We set and deliver against lofty strategic targets

We’ve always believed that revenue growth, earnings growth and asset quality are the three metrics most tightly correlated with the share price performance. Companies that grow tangible book value typically grow share prices.

Revenues for the quarter ended Dec. 31, 2017 were $211.2 million, an increase of 75.8 percent from the quarter ended Dec. 31, 2016. Income from our investment in Bankers Healthcare Group grew 20.9 percent in 2017. Our wealth management revenues, which include investment, trust and insurance services, increased 35.7 percent over 2016.

On a GAAP basis our 2017 fully diluted earnings per share was approximately $2.70. When adjusted for merger-related expenses, investment gains, losses on the sale of investment securities and the revaluation of our deferred tax assets in the fourth quarter as a result of the tax law change, fully diluted EPS for 2017 was approximately $3.57.

We continue to be dogged not just about growing earnings, but about growing the ongoing earnings capacity of the firm. For companies like ours, balance sheet growth is the key to earnings growth.

Loans at the end of 2017 were a record $15.63 billion, reflecting year-over-year growth of 85.0 percent. End-of-year deposits were a record $16.45 billion, which is 87.8 percent more than year-end 2016. Our core deposit growth was 84 percent year over year, enabling us to fund 99 percent of our loan growth during the year with core deposits.


Our acquisition of BNC Bancorp enabled us to increase our long-term profitability targets, which we believe is the key to sustainable shareholder value creation. As a result of the transaction, we lifted our return on average tangible assets target from a range of 1.20 to 1.40 percent to range to 1.30 to 1.50 percent. We also adjusted the targeted range for margin up to a range of 3.60-3.80 percent; expenses to average assets down to a range of 1.80-2.0 percent; and the fees to assets down to a range of 0.9-1.10 percent.

For the year ended Dec. 31, 2017 we operated inside or better than our target range for each individual component measure of the ROATA except the expense to assets ratio on a GAAP basis. Excluding the items described above, we hit the mark for each of these measures. We expect to march toward the midpoint of our new fees to asset target range as we build a stronger C&I platform in the Carolinas and Virginia and as we implement our full set of treasury management and wealth management capabilities there.

For the year ended in Dec. 31, 2017 Pinnacle Targeted
Operating Range
Return on Average Assets 1.30% to 1.50% 1.10% 1.36%
Net Interest Margin 3.60% to 3.80% 3.76% 3.76%
Noninterest Income to Avg. Assets 0.90% to 1.10% 0.90% 0.93%
Noninterest Expense to Avg. Assets 1.80% to 2.00% 2.16% 2.00%
Net Charge-off Ratio 0.20% to 0.35% 0.16% 0.16%
  1. Non-GAAP amounts exclude net gains and losses on the sale of investment securities, ORE expense, merger-related charges and the impact of revaluation of deferred tax assets. For a reconciliation of these Non-GAAP financial measures to the comparable GAAP measure, click here.

Non-GAAP Financial Matters This report contains certain non-GAAP financial measures, including, without limitation, earnings per diluted share, core net interest margin, and the ratio of noninterest expense to average assets and noninterest income to average assets, in each case excluding the impact of expenses related to other real estate owned, gains or losses on sale of investments, the revaluation of Pinnacle Financial’s deferred tax assets and other matters for the accounting periods presented. This report also includes non-GAAP financial measures which exclude expenses associated with Pinnacle Bank's mergers with CapitalMark Bank & Trust, Magna Bank, Avenue Financial Holdings, Inc. and BNC, as well as Pinnacle Financial's and its bank subsidiary's investments in BHG. This report may also contain certain other non-GAAP capital ratios and performance measures. These non-GAAP financial measures exclude the impact of goodwill and core deposit intangibles associated with Pinnacle Financial's acquisitions of BNC, Avenue, 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. 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 2017 versus certain periods in 2016 and to internally prepared projections.

Investing in the future

Forbes kicked off the year by announcing its 2017 list of America’s Best Banks. The publication reviewed raw information from S&P Global Market Intelligence that shed light on growth, credit quality and profitability for the country’s 100 largest banks and thrifts. Pinnacle was a top-quartile performer, coming in at No. 24.

Days later we announced our acquisition of BNC Bancorp, which was the largest investment we made in 2017 to create value for shareholders. The award-winning merger—M&A Advisor named it the “Corporate/Strategic Deal of the Year” over $1 billion—put us in what we believe are the best banking markets in the Carolinas.

FORTUNE magazine took notice and named us one of the Top 100 Fastest Growing Companies for the second time in our history.

Outlook for Future Growth

Aligning associates’ interests with shareholders’ interests is one of the most critical factors in our approach to creating long-term shareholder value and is distinctive when compared to peers. Our associates act like owners of this firm and do what’s best for clients and shareholders because they are owners. Three commitments ensure that everyone involved with this firm has a stake:

  1. Inside ownership, including directors, was 4.81 percent at Dec. 31, 2017.
  2. All associates receive restricted shares of stock when they start and annually thereafter.
  3. Non-commissioned associates participate in an annual cash incentive plan that is based primarily on meeting the firm’s targets for credit quality, revenue growth and earnings per share growth—the three factors most closely correlated with share price performance.

We believe that our shareholders will continue to benefit from the strength of this alignment and the long-term results we expect to produce. We also remain confident in our longstanding formula for success—that our excited associates will continue to engage clients and that those loyal, satisfied clients will enrich shareholders by producing outsized returns.