UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 000-31225

Pinnacle Financial Partners Inc.

, Inc.

(Exact name of registrant as specified in its charter)
Tennessee			62-1812853
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
150 Third Avenue South, Suite 900	Nashville,	TN	37201
(Address of principal executive offices)			(Zip Code)

(615) 744-3700

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changes since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit such files).  Yes ☒     No ☐    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer ☒                            Accelerated Filer ☐    

Non-accelerated Filer  ☐                            Smaller reporting company ☐

(do not check if you are a smaller reporting company)                Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐     No ☒    

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Exchange on which Registered
Common Stock, par value $1.00	PNFP	Nasdaq Global Select Market

As of July 30, 2019 there were 76,949,554 shares of common stock, $1.00 par value per share, issued and outstanding.

Pinnacle Financial Partners, Inc.

Report on Form 10-Q

June 30, 2019

TABLE OF CONTENTS	Page No.
PART I – Financial Information:	4
Item 1. Consolidated Financial Statements (Unaudited)	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3. Quantitative and Qualitative Disclosures about Market Risk	59
Item 4. Controls and Procedures	59
PART II – Other Information:	60
Item 1. Legal Proceedings	60
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3. Defaults Upon Senior Securities	81
Item 4. Mine Safety Disclosures	81
Item 5. Other Information	81
Item 6. Exhibits	81
Signatures	83

2

FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this report, 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 resulting in significant increases in loan losses and provisions for those losses; (ii) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits; (iii) the inability of Pinnacle Financial, or entities in which it has significant investments, like Bankers Healthcare Group, LLC (BHG), to maintain the historical growth rate of its, or such entities', loan portfolio; (iv) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (v) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (vi) 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; (vii) greater than anticipated adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina and Virginia,  particularly in commercial and residential real estate markets; (viii) fluctuations or differences in interest rates on loans or deposits from those that Pinnacle Financial is modeling or anticipating or that affect the yield curve; (ix) the results of regulatory examinations; (x) a merger or acquisition; (xi) risks of expansion into new geographic or product markets; (xii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xiii) 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; (xiv) the ability of Pinnacle Financial to implement its branch consolidation strategy on the timeliness, and at the costs, presently contemplated; (xv) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvi) 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 Financial's level of applicable commercial real estate loans were to exceed percentage levels of total capital in guidelines recommended by its regulators; (xvii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xviii) the vulnerability of Pinnacle Bank's network and online banking portals, and the systems of parties with whom Pinnacle Financial contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xix) 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;  (xx) 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; (xxi) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxii) risks associated with the possible shutdown of the United States federal government, including the adverse effects on the national or local economies and adverse effects resulting from a shutdown of the U.S. Small Business Administration’s SBA loan program; (xxiii) 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; and (xxv) 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 report, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.

3

Item 1. Part I. Financial Information

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

	June 30, 2019			December 31, 2018
ASSETS
Cash and noninterest-bearing due from banks	$	153,071		$	137,433
Restricted cash	121,440			65,491
Interest-bearing due from banks	332,862			516,920
Federal funds sold and other	20,214			1,848
Cash and cash equivalents	627,587			721,692
Securities available-for-sale, at fair value	3,256,906			3,083,686
Securities held-to-maturity (fair value of $200.6 million and $193.1 million at June 30, 2019 and Dec. 31, 2018, respectively)	190,928			194,282
Consumer loans held-for-sale	70,004			34,196
Commercial loans held-for-sale	21,295			15,954
Loans	18,814,318			17,707,549
Less allowance for loan losses	(90,253		)	(83,575		)
Loans, net	18,724,065			17,623,974
Premises and equipment, net	274,729			265,560
Equity method investment	243,875			239,237
Accrued interest receivable	84,582			79,657
Goodwill	1,807,121			1,807,121
Core deposits and other intangible assets	41,578			46,161
Other real estate owned	26,657			15,165
Other assets	1,171,028			904,359
Total assets	$	26,540,355		$	25,031,044
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	4,493,419		$	4,309,067
Interest-bearing	3,129,941			3,464,001
Savings and money market accounts	7,547,166			7,607,796
Time	4,278,857			3,468,243
Total deposits	19,449,383			18,849,107
Securities sold under agreements to repurchase	154,169			104,741
Federal Home Loan Bank advances	1,960,062			1,443,589
Subordinated debt and other borrowings	464,144			485,130
Accrued interest payable	30,376			23,586
Other liabilities	305,860			158,951
Total liabilities	22,363,994			21,065,104
Stockholders' equity:
Preferred stock, no par value; 10.0 million shares authorized; no shares issued and outstanding	—			—
Common stock, par value $1.00; 180.0 million shares authorized at June 30, 2019 and Dec. 31, 2018; 76.9 million and 77.5 million shares issued and outstanding at June 30, 2019 and Dec. 31, 2018, respectively	76,929			77,484
Additional paid-in capital	3,076,486			3,107,431
Retained earnings	1,002,434			833,130
Accumulated other comprehensive income (loss), net of taxes	20,512			(52,105		)
Total stockholders' equity	4,176,361			3,965,940
Total liabilities and stockholders' equity	$	26,540,355		$	25,031,044

See accompanying notes to consolidated financial statements (unaudited).

4

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(dollars in thousands, except per share data)

	Three months ended June 30,					Six months ended June 30,
	2019			2018		2019			2018
Interest income:
Loans, including fees	$	237,653		$	208,758	$	467,032		$	399,972
Securities:
Taxable	12,243			11,748		25,783			22,970
Tax-exempt	12,556			8,350		24,228			15,635
Federal funds sold and other	3,399			2,128		6,691			3,935
Total interest income	265,851			230,984		523,734			442,512
Interest expense:
Deposits	58,988			32,767		113,205			56,748
Securities sold under agreements to repurchase	142			143		287			273
Federal Home Loan Bank advances and other borrowings	17,803			15,838		34,078			28,784
Total interest expense	76,933			48,748		147,570			85,805
Net interest income	188,918			182,236		376,164			356,707
Provision for loan losses	7,195			9,402		14,379			16,333
Net interest income after provision for loan losses	181,723			172,834		361,785			340,374
Noninterest income:
Service charges on deposit accounts	8,940			8,456		17,482			16,361
Investment services	5,803			5,074		11,207			10,319
Insurance sales commissions	2,147			2,048		5,075			5,167
Gain on mortgage loans sold, net	6,011			3,777		10,889			7,521
Investment gains and losses on sales, net	(4,466		)	—		(6,426		)	30
Trust fees	3,461			3,564		6,756			6,681
Income from equity method investment	32,261			9,690		45,551			19,050
Other noninterest income	16,525			15,330		31,211			26,993
Total noninterest income	70,682			47,939		121,745			92,122
Noninterest expense:
Salaries and employee benefits	75,620			64,112		145,996			127,831
Equipment and occupancy	23,844			18,208		43,175			35,951
Other real estate expense, net	2,523			819		2,769			25
Marketing and other business development	3,282			2,544		6,230			4,791
Postage and supplies	2,079			2,291		3,971			4,330
Amortization of intangibles	2,271			2,659		4,582			5,357
Merger-related expense	—			2,906		—			8,259
Other noninterest expense	18,067			17,369		35,014			32,944
Total noninterest expense	127,686			110,908		241,737			219,488
Income before income taxes	124,719			109,865		241,793			213,008
Income tax expense	24,398			23,000		47,512			42,633
Net income	$	100,321		$	86,865	$	194,281		$	170,375
Per share information:
Basic net income per common share	$	1.31		$	1.13	$	2.54		$	2.21
Diluted net income per common share	$	1.31		$	1.12	$	2.53		$	2.20
Weighted average shares outstanding:
Basic	76,343,608			77,123,854		76,572,120			77,101,816
Diluted	76,611,657			77,468,082		76,866,163			77,417,930

See accompanying notes to consolidated financial statements (unaudited).

5

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands)

	Three months ended June 30,					Six months ended June 30,
	2019		2018			2019			2018
Net income	$	100,321	$	86,865		$	194,281		$	170,375
Other comprehensive income (loss), net of tax:
Change in fair value on available-for-sale securities, net of tax	25,514		(2,785		)	61,894			(36,268		)
Change in fair value of cash flow hedges, net of tax	6,613		950			6,090			2,670
Amortization of net unrealized losses (gains) on securities transferred from available-for-sale to held-to-maturity, net of tax	41		(35		)	70			(93		)
Gain (loss) on cash flow hedges reclassified from other comprehensive income into net income, net of tax	73		(143		)	(183		)	(284		)
Net loss (gain) on sale of investment securities reclassified from other comprehensive income into net income, net of tax	3,299		—			4,746			(22		)
Total other comprehensive income (loss), net of tax	35,540		(2,013		)	72,617			(33,997		)
Total comprehensive income	$	135,861	$	84,852		$	266,898		$	136,378

See accompanying notes to consolidated financial statements (unaudited).

6

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(dollars and shares in thousands)

	Common Stock
	Shares		Amounts			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comp. Income (Loss), net			Total Stockholder's Equity
Balance at December 31, 2017	77,740		$	77,740		$	3,115,304		$	519,144		$	(4,236	)	$	3,707,952
Exercise of employee common stock options and related tax benefits	87		87			1,529			—			—			1,616
Common dividends paid ($0.14 per share)	—		—			—			(10,974		)	—			(10,974		)
Issuance of restricted common shares, net of forfeitures	106		106			(106		)	—			—			—
Restricted shares withheld for taxes and related tax benefit	(80	)	(80		)	(5,185		)	—			—			(5,265		)
Compensation expense for restricted shares	—		—			4,448			—			—			4,448
Net income	—		—			—			83,510			—			83,510
Other comprehensive loss	—		—			—			—			(31,984		)	(31,984		)
Balance at March 31, 2018	77,853		$	77,853		$	3,115,990		$	591,680		$	(36,220	)	$	3,749,303
Exercise of employee common stock options and related tax benefits	3		$	3		$	79		$	—		$	—		$	82
Common dividends paid ($0.14 per share)	—		—			—			(10,951		)	—			(10,951		)
Issuance of restricted common shares, net of forfeitures	13		13			(13		)	—			—			—
Restricted shares withheld for taxes and related tax benefit	(14	)	(14		)	(898		)	—			—			(912		)
Compensation expense for restricted shares	—		—			4,303			—			—			4,303
Net income	—		—			—			86,865			—			86,865
Other comprehensive loss	—		—			—			—			(2,013		)	(2,013		)
Balance at June 30, 2018	77,855		$	77,855		$	3,119,461		$	667,594		$	(38,233	)	$	3,826,677
Balance at December 31, 2018	77,484		$	77,484		$	3,107,431		$	833,130		$	(52,105	)	$	3,965,940
Exercise of employee common stock options and related tax benefits	5		5			125			—			—			130
Common dividends paid ($0.16 per share)	—		—			—			(12,545		)	—			(12,545		)
Repurchase of common stock	(543	)	(543		)	(29,506		)	—			—			(30,049		)
Issuance of restricted common shares, net of forfeitures	180		180			(180		)	—			—			—
Restricted shares withheld for taxes and related tax benefit	(62	)	(62		)	(3,425		)	—			—			(3,487		)
Compensation expense for restricted shares	—		—			4,913			—			—			4,913
Net income	—		—			—			93,960			—			93,960
Other comprehensive income	—		—			—			—			37,077			37,077
Balance at March 31, 2019	77,064		$	77,064		$	3,079,358		$	914,545		$	(15,028	)	$	4,055,939
Exercise of employee common stock options and related tax benefits	1		1			8			—			—			9
Common dividends paid ($0.16 per share)	—		—			—			(12,432		)	—			(12,432		)
Repurchase of common stock	(132	)	(132		)	(7,243		)	—			—			(7,375		)
Issuance of restricted common shares, net of forfeitures	10		10			(10		)	—			—			—
Restricted shares withheld for taxes and related tax benefit	(14	)	(14		)	(787		)	—			—			(801		)
Compensation expense for restricted shares	—		—			5,160			—			—			5,160
Net income	—		—			—			100,321			—			100,321
Other comprehensive income	—		—			—			—			35,540			35,540
Balance at June 30, 2019	76,929		$	76,929		$	3,076,486		$	1,002,434		$	20,512		$	4,176,361

See accompanying notes to consolidated financial statements (unaudited).

7

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in thousands)

	Six months ended June 30,
	2019			2018
Operating activities:
Net income	$	194,281		$	170,375
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization/accretion of premium/discount on securities	9,029			9,956
Depreciation, amortization and accretion	2,276			(13,095		)
Provision for loan losses	14,379			16,333
Gain on mortgage loans sold, net	(10,889		)	(7,521		)
Investment losses (gains) on sales, net	6,426			(30		)
Stock-based compensation expense	10,073			8,751
Deferred tax expense	6,907			12,460
Losses (gains) on dispositions of other real estate and other investments	2,438			(15		)
Income from equity method investment	(45,551		)	(