NASHVILLE – Pinnacle Financial Partners Inc. reported net income per fully diluted common share of 49 cents for the quarter ended June 30, compared to net income per fully diluted common share of 42 cents for the quarter ended June 30, 2013, an increase of 16.7 percent.
Net income per fully diluted common share was 96 cents for the six months ended June 30, compared to net income per fully diluted common share of 81 for the six months ended June 30, 2013, an increase of 18.5 percent.
“Second quarter was another strong quarter of continued execution as we generated meaningful operating leverage primarily through loan and demand deposit account growth,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “Our return on average assets increased to 1.21 percent, representing another all-time high. Loan growth approximated $134 million during the second quarter, which equates to an annualized linked-quarter growth rate of 12.8 percent. Importantly, we experienced another strong quarter of growth in demand deposits, which is consistent with the success we continue to have moving client relationships to our firm.”
Loans at June 30 were a record $4.315 billion, an increase of $133.9 million from March 31. Loans increased $390.2 million from June 30, 2013, a year-over-year growth rate of 9.9 percent.
Average balances of noninterest-bearing deposit accounts were $1.203 billion in the second quarter of 2014, which represents an annualized growth rate of 26.2 percent from the first quarter of 2014. Noninterest-bearing deposit accounts represented approximately 26.6 percent of total average deposit balances for the quarter. Second quarter 2014 average noninterest-bearing deposits increased 18.8 percent over the same quarter last year, when average noninterest-bearing deposit accounts amounted to 25.6 percent of total average deposits.
Revenues for the quarter ended June 30 were a record $59.8 million, an increase of $1.2 million from $58.6 million in the first quarter of 2014. Revenues increased 8.9 percent from $54.9 million for the same quarter last year.
Return on average assets was 1.21 percent for the second quarter, compared to 1.20 percent for the first quarter and 1.10 percent for the same quarter last year. Second quarter 2014 return on tangible common equity amounted to 13.50 percent, compared to 13.45 percent for the first quarter of 2014 and 12.72 percent for the same quarter last year.
“We remain very pleased with our ability to grow our client base and take market share in Nashville and Knoxville,” Turner said. “With the significant loan growth we experienced in the second quarter, we continue to believe we will meet or exceed the three-year loan growth targets we established for the period of 2012 to 2014. Our ability to grow our noninterest-bearing deposits has been instrumental in enabling us to increase our net interest income and provides further evidence of the effectiveness of our business model.”
Net interest income for the quarter ended June 30 was $47.2 million, compared to $45.9 million in the first quarter of 2014 and $43.6 million for the second quarter of 2013.
Consistent with previously disclosed expectations, the firm’s net interest margin decreased to 3.71 percent for the quarter ended June 30, down from 3.76 percent last quarter and 3.77 percent for the quarter ended June 30, 2013.
Noninterest income for the quarter ended June 30, 2014 was $12.6 million, compared to $12.7 million for the first quarter of 2014 and $11.3 million for the same quarter last year.
Wealth management revenues, which include investment services, insurance and trust fees, were down $278,000 from the first quarter due primarily to the seasonal collection of contingency revenues from insurance carriers in the first quarter.
Gains on mortgage loans sold, net of commissions, were up $434,000 from the first quarter due primarily to stronger home sales in Pinnacle’s residential lending markets.
Other fees decreased by $466,000 between the second and first quarters due to several factors, including a reduction in vendor rebates for customer check orders, reduced gains from loan sales and other investments.
“Operationally, we had another very sound quarter,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “Total revenues are up almost $1.18 million over the first quarter. Loan yields decreased a modest 0.03 percent during the quarter and were partially offset by a 0.02 percent decrease in cost of funds. We continue to believe the rate of decrease in both loan yields and deposit costs will likely slow in future quarters. We also remain optimistic that our net interest margin will remain within our targeted range of 3.70 percent to 3.80 percent as we continue to see growth in net interest income for the remainder of 2014.”
Noninterest expense for the quarter ended June 30 was $33.9 million, compared to $33.6 million in the first quarter of 2014 and $30.9 million in the same quarter last year.
Salaries and employee benefit costs were up from the first quarter by about $23,000 and $1.2 million from the second quarter of 2013.
Other real estate expenses were $226,000 in the second quarter of 2014, compared to $651,000 in the first quarter and $1.4 million in the same quarter last year.
Other noninterest expense increased by $405,000 in the second quarter compared to the first quarter primarily due to increased lending-related costs. Additionally, other noninterest expense increased by $2.29 million between the second quarter of 2013 and 2014 primarily due to the impact of a $2.0 million reversal in 2013 of previously expensed off-balance sheet loss reserves.
“Building a firm that attracts and retains the most successful relationship managers in our markets is a key component of our growth strategy,” Carpenter said. “Nine new revenue producers have joined our firm in 2014, representing a continual investment in growing our customer base and increasing our market share.
“Increasing the operating leverage of our firm remains a key objective of our leadership. We anticipate our expense base for the remainder of 2014 will experience modest increases as we continue to recruit relationship managers and other professionals. The ratio of noninterest expense (excluding ORE expense) to average assets was 2.38 percent in the second quarter. We expect to make continual progress toward our target range of 2.10 to 2.30 percent for ‘noninterest expense (excluding ORE expense) to average assets’ in 2014 primarily through achievement of our loan growth targets.”
Nonperforming assets declined from $30.6 million at March 31 to $28.6 million at June 30, a 6.6 percent reduction. Nonperforming assets were 0.66 percent of total loans and ORE at June 30, compared to 0.73 percent at March 31 and 0.93 percent at June 30, 2013.
The allowance for loan losses represented 1.55 percent of total loans at June 30, compared to 1.61 percent at March 31 and 1.75 percent at June 30. The ratio of the allowance for loan losses to nonperforming loans was 426.6 percent at June 30, compared to 432.7 percent at March 31 and 334.1 percent at June 30, 2013.
Net charge-offs were $890,000 for the quarter ended June 30, compared to $934,000 for the first quarter and $3.5 million for the quarter ended June 30, 2013. Annualized year-to-date net charge-offs as a percentage of average loans for the quarter ended June 30 were 0.09 percent compared to 0.30 percent for the quarter ended June 30, 2013.
Provision for loan losses decreased from $2.77 million for the second quarter of 2013 to $254,000 for the second quarter. The provision was $488,000 for the first quarter.
“Asset quality continues to be a strength for our firm with further reductions in potential problem loans, nonperforming assets and net charge-offs during the second quarter,” Carpenter said. “We expect that the quality of our loan portfolio should improve and thus continue to provide additional credit leverage for the remainder of 2014 as well as 2015.”
On July 15, Pinnacle’s board of directors also declared an 8-cent per share cash dividend to be paid Aug. 29 to common shareholders of record as of the close of business Aug. 8. The amount and timing of any future dividend payments to common shareholders will be subject to the discretion of Pinnacle’s board of directors.
Pinnacle held a webcast and conference call July 16 to discuss second quarter results and other matters.
For those unable to participate in the webcast, it will be archived on the investor relations page of Pinnacle’s website at pnfp.com for 90 days following the presentation.
Pinnacle Financial Partners provides a full range of banking, investment, trust, mortgage and insurance products and services designed for businesses and their owners and individuals interested in a comprehensive relationship with their financial institution.
The firm began operations in a single downtown Nashville location in October 2000 and has since grown to about $5.8 billion in assets at June 30. At that time, Pinnacle is the second-largest bank holding company headquartered in Tennessee, with 29 offices in eight Middle Tennessee counties and four offices in Knoxville. Additionally, Great Place to Work named Pinnacle one of the best workplaces in the United States on its 2013 Best Small & Medium Workplaces list published in Fortune magazine. The American Banker also recognized Pinnacle as the best bank to work for in the country.
Additional information concerning Pinnacle, which is included in the NASDAQ Financial-100 Index, can be accessed at pnfp.com.