PNFP Reports Diluted EPS of $1.42, ROAA of 1.26% and ROTCE of 15.85% For 3Q 2020

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.42 for the quarter ended Sept. 30, 2020, compared to net income per diluted common share of $1.44 for the quarter ended Sept. 30, 2019, a decrease of 1.4 percent. Excluding gains and losses on the sale of investment securities and ORE expense for the three months ended Sept. 30, 2020 and 2019 and FHLB restructuring charges for the three months ended Sept. 30, 2020, net income per diluted common share was $1.45 for both the three months ended Sept. 30, 2020 and 2019.

Net income per diluted common share was $2.62 for the nine months ended Sept. 30, 2020, compared to net income per diluted common share of $3.97 for the nine months ended Sept. 30, 2019, a decrease of 34.0 percent. Excluding gains and losses on the sale of investment securities and ORE expense for the nine months ended Sept. 30, 2020 and 2019, FHLB restructuring charges for the nine months ended Sept. 30, 2020, and branch rationalization charges and a loss from the sale of Pinnacle Bank's non-prime automobile portfolio for the nine months ended Sept. 30, 2019, net income per diluted common share was $2.72 in 2020, compared to $4.11 in 2019, a year-over-year decrease of 33.8 percent.

"Late in the first quarter, we transitioned our firm from an offensive to a defensive posture, which entailed things like allocating significant resources to the re-risk grading of a significant portion of our loan portfolio and limiting the continuous recruitment and hiring of revenue producers, which has been a key driver historically in our outsized growth," said M. Terry Turner, Pinnacle's president and chief executive officer. "Subsequently, we also altered our internal communications and annual cash incentive plan to encourage associates to aggressively identify and deal with any problem credits while continuing to focus on growing pre-tax, pre-provision net revenues (PPNR) for the remainder of 2020 as we seek to better position our firm to grow EPS at the conclusion of the economic disruption resulting from the pandemic. Key emphasis and initiatives that we launched in support of growing PPNR included lowering our cost of client deposits, growing low-cost core deposits to replace non-core funding, negotiating floors on new and renewed loans and increasing our total share-of-wallet from our existing clients."

BALANCE SHEET GROWTH:

• Loans at Sept. 30, 2020 were $22.5 billion, an increase of $3.1 billion from Sept. 30, 2019, reflecting year-over-year growth of 16.2 percent. Loans at Sept. 30, 2020 decreased approximately $42.9 million from June 30, 2020. Loan volumes at Sept. 30, 2020 include approximately $2.3 billion of loans issued through the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP) during the second quarter of 2020. The average yield on these loans, inclusive of $9.8 million of loan fee accretion recognized in the quarter, was 2.77 percent for the third quarter of 2020.
  • Average loans were $22.5 billion for the three months ended Sept. 30, 2020, up $236.0 million from $22.3 billion for the three months ended June 30, 2020, a linked-quarter annualized growth rate of 4.2 percent.
  • At Sept. 30, 2020, the remaining discount associated with fair value accounting adjustments on acquired loans was $32.3 million, compared to $38.0 million at June 30, 2020.
  • At Sept. 30, 2020, there were $60.2 million in SBA PPP loan fees remaining, which should be accreted into net interest income over the next two years as these loans are paid by borrowers or are forgiven under the PPP.

• Deposits at Sept. 30, 2020 were a record $26.5 billion, an increase of $6.5 billion from Sept. 30, 2019, reflecting year-over-year growth of 32.7 percent. Deposits at Sept. 30, 2020 increased $1.0 billion from June 30, 2020, reflecting a linked-quarter annualized growth rate of 16.0 percent.
  • Average deposits were $26.4 billion for the three months ended Sept. 30, 2020, compared to $24.8 billion for the three months ended June 30, 2020, a linked-quarter annualized growth rate of 24.9 percent.
  • Core deposits were $22.0 billion at Sept. 30, 2020, compared to $17.1 billion at Sept. 30, 2019 and $21.4 billion at June 30, 2020. The linked-quarter annualized growth rate of core deposits in the third quarter of 2020 was 11.4 percent.

"Core deposit growth, excluding the impact of the Paycheck Protection Program, has been tremendous and continues to be a real highlight for 2020," Turner said. "Although it is difficult to measure precisely the level of increased deposits that came to us from the PPP, our research continues to indicate that our PPP borrowers have increased their deposit balances with our firm by roughly $1.5 billion between March 31, 2020 and Sept. 30, 2020, or approximately 44.0 percent of our core deposit growth of $3.4 billion during that same time period. So our initiatives to grow low-cost core deposits beyond any growth associated with PPP borrowers have yielded great results.

"Since the onset of the pandemic, we have been discussing that loan growth will be soft for the next few quarters due to the pandemic. Traditionally, our business model has produced outsized growth as we are continually focused on recruiting revenue producers to our firm. Earlier this year, we elected to pull back on our planned recruiting. Even with that, for the first nine months of 2020 we have attracted 56 revenue producers to our firm compared to 67 for the first nine months of 2019. We are now experiencing increased interest from many revenue producers at the regional and national firms. Thus, we are re-connecting with these prospective hires as we believe they will enable us to capitalize on the massive market-share take away opportunity that Greenwich Associates is predicting for our industry based on the number of middle-market businesses that have indicated they intend to switch banks. According to Greenwich, handling of loan requests during the pandemic and poor service of PPP lending has put an unusually large number of clients in play. In addition to our ability to attract some of the best relationship managers from these larger regional and national franchises, we believe our record for a client-friendly approach to handling payment deferrals and our outsized performance on PPP lending should enable us to harvest a great number of vulnerable clients from our larger competitors."

PROFITABILITY:

• Return on average assets was 1.26 percent for the third quarter of 2020, compared to 0.77 percent for the second quarter of 2020 and 1.62 percent for the third quarter of 2019. Third quarter 2020 return on average tangible assets amounted to 1.33 percent, compared to 0.81 percent for the second quarter of 2020 and 1.74 percent for the third quarter of 2019.
  • Excluding the adjustments described above for both 2020 and 2019, return on average assets was 1.28 percent for the third quarter of 2020, compared to 0.82 percent for the second quarter of 2020 and 1.62 percent for the third quarter of 2019. Likewise, excluding those same adjustments, the firm’s return on average tangible assets was 1.36 percent for the third quarter of 2020, compared to 0.87 percent for the second quarter of 2020 and 1.74 percent for the third quarter of 2019.

• Return on average equity for the third quarter of 2020 amounted to 8.92 percent, compared to 5.58 percent for the second quarter of 2020 and 10.28 percent for the third quarter of 2019. Excluding preferred stockholders' equity for the three months ended Sept. 30 and June 30, 2020, respectively, return on average common equity for the third quarter of 2020 amounted to 9.35 percent, compared to 5.66 percent for the second quarter of 2020 and 10.28 percent for the third quarter of 2019. Third quarter 2020 return on average tangible common equity amounted to 15.85 percent, compared to 9.77 percent for the second quarter of 2020 and 18.28 percent for the third quarter of 2019.
  • Excluding the adjustments described above for both 2020 and 2019, return on average tangible common equity amounted to 16.19 percent for the third quarter of 2020, compared to 10.45 percent for the second quarter of 2020 and 18.31 percent for the third quarter of 2019.

"Our profitability metrics rebounded in the third quarter," said Harold R. Carpenter, Pinnacle's chief financial officer. "A modest reserve build along with an increase in adjusted PPNR were large contributors to the increased profitability this quarter. The reduced provision expense was primarily due to a more favorable forecasted unemployment outlook, reduced loan growth and net charge-offs of $13 million this quarter. We believe loan growth will achieve an annualized growth rate of low-single digits this year, exclusive of PPP lending. After steady monthly declines since March 2020, we were pleased that monthly new loan bookings increased throughout the last two months of the third quarter after hitting a low point for 2020 in July. Obviously, national politics and the pandemic will impact the velocity of any economic recovery for the remainder of this year and into next year. Also, contributing to the meaningful growth in PPNR was approximately 12 percent growth in net interest income due to increased PPP revenues along with BHG having another strong fee quarter.

"Consistent with our initiatives to gather low-cost core deposits, we believe deposit flows will remain strong for the remainder of the year. Since reducing our cost of funds is one of the most important initiatives to advancing our PPNR going into 2021, we continue to target a less than 0.25 percent overall deposit rate for the firm, and our relationship managers are actively working with depositors to accelerate deposit repricing."

MAINTAINING A STRONG BALANCE SHEET:

• Net charge-offs were $13.1 million for the quarter ended Sept. 30, 2020, compared to $5.4 million for the quarter ended June 30, 2020 and $4.9 million for the quarter ended Sept. 30, 2019. Annualized net charge-offs as a percentage of average loans for the quarter ended Sept. 30, 2020 were 0.23 percent, compared to 0.10 percent for the quarter ended June 30, 2020 and 0.10 percent for the third quarter of 2019. Annualized net charge-offs as a percentage of average loans for the nine months ended Sept. 30, 2020 were 0.18 percent, compared to 0.09 percent for the first nine months of 2019.
• Nonperforming assets were 0.40 percent of total loans and ORE at Sept. 30, 2020, compared to 0.38 percent at June 30, 2020 and 0.53 percent at Sept. 30, 2019. Nonperforming assets were $90.8 million at Sept. 30, 2020, compared to $84.7 million at June 30, 2020 and $103.3 million at Sept. 30, 2019.
• The classified asset ratio at Sept. 30, 2020 was 9.9 percent, compared to 11.2 percent at June 30, 2020 and 13.5 percent at Sept. 30, 2019. Classified assets were $307.8 million at Sept. 30, 2020, compared to $338.4 million at June 30, 2020 and $363.2 million at Sept. 30, 2019.
• The allowance for credit losses represented 1.28 percent of total loans at Sept. 30, 2020, compared to 1.27 percent at June 30, 2020 and 0.48 percent at Sept. 30, 2019. Excluding PPP loans, the allowance for credit losses as a percentage of loans was 1.43 percent at Sept. 30, 2020 and 1.41 percent at June 30, 2020.
  • The ratio of the allowance for credit losses to nonperforming loans at Sept. 30, 2020 was 404.3 percent compared to 456.1 percent at June 30, 2020 and 127.8 percent at Sept. 30, 2019. At Sept. 30, 2020, purchased credit deteriorated loans of $7.0 million, which were recorded at fair value upon acquisition, represented 9.9 percent of the firm's nonperforming loans.
  • Provision for credit losses was $16.3 million in the third quarter of 2020, compared to $68.3 million in the second quarter of 2020 and $8.3 million in the third quarter of 2019.
• During the second quarter of 2020, the firm successfully issued 9.0 million depositary shares, each representing a 1/40th fractional interest in a share of Series B noncumulative, perpetual preferred stock in a registered public offering to both retail and institutional investors. Net proceeds from the transaction after issuance costs were approximately $217.1 million. The net proceeds, which have been retained at Pinnacle Financial, contributed to an increase in Tier 1 capital at Pinnacle Financial and will continue to provide additional capital for general corporate purposes.

"Credit metrics remain strong and were basically consistent between the second and third quarters," Carpenter said. "We continue to exert great effort to assess and address the risk in our loan book, particularly with respect to the various segments within our loan portfolio that we believe are the most impacted by COVID-19, namely hospitality, restaurants, retail and entertainment. In the second and third quarters, our relationship managers and credit officers reviewed risk grades on approximately $10.0 billion of our C&I, CRE and construction portfolios with no significant downgrades identified.

"We've continued to make excellent progress with respect to reducing borrower deferrals. During April 2020, borrower deferrals topped out at approximately $4.4 billion. At Sept. 30, 2020, deferrals had decreased to $724 million and, as of Oct. 16, 2020, loans for which principal and/or interest was being deferred had decreased to $414 million, or roughly 1.8 percent of loans outstanding."

REVENUES:

• Revenues for the quarter ended Sept. 30, 2020 were $297.7 million, an increase of $24.0 million from the $273.6 million recognized in the second quarter of 2020, an annualized growth rate of 35.2 percent. Revenues were up $19.2 million from the third quarter of 2019, a year-over-year growth rate of 6.9 percent.
  • Revenue per fully diluted common share was at an all-time record of $3.95 for the three months ended Sept. 30, 2020, compared to $3.63 for the second quarter of 2020 and $3.64 for the third quarter of 2019, an 8.5 percent year-over-year growth rate.
• Net interest income for the quarter ended Sept. 30, 2020 was $206.6 million, compared to $200.7 million for the second quarter of 2020 and $195.8 million for the third quarter of 2019, a year-over-year growth rate of 5.5 percent. Net interest margin was 2.82 percent for the third quarter of 2020, compared to 2.87 percent for the second quarter of 2020 and 3.43 percent for the third quarter of 2019.
• Impacting the firm’s net interest income and net interest margin in the third quarter was the impact of both the PPP and the firm’s building and maintenance of additional on-balance sheet liquidity as a result of the pandemic. PPP loans outstanding on average were $2.2 billion during the third quarter of 2020. Additionally, the firm also maintained approximately $2.6 billion in average excess liquidity, primarily in Federal funds sold and other cash equivalent balances. The firm's third quarter 2020 net interest margin was negatively impacted by approximately 40 basis points as a result of PPP loans and building and maintaining excess liquidity, compared to 32 basis points in the second quarter of 2020.
• Included in net interest income for the third quarter of 2020 was $5.6 million of discount accretion associated with fair value adjustments, compared to $5.8 million of discount accretion recognized in the second quarter of 2020 and $11.1 million in the third quarter of 2019. The firm's net interest margin was positively impacted by approximately 9 basis points as a result of fair value adjustment discount accretion in each of the second and third quarters of 2020. There remains $25.2 million of purchase accounting discount accretion as of Sept. 30, 2020.
  • During the third quarter of 2020, the firm prepaid $500 million in FHLB advances with a weighted average rate of 0.71 percent and a remaining weighted average term of 0.7 years resulting in $2.0 million of prepayment penalties which were recognized during the quarter.
• Noninterest income for the quarter ended Sept. 30, 2020 was $91.1 million, compared to $73.0 million for the second quarter of 2020, a linked-quarter annualized growth rate of 99.3 percent. Compared to $82.6 million for the third quarter of 2019, noninterest income grew 10.2 percent year-over-year.
  • Wealth management revenues, which include investment, trust and insurance services, were $13.0 million for the quarter ended Sept. 30, 2020, compared to $12.2 million for the second quarter of 2020 and $12.1 million for the third quarter of 2019, a year-over-year increase of 7.3 percent.
  • Income from the firm's investment in BHG was $26.4 million for the quarter ended Sept. 30, 2020, up 53.7 percent compared to $17.2 million for the quarter ended June 30, 2020 and down 18.0 percent, compared to $32.2 million for the quarter ended Sept. 30, 2019.
  • Net gains on mortgage loans sold were $19.5 million during the quarter ended Sept. 30, 2020, down slightly from $19.6 million for the quarter ended June 30, 2020. Net gains on mortgage loans sold were up 162.8 percent, compared to $7.4 million during the quarter ended Sept. 30, 2019. This dramatic growth primarily reflects market conditions as well as the addition of 11 revenue producing mortgage originators over the last 18 months.
  • Other noninterest income was $21.7 million for the quarter ended Sept. 30, 2020, compared to $17.2 million for the quarter ended June 30, 2020 and $20.2 million for the quarter ended Sept. 30, 2019, a year-over-year increase of 7.0 percent. Contributing to the year-over-year growth were increases in SBA loan fees, loan swap fees and policy benefits from the firm's bank-owned life insurance policies.

"We are reporting a net interest margin for the third quarter of 2.82 percent impacted meaningfully by the lower yielding PPP loans and our liquidity build," Carpenter said. "These items will continue to impact our margin results over the next few quarters, but eventually their impact will lessen, allowing the GAAP margin to be more indicative of underlying business trends. Our focus for the next few quarters will be to continue to reduce our deposit costs for both core and wholesale funding sources. We also anticipate reducing our level of liquidity over the next three to four quarters and expect that eventually we will find our way to historical balance sheet liquidity levels. Additionally, consistent with our initiatives to advance PPNR, supporting our net interest margin are loan floors on approximately 54.8 percent of our variable rate loan portfolio as of Sept. 30, 2020 compared to 43.7 percent at Dec. 31, 2019.

"With improvement in various equity markets and consistent with our emphasis on capitalizing on share-of-wallet opportunities, wealth management rebounded in the third quarter with a nice increase in revenues. Our residential mortgage business continues to have a big year with $512.0 million of secondary market placements in the third quarter. Revenues at BHG have proven to be remarkably resilient and continue to outperform and exceed expectations. For the first nine months of 2020, BHG further strengthened its balance sheet by increasing its reserves, while at the same time reporting quarter-over-quarter net earnings growth. Last quarter, BHG granted deferrals to nearly 15 percent of its loans. At Sept. 30, 2020, BHG reported expiration of substantially all COVID-related loan deferrals."

OPERATING LEVERAGE AND OTHER HIGHLIGHTS:

• The firm's efficiency ratio for the third quarter of 2020 was 48.5 percent, compared to 48.1 percent for the second quarter of 2020 and 47.7 percent in the third quarter of 2019. The ratio of noninterest expenses to average assets was 1.70 percent for the third quarter of 2020, compared to 1.61 percent in the second quarter of 2020 and 1.94 percent in the third quarter of 2019.
  • Excluding the adjustments described above for both 2020 and 2019, the efficiency ratio was 47.3 percent for the third quarter of 2020, compared to 46.0 percent for the second quarter of 2020 and 47.6 percent for the third quarter of 2019. Excluding ORE expense for 2020 and 2019 and FHLB restructuring charges for 2020, the ratio of noninterest expense to average assets was 1.65 percent for the third quarter of 2020, compared to 1.54 percent for the second quarter of 2020 and 1.93 percent for the third quarter of 2019.
• Noninterest expense for the quarter ended Sept. 30, 2020 was $144.3 million, compared to $131.6 million in the second quarter of 2020 and $132.9 million in the third quarter of 2019, reflecting a year-over-year increase of 8.5 percent. Excluding ORE expense for 2020 and 2019 and FHLB restructuring charges for 2020, noninterest expense for the third quarter of 2020 increased 6.2 percent over the third quarter of 2019.
  • Salaries and employee benefits were $90.1 million in the third quarter of 2020, compared to $73.9 million in the second quarter of 2020 and $85.9 million in the third quarter of 2019, reflecting a year-over-year increase of 4.9 percent.
    • Included in salaries and employee benefits are costs related to the firm’s annual cash incentive plan. Incentive costs for this plan amounted to approximately $15.2 million in the third quarter of 2020, compared to $573,000 in the second quarter of 2020 and $18.5 million in the third quarter of last year. In the second quarter of 2020, as a result of the pandemic’s impact on the firm's anticipated earnings for this year, the firm reduced its accrual for payouts to approximately 25 percent of associate annual target awards under its broad-based cash incentive plan for 2020. Early in the third quarter, the firm modified its annual cash incentive plan to take into account new PPNR goals and initiatives for 2020 and, as a result, increased its incentive costs from approximately 25 percent of associate annual target awards to approximately 50 percent of associate annual target awards in order to account for the plan modification.

• The effective tax rate for the third quarter of 2020 was 19.3 percent, compared to 15.2 percent for the second quarter of 2020 and 19.5 percent for the third quarter of 2019.

"Expenses increased in the third quarter of 2020 due primarily to the restructuring of our annual cash incentive plan with the addition of a PPNR growth component," Carpenter said. "At June 30, 2020, we were accruing a 25 percent target level payout. This reduced target payout was a direct result of the increased provisioning incurred by the firm during the first six months of 2020. Early in the third quarter, in order to ensure that our associates are appropriately focused on combating the impact of COVID-19 on our results for this year as well as to appropriately focus our associates on preparing to capitalize on opportunities that we believe will exist following the pandemic, we determined that a modest increase to the annual incentive opportunity for 2020 was warranted, so we correlated the additional incentive opportunity to growth in PPNR for 2020 over last year. As a result of that modification to the plan, we have increased our cash incentive plan accrual to 50 percent of our associates' annual target award. As we consider expense run rates for 2020, our belief is that our 2020 expense growth will result in a mid-single digit percentage increase in comparison to the annualize run rate from the fourth quarter of 2019."

BOARD OF DIRECTORS DECLARES DIVIDENDS

On Oct. 20, 2020, Pinnacle Financial's Board of Directors approved a quarterly cash dividend of $0.16 per common share to be paid on Nov. 27, 2020 to common shareholders of record as of the close of business on Nov. 6, 2020. Additionally, on that same day, Pinnacle Financial's 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, 2020 to shareholders of record at the close of business on Nov. 16, 2020.

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. 21, 2020, to discuss third quarter 2020 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 2020 deposit data from the FDIC. Pinnacle earned a spot on FORTUNE's 2020 list of 100 Best Companies to Work For® in the U.S., its fourth consecutive appearance. American Banker recognized Pinnacle as one of America’s Best Banks to Work For seven years in a row.

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 $33.8 billion in assets as of Sept. 30, 2020. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in 12 primarily urban markets in Tennessee, the Carolinas, Virginia and Atlanta.

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

Forward-Looking Statements

All statements, other than statements of historical fact, included in this press release, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "expect," "anticipate," "intend," "may," "should," "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 statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (i) further deterioration in the financial condition of borrowers of Pinnacle Bank and its subsidiaries or BHG resulting in significant increases in loan losses and provisions for those losses and, in the case of BHG, substitutions; (ii) the further effects of the emergence of widespread health emergencies or pandemics, including the magnitude and duration of the COVID-19 pandemic and its impact on general economic and financial market conditions and on Pinnacle Financial's and its customers' business, results of operations, asset quality and financial condition; (iii) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, including during times when Pinnacle Bank is seeking to lower rates it pays on deposits; (iv) 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 entities', loan portfolio; (v) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (vi) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (vii) the impact of competition with other financial institutions, including pricing pressures and the resulting impact on Pinnacle Financial’s results, including as a result of compression to net interest margin; (viii) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia and Virginia, particularly in commercial and residential real estate markets; (ix) fluctuations or differences in interest rates on loans or deposits from those that Pinnacle Financial is modeling or anticipating, including as a result of Pinnacle Bank's inability to better match deposit rates with the changes in the short-term rate environment, or that affect the yield curve; (x) the results of regulatory examinations; (xi) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xiii) BHG's ability to profitably grow its business and successfully execute on its business plans; (xiv) risks of expansion into new geographic or product markets including the recent expansion into the Atlanta, Georgia metro market; (xv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xvi) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Bank), to retain financial advisors (including as a result of the competitive environment for associates) or otherwise to attract customers from other financial institutions; (xvii) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xviii) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels or regulatory requests or directives, particularly if Pinnacle Bank's level of applicable commercial real estate loans were to exceed percentage levels of total capital in guidelines recommended by its regulators; (xix) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xx) the vulnerability of Pinnacle Bank's network and online banking portals, and the systems of parties with whom Pinnacle Bank contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xxi) the possibility of increased compliance and operational costs as a result of increased regulatory oversight (including by the Consumer Financial Protection Bureau), including oversight of companies in which Pinnacle Financial or Pinnacle Bank have significant investments, like BHG, and the development of additional banking products for Pinnacle Bank's corporate and consumer clients; (xxii) the risks associated with Pinnacle Financial and Pinnacle Bank being a minority investor in BHG, including the risk that the owners of a majority of the equity interests in BHG decide to sell the company if not prohibited from doing so by Pinnacle Financial or Pinnacle Bank; (xxiii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxiv) the availability of and access to capital; (xxv) adverse results (including costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of Pinnacle Bank's participation in and execution of government programs related to the COVID-19 pandemic; and (xxvi) general competitive, economic, political and market conditions. Additional factors which could affect the forward looking statements can be found in Pinnacle Financial's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the SEC and available on the SEC's website at http://www.sec.gov. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Matters

This release contains certain non-GAAP financial measures, including, without limitation, earnings per diluted common share, efficiency ratio, adjusted PPNR and the ratio of noninterest expense to average assets, excluding in certain instances the impact of expenses related to other real estate owned, gains or losses on sale of investment securities, the charges associated with Pinnacle Financial's branch rationalization project, FHLB restructuring expenses, the sale of the remaining portion of Pinnacle Bank's non-prime automobile portfolio and other matters for the accounting periods presented. This release also includes non-GAAP financial measures which exclude the impact of loans originated under the PPP. This release may also contain certain other non-GAAP capital ratios and performance measures that exclude the impact of goodwill and core deposit intangibles associated with Pinnacle Financial's acquisitions of BNC, Avenue Bank, Magna Bank, CapitalMark Bank & Trust, Mid-America Bancshares, Inc., Cavalry Bancorp, Inc. and other acquisitions which collectively are less material to the non-GAAP measure as well as the impact of Pinnacle Financial's Series B Preferred Stock. The presentation of the non-GAAP financial information is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. Because non-GAAP financial measures presented in this release are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies.

Pinnacle Financial believes that these non-GAAP financial measures facilitate making period-to-period comparisons and are meaningful indications of its operating performance. In addition, because intangible assets such as goodwill and the core deposit intangible, and the other items excluded each vary extensively from company to company, Pinnacle Financial believes that the presentation of this information allows investors to more easily compare Pinnacle Financial's results to the results of other companies. Pinnacle Financial's management utilizes this non-GAAP financial information to compare Pinnacle Financial's operating performance for 2020 versus certain periods in 2019 and to internally prepared projections.