Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q3 2011 Earnings Presentation
58 slides from Pinnacle Financial Partners's earnings presentation, Oct 19, 2011
Slide 1: Third Quarter 2011 Investor Call
Third Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer October 19, 2011
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: Two Primary Priorities
Two Primary Priorities • Building core earnings capacity • Aggressively dealing with credit issues 3
Slide 4: Third Quarter 2011 Highlights: Building Core Earnings Capacity
Third Quarter 2011 Highlights Building the Core Earnings Capacity of the Firm Linked Qtr Year over Change Year Change Total loans 1.2% 1.0% C&I and owner occupied CRE loans 3.1% 9.2% Avg. Noninterest bearing deposits 6.8% 25.8% Net interest margin 1.4% 11.5% Noninterest income excl. securities gains
Slide 5: Third Quarter 2011 Highlights: Aggressively Dealing with Credit Issues
Third Quarter 2011 Highlights Aggressively Dealing with Credit Issues Linked Qtr Year over Consecutive Decrease Year Qtrs. of Decrease Progress Credit losses (NCO’s + ORE expense) 13.0% 31.9% 5 NPLs 8.5% 47.0% 6 NPAs 10.7% 34.0% 5 NPL inflows 4.9% 48.4% 5 Classified Loans 7.7% 46.7% 5 Potential prob
Slide 6: 3Q11 Provides Volume and Margin Expansion
Building Core Earnings Capacity 3Q11 Provides Volume and Margin Expansion • C&I loans up $37 million in 3Q11, approximately 3.5% • Avg. DDA balances up $43 million in 3Q11, approximately 6.8% • Net interest margin rises 5bp in 3Q11 to end at 3.60% • Cost of funds decreased from 0.98% in 2Q11 to 0.84
Slide 7: Momentum Continues to Build in Net Loan Volumes
Building Core Earnings Capacity Momentum Continues to Build in Net Loan Volumes Net Quarterly Loan Growth (in millions) $100 $50 $0 Total Loans -$50 C&I and O/O CRE -$100 Loans -$150 -$200 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 7
Slide 8: Positive DDA Trends Reflect an Ability to Gain Clients
Building Core Earnings Capacity Positive DDA Trends Reflect an Ability to Gain Clients $700 $672 DDA Average Balances (in millions) $650 $629 $595 $600 $576 $550 $534 $496 $504 $500 $450 $400 $350 $300 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 8
Slide 9: Reduction in Cost of Deposits is Driving Margin Expansion
Building Core Earnings Capacity Reduction in Cost of Deposits is Driving Margin Expansion 1.50% 1.43% 3.70% 3.60% 1.40% 3.55% 3.60% 1.30% 3.50% 3.40% 1.20% 3.40% 3.29% 1.10% 3.25% 3.30% 3.23% 3.23% 1.00% 3.20% 0.90% 3.10% 0.77% 0.80% 3.00% 0.70% 2.90% 0.60% 2.80% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 9
Slide 10: Net Interest Margin Has Expanded Significantly
Building Core Earnings Capacity Net Interest Margin Has Expanded Significantly Key Margin Drivers: Net Interest Margin Trend • NPA resolutions 3.70% • Reduced excess cash through higher loan volumes • Higher % of core deposit volumes and repricing 3.60% 3.60% existing accounts 3.55% 3.50% 3.40% (in
Slide 11: Margin Improvement is Built on Success with Clients
Building Core Earnings Capacity Margin Improvement is Built on Success with Clients 4.50% • Continued progress on 4.00% reducing cost of funds and maximizing loan yields 3.50% • Treasury yields influenced heavily by 3.00% rapid pay downs and repricing of bond 2.50% portfolio as well as maintenance o
Slide 12: COF Reduction Opportunities Remain in Maturing CDs
Building Core Earnings Capacity COF Reduction Opportunities Remain in Maturing CDs • CD repricing opportunities - $160mm in Client CD’s maturing over next three months. Goal at renewal should be near average third quarter renewal rate (0.73%). Client CD’s – Avg. Rate Average Renewal Rates (%) 3rd Qu
Slide 13: COF Reduction Opportunities Remain in MMDAs
Building Core Earnings Capacity COF Reduction Opportunities Remain in MMDAs • MMDA pricing opportunities - $205mm in MMDA accounts with current rates above 1.15%. Target rate should approximate 0.40% to 0.75%. Avg Quarterly Quarterly MMDA Rates Reduction 3rd Quarter 2010 1.36% 0.06% 4th Quarter 2010
Slide 14: Adjusted PTPP Expands 6.1% in 3Q11
Building Core Earnings Capacity Adjusted PTPP Expands 6.1% in 3Q11 (000’s) 3Q11 2Q11 1Q11 Net interest income $38,356 $37,795 $36,020 Total noninterest income 10,080 9,809 8,324 Total revenue 48,436 47,604 44,344 Total noninterest expense 35,676 34,357 34,701 Pre-tax, pre-provision income 12,761 13,
Slide 15: Strong Capital Should Limit Common Dilution
Building Core Earnings Capacity Strong Capital Should Limit Common Dilution Sept. 30, June 30, March 31, Dec. 31, Sept. 30, 2011 2011 2011 2010 2010 Tangible common equity 8.2% 7.7% 7.4% 7.1% 7.2% Tangible common to risk weighted assets 10.3% 9.6% 9.1% 9.1% 9.3% Tier 1 leverage 11.9% 11.2% 10.9% 10.
Slide 16: Credit Losses Continue to Decline
Aggressively Dealing with Credit Issues Credit Losses Continue to Decline $45,000 $40,000 ORE Expense $7,411 $35,000 Net Charge Offs $30,000 $25,000 $20,000 $5,402 $33,463 $15,000 $8,522 $7,874 $4,334 $10,000 $3,826 $15,123 $5,079 $5,000 $9,726 $8,605 $7,346 $7,146 $5,732 $0 1Q10 2Q10 3Q10 4Q10 1Q11
Slide 17: Past Dues Continue to Decline
Aggressively Dealing with Credit Issues Past Dues Continue to Decline Sept. 30, As a % of June 30, As a % of (000’s) 2011 total loans 2011 total loans Nonaccrual loans past due * $ 29,158 0.90% $ 35,148 1.10% Accruing loans managed by Special Assets: > 90 days $ 1,765 0.05% $ - 0.00% 30 to 89 days 3
Slide 18: Potential Problem Loans Continue to Decline
Aggressively Dealing with Credit Issues Potential Problem Loans Continue to Decline 10.0% Potential Problem loans/Total loans 9.30% 9.0% 8.63% 8.23% 8.0% 6.95% 7.0% 6.0% 5.31% 5.0% 4.62% 4.04% 4.0% 3.0% 2.0% 1.0% 0.0% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Note: Classified loans (or loans with a credit
Slide 19: NPLs Continue to Decline Ahead of Peers
Aggressively Dealing with Credit Issues NPLs Continue to Decline Ahead of Peers NPLs Expressed as a % of Total Loans within Category PNFP PNFP PNFP PNFP Peer NPLs NPLs NPLs NPLs NPLs and > 90 and > 90 and > 90 and > 90 and > 90 days days days days days (*) 3Q11 2Q11 1Q11 4Q10 2Q11 Const. and land 7.
Slide 20: Allowance Coverage Increases as NPLs Decline
Aggressively Dealing with Credit Issues Allowance Coverage Increases as NPLs Decline $140,000 $131,381 160% 137.0% $120,000 $118,331 140% Total Nonperforming Loans $103,127 120% Allowance to NPL’s $100,000 $80,863 $76,368 100% (000’s) $80,000 $59,727 80% $60,000 $54,640 68.5% 60% $40,000 40% $20,000
Slide 21: NPA Dispositions Generally at $30m - $45m Quarterly Run Rate
Aggressively Dealing with Credit Issues NPA Dispositions Generally at $30m - $45m Quarterly Run Rate $80,000 $70,000 $68,847 $60,000 $50,000 $43,096 $38,693 $40,000 $37,251 $33,566 $33,461 $29,517 $30,000 $20,000 $10,000 $0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Note: Excludes Restructured Loans 21
Slide 22: ORE is 45.4% of NPAs with Resolution in Bank's Control
Aggressively Dealing with Credit Issues ORE is 45.4% of NPAs with Resolution in Bank’s Control Balances Fair value as a % Average Sept. 30, 2011 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: New home construction/condo’s $ 7,520 106.7% 1.39 Developed lots 4,827 136.0%
Slide 23: OREO Marks are Consistent with Actual Experience
Aggressively Dealing with Credit Issues OREO “Marks” are Consistent with Actual Experience ORE Dispositions (*) thru ORE Balance at Sept. 30, 2011 Sept. 30, 2011 Loan balances prior to charge offs 100.0% 100.0% Charge off’s prior to foreclosure 21.9% 22.2% Balance @ foreclosure 78.1% 77.8% Valuation
Slide 24: ORE Disposition Strategy Yields Reliable Progress
Aggressively Dealing with Credit Issues ORE Disposition Strategy Yields Reliable Progress • Manage NPLs aggressively • For NPLs where foreclosure is required, move quickly • Mark ORE portfolio with current appraisals of < 9 months • Keep average age of ORE portfolio in check 24
Slide 25: OREO Disposition Plans Suggest Continuing Progress
Aggressively Dealing with Credit Issues OREO Disposition Plans Suggest Continuing Progress (dollars in thousands) Balances Near-term Active Projects Other Sept. 30, 2011 liquidation (1) (2) Properties (3) ORE categories: New home construction/condo’s $ 7,520 $ 6,556 $ 964 $ - Developed lots 4,827 1,
Slide 26: Two Additional Priorities
Two Additional Priorities Increased “Selling” Efforts • Seize Market Share Opportunities • Increase recruitment and hiring • Attack “debit card fee” opportunity (www.youtube.com/TitansBanking) • Improve penetration of owners and employees TARP Redemption • Continue to be optimistic on non-dilutive a
Slide 27: Nashville and Knoxville are Poised for Expansion
Two Additional Priorities – Market Opportunities Nashville and Knoxville are Poised for Expansion 2010 – 2011 Year to Date (Jan – Aug) Percentage Change in Employment Forbes: Next Big Boom Towns (July, 2011) 1. Austin 2. Raleigh 3. Nashville 4. San Antonio 5. Houston 6. Washington, DC 7. Dallas 8. C
Slide 28: Nashville's and Knoxville's Job Recovery Outpaces the Nation
Two Additional Priorities – Market Opportunities Nashville’s and Knoxville’s Job Recovery Outpaces the Nation • Nashville and Knoxville have recovered approximately 50% of the jobs lost since peak employment in 2H07. • USA job recovery since peak in early 2008 has amounted to slightly > 20%. 28 Sour
Slide 29: Nashville's Real Estate Market Continues to Improve
Two Additional Priorities – Market Opportunities Nashville’s Real Estate Market Continues to Improve Nashville Residential Real Estate Trends • Residential inventories down 13.3% at Sept. 2011 compared to Sept. 2010 • Residential closings up 16.7% in 3Q2011 compared to closings during 3Q2010 • Avera
Slide 30: Pinnacle Has Leveraged Client Satisfaction to Take Share
Two Additional Priorities – Market Opportunities Pinnacle Has Leveraged Client Satisfaction to Take Share 30% Lead Regional A Relationships as Regional B % of Total Market YTD 25% 2010 Pinnacle Financial 18% Pinnacle 20% Regional C Financial Customer Penetration 15% 16% (%) Regional A Regional H Reg
Slide 31: TARP Redemption Absent Common Dilution May be Possible
Two Additional Priorities – TARP Redemption TARP Redemption Absent Common Dilution May be Possible At Sept. 30 Tier 1 Tier 1 Leverage Total Risk Total RBC % Capital $’s % Based-Capital $’s PNFP capital $ 540,000 11.9% $ 596,000 15.9% Less: TARP (95,000) (2.1%) (95,000) (2.6%) Pro Forma capital 445,0
Slide 32: Longer Term Potential Margin Expansion Opportunities Exist
Looking Forward Longer Term Potential Margin Expansion Opportunities Exist 3Q 2011 Net Interest Margin 3.60% Opportunities: 1. NPA Resolution 0.02% to 0.04% 2. Continued reduction in COF 0.04% to 0.09% 3. Liquidity reductions 0.01% to 0.04% Potential Margin Range 3.67% to 3.77% Notes: 1. Excluding i
Slide 33: Management's Expectations for 4Q11
Looking Forward Management’s Expectations for 4Q11 (*) • C&I Lending opportunities appear to be increasing • Continued emphasis on core funding and funding costs • Still room to expand margin • Expect asset quality metrics will continue to improve • Wealth management fee run-rates should expand • Ex
Slide 34: Q&A – Third Quarter 2011 Investor Call
Q&A – Third Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer October 19, 2011 34
Slide 35: Supplemental Information
Supplemental Information Third Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer October 19, 2011 35
Slide 36: Loan Categories
Loan Categories Comparison of 3Q11 to 2Q11, 4Q10 and 4Q09 • Continued reduction in C&D exposure Amts. %’s Amts. %’s Amts. %’s Amts. %’s 3Q11 3Q11 2Q11 2Q11 4Q10 4Q10 4Q09 4Q09 C&D and Land $278.7 8.6% $282.1 8.8% $331.3 10.3% $ 525.3 14.7% Consumer RE 712.0 22.0% 708.3 22.1% 705.5 22.0% 756.0 21.2%
Slide 37: Construction and Land Categories
Construction and Land Categories Comparison of 3Q11 to 2Q11, 4Q10 and 4Q09 • PNFP continues to reduce exposure to residential construction and development Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 3Q11 3Q11 2Q11 2Q11 4Q10 4Q10 4Q09 4Q09 Residential – Spec $ 12.1 0.4% $ 16.2 0.5% $ 19.9 0.6
Slide 38: Construction and Land Categories
Construction and Land Categories • Almost 29.1% of C&D book managed by Special Asset Group personnel. • Almost 41.6% of land categories managed by SAG. Total Total Total NPLs NPLs NPLs Performing Performing Performing Portfolio Portfolio Portfolio Criticized Criticized Criticized 3Q11 2Q11 4Q10 3Q11
Slide 39: Analysis of Pass-rated AC&D loans
Construction and Land Categories Analysis of Pass-rated AC&D loans • Pass rated credits have minimal past dues. Avg. ticket size of about $445,000. Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 3Q11 2Q11 4Q10 Fail Fail Fail 3Q11 2Q11 4Q10 During During During 3Q
Slide 40: Land Loan and Land-related ORE locations
Land Loan and Land-related ORE locations 4.0% 10.2% Middle TN East TN Other 85.8% > $250,000 properties, approx. $191.2 mm balances 40
Slide 41: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates Vacancy Rates Q3 Q2 YE 2010 YE 2009 YE 2008 YE 2007 Q3 2011 (*) 2011 (*) (*) (**) (**) (**) 2011 (*) Industrial / 9.6% 10.6% 10.2% 10.6% 9.6% 8.9% 9.6% Warehouse Multifamily 7.0%(***) 6.5% 6.7% 9.6% 7.6% 5.2% 5.6% (**) Ret
Slide 42: Asset Quality Metrics
Asset Quality Metrics Nonaccrual Loans $54.6 MM nonaccruing loans Resid Const Other 1.0% 1.1% 1.69% of loan balances Nonaccrual loans $ 54.6 C&I ORE 45.5 22.4% Total NPAs $ 100.1 Land Develop 38.1% NPAs as a % of Total loans + ORE 3.05% CRE 17.0% 1-4 Family 20.4% As of September 30, 2011 42
Slide 43: Net Charge-off's
Net Charge-off’s • Largest Charge-offs During 3Q11 • #1 - $1.9 million condo development • #2 - $1.6 million commercial real estate • #3 - $388,000 commercial real estate • #4 - $202,000 C&I • #5 - $159,000 consumer loan • These credits make up 73% of net charge offs for 3Q11 43
Slide 44: Nonperforming Loans
Nonperforming Loans • Largest NPLs • #1 - $4.2 million commercial land development • #2 - $3.1 million commercial land development • #3 - $2.5 million residential land development • #4 - $2.4 million mixed use land development • #5 - $2.2 million performing C&I • Approximately 117 accounts make up r
Slide 45: OREO Properties
OREO Properties • Largest OREO Properties: • #1 - $4.1 million industrial park • #2 - $3.8 million residential development • #3 - $2.7 million condo property • #4 - $2.7 million commercial development • #5 - $2.4 million mixed use development • These balances make up 35% of the total OREO book at Se
Slide 46: Reduced Classified Assets in 3Q11
Aggressively Dealing with Credit Issues Reduced Classified Assets in 3Q11 Balances Balances Sept. 30, 2011 June 30, 2011 (dollars (dollars in thousands) in thousands) Classified loans and ORE: - Substandard commercial loans $ 199,053 $ 215,848 - Doubtful commercial loans 2,826 3,389 - Other impaired
Slide 47: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.54% (TEY) 0.0% 1.1% Average life = 4.60 years Municipals Effective Duration = 2.74% 21.8% Agency Notes (millions)MTD QTD 4.4% Purchases $118.2 $182.5 MBS pass Sales ($107.3) ($107.3) thrus Mat/
Slide 48: Investment Portfolio
Investment Portfolio Credit ratings # of Issuances Balances % Municipal portfolio “A” or better 335 $200,149 97.4% Baa3/BBB- to Baa1/BBB+ 14 5,447 2.6% Noninvestment grade - - - Unrated - - - Totals 349 $205,596 100.0% As of Sept. 30, 2011 Location # of Issuances Balances % Other information: Tennes
Slide 49: Funding is Almost Exclusively Relationship Based
Building Core Earnings Capacity Funding is Almost Exclusively Relationship Based 9/30/2011 Percent 12/31/2010 Percent Core Funding: Noninterest-bearing deposit accounts 722,694 17.63% 586,517 14.0% Interest-bearing demand accounts 577,683 14.09% 573,670 13.7% Savings and money market accounts 1,554,
Slide 50: Core Funding Growth Continues in 3Q11
Building Core Earnings Capacity Core Funding Growth Continues in 3Q11 Core Funding Relationship Based Non-Core Funding Wholesale Funding 100% 6% 5% 5% 10% 7% 8% 90% 13% 13% 11% 9% 16% 17% 80% 70% 60% 50% 40% 82% 82% 84% 83% 74% 76% 30% 20% 10% 0% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 50
Slide 51: Core Deposits Increased 17% Year over Year
Building Core Earnings Capacity • Reduced Time Deposit mix from 37% in 3Q10 to 24% in 3Q11 • Increased Core Deposits 17% year over year 3Q10 3Q11 Time Time Deposits Deposits $0.9 B $1.4 B 24% 37% Low Cost Low Cost Core Core Deposits Deposits $2.4 B $2.8 B 63% 76% 51
Slide 52: Noninterest Income
Building Core Earnings Capacity Noninterest Income 3Q11 2Q11 1Q11 4Q10 3Q10 Service charges $2,362 $2,330 $2,261 $2,353 $2,444 Investment services 1,699 1,637 1,508 1,264 1,234 Insurance commissions 1,002 1,004 1,049 907 954 Gains on loan sales, net 1,295 789 610 1,352 1,310 Trust fees 754 770 730 4
Slide 53: Expense Down 5.5% from 3Q10
Building Core Earnings Capacity Expense Down 5.5% from 3Q10 3Q11 2Q11 1Q11 4Q10 3Q10 Salaries and benefits $15,951 $15,870 $16,985 $15,708 $16,069 Incentive expense 3,065 2,654 938 - - Equipment and occupancy 4,943 5,060 5,007 4,988 5,231 Other real estate owned 5,079 3,826 4,334 7,874 8,522 Marketi
Slide 54: Non-GAAP Financial Measures – Net Interest Margin
Non-GAAP Financial Measures – Net Interest Margin 3Q11 2Q11 1Q11 4Q10 3Q10 Avg. net earning assets $4,308,710 $4,347,552 $4,387,331 $4,441,671 $4,519,955 Net interest income $38,356 $37,795 $36,020 $36,056 $36,060 Impact of tax exempt 0.07% 0.06% 0.07% 0.07% 0.06% instruments Net interest margin 3.6
Slide 55: Non-GAAP Financial Measures – Efficiency Ratio
Non-GAAP Financial Measures – Efficiency Ratio 3Q11 2Q11 1Q11 4Q10 3Q10 Total non-interest expense $35,675 $34,357 $34,701 $36,451 $37,774 Less: ORE expenses (5,079) (3,825) (4,334) (7,874) (8,522) Non-Interest expense, excluding ORE $30,596 $30,532 $30,367 $28,577 $29,252 Total non-interest income
Slide 56: Residential Real Estate Trends
Residential Real Estate Trends • Zillow.com Home Value Index (i.e., “Zestimate”) trends 2/1996 thru 7/2011 • Chart compares volatility in home prices in Nashville and Knoxville to select other US markets • As we have mentioned numerous times, similar to many other smaller markets, Nashville and Knox
Slide 57: Unemployment Trends
Unemployment Trends • Knoxville continues to outperform at < 8%, Nashville at approx. 8.4% currently. • Tennessee unemployment at approximate historical norms of > USA results by approximately 0.5% 57 Source: BERC – Middle Tennessee State University & Bureau of Labor Statistics
Slide 58: Third Quarter 2011 Investor Call
Third Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer October 19, 2011
Pinnacle Financial Partners — Q3 2011 Earnings Presentation on 6ix