Pinnacle Financial Partners : PNFP Reports Diluted Earnings Per Share of $0.65 for 4Q 2015

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $0.65 for the quarter ended Dec. 31, 2015, compared to net income per diluted common share of $0.53 for the quarter ended Dec. 31, 2014, an increase of 22.6 percent. Net income per diluted common share was $2.52 for the year ended Dec. 31, 2015, compared to net income per diluted common share of $2.01 for the year ended Dec. 31, 2014, an increase of 25.4 percent.

Excluding pre-tax merger-related charges of $2.5 million and $4.8 million for the three months and year ended Dec. 31, 2015, respectively, net income per diluted common share was $0.69 for the three months ended Dec. 31, 2015, or a 30.2 percent increase over the same period last year, and $2.61 for the year ended Dec. 31, 2015, or a 29.9 percent increase over the year ended Dec. 31, 2014.

Pinnacle completed the acquisitions of CapitalMark Bank & Trust (CapitalMark) on July 31, 2015 and Magna Bank (Magna) on Sept. 1, 2015. 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 in the firm’s purchase accounting adjustments.

“I could not be more proud of our associates as I look back on a very successful 2015,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “At the beginning of the year, we outlined several longer-term initiatives, including expansion into Memphis and Chattanooga, investing in fee businesses that we believe will drive shareholder value and continuing our focus on improved bottom-line results. With the acquisitions of CapitalMark and Magna, we now are in a great position to grow our brand in both Chattanooga and Memphis. Earlier in 2015, we also acquired a 30 percent interest in Bankers Healthcare Group (BHG). We believe our partnership with BHG has produced outstanding results for our firm and today we are separately announcing that we have entered into an agreement to increase our investment in BHG. Lastly, excluding merger charges, we are reporting earnings growth of 29.9 percent in 2015. At the beginning of the year, street expectations for earnings growth for our firm approximated 15 percent for 2015, so for our associates to produce these outsized results is a tremendous accomplishment.”

GROWING THE CORE EARNINGS CAPACITY OF THE FIRM:

• Revenues (excluding securities gains and losses) for the quarter ended Dec. 31, 2015 were a record $98.1 million, an increase of $14.6 million from the third quarter of 2015. Revenues (excluding securities gains and losses) increased 51.6 percent over the same quarter last year.
• Loans at Dec. 31, 2015 were a record $6.543 billion, an increase of $207.2 million from Sept. 30, 2015 and $1.953 billion from Dec. 31, 2014, reflecting year-over-year growth of 42.6 percent. Annualized linked-quarter fourth quarter loan growth approximated 13.1 percent when comparing balances as of Dec. 31, 2015 to balances as of Sept. 30, 2015.
• Average balances of noninterest-bearing deposit accounts were $1.949 billion in the fourth quarter of 2015 and represented approximately 28.7 percent of total average deposit balances for the quarter. Fourth quarter 2015 average noninterest-bearing deposits increased 41.9 percent over the same quarter last year.

“We continue to believe that banking firms like ours that are capable of significant core deposit growth will be those most highly valued by investors,” Turner said. “The rapid rate of organic growth in loans and core deposits across our franchise indicates not only that we operate in great banking markets, but also that our core strategies of hiring the best bankers in our markets, focusing on the commercial and affluent consumer segments and competing aggressively with the large regional banking firms continue to produce value for our shareholders. In 2015, exclusive of our acquisitions, our ongoing recruitment efforts added 36 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. As we enter 2016, our recruiting pipelines give me increased optimism that our firm remains the preferred employer for the best bankers in our markets. In general, despite the incremental personnel and related expenses, the quality and success of our new hires has enabled us to drive our efficiency and noninterest expense to average asset ratios, excluding merger-related expenses, to their best levels ever.”

FOCUSING ON PROFITABILITY:

• The firm’s net interest margin was 3.73 percent for the quarter ended Dec. 31, 2015, compared to 3.66 percent last quarter and 3.76 percent for the quarter ended Dec. 31, 2014.
• Return on average assets was 1.24 percent for the fourth quarter of 2015, compared to 1.27 percent for the third quarter of 2015 and for the same quarter last year. Excluding merger-related charges, return on average assets was 1.31 percent for the fourth quarter of 2015.
• Fourth quarter 2015 return on average tangible equity amounted to 14.97 percent, compared to 14.49 percent for the third quarter of 2015 and 13.52 percent for the same quarter last year. Excluding merger-related charges, return on average tangible equity amounted to 15.81 percent for the fourth quarter of 2015.

“Even with significant investments in new markets and new associates in 2015, we experienced improvement in substantially all of our profitability metrics after excluding merger-related charges,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “We will continue to monitor our planned and actual performance against all of our long-term profitability targets, as we believe those targets have helped guide us to be one of the most profitable banking firms in the country. That said, even though profitability metrics are important, the consistent growth of the core earnings capacity of our franchise will remain our primary focus.”

OTHER FOURTH QUARTER 2015 HIGHLIGHTS:

• Revenue growth
  • Net interest income for the quarter ended Dec. 31, 2015 increased to a record $71.5 million, compared to $62.1 million for the third quarter of 2015 and $50.3 million for the fourth quarter of 2014. Net interest income for the year ended Dec. 31, 2015 increased 22.6 percent as compared to the same period in 2014.
  • Noninterest income for the quarter ended Dec. 31, 2015 increased to a record $26.6 million, compared to $21.4 million for the third quarter of 2015 and $14.4 million for the same quarter last year. Noninterest income for the year ended Dec. 31, 2015 increased 64.5 percent as compared to the same period in 2014.
    • Wealth management revenues, which include investment, trust and insurance services, were $5.4 million for the quarter ended Dec. 31, 2015, compared to $5.1 million for the quarter ended Sept. 30, 2015, resulting in a year-over-year growth rate of 6.2 percent.
    • Income from the firm’s investment in BHG was $7.8 million for the quarter ended Dec. 31, 2015, compared to $5.3 million for the quarter ended Sept. 30, 2015. The firm’s investment in BHG contributed slightly less than $0.12 in diluted earnings per share in the fourth quarter of 2015, compared to $0.07 in each of the second and third quarters of 2015.

“Given our relatively recent transition to asset sensitivity, we were pleased to see the mid-December Fed funds rate increase,” Carpenter said. “Since that date and through mid-January, approximately $2.16 billion in loans have repriced, while our funding costs have increased only modestly. We also remain pleased with our BHG investment and the results it has provided to our firm. We are announcing separately today that we have committed to increase our investment in BHG. We continue to believe future opportunities are available to both firms as a result of our partnership.”

• Noninterest expense
  • Noninterest expense for the quarter ended Dec. 31, 2015 was $52.2 million, compared to $45.1 million in the third quarter of 2015 and $34.4 million in the same quarter last year.
    • Salaries and employee benefits were $30.9 million in the fourth quarter of 2015, compared to $27.7 million in the third quarter of 2015 and $23.0 million in the same quarter last year. Incentive costs associated with the firm’s annual cash incentive plan amounted to $3.9 million in the fourth quarter of 2015, compared to $3.6 million in the third quarter of 2015.
    • Merger-related expenses were approximately $4.8 million during the year ended Dec. 31, 2015. The firm will continue to incur additional merger-related expenses for CapitalMark and Magna in future periods primarily due to increased training costs and the conversions of technology systems.
    • The efficiency ratio for the fourth quarter of 2015 decreased to 53.2 percent from 54.0 percent in the third quarter of 2015, and the ratio of noninterest expenses, including merger-related charges, to average assets increased to 2.42 percent from 2.38 in the third quarter of 2015. Excluding merger-related charges, ORE expense and FHLB prepayment charges, the efficiency ratio for the fourth quarter of 2015 decreased to 50.6 percent, and the ratio of noninterest expenses to average assets decreased to 2.30 percent.
    • The firm’s headcount increased to 1,058.5 FTE’s at Dec. 31, 2015, including 213 FTE’s from the entities acquired in 2015.

“As we look at our quarterly expense run rates going into 2016, we do expect expense increases but don’t expect our efficiency or noninterest expense to average asset ratios to increase,” Carpenter said. “We are very pleased with the operating leverage that has been created over the last few years and will continue to work to improve our operating metrics. Our belief continues to be that investors will reward those franchises that can demonstrate the ability to operate a growing franchise profitably and efficiently.”

• Asset quality
  • Nonperforming assets increased to $36.3 million at Dec. 31, 2015, compared to $35.8 million at Sept. 30, 2015 and $28.6 million at Dec. 31, 2014. Nonperforming assets decreased to 0.55 percent of total loans and ORE at Dec. 31, 2015, compared to 0.57 percent at Sept. 30, 2015 and 0.62 percent at Dec. 31, 2014.
  • The allowance for loan losses represented 1.00 percent of total loans at Dec. 31, 2015, compared to 1.01 percent at Sept. 30, 2015 and 1.47 percent at Dec. 31, 2014. The ratio decrease is partially attributable to increasing total loans as a result of our two bank acquisitions. Those loans were recorded at their fair value upon acquisition date. The ratio decrease is also attributable to improvements in overall loan quality for the legacy Pinnacle portfolio. The ratio of the allowance for loan losses to nonperforming loans was 222.9 percent at Dec. 31, 2015, compared to 212.2 percent at Sept. 30, 2015 and 403.2 percent at Dec. 31, 2014.
    • Net charge-offs were $3.8 million for the quarter ended Dec. 31, 2015, compared to $4.0 million for the third quarter of 2015 and $842,000 for the quarter ended Dec. 31, 2014. Annualized net charge-offs as a percentage of average loans for the quarter ended Dec. 31, 2015 were 0.21 percent, compared to 0.10 percent for the quarter ended Dec. 31, 2014.
    • Provision for loan losses increased to $5.5 million in the fourth quarter of 2015 from $2.2 million in the third quarter of 2015 and $2.0 million in the fourth quarter of 2014.

BOARD OF DIRECTORS DECLARES DIVIDEND

On Jan. 19, 2016, Pinnacle’s Board of Directors increased the quarterly cash dividend to $0.14 per common share to be paid on Feb. 26, 2016 to common shareholders of record as of the close of business on Feb. 5, 2016. 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. (CST) on Jan. 20, 2016 to discuss fourth 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. The American Banker recognized Pinnacle as the third best bank to work for in the country in 2015.

The firm began operations in a single downtown Nashville location in October 2000 and has since grown to more than $8.7 billion in assets at Dec. 31, 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.

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) failure of the closing conditions to Pinnacle Financial’s additional investment in BHG to be satisfied; (ii) Pinnacle Bank’s inability to issue debt financing in connection with its investment in BHG in amounts and on terms acceptable to it; (iii) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; (iv) continuation of the historically low short-term interest rate environment; (v) 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 subsidiaries’, loan portfolio; (vi) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (vii) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (viii) increased competition with other financial institutions; (ix) 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; (x) rapid fluctuations or unanticipated changes in interest rates on loans or deposits; (xi) the results of regulatory examinations; (xii) the ability to retain large, uninsured deposits; (xiii) the development of any new market other than the Nashville, Knoxville, Chattanooga or Memphis MSAs; (xiv) a merger or acquisition; (xv) risks of expansion into new geographic or product markets, like the expansion into the Chattanooga and Memphis MSAs; (xvi) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xvii) 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; (xviii) further deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xix) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels; (xx) risks associated with litigation, including the applicability of insurance coverage; (xxi) the risk that the cost savings and any revenue synergies from the mergers with CapitalMark and Magna may not be realized or take longer than anticipated to be realized; (xxii) disruption from the CapitalMark and Magna mergers with customers, suppliers or employee relationships; (xxiii) the risk of successful integration of CapitalMark's and Magna's business with ours; (xxiv) the amount of the costs, fees, expenses and charges related to the CapitalMark and Magna mergers; (xxv) reputational risk and the reaction of Pinnacle Financial's, CapitalMark's and Magna's customers to the CapitalMark and Magna mergers; (xxvi) 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; (xxvii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxviii) 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; (xxix) 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; (xxx) 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 if not prohibited from doing so by the terms of our agreement with them; and (xxxi) 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, August 7, 2015 and November 9, 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.