Pinnacle Financial Partners Inc (NASDAQ:PNFP) Q2 2020 Earnings Conference Call - Final Transcript

Jul 22, 2020 • 09:30 am ET

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Pinnacle Financial Partners Inc (NASDAQ:PNFP) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Executive
M. Terry Turner

to redeem, we sold preferred shares totaling approximately $225 million, increasing or topping off Tier 1 capital. I also indicated that for the first time since the Great Recession, we were slow on our planned levels of recruitment and hiring in an effort to avoid the expense build that goes with it, which we've done. Our non-interest expense to asset ratio, as we adjust it, was 1.54%, which is the lowest I can recall in the history of the firm.

As I mentioned last quarter, it's inconceivable to me that in the final analysis, 2020 will be [Phonetic] about what our earnings were in 2020. More likely, it will ultimately be about how nimble we were in a rapidly changing environment and how well we build run rates for earnings in 2021. And so, while we're taking defensive steps to bolster capital and liquidity and we're scarring [Phonetic] the loan book, we're slowing the recruitment to avoid the expense build, it's really our intent to execute on the fundamentals that we control and those that produce long-term shareholder value like lowering cost of funds, obtaining floors on loans and the various core deposit initiatives that we have launched in order to better position ourselves for a return to more normal run rate as we go into 2021.

Looking at those fundamentals that typically produce long-term shareholder value, Q2 was an outstanding quarter. Loans and deposits were up meaningfully, largely owing to PPP. We saw improvement in virtually all of our primary asset quality metrics, although we recognize many of them are lagging indicators. We made substantial headway, lowering our cost of deposits and obtaining rate floors on loans. And we saw late quarter growth in revenue, pre-provision net revenue, spread income and fee income.

As always, we will review our standard dashboard of key success measures for our firm. I'll start with the GAAP measures for the quarter but move quickly to the non-GAAP measures because honestly, for the most part, these are what we manage to. Total revenues were up 5.4% year-over-year and 14.7% linked quarter. Of course, as we adjust it, fully diluted EPS for the quarter was $0.89, primarily impacted by the elevated provision. Harold will review that in detail in just a few minutes. And next to the EPS chart, you can see core pre-provision net revenue was up 15% linked quarter and roughly 3% year-over-year, a really important measure when considering our ability to build the 2020 run rate, as I just mentioned earlier.

Loan and deposit volumes were up meaningfully during the quarter. In the case of core deposits, it was our largest growth quarter ever. No doubt, PPP had a major impact on that. But when we dig in, we find that our PPP borrowers' deposit balances grew roughly $1.7 billion during the quarter, which means absent that impact, our core deposits grew north of $1 million, the largest quarterly organic growth in core deposits ever. As you recall, we placed considerable internal