PNFP Reports Diluted EPS of $1.44, ROAA of 1.62% and ROTCE of 18.28% For 3Q 2019

Excluding non-GAAP adjustments, 3Q19 diluted EPS was $1.45, ROAA was 1.62% and ROTCE was 18.31%

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.44 for the quarter ended Sept. 30, 2019, compared to net income per diluted common share of $1.21 for the quarter ended Sept. 30, 2018, an increase of 19.0 percent. Net income per diluted common share was $3.97 for the nine months ended Sept. 30, 2019, compared to net income per diluted common share of $3.41 for the nine months ended Sept. 30, 2018, an increase of 16.4 percent.

Impacting year-to-date results for 2019 were adjustments during the second quarter related to $4.5 million in net losses on the sale of investment securities, a $1.5 million loss from the sale of the non-prime automobile portfolio, $2.4 million of ORE expense related to facilities and land acquired in the BNC acquisition and $3.2 million of non-cash impairment charges related to the proposed consolidation of five offices across the firm's footprint. Excluding these adjustments, as well as merger-related charges in 2018, ORE expense in each period and gains and losses on the sale of investment securities in each period, net income per diluted common share was $4.11 for the nine months ended Sept. 30, 2019, compared to net income per diluted common share of $3.49 for the nine months ended Sept. 30, 2018, a growth rate of 17.8 percent.

"Highlights for the third quarter include double-digit loan and deposit growth, strong hiring throughout our footprint and substantial fee growth, including continued outperformance from BHG," said M. Terry Turner, Pinnacle president and chief executive officer. "We are particularly pleased with our dramatic year-over-year fee growth as we have headed into what appears to be a volatile interest rate environment.

"We continue to produce top-quartile profitability and, more importantly, we continue our focus on earnings per share growth and tangible book value per share accretion, having produced 5-year compounded annual growth rates of 22.6 percent and 16.1 percent, respectively, through the third quarter of 2019. Book value per share has also experienced a 20.6 percent compounded annual growth rate over the same period."

GROWING THE CORE EARNINGS CAPACITY OF THE FIRM:

• Loans at Sept. 30, 2019 were a record $19.3 billion, an increase of $1.9 billion from Sept. 30, 2018, reflecting year-over-year growth of 10.8 percent. Loans at Sept. 30, 2019 increased $531.3 million from June 30, 2019, reflecting a linked-quarter annualized growth rate of 11.3 percent.
  • Average loans were $19.2 billion for the three months ended Sept. 30, 2019, up $605.7 million from $18.6 billion for the three months ended June 30, 2019, a linked-quarter annualized growth rate of 13.0 percent.
  • At Sept. 30, 2019, the remaining discount associated with fair value accounting adjustments on acquired loans was $65.2 million, compared to $75.4 million at June 30, 2019.
• Deposits at Sept. 30, 2019 were $20.0 billion, an increase of $1.6 billion from Sept. 30, 2018, reflecting year-over-year growth of 8.7 percent. Deposits at Sept. 30, 2019 increased $551.3 million from June 30, 2019, reflecting a linked-quarter annualized growth rate of 11.3 percent.
  • Average deposits were $19.8 billion for the three months ended Sept. 30, 2019, compared to $18.9 billion for the three months ended June 30, 2019, a linked-quarter annualized growth rate of 19.4 percent.
  • Core deposits were $17.1 billion at Sept. 30, 2019, compared to $16.1 billion at Sept. 30, 2018 and $16.5 billion at June 30, 2019 a year-over-year growth rate of 6.4 percent and a linked-quarter annualized growth rate of 14.5 percent.
• Revenues for the quarter ended Sept. 30, 2019 were $278.4 million, an increase of $18.8 million from the $259.6 million recognized in the second quarter of 2019, and up $37.5 million from the third quarter of 2018. This represents a year-over-year growth rate of 15.6 percent.
  • Revenue per fully diluted share was $3.64 for the three months ended Sept. 30, 2019, compared to $3.39 for the second quarter of 2019 and $3.11 for the third quarter of 2018.

"We have hired 67 high-profile revenue producers during the first nine months of 2019," Turner said. "It is great to be able to make such a substantial investment in hiring in order to grow the future earnings capacity of our firm while at the same time producing substantial growth in current earnings with enviable profitability metrics versus peers. Our ability to hire the best bankers in our markets contributed to the outstanding loan, deposit and fee growth we experienced in the third quarter.

"Additionally, we continue to invest in compatible businesses that have potential to enhance our growth and profitability. During the quarter, we acquired Advocate Capital, Inc. with approximately $155.4 million in loan balances. We intend to enhance Advocate's existing business model by offering a full suite of commercial banking products to their client base, while focusing on deposit gathering initially. We are excited about this acquisition and look forward to joining forces to grow our combined franchise."

FOCUSING ON PROFITABILITY:

• Return on average assets was 1.62 percent for the third quarter of 2019, compared to 1.55 percent for the second quarter of 2019 and 1.54 percent for the third quarter last year. Third quarter 2019 return on average tangible assets amounted to 1.74 percent, compared to 1.67 percent for the second quarter of 2019 and 1.67 percent for the third quarter of 2018.
  • Excluding the adjustments described above for both 2019 and 2018, return on average assets was 1.62 percent for the third quarter of 2019, compared to 1.69 percent for the second quarter of 2019 and 1.54 percent for the third quarter of 2018. Likewise, excluding those same adjustments, the firm's return on average tangible assets was 1.74 percent for the third quarter of 2019, compared to 1.82 percent for the second quarter of 2019 and 1.67 percent for the third quarter of 2018.
• Return on average common equity for the third quarter of 2019 amounted to 10.28 percent, compared to 9.77 percent for the second quarter of 2019 and 9.60 percent for the third quarter of 2018. Third quarter 2019 return on average tangible common equity amounted to 18.28 percent, compared to 17.74 percent for the second quarter of 2019 and 18.44 percent for the third quarter of 2018.
  • Excluding the adjustments described above for both 2019 and 2018, return on average tangible common equity amounted to 18.31 percent for the third quarter of 2019, compared to 19.28 percent for the second quarter of 2019 and 18.44 percent for the third quarter of 2018.

"Earlier in the year, we began discussing with our relationship managers various strategies to reduce our deposit rates should short-term interest rates decline and, thus far, we feel like we've been very successful in executing our strategies," said Harold R. Carpenter, Pinnacle's chief financial officer. "I am pleased to report that our end-of-period deposit rates decreased by 0.11 percent between June 30, 2019 and September 30, 2019 inclusive of our interest-bearing checking and money market categories, which decreased by 0.17 percent during the same time period. Given prospects for further rate decreases, we expect to have ongoing conversations with our depositors regarding the value of money. We believe, even though we are all in a difficult operating environment, that we are advantaged as we look to reduce our deposit rates further by the depth of our client relationships.

"BHG reported another remarkable quarter. Their business model has been continually refined and is operating at high levels of efficiency and producing extraordinary results. As BHG's management team mentioned in their recent analyst day in New York, we believe BHG will begin to reposition its balance sheet in the fourth quarter to rely less on gains on sale by opting to keep more loans on its balance sheet. We believe this will be an effective strategy for BHG over the longer term as its balance sheet should provide it with more consistent and predictable interest income than might otherwise be the case from a more volatile gain on sale revenue model."

MAINTAINING A FORTRESS BALANCE SHEET:

• Net charge-offs were $4.9 million for the quarter ended Sept. 30, 2019, compared to $4.1 million for the quarter ended June 30, 2019 and $4.4 million for the quarter ended Sept. 30, 2018. Annualized net charge-offs as a percentage of average loans for the quarter ended Sept. 30, 2019 were 0.10 percent, compared to 0.09 percent for the quarter ended June 30, 2019 and 0.10 percent for the third quarter of 2018.
• Nonperforming assets decreased to 0.53 percent of total loans and ORE at Sept. 30, 2019, compared to 0.55 percent at each of June 30, 2019 and Sept. 30, 2018. Nonperforming assets were $103.3 million at Sept. 30, 2019, compared to $102.7 million at June 30, 2019 and $95.6 million at Sept. 30, 2018.
• The classified asset ratio at Sept. 30, 2019 was 13.5 percent, compared to 13.9 percent at June 30, 2019 and 13.7 percent at Sept. 30, 2018. Classified assets were $363.2 million at Sept. 30, 2019, compared to $337.8 million at June 30, 2019 and $304.1 million at Sept. 30, 2018.
• The allowance for loan losses represented 0.48 percent of total loans at Sept. 30, 2019, compared to 0.48 percent at June 30, 2019 and 0.46 percent at Sept. 30, 2018.
  • The ratio of the allowance for loan losses to nonperforming loans increased to 127.8 percent at Sept. 30, 2019, from 118.6 percent at June 30, 2019 and 102.7 percent at Sept. 30, 2018. At Sept. 30, 2019, purchased credit impaired loans of $6.6 million, which were recorded at fair value upon acquisition, represented 8.9 percent of the firm's nonperforming loans.
  • Provision for loan losses was $8.3 million in the third quarter of 2019, compared to $7.2 million in the second quarter of 2019 and $8.7 million in the third quarter of 2018.

"Asset quality continues to be a highlight for our firm," Carpenter said. "Net charge-offs, nonperforming assets and classified assets remain low. We also saw improvement in the nonperforming asset and classified asset ratios this quarter when compared to last quarter."

GROWING REVENUES

• Net interest income for the quarter ended Sept. 30, 2019 was $195.8 million, compared to $188.9 million for the second quarter of 2019 and $189.4 million for the third quarter of 2018, a year-over-year growth rate of 3.4 percent. Net interest margin was 3.43 percent for the third quarter of 2019, compared to 3.48 percent for the second quarter of 2019 and 3.65 percent for the third quarter of 2018.
  • Included in net interest income for the third quarter of 2019 was $11.1 million of discount accretion associated with fair value adjustments, compared to $8.9 million of similar discount accretion recognized in the second quarter of 2019 and $17.1 million in the third quarter of 2018.
• Noninterest income for the quarter ended Sept. 30, 2019 was $82.6 million, compared to $70.7 million for the second quarter of 2019 and $51.5 million for the third quarter of 2018, a year-over-year growth rate of 60.5 percent.
  • Wealth management revenues, which include investment, trust and insurance services, were $12.1 million for the quarter ended Sept. 30, 2019, compared to $11.5 million for the second quarter of 2019 and $10.7 million for the third quarter of 2018, a year-over-year increase of 13.6 percent.
  • Income from the firm's investment in BHG was $32.2 million for the quarter ended Sept. 30, 2019, compared to $32.3 million for the quarter ended June 30, 2019 and $14.2 million for the quarter ended Sept. 30, 2018.
  • Other noninterest income was $20.2 million for the quarter ended Sept. 30, 2019, compared to $16.5 million for the quarter ended June 30, 2019 and $12.7 million for the quarter ended Sept. 30, 2018, a year-over-year increase of 59.5 percent. Contributing to the increase were increased credit card interchange fees, SBA loan fees and the firm's client interest rate swap programs.

"Our net interest margin decreased by 0.05 percent in the third quarter from the second quarter, primarily due to reduced yields on our securities portfolio as well as increased balance sheet liquidity," Carpenter said. "Our loan yields remained consistent during the third quarter aided by additional purchase accounting accretion income and higher yielding loans resulting from the addition of the Advocate Capital portfolio. Our funding costs for the third quarter amounted to 1.40 percent on an annualized basis, which was down 0.03 percent from the second quarter's annualized amount. Specifically, we are most encouraged with the trends in our deposit rates as we experienced a peak in those rates in July followed by two months of deposit rate decreases primarily due to the hard work of our relationship managers."

OTHER HIGHLIGHTS

• The efficiency ratio for the third quarter of 2019 decreased on a linked-quarter basis to 47.75 percent, compared to 49.19 percent for the second quarter of 2019 and 47.32 percent in the third quarter of 2018. The ratio of noninterest expenses to average assets was 1.94 percent for the third quarter of 2019 compared to 1.98 percent in the second quarter of 2019 and 1.87 percent in the third quarter of 2018.
  • Excluding the adjustments noted elsewhere in this release for both 2019 and 2018, the efficiency ratio was 47.58 percent for the third quarter of 2019, compared to 45.92 percent for the second quarter of 2019 and 47.29 percent for the third quarter of 2018. Excluding the above described impairment charge, ORE expense and merger-related charges, the ratio of noninterest expense to average assets was 1.93 percent for the third quarter of 2019, compared to 1.89 percent for the second quarter of 2019 and 1.87 percent for the second quarter of 2018.
• Noninterest expense for the quarter ended Sept. 30, 2019 was $132.9 million, compared to $127.7 million in the second quarter of 2019 and $114.0 million in the third quarter of 2018, reflecting a year-over-year increase of 16.6 percent. Excluding ORE expenses and merger-related charges for the relevant periods as described above, noninterest expense increased 16.1 percent over the third quarter of 2018.
  • Salaries and employee benefits were $85.9 million in the third quarter of 2019, compared to $75.6 million in the second quarter of 2019 and $69.1 million in the third quarter of 2018, reflecting a year-over-year increase of 24.3 percent.
    • Included in salaries and employee benefits are costs related to the firm's annual cash incentive plan. Incentive costs for this plan amounted to $18.5 million in the third quarter of 2019, compared to $11.0 million in the second quarter of 2019 and $10.0 million in the third quarter of last year.
• The effective tax rate for the third quarter of 2019 was 19.5 percent, compared to 19.6 percent for the second quarter of 2019 and 20.7 percent for the third quarter of 2018.
• During the third quarter of 2019, the firm acquired 199,032 shares of its common stock in open market transactions pursuant to its previously announced share repurchase program, at an average price of $55.57.
• On Sept. 11, 2019, Pinnacle completed its public offering of $300.0 million aggregate principal amount of 4.125 percent fixed-to-floating rate subordinated notes due 2029.

"We are pleased with our operating metrics for the third quarter," Carpenter said. "In the second quarter, we incurred certain costs related to our branch consolidation efforts, including the write down of certain other assets to better position these assets for disposition. We anticipate the office closures to be finalized in the fourth quarter, while several of the other assets are under contract. Additionally, our performance in the third quarter allowed us to increase our 2019 expected incentive payout resulting in an increase of $7.5 million in third quarter incentive costs over the amount recorded in the second quarter. We anticipate that incentive costs for the fourth quarter of 2019 will be less than those recorded in the third quarter and more consistent with the amounts reported in the second quarter of 2019."

BOARD OF DIRECTORS DECLARES DIVIDEND AND NEW SHARE REPURCHASE AUTHORIZATION

On Oct. 15, 2019, Pinnacle's Board of Directors approved a quarterly cash dividend of $0.16 per common share to be paid on Nov. 29, 2019 to common shareholders of record as of the close of business on Nov. 1, 2019. The amount and timing of any future dividend payments to common shareholders will be subject to the discretion of Pinnacle's Board of Directors. The Board of Directors also approved a new share repurchase authorization for an additional $100 million to be available for the repurchase of the firm's common stock in open market transactions upon the completion of Pinnacle's currently authorized and previously disclosed repurchase program and through Dec. 31, 2020.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. (CDT) on October 16, 2019 to discuss third quarter 2019 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 is the No. 1 bank in the Nashville-Murfreesboro-Franklin MSA, according to 2019 deposit data from the FDIC. Pinnacle earned a spot on FORTUNE's 2019 lists of the 100 Best Companies to Work For^® in the U.S., its third consecutive appearance. American Banker recognized Pinnacle as one of America's Best Banks to Work For seven years in a row.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $27.5 billion in assets as of Sept. 30, 2019. 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 of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "expect," "anticipate," "intend," "may," "should," "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 of Pinnacle Bank or BHG resulting in significant increases in loan losses and provisions for those losses or, in the case of BHG, substitutions; (ii) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, including during times when Pinnacle Bank is seeking to lower rates it pays on deposits; (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) the impact of competition with other financial institutions, including pricing pressures and the resulting impact on Pinnacle Financial's results, including as a result of compression to net interest margin; (vii) 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) fluctuations or differences in interest rates on loans or deposits from those that Pinnacle Financial is modeling or anticipating, including as a result of Pinnacle Bank's inability to lower deposit rates with the speed and at the levels desired in connection with the declining short-term rate environment currently contemplated, or that affect the yield curve; (ix) the results of regulatory examinations; (x) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xi) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xii) BHG's ability to profitably grow its business and successfully execute on its business plans; (xiii) risks of expansion into new geographic or product markets; (xiv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or the intangible assets; (xv) 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 (including as a result of the competitive environment for associates) or otherwise to attract customers from other financial institutions; (xvi) the ability of Pinnacle Financial to implement its branch consolidation strategy on the timelines, and at the costs, presently contemplated; (xvii) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xviii) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels or regulatory requests or directives, particularly if Pinnacle Financial's level of applicable commercial real estate loans were to exceed percentage levels of total capital in guidelines recommended by its regulators; (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, and the systems of parties with whom Pinnacle Financial contracts, 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 and operational costs as a result of increased regulatory oversight (including by the Consumer Financial Protection Bureau), 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 Pinnacle Financial or Pinnacle Bank; (xxiii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxiv) risks associated with the possible shutdown of the United States federal government, including adverse effects on the national or local economies and adverse effects resulting from a shutdown of the U.S. Small Business Administration's SBA loan program; (xxv) the availability of and access to capital; (xxvi) adverse results (including costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions; and (xxvii) 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, earnings per diluted share, efficiency ratio and the ratio of noninterest expense to average assets, excluding in certain instances the impact of expenses related to other real estate owned, gains or losses on sale of investment securities, the charges associated with Pinnacle Financial's branch consolidation project, the sale of the remaining portion of Pinnacle Bank's non-prime automobile portfolio, the revaluation of Pinnacle Financial's deferred tax assets and other matters for the accounting periods presented. This release also includes non-GAAP financial measures which exclude expenses associated with Pinnacle Bank's merger with BNC. This release may also contain certain other non-GAAP capital ratios and performance measures that exclude the impact of goodwill and core deposit intangibles associated with Pinnacle Financial's acquisitions of BNC, Avenue Bank, Magna Bank, CapitalMark Bank & Trust, Mid-America Bancshares, Inc., Cavalry Bancorp, Inc. 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 2019 versus certain periods in 2018 and to internally prepared projection.