PNFP Reports Diluted EPS of $0.83, ROAA of 0.77% and ROTCE of 9.77% For 2Q 2020

 Strong balance sheet with elevated capital and liquidity and sound asset quality metrics

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $0.83 for the quarter ended June 30, 2020, compared to net income per diluted common share of $1.31 for the quarter ended June 30, 2019, a decrease of 36.6 percent. Excluding gains and losses on the sale of investment securities and ORE expense for the three months ended June 30, 2020 and 2019, FHLB restructuring charges for the three months ended June 30, 2020, and branch rationalization charges and a loss from the sale of Pinnacle Bank's non-prime automobile portfolio for the three months ended June 30, 2019, net income per diluted common share was $0.89 in 2020, compared to $1.42 in 2019, a year-over-year decrease of 37.3 percent.

Net income per diluted common share was $1.20 for the six months ended June 30, 2020, compared to net income per diluted common share of $2.53 for the six months ended June 30, 2019, a decrease of 52.6 percent. Excluding gains and losses on the sale of investment securities and ORE expense for the six months ended June 30, 2020 and 2019, FHLB restructuring charges for the six months ended June 30, 2020 and branch rationalization charges and a loss from the sale of Pinnacle Bank's non-prime automobile portfolio for the six months ended June 30, 2019, net income per diluted common share was $1.28 in 2020, compared to $2.66 in 2019, a year-over-year decrease of 51.9 percent.

"Those that perform best through any economic cycle are the ones who are willing and able to quickly adapt to both temporary shifts and permanent change," said M. Terry Turner, Pinnacle's president and chief executive officer. "So for us, in the second quarter, we continued our intense focus on protecting our associates, clients, communities and shareholders from a rapidly progressing COVID-19 pandemic. In conjunction with the value we place on our long-term banking relationships, during the first and second quarters we granted payment deferrals on approximately $4.4 billion in loans and issued $2.2 billion in PPP loans to borrowers affected by the pandemic. We also fortified our balance sheet with additional liquidity and capital and began a diligent review of those borrowers we believe to be most impacted by the pandemic. As the second quarter evolved, we gathered an immense amount of borrower information through one-on-one discussions, organized surveys, industry data and other methods. This information, along with strong asset quality metrics, provides us a great deal of confidence about our portfolio's ability to better weather the impact of the pandemic and reconfirms the client selection processes we have deployed over these many years. As we enter the third quarter of 2020, our firm is looking forward to capitalizing on the opportunities that lie ahead for our franchise post-COVID-19."

BALANCE SHEET GROWTH:

• Loans at June 30, 2020 were $22.5 billion, an increase of $3.7 billion from June 30, 2019, reflecting year-over-year growth of 19.7 percent. Loans at June 30, 2020 increased $2.1 billion from March 31, 2020, reflecting a linked-quarter annualized growth rate of 41.6 percent. Contributing to the increased loan volumes at June 30, 2020 were $2.2 billion of loans issued through the Small Business Administration's (SBA's) Paycheck Protection Program (PPP) during the second quarter of 2020. The average yield on these loans, inclusive of $7.5 million of loan fee accretion recognized in the quarter, was 2.89 percent for the second quarter of 2020.
  • Average loans were $22.3 billion for the three months ended June 30, 2020, up $2.3 billion from $20.0 billion for the three months ended March 31, 2020, a linked-quarter annualized growth rate of 44.9 percent.
  • At June 30, 2020, the remaining discount associated with fair value accounting adjustments on acquired loans was $38.0 million, compared to $43.9 million at March 31, 2020.
  • At June 30, 2020, there were $68.7 million in SBA PPP loan fees remaining, which should be accreted into net interest income over the next two years as these loans are paid by borrowers or are forgiven under the PPP.

• Deposits at June 30, 2020 were a record $25.5 billion, an increase of $6.1 billion from June 30, 2019, reflecting year-over-year growth of 31.2 percent. Deposits at June 30, 2020 increased $4.2 billion from March 31, 2020, reflecting a linked-quarter annualized growth rate of 78.5 percent.
  • Average deposits were $24.8 billion for the three months ended June 30, 2020, compared to $20.7 billion for the three months ended March 31, 2020, a linked-quarter annualized growth rate of 79.8 percent.
  • Core deposits were $21.4 billion at June 30, 2020, compared to $16.5 billion at June 30, 2019 and $18.6 billion at March 31, 2020. The linked-quarter annualized growth rate of core deposits in the second quarter of 2020 was 59.9 percent.

"Traditionally, our firm has produced outsized growth predicated on our unique ability to attract great bankers to our firm," Turner said. "While we have pulled back on our recruiting to some extent, for the first six months of 2020, we've still attracted 56 revenue producers to our firm in 2020. And although we intend to hire fewer new associates than originally planned for 2020, we expect that the revenue producers we hire this year, combined with those hired over the last two years, should enable us to produce balance sheet growth beyond current levels of market demand.

"Obviously, the Paycheck Protection Program had a significant impact on our second quarter results. Although it is difficult to measure precisely the level of increased deposits that came to us from the PPP, our research indicates that our PPP borrowers increased their deposit balances with our firm by roughly $1.7 billion between March 31, 2020 and June 30, 2020, or approximately 61 percent of our linked-quarter core deposit growth of $2.8 billion."

PROFITABILITY:

• Return on average assets was 0.77 percent for the second quarter of 2020, compared to 0.40 percent for the first quarter of 2020 and 1.55 percent for the second quarter of 2019. Second quarter 2020 return on average tangible assets amounted to 0.81 percent, compared to 0.43 percent for the first quarter of 2020 and 1.67 percent for the second quarter of 2019.
  • Excluding the adjustments described above for both 2020 and 2019, return on average assets was 0.82 percent for the second quarter of 2020, compared to 0.42 percent for the first quarter of 2020 and 1.69 percent for the second quarter of 2019. Likewise, excluding those same adjustments, the firm's return on average tangible assets was 0.87 percent for the second quarter of 2020, compared to 0.45 percent for the first quarter of 2020 and 1.82 percent for the second quarter of 2019.

• Return on average equity for the second quarter of 2020 amounted to 5.58 percent, compared to 2.58 percent for the first quarter of 2020 and 9.77 percent for the second quarter of 2019. Excluding preferred stockholders' equity for the three months ended June 30, 2020, return on average common equity for the second quarter of 2020 amounted to 5.66 percent, compared to 2.58 percent for the first quarter of 2020 and 9.77 percent for the second quarter of 2019. Second quarter 2020 return on average tangible common equity amounted to 9.77 percent, compared to 4.48 percent for the first quarter of 2020 and 17.74 percent for the second quarter of 2019.
  • Excluding the adjustments described above for both 2020 and 2019, return on average tangible common equity amounted to 10.45 percent for the second quarter of 2020, compared to 4.71 percent for the first quarter of 2020 and 19.28 percent for the second quarter of 2019.

"Profitability metrics were again significantly influenced by COVID-19," said Harold R. Carpenter, Pinnacle's chief financial officer. "As anticipated the reserve build of approximately $68 million was less than the first quarter. Nevertheless, the elevated provision was primarily due to higher than anticipated current unemployment metrics and qualitative overlays as a result of the uncertainty that exists in our markets. Additionally, exclusive of PPP loans, our loan portfolio decreased by $99.2 million when comparing June 30, 2020 to March 31, 2020, mostly due to loan draw requests, which were down by $380.4 million at June 30, 2020 when compared to March 31, 2020. We remain optimistic that our loan growth will achieve an annualized growth rate of low to mid-single digits in the second half of the year, but this will be subject to the ebbs and flows of the pandemic and the influence it has on business owners and the resulting leverage they are willing to accept in order to grow their businesses. Credit worthy opportunities, although down from prior years, are finding their way to the bank, and we are here to support those projects.

"Deposit inflows were strong and we ended the second quarter with exceptional core deposit growth even after considering the estimated impact of PPP. We continue to grow our core deposit base during these extraordinary times and attribute a large part of that growth to the focus of our relationship managers and the confidence our depositors place in them."

MAINTAINING A STRONG BALANCE SHEET:

• Net charge-offs were $5.4 million for the quarter ended June 30, 2020, compared to $10.2 million for the quarter ended March 31, 2020 and $4.1 million for the quarter ended June 30, 2019. Annualized net charge-offs as a percentage of average loans for the quarter ended June 30, 2020 were 0.10 percent, compared to 0.20 percent for the quarter ended March 31, 2020 and 0.09 percent for the second quarter of 2019.
• Nonperforming assets decreased to 0.38 percent of total loans and ORE at June 30, 2020, compared to 0.48 percent at March 31, 2020 and 0.55 percent at June 30, 2019. Nonperforming assets were $84.7 million at June 30, 2020, compared to $98.2 million at March 31, 2020 and $102.7 million at June 30, 2019.
• The classified asset ratio at June 30, 2020 was 11.2 percent, compared to 12.0 percent at March 31, 2020 and 13.9 percent at June 30, 2019. Classified assets were $338.4 million at June 30, 2020, compared to $350.1 million at March 31, 2020 and $337.8 million at June 30, 2019.
• The allowance for credit losses represented 1.27 percent of total loans at June 30, 2020, compared to 1.09 percent at March 31, 2020 and 0.48 percent at June 30, 2019. Excluding PPP loans, the allowance for credit losses as a percentage of loans was 1.41 percent at June 30, 2020.
  • The ratio of the allowance for credit losses to nonperforming loans increased to 456.1 percent at June 30, 2020, from 313.5 percent at March 31, 2020 and 118.6 percent at June 30, 2019. At June 30, 2020, purchased credit deteriorated loans of $8.9 million, which were recorded at fair value upon acquisition, represented 14.3 percent of the firm's nonperforming loans.
  • Provision for credit losses was $68.3 million in the second quarter of 2020, compared to $99.9 million in the first quarter of 2020 and $7.2 million in the second quarter of 2019.
• During the second quarter of 2020, the firm successfully issued 9.0 million depositary shares, each representing a 1/40th fractional interest in a share of Series B noncumulative, perpetual preferred stock in a registered public offering to both retail and institutional investors. Net proceeds from the transaction after issuance costs were approximately $217.6 million. The net proceeds, which have been retained at Pinnacle Financial, contributed to an increase in Tier 1 capital at Pinnacle Financial and will provide additional capital for general corporate purposes.

"Net charge-offs decreased by $4.8 million when comparing the second quarter to the first quarter of 2020 due in part to a $1.7 million partial recovery of a first quarter charge-off," Carpenter said. "This meaningful recovery in the second quarter was related to a credit that we charged down and disclosed last quarter as the credit had been immediately impacted by the pandemic. We highlight this matter as it points to the speed at which we believe our firm is traveling and intends to travel in addressing problem credits. Our goal is to identify these credits and work them to an appropriate resolution as quickly as possible.

"Although substantially all of our credit metrics improved during the second quarter, we continue to expend great effort on several focus segments within our loan portfolio that we believe are the most negatively impacted by COVID-19, namely hospitality, restaurants, retail and entertainment. Our financial advisors are hands-on in identifying those borrowers that are experiencing difficulty and working with them to eliminate or minimize whatever loss content may be present in their portfolios. We've also experienced great progress with respect to borrower deferrals. During April 2020, borrower deferrals topped out at approximately $4.4 billion. At June 30, 2020, deferrals had decreased to $4.2 billion and, as of July 17, 2020, loans for which principal and/or interest was being deferred had decreased to $2.7 billion. New deferral requests have essentially ceased. Though it's still early in this process, and the disruption being experienced is like nothing we have ever seen, we are optimistic that many of our borrowers are gaining traction and will find a path forward through the pandemic."

REVENUES:

• Revenues for the quarter ended June 30, 2020 were $273.6 million, an increase of $9.7 million from the $263.9 million recognized in the first quarter of 2020, an annualized growth rate of 14.7 percent. Revenues were up $14.0 million from the second quarter of 2019, a year-over-year growth rate of 5.4 percent.
  • Revenue per fully diluted common share was $3.63 for the three months ended June 30, 2020, compared to $3.47 for the first quarter of 2020 and $3.39 for the second quarter of 2019.
• Net interest income for the quarter ended June 30, 2020 was $200.7 million, compared to $193.6 million for the first quarter of 2020 and $188.9 million for the second quarter of 2019, a year-over-year growth rate of 6.2 percent. Net interest margin was 2.87 percent for the second quarter of 2020, compared to 3.28 percent for the first quarter of 2020 and 3.48 percent for the second quarter of 2019.
• Impacting the firm's net interest income and net interest margin in the second quarter were the impact of both the PPP and the firm's building of additional on-balance sheet liquidity as a result of the pandemic. PPP loans increased the firm's average loans by $1.7 billion during the second quarter of 2020. Additionally, the firm also maintained approximately $2.0 billion in average excess liquidity, primarily in Federal funds sold and other cash equivalent balances. The firm's second quarter 2020 net interest margin was negatively impacted by approximately 0.32 percent as a result of PPP loans and building of excess liquidity throughout 2020.
• Included in net interest income for the second quarter of 2020 was $5.8 million of discount accretion associated with fair value adjustments, compared to $7.4 million of discount accretion recognized in the first quarter of 2020 and $8.9 million in the second quarter of 2019. There remains $38.0 million of purchase accounting discount accretion as of June 30, 2020.
  • During the second quarter of 2020, the firm restructured approximately $392 million of FHLB advances resulting in $6.6 million of prepayment penalties, of which $2.9 million was recognized in the second quarter. The remaining prepayment penalties will be amortized over the next 5 years. The weighted average rate for the FHLB advances that were either paid off or restructured was 2.16 percent, while the new FHLB advances were acquired at an annualized rate of 0.60 percent.
• Noninterest income for the quarter ended June 30, 2020 was $73.0 million, compared to $70.4 million for the first quarter of 2020, a linked-quarter annualized growth rate of 14.8 percent. Compared to $70.7 million for the second quarter of 2019, noninterest income grew 3.2 percent year-over-year.
  • Wealth management revenues, which include investment, trust and insurance services, were $12.2 million for the quarter ended June 30, 2020, compared to $16.6 million for the first quarter of 2020 and $11.5 million for the second quarter of 2019, a year-over-year increase of 6.0 percent. Wealth management revenues have been aided by a growth in revenue producers over the last 12 to 18 months.
  • Income from the firm's investment in BHG was $17.2 million for the quarter ended June 30, 2020, up 10.4 percent compared to $15.6 million for the quarter ended March 31, 2020 and down 46.7 percent, compared to $32.3 million for the quarter ended June 30, 2019.
  • Net gains on mortgage loans sold were $19.6 million during the quarter ended June 30, 2020, up 128.6 percent compared to $8.6 million for the quarter ended March 31, 2020. Net gains on mortgage loans sold were up 226.4 percent, compared to $6.0 million during the quarter ended June 30, 2019. This dramatic growth reflects market conditions and the addition of a meaningful number of revenue producing mortgage originators over the last 12 to 18 months.
  • Other noninterest income was $17.2 million for the quarter ended June 30, 2020, compared to $20.1 million for the quarter ended March 31, 2020 and $16.5 million for the quarter ended June 30, 2019, year-over-year an increase of 4.4 percent. Contributing to the year-over-year growth were increases in SBA loan fees, loan swap fees and the value of the firm's bank-owned life insurance policies.

"After taking into account several of the tactics that were deployed in response to COVID-19, we are pleased with our net interest margin for the second quarter," Carpenter said. "These items will continue to impact our margin results over the next few quarters, but eventually their impact will lessen, allowing the GAAP margin to be more indicative of underlying business trends. Our focus for the third quarter will be to continue to reduce our deposit costs for both core and wholesale funding sources. Additionally, as the COVID-19 outlook improves, we also anticipate reducing our level of liquidity over the next two to three quarters and expect that eventually we will find our way to historical balance sheet liquidity levels. We've also been successful in the implementation of client loan floors on new and renewed loans. Our financial advisors are active with borrowers on this matter and during the second quarter, we negotiated new floors on $699 million in new and renewed short-term variable rate loans. Over and above that amount, we also negotiated floors on $1.1 billion in unfunded commitments also tied to short-term variable rates. These successful negotiations resulted in a loan floor penetration rate of 61 percent for funded loans and 85 percent for unfunded loans, which we consider to be exceptional. All of these matters should help support our core margin in future quarters.

"Our residential mortgage business continues to have a big year with a record of $551 million of secondary market placements in the second quarter. Our mortgage business remains robust and is helpful to us in countering our other businesses that have been more negatively impacted by the pandemic.

"We believe BHG is also having another great year. For the first six months of 2020, BHG further strengthened its balance sheet by increasing its reserves, while at the same time reporting quarter-over-quarter net earnings growth. BHG has recently announced that in the third quarter it will seek to access the capital markets as it looks to place its first securitization over the next few weeks. This securitization will allow BHG to retain the interest income from the loans originated by it at a spread that they believe is greater than spreads it has achieved through its traditional business model. BHG anticipates that approximately $175 million in on-balance sheet BHG loans will collateralize the anticipated $160 million in securitization proceeds. BHG will not substitute new loans for loans in the collateral pool that experience payment defaults. We are also excited that the entire issuance has achieved an investment grade rating providing further confidence to investors."

OTHER HIGHLIGHTS:

• The firm's efficiency ratio for the second quarter of 2020 decreased to 48.1 percent, compared to 52.0 percent for the first quarter of 2020 and 49.2 percent in the second quarter of 2019. The ratio of noninterest expenses to average assets was 1.61 percent for the second quarter of 2020, compared to 1.96 percent in the first quarter of 2020 and 1.98 percent in the second quarter of 2019.
  • Excluding the adjustments described above for both 2020 and 2019, the efficiency ratio was 46.0 percent for the second quarter of 2020, compared to 51.2 percent for the first quarter of 2020 and 45.9 percent for the second quarter of 2019. Excluding ORE expense for 2020 and 2019, FHLB restructuring charges for 2020 and branch rationalization charges in 2019, the ratio of noninterest expense to average assets was 1.54 percent for the second quarter of 2020, compared to 1.92 percent for the first quarter of 2020 and 1.89 percent for the second quarter of 2019.
• Noninterest expense for the quarter ended June 30, 2020 was $131.6 million, compared to $137.3 million in the first quarter of 2020 and $127.7 million in the second quarter of 2019, reflecting a year-over-year increase of 3.1 percent. Excluding ORE expense for 2020 and 2019, FHLB restructuring charges for 2020 and branch rationalization charges for 2019, noninterest expense for the second quarter of 2020 increased 3.2 percent over the second quarter of 2019.
  • Salaries and employee benefits were $73.9 million in the second quarter of 2020, compared to $80.5 million in the first quarter of 2020 and $75.6 million in the second quarter of 2019, reflecting a year-over-year decrease of 2.3 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 approximately $573,000 in the second quarter of 2020, compared to $4.7 million in the first quarter of 2020 and $11.0 million in the second quarter of last year. The firm announced that as a result of the pandemic's impact on the anticipated earnings for this year, the firm has reduced its accrual for payouts under its broad-based cash incentive plan for 2020 to a payout of approximately 25 percent. Additionally, the firm announced that performance-based equity compensation expense for previously granted awards with performance criteria tied to fiscal year 2020 tranches has also been significantly reduced, as many of these awards are likely to be forfeited as a result of the pandemic.
• The effective tax rate for the second quarter of 2020 was expense of 15.2 percent, compared to a benefit of 6.2 percent for the first quarter of 2020 and expense of 19.6 percent for the second quarter of 2019. The effective tax rate in the first quarter of 2020 was impacted by the tax benefit related to provision expense associated with the COVID-19 pandemic.
• During the first quarter of 2020, the firm acquired 1.0 million shares of its common stock in open market transactions pursuant to its previously announced share repurchase program, at an average price of $50.01. Since the announcement of the repurchase program, the number of shares acquired has been 2.5 million at an average price of $52.66. The firm's last transaction to repurchase shares of its common stock was on March 19, 2020. Shortly thereafter, the company suspended its share repurchase program.

"Expenses decreased in the second quarter of 2020 due to a meaningful reduction in incentive accruals as a result of COVID-19's impact on our earnings for this year," Carpenter said. "At June 30, 2020, we continue to accrue a 25 percent target level payout due to the newly implemented core deposit component for which our associates are outperforming with respect to both deposit volume and rate goals. We also added $4.5 million to off-balance sheet reserves in bringing the total off-balance sheet reserve to $20.8 million for this year.

"As we consider expense run rates going into the remainder of 2020, we have eliminated much of our 2020 hiring plan to consider only staffing of our Atlanta buildout, key revenue producer adds in our other markets as well as critical operational positions. We reaffirm our belief that our 2020 annualized expense growth will be in the low to mid-single digit percentage in comparison to 2019."

BOARD OF DIRECTORS DECLARES DIVIDENDS

On July 21, 2020, Pinnacle Financial's Board of Directors approved a quarterly cash dividend of $0.16 per common share to be paid on Aug. 28, 2020 to common shareholders of record as of the close of business on Aug. 7, 2020. Additionally, on that same day, Pinnacle Financial's Board of Directors approved a quarterly dividend of approximately $3.8 million, or $16.88 per share (or $0.422 per depositary share), on its 6.75 percent Series B Non-Cumulative Perpetual Preferred Stock payable on Sept. 1, 2020 to shareholders of record at the close of business on Aug. 17, 2020.

The amount and timing of any future dividend payments to both preferred and common shareholders will be subject to the approval of Pinnacle's Board of Directors.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CT on July 22, 2020, to discuss second quarter 2020 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 list 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.

Pinnacle owns a 49 percent interest in Bankers Healthcare Group (BHG), which provides innovative, hassle-free financial solutions to healthcare practitioners and other licensed professionals. Great Place to Work and FORTUNE ranked BHG No. 1 on its 2020 list of Best Workplaces in New York in the small/medium business category.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $33.3 billion in assets as of June 30, 2020. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in 12 primarily urban markets in Tennessee, the Carolinas, Virginia and Georgia.

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) further deterioration in the financial condition of borrowers of Pinnacle Bank and its subsidiaries or BHG resulting in significant increases in loan losses and provisions for those losses and, in the case of BHG, substitutions; (ii) the further effects of the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on general economic and financial market conditions and on Pinnacle Financial's and its customers' business, results of operations, asset quality and financial condition; (iii) 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; (iv) 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; (v) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (vi) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (vii) 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; (viii) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia and Virginia, particularly in commercial and residential real estate markets; (ix) 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 better match deposit rates with the changes in the short-term rate environment, or that affect the yield curve; (x) the results of regulatory examinations; (xi) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xiii) BHG's ability to profitably grow its business and successfully execute on its business plans; (xiv) risks of expansion into new geographic or product markets including the recent expansion into the Atlanta, Georgia metro market; (xv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xvi) 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; (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 Bank'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 Bank 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) the availability of and access to capital; (xxv) 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, including as a result of Pinnacle Bank's participation in and execution of government programs related to the COVID-19 pandemic; and (xxvi) 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 common 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 rationalization project, FHLB restructuring expenses, the sale of the remaining portion of Pinnacle Bank's non-prime automobile portfolio and other matters for the accounting periods presented. This release also includes non-GAAP financial measures which exclude the impact of loans originated under the PPP. 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 as well as the impact of Pinnacle Financial's Series B Preferred Stock. 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 2020 versus certain periods in 2019 and to internally prepared projections.