PNFP Reports Diluted EPS of $1.26, ROAA of 1.38% and ROTCE of 15.41% For 4Q 2019

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.26 for the quarter ended Dec. 31, 2019, compared to net income per diluted common share of $1.23 for the quarter ended Dec. 31, 2018, an increase of 2.4 percent. Net income per diluted common share was $5.22 for the year ended Dec. 31, 2019, compared to net income per diluted common share of $4.64 for the year ended Dec. 31, 2018, an increase of 12.5 percent.

Excluding gains and losses on the sale of investment securities and ORE expense for the three months ended Dec. 31, 2019 and 2018, net income per diluted common share was $1.27 in 2019, compared to $1.25 in 2018. Excluding these items for 2019 and 2018 as well as merger-related charges in 2018, a $1.5 million loss from the sale of the non-prime automobile portfolio earlier in 2019 and $3.2 million of non-cash impairment charges related to the consolidation of five offices earlier in 2019, net income per diluted common share was $5.37 for the year ended Dec. 31, 2019, compared to net income per diluted common share of $4.75 for the year ended Dec. 31, 2018, a growth rate of 13.1 percent.

"Given the volatile interest rate backdrop during 2019, we are very pleased to report 13 percent earnings per share growth in 2019," said M. Terry Turner, Pinnacle's president and chief executive officer. "We believe that growth rate should place us in the top quartile of our peers, which is specifically where we aim to be every year. Additionally, I'm pleased to report that our book value per share increased 11.2 percent to $56.89 per common share on Dec. 31, 2019 from $51.18 per share on Dec. 31, 2018 while tangible book value increased 19.0 percent to $32.45 per common share at Dec. 31, 2019, compared to $27.27 at Dec. 31, 2018, a growth rate that we believe will also result in top-quartile performance among our peers.

"We hired 85 revenue producers across our franchise in 2019, which followed hiring 107 in 2018, a strong indicator of our ability to produce outsized growth in the future. We also remain excited about our opportunities in the Carolinas and Virginia. We believe our integration in those markets has been tremendously successful, and we expect more opportunities in 2020 due to the health of those markets and the large number of revenue producers we have hired there. We've experienced more than 22 percent growth in both loans and client deposits since closing the acquisition. BHG had another phenomenal year, experiencing year-over-year earnings growth of 76 percent. Their business model is operating at a high level, and we believe BHG's current strategy to retain more loans on their balance sheet will serve all of us very well in 2020 and beyond. Lastly, we've announced our expansion into the Atlanta market and have hired four revenue producers there since our announcement in late December. Our hiring pipelines continue to grow in that market. Needless to say, as a result of the increased earnings capacity we have built over the last several years with these and other initiatives, we are excited about the opportunity to continue to produce outsized earnings and tangible book value growth going into 2020."

GROWING THE CORE EARNINGS CAPACITY OF THE FIRM:

• Loans at Dec. 31, 2019 were a record $19.8 billion, an increase of $2.1 billion from Dec. 31, 2018, reflecting year-over-year growth of 11.7 percent. Loans at Dec. 31, 2019 increased $442.2 million from Sept. 30, 2019, reflecting a linked-quarter annualized growth rate of 9.1 percent.
  • Average loans were $19.6 billion for the three months ended Dec. 31, 2019, up $382.8 million from $19.2 billion for the three months ended Sept. 30, 2019, a linked-quarter annualized growth rate of 8.0 percent.
  • At Dec. 31, 2019, the remaining discount associated with fair value accounting adjustments on acquired loans was $55.1 million, compared to $65.2 million at Sept. 30, 2019.
• Deposits at Dec. 31, 2019 were $20.2 billion, an increase of $1.3 billion from Dec. 31, 2018, reflecting year-over-year growth of 7.1 percent. Deposits at Dec. 31, 2019 increased $180.4 million from Sept. 30, 2019, reflecting a linked-quarter annualized growth rate of 3.6 percent.
  • Average deposits were $20.1 billion for the three months ended Dec. 31, 2019, compared to $19.8 billion for the three months ended Sept. 30, 2019, a linked-quarter annualized growth rate of 6.1 percent.
  • Core deposits were $17.6 billion at Dec. 31, 2019, compared to $16.5 billion at Dec. 31, 2018 and $17.1 billion at Sept. 30, 2019. The linked-quarter annualized growth rate of core deposits in the fourth quarter of 2019 was 12.0 percent.
• Revenues for the quarter ended Dec. 31, 2019 were $253.6 million, a decrease of $24.8 million from the $278.4 million recognized in the third quarter of 2019 and up $6.1 million from the fourth quarter of 2018. This represents a year-over-year growth rate of 2.5 percent.
  • Revenue per fully diluted share was $3.32 for the three months ended Dec. 31, 2019, compared to $3.64 for the third quarter of 2019 and $3.19 for the fourth quarter of 2018.

"We've always prided ourselves on strong organic balance sheet growth," Turner said. "Generally that strong growth has been predicated on our ongoing ability to hire the best bankers and their ability to bring their best clients to our firm. It's a simple strategy and is at the core of our success. Given how successful we have been executing on that strategy over the last two years and the status of our recruiting pipelines currently, we believe high-single to low-double digit loan growth is very much achievable for our firm in 2020.

"Another item that we believe is at the core of our success is our unique, shareholder-aligned incentive system. For the first time in many years, we've decided to tweak our annual cash incentive system for 2020 to provide more focus on growing low-cost core deposits. We had a great fourth quarter in 2019 related to core deposit growth, with a 12 percent linked-quarter annualized growth rate. That said, we still desire more energy aimed at core deposit generation. In addition to core deposit growth, our firm-wide cash incentive plan for 2020 is still focused on the two metrics we believe are most directly aligned with increasing shareholder value: maintaining asset quality and growing EPS. Our goal for the slight modification to our annual cash incentive plan is to energize our entire associate base around core deposit growth, and I am optimistic that they will respond in a very strong way in 2020."

FOCUSING ON PROFITABILITY:

• Return on average assets was 1.38 percent for the fourth quarter of 2019, compared to 1.62 percent for the third quarter of 2019 and 1.54 percent for the fourth quarter of 2018. Fourth quarter 2019 return on average tangible assets amounted to 1.48 percent, compared to 1.74 percent for the third quarter of 2019 and 1.66 percent for the fourth quarter of 2018.
  • Excluding the adjustments described above for both 2019 and 2018, return on average assets was 1.39 percent for the fourth quarter of 2019, compared to 1.62 percent for the third quarter of 2019 and 1.56 percent for the fourth quarter of 2018. Likewise, excluding those same adjustments, the firm’s return on average tangible assets was 1.49 percent for the fourth quarter of 2019, compared to 1.74 percent for the third quarter of 2019 and 1.69 percent for the fourth quarter of 2018.
• Return on average common equity for the fourth quarter of 2019 amounted to 8.78 percent, compared to 10.28 percent for the third quarter of 2019 and 9.60 percent for the fourth quarter of 2018. Fourth quarter 2019 return on average tangible common equity amounted to 15.41 percent, compared to 18.28 percent for the third quarter of 2019 and 18.14 percent for the fourth quarter of 2018.
  • Excluding the adjustments described above for both 2019 and 2018, return on average tangible common equity amounted to 15.49 percent for the fourth quarter of 2019, compared to 18.31 percent for the third quarter of 2019 and 18.46 percent for the fourth quarter of 2018.

"Our profitability metrics remain very strong and provide us the ongoing operating leverage to hire more revenue producers and, thus, invest in our future growth," said Harold R. Carpenter, Pinnacle's chief financial officer. "The volatility in the interest rate environment impacted many banks, including us, making it more difficult to maintain margins during 2019. Since the yield curve stabilized in late 2019, we believe this will be helpful in stabilizing our net interest margin in 2020. We are fortunate that we operate in great markets with great bankers that yield meaningful growth and, therefore, a meaningful hedge to the negative earnings impact of recent yield curve volatility."

MAINTAINING A FORTRESS BALANCE SHEET:

• Net charge-offs were $3.5 million for the quarter ended Dec. 31, 2019, compared to $4.9 million for the quarter ended Sept. 30, 2019 and $5.7 million for the quarter ended Dec. 31, 2018. Annualized net charge-offs as a percentage of average loans for the quarter ended Dec. 31, 2019 were 0.07 percent, compared to 0.10 percent for the quarter ended Sept. 30, 2019 and 0.11 percent for the fourth quarter of 2018.
• Nonperforming assets decreased to 0.46 percent of total loans and ORE at Dec. 31, 2019, compared to 0.53 percent at Sept. 30, 2019 and 0.58 percent at Dec. 31, 2018. Nonperforming assets were $91.1 million at Dec. 31, 2019, compared to $103.3 million at Sept. 30, 2019 and $103.2 million at Dec. 31, 2018.
• The classified asset ratio at Dec. 31, 2019 was 13.4 percent, compared to 13.5 percent at Sept. 30, 2019 and 12.4 percent at Dec. 31, 2018. Classified assets were $371.3 million at Dec. 31, 2019, compared to $363.2 million at Sept. 30, 2019 and $284.7 million at Dec. 31, 2018.
• The allowance for loan losses represented 0.48 percent of total loans at Dec. 31, 2019, compared to 0.48 percent at Sept. 30, 2019 and 0.47 percent at Dec. 31, 2018.
  • The ratio of the allowance for loan losses to nonperforming loans increased to 153.8 percent at Dec. 31, 2019, from 127.8 percent at Sept. 30, 2019 and 95.2 percent at Dec. 31, 2018. At Dec. 31, 2019, purchased credit impaired loans of $7.7 million, which were recorded at fair value upon acquisition, represented 12.4 percent of the firm's nonperforming loans.
  • Provision for loan losses was $4.6 million in the fourth quarter of 2019, compared to $8.3 million in the third quarter of 2019 and $9.3 million in the fourth quarter of 2018.

"Asset quality continues to be a highlight for our firm, with the fourth quarter results yielding improvement to our already strong asset quality metrics," Carpenter said. "We experienced improvement from the previous quarter in nearly every asset quality metric, including nonperformers, past dues, net charge-offs and coverage ratios. After the BNC acquisition, we committed to reducing our regulatory ratios for commercial real estate and worked hard to get that done. Our regulatory ratios for construction and non-owner occupied commercial real estate and multi-family are now down to 83.6 percent and 268.3 percent, respectively. Going into 2020, we remain pleased with where we are with the soundness of our loan portfolio."

GROWING REVENUES

• Net interest income for the quarter ended Dec. 31, 2019 was $194.2 million, compared to $195.8 million for the third quarter of 2019 and $190.2 million for the fourth quarter of 2018, a year-over-year growth rate of 2.1 percent. Net interest margin was 3.35 percent for the fourth quarter of 2019, compared to 3.43 percent for the third quarter of 2019 and 3.63 percent for the fourth quarter of 2018.
  • Included in net interest income for the fourth quarter of 2019 was $10.6 million of discount accretion associated with fair value adjustments, compared to $11.1 million of discount accretion recognized in the third quarter of 2019 and $13.2 million in the fourth quarter of 2018.
• Noninterest income for the quarter ended Dec. 31, 2019 was $59.5 million, compared to $82.6 million for the third quarter of 2019 and $57.3 million for the fourth quarter of 2018, a year-over-year growth rate of 3.8 percent.
  • Wealth management revenues, which include investment, trust and insurance services, were $12.4 million for the quarter ended Dec. 31, 2019, compared to $12.1 million for the third quarter of 2019 and $11.6 million for the fourth quarter of 2018, a year-over-year increase of 7.4 percent.
  • Income from the firm's investment in BHG was $12.3 million for the quarter ended Dec. 31, 2019, compared to $32.2 million for the quarter ended Sept. 30, 2019 and $17.9 million for the quarter ended Dec. 31, 2018.
  • Net gains on mortgage loans sold were $6.0 million during the quarter ended Dec. 31, 2019, compared to $7.4 million for the quarter ended Sept. 30, 2019 and $3.1 million during the quarter ended Dec. 31, 2018.
  • Other noninterest income was $19.5 million for the quarter ended Dec. 31, 2019, compared to $20.2 million for the quarter ended Sept. 30, 2019 and $17.2 million for the quarter ended Dec. 31, 2018, a year-over-year increase of 13.8 percent. Contributing to the year-over-year increase were increases in credit card interchange fees, SBA loan fees and the value of the firm's bank-owned life insurance policies.

"We are pleased with net interest margin results in the fourth quarter, as the compression in our net interest margin slowed meaningfully," Carpenter said. "We are also pleased with the results of our actions to lower deposit pricing in conjunction with the last three Fed moves. All of this, combined with anticipated continued stabilization in the yield curve, should be helpful to us as we seek to find a floor for our net interest margin in 2020.

"We also had a great 2019 with respect to fee performance. BHG reported 76 percent earnings growth in 2019, with the fourth quarter amount approximating what we anticipated as BHG began executing on its current strategy of holding more loans on its balance sheet. Additionally, excluding BHG and the impact of losses on the sale of investment securities, we are also pleased to report that other fee categories grew 18.3 percent in 2019 over the amounts reported in 2018."

OTHER HIGHLIGHTS

• The firm's efficiency ratio for the fourth quarter of 2019 increased to 51.44 percent, compared to 47.75 percent for the third quarter of 2019 and 48.25 percent in the fourth quarter of 2018. The ratio of noninterest expenses to average assets was 1.88 percent for the fourth quarter of 2019, compared to 1.94 percent in the third quarter of 2019 and 1.92 percent in the fourth quarter of 2018.
  • Excluding the adjustments noted elsewhere in this release for both 2019 and 2018, the efficiency ratio was 51.14 percent for the fourth quarter of 2019, compared to 47.58 percent for the third quarter of 2019 and 47.55 percent for the fourth quarter of 2018. Excluding ORE expense, the ratio of noninterest expense to average assets was 1.86 percent for the fourth quarter of 2019, compared to 1.93 percent for the third quarter of 2019 and 1.91 percent for the fourth quarter of 2018.
• Noninterest expense for the quarter ended Dec. 31, 2019 was $130.5 million, compared to $132.9 million in the third quarter of 2019 and $119.4 million in the fourth quarter of 2018, reflecting a year-over-year increase of 9.3 percent. Excluding ORE expense, noninterest expense increased 9.2 percent over the fourth quarter of 2018.
  • Salaries and employee benefits were $81.4 million in the fourth quarter of 2019, compared to $85.9 million in the third quarter of 2019 and $74.7 million in the fourth quarter of 2018, reflecting a year-over-year increase of 9.0 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 $10.9 million in the fourth quarter of 2019, compared to $18.5 million in the third quarter of 2019 and $13.7 million in the fourth quarter of last year.
• The effective tax rate for the fourth quarter of 2019 was 18.9 percent, compared to 19.5 percent for the third quarter of 2019 and 19.7 percent for the fourth quarter of 2018.
• During the fourth quarter of 2019, the firm acquired 228,533 shares of its common stock in open market transactions pursuant to its previously announced share repurchase program, at an average price of $56.54. For 2019, the number of shares acquired was 1.1 million at an average price of $55.70.

"We experienced reduced expenses in the fourth quarter of 2019 compared to the third quarter of 2019 due in large part to the anticipated reduction in incentive costs," Carpenter said. "Early in the third quarter of 2019, we added Advocate Capital, which contributed to increased expense run rates in the second half of 2019. As we consider expense run rates going into 2020, we fully expect continued hiring, especially with the build out in Atlanta. We believe we can keep our expense growth to the mid- to high-single digit percentage increases for 2020. Going into 2020, we are also targeting cash incentives of approximately $50 million in 2020. These amounts provide us flexibility should revenues not materialize at the growth rates we currently are planning for in 2020."

BOARD OF DIRECTORS DECLARES DIVIDEND

On Jan. 21, 2020, Pinnacle's Board of Directors approved a quarterly cash dividend of $0.16 per common share to be paid on Feb. 28, 2020 to common shareholders of record as of the close of business on Feb. 7, 2020. The amount and timing of any future dividend payments to common shareholders will be subject to the discretion of Pinnacle's Board of Directors.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CT on Jan. 22, 2020 to discuss fourth 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 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 $27.8 billion in assets as of Dec. 31, 2019. 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 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 better match deposit rates with the changes in the short-term rate environment, 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 including the recent expansion into the Atlanta, Georgia metro market; (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) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvii) 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; (xviii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xix) 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; (xx) 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; (xxi) 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; (xxii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxiii) the availability of and access to capital; (xxiv) 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 (xxv) 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, 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 projections.