PNFP Reports Record Diluted Earnings Per Share of $0.64 for 2Q 2015

NASHVILLE, Tenn.--(BUSINESS WIRE)--Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $0.64 for the quarter ended June 30, 2015, compared to net income per diluted common share of $0.49 for the quarter ended June 30, 2014, an increase of 30.6 percent. Net income per diluted common share was $1.25 for the six months ended June 30, 2015, compared to net income per diluted common share of $0.96 for the six months ended June 30, 2014, an increase of 30.2 percent.

“Second quarter was a period of outstanding focus and execution by Pinnacle associates throughout the firm,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “Important strategic initiatives like building a capital markets unit and emphasizing commercial real estate lending continued to build momentum during the quarter. We made great progress in assimilating a new banking team in Memphis and planning for the integration of two outstanding banking franchises, Magna Bank in Memphis and CapitalMark Bank & Trust in Chattanooga. Perhaps most importantly, we continued the rapid organic balance sheet and earnings growth in our core franchise in Nashville and Knoxville with core earnings expansion for the 17^th consecutive quarter.”

GROWING THE CORE EARNINGS CAPACITY OF THE FIRM:

• Revenues (excluding securities gains and losses) for the quarter ended June 30, 2015 were a record $71.3 million, an increase of $1.5 million from $69.8 million in the first quarter of 2015. Revenues (excluding securities gains and losses) increased 19.2 percent over the same quarter last year.

• Loans at June 30, 2015 were a record $4.830 billion, an increase of $185.1 million from March 31, 2015 and $514.8 million from June 30, 2014, reflecting year-over-year growth of 11.9 percent.
• Average balances of noninterest-bearing deposit accounts were $1.437 billion in the second quarter of 2015 and represented approximately 29.4 percent of total average deposit balances for the quarter, another record for the firm. Second quarter 2015 average noninterest-bearing deposits increased 19.5 percent over the same quarter last year.
• Return on average assets was 1.44 percent for the second quarter of 2015, compared to 1.45 percent for the first quarter of 2015 and 1.21 percent for the same quarter last year. Second quarter 2015 return on average tangible equity amounted to 15.39 percent, compared to 15.56 percent for the first quarter of 2015 and 13.50 percent for the same quarter last year.

• The firm’s investment in Bankers Healthcare Group (BHG) contributed slightly less than $0.07 in diluted earnings per share in the second quarter.
• The firm’s recruitment of several banking professionals in the Memphis market resulted in an almost $0.01 reduction in diluted earnings per share for the second quarter, which was consistent with the firm’s expectations.
• During the second quarter of 2015, Pinnacle had two nonrecurring transactions. The firm recorded net gains of approximately $556,000 related to the sale of investment securities and incurred approximately $479,000 in prepayment charges related to the early extinguishment of FHLB advances.

“Loan growth, which was outstanding in the second quarter, is viewed by many others as the barometer of our success,” Turner said. “However, our view has always been that a better indication of true success is core deposit growth. Even in a quarter with significant loan growth, we were able to grow our core deposits at an even faster rate. We also have enjoyed great hiring success year-to-date and believe our model of hiring the best bankers will enable us to continue our rapid organic balance sheet growth in Nashville and Knoxville as well as our new markets, Memphis and Chattanooga.”

OTHER SECOND QUARTER 2015 HIGHLIGHTS:

• Revenue growth
  • Net interest income for the quarter ended June 30, 2015 increased to $51.8 million, compared to $51.3 million for the first quarter of 2015 and $47.2 million for the second quarter of 2014. Net interest income for the six-month period ended June 30, 2015 increased 10.7 percent as compared to the same 2014 period.
    • The firm’s net interest margin was 3.65 percent for the quarter ended June 30, 2015, compared to 3.78 percent last quarter and 3.71 percent for the quarter ended June 30, 2014.
  • Noninterest income for the quarter ended June 30, 2015 increased to a record $20.0 million, compared to $18.5 million for the first quarter of 2015 and $12.6 million for the same quarter last year. Noninterest income for the six months ended June 30, 2015 increased 52.0 percent as compared to the same 2014 period.
    • Wealth management revenues, which include investment, trust and insurance services, were $4.7 million for the quarter ended June 30, 2015, compared to $5.1 million for the quarter ended March 31, 2015 due primarily to insurance contingency fees typically received in the first quarter of each year. Wealth management revenues were $4.4 million for the same quarter last year.
    • Income from our equity method investment in BHG was $4.3 million for the quarter ended June 30, 2015, compared to $3.2 million for the quarter ended March 31, 2015. The firm acquired a 30 percent interest in BHG on Feb. 1, 2015.
    • Other noninterest income increased by approximately $385,000 between the first and second quarters of 2015 to $5.7 million, primarily due to increased interchange revenues and fees collected from customer interest rate swap transactions.

“Although we experienced growth in our net interest income in the second quarter, we also experienced a decrease of approximately 0.11 percent in asset yields, which had remained fairly steady for several quarters,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “This resulted in our net interest margin of 3.65 percent, which is below the low end of our target range of 3.70 percent. The decrease in the net interest margin for the quarter was a result of increased pricing competition for loans as well as the ongoing process of repositioning our balance sheet for rising rates.

“We continue to believe our organic growth model will provide us the necessary volumes to maintain our track record of quarter-over-quarter revenue growth during what we hope to be a relatively short time period before the long-awaited rising rate environment,” Carpenter continued. “Ongoing organic growth will be the foundation of our business model in our targeted four Tennessee markets. The integration of CapitalMark and Magna are on track for a third quarter 2015 merger close. Both franchises are growing their revenue base currently, and we fully expect their growth to continue post-merger. We believe being able to grow a banking franchise in the midst of a merger is unusual and a testament to the quality of the personnel and leadership at both of these franchises.”

Approvals from the primary regulators, the Tennessee Department of Financial Institutions and the Federal Deposit Insurance Corporation, have been obtained for the previously announced mergers. Carpenter noted that the primary pending items related to the legal closings were the required shareholder votes at both CapitalMark and Magna as well as the approval by various agencies for which Magna Bank services residential mortgages. Furthermore, Carpenter stated that Pinnacle Bank was in the process of completing a currently estimated $50 million subordinated debt issuance to various accredited institutional investors and that this debt issuance should be completed before July 31, 2015.

• Noninterest expense
  • Noninterest expense for the quarter ended June 30, 2015 was $36.7 million, compared to $36.8 million in the first quarter of 2015 and $33.9 million in the same quarter last year.
    • Salaries and employee benefits were $23.8 million in the second quarter of 2015, compared to $23.5 million in the first quarter of 2015 and $21.8 million in the same quarter last year.
    • Merger-related expenses were approximately $59,000 in the second quarter of 2015. The firm expects these costs to increase significantly over the next several quarters as the merger process moves forward, including 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.

“We continued to experience improved operating leverage in the second quarter with another record efficiency ratio of 51.1 percent,” Carpenter said. “We are very excited about this result given the increased hiring we have experienced in our markets this year. As we announced in May, we originally recruited a Memphis banking team of eight banking professionals, which has since expanded to 11. In addition, we have added 12 new revenue producers to our ranks in Nashville and Knoxville this year with others in the pipeline that, hopefully, will find their way to our firm.

“As we have stated in the past, the achievement of improved operating leverage is based on increasing our revenues along with the careful management of our expense base. As a firm, we remain focused on revenue growth and achieving it by recruiting the best financial professionals in our markets.”

• Asset quality
  • Nonperforming assets decreased to $24.3 million at June 30, 2015, compared to $25.4 million at March 31, 2015 and $28.6 million at June 30, 2014. Nonperforming assets decreased to 0.50 percent of total loans and ORE at June 30, 2015, compared to 0.54 percent at March 31, 2015 and 0.66 percent at June 30, 2014.
  • The allowance for loan losses represented 1.36 percent of total loans at June 30, 2015, compared to 1.43 percent at March 31, 2015 and 1.55 percent at June 30, 2014. The ratio of the allowance for loan losses to nonperforming loans was 373.6 percent at June 30, 2015, compared to 391.6 percent at March 31, 2015 and 426.6 percent at June 30, 2014.
    • Net charge-offs were $1.9 million for the quarter ended June 30, 2015, compared to $1.4 million for the first quarter of 2015 and $890,000 for the quarter ended June 30, 2014. Annualized net charge-offs as a percentage of average loans for the quarter ended June 30, 2015 were 0.16 percent, compared to 0.08 percent for the quarter ended June 30, 2014.
    • Provision for loan losses increased from $254,000 in the second quarter of 2014 to $1.2 million in the second quarter of 2015, which reflects the impact of increased loan volumes and net chargeoffs offset by an overall decrease in the allowance for loan losses. The allowance for loan losses decreased from 1.55 percent at June 30, 2014 to 1.36 percent at June 30, 2015, based on improvements in overall loan quality.

BOARD OF DIRECTORS DECLARES DIVIDEND

On July 21, 2015, Pinnacle’s Board of Directors also declared a $0.12 per share cash dividend to be paid on Aug. 31, 2015 to common shareholders of record as of the close of business on Aug. 7, 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 July 22, 2015 to discuss second 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.

The firm began operations in a single downtown Nashville location in October 2000 and has since grown to approximately $6.5 billion in assets at June 30, 2015. At June 30, 2015, Pinnacle is the second-largest bank holding company headquartered in Tennessee, with 29 offices in eight Middle Tennessee counties and five offices in Knoxville. The firm expanded to West Tennessee in April 2015 with a loan-production office in Memphis. Additionally, 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 second best bank to work for in the country.

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

Additional Information and Where to Find It

In connection with the proposed mergers of CapitalMark Bank & Trust ("CapitalMark") and Magna Bank ("Magna") with and into Pinnacle Bank, Pinnacle Financial Partners, Inc. ("Pinnacle") has filed registration statements on Form S-4 and on Form S-4A with the Securities and Exchange Commission (the "SEC") that have been declared effective by the SEC to register the shares of Pinnacle common stock that will be issued to CapitalMark's and Magna's shareholders in connection with the transactions. The registration statements include a proxy statement/prospectus (that is being delivered to CapitalMark's and Magna's shareholders in connection with their required approval of the proposed mergers) and other relevant materials in connection with the proposed merger transactions involving Pinnacle Bank and each of CapitalMark and Magna.

INVESTORS AND SECURITY HOLDERS ARE ENCOURAGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGERS BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT PINNACLE, CAPITALMARK, MAGNA AND THE PROPOSED MERGERS.

Investors and security holders may obtain free copies of these documents through the website maintained by the SEC at http://www.sec.gov. Free copies of each proxy statement/prospectus also may be obtained by directing a request by telephone or mail to Pinnacle Financial Partners Inc., 150 3^rd Avenue South, Suite 900, Nashville, TN 37201, Attention: Investor Relations (615) 744-3742; CapitalMark, 801 Broad St., Chattanooga, TN 37402, Attention: Investor Relations (423) 386-2828; or Magna, 6525 Quail Hollow Road, Suite 513, Memphis, TN 38120 Attention: Shareholder Services (901) 259-5600.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

FORWARD-LOOKING STATEMENTS

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," "goal," "objective," "intend," "plan," "believe," "should," "hope," "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 and the Knoxville 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 Nashville or Knoxville; (xii) a merger or acquisition, like the proposed mergers with CapitalMark and Magna; (xiii) risks of expansion into new geographic or product markets, like the proposed expansion into the Chattanooga, TN-GA and Memphis, TN-MS-AR MSAs associated with the proposed mergers with CapitalMark and Magna; (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) 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 proposed mergers with CapitalMark and Magna may not be realized or take longer than anticipated to be realized; (xx) disruption from the mergers with customers, suppliers or employee relationships; (xxi) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreements that Pinnacle Financial and Pinnacle Bank have entered into with CapitalMark and Magna; (xxii) the risk of successful integration of CapitalMark’s and Magna’s business with ours; (xxiii) the failure of CapitalMark’s and Magna’s shareholders to approve the mergers; (xxiv) the amount of the costs, fees, expenses and charges related to the mergers; (xxv) reputational risk and the reaction of Pinnacle Financial’s, CapitalMark’s and Magna’s customers to the proposed mergers; (xxvi) the failure of the closing conditions to be satisfied; (xxvii) 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; (xxviii) the possibility that the mergers may be more expensive to complete than anticipated, including as a result of unexpected factors or events; (xxix) the dilution caused by Pinnacle’s issuance of additional shares of its common stock in the mergers; (xxx) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxxi) 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; (xxxii) 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; and (xxxiii) 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 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 Report on Form 10-Q filed with the Securities and Exchange Commission on May 8, 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.