Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q1 2011 Earnings Presentation
58 slides from Pinnacle Financial Partners's earnings presentation, Apr 19, 2011
Slide 1: First Quarter 2011 Investor Call
First Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer April 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: Opening Comments
Opening Comments • Aggressively A i l d dealing li with i h credit di iissues • Building core earnings capacity 3
Slide 4: First Quarter 2011 Highlights: Aggressively Dealing with Credit Issues
First Quarter 2011 Highlights Aggressively Dealing with Credit Issues Linked Li k d Qt Qtr Decrease Credit Losses (NCO’s + ORE expense) (6.4%) NPLs (5.6%) NPAs (5.8%) NPA inflows (2.0%) Crit/Class Loans (9.0%) P Potential i lP Problem bl LLoans (23.5%) Restructured Loans (25.3%) C&D Exposure (9 2%)
Slide 5: First Quarter 2011 Highlights: Building Core Earnings Capacity
First Quarter 2011 Highlights Building the Core Earnings Capacity of the Firm Linked Li k d Qt Qtr Increase Total Loans 0.2% C&I and O/O CRE Loans 3.2% Noninterest Bearing Deposits 3.7% Net Interest Margin 3.3% Income Before Income Taxes 13.1% 5
Slide 6: Credit Losses Decline Slightly
Aggressively Dealing with Credit Issues Credit Losses Decline Slightly $60 000 $60,000 ORE Expense $50,000 Net Charge Offs $3,914 $ , $40,000 $7,411 $30 000 $30,000 $44,579 $20,000 $5,402 $ $33,463 , $8,393 $8,522 $7,874 $4,334 $10,000 $15,123 $701 $1,250 $9,726 $5,228 $6,789 $7,346 $7,146 $4,760 $0
Slide 7: Past Dues Indicate Limited New Problems are Surfacing
Aggressively Dealing with Credit Issues Past Dues Indicate Limited New Problems are Surfacing March 31, As a % of Dec. 31, As a % of 2011 totall loans l 2010 totall loans l Nonaccrual loans past due * $ 46,825 1.46% $ 47,662 1.48% Accruing loans managed by Special Assets: > 90 days $ 1,151 0.04% $ 1
Slide 8: Risk Rating Trends Reflect Decreasing Problem Loan Inflows
Aggressively Dealing with Credit Issues Risk Rating Trends Reflect Decreasing Problem Loan Inflows 8
Slide 9: Potential Problem Loans and Total Criticized and Classified Assets Continue to Decline
Aggressively Dealing with Credit Issues Potential Problem Loans and Total Criticized and Classified Assets Continue to Decline 10.0% $700 $627 $614 9.0% $598 Classified Asssets $600 ans $524 $ 8 0% 8.0% 8 63% 8.63% ns/Total loa $515 9.30% $485 7.0% 8.23% $443 $500 7.18% 6.0% $364 $400 6.95% Problem
Slide 10: 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 Peer PNFP PNFP PNFP NPLs and NPLs and NPLs and NPLs and y > 90 days > 90 days > 90 days > 90 days (*) 1Q11 4Q10 3Q10 4Q10 Const. and land 12.30% 13.15% 15.28% 14.55% d
Slide 11: Decline in NPLs Yields Increased Allowance Coverage
Aggressively Dealing with Credit Issues Decline in NPLs Yields Increased Allowance Coverage $140,000 $131,381 120% $124,709 103.4% $121,726 $118,331 $120,000 100% ans $100 328 $100,328 $103,127 102.1% performing Loa ance to NPL’ss $100,000 73.7% 73.6% 80% 68.2% 68.5% $80,863 82.0% $76,368 $80,000 60
Slide 12: NPA Dispositions Suggest $30m-$45m Quarterly Run Rate
Aggressively Dealing with Credit Issues NPA Dispositions Suggest $30m ‐ $45m Quarterly Run Rate $80,000 $68,847 $70,000 $60,000 $50,000 $42,022 $43,096 $40,000 $37,251 $33,566 $33,461 $30,000 $26,102$24,026 $20,000 $10,000 $6,777 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 Note: Excludes Restruc
Slide 13: ORE is 42% of NPAs with Resolution in Bank's Control
Aggressively Dealing with Credit Issues ORE is 42% of NPAs with Resolution in Bank’s Control Balances Fair value as a % Average March 31, 2011 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: New home construction/condo’s 9,433 109.4 4.3 Developed lots 12,944 131.2 4.1 U
Slide 14: ORE Marks at 44.6% of Original Loan Balances
Aggressively Dealing with Credit Issues ORE Marks at 44.6% of Original Loan Balances ORE Dispositions (*) thru ORE Balance at March 31, 2011 March 31, 2011 As a % ‐ original loan Original loan amount 100 0% 100.0% 100 0% 100.0% Customer payments 10.5% 26.8% Charge off’s prior to foreclosure 20.0% 17
Slide 15: ORE Disposition Strategy
Aggressively Dealing with Credit Issues ORE Disposition Strategy • Manage NPLs aggressively • For NPLs where foreclosure is required, proceed with haste • Mark ORE portfolio with current appraisals of < 9 months • Keep average age of ORE portfolio in check 15
Slide 16: 1Q11 Provides Volume and Margin Expansion
Building Core Earnings Capacity 1Q11 Provides Volume and Margin Expansion • C&I loans up $36 million in 1Q11 • CRE Owner/occupied loans up $14 million in 1Q11 • Cost of funds decreased from 1.22% in 4Q10 to 1.09% in 1Q11 • Net interest margin for 1Q11 of 3.40% • Noninterest expense in line with expe
Slide 17: Momentum Continues to Build in Net Loan Volumes
Building Core Earnings Capacity Momentum Continues to Build in Net Loan Volumes $100 $50 $0 Total Loans ‐$50 C&I and d O/O CRE ‐$100 Loans ‐$150 ‐$200 1Q10 Net 2Q10 Net 3Q10 Net 4Q10 Net 1Q11 Net Change Change Change Change Change 17
Slide 18: Core Deposits Hold with Concurrent Reduction in Deposit COF
Building Core Earnings Capacity Core Deposits Hold with Concurrent Reduction in Deposit COF $3,200,000 $3,117,969 $3,109,972 1 65% 1.65% 1.60% $2,925,673 $3,000,000 1.55% $2,781,748 $2,800,000 $2 800 000 1.45% $2,676,016 $2,586,685 $2,600,000 1.35% $2,400,000 1.25% $2,242,245 1.15% $2,200,000 1.05%
Slide 19: Positive DDA Trends Reflect Ability to Grow Client Base
Building Core Earnings Capacity Positive DDA Trends Reflect Ability to Grow Client Base $650 $595 $600 $576 ge Balancees $550 $534 $517 $496 $504 $500 $456 $463 DA Averag $450 $418 $400 DD $350 $300 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 19
Slide 20: Net Interest Margin Has Expanded Significantly
Building Core Earnings Capacity Net Interest Margin Has Expanded Significantly • Lower cost of funds helping to advance margin • Slower pre-payment speeds driving up bond yields Net Interest Margin Trend • Higher core deposit volumes and repricing existing 3.5% accounts drive down cost of funds • In
Slide 21: Margin Improvement is Built on Success with Clients
Building Core Earnings Capacity Margin Improvement is Built on Success with Clients 4.00% • Continued progress on reducing cost of funds 3.50% and maximizing loan yields 3.00% • Treasury yields influenced heavily by rapid pay downs and 2.50% repricing of bond portfolio as well as maintenance of exce
Slide 22: COF Reduction Opportunities Remain
Building Core Earnings Capacity COF Reduction Opportunities Remain • CD repricing opportunities ‐ $233mm in Client CD’s CD s maturing over next three months. Goal at renewal should be approx. 0.75% to 1.25% for client CD’s or transfer borrowers to money market accounts. Client CD’s – Avg. Rate Avera
Slide 23: SBLF Provides Opportunity to Refinance TARP with No Dilutive Impact
Building Core Earnings Capacity SBLF Provides Opportunity to Refinance TARP with No Dilutive Impact • SBLF continues to be interesting to us in spite of recent political activity • SBLF would provide additional incentive to focus on middle market/small business commercial and industrial and CRE owne
Slide 24: Looking Forward
Looking Forward • Balance Sheet Growth Opportunities • Margin Expansion 24
Slide 25: Balance Sheet Growth Requires Market Share Movement
Looking Forward Balance Sheet Growth Requires Market Share Movement • Preferred P f dbbankk ffor businesses b i • Track Record for Market Share Movement • 66% of Mid‐sized Businesses Will Consider Switching Banks (*) • Reputation as “most reliable lender” (*) (*) Greenwich Research 25
Slide 26: Longer Term Margin Expansion Opportunities Exist
Looking Forward Longer Term Margin Expansion Opportunities Exist 1Q 2011 Net Interest Margin 3 40% 3.40% Opportunities: 1. NPA Resolution 0.03% to 0.08% 2. Continued reduction in COF 0.14% to 0.19% 3. Liquidity reductions 0.03% to 0.06% Potential Margin Range 3.60% to 3.73% Notes: 1. Excluding impac
Slide 27: Management's Expectations for 2Q11
Looking Forward Management’s Expectations for 2Q11 (*) • C&I & Lending di opportunities i i appear to be b iincreasing i • Continued emphasis on core funding and funding costs • Still room to expand p margin g • Optimistic that asset quality metrics will continue to improve for remainder of year • F
Slide 28: 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 opportunities • Responsibly growing core earnings capacity • Return to net
Slide 29: Q&A – First Quarter 2011 Investor Call
Q&A – First Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer April 19, 2011 29
Slide 30: Supplemental Information
Supplemental Information First Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer April 19, 2011 30
Slide 31: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues • Total NPLs and ORE decreased from $140.5 million to $132.4 million illi between b December b 31, 2010 and d Marchh 31, 2011 • ORE constitutes approximately 42% of NPAs • Approximately $33.5 million in NPA resolutions during 1Q11 (*) • Four consecutive quarte
Slide 32: Loan Categories
Loan Categories Comparison of 1Q11 to year end 2010, 2009 and 2008 • Continued reduction in C&D exposure Amts. %’s Amts. %’s Amts. %’s Amts. %’s 1Q11 1Q11 4Q10 4Q10 4Q09 4Q09 4Q08 4Q08 C&D and Land $300.7 9.3% $331.3 10.3% $ 525.3 14.7% $ 645.4 19.2% Consumer RE 698.7 21.7% 705.5 22.0% 756.0 21.2% 6
Slide 33: Construction and Land Categories
Construction and Land Categories Comparison of 1Q11 to year end 2010, 2009 and 2008 • PNFP continues to reduce exposure to residential construction and development Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s (*) 1Q11 1Q11 4Q10 4Q10 4Q09 4Q09 4Q08 4Q08 Residential – Spec $ 17 17.0 0 0 5% 0.5% $
Slide 34: Construction and Land Categories
Construction and Land Categories • Almost 40.0% of C&D book managed by Special Asset Group personnel. • Almost 44.8% of land categories managed by SAG. Total Total Total NPLs NPLs NPLs Performing Performing Performing Criticized Criticized Criticized Portfolio Portfolio Portfolio 1Q11 4Q10 3Q10 1Q11
Slide 35: 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 with downgrades slowing. Avg. ticket size of about $413 000. $413,000 Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 1Q11 4Q10 3Q10 Fail Fail Fail 1Q11
Slide 36: Land Loan and Land-related ORE locations
Land Loan and Land‐related ORE locations 4.9% 3.7% 5.4% 24.0% Rutherford R th f d Williamson 6.8% Davidson Wilson 7.6% Other TN Other US 9.0% Knox 23.1% Sumner Maury 15.5% > $250,000 properties, approx. $218.6 mm balances 36
Slide 37: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates Vacancy Rates Q1 YE YE YE YE YE 2011 2010 2009 2008 2007 2006 Q1 (*) (*) (**) (**) (**) (**) 2011 (*) Industrial / 10.7% 10.2% 10.6% 9.6% 8.9% 8.6% 9.9% Warehouse Multifamily 6.4% 6.7% 9.6% 7.6% 5.2% 5.5% 6.2% (**) Retail
Slide 38: Asset Quality Metrics
Asset Quality Metrics Nonaccrual Loans $76.4 MM nonaccruing loans Other 0 9% 0.9% 2.37% of loan balances Resid Const 11.0% Land Develop Nonaccrual loans $ 76.4 37.3% ORE 56.0 Total NPAs $ 132.4 C&I NPAs as a % of 20.4% Total loans + ORE 4.04% CRE 13.7% 1‐4 Family 16.7% As of March 31, 2011 38
Slide 39: Past Due Levels Indicate Limited New Problems Surfacing
Aggressively Dealing with Credit Issues Past Due Levels Indicate Limited New Problems Surfacing Past Dues Expressed as a % of Total Loans within Category PNFP PNFP PNFP Peer 30-90 30-90 30-90 30-90 days past days past days past days past due due due due (*) 1Q11 4Q10 3Q10 4Q11 Const. and land 0.61%
Slide 40: Net Charge-off's
Net Charge‐off’s • Largest Charge‐offs During 1Q11 • #1 ‐ $6.1 million • #2 ‐ $770,000 • #3 ‐ $700,000 • #4 ‐ $583,000 $ , • #5 ‐ $508,000 • These credits make up 85% of net charge offs for 1Q11 40
Slide 41: Nonperforming Loans
Nonperforming Loans • Largest NPLs • #1 ‐ $7.5 million condo loan • #2 ‐ $4.2 million commercial land development • #3 ‐ $3.8 million commercial land development • #4 ‐ $3.2 million commercial land development • #5 ‐ $2.6 million residential development • Approximately 160 accounts make up remaining
Slide 42: OREO Properties
OREO Properties • Largest OREO Properties: • #1 ‐ $4.1 $ million condo property • #2 ‐ $3.8 million residential development • #3 ‐ $3.6 million condo property • #4 ‐ $3.0 million commercial development • #5 ‐ $2.5 million multi‐use development • These balances make up 30.4% of the total OREO book at
Slide 43: Reduced Classified Assets in 1Q11
Aggressively Dealing with Credit Issues Reduced Classified Assets in 1Q11 Balances Balances M h 31 March 31, 2011 D 31 Dec. 31, 2010 (dollars in thousands) (dollars in thousands) Classified loans and ORE: ‐ Substandard accruing loans (*) $ 164,936 $ 222,992 ‐ Substandard impaired loans 60,854 68,809
Slide 44: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.69% (TEY) 0.0% 1.1% Average life = 5.56 years Municipals Effective Duration = 3.93% 3 93% 21 6% 21.6% Agency MTD (millions) QTD Notes Purchases $20.8 $49.1 MBS pass 8.5% Sales ($19.3) ($19.3) M
Slide 45: Investment Portfolio
Investment Portfolio Credit ratings # of Issuances Balances % Municipal portfolio “A” or better 348 $199,904 96.0% Baa3/BBB to Baa3/BBB‐ Baa1/BBB+ 23 8,332 4.0% Noninvestment grade ‐ ‐ ‐ Unrated ‐ ‐ ‐ Totals 371 $208,236 100.0% As of March 31, 2011 Location # of Issuances Balances % Other informatio
Slide 46: Funding is Almost Exclusively Relationship Based
Building Core Earnings Capacity Funding is Almost Exclusively Relationship Based 3/31/2011 Percent 12/31/2010 Percent Core Funding: Noninterest‐bearing deposit accounts 608,428 14.8% 586,517 14.0% Interest‐bearing demand accounts 614,172 15.0% 573,670 13.7% Savings and money market accounts 1,549,35
Slide 47: Positive Trends in Core Funding Enhance NII Long-Term
Building Core Earnings Capacity Positive Trends in Core Funding Enhance NII Long‐Term Core Funding Relationship Based Non‐Core Funding Wholesale Funding 100% 6% 5% 12% 10% 7% 90% 16% 20% 19% 80% 24% 26% 24% 70% 26% 60% 50% 40% 74% 76% 66% 69% 30% 59% 62% 20% 10% 0% 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 47
Slide 48: Building Core Earnings Capacity
Building Core Earnings Capacity • Reduced Time Deposit mix from 31% in 1Q10 to 17% in 1Q11 • Increased Core Deposits 7% year over year Average Deposits $4.1B Average Deposits $3.7B 1Q10 1Q11 Time Time Deposits Deposits $0 6 B $0.6 $1.2 B 17% 31% Low Cost Low Cost Core Core Deposits Deposits $ $2.9 B
Slide 49: Capital
Building Core Earnings Capacity Capital March 31 31, Dec. 31,, Sept. 30, Sept 30 June 30 30, March 31 31, 2011 2010 2010 2010 2010 Tangible common equity 7.4% 7.1% 7.2% 7.1% 7.4% Tangible common to risk weighted i ht d assets t 9 1% 9.1% 9 1% 9.1% 9 3% 9.3% 9 0% 9.0% 9 1% 9.1% Tier 1 leverage 10.9%
Slide 50: Noninterest Income – Run Rates Stabilizing
Building Core Earnings Capacity Noninterest Income – Run Rates Stabilizing 1Q11 4Q10 3Q10 2Q10 1Q10 Service charges $2,261 $2,353 $2,444 $2,429 $2,365 Investment services 1 508 1,508 1 264 1,264 1 234 1,234 1 315 1,315 1 236 1,236 Insurance commissions 1,049 907 954 904 1,099 Gains on loan sales 610
Slide 51: Expense Run Rates Stabilizing
Building Core Earnings Capacity Expense Run Rates Stabilizing 1Q11 4Q10 3Q10 2Q10 1Q10 Salaries and benefits $16,985 $15,708 $16,069 $16,191 $16,659 Incentive Expense 938 - - (345) 345 Equipment and occupancy 5,007 4,988 5,231 5,493 5,366 Other real estate owned 4,334 7,874 8,522 7,411 5,402 Marketi
Slide 52: Deferred Taxes
Deferred Taxes Balances as of Net change during Balances as of (in thousands, rounded) Dec. 31, 2010 1Q11 March 31, 2011 Deferred tax items impacting operations: Deferred tax assets: Allowance for loan losses $ 32.3 $ (1.4) $ 30.9 Other assets 11.3 1.4 12.7 Total deferred tax assets 43.6 (0.0) 43.6
Slide 53: Non-GAAP Financial Measures – Net Interest Margin
Non‐GAAP Financial Measures – Net Interest Margin 1Q11 4Q10 3Q10 2Q10 1Q10 A g net earning assets Avg. $4 387 331 $4,387,331 $4 441 671 $4,441,671 $4 519 955 $4,519,955 $4 527 471 $4,527,471 $4 651 695 $4,651,695 Net interest income $36,020 $36,056 $36,060 $35,697 $36,560 Impact of tax exempt instru
Slide 54: Non-GAAP Financial Measures – Efficiency Ratio
Non‐GAAP Financial Measures – Efficiency Ratio 1Q11 4Q10 3Q10 2Q10 1Q10 Total non‐interest expense $ $34,701 $ $36,451 $ $37,774 $ $36,491 $ $36,167 Less: ORE expenses (4,334) (7,874) (8,522) (7,411) (5,402) Non‐Interest expense, excluding ORE $30,367 $28,577 $29,252 $29,080 $30,765 Total non‐intere
Slide 55: Pinnacle Has Leveraged Client Satisfaction to Take Share
Looking Forward Balance Sheet Growth Opportunities Pinnacle Has Leveraged Client Satisfaction to Take Share Question: Using a 5-point scale, from “1” poor to “5” excellent, how do you rate your overall satisfaction with the bank? Note: Evaluations are based on a 5-point scale, "5" excellent to "1" p
Slide 56: Pinnacle Has Established Market Leadership Position
Looking Forward Balance Sheet Growth Opportunities Pinnacle Has Established Market Leadership Position Lead Relationships Lead Relationships as Customers as % of Total Market % of Total Customers 23% 17% 75% Pinnacle Financial 22% 17% 78% 28% 16% 57% Regional A 2010 26% 15% 60% 2009 26% 15% 59% Regi
Slide 57: Market Stabilization: Unemployment Information
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% 4Q10* 1Q11* 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 * preliminary 57 Source: US Bureau of Labor Statistics “Not seasonally adjusted”
Slide 58: Market Stabilization: Nashville Residential Real Estate Trends
Market Stabilization Nashville Residential Real Estate Trends • Median home prices in March 2011 up more than 3.6% last March 2010 • Residential inventories down 9 9.2% 2% in March 2011 from March 2010 • April 2011 – Kiplinger noted Nashville as one of 11 “Comeback Cities for 2011” 2011 stating Nash
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