Second Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO July 18, 2012
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 “expect,” “anticipate,” “goal,” “objective ” “intend ” “plan ” “believe ” ”should ” “seek ” “estimate” and similar expressions are intended to identify such forward ‐ looking 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 ( the Nashville MSA ) and the Knoxville MSA; (iv) changes in loan portfolio in the Nashville Davidson Murfreesboro Franklin MSA (“the Nashville 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 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 th th N h ill K ill ( i) i iti ( ii) tt th t ld Pi l Fi i l t l d th t th impairment of any asset, including intangible assets; (xiii) the ability to attract additional financial advisors or to attract customers from other financial institutions and conversely, the inability to realize the economic benefits of newly hired financial advisors; (xiv) further deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xv) inability to comply with regulatory capital requirements, including those resulting from recently proposed changes to capital calculation methodologies and required capital maintenance levels; and (xvi) 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 (the “Dodd ‐ Frank Act”). A more detailed description of these and other risks is contained in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10 ‐ K filed with the Securities and Exchange Commission on March 2, 2012. 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 quarterly report, whether as a result of new information, future events or otherwise. 2
2Q Results Match Previous Guidance Management’s focus for 2Q12 • Increasing lending opportunities Increasing lending opportunities • Core funding growth and reduced funding costs • Continued expansion of margin and net interest income • Continued improvement in asset quality metrics Continued improvement in asset quality metrics 3
Other Significant 2Q Events There were two significant events during 2Q12 • TARP redemption • Charter conversion application • Charter conversion application 4
TARP Redemption PNFP fully redeemed TARP with no common dilution Key Facts Key Facts 1. Principle and accrued dividends of $71.6 million on 6/20/12 2. Source of Funds • $21.6 million holding company cash • $25 million bank dividend to holding company • $25 million senior holding company indebtedness 3. Terms of Indebtedness • Unsecured • 5 ‐ year maturity • • 10 year amortization 10 ‐ year amortization 4. $1.7 million accretion of preferred stock discount 5. $755,000 warrant repurchase anticipated on 7/18/12 5
Charter Conversion Application Pinnacle National Bank applied for a state banking charter Key Facts Key Facts 1. Application is to become a state “non ‐ member” bank 2. Federal Reserve continues to regulate the holding company 3. FDIC becomes primary federal regulator for the bank 4. Approval anticipated in 90 ‐ 120 days Rationale 1. 1 Environment of fast paced regulatory changes Environment of fast ‐ paced regulatory changes 2. FDIC supervision most differentiates between large and community banks 3. TDFI focuses on soundness and economy 6
Primary Priorities Pinnacle has consistently executed against its priorities 2010 ‐ 2012 2010 ‐ 2012 • Aggressively deal with credit issues • Build core earnings capacity 2012 2012 • Growing the balance sheet 7
Second Quarter 2012 Highlights Asset quality continued to improve Li k d Qt Linked Qtr Y Year over C Consecutive ti Change Year Change Qtrs. of Progress Credit losses (NCO’s + ORE expense) Credit losses (NCO s + ORE expense) (33 7%) (33.7%) (55 7%) (55.7%) 8 8 NPLs (4.7%) (31.7%) 9 NPAs (13.8%) (40.9%) 8 Classified loans (2.6%) (20.2%) 8 Potential problem loans (5.6%) (25.5%) 8 C&D Exposure 2.6% 2.5% Residential (5.5%) (31.8%) 13 Commercial Commercial 6 7% 6.7% 31 4% 31.4% 8
Second Quarter 2012 Highlights Core earnings capacity continued to expand Linked Qtr Quarterly Year Change g over Year Change Total loans Total loans 3.2% 3.2% 7.4% 7.4% C&I and owner occupied CRE loans 3.3% 14.3% Avg. Noninterest bearing deposits Avg. Noninterest bearing deposits 7.7% 7.7% 20.1% 20.1% Net interest income 1.7% 6.3% Net interest margin Net interest margin 0.5% 0 5% 5.9% 5 9% Noninterest income excl. securities gains (0.3%) 6.7% Total revenue excl securities gains Total revenue excl. securities gains 1 3% 1.3% 6 4% 6.4% 9
Building Core Earnings Capacity Net interest income and margin continued to expand Key Revenue Drivers: Key Revenue Drivers: Net Interest Margin Trend Net Interest Margin Trend 3.76% • Higher loan volumes 3.80% 3.74% • Reduced funding costs 3.70% • NPA resolutions 3.65% 3.65% 3.60% 3.60% 3.55% Net Interest Income (in millions) 3.50% $42 $42 $40.2 3.40% 3.40% $39.5 $40 $39.3 $38.4 3.30% $37.8 $38 $38 3.23% 3.23% 3.29% 3.20% 3.23% $36 3.10% $34 $ 2Q11 3Q11 4Q11 1Q12 2Q12 10
Building Core Earnings Capacity Reduction in cost of deposits drove margin expansion 1.45% 3.80% 3 74% 3.76% 3.74% 1.36% 3.65% 3.60% 1.25% 3.60% 3.55% %) st Margin (% t of Funds 3.40% 1.05% 3.40% 3.29% 3.23% 3.23% Net Interes Cost 0.85% 3.20% 0.65% 3.00% N 0.47% 0.45% 2.80% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 NIM Deposit COF 11
Building Core Earnings Capacity COF reduction opportunities remain in maturing CDs • CD repricing opportunities ‐ $135mm in Client CD’s maturing over next CD repricing opportunities $135mm in Client CD s maturing over next three months. Goal at renewal should be below or near average second quarter renewal rate (0.61%). Client CD’s – Avg Rate Client CD s – Avg. Rate Average Renewal Rates (%) 1 st Quarter 2011 1.08% 2 nd Quarter 2011 2 nd Q t 2011 1 02% 1.02% 3 rd Quarter 2011 0.73% 4 th Quarter 2011 0.65% 1 st Quarter 2012 0.57% 2 nd Quarter 2012 0.61% 3 rd Quarter 2012 Avg Maturing CD Rates 0.82% 12
Building Core Earnings Capacity COF reduction opportunities remain in MMDAs • MMDA pricing opportunities ‐ $215mm in MMDA accounts with current MMDA pricing opportunities $215mm in MMDA accounts with current rates above 1.00%. Target rate should approximate 0.40% ‐ 0.60%. Avg Quarterly Quarterly MMDA Rates Reduction 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% 1 st Quarter 2012 0.53% 0.12% 2 nd Quarter 2012 0.51% 0.02% 5 – 10bp Continuing MMDA Rate Reduction Opportunity 13
Building Core Earnings Capacity Loan growth accelerates, but yield compresses in 2Q $3,500 5.00% 4.88% 4.87% $3,403 4.78% $3,400 4.80% 4.74% 4.74% 4.65% 4.65% age Loans n Yields $3,300 4.60% $3,280 $3,262 (millions) $3,212 $3,207 Avera $3 191 $3,191 ( Loa $3,200 4.40% $3,100 4.20% $3,000 4.00% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Avg Loans Loan Yields 14
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