PNFP Reports Diluted Earnings per Share of $0.62 for 3Q 2015

Excluding merger-related charges, diluted EPS was a record $0.66 for 3Q 2015

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $0.62 for the quarter ended Sept. 30, 2015, compared to net income per diluted common share of $0.52 for the quarter ended Sept. 30, 2014, an increase of 19.2 percent. Net income per diluted common share was $1.86 for the nine months ended Sept. 30, 2015, compared to net income per diluted common share of $1.48 for the nine months ended Sept. 30, 2014, an increase of 25.7 percent. 

Excluding pre-tax merger-related charges of $2.2 million and $2.3 million for the three months and nine months ended Sept. 30, 2015, respectively, net income per diluted common share was $0.66 for the three months ended Sept. 30, 2015, or a 26.9 percent increase over the same period last year, and $1.90 for the nine months ended Sept. 30, 2015, or a 28.4 percent increase over the nine-month period ended Sept. 30, 2014.

Pinnacle completed the acquisitions of CapitalMark Bank & Trust (CapitalMark) on July 31, 2015 and Magna Bank (Magna) on Sept. 1, 2015. On July 31, 2015, CapitalMark had total assets of approximately $1.2 billion, gross loans of approximately $879.8 million, total deposits of approximately $971.1 million and operated four bank offices in or near Chattanooga and Knoxville, TN. On Sept. 1, 2015, Magna had total assets of approximately $569.3 million, gross loans of approximately $498.8 million, total deposits of approximately $464.1 million and operated five bank offices serving the Memphis, TN market. The financial statements accompanying this press release and the financial condition and results of operations described herein reflect the impact of the acquisitions beginning on the respective acquisition dates and are subject to future refinements to the firm’s purchase accounting adjustments.

“The third quarter was an exceptional one for our firm in terms of ongoing execution of our growth plans, resulting in record earnings growth,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “With the accelerated closing of both the CapitalMark and Magna mergers during the quarter, our associates are now focused on the successful completion of the upcoming technology conversions and the complete integration of these two very valuable franchises into our firm.”

 

Growing the Core Earnings Capacity of the Firm:

• Revenues (excluding securities gains and losses) for the quarter ended Sept. 30, 2015 were a record $83.5 million, an increase of $12.2 million from $71.3 million in the second quarter of 2015. Revenues (excluding securities gains and losses) increased 33.8 percent over the same quarter last year. The firm estimated that revenues from CapitalMark and Magna amounted to approximately $10.7 million during the third quarter.
• Loans at Sept. 30, 2015 were a record $6.336 billion, an increase of $1.506 billion from June 30, 2015 and $1.915 billion from Sept. 30, 2014, reflecting year-over-year growth of 43.3 percent.  
• Approximately $1.3 billion in loan balances at Sept. 30, 2015 were attributable to the former CapitalMark and Magna franchises. Loans attributable to these franchises grew approximately $258.3 million, or 19.0 percent, from loan balances reported as of Sept. 30, 2014. 
• Excluding the impact of loans attributable to the CapitalMark and Magna franchises, legacy Pinnacle loans grew during the third quarter approximately $173.4 million, which was a 14.4 percent annualized growth rate.
• Average balances of noninterest-bearing deposit accounts were $1.690 billion in the third quarter of 2015 and represented approximately 28.6 percent of total average deposit balances for the quarter.
• Third quarter 2015 average noninterest-bearing deposits increased 28.3 percent over the same quarter last year.
• Approximately $142.0 million of the $252.3 million increase in average balances of noninterest bearing deposit accounts from June 30, 2015 is attributable to the former CapitalMark and Magna franchises.
• Excluding the impact of average non-interest bearing deposit accounts attributable to CapitalMark and Magna, average non-interest bearing deposit accounts for the legacy Pinnacle franchise grew $110.3 million during the third quarter, or 30.7 percent in annualized growth.

“The rapid rate of growth in loan and core deposit volumes in the legacy Pinnacle footprint is likely not a surprise to anyone,” Turner said. “However, the equally rapid rate of growth in loans and core deposits in our newly acquired franchises during this period of merger and integration is a testament to our new Pinnacle associates and the quality of the franchises they have built. Additionally, our ongoing recruitment efforts this year in Nashville and Knoxville have added 19 revenue-producing associates as we continue to invest in future growth. This level of recruitment is significantly higher than that of the past few years.”

FOCUSING ON PROFITABILITY:

• The firm’s net interest margin was 3.66 percent for the quarter ended Sept. 30, 2015, compared to 3.65 percent last quarter and 3.79 percent for the quarter ended Sept. 30, 2014.
• Return on average assets was 1.27 percent for the third quarter of 2015, compared to 1.44 percent for the second quarter of 2015 and 1.25 percent for the same quarter last year. Excluding merger-related charges, return on average assets was 1.35 percent for the third quarter of 2015.
• Third quarter 2015 return on average tangible equity amounted to 14.04 percent, compared to 15.39 percent for the second quarter of 2015 and 13.69 percent for the same quarter last year. Excluding merger-related charges, return on average tangible equity amounted to 14.84 percent for the third quarter of 2015.

“We are very pleased with our operating metrics this quarter and continue to believe our metrics compare favorably to most peer groups,” said Harold R. Carpenter, Pinnacle’s chief financial officer.  “We are now in the best banking markets in Tennessee, and even though pricing remains very competitive, we still continue to see significant opportunities to take market share and grow volumes at acceptable spreads.”

 

OTHER THIRD QUARTER 2015 HIGHLIGHTS:

• Revenue growth
• Net interest income for the quarter ended Sept. 30, 2015 increased to a record $62.1 million, compared to $51.8 million for the second quarter of 2015 and $49.5 million for the third quarter of 2014. Net interest income for the nine-month period ended Sept. 30, 2015 increased 25.3 percent as compared to the same period in 2014.

o Noninterest income for the quarter ended Sept. 30, 2015 increased to a record $21.4 million, compared to $20.0 million for the second quarter of 2015 and $12.9 million for the same quarter last year. Noninterest income for the nine months ended Sept. 30, 2015 increased 56.8 percent as compared to the same period in 2014.

• Wealth management revenues, which include investment, trust and insurance services, were $5.1 million for the quarter ended Sept. 30, 2015, compared to $4.7 million for the quarter ended June 30, 2015. Wealth management revenues were $4.5 million for the same quarter last year, resulting in a year-over-year growth rate of 12.6 percent.
• Income from the firm’s investment in Bankers Healthcare Group (BHG) was $5.3 million for the quarter ended Sept. 30, 2015, compared to $4.3 million for the quarter ended June 30, 2015. The firm’s investment in BHG contributed slightly less than $0.07 in diluted earnings per share in both the second and third quarters of 2015.

 

“We continue to see growth in bottom-line earnings during this extended rate cycle,” said Carpenter. “Our emphasis on floating rate credit, as we approach what many believe to be the onset of rising short-term rates, should benefit us in future periods. Fortunately, we operate in robust markets that provide us opportunities to expand our loan volumes and create ongoing revenue growth even during this challenging rate environment. We are also excited about our market extensions into Chattanooga and Memphis and look forward to the additional revenue opportunities that we believe are available to us in those markets.”

 

• Noninterest expense
  • Noninterest expense for the quarter ended Sept. 30, 2015 was $45.1 million, compared to $36.7 million in the second quarter of 2015 and $34.4 million in the same quarter last year. The firm estimated that CapitalMark’s and Magna’s expense base contributed approximately $6.5 million to the firm’s quarterly expense amount.
    • Salaries and employee benefits were $27.7 million in the third quarter of 2015, compared to $23.8 million in the second quarter of 2015 and $21.7 million in the same quarter last year. Approximately $3.1 million of the salaries and employee benefits during the third quarter of 2015 were attributable to CapitalMark and Magna.
    • Merger-related expenses were approximately $2.3 million during the nine months ended Sept. 30, 2015. The firm will continue to incur merger-related expenses in future periods primarily due to increased training costs and the conversions of technology systems, which are scheduled to occur in the fourth quarter of 2015 for Magna and the first quarter of 2016 for CapitalMark.
    • The efficiency ratio for the third quarter of 2015 increased to 54.1 percent and the ratio of noninterest expenses to average assets increased to 2.38 percent, including merger related charges.
    • The firm’s headcount increased to 1,073.5 FTE’s at Sept. 30, 2015, including 103 and 141 FTE’s from our acquisitions of CapitalMark and Magna, respectively. The firm has identified approximately 57 positions that are slated for elimination after the technology conversions.

“Excluding merger and other charges, our efficiency ratio for the third quarter was 52.2 percent, and the ratio of expenses to average assets declined to 2.30 percent, now at our long-term target range,” Carpenter said.  “We are very pleased with these results, especially after the increased hiring we have experienced this year. We believe that we should increase our operating leverage still further in future periods, especially after the technology conversions for CapitalMark and Magna take place.”

• Asset quality

o    Nonperforming assets increased to $35.1 million at Sept. 30, 2015, compared to $24.3 million at June 30, 2015 and $34.0 million at Sept. 30, 2014. Nonperforming assets increased to 0.55 percent of total loans and ORE at Sept. 30, 2015, compared to 0.50 percent at June 30, 2015 and 0.77 percent at Sept. 30, 2014. Approximately, $14.3 million of nonperforming assets at Sept. 30, 2015, were attributable to assets acquired from CapitalMark and Magna.     

o The allowance for loan losses represented 1.01 percent of total loans at Sept. 30, 2015, compared to 1.36 percent at June 30, 2015 and 1.50 percent at Sept. 30, 2014. The decrease is attributable to the inclusion of CapitalMark and Magna loans, which were recorded at their fair value upon acquisition date, and improvements in overall loan quality for the legacy Pinnacle portfolio. The ratio of the allowance for loan losses to nonperforming loans was 210.5 percent at Sept. 30, 2015, compared to 373.6 percent at June 30, 2015 and 305.6 percent at Sept. 30, 2014.

• Net charge-offs were $4.0 million for the quarter ended Sept. 30, 2015, compared to $1.9 million for the second quarter of 2015 and $1.6 million for the quarter ended Sept. 30, 2014. Annualized net charge-offs as a percentage of average loans for the quarter ended Sept. 30, 2015 were 0.20 percent, compared to 0.11 percent for the quarter ended Sept. 30, 2014. 
• Provision for loan losses increased to $2.2 million in the third quarter of 2015 from $1.2 million in the second quarter of 2015 and $851,000 in the third quarter of 2014. 

BOARD OF DIRECTORS DECLARES DIVIDEND

On Oct. 20, 2015, Pinnacle’s Board of Directors also declared a $0.12 per share cash dividend to be paid on Nov. 27, 2015 to common shareholders of record as of the close of business on Nov. 6, 2015. 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. (CDT) on Oct. 21, 2015 to discuss third quarter 2015 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. Pinnacle’s focus begins in recruiting top financial professionals. Great Place to Work^® named Pinnacle one of the best workplaces in the United States on its 2014 Best Small & Medium Workplaces list published in FORTUNE magazine. The American Banker also recognized Pinnacle as the third best bank to work for in the country.

The firm began operations in a single downtown Nashville location in October 2000 and has since grown to more than $8.5 billion in assets at Sept. 30, 2015. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in the state’s four largest markets, Nashville, Memphis, Knoxville and Chattanooga, as well as several surrounding counties.

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

 

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FORWARD-LOOKING STATEMENTS

Certain of the statements in this press 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," "goal," "objective," "intend," "plan," "believe," "should," "hope," “pursue,” "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 factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Such risks include, without limitation, (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 to maintain the historical growth of its 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) increased competition with other financial institutions; (vii) greater than anticipated adverse conditions in the national or local economies including the Nashville-Davidson-Murfreesboro-Franklin MSA, the Knoxville MSA, the Chattanooga, TN-GA MSA and the Memphis, TN-MS-AR MSA, particularly in commercial and residential real estate markets; (viii) rapid fluctuations or unanticipated changes in interest rates on loans or deposits; (ix) the results of regulatory examinations; (x) the ability to retain large, uninsured deposits; (xi) the development of any new market other than the Nashville, Knoxville, Chattanooga or Memphis MSAs; (xii) a merger or acquisition; (xiii) risks of expansion into new geographic or product markets, like the recent expansion into the Chattanooga and Memphis MSAs; (xiv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xv) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Financial), to retain financial advisors (including those at CapitalMark Bank & Trust  and Magna Bank) or otherwise to attract customers from other financial institutions; (xvi) further 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 and required capital maintenance levels; (xviii) risks associated with litigation, including the applicability of insurance coverage; (xix) the risk that the cost savings and any revenue synergies from the recent mergers with CapitalMark and Magna may not be realized or take longer than anticipated to be realized; (xx) disruption from the CapitalMark and Magna mergers with customers, suppliers or employee relationships; (xxi) the risk of successful integration of CapitalMark's and Magna's business with ours; (xxii) the amount of the costs, fees, expenses and charges related to the CapitalMark and Magna mergers; (xxiii) reputational risk and the reaction of Pinnacle Financial's, CapitalMark's and Magna's customers to the recent CapitalMark and Magna mergers; (xxiv) the risk that the integration of CapitalMark's and Magna's operations with Pinnacle Financial's will be materially delayed or will be more costly or difficult than expected; (xxv) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxvi) the vulnerability of our network and online banking portals to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xxvii) the possibility of increased compliance costs as a result of increased regulatory oversight, including oversight of companies in which Pinnacle Financial has significant investments, and the development of additional banking products for our corporate and consumer clients; (xxviii) the risks associated with our being a minority investor in Bankers Healthcare Group, LLC, including the risk that the owners of a majority of the equity interests in Bankers Healthcare Group decide to sell the company; and (xxix) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more detailed description of these and other risks is contained herein and in Pinnacle Financial's most recent annual report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2015 and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission on May 8, 2015 and August 7, 2015. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.