Third Quarter 2012 Investor Call Terry Turner, President and CEO Harold Carpenter, EVP and CFO October 17, 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
Third Quarter 2012 Highlights 3Q results match previous guidance • Continued improvement in asset quality metrics • Increased lending opportunities • Core funding growth and reduced funding costs • Core funding growth and reduced funding costs • Continued expansion of net interest income p 3
Third Quarter 2012 Highlights Asset quality continued to improve Li k d Qt Linked Qtr Year over Y C Consecutive ti Change Year Change Qtrs. of Progress Credit losses (NCO s + ORE expense) Credit losses (NCO’s + ORE expense) (21 3%) (21.3%) (59.9%) (59 9%) 9 9 NPLs (10.4%) (33.1%) 10 NPAs (11.9%) (41.7%) 9 Classified loans (9.7%) (21.8%) 9 Potential problem loans (8.3%) (16.9%) 9 4
Third Quarter 2012 Highlights Nonperforming loans and reserve coverage continued to improve $70.0 $ $ $140.0 $132 4 $132.4 $120 $120 200% 200% 188.9% $60.0 $120.0 millions) $100 167% llions) $50.0 $100.0 ositions (in mil orming loans (in $80 133% wance to NPL’s $38.7 NPA Balances $40.0 $80.0 $33.5 $32.3 $60 100% $29.5 $58.4 $30.0 $60.0 Allow Total Nonperfo $25.3 $25 3 N nflows and Disp 82.0% $22.5 $40 67% $20.0 $40.0 $25.4 $12.5 $18.4 $19.7 $20 33% $10.0 17.5 $20.0 4.3 9 NPA In $1 $14 $11. $4.6 $0 0% $0.0 $0.0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 NPA Dispositions Nonperforming loans < 30 days past due NPA inflows Nonperforming Loans NPA Balances Allowance to NPLs 5
Third Quarter 2012 Highlights Core earnings capacity continued to expand Linked Qtr Quarterly Year Change g over Year Change Total loans 2.3% 8.8% C&I and owner occupied CRE loans & d i d l 2.9% % 14.0% % Avg. noninterest ‐ bearing deposits 5.7% 18.6% Net interest income 1.9% 6.7% Net interest margin 0.5% 5.0% Cost of funds (5.4%) (36.9%) Noninterest income excl. securities gains 7.2% 7.9% Total revenue excl. securities gains 2.9% 7.0% 6
Expanding the Core Earnings Capacity Net interest income and margin continued to expand Key Revenue Drivers: Net Interest Margin Trend Net Interest Margin Trend • Reduced funding costs 3.90% • Improving deposit mix 3.78% • Higher loan volumes 3.76% 3.80% 3.80% 3.74% • NPA resolutions 3.70% Net Interest Income 3.65% (in millions) 3.60% $42 $42 3 60% 3.60% $40.9 3.55% $40.2 $40 $39.3 $39.5 3.50% $38.4 $37.8 $38 $38 3 40% 3.40% 3.40% $36.0 $36 3.30% $34 $ 7
Expanding the Core Earnings Capacity Reduction in cost of deposits drove margin expansion $3,600 1.10% 1.01% $3,575 $3,524 $3,500 0.95% ions) %) osit costs (% 2 8 $3,442 posits (milli $3,438 $3,400 0.80% $3,406 $3,389 $3,383 $3,300 0.65% Depo Core Dep $3,200 0.50% 0.43% $3,100 $3,100 0.35% 0.35% $3,000 0.20% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Core Deposits Cost of funds 8
Expanding the Core Earnings Capacity Cost of deposits is enhanced by DDA growth $1,000 $ , 50,000 , 46,036 millions) $800 40,000 unts 36,781 er of Accou ances (in m $600 30,000 $400 $ 00 20,000 0,000 Numbe DDA Bala $200 10,000 $0 ‐ Business Consumer Total Accounts 9
Expanding the Core Earnings Capacity Loans grew meaningfully with only 3 basis points in yield compression $3,489 $3,500 5.60% $3,403 $3,400 5.20% 4.88% 4.87% age Loans 4.78% 4.74% n Yields 4.74% $3,300 4.80% 4.65% 4.62% (millions) $3,280 $3,262 $3,212 $3,207 Avera $3 191 $3,191 ( Loa $3,200 4.40% $3,100 4.00% $3,000 3.60% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Avg Loans Loan Yields 10
Expanding the Core Earnings Capacity Cash flows from bonds are being reinvested in loan growth 3.67% $1,050 $1,050 3.70% 3.70% 3.58% 3.54% $1,000 3.50% $1,010 3.31% 3.27% 973 3.26% 3.26% $950 $950 3 30% 3.30% $9 3.19% ecurities $940 elds (%) $924 $900 3.10% 76 $87 Bond Yie Average S $ $850 2.90% $819 $800 2.70% $767 $750 2.50% $700 2.30% 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Avg Investments Bond Yields 11
Expanding the Core Earnings Capacity Credit costs continued to decline in concert with NPA reductions $16 0 $16.0 $14.0 $12.0 $12 0 $4 3 $4.3 (in millions) $3.8 $10.0 $4.2 $5.1 $5. $8 0 $8.0 Credit Losses $6.0 $4.7 $9.7 $ $8.6 $4.0 $4 0 $3.1 $3 1 $6.3 $2.4 $5.7 $2.0 $3.6 $2.4 $1.9 $ ‐ $ ‐ 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Net Charge ‐ Offs ORE Expense 12
Expanding the Core Earnings Capacity Deposit accounts and mortgage sales success leads to rapid fee growth 3Q12 2Q12 1Q12 4Q11 3Q11 Service charges $ 2,532 $ 2,439 $ 2,324 $ 2,291 $ 2,362 Investment services Investment services 1 677 1,677 1,611 1 611 1 581 1,581 1 402 1,402 1 699 1,699 Insurance commissions 987 1,141 1,288 944 1,002 Gain on mortgage loans sold, net 1,979 1,457 1,494 1,461 1,295 Trust fees Trust fees 767 767 770 770 767 767 746 746 754 754 Other: Securities gains (50) 99 114 133 377 Other 2,538 2,392 2,323 2,750 2,591 Total noninterest income $ 10,430 $ 9,909 $ 9,890 $ 9,727 $10,080 50 (99) (113) (133) (377) Less: Securities gains Core noninterest income $ 10,480 $ 9,810 $ 9,777 $ 9,594 $ 9,703 13
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