Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q4 2010 Earnings Presentation
58 slides from Pinnacle Financial Partners's earnings presentation, Jan 19, 2011
Slide 1: Fourth Quarter 2010 Investor Call
Fourth Quarter 2010 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer January 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: Fourth Quarter 2010 Highlights
Fourth Quarter 2010 Highlights Aggressively Dealing with Building Core Credit Issues Earnings Capacity • NCOs • EPS • NPAs • Net Interest Margin • NPA inflows • Non IB Deposits • NPLs • Core Deposits / • Crit/Class Loans • C&I, C&I Owner/occupied • Past Dues CRE loans • C&D Exposure 4
Slide 5: Aggressively Dealing with Credit Issues
Aggressively Dealing with Credit Issues • Total NPLs and ORE decreased from $ $160.9 million to $ $140.5 million between June 30, 2010 and December 31, 2010 • ORE constitutes approximately 42% of NPAs • Approximately $37.3 million in NPA resolutions during 4Q10 • Three consecutive quarters of net NP
Slide 6: Classified Assets
Aggressively Dealing with Credit Issues Potential Problem Loans and Total Criticized and Classified Assets Continue to Decline 10.0% $700 $625 $614 9.0% $598 Classified Asssets $600 and 8 0% 8.0% 8 63% 8.63% $524 Potential Prroblem loans//Total loans a $515 9.30% $490 7.0% 8.23% $500 al loans 7.18%
Slide 7: 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 > 90 days > 90 days > 90 days > 90 days (*) 4Q10 3Q10 2Q10 3Q10 Const. and land 13.15% 15.28% 15.75% 15.66% dev
Slide 8: Decline in NPLs Results in Increased Allowance Coverage
Aggressively Dealing with Credit Issues Decline in NPLs Results in Increased Allowance Coverage $140,000 $131,381 120% $124,709 $121,726 $118,331 102.1% $120,000 100% ans $100 328 $100,328 $103,127 performing Loa ance to NPL’ss $100,000 73.7% 73.6% 80% 68.2% 68.5% $80,863 82.0% $80,000 60% Allowa 65
Slide 9: ORE is 42% of NPAs with Average Age of 141 Days
Aggressively Dealing with Credit Issues ORE is 42% of NPAs with Average Age of 141 Days Balances Fair value as a % Average December 31, 2010 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: New home construction/condo’s $ 10,370 101.2% 2.33 Developed lots 14,037 112.2% 4
Slide 10: NPA Disposition Activity
Aggressively Dealing with Credit Issues NPA Disposition Activity Suggests Quarterly Run Rate of $30m ‐ $45m $80,000 $68,847 $70,000 $60,000 $50,000 $42,022 $43,096 $40 000 $40,000 $37,251 $33,566 $30,000 $26,102 $24,026 $20 000 $20,000 $10,000 $6,777 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 10
Slide 11: 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 (*) 4Q10 3Q10 2Q10 3Q10 Const. and land 0.65%
Slide 12: Past Due Levels Indicate Problem Loans are Actively Managed
Aggressively Dealing with Credit Issues Past Due Levels Indicate Problem Loans are Actively Managed Dec. 31, As a % of Sept. 30, As a % of 2010 totall loans l 2010 totall loans l Nonaccrual loans past due $ 47,662 1.48% $ 65,426 2.01% Accruing loan managed by Special Assets: > 90 days $ 113 0.00% $
Slide 13: Risk Rating Trends Reflect Decreasing Problem Loan Inflows
Aggressively Dealing with Credit Issues Risk Rating Trends Reflect Decreasing Problem Loan Inflows $250,000 $200,000 $150,000 P/F F/P $100,000 Net Chg $50,000 $0 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 13
Slide 14: Building Core Earnings Capacity
Building Core Earnings Capacity • Net interest margin for 4Q10 of 3.29% • Modest noninterest income growth over 3Q • Modest noninterest expense reduction from 3Q • Core deposit growth at annualized rate of 17.2% during 4Q10 • Increased emphasis on loan growth 14
Slide 15: Net Interest Margin – Number 1 Priority
Building Core Earnings Capacity Net Interest Margin – Number 1 Priority • Lower cost of funds helping to advance margin • Bond portfolio continues to experience above Net Interest Margin Trend average pre-payments on mortgage backs. 3.4% • Higher core deposit volumes and repricing existing accounts
Slide 16: Margin Improvement Built on Success with Clients
Building Core Earnings Capacity Margin Improvement Built on Success with Clients 4.00% • Continued progress on loan 3.80% yields and reducing cost of funds 3.60% • Treasury yields influenced heavily by rapid pay downs 3.40% and repricing of bond portfolio as well as 3.20% maintenance of excess liqui
Slide 17: Significant Growth in Core Deposits & Reduction in COF
Building Core Earnings Capacity Significant Growth in Core Deposits & Concurrent Reduction in COF 1.70% $3,117,266 $3,200,000 1 65% 1.65% 1.60% $2,924,424 $3,000,000 1 50% 1.50% $2,765,833 $ , , $2,800,000 $2 800 000 $2,644,791 1.40% $2,600,000 $2,515,163 1.30% $2,400,000 1.20% $2,129,487 1.22% $2,2
Slide 18: COF Reduction Opportunities Remain
Building Core Earnings Capacity COF Reduction Opportunities Remain • CD repricing opportunities ‐ $232mm in Client 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. Average Renewal Rates Client CD’s
Slide 19: Positive Trends in Core Funding Enhance NII
Building Core Earnings Capacity Positive Trends in Core Funding Enhance NII Long‐Term Core Funding Relationship Based Non‐Core Funding Wholesale Funding 100% 6% 12% 10% 7% 90% 16% 24% 20% 80% 24% 26% 24% 70% 26% 24% 60% 50% 40% 74% 66% 69% 30% 59% 62% 51% 20% 10% 0% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 19
Slide 20: Positive DDA Trends Reflect Ability to Grow Client Base
Building Core Earnings Capacity Positive DDA Trends Reflect Ability to Grow Client Base $600 $576 $550 $534 $517 ge Balancees $496 $504 $500 $456 $463 $450 $442 DA Averag $418 $400 DD $350 $300 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 20
Slide 21: Net Loan Activity Trends Improving
Building Core Earnings Capacity Net Loan Activity Trends Improving $40 $20 $0 $20 ‐$20 ‐$40 Total Loans ‐$60 $80 ‐$80 C&I and d O/O CRE ‐$100 Loans ‐$120 ‐$140 $140 ‐$160 1Q10 Net 2Q10 Net 3Q10 Net 4Q10 Net Change Change Change Change 21
Slide 22: Noninterest Income – Run Rates Stabilizing
Building Core Earnings Capacity Noninterest Income – Run Rates Stabilizing 4Q10 3Q10 2Q10 1Q10 4Q09 Service charges $2,353 $2,444 $2,429 $2,365 $2,595 Investment services 1 264 1,264 1 234 1,234 1 315 1,315 1 236 1,236 1 136 1,136 Insurance commissions 907 954 904 1,099 895 Gains on loan sales 1,352
Slide 23: Expense Containment Yields Improving Core Efficiency
Building Core Earnings Capacity Expense Containment Yields Improving Core Efficiency 4Q10 3Q10 2Q10 1Q10 4Q09 Salaries and benefits $15,708 $16,069 $16,191 $16,659 $15,037 Incentive Expense - - (345) 345 - Equipment and occupancy 4,988 5,231 5,493 5,366 5,064 Other real estate owned 7,874 8,522 7,41
Slide 24: Looking Forward
Looking Forward • Capital • Balance Sheet Growth Opportunities • Margin Expansion • Expense E Containment C t i t Opportunities O t iti 24
Slide 25: Looking Forward: Capital
Looking Forward Capital Dec. 31,, Sept. 30, Sept 30 June 30 30, March 31 31, Dec. 31,, 2010 2010 2010 2010 2009 Tangible common equity 7.1% 7.2% 7.1% 7.4% 7.3% Tangible common to risk weighted assets 9.1% 9.3% 9.0% 9.1% 8.9% Tier 1 leverage 10.6% 10.5% 10.4% 10.7% 10.7% Tier 1 risk based capital 13.
Slide 26: SBLF Provides Opportunity to Refinance TARP
Looking Forward Capital SBLF Provides Opportunity to Refinance TARP with No Dilutive Impact • Consider replacing TARP with $110 mm of SBLF preferred • Redemption d i off $95 $ mm off TARP preferred f d would ld iinclude l d $4 mm charge to APIC and corresponding charge to FDEPS • Still under advisem
Slide 27: Balance Sheet Growth Opportunities
Looking Forward Balance Sheet Growth Opportunities • Preferred P f d Middl Middle M Market k t Commercial C i l Lender L d in i Middle Middl Tennessee • Track Record for Market Share Movement • 66% of Mid‐sized Businesses Will Consider Switching Banks (*) (*) Greenwich Research 27
Slide 28: 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 29: Pinnacle Has Established Market Leadership Position
Looking Forward Balance Sheet Growth Opportunities Pinnacle Has Established Market Leadership Position Lead Lead Relationships as Relationships as Customers % of Total Customers % of Total Market Pinnacle 23% 18% 77% Financial 22% 17% 78% Regional A 28% 16% 57% YTD 2010 28% 20% 73% 2009 26% 15% 56%
Slide 30: Margin Expansion Opportunities
Looking Forward Margin Expansion Opportunities 4Q 2010 Net Interest Margin 3.29% Opportunities: 1. NPA Resolution 0.05% to 0.09% 2. Continued reduction in COF 0.12% to 0.21% 3 Liquidity reductions 3. 0 03% to 0 0.03% 0.09% 09% Notes: 1. Excluding impact of reversed interest, considers reduction in N
Slide 31: Expense Opportunities
Looking Forward Expense Opportunities • Branch buildout substantially complete in Nashville • Current staffingg of special p asset ggroup p is 27 FTE’s • Ancillary costs associated with increased level of NPLs • Excluding ORE expense and securities gains, gains YTD efficiency ratio of approximately
Slide 32: 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 • Continued cor
Slide 33: Q&A Fourth Quarter 2010 Investor Call
Q&A Fourth Quarter 2010 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer January 19, 2011 33
Slide 34: Supplemental Information
S Supplemental l t l IInformation f ti Fourth Quarter 2010 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, White Chief Credit Officer January 19, 2011 34
Slide 35: Loan Categories
Loan Categories Comparison of 4Q10 to 3Q10, year end 2009, 2008 *Continued reduction in C&D exposure Amts. %’s Amts. %’s Amts. %’s Amts. %’s 4Q10 4Q10 3Q10 3Q10 4Q09 4Q09 4Q08 4Q08 C&D and Land $331.3 10.3% $359.7 11.1% $ 525.3 14.7% $ 645.4 19.2% Consumer RE 705.5 22.0% 720.1 22.1% 756.0 21.2% 675.
Slide 36: Asset Quality Metrics
Asset Quality Metrics Nonaccrual Loans $80.9 MM nonaccruing loans Other 1 3% 1.3% 2.52% of loan balances Resid Const 11 1% 11.1% Nonaccrual loans $ 80.9 ORE 59.6 Land Develop Total NPAs $ 140.5 42.7% C&I 18.2% NPAs as a % of Total loans + ORE 4.29% CRE 15.5% 1‐4 Family 11 2% 11.2% As of December 31,
Slide 37: Construction and Land Categories
Construction and Land Categories Comparison of 4Q10 to 3Q10, year end 2009, 2008 * PNFP continues to reduce exposure to residential construction and development Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s (*) 4Q10 4Q10 3Q10 3Q10 4Q09 4Q09 4Q08 4Q08 Residential – Spec $ 19 19.9 9 0 6% 0.6% $ 22
Slide 38: Construction and Land Categories
Construction and Land Categories * Almost 38.9% of C&D book managed by Special Asset Group personnel. * Almost 44.4% of land categories managed by SAG. Total Total Total NPLs NPLs NPLs Performing Performing Performing Criticized Criticized Criticized Portfolio Portfolio Portfolio 4Q10 3Q10 2Q10 4Q10
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 with downgrades slowing. Avg. ticket size of about $414,000. Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 4Q10 3Q10 2Q10 Fail Fail Fail 4Q10 3Q10 2Q10
Slide 40: Land Loan and Land-related ORE locations
Land Loan and Land‐related ORE locations 4% 3% 5% Rutherford 25% Williamson 7% Davidson Wilson 7% Other TN Other US 8% Sumner 25% Knox 16% Maury > $250,000 properties, approx. $232.4 mm balances 40
Slide 41: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates (*) Vacancy Rates (*) Q3 YE YE YE YE YE Q3 2010 2009 2008 2007 2006 2005 2010 Warehouse 10.9% 10.6% 9.6% 8.9% 8.6% 9.1% 11.6% Multifamily 7.5% 9.6% 7.6% 5.2% 5.5% 6.2% 7.1% Retail 8.4% 8.1% 6.3% 7.0% 6.3% 6.6% 10.9% Office
Slide 42: 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 $7,146 $6,789 $4,760 $5,228 $5 000 $5,000 $0 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 42
Slide 43: Net Charge-off's
Net Charge‐off’s • Largest Charge‐offs During 4Q10 • #1 ‐ $619,000 • #2 ‐ $503,000 • #3 ‐ $500,000 • #4 ‐ $475,000 $ , • #5 ‐ $451,000 • These credits make up 35.7% 35 7% of net charge offs for the 4Q10 43
Slide 44: Nonperforming Loans
Nonperforming Loans • Largest NPLs • #1 ‐ $7.9 million condo loan • #2 ‐ $5.3 million commercial development loan • #3 ‐ $4.8 million commercial development loan • #4 ‐ $3.2 million commercial development loan • #5 ‐ $2.8 million residential development loan • Approximately 180 accounts make up rema
Slide 45: Historical ORE Disposition Activity
Historical ORE Disposition Activity YTD ORE Dispositions (*) thru h ORE Balance l at Dec. 31, 2010 Dec. 31, 2010 As a % ‐ original loan Original loan amount 100% 100% Customer payments 11% 26% Charge off’s prior to foreclosure 20% 19% Balance @ foreclosure 69% 55% Valuation losses while in ORE 14% 1
Slide 46: OREO Properties
OREO Properties • Largest OREO Properties: • #1 ‐ $4.6 $ million condo property • #2 ‐ $4.3 million condo property • #3 ‐ $3.8 million residential development • #4 ‐ $3.0 million commercial development • #5 ‐ $2.9 million residential development • These balances make up 31.2% of the total OREO book
Slide 47: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.39% (TEY) 0.0% 1.1% Average life = 4.09 years Municipals Effective Duration = 3.23% 3 23% 21 7% 21.7% (millions) MTD QTD Agency Purchases $66.9 $125.9 N t Notes MBS pass Sales ‐ ‐ 9.3% thrus Ma
Slide 48: Investment Portfolio
Investment Portfolio Credit ratings # of Issuances Balances % Municipal portfolio “A” or better 369 $207,240 96.0% Baa3/BBB to Baa3/BBB‐ Baa1/BBB+ 24 8,736 4.0% Noninvestment grade ‐ ‐ ‐ Unrated ‐ ‐ ‐ Totals 393 $215,976 100.0% Location # of Issuances Balances % Other information: Tennessee 118 $ 50
Slide 49: Funding sources
Funding sources Positive trends in funding continue 12/31/2010 Percent 12/31/2009 Percent Core Funding: Noninterest‐bearing deposit accounts 586,517 14.0% 498,087 11.3% Interest‐bearing demand accounts 573,670 13.7% 483,274 11.0% Savings and money market accounts 1,596,306 38.0% 1,198,012 27.2% Time
Slide 50: Taxes
Taxes DTA Key Points A. At June 30, PNFP was in a 3‐year cumulative loss position B. In Q4,, we recorded an increase to the valuation allowance of $5.4 million through g AOCI related to the decrease in our unrealized gain on the securities portfolio. We recognized an income tax benefit of $697 thous
Slide 51: Taxes
Taxes Balances as of Net change during Balances as of (i thousands, (in h d rounded) d d) Sept 30, Sept. 30 2010 4Q10 Dec 31, Dec. 31 2010 Deferred tax items impacting operations: Deferred tax assets: Allowance for loan losses $ 33.1 $ (0.8) $ 32.3 Other assets 11.5 (0.2) 11.3 Total deferred tax ass
Slide 52: SBLF
SBLF Capital SBLF is Attractive Capital Alternative • Senior Perpetual Noncumulative Preferred Stock • Up to 3% of RWAs, or approximately $110mm • 5% Initial Coupon p • Potential Coupon Reduction Opportunities to 1% • 9% Maximum Coupon after 4.5 4 5 years 52
Slide 53: SBLF Provides Incentive to Grow Small Business Loans
SBLF Capital SBLF Provides Incentive to Grow Small Business Loans (*) Loan Growth Rate (*) SBLF Dividend Rate < 2.49% 5% Dividend rates upon funding 2.50% – 4.99% 4% and for the following nine calendar quarters, adjusted 5.00% ‐ 7.49% 3% quarterly (1Q11 thru 2Q13) 7.50% ‐ 9.99% 2% > 10.00% 1% If len
Slide 54: Non-GAAP Financial Measures – Net Interest Margin
Non‐GAAP Financial Measures – Net Interest Margin 4Q10 3Q10 2Q10 1Q10 4Q09 Avg net earning assets Avg. $4 441 671 $4,441,671 $4 519 955 $4,519,955 $4 527 471 $4,527,471 $4 651 695 $4,651,695 $4 690 347 $4,690,347 Net interest income $36,056 $36,060 $35,697 $36,560 $37,031 Impact of tax exempt instru
Slide 55: Non-GAAP Financial Measures – Efficiency Ratio
Non‐GAAP Financial Measures – Efficiency Ratio 4Q10 3Q10 2Q10 1Q10 4Q09 Total non‐interest expense 36,451 $ $37,774 $ $36,491 $ $36,167 $ $35,448 Less: ORE expenses 7,874 (8,522) (7,411) (5,402) (8,393) Non‐Interest expense, excluding ORE $28,577 $29,252 $29,080 $30,765 $27,055 Total non‐interest in
Slide 56: 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% * preliminary 56 Source: US Bureau of Labor Statistics “Not seasonally adjusted”
Slide 57: Market Stabilization: Nashville Job Growth
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 IRS • 1,200+ jobs through 2012 to 2013 • New Music City Convention center ‐ $600 mm, la
Slide 58: Market Stabilization: Nashville Residential Real Estate Trends
Market Stabilization Nashville Residential Real Estate Trends • Median home prices in Dec. 2010 up more than 6% over last Dec. 2009 • Residential inventories down 2.4% in Dec 2010 from Dec Dec. Dec. 2009 • Sept 16, 2010 – Forbes ranks Nashville MSA as 4th nationally as to likelihood of home price ap
Pinnacle Financial Partners — Q4 2010 Earnings Presentation on 6ix