Home >> About Pinnacle >> Announcements

Announcements:

MEDIA CONTACT: Vicki Kessler 615-320-7532
FINANCIAL CONTACT: Harold Carpenter 615-744-3742
DETAILED FINANCIALS: Form 8K

PINNACLE FINANCIAL REPORTS RECORD LOAN GROWTH AND EARNINGS OF $0.33 PER FULLY DILUTED SHARE FOR FOURTH QUARTER OF 2007
Fully diluted earnings per share of $0.35, excluding merger related expenses

NASHVILLE, Tenn., Jan. 17, 2008 - Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) today reported strong earnings and continued rapid loan growth for the quarter ended Dec. 31, 2007. Fully diluted earnings per share were $0.33 for the quarter ended Dec. 31, 2007, compared to $0.34 per fully diluted share for the quarter ended Dec. 31, 2006. Excluding merger related expenses associated with its recent acquisition of Mid-America Bancshares Inc. on Nov. 30, 2007, fully diluted earnings per share were $0.35 for the quarter ended Dec. 31, 2007.

Fully diluted earnings per share were $1.34 for the year ended Dec. 31, 2007, compared to $1.18 per fully diluted share for the year ended Dec. 31, 2006. Excluding merger related expenses associated with its recent acquisition of Mid-America Bancshares, fully diluted earnings per share were $1.36 for the year ended Dec. 31, 2007. For the year ended Dec. 31, 2006, fully diluted earnings per share were $1.25 excluding merger related expenses associated with the Cavalry Bancorp Inc. acquisition consummated on March 15, 2006.

Pinnacle also reported a record $155 million in organic loan growth in the fourth quarter of 2007 which contributed to a higher provision expense for the fourth quarter of 2007 when compared to prior quarters.

• Record earnings:
• Net income for the fourth quarter of 2007 was $6.2 million, up 10.6 percent from the prior year's fourth quarter net income of $5.6 million.
• Revenue (the sum of net interest income and noninterest income) for the quarter ended Dec. 31, 2007, amounted to $28.62 million, compared to $22.33 million for the same quarter of last year, an increase of 28.2 percent.
• Superior credit quality:
• Net charge-offs as a percentage of average loan balances were 0.07 percent for the year ended Dec. 31, 2007.
• Nonperforming assets were 0.78 percent of total loans and other real estate at Dec. 31, 2007, compared to 0.54 percent at Dec. 31, 2006. Approximately $11.3 million of nonperforming assets at Dec. 31, 2007, or 0.41 percent of total loans and other real estate, were acquired from the Mid-America acquisition. As a result, nonperforming assets associated with the legacy Pinnacle franchise were 0.37 percent of total loans and other real estate at Dec. 31, 2007.
• Past due loans over 30 days, excluding nonperforming loans, were only 0.45 percent of total loans and other real estate at Dec. 31, 2007, compared to 0.74 percent of total loans and other real estate at Dec. 31, 2006.
• Strong balance sheet growth:
• Loans at Dec. 31, 2007, were $2.75 billion, up $1.25 billion from $1.50 billion at Dec. 31, 2006. The annual increase in loans includes $389 million, or 26 percent, in organic growth and $863 million in loans acquired in conjunction with the Mid-America merger. Loans increased by $1.018 billion during the fourth quarter of 2007, with $155 million of the increase from organic growth, compared to $92 million in organic growth during the same quarter in 2006.
• Total deposits at Dec. 31, 2007, were $2.93 billion, up $1.31 billion from $1.62 billion at Dec. 31, 2006. The increase includes $344 million in organic growth and $987 million in deposits acquired in conjunction with the Mid-America merger.
• Investments in future growth:
• Pinnacle has hired 21 highly experienced associates for the denovo expansion to Knoxville that was announced on April 9, 2007. Pinnacle opened a full service office in May, a loan production office in the Fountain City area of Knoxville in June and is involved in ongoing negotiations on another full service Knoxville location which is expected to open during the last half of 2008. Costs of the Knoxville expansion negatively impacted earnings in 2007 by approximately $0.08 per fully-diluted share for the full year and $0.03 per fully-diluted share in the fourth quarter of 2007.
• Pinnacle's total associate base at Dec. 31, 2007, including the Knoxville expansion and the Mid-America merger, was 702 full-time equivalents (FTEs). Approximately 220 FTEs were added to Pinnacle's associate base in conjunction with the Mid-America merger. Excluding Mid-America, Pinnacle's associate base increased by 78 associates, or by 19.3 percent, during 2007.
• The in-market acquisition of Mid-America was completed on Nov. 30, 2007 adding 11 branches in the Nashville MSA, including three counties not previously served by Pinnacle.
• Market Share
• Based on FDIC market share data as of June 30, 2007, completion of the Mid-America acquisition provides Pinnacle with a No. 4 market share position in the Nashville MSA with only 8.7 percent of deposits leaving significant opportunity for continued dramatic growth. This places Pinnacle behind Regions, SunTrust and Bank of America – all out-of-state regional banks with negative market share trends in Nashville.

"We believe our simple but aggressive plan to hire the best, most experienced bankers in the market will continue to distinguish Pinnacle's financial performance from that of the banks with whom we compete," said M. Terry Turner, Pinnacle's president and CEO. "At a time when most banks are experiencing slowing loan demand and increasing credit costs, Pinnacle's fourth quarter organic loan growth was the largest in the firm's history. Our charge-offs were only 0.07 percent of average loans. We believe this performance compares very favorably to our peers.

"We also remain confident about our potential in the Knoxville market. We established aggressive balance sheet growth goals for our Knoxville expansion believing we could replicate our Nashville model there. Our Knoxville associates exceeded our target for loan growth with approximately $109 million in loans outstanding at Dec. 31, 2007, just eight months following our office opening. This is well ahead of the pace we set in Nashville in our first eight months of operations," said Turner.

FINANCIAL PERFORMANCE AND BALANCE SHEET GROWTH

• Return on average assets for fourth quarter 2007 was 0.89 percent compared to 1.07 percent for the fourth quarter of 2006. Excluding the impact of the Knoxville expansion and Mid-America merger expenses, return on average assets for the fourth quarter of 2007 would have approximated 1.02 percent.
• Return on average stockholders' equity for the quarter ended Dec. 31, 2007, was 8.00 percent compared to 8.83 percent for the fourth quarter of 2006. Excluding the impact of the Knoxville expansion and Mid-America merger expenses, return on average stockholders' equity for the fourth quarter of 2007 would have approximated 9.20 percent. Return on average tangible stockholders' equity (average stockholders' equity less goodwill and core deposit intangibles) for the quarter ended Dec. 31, 2007, was 17.65 percent.

Total assets grew to $3.80 billion as of Dec. 31, 2007, up $1.66 billion from the $2.14 billion reported at the same time last year. The increase in assets includes $536 million in organic growth and $1.12 billion in assets acquired in conjunction with the Mid-America merger. The securities to total assets ratio decreased from 16.17 percent at Dec. 31, 2006, to 13.75 percent at Dec. 31, 2007.

CREDIT QUALITY

• Provision for loan losses was $2,260,000 for the fourth quarter of 2007, compared to $1,051,000 in the fourth quarter of 2006.
• During the fourth quarter of 2007, the firm recorded net charge-offs of $462,000, compared to net charge-offs of $105,000 during the same period in 2006. Annualized net charge-offs to total average loans were 0.07 percent for the year ended Dec. 31, 2007, compared to 0.05 percent for the same period in 2006.
• The increase in provision expense between the fourth quarter of 2007 and the fourth quarter of 2006 was primarily due to the increase in loan balances recorded during the fourth quarter of 2007 over the amount recorded in the fourth quarter of 2006.
• Allowance for loan losses represented 1.04 percent of total loans at Dec. 31, 2007, compared to 1.08 percent a year ago.
• Nonperforming assets as a percentage of total loans and other real estate increased to 0.78 percent at Dec. 31, 2007, from 0.54 percent at Dec. 31, 2006.
• Loan balances (excluding nonperforming loans) with payments past due more than 30 days as a percentage of total loans and other real estate decreased to 0.45 percent at Dec. 31, 2007, from 0.74 percent at Dec. 31, 2006.
• The ratio of the allowance for loan losses to nonperforming loans was 144.7 percent at Dec. 31, 2007, compared to 228.0 percent at Dec. 31, 2006.

"There is no doubt that the health of Nashville's residential real estate market is not as good today as it was a year ago. Yet, compared to other large urban markets in the Southeast and around the country, Nashville is holding up very well. We are cautiously optimistic that our disciplined real estate lending practices and other actions we implemented in 2007 will continue to benefit our asset quality metrics in 2008," said Turner.

Pinnacle reported that approximately 52 percent of its nonperforming assets were related to residential construction.

REVENUE

• Net interest income for fourth quarter 2007 was $22.01 million, compared to $17.39 million for the same quarter last year, an increase of 26.5 percent.
• Net interest margin for the fourth quarter of 2007 was 3.49 percent, compared to a net interest margin of 3.74 percent for the same period last year.
• Noninterest income for fourth quarter 2007 was $6.61 million, a 34.0 percent increase over the $4.93 million recorded during the same quarter in 2006.

"After one month of combined operations, the Mid-America merger contributed approximately $3.1 million to our net interest income in the fourth quarter," said Harold Carpenter, chief financial officer of Pinnacle Financial Partners. "Mid-America's net interest margin improved in recent months such that its net interest margin approximated 3.43 percent in December. Additionally, recent Fed funds decreases have not materially impacted our net interest margins. We do, however, anticipate continued rate decreases in 2008, which will require our continued focus for the remainder of 2008. To mitigate the impact of these decreases, we will continue to reduce the cost of our short-term and maturing funding sources to the extent possible; however, in a competitive marketplace like Nashville, we will always prioritize maintaining valuable customer relationships above short-term margin considerations."

Carpenter also reported that the firm reduced interest income by approximately $202,000 during the fourth quarter of 2007 as a result of loans being transferred to nonperforming status.

The 34.0 percent increase in noninterest income between the fourth quarter of 2007 and the fourth quarter of 2006 was due primarily to increased revenues from existing customers, the continued addition of financial advisors, approximately $543,000 in fees from Mid-America recognized in the fourth quarter of 2007, record investment sales commissions from Pinnacle Asset Management and record gains on the sales of mortgage loans from the firm's mortgage origination unit. During 2007, Pinnacle's mortgage origination unit sold $166.4 million of mortgage loans compared to $132.9 million in 2006, an increase of 25.2 percent.

Noninterest income during the fourth quarter of 2007 represented approximately 23.10 percent of total revenues, compared to 22.10 percent for the same quarter in 2006.

NONINTEREST EXPENSE

• Noninterest expense for the quarter ended Dec. 31, 2007, was $17.76 million ($17.09 million, excluding merger expenses) compared to $13.14 million in the fourth quarter of 2006. Approximately $691,000 of noninterest expense was associated with the Knoxville expansion and approximately $1.72 million of noninterest expense was associated with the former Mid-America franchise during the quarter (exclusive of merger related expenses).
• Compensation expense increased to $9.98 million during the fourth quarter of 2007, compared to $8.15 million during the fourth quarter of 2006, an increase of 22.5 percent.
• During the fourth quarter of 2007 Pinnacle recognized compensation expense related to the expensing of stock options in accordance with Statement of Financial Accounting Standards No. 123R (“SFAS No. 123R”) of approximately $451,000, compared to $303,000 during the same quarter of 2006. For the year ended Dec. 31, 2007, Pinnacle recognized $1.70 million in equity compensation expense related to the expensing of stock options, compared to $1.01 million during 2006.
• The efficiency ratio (noninterest expense divided by net interest income and noninterest income) was 62.1 percent during the fourth quarter of 2007 compared to 62.2 percent for the third quarter of 2007 and 58.8 percent in the fourth quarter of 2006. Excluding merger related expenses, the efficiency ratio was 59.8 percent in the fourth quarter of 2007 compared to an efficiency ratio of 58.6 percent in the fourth quarter of 2006.

Carpenter noted that linked quarter expense growth of $2.7 million between the third and fourth quarters of 2007 was primarily attributable to increased expenses from the Knoxville expansion, the Mid-America merger, the increased number of associates and increasing variable costs associated with the dramatic growth of the firm.

PROGRESS OF THE MID-AMERICA ACQUISITION

On Aug. 15, 2007, Pinnacle reported that the firm had entered into a definitive agreement to acquire the stock of Mid-America Bancshares Inc., a two-bank holding company headquartered in Nashville, Tenn., with assets of approximately $1.1 billion. Pinnacle completed the acquisition of Mid-America on Nov. 30, 2007.

"At this point, we have completed or planned actions that should enable us to achieve our $7 million first-year synergy target," said Turner. "Additionally, we expect that total deal costs, including those costs incurred by Mid-America prior to Nov. 30, 2007, will approximate the $19 million that we initially forecasted at the time of the announcement. Included in that amount is approximately $6.2 million which will be incurred as merger related expense during 2008. We remain on plan to complete systems conversions and all other major integration milestones during the first quarter of 2008.

"Many times it is difficult for high-growth companies to acquire other companies without sacrificing balance sheet and earnings growth for some period of time. It is particularly difficult to continue marketing momentum during the merger integration period. We are pleased to report that during the last half of 2007, Pinnacle experienced organic loan growth of $223 million while Mid-America grew its loan balances by $100 million, which represents more combined organic loan growth than the entities had experienced over previous comparable time periods. This is a great tribute to our associates at both Pinnacle and the former Mid-America who continue to take advantage of the competitive vulnerabilities in the market and execute our growth strategies with precision."

INVESTMENT OUTLOOK

Management has developed several financial forecast scenarios for the next several quarters. Based on anticipated growth trends and future investments in the franchise, including the impact of the Knoxville expansion, Pinnacle estimates its first quarter 2008 diluted earnings per share will approximate $0.32 to $0.36 per fully diluted share, excluding merger related expenses and that its 2008 diluted earnings per share will approximate $1.56 to $1.68 per fully diluted share, excluding merger related expenses. Pinnacle noted that its first quarter 2008 results will be impacted by yet to be realized synergies from Mid-America, compensation increases, and anticipated seasonality in noninterest bearing deposit balances. Concerning the Knoxville expansion, Pinnacle anticipates that Knoxville will be modestly accretive in 2008.

As noted previously, management has developed several scenarios under which these estimates can be achieved and believes these estimates to be reasonable based on these scenarios. However, unanticipated events or developments, including the execution of any initiative which could include the development of any markets other than metropolitan Nashville or Knoxville, any merger or acquisition, the opportunity to hire more seasoned professionals than anticipated, deterioration in economic conditions that impact our borrowers' ability to repay their loans or the ability to grow loans significantly in excess of the levels contemplated may cause the actual results of Pinnacle to differ materially from these estimates.

In 2007, Pinnacle launched an expansion into Knoxville, another high growth MSA. The addition of Mid-America has made Pinnacle the second-largest bank holding company headquartered in Tennessee, with an anticipated 30 offices in the Nashville area once the integration is complete and two in Knoxville.

###

Certain of the statements in this release may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. All forward-looking statements are subject to risks, uncertainties and other facts that may cause the actual results, performance or achievements of Pinnacle to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, (i) unanticipated deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) the inability of Pinnacle to continue to grow its loan portfolio at historic rates, (iii) increased competition with other financial institutions, (iv) lack of sustained growth in the economy in the Nashville-Davidson-Murfreesboro MSA, (v) rapid fluctuations or unanticipated changes in interest rates, (vi) the inability of Pinnacle to satisfy regulatory requirements for its expansion plans, (vii) the inability of Pinnacle to execute its expansion plans and (viii) changes in the legislative and regulatory environment. A more detailed description of these and other risks is contained in Pinnacle's most recent annual report on Form 10-K. Many of such factors are beyond Pinnacle's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle disclaims any obligation to update or revise any forward-looking statements contained in this release, whether as a result of new information, future events or otherwise.