PNFP Reports Diluted EPS of $1.08, ROAA of 1.53 Percent and ROTCE of 18.12 Percent for 1Q 2018

Excluding merger-related charges, diluted EPS was $1.13, ROAA was
1.60 percent and ROTCE was 18.98 percent for 1Q 2018

NASHVILLE, Tenn.–(BUSINESS WIRE)–Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income
per diluted common share of $1.08 for the quarter ended March 31, 2018,
compared to net income per diluted common share of $0.82 for the quarter
ended March 31, 2017, an increase of 31.7 percent.

Excluding pre-tax merger related charges of $5.4 million, net income per
diluted common share was $1.13 for the three months ended March 31, 2018
compared to net income per diluted common share of $0.83 for the three
months ended March 31, 2017, excluding pre-tax merger-related charges of
$672,000, an increase of 36.1 percent.

“I am very pleased that we are reporting year over year quarterly
earnings growth of greater than 30 percent which is consistent with
expectations for this year,” said M. Terry Turner, Pinnacle’s president
and chief executive officer. “Our first quarter 2018 loan growth was
exceptional even by our historical standards. Over time, our principal
tactic for rapid balance sheet growth has been our ability to attract
the best bankers in our markets. During the first quarter of 2018, we
experienced significant hiring success throughout the franchise
including in the Carolina and Virginia markets. Specifically, during the
first quarter of 2018, we hired a total of 21 revenue producers across
our markets, a strong predictor of our future growth.

“In addition to sound growth, we remain committed to advancing our
already high profitability metrics,” said Turner. “At the beginning of
2012, we anticipated that our return on average assets (ROAA) should
operate within a targeted range of 1.10 percent to 1.30 percent. Since
that time, due to the efforts of our associates, we were able to
increase the targeted ROAA range at least twice such that our published
ROAA target range has most recently been 1.30 percent to 1.50 percent.
At this time, we are again increasing our targeted range to 1.50 percent
to 1.70 percent. The changes in tax laws have obviously contributed to
our decision to increase our targeted range, but that said, given the
absolute level of our new targeted range, we believe the ultimate
winners will be our shareholders.”

GROWING THE CORE EARNINGS CAPACITY OF THE FIRM:

  • Loans at March 31, 2018 were a record $16.33 billion, an increase of
    $692.9 million from Dec. 31, 2017 and $7.68 billion from March 31,
    2017, reflecting year-over-year growth of 88.9 percent. Annualized
    organic loan growth during the first quarter of 2018 was 18.0 percent.

    • Average loans were $15.96 billion for the three months ended March
      31, 2018, up $437 million from the $15.52 billion for the three
      months ended Dec. 31, 2017.
  • Deposits at March 31, 2018 were a record $16.50 billion, an increase
    of $51.2 million from Dec. 31, 2017 and $7.22 billion from March 31,
    2017, reflecting year-over-year growth of 77.8 percent.

    • Average deposits were $16.28 billion for the three months ended
      March 31, 2018, up $189 million from the $16.10 billion for the
      three months ended Dec. 31, 2017.
  • Revenues for the quarter ended March 31, 2018 were $218.7 million, an
    increase of $7.4 million, or 3.5 percent, from the $211.2 million
    recognized in the fourth quarter of 2017 and $99.5 million, or 83.5
    percent, from the quarter ended March 31, 2017.

    • Revenue per fully-diluted share was $2.83 for the three months
      ended March 31, 2018, compared to $2.73 for the fourth quarter of
      2017 and $2.46 for the first quarter of 2017. Excluding investment
      securities gains and losses, revenue per fully-diluted share was
      $2.83 for the three months ended March 31, 2018 and for the three
      months ended Dec. 31, 2017.

“We are reporting almost $700 million in organic loan growth during the
first quarter of 2018, or an 18.0 percent annualized rate of growth,”
Turner said. “Importantly, we are pleased that approximately 50 percent
of this growth was in the commercial and industrial segment. That said,
we will continue to focus on C&I and owner-occupied CRE as our two
primary loan growth segments going forward.”

FOCUSING ON PROFITABILITY:

  • Return on average assets was 1.53 percent for the first quarter of
    2018, compared to 0.48 percent for the fourth quarter of 2017 and 1.41
    percent for the first quarter last year. First quarter 2018 return on
    average tangible assets amounted to 1.67 percent, compared to 0.53
    percent for the fourth quarter of 2017 and 1.47 percent for the first
    quarter last year. In addition to merger-related charges and
    investment securities losses, fourth quarter 2017 results included a
    $31.5 million charge related to the revaluation of the firm’s deferred
    tax assets pursuant to the Tax Cuts and Jobs Act of 2017 (the Tax Act).

    • Excluding the aforementioned merger-related charges, investment
      securities gains and losses and, in the fourth quarter of 2017,
      the revaluation of deferred tax assets, return on average assets
      was 1.60 percent for the first quarter of 2018, compared to 1.36
      percent for the fourth quarter of 2017 and 1.42 percent for the
      first quarter of 2017; likewise, excluding these same items the
      firm’s return on average tangible assets was 1.74 percent for the
      first quarter of 2018, compared to 1.48 percent for both the
      fourth quarter and the first quarter of 2017.
  • Return on average equity for the first quarter of 2018 amounted to
    9.07 percent, compared to 2.87 percent for the fourth quarter of 2017
    and 9.70 percent for the same quarter last year. First quarter 2018
    return on average tangible equity amounted to 18.12 percent, compared
    to 5.76 percent for the fourth quarter of 2017 and 14.74 percent for
    the same quarter last year.

    • Excluding the aforementioned merger-related charges, investment
      securities gains and losses and in the fourth quarter of 2017, the
      impact of the revaluation of deferred tax assets, return on
      average tangible equity amounted to 18.98 percent for the first
      quarter of 2018, compared to 16.11 percent for the fourth quarter
      of 2017 and 14.89 percent for the first quarter of 2017.

“We are pleased with our returns for the first quarter of 2018 and are
excited that we can increase our targeted operating range for ROAA at
this time,” said Harold R. Carpenter, Pinnacle’s chief financial
officer. “All of this points to the confidence we have in our associates
and their ongoing ability to generate solid returns for our
shareholders. Our focus remains on maintaining a work environment second
to none which is critical to attracting the best bankers in our markets.
In the end, we anticipate our associates will continue to gather great
clients and our shareholders will continue to reap the rewards.”

OTHER HIGHLIGHTS:

  • Revenues

    • Net interest income for the quarter ended March 31, 2018 was
      $174.5 million, compared to $174.7 million for the fourth quarter
      of 2017 and $88.8 million for the first quarter of 2017.

      • Net interest margin was 3.77 percent for the first quarter of
        2018, compared to 3.76 percent for the fourth quarter of 2017
        and 3.60 for the first quarter of 2017. Excluding the
        accretion from the application of fair value accounting for
        acquired loans and deposits, the net interest margin expanded
        to approximately 3.42 percent for the first quarter of 2018,
        compared to 3.33 percent for the fourth quarter of 2017 and
        3.39 percent for the first quarter of 2017.
    • Noninterest income for the quarter ended March 31, 2018 was $44.2
      million, compared to $36.5 million for the fourth quarter of 2017
      and $30.4 million for the first quarter of 2017. Excluding
      investment securities gains and losses in each period, noninterest
      income for the three months ended March 31, 2018, amounted to
      $44.2 million compared to $44.8 million for the fourth quarter of
      2017.

      • Wealth management revenues, which include investment, trust
        and insurance services, were $11.3 million for the quarter
        ended March 31, 2018, compared to $9.3 million for the fourth
        quarter of 2017 and $6.4 million for the quarter ended March
        31, 2017. For the quarter ended March 31, 2018, wealth
        management revenues increased 77.6 percent over the quarter
        ended March 31, 2017.
      • Net gains from the sale of residential mortgage loans were
        $3.7 million for the quarter ended March 31, 2018, compared to
        $3.8 million for the fourth quarter of 2017 and $4.2 million
        for the quarter ended March 31, 2017. For the quarter ended
        March 31, 2018, net gains on the sale of residential mortgage
        loans decreased 9.9 percent over the quarter ended March 31,
        2017.
      • Income from the firm’s investment in Bankers Healthcare Group,
        Inc. (BHG) was $9.4 million for the quarter ended March 31,
        2018, compared to $12.4 million for the quarter ended Dec. 31,
        2017 and $7.8 million for the first quarter last year. Income
        from the firm’s investment in BHG grew 19.6 percent for the
        quarter ended March 31, 2018 compared to the quarter ended
        March 31, 2017.

“The first quarter of any year is usually our most difficult revenue
quarter given the fewer number of days impacting both net interest
income and fees,” Carpenter said. “Additionally, during the first
quarter of 2018, impacting net interest income was reduced accretion
from fair value adjustments, which totaled approximately $15.4 million,
down from $19.1 million in the fourth quarter of 2017 and $20.5 million
during the third quarter of 2017. As a result, to overcome these factors
and maintain net interest income essentially flat for the first quarter
is a great accomplishment and, along with our growth in earning assets,
points toward a great start for the remainder of 2018. At March 31,
2018, approximately $148.9 million of discount from loans from past
acquisitions remains on our balance sheet.

“Fees were down slightly on a linked-quarter basis which is not unusual
for the first quarter for our franchise. When comparing fee categories
to the prior year comparable period, most fees show consistent growth
even after excluding the impact of the BNC Bancorp merger. That said,
wealth management’s growth over last year was exceptional reflecting
several key hires that were made in 2017. Additionally, BHG delivered a
strong first quarter with 20 percent growth over the same quarter last
year.

“We fully expect the biggest driver of incremental revenue growth in
2018 to be the balance sheet growth associated with our hiring success.
Our focus will remain on growing share in the commercial and industrial
segment. Our C&I loans are up approximately 34 percent linked quarter
annualized. We fully expect that growth in C&I will lead to future core
deposit and fee growth.”

  • Noninterest expense and taxes

    • Noninterest expense for the quarter ended March 31, 2018 was
      $108.6 million, compared to $123.0 million in the fourth quarter
      of 2017 and $62.1 million in the first quarter last year,
      reflecting a year-over-year increase of 75.0 percent.

      • Salaries and employee benefits were $63.7 million in the first
        quarter of 2018, compared to $63.3 million in the fourth
        quarter of 2017 and $38.4 million in the first quarter of last
        year, reflecting a year-over-year increase of 66.1 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 $5.7 million in
          the first quarter of 2018, compared to $6.8 million in the
          fourth quarter of 2017 and $2.5 million in the first
          quarter of last year.
        • The firm employed 2,148.0 full-time equivalent associates
          at March 31. 2018. During the first quarter of 2018,
          eighteen positions were eliminated as a result of the
          merger with BNC Bancorp. No further reductions in the
          firm’s associate base are contemplated as a result of the
          firm’s merger with BNC Bancorp.
      • The efficiency ratio for the first quarter of 2018 decreased
        to 49.7 percent, compared to 58.2 percent for the fourth
        quarter of 2017. The ratio of noninterest expenses to average
        assets decreased to 1.98 percent for the first quarter of 2018
        from 2.22 percent in the fourth quarter of 2017.

        • Excluding investment securities gains and losses,
          merger-related charges and other real estate owned (ORE)
          expense, the efficiency ratio was 47.6 percent for the
          first quarter of 2018, compared to 47.2 percent for the
          fourth quarter of 2017, and the ratio of noninterest
          expense to average assets was 1.90 percent for the first
          quarter of 2018, compared to 1.87 percent for the fourth
          quarter of 2017.
      • The effective tax rate for the first quarter of 2018 was 19.0
        percent, compared to 67.3 percent for the fourth quarter of
        2017 and 25.8 percent for the first quarter of 2017.

        • The Tax Act reduced the aggregate blended Federal and
          state statutory income tax rate for Pinnacle from 39.23
          percent to 26.14 percent.
        • Fourth quarter 2017 effective tax rate included the impact
          of a $31.5 million charge related to the revaluation of
          the firm’s deferred tax assets as a result of the Tax Act.
        • Impacting Pinnacle’s effective tax rate was FASB
          Accounting Standards Update (ASU) 2016-09, Stock
          Compensation Improvements to Employee Share-Based Payment
          Activity, which represented a change in accounting for the
          tax effects related to vesting of common shares and the
          exercise of stock options previously granted to the firm’s
          employees through its various equity compensation plans.
          This change resulted in a reduction in first quarter 2018
          tax expense of $2.7 million, compared to a reduction of
          $758,000 for the three months ended Dec. 31, 2017 and $3.8
          million for the three months ended March 31, 2017.
        • Inclusive of all of these matters, the firm anticipates an
          effective tax rate of between 21.0 and 22.0 percent for
          calendar year 2018.

“Our synergy case for the BNC Bancorp merger is for all practical
purposes complete,” Carpenter said. “We are now at our target
environment which will be subject to incremental adjustments as we
manage the firm for continued growth. Noninterest expense, excluding
merger-related charges, was less than we anticipated at approximately
$103.2 million in the first quarter of 2018 attributable to a variety of
factors including reduced incentives.”

  • Asset quality

    • Nonperforming assets increased to 0.58 percent of total loans and
      ORE at March 31, 2018, compared to 0.55 percent at Dec. 31, 2017
      and 0.36 percent at March 31, 2017. Nonperforming assets were
      $94.7 million at March 31, 2018, compared to $85.5 million at Dec.
      31, 2017 and $31.3 million at March 31, 2017.
    • The allowance for loan losses represented 0.43 percent of total
      loans at March 31, 2018 and Dec. 31, 2017, compared to 0.68
      percent at March 31, 2017 due primarily to the merger with BNC
      Bancorp.

      • The ratio of the allowance for loan losses to nonperforming
        loans was 100.0 percent at March 31, 2018, compared to 117.0
        percent at Dec. 31, 2017 and 232.9 percent at March 31, 2017.
        At March 31, 2018, purchase credit impaired loans of $14.5
        million, which were recorded at fair value upon acquisition,
        represent 20.6 percent of our nonperforming loans.
      • Net charge-offs were $4.0 million for the quarter ended March
        31, 2018, compared to $4.2 million for the quarter ended Dec.
        31, 2017 and $4.3 million for the quarter ended March 31,
        2017. Annualized net charge-offs as a percentage of average
        loans for the quarter ended March 31, 2018 were 0.10 percent,
        compared to 0.13 percent for the fourth quarter of 2017 and
        0.20 percent for the first quarter of 2017.
      • Provision for loan losses was $6.9 million in the first
        quarter of 2018, compared to $6.3 million in the fourth
        quarter of 2017 and $3.7 million in the first quarter of 2017.

“Overall, asset quality for our firm remains exceptional,” Carpenter
said. “As we had projected last quarter, our commercial real estate to
total risk-based capital ratio increased during the first quarter of
2018 and amounts to 306.2 percent at March 31, 2018 due in part to an
anticipated increase in construction lending. We continue to believe
this ratio will remain above 300 percent of total capital during the
first half of 2018 before falling back within our long-term operating
range of less than 300 percent of total capital during the last half of
2018.”

INVESTOR DAY

Pinnacle will be hosting an investor day for institutional investors and
sell side analysts in Nashville, TN on June 7, 2018. Interested parties
who have not previously registered should email stefanie.watson@pnfp.com
to register.

“We are looking forward to hosting both institutional investors and sell
side analysts for our first ever investor day,” said Turner.
“Participants will have an opportunity to engage other leaders within
our firm as well as gain additional insight as to what we believe are
our opportunities for the future.”

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. (CDT) on
April 17, 2018 to discuss first quarter 2018 results and other matters.
To access the call for audio only, please call 1-877-602-7944. For the
presentation and streaming audio, please access the webcast on the
investor relations page of Pinnacle’s website at www.pnfp.com.

For those unable to participate in the webcast, it will be archived on
the investor relations page of Pinnacle’s website at www.pnfp.com for
90 days following the presentation.

Pinnacle Financial Partners provides a full range of banking,
investment, trust, mortgage and insurance products and services designed
for businesses and their owners and individuals interested in a
comprehensive relationship with their financial institution. The firm
earned a place on FORTUNE’s 2017 and 2018 lists of the 100
Best Companies to Work For in the U.S., and American Banker recognized
Pinnacle as the sixth-best bank to work for in 2017.

The firm began operations in a single location in downtown Nashville, TN
in October 2000 and has since grown to approximately $22.9 billion in
assets as of March 31, 2018. As the second-largest bank holding company
headquartered in Tennessee, Pinnacle operates in 11 primarily urban
markets in Tennessee, the Carolinas and Virginia.

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

Forward-Looking Statements

All statements, other than statements of historical fact, included in
this press release, are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act and Section 21E of the Exchange Act. The words “expect,”
“anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and
similar expressions are intended to identify such forward-looking
statements, but other statements not based on historical information may
also be considered forward-looking statements. These forward-looking
statements are subject to known and unknown risks, uncertainties and
other factors that could cause the actual results to differ materially
from the statements, including, but not limited to: (i) deterioration in
the financial condition of borrowers resulting in significant increases
in loan losses and provisions for those losses; (ii) continuation of the
historically low short-term interest rate environment; (iii) the
inability of Pinnacle Financial, or entities in which it has significant
investments, like BHG, to maintain the historical growth rate of its, or
such entities’, loan portfolio; (iv) changes in loan underwriting,
credit review or loss reserve policies associated with economic
conditions, examination conclusions, or regulatory developments; (v)
effectiveness of Pinnacle Financial’s asset management activities in
improving, resolving or liquidating lower-quality assets; (vi) the
impact of competition with other financial institutions, including
pricing pressures (including those resulting from the Tax Cuts and Jobs
Act) and the resulting impact on Pinnacle Financial’s results, including
as a result of compression to net interest margin; (vii) greater than
anticipated adverse conditions in the national or local economies
including in Pinnacle Financial’s markets throughout Tennessee, North
Carolina, South Carolina and Virginia, particularly in commercial and
residential real estate markets; (viii) fluctuations or unanticipated
changes in interest rates on loans or deposits or that affect the yield
curve; (ix) the results of regulatory examinations; (x) the ability to
grow and retain low-cost core deposits and retain large, uninsured
deposits; (xi) a merger or acquisition; (xii) risks of expansion into
new geographic or product markets; (xiii) any matter that would cause
Pinnacle Financial to conclude that there was impairment of any asset,
including intangible assets; (xiv) reduced ability to attract additional
financial advisors (or failure of such advisors to cause their clients
to switch to Pinnacle Bank), to retain financial advisors (including as
a result of the competitive environment resulting from the Tax Cuts and
Jobs Act) or otherwise to attract customers from other financial
institutions; (xv) further deterioration in the valuation of other real
estate owned and increased expenses associated therewith; (xvi)
inability to comply with regulatory capital requirements, including
those resulting from changes to capital calculation methodologies,
required capital maintenance levels or regulatory requests or
directives, particularly if Pinnacle Financial’s level of applicable
commercial real estate loans continues to exceed percentage levels of
total capital in guidelines recommended by its regulators; (xvii) risks
associated with litigation, including the applicability of insurance
coverage; (xviii) the risk of successful integration of the businesses
Pinnacle Financial has recently acquired with its business; (xix)
approval of the declaration of any dividend by Pinnacle Financial’s
board of directors; (xx) the vulnerability of Pinnacle Bank’s network
and online banking portals, and the systems of parties with whom
Pinnacle Financial contracts, to unauthorized access, computer viruses,
phishing schemes, spam attacks, human error, natural disasters, power
loss and other security breaches; (xxi) the possibility of increased
compliance costs as a result of increased regulatory oversight,
including oversight of companies in which Pinnacle Financial or Pinnacle
Bank have significant investments, like BHG, and the development of
additional banking products for Pinnacle Bank’s corporate and consumer
clients; (xxii) the risks associated with Pinnacle Financial and
Pinnacle Bank being a minority investor in BHG, including the risk that
the owners of a majority of the equity interests in BHG decide to sell
the company if not prohibited from doing so by the terms of our
agreement with them; (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;
(xxiv) the risk that the cost savings and any revenue synergies expected
from Pinnacle Financial’s merger with BNC may not be realized or take
longer than anticipated to be realized; (xxv) disruption from Pinnacle
Financial’s merger with BNC with customers, suppliers, employee or other
business partners relationships; (xxvi) the risk of successful
integration of Pinnacle Financial’s and BNC’s businesses; (xxvii)
reputational risk and the reaction of the parties’ customers, suppliers,
employees or other business partners to Pinnacle Financial’s merger with
BNC; (xxviii) the risk that the integration of Pinnacle Financial’s and
BNC’s operations will be more costly or difficult than expected; (xxix)
the availability and access to capital; (xxx) adverse results (including
costs, fines, reputational harm and/or other negative effects) from
current or future litigation, regulatory examinations or other legal
and/or regulatory actions; and (xxxi) general competitive, economic,
political and market conditions.

Contacts

Pinnacle Financial Partners, Inc.
Media Contact:
Joe
Bass, 615-743-8219
or
Financial Contact:
Harold
Carpenter, 615-744-3742
Website:
www.pnfp.com

Read full story here