Fourth Quarter 2011 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO January 18, 2012
Safe Harbor Statements Forward-looking statements Certain of the statements in this release 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 "expect," "anticipate," “goal,” “objective,” "intend," "plan," "believe," ”should,” "seek," ”estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Such risks include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; (ii) continuation of the historically low short-term interest rate environment; (iii) the inability of Pinnacle Financial to grow its loan portfolio in the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA; (iv) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (v) effectiveness of Pinnacle Financial’s asset management activities in improving, resolving or liquidating lower-quality assets; (vi) increased competition with other financial institutions; (vii) greater than anticipated adverse conditions in the national or local economies including the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA, particularly in commercial and residential real estate markets; (viii) rapid fluctuations or unanticipated changes in interest rates; (ix) the results of regulatory examinations; (x) the development of any new market other than Nashville or Knoxville; (xi) a merger or acquisition; (xii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xiii) the ability to attract additional financial advisors or to attract customers from other financial institutions; (xiv) the impact of governmental restrictions on and discretionary regulatory authority over entities participating in the Capital Purchase Program, of the U.S. Department of the Treasury (the “Treasury”); (xv) further deterioration in the valuation of other real estate owned; (xvi) inability to comply with regulatory capital requirements or to secure any required regulatory approvals for capital actions, including redemption of the remaining TARP preferred shares that are outstanding; and, (xvii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more detailed description of these and other risks is contained in Pinnacle Financial's most recent annual report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2011 and most recent quarterly reports on Form 10-Q filed with the Securities and Exchange commission on May 5, 2011, July 29, 2011 and October 31, 2011. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise. 2
Two Primary Priorities • Build core earnings capacity • Aggressively deal with credit issues 3
Fourth Quarter 2011 Highlights Priority: Build the Core Earnings Capacity of the Firm Linked Qtr Quarterly Change Year over Year Change Total loans 1.6% 2.5% C&I and owner occupied CRE loans 4.7% 11.9% Avg. Noninterest bearing deposits 5.0% 22.6% Net interest margin 1.4% 9.2% Noninterest income excl. securities gains (1.1%) 10.7% Gain on mortgage loan sales, net 12.8% 1.7% Total revenue excl. securities gains 1.7% 9.3% Pre-tax pre-provision income 14.8% 77.1% Adjusted PTPP Income (*) 6.0% 14.6% (*) Adjusted Pre-tax pre-provision income, excludes impact of net gains on investment security sales and other real estate owned expenses – see slide 4 #11
Fourth Quarter 2011 Highlights Priority: Aggressively Deal with Credit Issues Linked Qtr Year over Consecutive Decrease Year Qtrs. of Decrease Progress Credit losses (NCO’s + ORE expense) (2.6%) (29.9%) 6 NPLs (12.4%) (40.8%) 7 NPAs (12.6%) (37.7%) 6 Classified Loans (1.5%) (38.5%) 6 Potential problem loans (0.5%) (42.9%) 6 C&D exposure (1.6%) (17.2%) 11 5
Building Core Earnings Capacity Net Interest Margin Continues Significant Expansion Net Interest Margin Trend Key Margin Drivers: 3.70% 3.65% • NPA resolutions 3.60% • Higher loan volumes reduced excess cash 3.60% • Higher % of core deposit volumes 3.55% and repricing existing accounts 3.50% 3.40% Net Interest Income 3.40% (in millions) $39.3 $40 3.30% $38.4 3.29% $37.8 3.25% $38 $36.6 $36.1 $36.1 $36.0 3.20% $35.7 3.23% $36 3.23% $34 3.10% 6
Building Core Earnings Capacity Reduction in Cost of Deposits is Driving Margin Expansion 1.50% 3.70% 3.65% 1.43% 3.60% 1.40% 3.60% 3.55% 1.30% 3.50% 3.40% 1.20% 3.40% 3.29% 1.10% 3.30% 3.25% 3.23% 3.23% 1.00% 3.20% 0.90% 3.10% 0.80% 3.00% 0.62% 0.70% 2.90% 0.60% 2.80% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 7
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 portfolio as well as 2.50% maintenance of excess liquidity 2.00% Treasury Margin 1.50% Customer Margin 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 Net Interest Margin 8
Building Core Earnings Capacity COF Reduction Opportunities Remain in Maturing CDs • CD repricing opportunities - $175mm in Client CD’s maturing over next three months. Goal at renewal should be near average fourth quarter renewal rate (0.65%). Client CD’s – Avg. Rate Average Renewal Rates (%) 3 rd Quarter 2010 1.69% 4 th Quarter 2010 1.18% 1 st Quarter 2011 1.08% 2 nd Quarter 2011 1.02% 3 rd Quarter 2011 0.73% 4 th Quarter 2011 0.65% 1 st Quarter 2012 Avg Maturing CD Rates 1.30% 9
Building Core Earnings Capacity COF Reduction Opportunities Remain in MMDAs • MMDA pricing opportunities - $335mm in MMDA accounts with current rates above 1.00%. Target rate should approximate 0.60%. Avg Quarterly Quarterly MMDA Rates Reduction 3 rd Quarter 2010 1.36% 0.06% 4 th Quarter 2010 1.21% 0.15% 1 st Quarter 2011 1.04% 0.17% 2 nd Quarter 2011 0.95% 0.09% 3 rd Quarter 2011 0.81% 0.14% 4 th Quarter 2011 0.65% 0.16% 5 – 10bp Continuing MMDA Rate Reduction Opportunity 10
Building Core Earnings Capacity Adjusted PTPP Expands 7.1% in 4Q11 (000’s) 4Q11 3Q11 2Q11 1Q11 4Q10 Net interest income $39,293 $38,356 $37,795 $36,020 $36,056 Total noninterest income 9,727 10,080 9,809 8,324 8,666 Total revenue 49,020 48,436 47,604 44,344 44,722 Total noninterest expense 34,374 35,676 34,357 34,701 36,452 Pre-tax, pre-provision 14,646 12,761 13,247 9,643 8,270 income Adjustments to PTPP: (Gains) losses on sale of (133) (377) (610) 159 - securities Other real estate expenses 4,193 5,079 3,826 4,334 7,874 Adjusted PTPP $18,706 $17,462 $16,463 $14,136 $16,145 11
Aggressively Dealing with Credit Issues Past Due Loans are Low and Continue to Decline Dec. 31, As a % Sept. 30, As a Dec. 31, As a 2011 of 2011 % of 2010 % of total total total (000’s) loans loans loans Past Due Loans (*) Managed by special assets: Nonaccrual loans $22,339 0.68% $29,158 0.90% $47,662 1.48% Accruing loans 7,437 0.23% 4,792 0.14% 5,442 0.17% Managed by relationship managers: Accruing loans 4,505 0.14% 4,321 0.13% 4,148 0.13% Total past due $34,281 1.05% $38,271 1.17% $57,252 1.78% 12 (*) > 30 days past due
Aggressively Dealing with Credit Issues Credit Losses Continue to Decline $18,000 $16,000 ORE Expense Net Charge Offs $14,000 $12,000 $4,334 $8,522 $7,874 $3,826 $10,000 $4,193 $5,079 $8,000 $6,000 $9,726 $8,605 $4,000 $7,346 $7,146 $6,335 $5,732 $2,000 $0 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 13
Aggressively Dealing with Credit Issues Allowance Coverage Increases as NPLs Decline $140,000 $131,381 154.6% 160% $120,000 $118,331 Total Nonperforming Loans 140% $103,127 Allowance to NPL’s $100,000 120% $76,368 $80,863 (000’s) 100% $80,000 $59,727 80% $54,640 $60,000 $47,855 60% 68.5% $40,000 40% $20,000 20% 0% $0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 14
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