Pinnacle Financial Partners, Inc. operates as a bank holding company, which engages in the provision of financial services. The company also provides personalized services to small community banks, while seeking to offer the products and services, such as investments and treasury management. Its banking services include investment, mortgage and insurance services and comprehensive wealth management services, in its primary market areas of the Nashville-Davidson-Murfreesboro-Franklin, Tennessee and Knoxville, Tennessee Metropolitan Statistical Areas. The company was founded by Dale W. Polley, M. Terry Turner, Sue G. Atkinson, Reese L. Smith III and Robert A. McCabe, Jr. on February 28, 2000 and is headquartered in Nashville, TN.
Our net interest margin, and consequently our net earnings, are significantly affected by interest rate levels.
We have a concentration of credit exposure to borrowers in certain industries, and we also target small to medium-sized businesses.
Our ability to grow our loan portfolio may be limited by, among other things, economic conditions, competition within our market areas, the timing of loan repayments, our ability to grow our core deposits, our ability to hire experienced bankers and seasonality.
Negative developments in the U.S. and local economy may adversely impact our results in the future.
Our operations are principally geographically concentrated in certain markets in the southeastern United States, and changes in local economic conditions impact our profitability.
Our business may suffer if there are significant declines in the value of real estate.
If our allowance for loan losses is not sufficient to cover losses inherent in our loan portfolio, our results of operations and financial condition will be negatively impacted.
Liquidity risk could impair our ability to fund our operations and jeopardize our financial condition.
The performance of our investment securities portfolio is subject to fluctuation due to changes in interest rates and market conditions, including credit deterioration of the issuers of individual securities.
A new accounting standard may require us to increase our ALLL and could have a material adverse effect on our financial condition and results of operations.
A decline in our stock price or expected future cash flows, or a material adverse change in our results of operations or prospects, could result in impairment of our goodwill.
Our accounting estimates and risk management processes rely on analytical and forecasting models and tools.
Our selection of accounting policies and methods may affect our reported financial results.
Changes to LIBOR may adversely affect the holder of, the market value of, and the interest expense paid on our subordinated notes and our subordinated debentures and related trust preferred securities, and may affect certain of our loans.
BHG’s results of operations have become a larger portion of our results of operations in 2019, and challenges in BHG’s business that negatively affect its results would now more significantly impact our results than in 2018.
Implementation of the various provisions of the Dodd-Frank Act may increase our operating costs or otherwise have a material adverse effect on our business, financial condition or results of operations.
Changes to capital requirements for bank holding companies and depository institutions that became effective January 1, 2015 and that are now fully phased in may negatively impact Pinnacle Financial’s and Pinnacle Bank’s results of operations.
Our ability to maintain required capital levels and adequate sources of funding and liquidity could be impacted by changes in the capital markets and deteriorating economic and market conditions.
We currently invest in bank owned life insurance (“BOLI”) and may continue to do so in the future.
Our acquisitions and future expansion may result in additional risks.
We may face risks with respect to future acquisitions.
An ineffective risk management framework could have a material adverse effect on our strategic planning and our ability to mitigate risks and/or losses and could have adverse regulatory consequences.
We are dependent on our information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on our financial condition and results of operations.
Environmental liability associated with commercial lending could result in losses.
National or state legislation or regulation may increase our expenses and reduce earnings.
Our business reputation and relationships are important and any damage to them could have a material adverse effect on our business.
We face substantial competition and are subject to certain regulatory constraints not applicable to some of our competitors, which may decrease our growth or profits.
Inability to retain senior management and key employees or to attract new experienced financial services professionals could impair our relationship with our customers, reduce growth and adversely affect our business.
We are subject to certain litigation, and our expenses related to this litigation may adversely affect our results.
Our business is dependent on technology, and an inability to invest in technological improvements may adversely affect our results of operations and financial condition.
We are subject to various statutes and regulations that may impose additional costs or limit our ability to take certain actions.
The soundness of other financial institutions could adversely affect us.
We depend on the accuracy and completeness of information about customers.
We may be subject to claims and litigation asserting lender liability.
We may be subject to claims and litigation pertaining to fiduciary responsibility.
Natural disasters may adversely affect us.
Pinnacle Financial is required to act as a source of financial and managerial strength for Pinnacle Bank in times of stress.
Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions against us.
The price of our common stock may be volatile or may decline.
Our ability to declare and pay dividends is limited.
We may issue additional common stock or other equity securities in the future which could dilute the ownership interest of existing shareholders.
Holders of Pinnacle Financial’s junior subordinated debentures have rights that are senior to those of Pinnacle Financial’s shareholders.
Pinnacle Financial and Pinnacle Bank have issued subordinated indebtedness the holders of which have rights that are senior to those of Pinnacle Financial’s common shareholders.
We identified a material weakness in our internal controls over financial reporting as of December 31, 2018 and determined that our disclosure controls and procedures were not effective at December 31, 2018 and March 31, 2019. Though we believe we have remediated this material weakness as of June 30, 2019, we may be unable to develop, implement and maintain effective internal control over financial reporting and disclosure controls and procedures in future periods.
Our issuance of preferred stock could adversely affect holders of our common stock.
We and/or the holders of certain types of our securities could be adversely affected by unfavorable ratings from rating agencies.
Even though our common stock is currently traded on the Nasdaq Stock Market’s Global Select Market, it has less liquidity than many other stocks quoted on a national securities exchange.
Our corporate organizational documents and the provisions of Tennessee law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition of Pinnacle Financial that you may favor.
An investment in our common stock is not an insured deposit and is not guaranteed by the FDIC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our diluted net income per common share for the three and six months ended June 30, 2019 was $1.31 and $2.53, respectively, compared to $1.12 and $2.20, respectively, for the same periods in 2018. At June 30, 2019, loans had increased to $18.8 billion, as compared to $17.7 billion at December 31, 2018, and total deposits increased to $19.4 billion at June 30, 2019 from $18.8 billion at December 31, 2018.
Results of Operations. Our net interest income increased to $188.9 million and $376.2 million, respectively, for the three and six months ended June 30, 2019 compared to $182.2 million and $356.7 million, respectively, for the same periods in the prior year, representing increases of $6.7 million and $19.5 million, respectively. For the three and six months ended June 30, 2019 when compared to the comparable periods in 2018, these increases were largely the result of organic loan growth during the comparable periods. The net interest margin (the ratio of net interest income to average earning assets) for the three and six months ended June 30, 2019 was 3.48% and 3.55%, respectively, compared to 3.69% and 3.73%, respectively, for the same periods in 2018 and reflects the competitive rate environments for loans and deposits in our markets and declining levels of positive impact from purchase accounting.