PNFP Reports Diluted Earnings Per Share of $0.80 for 2Q 2017

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $0.80 for the quarter ended June 30, 2017, compared to net income per diluted common share of $0.73 for the quarter ended June 30, 2016, an increase of 9.6 percent. Net income per diluted common share was $1.62 for the six months ended June 30, 2017, compared to net income per diluted common share of $1.42 for the six months ended June 30, 2016, an increase of 14.1 percent.

Excluding pre-tax merger-related charges of $3.2 million and $3.9 million for the three and six months ended June 30, 2017, net income per diluted common share was $0.84 and $1.67, respectively, compared to $0.75 and $1.46 for the three and six months ended June 30, 2016, excluding merger-related charges, or an increase of 12.0 percent and 14.4 percent, respectively.

"Second quarter results continued to show very strong growth momentum," said M. Terry Turner, Pinnacle's president and chief executive officer. "Obviously, the most significant event impacting current and ongoing growth potential was the closing of our merger with BNC Bancorp on June 16, 2017. We are well underway in executing our integration process in terms of brand, technology and, more importantly, culture.

"Additionally, even in the midst of our merger and integration effort, during the second quarter we experienced significant organic loan growth in the legacy Tennessee franchise as well as the BNC franchise. In the Tennessee franchise, net loans increased $478 million during the second quarter, representing an annualized linked-quarter organic growth rate of 22.1 percent. Excluding the impact of fair value accounting, in the former BNC footprint net loans increased $190 million, representing an annualized organic growth rate of 16.4 percent."

GROWING THE CORE EARNINGS CAPACITY OF THE FIRM:

• Revenues for the quarter ended June 30, 2017 were $141.7 million, an increase of $33.9 million, or 31.5 percent, from the quarter ended June 30, 2016.
• Loans at June 30, 2017 were a record $14.76 billion, an increase of $6.12 billion from March 31, 2017 and $7.67 billion from June 30, 2016, reflecting year-over-year growth of 108.1 percent. Net loan growth included $5.64 billion attributable to the BNC acquisition, net of preliminary fair value accounting.
• Deposits at June 30, 2017 were a record $15.76 billion, an increase of $6.48 billion from March 31, 2017 and $8.47 billion from June 30, 2016, reflecting year-over-year growth of 116.1 percent. Deposit growth included $6.14 billion attributable to the BNC acquisition. Excluding the acquired BNC deposits, annualized linked-quarter deposit growth for the legacy Pinnacle franchise approximated 14.0 percent when comparing balances as of June 30, 2017 to balances as of March 31, 2017.

"We are very proud of our associates who have continued to take market share in both the legacy Pinnacle and BNC footprints, contributing to our outstanding organic loan growth of approximately $668 million in the second quarter of 2017," Turner said. "We continue to hire revenue producers throughout the franchise, but importantly we are off to a great start in terms of hiring in the Carolinas and Virginia. Even with much organizational change, Rick Callicutt and his team added 14 revenue producers to their ranks during the first six months of 2017 and have many exciting recruiting opportunities on the horizon. Execution of our hiring plan has long been our principal strategic advantage and should be the key to our future growth plans as we build out our C&I platform in these very attractive banking markets in the Carolinas and Virginia."

FOCUSING ON PROFITABILITY:

• Revenue per fully-diluted share was a record $2.64 for the quarter ended June 30, 2017, compared to $2.46 for the first quarter of 2017 and $2.57 for the second quarter of 2016.

• Net interest margin was 3.68 percent for the second quarter of 2017, compared to 3.60 percent for the first quarter of 2017 and 3.72 percent for the same quarter last year.
  • Excluding the accretion from the application of fair value accounting for net loans acquired in previous mergers, the net interest margin in each respective period would have approximated 3.45 percent for the second quarter of 2017, compared to 3.39 percent and 3.50 percent for the first quarter of 2017 and the second quarter of 2016, respectively.
• Return on average assets was 1.30 percent for the second quarter of 2017, compared to 1.41 percent for the first quarter of 2017 and 1.33 percent for the same quarter last year. Second quarter 2017 return on average tangible assets amounted to 1.38 percent, compared to 1.47 percent for the first quarter of 2017 and 1.39 percent for the same quarter last year.
  • Excluding merger-related charges in each respective period, return on average assets was 1.35 percent for the second quarter of 2017, compared to 1.42 percent for the first quarter of 2017 and 1.36 percent the second quarter of 2016, respectively. Excluding merger-related charges in each respective period, return on average tangible assets was 1.44 percent for the second quarter of 2017, compared to 1.48 percent for the first quarter of 2017 and 1.42 percent the second quarter of 2016, respectively.
• Return on average equity for the second quarter of 2017 amounted to 8.40 percent, compared to 9.70 percent for the first quarter of 2017 and 9.92 percent for the same quarter last year. Second quarter 2017 return on average tangible equity amounted to 13.58 percent, compared to 14.74 percent for the first quarter of 2017 and 15.34 percent for the same quarter last year.
  • Excluding merger-related charges in each respective period, return on average tangible equity amounted to 14.19 percent for the second quarter of 2017, compared to 14.89 percent for the first quarter of 2017 and 15.64 percent for the second quarter of 2016.

"We continue to operate our firm at a high level of profitability and are pleased with our second quarter metrics," said Harold R. Carpenter, Pinnacle's chief financial officer. "With recent rate hikes and continued outsized loan growth, we are pleased that our core net interest margin experienced a 6 basis point increase over the last quarter. During the second quarter of 2017, accretion from fair value adjustments contributed approximately $6.4 million to our net interest income, compared to $5.0 million during the first quarter of 2017. Approximately $2.8 million of our accretion income was attributable to the BNC acquisition. At June 30, 2017, we had an estimated $172.7 million of remaining discount for the acquired BNC loans and $23.5 million of remaining discount related to the acquired loans from previous mergers.

"We believe that as our integration plans are achieved and with the full deployment of our merger synergy case, our profitability metrics will continue to improve over the next several quarters."

OTHER HIGHLIGHTS:

• Revenues
  • Net interest income for the quarter ended June 30, 2017 was $106.6 million, compared to $88.8 million for the first quarter of 2017 and $75.0 million for the second quarter of 2016. Included in the second quarter 2017 net interest income was $12.4 million generated by the BNC franchise following the closing of the merger. Excluding that amount, the legacy Pinnacle franchise experienced a $5.5 million increase in net interest income between the first and second quarters of 2017, or 24.6 percent linked-quarter annualized growth.
  • Noninterest income for the quarter ended June 30, 2017 was $35.1 million, compared to $30.4 million for the first quarter of 2017 and $32.7 million for the second quarter of 2016. Included in the second quarter 2017 noninterest income was $1.7 million generated by BNC. Excluding that amount, the legacy Pinnacle franchise experienced a 38.8 percent annualized linked-quarter increase in noninterest income between the first and second quarters of 2017.
    • Net gains from the sale of residential mortgage loans were $4.7 million for the quarter ended June 30, 2017, compared to $4.2 million for both the first quarter of 2017 and the quarter ended June 30, 2016, resulting in a year-over-year growth rate of 10.6 percent.
    • Wealth management revenues, which include investment, trust and insurance services, were $6.2 million for the quarter ended June 30, 2017, compared to $6.4 million for the first quarter of 2017 and $5.2 million for the quarter ended June 30, 2016, resulting in a year-over-year growth rate of 20.5 percent.
    • Income from the firm's investment in Bankers Healthcare Group, Inc. (BHG) was $8.75 million for the quarter ended June 30, 2017, compared to $7.82 million for the quarter ended March 31, 2017 and $9.64 million for the second quarter last year.

"The second quarter of 2017 was a strong revenue quarter for our firm," Carpenter said. "Not only did we experience the impact of the mid-June merger with BNC, but we also began to experience lift in net interest income attributable to recent rate increases. Loan yields amounted to 4.66 percent during the second quarter, which was inclusive of 26 basis points of accretion income. This compares to loan yields of 4.49 percent in the first quarter of 2017, which included 23 basis points of accretion income.

"Income from our equity method investment in BHG resulted in revenues increasing by $932,000 between the first and second quarter of 2017, or 47.7 percent annualized linked-quarter growth. Second quarter 2017 revenues from BHG represent the second highest revenue quarter we’ve experienced since our partnership with BHG began in the first quarter of 2015. We remain very optimistic about BHG and anticipate continued growth for the remainder of this year."

• Noninterest expense
  • Noninterest expense for the quarter ended June 30, 2017 was $71.8 million, compared to $62.1 million in the first quarter of 2017 and $55.9 million in the second quarter last year. Included in second quarter noninterest expense was $6.7 million of noninterest expense attributable to the BNC franchise's operations following the closing of the merger. The legacy Pinnacle franchise experienced a $3.0 million increase in noninterest expense between the first and second quarter of 2017, including $822,000 of increased merger-related charges.
    • Salaries and employee benefits were $43.7 million in the second quarter of 2017, compared to $38.4 million in the first quarter of 2017 and $34.3 million in the second quarter of last year, reflecting a year-over-year increase of 27.5 percent.
    • The efficiency ratio for the second quarter of 2017 decreased to 50.7 percent, compared to 52.1 percent for the first quarter of 2017. The ratio of noninterest expenses to average assets decreased to 2.16 percent for the second quarter of 2017 from 2.20 percent in the first quarter of 2017.
      • Excluding merger-related charges and other real estate owned (ORE) expense, the efficiency ratio was 48.4 percent for the second quarter of 2017, compared to 51.3 percent for the first quarter of 2017, and the ratio of noninterest expense to average assets was 2.06 percent, compared to 2.17 percent between the second quarter of 2017 and the first quarter of 2017, respectively.

"Due to our recent mergers as well as our continued rapid organic growth, we continue to believe that we have enhanced operating leverage available to us over the next several quarters," Carpenter said. "Excluding merger-related charges, we believe we will be able to maintain our expense base within or better than our current long-term targeted range. Our technology conversion plan is to convert the legacy Pinnacle systems to the BNC platform in November 2017, followed by combining the legacy BNC and PNFP data files in early first quarter 2018, which we believe will contribute to realization of our synergy case in early 2018. Our original target of annualized expense reduction in 2018 of slightly more than $40.0 million for the former BNC franchise appears intact at this time."

• Asset quality
  • Nonperforming assets increased to 0.44 percent of total loans and ORE at June 30, 2017, compared to 0.36 percent at March 31, 2017 and 0.55 percent at June 30, 2016. Nonperforming assets increased to $65.4 million at June 30, 2017, compared to $31.3 million at March 31, 2017 and $39.0 million at June 30, 2016. Approximately $37.3 million of nonperforming assets were added in conjunction with the BNC merger.
  • The allowance for loan losses represented 0.42 percent of total loans at June 30, 2017, compared to 0.68 percent at March 31, 2017 and 0.87 percent at June 30, 2016. The impact of the application of purchase accounting to BNC's loan balances, which were recorded at fair value upon acquisition, resulted in a year-over-year reduction to the firm's ratio of allowance for loan losses to total loans of approximately 0.25 percent as of June 30, 2016.
    • The ratio of the allowance for loan losses to nonperforming loans was 154.0 percent at June 30, 2017, compared to 232.9 percent at March 31, 2017 and 181.8 percent at June 30, 2016.
    • Net charge-offs were $7.5 million for the quarter ended June 30, 2017, compared to $4.3 million for the quarter ended March 31, 2017 and $6.1 million for the quarter ended June 30, 2016. Annualized net charge-offs as a percentage of average loans for the quarter ended June 30, 2017 were 0.17 percent, compared to 0.20 percent for the first quarter of 2017 and 0.35 percent for the second quarter of 2016.
    • Provision for loan losses was $6.8 million in the second quarter of 2017, compared to $3.7 million in the first quarter of 2017 and $5.3 million in the second quarter of 2016.

"Overall, asset quality for our firm remains exceptional," Carpenter said. "During the second quarter, we continued to reduce our investment in non-prime consumer auto loans. Net charge-offs from the non-prime consumer auto portfolio were $1.9 million during the second quarter of 2017, compared to $2.2 million of net charge-offs in the first quarter of 2017. We have reduced portfolio balances in this portfolio from $66.9 million at Dec. 31, 2015 to $18.0 million at June 30, 2017 and anticipate continued reductions in this portfolio as we exit this business over the next several quarters."

• Other Highlights
  • The firm incurred pre-tax merger-related charges of $3.2 million during the second quarter of 2017, primarily attributable to settlement of employment contracts, workforce engagement charges and other matters related to the merger with BNC. The firm expects to continue to incur charges associated with the BNC acquisition for the next several quarters.
  • On Jan. 1, 2017, Pinnacle adopted FASB Accounting Standards Update (ASU) 2016-09, Stock Compensation Improvements to Employee Share-Based Payment Activity, which represented a change in accounting for the tax effects related to vesting of common shares and the exercise of stock options previously granted to the firm's employees through its various equity compensation plans. This change resulted in a reduction in second quarter 2017 tax expense of $789,000, compared to a reduction in tax expense of $3.8 million in the first quarter of 2017.

BOARD OF DIRECTORS DECLARES DIVIDEND

On July 18, 2017, Pinnacle’s Board of Directors approved a quarterly cash dividend of $0.14 per common share to be paid on Aug. 25, 2017 to common shareholders of record as of the close of business on Aug. 4, 2017. The amount and timing of any future dividend payments to common shareholders will be subject to the discretion of Pinnacle’s Board of Directors.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. (CDT) on July 19, 2017 to discuss second quarter 2017 results and other matters. To access the call for audio only, please call 1-877-602-7944. For the presentation and streaming audio, please access the webcast on the investor relations page of Pinnacle's website at www.pnfp.com.

For those unable to participate in the webcast, it will be archived on the investor relations page of Pinnacle's website at www.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 earned a place on Fortune's 2017 list of the 100 Best Companies to Work For in the U.S., and American Banker recognized Pinnacle as the sixth best bank to work for in the country in 2016.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $20.9 billion in assets as of June 30, 2017. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in 11 primarily urban markets in Tennessee, the Carolinas and Virginia.

Additional information concerning Pinnacle, which is included in the NASDAQ Financial-100 Index, can be accessed at www.pnfp.com.

Forward-Looking Statements

All statements, other than statements of historical fact, included in this press release, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Exchange Act. The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; (ii) continuation of the historically low short-term interest rate environment; (iii) the inability of Pinnacle Financial, or entities in which it has significant investments, like BHG, to maintain the historical growth rate of its, or such entities', loan portfolio; (iv) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (v) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (vi) increased competition with other financial institutions; (vii) greater than anticipated adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina and Virginia, particularly in commercial and residential real estate markets; (viii) rapid fluctuations or unanticipated changes in interest rates on loans or deposits; (ix) the results of regulatory examinations; (x) the ability to retain large, uninsured deposits; (xi) a merger or acquisition, like Pinnacle Financial's merger with BNC; (xii) risks of expansion into new geographic or product markets; (xiii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xiv) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Bank), to retain financial advisors or otherwise to attract customers from other financial institutions; (xv) further deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvi) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels; (xvii) risks associated with litigation, including the applicability of insurance coverage; (xviii) the risk of successful integration of the businesses Pinnacle Financial has recently acquired with its business; (xix) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xx) the vulnerability of Pinnacle Bank's network and online banking portals to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xxi) the possibility of increased compliance costs as a result of increased regulatory oversight, including oversight of companies in which Pinnacle Financial or Pinnacle Bank have significant investments, like BHG, and the development of additional banking products for Pinnacle Bank's corporate and consumer clients; (xxii) the risks associated with Pinnacle Financial and Pinnacle Bank being a minority investor in BHG, including the risk that the owners of a majority of the equity interests in BHG decide to sell the company if not prohibited from doing so by the terms of our agreement with them; (xxiii) the possibility that the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets will exceed current estimates; (xxiv) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxv) the risk that the cost savings and any revenue synergies from Pinnacle Financial's merger with BNC may not be realized or take longer than anticipated to be realized; (xxvi) disruption from Pinnacle Financial's merger with BNC with customers, suppliers, employee or other business partners relationships; (xxvii) the risk of successful integration of Pinnacle Financial's and BNC's businesses; (xxviii) the amount of the costs, fees, expenses and charges related to Pinnacle Financial's merger with BNC; (xxix) reputational risk and the reaction of the parties' customers, suppliers, employees or other business partners to Pinnacle Financial's merger with BNC; (xxx) the risk that the integration of Pinnacle Financial's and BNC's operations will be materially delayed or will be more costly or difficult than expected; (xxxi) the dilution caused by Pinnacle Financial's issuance of additional shares of its common stock in its merger with BNC; and (xxxii) general competitive, economic, political and market conditions. Additional factors which could affect the forward looking statements can be found in Pinnacle Financial's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the SEC and available on the SEC's website at http://www.sec.gov. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Matters

This release contains certain non-GAAP financial measures, including, without limitation, net income, earnings per diluted share, efficiency ratio, core net interest margin, noninterest expense and the ratio of noninterest expense to average assets and noninterest expense to the sum of net interest income and noninterest income, in each case excluding the impact of expenses related to other real estate owned, gains or losses on sale of investments and other matters for the accounting periods presented. This release also includes non-GAAP financial measures which exclude expenses associated with Pinnacle Bank's mergers with CapitalMark Bank & Trust, Magna Bank, Avenue Financial Holdings, Inc. and BNC, as well as Pinnacle Financial's and its bank subsidiary's investments in BHG. This release may also contain certain other non-GAAP capital ratios and performance measures. These non-GAAP financial measures exclude the impact of goodwill and core deposit intangibles associated with Pinnacle Financial's acquisitions of BNC, which Pinnacle Financial acquired on June 16, 2017, Avenue, which Pinnacle Financial acquired on July 1, 2016, Magna Bank which Pinnacle Bank acquired on September 1, 2015, CapitalMark Bank & Trust which Pinnacle Bank acquired on July 31, 2015, Mid-America Bancshares, Inc. which Pinnacle Financial acquired on November 30, 2007, Cavalry Bancorp, Inc., which Pinnacle Financial acquired on March 15, 2006 and other acquisitions which collectively are less material to the non-GAAP measure. The presentation of the non-GAAP financial information is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. Because non-GAAP financial measures presented in this release are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies.

Pinnacle Financial believes that these non-GAAP financial measures facilitate making period-to-period comparisons and are meaningful indications of its operating performance. In addition, because intangible assets such as goodwill and the core deposit intangible, and the other items excluded each vary extensively from company to company, Pinnacle Financial believes that the presentation of this information allows investors to more easily compare Pinnacle Financial's results to the results of other companies. Pinnacle Financial's management utilizes this non-GAAP financial information to compare Pinnacle Financial's operating performance for 2017 versus certain periods in 2016 and to internally prepared projections.