The following is a summary of the activity in various nonperforming asset and troubled debt restructuring categories for the quarter ended Sept. 30, 2012:

(in thousands)    

Balances June 30, 2012
   

Payments, Sales and Reductions
    Foreclosures     Inflows    

Balances Sept. 30, 2012
Troubled debt restructurings:
Commercial real estate – mortgage $ 19,040 (3,162 ) - 753 $ 16,631
Consumer real estate – mortgage 6,045 (14 ) - - 6,031
Construction and land development 434 (62 ) - - 372
Commercial and industrial 983 (48 ) - - 935
Consumer and other   124     (3 )     -       -       121
Totals   26,626     (3,289 )     -       753       24,090
Nonperforming loans:
Commercial real estate – mortgage 15,236 (1,260 ) (725 ) 1,732 14,983
Consumer real estate – mortgage 13,644 (4,272 ) (553 ) 1,729 10,548
Construction and land development 6,039 (200 ) (18 ) 36 5,857
Commercial and industrial 5,443 (1,483 ) - 936 4,896
Consumer and other   459     (228 )     (90 )     146       287
Totals   40,821     (7,443 )     (1,386 )     4,579       36,571
Other real estate:
Residential construction and development 8,829 (1,167 ) 18 - 7,680
Commercial construction and development 11,850 (1,919 ) - - 9,931
Other   4,771     (1,933 )     1,368       -       4,206
Totals   25,450     (5,019 )     1,386       -       21,817
Total nonperforming assets and troubled debt restructurings $ 92,897     (15,751 )     -       5,332     $ 82,478
 

OTHER THIRD QUARTER 2012 HIGHLIGHTS:
  • Improving Balance Sheet Composition
    • The firm has continued to reposition its deposit base so that average balances for noninterest-bearing demand, interest checking, savings and money market accounts increased to $3.08 billion for the third quarter of 2012 from $2.98 billion for the second quarter of 2012. That represents a growth rate of 3.4 percent on a linked-quarter basis and 13.4 percent annualized. In comparison to the prior year’s third quarter, average balances for noninterest-bearing demand, interest checking, savings and money market accounts increased 30.8 percent, while average balances for higher-cost time deposits decreased 25.4 percent.
    • Average balances for noninterest-bearing demand and interest checking made up 39.7 percent of average total deposits at Sept. 30, 2012, up from 33.4 percent for the quarter ended Sept. 30, 2011.
    • As a result of growing loan demand, the firm has steadily reduced the size of its investment portfolio by $158.0 million since the beginning of 2012, primarily through bond maturities, calls and mortgage-backed securities principal pay-downs.
    • At Sept. 30, 2012, Pinnacle’s ratio of tangible common stockholders’ equity to tangible assets was 9.2 percent, compared to 8.7 percent at June 30, 2012, and 8.2 percent at Sept. 30, 2011.
    • At Sept. 30, 2012, Pinnacle’s total risk-based capital ratio was 13.4 percent, compared to 13.5 percent at June 30, 2012, and 15.9 percent at Sept. 30, 2011.

“We continue to be pleased with the loan growth that occurred during the third quarter and anticipate continued loan growth in the fourth quarter given our current business development pipelines,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “We are also pleased with the double-digit growth in average noninterest bearing deposit accounts, which now make up approximately 21.6 percent of our average deposits.”
  • Revenue growth
    • Net interest income for the quarter ended Sept. 30, 2012, was $40.9 million, compared to $40.2 million in the second quarter of 2012 and $38.4 million for the third quarter of 2011. Net interest income for the third quarter of 2012 was at its highest quarterly level since the firm’s founding in 2000.
    • Noninterest income for the quarter ended Sept. 30, 2012, was $10.4 million, compared to $9.9 million for the second quarter of 2012 and $10.1 million for the same quarter last year. Excluding the impact of net securities gains, noninterest income was up 6.8 percent on a linked-quarter basis.
      • Gains on mortgage loans sold, net of commissions, were $2.0 million during the third quarter of 2012, compared to $1.5 million during the second quarter of 2012 and $1.3 million during the third quarter of 2011.

“Our margin expansion in recent quarters has been largely attributable to reductions in our cost of funds,” Carpenter said. “We have additional opportunities to reduce our funding costs, but the pace of improvement should decrease in future quarters. Declining loan yields are another headwind facing our industry, so we were pleased our third quarter results experienced only a slight decrease on yields.”
  • Noninterest and income tax expense
    • Noninterest expense for the quarter ended Sept. 30, 2012, was $33.6 million, compared to $35.7 million in the third quarter of 2011 and $33.9 million in the second quarter of 2012.
      • Salaries and employee benefits costs increased by 1.2 percent from the second quarter of 2012 and 2.4 percent from the same period last year.
      • Included in noninterest expense for the third quarter of 2012 was $2.4 million in other real estate expenses, compared to $5.1 million in the third quarter of 2011 and $3.1 million in the second quarter of 2012.
    • Income tax expense was $5.0 million for the third quarter of 2012, compared to a benefit of $17.0 million in the third quarter of 2011 and expense of $5.1 million in the second quarter of 2012. The income tax benefit in the third quarter of 2011 was the result of the release of the valuation allowance against our deferred tax assets.

Included in the other real estate expense for the quarter was $1.0 million of additional write downs of existing OREO balances based on updated appraisals. The firm also recorded $933,000 in net losses related to the disposition of $7.4 million of other real estate. Noninterest expense excluding the impact of OREO expenses was approximately $31.2 million in the third quarter of 2012, compared to $30.8 million in the second quarter of 2012 and $30.6 million in the third quarter of 2011.

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