Pinnacle Financial Partners, Inc. · NYSE:PNFP
Pinnacle Financial Partners — Q2 2011 Earnings Presentation
55 slides from Pinnacle Financial Partners's earnings presentation, Jul 20, 2011
Slide 1: Second Quarter 2011 Investor Call
Second Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer July 20, 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 • Aggressively dealing with credit issues • Building core earnings capacity 3
Slide 4: Second Quarter 2011 Highlights: Dealing with Credit Issues
Second Quarter 2011 Highlights Aggressively Dealing with Credit Issues Linked Qtr Year over Year Decrease Decrease Credit Losses (NCO’s + ORE expense) (11.6%) (48.4%) NPLs (21.8%) (49.5%) NPAs (15.3%) (30.3%) NPL inflows (27.3%) (52.0%) Classified Loans (17.3%) (51.7%) Potential Problem Loans (13.0%
Slide 5: Second Quarter 2011 Highlights: Building Core Earnings
Second Quarter 2011 Highlights Building the Core Earnings Capacity of the Firm Linked Qtr Year over Year Change Change C&I Loans 1.0% 4.6% Total loans (0.3%) (3.8%) Noninterest Bearing Deposits 8.8% 24.9% Net Interest Margin 4.4% 9.9% Noninterest income excl. securities gains 8.4% 10.7% Wealth manag
Slide 6: Credit Losses Continue to Decline
Aggressively Dealing with Credit Issues Credit Losses Continue to Decline $60,000 $50,000 ORE Expense $3,914 Net Charge Offs $40,000 $7,411 $30,000 $44,579 $20,000 $5,402 $33,463 $8,522 $7,874 $4,334 $3,826 $10,000 $8,393 $15,123 $1,250 $9,726 $8,605 $5,228 $6,789 $7,346 $7,146 $0 2Q09 3Q09 4Q09 1Q1
Slide 7: Past Dues Indicate Limited New Problems are Surfacing
Aggressively Dealing with Credit Issues Past Dues Indicate Limited New Problems are Surfacing June 30, As a % of March 31, As a % of 2011 total loans 2011 total loans Nonaccrual loans past due * $ 35,148 1.10% $ 46,825 1.46% Accruing loans managed by Special Assets: > 90 days $ - 0.00% $ 1,151 0.04%
Slide 8: 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 100,000 F/P Net Chg 50,000 - Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 (50,000) 8
Slide 9: Potential Problem Loans Continue to Decline
Aggressively Dealing with Credit Issues Potential Problem Loans Continue to Decline 10.0% 9.30% 9.0% 8.63% 8.23% Potential Problem loans/Total loans 8.0% 7.24% 7.18% 6.95% 7.0% 6.0% 5.31% 5.0% 4.62% 4.03% 4.0% 3.0% 2.0% 1.0% 0.0% 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 9
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 PNFP PNFP PNFP Peer NPLs NPLs NPLs NPLs and > 90 and > 90 and > 90 and > 90 days days days days (*) 2Q11 1Q11 4Q10 1Q11 Const. and land 10.46% 12.30% 13.15% 14.38% dev
Slide 11: Decline in NPLs Yields Increased Allowance Coverage
Aggressively Dealing with Credit Issues Decline in NPLs Yields Increased Allowance Coverage $140,000 $131,381 140% 128.9% $124,709 $121,726 $118,331 $120,000 120% Total Nonperforming Loans $100,328 $103,127 Allowance to NPL’s $100,000 100% $80,863 $80,000 $76,368 80% $59,727 $60,000 60% 65.9% $40,00
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 $43,096 $42,022 $38,693 $40,000 $37,251 $33,566 $33,461 $30,000 $26,102 $24,026 $20,000 $10,000 $0 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Note: Excludes Restr
Slide 13: 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 13
Slide 14: ORE is 47% of NPAs with Resolution in Bank's Control
Aggressively Dealing with Credit Issues ORE is 47% of NPAs with Resolution in Bank’s Control Balances Fair value as a % Average June 30, 2011 of book value* Appraisal Age in (dollars in thousands) Months ORE categories: New home construction/condo’s $ 7,511 119.0 3.2 Developed lots $ 9,612 121.0 4.8
Slide 15: 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 June 30, 2011 June 30, 2011 Loan balances prior to charge offs 100.0% 100.0% Charge off’s prior to foreclosure 25.4% 21.5% Balance @ foreclosure 74.6% 78.5% Valuation l
Slide 16: 2Q11 Provides Volume and Margin Expansion
Building Core Earnings Capacity 2Q11 Provides Volume and Margin Expansion • Net interest margin rises 15bp in 2Q11 to end at 3.55% • C&I loans up $11 million in 2Q11, approximately 1.0% • Avg. DDA balances up $34 million in 2Q11, approximately 5.8% • Cost of funds decreased from 1.09% in 1Q11 to 0.9
Slide 17: Core Deposits Rise with Concurrent Reduction in Deposit COF
Building Core Earnings Capacity Core Deposits Rise with Concurrent Reduction in Deposit COF $3,300,000 1.45% 1.45% $3,182,920 $3,115,428 $3,109,237 $3,100,000 1.35% $2,925,673 $2,900,000 1.25% $2,781,748 $2,676,016 $2,700,000 1.15% $2,586,685 $2,500,000 1.05% 0.95% $2,300,000 0.90% 0.85% $2,100,000
Slide 18: Positive DDA Trends Reflect Ability to Grow Client Base
Building Core Earnings Capacity Positive DDA Trends Reflect Ability to Grow Client Base $650 $629 $595 $600 $576 DDA Average Balances $550 $534 $517 $496 $504 $500 $456 $463 $450 $400 $350 $300 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 18
Slide 19: 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 helping to advance margin 3.60% 3.55% • Slower pre-payment speeds lifting bond yields 3.55% • Higher % of core deposit volumes and repricing existing account
Slide 20: 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 21: COF Reduction Opportunities Remain: CDs
Building Core Earnings Capacity COF Reduction Opportunities Remain • CD repricing opportunities - $215mm in Client CD’s maturing over next three months. Goal at renewal should be approx. 0.75% to 1.00% for client CD’s or transfer borrowers to money market accounts. Client CD’s – Avg. Rate Average Re
Slide 22: COF Reduction Opportunities Remain: MMDA
Building Core Earnings Capacity COF Reduction Opportunities Remain • MMDA pricing opportunities - $586mm in MMDA accounts with current rates above 1.25%. Target rate should approximate 0.45% to 0.85%. Avg Quarterly MMDA Rates 2nd Quarter 2010 1.42% 3rd Quarter 2010 1.36% 4th Quarter 2010 1.21% 1st Q
Slide 23: PTPP Expands 37.4% in 2Q11
Building Core Earnings Capacity PTPP Expands 37.4% in 2Q11 2Q11 1Q11 4Q10 3Q10 2Q10 Net interest income $37,795 $36,020 $36,056 $36,060 $35,697 Total noninterest income 9,809 8,324 8,666 8,594 10,569 Total revenue 47,604 44,344 44,722 44,654 46,266 Total noninterest expense 34,357 34,701 36,452 37,7
Slide 24: Looking Forward
Looking Forward • Loan Growth • Margin Expansion • TARP Repayment 24
Slide 25: Opportunities for Loan Growth Exist
Looking Forward Opportunities for Loan Growth Exist • #1 lead bank share among businesses in Nashville • Fastest growing bank in Knoxville • Great markets poised for job growth • Nashville rated 3rd on Forbes’ list of “Next Big Boom Towns” (07/2011) • Nashville rated 6th on Forbes’ “Best Places for
Slide 26: Nashville is On-course for Rapid Expansion
Looking Forward Nashville is On-course for Rapid Expansion Total Jobs Created through Relocation and Expansion 10,000 9,625 9,515 Forbes: Next Big Boom Towns (July, 2011) 9,032 9,000 8,573 7,981 1. Austin 8,000 7,396 2. Raleigh 6,714 7,000 6,000 5,501 5,815 6,258 5,046 3. Nashville 4,226 5,000 6,236
Slide 27: Longer Term Margin Expansion Opportunities Exist
Looking Forward Longer Term Margin Expansion Opportunities Exist 2Q 2011 Net Interest Margin 3.55% Opportunities: 1. NPA Resolution 0.02% to 0.05% 2. Continued reduction in COF 0.06% to 0.11% 3. Liquidity reductions 0.03% to 0.06% Potential Margin Range 3.66% to 3.77% Notes: 1. Excluding impact of r
Slide 28: Strong Capital Should Limit Common Dilution
Looking Forward Strong Capital Should Limit Common Dilution June 30, March 31, Dec. 31, Sept. 30, June 30, 2011 2011 2010 2010 2010 Tangible common equity 7.7% 7.4% 7.1% 7.2% 7.1% Tangible common to risk weighted assets 9.6% 9.1% 9.1% 9.3% 9.0% Tier 1 leverage 11.2% 10.9% 10.7% 10.5% 10.4% Tier 1 ri
Slide 29: Management's Expectations for 3Q11
Looking Forward Management’s Expectations for 3Q11 (*) • 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 • Increasing wealth management fees • Excluding ORE
Slide 30: Final Thoughts
Final Thoughts • Aggressively addressing problem credits • Pursue meaningful NPA resolution • Continued reductions in exposure to C&D • Attractive markets • Ability to seize competitive opportunities • Economic stabilization and recovery • Responsibly growing core earnings capacity • Return to net l
Slide 31: Q&A – Second Quarter 2011 Investor Call
Q&A – Second Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer July 20, 2011 31
Slide 32: Supplemental Information
Supplemental Information Second Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer July 20, 2011 32
Slide 33: Loan Categories
Loan Categories Comparison of 2Q11 to 1Q11, 4Q10 and 4Q09 • Continued reduction in C&D exposure Amts. %’s Amts. %’s Amts. %’s Amts. %’s 2Q11 2Q11 1Q11 1Q11 4Q10 4Q10 4Q09 4Q09 C&D and Land $282.1 8.8% $300.7 9.3% $331.3 10.3% $ 525.3 14.7% Consumer RE 708.3 22.1% 698.7 21.7% 705.5 22.0% 756.0 21.2%
Slide 34: Construction and Land Categories
Construction and Land Categories Comparison of 2Q11 to 1Q11, 4Q10 and 4Q09 • PNFP continues to reduce exposure to residential construction and development Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) Amts. %’s(*) 2Q11 2Q11 1Q11 1Q11 4Q10 4Q10 4Q09 4Q09 Residential – Spec $ 16.2 0.5% $ 17.0 0.5% $ 19.9 0.6
Slide 35: Construction and Land Categories
Construction and Land Categories • Almost 36.4% of C&D book managed by Special Asset Group personnel. • Almost 42.0% of land categories managed by SAG. Total Total Total NPLs NPLs NPLs Performing Performing Performing Portfolio Portfolio Portfolio Criticized Criticized Criticized 2Q11 1Q11 4Q10 2Q11
Slide 36: 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 $471,000. Pass Pass Pass Past due Past due Past due Pass to Pass to Pass to rated rated rated 2Q11 1Q11 4Q10 Fail Fail Fail 2Q11 1Q11 4Q10 During During During 2Q
Slide 37: Land Loan and Land-related ORE locations
Land Loan and Land-related ORE locations 4.2% 11.4% Middle TN East TN Other 84.4% > $250,000 properties, approx. $200.5 mm balances 37
Slide 38: Commercial Real Estate
Commercial Real Estate Vacancy Rates Nashville CRE National CRE Vacancy Rates Vacancy Rates Q2 Q1 YE 2010 YE 2009 YE 2008 YE 2007 Q2 2011 (*) 2011 (*) (*) (**) (**) (**) 2011 (*) Industrial / 10.6% 10.7% 10.2% 10.6% 9.6% 8.9% 9.8% Warehouse Multifamily 6.5% 6.4% 6.7% 9.6% 7.6% 5.2% 6.0% (**) Retail
Slide 39: Asset Quality Metrics
Asset Quality Metrics Nonaccrual Loans $59.7 MM nonaccruing loans Other 0.9% 1.86% of loan balances Resid Const Land Develop Nonaccrual loans $ 59.7 11.0% 37.3% ORE 52.4 Total NPAs $ 112.1 C&I NPAs as a % of 20.4% Total loans + ORE 3.44% CRE 13.7% 1-4 Family 16.7% As of June 30, 2011 39
Slide 40: Net Charge-off's
Net Charge-off’s • Largest Charge-offs During 2Q11 • #1 - $2.0 million • #2 - $1.3 million • #3 - $712,000 • #4 - $667,000 • #5 - $482,000 • These credits make up 60% of net charge offs for 2Q11 40
Slide 41: Nonperforming Loans
Nonperforming Loans • Largest NPLs • #1 - $7.1 million condo loan • #2 - $4.2 million commercial land development • #3 - $3.1 million commercial land development • #4 - $2.6 million residential development • #5 - $2.3 million multi-purpose commercial development • Approximately 135 accounts make up
Slide 42: OREO Properties
OREO Properties • Largest OREO Properties: • #1 - $4.1 million industrial park • #2 - $3.8 million residential development • #3 - $3.7 million condo property • #4 - $3.0 million commercial development • #5 - $2.8 million commercial land • These balances make up 33% of the total OREO book at June 30,
Slide 43: Reduced Classified Assets in 2Q11
Aggressively Dealing with Credit Issues Reduced Classified Assets in 2Q11 Balances Balances June 30, 2011 March 31, 2011 (dollars in thousands) (dollars in thousands) Classified loans and ORE: - Substandard accruing loans (*) 133,973 $ 164,936 - Substandard impaired loans 46,451 60,854 - Doubtful im
Slide 44: Investment Portfolio
Investment Portfolio Conservative bond portfolio Average yield on bond Treasuries Corporates portfolio = 3.98% (TEY) 0.0% 1.1% Average life = 5.17 years Municipals Effective Duration = 3.45% 22.0% (millions) MTD QTD Agency Notes Purchases $3.1 $20.8 6.0% Sales ($27.3) ($31.8) Agency MBS pass Mat/Cal
Slide 45: Investment Portfolio
Investment Portfolio Credit ratings # of Issuances Balances % Municipal portfolio “A” or better 328 $194,070 95.8% Baa3/BBB- to Baa1/BBB+ 23 8,439 4.2% Noninvestment grade - - - Unrated - - - Totals 351 $202,509 100.0% As of June 30, 2011 Location # of Issuances Balances % Other information: Tenness
Slide 46: Funding is Almost Exclusively Relationship Based
Building Core Earnings Capacity Funding is Almost Exclusively Relationship Based 6/30/2011 Percent 12/31/2010 Percent Core Funding: Noninterest-bearing deposit accounts 662,018 16.2% 586,517 14.0% Interest-bearing demand accounts 572,465 14.0% 573,670 13.7% Savings and money market accounts 1,634,63
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% 5% 10% 7% 90% 20% 19% 17% 80% 24% 24% 70% 60% 50% 40% 74% 76% 78% 66% 69% 30% 20% 10% 0% 2Q10 3Q10 4Q10 1Q11 2Q11 47
Slide 48: Building Core Earnings Capacity
Building Core Earnings Capacity • Reduced Time Deposit mix from 39% in 2Q10 to 24% in 2Q11 • Increased Core Deposits 22% year over year Average Deposits $3.8B 2Q10 2Q11 Time Time Deposits Deposits $0.9 B $1.5 B 24% 39% Low Cost Low Cost Core Core Deposits Deposits $2.3 B $2.8 B 61% 76% 48
Slide 49: Noninterest Income
Building Core Earnings Capacity Noninterest Income 2Q11 1Q11 4Q10 3Q10 2Q10 Service charges $2,330 $2,261 $2,353 $2,444 $2,429 Investment services 1,637 1,508 1,264 1,234 1,315 Insurance commissions 1,004 1,049 907 954 904 Gains on loan sales, net 789 610 1,352 1,310 908 Trust fees 770 730 495 726 7
Slide 50: Expense Down 5.8% from 2Q10
Building Core Earnings Capacity Expense Down 5.8% from 2Q10 2Q11 1Q11 4Q10 3Q10 2Q10 Salaries and benefits $15,870 $16,985 $15,708 $16,069 $16,191 Incentive Expense 2,654 938 - - (345) Equipment and occupancy 5,060 5,007 4,988 5,231 5,493 Other real estate owned 3,826 4,334 7,874 8,522 7,411 Marketi
Slide 51: Deferred Taxes
Deferred Taxes Balances as of Net change during Balances as of (in thousands, rounded) March 31, 2011 2Q11 June 30, 2011 Deferred tax items impacting operations: Deferred tax assets: Allowance for loan losses $ 30.9 $ (0.3) $ 30.5 Other assets 12.7 1.3 11.4 Total deferred tax assets 43.6 (1.6) 41.9
Slide 52: Non-GAAP Financial Measures – Net Interest Margin
Non-GAAP Financial Measures – Net Interest Margin 2Q11 1Q11 4Q10 3Q10 2Q10 Avg. net earning assets $4,347,552 $4,387,331 $4,441,671 $4,519,955 $4,527,471 Net interest income $37,795 $36,020 $36,056 $36,060 $35,697 Impact of tax exempt instruments 0.06% 0.07% 0.07% 0.06% 0.07% Net interest margin 3.5
Slide 53: Non-GAAP Financial Measures – Efficiency Ratio
Non-GAAP Financial Measures – Efficiency Ratio 2Q11 1Q11 4Q10 3Q10 2Q10 Total non-interest expense $34,357 $34,701 $36,451 $37,774 $36,491 Less: ORE expenses (3,825) (4,334) (7,874) (8,522) (7,411) Non-Interest expense, excluding ORE $30,532 $30,367 $28,577 $29,252 $29,080 Total non-interest income
Slide 54: Nashville Residential Real Estate Trends
Nashville Residential Real Estate Trends • Residential inventories down 6.0% in June 2011 from June 2010 • April 2011 – Kiplinger noted Nashville as one of 11 “Comeback Cities for 2011” stating Nashville should see 2.8% job growth in 2011. 54 Source: GNAR
Slide 55: Second Quarter 2011 Investor Call
Second Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO Harvey White, Chief Credit Officer July 20, 2011
Pinnacle Financial Partners — Q2 2011 Earnings Presentation on 6ix