PNFP Reports Diluted EPS of $0.37, ROAA of 0.40% and ROTCE of 4.48% For 1Q 2020

Excluding non-GAAP adjustments, 1Q 2020 diluted EPS was $0.39, ROAA was 0.42% and ROTCE was 4.71%

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $0.37 for the quarter ended March 31, 2020, compared to net income per diluted common share of $1.22 for the quarter ended March 31, 2019, a decrease of 69.7 percent. Excluding gains and losses on the sale of investment securities and ORE expense for the three months ended March 31, 2020 and 2019, net income per diluted common share was $0.39 in 2020, compared to $1.24 in 2019, a year-over-year decrease of 68.5 percent. Pinnacle also reported that based on an initial assessment of the impact of the pandemic to its loan portfolio, it increased its allowance for credit losses by $86 million during the first quarter of 2020. As a result, Pinnacle's allowance for loan losses to total loans increased to 1.09 percent of its loans at March 31, 2020.

"We have historically set high performing targets and executed with discipline," said M. Terry Turner, Pinnacle's president and chief executive officer. "2020 began in much the same way. Nevertheless, during the quarter, our primary focus became protecting our associates, clients, communities and shareholders from the rapidly progressing COVID-19 pandemic. Things like building on-balance sheet liquidity and significantly increasing our allowance for credit losses in response to potential impacts of the COVID-19 pandemic superseded previous operating plans and impacted operations. Even so, during the quarter we saw improvement on important initiatives like growing low cost core deposits, lowering our cost of funds and growing our fee income."

BALANCE SHEET GROWTH:

• Loans at March 31, 2020 were $20.4 billion, an increase of $2.2 billion from March 31, 2019, reflecting year-over-year growth of 12.2 percent. Loans at March 31, 2020 increased $609.0 million from Dec. 31, 2019, reflecting a linked-quarter annualized growth rate of 12.3 percent.
  • Average loans were $20.0 billion for the three months ended March 31, 2020, up $409.7 million from $19.6 billion for the three months ended Dec. 31, 2019, a linked-quarter annualized growth rate of 8.4 percent.
  • At March 31, 2020, the remaining discount associated with fair value accounting adjustments on acquired loans was $43.9 million, compared to $55.1 million at Dec. 31, 2019.
• Deposits at March 31, 2020 were a record $21.3 billion, an increase of $2.9 billion from March 31, 2019, reflecting year-over-year growth of 15.4 percent. Deposits at March 31, 2020 increased $1.2 billion from Dec. 31, 2019, reflecting a linked-quarter annualized growth rate of 22.8 percent.
  • Average deposits were $20.7 billion for the three months ended March 31, 2020, compared to $20.1 billion for the three months ended Dec. 31, 2019, a linked-quarter annualized growth rate of 12.0 percent.
  • Core deposits were $18.6 billion at March 31, 2020, compared to $16.3 billion at March 31, 2019 and $17.6 billion at Dec. 31, 2019. The linked-quarter annualized growth rate of core deposits in the first quarter of 2020 was 22.4 percent.

"Traditionally, our firm has produced outsized growth predicated on our unique ability to attract great bankers to our firm," Turner said. "There is no doubt that our significant growth in loans and core deposits during the first quarter was aided by client reactions to potential impacts of COVID-19. However, interim numbers during the quarter, prior to any recognizable impact of the pandemic, would suggest that our initiatives to produce meaningful growth, particularly in core deposits, were yielding better than planned results."

PROFITABILITY:

• Return on average assets was 0.40 percent for the first quarter of 2020, compared to 1.38 percent for the fourth quarter of 2019 and 1.52 percent for the first quarter of 2019. First quarter 2020 return on average tangible assets amounted to 0.43 percent, compared to 1.48 percent for the fourth quarter of 2019 and 1.64 percent for the first quarter of 2019.
  • Excluding gains and losses on the sale of investment securities and ORE expenses for both 2020 and 2019, return on average assets was 0.42 percent for the first quarter of 2020, compared to 1.39 percent for the fourth quarter of 2019 and 1.55 percent for the first quarter of 2019. Likewise, excluding those same adjustments, the firm's return on average tangible assets was 0.45 percent for the first quarter of 2020, compared to 1.49 percent for the fourth quarter of 2019 and 1.67 percent for the first quarter of 2019.
• Return on average common equity for the first quarter of 2020 amounted to 2.58 percent, compared to 8.78 percent for the fourth quarter of 2019 and 9.49 percent for the first quarter of 2019. First quarter 2020 return on average tangible common equity amounted to 4.48 percent, compared to 15.41 percent for the fourth quarter of 2019 and 17.60 percent for the first quarter of 2019.
  • Excluding gains and losses on the sale of investment securities and ORE expenses for both 2020 and 2019, return on average tangible common equity amounted to 4.71 percent for the first quarter of 2020, compared to 15.49 percent for the fourth quarter of 2019 and 17.91 percent for the first quarter of 2019.

"Profitability metrics were obviously influenced during the quarter by COVID-19 and its impact on our provision for loan losses," said Harold R. Carpenter, Pinnacle's chief financial officer. "The pandemic contributed to an incremental reserve build of approximately $86 million in the first quarter. On the other hand, we are pleased with our ongoing business flows as loan and deposit growth and fee revenues exceeded our expectations. Commercial loan growth is inclusive of approximately $257.4 million in increased commercial loan draw requests over the amounts at the end of the year. More importantly to our long-term strategic plans, deposit inflows were strong all quarter and we ended the quarter with almost $1.2 billion in deposit growth at March 31, 2020. Several fee categories increased meaningfully during the quarter as total noninterest income increased $10.9 million from the fourth quarter of 2019, or $10.5 million when excluding investment gains in each period."

MAINTAINING A STRONG BALANCE SHEET:

• Net charge-offs were $10.2 million for the quarter ended March 31, 2020, compared to $3.5 million for the quarter ended Dec. 31, 2019 and $3.6 million for the quarter ended March 31, 2019. Annualized net charge-offs as a percentage of average loans for the quarter ended March 31, 2020 were 0.20 percent, compared to 0.07 percent for the quarter ended Dec. 31, 2019 and 0.08 percent for the first quarter of 2019.
• Nonperforming assets increased to 0.48 percent of total loans and ORE at March 31, 2020, compared to 0.46 percent at Dec. 31, 2019 and decreased compared to 0.61 percent at March 31, 2019. Nonperforming assets were $98.2 million at March 31, 2020, compared to $91.1 million at Dec. 31, 2019 and $111.3 million at March 31, 2019.
• The classified asset ratio at March 31, 2020 was 12.0 percent, compared to 13.4 percent at Dec. 31, 2019 and 13.0 percent at March 31, 2019. Classified assets were $350.1 million at March 31, 2020, compared to $371.3 million at Dec. 31, 2019 and $306.8 million at March 31, 2019.
• The allowance for loan losses represented 1.09 percent of total loans at March 31, 2020, compared to 0.48 percent at Dec. 31, 2019 and 0.48 percent at March 31, 2019.
  • The ratio of the allowance for loan losses to nonperforming loans increased to 313.5 percent at March 31, 2020, from 153.8 percent at Dec. 31, 2019 and 90.7 percent at March 31, 2019. At March 31, 2020, purchased credit deteriorated loans of $10.2 million, which were recorded at fair value upon acquisition, represented 14.4 percent of the firm's nonperforming loans.
  • Provision for credit losses was $99.9 million in the first quarter of 2020, compared to $4.6 million in the fourth quarter of 2019 and $7.2 million in the first quarter of 2019.

"Net charge-offs increased by $6.6 million due in large part to a partial charge-off of one commercial credit which has been heavily impacted by the pandemic," Carpenter said. "Classified assets were actually down from Dec. 31, 2019 while nonperforming assets increased modestly during the quarter.

"We have been spending a great deal of time over the past few weeks addressing several focus segments within our loan portfolio that we believe are being the most impacted by COVID-19, namely hospitality, restaurants, retail and entertainment. We've also been working with borrowers who request payment deferrals as well as helping clients who are applying for loans under the SBA's Paycheck Protection Program. We are in the initial stages of evaluating how meaningful the pandemic has been on the various segments of the economy where we have lending exposure. While loan losses will likely materialize, our reviews thus far give us confidence in the quality of our client selection processes and underwriting.

"Additionally, the implementation of CECL as of January 1, 2020, impacted our allowance for loan losses by 19 basis points on day one. Our CECL model is largely influenced by economic factors including most notably the anticipated national unemployment rate, GDP and other metrics. As a result of these deteriorating economic factors, as well as the usual matters impacting our provision, our provision for credit losses increased by $95.2 million in the first quarter of 2020."

REVENUES:

• Revenues for the quarter ended March 31, 2020 were $263.9 million, an increase of $10.3 million from the $253.6 million recognized in the fourth quarter of 2019 and up $25.6 million from the first quarter of 2019. This represents a year-over-year growth rate of 10.8 percent.
  • Revenue per fully diluted share was $3.47 for the three months ended March 31, 2020, compared to $3.32 for the fourth quarter of 2019 and $3.09 for the first quarter of 2019.
• Net interest income for the quarter ended March 31, 2020 was $193.6 million, compared to $194.2 million for the fourth quarter of 2019 and $187.2 million for the first quarter of 2019, a year-over-year growth rate of 3.4 percent. Net interest margin was 3.28 percent for the first quarter of 2020, compared to 3.35 percent for the fourth quarter of 2019 and 3.62 percent for the first quarter of 2019.
  • Included in net interest income for the first quarter of 2020 was $7.4 million of discount accretion associated with fair value adjustments, compared to $10.6 million of discount accretion recognized in the fourth quarter of 2019 and $9.7 million in the first quarter of 2019. There remains $43.9 million of purchase accounting discount accretion as of March 31, 2020.
• Noninterest income for the quarter ended March 31, 2020 was $70.4 million, compared to $59.5 million for the fourth quarter of 2019 and $51.1 million for the first quarter of 2019, a year-over-year growth rate of 37.8 percent.
  • Wealth management revenues, which include investment, trust and insurance services, were $16.6 million for the quarter ended March 31, 2020, compared to $12.4 million for the fourth quarter of 2019 and $11.7 million for the first quarter of 2019, a year-over-year increase of 42.4 percent.
  • Income from the firm's investment in BHG was $15.6 million for the quarter ended March 31, 2020, up 26.6 percent and 17.3 percent, respectively, compared to $12.3 million for the quarter ended Dec. 31, 2019 and $13.3 million for the quarter ended March 31, 2019.
  • Net gains on mortgage loans sold were $8.6 million during the quarter ended March 31, 2020, up 42.0 percent and 75.9 percent, respectively, compared to $6.0 million for the quarter ended Dec. 31, 2019 and $4.9 million during the quarter ended March 31, 2019.
  • Other noninterest income was $20.1 million for the quarter ended March 31, 2020, compared to $19.5 million for the quarter ended Dec. 31, 2019 and $14.6 million for the quarter ended March 31, 2019, a year-over-year increase of 37.2 percent. Contributing to the year-over-year increase were increases in credit card interchange fees, SBA loan fees, loan swap fees and the value of the firm's bank-owned life insurance policies.

"We are pleased with our net interest margin results in the first quarter, particularly after considering the impact of less discount accretion during the quarter ended March 31, 2020 when compared to the Dec. 31, 2019 quarter," Carpenter said. "We are also pleased with the actions of our relationship managers during the quarter as they were very proactive in lowering deposit rates throughout the quarter. In spite of those actions, core deposits continued to increase at a rapid pace throughout the quarter. During the quarter, we also began increasing our on-balance sheet liquidity position and anticipate further increasing our liquidity position during the second quarter. Obviously, this additional liquidity will have a dilutive impact on our net interest margin in 2020, but its impact on net interest income should be minimal.

"BHG is reporting 17.3 percent earnings growth year-over-year and 26.6 percent earnings growth over the fourth quarter of 2019. During the first quarter, and as BHG began preparing its balance sheet for the current economic climate, BHG elected to place less emphasis on its strategy of holding more loans on its balance sheet and opted to send more loans through its auction platform thus creating more operating revenues in the first quarter than it would have had otherwise. Furthermore, its first quarter earnings were negatively impacted by a significant increase in its reserves for its on-balance sheet loans and its reserves for loans that are subject to substitution losses through its network of community banks."

OTHER HIGHLIGHTS:

• The firm's efficiency ratio for the first quarter of 2020 increased to 52.04 percent, compared to 51.44 percent for the fourth quarter of 2019 and 47.86 percent in the first quarter of 2019. The ratio of noninterest expenses to average assets was 1.96 percent for the first quarter of 2020, compared to 1.88 percent in the fourth quarter of 2019 and 1.85 percent in the first quarter of 2019.
  • Excluding gains and losses on the sale of investment securities and ORE expenses for both 2020 and 2019, the efficiency ratio was 51.21 percent for the first quarter of 2020, compared to 51.14 percent for the fourth quarter of 2019 and 47.37 percent for the first quarter of 2019. Excluding ORE expense, the ratio of noninterest expense to average assets was 1.92 percent for the first quarter of 2020, compared to 1.86 percent for the fourth quarter of 2019 and 1.84 percent for the first quarter of 2019.
• Noninterest expense for the quarter ended March 31, 2020 was $137.3 million, compared to $130.5 million in the fourth quarter of 2019 and $114.1 million in the first quarter of 2019, reflecting a year-over-year increase of 20.4 percent. Excluding ORE expense, noninterest expense increased 18.6 percent over the first quarter of 2019.
  • Salaries and employee benefits were $80.5 million in the first quarter of 2020, compared to $81.4 million in the fourth quarter of 2019 and $70.4 million in the first quarter of 2019, reflecting a year-over-year increase of 14.4 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 $4.7 million in the first quarter of 2020, compared to $10.9 million in the fourth quarter of 2019 and $6.3 million in the first quarter of last year.
• The effective tax rate for the first quarter of 2020 was a benefit of 6.2 percent, compared to expense of 18.9 percent for the fourth quarter of 2019 and 19.7 percent for the first 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, and the company has suspended its share repurchase program at this time.

"Expenses increased in the first quarter of 2020 due in large part to a $5.2 million increase in other noninterest expense attributable to the impact of COVID-19 to our off-balance sheet reserves, primarily for unfunded lines of credit," Carpenter said. "These increases were offset by decreases in salaries and benefits, primarily due to reductions in incentive accruals.

"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 believe our 2020 annualized expense growth will be in the low to mid-single digit percentage increases in comparison to 2019. We are also reducing our targeted cash incentive award for 2020 to a payout of approximately 50 percent. We will continue to evaluate our incentive accruals throughout the year."

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CT on April 21, 2020, to discuss first 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.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $29.3 billion in assets as of March 31, 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) 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 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 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 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, 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 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 2020 versus certain periods in 2019 and to internally prepared projections.

(1) Average balances of nonperforming loans are included in the above amounts.

(2) Yields computed on tax-exempt instruments on a tax equivalent basis and included $7.0 million of taxable equivalent income for the three months ended Mar. 31, 2020 compared to $6.5 million for the three months ended Mar. 31, 2019. The tax-exempt benefit has been reduced by the projected impact of tax-exempt income that will be disallowed pursuant to IRS Regulations as of and for the then current period presented.

(3) Yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. The net interest spread calculation excludes the impact of demand deposits. Had the impact of demand deposits been included, the net interest spread for the three months ended Mar. 31, 2020 would have been 3.22% compared to a net interest spread of 3.57% for the three months ended Mar. 31, 2019.

(4) Net interest margin is the result of annualized net interest income calculated on a tax equivalent basis divided by average interest-earning assets for the period.

This information is preliminary and based on company data available at the time of the presentation.