second Quarter 2013 Investor Call
Second Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 17, 2013
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: 2Q13 Profitability, Earnings and Quarterly Progress
2Q13 Profitability, Earnings and Quarterly Progress PNFP reached the low end of its long-term profitability targets in 2Q13 Ratio PNFP PNFP PNFP PNFP PNFP PNFP PNFP 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Long-term Targets NIM 3.74% 3.76% 3.78% 3.80% 3.90% 3.77% 3.70%-3.90% Net Charge-offs 0.44% 0.28% 0.22% 0
Slide 4: 2Q13 Profitability, Earnings and Quarterly Progress
2Q13 Profitability, Earnings and Quarterly Progress PNFP continued to “hit on all cylinders” in 2Q13 Net Interest Income Growing NPL Coverage $45,000 2.50% 400% $40,000 2.00% 320% NPL % (thousands) $35,000 1.50% 240% ALL % $30,000 1.00% 160% $25,000 0.50% 80% $20,000 0.00% 0% Core Non-interest incom
Slide 5: Adjusted PTPP expanded 36.8% in 2Q13
2Q13 Profitability, Earnings and Quarterly Progress Adjusted PTPP expanded 36.8% in 2Q13 over the same period prior year 5
Slide 6: Net interest income grew despite margin contraction
2Q13 Profitability, Earnings and Quarterly Progress Net interest income grew despite margin contraction Key Revenue Drivers Net Interest Income Loan growth $46 Reducing cost of deposits Continued growth in low-cost funding sources $43.6 $44 $42.8 $42.2 Net Interest Margin $42 4.00% $40.9 3.90%
Slide 7: Average Loans
2Q13 Profitability, Earnings and Quarterly Progress Loan volumes grew meaningfully with expected yield contraction $3,900 6.00% $3,800 $3,845 5.60% $3,700 $3,682 $3,600 5.20% Average Loans Loan Yields $3,580 4.88% $3,500 (millions) 4.80% $3,489 $3,400 $3,403 $3,300 4.40% $3,280 4.41% $3,262 $3,200 $
Slide 8: Avg. Deposits
2Q13 Profitability, Earnings and Quarterly Progress Lower deposit costs lessened the impact of decreasing loan yields 1.25% $3,950 $3,963 $3,950 1.01% 1.10% $3,850 $3,883 0.95% $3,750 $3,772 Deposit Costs Avg. Deposits $3,723 0.80% $3,706 $3,700 $3,650 (millions) (%) $3,642 $3,636 0.65% $3,597 $3,55
Slide 9: Pinnacle's net interest margin is built on success with clients
2Q13 Profitability, Earnings and Quarterly Progress Pinnacle’s net interest margin is built on success with clients 4.50% 4.00% Treasury 3.50% Margin Customer Margin 3.00% Net Interest Margin 2.50% 2.00% 1.50% 9
Slide 10: Core fees progressed to the highest level in firm history
2Q13 Profitability, Earnings and Quarterly Progress Core fees progressed to the highest level in firm history 2Q13 1Q13 4Q12 3Q12 2Q12 Service charges $2,541 $2,480 $2,623 $ 2,532 $ 2,439 Investment services 1,895 1,793 2,051 1,677 1,611 Insurance commissions 1,108 1,393 1,045 987 1,141 Gain on mort
Slide 11: Existing lenders are leveraging capacity to take share and grow loans
Loan, Deposit and Fee Growth Yield Operating Leverage Existing lenders are leveraging capacity to take share and grow loans 2012 - 2014 Anticipated Net Loan Growth 12.5% CAGR (1/1/2012-6/30/2013) 14.0% AGR (Last 4 Quarters) Previously reported growth $634.0 million net Current quarter growth Thru 2Q
Slide 12: Loan growth is a function of improving demand and market share movement
Loan, Deposit and Fee Growth Yield Operating Leverage Loan growth is a function of improving demand and market share movement New Loans 1H13 Existing New clients, clients, 48.2% 51.8% Source: Internal loan records, new loans to new clients based on review of new tax ID’s recorded during the first si
Slide 13: Line commitments are growing
Loan, Deposit and Fee Growth Yield Operating Leverage Line commitments are growing; may provide future growth in outstandings 70% $2,000 65% $926 $941 $865 $815 $787 $808 60% $779 Total Commitments $747 $685 $715 55.75% $1,500 55% Funded % 56.15% 54.00% (millions) 50% $1,000 45% $1,166 $1,138 $1,105
Slide 14: Loan growth is primarily funded by growth in low cost core deposits
Loan, Deposit and Fee Growth Yield Operating Leverage Loan growth is primarily funded by growth in low cost core deposits % of Deposits by Type to Total Deposits Avg. Loan & Trans/MMA Account Growth 14
Slide 15: Operating Leverage Enhances Profitability
Operating Leverage Enhances Profitability Operating leverage continued to expand in 2Q13 2Q13 1Q13 4Q12 3Q12 2Q12 Salaries and benefits $20,570 $19,572 $19,556 $19,470 $19,237 Equipment and occupancy 5,204 5,113 5,202 5,156 5,053 Other real estate owned 1,390 721 1,365 2,399 3,104 Marketing and Bus.
Slide 16: Earnings momentum should continue despite rising rates
Potential Ongoing Impact on Growth, Earnings and Valuation Earnings momentum should continue despite rising rates • Investments primarily collateralize public funds • Operating account deposits • Weighted average rate of 0.32% at end of 2Q13 versus 0.55% for 2Q12 • Bond premium amortization likely t
Slide 17: Recent/ongoing initiatives minimize impact of rate increases on TBV
Potential Ongoing Impact on Growth, Earnings and Valuation Recent/ongoing initiatives minimize impact of rate increases on TBV • Relative size of bond book in comparison to peers is low • Investments down to 13.5% of assets at June 30, 2013 (20.8% at Dec. 31, 2010) • AFS Securities / TBV was 306% at
Slide 18: Floors have provided meaningful earnings and are manageable going forward
Potential Ongoing Impact on Growth, Earnings and Valuation Floors have provided meaningful earnings and are manageable going forward 18
Slide 19: Revised BASEL III rules provide some relief from 2012 NPR
Potential Ongoing Impact on Growth, Earnings and Valuation Revised BASEL III rules provide some relief from 2012 NPR Key Changes that impact PNFP • Trust Preferred grandfathered at Tier 1 capital • 1-4 first mortgages receive consistent treatment for RWA as proposed • Investment portion of AOCI may
Slide 20: Profitability likely provides opportunity for growth & dividends
Potential Ongoing Impact on Growth, Earnings and Valuation Profitability likely provides opportunity for growth & dividends PNFP At Dec. 31, At Jun. 30, Net % of RBC BASEL III increase to Minimum 2012 2013 Change RW Loan PCA Minimum Requirements Growth Requirements (2015) Loans $3,712.2 $3,925.4 $21
Slide 21: Margin outlook for 2013 is consistent with the targeted range
Potential Ongoing Impact on Growth, Earnings and Valuation Margin outlook for 2013 is consistent with the targeted range Opportunities: 1. Loan growth 2. Continued reduction in cost of funds 3. Growth in low cost core deposits Threats: 4. Loan yields will continue to re-price below current yields An
Slide 22: Fee income has relatively limited exposure to mortgage originations
Potential Ongoing Impact on Growth, Earnings and Valuation Fee income has relatively limited exposure to mortgage originations Noninterest income Refinance/Purchase Mix by Line of Business $5,000 100% $4,500 90% $4,000 80% $3,500 70% 60% ($ thousands) $3,000 50% $2,500 40% $2,000 30% $1,500 20% $1,0
Slide 23: Pinnacle is positioned to leverage existing infrastructure
Potential Ongoing Impact on Growth, Earnings and Valuation Pinnacle is positioned to leverage existing infrastructure $330,000 $7,350,000 $310,000 $7,200,000 Revenue per FTE Associate $290,000 $7,050,000 Revenue Per Associate $270,000 $6,900,000 Assets per Associate $250,000 $6,750,000 $230,000 $6,6
Slide 24: PNFP operates in advantaged markets
Potential Ongoing Impact on Growth, Earnings and Valuation PNFP operates in advantaged markets Nashville Home Sales 2Q2013 2Q2012 % Change Avg. Qtrly. Median $195,300 $175,500 11.3% Home Price Quarterly Closings 7,402 5,955 24.3% Quarter end Inventory 10,555 11,812 (10.6%) Months of Inventory 4.1 5.
Slide 25: Management's Focus for 3Q 2013
Management’s Focus for 3Q 2013 • Continued loan and core deposit growth • Continued NPA reductions • Continued revenue growth • Capital planning 25
Slide 26: Q&A – Second Quarter 2013 Investor Call
Q&A – Second Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 17, 2013 26
Slide 27: Supplemental Information
Supplemental Information Second Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 17, 2013 27
Slide 28: Supplemental Information
Supplemental Information Chart • Balance Sheet 29 • Asset Quality 39 • Income Statement 47 • Economic Conditions & Other 50 • Pinnacle Financial Partners profile 53 28
Slide 29: Balance Sheet
Supplemental Information Balance Sheet 29
Slide 30: Balance Sheet
Thousands Millions $500 $0 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $- Dec-00 Dec-00 Mar-01 Mar-01 Jun-01 Jun-01 Sep-01 Sep-01 Dec-01 Dec-01 Mar-02 Mar-02 Jun-02 Jun-02 Sep-02 Sep-02 Dec-02 Dec-02 Mar-03 Mar-03 Jun-03 Jun-03 Sep-03 S
Slide 31: Loan portfolio components are within targeted ranges
Balance Sheet Loan portfolio components are within targeted ranges Amts. %’s Amts. %’s Amts. %’s Amts. %’s 2Q13 2Q13 1Q13 1Q13 4Q12 4Q12 2Q12 2Q12 C&D and Land $298.5 7.6% $306.4 8.1% $313.6 8.5% $289.1 8.4% Consumer RE 697.5 17.7% 675.6 17.9% 679.9 18.3% 687.0 19.9% CRE – Owner Occ. 647.1 16.5% 618
Slide 32: Exposure to residential land development is limited
Balance Sheet Exposure to residential land development is limited Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 2Q13 2Q13 1Q13 1Q13 4Q12 4Q12 2Q12 2Q12 Residential – Spec $21.1 0.5% $ 18.6 0.5% $ 17.5 0.5% $ 12.4 0.4% Residential – Custom 22.2 0.6% 16.5 0.4% 16.6 0.4% 11.8 0.3% Residential – C
Slide 33: The C&I loan portfolio is highly diversified
Balance Sheet The C&I loan portfolio is highly diversified Accomodation and Food Services, 1.3% Administrative & Support & Utilities, Waste Management & 0.1% Remediation Services, 2.0% Transportation & Wholesale Warehousing, 2.6% Trade, 3.5% Arts, Entertainment & Recreation, 0.6% Construction, 2.3%
Slide 34: Bond volumes have stabilized to collateralize funding
Balance Sheet Bond volumes have stabilized to collateralize funding 3.67% $1,050 3.70% 3.58% 3.54% $1,000 3.50% $1,010 3.31% 3.34% 3.26% 3.27% $973 $950 3.19% 3.30% 3.08% 3.16% $940 Average Securities $924 $900 3.10% Bond Yields $876 $850 2.90% (000’s) (%) $800 2.70% $819 $750 2.50% $767 $746 $700 2
Slide 35: PNFP maintains a conservative bond portfolio
Balance Sheet PNFP maintains a conservative bond portfolio Portfolio: June 30, 2013 1.4% 23.0% 19.7% Total Investments $728 million 5.5% Unrealized Gain $0.8 million QTD Purchases $65.9 million 47.9% QTD sales, maturities, calls $22.2 million 2.5% Duration Avg Yield - TE Agency Corporates MBS Jun 20
Slide 36: The municipal portfolio contains minimal risk
Balance Sheet The municipal portfolio contains minimal risk Municipal Bond Portfolio Statistics Muni Allocation % 2Q13 2Q12 Weighted Average Life 4.2 years 4.4 years % State Agency Holdings 5.3% 5.2% 18% Tax equivalent yield 4.69% 4.83% 82% FMV as % of Cost 104.20% 108.30% All municipals are “A” rat
Slide 37: PNFP has limited dependence on non-relationship funding
Balance Sheet PNFP has limited dependence on non-relationship funding 6/30/2013 Percent 6/30/2012 Percent Core Funding: Transaction accounts 1,903,487 41.03% 1,504,450 35.56% Money Market accounts 1,424,910 30.71% 1,510,174 35.69% Time deposits less than $250,000 443,028 9.55% 461,600 10.91% Total C
Slide 38: Elevated tangible common is available for deployment
Balance Sheet Elevated tangible common is available for deployment Tangible Common Ratio Return on Tangible Common Equity 9.15% 8.97% 9.18% 8.73% 8.75% 12.72% 8.77% 12.41% 10.83% 10.76% 7.58% 6.13% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 38
Slide 39: Asset Quality
Supplemental Information Asset Quality 39
Slide 40: Past due loans remain very low
Asset Quality Past due loans remain very low June 30, As a % March 31, As a % 2013 of total 2013 of total (000’s) loans loans Past Due Loans (*) Managed by special assets: Nonaccrual loans $9,610 0.24% $15,851 0.42% Accruing loans 11,617 0.30% 3,396 0.09% Managed by relationship managers: Accruing l
Slide 41: Percentage of potential problem loans continued to decline
Asset Quality Percentage of potential problem loans continued to decline 10.0% 9.30% 9.0% 8.63% 8.64% Potential Problem loans/Total loans 8.0% 7.24% 7.18% 7.65% 7.0% 5.78% 6.0% 5.04% 5.0% 4.12% 4.09% 3.78% 4.0% 3.49% 3.13% 2.84%2.57% 3.0% 2.11% 2.0% 1.0% 0.0% Note: Classified loans (or loans with an
Slide 42: Classified assets continued to decline
Asset Quality Classified assets continued to decline (in thousands) Balances Balances Balances June 30, 2013 Dec. 31, 2012 June 30, 2012 Classified loans and ORE: - Substandard commercial loans $ 118,046 $ 144,684 $ 174,500 - Doubtful commercial loans - 33 397 - Other impaired loans 1,940 2,083 3,11
Slide 43: NPLs continued to decline
Asset Quality NPLs continued to decline NPLs Expressed as a % of Total Loans within each Category PNFP NPLs PNFP NPLs PNFP NPLs PNFP NPLs PNFP NPLs and > 90 and > 90 and > 90 and > 90 and > 90 days days days days days 2Q13 1Q13 4Q12 3Q12 2Q12 Const. and land development 0.61% 0.57% 1.44% 1.92% 2.09%
Slide 44: ORE is 44.8% of NPAs with resolution in bank's control
Asset Quality ORE is 44.8% of NPAs with resolution in bank’s control Balances Fair value as a % Average June 30, 2013 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: Developed lots $1,659 210.3% 8.4 Undeveloped land 3,145 191.9% 4.1 Other 11,188 133.8% 5.8 Total ORE $15
Slide 45: Current OREO valuations are below historical disposition results
Asset Quality Current OREO valuations are below historical disposition results ORE Dispositions (*) thru ORE Balance at June 30, 2013 June 30, 2013 Loan balances prior to charge offs 100.00% 100.00% Charge off’s prior to foreclosure 18.62% 27.02% Balance @ foreclosure 81.38% 72.98% Valuation losses
Slide 46: OREO disposition plans suggest limited unresolved issues
Asset Quality OREO disposition plans suggest limited unresolved issues (dollars in thousands) Balances Near-term Active Other June 30, 2013 liquidation Projects Properties (1) (2) (3) ORE categories: Developed lots $1,659 $147 $1,512 $- Undeveloped land 3,145 543 8,609 2,036 Other 11,188 808 1,803 5
Slide 47: Income Statement
Supplemental Information Income Statement 47
Slide 48: Mortgage originations continued to be elevated
Income Statement Mortgage originations continued to be elevated $2,500 $150,000 $2,000 $120,000 Gain on mortgages sold, net Gross Loans Sold $1,500 $90,000 (000’s) (000s’) $1,000 $60,000 $500 $30,000 $- $- 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 Gross Loans Sold, net Gain on Mortgage Loans
Slide 49: PNFP continues to improve operating leverage
Income Statement PNFP continues to improve operating leverage 2Q13 1Q13 4Q12 3Q12 2Q12 Net interest income $43,599 $42,758 $42,243 $40,932 $40,185 Total non-interest income $11,326 $11,902 $13,108 $10,430 $9,909 Less: Securities (gains) losses 25 - (1,988) 50 (99) Less: Noncredit related loan losses
Slide 50: Economic Conditions & Other
Supplemental Information Economic Conditions & Other 50
Slide 51: Nashville and Knoxville are healthy business markets
Economic Conditions Nashville and Knoxville are healthy business markets NASHVILLE Nashville achieved “it city” status in 2012, landing on several major national publications’ lists of hot spots. Nashville’s diverse economy, thriving cultural base and strong business community are major attractions
Slide 52: Nashville's commercial vacancy rates indicate a healthy market
Economic Conditions Nashville’s commercial vacancy rates indicate a healthy market Nashville CRE National CRE Vacancy Rates Vacancy Rates 2Q YE 2012(*) YE 2011 (*) YE 2010 YE 2009 YE 2008 2Q 2013(*) (*) (**) (**) 2013 (*) Industrial / 8.5% 9.1% 10.1% 10.2% 10.6% 9.6% 8.5% Warehouse Multifamily** 7.7
Slide 53: Pinnacle Financial Partners Profile
Supplemental Information Pinnacle Financial Partners Profile 53
Slide 54: 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/3 in Knoxville Founded: 2000 Avg. daily trading vol.: 125,114 shares Total assets: $ 5.373 Billion (6/30/13) (6/30/13) % Institutional ownership: 69% Shareholders’ equity: $ 696.6
Slide 55: 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 35 13 Robert A. McCabe, Jr. Chairman of the Board 62 37 13 Hugh M. Queener Chief Administrative Officer 57 26 13 Ha
Slide 56: Engaged associates drive market-best client satisfaction
PNFP Profile Engaged associates drive market-best client satisfaction 5.00 100% Customer Satisfaction Scores Associate Engagement Scores 4.00 90% 3.00 80% 2.00 70% 1.00 60% Customer Satisfaction Scores Associate engagement survey positive responses 56
Slide 57: PNFP has proven experience in market share take-away
PNFP Profile 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 4 Pinnacle Financial 8.4% 1.7% Br
Slide 58: PNFP Profile
PNFP Profile Projected Median Projected Company Deposit Total Population Population HH HH Income Number Deposits Market Percent of Population Change Change Income Change Market of in Market Share Franchise 2012 2010-2012 2012-2017 2012 2012-2017 MSA Rank Branches ($000) (%) (%) (Actual) (%) (%) ($)
Slide 59: Second Quarter 2013 Investor Call
Second Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 17, 2013
Pinnacle Financial Partners — Q2 2013 Earnings Presentation on 6ix