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Pinnacle Financial Partners, inc (PNFP) Q2 2021 Earnings Call Transcript


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Pinnacle Financial Partners, inc (NASDAQ:PNFP)
Q2 2021 Earnings Call
Jul 21, 2021, 9:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning, everyone, and welcome to the Pinnacle Financial Partners Second Quarter 2021 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer and Mr. Harold Carpenter, Chief Financial Officer.

Please note Pinnacle’s 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]

During this presentation, we may make comments which may constitute forward-looking statements. All forward-looking statements are subject to risks and 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 this and other risks is contained in Pinnacle Financial’s Annual Report on Form 10-K for the year ended December 31, 2020 and its subsequently filed quarterly reports.

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 the 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 website at www.pnfp.com.

With that, I’m now turning the call over to Mr. Terry Turner, Pinnacle’s President and CEO.

M. Terry TurnerPresident and Chief Executive Officer, Director

Thank you, operator, and thank you for joining us this morning. Q2 was an outstanding quarter in my view. As most of you know that have been following us for some time, we took a number of actions in the early stages of the pandemic like modifying our incentive, focus on PPNR growth during 2020, to ensure that we’d be in a position to quickly return to our pre-pandemic growth trajectory, as the pandemic waned. I think the first two quarters of 2021 would suggest that we’ve been largely successful in that. We begin every quarterly call with this dashboard reflecting our key performance metrics on a GAAP basis, but as we most always do, because there are so many adjustments required in order to focus on the variables that we’re truly managing here at Pinnacle, I’ll move quickly to the chart reflecting the adjusted non-GAAP measures.

As you can see, the second quarter was another fabulous quarter for us. Linked-quarter annualized loan growth ex-PPP was 12.6%. Linked-quarter annualized core deposit growth was 14.2%. Linked-quarter annualized revenue growth was 20.1%, and already strong asset quality got even better. On a lot of these earnings calls, I try to provide more color on all or several of the key metrics that are on this chart, but today I want to focus more on the big picture. And that’s really the speed and the reliability of the growth over an extended period of time.

Look at the CAGR for virtually every important growth metric. And I think that demonstrates the speed and reliability of our growth, even in the face of the various headwinds we’ve encountered over time. Take EPS as an example. The 17% CAGR, you got a dip in 1Q, 2Q ’20 associated with the COVID-triggered reserve bill. But other than that, the growth is extremely reliable. Look at the revenue CAGR, the loan CAGR, the deposit CAGR, all very fast, all very reliable.

Most of you know we conducted a three-day orientation program for every single new associate of this firm conducted by me and other key leaders here. We invested time to help associates understand this culture why it is what it is, and what makes the difference. It’s intended to inspire a high level of associate excitement and engagement. One of the topics that we covered in great detail is how we produce shareholder value. The hour-long sessions conducted by Harold and it’s intended to help every single associate personalize specifically what they do individually that increases shareholder value and the kinds of things they might do that destroy shareholder value. But the principal take-away we expect every single associate to get is that two things are required for us to produce outsized shareholder returns. Number one, speed of growth. And number two, reliability of growth. So how is it that we produce such fast and reliable growth and how is it that we expect to continue reliable growth going forward — excuse me — even as many of our peers are being overwhelmed by the current headwinds like slack loan demand and heavy payouts.

First of all, we’ve positioned ourselves in fabulous markets with extraordinary size and growth dynamics. Most of you heard me talk about our outlook in markets like Nashville, Charlotte and Raleigh, North Carolina, Greenville and Charleston, South Carolina, and Atlanta, one of the biggest and best markets in the country. And, of course, those size and growth dynamics are critical to growth. It’s just hard to have a large high-growth bank without large high-growth markets.

On last quarter’s call, I talked about the fact that I expected to continue hiring revenue producers in our existing footprint at a rapid pace and that we’d likely have opportunities to expand to other southeastern markets due to the high level of M&A activity and all the associated vulnerabilities that, that creates. And so, as you can see here, primarily as a result of integration turmoil, we were the most desirable alternative for a good number of high-profile revenue producers in Birmingham, the Southeast 13th largest market, and Huntsville, the Southeast 13th fastest growing market in terms of GDP. I want you this that our reputation as a highly successful challenger brand with those large regional and national franchises called it frustrated teams to seek us out. And I’m not trying to foreshadow anything in particular here, but I’ll be shocked that we don’t have more of those hiring opportunities going forward as M&A appears to be picking up and the bureaucratic grind at many of our larger competitors continues to weigh on their associates. So the markets we currently serve and the markets that are likely available to us over time would suggest an ability to grow rapidly on an organic basis, even at a time when many are going to struggle to grow revenue and earnings organically.

Now, in my judgment, more important even than the size and growth dynamics of our market is the fact that this firm has been built to create raving fans. I’m confident virtually every bank you listen to talk will talk about service. I know not one of them has ever said we’re trying to give poor service and bad advice. But trust me, many do. So let me spend a minute on just how differentiated our service and advice is from every other bank in our footprint. What you’re looking at here is data from Greenwich Associates, the foremost provider of commercial market research to large banks in the United States. This data is based on client responses across our entire footprint. That means businesses with annual sales from $1 million to $500 million in Tennessee, North Carolina, South Carolina, Atlanta and Roanoke.

So let’s focus on the Pinnacle line at the bottom of the chart. You see the navy-blue portion bar that 80% of the Pinnacle client survey rated us a 9 or a 10 on the question, ‘How likely are you to recommend your lead provider to a friend or colleague?’ using a scale of 0 to 10, where 0 means not at all likely and 10 means extremely likely. So in other words, 80% of our clients are highly engaged active promoters. Trust me, that’s an extremely unusual level of engagement. Another 19% rated us a 7 or 8, that’s not bad. Combining the two, 99% of our clients rated as a 7 or better on a 10-point scale. But that 19%, that gold portion of the bar,…


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