Net interest income grew 18.6% annualized and fee income grew 23.7% annualized

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.69 for the quarter ended June 30, 2021, compared to net income per diluted common share of $0.83 for the quarter ended June 30, 2020, an increase of approximately 104 percent. Excluding gains and losses on the sale of investment securities and ORE expense for the three months ended June 30, 2021 and 2020 and FHLB restructuring charges for the three months ended June 30, 2020, net income per diluted common share was $1.68 for the three months ended June 30, 2021, compared to $0.89 for the three months ended June 30, 2020, a year-over-year increase of nearly 89 percent.

Net income per diluted common share was $3.30 for the six months ended June 30, 2021, compared to net income per diluted common share of $1.20 for the six months ended June 30, 2020, an increase of 175 percent. Excluding gains and losses on the sale of investment securities and other real estate (ORE) expense for the six months ended June 30, 2021 and 2020 and FHLB restructuring charges for the six months ended June 30, 2020, net income per diluted common share was $3.29 in 2021, compared to $1.28 in 2020, a year-over-year increase of 157 percent.

“Second quarter was another outstanding quarter for our firm," said M. Terry Turner, Pinnacle's president and chief executive officer. "We continued to exploit opportunities to hire leading revenue producers from many of the larger institutions in our markets as we added 36 revenue producers during the quarter. This brings our total revenue producers onboarded in the last two and a half years to 216 associates. Within that, we now have 15 revenue producers located in Atlanta, and our recent announcements in Huntsville and Birmingham include seven revenue producers. Across our entire franchise, approximately 25 percent of our revenue producers have been with our firm for less than two and a half years, all while maintaining an overall associate retention rate of 93 percent, which we expect to result in significant incremental revenue growth as these new associates introduce their clients to our award-winning service.

"The impact of our previous hiring successes appear evident in our second quarter’s performance for key metrics. While total loans declined 0.8 percent on a linked quarter basis, after excluding the $848.5 million reduction of PPP loans, our remaining loans grew 12.6 percent on a linked-quarter annualized basis. Linked-quarter annualized core deposit growth was 14.2 percent. Year-over-year growth in wealth management fees was 35.4 percent. And linked-quarter annualized growth in revenue per share was 19.2 percent. Not only are we optimistic about the impact our hiring to date will have on key growth metrics going forward, we also expect to continue attracting many of the best bankers in our markets in order to further propel our growth going forward."

BALANCE SHEET GROWTH:

• Loans at June 30, 2021 were $22.9 billion, an increase of approximately $377.6 million from June 30, 2020, reflecting year-over-year growth of 1.7 percent. Loans at June 30, 2021 decreased approximately $188.8 million from March 31, 2021.
  • Loans at June 30, 2021 include approximately $1.4 billion of loans issued pursuant to the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP) compared to $2.2 billion at both June 30, 2020 and March 31, 2021. The average yield on these loans was 5.47 percent for the second quarter of 2021, inclusive of $21.3 million of loan fee accretion recognized during the quarter. At June 30, 2021, $47.7 million in SBA PPP loan fees remained, which should be accreted into net interest income over the next year as these loans are repaid and/or are forgiven under the PPP.
    • PPP loans decreased by $848.5 million between March 31, 2021 and June 30, 2021.
    • Excluding PPP loans, total loans increased by $659.7 million during the same period, or 12.6 percent on an annualized basis.
  • Average loans were $23.2 billion for the three months ended June 30, 2021, up $331.7 million from the three months ended March 31, 2021, a linked-quarter annualized growth rate of 5.8 percent.
    • Excluding the impact of $1.9 billion of average PPP loans outstanding during the three months ended June 30, 2021 and $2.1 billion during the three months ended March 31, 2021, average loans were $21.3 billion for the three months ended June 30, 2021, up $467.2 million from $20.8 billion for the three months ended March 31, 2021, a linked-quarter annualized growth rate of 9.0 percent.
  • At June 30, 2021, the remaining discount associated with fair value accounting adjustments on acquired loans was $20.6 million, compared to $24.0 million at March 31, 2021.
• Deposits at June 30, 2021 were $28.2 billion, an increase of $2.7 billion from June 30, 2020, reflecting year-over-year growth of 10.6 percent. Deposits at June 30, 2021 decreased $75.3 million from March 31, 2021, reflecting a linked-quarter annualized rate of decline of 1.1 percent.
  • Average deposits were $28.0 billion for the three months ended June 30, 2021, compared to $27.6 billion for the three months ended March 31, 2021, a linked-quarter annualized growth rate of 5.7 percent.
  • Core deposits were $25.9 billion at June 30, 2021, compared to $21.4 billion at June 30, 2020 and $25.0 billion at March 31, 2021. The linked-quarter annualized growth rate of core deposits in the second quarter of 2021 was 14.2 percent.

“During the second quarter, PPP loans decreased $848.5 million as our relationship managers have been on offense with borrowers to encourage them to accelerate their forgiveness applications with the SBA,” Turner said. “It is our hope that as many borrowers as possible will seek forgiveness for their PPP loans prior to year end.”

REVENUES:

• Revenues for the quarter ended June 30, 2021 were $331.4 million, an increase of $15.8 million from the $315.6 million recognized in the first quarter of 2021, a linked-quarter annualized growth rate of 20.1 percent. Revenues were up $57.8 million from the second quarter of 2020, a year-over-year growth rate of 21.1 percent.
  • Revenue per fully diluted common share was at an all-time record of $4.37 for the three months ended June 30, 2021, compared to $4.17 for the first quarter of 2021 and $3.63 for the second quarter of 2020, a 20.4 percent year-over-year growth rate.
• Net interest income for the quarter ended June 30, 2021 was $233.2 million, compared to $222.9 million for the first quarter of 2021 and $200.7 million for the second quarter of 2020, a year-over-year growth rate of 16.2 percent. Net interest margin was 3.08 percent for the second quarter of 2021, compared to 3.02 percent for the first quarter of 2021 and 2.87 percent for the second quarter of 2020.
  • Impacting the firm’s net interest margin in the first and second quarters of 2021 and the second quarter of 2020 were both the PPP loans and the firm’s decision to maintain additional on-balance sheet liquidity as a result of the COVID-19 pandemic. The firm estimates its second 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 27 basis points for the first quarter of 2021 and 32 basis points for the second quarter 2020.
  • Included in net interest income for the second quarter of 2021 was $3.3 million of discount accretion associated with fair value adjustments, compared to $3.8 million of discount accretion recognized in the first quarter of 2021 and $5.8 million in the second quarter of 2020. The firm's net interest margin was positively impacted by approximately 5 basis points, 4 basis points and 8 basis points, respectively, because of fair value adjustment discount accretion in each of the first and second quarters of 2021 and the second quarter of 2020. There remains $13.6 million of purchase accounting discount accretion as of June 30, 2021.
• Noninterest income for the quarter ended June 30, 2021 was $98.2 million, compared to $92.7 million for the quarter ended March 31, 2021, a linked-quarter annualized increase of 23.7 percent. Compared to $73.0 million for the second quarter of 2020, noninterest income grew 34.6 percent year-over-year.
  • Wealth management revenues, which include investment, trust and insurance services, were $16.5 million for the second quarter of 2021, compared to $16.1 million for the first quarter of 2021, a linked-quarter annualized increase of 9.0 percent. Compared to $12.2 million for the second quarter of 2020, wealth management revenues were up 35.4 percent.
  • Income from the firm's investment in BHG was $32.1 million for the quarter ended June 30, 2021, up from $29.0 million for the quarter ended March 31, 2021 and $17.2 million for the quarter ended June 30, 2020.
  • Net gains on mortgage loans sold were $6.7 million during the quarter ended June 30, 2021, down from $13.7 million for the quarter ended March 31, 2021. Net gains on mortgage loans sold were down 65.8 percent from
  • $19.6 million during the quarter ended June 30, 2020. This dramatic year-over-year decline is reflective of market conditions during the periods.
  • Other noninterest income was $33.7 million for the quarter ended June 30, 2021, compared to $25.7 million for the quarter ended March 31, 2021 and $17.2 million for the quarter ended June 30, 2020, a linked-quarter annualized increase of 124.8 percent and year-over-year growth of 95.9 percent. Contributing to this growth were $7.0 million in gains on other equity investments during the three months ended June 30, 2021 compared to gains of $3.4 million for the three months ended March 31, 2021 and losses of $278,000 during the three months ended June 30, 2020. Additionally, income from SBA loan sales increased by $2.0 million over the first quarter of 2021.

“Our net interest margin improved to 3.08 percent in the second quarter of 2021, compared to 3.02 percent for the first quarter of 2021,” Carpenter said. “Several factors contributed to this quarterly increase including increased PPP revenues, core loan growth, continued reduction in deposit pricing and an overall decrease in cash liquidity. Overall loan yields held steady at 4.11 percent in the second quarter. Excluding the impact of PPP loan yields, which had an average yield of 5.12 percent, loan yields decreased by 9 basis points in the second quarter of 2021, which offset a 6 basis points decrease in deposit rates. Maintaining our loan yields will continue to be a focus item for us going into the last half of 2021. Fortunately, we believe further reductions in deposit rates are likely as well.

“Additionally, second quarter was another strong fee quarter for our firm. BHG is performing at exceptional levels and, we believe, creating substantial franchise value. Mortgage did experience a linked-quarter decline of $7.0 million this quarter as rates began to fluctuate and the absolute volume of originations retreated in comparison to the impressive amount of business produced over the last several quarters. Additionally, our equity investments in other businesses had several big wins in the second quarter of 2021 with these investments contributing $3.6 million in incremental second quarter revenues.”

PROFITABILITY:

• Return on average assets was 1.46 percent for the second quarter of 2021, compared to 1.42 percent for the first quarter of 2021 and 0.77 percent for the second quarter of 2020. Second quarter 2021 return on average tangible assets amounted to 1.55 percent, compared to 1.50 percent for the first quarter of 2021 and 0.81 percent for the second quarter of 2020.
  • Excluding the adjustments described above for both the three months ended June 30 and March 31, 2021 and the three months ended June 30, 2020, return on average assets was 1.46 percent for the second quarter of 2021, compared to 1.42 percent for the first quarter of 2021 and 0.82 percent for the second quarter of 2020. Likewise, excluding those same adjustments, the firm’s return on average tangible assets was 1.54 percent for the second quarter of 2021, compared to 1.50 percent for the first quarter of 2021 and 0.87 percent for the second quarter of 2020.
• Return on average equity for the second quarter of 2021 amounted to 10.19 percent, compared to 9.96 percent for the first quarter of 2021 and 5.58 percent for the second quarter of 2020. Excluding preferred stockholders' equity for each of the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively, return on average common equity for the second quarter of 2021 amounted to 10.65 percent, compared to 10.41 percent for the first quarter of 2021 and 5.66 percent for the second quarter of 2020. Second quarter 2021 return on average tangible common equity amounted to 17.32 percent, compared to 17.16 percent for the first quarter of 2021 and 9.77 percent for the second quarter of 2020.
  • Excluding the adjustments described above for both the three months ended June 30 and March 31, 2021 and the three months ended June 30, 2020, return on average tangible common equity amounted to 17.22 percent for the second quarter of 2021, compared to 17.16 percent for the first quarter of 2021 and 10.45 percent for the second quarter of 2020.

“Again, we are pleased with our second quarter profitability metrics,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “During the second quarter, we were able to execute on various tactics that we believe should positively impact our profitability in the future. We deployed a modest amount of our liquidity into investment securities and redeemed approximately $950 million of wholesale funding during the quarter. We also anticipate redeeming $130 million in bank-level subordinated indebtedness in late July 2021, using our on-balance sheet liquidity which will also result in reduced funding costs going forward.

“As has been previously disclosed, tangible book value per share accretion is an additional component of our equity incentive compensation plans for the firm’s leadership. Obviously, our reasoning for making this change is to focus our associates on delivering even stronger tangible book value per share growth in the future, which we believe should translate to increased shareholder returns. Accordingly, we are pleased to report that our book value per share has grown from $61.80 at the end of 2020 to $64.19 at June 30, 2021, an annualized growth rate of 7.7 percent thus far this year and a five-year cumulative annual growth rate of 15.0 percent and our tangible book value per share has grown from $37.25 at the end of 2020 to $39.77 at June 30, 2021, an annualized growth rate of 13.5 percent thus far this year and a five-year cumulative annual growth rate of 15.1 percent.”

MAINTAINING A STRONG BALANCE SHEET:

• Net charge-offs were $10.0 million for the quarter ended June 30, 2021, compared to $11.4 million for the quarter ended March 31, 2021 and $5.4 million for the quarter ended June 30, 2020. Annualized net charge-offs as a percentage of average loans for the quarter ended June 30, 2021 were 0.17 percent, compared to 0.20 percent for the quarter ended March 31, 2021 and 0.10 percent for the quarter ended June 30, 2020.
• Nonperforming assets were 0.27 percent of total loans and ORE at June 30, 2021, compared to 0.36 percent at March 31, 2021 and 0.38 percent at June 30, 2020. Nonperforming assets were $62.7 million at June 30, 2021, compared to $82.8 million at March 31, 2021 and $84.7 million at June 30, 2020.
• The classified asset ratio at June 30, 2021 was 6.8 percent, compared to 7.3 percent at March 31, 2021 and 11.2 percent at June 30, 2020. Classified assets were $233.8 million at June 30, 2021, compared to $244.9 million at March 31, 2021 and $338.4 million at June 30, 2020.
• The allowance for credit losses represented 1.20 percent of total loans at June 30, 2021, compared to 1.22 percent at March 31, 2021 and 1.27 percent at June 30, 2020. Excluding PPP loans, the allowance for credit losses as a percentage of total loans was 1.27 percent at June 30, 2021 compared to 1.35 percent at March 31, 2021 and 1.41 percent at June 30, 2020.
  • The ratio of the allowance for credit losses to nonperforming loans at June 30, 2021 was 515.5 percent, compared to 389.4 percent at March 31, 2021 and 456.1 percent at June 30, 2020.
  • Provision for credit losses was $2.8 million in the second quarter of 2021, compared to $7.2 million in the first quarter of 2021 and $68.3 million in the second quarter of 2020.

“Our credit performance throughout COVID-19 has been remarkable,” Carpenter said. “Our relationship managers and credit officers have worked tirelessly over the last year to protect our firm from avoidable losses and to assist our borrowers in navigating through an extremely difficult time. Our relationship-based business model has also given us opportunities to work with borrowers, particularly those that were most impacted by COVID-19. Net charge-offs as a percentage of average loans for the second quarter of 2021 were slightly less than net charge-offs for the first quarter. Our allowance for credit losses decreased to 1.20 percent at June 30, 2021, which was 0.02 percent less than the same ratio at March 31, 2021. As the economy continues to recover from COVID-19, we believe the reduction in this ratio will continue for the next several quarters.”

OPERATING LEVERAGE AND OTHER HIGHLIGHTS:

• The firm's efficiency ratio for the second quarter of 2021 was 50.1 percent, compared to 49.0 percent for the first quarter of 2021 and 48.1 percent in the second quarter of 2020. The ratio of noninterest expenses to average assets was 1.90 percent for the second quarter of 2021, compared to 1.81 percent in the first quarter of 2021 and 1.61 percent in the second quarter of 2020.
  • Excluding the adjustments described above for both the three months ended June 30 and March 31, 2021 and the three months ended June 30, 2020, the efficiency ratio was 50.4 percent for the second quarter of 2021, compared to 49.0 percent for the first quarter of 2021 and 46.0 percent for the second 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 1.91 percent for the second quarter of 2021, compared to 1.81 percent for the first quarter of 2021 and 1.54 percent for the second quarter of 2020.
• Noninterest expense for the quarter ended June 30, 2021 was $166.1 million, compared to $154.7 million in the first quarter of 2021 and $131.6 million in the second quarter of 2020, reflecting a year-over-year increase of 26.2 percent. Excluding ORE expense for 2021 and 2020, and FHLB restructuring charges for 2020, noninterest expense for the second quarter of 2021 increased 32.5 percent over the second quarter of 2020 and 7.8 percent over the first quarter of 2021.
  • Salaries and employee benefits were $110.8 million in the second quarter of 2021, compared to $102.7 million in the first quarter of 2021 and $73.9 million in the second quarter of 2020, reflecting a year-over-year increase of 50.0 percent.
    • Incentive costs related to the firm’s annual cash incentive plan amounted to approximately $25.5 million in the second quarter of 2021, compared to $18.2 million in the first quarter of 2021 and $573,000 in the second quarter of 2020.
    • Incentive costs related to the Company’s equity compensation plans amounted to approximately $5.7 million in the second quarter of 2021 compared to $5.4 million in the first quarter of 2021 and $4.1 million in the second quarter of 2020.
  • Noninterest expense categories, other than salaries and employee benefits, were $55.3 million in the second quarter of 2021, compared to $52.0 million in the first quarter of 2021 and $57.7 million in the second quarter of 2020, reflecting a year-over-year decrease of 4.2 percent.
• The effective tax rate for the second quarter of 2021 was 18.9 percent, compared to 18.4 percent for the first quarter of 2021 and 15.2 percent for the second quarter of 2020.

“Expenses increased by $11.4 million over the first quarter of 2021,” Carpenter said. “The increase was related to our incentive accruals. Given our performance in the first two quarters of 2021 and our outlook for the remainder of 2021, we increased our accrual to the maximum payout for our annual cash plan and increased our equity incentive accruals slightly. Our current estimates are that total expenses for the third and fourth quarters of 2021 should be flat to down from the amounts reported in the second quarter of 2021, inclusive of our increased investments in Atlanta, Huntsville and Birmingham, which we believe will also contribute to the ongoing positive operating leverage resulting from our ability to onboard such a large number of market-leading revenue producers.”

BOARD OF DIRECTORS DECLARES DIVIDENDS

On July 20, 2021, Pinnacle Financial's Board of Directors approved a quarterly cash dividend of $0.18 per common share to be paid on Aug. 27, 2021 to common shareholders of record as of the close of business on Aug. 6, 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 Sept. 1, 2021 to shareholders of record at the close of business on Aug. 17, 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 July 21, 2021, to discuss second 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 2020 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 $35.4 billion in assets as of June 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 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) 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 effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb its spread, and the resulting 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 speed with which the COVID-19 vaccines can be widely distributed, decisions of governmental agencies to pause the use of one or more vaccines, those vaccines' efficacy against the virus, including new variants and public acceptance of the vaccines; (iv) the failure of announced or anticipated stimulus programs to be timely approved, or approved at all, or the failure of such programs to provide sufficient relief when approved, and the resulting impact on the economy and our customers and their businesses; (v) the inability of Pinnacle Financial, or entities in which it has significant investments, like BHG, to maintain the long-term historical growth rate of its, or such entities', 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) 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; (ix) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia, Alabama and Virginia, particularly in commercial and residential real estate markets; (x) 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; (xi) the results of regulatory examinations; (xii) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xiii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xiv) BHG's ability to profitably grow its business and successfully execute on its business plans; (xv) risks of expansion into new geographic or product markets; (xvi) 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; (xvii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xviii) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xix) 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; (xx) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xxi) 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; (xxii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxiii) 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; (xxiv) 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; (xxv) 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 or all or a portion of their ownership interests in BHG (triggering a similar sale by Pinnacle Financial and Pinnacle Bank) if not prohibited from doing so by Pinnacle Financial or Pinnacle Bank; (xxvi) the possibility of increased personal or corporate tax rates and the resulting reduction in our and our customers' businesses as a result of any such increases; (xxvii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxviii) the availability of and access to capital; (xxiv) 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 (xxx) 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 for the year ended December 31, 2020, and subsequently filed 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 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, FHLB restructuring charges, hedge termination charges 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 2021 versus certain periods in 2020 and to internally prepared projections.