Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q3 2013 Earnings Presentation
61 slides from Pinnacle Financial Partners's earnings presentation, Oct 16, 2013
Slide 1: Third Quarter 2013 Investor Call
Third Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 16, 2013
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: 3Q13 Profitability, Earnings and Quarterly Progress
3Q13 Profitability, Earnings and Quarterly Progress 3Q13 was another quarter of solid execution Net Interest Income Growing NPL Coverage $50,000 2.50% 400% $45,000 2.00% 320% ALL Coverage % $40,000 (thousands) 1.50% 240% NPL % $35,000 $30,000 1.00% 160% $25,000 0.50% 80% $20,000 0.00% 0% Core Non-in
Slide 4: Net interest income grew despite margin contraction
3Q13 Profitability, Earnings and Quarterly Progress Net interest income grew despite margin contraction $46 4.00% 3.90% 3.80% 3.90% $44.6 $44 3.78% 3.76% $43.6 3.80% $42.8 3.77% $42 3.70% Net Interest Income 3.74% $42.2 Net Interest Margin 3.72% 3.65% 3.60% $40.9 $40 3.60% (millions) $40.2 3.55% $39
Slide 5: Yields contracted yet NII expanded as loans grew
3Q13 Profitability, Earnings and Quarterly Progress Yields contracted yet NII expanded as loans grew 12.9% year-over-year $4,000 6.00% $3,900 $3,932 5.60% $3,800 $3,845 $3,700 5.20% Average Loans $3,682 Loan Yields $3,600 4.88% (millions) $3,580 $3,500 4.80% $3,489 $3,400 $3,403 4.40% $3,300 4.33% $
Slide 6: Lower deposit costs lessened the impact of decreasing loan yields
3Q13 Profitability, Earnings and Quarterly Progress Lower deposit costs lessened the impact of decreasing loan yields $4,250 1.20% $4,150 $4,199 1.01% 1.08% $4,050 $3,950 0.95% $3,963 $3,950 Deposit Costs Avg. Deposits $3,850 0.83% $3,883 (millions) (%) $3,750 0.70% $3,772 $3,723 $3,706 $3,650 $3,70
Slide 7: Net interest margin built on success with clients
3Q13 Profitability, Earnings and Quarterly Progress Pinnacle’s net interest margin has been built on success with clients 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% Treasury Margin Client Margin Net Interest Margin Client Margin – Measures the ratio of interest earnings of the loan portfolio as suppo
Slide 8: Core fees progressed to the highest level in firm history
3Q13 Profitability, Earnings and Quarterly Progress Core fees progressed to the highest level in firm history 3Q13 2Q13 1Q13 4Q12 3Q12 Service charges $2,797 $2,541 $2,480 $2,623 $ 2,532 Investment services 1,956 1,895 1,793 2,051 1,677 Insurance commissions 1,021 1,108 1,393 1,045 987 Gain on mortg
Slide 9: Trajectory toward long-term profitability targets
3Q13 Profitability, Earnings and Quarterly Progress PNFP continues the trajectory toward its long-term profitability targets Ratio PNFP PNFP PNFP PNFP PNFP PNFP PNFP PNFP 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13(3) 3Q13 Long-term Targets NIM 3.74% 3.76% 3.78% 3.80% 3.90% 3.77% 3.72% 3.70%-3.90% Net Charge-offs
Slide 10: Lenders are leveraging capacity to take share and grow loans
Loan, Deposit and Fee Growth Yield Operating Leverage Lenders are leveraging capacity to take share and grow loans 2012 - 2014 Anticipated Net Loan Growth 11.3% CAGR (1/1/2012-9/30/2013) 12.6% AGR (Last 4 Quarters) Previously reported growth $678.0 million net growth thru Current quarter growth Thru
Slide 11: Loan growth a function of improving demand and market share
Loan, Deposit and Fee Growth Yield Operating Leverage Loan growth is a function of improving demand and market share movement New Loans YTD 2013 Existing New clients, clients, 50.2% 49.8% Source: Internal loan records, new loans to new clients based on review of new tax ID’s recorded during the firs
Slide 12: Loan pay offs remain a significant headwind
Third Quarter 2013 Highlights Loan pay offs remain a significant headwind $500 $450 $400 $350 Loan Volumes $300 ($ thousands) $250 $200 $150 $100 $50 $0 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 New loans Pay offs/ Pay downs Source: Pinnacle internal records. New loans include new fundings to new and existing c
Slide 13: Line commitments are up 16.5% over 3Q12
Loan, Deposit and Fee Growth Yield Operating Leverage Line commitments are up 16.5% over 3Q12 70% $2,500 65% 60% $989 $2,000 Total Commitments 56.15% $926 $941 $865 55% $787 Funded % $808 $815 $779 $747 $685 $715 $1,500 54.61% (millions) 50% $1,000 45% 40% $1,190 $1,166 $1,138 $1,105 $1,055 $1,054 $
Slide 14: Loan growth funded by growth in low cost deposits
Loan, Deposit and Fee Growth Yield Operating Leverage Loan growth is primarily funded by growth in low cost deposits % of Deposits by Type to Total Deposits Avg. Loan & Trans, Savings and MMA Account Growth 70% $800,000 100% 60% $700,000 95% 50% $600,000 90% 40% $500,000 85% $400,000 80% 30% $300,00
Slide 15: Operating Leverage Enhances Profitability
Operating Leverage Enhances Profitability The core efficiency ratio at 3Q13 stands at 56.8% 3Q13 2Q13 1Q13 4Q12 3Q12 Salaries and benefits $21,010 $20,570 $19,572 $19,556 $19,470 Equipment and occupancy 5,413 5,204 5,113 5,202 5,156 Other real estate owned 699 1,390 721 1,365 2,399 Marketing and Bus
Slide 16: Floors have enhanced margin and reduced risk
Potential Ongoing Impact on Growth, Earnings and Valuation Floors have enhanced margin and represent reduced risk going forward $1,360 6.0% $1,340 4.99% 4.41% $1,320 4.5% 1.33% 3.66% 0.87% $1,300 3.54% (millions of dollars) $1,280 3.0% $1,260 $1,240 1.5% $1,220 $1,200 0.0% Dec 2010 Dec 2011 Dec 2012
Slide 17: Margin outlook for 2013 is consistent with 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 18: Fee income has limited exposure to shrinking mortgage refis
Potential Ongoing Impact on Growth, Earnings and Valuation Fee income has relatively limited exposure to shrinking mortgage refi’s Noninterest income by Line of Business Refinance/Purchase Mix $6,000 $5,000 $4,000 ($ thousands) $3,000 $2,000 $1,000 $0 Refinance Purchases Deposit & Interchange Wealth
Slide 19: Leveraging existing infrastructure and adding growth capacity
Potential Ongoing Impact on Growth, Earnings and Valuation Pinnacle is leveraging existing infrastructure and adding growth capacity $8,000 350.00 $7,000 300.00 $6,000 250.00 Revenue per Associate (000's) Assets per Associate (000's) $5,000 200.00 $4,000 150.00 $3,000 100.00 $2,000 50.00 $1,000 $- -
Slide 20: PNFP operates in advantaged markets
Potential Ongoing Impact on Growth, Earnings and Valuation PNFP operates in advantaged markets Nashville Home Sales 3Q2013 3Q2012 % Change Avg. Qtrly. Median $197,887 $177,083 11.8% Home Price Quarterly Closings 7,331 6,190 18.4% Quarter end Inventory 10,183 11,055 (7.5%) Months of Inventory 4.73 5.
Slide 21: PNFP is dominating the commercial market in Nashville
Potential Ongoing Impact on Growth, Earnings and Valuation PNFP is dominating the commercial market in Nashville 20% Pinnacle Financial ** 18% 16% Lead Relationships 14% Regional B as a % of Total Market 12% Regional C (%) 10% National A 8% 6% Regional A -10 0 10 20 30 40 50 60 70 80 90 Net Promoter
Slide 22: Dividends may enhance valuations
Potential Ongoing Impact on Growth, Earnings and Valuation Dividends may enhance valuations Factors that argue for a sustainable dividend strategy • Should not impact our growth prospects • Should attract yield-oriented investors to PNFP • Appears market is assigning a premium to dividend payers Fac
Slide 23: Profitability provides cushion for growth and a dividend
Potential Ongoing Impact on Growth, Earnings and Valuation Profitability provides cushion for current rate of growth and a dividend PNFP At Dec. 31, At Sept. 30, Net Change Percent 2012 2013 Change Loans $3,712.2 $3,969.3 $257.1 6.9% RW % 94.5% 93.2% RW Loans $3,507.4 $3,700.0 $192.6 5.5% Tier 1 CTE
Slide 24: Payout ratio is a conservative starting point
Potential Ongoing Impact on Growth, Earnings and Valuation 20.4% payout ratio is a conservative starting point PNFP Peer Group* Dividend amount $0.08 per share Dividend amount annualized $0.32 per share Last 12 months of FDEPS $1.57 Dividend payout ratio 20.4% - Peer group median 32.5% - Peer group
Slide 25: Management's Focus for 4Q 2013
Management’s Focus for 4Q 2013 • Continued loan and core deposit growth • Continued revenue growth • Continued NPA reductions 25
Slide 26: Q&A – Third Quarter 2013 Investor Call
Q&A – Third Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 16, 2013 26
Slide 27: Supplemental Information
Supplemental Information Third Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 16, 2013 27
Slide 28: Supplemental Information contents
Supplemental Information Chart • Balance Sheet 29 • Asset Quality 39 • Income Statement 47 • Economic Conditions & Other 51 • Pinnacle Financial Partners profile 54 28
Slide 29: Balance Sheet
Supplemental Information Balance Sheet 29
Slide 30: Balance Sheet
Millions $500 $0 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Source: SNL Financial except for Q3 2013 Jun-
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 3Q13 3Q13 2Q13 2Q13 4Q12 4Q12 3Q12 3Q12 C&D and Land $320.0 8.1% $298.5 7.6% $313.6 8.5% $312.8 8.9% Consumer RE 687.3 17.3% 697.5 17.7% 679.9 18.3% 680.9 19.3% CRE – Owner Occ. 638.2 16.1% 647
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(*) 3Q13 3Q13 2Q13 2Q13 4Q12 4Q12 3Q12 3Q12 Residential – Spec $24.3 0.6% $21.1 0.5% $ 17.5 0.5% $13.6 0.4% Residential – Custom 29.7 0.8% 22.2 0.6% 16.6 0.4% 14.5 0.4% Residential – Con
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 & Waste Management & Utilities, Remediation Services, 2.0% 0.1% Transportation & Wholesale Trade, Warehousing, 2.6% 3.5% Arts, Entertainment & Recreation, 0.6% Construction, 2.3%
Slide 34: Bond volumes have stabilized
Balance Sheet Bond volumes have stabilized $1,050 3.70% $1,000 3.50% $1,010 $973 $950 3.30% $940 $924 $900 3.10% Average Securities Bond Yields $876 $850 2.90% (000’s) (%) $800 2.70% $750 $819 2.50% $767 $746 $743 $700 2.30% $720 $714 $650 2.10% Avg Investments Bond Yields 34
Slide 35: PNFP maintains a conservative bond portfolio
Balance Sheet PNFP maintains a conservative bond portfolio 1.4% Portfolio: Sept. 30, 2013 24.3% 19.2% Total Investments $743 million Unrealized Loss $0.1 million 4.6% QTD Purchases $72.2 million 2.4% 48.1% QTD sales, maturities, calls $5.5 million Duration Avg Yield - TE Agency Corporates MBS Sep 20
Slide 36: The municipal portfolio contains minimal risk
Balance Sheet The municipal portfolio contains minimal risk Municipal Bond Portfolio Statistics Muni Allocation % 3Q13 3Q12 Weighted Average Life 4.6 years 4.3 years % State Agency Holdings 4.95% 5.18% 21% Tax equivalent yield 4.70% 5.60% 79% FMV as % of Cost 102.4% 108.8% All municipals are “A” rat
Slide 37: Limited dependence on non-relationship funding
Balance Sheet PNFP has limited dependence on non-relationship funding 9/30/2013 Percent 12/31/2012 Percent Core Funding: Transaction accounts 1,908,617 41.20% 1,746,476 41.47% Money Market accounts 1,560,578 33.69% 1,461,173 34.70% Time deposits less than $250,000 433,805 9.36% 467,013 11.09% Total
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% 9.03% 8.73% 8.75% 12.72% 12.71% 8.77% 12.41% 10.83% 10.76% 7.58% 6.13% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 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 Sept. 30, As a % Sept. 30, As a % 2013 of total 2012 of total loans loans (000’s) Past Due Loans (*) Managed by special assets: Nonaccrual loans $11,306 0.28% $23,448 0.67% Accruing loans 7,717 0.19% 8,592 0.24% Managed by relationship managers: Accruing
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% 1.80% 2.0% 1.0% 0.0% Note: Classified loans (or loans wi
Slide 42: Classified assets continued to decline
Asset Quality Classified assets continued to decline (in thousands) Balances Balances Balances Sept. 30, 2013 Dec. 31, 2012 Sept. 30, 2012 Classified loans and ORE: - Substandard commercial loans $102,169 $ 144,684 $157,483 - Doubtful commercial loans - 33 384 - Other impaired loans 4,730 2,083 3,57
Slide 43: NPLs remain very low
Asset Quality NPLs remain very low 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 3Q13 2Q13 1Q13 4Q12 3Q12 Const. and land development 0.41% 0.61% 0.57% 1.44% 1.92% CRE
Slide 44: ORE is 43.7% of NPAs
Asset Quality ORE is 43.7% of NPAs with resolution in bank’s control Balances Fair value as a % Average Sept. 30, 2013 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: Developed lots $1,361 144.3% 9.94 Undeveloped land 12,139 180.4% 4.47 Other 2,022 116.2% 3.54 Total ORE
Slide 45: Current OREO valuations below historical disposition results
Asset Quality Current OREO valuations are below historical disposition results ORE Dispositions (*) thru ORE Balance at Sept. 30, 2013 Sept. 30, 2013 Loan balances prior to charge offs 100.00% 100.00% Charge off’s prior to foreclosure 21.08% 26.57% Balance @ foreclosure 78.92% 73.43% Valuation losse
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 Sept. 30, 2013 liquidation Projects Properties (1) (2) (3) ORE categories: Developed lots $1,361 $147 $1,214 $ - Undeveloped land 12,139 543 9,560 2,036 Other 2,022 965 523 5
Slide 47: Income Statement
Supplemental Information Income Statement 47
Slide 48: Mortgage refinance has slowed
Income Statement Mortgage refinance has slowed $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 3Q13 Gross Loans Sold, net Gain on Mortgage Loans Sold, net 4
Slide 49: PNFP continues to improve operating leverage
Income Statement PNFP continues to improve operating leverage 3Q13 2Q13 1Q13 4Q12 3Q12 Net interest income $44,573 $43,599 $42,758 $42,243 $40,932 Total non-interest income $11,387 $11,326 $11,902 $13,108 $10,430 Less: Securities (gains) losses 1,441 25 - (1,988) 50 Less: Net noncredit related loan
Slide 50: Adjusted PTPP expanded 22.5% over prior year
Income Statement Adjusted PTPP expanded 22.5% in 3Q13 over the same period prior year 50
Slide 51: Economic Conditions & Other
Supplemental Information Economic Conditions & Other 51
Slide 52: Nashville and Knoxville are healthy business markets
Economic Conditions Nashville and Knoxville are healthy business markets TENNESSEE • Tennessee business tax climate ranks 15th best among states Commercial Appeal NASHVILLE Nashville achieved “it city” status in 2012, landing on several major national publications’ lists of hot spots. Nashville’s di
Slide 53: 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 3Q YE 2012(*) YE 2011 (*) YE 2010 YE 2009 YE 2008 3Q 2013(*) (*) (**) (**) 2013 (*) Industrial / 9.1% 9.1% 10.1% 10.2% 10.6% 9.6% 8.3% Warehouse Multifamily** 7.9
Slide 54: Pinnacle Financial Partners Profile
Supplemental Information Pinnacle Financial Partners Profile 54
Slide 55: 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 4 in Knox County Founded: 2000 Avg. daily trading volume **: 110,261 shares Total assets: $ 5.391 Billion (9/30/13) % Institutional ownership: 69.1% (9/30/13) Shareholders’ equity:
Slide 56: 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 57: McLagan Peer Group
PNFP Profile McLagan Peer Group • Pinnacle Financial Partners (PNFP) • PacWest Bancorp (PACW) • 1st Source Corporation (SRCE) • Sandy Springs Bancorp, Inc. (SASR) • Columbia Banking System, Inc. • SCBT Financial Corp (SCBT) (COLB) • Taylor Capital Group, Inc. (TAYC) • CVB Financial Corp. (CVBF) • Te
Slide 58: 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 Source: Annual Associate Survey 58
Slide 59: Proven experience in market share take-away
PNFP Profile PNFP has proven experience in market share take-away Nashville-Davidson-Rutherford MSA Knoxville MSA Top 10 Holding Market Market Chang Top 10 Holding Market Market Change Market Company Share Share e Market Company Share Share in Share 6/30/13 6/30/00 in Share 6/30/13 6/30/07 Share Ran
Slide 60: Market deposit share and demographics
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 61: Third Quarter 2013 Investor Call
Third Quarter 2013 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 16, 2013
Pinnacle Financial Partners — Q3 2013 Earnings Presentation on 6ix