Pinnacle Financial Continues Profitability in First Quarter 2011

NASHVILLE, Tenn.--(BUSINESS WIRE)--Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) today reported that its net income per fully diluted common share available to common stockholders was $0.06 for the quarter ended March 31, 2011, compared to net loss per fully diluted common share available to common stockholders of $0.16 for the quarter ended March 31, 2010, and net income per fully diluted common share available to common shareholders of $0.07 for the quarter ended Dec. 31, 2010.

“We continue to see progress regarding our two critical priorities of aggressively dealing with credit issues and expanding the core earnings capacity of the firm,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “In addition to continued improvement in most problem loan measures, we are pleased with another quarter of net interest margin expansion and growth in income before taxes. We are also pleased with the loan growth we experienced in the C&I and owner-occupied commercial real estate categories during the first quarter. We attribute this result to some increasing optimism among our clients and our sales force’s continued success in moving relationships from the larger regional franchises in our area.”

Aggressively Dealing with Credit Issues

• Reduced nonperforming loans by $4.5 million during the first quarter of 2011, a linked-quarter reduction of 5.6 percent and the fourth consecutive quarterly reduction. Nonperforming loans are down 41.9 percent from a year ago.
• Reduced criticized and classified assets by $41.9 million during the first quarter of 2011, a linked-quarter reduction of 8.6 percent and the fourth consecutive quarter of net reductions. Criticized and classified assets are down $183.7 million from their peak at the end of March 2010.
• Potential problem loans also decreased from $223.1 million at Dec. 31, 2010, to $170.6 million at March 31, 2011, a linked-quarter decrease of 23.5 percent.
• Resolved $33.5 million in nonperforming assets during the first quarter of 2011, compared to resolutions of $33.6 million during the first quarter of 2010.
• At March 31, 2011, OREO constitutes approximately 42 percent of NPA’s, generally higher than peers, and is reflective of Pinnacle’s commitment to aggressively deal with problem loans.
• Decreased nonperforming loan inflows from $25.9 million in the fourth quarter of 2010 to $25.4 million during the first quarter of 2011.
• Reduced exposure to construction and land development loans from $331.3 million at Dec. 31, 2010, to $300.7 million at March 31, 2011, a linked-quarter decrease of 9.2 percent.

Expanding the Core Earnings Capacity of the Firm

• Loans at March 31, 2011, were $3.22 billion, up from $3.21 billion at Dec. 31, 2010. Commercial and industrial loans combined with owner-occupied commercial real estate loans were $1.59 billion at March 31, 2011, compared to $1.54 billion at Dec. 31, 2010, the second consecutive quarter of net growth and an annualized growth rate of 13.0 percent.
• Average balances of noninterest bearing deposit accounts were $595 million in the first quarter of 2011, an increase of 3.3 percent over fourth quarter 2010 average balances of $576 million.

• Net interest margin increased to 3.40 percent for the quarter ended March 31, 2011, from 3.25 percent for the quarter ended March 31, 2010. Net interest margin for the quarter ended Dec. 31, 2010, was 3.29 percent.
• Income before income taxes increased from $3.10 million for the quarter ended Dec. 31, 2010, to $3.50 million for the quarter ended March 31, 2011, a 13.1 percent increase.

“Our first quarter net interest margin of 3.40 percent was achieved primarily by the focused effort of our sales force to improve the mix of our funding base and to reduce our funding costs,” Turner said. “We also experienced a significant reduction in our potential problem loans during the first quarter as operating results for many of our borrowers began to reflect sustained profitability warranting risk rating upgrades. We grew loans by an aggregate $50.1 million in the combined classifications of commercial and industrial and owner-occupied commercial real estate during the first quarter of 2011. Our ability to increase commercial loan volumes and our net interest margin should result in core earnings growth over the long term.”

FIRST QUARTER 2011 HIGHLIGHTS:

• Balance sheet
  • Core deposits amounted to $3.11 billion at March 31, 2011, an increase of 16.2 percent from the $2.68 billion at March 31, 2010. Core deposits at Dec. 31, 2010 were $3.12 billion.
  • Total deposits at March 31, 2011, were down slightly from the $3.83 billion at Dec. 31, 2010, and the $3.84 billion at March 31, 2010, to $3.73 billion at March 31, 2011.
  • Loans at March 31, 2011, were $3.22 billion, up from $3.21 billion at Dec. 31, 2010, and down from $3.48 billion at March 31, 2010.
• Operating results
  • Revenue for the quarter ended March 31, 2011, amounted to $44.34 million, compared to $44.72 million for the fourth quarter of 2010 and $45.05 million for the same quarter of last year.
  • Net income available to common stockholders for the first quarter of 2011 was $2.01 million, compared to the prior year’s first quarter net loss available to common stockholders of $5.37 million. Fourth quarter 2010 net income available to common stockholders totaled $2.25 million.

• Capital
  • At March 31, 2011, and March 31, 2010, Pinnacle’s ratio of tangible common stockholders’ equity to tangible assets was 7.4 percent. At March 31, 2011, Pinnacle Financial’s total risk-based capital ratio was 15.2 percent, compared to 15.0 percent at March 31, 2010.
• Credit quality
  • Net charge-offs were $9.73 million for the quarter ended March 31, 2011, compared to $15.12 million for the quarter ended March 31, 2010, and $7.15 million for the fourth quarter of 2010.
  • The allowance for loan losses represented 2.46 percent of total loans at March 31, 2011, compared to 2.57 percent at Dec. 31, 2010, and 2.59 percent at March 31, 2010.
  • Nonperforming loans plus other real estate were 4.04 percent of total loans plus other real estate at March 31, 2011, compared to 4.29 percent at Dec. 31, 2010, and 4.45 percent at March 31, 2010.
  • Past due loans over 30 days, excluding nonperforming loans, were 0.36 percent of total loans at March 31, 2011, compared to 0.30 percent at Dec. 31, 2010, and 1.54 percent at March 31, 2010.
  The following is a summary of the activity in various nonperforming asset and restructured accruing loan categories for the quarter ended March 31, 2011:

REVENUE

• Net interest income for the first quarter of 2011 was $36.02 million, compared to $36.06 million for the fourth quarter of 2010 and $36.56 million for the same quarter last year.
• Noninterest income for the first quarters of 2011 and 2010 was $8.32 million and $8.49 million, respectively.

“We had several positive developments during the first quarter that increase our optimism concerning revenue growth in the coming quarters,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “First, it appears our relationship managers are experiencing more activity as local business owners and operators are discussing increased lending opportunities with us. Our average balances of demand deposit accounts experienced the fourth straight quarter of increases, which indicates to us that our business model continues to attract new customers to our firm. Lastly, the level of nonperformers and potential problem loans are continuing to decrease.”

Carpenter also noted, “We believe we will continue to have opportunities to reduce funding costs in future quarters primarily by reducing the funding cost associated with the firm’s time deposit portfolio which should yield continued margin expansion.”

NONINTEREST EXPENSE AND TAXES

• Noninterest expense for the quarter ended March 31, 2011, was $34.70 million, compared to $36.17 million in the first quarter of 2010 and $36.45 million in the fourth quarter of 2010.
• Compensation expense was $17.92 million during the first quarter of 2011, compared to $17.00 million during the first quarter of 2010 and $15.71 million during the fourth quarter of 2010.
• Included in noninterest expense for the first quarter of 2011 was $4.33 million in other real estate expenses, compared to $5.40 million in the first quarter of 2010. Fourth quarter 2010 other real estate expense was approximately $7.87 million.

Excluding the impact of OREO expenses, the first quarter of 2011 noninterest expense was approximately $30.37 million, compared to $28.58 million in the fourth quarter of 2010 and $30.77 in the first quarter of 2010. Carpenter noted that first quarter 2011 personnel expenses increased by $2.2 million over the fourth quarter 2010 personnel expenses due to annual merit raises, seasonal adjustments to benefit costs and approximately $938,000 in annual cash incentive award accruals.

Included in the other real estate expense was $3.8 million of additional write downs of existing balances based on updated appraisals. The firm also recorded $383,000 in gains related to the disposition of other real estate assets.

Carpenter noted that the firm did not record any tax expense or benefit during the first quarter of 2011 as the tax effects from first quarter results have been offset in the firm’s deferred tax valuation allowance, which amounted to $22.35 million at March 31, 2011.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. (CDT) on Tuesday, April 19, 2011, to discuss first quarter 2011 results and other matters. To access the call for audio only, please call 1-877-602-7944. For the presentation and streaming audio, please access the webcast on the investor relations page of Pinnacle's website at www.pnfp.com.

For those unable to participate in the webcast, it will be archived on the investor relations page of Pinnacle's website at www.pnfp.com for 120 days following the presentation.

Pinnacle Financial Partners provides a full range of banking, investment, mortgage and insurance products and services designed for small- to mid-sized businesses and their owners, real estate professionals and individuals interested in a comprehensive relationship with their financial institution. Comprehensive wealth management services, such as financial planning and trust, help clients increase, protect and distribute their assets.

The firm began operations in a single downtown Nashville location in Oct. 2000 and has since grown to over $4.82 billion in assets at March 31, 2011. In 2007, Pinnacle launched an expansion into Knoxville, Tennessee. At March 31, 2011, Pinnacle is the second-largest bank holding company headquartered in Tennessee, with 31 offices in eight Middle Tennessee counties and three offices in Knoxville. The firm was also added to Standard & Poor’s SmallCap 600 index in 2009.

Additional information concerning Pinnacle can be accessed at www.pnfp.com.

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 continued reduction of Pinnacle Financial’s loan balances, and conversely, the inability of Pinnacle Financial to ultimately 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 deterioration or lack of sustained growth 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 impact of governmental restrictions on entities participating in the Capital Purchase Program, of the U.S. Department of the Treasury (the “Treasury”); (xiv) further deterioration in the valuation of other real estate owned; (xv) inability to comply with regulatory capital requirements and to secure any required regulatory approvals for capital actions; (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; and (xvii) Pinnacle Financial recording a further valuation allowance related to its deferred tax asset. 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. 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.