PNFP Reports Diluted EPS of $1.75, ROAA of 1.47% and ROTCE of 16.98% for 3Q2021

Linked quarter loan growth of 2.8% annualized, excluding impact of PPP, loan growth was 15.3% annualized

NASHVILLE, Tenn.–(BUSINESS WIRE)–Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.75 for the quarter ended Sept. 30, 2021, compared to net income per diluted common share of $1.42 for the quarter ended Sept. 30, 2020, an increase of approximately 23.2 percent. Excluding ORE expense for the three months ended Sept. 30, 2021 and 2020 and gains and losses on the sale of investment securities and FHLB restructuring charges for the three months ended Sept. 30, 2020, net income per diluted common share was $1.75 for the three months ended Sept. 30, 2021, compared to $1.45 for the three months ended Sept. 30, 2020, a year-over-year increase of 20.7 percent.

Net income per diluted common share was $5.05 for the nine months ended Sept. 30, 2021, compared to net income per diluted common share of $2.62 for the nine months ended Sept. 30, 2020, an increase of nearly 93 percent. Excluding gains and losses on the sale of investment securities and other real estate (ORE) expense for the nine months ended Sept. 30, 2021 and 2020 and FHLB restructuring charges for the nine months ended Sept. 30, 2020, net income per diluted common share was $5.04 in 2021, compared to $2.72 in 2020, a year-over-year increase of 85.3 percent.

“Despite the ongoing uncertain economic climate, we continue to experience strong organic growth,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “Our business model continued to serve us well during the third quarter. Aggregate loans grew at an annualized rate of 2.8 percent for the quarter, after excluding the impact of PPP forgiveness and paydowns of $664.2 million, other loans increased at an annualized rate of 15.3 percent. We continue to see increased lending opportunities as a result of our now two-decade long focus on hiring the best bankers in our markets.

“We successfully recruited 32 new revenue producers to our firm during the third quarter, and our ongoing recruiting pipelines are as strong as I can remember,” Turner said. “We also remain very excited about our new markets, which include Atlanta, Huntsville and Birmingham, as well as our recent hires in the equipment finance and franchise lending segments. We believe our 2021 end-of-year loan balances should exceed 2020 end-of-year balances by 2 to 5 percent, or by 9 to 12 percent excluding PPP loans. Our current belief is that our 2022 loan growth, with our new markets and the strength of our hiring over the last few years, should produce low-double digit growth assuming an economic environment similar to the one we operate in presently.”

BALANCE SHEET GROWTH:

• Loans at Sept. 30, 2021 were $23.1 billion, an increase of approximately $581.1 million from Sept. 30, 2020, reflecting year-over-year growth of 2.6 percent. Loans at Sept. 30, 2021 increased approximately $160.5 million from June 30, 2021 reflecting linked-quarter annualized growth of 2.8 percent.
  • Loans at Sept. 30, 2021 include approximately $708.7 million of loans issued pursuant to the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP), compared to $2.3 billion at Sept. 30, 2020 and $1.4 billion at June 30, 2021. The average yield on these loans was 8.54 percent for the third quarter of 2021, inclusive of $18.5 million of loan fee accretion recognized during the quarter. At Sept. 30, 2021, $29.2 million in SBA PPP loan fees remained, which should be accreted into net interest income over the next nine months as these loans are repaid and/or are forgiven under the PPP.
    • PPP loans decreased by $664.2 million between June 30, 2021 and Sept. 30, 2021.
    • Excluding PPP loans, total loans increased by $824.7 million during the same period, or 15.3 percent on an annualized basis.
  • Average loans were $23.0 billion for the three months ended Sept. 30, 2021, down $193.0 million from the three months ended June 30, 2021, a linked-quarter annualized reduction of 3.3 percent.
    • Excluding the impact of $983.5 million of average PPP loans outstanding during the three months ended Sept. 30, 2021 and $1.9 billion during the three months ended June 30, 2021, average loans were $22.0 billion for the three months ended Sept. 30, 2021, up $752.9 million from $21.3 billion for the three months ended June 30, 2021, a linked-quarter annualized growth rate of 14.2 percent.
  • At Sept. 30, 2021, the remaining discount associated with fair value accounting adjustments on acquired loans was $17.6 million, compared to $20.6 million at June 30, 2021.
• Deposits at Sept. 30, 2021 were $29.4 billion, an increase of $2.8 billion from Sept. 30, 2020, reflecting year-over-year growth of 10.6 percent. Deposits at Sept. 30, 2021 increased $1.2 billion from June 30, 2021, reflecting a linked-quarter annualized growth rate of 16.3 percent.
  • Average deposits were $28.7 billion for the three months ended Sept. 30, 2021, compared to $28.0 billion for the three months ended June 30, 2021, a linked-quarter annualized growth rate of 10.4 percent.
  • Core deposits were $27.2 billion at Sept. 30, 2021, compared to $22.0 billion at Sept. 30, 2020 and $25.9 billion at June 30, 2021. The linked-quarter annualized growth rate of core deposits in the third quarter of 2021 was 20.3 percent.

“During the third quarter, core deposits increased by 23.5 percent over our balances this time last year,” Turner said. “We are very pleased that approximately 53 percent of the increase in core deposit balances is attributable to increases in noninterest bearing deposits. Our research indicates these increases come from many different sources, including PPP and quantitative easing as well as our depositors continuing to grow their deposit balances due to the ongoing uncertainties that exist in the economy. Approximately 15 percent of our average deposit growth this year is from new accounts.”

REVENUES:

• Revenues for the quarter ended Sept. 30, 2021 were $341.6 million, an increase of $10.2 million from the $331.4 million recognized in the second quarter of 2021, a linked-quarter annualized growth rate of 12.3 percent. Revenues were up $44.0 million from the third quarter of 2020, a year-over-year growth rate of 14.8 percent.
  • Revenue per fully diluted common share was at an all-time record of $4.50 for the three months ended Sept. 30, 2021, compared to $4.37 for the second quarter of 2021 and $3.95 for the third quarter of 2020, a 13.9 percent year-over-year growth rate.
• Net interest income for the quarter ended Sept. 30, 2021 was $237.5 million, compared to $233.2 million for the second quarter of 2021 and $206.6 million for the third quarter of 2020, a year-over-year growth rate of 15.0 percent. Net interest margin was 3.03 percent for the third quarter of 2021, compared to 3.08 percent for the second quarter of 2021 and 2.82 percent for the third quarter of 2020.
  • Impacting the firm’s net interest margin in the second and third quarters of 2021 and the third quarter of 2020 were both the PPP loans and the firm’s decision early in the pandemic to maintain additional on-balance sheet liquidity. The firm estimates its second and third quarter 2021 net interest margin was negatively impacted by approximately 17 basis points as a result of PPP loans and additional liquidity, compared to approximately 40 basis points for the third quarter 2020.
  • Included in net interest income for the third quarter of 2021 was $2.8 million of discount accretion associated with fair value adjustments, compared to $3.3 million of discount accretion recognized in the second quarter of 2021 and $5.6 million in the third quarter of 2020. The firm’s net interest margin was positively impacted by approximately 4 basis points, 3 basis points and 9 basis points, respectively, because of fair value adjustment discount accretion in each of the second and third quarters of 2021 and the third quarter of 2020. There remains $10.8 million of purchase accounting discount accretion as of Sept. 30, 2021.
• Noninterest income for the quarter ended Sept. 30, 2021 was $104.1 million, compared to $98.2 million for the quarter ended June 30, 2021, a linked-quarter annualized increase of 24.0 percent. Compared to $91.1 million for the third quarter of 2020, noninterest income grew 14.3 percent year-over-year.
  • Service charges on deposit accounts were $11.4 million for the third quarter of 2021, compared to $8.9 million for the second quarter of 2021, a linked-quarter annualized increase of more than 100 percent primarily the result of vendor incentives received in the third quarter of 2021. Compared to $9.9 million for the third quarter of 2020, service charges on deposit accounts were up 16.0 percent.
  • Wealth management revenues, which include investment, trust and insurance services, were $17.3 million for the third quarter of 2021, compared to $16.5 million for the second quarter of 2021, a linked-quarter annualized increase of 19.2 percent. Compared to $13.0 million for the third quarter of 2020, wealth management revenues were up 32.7 percent.
  • Income from the firm’s investment in BHG was $30.4 million for the quarter ended Sept. 30, 2021, down from $32.1 million for the quarter ended June 30, 2021 and up from $26.4 million for the quarter ended Sept. 30, 2020.
  • Net gains on mortgage loans sold were $7.8 million during the quarter ended Sept. 30, 2021, up from $6.7 million for the quarter ended June 30, 2021. Net gains on mortgage loans sold were down 59.8 percent from $19.5 million during the quarter ended Sept. 30, 2020. The dramatic year-over-year decline continues to be reflective of the unusual market conditions that existed in 2020.
  • Other noninterest income was $37.2 million for the quarter ended Sept. 30, 2021, compared to $33.7 million for the quarter ended June 30, 2021 and $21.7 million for the quarter ended Sept. 30, 2020, a linked-quarter annualized increase of 41.4 percent and year-over-year growth of 71.7 percent. Contributing to this growth were $8.6 million in income on other equity investments during the three months ended Sept. 30, 2021 compared to income of $7.0 million for the three months ended June 30, 2021 and $460,000 during the three months ended Sept. 30, 2020. Additionally, income from SBA loan sales increased by $2.3 million over the same quarter last year.
• Pre-tax, pre-provision net revenues (PPNR) for the quarter ended Sept. 30, 2021 were $172.8 million, an increase of $7.5 million from the $165.3 million recognized in the second quarter of 2021, a linked-quarter annualized growth rate of 18.1 percent. PPNR was up $19.0 million from the third quarter of 2020, a year-over-year growth rate of 12.3 percent.
  • Excluding gains and losses on the sale of investment securities and ORE expense for the three months ended Sept. 30, 2021 and 2020 and FHLB restructuring charges for the three months ended Sept. 30, 2020, PPNR was $172.7 million, an increase of $8.4 million from the $164.3 million recognized in the second quarter of 2021, a linked-quarter annualized growth rate of 20.5 percent. PPNR, as adjusted, was up $15.8 million from the third quarter of 2020, a year-over-year growth rate of 10.0 percent.

“Several factors contributed to the linked-quarter decline in our net interest margin, which was attributable to the increase in on-balance sheet liquidity driven primarily by forgiveness and paydowns of PPP loans during the quarter,” Pinnacle’s Chief Financial Officer Harold Carpenter said. “Overall loan yields were up slightly at 4.13 percent in the third quarter. Excluding the impact of PPP loan yields, which had an average yield of 8.54 percent, loan yields decreased by 5 basis points in the third quarter of 2021, which offset a 3 basis point decrease in deposit rates.

“Third quarter was a record-breaking fee quarter for our firm. BHG continues to perform and, we believe, create significant franchise value. Mortgage rebounded in the third quarter as our gain on sale revenues increased by 16 percent from the second quarter. Wealth management had another strong quarter primarily due to broader market appreciation as well as the addition of 10 new wealth management advisors since Sept. 30, 2020. Additionally, excluding our investment in BHG, other equity investments had another big quarter, with these investments contributing $8.6 million to third quarter revenues. That was $1.6 million more than the amount recorded in the second quarter, as several of our venture fund investments experienced increased valuations in their underlying portfolios. Collectively, these investments have contributed $19.0 million more in fee income for the first nine months of 2021 compared to the same period last year.”

PROFITABILITY:

• Return on average assets was 1.47 percent for the third quarter of 2021, compared to 1.46 percent for the second quarter of 2021 and 1.26 percent for the third quarter of 2020. Third quarter 2021 return on average tangible assets amounted to 1.55 percent, compared to 1.55 percent for the second quarter of 2021 and 1.33 percent for the third quarter of 2020.
  • Excluding the adjustments described above for the three months ended Sept. 30, 2021, June 30, 2021 and Sept. 30, 2020, return on average assets was 1.47 percent for the third quarter of 2021, compared to 1.46 percent for the second quarter of 2021 and 1.28 percent for the third quarter of 2020. Likewise, excluding those same adjustments, the firm’s return on average tangible assets was 1.55 percent for the third quarter of 2021, compared to 1.54 percent for the second quarter of 2021 and 1.36 percent for the third quarter of 2020.
• Return on average equity for the third quarter of 2021 amounted to 10.18 percent, compared to 10.19 percent for the second quarter of 2021 and 8.92 percent for the third quarter of 2020. Excluding preferred stockholders’ equity for each of the three months ended Sept. 30, 2021, June 30, 2021 and Sept. 30, 2020, respectively, return on average common equity for the third quarter of 2021 amounted to 10.62 percent, compared to 10.65 percent for the second quarter of 2021 and 9.35 percent for the third quarter of 2020. Third quarter 2021 return on average tangible common equity amounted to 16.98 percent, compared to 17.32 percent for the second quarter of 2021 and 15.85 percent for the third quarter of 2020.
  • Excluding the adjustments described above for the three months ended Sept. 30, 2021, June 30, 2021 and June 30, 2020, return on average tangible common equity amounted to 16.97 percent for the third quarter of 2021, compared to 17.22 percent for the second quarter of 2021 and 16.19 percent for the third quarter of 2020.
• Book value per share was $65.36 at Sept. 30, 2021, compared to $61.80 at the end of 2020, an annualized growth rate of 7.7 percent thus far this year. Since Dec. 31, 2016, book value per share has grown at a compound annual growth rate of 15.2 percent.
  • Tangible book value per share was $40.98 at Sept. 30, 2021, compared to $37.25 at the end of 2020, an annualized growth rate of 13.4 percent thus far this year. Since Dec. 31, 2016, tangible book value per share has grown at a compound annual growth rate of 15.4 percent.

“Maintaining our profitability at high levels and growing tangible book value predictably and consistently remain significant priorities for our firm,” Carpenter said. “We continue to look for ways to leverage our excess liquidity into higher earning assets. We are exploring several options that provide a reasonable return while not resulting in excess risk to tangible book value growth.”

MAINTAINING A STRONG BALANCE SHEET:

• Net charge-offs were $9.3 million for the quarter ended Sept. 30, 2021, compared to $10.0 million for the quarter ended June 30, 2021 and $13.1 million for the quarter ended Sept. 30, 2020. Annualized net charge-offs as a percentage of average loans for the quarter ended Sept. 30, 2021 were 0.16 percent, compared to 0.17 percent for the quarter ended June 30, 2021 and 0.23 percent for the quarter ended Sept. 30, 2020.
• Nonperforming assets were 0.24 percent of total loans and ORE at Sept. 30, 2021, compared to 0.27 percent at June 30, 2021 and 0.40 percent at Sept. 30, 2020. Nonperforming assets were $55.1 million at Sept. 30, 2021, compared to $62.7 million at June 30, 2021 and $90.8 million at Sept. 30, 2020.
• The classified asset ratio at Sept. 30, 2021 was 5.6 percent, compared to 6.8 percent at June 30, 2021 and 9.9 percent at Sept. 30, 2020. Classified assets were $196.3 million at Sept. 30, 2021, compared to $233.8 million at June 30, 2021 and $307.8 million at Sept. 30, 2020.
• The allowance for credit losses represented 1.17 percent of total loans at Sept. 30, 2021, compared to 1.20 percent at June 30, 2021 and 1.28 percent at Sept. 30, 2020. Excluding PPP loans, the allowance for credit losses as a percentage of total loans was 1.20 percent at Sept. 30, 2021 compared to 1.27 percent at June 30, 2021 and 1.43 percent at Sept. 30, 2020.
  • The ratio of the allowance for credit losses to nonperforming loans at Sept. 30, 2021 was 575.3 percent, compared to 515.5 percent at June 30, 2021 and 404.3 percent at Sept. 30, 2020.
  • Provision for credit losses was $3.4 million in the third quarter of 2021, compared to $2.8 million in the second quarter of 2021 and was $16.8 million in the third quarter of 2020.

“We continue to be very pleased with our credit performance which we believe is the result of the hard work of our relationship managers and credit officers,” Carpenter said. “The big three soundness measurements of net charge-offs, nonperformers and classified assets are all down from the previous quarter. Our allowance for credit losses as a percentage of total loans decreased to 1.17 percent at Sept. 30, 2021, which was slightly less than the same ratio at June 30, 2021. We believe the reduction in this ratio will continue for the next several quarters and, hopefully, with continued steady improvement in the economy, through next year.”

OPERATING LEVERAGE AND OTHER HIGHLIGHTS:

• The firm’s efficiency ratio for the third quarter of 2021 was 49.4 percent, compared to 50.1 percent for the second quarter of 2021 and 48.3 percent in the third quarter of 2020. The ratio of noninterest expenses to average assets was 1.87 percent for the third quarter of 2021, compared to 1.90 percent in the second quarter of 2021 and 1.69 percent in the third quarter of 2020.
  • Excluding the adjustments described above for the three months ended Sept. 30, 2021, June 30, 2021 and Sept. 30, 2020, the efficiency ratio was 49.5 percent for the third quarter of 2021, compared to 50.4 percent for the second quarter of 2021 and 47.2 percent for the third quarter of 2020. Excluding ORE expense for 2021 and 2020 and FHLB restructuring charges for 2020, the ratio of noninterest expense to average assets was 1.87 percent for the third quarter of 2021, compared to 1.91 percent for the second quarter of 2021 and 1.65 percent for the third quarter of 2020.
• Noninterest expense for the quarter ended Sept. 30, 2021 was $168.9 million, compared to $166.1 million in the second quarter of 2021 and $143.9 million in the third quarter of 2020, reflecting a year-over-year increase of 17.4 percent. Excluding ORE expense for 2021 and 2020, and FHLB restructuring charges for 2020, noninterest expense for the third quarter of 2021 increased 20.6 percent over the third quarter of 2020 and 1.3 percent over the second quarter of 2021.
  • Salaries and employee benefits were $112.4 million in the third quarter of 2021, compared to $110.8 million in the second quarter of 2021 and $90.1 million in the third quarter of 2020, reflecting a year-over-year increase of 24.8 percent.
    • Incentive costs related to the firm’s annual cash incentive plan amounted to approximately $23.4 million in the third quarter of 2021, compared to $25.5 million in the second quarter of 2021 and $15.2 million in the third quarter of 2020.
    • Incentive costs related to the Company’s equity compensation plans amounted to approximately $6.8 million in the third quarter of 2021 compared to $5.7 million in second quarter of 2021 and $4.4 million in the third quarter of 2020.
  • Noninterest expense categories, other than salaries and employee benefits, were $56.4 million in the third quarter of 2021, compared to $55.3 million in the second quarter of 2021 and $53.7 million in the third quarter of 2020, reflecting a year-over-year increase of 5.0 percent.
• The effective tax rate for the third quarter of 2021 was 19.4 percent, compared to 18.9 percent for the second quarter of 2021 and 19.3 percent for the third quarter of 2020.

“As anticipated, expenses were essentially flat when compared to the second quarter of 2021,” Carpenter said. “We continue to accrue our annual cash incentives at the maximum award level and increased our equity incentive accruals to an estimated above-target award. We believe total expenses for the fourth quarter of 2021 should be flat to down from the amounts reported in the second and third quarters of 2021. Looking to 2022, we believe our expense growth should range between 8 to 11 percent in comparison to 2021.”

BOARD OF DIRECTORS DECLARES DIVIDENDS

On Oct. 12, 2021, Pinnacle Financial’s Board of Directors approved a quarterly cash dividend of $0.18 per common share to be paid on Nov. 26, 2021 to common shareholders of record as of the close of business on Nov. 5, 2021. Additionally, the Board of Directors approved a quarterly dividend of approximately $3.8 million, or $16.88 per share (or $0.422 per depositary share), on Pinnacle Financial’s 6.75 percent Series B Non-Cumulative Perpetual Preferred Stock payable on Dec. 1, 2021 to shareholders of record at the close of business on Nov. 16, 2021. The amount and timing of any future dividend payments to both preferred and common shareholders will be subject to the approval of Pinnacle’s Board of Directors.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CT on Oct. 13, 2021, to discuss third quarter 2021 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 is the No. 1 bank in the Nashville-Murfreesboro-Franklin MSA, according to 2021 deposit data from the FDIC. Pinnacle earned a spot on the 2021 list of 100 Best Companies to Work For® in the U.S., its fifth consecutive appearance. American Banker recognized Pinnacle as one of America’s Best Banks to Work For eight years in a row and No. 1 among banks with more than $10 billion in assets in 2020.

Pinnacle owns a 49 percent interest in Bankers Healthcare Group (BHG), which provides innovative, hassle-free financial solutions to healthcare practitioners and other licensed professionals. Great Place to Work and FORTUNE ranked BHG No. 1 on its 2020 list of Best Workplaces in New York State in the small/medium business category.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $36.5 billion in assets as of Sept. 30, 2021. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in 14 primarily urban markets across the Southeast.

Additional information concerning Pinnacle, which is included in the Nasdaq Fin

Contacts

MEDIA CONTACT: Joe Bass, 615-743-8219

FINANCIAL CONTACT: Harold Carpenter, 615-744-3742

WEBSITE: www.pnfp.com

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