PNFP

Pinnacle Financial Partners, Inc. (PNFP)

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Pinnacle Financial Partners (PNFP)

Q1 2013 Earnings Call

April 16, 2013 9:30 am ET

Executives

M. Terry Turner - Chief Executive Officer, President, Director, Chairman of Executive Committee, Member of Directors Loan Committee, Chief Executive Officer of Pinnacle National Bank, President of Pinnacle National Bank and Director of Pinnacle National Bank

Harold R. Carpenter - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Chief Financial Officer of Pinnacle National Bank and Executive Vice President of Pinnacle National Bank

Analysts

Jefferson Harralson - Keefe, Bruyette, & Woods, Inc., Research Division

Kevin Fitzsimmons - Sandler O'Neill + Partners, L.P., Research Division

Matt Olney - Stephens Inc., Research Division

Mac Hodgson - SunTrust Robinson Humphrey, Inc., Research Division

Kevin B. Reynolds - Wunderlich Securities Inc., Research Division

Michael Rose - Raymond James & Associates, Inc., Research Division

Brian Joseph Martin - FIG Partners, LLC, Research Division

William J. Dezellem - Tieton Capital Management, LLC

Presentation

Operator

Good morning, everyone, and welcome to the Pinnacle Financial Partners First Quarter 2013 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer. He's joined by Harold Carpenter, Chief Financial Officer. Please note Pinnacle earnings release and this morning's presentation are available on the Investor Relations page of their website at www.pnfp.com. Today's call is being recorded and will be available for replay on Pinnacle’s website for the next 90 days. [Operator Instructions]

Before we begin, Pinnacle does not provide earnings guidance or forecasts. In this presentation, we may make comments which may constitute forward-looking statements. 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. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's most recent annual report on Form 10-K.

Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com.

With that, now I'm going to turn the presentation over to Mr. Terry Turner, Pinnacle’s President and CEO.

M. Terry Turner

Good morning.. Today's conference call, similar to previous quarterly calls, I'll briefly review the highlights of our first quarter performance. Harold will review the first quarter in greater detail, and then I'll take some time to give my thoughts on our profitability targets and what we're working on for the remainder of 2013.

I want to start today by revisiting our central messaging over the last few years. Basically, since the first quarter of 2009 in each quarterly conference call, we discussed our 2 primary priorities: number one, to reduce the risk in our loan portfolio; and number two, concurrently rebuild the core earnings capacity of our firm. We dedicated a number of associates to focus on the accelerated disposition of troubled assets, while a much larger group of our associates focused on building our customer base, growing our loan portfolio and growing core deposits.

Credit metrics, such as net charge-off ratios, NPA ratios, classified asset ratios and so forth, have all shown remarkable progress over the last few years, and we anticipate continued gradual improvement going forward. But you'll notice last emphasis in this call on the credit metrics. I hope you won't assume that we're trying to divert your attention away from credit. The truth is we're very proud of our accomplishments in credit, but we're now substantially more focused on the opportunities that we believe are out in front of us. And so we'll focus more time this morning on how we continue building the core earnings capacity of the firm, which we believe is the key to driving shareholder value.

I expect by now, everyone's aware that fully diluted EPS for the first quarter was $0.39. We're now operating at record levels on a good number of financial metrics. Thankfully, we believe there are lots of opportunities still in front of us as we continue to make rapid progress on our longer-term profitability targets, and I'll cover those in greater detail in a few minutes.

I'll make just a few brief comments on continued asset quality improvements. As you can see, we continue to make meaningful progress reducing virtually every important problem asset category this quarter year-over-year and consecutive sequential quarter for roughly 3 years. Net charge-offs were approximately $2.2 million for the quarter. OREO (sic) [ORE] expenses were $721,000, and so when you combine those 2, our total credit losses were down more than 17% in this quarter, almost 65% year-over-year and down for the 11th consecutive quarter. Nonperforming loans shrank by roughly 4.3%. That's the 12th consecutive quarterly reduction there, down nearly 49% from a year ago. Nonperforming assets, and that's defined as NPLs plus OREO (sic) [ORE], were down 6.7% here in the quarter. That's roughly a 50% decline from March last year. And classified loans shrank by roughly 8% during the first quarter, which results in a classified asset Tier 1 capital plus allowance ratio of approximately 26.4%.

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