2015 ANNUAL REPORT
TURNING
ASPIRATIONS
INTO REALITY
excited
associates
engaged
clients
enriched
shareholders
Pinnacle’s dream of operating in all four of
Tennessee’s urban markets became reality in 2015
with our expansion into Memphis and Chattanooga.
In addition, we continued to achieve our ambitious
goals for exciting associates, engaging clients and
enriching shareholders.
More information about how we
are turning our lofty aspirations
into reality is available in our online
annual report, which can be found
at http://annualreport.pnfp.com or
the Investor Relations section of
www.pnfp.com.
Nashville
Dear Fellow Shareholders,
Since Pinnacle’s founding in 2000, we have referred to our firm
as an urban community bank—a bank with all of the sophistica-
tion to compete in large urban markets but with the hands-on,
friendly, personal service associated with a smaller community
bank. From the outset we have aspired to operate in all of
Tennessee’s urban markets. Our Nashville launch was followed
by a de novo expansion to Knoxville in 2007, and we experi-
enced phenomenal organic growth in both markets. In 2015 we
realized our dream of being a statewide urban community bank
by expanding to both Chattanooga and Memphis.
Our mergers with CapitalMark Bank & Trust in Chattanooga and
Magna Bank in Memphis give us the platform to continue
execut ing our organic growth model in those markets just as
we have in Nashville and Knoxville. We announced both acquisi-
tions in the second quarter of 2015 and closed both in the
third quarter.
In both of the new markets we worked quickly to engage our
new associates and recruit other highly experienced financial
services professionals with deep local ties. To help accelerate
C&I lending in Memphis, we recruited a team of eight bankers
from First Tennessee. And we have continued to have great
hiring success lifting out C&I bankers from other large regional
banks in the market as well.
In last year’s letter to shareholders, we discussed our intent to
increase our capital allocation to fee businesses that could drive
shareholder value and expand our revenue base. So in addition
to the mergers, we made several moves intended to sustain the
rapid earnings growth that we’ve enjoyed for several years now.
For example, we acquired a 30 percent interest in Bankers
Healthcare Group, a leading provider of financing solutions for
healthcare professionals across the United States. The BHG
partnership has exceeded our expectations for additional fee
revenue—so much so that we purchased an additional 19 percent
stake in the first quarter of 2016, bringing our total ownership of
that high-growth specialty lender to 49 percent.
We also hired a team of commercial real estate lenders to focus
on the best developers in our markets and launched a CRE
initiative that is running well ahead of schedule. Additionally we
formed a broker-dealer to focus primarily on company valuations
and M&A transactions for the owner-managed businesses
that are underserved by the larger investment banks.
Throughout it all, we kept focus on achieving our long-term prof-
itability targets. Our return on average assets was 1.24 percent
in the fourth quarter (or 1.31 percent excluding merger-related
expenses), well within our target range of 1.20 to 1.40 percent. In
addition to hitting our targeted ROA, all of the other components—
margin, noninterest income to assets, noninterest expense to
assets and net charge-offs—were inside the long-term target
ranges we previously set.
Photo credit: Nathan Morgan, Nashville Business Journal
2015 ACCOMPLISHMENTS
As we expanded to two new geographic markets in 2015, we
never lost sight of our formula—that excited associates create
engaged clients, which lead to enriched shareholders. These
accomplishments point toward the progress we made in each area:
Best bank to work for in Tennessee.
American Banker named Pinnacle No. 3 on its list of “Best Banks
to Work For” in the U.S., making our firm the best bank to work
for in Tennessee. In addition, Great Place to Work® and Fortune
named us one of the country’s 50 Best Workplaces for
Camaraderie after surveying more than 255,000 employees
across the nation.
Strong talent recruitment.
Our ability to attract the best bankers in our markets is what fuels
our organic growth engine. In 2015 we hired 36 revenue-producing
associates, which is roughly three times our previous annual
hiring pace.
Market-leading client satisfaction.
According to Greenwich Associates, our “net promoter” score—
an indication of clients who are likely to recommend us to their
friends and colleagues—is meaningfully higher than all of our
key competitors. This kind of client engagement explains our
success in 2015 and is the basis for our optimism going forward.
Total Shareholder Returns
1 Year
PNFP—31.2%
Peer Median—9.9%
75th Percentile of
Peer Group—22.7%
3 Year
PNFP—178.6%
Peer Median—72.9%
75th Percentile of
Peer Group—98.1%
5 Year
PNFP—286.5%
Peer Median—94.1%
75th Percentile of
Peer Group—137.8%
10 Year
PNFP—110.1%
Peer Median—62.7%
75th Percentile of
Peer Group—112.2%
Peer-leading returns for shareholders.
We set high goals for ourselves because we want to be among
the best performers in our peer group. Again in 2015 we achieved
top-quartile profitability and top-quartile asset quality, which we
believe resulted directly in top-quartile total shareholder returns.
Our shares were up again in 2015 roughly 30 percent.
SHAREHOLDER FOCUS
We continued our record for double-digit earnings per share
growth in 2015. We budgeted a 20 percent growth rate in EPS
over 2014, a high goal, and then exceeded that target by roughly
50 percent when merger-related expenses were excluded.
We believe that says a lot about both our aspirations and our
ability to execute on them.
OUTLOOK FOR 2016 AND BEYOND
The CapitalMark and Magna acquisitions, as well as our recently
announced proposed merger with Avenue Financial Holdings in
Nashville, will help us deepen our penetration in all four
Tennessee markets over the next several years. The long-term
goal is to increase our deposit base to roughly $15 billion in
those four markets.
Looking to 2016, we will continue to emphasize several fee
areas. With our additional investment in BHG we should experi-
ence a meaningful increase in fee revenues, but we’re not stop-
ping there. We have great aspirations for our capital markets
unit and will continue to emphasize interchange income. Simply
said, in 2016 we expect to:
• Exploit the opportunity to dominate the commercial real estate
segment in our geographic markets,
• Find fee businesses similar to BHG and PNFP Capital Markets,
Inc. that can grow our core earnings capacity and diversify
our revenue streams and
• Focus on bottom-line results and continue to target top-quartile
performance.
Some investors have a negative outlook for bank stocks as a
result of the difficult macro-economic and global geopolitical
landscapes. They fear that the Federal Reserve may move
more slowly than originally thought, that stubbornly low rates
will weigh on net interest margins and that low oil prices will
create weakening credit. But we believe that Pinnacle’s story is
different—that our exposure to energy lending is limited and the
markets we serve are vibrant enough to support volume growth
that facilitates meaningful net interest income growth.
Reflecting on the performance of our firm against the very high
profit targets that we established several years ago, the tremen-
dous momentum in organic growth and the credit and profit
leverage that we expect going forward, we remain optimistic
about our future. As you review the report, we hope you will find
evidence of our ongoing commitment to generate top-quartile
returns for our shareholders.
Sincerely,
M. Terry Turner
President and CEO
Robert A. McCabe, Jr.
Chairman
Knoxville
Chattanooga
Memphis
FINANCIAL
REVIEW
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 000-31225
Tennessee
(State or other jurisdiction
of incorporation)
(Exact name of registrant as specified in charter)
, INC.
62-1812853
(I.R.S. Employer
Identification No.)
150 Third Avenue South, Suite 900, Nashville, Tennessee
(Address of principal executive offices)
37201
(Zip Code)
Registrant's telephone number, including area code: (615) 744-3700
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class
Common Stock, par value $1.00
Name of Exchange on which
Registered
Nasdaq Global Select Market
Securities registered to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of
"accelerated filer," "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [X] Accelerated Filer [ ] Non-accelerated Filer [ ] (Do not check if a smaller reporting company) Smaller Reporting Company [ ]
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity as of the last business day of the registrant's most recently completed second fiscal quarter:
$1,841,157,136 as of June 30, 2015.
Indicate the number of shares outstanding of each of the registrant's classes of stock, as of the latest practicable date: 41,042,164 shares of common stock as of February 26, 2016.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Portions of the Proxy Statement for the Annual Meeting of Stockholders, scheduled to be held April 19, 2016, are incorporated by reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
Page No.
PART I
ITEM 1. BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
(cid:21)
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136
FORWARD-LOOKING STATEMENTS
Certain of the statements in this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
The words "expect," "anticipate," "goal," "objective," "intend," "plan," "believe," "should," "hope," "pursue," "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. All forward-looking statements are subject to risks, uncertainties
and other factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from
any results expressed or implied by such forward-looking statements. Such risks include, without limitation, (i) failure of the
closing conditions to Pinnacle Financial's additional investment in Bankers Healthcare Group, LLC (BHG) to be satisfied; (ii)
Pinnacle Bank's inability to issue debt financing in connection with Pinnacle Financial's and Pinnacle Bank's additional
investment in BHG in amounts and on terms acceptable to it; (iii) deterioration in the financial condition of borrowers resulting
in significant increases in loan losses and provisions for those losses; (iv) continuation of the historically low short-term
interest rate environment; (v) 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; (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) increased
competition with other financial institutions; (ix) greater than anticipated adverse conditions in the national or local economies
including the Nashville-Davidson-Murfreesboro-Franklin MSA, the Knoxville MSA, the Chattanooga, TN-GA MSA and the
Memphis, TN-MS-AR MSA, particularly in commercial and residential real estate markets; (x) rapid fluctuations or unanticipated
changes in interest rates on loans or deposits; (xi) the results of regulatory examinations; (xii) the ability to retain large,
uninsured deposits; (xiii) the development of any new market other than the Nashville, Knoxville, Chattanooga or Memphis
MSAs; (xiv) a merger or acquisition like our proposed merger with Avenue Financial Holdings, Inc. (Avenue); (xv) risks of
expansion into new geographic or product markets, like the expansion into the Chattanooga and Memphis MSAs; (xvi) any
matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets;
(xvii) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to
Pinnacle Financial), to retain financial advisors (including those at Avenue) or otherwise to attract customers from other
financial institutions; (xviii) further deterioration in the valuation of other real estate owned and increased expenses associated
therewith; (xix) inability to comply with regulatory capital requirements, including those resulting from changes to capital
calculation methodologies and required capital maintenance levels; (xx) risks associated with litigation, including the
applicability of insurance coverage; (xxi) the risk that the cost savings and any revenue synergies from the mergers
with Avenue, CapitalMark Bank & Trust (CapitalMark) and Magna Bank (Magna) may not be realized or take longer than
anticipated to be realized; (xxii) disruption from the Avenue merger with customers, suppliers or employee relationships; (xxiii)
the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement
related to the Avenue merger; (xxiv) the risk of successful integration of Avenue's, CapitalMark's and Magna's business with
ours; (xxv) the failure of Avenue's shareholders to approve the Avenue merger; (xxvi) the amount of the costs, fees, expenses
and charges related to the Avenue merger; (xxvii) the ability to obtain required government approvals of the proposed terms of
the Avenue merger; (xxviii) reputational risk and the reaction of Pinnacle Financial's and Avenue's customers to the Avenue
merger; (xxix) the failure of the closing conditions of the Avenue merger to be satisfied; (xxx) the risk that the integration of
Avenue's, CapitalMark's and Magna's operations with Pinnacle Financial's will be materially delayed or will be more costly or
difficult than expected; (xxxi) the possibility that the Avenue merger may be more expensive to complete than anticipated,
including as a result of unexpected factors or events; (xxxii) the dilution caused by Pinnacle Financial's issuance of additional
shares of its common stock in the Avenue merger; (xxxiii) approval of the declaration of any dividend by Pinnacle Financial's
board of directors; (xxxiv) the vulnerability of our network and online banking portals to unauthorized access, computer viruses,
phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xxxv) the possibility of
increased compliance costs as a result of increased regulatory oversight, including oversight of companies in which Pinnacle
Financial has significant investments, and the development of additional banking products for our corporate and consumer
clients; (xxxvi) the risks associated with our being a minority investor in BHG, including the risk that the owners of a majority of
the membership interests in BHG decide to sell the company if not prohibited from doing so by the terms of our agreement with
them; (xxxvii) the incremental cost and/or decreased revenues associated with exceeding $10 billion in assets will exceed current
estimates; and (xxxviii) changes in state and federal legislation, regulations or policies applicable to banks and other financial
service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy,
including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more detailed description of
these and other risks is contained in "Item 1A. Risk Factors" below. Many of such factors are beyond Pinnacle Financial's
ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle
Financial disclaims any obligation to update or revise any forward-looking statements contained in this release, whether as a
result of new information, future events or otherwise.
(cid:22)
PART I
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms "we," "our," "us," "the firm,"
"Pinnacle Financial Partners," "Pinnacle" or "Pinnacle Financial" as used herein refer to Pinnacle Financial Partners,
Inc., and its subsidiaries, including Pinnacle Bank, which we sometimes refer to as "our bank subsidiary" or "our bank" and
its other subsidiaries. References herein to the fiscal years 2011, 2012, 2013, 2014, and 2015 mean our fiscal years ended
December 31, 2011, 2012, 2013, 2014, and 2015, respectively.
ITEM 1. BUSINESS
OVERVIEW
Pinnacle Financial Partners is the second-largest bank holding company headquartered in Tennessee, with $8.72 billion in
assets as of December 31, 2015. Incorporated on February 28, 2000, the holding company is the parent company of Pinnacle
Bank and owns 100% of the capital stock of Pinnacle Bank. The firm started operations on October 27, 2000, in Nashville,
Tennessee, and has since grown to 44 offices, including 29 in eight Middle Tennessee counties. The firm also has five offices in
Knoxville, five offices in Memphis and one in Chattanooga, as well as several offices in nearby communities. Prior to September
4, 2012, when it converted from a national bank to a state bank, Pinnacle Bank was known as Pinnacle National Bank.
The firm operates as a community bank primarily in the urban markets of Nashville, Knoxville, Memphis and Chattanooga,
Tennessee and surrounding counties. As an urban community bank, Pinnacle provides the personalized service most often
associated with small community banks, while offering the sophisticated products and services, such as investments and
treasury management, more typically found at large regional and national banks. This approach has enabled Pinnacle to attract
clients from the regional and national banks in the Nashville, Knoxville, Memphis and Chattanooga MSAs and surrounding
markets. As a result, Pinnacle has grown to the fourth largest market share in the Nashville MSA and to the sixth largest market
share in the Knoxville MSA, based on 2015 FDIC Summary of Deposits data including the impact of any mergers and
acquisitions.
ACQUISITIONS
In February 2015, Pinnacle Bank acquired a 30% membership interest in Bankers Healthcare Group, LLC (BHG), a company
which makes term loans to healthcare professionals and practices, for $75 million in cash. On January 19, 2016, Pinnacle
Financial and Pinnacle Bank entered into an agreement to acquire, at the closing of the investment, 8.55% and 10.45%,
respectively, of the outstanding membership interests in BHG for $114.0 million, payable in a mix of cash and stock
consideration. The cash consideration is expected to equal $74,100,000 and the stock consideration is expected to consist of a
number of shares equal to the quotient (in whole shares) of (i) $39,900,000 and (ii) the closing price of Pinnacle Financial's
common stock on the Nasdaq Global Select Market on the day prior to the closing date of the additional investment. The
closing of the additional investment is subject to satisfaction of customary closing conditions and Pinnacle Financial's election
to become a financial holding company which became effective February 17, 201(cid:25). We currently expect the closing to occur in
early March 2016.
At the closing, Pinnacle Financial, Pinnacle Bank and the other members of BHG will enter into an Amended and Restated
Limited Liability Company Agreement of BHG that is currently expected to provide for, among other things, the following terms:
(i) the inability of any member of BHG to transfer its ownership interest in BHG without the consent of the other members of
BHG for five years, other than transfers to family members, trusts or affiliates of the transferring member, in connection with the
acquisition of Pinnacle Financial or Pinnacle Bank or as a result of a change in applicable law that forces Pinnacle Financial
and/or Pinnacle Bank to divest their ownership interests in BHG; (ii) the inability of the board of managers of BHG (of which
Pinnacle Financial and Pinnacle Bank will have the right to designate two of the five members (the "Pinnacle Managers")) to
approve a sale of BHG for four years without the consent of one of the Pinnacle Managers; (iii) co-sale rights for the Pinnacle
Financial and Pinnacle Bank in the event the other members of BHG decide to sell all or a portion of their ownership interests
after the above-described five-year limitation; and (iv) a right of first refusal for BHG and the other members of BHG in the event
that the Pinnacle Financial and/or Pinnacle Bank decide to sell all or a portion of their ownership interests after the above-
described five-year limitation, except in connection with a transfer of their ownership interests to an affiliate or in connection
with the acquisition of Pinnacle Financial or Pinnacle Bank.
(cid:23)
In July 2015, we completed our acquisition of CapitalMark Bank & Trust ("CapitalMark") for approximately $19.7 million in cash
(including payments related to fractional shares) and 3,306,184 shares of Pinnacle Financial's common stock valued at
approximately $175.5 million. All of CapitalMark's outstanding stock options vested upon consummation of the CapitalMark
acquisition and were converted into options to purchase shares of Pinnacle Financial's common stock at the common stock
exchange rates. The fair market value of stock options assumed was approximately $30.4 million. The CapitalMark merger
increased our presence in the Knoxville MSA and expanded our operations into the Chattanooga, Tennessee-Georgia MSA and
surrounding counties.
In September 2015, we completed our acquisition of Magna Bank ("Magna Bank") for an aggregate of $19.5 million in cash
(including payments related to fractional shares) and 1,371,717 shares of Pinnacle Financial's common stock valued at
approximately $63.5 million. Additionally, at the time of the merger there were 139,417 unexercised stock options that were
exchanged for cash equal to $14.32 less the respective exercise price. This consideration totaled approximately $847,000,
including all applicable payroll taxes. The Magna merger increased our presence in the Memphis, Tennessee-Mississippi-
Arkansas MSA.
On January 28, 2016, entered into a definitive agreement pursuant to which Avenue Financial Holdings, Inc. ("Avenue") will
merge with and into Pinnacle Financial, with Pinnacle Financial continuing as the surviving corporation. The separate existence
of Avenue shall cease to exist upon the effectiveness of the Avenue merger. In connection with the execution of the merger
agreement, Pinnacle Bank and Avenue Bank, Avenue's wholly owned bank subsidiary, have entered into a definitive agreement
pursuant to which Avenue Bank will merge with and into Pinnacle Bank simultaneously with the consummation of the Avenue
merger.
Pursuant to the terms of the merger agreement, upon consummation of the Avenue merger each holder of Avenue common
stock issued and outstanding, subject to certain exceptions, will be eligible to receive 0.36 shares of Pinnacle Financial's
common stock and an amount in cash equal to $2.00 for each share of Avenue common stock owned by them at the effective
time of the Avenue merger. The transaction is currently valued at approximately $201.4 million based on Pinnacle's 10-day
average closing price through the date of the merger agreement, and consists in the aggregate of stock consideration of
approximately 3.7 million shares of Pinnacle Financial's common stock and approximately $23.2 million in cash.
Cash will be paid in lieu of any fractional shares based on the average closing price of Pinnacle Financial's common stock for the
ten (10) trading days ending on the business day immediately preceding the closing date of the merger. Additionally, any
outstanding options to purchase shares of common stock of Avenue that are not vested will be accelerated prior to, but
conditioned on the occurrence of, the closing of the merger and all options that are not exercised prior to the closing shall be
cancelled and the holders of any such options shall receive an amount in cash equal to the product of (x) the excess, if any, of
$20.00 over the exercise price of each such option and (y) the number of shares of Avenue common stock subject to each such
option. In addition, upon consummation of the Avenue merger, Pinnacle Financial will assume Avenue's obligations under its
outstanding $20.0 million subordinated notes issued in December 2014 that mature in December 2024. These notes bear interest
at a rate of 6.75% per annum until January 1, 2020 and may not be repaid prior to such date. Beginning on January 1, 2020, if not
redeemed on such date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined on the
determination date of the applicable interest period plus 4.95%.
The proposed Avenue merger is subject to the satisfaction of customary closing conditions, including obtaining approvals
from applicable federal and state banking regulators and Avenue's shareholders; it is currently expected to close either late in
the second quarter or early in the third quarter.
PRODUCTS AND SERVICES
Lending Services
We offer a full range of lending products, including commercial, real estate and consumer loans to individuals and small-to
medium-sized businesses and professional entities. We compete for these loans with competitors who are also well established
in our geographic markets.
Pinnacle Bank's loan approval policies provide for various levels of officer lending authority. When the total amount of loans to
a single borrower exceeds an individual officer's lending authority, officers with higher lending authority determine whether to
approve any new loan requests or renewals of existing loans. Loans to insiders require approval of the board, and, certain
extensions of credit, including loans above certain amounts and certain adversely classified loans, require approval of a
committee of the board.
(cid:24)
Pinnacle Bank's lending activities are subject to a variety of lending limits imposed by federal and state law. Differing limits
apply based on the type of loan or the nature of the borrower, including the borrower's relationship to Pinnacle Bank. In general,
however, at December 31, 2015, we were able to loan any one borrower a maximum amount equal to approximately $105.6 million
plus an additional $70.4 million, or a total of approximately $176.0 million, for loans that meet certain additional collateral
guidelines. These legal limits will increase or decrease as Pinnacle Bank's capital increases or decreases as a result of its
earnings or losses, the injection of additional capital, payments of dividends, acquisitions, or for other reasons. Pinnacle Bank's
internal loan limit of $30 million is less than the legal lending limit, and Pinnacle Bank currently has three relationships in excess
of the internal loan limit. These relationships range from $34.0 million to $40.0 million and were each approved by the Executive
Committee of the Board of Directors.
The principal economic risk associated with each category of loans that Pinnacle Bank expects to make is the creditworthiness
of the borrower. General economic factors affecting a commercial or consumer borrower's ability to repay include interest,
inflation and unemployment rates, as well as other factors affecting a borrower's assets, clients, suppliers and employees.
Many of Pinnacle Bank's commercial loans are made to small- to medium-sized businesses that are sometimes less able to
withstand competitive, economic and financial pressures than larger borrowers. During periods of economic weakness these
businesses may be more adversely affected than other enterprises and may cause increased levels of nonaccrual or other
problem loans, loan charge-offs and higher provision for loan losses.
Pinnacle Bank's commercial clients borrow for a variety of purposes. The terms of these loans (which include equipment loans
and working capital loans) will vary by purpose and by type of any underlying collateral. Commercial loans may be unsecured
or secured by accounts receivable or by other business assets. Pinnacle Bank also makes a variety of commercial real estate
loans, including both investment properties and business loans secured by real estate.
Pinnacle Bank also makes a variety of loans to individuals for personal, family, investment and household purposes, including
secured and unsecured installment and term loans and lines of credit, residential first mortgage loans, home equity loans and
home equity lines of credit.
Deposit Services
Pinnacle Bank seeks to establish a broad base of core deposits, including savings, checking, interest-bearing checking, money
market and certificate of deposit accounts. To attract deposits, Pinnacle Bank has employed a marketing plan in its current
geographic markets primarily based on relationship banking and features a broad product line and competitive rates and
services. The primary sources of deposits are individuals and businesses located in those geographic markets. Pinnacle Bank
traditionally has obtained these deposits primarily through personal solicitation by its officers and directors, although its use of
media advertising has increased in recent years, primarily due to its advertising and banking sponsorship with the Tennessee
Titans NFL football team.
Pinnacle Bank also offers its targeted commercial clients a comprehensive array of treasury management services as well as
remote deposit services, which allow electronic deposits to be made from the client's place of business.
Investment, Trust and Insurance Services
Pinnacle Bank contracts with Raymond James Financial Services, Inc. (RJFS), a registered broker-dealer and investment adviser,
to offer and sell various securities and other financial products to the public from Pinnacle Bank's locations through Pinnacle
Bank employees that are also RJFS employees. RJFS is a subsidiary of Raymond James Financial, Inc.
Pinnacle Bank offers, through RJFS, non-FDIC insured investment products in order to assist Pinnacle Bank's clients in
achieving their financial objectives consistent with their risk tolerances. These financial products are offered by RJFS from
Pinnacle Bank's main office and many of its other offices. Additionally, we believe that the brokerage and investment advisory
program offered by RJFS complements Pinnacle Bank's general banking business, and further supports its business philosophy
and strategy of delivering to our clients those products and services that meet their financial needs. Pursuant to its contract
with us, RJFS is primarily responsible for the compliance monitoring of dual employees of RJFS and Pinnacle Bank.
Additionally, Pinnacle Bank has developed its own compliance-monitoring program in an effort to further ensure that Pinnacle
Bank personnel deliver these products in a manner consistent with the various regulations governing such activities. Pinnacle
Bank receives a percentage of commission credits and fees generated by the program. Pinnacle Bank remains responsible for
various expenses associated with the program, including promotional expenses, furnishings and equipment expenses and
general personnel costs including commissions paid to licensed brokers.
(cid:25)
Pinnacle Bank also maintains a trust department which provides fiduciary and investment management services for individual
and commercial clients. Account types include personal trust, endowments, foundations, individual retirement accounts,
pensions and custody. Pinnacle Advisory Services, Inc., a registered investment advisor, provides investment advisory
services to its clients. Additionally, Miller Loughry Beach Insurance Services, Inc., an insurance agency subsidiary of Pinnacle
Bank, provides insurance products, particularly in the property and casualty area, to its clients.
M&A Advisory and Securities Offering Services
In 2015, we formed PNFP Capital Markets, a registered broker dealer that will partner with our financial advisors to offer
corporate clients merger & acquisition advisory services, private debt, equity and mezzanine, interest rate derivatives and other
selected middle-market advisory services.
Other Banking Services
Given client demand for being able to access banking and investment services easily, Pinnacle Bank also offers a broad array of
convenience-centered products and services, including 24-hour telephone and online banking, mobile banking, debit and credit
cards, direct deposit, remote deposit and cash management services for small- to medium-sized businesses. Additionally,
Pinnacle Bank is associated with a nationwide network of automated teller machines of other financial institutions that our
clients are able to use throughout Tennessee and other regions. In many cases, Pinnacle Bank reimburses its clients for any
fees that may be charged to the client for using the nationwide ATM network, providing greater convenience as compared to
regional competitors.
Competitive Conditions
The four markets in which we currently operate are very competitive. The Nashville MSA banking market consists of 63
financial institutions with over $48.3 billion in deposits in the market as of June 30, 2015, up from approximately $44.1 billion at
June 30, 2014 according to FDIC data. As of June 30, 2000, approximately 62.8% of this deposit base was controlled by three
large, multi-state banks headquartered outside of Nashville, consisting of the following: Regions Financial (headquartered in
Birmingham, Alabama), Bank of America (headquartered in Charlotte, North Carolina), and SunTrust (headquartered in Atlanta,
Georgia). According to FDIC deposit information, the collective market share of deposits in the Nashville MSA of Regions
Financial (including the acquired Union Planters National Bank and AmSouth Bank), Bank of America, and SunTrust (including
the acquired National Bank of Commerce) declined from approximately 62.8% to 43.9% between June 30, 2000 and June 30, 2015.
Pinnacle Bank, on the other hand, after thirteen years of operations, holds the No. 4 deposit market share position in the
Nashville MSA at June 30, 2015 with 9.2% of the deposit market share, immediately behind the top three out-of-state banks.
The Knoxville MSA banking market consists of 51 financial institutions with over $15.1 billion in deposits in the market as of
June 30, 2015 up from $14.7 billion at June 30, 2014. As of June 30, 2007, approximately 53.2% of this deposit base was
controlled by three large, multi-state banks headquartered outside of Knoxville, consisting of the following: First Horizon,
SunTrust, and Regions Financial. According to FDIC deposit information, the collective market share of deposits in the
Knoxville MSA of First Horizon, SunTrust, and Regions Financial declined from 53.2% to 48.4% between June 30, 2007 and June
30, 2015. A significant portion of the decline in market share for the top three competitors since June 30, 2007 has occurred since
Pinnacle Bank established a presence in the Knoxville MSA in 2007. At June 30, 2015, Pinnacle Bank had approximately 4.9% of
the deposit market share in the Knoxville MSA.
The Chattanooga MSA banking market consists of 28 financial institutions with over $9.0 billion in deposits in the market as of
June 30, 2015 up from $8.5 billion at June 30, 2014. As of June 30, 2015, approximately 56.6% of this deposit base was controlled
by three large, multi-state banks headquartered outside of Chattanooga, consisting of the following: First Horizon, SunTrust,
and Regions Financial. During the third quarter of 2015, Pinnacle Financial acquired CapitalMark Bank & Trust (CapitalMark)
and thus entered the Chattanooga MSA. At June 30, 2015, CapitalMark had approximately 6.6% of the deposit market share in
the Chattanooga MSA.
The Memphis MSA banking market is comprised of 56 financial institutions with over $27.0 billion in deposits in the market as
of June 30, 2015 up from $23.7 billion at June 30, 2014. As of June 30, 2015, approximately 56.2% of this deposit base was
controlled by three large, multi-state banks two of which are headquartered outside of Memphis, consisting of the following:
First Horizon, SunTrust, and Regions Financial. During the third quarter of 2015, Pinnacle Financial acquired Magna Bank
(Magna) and thus entered the Memphis MSA. At June 30, 2015, Magna had approximately 1.7% of the deposit market share in
the Memphis MSA.
(cid:26)
We believe that the most important criteria to our bank's targeted clients when selecting a bank is their desire to receive
exceptional and personal customer service while being able to enjoy convenient access to a broad array of financial products.
Additionally, when presented with a choice, we believe that many of our bank's targeted clients would prefer to deal with a
locally-owned institution headquartered in Tennessee, like Pinnacle Bank, as opposed to a large, multi-state bank, where many
important decisions regarding a client's financial affairs are made elsewhere.
Employees
As of February 15, 2016, we employed 1,065 full-time equivalent associates. We believe these associates are Pinnacle's most
important asset and have created a culture where associates are engaged and excited to come to work. This is supported by the
fact that we were inducted into the Nashville Business Journal's "Best Places to Work" Hall of Fame after winning the award for
10 consecutive years. Additionally, consulting firm Great Place to Work recognized us as one of the best workplaces in the
United States on its 2013 and 2014 Best Small & Medium Workplaces list published in FORTUNE magazine. American Banker
also recognized Pinnacle Bank as one of the top three "Best Banks to Work For" in the country in 2013, 2014 and 2015. All of
these awards place heavy emphasis on anonymous surveys of associates in the judging criteria.
OTHER INFORMATION
Investment Securities
In addition to loans, Pinnacle Bank has investments primarily in United States agency securities, mortgage-backed securities,
and state and municipal securities. No investment in any of those instruments exceeds any applicable limitation imposed by law
or regulation. The executive committee of the board of directors reviews the investment portfolio on an ongoing basis in order
to ensure that the investments conform to Pinnacle Bank's asset liability management policy as set by the board of directors.
Asset and Liability Management
Our Asset Liability Management Committee (ALCO), composed of senior managers of Pinnacle Bank, manages Pinnacle Bank's
assets and liabilities and strives to provide a stable, optimized net interest income and margin, adequate liquidity and ultimately
a suitable after-tax return on assets and return on equity. ALCO conducts these management functions within the framework of
written policies that Pinnacle Bank's board of directors has adopted. ALCO works to maintain an acceptable position between
rate sensitive assets and rate sensitive liabilities. The executive committee of the board of directors oversees the ALCO
function on an ongoing basis.
Available Information
We file reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K. The public may read and copy any materials we file with the SEC at the SEC's
Public Reference Room at 100 F Street, N.E., Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer, and the SEC maintains an Internet site
at www.sec.gov that contains the reports, proxy and information statements, and other information we have filed electronically.
Our website address is www.pnfp.com. Please note that our website address is provided as an inactive textual reference only.
We make available free of charge through our website, the annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically
filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not
incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.
We have also posted our Corporate Governance Guidelines, Corporate Code of Conduct for directors, officers and employees,
and the charters of our Audit Committee, Human Resources and Compensation Committee, and Nominating and Corporate
Governance Committee of our board of directors on the Corporate Governance section of our website at www.pnfp.com. We will
make any legally required disclosures regarding amendments to, or waivers of, provisions of our Corporate Code of Conduct,
Corporate Governance Guidelines or current committee charters on our website. Our corporate governance materials are
available free of charge upon request to our Corporate Secretary, Pinnacle Financial Partners, Inc., 150 Third Avenue South,
Suite 900, Nashville, Tennessee 37201.
(cid:27)
SUPERVISION AND REGULATION
Both Pinnacle Financial and Pinnacle Bank are subject to extensive state and federal banking laws and regulations that impose
restrictions on and provide for general regulatory oversight of Pinnacle Financial's and Pinnacle Bank's operations. These laws
and regulations are generally intended to protect depositors and borrowers, not stockholders.
Pinnacle Financial
Pinnacle Financial is a bank holding company under the federal Bank Holding Company Act of 1956. As a result, it is subject to
the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Federal
Reserve.
Acquisition of Banks. The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve's
prior approval before:
•
•
•
Acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank
holding company will directly or indirectly own or control more than 5% of the bank's voting shares;
Acquiring all or substantially all of the assets of any bank; or
Subject to certain exemptions, merging or consolidating with any other bank holding company.
Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it
would substantially lessen competition or otherwise function as a restraint of trade, or result in or tend to create a monopoly,
unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the
convenience and needs of the communities to be served. The Federal Reserve is also required to consider the financial and
managerial resources and future prospects of the bank holding companies and banks concerned; the effectiveness of the
company in combating money laundering; the convenience and needs of the communities to be served; and the extent to which
the proposal would result in greater or more concentrated risk to the United States banking or financial system.
Under the Bank Holding Company Act, as amended by the Dodd-Frank Act, if well-capitalized and well managed, a bank
holding company located in Tennessee may purchase a bank located outside of Tennessee. Conversely, a well-capitalized and
well managed bank holding company located outside of Tennessee may purchase a bank located inside Tennessee. In each
case, however, state law restrictions may be placed on the acquisition of a bank that has only been in existence for a limited
amount of time or will result in specified concentrations of deposits. For example, Tennessee law currently prohibits a bank
holding company from acquiring control of a Tennessee-based financial institution until the target financial institution has been
in operation for three years.
Change in Bank Control. Subject to various exceptions, the Bank Holding Company Act and the Federal Change in Bank
Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring
"control" of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or
more of any class of voting securities of the bank holding company. Control is refutably presumed to exist if a person or
company acquires 10% or more, but less than 25%, of any class of voting securities and either:
•
•
The bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934; or
No other person owns a greater percentage of that class of voting securities immediately after the transaction.
Pinnacle Financial's common stock is registered under Section 12 of the Securities Exchange Act of 1934. The regulations
provide a procedure for challenge of the rebuttable control presumption.
(cid:28)
Permitted Activities. The Gramm-Leach-Bliley Act of 1999 amended the Bank Holding Company Act and expanded the
activities in which bank holding companies and affiliates of banks are permitted to engage. The Gramm-Leach-Bliley Act
eliminated many federal and state law barriers to affiliations among banks and securities firms, insurance companies, and other
financial service providers, and provided that holding companies which elected to become financial holding companies could
engage in activities that are:
•
•
•
Financial in nature;
Incidental to a financial activity (as determined by the Federal Reserve in consultation with the Secretary of the U.S.
Treasury); or
Complementary to a financial activity and do not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally (as determined by the Federal Reserve).
The Gramm-Leach-Bliley Act expressly lists the following activities as financial in nature:
•
•
•
•
•
•
•
•
•
Lending, trust and other banking activities;
Insuring, guaranteeing, or indemnifying against loss or harm, or providing and issuing annuities, and acting as principal,
agent, or broker for these purposes, in any state;
Providing financial, investment, or advisory services;
Issuing or selling instruments representing interests in pools of assets permissible for a bank to hold directly;
Underwriting, dealing in or making a market in securities;
Activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks
as to be a proper incident to banking or managing or controlling banks;
Activities permitted outside of the United States that the Federal Reserve has determined to be usual in connection with
banking or other financial operations abroad;
Merchant banking through securities or insurance affiliates; and
Insurance company portfolio investments.
The Gramm-Leach-Bliley Act also authorizes the Federal Reserve, in consultation with the Secretary of the U.S. Treasury, to
determine activities in addition to those listed above that are financial in nature or incidental to such financial activity. In
determining whether a particular activity is financial in nature or incidental or complementary to a financial activity, the Federal
Reserve must consider (1) the purpose of the Bank Holding Company Act and the Gramm-Leach-Bliley Act, (2) changes or
reasonably expected changes in the marketplace in which financial holding companies compete and in the technology for
delivering financial services, and (3) whether the activity is necessary or appropriate to allow financial holding companies to
effectively compete with other financial service providers and to efficiently deliver information and services. Pinnacle Financial
became a financial holding company effective as of February 17, 2016.
To maintain financial holding company status, a financial holding company and all of its depository institution subsidiaries
must be "well capitalized" and "well managed." A depository institution subsidiary is considered to be "well capitalized" if it
satisfies the requirements for this status discussed in the section captioned "Capital Adequacy" below. A depository
institution subsidiary is considered "well managed" if it received a composite rating and management rating of at least
"satisfactory" in its most recent examination. A financial holding company's status will also depend upon it maintaining its
status as "well capitalized" and "well managed" under applicable Federal Reserve regulations. If a financial holding company
ceases to meet these capital and management requirements, the Federal Reserve's regulations provide that the financial holding
company must enter into an agreement with the Federal Reserve to comply with all applicable capital and management
requirements. Until the financial holding company returns to compliance, the Federal Reserve may impose limitations or
conditions on the conduct of its activities, and the company may not commence any of the broader financial activities
permissible for financial holding companies or acquire a company engaged in such financial activities without prior approval of
the Federal Reserve. If the company does not return to compliance within 180 days, the Federal Reserve may require divestiture
of the holding company's depository institutions.
(cid:20)(cid:19)
In order for a financial holding company to commence any new activity permitted by the Bank Holding Company Act or to
acquire a company engaged in any new activity permitted by the Bank Holding Company Act, each insured depository
institution subsidiary of the financial holding company must have received a rating of at least "satisfactory" in its most recent
examination under the Community Reinvestment Act.
Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these
activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank
holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or
stability of any of its bank subsidiaries.
Support of Subsidiary Institutions. Pinnacle Financial is required to act as a source of financial strength for its bank subsidiary,
Pinnacle Bank, and to commit resources to support Pinnacle Bank. This support can be required at times when it would not be in
the best interest of Pinnacle Financial's stockholders or creditors to provide it. In the event of Pinnacle Financial's bankruptcy,
any commitment by it to a federal bank regulatory agency to maintain the capital of Pinnacle Bank would be assumed by the
bankruptcy trustee and entitled to a priority of payment.
Pinnacle Bank
Pinnacle Financial owns one bank - Pinnacle Bank. Pinnacle Bank is a state bank chartered under the laws of the State of
Tennessee that is not a member of the Federal Reserve. As a result, it is subject to the supervision, examination and reporting
requirements and the regulations of the Federal Deposit Insurance Corporation (FDIC) and Tennessee Department of Financial
Institutions (TDFI). The TDFI has the authority to approve or disapprove mergers, the issuance of preferred stock and capital
notes, the establishment of branches and similar corporate actions. The TDFI regularly examines state banks like Pinnacle Bank
and in connection with its examinations may identify matters necessary to improve a bank's operation in accordance with
principles of safety and soundness. Any matters identified in such examinations are required to be appropriately addressed by
the bank. Pinnacle Bank is also subject to numerous state and federal statutes and regulations that will affect its business,
activities and operations.
Branching. While the TDFI has authority to approve branch applications, state banks are required by the State of Tennessee to
adhere to branching laws applicable to state chartered banks in the states in which they are located. With prior regulatory
approval, Tennessee law permits banks based in the state to either establish new or acquire existing branch offices throughout
Tennessee. As a result of the Dodd-Frank Act, Pinnacle Bank and any other national or state-chartered bank generally may
branch across state lines to the same extent as banks chartered in the state of the branch.
FDIC Insurance. Deposits in Pinnacle Bank are insured by the FDIC up to $250,000 subject to applicable limitations. To offset
the cost of this issuance, the FDIC has adopted a risk-based assessment system for insured depository institutions that takes
into account the risks attributable to different categories and concentrations of assets and liabilities. Under the Dodd-Frank
Act, the FDIC has adopted regulations that base deposit insurance assessments on total assets less capital rather than deposit
liabilities and include off-balance sheet liabilities of institutions and their affiliates in risk-based assessments. After an
institution's average assets exceed $10 billion over four quarters, the assessment rate increases compared to institutions at
lower average asset levels.
The FDIC may terminate its insurance of an institution's deposits if it finds that the institution has engaged in unsafe and
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation,
rule, order or condition imposed by the FDIC.
Capital Adequacy
The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies.
Pinnacle Bank is also subject to risk-based and leverage capital requirements adopted by the FDIC, which are substantially
similar to those adopted by the Federal Reserve for bank holding companies. The risk-based capital standards are designed to
make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to
account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk
weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.
Tennessee state banks are required to have the capital structure that the TDFI deems adequate, and the Commissioner of the
TDFI may require a state bank to increase its capital structure to the point deemed adequate by the Commissioner before
granting approval of a branch application, merger application or charter amendment.
(cid:20)(cid:20)
Under Federal Reserve regulations for bank holding companies applicable prior to January 1, 2015, the minimum ratio of total
capital to risk-weighted assets was 8%. Total capital consisted of two components, Tier 1 capital and Tier 2 capital. Tier 1 capital
generally consists of common stock (plus related surplus) and retained earnings, minority interests in the equity accounts of
consolidated subsidiaries, noncumulative perpetual preferred stock and related surplus, and a limited amount of cumulative
perpetual preferred stock and related surplus, less goodwill and other specified intangible assets. The trust preferred securities
previously issued by Pinnacle Financial qualified as Tier 1 capital, and as described below will continue to qualify as Tier 1
capital under the Dodd-Frank Act and Basel III. Under Federal Reserve regulations, Tier 1 capital must equal at least 6% of risk-
weighted assets. Tier 2 capital generally consists of subordinated debt, other preferred stock, and a limited amount of loan loss
reserves. The total amount of Tier 2 capital is limited to 100% of Tier 1 capital. For a holding company to be considered "well-
capitalized," it was required to maintain a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least
8% and not be subject to a written agreement, order or directive to maintain a specific capital level.
In addition, the Federal Reserve has established minimum leverage ratio regulations for bank holding companies.
These regulations require a minimum ratio of Tier 1 capital to average assets, less goodwill, other intangible assets and other
required deductions, of at least 4%. Furthermore, the Federal Reserve indicated that it will consider a bank holding company's
Tier 1 capital leverage ratio, after deducting all intangibles, and other indicators of capital strength in evaluating proposals for
expansion or new activities.
The Dodd-Frank Act contains a number of provisions dealing with capital adequacy of insured depository institutions and their
holding companies, and for the most part these provisions have resulted in insured depository institutions and their holding
companies being subject to more stringent capital requirements. Under the so-called Collins Amendment to the Dodd-Frank
Act, federal regulators have established minimum leverage and risk-based capital requirements for, among other entities, banks
and bank holding companies on a consolidated basis. These minimum requirements require that a bank holding company
maintain a Tier 1 leverage ratio of not less than 4% and a total risk-based capital ratio of not less than 8%. The Collins
Amendment also excludes trust preferred securities issued after May 19, 2010 from being included in Tier 1 capital unless the
issuing company is a bank holding company with less than $500 million in total assets. Trust preferred securities issued prior to
that date will continue to count as Tier 1 capital for bank holding companies with less than $15 billion in total assets on that
date. Pinnacle Financial's trust preferred securities will continue to qualify as Tier 1 capital.
In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory capital rules
applicable to Pinnacle Bank and Pinnacle Financial, effective January 1, 2015. The final rules implement the regulatory capital
reforms of the Basel Committee on Banking Supervision reflected in "Basel III: A Global Regulatory Framework for More
Resilient Banks and Banking Systems" (Basel III) and changes required by the Dodd-Frank Act.
Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and
risk-based capital ratios for insured depository institutions. The final rules implementing the Basel III regulatory capital reforms
became effective as to Pinnacle Financial and Pinnacle Bank on January 1, 2015, and include new minimum risk-based capital
and leverage ratios. Moreover, these rules refine the definition of what constitutes "capital" for purposes of calculating those
ratios, including the definitions of Tier 1 capital and Tier 2 capital. The new minimum capital level requirements applicable to
bank holding companies and banks subject to the rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-
based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); and (iv)
a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a "capital conservation buffer" of 2.5% (to be phased in
over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once
the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio of 7%, (ii) a Tier 1 risk-based
capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. The capital conservation buffer requirement is to be
phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in
January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying
discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum
percentage of eligible retained income that could be utilized for such actions. For the quarters ending in calendar year 2016,
neither Pinnacle Financial nor Pinnacle Bank will be required to obtain regulatory approval for dividends, stock repurchases or
payment of discretionary bonuses as long as its common equity Tier 1 capital ratio exceeds 5.125%, its Tier 1 capital ratio
exceeds 6.625% and its total capital ratio exceeds 8.625%. These amounts will increase in 2017, 2018 and 2019.
(cid:20)(cid:21)
Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings, limited
amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related
surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory
deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010, will no longer qualify as Tier 1
capital, but such securities issued prior to May 19, 2010, including, in the case of bank holding companies with less than $15.0
billion in total assets on December 31, 2009, trust preferred securities issued prior to that date, will continue to count as Tier 1
capital subject to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations,
subject to certain new eligibility criteria.
Common equity Tier 1 capital will generally consist of common stock (plus related surplus) and retained earnings plus limited
amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other
regulatory deductions, including a portion of Pinnacle Bank's recorded investment in BHG (which as a minority interest in an
unconsolidated financial institution is subject to specified deductions).
The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out
of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation.
Pinnacle Financial and Pinnacle Bank each opted out of this requirement.
The Federal Reserve has adopted regulations applicable to bank holding companies with assets over $10 billion that require
such holding companies and banks to conduct annual stress tests and report the results to the applicable regulators and
publicly disclose a summary of certain capital information and results including pro forma changes in regulatory capital ratios.
For such companies, the board of directors and senior management is required to consider the results of the stress test in the
normal course of business, including but not limited to capital planning and an assessment of capital adequacy in accordance
with management's policies. Pinnacle Financial anticipates that it will be required to file its first stress test results in the first
quarter of 2018 if its total assets exceed $10 billion in 2016.
Pinnacle Financial must qualify as "well capitalized," among other requirements, in order for it to engage in certain acquisitions
or be eligible for expedited treatment of certain regulatory applications, including those related to mergers and acquisitions. For
Pinnacle Financial to qualify as "well capitalized," it must have a Tier 1 capital ratio of at least 8% and a total risk-based capital
ratio of at least 10% and not be subject to a written agreement, order or directive to maintain a specific capital level.
Failure to meet statutorily mandated capital requirements or more restrictive ratios separately established for a financial
institution by its regulators could subject a bank or bank holding company to a variety of enforcement remedies, including
issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting or renewing
brokered deposits, limitations on the rates of interest that the institution may pay on its deposits and other restrictions on its
business.
Additionally, the Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective
action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have
established five capital categories (well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized) into one of which all institutions are placed. Federal banking regulators are required to take various
mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three
undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator within a specified period
for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant
capital level for each category.
Under FDIC regulations, a state regulated bank which is not a member of the Federal Reserve (a state nonmember bank) is "well
capitalized" if it has a Tier 1 leverage capital ratio of 5% or better, a common equity Tier 1 capital ratio of 6.5% or better, a Tier 1
risk-based capital ratio of 8% or better, a total risk based capital ratio of 10% or better, and is not subject to a regulatory
agreement, order or directive to maintain a specific level for any capital measure. A state nonmember bank is considered
"adequately capitalized" if it has a Tier 1 leverage ratio of at least 4%, a common equity Tier 1 capital ratio of 4.5% or better, a
Tier 1 risk-based capital ratio of at least 6.0%, a total risk-based capital ratio of at least 8.0% and does not meet the definition of
a well-capitalized bank. Lower levels of capital result in a bank being considered undercapitalized, significantly undercapitalized
and critically undercapitalized.
State nonmember banks are required to be "well capitalized" in order to take advantage of expedited procedures on certain
applications, such as those related to the opening of branches and mergers, and to accept and renew brokered deposits without
further regulatory approval.
(cid:20)(cid:22)
An institution that is categorized as undercapitalized, significantly undercapitalized, or critically undercapitalized is required to
submit an acceptable capital restoration plan to its appropriate federal banking agency. In addition, a bank holding company
must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The
controlling holding company's obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also
generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any
new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations also establish
procedures for downgrading an institution into a lower capital category based on supervisory factors other than capital. As of
December 31, 2014, Pinnacle Bank is considered "well-capitalized".
At December 31, 2015, Pinnacle Bank's common equity Tier 1 capital ratio was 9.0%, its Tier 1 risk-based capital ratio was
9.0%, its total risk-based capital ratio was 10.6% and its leverage ratio was 8.8%, compared to 10.8%, 11.4%, 12.6% and 10.6% at
December 31, 2014, respectively. At December 31, 2015, Pinnacle Financial's common equity Tier 1 capital ratio was 8.6%, its Tier
1 risk-based capital ratio was 9.6%, its total risk-based capital ratio was 11.2% and its leverage ratio was 9.4%, compared to
10.1%, 12.1%, 13.4% and 11.3% at December 31, 2014, respectively. More information concerning Pinnacle Financial's and
Pinnacle Bank's regulatory ratios at December 31, 2015 is included in Note 22 to the "Notes to Consolidated Financial
Statements" included elsewhere in this Annual Report on Form 10-K.
Payment of Dividends
Pinnacle Financial is a legal entity separate and distinct from Pinnacle Bank. The principal source of Pinnacle Financial's cash
flow, including cash flow to pay interest to its holders of subordinated debentures, and any dividends payable to common
stockholders, are dividends that Pinnacle Bank pays to Pinnacle Financial as its sole stockholder. Under Tennessee law,
Pinnacle Financial is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts
as they become due in the usual course of business or its total assets would be less than the sum of its total liabilities plus any
amounts needed to satisfy any preferential rights if it were dissolving. In addition, in deciding whether or not to declare a
dividend of any particular size, Pinnacle Financial's board of directors must consider its and Pinnacle Bank's current and
prospective capital, liquidity, and other needs.
In addition to state law limitations on Pinnacle Financial's ability to pay dividends, the Federal Reserve imposes limitations on
Pinnacle Financial's ability to pay dividends. As noted above, effective January 1, 2016, Federal Reserve regulations limit
dividends, stock repurchases and discretionary bonuses to executive officers if Pinnacle Financial's regulatory capital is below
the level of regulatory minimums plus the applicable capital conservation buffer which will increase each year until January 1,
2019.
Statutory and regulatory limitations also apply to Pinnacle Bank's payment of dividends to Pinnacle Financial. Pinnacle Bank is
required by Tennessee law to obtain the prior approval of the Commissioner of the TDFI for payments of dividends if the total
of all dividends declared by its board of directors in any calendar year will exceed (1) the total of Pinnacle Bank's net income for
that year, plus (2) Pinnacle Bank's retained net income for the preceding two years. As of December 31, 2015, Pinnacle Bank
could pay dividends to us of up to $180.0 million. Generally, federal regulatory policy encourages holding company debt to be
serviced by subsidiary bank dividends or additional equity rather than debt issuances. Pinnacle Financial currently has
available cash balances which amounted to approximately $21.7 million at December 31, 2015.
The payment of dividends by Pinnacle Bank and Pinnacle Financial may also be affected by other factors, such as the
requirement to maintain adequate capital above statutory and regulatory requirements imposed on Pinnacle Bank or Pinnacle
Financial by their regulators. The federal banking agencies have indicated that paying dividends that deplete a depository
institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it
to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements
that provide that bank holding companies and insured depository institutions should generally only pay dividends out of
current operating earnings, and the new capital rules prohibit the payment of dividends when a holding company or insured
depository institution is not in compliance with the capital conservation buffer described elsewhere in this report. See "Capital
Adequacy" above.
(cid:20)(cid:23)
During the fourth quarter of 2013, Pinnacle Financial Partners initiated a quarterly common stock dividend in the amount of $0.08
per share. During the year ended December 31, 2015, Pinnacle Financial Partners paid $18.3 million in dividends to common
shareholders. On January 19, 2016, our Board of Directors declared a $0.14 quarterly cash dividend to common shareholders
which should approximate $5.7 million in aggregate dividend payments that will paid on February 26, 2016 to common
shareholders of record as of the close of business on February 5, 2016. The amount and timing of all future dividend payments,
if any, is subject to Board discretion and will depend on our earnings, capital position, financial condition and other factors,
including new regulatory capital requirements, as they become known to us.
Restrictions on Transactions with Affiliates
Both Pinnacle Financial and Pinnacle Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A
places limits on the amount of:
•
•
•
•
•
•
A bank's loans or extensions of credit, including purchases of assets subject to an agreement to repurchase, to or for the
benefit of affiliates;
A bank's investment in affiliates;
Assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve;
The amount of loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates;
Transactions involving the borrowing or lending of securities and any derivative transaction that results in credit
exposure to an affiliate; and
A bank's guarantee, acceptance or letter of credit issued on behalf of an affiliate.
The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank's capital and surplus
and, as to all affiliates combined, to 20% of a bank's capital and surplus. In addition to the limitation on the amount of these
transactions, each of the above transactions must also meet specified collateral requirements. Pinnacle Bank must also comply
with other provisions designed to avoid the taking of low-quality assets.
Pinnacle Financial and Pinnacle Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among
other things, prohibits an institution from engaging in the above transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies.
Pinnacle Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal stockholders
and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than
the normal risk of repayment or present other unfavorable features.
Community Reinvestment
The Community Reinvestment Act (CRA) requires that, in connection with examinations of financial institutions within their
respective jurisdictions, the Federal Reserve and the FDIC shall evaluate the record of each financial institution in meeting the
credit needs of its local community, including low- and moderate-income neighborhoods. These facts are also considered in
evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could
impose additional requirements and limitations on Pinnacle Bank. Additionally, banks are required to publicly disclose the terms
of various Community Reinvestment Act-related agreements. Pinnacle Bank received a "satisfactory" CRA rating from its
primary federal regulator on its most recent regulatory examination.
Privacy
Under the Gramm-Leach-Bliley Act, financial institutions are required to disclose their policies for collecting and protecting
confidential information. Customers generally may prevent financial institutions from sharing personal financial information with
nonaffiliated third parties except for third parties that market the institutions' own products and services. Additionally, financial
institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing,
direct mail marketing or other marketing through electronic mail to consumers. Pinnacle Bank has established a privacy policy
that it believes promotes compliance with these federal requirements.
(cid:20)(cid:24)
Other Consumer Laws and Regulations
Interest and other charges collected or contracted for by Pinnacle Bank are subject to state usury laws and federal laws
concerning interest rates. For example, under the Soldiers' and Sailors' Civil Relief Act of 1940, a lender is generally prohibited
from charging an annual interest rate in excess of 6% on any obligations for which the borrower is a person on active duty with
the United States military. Pinnacle Bank's loan operations are also subject to federal laws applicable to credit transactions, such
as the:
• Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
• Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the
community it serves;
• Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending
credit;
• Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;
• Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
• Soldiers' and Sailors' Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured
obligations of persons in active military service; and
• Rules and regulations of the various federal agencies charged with the responsibility of implementing the federal laws.
Pinnacle Bank's deposit operations are subject to the:
•
•
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of financial records; and
Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern
automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities (including with respect
to the permissibility of overdraft charges) arising from the use of automated teller machines and other electronic banking
services.
Pinnacle Bank's loan and deposit operations are both subject to the Bank Secrecy Act which governs how banks and other
firms report certain currency transactions and maintain appropriate safeguards against "money laundering" activities.
Anti-Terrorism Legislation
On October 26, 2001, the President of the United States signed the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act,
financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as
enhanced due diligence and "know your customer" standards in their dealings with foreign financial institutions and foreign
customers.
In addition, the USA PATRIOT Act authorizes the Secretary of the U.S. Treasury to adopt rules increasing the cooperation and
information sharing between financial institutions, regulators, and law enforcement authorities regarding individuals, entities
and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money
laundering activities. Any financial institution complying with these rules will not be deemed to have violated the privacy
provisions of the Gramm-Leach-Bliley Act, as discussed above. Pinnacle Bank currently has policies and procedures in place
designed to comply with the USA PATRIOT Act.
(cid:20)(cid:25)
Recent and Proposed Legislation and Regulatory Action
New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of the nation's financial institutions. In 2010, the U.S. Congress passed the Dodd-Frank Act,
which includes significant consumer protection provisions related to, among other things, residential mortgage loans that have
increased, and are likely to further increase, our regulatory compliance costs. We expect that the Dodd-Frank Act will continue
to have a negative impact on our earnings through fee reductions, higher costs and new restrictions, particularly as we
approach a level of total assets in excess of $10 billion. Upon consummation of our proposed merger with Avenue, which we
expect will cause us to exceed $10 billion in total assets, we will also need to comply with certain additional requirements created
by the Dodd-Frank Act that apply only to bank holding companies and banks with $10 billion or more in total assets. Failure to
comply with the new requirements would negatively impact our results of operations and financial condition and could limit our
growth or expansion activities. While we cannot predict what effect any presently contemplated or future changes in the laws or
regulations or their interpretations would have on us, such changes could be materially adverse to our investors.
Set out below are certain of the additional provisions of the Dodd-Frank Act that will become applicable to Pinnacle Financial
and Pinnacle Bank once our total assets exceed $10 billion.
Risk Committee. Publicly traded bank holding companies with $10 billion or more in total assets are required to establish a
risk committee responsible for oversight of enterprise-wide risk management practices. The committee must include at least
one risk management expert with experience in managing risk exposures of large, complex firms. We will need to comply
with this requirement beginning in 2017 if we, as we currently expect, surpass the $10 billion total asset threshold upon
consummation of our proposed merger with Avenue.
Stress Testing. Pursuant to the Dodd-Frank Act, any banking organization, including whether a bank holding company or
a depository institution, with more than $10 billion in total consolidated assets and regulated by a federal financial
regulatory agency is required to conduct annual stress tests to ensure it has sufficient capital during periods of economic
downturn. The Federal Reserve and FDIC release stress-test scenarios on November 15 of each year, and banking
organizations are required to submit the results of their tests to the appropriate regulator by March 31 of the following year.
The results of each year's stress tests are publicly disclosed in June, following each banking organization's submission. A
banking organization that crosses the $10 billion total consolidated assets threshold must conduct its first annual
company-run stress test in the second calendar quarter for the first year after the year in which it crossed the $10 billion
threshold. For example, if we pass the $10 billion threshold in 2016, as we expect will be the case if we complete our
proposed merger with Avenue, our first annual stress test would occur in 2017 and would be submitted to the appropriate
federal regulators in 2018. Almost all of our assets are held at Pinnacle Bank. If Pinnacle Financial's total assets pass the $10
billion threshold, it is very likely that Pinnacle Bank's total assets will also pass $10 billion, and we will be required to
conduct stress tests at both Pinnacle Financial and Pinnacle Bank.
Durbin Amendment. The Dodd-Frank Act included provisions (known as the "Durbin Amendment") which restrict
interchange fees to those which are "reasonable and proportionate" for certain debit card issuers and limits the ability of
networks and issuers to restrict debit card transaction routing. The Federal Reserve issued final rules implementing the
Durbin Amendment on June 29, 2011. In the final rules, interchange fees for debit card transactions were capped at $0.21
plus five basis points in order to be eligible for a safe harbor such that the fee is conclusively determined to be reasonable
and proportionate. The interchange fee restrictions contained in the Durbin Amendment, and the rules promulgated
thereunder, only apply to debit card issuers with $10 billion or more in total consolidated assets, which we expect we will
reach after the completion of the Avenue merger. We anticipate that the implications of the Durbin Amendment will first
become applicable to us beginning in the quarter after we complete our merger with Avenue.
Consumer Financial Protection Bureau. The Dodd-Frank Act also created a new Consumer Financial Protection Bureau
(the "CFPB"), which took over responsibility for enforcing the principal federal consumer protection laws, such as the
Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving
Act, among others, on July 21, 2011. Institutions that have assets of $10 billion or less will continue to be supervised and
examined in this area by their primary federal regulators (in the case of Pinnacle Bank, the FDIC). Since we expect to exceed
the $10 billion threshold upon the consummation of our proposed merger with Avenue, we will become subject to oversight
by the CFPB in 2016.
(cid:20)(cid:26)
The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks including,
among other things, the authority to prohibit "unfair, deceptive, or abusive" acts and practices. Abusive acts or practices
are defined as those that (1) materially interfere with a consumer's ability to understand a term or condition of a consumer
financial product or service, or (2) take unreasonable advantage of a consumer's (a) lack of financial savvy, (b) inability to
protect himself in the selection or use of consumer financial products or services, or (c) reasonable reliance on a covered
entity to act in the consumer's interests. The CFPB has the authority to investigate possible violations of federal consumer
financial law, hold hearings and commence civil litigation. The CFPB can issue cease-and-desist orders against banks and
other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation
of federal consumer financial law in order to impose a civil penalty or an injunction.
The rules issued by the CFPB will have a long-term impact on our business, including our mortgage loan origination and
servicing activities. Compliance with these rules will increase our overall regulatory compliance costs.
Effect of Governmental Monetary Policies
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States
government and its agencies. The Federal Reserve's monetary policies have had, and are likely to continue to have, an
important impact on the operating results of commercial banks through the Federal Reserve's statutory power to implement
national monetary policy in order, among other things, to curb inflation or combat a recession. The Federal Reserve, through its
monetary and fiscal policies, affects the levels of bank loans, investments and deposits through its control over the issuance of
United States government securities, its regulation of the discount rate applicable to member banks and its influence over
reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary
and fiscal policies.
(cid:20)(cid:27)
ITEM 1A. RISK FACTORS
Investing in our common stock involves various risks which are particular to our company, our industry and our market
areas. If any of the following risks were to occur, we may not be able to conduct our business as currently planned and our
financial condition or operating results could be materially and negatively impacted. These matters could cause the trading
price of our common stock to decline in future periods.
Fluctuations in interest rates could reduce our profitability.
The absolute level of interest rates as well as changes in interest rates may affect our level of interest income, the
primary component of our gross revenue, as well as the level of our interest expense. Interest rate fluctuations are caused by
many factors which, for the most part, are not under our control. For example, national monetary policy plays a significant role in
the determination of interest rates. Additionally, competitor pricing and the resulting negotiations that occur with our customers
also impact the rates we collect on loans and the rates we pay on deposits.
In December 2015, the Federal Reserve Board of Governors decided to raise the target range for the federal funds rate
from 0% to 0.25% to 0.50%. As interest rates change, we expect that we will periodically experience "gaps" in the interest rate
sensitivities of our assets and liabilities, meaning that either our interest-bearing liabilities (usually deposits and borrowings)
will be more sensitive to changes in market interest rates than our interest-earning assets (usually loans and investment
securities), or vice versa. In either event, if market interest rates should move contrary to our position, this "gap" may work
against us, and our earnings may be negatively affected. During 2014 and 2015, and in anticipation of expected additional
increases in short term interest rates in 2016, we reduced the amount of variable rate loans with interest rate floors by
approximately $462 million. We believe that the reduction in the amount of variable rate loans with interest rate floors should
better position our balance sheet for a rising rate environment. In the event that short-term interest rates don't continue to rise
in 2016, or those rates rise more slowly than we are anticipating, our efforts to transition our balance sheet to a more asset
sensitive position may negatively impact our results of operations as we may earn less interest on these loans than we would
have had we maintained these loan floors.
Changes in the level of interest rates also may negatively affect our ability to originate loans, the value of our assets
and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market
value of our assets may limit our ability to borrow additional funds. As a result, we could be required to sell some of our loans
and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity. If
those sales are made at prices lower than the amortized costs of the investments, we will incur losses. Because we continue to
have a significant number of loans with interest rate floors above current rates, in a rising rate environment our liabilities may
reprice faster than our loans, which would negatively impact our results of operations.
We have entered into certain hedging transactions including interest rate swaps, which are designed to lessen
elements of our interest rate exposure. In the event that interest rates do not change in the manner anticipated, such
transactions may not be effective.
We have a concentration of credit exposure to borrowers in certain industries, and we also target small to medium-sized
businesses.
We have meaningful credit exposures to borrowers in certain businesses, including commercial and residential building
lessors, new home builders, and land subdividers. These industries experienced adversity during 2008 through 2010 as a result
of sluggish economic conditions, and, as a result, an increased level of borrowers in these industries were unable to perform
under their loan agreements with us, or suffered loan downgrades which negatively impacted our results of operations. If the
economic environment in our markets weakens in 2016 or beyond, these industry concentrations could result in increased
deterioration in credit quality, past dues, loan charge offs and collateral value declines, which could cause our earnings to be
negatively impacted. Furthermore, any of our large credit exposures that deteriorate unexpectedly could cause us to have to
make significant additional loan loss provisions, negatively impacting our earnings.
(cid:20)(cid:28)
A substantial focus of our marketing and business strategy is to serve small to medium-sized businesses in our market
areas. As a result, a relatively high percentage of our loan portfolio consists of commercial loans primarily to small to medium-
sized businesses. At December 31, 2015, our commercial and industrial loans accounted for almost 34.1% of our total loans, up
from 31.5% at December 31, 2010. Additionally, approximately, 16.6% of our loans at December 31, 2015 are owner-occupied
commercial real estate loans, which are loans to businesses secured by the businesses' real estate. We expect to seek to expand
the amount of such loans in our portfolio in 2016. During periods of lower economic growth like those we have experienced in
recent years, small to medium-sized businesses may be impacted more severely and more quickly than larger businesses.
Consequently, the ability of such businesses to repay their loans may deteriorate, and in some cases this deterioration may
occur quickly, which would adversely impact our results of operations and financial condition.
Despite recent acquisitions we have made, we remain principally geographically concentrated in the Nashville, Tennessee
and Knoxville, Tennessee MSAs, and changes in local economic conditions impact our profitability.
Prior to our acquisitions of CapitalMark and Magna, we operated primarily in the Nashville, Tennessee and Knoxville,
Tennessee MSAs, and most of our borrowers, depositors and other customers lived or had operations in these areas. With our
acquisitions of CapitalMark and Magna, we have increased our presence in the Knoxville MSA and expanded our operations
into the Chattanooga, Tennessee – Georgia MSA and surrounding counties and the Memphis, Tennessee – Mississippi –
Arkansas MSA, but the significant majority of our borrowers remain situated in the Nashville, Tennessee and Knoxville,
Tennessee MSAs, and our proposed acquisition of Avenue will further increase the number of borrowers we have in the
Nashville, Tennessee MSA. Our success significantly depends upon the growth in population, income levels, deposits and
housing starts in our markets, along with the continued attraction of business ventures to these areas, and our profitability is
impacted by the changes in general economic conditions in these markets. We cannot assure you that economic conditions,
including loan demand, in our markets will improve during 2016 or thereafter, and in that case, we may not be able to grow our
loan portfolio in line with our expectations, the ability of our customers to repay their loans to us may be negatively impacted
and our financial condition and results of operations could be negatively impacted.
Even with our acquisitions of CapitalMark and Magna, compared to regional or national financial institutions, we are
less able to spread the risks of unfavorable local economic conditions across a large number of diversified economies as we
remain dependent on the economic environment within the State of Tennessee. Moreover, we cannot give any assurance that
we will benefit from any market growth or return of more favorable economic conditions in our primary market areas if they do
occur.
Our acquisitions and future expansion may result in additional risks.
In 2015, we completed the acquisitions of CapitalMark and Magna. On January 28, 2016 we announced the signing of a
definitive merger agreement which provides for the merger of Avenue with and into Pinnacle Financial with Pinnacle Financial
continuing as the surviving corporation. Avenue Bank and Pinnacle Bank will likewise merge if that transaction is
consummated. We currently expect to consummate the Avenue merger in late second quarter or early third quarter in 2016.
We expect to continue to expand in Knoxville, Chattanooga and Memphis through additional branches and also may
consider expansion within these markets and Nashville through additional acquisitions of all or part of other financial
institutions. These types of expansions involve various risks, including:
Management of Growth. We may be unable to successfully:
· maintain loan quality in the context of significant loan growth;
·
avoid diversion or disruption of our existing operations or management as well as those of the acquired institution;
· maintain adequate management personnel and systems to oversee such growth;
· maintain adequate internal audit, loan review and compliance functions; and
·
implement additional policies, procedures and operating systems required to support such growth.
Operating Results. There is no assurance that existing offices or future offices will maintain or achieve deposit levels, loan
balances or other operating results necessary to avoid losses or produce profits. Our growth strategy necessarily entails
growth in overhead expenses as we routinely add new offices and staff. Our historical results may not be indicative of future
results or results that may be achieved as we continue to increase the number and concentration of our branch offices in our
newer markets.
(cid:21)(cid:19)
Development of Offices. There are considerable costs involved in opening branches, and new branches generally do not
generate sufficient revenues to offset their costs until they have been in operation for at least a year or more. Accordingly, any
new branches we establish can be expected to negatively impact our earnings for some period of time until they reach certain
economies of scale. The same is true for our efforts to expand in these markets with the hiring of additional seasoned
professionals with significant experience in that market. Our expenses could be further increased if we encounter delays in
opening any of our new branches. We may be unable to accomplish future branch expansion plans due to a lack of available
satisfactory sites, difficulties in acquiring such sites, increased expenses or loss of potential sites due to complexities
associated with zoning and permitting processes, higher than anticipated merger and acquisition costs or other factors. Finally,
we have no assurance any branch will be successful even after it has been established or acquired, as the case may be.
Regulatory and Economic Factors. Our growth and expansion plans may be adversely affected by a number of regulatory and
economic developments or other events. Failure to obtain required regulatory approvals, changes in laws and regulations or
other regulatory developments and changes in prevailing economic conditions or other unanticipated events may prevent or
adversely affect our continued growth and expansion. Such factors may cause us to alter our growth and expansion plans or
slow or halt the growth and expansion process, which may prevent us from entering our expected markets or allow competitors
to gain or retain market share in our existing markets.
Failure to successfully address these and other issues related to our expansion could have a material adverse effect on
our financial condition and results of operations, and could adversely affect our ability to successfully implement our business
strategy. Also, if our growth occurs more slowly than anticipated or declines, our operating results could be materially
adversely affected.
If our allowance for loan losses is not sufficient to cover losses inherent in our portfolio, our earnings will decrease.
If loan customers with significant loan balances fail to repay their loans, our earnings and capital levels will suffer. We
make various assumptions and judgments about the probable losses in our loan portfolio, including the creditworthiness of our
borrowers and the value of any collateral securing the loans. We maintain an allowance for loan losses to cover our estimate of
the probable losses in our loan portfolio. In determining the size of this allowance, we utilize estimates based on analyses of
volume and types of loans, internal loan classifications, trends in classifications, volume and trends in delinquencies,
nonaccruals and charge-offs, loss experience of various loan categories, national and local economic conditions, industry and
peer bank loan quality indications, and other pertinent factors and information. If our assumptions are inaccurate, our current
allowance may not be sufficient to cover potential loan losses, and additional provisions may be necessary which would
decrease our earnings.
In addition, federal and state regulators periodically review our loan portfolio and may require us to increase our
allowance for loan losses or recognize loan charge-offs. Their conclusions about the quality of a particular borrower or our
entire loan portfolio may be different than ours. Any increase in our allowance for loan losses or loan charge offs as required by
these regulatory agencies could have a negative effect on our operating results. Moreover, additions to the allowance may be
necessary based on changes in economic and real estate market conditions, new information regarding existing loans,
(including those we acquired in the Mergers) identification of additional problem loans, accounting rule changes and other
factors, both within and outside of our management's control. These additions may require increased provision expense which
would negatively impact our results of operations.
Negative developments in the U.S. and local economy may adversely impact our results in the future.
Economic conditions in the markets in which we operate deteriorated significantly between early 2008 and the middle
of 2010. These challenges manifested themselves primarily in the form of increased levels of provisions for loan losses and
other real estate expense related to declining collateral values in our real estate loan portfolio and increased costs associated
with our portfolio of other real estate owned. Although economic conditions appear to have stabilized and strengthened in our
markets in the more recent periods and we have refocused our efforts on growing our earning assets, we believe that we will
continue to experience a slower growth economic environment in 2016. Accordingly, we expect that our results of operations
could be negatively impacted by economic conditions, including reduced loan demand, in 2016. There can be no assurance that
the economic conditions that have adversely affected the financial services industry, and the capital, credit and real estate
markets, generally, or us in particular, will improve materially, or at all, in the near future, or thereafter, in which case we could
experience reduced earnings or again experience significant losses and write-downs of assets, and could face capital and
liquidity constraints or other business challenges.
(cid:21)(cid:20)
We may not be able to successfully integrate CapitalMark, Magna or Avenue or to realize the anticipated benefits of the
mergers.
We are still in the process of integrating CapitalMark and Magna, and, upon consummation of the proposed Avenue
merger, will begin the process of integrating Avenue. A successful integration of these banks' operations with our operations
will depend substantially on our ability to consolidate operations, corporate cultures, systems and procedures and to eliminate
redundancies and costs. We may not be able to combine our operations with the operations of CapitalMark, Magna and
Avenue without encountering difficulties, such as:
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the loss of key employees;
the disruption of operations and business;
inability to maintain and increase competitive presence;
loan and deposit attrition, customer loss and revenue loss;
possible inconsistencies in standards, control procedures and policies;
unexpected problems with costs, operations, personnel, technology and credit; and/or
problems with the assimilation of new operations, sites or personnel, which could divert resources from regular
banking operations.
Additionally, general market and economic conditions or governmental actions affecting the financial industry
generally may inhibit our successful integration of CapitalMark, Magna and Avenue.
Further, we acquired CapitalMark and Magna, and have entered into the definitive agreement to acquire Avenue, with
the expectation that these mergers will result in various benefits including, among other things, benefits relating to enhanced
revenues, a strengthened market position for the combined company, cross selling opportunities, technology, cost savings and
operating efficiencies. Achieving the anticipated benefits of these mergers is subject to a number of uncertainties, including
whether we integrate CapitalMark, Magna and Avenue in an efficient and effective manner, and general competitive factors in
the marketplace. Failure to achieve these anticipated benefits could result in a reduction in the price of our shares as well as in
increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could
materially and adversely affect our business, financial condition and operating results. Additionally, we made fair value
estimates of certain assets and liabilities in recording the CapitalMark and Magna mergers, and, upon consummation of the
proposed Avenue merger, will make such estimates in recording the Avenue merger. Actual values of these assets and liabilities
could differ from our estimates, which could result in our not achieving the anticipated benefits of such mergers. Finally, any
cost savings that are realized may be offset by losses in revenues or other charges to earnings.
The combined company will incur significant transaction and merger-related costs in connection with the mergers of
CapitalMark and Avenue.
We expect to incur significant costs associated with combining the operations of CapitalMark (for whom we have
scheduled systems conversions for March 2016) and Avenue with our operations. We continue to work diligently to finalize
detailed integration plans to deliver anticipated cost savings, but additional unanticipated costs may be incurred in the
integration of our business with the businesses of CapitalMark, Magna and Avenue. Although we expect that the elimination of
duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset
incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
Whether or not the Avenue merger is consummated, we will incur substantial expenses, such as legal, accounting and
financial advisory fees, in pursuing the Avenue merger which will adversely impact our earnings until after the acquisition has
been completed. Completion of the Avenue merger is conditioned upon the receipt of all material governmental authorizations,
consents, orders and approvals, including approval by federal banking regulators. We and Avenue intend to pursue all required
approvals in accordance with the merger agreement.
Failure to complete the Avenue merger could cause our stock price to decline.
If the Avenue merger is not completed for any reason, our stock price may decline because costs related to the
Avenue merger, such as legal, accounting and financial advisory fees, must be paid even if the Avenue merger is not
completed. In addition, if the Avenue merger is not completed, our stock price may decline to the extent that the current market
price reflects a market assumption that the Avenue merger will be completed.
(cid:21)(cid:21)
We may face risks with respect to future acquisitions.
When we attempt to expand our business through mergers and acquisitions (as we have aggressively done in 2015
and 2016), we seek targets that are culturally similar to us, have experienced management and possess either significant market
presence or have potential for improved profitability through economies of scale or expanded services. In addition to the
general risks associated with our growth plans which are highlighted above, in general acquiring other banks, businesses or
branches involves various risks commonly associated with acquisitions, including, among other things:
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the time and costs associated with identifying and evaluating potential acquisition and merger targets;
inaccuracies in the estimates and judgments used to evaluate credit, operations, management and market risks with
respect to the target institution;
the time and costs of evaluating new markets, hiring experienced local management and opening new bank locations,
and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of
the expansion;
our ability to finance an acquisition and possible dilution to our existing shareholders;
the diversion of our management's attention to the negotiation of a transaction;
the incurrence of an impairment of goodwill associated with an acquisition and adverse effects on our results of
operations;
entry into new markets where we lack experience; and
risks associated with integrating the operations and personnel of the acquired business.
We expect to continue to evaluate merger and acquisition opportunities that are presented to us in our current and
expected markets and conduct due diligence activities related to possible transactions with other financial institutions. As a
result, merger or acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions
involving cash, debt or equity securities may occur at any time. Generally, acquisitions of financial institutions involve the
payment of a premium over book and market values, and, therefore, some dilution of our book value and fully diluted earnings
per share may occur in connection with any future transaction. Failure to realize the expected revenue increases, cost savings,
increases in product presence and/or other projected benefits from an acquisition could have a material adverse effect on our
financial condition and results of operations.
Implementation of the various provisions of the Dodd-Frank Act may increase our operating costs or otherwise have a
material effect on our business, financial condition or results of operations.
On July 21, 2010, President Obama signed the Dodd-Frank Act. This landmark legislation includes, among other things,
(i) the creation of a Financial Services Oversight Counsel to identify emerging systemic risks and improve interagency
cooperation; (ii) the elimination of the Office of Thrift Supervision and the transfer of oversight of federally chartered thrift
institutions and their holding companies to the Office of the Comptroller of the Currency and the Federal Reserve; (iii) the
creation of a Consumer Financial Protection Agency authorized to promulgate and enforce consumer protection regulations
relating to financial products that would affect banks and non-bank finance companies; (iv) the establishment of new capital
and prudential standards for banks and bank holding companies; (v) the termination of investments by the U.S. Treasury under
TARP; (vi) enhanced regulation of financial markets, including the derivatives, securitization and mortgage origination markets;
(vii) the elimination of certain proprietary trading and private equity investment activities by banks; (viii) the elimination of
barriers to de novo interstate branching by banks; (ix) a permanent increase of FDIC deposit insurance to $250,000; (x) the
authorization of interest-bearing transaction accounts; and (xi) changes in how the FDIC deposit insurance assessments will be
calculated and an increase in the minimum designated reserve ratio for the Deposit Insurance Fund.
Certain provisions of the legislation were not immediately effective or are subject to required studies and implementing
regulations. Further, community banks with less than $10 billion in assets (like us at December 31, 2015) are exempt from certain
provisions of the legislation. However, we currently expect to exceed $10 billion in assets upon consummation of our proposed
merger with Avenue, which will cause us to become subject to these additional regulations, and, as described below, our results
of operations may be materially impacted by the additional costs to comply with these additional regulations as well as the
higher costs associated with increased deposit insurance premiums.
(cid:21)(cid:22)
The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding
companies with $10 billion or more in total assets, including compliance with portions of the Federal Reserve's enhanced
prudential oversight requirements and annual stress testing requirements. In addition, banks with $10 billion or more in total
assets are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations.
Currently, Pinnacle Bank is subject to regulations adopted by the CFPB, but the FDIC is primarily responsible for examining our
compliance with consumer protection laws and those CFPB regulations. As a relatively new agency with evolving regulations
and practices, there is uncertainty as to how the CFPB's examination and regulatory authority might impact our business.
Once our assets exceed $10 billion, we will be required, under the Dodd-Frank Act, to submit annually a stress test to
the Federal Reserve that projects our performance in various economic scenarios provided by the Federal Reserve. The Dodd-
Frank Act stress tests are forward-looking exercises conducted by the Federal Reserve and financial companies regulated by
the Federal Reserve to help ensure institutions have sufficient capital to absorb losses and support operations during adverse
economic conditions. Once we become required to perform these stress tests, we will be required to make certain assumptions in
modeling future performance and must support these assumptions through statistical analysis and observed market behavior
where applicable. The outcome of the Federal Reserve's analysis of our projected performance (to include capital, earnings, and
balance sheet changes) will be used in supervision of us and will assist the Federal Reserve in assessing our risk profile and
capital adequacy. The results of any stress test that we are required to perform could hinder our ability to pay quarterly cash
dividends to shareholders as has been our practice, and could also impact decisions made by the Federal Reserve and other
bank regulators regarding future acquisitions or investments by us or Pinnacle Bank.
In addition, once our assets exceed $10 billion, we will be subject to the Durbin Amendment promulgated under the
Dodd-Frank Act. Under the Durbin Amendment, interchange fees for debit card transactions are capped at $0.21 plus five basis
points. This limitation on interchange fees will adversely impact our results of operations.
Compliance with these requirements that will become applicable to us once we exceed $10 billion in total assets may
necessitate that we hire additional compliance or other personnel, design and implement additional internal controls, or incur
other significant expenses, any of which could have a material adverse effect on our business, financial condition or results of
operations. Compliance with the annual stress testing requirements, part of which must be publicly disclosed, may also be
misinterpreted by the market generally or our customers and, as a result, may adversely affect our stock price or our ability to
retain our customers or effectively compete for new business opportunities. To ensure compliance with these heightened
requirements when effective, our regulators may require us to fully comply with these requirements or take actions to prepare
for compliance even before our total assets equal or exceed $10 billion. As a result, we may incur compliance-related costs
before we might otherwise be required, including if we are unable to consummate our merger with Avenue or do not continue to
grow at the rate we expect or at all. Our regulators may also consider our preparation for compliance with these regulatory
requirements when examining our operations generally or considering any request for regulatory approval we may make, even
requests for approvals on unrelated matters.
Although several regulations implementing portions of the Dodd-Frank Act have been promulgated, we are still unable
to predict how this significant legislation may be interpreted and enforced or how implementing regulations and supervisory
policies may affect us. There can be no assurance that these or future reforms will not significantly increase our compliance or
operating costs or otherwise have a significant impact on our business, financial condition and results of operations.
Our ability to declare and pay dividends is limited.
While our board of directors has approved the payment of a quarterly cash dividend on our common stock since the
fourth quarter of 2013, there can be no assurance of whether or when we may pay dividends on our common stock in the future.
Future dividends, if any, will be declared and paid at the discretion of our board of directors and will depend on a number of
factors. Our principal source of funds used to pay cash dividends on our common stock will be dividends that we receive from
Pinnacle Bank. Although Pinnacle Bank's asset quality, earnings performance, liquidity and capital requirements will be taken
into account before we declare or pay any future dividends on our common stock, our board of directors will also consider our
liquidity and capital requirements and our board of directors could determine to declare and pay dividends without relying on
dividend payments from Pinnacle Bank.
Federal and state banking laws and regulations and state corporate laws restrict the amount of dividends we may
declare and pay. For example, Federal Reserve Board regulations implementing the capital rules required under Basel III do not
permit dividends unless capital levels exceed certain higher levels applying capital conservation buffers that began to apply on
January 1, 2016 and are being phased in over three years.
(cid:21)(cid:23)
In addition, the terms of the indentures pursuant to which our subordinated debentures have been issued, and the
terms of the subordinated notes Pinnacle Financial will assume upon the consummation of the Avenue merger, prohibit us from
paying dividends on our common stock at times when we are deferring the payment of interest on our subordinated debentures
or the subordinated notes Pinnacle Financial will assume upon consummation of the Avenue merger.
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 and seasonality.
Our ability to continue to improve our operating results is dependent upon, among other things, aggressively growing
our loan portfolio. While we believe that our strategy to grow our loan portfolio is sound and our growth targets are achievable
over an extended period of time, competition within our market areas is significant, particularly for borrowers whose businesses
have been less negatively impacted by the challenging economic conditions of the last few years. We compete with both large
regional and national financial institutions, who are sometimes able to offer more attractive interest rates and other financial
terms than we choose to offer, and smaller community-based financial institutions who seek to offer a similar level of service to
that which we offer. This competition can make loan growth challenging, particularly if we are unwilling to price loans at levels
that would cause unacceptable levels of compression of our net interest margin or if we are unwilling to structure a loan in a
manner that we believe results in a level of risk to us that we are not willing to accept. Moreover, loan growth throughout the
year can fluctuate due in part to seasonality of the businesses of our borrowers and potential borrowers and the timing on loan
repayments, particularly those of our borrowers with significant relationships with us, resulting from, among other things,
excess levels of liquidity.
Our investment in BHG may not produce the contribution to our results of operations that we expect.
On February 4, 2015 we acquired a 30% interest in BHG for $75 million in cash. On January 19, 2016, we entered into a
definitive purchase agreement to acquire an additional 19% interest in BHG for $114.0 million payable in a mix of cash and shares
of our common stock. We currently expect, subject to the satisfaction of customary closing conditions, to close the additional
investment in early March. Although we have made other investments in businesses that we do not control, this is the largest
investment of this type that we have made. While we have a significant stake in BHG, are entitled to designate one member of
BHG's four person board of managers (and upon the closing of the additional investment, we will be entitled to designate two of
the five members of BHG's board of managers) and in some instances have protective rights to block BHG from engaging in
certain activities, we do not control BHG and the other managers and members of BHG may make most decisions regarding
BHG's operations without our consent or approval, including a decision to sell BHG subject to the satisfaction of certain
conditions (although, upon the closing of the additional investment, the board of managers of BHG will not be permitted to
validly approve a sale of BHG without the consent of one of the two managers appointed by us for four years). Any sale of all
or a portion of our interest in BHG would adversely affect our noninterest income. Moreover, there are certain limitations on our
ability to sell our interest in BHG without first offering BHG and the other members a right of first refusal, and, upon the closing
of the additional investment, we will be prohibited from transferring any portion of our interest without the consent of the other
members of BHG for five years, other than transfers in connection with an acquisition of Pinnacle Financial or Pinnacle Bank or
as a result of a change in applicable law that forces us and/or Pinnacle Bank to divest our or Pinnacle Bank's ownership
interests in BHG.
A significant portion of BHG's revenue (and correspondingly our interest in any of BHG's net profits) comes from the
sale of loans originated by BHG to community banks. Moreover, the purchase price we paid to acquire our interest in BHG
(including the amount we agreed to pay in connection with the additional investment) was based on our expectation that BHG
will continue to grow its business and increase the amount of loans that it is able to originate and sell. In the event that BHG's
loan growth slows over historical levels or its loan sales decrease (including as a result of regulatory restrictions on banks that
are the principal purchasers of BHG's loans), its results of operations and our non-interest income would be adversely affected.
BHG currently operates in most states without the need for a permit or any other license. In the event that BHG was required to
register or become licensed in any state in which it operates, or regulations are adopted that seek to limit BHG's ability to
operate in any jurisdiction or that seek to limit the amounts of interest that BHG can charge on its loans, BHG's results of
operations (and our and Pinnacle Bank's interest in BHG's net profits) could be materially and adversely affected.
BHG's business, while not regulated directly by any federal bank regulators, may become subject to increased scrutiny
as it grows or as a result of our investment. The FDIC has published guidance related to the operation of marketplace lenders
and banks' business relationship with such lenders. Were BHG to become subject to direct regulation by any state or federal
banking regulators, its compliance costs may increase and its loan yields may be negatively impacted, which would negatively
impact its results of operations and our and Pinnacle Bank's interest in BHG's net profits. Were banks that are examined by the
FDIC restricted in their ability to buy loans originated by BHG, BHG's business would be negatively impacted, which would
negatively impact our interest in BHG's profits.
(cid:21)(cid:24)
Our loan portfolio includes a meaningful amount of real estate construction and development loans, which have a greater
credit risk than residential mortgage loans.
Although we have made meaningful progress over the last three years in reducing our concentration of real estate
construction and development loans, the percentage of these loans in Pinnacle Bank's portfolio was approximately 11.4% of
total loans at December 31, 2015. These loans make up approximately 25.9% of our non-performing loans at December 31, 2015.
This type of lending is generally considered to have relatively high credit risks because the principal is concentrated in a limited
number of loans with repayment dependent on the successful completion and operation of the related real estate project. The
credit quality of many of these loans deteriorated during the challenging economic period of 2008 to 2012 due to the adverse
conditions in the real estate market during that period and that type of deterioration could occur again. Weakness in residential
real estate market prices as well as demand could result in price reductions in home and land values adversely affecting the
value of collateral securing the construction and development loans that we hold. Should we experience the return of these
adverse economic and real estate market conditions we may again experience increases in non-performing loans and other real
estate owned, increased losses and expenses from the management and disposition of non-performing assets, increases in
provision for loan losses, and increases in operating expenses as a result of the allocation of management time and resources to
the collection and work out of loans, all of which would negatively impact our financial condition and results of operations.
Changes to capital requirements for bank holding companies and depository institutions that became effective January 1,
2015 and continue to be phased in may negatively impact Pinnacle Financial's and Pinnacle Bank's results of operations.
In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory risk-
based capital rules applicable to Pinnacle Bank and Pinnacle Financial. The final rules, which became effective on January 1,
2015, implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.
Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the
leverage and risk-based capital ratios for insured depository institutions. The final rules include new minimum risk-based capital
and leverage ratios. Moreover, these rules refine the definition of what constitutes "capital" for purposes of calculating those
ratios, including the definitions of Tier 1 capital and Tier 2 capital. The new minimum capital level requirements applicable to
bank holding companies and banks subject to the rules are: (i) a new common equity Tier 1 risk-based capital ratio of 4.5%; (ii) a
Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current
rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a "capital conservation buffer" of 2.5%
(to be phased in over three years beginning January 1, 2016) above the new regulatory minimum risk-based capital ratios, and
result in the following minimum ratios once the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-
based capital ratio of 7%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. The capital
conservation buffer requirement is being phased in at 0.625% of risk-weighted assets in 2016 and will increase by a like amount
each year until fully implemented in January 2019. We will be subject to limitations on paying dividends, engaging in share
repurchases and paying discretionary bonuses if our capital levels fall below these minimums plus the buffer amounts. These
limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Under these new rules, Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings,
limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and
related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory
deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010, no longer qualify as Tier 1
capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0
billion in total assets at that date, trust preferred securities issued prior to that date, continue to count as Tier 1 capital subject
to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to certain
new eligibility criteria.
Common equity Tier 1 capital generally consists of common stock (plus related surplus) and retained earnings plus
limited amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other
regulatory deductions.
The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to
opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital
calculation. Both Pinnacle Financial and Pinnacle Bank opted-out of this requirement.
(cid:21)(cid:25)
The application of more stringent capital requirements for Pinnacle Financial and Pinnacle Bank, like those adopted to
implement the Basel III reforms, could, among other things, result in lower returns on invested capital, require the raising of
additional capital, (like the subordinated notes we issued in connection with our mergers with CapitalMark and Magna) and
result in regulatory actions if we were to be unable to comply with such requirements. Furthermore, the imposition of liquidity
requirements in connection with the implementation of Basel III could result in our having to lengthen the term of our funding,
restructure our business models and/or increase our holdings of liquid assets.
Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in
calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business
strategy and could limit our ability to make distributions, including paying dividends or buying back shares.
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.
Our operations rely on the secure processing, storage and transmission of confidential and other information in our
computer systems and networks. Although we take protective measures and endeavor to modify these systems as
circumstances warrant, the security of our computer systems, software and networks may be vulnerable to breaches,
unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact. We
outsource many of our major systems, such as data processing, loan servicing and deposit processing systems. The failure of
these systems, or the termination of a third-party software license or service agreement on which any of these systems is based,
could interrupt our operations. Because our information technology and telecommunications systems interface with and depend
on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party
systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration
of our ability to process new and renewal loans, gather deposits and provide customer service, compromise our ability to
operate effectively, damage our reputation, result in a loss of customer business and/or subject us to additional regulatory
scrutiny and possible financial liability, any of which could have a material adverse effect on our financial condition and results
of operations.
In addition, we provide our customers the ability to bank remotely, including over the Internet or through their mobile
device. The secure transmission of confidential information is a critical element of remote and mobile banking. Our network
could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters,
power loss and other security breaches. We may be required to spend significant capital and other resources to protect against
the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the
extent that our activities or the activities of our customers involve the storage and transmission of confidential information,
security breaches (including breaches of security of customer systems and networks) and viruses could expose us to claims,
litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing
customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to
attract and maintain customers and businesses. In addition, a security breach could also subject us to additional regulatory
scrutiny, expose us to civil litigation and possible financial liability and cause reputational damage.
Environmental liability associated with commercial lending could result in losses.
In the course of business, Pinnacle Bank may acquire, through foreclosure, or deed in lieu of foreclosure, properties
securing loans it has originated or purchased which are in default. Particularly in commercial real estate lending, there is a risk
that hazardous substances could be discovered on these properties. In this event, we, or Pinnacle Bank, might be required to
remove these substances from the affected properties at our sole cost and expense. The cost of this removal could substantially
exceed the value of affected properties. We may not have adequate remedies against the prior owner or other responsible
parties and could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect
on our business, results of operations and financial condition.
(cid:21)(cid:26)
National or state legislation or regulation may increase our expenses and reduce earnings.
Bank regulators are increasing regulatory scrutiny, and additional restrictions (including those originating from the
Dodd-Frank Act) on financial institutions have been proposed or adopted by regulators and by Congress. Changes in tax law,
federal legislation, regulation or policies, such as bankruptcy laws, deposit insurance, consumer protection laws, and capital
requirements, among others, can result in significant increases in our expenses and/or charge-offs, which may adversely affect
our earnings. Changes in state or federal tax laws or regulations can have a similar impact. State and municipal governments,
including the State of Tennessee, could seek to increase their tax revenues through increased tax levies which could have a
meaningful impact on our results of operations. Furthermore, financial institution regulatory agencies are expected to continue
to be very aggressive in responding to concerns and trends identified in examinations, including the continued issuance of
additional formal or informal enforcement or supervisory actions. These actions, whether formal or informal, could result in our
agreeing to limitations or to take actions that limit our operational flexibility, restrict our growth or increase our capital or
liquidity levels. Failure to comply with any formal or informal regulatory restrictions, including informal supervisory actions,
could lead to further regulatory enforcement actions. Negative developments in the financial services industry and the impact of
recently enacted or new legislation in response to those developments could negatively impact our operations by restricting
our business operations, including our ability to originate or sell loans, and adversely impact our financial performance. In
addition, industry, legislative or regulatory developments may cause us to materially change our existing strategic direction,
capital strategies, compensation or operating plans.
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, and Pinnacle Bank, are required to maintain certain capital levels established by banking regulations or specified
by bank regulators, including those capital maintenance standards imposed on us as a result of the Dodd-Frank Act, and we are
required to serve as a source of strength to Pinnacle Bank. We must also maintain adequate funding sources in the normal
course of business to support our operations and fund outstanding liabilities. Our ability to maintain capital levels, sources of
funding and liquidity could be impacted by changes in the capital markets in which we operate and deteriorating economic and
market conditions. Pinnacle Bank is required to obtain regulatory approval in order to pay dividends to us unless the amount of
such dividends does not exceed its net income for that calendar year plus retained net income for the preceding two years. Any
restriction on the ability of Pinnacle Bank to pay dividends to us could impact our ability to continue to pay dividends on our
common stock. Moreover, failure by our bank subsidiary to meet applicable capital guidelines or to satisfy certain other
regulatory requirements could subject our bank subsidiary to a variety of enforcement remedies available to the federal
regulatory authorities.
Certain of our deposits and other funding sources may be volatile and impact our liquidity.
In addition to the traditional core deposits, such as demand deposit accounts, interest checking, money market
savings and certificates of deposits less than $250,000, we utilize or in the past have utilized several noncore funding sources,
such as brokered certificates of deposit, Federal Home Loan Bank (FHLB) of Cincinnati advances, federal funds purchased and
other sources. We utilize these noncore funding sources to fund the ongoing operations and growth of Pinnacle Bank. The
availability of these noncore funding sources is subject to broad economic conditions and to investor assessment of our
financial strength and, as such, the cost of funds may fluctuate significantly and/or be restricted, thus impacting our net interest
income, our immediate liquidity and/or our access to additional liquidity. We have somewhat similar risks to the extent high
balance core deposits exceed the amount of deposit insurance coverage available.
We impose certain internal limits as to the absolute level of noncore funding we will incur at any point in time. Should
we exceed those limitations, we may need to modify our growth plans, liquidate certain assets, participate loans to
correspondents or execute other actions to allow for us to return to an acceptable level of noncore funding within a reasonable
amount of time.
(cid:21)(cid:27)
If the federal funds and interbank funding rates remain at current extremely low levels, our net interest margin, and
consequently our net earnings, may be negatively impacted.
Because of significant competitive pressures in our market and the negative impact of these pressures on our deposit
and loan pricing, coupled with the fact that a significant portion of our loan portfolio has variable rate pricing that moves in
concert with changes to the Federal Reserve Board of Governors' federal funds rate or the London Interbank Offered Rate
(LIBOR) (both of which are at extremely low levels as a result of current economic conditions), our net interest margin may be
negatively impacted. Additionally, the amount of non-accrual loans and other real estate owned has been and may continue to
be elevated. We also expect loan pricing to remain competitive in 2016 and believe that economic factors affecting broader
markets will likely result in reduced yields for our investment securities portfolio. As a result, our net interest margin, and
consequently our profitability, may continue to be negatively impacted in 2016 and beyond.
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.
A significant and sustained decline in our stock price and market capitalization below book value, a significant decline
in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors
could result in impairment of our goodwill. At December 31, 2015, our goodwill and other identifiable intangible assets totaled
approximately $442.8 million. If we were to conclude that a write-down of our goodwill is necessary, then the appropriate charge
would likely cause a material loss. Any significant loss would further adversely impact the capacity of Pinnacle Bank to pay
dividends to us without seeking prior regulatory approval, which could adversely affect our ability to pay required interest
payments.
Competition with other banking institutions could adversely affect our profitability.
A number of banking institutions in our geographic markets have higher lending limits, more banking offices, and a
larger market share of loans or deposits than we do. In addition, our asset management division competes with numerous
brokerage firms and mutual fund companies which are also much larger. In some respects, this may place these competitors in a
competitive advantage. This competition may limit or reduce our profitability, reduce our growth and adversely affect our
results of operations and financial condition.
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 have assembled a senior management team which has substantial background and experience in banking and
financial services in the Nashville, Knoxville, Memphis and Chattanooga markets. Moreover, much of our organic loan growth
in 2012 through 2015 was the result of our ability to attract experienced financial services professionals who have been able to
attract customers from other financial institutions. Inability to retain these key personnel (including key personnel of
CapitalMark or Magna) or to continue to attract experienced lenders with established books of business could negatively
impact our growth because of the loss of these individuals' skills and customer relationships and/or the potential difficulty of
promptly replacing them.
We are subject to certain litigation, and our expenses related to this litigation may adversely affect our results.
We are from time to time subject to certain litigation in the ordinary course of our business. These claims and legal
actions, including supervisory actions by our regulators, could involve large monetary claims and significant defense costs.
The outcome of these cases is uncertain. Substantial legal liability or significant regulatory action against us could have
material adverse financial effects or cause significant reputational harm to us, which in turn could seriously harm our business
prospects.
We may issue additional common stock or other equity securities in the future which could dilute the ownership interest of
existing shareholders.
In order to maintain our or Pinnacle Bank's capital at desired or regulatory-required levels, we may issue additional
shares of common stock, or securities convertible into, exchangeable for or representing rights to acquire shares of common
stock. We may sell these shares at prices below the current market price of shares, and the sale of these shares may
significantly dilute shareholder ownership. We could also issue additional shares in connection with acquisitions of other
financial institutions or investments in fee-related businesses such as BHG, which would also dilute shareholder ownership.
(cid:21)(cid:28)
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.
The trading volume in our common stock on the Nasdaq Global Select Market has been relatively low when compared
with larger companies listed on the Nasdaq Global Select Market or other stock exchanges. Although we have experienced
increased liquidity in our stock, we cannot say with any certainty that a more active and liquid trading market for our common
stock will continue to develop. Because of this, it may be more difficult for stockholders to sell a substantial number of shares
for the same price at which stockholders could sell a smaller number of shares.
We cannot predict the effect, if any, that future sales of our common stock in the market, or the availability of shares of
common stock for sale in the market, will have on the market price of our common stock. We can give no assurance that sales of
substantial amounts of common stock in the market, or the potential for large amounts of sales in the market, would not cause
the price of our common stock to decline or impair our future ability to raise capital through sales of our common stock.
The market price of our common stock has fluctuated significantly, and may fluctuate in the future. These fluctuations
may be unrelated to our performance. General market or industry price declines or overall market volatility in the future could
adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.
Holders of Pinnacle Financial's and Pinnacle Bank's indebtedness and junior subordinated debentures have rights that are
senior to those of Pinnacle Financial's stockholders.
Pinnacle Financial has issued trust preferred securities from special purpose trusts and accompanying junior
subordinated debentures. At December 31, 2015, Pinnacle Financial had outstanding trust preferred securities and
accompanying junior subordinated debentures totaling $82.5 million. Payments of the principal and interest on the trust
preferred securities of these trusts are conditionally guaranteed by Pinnacle Financial. Further, the accompanying junior
subordinated debentures Pinnacle Financial issued to the trusts are senior to Pinnacle Financial's shares of common stock. As a
result, Pinnacle Financial must make payments on the junior subordinated debentures before any dividends can be paid on
common stock and, in the event of Pinnacle Financial's bankruptcy, dissolution or liquidation, the holders of the junior
subordinated debentures must be satisfied before any distributions can be made on Pinnacle Financial's common stock.
Pinnacle Financial has the right to defer distributions on its junior subordinated debentures (and the related trust preferred
securities) for up to five years, during which time no dividends may be paid on its common stock. If our financial condition
deteriorates or if we do not receive required regulatory approvals, we may be required to defer distributions on our junior
subordinated debentures.
On July 30, 2015, Pinnacle Bank issued $60 million of subordinated notes due July 30, 2025 in a private placement to
certain institutional accredited investors. These notes are obligations of Pinnacle Bank, and not Pinnacle Financial, and the
notes rank senior to shares of Pinnacle Bank's common stock, all of which are owned by Pinnacle Financial. In the event of a
liquidation or winding up of Pinnacle Bank, these notes, along with Pinnacle Bank's other indebtedness, would have to be
repaid before Pinnacle Financial and its shareholders would be entitled to receive any of the assets of Pinnacle Bank.
Upon consummation of the proposed merger with Avenue, Pinnacle Financial will assume Avenue's obligations under
its outstanding $20.0 million subordinated notes issued in December 2014 that mature in December 2024. These notes bear
interest at a rate of 6.75% per annum until January 1, 2020 and may not be repaid prior to such date. Beginning on January 1,
2020, if not redeemed on such date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined
on the determination date of the applicable interest period plus 495 basis points. The terms of these notes will prohibit Pinnacle
Financial from declaring or paying any dividends or distributions on its common stock or redeeming, purchasing, acquiring or
making a principal payment on these notes, at any time when payment of interest on these notes has not been timely made and
while any such accrued and unpaid interest remains unpaid. Moreover, the notes will rank senior to shares of Pinnacle
Financial's common stock. In the event of a liquidation or winding up of Pinnacle Financial, these notes, along with Pinnacle
Financial's other indebtedness, would have to be repaid before Pinnacle Financial's shareholders would be entitled to receive
any of the assets of Pinnacle Financial.
Pinnacle Financial or Pinnacle Bank may from time to time issue additional subordinated indebtedness that would have
to be repaid before Pinnacle Financial's shareholders would be entitled to receive any of the assets of Pinnacle Financial or
Pinnacle Bank.
(cid:22)(cid:19)
Our business is dependent on technology, and an inability to invest in technological improvements may adversely affect our
results of operations and financial condition.
The financial services industry is undergoing rapid technological changes with frequent introductions of new
technology-driven products and services. In addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. We have made significant investments in data processing,
management information systems and internet banking accessibility. Our future success will depend in part upon our ability to
create additional efficiencies in our operations through the use of technology. Many of our competitors have substantially
greater resources to invest in technological improvements. We cannot make assurances that our technological improvements
will increase our operational efficiency or that we will be able to effectively implement new technology-driven products and
services or be successful in marketing these products and services to our customers.
We are subject to various statutes and regulations that may impose additional costs or limit our ability to take certain
actions.
We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation
by various regulatory agencies. Our compliance with these regulations is costly and restricts certain of our activities, including
payment of dividends, mergers and acquisitions, investments, loans and interest rates charged on loans, interest rates paid on
deposits and locations of offices. We are also subject to capital requirements established by our regulators, which require us to
maintain specified levels of capital. It is possible that our FDIC assessments may increase in the future. Any future assessment
increases could negatively impact our results of operations. Significant changes in laws and regulations applicable to the
banking industry have been recently adopted and others are being considered in Congress. We cannot predict the effects of
these changes on our business and profitability. Because government regulation greatly affects the business and financial
results of commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to operate
profitably.
(cid:22)(cid:20)
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's executive offices are located at 150 Third Avenue South, Suite 900, Nashville, Tennessee. The Company
operates 44 banking locations throughout our geographic market areas, of which for 18 locations the Company leases the land,
the building or both. The Company has locations in the Tennessee municipalities of Nashville, Knoxville, Memphis,
Chattanooga, Murfreesboro, Dickson, Ashland City, Mt. Juliet, Lebanon, Franklin, Brentwood, Hendersonville, Goodlettsville,
Smyrna, Shelbyville, Cleveland and Oak Ridge.
(cid:22)(cid:21)
ITEM 3. LEGAL PROCEEDINGS
Various legal proceedings to which Pinnacle Financial or a subsidiary of Pinnacle Financial is party arise from time to time in the
normal course of business. Except as described below, as of the date hereof, there are no material pending legal proceedings to
which Pinnacle Financial or any of its subsidiaries is a party or of which any of its or its subsidiaries' properties are subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
(cid:22)(cid:22)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Pinnacle Financial's common stock is traded on the Nasdaq Global Select Market under the symbol "PNFP" and has traded on
that market since July 3, 2006. The following table shows the high and low sales price information for Pinnacle Financial's
common stock for each quarter in 2015 and 2014 as reported on the Nasdaq Global Select Market.
2015:
2014:
First quarter
Second quarter
Third quarter
Fourth quarter
First quarter
Second quarter
Third quarter
Fourth quarter
Price Per Share
High
Low
$
$
45.31 $
55.43
56.00
57.99
39.10 $
39.85
40.10
40.30
35.01
43.44
44.86
46.25
30.68
32.77
34.73
33.93
As of February 26, 2015, Pinnacle Financial had approximately 41,042,125 stockholders of record.
During the fourth quarter of 2013, we paid a quarterly dividend on our common stock for the first time. The amount of the initial
dividend was $0.08 per share. During the first quarter of 2016, our Board of Directors declared a dividend of $0.14 per share, an
increase of $0.06 or 75% from the initial dividend amount. See ITEM 1. "Business – Supervision and Regulation – Payment of
Dividends" and ITEM 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for
additional information on dividend restrictions applicable to Pinnacle Financial and Pinnacle Bank.
In connection with the settlement of income tax liabilities associated with the Company's equity compensation plans, Pinnacle
Financial repurchased shares of its common stock during the quarter ended December 31, 2015 as follows:
Period
October 1, 2015 to October 31, 2015
November 1, 2015 to November 30, 2015
December 1, 2015 to December 31, 2015
Total
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Maximum
Number (or
Approximate
Dollar Value)
of Shares That
May Yet Be
Purchased
Under the
Plans or
Programs
Total Number of
Shares
Repurchased(1)
Average Price
Paid Per Share
- $
1,542
5
1,547 $
-
53.79
52.26
53.79
-
-
-
-
-
-
-
-
(1) During the quarter ended December 31, 2015, 5,105 of restricted stock previously awarded to certain of our associates vested.
We withheld 1,547 shares to satisfy tax withholding requirements associated with the vesting of these restricted share awards.
(cid:22)(cid:23)
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
Total assets
Loans, net of unearned income
Allowance for loan losses
Total securities
Goodwill, core deposit and other intangible assets
Deposits and securities sold under agreements to repurchase
Advances from FHLB
Subordinated debt and other borrowings
Stockholders' equity
Statement of Operations Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Income before income taxes
Income tax expense (benefit)
Net income
Preferred dividends and accretion on common stock warrants
Net income available to common shareholders
Per Share Data:
Earnings per share available to common shareholders – basic
Weighted average common shares outstanding – basic
Earnings per share available to common shareholders – diluted
Weighted average common shares outstanding – diluted
Common dividends per share
Book value per common share
Tangible book value per common share
Common shares outstanding at end of period
Performance Ratios:
Return on average assets
Return on average stockholders' equity
Net interest margin (3)
Net interest spread (4)
Noninterest income to average assets
Noninterest expense to average assets
Efficiency ratio (5)
Average loan to average deposit ratio
Average interest-earning assets to average interest-bearing liabilities
Average equity to average total assets ratio
Annualized dividend payout ratio
Asset Quality Ratios:
Allowance for loan losses to nonaccrual loans
Allowance for loan losses to total loans
Nonperforming assets to total assets
Nonperforming assets to total loans and other real estate
Net loan charge-offs to average loans
Capital Ratios (Pinnacle Financial):
Common equity Tier I risk-based capital
Leverage (6)
Tier 1 risk-based capital
Total risk-based capital
$
$
$
$
$
$
$
$
2015(1)(2)
8,715,414
6,543,235
65,432
966,442
442,773
7,050,498
300,305
142,476
1,155,611
255,169
18,537
236,632
9,188
227,445
86,530
170,877
143,098
47,589
95,509
-
95,509
2.58
37,015,468
2.52
37,973,788
0.48
28.25
17.46
40,906,064
$
$
$
$
$
$
$
$
2014
6,018,248
4,590,027
67,359
770,730
246,422
4,876,600
195,476
96,158
802,693
206,170
13,185
192,985
3,635
189,350
52,602
136,300
105,653
35,182
70,471
-
70,471
2.03
34,723,335
2.01
35,126,890
0.32
22.45
15.62
35,732,483
$
$
$
$
$
$
$
2013
5,563,776
4,144,493
67,970
733,252
247,492
4,603,938
90,637
98,658
723,708
191,282
15,384
175,899
7,856
168,042
47,104
129,261
85,884
28,158
57,726
-
57,726
1.69
34,200,770
1.67
34,509,261
0.08
20.55
13.52
35,221,941
$
$
$
$
$
$
$
2012
5,040,549
3,712,162
69,417
707,153
249,144
4,129,855
75,850
106,158
679,071
185,422
22,557
162,865
5,569
157,296
43,397
138,165
62,527
20,643
41,884
3,814
38,070
1.12
33,899,667
1.10
34,487,808
-
19.57
12.39
34,696,597
$
$
$
$
$
$
$
2011
4,863,951
3,291,351
73,975
897,292
251,919
3,785,931
226,069
97,476
710,145
188,346
36,882
151,464
21,798
129,666
37,940
139,107
28,499
(15,238)
43,737
6,665
37,072
1.11
33,420,015
1.09
34,060,228
-
18.56
11.33
34,354,960
1.36%
10.06%
3.72%
3.55%
1.23%
2.42%
52.88%
96.39%
142.77%
13.47%
18.97%
222.90%
1.00%
0.42%
0.55%
0.21%
8.61%
9.37%
9.63%
11.24%
1.24%
9.19%
3.75%
3.65%
0.92%
2.39%
55.50%
93.15%
142.64%
13.46%
16.67%
403.20%
1.47%
0.46%
0.61%
0.10%
10.10%
11.30%
12.10%
13.40%
1.11%
8.22%
3.77%
3.65%
0.90%
2.48%
57.96%
93.46%
137.78%
13.47%
20.38%
373.80%
1.64%
0.60%
0.80%
0.24%
-
10.90%
11.80%
13.00%
0.78%
5.46%
3.77%
3.61%
0.89%
2.83%
66.99%
92.78%
131.44%
14.30%
0.00%
304.20%
1.87%
0.82%
1.11%
0.29%
-
10.60%
11.80%
13.00%
0.77%
5.27%
3.55%
3.33%
0.78%
2.88%
73.45%
86.76%
125.84%
14.55%
0.00%
154.60%
2.25%
1.80%
2.66%
0.94%
-
11.40%
13.80%
15.30%
(1)
(2)
(3)
(4)
(5)
(6)
Information for 2015 fiscal year includes the operations of CapitalMark from its acquisition date of July 31, 2015 and Magna from its acquisition date of
September 1, 2015 and reflects approximately 3.3 million shares and 1.4 million shares of Pinnacle Financial common stock issued in connection with
the CapitalMark Merger and the Magna Merger, respectively.
Information for 2015 fiscal year includes the our 30% membership interest in BHG which was entered into in February 2015.
Net interest margin is the result of net interest income for the period divided by average interest earning assets.
Net interest spread is the result of the difference between the interest earned on interest earning assets less the interest paid on interest bearing liabilities.
Efficiency ratio is the result of noninterest expense divided by the sum of net interest income and noninterest income.
Leverage ratio is computed by dividing Tier 1 capital by average total assets for the fourth quarter of each year.
(cid:22)(cid:24)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a discussion of our financial condition at December 31, 2015 and 2014 and our results of operations for each of
the years in the three-year period ended December 31, 2015. The purpose of this discussion is to focus on information about
our financial condition and results of operations which is not otherwise apparent from the consolidated financial statements.
The following discussion and analysis should be read along with our consolidated financial statements and the related notes
included elsewhere herein.
Overview
General. Our fully diluted net income per common share for the year ended December 31, 2015 was $2.52 compared to fully
diluted net income per common share of $2.01 and $1.67 for the years ended December 31, 2014 and 2013, respectively. At
December 31, 2015, loans had increased by $1.953 billion as compared to the end of 2014.
We acquired a 30% membership interest in Bankers Healthcare Group, LLC (BHG) on February 1, 2015 for $75.0 million. We
acquired CapitalMark Bank and Trust (CapitalMark) on July 31, 2015 and Magna Bank (Magna) on September 1, 2015. At the
acquisition date, CapitalMark had net assets of $67.6 million, including loans of $857.3 million and deposits valued at $953.2
million. At the acquisition date, Magna had net assets of $51.9 million, including loans of $442.0 million and deposits valued at
$452.7 million. These acquisitions further expand the Pinnacle footprint into East and West Tennessee.
Results of operations. Our results of operations for 2015 include the impact of our acquired entities for the period between their
respective acquisition dates and December 31, 2015. Our net interest income increased to $236.6 million for 2015 compared to
$193.0 million for 2014 and $175.9 million for 2013. The net interest margin (the ratio of net interest income to average earning
assets) for 2015 was 3.72% compared to 3.75% and 3.77% for 2014 and 2013, respectively. Our net interest margin for all periods
presented reflects the contraction in our earning asset yields, which is primarily attributable to reduced yields in our securities
portfolio.
Our provision for loan losses was $9.2 million for 2015 compared to $3.6 million in 2014 and $7.9 million in 2013. Our net charge-
offs were $11.1 million during 2015 compared to $4.2 million in 2014 and $9.3 million in 2013. During 2015, we decreased our
allowance for loan losses as a percentage of loans from 1.47% at December 31, 2014 to 1.00% at December 31, 2015. The overall
methodology used to estimate the allowance for loan losses for legacy Pinnacle loans is consistent with prior periods;
however, the allowance for loan losses at each of CapitalMark and Magna was eliminated as a component of purchase
accounting as these entities' loans were recorded at fair value upon acquisition. As such, the allowance as a percentage of total
loans decreased significantly between December 31, 2014 and December 31, 2015. For purchased loans, the allowance for loan
losses subsequent to the acquisition date is similar to that utilized for legacy Pinnacle loans. Our accounting policy is to
compare the computed allowance for loan losses on purchased loans to the remaining fair value adjustment at the individual
loan level. If the computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance
for loan losses by a provision for loan losses.
Noninterest income for 2015 compared to 2014 increased by $33.9 million, or 64.5%. The increase was primarily due to income
from our 30% equity method investment in BHG, which was $20.6 million for the year ended December 31, 2015. The additional
growth was attributable to increased interchange revenues as well as increased production in our fee-based products such as
investments, insurance and trust. Noninterest income for 2014 compared to 2013 increased by $5.5 million, or 11.7%, which was
primarily attributable to increased interchange revenues as well as increased production in our fee-based products such as
investments, insurance and trust.
Noninterest expense for 2015 compared to 2014 increased by $34.6 million, or 25.4%, primarily due to an increase in salaries and
employee benefits expense. Salaries and employee benefits expense increased $17.6 million, resulting from annual merit
increases awarded in the first quarter of 2015, new hires resulting from our organic growth and mergers with CapitalMark and
Magna and the overall increase in our associate base. Pinnacle Financial had 1,058.5 full-time equivalent employees at December
31, 2015 and has identified approximately 40 positions that are slated for elimination after the technology conversion is
completed at CapitalMark, which we expect to occur in the first quarter of 2016. We also realized increases in equipment and
occupancy costs due to our mergers with CapitalMark and Magna, partly offset by decreased other real estate owned expense.
Merger expenses accounted for approximately $4.8 million of expenses in 2015. Noninterest expense for 2014 compared to 2013
increased by $7.0 million, or 5.5%, primarily due to an increase in salaries and employee benefits expense, which increased by
$5.7 million. We also had higher equipment and occupancy costs due to the expansion of our corporate headquarters in
Nashville, TN as well as the addition of an office in Knoxville, TN during the fourth quarter of 2014. These increases were partly
offset by decreased other real estate owned expense. The number of full-time equivalent employees increased from 751.0 at
December 31, 2013 to 764.0 at December 31, 2014 and 1,058.5 at December 31, 2015.
(cid:22)(cid:25)
During the three years ended December 31, 2015, 2014 and 2013, Pinnacle Financial recorded income tax expense of $47.6 million,
$35.2 million and $28.2 million, respectively. Pinnacle's effective tax rate for the three years ended December 31, 2015, 2014 and
2013, was 33.3%, 33.3% and 32.8%, respectively, and differs from the combined federal and state income statutory rate primarily
due to a state excise tax expense, investments in bank qualified municipal securities, our real estate investment trust,
participation in the Community Investment Tax Credit (CITC) program, bank owned life insurance and tax savings from our
captive insurance subsidiary, PNFP Insurance, Inc. offset in part by the limitation on deductibility of meals and entertainment
expense.
Our efficiency ratio (the ratio of noninterest expense to the sum of net interest income and noninterest income) was 52.9%,
55.5% and 58.0% for the three years ended December 31, 2015, 2014 and 2013, respectively. The efficiency ratio measures the
amount of expense that is incurred to generate a dollar of revenue.
Net income for 2015 was $95.5 million compared to $70.5 million in net income in 2014 and $57.7 million in 2013. Fully-diluted net
income per common share available to common stockholders was $2.52 for 2015 compared to $2.01 for 2014 and $1.67 for 2013.
Financial Condition. Our loan balances increased by $1.953 billion during 2015 compared to an increase of $445.5 million in
2014. Our loan balances increased by $1.299 billion upon the acquisition of CapitalMark and Magna. The remaining increase in
2015 is attributable to a growing economy in the Middle Tennessee market, increases in the number of relationship advisors in
our other markets and increased focus on attracting new customers to our Company.
Total deposits increased from $4.783 billion at December 31, 2014 to $6.971 billion at December 31, 2015. Within our deposits,
the ratio of core funding to total deposits decreased slightly from 84.8% at December 31, 2014 to 84.5% at December 31,
2015. Our deposit balances increased $1.406 billion upon the acquisition of CapitalMark and Magna. The remaining increase in
2015 is attributable to a growing economy in the Middle Tennessee market and increases in the number of relationship advisors
in our other markets.
We believe we have hired experienced relationship managers that have significant client portfolios and longstanding
reputations within the communities we serve. As such, we believe they will attract more relationship managers to our firm as
well as loans and deposits from new and existing small-and middle-market clients as the economies in our principal markets
continue to expand.
Capital and Liquidity. At December 31, 2015 and 2014, our capital ratios, including our bank's capital ratios, exceeded
regulatory minimum capital requirements and we would be considered "well capitalized" pursuant to regulatory requirements.
From time to time we may be required to support the capital needs of our bank subsidiary. At December 31, 2015, we had
approximately $21.7 million of cash at the holding company which could be used to support our bank. We believe we and our
bank subsidiary have various capital raising techniques available to provide for the capital needs of our bank, if necessary.
Critical Accounting Estimates
The accounting principles we follow and our methods of applying these principles conform with U.S. generally accepted
accounting principles and with general practices within the banking industry. In connection with the application of those
principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses, the
valuation of other real estate owned, the assessment of the valuation of deferred tax assets and the assessment of impairment of
intangibles, has been critical to the determination of our financial position and results of operations.
Allowance for Loan Losses (allowance). Our management assesses the adequacy of the allowance prior to the end of each
calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of
the resulting balance. The level of the allowance is based upon management's evaluation of the loan portfolio, loan loss
experience, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers'
ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition
of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other pertinent factors,
including regulatory recommendations. The level of allowance maintained is believed by management to be adequate to absorb
probable losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by provisions charged to
expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Allocation of the allowance may
be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, is deemed to be
uncollectible.
(cid:22)(cid:26)
Our allowance for loan losses is composed of the result of two independent analyses pursuant to the provisions of ASC 450-20,
Loss Contingencies and ASC 310-10-35, Receivables. The ASC 450-20 analysis is intended to quantify the inherent risk in our
performing loan portfolio. The component of the allowance generated by ASC 310-10-35 is the result of a loan-by-loan analysis
of impaired loans $250,000 and greater and the resulting impairment percentage being applied to all loans below $250,000 that
have been specifically identified as impaired, which have historically shown a similar loss rate to loans above $250,000.
In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We
undertake this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in our overall
evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management,
independent internal loan reviewers, and reviews that may have been conducted by third-party reviewers primarily regulatory
examiners. We incorporate relevant loan review results in the allowance.
The ASC 450-20 component of the allowance for loan losses begins with a migration analysis based on our internal system of
risk rating, if applicable, and historical loss data in our portfolio, by loan type. The migration analysis accumulates losses
realized over a rolling four-quarter cycle and is utilized to determine an annual loss rate for each category for each quarter-end in
our look-back period. The look-back period in our migration analysis includes 24 quarters as we believe this period is
representative of an economic cycle. The loss rates for each category are then averaged and applied to the end of period loan
portfolio balances to determine estimated losses. The estimated losses by category are then adjusted by a specifically-
determined loss emergence period for each type of loan in our portfolio. A loss emergence period represents the length of time
from the initial event which triggered the loss to the recognition of the loss by Pinnacle Bank. Combined, the loss rates and loss
emergence period provide a quantitative estimate of credit losses inherent in our end of period loan portfolio based on our
actual loss experience.
The estimated loan loss allocation for all loan segments also considers management's estimate of probable losses for a number
of qualitative factors that have not been considered in the loan migration analysis. The qualitative categories and the
measurements used to quantify the risks within each of these categories are subjectively selected by management, but
measured by objective measurements period over period. The data for each measurement may be obtained from internal or
external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of
risk relative to past measurements over time. The resulting factor is applied to the non-impaired loan portfolio. This amount
represents estimated probable inherent credit losses which exist, but have not yet been identified either in our risk rating or
impairment process, as of the balance sheet date, and is based upon quarterly trend assessments in portfolio concentrations,
policy exceptions, economic conditions, lending staff performance, independent loan review results, collateral considerations,
credit quality, competition and regulatory requirements, enterprise wide risk assessments, and peer group credit quality. The
qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment
based on the assessment of these various qualitative factors.
The allowance for loan losses for purchased loans is calculated similar to that utilized for legacy Pinnacle loans. Our accounting
policy is to compare the computed allowance for loan losses for purchased loans to any remaining fair value adjustment on a
loan-by-loan basis. If the computed allowance is greater than the remaining fair value adjustment, the excess is added to the
allowance for loan losses by a provision for loan losses.
The ASC 450-20 portion of the allowance also includes a small unallocated component. We believe that the unallocated amount
is warranted for inherent factors that cannot be practically assigned to individual loan categories, such as the imprecision in the
overall loss allocation measurement process, the subjectivity risk of not considering all relevant environmental categories and
related measurements and imprecision in our credit risk ratings process. The appropriateness of the unallocated component of
the allowance is assessed each quarter end based on upon changes in the overall business environment not otherwise
captured.
The second component of the allowance for loan losses is determined pursuant to ASC 310-10-35. Loans are impaired when,
based on current information and events, it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means collecting all
interest and principal payments of a loan as scheduled in the loan agreement. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of
the loan is unlikely. A loan may be partially charged-off after a "confirming event" has occurred which serves to validate that
full repayment pursuant to the terms of the loan is unlikely.
(cid:22)(cid:27)
An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded
investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized
premium or discount). The impairment is recognized through the provision for loan losses and is a component of the allowance.
Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan's effective
interest rate, or if the loan is collateral dependent, at the fair value of the collateral, less estimated disposal costs. If the loan is
collateral dependent, the principal balance of the loan is charged-off in an amount equal to the impairment measurement. The fair
value of collateral dependent loans is derived primarily from collateral appraisals performed by independent third-party
appraisers. Management believes it follows appropriate accounting and regulatory guidance in determining impairment and
accrual status of impaired loans.
Pursuant to the guidance set forth in ASU No. 2011-02, A Creditor's Determination of Whether a Restructuring is a Troubled
Debt Restructuring, the above impairment methodology is also applied to those loans identified as troubled debt restructurings.
We then test the resulting allowance by comparing the balance in the allowance to historical trends and industry and peer
information. Our management then evaluates the result of the procedures performed, including the results of our testing, and
decides on the appropriateness of the balance of the allowance in its entirety. The audit committee of our board of directors
approves the allowance for loan loss policy annually and reviews the methodology and approves the resultant allowance prior
to the filing of quarterly and annual financial information.
While our policies and procedures used to estimate the allowance for loan losses, as well as the resultant provision for loan
losses charged to operations, are considered adequate by management and are reviewed from time to time by our regulators,
they are necessarily approximate and inherently imprecise. There are factors beyond our control, such as conditions in the local,
national, and international economy, a local real estate market or particular industry conditions which may negatively impact
materially our asset quality and the adequacy of our allowance for loan losses and thus the resulting provision for loan losses.
Other Real Estate Owned. Other real estate owned (OREO), which consists of properties obtained through foreclosure or
through deed in lieu of foreclosure in satisfaction of loans, is reported at the lower of cost or fair value based on appraised
value less selling costs, estimated as of the date acquired, with any loss recognized as a charge-off through the allowance for
loan losses. Additional OREO losses for subsequent downward valuation adjustments are determined on a specific property
basis and are included as a component of other noninterest expense along with holding costs. The fair value of other real estate
owned is derived primarily from independent appraisers. Our internal policies generally require OREO properties to be appraised
annually. Any net gains or losses on disposal realized at the time of disposal are reflected, net, in noninterest income or
noninterest expense, as applicable. Significant judgments and complex estimates are required in estimating the fair value of
other real estate owned, and the period of time within which such estimates can be considered current is significantly shortened
during periods of market volatility. As a result, the net proceeds realized from sales transactions could differ significantly from
appraisals, comparable sales, and other estimates used to determine the fair value of other real estate owned.
Impairment of Intangible Assets. Long-lived assets, including purchased intangible assets such as our core deposit intangible
asset subject to amortization as well as intangible assets recorded as a component of our equity method investment in BHG are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at
the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. There are no such assets to be
disposed of at December 31, 2015.
Goodwill is evaluated for impairment annually and more frequently if events and circumstances indicate that the asset might be
impaired. Our annual assessment date is September 30. An impairment loss is recognized to the extent that the carrying amount
exceeds the asset's fair value.
(cid:22)(cid:28)
ASC 350, Intangibles — Goodwill and Other, provides authoritative guidance related to testing goodwill for impairment,
including embedded goodwill recorded as a component of our equity method investment in BHG. The standard provides an
entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If an entity does a qualitative assessment and determines it is necessary, or if a
qualitative assessment is not performed, it is required to perform a two-step goodwill impairment test to identify potential
goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If,
based on a qualitative assessment, an entity determines that the fair value of a reporting unit is more than its carrying amount,
the two-step goodwill impairment test is not required. The results of our qualitative assessment indicated that the fair value of
our reporting unit was more than its carrying value, and accordingly, the two-step goodwill impairment test was not performed.
Should our common stock price decline or other impairment indicators become known, additional impairment testing of goodwill
may be required. Should it be determined in a future period that the goodwill has become impaired, then a charge to earnings will
be recorded in the period such determination is made. While we believe that the assumptions utilized in our testing were
appropriate, they may not reflect actual outcomes that could occur. Specific factors that could negatively impact the
assumptions used include the following: a change in the control premium being realized in the market or a meaningful change in
the number of mergers and acquisitions occurring; the amount of expense savings that may be realized in an acquisition
scenario; significant fluctuations in our asset/liability balances or the composition of our balance sheet; a change in the overall
valuation of the stock market, specifically bank stocks; performance of Southeast U.S. Banks; and Pinnacle Financial's
performance relative to peers. Changing these assumptions, or any other key assumptions, could have a material impact on the
amount of goodwill impairment, if any.
Results of Operations
The following is a summary of our results of operations for 2015, 2014 and 2013 (in thousands except per share data):
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income
Noninterest expense
Net income before income taxes
Income tax expense
Net income
Basic net income per common share
Diluted net income per common share
Years ended
December 31,
2015
2014
2015-2014
Percent
Increase
(Decrease)
Year ended
December 31,
2013
2014-2013
Percent
Increase
(Decrease)
$
$
$
$
255,169 $
18,537
236,632
9,188
227,445
86,530
170,877
143,098
47,589
95,509 $
2.58 $
2.52 $
206,170
13,185
192,985
3,635
189,350
52,602
136,300
105,653
35,182
70,471
2.03
2.01
23.77 % $
40.59 %
22.62 %
152.80 %
20.12 %
64.50 %
25.37 %
35.44 %
35.27 %
35.53 % $
27.09 % $
25.37 % $
191,282
15,384
175,899
7,857
168,042
47,104
129,261
85,884
28,158
57,726
1.69
1.67
7.78 %
(14.29 % )
9.71 %
(53.74 % )
12.68 %
11.67 %
5.45 %
23.02 %
24.94 %
22.08 %
20.24 %
19.93 %
Net Interest Income. Net interest income represents the amount by which interest earned on various earning assets exceeds
interest paid on deposits and other interest bearing liabilities and is the most significant component of our revenues. For the
year ended December 31, 2015, we recorded net interest income of approximately $236.6 million, which resulted in a net interest
margin (net interest income divided by the average balance of interest earning assets) of 3.72%. For the year ended December
31, 2014, we recorded net interest income of approximately $193.0 million, which resulted in a net interest margin of 3.75%. For
the year ended December 31, 2013, we recorded net interest income of approximately $175.9 million, which resulted in a net
interest margin of 3.77%.
(cid:23)(cid:19)
Interest-earning assets:
Loans (1)
Securities:
Taxable
Tax-exempt (2)
Federal funds sold and other
Total interest-earning assets
Nonearning assets:
Intangible assets
Other nonearning assets
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking
Savings and money market
Time deposits
Total interest-bearing deposits
Securities sold under
agreements to repurchase
Federal Home Loan Bank
The following table sets forth the amount of our average balances, interest income or interest expense for each category of
interest-earning assets and interest-bearing liabilities and the average interest rate for total interest-earning assets and total
interest-bearing liabilities, net interest spread and net interest margin for each of the years in the three-year period ended
December 31, 2015 (in thousands):
Average
Balances
2015
Interest
Rates/
Yields
Average
Balances
2014
Interest
Rates/
Yields
Average
Balances
2013
Interest
Rates/
Yields
$ 5,394,775 $
232,847
4.39%$ 4,295,283 $
184,649
4.31%$ 3,861,166 $
169,253
4.40%
721,829
167,091
223,732
6,507,427
15,060
5,783
1,479
255,169
2.09%
4.63%
0.66%
3.96%
594,223
170,617
155,585
5,215,708
14,227
6,167
1,127
206,170
2.39%
4.83%
0.86%
4.01%
559,702
173,202
144,948
4,739,018
14,504
6,378
1,147
191,282
2.59%
4.91%
0.93%
4.10%
315,366
310,628
$ 7,133,421
246,956
237,383
$ 5,700,047
248,291
240,018
$ 5,227,327
$ 1,149,772 $
2,298,746
541,766
3,990,284
2,487
7,701
3,021
13,209
0.22%$
0.34%
0.56%
0.33%
901,442 $
1,975,517
477,902
3,354,861
68,037
138
0.20%
67,999
advances
362,668
1,175
0.32%
134,874
Subordinated debt and other
borrowing
Total interest-bearing liabilities
Noninterest-bearing deposits
Total deposits and interest-
bearing liabilities
Other liabilities
Stockholders' equity
136,888
4,557,877
1,606,432
6,164,309
19,905
949,207
$ 7,133,421
Net interest income
Net interest spread (3)
Net interest margin (4)
4,015
18,537
-
18,537
2.93%
0.41%
0.00%
98,698
3,656,432
1,256,420
0.30%
4,912,852
19,971
767,224
$ 5,700,047
1,566
5,711
2,677
9,954
141
594
2,496
13,185
-
13,185
1,928
5,795
3,998
11,721
239
690
2,734
15,384
-
0.24%
0.34%
0.71%
0.38%
0.21%
0.45%
2.67%
0.45%
0.00%
15,384
0.34%
0.17%$
0.29%
0.56%
0.30%
790,365 $
1,714,154
564,766
3,069,285
0.21%
113,742
0.44%
153,912
2.53%
0.36%
0.00%
102,571
3,439,510
1,062,089
0.27%
4,501,599
21,631
704,097
$ 5,227,327
$
236,632
$
192,985
$
175,898
3.55%
3.72%
3.65%
3.75%
3.65%
3.77%
(1)
(2)
(3)
(4)
Average balances of nonperforming loans are included in average loan balances.
Yields based on the carrying value of those tax exempt instruments are shown on a fully tax equivalent basis.
Yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. The net interest spread calculation excludes the impact of demand
deposits. Had the impact of demand deposits been included, the net interest spread for the year ended December 31, 2015 would have been 3.66% compared to
net interest spread for the years ended December 31, 2014 and 2013 of 3.74% and 3.75%, respectively.
Net interest margin is the result of net income calculated on tax-equivalent basis divided by average interest earning assets for the period.
For the year ended December 31, 2015, our net interest spread was 3.55%, while the net interest margin was 3.72% compared to a
net interest spread of 3.65% for each of the years ended December 31, 2014 and 2013, and a net interest margin of 3.75% and
3.77%, respectively. The net interest margin has been greatly impacted by management's efforts to increase low cost customer
deposits and increase loan volumes. Our loan yields grew only slightly between 2015 and 2014 as the competition for quality
loans continues to be intense and the market dictates the rate necessary to grow volumes. During the year ended December 31,
2015, total deposit and liabilities funding rates were more than those rates for the year ended December 31, 2014 by 3 basis
points and were less than those rates for the year ended December 31, 2013 by 4 basis points. The net increase in 2015 when
compared to 2014 was the result of increased rates in our savings and money market deposits and the rate paid on our increased
balance of subordinated debt and other borrowings offset in part by a reduction of the rate paid on FHLB borrowings.
(cid:23)(cid:20)
We continue to deploy various asset liability management strategies to manage our risk to interest rate fluctuations. We
believe margin expansion over both the short and the long term will be challenging due to continued pressure on earning asset
yields during this extended period of a low interest rates. Loan pricing for creditworthy borrowers is very competitive in our
markets and has limited our ability to increase pricing on new and renewed loans over the last several quarters. We anticipate
that this challenging competitive environment will continue in 2016. However, we believe our net interest income should
increase in 2016 compared to 2015 primarily due to an increase in average earning asset volumes, primarily loans as well as the
incremental amounts attributable for CapitalMark and Magna. We anticipate funding these increased earning assets by
continuing to grow our core deposits, with wholesale funding limited to that required to fund the shortfall, if any.
Rate and Volume Analysis. Net interest income increased by $43.6 million between the years ended December 31, 2014 and 2015
and by $17.1 million between the years ended December 31, 2013 and 2014. The following is an analysis of the changes in our
net interest income comparing the changes attributable to rates and those attributable to volumes (in thousands):
Interest-earning assets:
Loans
Securities:
Taxable
Tax-exempt
Federal funds sold
Total interest-earning assets
2015 Compared to 2014
Increase (decrease) due to
Volume
Rate
Net
Rate
2014 Compared to 2013
Increase (decrease) due to
Volume
Net
$
3,436 $
47,388 $
48,198 $
(3,475) $
19,101 $
15,396
(1,783)
(341)
(311)
1,001
3,050
(170)
586
50,854
833
(384)
352
48,999
(1,119)
(139)
(101)
(4,834)
894
(127)
99
19,967
Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking
Savings and money market
Time deposits
Total deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Subordinated debt and other borrowings
Total interest-bearing liabilities
Net interest income
$
451
988
-
1,439
(7)
(162)
395
1,665
(664) $
422
937
358
1,717
-
1,002
966
3,685
47,169 $
921
1,990
344
3,255
(3)
581
1,519
5,352
43,647 $
(553)
(857)
(847)
(2,257)
-
(15)
(144)
(2,416)
(2,418) $
267
889
(617)
539
(96)
(86)
(103)
253
19,714 $
(277)
(211)
(20)
14,888
(362)
(84)
(1,321)
(1,767)
(98)
(96)
(237)
(2,198)
17,086
Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average
rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated
as change in volume times the previous rate while rate change is change in rate times the previous volume. The change
attributed to rates and volumes (change in rate times change in volume) is considered above as a change in volume.
Provision for Loan Losses. The provision for loan losses represents a charge to earnings necessary to establish an allowance
for loan losses that, in our management's evaluation, we believe to be adequate to provide coverage for the inherent losses on
outstanding loans. The provision for loan losses amounted to approximately $9.2 million, $3.6 million, and $7.9 million for the
years ended December 31, 2015, 2014, and 2013, respectively.
Impacting the provision for loan losses in any accounting period are several factors including the change in outstanding loan
balances, the level of charge-offs and recoveries, the changes in the amount of impaired loans, changes in the risk ratings
assigned to our loans, results of regulatory examinations, credit quality comparison to peer banks, the industry at large, and,
ultimately, the results of our quarterly assessment of the inherent risks of our loan portfolio including past loan loss experience.
Provision expense for the year ended December 31, 2015 has increased as compared to 2014, primarily due to increased charge-
offs in our consumer portfolio, although the overall amount of the allowance declined. Provision expense for the year ended
December 31, 2014 decreased as compared to 2013, primarily due to a reduction in both net charge-offs and the overall amount
of the allowance for loan losses. As a result of the loans acquired from CapitalMark and Magna being recorded at fair value
upon their acquisition date, these loans had a minimal impact on our provision expense for the year ended December 31, 2015.
(cid:23)(cid:21)
Our allowance for loan losses is adjusted to an amount deemed appropriate to adequately cover probable losses in the loan
portfolio based on our allowance for loan loss methodology. Our allowance for loan losses as a percentage of loans decreased
from 1.47% at December 31, 2014 to 1.00% at December 31, 2015, primarily attributable to improvements in the credit quality of
our legacy Pinnacle Bank portfolio and as a result of our acquired loan portfolios being recorded at fair value upon acquisition,
thus no allowance for loan losses is assigned to these loans as of the date of acquisition. An allowance for loan losses is
recorded for purchased loans that have experienced credit deterioration subsequent to acquisition or increases in balances
outstanding. Based upon our evaluation of the loan portfolio, we believe the allowance for loan losses to be adequate to
absorb our estimate of inherent losses existing in the loan portfolio at December 31, 2015. While our policies and procedures
used to estimate the allowance for loan losses, as well as the resultant provision for loan losses charged to operations, are
considered adequate by management, they are necessarily approximate and imprecise. There are factors beyond our control,
such as conditions in the local and national economy, local real estate market or a particular industry or borrower which may
negatively impact, materially, our asset quality and the adequacy of our allowance for loan losses and, thus, the resulting
provision for loan losses.
Noninterest Income. Our noninterest income is composed of several components, some of which vary significantly between
annual periods. Service charges on deposit accounts and other noninterest income generally reflect our growth, while
investment services, fees from the origination of mortgage loans, income from our equity method investment in BHG, swap fees
and gains on the sale of securities will often reflect market conditions and fluctuate from period to period.
The following is our noninterest income for the years ended December 31, 2015, 2014, and 2013 (in thousands):
Noninterest income:
Service charges on deposit accounts
Investment services
Insurance sales commissions
Gains on mortgage loans sold, net
Investment gains (losses) on sales and impairments, net
Trust fees
Income from equity method investment
Other noninterest income:
Interchange and other consumer fees
Bank-owned life insurance
Loan swap fees
Other noninterest income
Total other noninterest income
Total noninterest income
Years ended
December 31,
2015
2014
2015-2014
Percent
Increase
(Decrease)
Year ended
December 31,
2013
2014-2013
Percent
Increase
(Decrease)
$
$
12,746 $
9,971
4,824
7,669
552
5,461
20,591
18,214
2,548
2,095
1,859
24,716
86,530 $
11,707
9,383
4,613
5,630
29
4,601
-
12,322
2,426
235
1,656
16,639
52,602
8.88 % $
6.27 %
4.57 %
36.22 %
NM
18.69 %
NM
47.82 %
5.03 %
NM
12.26 %
48.54 %
64.50 % $
10,558
8,038
4,537
6,243
(1,466)
3,747
-
11,257
2,116
1,023
1,051
15,447
47,104
10.88 %
16.73 %
1.68 %
(9.82 % )
101.98 %
22.79 %
NM
9.46 %
14.65 %
(77.03 % )
57.56 %
7.72 %
11.67 %
The increase in service charges on deposit accounts in 2015 compared to 2014 and 2013 is primarily related to increased analysis
fees due to an increase in the volume and number of commercial client checking accounts resulting mainly from the growth in
such accounts due to our acquisitions of CapitalMark and Magna.
Also included in noninterest income are commissions and fees from investment services at our financial advisory unit, Pinnacle
Asset Management, a division of Pinnacle Bank. At December 31, 2015, Pinnacle Asset Management was receiving
commissions and fees in connection with approximately $1.78 billion in brokerage assets held with Raymond James Financial
Services, Inc. compared to $1.70 billion at December 31, 2014. Insurance commissions earned by our insurance subsidiary were
approximately $4.8 million during 2015 and $4.6 million during 2014. Included in insurance revenues for the year ended December
31, 2015 were approximately $412,000 of contingent income received based on 2014 sales production compared to $270,000
recorded in the same period prior year. Additionally, at December 31, 2015, our trust department was receiving fees on
approximately $916 million and $675 million of managed and custodied assets, respectively, compared to approximately $765
million and $861 million at December 31, 2014.
Gains on mortgage loans sold consists of fees from the origination and sale of mortgage loans. These mortgage fees are for
loans originated in our current markets that are subsequently sold to third-party investors. Substantially all of these loan sales
transfer servicing rights to the buyer. We acquired a mortgage servicing operation in conjunction with our acquisition of
Magna; however, during the first quarter of 2016, we entered into a letter of intent to sell this operation. Generally, mortgage
origination fees increase in lower interest rate environments and more robust housing markets and decrease in rising interest
rate environments and more challenging housing markets. Mortgage origination fees will fluctuate from quarter to quarter as the
rate environment changes. Gains on mortgage loans sold, net, were $7.7 million during the year ended December 31, 2015
compared to $5.6 million and $6.2 million, respectively, for the years ended December 31, 2014 and 2013.
(cid:23)(cid:22)
During the year ended December 31, 2013, we recognized an other-than-temporary-impairment charge in the third quarter of 2013
of $1.4 million on approximately $22.1 million of bonds that were subsequently sold during the fourth quarter. To better manage
our securities portfolio, we elected to sell these securities due to their relative underperformance compared to the market, in
order to minimize small dollar investments in our portfolio and due to OTTI concerns on investment securities in certain
municipalities. The net gains we recognized during the years ended December 31, 2015 and 2014 on bond sales were $552,000
and $29,000, respectively.
Income from equity-method investment is comprised of income from our 30% equity-method investment in BHG, which was
made during the first quarter of 2015, and was $20.6 million for the year ended December 31, 2015. Income from this equity-
method investment is recorded net of any associated expenses, including amortization expense of $1.3 million for the year ended
December 31, 2015. During the year ended December 31, 2015, Pinnacle Bank received $7.1 million in dividends from BHG, which
pursuant to the equity method of accounting reduced the carrying amount of our investment in BHG. On January 19, 2016,
Pinnacle Financial and Pinnacle Bank agreed to acquire an additional 19% interest in BHG. We expect this additional investment
to close in early March 2016. The income associated with this equity-method investment may fluctuate from period to period.
Included in other noninterest income are interchange and other consumer fees, gains from bank-owned life insurance, swap fees
earned for the facilitation of derivative transactions for our clients and other items. Interchange revenues increased as a result
of increased debit and credit card transactions as compared to the comparable period in 2014. Other noninterest income
included changes in the cash surrender value of bank-owned life insurance which was $2.5 million for the year ended December
31, 2015 compared to $2.4 million for the year ended December 31, 2014. The increase in earnings on these bank-owned life
insurance policies resulted primarily from the additional $17.0 million in bank-owned life insurance with terms similar to our
existing policies which were added upon acquisition of CapitalMark. The assets that support these policies are administered by
the life insurance carriers and the income we receive (i.e., increases or decreases in the cash surrender value of the policies) on
these policies is dependent upon the returns the insurance carriers are able to earn on the underlying investments that support
the policies. Earnings on these policies generally are not taxable. Loan swap fees, which are also included in other noninterest
income, increased by $1.9 million when compared to the year ended December 31, 2014 as a result of increased market demand
for these products in the current rate environment. Also included in other noninterest income are the results from our mortgage
servicing division which was acquired upon our acquisition of Magna and amounted to $1.7 million for the year ended
December 31, 2015. In the first quarter of 2016, Pinnacle entered into a letter of intent to sell the servicing rights to approximately
$830 million Fannie Mae mortgage loans in a transaction expected to be completed in the second quarter of 2016. Pinnacle
Financial does not anticipate the sale of this servicing portfolio to have a material impact on its financial condition or its results
of operations.
Noninterest Expense. The following is our noninterest expense for the years ended December 31, 2015, 2014, and 2013 (in
thousands):
$
Noninterest expense:
Salaries and employee benefits:
Salaries
Commissions
Cash and equity incentives
Employee benefits and other
Total salaries and employee benefits
Equipment and occupancy
Other real estate expense
Marketing and business development
Postage and supplies
Amortization of intangibles
Merger related expenses
Other noninterest expense:
Deposit related expenses
Lending related expenses
Investment sales expense
Trust expenses
FHLB restructuring
Administrative and other expenses
Total other noninterest expense
Total noninterest expense
$
Years ended
December 31,
2015
2014
2015-2014
Percent
Increase
(Decrease)
Year ended
December 31,
2013
2014-2013
Percent
Increase
(Decrease)
48,935
5,397
20,534
13,454
88,320
24,087
664
4,128
2,392
948
-
4,619
4,132
354
529
-
6,127
15,761
136,300
24.61 % $
3.65 %
8.22 %
27.35 %
19.94 %
13.10 %
(146.08 % )
17.81 %
34.95 %
108.23 %
NM
11.99 %
84.78 %
13.84 %
0.00 %
NM
45.73 %
46.88 %
25.37 % $
46,774
4,642
18,413
12,818
82,647
21,273
3,113
3,639
2,250
1,263
-
4,631
2,926
306
452
877
5,884
15,076
129,261
4.62 %
16.26 %
11.52 %
4.96 %
6.86 %
13.23 %
(78.67 % )
13.44 %
6.31 %
(24.94 % )
NM
(0.26 % )
41.22 %
15.69 %
17.04 %
(100.00 % )
4.13 %
4.54 %
5.45 %
60,980 $
5,594
22,222
17,133
105,929
27,242
(306)
4,863
3,228
1,974
4,797
5,173
7,635
403
529
481
8,929
23,150
170,877 $
(cid:23)(cid:23)
The increase in total salaries and employee benefits expense in 2015 over 2014 and 2013 is primarily due to an increase in the
number of employees in 2015 over 2014 and 2013. At December 31, 2015, our associate base had expanded to 1,058.5 full-time
equivalent associates as compared to 764.0 and 751.0 at December 31, 2014 and 2013, respectively. We expect salary expenses
will continue to rise as we hire more experienced bankers throughout our expanded footprint and due to our proposed
acquisition of Avenue, as a result of which our total assets will exceed $10 billion. However, we anticipate the elimination of
approximately 40 positions upon the systems conversion of CapitalMark which is expected to occur in the first quarter of 2016.
Moreover, as we increase in size and approach and ultimately exceed $10 billion in total assets, we also expect our compliance
costs, FDIC insurance assessment expense and salaries and benefits costs to increase.
We believe that cash and equity incentives are a valuable tool in motivating an employee base that is focused on providing our
clients effective financial advice and increasing shareholder value. As a result, and unlike many other financial institutions, all
of our non-commissioned associates participate in our annual cash incentive plan, and all of our associates participate in our
equity compensation plans. Under the annual cash incentive plan, the targeted level of incentive payments requires
achievement of a certain soundness threshold and a targeted level of revenues and earnings (subject to certain adjustments).
To the extent that the soundness threshold is met and revenues and earnings are above or below the targeted amount, the
aggregate incentive payments are increased or decreased. Historically, we have paid actual awards between 0% and 125% of the
targeted bonus award. In 2015, our cash incentives represented 100% of targeted incentive compensation compared to 123% in
2014 and 125% in 2013.
Employee benefits and other expenses include costs associated with our 401k plan, health insurance, and payroll taxes. Also
included in employee benefits and other expense for the years ended December 31, 2015, 2014 and 2013, were approximately $7.3
million, $5.3 million and $4.1 million, respectively, of compensation expenses related to equity-based awards, for restricted
shares, restricted share units or performance unit awards. Other than the options assumed in connection with our merger with
CapitalMark, we have not issued stock options since 2008. Under our equity incentive plans, we provide a broad-based equity
incentive program for all associates including both restricted share awards and performance unit awards. We believe that equity
incentives provide an excellent vehicle for all associates to become meaningful shareholders of Pinnacle Financial over an
extended period of time and create a shareholder-centric culture throughout our organization. We expect that compensation
expense associated with equity awards for 2016 will increase over our compensation expense in 2015 as a result of the
associates of CapitalMark and Magna that were hired in 2015 and who we expect will remain with Pinnacle following the
integration of those banks, and our intention to hire additional experienced associates during 2016, including associates of
Avenue who we expect will remain with Pinnacle following the integration of Avenue Bank.
Equipment and occupancy expense for the year ended December 31, 2015 was 13.10% greater than in 2014, which was 13.23%
greater than in 2013, primarily due to the locations acquired upon our mergers with CapitalMark and Magna. Additionally, one
branch was added in the Knoxville MSA in each of the years ended December 31, 2013, 2014 and 2015. We intend to expand our
footprint by one location in each of the Knoxville, Chattanooga, and Memphis MSAs annually beginning in 2016. In future
periods, these expansions may lead to higher equipment and occupancy expenses as well as related increases in salaries
benefits expense.
At December 31, 2015, we had $5.1 million in OREO assets compared to $11.2 million at December 31, 2014. Other real estate was
a benefit of $306,000 for the year ended December 31, 2015, compared to an expense of $664,000 and $3.1 million for the periods
ended December 31, 2014 and 2013, respectively. OREO properties of $3.3 million were recorded at fair value upon the
consummation of the acquisition of CapitalMark and Magna, collectively. Other real estate includes realized gains and losses on
dispositions and holding losses due to reduced valuations of OREO properties as well as carrying costs to maintain or improve
the properties.
Other real estate expense will fluctuate depending on market conditions as we maintain and market for sale various foreclosed
properties. These properties could also be subject to future valuation adjustments as a result of updated appraisal information
and deterioration in real estate values, thus causing additional fluctuations in our quarterly other real estate expense.
Additionally, we will continue to incur expenses associated with maintenance costs and property taxes associated with these
assets.
Management's strategy has been to aggressively pursue disposition of nonperforming loans and other real estate owned in
order to ultimately reduce the expense associated with carrying these nonperforming assets. Our disposition strategy generally
has been to negotiate sales of foreclosed properties on a property-by-property basis, although we have also utilized both
traditional and online auctions.
(cid:23)(cid:24)
Noninterest expense related to the amortization of intangibles was $1.9 million for the year ended December 31, 2015 compared
to $1.0 million and $1.3 million for the years ended December 31, 2014 and 2013, respectively. The following table outlines our
amortizing intangible assets, their initial valuation and amortizable lives:
Core Deposit Intangible:
Mid- America
CapitalMark
Magna
Book of Business Intangibles:
Miller Loughry Beach
CapitalMark Trust
Year Acquired
2007
2015
2015
2008
2015
Initial
Valuation (in
millions)
Amortizable
Life (in years)
$
9.5
6.2
3.2
1.3
0.3
10
7
6
20
16
These assets are being amortized on an accelerated basis which reflects the anticipated life of the underlying assets.
Amortization expense is estimated to approximate between $763,000 and $3.3 million per year for each of the next five years with
lesser amounts for the remaining amortization period (excluding any additional amortization expense resulting from our
proposed acquisition of Avenue.)
During the year ended December 31, 2015, merger related charges of $4.8 million were incurred associated with our acquisitions
of CapitalMark and Magna. We will continue to incur merger related charges as we complete the technology integration of the
CapitalMark franchise during the first half of 2016. We also expect to incur additional merger related charges in 2016 in
connection with our proposed acquisition of Avenue.
Total other noninterest expenses increased by $7.4 million to $23.2 million during 2015 when compared to 2014. Included in other
noninterest expenses are deposit and lending related expenses, investment and trust sales expenses, FHLB restructuring
expense and administrative expenses. Lending expenses increased by $3.5 million primarily as a result of our expanding credit
card platform and the resulting third-party processing expenses. Administrative and other expenses increased by $2.8 million to
$8.9 million during 2015 when compared to 2014. We incurred increases of approximately $1.2 million in regulatory expenses,
director fees, legal costs, data processing expenses and insurance expenses primarily as a result of our CapitalMark and Magna
acquisitions. We also incurred increases in franchise tax expense of approximately $544,000 due to the elimination of our state
tax net operating loss carry forward. We also experienced an increase of $402,000 in losses on other repossessed assets. Total
other noninterest expenses increased by $685,000 between 2013 and 2014 primarily attributable to the benefit in the second
quarter of 2013 of a $2.0 million reversal of the allowance for off-balance sheet exposures against other noninterest expense.
This $2.0 million expense reversal was partially offset by an approximate $877,000 restructuring charge related to the prepayment
of $35.0 million in FHLB advances in the first quarter of 2013. Also included in administrative and other expenses are expenses
related to contributions, audit fees, and corporate insurance policies.
Our efficiency ratio (ratio of noninterest expense to the sum of net interest income and noninterest income) was 52.9% in fiscal
year 2015 compared to 55.5% in fiscal year 2014. The efficiency ratio measures the amount of expense that is incurred to
generate a dollar of revenue. The efficiency ratio in 2015 was negatively impacted by our merger related expense in that period.
Income Taxes. During the year ended December 31, 2015, Pinnacle Financial recorded income tax expense of $47.6 million
compared to $35.1 million in 2014 and $28.2 million in 2013. Our effective income tax rate was 33.3% for the years ended
December 31, 2015 and 2014 and 32.8% for 2013, which is principally impacted by state excise tax expense, investments in bank
qualified municipal securities, our real estate investment trust, participation in the Community Investment Tax Credit (CITC)
program, bank owned life insurance and tax savings from our captive insurance subsidiary, PNFP Insurance, Inc. offset in part
by the limitation on deductibility of meals and entertainment expense.
(cid:23)(cid:25)
Financial Condition
Our consolidated balance sheet at December 31, 2015 reflects an increase of $1.953 billion in outstanding loans to $6.543 billion
and $2.189 billion in total deposits to $6.971 billion from December 31, 2014. Total assets were $8.715 billion at December 31, 2015
as compared to $6.018 billion at December 31, 2014. Collectively, we acquired $1.299 billion in loans and $1.405 billion in deposits
upon our acquisitions of CapitalMark and Magna.
Loans. The composition of loans at December 31 for each of the past five years and the percentage (%) of each segment to
total loans are summarized as follows (dollars in thousands):
2015
2014
2013
2012
2011
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Commercial real estate -
Mortgage
Consumer real estate - Mortgage
Construction and land
$ 2,275,483
1,046,517
34.8% $ 1,544,091
721,158
16.0%
33.6% $1,383,435
695,616
15.7%
33.4% $ 1,178,196
679,926
16.8%
31.7% $ 1,110,962
695,745
18.3%
development
Commercial and industrial
Consumer and other
Total loans
747,697
2,228,542
244,996
$ 6,543,235
11.4%
322,466
34.1% 1,784,729
217,583
100.0% $ 4,590,027
3.7%
7.0%
316,191
38.9% 1,605,547
143,704
4.8%
100.0% $4,144,493
7.6%
313,552
38.7% 1,446,578
93,910
100.0% $ 3,712,162
3.5%
8.4%
274,248
39.0% 1,145,735
64,661
2.6%
100.0% $ 3,291,351
33.8%
21.1%
8.3%
34.8%
2.0%
100.0%
We have experienced growth in all segments of our portfolio. At December 31, 2015, our loan portfolio composition remained
relatively consistent with the composition at December 31, 2014; although, the percentage of commercial and industrial loans to
our total loans declined from 38.9% to 34.1%, while the percentage of our construction and land development loans to our total
loans increased from 7.0% to 11.4%. We believe that loan growth in 2016 in the commercial real estate - mortgage segment will
outpace loan payoffs in that segment of the portfolio resulting in an increase in the percentage of commercial real estate -
mortgage loans as a percentage of total loans. The commercial real estate - mortgage category includes owner-occupied
commercial real estate loans. At December 31, 2015, approximately 47.6% of the outstanding principal balance of our commercial
real estate - mortgage loans was secured by owner-occupied commercial properties. Owner-occupied commercial real estate is
similar in many ways to our commercial and industrial lending in that these loans are generally made to businesses on the basis
of the cash flows of the business rather than on the valuation of the real estate. Growth in the construction and development
loan segment reflects the development of the local economies in which we participate and is diversified between commercial,
residential and land.
Consumer real estate mortgages consist of first mortgage real estate loans, junior liens and home equity lines of credit. In total,
we hold the first mortgage on $813.8 million of the mortgages within this portfolio. The remaining $232.7 million represent junior
liens, or "second mortgages", including home equity lines of credit. We had net recoveries of $243,000 and net charge offs of
$684,000 related to consumer loan second mortgages during 2015 and 2014, respectively. At December 31, 2015, we had
$955,000 of second mortgage consumer loans classified as nonperforming assets compared to $73,000 at December 31, 2014. In
addition, approximately $724,000 and $17,000 of these second mortgages were past due at December 31, 2015 and 2014,
respectively. Generally, for our second mortgage properties, should it become apparent to us that the first mortgage is
habitually past due, classified as nonperforming or has other credit weaknesses, we will review our second mortgage to
determine if the second mortgage should be considered for impairment. Typically, the second mortgage loan will be placed on
nonperforming status or charged off if it appears the borrower's credit status has deteriorated. For borrowers where the first
mortgage loan is held by another financial institution, we review credit histories of our home equity line of credit borrowers
annually to determine if the borrower's credit score has decreased as a result of the borrower's inability to maintain their credit
obligations in a satisfactory manner.
(cid:23)(cid:26)
The following table classifies our fixed and variable rate loans at December 31, 2015 according to contractual maturities of (1)
one year or less, (2) after one year through five years, and (3) after five years. The table also classifies our variable rate loans
pursuant to the contractual repricing dates of the underlying loans (dollars in thousands):
Based on contractual maturity:
Due within one year
Due in one year to five years
Due after five years
Totals
Based on contractual repricing dates:
Daily floating rate
Due within one year
Due in one year to five years
Due after five years
Totals
Amounts at December 31, 2015
Fixed
Rates
Variable
Rates(*)
Totals
At December
31,
2015
At December
31,
2014
$
$
$
$
239,682 $
1,284,580
717,643
2,241,905 $
1,090,270 $
1,728,531
1,482,529
4,301,330 $
1,329,952
3,013,111
2,200,172
6,543,235
- $
239,682
1,284,580
717,643
2,241,905 $
1,427,180 $
1,977,982
632,232
263,936
4,301,330 $
1,427,180
2,217,664
1,916,812
981,579
6,543,235
20.3 %
46.1 %
33.6 %
100.0 %
21.8 %
33.9 %
29.3 %
15.0 %
100.0 %
21.5 %
47.3 %
31.2 %
100.0 %
30.5 %
14.9 %
35.5 %
19.1 %
100.0 %
The above information does not consider the impact of scheduled principal payments.
(*)Daily floating rate loans are tied to Pinnacle Bank's prime lending rate or a national interest rate index with the underlying
loan rates changing in relation to changes in these indexes. Included in variable rate loans are $638.0 million of loans which are
currently priced at their contractual floors with a weighted average rate of 4.44%. The weighted average contractual rate on
these loans is 3.64%. As a result, interest income on these loans will not change until the contractual rate on the underlying
loan exceeds the interest rate floor.
Loan Origination Risk Management. We attempt to maintain lending policies and procedures in place that are designed to
maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a
regular basis. A reporting system supplements the review process by providing management with frequent reports related to
loan production, loan quality, concentrations of credit, loan delinquencies and non-performing loans. Diversification in the loan
portfolio is a means of managing risk associated with fluctuations in economic conditions.
Underwriting standards are designed to promote relationship banking rather than transactional banking. Our management
examines current and projected cash flows to determine the expected ability of a borrower to repay its obligations as agreed.
Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the
underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected, and the
collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being
financed or other business assets such as accounts receivable, inventory or equipment and may incorporate a personal
guarantee of business principals; however, some short-term loans may be made on an unsecured basis. In the case of loans
secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on
the ability of the borrower to collect amounts due from its customers.
Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans.
These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate
lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on
the successful operation of the property securing the loan or the business conducted on the property securing the loan.
Commercial real estate loans may be adversely affected by conditions in the real estate markets or in the general economy. As
detailed in the discussion of real estate loans below, the properties securing our commercial real estate portfolio generally are
diverse in terms of type and industry. We believe this diversity helps reduce our exposure to adverse economic events that
affect any single industry or type of real estate product. Management monitors and evaluates commercial real estate loans
based on cash flow, collateral, geography and risk grade criteria. We also utilize third-party experts to provide insight and
guidance about economic conditions and trends affecting market areas we serve.
(cid:23)(cid:27)
Given the current positive economic outlook for our geographic markets, we continue to make loans for sound commercial
construction and development projects. Construction loans are underwritten utilizing feasibility studies, independent appraisal
reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners.
Construction loans are generally based upon estimates of costs and value associated with the completed project, which may be
inaccurate. Construction loans involve the disbursement of funds during construction with repayment substantially dependent
on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans
from approved long-term lenders, sales of developed property or an interim loan commitment from us until permanent financing
is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real
estate loans because their ultimate repayment is sensitive to interest rate changes, governmental regulation of real property,
general economic conditions and the availability of long-term financing.
We also originate consumer loans, including consumer real-estate loans, where we typically use a computer-based credit
scoring analysis to supplement the underwriting process. To monitor and manage consumer loan risk, policies and procedures
are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan
amounts that are spread across many individual borrowers, seeks to minimize consumer loan credit risk. Additionally, trend and
outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans are heavily
influenced by statutory requirements.
We also maintain an independent loan review department that reviews and validates the credit risk program on a periodic basis.
Results of these reviews are presented to management and the audit committee. The loan review process complements and
reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as our policies and
procedures.
Lending Concentrations. We periodically analyze our commercial loan portfolio to determine if a concentration of credit risk
exists to any one or more industries. We use broadly accepted industry classification systems in order to classify borrowers
into various industry classifications. We have a credit exposure (loans outstanding plus unfunded commitments) exceeding
25% of Pinnacle Bank's total risk-based capital to borrowers in the following industries at December 31, 2015 and 2014 (in
thousands):
At December 31, 2015
Outstanding
Principal
Balances
Unfunded
Commitments
Total Exposure
Percent of Total
Risk-Based
Capital
Total Exposure
at December 31,
2014
Lessors of nonresidential buildings
Lessors of residential buildings
$
837,817 $
348,255
240,394 $
152,011
1,078,211
500,266
94.9% $
39.4%
572,620
335,399
Performing Loans in Past Due Status. The following table is a summary of our accruing loans that were past due between 30
and 90 days and greater than 90 days as of December 31, 2015 and 2014 (dollars in thousands):
Accruing loans past due 30 to 90 days:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total accruing loans past due 30 to 90 days
Accruing loans past due 90 days or more:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total accruing loans past due 90 days or more
Ratios:
Accruing loans past due 30 to 90 days as a percentage of total loans
Accruing loans past due 90 days or more as a percentage of total loans
Total accruing loans in past due status as a percentage of total loans
(cid:23)(cid:28)
December 31,
2015
December 31,
2014
$
$
$
$
-
6,380
309
4,798
6,721
18,208
-
1,396
-
-
373
1,769
$
$
$
$
0.28%
0.03%
0.31%
2,232
2,391
421
3,431
9,532
18,007
-
146
-
5
172
323
0.39%
0.01%
0.40%
Potential Problem Loans. Potential problem loans amounted to approximately $105.0 million, or 1.6% of total loans outstanding
at December 31, 2015, compared to $83.0 million, or 1.8% of total loans outstanding at December 31, 2014. Potential problem
loans, which are not included in nonperforming loans, represent those loans with a well-defined weakness and where
information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to
comply with present repayment terms. This definition is believed to be substantially consistent with the standards established
by Pinnacle Bank's primary regulators, for loans classified as substandard or worse, but not considered nonperforming loans.
Approximately $148,000 of potential problem loans were past due at least 30 but less than 90 days as of December 31, 2015.
Non-Performing Assets and Troubled Debt Restructurings. At December 31, 2015, we had $36.3 million in nonperforming
assets compared to $28.6 million at December 31, 2014. Included in nonperforming assets were $29.4 million in nonperforming
loans and $5.1 million in other real estate owned at December 31, 2015 and $16.7 million in nonperforming loans and $11.2 million
in other real estate owned at December 31, 2014. At December 31, 2015 and 2014, there were $8.1 million and $8.4 million,
respectively, of troubled debt restructurings that were accruing as of the restructured date and remain on accrual status but are
considered impaired loans pursuant to U.S. GAAP.
All nonaccruing loans are reassigned to a special assets officer who was not responsible for originating the loan. The special
assets officer is responsible for developing an action plan designed to minimize any future losses. Typically, these special
assets officers review our loan files, interview prior officers assigned to the relationship, meet with borrowers, inspect collateral,
reappraise collateral and/or consult with legal counsel. The special assets officer then recommends an action plan to a
committee of senior associates including lenders and workout specialists, which could include foreclosing on collateral,
restructuring the loan, issuing demand letters or other actions.
We discontinue the accrual of interest income when (1) there is a significant deterioration in the financial condition of the
borrower and full repayment of principal and interest is not expected or (2) the principal or interest is more than 90 days past
due, unless the loan is both well-secured and in the process of collection. During 2015, we recognized $308,000 of interest
income from nonperforming loans, reflecting cash payments received from the borrower and our belief, at the time of payment,
that the underlying collateral supported the carrying amount of the loans, compared to $256,000 for the year ended December
31, 2014. For the year ended December 31, 2013, we recognized no interest income from cash payments received from loans that
were classified as nonperforming.
Due to the weakening credit status of a borrower, we may elect to formally restructure certain loans to facilitate a repayment
plan that seeks to minimize the potential losses, if any, that we might incur. These loans are considered troubled debt
restructurings. If on nonaccruing status as of the date of restructuring, any restructured loan is included in the nonperforming
loan balances as discussed above and is classified as an impaired loan. Loans that have been restructured that are on accrual
status as of the restructure date are not included in nonperforming loans; however, such loans are still considered impaired.
At December 31, 2015, we owned $5.1 million in other real estate which we had acquired, usually through foreclosure, from
borrowers compared to $11.2 million at December 31, 2014; the majority of this real estate is located within our principal markets.
We categorize other real estate owned into three types: developed lots, undeveloped land and other. Included in the "other"
category are primarily condominiums, office buildings and residential homes that are not new construction. The following table
shows the amounts of our other real estate owned in such categories (in thousands):
Developed lots
Undeveloped land
Other
December 31,
2015
2014
$
$
1,748
$
1,830
1,505
5,083
$
275
9,240
1,671
11,186
(cid:24)(cid:19)
The following table is a summary of our nonperforming assets and troubled debt restructurings at December 31, 2015 and 2014
(in thousands):
At
December 31,
2014
Payments,
Sales and
Reductions (2)
Foreclosures (3)
Inflows(4)
At
December 31,
2015
Nonperforming assets:
Nonperforming loans (1):
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total nonperforming loans (1)
Other real estate owned
Other repossessed assets
Total nonperforming assets
Troubled debt restructurings:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total troubled debt restructurings
Total nonperforming assets and troubled debt restructurings
$
$
Ratios:
Nonperforming loans to total loans
Nonperforming assets to total loans plus other real estate owned
Nonperforming assets plus troubled debt restructurings to total
loans and other real estate owned
Nonperforming assets, potential problem loans and troubled debt
restructurings to Pinnacle Bank Tier I capital and allowance for
loan losses
Classified asset ratio (Pinnacle Bank)(5)
Allowance for loan loss coverage ratio
4,313
4,458
5,173
1,609
1,152
16,705
11,186
686
28,577
-
3,926
436
3,773
275
8,410
36,987
$
$
0.36%
0.61%
0.79%
18.20%
18.10%
403.2%
(5,299) $
(2,806)
(1,984)
(3,096)
(16,302)
(29,487)
(6,444)
(7,039)
(42,970)
-
(234)
(436)
(103)
(247)
(1,020)
(43,990) $
(253) $
(88)
-
-
(8,259)
(8,600)
341
8,259
-
-
-
-
-
-
-
- $
7,060 $
7,782
4,418
3,170
28,311
50,741
-
-
50,741
223
-
-
475
-
698
51,439 $
5,821
9,346
7,607
1,683
4,902
29,359
5,083
1,906
36,348
223
3,692
-
4,145
28
8,088
44,436
0.45%
0.56%
0.68%
19.40%
18.70%
222.9%
(1)
(2)
(3)
(4)
(5)
Approximately $19.0 million and $10.2 million as of December 31, 2015 and 2014, respectively, of nonperforming loans included above are currently paying
pursuant to their contractual terms.
Payments, sales and reductions in nonperforming loans are primarily attributable to payments we have collected from borrowers, charge-offs of recorded balances
and nonaccrual loans that have been returned to accruing status during the year ended December 31, 2015. Payments, sales and reductions in other real estate
owned represent either the sale, disposition or valuation adjustment on properties which had previously been foreclosed upon or acquired by deed in lieu of
foreclosure. Payments, sales and reductions in troubled debt restructurings are those loans which were previously restructured whereby the borrower has reduced
the outstanding balance of the loan or re-defaulted on the terms of the loan and therefore been charged-off.
Foreclosures in nonperforming loans and troubled debt restructurings are representative of transfers of balances to OREO during the year ended December 31,
2015.
Inflows in nonperforming loans are attributable to loans where we have discontinued the accrual of interest at some point during the year ended December 31,
2015. Additionally, purchased loans with deteriorated credit quality are included as inflows in nonperforming loans for the year ended December 31,
2015. Increases in OREO represent the value of properties that have been foreclosed upon or acquired by deed in lieu of foreclosure during 2015. Increases in
troubled debt restructurings are those loans where we have granted the borrower a concession due to the deteriorating financial condition of the borrower during
2015. These concessions can be in the form of a reduced interest rate, extended maturity date or other matters where we were unable to receive fair compensation
for the permitted concession.
Classified assets as a percentage of Tier 1 capital plus allowance for loan losses.
Allowance for Loan Losses (allowance). We maintain the allowance at a level that our management deems appropriate to
adequately cover the probable losses inherent in the loan portfolio. As of December 31, 2015, and 2014, our allowance for loan
losses was $65.4 million and $67.4 million, respectively, which our management deemed to be adequate at each of the respective
dates. Our allowance for loan loss as a percentage of total loans has decreased from 1.47% at December 31, 2014 to 1.00% at
December 31, 2015 as a result of the increase in loans outstanding as a result of our acquisitions of CapitalMark and
Magna. The judgments and estimates associated with our allowance determination are described under "Critical Accounting
Estimates" above. Our purchased loans were recorded at fair value upon acquisition. At acquisition date, these loans had an
aggregate balance of $1.3 billion and an aggregate fair value adjustment of $33.9 million. The fair value adjustments on the
performing purchased loans of $28.8 million will be accreted into income over the life of the loans. At December 31, 2015, the
remaining accretable fair value adjustment was $23.8 million. These loans are subject to the same allowance methodology as our
legacy portfolio. The calculated allowance is compared to the remaining fair value discount on a loan-by-loan basis to determine
if additional provisioning should be recognized. At December 31, 2015, an allowance on purchased loans of $3.2 million was
recorded resulting from either additional draws on purchased loans or from credit deterioration.
(cid:24)(cid:20)
The following table sets forth, based on management's best estimate, the allocation of the allowance to types of loans as well as
the unallocated portion as of December 31 for each of the past five years and the percentage of loans in each category to total
loans (in thousands):
2015
2014
At December 31,
2013
2012
2011
Amount
Percent
Amount Percent
Amount Percent
Amount Percent
Amount Percent
Commercial real estate –
Mortgage
Consumer real estate – Mortgage
Construction and land
$ 15,513
7,220
34.8% $ 22,202
5,424
16.0%
33.6% $ 21,372
8,355
15.7%
33.4% $ 19,634
8,762
16.8%
31.7% $ 23,397
18.3% 10,302
33.8%
21.1%
development
Commercial and industrial
Consumer and other
Unallocated
Total allowance for loan losses
2,903
23,643
15,616
537
$ 65,432
11.4%
5,724
34.1% 29,167
1,570
3.7%
3,272
NA
7.0%
7,235
38.9% 25,134
1,632
4.8%
4,242
NA
7.6%
9,164
38.7% 24,738
1,094
6,025
3.5%
NA
8.5% 12,040
39.0% 20,789
1,125
6,322
2.5%
NA
100.0% $ 67,359
100.0% $ 67,970
100.0% $ 69,417
100.0% 73,975
8.3%
34.8%
2.0%
NA
100.0%
The decrease in the overall allowance for loan losses is due to the improvement in the larger segments of our loan portfolio,
which is largely influenced by the overall improvement in the economy in our current geographic markets. Net charge-offs in the
consumer portfolio have increased; resultantly, the allowance allocation for consumer loans has increased. The allocation by
category is determined based on the assigned risk rating, if applicable, and environmental factors applicable to each category of
loans. For impaired loans, those loans are reviewed for a specific allowance allocation. Specific valuation allowances related to
impaired loans were approximately $5.2 million at December 31, 2015 compared to $2.9 million at December 31, 2014. The increase
is primarily related to increased nonperforming loans in our consumer portfolio. The unallocated category is intended to allow
for losses that are inherent in our portfolio that we have not yet identified or attributable to a specific risk factor and for
modeling imprecision. Additional information on the allocation of the allowance between performing and impaired loans is
provided in Note 6 to the "Notes to the Consolidated Financial Statements."
The following is a summary of changes in the allowance for loan losses for each of the years in the five year period ended
December 31, 2015 and the ratio of the allowance for loan losses to total loans as of the end of each period (in thousands):
Balance at beginning of period
Provision for loan losses
Charged-off loans:
Commercial real estate - Mortgage
Consumer real estate - Mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total charged-off loans
Recoveries of previously charged-off loans:
Commercial real estate - Mortgage
Consumer real estate - Mortgage
Construction and land development
Commercial and industrial
Consumer and other loans
Total recoveries of previously charged-off loans
Net charge-offs
Balance at end of period
2015
2014
2013
2012
2011
$
$
67,359
9,188
$
67,970
3,635
$
69,417
7,857
$
73,975
5,569
(384)
(365)
(190)
(2,207)
(18,002)
(21,148)
85
874
1,479
1,730
5,865
10,033
(11,115)
$
65,432
(875)
(1,621)
(301)
(3,095)
(1,811)
(7,703)
538
671
277
1,484
487
3,457
(4,246)
$
67,359
(4,123)
(2,250)
(1,351)
(8,159)
(1,369)
(17,252)
500
1,209
1,464
4,531
244
7,948
(9,304)
$
67,970
(4,667)
(6,731)
(2,530)
(4,612)
(1,117)
(19,657)
285
818
1,155
7,175
97
9,530
(10,127)
$
69,417
82,575
21,798
(3,044)
(5,076)
(10,157)
(15,360)
(1,213)
(34,850)
116
495
1,530
2,167
144
4,452
(30,398)
73,975
Ratio of allowance for loan losses to total loans outstanding at end
of period
Ratio of net charge-offs to average loans outstanding for the period
1.00%
0.21%
1.47%
0.10%
1.64%
0.24%
1.87%
0.29%
2.25%
0.92%
(cid:24)(cid:21)
As noted in our critical accounting policies, management assesses the adequacy of the allowance at the end of each calendar
quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the
resulting balance. The level of the allowance is based upon management's evaluation of the loan portfolios, past loan loss
experience, known and inherent risks in the portfolio, the views of Pinnacle Bank's regulators, adverse situations that may affect
the borrower's ability to repay (including the timing of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, economic conditions, historical loss experience, industry and peer bank loan quality
indications and other pertinent factors. This evaluation is inherently subjective as it requires material estimates including the
amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant
change.
Investments. Our investment portfolio, consisting primarily of Federal agency bonds, state and municipal securities and
mortgage-backed securities, amounted to $966.4 million and $770.7 million at December 31, 2015 and 2014, respectively. Our
investment to asset ratio has decreased from 12.8% at December 31, 2014 to 11.1% at December 31, 2015. Our investment
portfolio serves many purposes including serving as a stable source of income, collateral for public funds and as a potential
liquidity source.
A summary of certain aspects of our investment portfolio at December 31, 2015 and 2014 follows:
Weighted average life
Effective duration
Weighted average coupon
Tax equivalent yield
December 31,
2015
2014
4.90 years
3.04%
3.04%
2.45%
4.55 years
2.81%
3.31%
2.81%
The following table shows the carrying value of investment securities according to contractual maturity classifications of (1)
one year or less, (2) after one year through five years, (3) after five years through ten years, and (4) after ten years. Actual
maturities may differ from contractual maturities of mortgage-backed securities because the mortgages underlying the securities
may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories but are
listed below these categories as of December 31, 2015 and 2014 (in thousands):
U.S. Treasury
securities
U.S. government
agency securities
State and Municipal
securities
Corporate notes
Totals
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
At December 31, 2015:
Securities available-for-sale:
Due in one year or less
Due in one year to five years
Due in five years to ten years
Due after ten years
Mortgage-backed securities
Asset-backed securities
Securities held-to-maturity:
Due in one year or less
Due in one year to five years
Due in five years to ten years
Due after ten years
Mortgage-backed securities
Asset-backed securities
Total held-to-maturity securities
$
$
$
$
-
-
-
-
-
-
-
-
-
-
0.0%
0.0%
0.0%
0.0%
0.0%
$
1,001
1,664
94,493
31,035
$ 128,193
3,694
0.97% $
25,260
1.40%
101,204
2.33%
2.43%
34,884
2.33% $ 165,042
1,475
3.69% $
7,650
5.80%
988
4.95%
4.50%
-
4.96% $ 10,113
0.0%
0.0%
0.0%
0.0%
0.0%
$
$
-
-
-
-
-
1,074
0.0% $
8,686
0.0%
12,920
0.0%
0.0%
8,906
0.0% $ 31,586
1.37% $
2.57%
2.85%
3.83%
3.00% $
-
-
-
-
-
0.81% $
4.67%
1.29%
-%
3.78%
6,170
34,574
196,685
65,919
303,348
582,916
48,801
$ 935,065
1,074
0.0% $
8,686
0.0%
12,920
0.0%
0.0%
8,906
0.0% $ 31,586
-
-
$ 31,586
2.56%
5.34%
3.67%
3.53%
3.81%
2.27%
1.27%
2.72%
1.37%
2.57%
2.85%
3.83%
3.00%
0.0%
0.0%
3.00%
(cid:24)(cid:22)
U.S. Treasury
securities
U.S. government
agency securities
State and Municipal
securities
Corporate notes
Totals
Amount Yield
Amount Yield
Amount
Yield
Amount Yield
Amount Yield
At December 31, 2014:
Securities available-for-sale:
Due in one year or less
Due in one year to five years
Due in five years to ten years
Due after ten years
Mortgage-backed securities
Asset-backed securities
Securities held-to-maturity:
Due in one year or less
Due in one year to five years
Due in five years to ten years
Due after ten years
$
$
$
$
Mortgage-backed securities
Asset-backed securities
Total held-to-maturity securities
-
-
-
-
-
-
-
-
-
-
3,002
0.0% $
0.0%
7,667
0.0% 67,100
0.0% 35,687
0.0% $ 113,456
0.34% $
4,393
0.90% 12,916
2.27% 89,367
2.76% 31,902
2.28% $ 138,578
4.65% $
505
5.34% 10,159
500
5.90%
-
5.06%
5.62% $ 11,164
0.96% $
7,900
4.54% 30,742
1.23% 156,967
-% 67,589
4.23% 263,198
0.0% $
0.0%
0.0%
0.0%
0.0% $
-
-
-
-
-
0.0% $
1,947
0.0% 11,775
0.0% 15,973
9,094
0.0%
0.0% $ 38,789
1.38% $
0.44%
2.62%
3.80%
2.59% $
-
-
-
-
-
455,839
13,018
$ 732,055
0.0% $
1,947
0.0% 11,775
0.0% 15,973
9,094
0.0%
0.0% $ 38,789
-
-
$ 38,789
2.77%
3.97%
4.34%
3.85%
4.12%
2.31%
0.60%
2.93%
1.38%
1.79%
2.62%
3.79%
2.58%
0.0%
0.0%
2.58%
We computed yields using coupon interest, adding discount accretion or subtracting premium amortization, as appropriate, on a
ratable basis over the life of each security. We computed the weighted average yield for each maturity range using the
acquisition price of each security in that range.
Deposits and Other Borrowings. We had approximately $6.971 billion of deposits at December 31, 2015 compared to $4.783
billion at December 31, 2014. We acquired $1.4 billion of deposits as part of the CapitalMark and Magna acquisitions. Our
deposits consist of noninterest and interest-bearing demand accounts, savings accounts, money market accounts and time
deposits. Additionally, we entered into agreements with certain customers to sell certain of our securities under agreements to
repurchase the security the following day. These agreements (which are typically associated with comprehensive treasury
management programs for our commercial clients and provide the client with short-term returns for their excess funds) amounted
to $79.1 million at December 31, 2015 and $94.0 million at December 31, 2014. Additionally, at December 31, 2015, we had
borrowed $300.3 million in advances from the Federal Home Loan Bank of Cincinnati (FHLB Cincinnati) compared to $195.5
million at December 31, 2014. At December 31, 2015, we had an estimated $959.1 million in additional borrowing capacity with
the FHLB Cincinnati; however, incremental borrowings are made via a formal request by us and the subsequent approval by the
FHLB Cincinnati.
(cid:24)(cid:23)
Generally, we have classified our funding as core funding or non-core funding. Core funding consists of all deposits other than
time deposits issued in denominations of $250,000 or greater. All other funding is deemed to be non-core. Non-core is further
segmented between relationship based non-core funding and wholesale funding. The following table represents the balances of
our deposits and other funding and the percentage of each type to the total at December 31, 2015 and 2014 (in thousands):
Core funding:
Noninterest-bearing deposit accounts
Interest-bearing demand accounts
Savings and money market accounts
Time deposit accounts less than $250,000
Total core funding
Non-core funding:
Relationship based non-core funding:
Reciprocating NOW deposits
Reciprocating money market accounts
Reciprocating time deposits (1)
Other time deposits
Securities sold under agreements to repurchase
Total relationship based non-core funding
Wholesale funding:
Public funds
Brokered deposits
Federal Home Loan Bank advances
Holding Company loan
Subordinated debt – Pinnacle Bank
Subordinated debt – Pinnacle Financial
Total wholesale funding
Total non-core funding
Totals
December 31,
2015
Percent
December 31,
2014
Percent
$
$
1,889,865
1,355,405
2,683,046
404,494
6,332,810
34,144
318,905
50,203
228,064
79,084
710,400
-
7,288
300,305
-
60,000
82,476
450,069
1,160,469
7,493,279
25.22 % $
18.09 %
35.80 %
5.40 %
84.51 %
1,321,053
989,915
1,751,698
318,511
4,381,177
0.45 %
4.26 %
0.67 %
3.04 %
1.06 %
9.48 %
0.00 %
0.10 %
4.01 %
0.00 %
0.80 %
1.10 %
6.01 %
15.49 %
100.00 % $
15,535
273,259
43,355
69,278
93,995
495,422
-
-
195,476
13,682
-
82,476
291,634
787,056
5,168,233
25.56 %
19.15 %
33.89 %
6.16 %
84.77 %
0.30%
5.29 %
0.84 %
1.34 %
1.82 %
9.58 %
0.00 %
0.00 %
3.78 %
0.26 %
0.00 %
1.60 %
5.64 %
15.23 %
100.00 %
(1)
The reciprocating time deposit category consists of deposits we receive from a bank network (the CDARS network) in connection with deposits of our
customers in excess of our FDIC coverage limit that we place with the CDARS network.
Our funding policies limit the amount of non-core funding we can utilize. Periodically, we may exceed our policy limitations, at
which time management will develop plans to bring our core funding ratios back within compliance. As noted in the table
above, our core funding as a percentage of total funding decreased slightly from 84.8% at December 31, 2014 to 84.5% at
December 31, 2015, primarily due to our increased FHLB advances and the $60.0 million in subordinated notes issued by
Pinnacle Bank in July 2015. Continuing to grow our core deposit base is a key strategic objective of our firm. We have
numerous commercial and affluent consumer depositors that maintain significant balances in their transaction and money
market accounts. These deposits are subject to significant fluctuations from time to time for such purposes as distributions to
owners, taxes, business acquisitions, etc. As a result, our core funding ratios may also fluctuate meaningfully based on these
factors.
The amount of time deposits as of December 31, 2015 amounted to $682.8 million. The following table, which includes core, non-
core and reciprocal deposits, shows our time deposits in denominations of under $100,000 and those of denominations of
$100,000 and greater by category based on time remaining until maturity of (1) three months or less, (2) over three but less than
six months, (3) over six but less than twelve months and (4) over twelve months and the weighted average rate for each
category (in thousands):
Denominations less than $100,000
Three months or less
Over three but less than six months
Over six but less than twelve months
Over twelve months
Denomination $100,000 and greater
Three months or less
Over three but less than six months
Over six but less than twelve months
Over twelve months
Totals
(cid:24)(cid:24)
Balances
Weighted Avg.
Rate
$
$
43,298
49,435
57,412
49,573
199,718
124,559
141,052
121,572
95,860
483,043
682,761
0.43%
1.36%
1.91%
2.81%
1.68%
0.43%
0.48%
0.83%
0.49%
0.56%
0.88%
Subordinated debt and other borrowings. Pinnacle Bank is a member of the FHLB Cincinnati. As a result, Pinnacle Bank
receives advances from the FHLB, pursuant to the terms of various borrowing agreements, which assist it in the funding of its
home mortgage and commercial real estate loan portfolios. Under the borrowing agreements with the FHLB, Pinnacle Bank has
pledged certain qualifying residential mortgage loans and, pursuant to a blanket lien, all qualifying commercial mortgage loans
as collateral. At December 31, 2015, Pinnacle Bank had received advances from the FHLB totaling $300.3 million. Pinnacle
Financial recorded FHLB advances in conjunction with the acquisitions of CapitalMark and Magna. However, these advances
were redeemed at the time of acquisition resulting in no on-going impact to Pinnacle Financial. At December 31, 2015, the
scheduled maturities of these advances and interest rates are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Weighted average interest rate
Scheduled
Maturities
Weighted
Average
Interest Rates(1)
$
$
300,000
-
4
-
236
65
300,305
0.50%
0.00%
2.00%
0.00%
2.25%
3.03%
0.50 %
(1)
Some FHLB advances include variable interest rates and could increase in the future. The table reflects rates in effect as of December 31, 2015.
As part of our asset liability policy, we seek to manage our interest rate risk and we utilize various strategies in order to achieve
our goals. During 2013, Pinnacle Bank restructured approximately $35.0 million of FHLB advances to reduce our ongoing
funding costs. This restructuring was undertaken because the weighted average interest rate on those FHLB advances was
significantly higher than the rate for replacement funding. Other than the interest rates, the terms of the replacement advances
are similar to those of the advances restructured. This restructuring resulted in a one-time charge of $877,000 during the first
quarter of 2013. We did not restructure any FHLB advances during 2015 or 2014. However, we did prepay one of these
restructured advances in 2015 resulting in $481,000 in debt extinguishment expense.
We have four wholly-owned subsidiaries that are statutory business trusts (the Trusts). We are the sole sponsor of the Trusts
and acquired each Trust's common securities. The Trusts were created for the exclusive purpose of issuing 30-year capital trust
preferred securities and used the proceeds to acquire junior subordinated debentures (Subordinated Debentures) issued by
Pinnacle Financial. The sole assets of the Trusts are the Subordinated Debentures. At December 31, 2015, our $2,476,000
investment in the Trusts is included in other investments in the accompanying consolidated balance sheets and our $82,476,000
obligation is reflected as subordinated debt.
Trust I
Trust II
Trust III
Trust IV
Date Established
December 29, 2003
September 15, 2005
September 7, 2006
October 31, 2007
Maturity
December 30, 2033
September 30, 2035
September 30, 2036
September 30, 2037
Common
Securities
Trust
Preferred
Securities Floating Interest Rate
$
310,000 $10,000,000
619,000 20,000,000
619,000 20,000,000
928,000 30,000,000
Libor + 2.80%
Libor + 1.40%
Libor + 1.65%
Libor + 2.85%
Interest
Rate at
December
31, 2015
3.33%
2.00%
2.26%
3.36%
The securities bear a floating interest rate based on a spread over 3-month LIBOR which is set each quarter. Distributions are
payable quarterly. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Subordinated
Debentures at their stated maturity date or their earlier redemption in an amount equal to their liquidation amount plus
accumulated and unpaid distributions to the date of redemption. We guarantee the payment of distributions and payments for
redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the Trusts. Pinnacle Financial's
obligations under the Subordinated Debentures together with the guarantee and other back-up obligations, in the aggregate,
constitute a full and unconditional guarantee by Pinnacle Financial of the obligations of the Trusts under the Trust Preferred
Securities.
The Subordinated Debentures are unsecured; bear interest at a rate equal to the rates paid by the Trusts on the Trust Preferred
Securities and mature on the same dates as those noted above for the Trust Preferred Securities. Interest is payable quarterly.
We may defer the payment of interest at any time for a period not exceeding 20 consecutive quarters provided that the deferral
period does not extend past the stated maturity. During any such deferral period, distributions on the Trust Preferred Securities
will also be deferred and our ability to pay dividends on our common shares will be restricted.
(cid:24)(cid:25)
The Trust Preferred Securities may be redeemed prior to maturity at our option. The Trust Preferred Securities may also be
redeemed at any time in whole (but not in part) in the event of unfavorable changes in laws or regulations that result in (1) the
Trust becoming subject to federal income tax on income received on the Subordinated Debentures, (2) interest payable by the
parent company on the Subordinated Debentures becoming non-deductible for federal tax purposes, (3) the requirement for the
Trust to register under the Investment Company Act of 1940, as amended, or (4) loss of the ability to treat the Trust Preferred
Securities as "Tier I capital" under the Federal Reserve capital adequacy guidelines.
On June 15, 2012, we entered into a loan agreement with an unaffiliated bank for $25 million. Our borrowings under the Loan
Agreement bore interest at a LIBOR rate generally defined as the sum of (i) the average of the offered rates of interest quoted in
the London Inter-Bank Eurodollar Market for U.S. Dollar deposits with prime banks (as published by Reuters or other
commercially available sources) for three months (all as selected by the Company), and (ii) an applicable margin. The applicable
margin under the Loan Agreement ranged from 2.25% (225 basis points) to 3.00% (300 basis points) depending on the total
aggregate principal amount outstanding under the Loan Agreement. During the third quarter of 2015, the $12.4 million balance
of this loan was paid in full.
On February 4, 2015, Pinnacle Bank entered into a loan agreement with an unaffiliated bank for $40 million. Pinnacle Bank's
borrowings under the loan agreement bore interest at rates at the greater of (i) zero percent (0%) and (ii) the one-month LIBOR
rate quoted by the lender (as published by Reuters), plus in each case an applicable margin. The applicable margin under the
loan agreement ranged from 1.65% (165 basis points) to 1.95% (195 basis points) depending on the total aggregate principal
amount outstanding under the loan agreement. During the third quarter of 2015, the $39.0 million balance of this loan was paid in
full.
On July 30, 2015, Pinnacle Bank issued $60.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes
due 2025 (the Notes) in a private placement transaction to accredited institutional investors. The maturity date of the Notes is
July 30, 2025, although Pinnacle Bank may redeem some or all of the Notes beginning on the interest payment date of July 30,
2020 and on any interest payment date thereafter at a redemption price equal to 100% of the principal amount of the Notes to be
redeemed plus accrued and unpaid interest to the date of redemption, subject to the prior approval of the Federal Deposit
Insurance Corporation (the FDIC).
From the date of the issuance through July 29, 2020, the Notes will bear interest at the rate of 4.875% per year and will be
payable semi-annually in arrears on January 30 and July 30 of each year, beginning on January 30, 2016. From July 30, 2020, the
Notes will bear interest at a rate per annum equal to the three-month LIBOR rate plus 3.128%, payable quarterly in arrears on
each January 30, April 30, July 30, and October 30, beginning on July 30, 2020, through the maturity date or the early redemption
date of the Notes.
The sale of the Notes yielded net proceeds of approximately $59.1 million after deducting the placement agents' fees and
estimated expenses payable by Pinnacle Bank. Pinnacle Bank used the net proceeds from the offering, together with available
cash, to pay the cash portion of the merger consideration payable to the shareholders of CapitalMark and Magna in connection
with the mergers, to pay the amounts necessary to redeem the preferred shares that each of CapitalMark and Magna had
previously issued to the United States Department of the Treasury in connection with their participation in the Treasury's Small
Business Lending Fund and for general corporate purposes.
In connection with our proposed investment in BHG and our proposed acquisition of Avenue, we are considering capital
raising alternatives to finance the cash portion of the investment in BHG and purchase price for Avenue. Currently, we
anticipate that we, or Pinnacle Bank, will issue subordinated notes in amounts sufficient to make such payments, however, we
may finance these payments, on a short-term basis, with borrowings from the FHLB.
In addition, upon consummation of the Avenue merger, Pinnacle Financial will assume Avenue's obligations under its
outstanding $20.0 million subordinated notes issued in December 2014 that mature in December 2024. These notes bear interest
at a rate of 6.75% per annum until January 1, 2020 and may not be redeemed prior to such date. Beginning on January 1, 2020, if
not redeemed on such date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined on the
determination date of the applicable interest period plus 4.95%.
(cid:24)(cid:26)
Capital Resources. At December 31, 2015 and 2014, our stockholders' equity amounted to $1,155.6 million and $802.7 million,
respectively. Approximately $269.5 million of this increase is attributable to shares of common stock issued upon our
acquisitions of CapitalMark and Magna. At December 31, 2015, Pinnacle Bank's common equity Tier 1 capital ratio was 9.0%, the
Tier 1 risk-based capital ratio was 9.0%, the total risk-based capital ratio was 10.6% and the leverage ratio was 8.8%, compared
to 10.8%, 11.4%, 12.6% and 10.6% at December 31, 2014, respectively. At December 31, 2015, Pinnacle Financial's common
equity Tier 1 capital ratio was 8.6%, the Tier 1 risk-based capital ratio was 9.6%, the total risk-based capital ratio was 11.2% and
the leverage ratio was 9.4%, compared to 10.1%, 12.1%, 13.4% and 11.3% at December 31, 2014, respectively.
In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory risk-based
capital rules applicable to Pinnacle Bank and Pinnacle Financial. The final rules which became effective on January 1, 2015,
implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in "Basel III: A Global
Regulatory Framework for More Resilient Banks and Banking Systems" (Basel III) and changes required by the Dodd-Frank
Act.
Under these rules, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and
risk-based capital ratios for insured depository institutions. The final rules include new minimum risk-based capital and leverage
ratios. Moreover, these rules refine the definition of what constitutes "capital" for purposes of calculating those ratios,
including the definitions of Tier 1 capital and Tier 2 capital. The new minimum capital level requirements applicable to bank
holding companies and banks subject to the rules are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-
based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); and (iv)
a Tier 1 leverage ratio of 4% for all institutions. The rules also establish a "capital conservation buffer" of 2.5% (to be phased in
over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once
the capital conservation buffer is fully phased in: (i) a common equity Tier 1 risk-based capital ratio of 7%, (ii) a Tier 1 risk-based
capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. The capital conservation buffer requirement began to be
phased in beginning in January 2016 at 0.625% of risk-weighted assets and increases each year until fully implemented in
January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying
discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum
percentage of eligible retained income that could be utilized for such actions.
Under these new rules, Tier 1 capital will generally consist of common stock (plus related surplus) and retained earnings, limited
amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related
surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory
deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010, will no longer qualify as Tier 1
capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0
billion in total assets at that date, trust preferred securities issued prior to that date, will continue to count as Tier 1 capital
subject to certain limitations. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to
certain new eligibility criteria.
Common equity Tier 1 capital will generally consist of common stock (plus related surplus) and retained earnings plus limited
amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other
regulatory deductions.
The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out
of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation.
Pinnacle Financial and Pinnacle Bank chose to opt-out of this requirement.
Dividends. Pursuant to Tennessee banking law, Pinnacle Bank may not, without the prior consent of the Commissioner of the
TDFI, pay any dividends to us in a calendar year in excess of the total of its retained net profits for that year plus the retained
net profits for the preceding two years. During the year ended December 31, 2015, our bank paid dividends of $19.0 million to us
which was within the limits allowed by the TDFI.
During the year ended December 31, 2015, we paid $18.3 million in dividends to common shareholders. On January 19, 2016, our
Board of Directors declared a $0.14 quarterly cash dividend to common shareholders which should approximate $5.7 million in
aggregate dividend payments that will be paid on February 26, 2016 to common shareholders of record as of the close of
business on February 5, 2016. The amount and timing of all future dividend payments, if any, is subject to Board discretion and
will depend on our earnings, capital position, financial condition and other factors, including new regulatory capital
requirements, as they become known to us.
(cid:24)(cid:27)
Market and Liquidity Risk Management
Our objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework
of established liquidity, loan, investment, borrowing, and capital policies. Our Asset Liability Management Committee (ALCO)
is charged with the responsibility of monitoring these policies, which are designed to ensure acceptable composition of
asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management.
Interest Rate Sensitivity. In the normal course of business, we are exposed to market risk arising from fluctuations in interest
rates. ALCO measures and evaluates the interest rate risk so that we can meet customer demands for various types of loans
and deposits. ALCO determines the most appropriate amounts of on-balance sheet and off-balance sheet items. Measurements
which we use to help us manage interest rate sensitivity include an earnings simulation model and an economic value of equity
(EVE) model.
Our interest rate sensitivity modeling incorporates a number of assumptions for both earnings simulation and EVE, including
loan and deposit re-pricing characteristics, the rate of loan prepayments, etc. ALCO periodically reviews these assumptions for
accuracy based on historical data and future expectations. Our ALCO policy requires that the base scenario assume rates
remain flat and is the scenario to which all others are compared in order to measure the change in net interest income and EVE.
Policy limits are applied to the results of certain modeling scenarios. While the primary policy scenarios focus on a twelve
month time frame, longer time horizons are also modeled. All policy scenarios assume a static balance sheet, although other
scenarios are modeled.
Earnings simulation model. We believe interest rate risk is best measured by our earnings simulation modeling. Earning assets,
interest-bearing liabilities and off-balance sheet financial instruments are combined with forecasts of interest rates for the next
12 months and are combined with other factors in order to produce various earnings simulations. To limit interest rate risk, we
have policy guidelines for our earnings at risk which seek to limit the variance of net interest income in both gradual and
instantaneous changes to interest rates. For changes up or down in rates from management's flat interest rate forecast over the
next twelve months, management establishes policy limits in the decline in net interest income for the following scenarios:
·
·
·
·
gradual change of 400 points; instantaneous change of 400 basis points
gradual change of 300 points; instantaneous change of 300 basis points
gradual change of 200 points; instantaneous change of 200 basis points
gradual change of 100 points; instantaneous change of 100 basis points
At December 31, 2015, our earnings simulation model indicated we were in compliance with our policies for both the gradual and
instantaneous interest rate changes.
Economic value of equity. Our EVE model measures the extent that estimated economic values of our assets, liabilities and off-
balance sheet items will change as a result of interest rate changes. Economic values are determined by discounting expected
cash flows from assets, liabilities and off-balance sheet items, which establishes a base case EVE. To help limit interest rate risk,
we have stated policy guidelines for an instantaneous basis point change in interest rates, in the following scenarios:
·
·
·
·
+/- 400 basis point change in interest rates
+/- 300 basis point change in interest rates
+/- 200 basis point change in interest rates
+/- 100 basis point change in interest rates
At December 31, 2015, our EVE model indicated we were in compliance with our policies for the scenarios noted
above. However, our policies provide that during certain interest rate cycles, the down basis point rate changes may not be
particularly significant given the current slope of the yield curve. Accordingly, we have currently suspended the calculation of
the down rate scenarios for EVE measurement for the down 300 and down 400 scenarios.
(cid:24)(cid:28)
Another commonly analyzed scenario is a most-likely earnings simulation scenario that projects the expected change in rates
based on a forward yield curve adopted by management using expected balance sheet volumes forecasted by management.
Separate growth assumptions are developed for loans, investments, deposits, etc. Other interest rate scenarios analyzed by
management may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements to
further analyze or stress our balance sheet under various interest rate scenarios.
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by
changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates
may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on
certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types
may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have
features (generally referred to as interest rate caps and floors) which limit changes in interest rates. Prepayment and early
withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The
ability of many borrowers to service their debts also may decrease during periods of rising interest rates. ALCO reviews each of
the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to
provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment,
borrowing, and capital policies.
We may also use derivative financial instruments to improve the balance between interest-sensitive assets and interest-
sensitive liabilities and as one tool to manage our interest rate sensitivity while continuing to meet the credit and deposit needs
of our customers. We may also enter into interest rate swaps to facilitate customer transactions and meet their financing needs.
These swaps qualify as derivatives, even though they are not designated as hedging instruments.
Based on information gathered from these various modeling scenarios and primarily due to the assumptions we have made
related to the acquired assets and liabilities of CapitalMark and Magna, management believes that as of December 31, 2015, our
balance sheet would likely be slightly asset sensitive. Our modeling indicates that our level of asset sensitivity would accelerate
until rates had increased 300 basis points and would become neutral at that point as we believe deposit pricing would become
increasingly competitive.
ALCO may determine that Pinnacle Financial should over time become more or less asset or liability sensitive depending on the
underlying balance sheet circumstances and the firm's conclusions as to anticipated interest rate fluctuations in future periods.
At present, ALCO has determined that its "most likely" rate scenario considers two or three rises in short-term interest rates in
2016 while the longer end of the rate curve will rise only slightly. The firm's "most likely" rate forecast has been basically
consistent for several quarters and is based primarily on information we acquire from a service which includes a consensus
forecast of numerous benchmarks. As a result and in preparing for an eventual rise in interest rates, we have implemented the
following strategies:
·
·
·
·
Reduced our exposure to fixed rate investment securities in relation to total assets from approximately 23% as of
December 31, 2010 to a current position of approximately 11% of total assets. This reduction should assist us in
becoming more asset sensitive over time.
Executed a series of cash flow hedges involving approximately $200 million in FHLB borrowings at pre-established
fixed rates. Fixed rate liabilities also provide for a more asset sensitive balance sheet.
Participated in interest rate swaps whereby our customers pay a fixed rate which we remit to our counter party while we
receive in return a floating rate on these commercial loans. These loans amounted to approximately $396 million at
December 31, 2015. We believe floating rate loans promote an asset sensitive balance sheet.
Reduced the difference between the weighted average floor rate on floating and variable rate commercial loans and the
weighted average contract rate on these type of loans from 0.99% at December 31, 2014 to 0.81% at December 31, 2015.
This reduction results in requiring a lesser increase in shorter-term rates for the floors to be overcome, thus making
these loans with rate floors more asset sensitive over time.
(cid:25)(cid:19)
We believe current growth in our balance sheet will also assist us in achieving increased asset sensitivity over time; however,
we may also implement a series of actions designed to accelerate our achievement of neutrality or asset sensitivity as
conditions warrant.
Liquidity Risk Management. The purpose of liquidity risk management is to ensure that there are sufficient cash flows to
satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset
maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets
and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be
readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability
base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other
institutions.
To assist in determining the adequacy of our liquidity, we perform a variety of liquidity stress tests including idiosyncratic,
systemic and combined scenarios for both moderate and severe events. Liquidity is defined as the ability to convert assets into
cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management
involves maintaining our ability to meet the daily cash flow requirements of our customers, both depositors and borrowers. We
seek to maintain a sufficiently liquid asset balance to ensure our ability to meet our obligations. The amount of the appropriate
minimum liquid asset balance is determined through severe liquidity stress testing as measured by our liquidity coverage ratio
calculation. At December 31, 2015, we were in compliance with our liquidity coverage ratio.
Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates, and our
management intends to continue this policy. If deposits are not priced in response to market rates, a loss of deposits could
occur which would negatively affect our liquidity position.
Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows fluctuate significantly,
being influenced by interest rates, general economic conditions and competition. Additionally, debt security investments are
subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We attempt to price our
deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for
monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.
As noted previously, Pinnacle Bank is a member of the FHLB Cincinnati and, pursuant to a borrowing agreement with the FHLB
Cincinnati, has pledged certain assets pursuant to a blanket lien. As such, Pinnacle Bank may use the FHLB Cincinnati as a
source of liquidity depending on its ALCO strategies. Additionally, we may pledge additional qualifying assets or reduce the
amount of pledged assets with the FHLB Cincinnati to increase or decrease our borrowing capacity at the FHLB Cincinnati. At
December 31, 2015, we believe we had an estimated $959.1 million in additional borrowing capacity with the FHLB Cincinnati.
However, incremental borrowings are made via a formal request by Pinnacle Bank and the subsequent approval by the FHLB
Cincinnati.
Pinnacle Bank also has accommodations with upstream correspondent banks for unsecured short-term advances which
aggregate $140.0 million. These accommodations have various covenants related to their term and availability, and in most
cases must be repaid within less than a month. There were no outstanding borrowings under these agreements at December 31,
2015, or during the year then ended under such agreements, although we test the availability of these accommodations
annually. Pinnacle Bank also has approximately $1.3 billion in available Federal Reserve discount window lines of credit.
At December 31, 2015, excluding any reciprocating time deposits issued through the CDARS network, we had $7.3 million in
brokered certificates of deposit compared to no brokered certificates of deposit at December 31, 2014. Historically, we have
issued brokered certificates through several different brokerage houses based on competitive bid. Typically, these funds have
been for varying maturities of up to two years and were issued at rates which were competitive to rates we would be required to
pay to attract similar deposits within our local markets as well as rates for FHLB advances of similar maturities. Although we
consider these deposits to be a ready source of liquidity under current market conditions, we anticipate that these deposits will
continue to represent an insignificant percentage of our total funding in 2016 as we seek to continue maintaining a higher level
of core deposits.
(cid:25)(cid:20)
At December 31, 2015, we had no significant commitments for capital expenditures. However, we expect to expand our footprint
by one location in each of the Knoxville, Chattanooga and Memphis MSAs annually beginning in 2016.
Our short-term borrowings (borrowings which mature within the next fiscal year) consist primarily of securities sold under
agreements to repurchase (these agreements are typically associated with comprehensive treasury management programs for
our clients and provide them with short-term returns on their excess funds) and FHLB Cincinnati advances. Information
concerning our short-term borrowings as of and for each of the years in the three-year period ended December 31, 2015 is as
follows (in thousands):
Amounts outstanding at year-end:
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank short-term advances
Weighted average interest rates at year-end:
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank short-term advances
Maximum amount of borrowings at any month-end:
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank short-term advances
Average balances for the year:
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank short-term advances
Weighted average interest rates for the year:
Securities sold under agreements to repurchase
Federal funds purchased
Federal Home Loan Bank short-term advances
At December 31,
2015
2014
2013
$
$
$
$
$
$
79,084
-
280,000
0.21%
-
0.49%
81,246
-
620,000
68,037
606
224,583
$
93,995
-
180,000
70,465
-
75,000
0.18%
-
0.16%
0.20%
-
0.12%
$
$
107,244
-
260,000
67,999
1,014
80,417
236,145
-
285,000
113,742
644
62,500
0.20%
0.81%
0.23%
0.21%
0.86%
0.17%
0.21%
0.59%
0.18%
The following table presents additional information about our contractual obligations as of December 31, 2015, which by their
terms have contractual maturity and termination dates subsequent to December 31, 2015 (in thousands):
Contractual obligations:
Certificates of deposit
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Subordinated debt
Minimum operating lease commitments
Totals
Next 12
months
13-36
months
37-60 months
More than 60
months
Totals
At December 31, 2015
$
$
538,423
79,084
300,000
-
6,007
923,514
$
$
110,888
-
4
-
9,337
120,229
$
$
36,489
-
236
-
8,472
45,197
$
$
4,250
-
65
82,476
26,132
112,923
$
$
690,050
79,084
300,305
82,476
49,948
1,201,863
(1) Due to the uncertainty of future interest rates on borrowings under Pinnacle Financial's subordinated debentures and
future interest payments on such obligations are not included in the above table. At December 31, 2015, Pinnacle Financial had
subordinated debentures of approximately $82.5 million outstanding. During the year ended December 31, 2015, the interest rate
on the subordinated debentures issued in 2003, 2005, 2006 and 2007, respectively, ranged from 3.04% to 3.33%, 1.66% to 2.00%,
1.91% to 2.26% and 3.09% to 3.36%, respectively. During the year ended December 31, 2015, Pinnacle Financial incurred
interest expense of $324,000, $353,000, $405,000 and $987,000, respectively, on its subordinated debentures issued in 2003, 2005,
2006 and 2007, respectively. See Note 11 Investments in Affiliated Companies and Subordinated Debt to Pinnacle Financial's
consolidated financial statements for further information.
(cid:25)(cid:21)
Our management believes that we have adequate liquidity to meet all known contractual obligations and unfunded
commitments, including loan commitments and reasonable borrower, depositor, and creditor requirements over the next twelve
months. Our operating lease commitments are primarily related to our branch and headquarters facilities. The terms of these
leases expire at various points ranging from 2017 through 2039. At December 31, 2015, our total minimum operating lease
commitment was $49.9 million.
Off-Balance Sheet Arrangements. At December 31, 2015, we had outstanding standby letters of credit of $93.5 million and
unfunded loan commitments outstanding of $2.219 billion. Because these commitments generally have fixed expiration dates and
many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements.
If needed to fund these outstanding commitments, Pinnacle Bank has the ability to liquidate Federal funds sold or securities
available-for-sale, or on a short-term basis to borrow and purchase Federal funds from other financial institutions. The following
table presents additional information about our unfunded commitments as of December 31, 2015, which by their terms, have
contractual maturity dates subsequent to December 31, 2015 (in thousands):
Unfunded commitments:
Lines of credit
Letters of credit
Totals
Next 12 months 13-36 months 37-60 months
More than 60
months
Totals
At December 31, 2015
$
$
901,025 $
85,886
986,911 $
557,051 $
3,849
560,900 $
303,676 $
3,449
307,125 $
457,032 $
350
457,382 $
2,218,784
93,534
2,312,318
We follow the same credit policies and underwriting practices when making these commitments as we do for on-balance sheet
instruments. Each customer's creditworthiness is evaluated on a case-by-case basis and the amount of collateral obtained, if
any, is based on management's credit evaluation of the customer. However, should the commitments be drawn upon and
should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of
collateral, is represented by the contractual amount of those instruments. At December 31, 2015, we had accrued $1.4 million for
the inherent risks associated with off balance sheet commitments.
Impact of Inflation
The consolidated financial statements and related consolidated financial data presented herein have been prepared in
accordance with U.S. generally accepted accounting principles and practices within the banking industry which require the
measurement of financial position and operating results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and
liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Recently Issued Accounting Pronouncements
In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis.
The amendments in this ASU affect reporting entities that are required to evaluate whether they should consolidate certain legal
entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: 1)
modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting
interest entities, 2) eliminate the presumption that a general partner should consolidate a limited partnership, 3) affect the
consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and party
relationships, and 4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities
that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2A-7 of the
Investment Company Act of 1940 for registered money market funds. The amendments in this ASU are effective for public
business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. We
currently do not expect this ASU to have a material impact our consolidated financial statements.
(cid:25)(cid:22)
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized
debt liability be presented on the balance sheet as a direct deduction from the debt liability, rather than as an asset.
The amendments in this ASU are effective for public business entities for the first annual period beginning after December 15,
2015, and must be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted.
We currently do not expect this ASU to have a material impact our consolidated financial statements.
Recently Adopted Accounting Pronouncements
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. The amendments in this ASU require that an acquirer recognize adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are
determined. The acquirer is required to record, in the same period's financial statements, the effect on earnings of changes in
depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if
the accounting had been completed at the acquisition date. The amendments require an entity to present separately on the face
of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period
earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts
had been recognized as of the acquisition date. The ASU is effective for fiscal years beginning after December 15, 2015,
including interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied
prospectively to adjustments to provisional amounts that occur after the effective date of this ASU with earlier application
permitted. This ASU will have an impact on our consolidated financial statements as we have early adopted this standard and
will not recast results as we continue to refine our purchase accounting adjustments related to the acquisitions of CapitalMark
and Magna.
Other than those pronouncements discussed above and those which have been recently adopted, there were no other recently
issued accounting pronouncements that are expected to impact Pinnacle Financial.
(cid:25)(cid:23)
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response to this Item is included in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations", on pages 36 through 64 and is incorporated herein by reference.
(cid:25)(cid:24)
ITEM 8. FINANCIAL STATEMENTS
Pinnacle Financial Partners, Inc. and Subsidiaries
Consolidated Financial Statements
Table of Contents
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm – Financial statements
Report of Independent Registered Public Accounting Firm – Internal Control over Financial Reporting
Consolidated Financial Statements:
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of comprehensive income (loss)
Consolidated statements of stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
67
68
69
70
71
72
73
74
75
(cid:25)(cid:25)
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Pinnacle Financial Partners, Inc. is responsible for establishing and maintaining adequate internal control
over financial reporting. Pinnacle Financial Partners, Inc.'s internal control system was designed to provide reasonable
assurance to the Company's management and board of directors regarding the preparation and fair presentation of published
financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Pinnacle Financial Partners, Inc.'s management assessed the effectiveness of the Company's internal control over financial
reporting as of December 31, 2015. In making this assessment, it used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013).
Based on our assessment we believe that, as of December 31, 2015, the Company's internal control over financial reporting was
effective based on those criteria.
The Company's independent registered public accounting firm has issued an audit report on the Company's internal control
over financial reporting. This report appears on page 69 of this Annual Report on Form 10-K.
(cid:25)(cid:26)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Pinnacle Financial Partners, Inc.:
We have audited the accompanying consolidated balance sheets of Pinnacle Financial Partners, Inc. and subsidiaries (the
Company) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income (loss),
stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2015. These
consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of Pinnacle Financial Partners, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their
operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Pinnacle Financial Partners, Inc.'s internal control over financial reporting as of December 31, 2015, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 29, 2016 expressed an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.
Nashville(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)
February 29, 2016
/s/ KPMG LLP
(cid:25)(cid:27)
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Pinnacle Financial Partners, Inc.:
We have audited Pinnacle Financial Partners, Inc.'s (the Company's) internal control over financial reporting as of December 31,
2015, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Pinnacle Financial Partners, Inc. and subsidiaries as of December 31, 2015 and 2014, and the
related consolidated statements of income, comprehensive income (loss), stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2015, and our report dated February 29, 2016 expressed an unqualified
opinion on those consolidated financial statements.
Nashville(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)
February 29, 2016
/s/ KPMG LLP
(cid:25)(cid:28)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Cash and noninterest-bearing due from banks
Interest-bearing due from banks
Federal funds sold and other
Cash and cash equivalents
December 31,
2015
2014
$
75,078,807 $
219,202,464
26,670,062
320,951,333
48,741,692
134,176,054
4,989,764
187,907,510
Securities available-for-sale, at fair value
Securities held-to-maturity (fair value of $31,585,303 and $38,788,870 at December 31, 2015 and 2014, respectively)
Mortgage loans held-for-sale
935,064,745
31,376,840
47,930,253
732,054,785
38,675,527
14,038,914
Loans
Less allowance for loan losses
Loans, net
Equity method investment
Premises and equipment, net
Accrued interest receivable
Goodwill
Core deposits and other intangible assets
Other real estate owned
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest-bearing
Interest-bearing
Savings and money market accounts
Time
Total deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances
Subordinated debt and other borrowings
Accrued interest payable
Other liabilities
Total liabilities
Stockholders' equity:
6,543,235,381 4,590,026,505
(67,358,639)
6,477,803,027 4,522,667,866
(65,432,354)
77,923,607
88,880,014
21,574,096
432,232,255
10,540,497
5,083,218
266,054,295
71,576,016
38,062,134
16,988,407
243,529,010
2,893,072
11,186,414
138,668,142
$ 8,715,414,180 $ 6,018,247,797
690,049,795
$ 1,889,865,113 $ 1,321,053,083
1,389,548,175 1,005,450,690
3,001,950,725 2,024,957,383
431,143,756
6,971,413,808 4,782,604,912
93,994,730
195,476,384
96,158,292
631,682
46,688,416
7,559,802,880 5,215,554,416
79,084,298
300,305,226
142,476,000
2,593,209
63,930,339
Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding at December 31, 2015 and 2014
Common stock, par value $1.00; 90,000,000 shares authorized; 40,906,064 and 35,732,483 issued and outstanding at
-
-
December 31, 2015 and 2014, respectively
Common stock warrants
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income, net of taxes
Total stockholders' equity
Total liabilities and stockholders' equity
35,732,483
40,906,064
-
-
561,431,449
839,617,050
201,371,081
278,573,408
4,158,368
(3,485,222)
1,155,611,300
802,693,381
$ 8,715,414,180 $ 6,018,247,797
See accompanying notes to consolidated financial statements.
(cid:26)(cid:19)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
2014
2015
2013
Interest income:
Loans, including fees
Securities:
Taxable
Tax-exempt
Federal funds sold and other
Total interest income
Interest expense:
Deposits
Securities sold under agreements to repurchase
Federal Home Loan Bank advances and other borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Service charges on deposit accounts
Investment services
Insurance sales commissions
Gains on mortgage loans sold, net
Investment gains (losses) on sales and impairments, net
Trust fees
Income from equity method investment
Other noninterest income
Total noninterest income
Noninterest expense:
Salaries and employee benefits
Equipment and occupancy
Other real estate (benefit) expense
Marketing and other business development
Postage and supplies
Amortization of intangibles
Merger related expenses
Other noninterest expense
Total noninterest expense
Income before income taxes
Income tax expense
Net income
Per share information:
Basic net income per common share
Diluted net income per common share
Weighted average common shares outstanding:
Basic
Diluted
$ 232,847,334
$ 184,648,800
$ 169,252,739
15,060,392
5,783,443
1,478,711
255,169,880
14,227,172
6,167,264
1,126,726
206,169,962
14,504,464
6,378,345
1,146,867
191,282,415
13,209,425
138,347
5,189,193
18,536,965
236,632,915
9,188,497
227,444,418
12,745,742
9,971,313
4,824,007
7,668,960
552,063
5,461,257
20,591,484
24,715,442
86,530,268
105,928,914
27,241,477
(305,956)
4,863,307
3,228,300
1,973,953
4,797,018
23,149,743
170,876,756
143,097,930
47,588,528
95,509,402
2.58
2.52
$
$
$
9,953,930
140,623
3,090,860
13,185,413
192,984,549
3,634,660
189,349,889
11,707,274
9,382,670
4,612,583
5,630,371
29,221
4,601,036
-
16,639,323
52,602,478
88,319,567
24,087,335
664,289
4,127,949
2,391,838
947,678
-
15,761,027
136,299,683
105,652,684
35,181,517
70,471,167
2.03
2.01
$
$
$
11,721,387
238,775
3,423,617
15,383,779
175,898,636
7,856,522
168,042,114
10,557,528
8,038,425
4,537,150
6,243,411
(1,466,475)
3,747,241
-
15,446,298
47,103,578
82,646,967
21,273,454
3,113,046
3,638,941
2,249,950
1,262,524
-
15,076,332
129,261,214
85,884,478
28,158,277
57,726,201
1.69
1.67
$
$
$
37,015,468
34,723,335
34,200,770
37,973,788
35,126,890
34,509,261
See accompanying notes to consolidated financial statements.
(cid:26)(cid:20)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income:
Other comprehensive (loss) income, net of tax:
Changes in fair value on available-for-sale securities, net of tax
Changes in fair value of cash flow hedges, net of tax
Net loss (gain) on sale of investment securities reclassified from other comprehensive income into net
income, net of tax
Total other comprehensive (loss) income, net of tax
Total comprehensive income
Year Ended December 31,
2014
70,471,167 $
2015
95,509,402 $
2013
57,726,201
(5,582,965)
(1,725,136)
11,900,309
(3,699,569)
(22,156,995)
4,013,570
(335,489)
(7,643,590)
87,865,812 $
(17,758)
8,182,982
78,654,149 $
891,177
(17,252,248)
40,473,953
$
$
See accompanying notes to consolidated financial statements.
(cid:26)(cid:21)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the each of the years in the three-year period ended December 31, 2015
Common Stock
Shares
34,696,597 $
Amount
34,696,597 $
Additional
Paid-in
Capital
543,760,439 $
Accumulated
Other
Comprehensive
Income (Loss)
Retained
Earnings
87,386,689 $
13,227,634 $
Total
Stockholders'
Equity
679,071,359
280,008
280,008
3,961,042
-
-
4,241,050
303,111
(57,775)
-
-
-
-
-
303,111
(57,775)
-
-
-
-
-
(303,111)
(1,288,367)
4,069,662
12,470
-
-
-
-
-
-
-
(2,814,691)
57,726,201
-
-
-
-
-
-
-
(17,252,248)
35,221,941 $
35,221,941 $
550,212,135 $
142,298,199 $
(4,024,614) $
-
(1,346,142)
4,069,662
12,470
(2,814,691)
57,726,201
(17,252,248)
723,707,661
302,403
302,403
8,444,894
-
-
8,747,297
277,187
(69,048)
-
-
-
-
277,187
(69,048)
-
-
-
-
(277,187)
(2,256,560)
5,308,167
-
-
-
-
-
-
(11,398,285)
70,471,167
-
35,732,483 $
35,732,483 $
561,431,449 $
201,371,081 $
-
-
-
-
-
8,182,982
4,158,368 $
-
(2,325,608)
5,308,167
(11,398,285)
70,471,167
8,182,982
802,693,381
Balances, December 31, 2012
Exercise of employee common stock
options, stock appreciation rights and
related tax benefits
Issuance of restricted common shares, net of
forfeitures
Restricted shares withheld for taxes
Compensation expense for restricted shares
Compensation expense for stock options
Common dividends paid
Net income
Other comprehensive loss
Balances, December 31, 2013
Exercise of employee common stock
options, stock appreciation rights and
related tax benefits
Issuance of restricted common shares, net of
forfeitures
Restricted shares withheld for taxes
Compensation expense for restricted shares
Common dividends paid
Net income
Other comprehensive income
Balances, December 31, 2014
Exercise of employee common stock
options, stock appreciation rights and
related tax benefits
Issuance of restricted common shares, net of
304,313
304,313
7,187,629
forfeitures
257,218
257,218
(257,218)
Common stock issued in conjunction with
CapitalMark acquisition
3,306,184
3,306,184
202,648,875
Common stock issued in conjunction with
Magna acquisition
1,371,717
1,371,717
62,166,214
-
-
-
-
-
-
-
-
7,491,942
-
205,955,059
63,537,931
Restricted shares withheld for taxes, net
of related tax benefits
Compensation expense for restricted shares
Common dividends paid
Net income
Other comprehensive loss
Balances, December 31, 2015
(65,851)
-
-
-
-
(65,851)
-
-
-
-
(901,502)
7,341,603
-
-
-
-
-
(18,307,075)
95,509,402
-
40,906,064 $
40,906,064 $
839,617,050 $
278,573,408 $
-
-
-
-
(7,643,590)
(3,485,222) $
(967,353)
7,341,603
(18,307,075)
95,509,402
(7,643,590)
1,155,611,300
See accompanying notes to consolidated financial statements.
(cid:26)(cid:22)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
2014
2015
2013
$
95,509,402 $ 70,471,167 $ 57,726,201
5,231,583
10,268,576
9,188,497
(552,063)
(7,668,960)
7,341,603
5,819,463
(433,911)
(20,591,484)
(4,116,120)
4,526,497
9,282,197
3,634,660
(29,221)
(5,630,371)
5,308,167
394,452
(74,807)
-
(1,698,521)
4,438,303
9,245,876
7,856,522
1,466,475
(6,243,411)
4,082,132
1,841,044
3,103,008
-
(389,415)
(524,679,767) (331,135,205) (385,173,288)
519,134,000 335,577,000 419,761,000
11,567,952
(2,847,047)
95,058,155 126,435,352
(3,229,986)
(7,487,499)
83,733,334
4,014,267
417,873
(342,192,699) (149,051,923) (233,887,505)
189,029,458
23,439,144
146,441,236 123,949,792 143,322,733
2,360,478
(923,652)
-
1,229,874
(1,550,995)
-
8,185,000
(3,496,186)
-
3,623,800
(668,297,036) (455,357,214) (447,907,395)
(5,293,919)
-
(38,352,344)
-
-
(6,141,232)
(742,598,028) (487,879,654) (564,692,904)
(10,870,851)
782,482
-
5,876,592
(68,288,530)
(1,712,685)
(5,878,562)
-
-
-
-
(4,208,447)
783,352,902 249,132,187 518,284,740
(44,202,149)
(32,784,245)
23,529,404
1,135,000,000 790,000,000 600,000,000
(1,092,781,984) (685,093,244) (585,144,603)
(7,500,000)
(2,500,000)
9,709,994
6,421,689
1,698,521
(11,398,285)
2,894,908
3,602,805
389,415
4,116,120
(18,307,075)
(2,814,691)
791,908,517 371,790,272 481,907,620
133,043,823
43,650,068
187,907,510 208,938,737 165,288,669
320,951,333 $ 187,907,510 $ 208,938,737
(21,031,227)
$
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization/accretion of premium/discount on securities
Depreciation and amortization
Provision for loan losses
Investment (gains) losses on sales and impairments, net
Gain on mortgage loans sold, net
Stock-based compensation expense
Deferred tax expense (benefit)
Losses on disposition of other real estate and other investments
Gains from equity method investment
Excess tax benefit from stock compensation
Mortgage loans held for sale:
Loans originated
Loans sold
Decrease in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Investing activities:
Activities in securities available-for-sale:
Purchases
Sales
Maturities, prepayments and calls
Activities in securities held-to-maturity:
Purchases
Sales
Maturities, prepayments and calls
Increase in loans, net
Purchases of premises and equipment and software
Proceeds from sales of software, premises, and equipment
Purchase of bank owned life insurance
Acquisitions of CapitalMark and Magna, net of cash acquired
Increase in equity method investment, net of dividends received
Increase in other investments
Net cash used in investing activities
Financing activities:
Net increase in deposits
Net (increase) decrease in repurchase agreements
Advances from Federal Home Loan Bank:
Issuances
Payments
Net (decrease) increase in subordinated debt and other borrowings
Exercise of common stock options, stock appreciation rights and restricted shares, net of shares surrendered for
taxes
Excess tax benefit from stock compensation
Common stock dividends paid
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
See accompanying notes to consolidated financial statements.
(cid:26)(cid:23)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Business — Pinnacle Financial Partners, Inc. (Pinnacle Financial) is a bank holding company whose primary
business is conducted by its wholly-owned subsidiary, Pinnacle Bank (Pinnacle Bank). Pinnacle Bank is a commercial bank
headquartered in Nashville, Tennessee. Pinnacle Financial completed its acquisitions of CapitalMark Bank & Trust
(CapitalMark) and Magna Bank (Magna) (jointly, the acquisitions) on July 31, 2015 and September 1, 2015,
respectively. Pinnacle Bank provides a full range of banking services, including investment, mortgage, and insurance services,
and comprehensive wealth management services, in its primary market areas of the Nashville-Davidson-Murfreesboro-Franklin,
TN, Knoxville, TN, Chattanooga, TN-GA and Memphis, TN-MS-AR Metropolitan Statistical Areas.
Basis of Presentation — These consolidated financial statements include the accounts of Pinnacle Financial and its wholly-
owned subsidiaries. PNFP Statutory Trust I, PNFP Statutory Trust II, PNFP Statutory Trust III, and PNFP Statutory Trust IV are
affiliates of Pinnacle Financial and are included in these consolidated financial statements pursuant to the equity method of
accounting. Significant intercompany transactions and accounts are eliminated in consolidation.
Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of the balance sheet dates and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term include the determination of the allowance for loan losses, determination of
any impairment of intangible assets and the valuation of deferred tax assets.
Impairment — Long-lived assets, including purchased intangible assets subject to amortization, such as core deposit
intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance
sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. Pinnacle
Financial had $10.5 million and $2.9 million of long-lived amortizing intangibles at December 31, 2015 and 2014, respectively.
Goodwill is evaluated for impairment at least annually and more frequently if events and circumstances indicate that the
asset might be impaired. That annual assessment date for Pinnacle Financial is September 30. An impairment loss is recognized
to the extent that the carrying amount exceeds fair value.
The Accounting Standards Codification (ASC) 350, Goodwill and Other, regarding testing goodwill for impairment provides
an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of
a reporting unit is less than its carrying amount. If an entity does a qualitative assessment and determines that this is the case,
or if a qualitative assessment is not performed, it is required to perform additional goodwill impairment testing to identify
potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if
any). Based on a qualitative assessment, if an entity determines that the fair value of a reporting unit is more than its carrying
amount, the two-step goodwill impairment test is not required. Pinnacle Financial performed its annual assessment as of
September 30, 2015. The results of the qualitative assessment indicated that the fair value of Pinnacle Financial's sole reporting
unit was more than its carrying value, and accordingly, the two-step goodwill impairment test was not performed.
Should Pinnacle Financial's common stock price significantly decline or other impairment indicators become known,
additional impairment testing of goodwill may be required. Should it be determined in a future period that the goodwill has
become impaired, then a charge to earnings will be recorded in the period such determination is made. Pinnacle Financial has
$432.2 million of goodwill related to the acquisition of Cavalry Bancorp, Inc. in 2006, Mid America Bancshares, Inc. in 2007, and
CapitalMark and Magna in 2015.
(cid:26)(cid:24)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash Equivalents and Cash Flows — Cash on hand, cash items in process of collection, amounts due from banks, Federal
funds sold, short-term discount notes and securities purchased under agreements to resell, with original maturities within ninety
days, are included in cash and cash equivalents. The following supplemental cash flow information addresses certain cash
payments and noncash transactions for each of the years in the three-year period ended December 31, 2015 as follows:
For the years ended December 31,
2013
2014
2015
Cash Payments:
Interest
Income taxes paid
Noncash Transactions:
$ 17,435,292 $ 13,414,134 $ 16,020,132
27,150,000
45,715,968
31,350,000
Loans charged-off to the allowance for loan losses
Loans foreclosed upon with repossessions transferred to other real estate
Loans foreclosed upon with repossessions transferred to other repossessed
assets
21,148,034
341,342
7,702,661
4,649,852
17,252,736
4,630,251
8,259,368
2,262,573
699,212
Securities — Securities are classified based on management's intention on the date of purchase. All debt securities
classified as available-for-sale are recorded at fair value with any unrealized gains and losses reported in accumulated other
comprehensive income (loss), net of the deferred income tax effects. Securities that Pinnacle Financial has both the positive
intent and ability to hold to maturity are classified as held-to-maturity and are carried at historical cost and adjusted for
amortization of premiums and accretion of discounts.
Interest and dividends on securities, including amortization of premiums and accretion of discounts calculated under the
effective interest method, are included in interest income. For certain securities, amortization of premiums and accretion of
discounts is computed based on the anticipated life of the security which may be shorter than the stated life of the security.
Realized gains and losses from the sale of securities are determined using the specific identification method, and are recorded
on the trade date of the sale.
Other-than-temporary Impairment — A decline in the fair value of any available-for-sale or held-to-maturity security below
cost that is deemed to be other-than-temporary results in a reduction in the carrying amount of the security. To determine
whether impairment is other-than-temporary, management considers whether the entity expects to recover the entire amortized
cost basis of the security by reviewing the present value of the future cash flows associated with the security. The shortfall of
the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as a credit loss
and is deemed to be other-than-temporary impairment. If a credit loss is identified, the credit loss is recognized as a charge to
earnings and a new cost basis for the security is established. If management concludes that a decline in fair value of a security
is temporary and, a full recovery of principal and interest is expected and it is not more-likely-than-not that it will be required to
sell the security before recovery of their amortized cost basis, then the security is not other-than-temporarily impaired and the
shortfall is recorded as a component of equity.
Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality
or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements
and raising funds for liquidity purposes. Additionally, if an available-for-sale security loses its investment grade status, the
underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management,
Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these factors
become known. Resultantly, other-than-temporary charges may be incurred as management's intention related to a particular
security changes.
The carrying values of Pinnacle Financial's investment securities could decline in the future if the financial condition of
issuers deteriorates and management determines it is probable that Pinnacle Financial will not recover the entire amortized cost
bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future. There
is also a risk that other-than-temporary impairment charges may occur in the future if management's intention to hold these
securities to maturity and or recovery changes.
(cid:26)(cid:25)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage loans held-for-sale — Mortgage loans originated and intended for sale are carried at the lower of cost or
estimated fair value as determined on a loan-by-loan basis. Net unrealized losses, if any, are recognized through a valuation
allowance by charges to income. Realized gains and losses are recognized when legal title to the loans has been transferred to
the purchaser and sales proceeds have been received and are reflected in the accompanying consolidated statement of income
in gains on mortgage loans sold, net of related costs such as compensation expenses.
Loans — Pinnacle Financial has five loan types for financial reporting purposes: commercial and industrial, commercial real
estate mortgage, construction and land development, consumer and other and consumer real estate mortgage. The appropriate
classification is determined based on the underlying collateral utilized to secure each loan. These classifications are consistent
with those utilized in the Quarterly Report of Condition and Income filed by Pinnacle Bank with the Federal Deposit Insurance
Corporation (FDIC).
Loans are reported at their outstanding principal balances, net of the allowance for loan losses and any deferred fees or
costs on originated loans. Interest income on loans is accrued based on the principal balance outstanding. Loan origination
fees, net of certain loan origination costs, are deferred and recognized as an adjustment to the related loan yield using a method
which approximates the interest method. At December 31, 2015 and 2014, net deferred loan fees of $4.2 million and $1.4 million
respectively, were included in loans on the accompanying consolidated balance sheets.
As part of our routine credit monitoring process, commercial loans receive risk ratings by the assigned financial advisor
and are subject to validation by our independent loan review department. Risk ratings are categorized as pass, special mention,
substandard, substandard-impaired or doubtful-impaired. Pinnacle Financial believes that our categories follow those outlined
by Pinnacle Bank's primary federal regulator. At December 31, 2015, approximately 75% of our loan portfolio was assigned a
specifically assigned risk rating in the allowance for loan loss assessment. Certain consumer loans and commercial relationships
that possess certain qualifying characteristics, including individually smaller balances, are generally not assigned an individual
risk rating but are evaluated collectively for credit risk as a homogenous pool of loans and individually as either accrual or
nonaccrual based on the performance of the loan.
Loans are placed on nonaccrual status when there is a significant deterioration in the financial condition of the borrower,
which generally is the case but is not limited to when the principal or interest is more than 90 days past due, unless the loan is
both well-secured and in the process of collection. All interest accrued but not collected for loans that are placed on
nonaccrual status is reversed against current interest income. Interest income is subsequently recognized only if certain cash
payments are received while the loan is classified as nonaccrual, but interest income recognition is reviewed on a case-by-case
basis to determine if the payment should be applied to interest or principal pursuant to regulatory guidelines. A nonaccrual
loan is returned to accruing status once the loan has been brought current as to principal and interest and collection is
reasonably assured or the loan has been well-secured through other techniques.
All loans that are placed on nonaccrual status are further analyzed to determine if they should be classified as impaired
loans. A loan is considered to be impaired when it is probable Pinnacle Financial will be unable to collect all principal and
interest payments due in accordance with the contractual terms of the loan. This determination is made using a variety of
techniques, which include a review of the borrower's financial condition, debt-service coverage ratios, global cash flow
analysis, guarantor support, other loan file information, meetings with borrowers, inspection or reappraisal of collateral and/or
consultation with legal counsel as well as results of reviews of other similar industry credits (e.g. builder loans, development
loans, church loans, etc.).
Loans are charged off when management believes that the full collectability of the loan is unlikely. As such, a loan may be
partially charged-off after a "confirming event" has occurred which serves to validate that full repayment pursuant to the terms
of the loan is unlikely.
Purchased Loans — Purchased loans, including loans acquired through a merger, are initially recorded at fair value on the
date of purchase. Purchased loans that contain evidence of post-origination credit deterioration as of the purchase date are
carried at the net present value of expected future cash flows. All other purchased loans are recorded at their initial fair value,
and adjusted for subsequent advances, pay downs, amortization or accretion of any premium or discount on purchase, charge-
offs and additional provisioning that may be required. Pursuant to U.S. GAAP, management has up to 12 months following the
date of the acquisition to finalize the fair values of acquired assets and assumed liabilities as of the acquisition date. Once
management has finalized the fair values of acquired assets and assumed liabilities within this 12-month period, management
considers such values to be the day 1 fair values (Day 1 Fair Values).
(cid:26)(cid:26)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At the time of acquisition, management evaluates purchased loans using a variety of factors such as current classification
or risk rating, past due status and history as a component of the fair value determination. For those purchased loans without
evidence of credit deterioration, management evaluates each reviewed loan using Pinnacle Bank's internal grading system with a
grade assigned to each loan at the date of acquisition. To the extent that any purchased loan is not specifically reviewed
individually, such loan is assumed to have characteristics similar to the characteristics of the specifically reviewed acquired
portfolio of purchased loans. The grade for each purchased loan without evidence of credit deterioration is reviewed
subsequent to the date of acquisition any time a loan is renewed or extended or at any time information becomes available to
Pinnacle Financial that provides material insight regarding the loan's performance, the borrower's capacity to repay or the
underlying collateral. The allowance for loan losses for purchased loans is calculated similar to that utilized for legacy
Pinnacle Bank loans. Our accounting policy is to compare the computed allowance for loan losses to the remaining fair value
adjustment. If the computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance
for loan losses by a charge to the provision for loan losses.
In determining the Day 1 Fair Values of purchased loans without evidence of post-origination credit deterioration at the
date of acquisition, management includes (i) no carry over of any previously recorded allowance for loan loss or deferred fees
and costs and (ii) an adjustment of the unpaid principal balance to reflect an appropriate market rate of interest and credit loss,
given the risk profile and grade assigned to each loan. This adjustment is accreted into earnings as a yield adjustment, using the
effective yield method, over the remaining life of each loan.
Purchased loans that contain evidence of post-origination credit deterioration on the date of purchase are individually
evaluated by management to determine the estimated fair value of each loan. This evaluation includes no carryover of any
previously recorded allowance for loan loss. In determining the estimated fair value of purchased loans with evidence of credit
deterioration, management considers a number of factors including, among other things, the remaining life of the purchased
loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, and
net present value of cash flows expected to be received.
In determining the Day 1 Fair Values of purchased loans with evidence of credit deterioration, management calculates a
non-accretable difference (the credit risk component of the purchased loans) and an accretable difference (the yield component
of the purchased loans). The non-accretable difference is the difference between the contractually required payments and the
cash flows expected to be collected in accordance with management's determination of the Day 1 Fair Values.
Subsequent increases in expected cash flows will result in an adjustment to accretable yield, which will have a positive impact
on interest income. Subsequent decreases in expected cash flows will generally result in a charge to the provision for loan
losses. Subsequent increases in expected cash flows following any previous decrease will result in a reversal of the charge to
the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield. The accretable difference
on purchased loans with evidence of credit deterioration is the difference between the expected cash flows and the net present
value of expected cash flows. Such difference is accreted into earnings using the effective yield method over the term of the
loans. For purchased loans with evidence of post-origination credit deterioration for which the expected cash flows cannot be
forecasted, these loans are deemed to be collateral dependent, are recorded at the fair value of collateral and are placed on
nonaccrual.
Allowance for Loan Losses (allowance) — Pinnacle Financial's management assesses the adequacy of the allowance
prior to the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy
and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of the loan
portfolio, loan loss experience, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect
the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying
collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan quality indications and other
pertinent factors, including regulatory recommendations. The level of allowance maintained by management is believed
adequate to absorb probable losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by
provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Allocation
of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's
judgment, is deemed uncollectible.
(cid:26)(cid:27)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In assessing the adequacy of the allowance, Pinnacle Financial also considers the results of its ongoing independent loan
review process. Pinnacle Financial undertakes this process both to ascertain those loans in the portfolio with elevated credit
risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes
the judgment of management, independent internal loan reviewers, and reviews that may have been conducted by third-party
reviewers including regulatory examiners. Pinnacle Financial incorporates relevant loan review results in the allowance.
The ASC 450-20 component of the allowance for loan losses begins with a migration analysis based on our internal system
of risk rating, if applicable, and historical loss data in our portfolio, by loan type. The migration analysis accumulates losses
realized over a rolling four-quarter cycle and is utilized to determine an annual loss rate for each category for each quarter-end in
our look-back period. The look-back period in our migration analysis includes 24 quarters as we believe this period is
representative of an economic cycle. The loss rates for each category are then averaged and applied to the end of period loan
portfolio balances to determine estimated losses. The estimated losses by category are then adjusted by a specifically-
determined loss emergence period for each type of loan in our portfolio. A loss emergence period represents the length of time
from the initial event which triggered the loss to the recognition of the loss by Pinnacle Bank. Combined, the loss rates and loss
emergence period provide a quantitative estimate of credit losses inherent in our end of period loan portfolio based on our
actual loss experience.
The estimated loan loss allocation for all loan segments is then adjusted for management's estimate of probable losses for a
number of qualitative factors that have not been considered in the loan migration analysis. The qualitative categories and the
measurements used to quantify the risks within each of these categories are subjectively selected by management, but
measured by objective measurements period over period. The data for each measurement may be obtained from internal or
external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of
risk relative to past measurements over time. The resulting factor is applied to the non-impaired loan portfolio. This amount
represents estimated probable inherent credit losses which exist, but have not yet been identified either in its risk rating or
impairment process, as of the balance sheet date, and is based upon quarterly trend assessments in portfolio concentrations,
policy exceptions, economic conditions, lending staff performance, independent loan review results, collateral considerations,
credit quality, competition and regulatory requirements, enterprise wide risk assessments, and peer group credit quality. The
qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each
loan segment based on the assessment of these various environmental factors.
The allowance for loan losses for purchased loans is calculated similar to that utilized for legacy Pinnacle Bank loans.
Pinnacle Financial's accounting policy is to compare the computed allowance for loan losses for purchased loans to any
remaining fair value adjustment. If the computed allowance is greater than the remaining fair value adjustment, the excess is
added to the allowance for loan losses by a charge to the provision for loan losses.
Pinnacle Financial's allowance for loan losses is composed of the result of two independent analyses pursuant to the
provisions of ASC 450-20, Loss Contingencies and ASC 310-10-35, Receivables. The ASC 450-20 analysis is intended to
quantify the inherent risk in its performing loan portfolio. The component of the allowance for nonperforming loans generated
by ASC 310-10-35 is the result of a loan-by-loan analysis of impaired loans $250,000 and greater performed by segment and the
resulting impairment percentage adjusted for specific trends identified, if applicable, is applied to all loans below $250,000, which
have historically shown a similar loss rate to loans above $250,000. In addition, Pinnacle Financial reviews impaired collateral
dependent loans less than $250,000 to determine if any amounts should be charged-off pursuant to regulatory requirements. At
December 31, 2015, the principal balance of these small impaired loans was $4.5 million, which represented 15.3% of all impaired
loans. At December 31, 2014, the principal balance of these small impaired loans was $5.3 million, which represented 21.0% of all
impaired loans.
The first component of the allowance for loan losses is determined pursuant to ASC 450-20 portion of the allowance also
includes a small unallocated component. Pinnacle Financial believes that the unallocated amount is warranted for inherent
factors that cannot be practically assigned to individual loan categories, such as the imprecision in the overall loss allocation
measurement process, the subjectivity risk of potentially not considering all relevant environmental categories and related
measurements and imprecision in its credit risk ratings process.
(cid:26)(cid:28)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The second component of the allowance for loan losses is determined pursuant to ASC 310-10-35. Loans are impaired
when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the
contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means collecting all
interest and principal payments of a loan as scheduled in the loan agreement. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that
may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of
the loan is unlikely. A loan may be partially charged-off after a "confirming event" has occurred which serves to validate that
full repayment pursuant to the terms of the loan is unlikely.
An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan
(recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and
unamortized premium or discount). The impairment is recognized through the provision for loan losses and is a component of
the allowance for loan losses. Loans that are impaired are recorded at the present value of expected future cash flows
discounted at the loan's effective interest rate, or if the loan is collateral dependent, at the fair value of the collateral, less
estimated disposal costs. If the loan is collateral dependent, the principal balance of the loan is charged-off in an amount equal
to the impairment measurement. The fair value of collateral dependent loans is derived primarily from collateral appraisals
performed by independent third-party appraisers. Management believes it follows appropriate accounting and regulatory
guidance in determining impairment and accrual status of impaired loans.
Pursuant to the guidance set forth in ASU No. 2011-02, A Creditor's Determination of Whether a Restructuring is a
Troubled Debt Restructuring, the above impairment methodology is also applied to those loans identified as troubled debt
restructurings.
We then test the resulting allowance by comparing the balance in the allowance to historical trends and industry and peer
information. Pinnacle Financial's management then evaluates the result of the procedures performed, including the results of our
testing, and decides on the appropriateness of the balance of the allowance in its entirety. The audit committee of its board of
directors reviews and approves the methodology and resultant allowance prior to the filing of quarterly and annual financial
information.
While its policies and procedures used to estimate the allowance for loan losses, as well as the resultant provision for loan
losses charged to income, are considered adequate by management and are reviewed from time to time by our regulators, they
are necessarily approximate and imprecise. There are factors beyond its control, such as conditions in the local, national, and
international economy, a local real estate market or particular industry conditions which may negatively impact materially our
asset quality and the adequacy of our allowance for loan losses and thus the resulting provision for loan losses.
Transfers of Financial Assets — Transfers of financial assets are accounted for as sales when control over the assets has
been surrendered or in the case of a loan participation, a portion of the asset has been surrendered and meets the definition of a
"participating interest". Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated
from Pinnacle Financial, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that
right) to pledge or exchange the transferred assets, and (3) Pinnacle Financial does not maintain effective control over the
transferred assets through an agreement to repurchase them before maturity.
Premises and Equipment and Leaseholds — Premises and equipment are carried at cost less accumulated depreciation and
amortization computed principally by the straight-line method over the estimated useful lives of the assets or the expected lease
terms for leasehold improvements, whichever is shorter. Useful lives for all premises and equipment range between three and
thirty years.
Pinnacle Bank is the lessee with respect to several office locations. All such leases are being accounted for as operating
leases within the accompanying consolidated financial statements. Several of these leases include rent escalation clauses.
Pinnacle Bank expenses the costs associated with these escalating payments over the life of the expected lease term using the
straight-line method. At December 31, 2015, the deferred liability associated with these escalating rentals was approximately $2.5
million and is included in other liabilities in the accompanying consolidated balance sheets.
(cid:27)(cid:19)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Method Investment — On February 1, 2015, Pinnacle Bank acquired a 30% interest in Bankers Healthcare Group,
LLC (BHG) for $75 million. Pinnacle Bank accounts for this investment pursuant to the equity method for unconsolidated
subsidiaries and recognizes its interest in BHG's profits and losses in noninterest income with corresponding adjustments to the
BHG investment account. The equity method of accounting requires that this investment is reported as a net investment on the
financial statements, but that embedded goodwill and intangibles should be identified, tested for impairment and amortized over
their useful life within the equity method investment line of the balance sheet. Amortization expense associated with BHG's
customer list and data processing capabilities is netted within income from equity method investments. On the acquisition date,
Pinnacle Bank estimated its investment included embedded goodwill of $53.6 million and $6.9 million of technology, trade name
and customer relationship intangibles. Pinnacle Bank recorded earnings of $20.6 million, net of approximately $1.3 million in
intangible amortization expense for the year ended December 31, 2015. During 2015, Pinnacle Bank received dividends of $7.2
million from BHG. Earnings from BHG are included in Pinnacle Financial's consolidated tax return. Profit from arms-
length intercompany transactions are eliminated as a part of consolidation. As part of ongoing business transacted with BHG,
Pinnacle Bank purchased loans totaling $2.2 million during the year ended December 31, 2015. As noted below under
Subsequent Events, in the first quarter of 2016, Pinnacle Financial and Pinnacle Bank announced that they would collectively
acquire an additional 19% interest in BHG.
Other Real Estate Owned — Other real estate owned (OREO) represents real estate foreclosed upon or acquired by deed in
lieu of foreclosure by Pinnacle Bank through loan defaults by customers. Substantially all of these amounts relate to lots,
homes and residential development projects that are either completed or are in various stages of construction for which
Pinnacle Financial believes it has adequate collateral. Upon its acquisition by Pinnacle Bank, the property is recorded at the
lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired. The difference from
the loan balance is recognized as a charge-off through the allowance for loan losses. Additional OREO losses for subsequent
downward valuation adjustments and expenses to maintain OREO are determined on a specific property basis and are included
as a component of noninterest expense. Net gains or losses realized at the time of disposal are reflected in noninterest income
or noninterest expense, as applicable.
Included in the accompanying consolidated balance sheet at December 31, 2015 is $6.6 million of OREO with related
property-specific valuation allowances of $1.5 million. At December 31, 2014, OREO totaled $15.1 million with related property-
specific valuation allowances of $3.9 million. During the years ended December 31, 2015, 2014 and 2013, Pinnacle Financial had
an approximate $306,000 benefit and approximately $664,000 and $3.1 million, respectively, of net foreclosed real estate expense.
Of the net foreclosed real estate expense, $434,000 and $552,000, respectively, were realized gains on the disposition and
holding losses on valuations of OREO properties during the years ended December 31, 2015 and 2014 and $2.0 million was
realized losses on dispositions and holding losses on valuations of OREO properties during the year ended December 31, 2013.
Other Assets — Included in other assets as of December 31, 2015 and 2014, is approximately $6.6 million and $2.3 million,
respectively, of computer software related assets, net of amortization. This software supports Pinnacle Financial's primary data
systems and relates to amounts paid to vendors for installation and development of such systems. These amounts are
amortized on a straight-line basis over periods of three to seven years. For the years ended December 31, 2015, 2014, and 2013,
Pinnacle Financial's amortization expense was approximately $1.3 million, $1.1 million, and $937,000, respectively. Software
maintenance fees are capitalized in other assets and amortized over the term of the maintenance agreement.
Pinnacle Financial is required to maintain certain minimum levels of equity investments with certain regulatory and other
entities in which Pinnacle Bank has outstanding borrowings, including the Federal Home Loan Bank of Cincinnati. At December
31, 2015 and 2014, the cost of these investments was $26.5 million and $15.8 million, respectively. Pinnacle Financial determined
that cost approximates the fair value of these investments. Additionally, Pinnacle Financial has recorded certain investments in
other entities, at fair value, of $8.0 million at both December 31, 2015 and 2014. During 2015 and 2014, Pinnacle Financial
recorded net losses of $39,000 and net gains of $690,000, respectively, due to changes in the fair value of these investments. As
more fully described in footnote 11, Pinnacle Financial has an investment in four Trusts valued at $2,476,000 as of December 31,
2015 and 2014. The Trusts were established to issue preferred securities, the dividends for which are paid with interest
payments Pinnacle Financial makes on subordinated debentures it issued to the Trusts. Also, as part of our compliance with the
Community Reinvestment Act, we had investments in low income housing entities totaling $13.8 million and $10.8 million, net,
as of December 31, 2015 and 2014, respectively. These investments are reflected in the accompanying consolidated balance
sheets in other investments.
(cid:27)(cid:20)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinnacle Bank is the owner and beneficiary of various life insurance policies on certain key executives and certain directors,
including policies that were acquired in its mergers with Cavalry, CapitalMark and Magna. Collectively, these policies are
reflected in other assets in the accompanying consolidated balance sheets at their respective cash surrender values. At
December 31, 2015 and 2014, the aggregate cash surrender value of these policies was approximately $121.9 million and $92.7
million, respectively. Noninterest income related to these policies was $2.5 million, $2.4 million, and $2.1 million, during the years
ended December 31, 2015, 2014 and 2013, respectively.
Derivative Instruments — In accordance with ASC Topic 815 Derivatives and Hedging, all derivative instruments are
recorded on the accompanying consolidated balance sheet at their respective fair values. The accounting for changes in fair
value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a
hedging relationship. If the derivative instrument is not designated as a hedge, changes in the fair value of the derivative
instrument are recognized in earnings in the period of change.
Pinnacle Financial enters into interest rate swaps (swaps) to facilitate customer transactions and meet their financing needs.
Upon entering into these instruments to meet customer needs, Pinnacle Financial enters into offsetting positions with large U.S.
financial institutions in an effort to minimize the risk to Pinnacle Financial. These swaps are derivatives, but are not designated
as hedging instruments.
Pinnacle Financial also has forward cash flow hedge relationships in the form of interest rate swap agreements to manage
our future interest rate exposure. These derivative contracts have been designated as a hedge and, as such, changes in the fair
value of the derivative instrument are recorded in other comprehensive income. Pinnacle Financial prepares written hedge
documentation for all derivatives which are designated as hedges. The written hedge documentation includes identification of,
among other items, the risk management objective, hedging instrument, hedged item and methodologies for assessing and
measuring hedge effectiveness and ineffectiveness, along with support for management's assertion that the hedge will be
highly effective.
For designated hedging relationships, Pinnacle Financial performs retrospective and prospective effectiveness testing
using quantitative methods and does not assume perfect effectiveness through the matching of critical terms. Assessments of
hedge effectiveness and measurements of hedge ineffectiveness are performed at least quarterly. The effective portion of the
changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a cash flow hedge
are initially recorded in accumulated other comprehensive income (AOCI) and will be reclassified to earnings in the same period
that the hedged item impacts earnings; any ineffective portion is recorded in current period earnings.
Hedge accounting ceases on transactions that are no longer deemed effective, or for which the derivative has been
terminated or de-designated.
Securities Sold Under Agreements to Repurchase — Pinnacle Financial routinely sells securities to certain treasury
management customers and then repurchases these securities the next day. Securities sold under agreements to repurchase are
reflected as a secured borrowing in the accompanying consolidated balance sheets at the amount of cash received in
connection with each transaction.
Income Taxes — ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the
financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on
the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and
includes guidance concerning accounting for income tax uncertainties in interim periods.
Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. The net deferred tax asset is reflected as a
component of other assets on the consolidated balance sheet. A valuation allowance is required for deferred tax assets if, based
on available evidence, it is more likely than not that all or some portion of the asset may not be realized due to the inability to
generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the deferred tax asset.
(cid:27)(cid:21)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense or benefit for the year is allocated among continuing operations and other comprehensive income
(loss), as applicable. The amount allocated to continuing operations is the income tax effect of the pretax income or loss from
continuing operations that occurred during the year, plus or minus income tax effects of (a) changes in certain circumstances
that cause a change in judgment about the realization of deferred tax assets in future years, (b) changes in income tax laws or
rates, and (c) changes in income tax status, subject to certain exceptions. The amount allocated to other comprehensive income
(loss) is related solely to changes in the valuation allowance on items that are normally accounted for in other comprehensive
income (loss) such as unrealized gains or losses on available-for-sale securities.
Pinnacle Financial and its subsidiaries file consolidated U.S. Federal tax returns. Based upon its business operations,
Pinnacle Financial is also subject to taxation in the states of Tennessee, Illinois, Florida and Alabama. Each entity provides for
income taxes based on its contribution to income or loss of the consolidated group. Pinnacle Financial has a Real Estate
Investment Trust subsidiary that files a separate federal tax return, but its income is included in the consolidated group's return
as required by the federal tax laws. Pinnacle Financial remains open to audit under the statute of limitations by the IRS and the
states of Tennessee, Illinois, Florida and Alabama for the years ended December 31, 2012 through 2015.
Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The
amounts accrued for interest and/or penalties related to State uncertain tax positions at December 31, 2015 and 2014 were a
benefit of $96,000 and expense of $140,000 respectively. No amounts were accrued for interest and/or penalties at December 31,
2013. Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense.
Income Per Common Share — Basic net income per share available to common stockholders (EPS) is computed by
dividing net income available to common stockholders by the weighted average common shares outstanding for the period.
Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or
converted. The difference between basic and diluted weighted average shares outstanding is attributable to common stock
options, common stock appreciation rights, warrants, restricted share awards, and restricted share unit awards. The dilutive
effect of outstanding options, common stock appreciation rights, warrants, restricted share awards, and restricted share unit
awards is reflected in diluted EPS by application of the treasury stock method.
As of December 31, 2015, there were approximately 1.2 million stock options and 2,435 stock appreciation rights
outstanding to purchase common shares. For the years ended December 31, 2015 and 2014, respectively, approximately 958,320
and 403,555 of dilutive stock options, dilutive restricted shares, restricted share units and stock appreciation rights were
included in the diluted earnings per share calculation under the treasury stock method. The increase in dilutive shares
outstanding primarily relates to stock options assumed as part of the CapitalMark acquisition and annual equity awards to
Pinnacle Financial's associates and directors.
The following is a summary of the basic and diluted earnings per share calculation for each of the years in the three-year
period ended December 31, 2015:
Basic earnings per share calculation:
2015
2014
2013
Numerator - Net income available to common stockholders
$ 95,509,402 $ 70,471,167 $ 57,726,201
Denominator – Weighted average common shares outstanding
Basic net income per common share available to common stockholders
37,015,468 34,723,335 34,200,770
1.69
$
2.03 $
2.58 $
Diluted earnings per share calculation:
Numerator - Net income available to common stockholders
$ 95,509,402 $ 70,471,167 $ 57,726,201
Denominator – Weighted average common shares outstanding
Dilutive shares contingently issuable
Weighted average diluted common shares outstanding
Diluted net income per common share available to common stockholders
(cid:27)(cid:22)
958,320
37,015,468 34,723,335 34,200,770
308,491
37,973,788 35,126,890 34,509,261
1.67
$
403,555
2.01 $
2.52 $
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation — Stock-based compensation expense is recognized based on the fair value of the portion of
stock-based payment awards that are ultimately expected to vest, reduced for estimated forfeitures based on grant-date fair
value which for the 2015 restricted stock unit awards include a holding period discount. ASC 718-20 Compensation – Stock
Compensation Awards Classified as Equity requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. Service based awards with multiple vesting periods are
expensed over the entire requisite period as if the award were a single award. For awards with performance vesting criteria,
anticipated performance is projected to determine the number of awards expected to vest, and the corresponding aggregate
expense is adjusted to reflect the elapsed portion of the performance period.
Comprehensive Income (Loss) — Comprehensive income (loss) consists of the total of all components of comprehensive
income (loss) including net income (loss). Other comprehensive income (loss) refers to revenues, expenses, gains and losses
that under U.S. generally accepted accounting principles are included in comprehensive income (loss) but excluded from net
income (loss). Currently, Pinnacle Financial's other comprehensive income (loss) consists of unrealized gains and losses on
securities available-for-sale and unrealized gains on derivative hedging relationships, net of deferred tax expense (benefit).
Fair Value Measurement — ASC Topic 820, Fair Value Measurements and Disclosures, which defines fair value,
establishes a framework for measuring fair value in U.S. generally accepted accounting principles and established required
disclosures about fair value measurements. ASC 820 applies only to fair-value measurements that are already required or
permitted by other accounting standards and increases the consistency of those measurements. The definition of fair value
focuses on the exit price, (i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date), not the entry price, (i.e., the price that would be paid to
acquire the asset or received to assume the liability at the measurement date). The statement emphasizes that fair value is a
market-based measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined
based on the assumptions that market participants would use in pricing the asset or liability.
Pinnacle Financial has an established process for determining fair values. Fair value is based upon quoted market prices,
where available. If listed prices or quotes are not available, fair value is based upon internally developed models or processes
that use primarily market-based or independently-sourced market data, including interest rate yield curves, option volatilities
and third party information such as prices of similar assets of liabilities. Valuation adjustments may be made to ensure that
financial instruments are recorded at fair value. Furthermore, while Pinnacle Financial believes its valuation methods are
appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the
fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Mortgage Servicing Rights — In conjunction with the Magna Merger, Pinnacle acquired a residential mortgage servicing
portfolio which was recorded at fair value in conjunction with purchase accounting. The rights to service loans
(MSRs) represent an intangible financial asset which going forward will be reported at amortized cost in the accompanying
balance sheet.
Additions to our MSRs are recorded at fair value, while MSRs retained in connection with the sale of the principal due on
a mortgage loan are capitalized at fair value. The value of servicing rights is initially measured using a discounted cash flow
model. All servicing rights capitalized have involved the retention of servicing rights only; Pinnacle Financial does not retain
residual interest, "first loss" obligations, or other similar on-going financial interests in the loans it sells to third parties, nor
have we participated in any securitizations with any special purpose entities.
U.S. GAAP requires periodic evaluation of the fair value of the residential mortgage servicing rights. When fair value is
less than amortized cost, a valuation allowance is created through a charge to earnings to reduce the carrying value of
residential servicing rights to fair value. The carrying value of residential servicing may be increased (not to exceed amortized
cost) through a credit to income to reduce or remove the valuation allowance if subsequent valuations indicate that fair value
exceeds amortized cost.
Except for recovery of amounts invested in acquiring servicing rights, servicing mortgage loans for others does not
generally impose significant financial risks to the servicer. There are, however, certain investors for whom servicing does
involve some risk of loss. For example, servicing Federal Housing Administration (FHA) insured or Veterans Administration
(VA) guaranteed loans can result in the servicer advancing principal and interest payments for delinquent borrowers, or
incurring a shortfall in the total amount of principal collected under certain foreclosure circumstances.
(cid:27)(cid:23)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the first quarter of 2016, Pinnacle entered into a letter of intent to sell the servicing rights to approximately $830
million Fannie Mae mortgage loans in a transaction expected to be completed in the second quarter of 2016. Pinnacle Financial
does not anticipate the sale of this servicing portfolio to have a material impact on Pinnacle Financial's financial condition or its
results of operations.
Subordinated Debt Issuance — On July 30, 2015, Pinnacle Bank issued $60.0 million in aggregate principal amount of
Fixed–to-Floating Rate Subordinated Notes due 2025 (the Notes) in a private placement transaction to accredited institutional
investors. The maturity date of the notes is July 30, 2025, although Pinnacle Bank may redeem some or all of the Notes
beginning on the interest payment date of July 30, 2020 and on any interest payment date thereafter at a redemption price equal
to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to the date of redemption,
subject to the FDIC.
From the date of the issuance through July 29, 2020, the Notes will bear interest at the rate of 4.875% per year and will be
payable semi-annually in arrears on January 30 and July 30 of each year, and began on January 30, 2016. From July 30, 2020, the
Notes will bear interest at a rate per annum equal to the three-month LIBOR rate plus 3.128%, payable quarterly in arrears on
each January 30, April 30, July 30, and October 30, beginning on July 30, 2020, through the maturity date or the early redemption
date of the Notes.
The sale of the Notes yielded net proceeds of approximately $59.1 million after deducting the placement agents' fees and
estimated expenses payable by Pinnacle Bank. Pinnacle Bank used the net proceeds from the offering, together with available
cash, to pay the cash portion of the merger consideration payable to the shareholders of CapitalMark and Magna in connection
with the mergers, and to pay the amounts necessary to redeem the preferred shares that each of CapitalMark and Magna issued
to the United States Department of the Treasury in connection with their participation in the Treasury's Small Business Lending
Fund and for general corporate purposes.
Recently Adopted Accounting Pronouncements — In September 2015, the FASB issued ASU No. 2015-16, Business
Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The amendments in this ASU
require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the
reporting period in which the adjustment amounts are determined. The acquirer is required to record, in the same period's
financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result
of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The
amendments require an entity to present separately on the face of the income statement or disclose in the notes to the financial
statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in
previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date.
The ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. Early
adoption is permitted. The amendments in this ASU should be applied prospectively to adjustments to provisional amounts
that occur after the effective date of this ASU with earlier application permitted. This ASU will have an impact on our
consolidated financial statements as we have early adopted this standard and will not recast results as we continue to refine our
purchase accounting adjustments related to the acquisitions of CapitalMark and Magna.
Subsequent Events — ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued. Pinnacle Financial evaluated all
events or transactions that occurred after December 31, 2015 through the date of the issued financial statements.
Bankers Healthcare Group
As of December 31, 2015, Pinnacle Bank owns 30% of the outstanding membership interests of BHG. On January 19, 2016,
Pinnacle Financial and Pinnacle Bank entered into a Membership Interest Purchase Agreement (the Purchase Agreement), by
and among Pinnacle Financial, Pinnacle Bank, Bankers Healthcare Group, LLC, a Florida limited liability company (BHG), BHG
Founders, Inc., a Florida corporation (Founders Co.), several individuals and Crawford & Castro, LLC, pursuant to
which Pinnacle Financial and Pinnacle Bank have agreed to acquire, at the Closing (as defined below), an additional 8.55% and
10.45%, respectively, of the outstanding membership interests in BHG from Founders Co. for $114.0 million, payable in a mix of
stock and cash (the Investment).
(cid:27)(cid:24)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the Purchase Agreement, as part of the consideration paid to Founders Co. in connection with the
Investment, Pinnacle Financial has agreed to issue an amount of shares of Pinnacle Financial's common stock equal to the
quotient (in whole shares) of (i) $39.9 million and (ii) the closing price of Pinnacle Financial's common stock on the Nasdaq
Global Select Market on the day prior to the Closing to Founders Co. at the closing of the Investment (the Closing). The shares
of Pinnacle Financial's common stock to be issued pursuant to the Purchase Agreement will be issued in a private placement
exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the Securities Act), and Rule 506 of
Regulation D promulgated under the Securities Act. The amount of cash consideration is expected to equal $74.1 million.
The Closing and the issuance by Pinnacle Financial of the shares of its common stock in connection therewith, is subject to
satisfaction of customary closing conditions and Pinnacle Financial's election to become a financial holding company becoming
effective. Pinnacle Financial currently expects the Closing to occur in early March 2016.
Pinnacle Financial has agreed, pursuant to the Purchase Agreement, to file with the Securities and Exchange Commission,
at or prior to the Closing, a registration statement on Form S-3 covering the resale as a secondary offering to be made on a
continuous basis pursuant to Rule 415 of the Securities Act of the shares of Pinnacle Financial's common stock to be issued in
connection with the Investment.
At the Closing, Pinnacle Financial, Pinnacle Bank and the other members of BHG will enter into an Amended and Restated
Limited Liability Company Agreement of BHG that is currently expected to provide for, among other things, the following terms:
(i) the inability of any member of BHG to transfer its ownership interest in BHG without the consent of the other members of
BHG for five years, other than transfers to family members, trusts or affiliates of the transferring member, in connection with the
acquisition of Pinnacle Financial or Pinnacle Bank or as a result of a change in applicable law that forces Pinnacle
Financial and/or Pinnacle Bank to divest their ownership interests in BHG; (ii) the inability of the board of management of BHG
(of which Pinnacle Financial and Pinnacle Bank shall have the right to designate two of the five members (the Pinnacle
Managers)) to approve a sale of BHG without the consent of one of the Pinnacle Managers for four years; (iii) co-sale rights
for Pinnacle Financial and Pinnacle Bank in the event the other members of BHG decide to sell all or a portion of their ownership
interests after the above-described five-year limitation; and (iv) a right of first refusal for BHG and the other members of BHG in
the event that Pinnacle Financial and/or Pinnacle Bank decide to sell all or a portion of their ownership interests after the above-
described five-year limitation, except in connection with a transfer of their ownership interests to an affiliate or in connection
with the acquisition of Pinnacle Financial or Pinnacle Bank.
Avenue Financial Holdings, Inc. (Avenue)
On January 28, 2016, Pinnacle Financial entered into an Agreement and Plan of Merger (the Merger Agreement) by and
between Pinnacle Financial and Avenue, a publicly traded bank holding company, pursuant to which Avenue will merge with
and into Pinnacle Financial, with Pinnacle Financial continuing as the surviving corporation (the Avenue Merger). The separate
existence of Avenue shall cease to exist upon the effectiveness of the Avenue Merger. In connection with the execution of the
Merger Agreement, Pinnacle Bank, and Avenue Bank, Avenue's wholly owned bank subsidiary, have entered into an
Agreement and Plan of Merger pursuant to which Avenue Bank will merge with and into Pinnacle Bank simultaneously with the
consummation of the Avenue Merger.
Pursuant to the terms of the Merger Agreement, upon consummation of the Avenue Merger each holder of Avenue
common stock issued and outstanding, subject to certain exceptions, will be eligible to receive 0.36 shares of Pinnacle
Financial's common stock and an amount in cash equal to $2.00 for each share of Avenue common stock owned by them at the
effective time of the Avenue Merger. As of the date of the Merger Agreement, Avenue had 10,322,055 shares of common stock
issued and outstanding (including shares of restricted stock) and 257,639 outstanding stock options, all of which are, or are
expected to become, fully vested and exercisable prior to the closing of the Avenue Merger.
(cid:27)(cid:25)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash will be paid in lieu of any fractional shares based on the average closing price of Pinnacle Financial's common stock
for the ten (10) trading days ending on the business day immediately preceding the closing date of the Avenue Merger.
Additionally, any outstanding options to purchase shares of common stock of Avenue that are not vested will be accelerated
prior to, but conditioned on the occurrence of, the closing of the Avenue Merger and all options that are not exercised prior to
the closing shall be cancelled and the holders of any such options shall receive an amount in cash equal to the product of
(x) the excess, if any, of $20.00 over the exercise price of each such option and (y) the number of shares of Avenue common
stock subject to each such option.
Pinnacle Financial will file a registration statement on Form S-4 with the Securities and Exchange Commission (the "SEC")
with respect to the issuance of its common stock in connection with the Avenue Merger.
The proposed Avenue Merger is subject to the satisfaction of customary closing conditions, including obtaining
approvals from applicable federal and state banking regulators and Avenue's shareholders. Additionally, the Merger Agreement
contains certain termination rights that may require Avenue to pay Pinnacle Financial a termination fee of $8,000,000 under
certain specified circumstances, including if Avenue terminates the Merger Agreement to enter into a definitive agreement for a
transaction that its board of directors has determined is superior to the Avenue Merger.
In addition, upon consummation of the Avenue Merger, Pinnacle Financial will assume Avenue's obligations under its
outstanding $20.0 million subordinated notes issued in December 2014 that mature in December 2024. These notes bear interest
at a rate of 6.75% per annum until January 1, 2020 and may not be repaid prior to such date. Beginning on January 1, 2020, if not
redeemed on such date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined on the
determination date of the applicable interest period plus 4.95%.
Note 2. Acquisitions and Intangibles
Acquisition – Mid-America Bancshares, Inc. On November 30, 2007, we consummated a merger with Mid-America
Bancshares, Inc. (Mid-America), a two-bank holding company located in Nashville, Tennessee. Pinnacle Financial recognized
$9.4 million as a core deposit intangible. This identified intangible is being amortized over ten years using an accelerated method
which anticipates the life of the underlying deposits to which the intangible is attributable. For the years ended December 31,
2015, 2014, and 2013 approximately $825,000, $860,000, and $896,000, respectively, was recognized in the accompanying
consolidated statement of operations as amortization of intangibles. Amortization expense associated with this identified
intangible will approximate $691,000 to $789,000 per year for the next two years.
Acquisition – Cavalry Bancorp, Inc. On March 15, 2006, Pinnacle Financial consummated its merger with Cavalry, a one-
bank holding company located in Murfreesboro, Tennessee. Pinnacle Financial recognized $13.2 million as a core deposit
intangible. This identified intangible was being amortized over seven years using an accelerated method which anticipated the
life of the underlying deposits to which the intangible is attributable. This intangible was fully amortized during the year ended
December 31, 2013. For the year ended December 31, 2013, approximately $273,000 was recognized in the accompanying
consolidated statements of operations as amortization of intangibles.
Acquisition - Beach & Gentry. During the third quarter of 2008, Pinnacle Bank acquired Murfreesboro, Tennessee based
Beach & Gentry Insurance LLC (Beach & Gentry). Concurrently, Beach & Gentry merged with Miller & Loughry Insurance &
Services Inc., a wholly-owned subsidiary of Pinnacle Bank, also located in Murfreesboro. In connection with this acquisition,
Pinnacle Financial recorded a customer list intangible of $1.3 million which is being amortized over 20 years on an accelerated
basis. Amortization of this intangible amounted to $85,000, $91,000, and $97,000 respectively, during the years ended December
31, 2015, 2014 and 2013.
Acquisition - Bankers Healthcare Group, LLC. On February 1, 2015, Pinnacle Bank acquired a 30% interest in BHG for $75
million in cash. Pinnacle Bank accounts for this investment pursuant to the equity method for unconsolidated subsidiaries and
will recognize its interest in BHG's profits and losses in noninterest income with corresponding adjustments to the BHG
investment account. Additionally, Pinnacle Bank will not recognize any goodwill or other intangible asset associated with the
transaction, however, it will recognize amortization expense associated with certain amounts related to BHG's customer list and
data processing capabilities, which are components of the equity method investment. In connection with this acquisition,
Pinnacle Bank borrowed $40 million from a national banking franchise pursuant to a loan agreement which required Pinnacle
Financial and Pinnacle Bank to maintain certain financial covenants including minimum capital ratios, liquidity requirements and
other matters. The loan had a 5-year maturity and bore interest at approximately 2.95% per annum. The loan was paid in full
during the third quarter of 2015.
(cid:27)(cid:26)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition - CapitalMark Bank & Trust. On July 31, 2015, Pinnacle Financial consummated its merger with CapitalMark.
Pursuant to the terms of the Agreement and Plan of Merger dated as of April 7, 2015 by and among Pinnacle Financial, Pinnacle
Bank, and CapitalMark (the CapitalMark Merger Agreement), CapitalMark merged with and into Pinnacle Bank, with Pinnacle
Bank continuing as the surviving corporation (the CapitalMark Merger).
By virtue of the CapitalMark Merger, each holder of an issued and outstanding share of common stock of CapitalMark had
the right to elect, for each share of CapitalMark common stock held by such holder, to receive either (i) 0.50 shares of Pinnacle
Financial's common stock, (ii) an amount in cash equal to the value of 0.50 shares of Pinnacle Financial's common stock, based
on the 10-day average closing price for Pinnacle Financial's common stock prior to July 31, 2015 (which such amount equaled
$26.78), or (iii) a combination of stock and cash.
Approximately 90% and 10%, respectively, of CapitalMark's outstanding shares of common stock as of the effective time of
the CapitalMark Merger were converted into shares of Pinnacle Financial common stock and cash, respectively. As a result,
Pinnacle Financial issued approximately 3.3 million shares of its common stock and paid approximately $19.7 million in cash
(including payments related to fractional shares) to the CapitalMark shareholders. Fractional shares were converted to cash
based on the 10-day average closing price for Pinnacle Financial's common stock prior to July 31, 2015. All of CapitalMark's
outstanding stock options vested upon consummation of the CapitalMark Merger and were converted into options to purchase
shares of Pinnacle Financial's common stock at the common stock exchange rates. The fair market value of stock options
assumed was $30.4 million.
With this acquisition, Pinnacle Financial expanded its presence in the East Tennessee region by expanding into
the Chattanooga MSA and surrounding counties. Pinnacle Financial believes that cost savings will be recognized in future
periods through the elimination of redundant operations. The following summarizes consideration paid and a preliminary
allocation of purchase price to net assets acquired (in thousands):
Equity consideration:
Common stock issued
Fair value of stock options assumed
Total equity consideration
Non-equity consideration - Cash
Total consideration paid
Allocation of total consideration paid:
Number of
Shares
Amount
3,306,184 $
$
$
$
175,525
30,430
205,955
19,675
225,630
Preliminary fair value of net assets assumed including estimated identifiable intangible
assets
Goodwill
$
$
67,626
158,004
Goodwill originating from the CapitalMark Merger resulted primarily from anticipated synergies arising from the
combination of certain operational areas of the businesses as well as the purchase premium inherent in buying a complete and
successful banking operation. Goodwill associated with the CapitalMark Merger is not amortizable for book or tax purposes.
Upon consummation of the CapitalMark Merger, Pinnacle began the process of integrating CapitalMark into Pinnacle, including
centralizing some back-office functions, relocating a senior credit officer from the Nashville MSA to the Chattanooga MSA and
realigning the Knoxville MSA CapitalMark offices in the existing Pinnacle reporting structure. As a result, the stand-alone
impact for CapitalMark revenues and net income cannot be determined.
(cid:27)(cid:27)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisition - Magna Bank. On September 1, 2015, Pinnacle Financial consummated its merger with Magna. Pursuant to the
terms of the Agreement and Plan of Merger dated as of April 28, 2015 by and among Pinnacle Financial, Pinnacle Bank and
Magna (the Magna Merger Agreement), Magna merged with and into Pinnacle Bank, with Pinnacle Bank continuing as the
surviving corporation (the Magna Merger and together with the CapitalMark Merger, the Mergers).
By virtue of the Magna Merger, each holder of an issued and outstanding share of common stock of Magna (including
shares of Magna's common stock issued automatically upon conversion of Magna's Series D preferred stock immediately prior
to the effective time of the Magna Merger) had the right to elect, for each share of Magna common stock held by such holder
(including shares of Magna's common stock issued automatically upon conversion of Magna's Series D preferred stock
immediately prior to the effective time of the Magna Merger), to receive either (i) 0.3369 shares of Pinnacle Financial's common
stock, (ii) an amount in cash equal to $14.32, or (iii) a combination of stock and cash.
In total, Magna common shareholders (including holders of shares of Magna's common stock issued automatically upon
conversion of Magna's Series D preferred stock immediately prior to the effective time of the Magna Merger) had approximately
75% of their shares of Magna common stock as of the effective time of the Merger (including shares of Magna's common stock
issued automatically upon conversion of Magna's Series D preferred stock immediately prior to the effective time of the Merger)
converted into shares of common stock of the Company and approximately 25% of their shares converted into cash. As a result,
Pinnacle Financial issued approximately 1.4 million shares of its common stock and paid approximately $19.5 million in cash
(including payments related to fractional shares) to the Magna shareholders. Additionally, at the time of the Magna Merger
there were 139,417 unexercised stock options that were exchanged for cash equal to $14.32 less the respective exercise price.
This consideration totaled approximately $847,000, including all applicable payroll taxes.
With this acquisition, Pinnacle Financial expanded its presence in the Memphis MSA. Pinnacle Financial believes that cost
savings will be recognized in future periods through the elimination of redundant operations. The following summarizes
consideration paid and a preliminary allocation of purchase price to net assets acquired (in thousands):
Equity consideration:
Common stock issued
Total equity consideration
Non-equity consideration:
Cash paid to redeem common stock
Cash paid to exchange outstanding stock options
Total consideration paid
Allocation of total consideration paid:
Fair value of net assets assumed including estimated identifiable intangible assets
Goodwill
Number of
Shares
Amount
1,371,717 $
$
63,538
63,538
$
$
19,453
847
83,838
51,872
31,966
Goodwill originating from the Magna Merger resulted primarily from anticipated synergies arising from the combination of
certain operational areas of the businesses as well as the purchase premium inherent in buying a complete and successful
banking operation. Goodwill associated with the Magna Merger is not amortizable for book or tax purposes. Similar to the
CapitalMark Merger, upon consummation of the Magna Merger, Pinnacle began the process of integrating Magna into Pinnacle
in the Memphis MSA. Further, the technology conversion of the Magna Merger was completed in early November 2015 and as
such, the stand-alone impact for Magna revenues and net income cannot be determined.
(cid:27)(cid:28)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinnacle Financial accounted for the Mergers under the acquisition method in accordance with ASC Topic 805.
Accordingly, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of
merger. The following purchase price allocations on the mergers are preliminary and will be finalized upon the receipt of final
valuations on certain assets and liabilities. Upon receipt of final fair value estimates, which must be within one year of the
merger dates, Pinnacle Financial will make any final adjustments to the purchase price allocation and prospectively adjust any
goodwill recorded. Material adjustments to merger date estimated fair values would be calculated as if they were known at the
acquisition date, but recognized in the reporting period in which they are determined. Information regarding Pinnacle Financial's
loan discount and related deferred tax asset, core deposit intangible asset and related deferred tax liability, as well as income
taxes payable and the related deferred tax balances recorded in the mergers may be adjusted as Pinnacle Financial refines its
estimates. Determining the fair value of assets and liabilities, particularly illiquid assets and liabilities, is a complicated process
involving significant judgment regarding estimates and assumptions used to calculate estimated fair value. Fair value
adjustments based on updated estimates could materially affect the goodwill recorded on the merger. Pinnacle Financial may
incur losses on the acquired loans that are materially different from losses Pinnacle Financial originally projected.
The acquired assets and liabilities, as well as the preliminary adjustments to record the assets and liabilities at their
estimated fair values, are presented in the following tables (in thousands):
CapitalMark
Assets
Cash and cash equivalents
Investment securities(1)
Loans, net of allowance for loan losses(2)
Mortgage loans held for sale
Other real estate owned
Core deposit intangible(3)
Other assets
Total Assets
Liabilities
Interest-bearing deposits(4)
Non-interest bearing deposits
Borrowings(5)
Other liabilities
Total Liabilities
Net Assets Acquired
As of July 31, 2015
CapitalMark
Historical
Cost Basis
Preliminary
Fair Value
Adjustments
As
Recorded by
Pinnacle
Financial
$
$
$
$
$
28,021 $
150,799
880,115
1,791
1,728
-
37,252
1,099,706 $
758,492 $
193,798
32,874
35,751
1,020,915 $
78,791 $
- $
(399)
(22,806)
-
-
6,193
6,966
(10,046) $
28,021
150,400
857,309
1,791
1,728
6,193
44,218
1,089,660
891 $
-
228
-
1,119 $
(11,165) $
759,383
193,798
33,102
35,751
1,022,034
67,626
Explanation of certain fair value adjustments:
(1)
(2)
(3)
(4)
(5)
The amount represents the adjustment of the book value of CapitalMark's investment securities to their estimated fair
value on the date of acquisition.
The amount represents the adjustment of the net book value of CapitalMark's loans to their estimated fair value based on
current interest rates and expected cash flows, which includes estimates of expected credit losses inherent in the portfolio.
The amount represents the fair value of the core deposit intangible asset created in the acquisition.
The adjustment is necessary because the weighted average interest rate of CapitalMark's deposits exceeded the cost of
similar funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest expense over
the life of the portfolio.
The adjustment is necessary because the weighted average interest rate of CapitalMark's FHLB advances exceeded the
cost of similar funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest
expense over the life of the portfolio.
(cid:28)(cid:19)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Magna
Assets
Cash and cash equivalents
Investment securities(1)
Loans(2)
Mortgage loans held for sale
Other real estate owned(3)
Core deposit intangible(4)
Other assets(5)
Total Assets
Liabilities
Interest-bearing deposits(6)
Non-interest bearing deposits
Borrowings(7)
Other liabilities
Total Liabilities
Net Assets Acquired
As of September 1, 2015
Magna
Historical
Cost Basis
Preliminary
Fair Value
Adjustments
As
Recorded by
Pinnacle
Financial
$
$
$
$
$
17,832 $
60,018
453,108
18,886
1,471
-
32,974
584,289 $
402,535 $
48,851
46,900
28,343
526,629 $
57,660 $
- $
(280)
(11,186)
-
139
3,170
4,143
(4,014) $
1,268 $
-
506
-
1,774 $
(5,788) $
17,832
59,738
441,922
18,886
1,610
3,170
37,117
580,275
403,803
48,851
47,406
28,343
528,403
51,872
Explanation of certain fair value adjustments:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
The amount represents the adjustment of the book value of Magna's investment securities to their estimated fair value on
the date of acquisition.
The amount represents the adjustment of the net book value of Magna's loans to their estimated fair value based on
current interest rates and expected cash flows, which includes estimates of expected credit losses inherent in the portfolio.
The amount represents the adjustment to the book value of Magna's OREO to fair value on the date of acquisition.
The amount represents the fair value of the core deposit intangible asset created in the acquisition.
The amount represents the deferred tax asset recognized on the fair value adjustment of Magna's acquired assets and
assumed liabilities as well as the fair value adjustment for the mortgage servicing right and property and equipment.
The adjustment is necessary because the weighted average interest rate of Magna's deposits exceeded the cost of similar
funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest expense over the life
of the portfolio.
The adjustment is necessary because the weighted average interest rate of Magna's FHLB advances exceeded the cost of
similar funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest expense over
the life of the portfolio.
(cid:28)(cid:20)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Equity method investment
A summary of BHG's financial position and results of operations as of and for the year ended December 31, 2015 were as
follows (in thousands):
Banker's Healthcare Group
($ in thousands)
Assets
Liabilities
Membership interests
Total liabilities and membership
Revenues
Net income, pre-tax
December
31, 2015
$
220,578
137,147
83,431
220,578
$
For the year
ended
December
31, 2015
$
$
144,772
77,748
In connection with the BHG acquisition, Pinnacle Bank borrowed $40 million pursuant to a loan agreement which required
Pinnacle Financial and Pinnacle Bank to maintain certain financial covenants including minimum capital ratios, liquidity
requirements and other non-financial covenants. The loan had a 5-year maturity and borrowings bore interest at approximately
2.95% per annum. This loan was paid in full during the third quarter of 2015.
In the first quarter of 2016, Pinnacle Financial and Pinnacle Bank announced that they would collectively acquire an
additional 19% interest in BHG. This investment primarily serves to increase Pinnacle Financial's and Pinnacle
Bank's noninterest income. Because Pinnacle Financial's and Pinnacle Bank's collective ownership interest will remain a minority
interest and BHG has been determined to be a voting interest entity of which Pinnacle Financial will control two of five board
seats upon the closing of the investment, the accounting treatment for this investment will remain unchanged.
(cid:28)(cid:21)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Restricted Cash Balances
Regulation D of the Federal Reserve Act requires that banks maintain reserve balances with the Federal Reserve Bank
based principally on the type and amount of their deposits. At our option, Pinnacle Financial maintains additional balances to
compensate for clearing and other services. For the years ended December 31, 2015 and 2014, the average daily balance
maintained at the Federal Reserve was approximately $134.3 million and $113.2 million, respectively.
Note 5. Securities
The amortized cost and fair value of securities available-for-sale and held-to-maturity at December 31, 2015 and 2014 are
summarized as follows (in thousands):
December 31, 2015:
Securities available-for-sale:
U.S Treasury Securities
U.S. Government agency securities
Mortgage-backed securities
State and municipal securities
Asset-backed securities
Corporate notes
Securities held-to-maturity:
State and municipal securities
December 31, 2014:
Securities available-for-sale:
U.S Treasury Securities
U.S. Government agency securities
Mortgage-backed securities
State and municipal securities
Asset-backed securities
Corporate notes
Securities held-to-maturity:
State and municipal securities
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
$
$
$
$
- $
131,499
581,998
158,072
49,598
9,541
930,708 $
31,377
31,377 $
- $
117,098
447,757
130,545
13,089
10,196
718,685 $
38,676
38,676 $
-
3
5,948
7,094
8
589
13,642
257
257
-
12
10,322
8,213
14
969
19,530
205
205
$
$
$
$
$
$
-
3,309
5,030
124
805
17
9,285
48
48
-
3,654
2,240
180
85
2
6,161
92
92
$
$
$
$
$
$
-
128,193
582,916
165,042
48,801
10,113
935,065
31,586
31,586
-
113,456
455,839
138,578
13,018
11,163
732,054
38,789
38,789
At December 31, 2015, approximately $770.0 million of Pinnacle Financial's investment portfolio was pledged to secure public
funds and other deposits and securities sold under agreements to repurchase.
The amortized cost and fair value of securities as of December 31, 2015 by contractual maturity are shown below. Actual
maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities
may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories in the
following summary (in thousands):
Due in one year or less
Due in one year to five years
Due in five years to ten years
Due after ten years
Mortgage-backed securities
Asset-backed securities
Available-for-sale
Held-to-maturity
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
$
$
6,133
32,461
194,439
66,079
581,998
49,598
930,708
$
$
6,170
34,574
196,685
65,919
582,916
48,801
935,065
$
$
1,072
8,643
12,804
8,858
-
-
31,377
$
$
1,074
8,686
12,920
8,906
-
-
31,586
(cid:28)(cid:22)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2015 and 2014, included in securities were the following investments with unrealized losses. The
information below classifies these investments according to the term of the unrealized loss of less than twelve months or twelve
months or longer (in thousands):
Investments with an Unrealized
Loss of
less than 12 months
Investments with an
Unrealized Loss of
12 months or longer
Total Investments
with an
Unrealized Loss
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
$
$
$
-
61,903
338,230
6,509
41,466
2,554
450,662
-
3,593
91,410
3,561
-
950
99,514
$
$
$
$
- $
1,702
2,789
38
798
17
5,344 $
- $
10
405
15
-
1
431 $
- $
65,538
103,003
6,135
3,539
-
178,215 $
- $
103,658
102,892
16,502
9,289
154
232,495 $
- $
1,607
2,241
134
7
-
3,989 $
- $
3,644
1,835
257
85
1
5,822 $
- $
127,441
441,233
12,644
45,005
2,554
628,877 $
- $
107,251
194,302
20,063
9,289
1,104
332,009 $
-
3,309
5,030
172
805
17
9,333
-
3,654
2,240
272
85
2
6,253
At December 31, 2015:
U.S. Treasury securities
U.S. government agency securities
Mortgage-backed securities
State and municipal securities
Asset-backed securities
Corporate notes
Total temporarily-impaired securities
At December 31, 2014:
U.S. Treasury securities
U.S. government agency securities
Mortgage-backed securities
State and municipal securities
Asset-backed securities
Corporate notes
Total temporarily-impaired securities
The applicable date for determining when securities are in an unrealized loss position is December 31, 2015 and 2014. As
such, it is possible that a security had a market value less than its amortized cost on other days during the twelve-month
periods ended December 31, 2015 and 2014, but is not in the "Investments with an Unrealized Loss of less than 12 months"
category above.
As shown in the table above, at December 31, 2015 and 2014 , Pinnacle Financial had unrealized losses of $9.3 million and
$6.3 million on $628.9 million and $332.0 million, respectively, of investment securities. The unrealized losses associated with
these investment securities are primarily driven by changes in interest rates and are not due to the credit quality of the
securities. These securities will continue to be monitored as a part of our ongoing impairment analysis, but are expected to
perform even if the rating agencies reduce the credit rating of the bond issuers. Management evaluates the financial
performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal
and interest payments. Because Pinnacle Financial currently does not intend to sell these securities and it is not more-likely-
than-not that Pinnacle Financial will be required to sell the securities before recovery of their amortized cost bases, which may
be maturity, Pinnacle Financial does not consider these securities to be other-than-temporarily impaired at December 31, 2015.
Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality
or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements
and raising funds for liquidity purposes. Additionally, if an available-for-sale security loses its investment grade or tax-exempt
status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to
management, Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these
factors become known. Consistent with the investment policy, available-for-sale securities of $189.0 million were sold and a net
gain of $552,000 realized during the year ended December 31, 2015. The investment portfolios of our acquired institutions were
restructured in accordance with our asset liability policies. Of the $189.0 million in available-for-sale securities sold during the
year ended December 31, 2015, $75.4 million and $16.3 million of the securities were sold to restructure the acquired portfolios of
CapitalMark and Magna, respectively. As this restructuring was performed immediately following the transactions using Day 1
Fair Values, no gain or loss was recorded on these transactions.
(cid:28)(cid:23)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The carrying values of Pinnacle Financial's investment securities could decline in the future if the financial condition of
issuers deteriorates and management determines it is probable that Pinnacle Financial will not recover the entire amortized cost
bases of the securities. As a result, there is a risk that other-than-temporary impairment charges may occur in the future.
Additionally, there is a risk that other-than-temporary impairment charges may occur in the future if management's intention to
hold these securities to maturity and or recovery changes.
Note 6. Loans and Allowance for Loan Losses
For financial reporting purposes, Pinnacle Financial classifies its loan portfolio based on the underlying collateral utilized to
secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed with
the FDIC.
Pinnacle Financial uses five loan categories: commercial real estate mortgage, consumer real estate mortgage, construction
and land development, commercial and industrial, consumer and other.
·
·
·
·
·
Commercial real-estate mortgage loans. Commercial real-estate mortgage loans are categorized as such based on
investor exposures where repayment is largely dependent upon the operation, refinance, or sale of the underlying real
estate. Commercial real-estate mortgage also includes owner occupied commercial real estate which shares a similar
risk profile to our commercial and industrial products.
Consumer real-estate mortgage loans. Consumer real-estate mortgage consists primarily of loans secured by 1-4
residential properties including home equity lines of credit.
Construction and land development loans. Construction and land development loans include loans where the
repayment is dependent on the successful operation of the related real estate project. Construction and land
development loans include 1-4 family construction projects and commercial construction endeavors such as
warehouses, apartments, office and retail space and land acquisition and development.
Commercial and industrial loans. Commercial and industrial loans include loans to business enterprises issued for
commercial, industrial and/or other professional purposes.
Consumer and other loans. Consumer and other loans include all loans issued to individuals not included in the
consumer real-estate mortgage classification. Examples of consumer and other loans are automobile loans, credit cards
and loans to finance education, among others.
Commercial loans receive risk ratings by the assigned financial advisor subject to validation by Pinnacle Financial's
independent loan review department. Risk ratings are categorized as pass, special mention, substandard, substandard-impaired
or doubtful-impaired. Pass-rated loans include five distinct ratings categories for loans that represent specific attributes.
Pinnacle Financial believes that its categories follow those outlined by Pinnacle Bank's primary regulators. At December 31,
2015, approximately 75% of our loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating in
the allowance for loan loss assessment. Consumer loans and small business loans are generally not assigned an individual risk
rating but are evaluated as either accrual or nonaccrual based on the performance of the individual loans. However, certain
consumer real estate-mortgage loans and certain consumer and other loans receive a specific risk rating due to the loan
proceeds being used for commercial purposes even though the collateral may be of a consumer loan nature.
Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, our credit
policy requires that every risk rated loan with a principal balance of $500,000 or more be subject to a formal credit risk review
process. Each loan's risk rating is also subject to review by our independent loan review department, which reviews a
substantial portion of our risk rated portfolio annually. Included in the coverage are independent loan reviews of loans in
targeted higher-risk portfolio segments such as certain commercial and industrial loans, land loans and/or loan types in certain
geographies.
The following table presents our loan balances by primary loan classification and the amount within each risk rating
category. Pass-rated loans include all credits other than those included in special mention, substandard, substandard-
nonaccrual and doubtful-nonaccrual which are defined as follows:
(cid:120)
Special mention loans have potential weaknesses that deserve management's close attention. If left uncorrected,
these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle
Financial's credit position at some future date.
(cid:28)(cid:24)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(cid:120)
Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of
the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that
jeopardize collection of the debt. Substandard loans are characterized by the distinct possibility that Pinnacle
Financial will sustain some loss if the deficiencies are not corrected.
Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.
(cid:120)
(cid:120) Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts,
conditions and values, highly questionable and improbable.
The following table outlines the amount of each loan classification categorized into each risk rating category as of
December 31, 2015 and 2014 (in thousands):
December 31, 2015
Accruing loans:
Pass
Special Mention
Substandard (1)
Total
Impaired loans:
Nonaccruing loans
Substandard-nonaccrual
Doubtful-nonaccrual
Total nonaccruing loans(3)
Troubled debt restructurings(2)
Pass
Special Mention
Substandard
Total troubled debt restructurings
Total impaired loans
Total loans
December 31, 2014
Accruing loans:
Pass
Special Mention
Substandard (1)
Total
Impaired loans:
Nonaccruing loans
Substandard-nonaccrual
Doubtful-nonaccrual
Total nonaccruing loans
Troubled debt restructurings(2)
Pass
Special Mention
Substandard
Total troubled debt restructurings
Total impaired loans
Total loans
Commercial
real estate -
mortgage
Consumer real
estate -
mortgage
Construction
and land
development
Commercial
and industrial
Consumer
and other
Total
2,217,639 $
18,162
33,638
2,269,439
1,020,239 $
1,894
11,346
1,033,479
732,662 $
1,133
6,295
740,090
2,143,006 $
26,037
53,671
2,222,714
239,874 $
118
74
240,066
6,353,420
47,344
105,024
6,505,788
5,819
2
5,821
223
-
-
223
6,044
2,275,483 $
1,510,718 $
7,353
21,707
1,539,778
4,313
-
4,313
-
-
-
-
4,313
1,544,091 $
9,344
2
9,346
409
422
2,861
3,692
13,038
1,046,517 $
697,607 $
2,536
12,631
712,774
4,458
-
4,458
62
811
3,053
3,926
8,384
721,158 $
7,607
-
7,607
-
-
-
-
7,607
747,697 $
1,591
92
1,683
553
-
3,592
4,145
5,828
2,228,542 $
4,902
-
4,902
28
-
-
28
4,930
244,996 $
29,263
96
29,359
1,213
422
6,453
8,088
37,447
6,543,235
295,645 $
15,215
5,997
316,857
1,704,910 $
31,733
42,704
1,779,347
216,155 $
-
-
216,155
4,425,035
56,837
83,039
4,564,911
5,173
-
5,173
436
-
-
436
5,609
322,466 $
1,609
-
1,609
575
-
3,198
3,773
5,382
1,784,729 $
1,152
-
1,152
75
200
-
275
1,427
217,582 $
16,705
-
16,705
1,148
1,011
6,251
8,410
25,115
4,590,026
$
$
$
$
(1)
(2)
(3)
Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused
management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent
with the standards established by Pinnacle Bank's primary regulators for loans classified as substandard, excluding the impact of substandard nonperforming
loans and substandard troubled debt restructurings. Potential problem loans, which are not included in nonperforming assets, amounted to approximately
$105.0 million at December 31, 2015, compared to $83.0 million at December 31, 2014.
Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates.
Included in nonaccrual loans at December 31, 2015 are $12.1 million in loans acquired with deteriorated credit quality.
(cid:28)(cid:25)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 2015 and 2014, all loans classified as nonaccrual were deemed to be impaired. The principal balances of
these nonaccrual loans amounted to $29.4 million and $16.7 million at December 31, 2015 and 2014, respectively, and are
included in the table above. For the twelve months ended December 31, 2015, the average balance of nonaccrual loans was
$21.6 million as compared to $17.5 million for the twelve months ended December 31, 2014. Pinnacle Financial's policy is that the
discontinuation of the accrual of interest income will occur when (1) there is a significant deterioration in the financial condition
of the borrower and full repayment of principal and interest is not expected or (2) the principal or interest is more than 90 days
past due, unless the loan is both well secured and in the process of collection. As such, at the date the above mentioned loans
were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year
earnings. Had these nonaccruing loans been on accruing status, interest income would have been higher by $2.3 million,
$636,000 and $375,000 for the years ended December 31, 2015, 2014 and 2013, respectively.
Our purchased loans were recorded at fair value upon acquisition. Subsequently these portfolios are subject to additional
allowance or provisioning charges in the event there is evidence of credit deterioration. The table below details the two
subsections of the purchased loans by loan classification into each risk rating category as of December 31, 2015 (in thousands):
Commercial
real estate -
mortgage
Consumer real
estate -
mortgage
Construction
and land
development
Commercial
and industrial
Consumer
and other
Fair Value
Adjustment
Net
total purchased
loans
December 31, 2015
Gross contractual accruing
loans
Pass
Special Mention
Substandard
Total
Gross contractual impaired
loans(1)
Nonaccrual loans
Substandard-
nonaccrual
Doubtful-nonaccrual
Total nonaccrual loans
Total gross
contractual purchased
impaired loans
Total gross
contractual purchased
loans
$
464,665 $
4,945
5,098
474,708
274,529 $
1,896
147
276,572
189,880 $
1,175
2,635
193,690
247,509 $
5,669
826
254,004
14,424 $
974
76
15,474
(22,743) $
(666)
(364)
(23,773)
1,168,264
13,993
8,418
1,190,675
4,847
-
4,847
4,599
-
4,599
4,748
-
4,748
2,122
-
2,122
4,847
4,599
4,748
2,122
-
-
-
-
(3,581)
-
(3,581)
12,735
-
12,735
(3,581)
12,735
$
479,555 $
281,171 $
198,438 $
256,126 $
15,474 $
(27,354) $
1,203,410
(1)All of the purchased impaired loans have been deemed to be collateral dependent and as such were placed on nonaccrual. As such, no accretable difference has
been recorded on these loans. Additionally, approximately $601,000 of purchased loans which were not deemed impaired upon acquisition have subsequently
migrated to nonaccrual status and are included in this line item.
The following table provides a rollforward of purchase credit impaired loans from acquisition date through December 31,
2015 (in thousands):
Acquisition date
Year-to-date settlements
Additional fundings
December 31, 2015
Gross
Contractual
Receivable
Accretable
Yield
Nonaccretable
Yield
Carrying Value
$
$
19,937
(4,385)
117
15,669
$
$
-
-
-
-
$
$
(5,098)
1,560
-
(3,538)
$
$
14,839
(2,825)
117
12,131
These loans have been deemed to be collateral dependent and as such, no accretable yield has been recorded for these
loans. At the date of acquisition, the Day 1 Fair Value represents the carrying value. The carrying value is adjusted for
additional draws, pursuant to contractual arrangements, offset by loan paydowns. Year-to-date settlements include both loans
that were charged-off as well as loans that were paid off, typically as a result of refinancings at other institutions.
(cid:28)(cid:26)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables detail the recorded investment, unpaid principal balance and related allowance and average recorded
investment of our nonaccrual loans at December 31, 2015, 2014 and 2013 by loan classification and the amount of interest
income recognized on a cash basis throughout the year-to-date period then ended, respectively, on these loans that remain on
the balance sheets (in thousands):
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total
Cash flow dependent nonaccrual loans:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total
Total Nonaccrual Loans
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total
Cash flow dependent nonaccrual loans:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total
Total Nonaccrual Loans
At December 31, 2015
Unpaid
principal
balance
Related
allowance(1)
Recorded
investment
For the year ended
December 31, 2015
Average
recorded
investment
Interest income
recognized
$
$
$
$
$
$
$
$
$
$
4,411
5,596
7,531
1,420
-
18,958
1,410
3,750
76
263
4,902
10,401
29,359
$
$
$
$
$
5,659
6,242
7,883
3,151
-
22,935
1,661
4,098
125
281
5,341
11,506
34,441
At December 31, 2014
Unpaid
principal
balance
Recorded
investment
2,422
1,472
4,810
1,325
-
10,029
1,891
2,986
363
284
1,152
6,676
16,705
$
$
$
$
$
2,641
1,901
4,810
1,804
-
11,156
2,107
3,205
406
294
1,184
7,196
18,352
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
20
616
12
19
3,002
3,669
3,669
Related
allowance(1)
-
-
-
-
-
-
108
654
79
62
252
1,155
1,155
$
$
$
$
$
$
$
$
$
$
2,253
3,067
4,317
1,527
-
11,164
1,466
3,815
87
168
4,913
10,449
21,613
$
$
$
$
$
-
-
308
-
-
308
-
-
-
-
-
-
308
For the year ended
December 31, 2014
Average
recorded
investment
Interest income
recognized
2,624
1,552
5,016
1,561
-
10,753
1,958
3,080
384
316
972
6,710
17,463
$
$
$
$
$
-
-
256
-
-
256
-
-
-
-
-
-
256
(cid:28)(cid:27)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total
Cash flow dependent nonaccrual loans:
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Total
Total Nonaccrual Loans
At December 31, 2013
Unpaid
principal
balance
Related
allowance(1)
Recorded
investment
For the year ended
December 31, 2013
Average
recorded
investment
Interest income
recognized
$
$
$
$
$
7,035 $
2,162
545
1,828
-
11,570 $
1,982 $
3,127
525
737
242
6,613 $
7,481 $
2,209
545
1,901
-
12,136 $
2,166 $
3,334
609
1,029
252
7,390 $
- $
-
-
-
-
- $
142 $
722
33
218
72
1,187 $
6,522 $
2,234
938
3,911
-
13,605 $
2,448 $
3,405
568
1,216
242
7,879 $
18,183 $
19,526 $
1,187 $
21,484 $
-
-
-
-
-
-
-
-
-
-
-
-
-
(1) Collateral dependent loans are typically charged-off to their net realizable value and no specific allowance is carried related to those loans.
Pinnacle Financial's policy is that once a loan is placed on nonaccrual status each subsequent payment is reviewed on a
case-by-case basis to determine if the payment should be applied to interest or principal pursuant to regulatory guidelines.
Pinnacle Financial recognized approximately $308,000 and $256,000 in interest income from cash payments received on
nonaccrual loans during the years ended December 31, 2015 and 2014, respectively. No interest income from cash payments
received on nonaccrual loans was recognized in the year ended December 31, 2013.
At December 31, 2015 and 2014, there were $8.1 million and $8.4 million, respectively, of troubled debt restructurings that
were performing as of their restructure date and which are accruing interest. These troubled debt restructurings are considered
impaired loans pursuant to U.S. GAAP. Troubled commercial loans are restructured by specialists within Pinnacle Bank's Special
Assets Group, and all restructurings are approved by committees and credit officers separate and apart from the normal loan
approval process. These specialists are charged with reducing Pinnacle Financial's overall risk and exposure to loss in the
event of a restructuring by obtaining some or all of the following: improved documentation, additional guaranties, increase in
curtailments, reduction in collateral release terms, additional collateral or other similar strategies.
(cid:28)(cid:28)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table outlines the amount of each troubled debt restructuring by loan classification made during the years
ended December 31, 2015, 2014 and 2013 (in thousands):
December 31, 2015
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
December 31, 2014
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
December 31, 2013
Commercial real estate – mortgage
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
Pre
Modification
Outstanding
Recorded
Investment
Post
Modification
Outstanding
Recorded
Investment, net
of related
allowance
Number
of contracts
1
-
-
1
-
2
-
1
1
10
-
12
-
1
1
2
2
6
$
$
$
$
$
$
223
-
-
434
-
657
-
47
436
3,628
-
4,111
-
500
56
1,750
277
2,583
$
$
$
$
$
$
185
-
-
337
-
522
-
38
403
2,646
-
3,087
-
427
49
1,535
243
2,254
During the years ended December 31, 2015 and December 31, 2014, Pinnacle Financial had no troubled debt restructurings
that subsequently defaulted within twelve months of the restructuring. During the year ended December 31, 2013, Pinnacle
Financial had one consumer loan totaling $480,000 which was previously classified as a troubled debt restructuring that
subsequently defaulted within twelve months of restructuring.
In addition to the loan metrics above, Pinnacle Financial analyzes its commercial loan portfolio to determine if a
concentration of credit risk exists to any industries. Pinnacle Financial utilizes broadly accepted industry classification systems
in order to classify borrowers into various industry classifications. Pinnacle Financial has a credit exposure (loans outstanding
plus unfunded lines of credit) exceeding 25% of Pinnacle Bank's total risk-based capital to borrowers in the following industries
at December 31, 2015 with the comparative exposures for December 31, 2014 (in thousands):
Lessors of nonresidential buildings
Lessors of residential buildings
$
837,817 $
348,255
240,394 $
152,011
1,078,211 $
500,266
572,620
335,399
At December 31, 2015
Outstanding
Principal
Balances
Unfunded
Commitments
Total exposure
Total Exposure
at December 31,
2014
(cid:20)(cid:19)(cid:19)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below presents past due balances at December 31, 2015 and 2014, by loan classification and segment allocated
between performing and nonperforming status (in thousands):
December 31, 2015
Commercial real estate:
Owner-occupied
All other
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
December 31, 2014
Commercial real estate:
Owner-occupied
All other
Consumer real estate – mortgage
Construction and land development
Commercial and industrial
Consumer and other
30-89 days past
due and
performing
90 days or
more past due
and
performing
Total past due
and
performing
Nonperforming
(1)
Current
and
performing
$
$
$
$
-
-
6,380
309
4,798
6,721
18,208
-
2,232
2,391
421
3,431
9,532
18,007
$
$
$
$
-
-
1,396
-
-
373
1,769
-
-
146
-
5
172
323
$
$
$
$
-
-
7,776
309
4,798
7,094
19,977
-
2,232
2,537
421
3,436
9,704
18,330
$
$
$
$
5,103
718
9,346
7,607
1,683
4,902
29,359
4,313
-
4,458
5,173
1,609
1,152
16,705
$
$
$
$
1,078,394
1,191,268
1,029,395
739,781
2,222,061
233,000
6,493,899
760,207
777,339
714,163
316,872
1,779,684
206,727
4,554,992
$
$
$
$
Total
Loans
1,083,497
1,191,986
1,046,517
747,697
2,228,542
244,996
6,543,235
764,520
779,571
721,158
322,466
1,784,729
217,583
4,590,027
(1) Approximately $19.0 million and $10.2 million of nonaccrual loans as of December 31, 2015 and 2014, respectively, are
currently performing pursuant to their contractual terms.
The following table shows the allowance allocation by loan classification for accruing and nonperforming loans
at December 31, 2015 and 2014 (in thousands):
Accruing Loans
Nonaccrual Loans
Troubled Debt
Restructurings(1)
Total Allowance
for Loan Losses
December
31, 2015
December
31, 2014
December
31, 2015
December
31, 2014
December
31, 2015
December
31, 2014
December
31, 2015
December
31, 2014
Impaired Loans
Commercial real estate –
mortgage
Consumer real estate – mortgage
Construction and land
development
Commercial and industrial
Consumer and other
Unallocated
$
$
15,452
6,109
$
22,094
3,963
$
$
20
616
$
108
654
$
41
495
$
-
807
15,513
7,220
$
2,891
22,669
12,609
-
59,730
$
5,555
28,329
1,261
-
61,202
$
12
19
3,002
-
3,669
$
79
62
252
-
1,155
$
-
955
5
-
1,496
$
90
776
57
-
1,730
$
2,903
23,643
15,616
537
65,432
$
22,202
5,424
5,724
29,167
1,570
3,272
67,359
(1)
Troubled debt restructurings of $8.1 million and $8.4 million as of December 31, 2015 and 2014, respectively, are classified as impaired loans pursuant to
U.S. GAAP; however, these loans continue to accrue interest at contractual rates.
(cid:20)(cid:19)(cid:20)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table details the changes in the allowance for loan losses from December 31, 2012 to December 31, 2013 to
December 31, 2014 to December 31, 2015 by loan classification and the allocation of allowance for loan losses (in thousands):
Commercial real
estate -
mortgage
Consumer real
estate -
mortgage
onstruction and
land
development
Commercial and
industrial
Consumer and
other
Unallocated
Total
Allowance for Loan Losses:
Balance at December 31, 2012
Charged-off loans
Recovery of previously
charged-off loans
Provision for loan losses
Balance at December 31, 2013
Collectively evaluated for
impairment
Individually evaluated for
impairment
$
$
$
Loans acquired with deteriorated
credit quality
Balance at December 31, 2013
$
Loans:
Collectively evaluated for
19,634
(4,123)
500
5,361
21,372
$
$
8,762 $
(2,250)
1,209
634
8,355 $
9,164 $
(1,351)
1,464
(2,042)
7,235 $
24,738 $
(8,159)
4,531
4,024
25,134 $
1,094 $
(1,369)
244
1,663
1,632 $
6,025 $
-
-
(1,783)
4,242 $
69,417
(17,252)
7,948
7,857
67,970
19,298
$
7,090 $
7,186 $
24,660 $
1,521
$
59,755
2,074
-
21,372
$
1,265
-
8,355 $
49
474
111
-
7,235 $
-
25,134 $
-
1,632
$
3,973
-
67,970
impairment
$
1,360,965
$
686,343 $
315,008 $
1,601,162 $
143,186
$
4,106,664
22,470
9,273
1,183
4,385
518
-
1,383,435
$
-
695,616 $
-
316,191 $
-
1,605,547 $
-
143,704
21,372 $
(875)
538
1,167
22,202 $
8,355 $
(1,621)
671
(1,981)
5,424 $
7,235 $
(301)
277
(1,487)
5,724 $
25,134 $
(3,095)
1,484
5,644
29,167 $
1,632 $
(1,811)
487
1,262
1,570 $
37,829
-
4,144,493
67,970
(7,703)
3,457
3,635
67,359
$
4,242 $
-
-
(970)
3,272 $
22,094 $
3,963 $
5,555 $
28,329 $
1,261
$
61,202
1,461
-
5,424 $
169
838
-
5,724 $
-
29,167 $
309
-
1,570
2,885
-
67,359
$
Individually evaluated for
impairment
Loans acquired with deteriorated
credit quality
Balance at December 31, 2013
$
Allowance for Loan Losses:
Balance at December 31, 2013
Charged-off loans
Recovery of previously
charged-off loans
Provision for loan losses
Balance at December 31, 2014
Collectively evaluated for
impairment
Individually evaluated for
impairment
Loans acquired with deteriorated
credit quality
$
$
$
Balance at December 31, 2014
$
22,202 $
Loans:
Collectively evaluated for
Individually evaluated for
impairment
Loans acquired with deteriorated
credit quality
Balance at December 31, 2014
$
1,544,091 $
108
-
-
impairment
$
1,539,778 $
712,774 $
316,857 $
1,779,347 $
216,155
$
4,564,911
4,313
8,384
5,609
5,382
1,428
25,116
-
4,590,027
$
-
721,158 $
-
322,466 $
-
1,784,729 $
-
217,583
(cid:20)(cid:19)(cid:21)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commercial
real estate -
mortgage
Consumer real
estate -
mortgage
Construction
and land
development
Commercial
and industrial
Consumer and
other
Unallocated
Total
22,202 $
(384)
85
(6,390)
15,513 $
5,424 $
(365)
874
1,287
7,220 $
5,724 $
(190)
1,479
(4,110)
2,903 $
29,167 $
(2,207)
1,730
(5,047)
23,643 $
1,570 $
(18,002)
5,865
26,183
15,616 $
3,272 $
-
-
(2,735)
537 $
67,359
(21,148)
10,033
9,188
65,432
Allowance for Loan Losses:
Balance at December 31, 2014
Charged-off loans
Recovery of previously
charged-off loans
Provision for loan losses
Balance at December 31, 2015
$
$
Collectively evaluated for
impairment
$
15,452 $
6,109 $
2,891 $
22,669 $
12,609
$
59,730
Individually evaluated for
impairment
Loans acquired with deteriorated
credit quality
61
-
Balance at December 31, 2015
$
15,513 $
1,111
-
7,220 $
12
974
3,007
-
2,903 $
-
23,643 $
-
15,616
$
5,165
-
65,432
Loans:
Collectively evaluated for
impairment
Individually evaluated for
impairment
Loans acquired with deteriorated
credit quality
Balance at December 31, 2015
$
$
2,269,439 $
1,033,479 $
740,090 $
2,222,714 $
240,066
$
6,505,788
2,420
8,986
3,689
5,288
4,930
3,624
2,275,483 $
4,052
1,046,517 $
3,918
747,697 $
540
2,228,542 $
-
244,996
25,313
12,134
6,543,235
$
The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter. The level of the allowance
is based upon evaluation of the loan portfolio, historical loss experience, current asset quality trends, known and inherent risks
in the portfolio, adverse situations that may affect the borrowers' ability to repay (including the timing of future payment), the
estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, historical loss experience,
industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations.
At December 31, 2015, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately
$14.5 million to current directors, executive officers, and their related entities, of which $11.4 million had been drawn upon. At
December 31, 2014, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $6.4 million
to directors, executive officers, and their related entities, of which approximately $2.9 million had been drawn upon. These loans
and extensions of credit were made in the ordinary course of business on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans to persons not related to Pinnacle Bank and did not involve
more than the normal risk of collectability or present other unfavorable features. None of these loans to directors, executive
officers, and their related entities were impaired at December 31, 2015 or 2014.
Residential Lending
At December 31, 2015, Pinnacle Financial had approximately $47.9 million of mortgage loans held-for-sale compared to
approximately $14.0 million at December 31, 2014. Total loan volumes sold during the year ended December 31, 2015 were
approximately $519.1 million compared to approximately $335.6 million for the year ended December 31, 2014. During the year
ended December 31, 2015, Pinnacle Financial recognized $7.7 million in gains on the sale of these loans, net of commissions
paid, compared to $5.6 million and $6.2 million, respectively, during the years ended December 31, 2014 and 2013.
(cid:20)(cid:19)(cid:22)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
These mortgage loans held-for-sale are originated internally and are primarily to borrowers in Pinnacle Bank's geographic
markets. These sales are typically on a mandatory basis to investors that follow conventional government sponsored entities
(GSE) and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs (HUD/VA) guidelines.
Each purchaser has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal
amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the
purchase agreements require Pinnacle Bank to make certain representations and warranties regarding the existence and
sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection
with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties, Pinnacle
Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the
purchaser whole for the economic benefits of the loan. To date, repurchase activity pursuant to the terms of these
representations and warranties has been insignificant to Pinnacle Bank.
Note 7. Mortgage Servicing Rights
Mortgage servicing rights (MSRs) are recorded at the lower of cost or market in "Other assets" on Pinnacle Financial's
consolidated balance sheets and are amortized over the remaining life of the loans and written off when a mortgage loan
prepays prior to maturity. The financial data included herein reflects the impact of the Mergers beginning on the respective
acquisition dates and are subject to future refinements to Pinnacle Financial's purchase accounting adjustments. Mortgage
servicing rights had the following carrying values as of December 31, 2015 (in thousands):
Mortgage servicing rights
Gross
Carrying
Amount
2015
Accumulated
Amortization
Net
Carrying
Amount
$
6,802
$
(390)
$
6,412
The following table provides a detail of changes in the mortgage servicing right from September 1, 2015, the closing date of
the Magna Merger, to December 31, 2015:
Beginning balance acquired in Magna Merger
Add: Capitalized MSRs
Less: Amortization
Ending balance
Residential
6,641
161
(390)
6,412
$
$
Income and expense associated with these MSRs, which includes servicing fees, late charges, guarantee fees and loan
payoff interest, is recorded on a cash basis which approximates income as would be recorded on a U.S. GAAP basis. The
following table summarizes the net servicing fee income and expense for the year ended December 31, 2015 (in thousands):
Gross servicing fees
Late charges and other ancillary revenue
Gross servicing revenue
Servicing asset amortization
Guaranty fees and loan pay-off interest
Other servicing expenses
Gross servicing expenses
Net servicing fee income
Residential
1,090
160
1,250
$
$
$
$
$
386
9
51
446
804
In the first quarter of 2016, Pinnacle entered into a letter of intent to sell the servicing rights to approximately $830 million
Fannie Mae mortgage loans in a transaction expected to be completed in the second quarter of 2016. Pinnacle Financial does not
anticipate the sale of this servicing portfolio to have a material impact on its financial condition or its results of operations.
(cid:20)(cid:19)(cid:23)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Premises and Equipment and Lease Commitments
Premises and equipment at December 31, 2015 and 2014 are summarized as follows (in thousands):
Land
Buildings
Leasehold improvements
Furniture and equipment
Accumulated depreciation and amortization
Range of Useful Lives
Not applicable
15 to 30 years
15 to 20 years
3 to 15 years
2015
2014
$
$
19,848 $
60,218
22,485
56,139
158,690
(80,766)
77,924 $
19,829
50,458
21,589
51,973
143,849
(72,273)
71,576
Depreciation and amortization expense was approximately $8.5 million, $5.1 million, and $6.0 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Pinnacle Financial has entered into various operating leases, primarily for office space and branch facilities. Rent expense
related to these leases for 2015, 2014 and 2013 totaled $5.9 million, $4.9 million and $4.4 million, respectively. At December 31,
2015, the approximate future minimum lease payments due under the aforementioned operating leases for their base term are as
follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Note 9. Deposits
At December 31, 2015, the scheduled maturities of time deposits are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
$
$
$
$
6,007
5,043
4,294
4,247
4,225
26,132
49,948
538,423
87,765
23,123
15,313
21,176
4,250
690,050
Additionally, at December 31, 2015 and 2014, approximately $278.3 million and $112.6 million, respectively, of time deposits
had been issued in denominations of $250,000 or greater.
At December 31, 2015 and 2014, Pinnacle Financial had $1.5 million and $922,000, respectively, of deposit accounts in
overdraft status that have been reclassified to loans on the accompanying consolidated balance sheets.
(cid:20)(cid:19)(cid:24)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Federal Home Loan Bank Advances
Pinnacle Bank is a member of the Federal Home Loan Bank of Cincinnati (FHLB) and as a result, is eligible for advances
from the FHLB pursuant to the terms of various borrowing agreements, which assist Pinnacle Bank in the funding of its home
mortgage and commercial real estate loan portfolios. Pinnacle Bank has pledged certain qualifying residential mortgage loans
and, pursuant to a blanket lien, certain qualifying commercial mortgage loans with an aggregate carrying value of approximately
$1.7 billion as collateral under the borrowing agreements with the FHLB.
At December 31, 2015 and 2014, Pinnacle Financial had received advances from the FHLB totaling $300.3 million and $195.4
million, respectively. Pinnacle Financial recorded FHLB advances received in conjunction with the acquisitions of CapitalMark
and Magna. However, these advances were redeemed at the time of acquisition resulting in no on-going impact to Pinnacle
Financial as the Day 1 fair value adjustment offset against the cost to redeem these advances. Additionally, Pinnacle Financial
recognized a discount on FHLB advances in conjunction with previous acquisitions. At December 31, 2015, there was no
remaining discount. The remaining discount was $91,000 at December 31, 2014. At December 31, 2015, the scheduled maturities
of these advances and interest rates are as follows (in thousands):
2016
2017
2018
2019
2020
Thereafter
Weighted average interest rate
Scheduled
Maturities
$
$
300,000
-
4
-
236
65
300,305
Weighted
average
interest
rates
0.50%
0.00%
2.00%
0.00%
2.25%
3.03%
0.50 %
During 2013, Pinnacle Bank restructured approximately $35.0 million of FHLB advances to reduce its ongoing funding costs.
This restructuring was undertaken to reduce the weighted average interest rates on those FHLB advances from 1.79%, which
was significantly higher than the rate for replacement funding. Other than the interest rates, the terms of the replacement
advances are similar to those of the advances restructured. This restructuring resulted in a one-time charge of $877,000 during
the first quarter of 2013. No restructuring of FHLB advances occurred during the years ended December 31, 2014 or December
31, 2015.
At December 31, 2015, Pinnacle Bank had accommodations which allow it to borrow from the Federal Reserve Bank of
Atlanta's discount window and purchase Federal funds from several of its correspondent banks on an overnight basis at
prevailing overnight market rates. These accommodations are subject to various restrictions as to their term and availability,
and in most cases, must be repaid within less than a month. At December 31, 2015, there was no balance owed to the Federal
Reserve Bank or other correspondents under these agreements. At December 31, 2015, Pinnacle Bank had approximately $2.1
billion in additional borrowing capacity with the FHLB, the Federal Reserve Bank discount window, and other correspondent
banks with whom Pinnacle Bank has arranged lines of credit. At December 31, 2015, Pinnacle Bank was not carrying any
balances with the Federal Reserve Bank discount window or correspondent banks under these arrangements and was carrying a
balance of $300.3 million with the FHLB.
(cid:20)(cid:19)(cid:25)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Investments in Affiliated Companies and Subordinated Debt
Beginning on December 29, 2003, Pinnacle Financial established Trusts that were created for the exclusive purpose of
issuing 30-year capital trust preferred securities and used the proceeds to acquire junior subordinated debentures
(Subordinated Debentures) issued by Pinnacle Financial. The sole assets of the Trusts are the Subordinated Debentures. The
$2,476,000 investment in the Trusts is included in other assets in the accompanying consolidated balance sheets and the
$82,476,000 obligation is reflected as subordinated debt. The details of the Trusts established are as follows:
Date
Established
December 29, 2003
September 15, 2005
September 7, 2006
October 31, 2007
Common
Securities
Trust
Preferred
Securities
Maturity
December 30, 2033 $
September 30, 2035
September 30, 2036
September 30, 2037
310,000 $ 10,000,000
20,000,000
619,000
20,000,000
619,000
30,000,000
928,000
Floating Interest
Rate
Libor + 2.80%
Libor + 1.40%
Libor + 1.65%
Libor + 2.85%
Interest
Rate at
December
31, 2015
3.33%
2.00%
2.26%
3.36%
Trust I
Trust II
Trust III
Trust IV
Distributions are payable quarterly. The Trust Preferred Securities are subject to mandatory redemption upon repayment of
the Subordinated Debentures at their stated maturity date or their earlier redemption in an amount equal to their liquidation
amount plus accumulated and unpaid distributions to the date of redemption. Pinnacle Financial guarantees the payment of
distributions and payments for redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the
Trusts. Pinnacle Financial's obligations under the Subordinated Debentures together with the guarantee and other back-up
obligations, in the aggregate, constitute a full and unconditional guarantee by Pinnacle Financial of the obligations of the
Trusts under the Trust Preferred Securities.
The Subordinated Debentures are unsecured, bear interest at a rate equal to the rates paid by the Trusts on the Trust
Preferred Securities and mature on the same dates as those noted above for the Trust Preferred Securities. Interest is payable
quarterly. We may defer the payment of interest at any time for a period not exceeding 20 consecutive quarters provided that
the deferral period does not extend past the stated maturity. During any such deferral period, distributions on the Trust
Preferred Securities will also be deferred and our ability to pay dividends on our common shares will be restricted.
The Trust Preferred Securities may be redeemed prior to maturity at our option. The Trust Preferred Securities may also be
redeemed at any time in whole (but not in part) in the event of unfavorable changes in laws or regulations that result in (1) the
Trust becoming subject to federal income tax on income received on the Subordinated Debentures, (2) interest payable by the
parent company on the Subordinated Debentures becoming non-deductible for federal tax purposes, (3) the requirement for the
Trust to register under the Investment Company Act of 1940, as amended, or (4) loss of the ability to treat the Trust Preferred
Securities as "Tier I capital" under the Federal Reserve capital adequacy guidelines.
Under current Federal Reserve capital adequacy guidelines, the Trust Preferred Securities are treated as Tier I capital.
Combined summary financial information for the Trusts follows (in thousands):
Combined Summary Balance Sheets
Asset – Investment in subordinated debentures issued by Pinnacle Financial
Liabilities
Stockholder's equity – Trust preferred securities
Common securities (100% owned by Pinnacle Financial)
Total stockholder's equity
Total liabilities and stockholder's equity
(cid:20)(cid:19)(cid:26)
December
31, 2015
December
31, 2014
82,476 $
82,476
- $
-
80,000
2,476
82,476
82,476 $
80,000
2,476
82,476
82,476
$
$
$
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Combined Summary Income Statements
Income – Interest income from subordinated debentures issued by Pinnacle
Financial
Net Income
$
$
2,068 $
2,068 $
2,020 $
2,020 $
2,057
2,057
Year ended December 31,
2014
2013
2015
Combined Summary Statements of Stockholder's Equity
Total
Common
Stock
Balances, December 31, 2012
Net income
Issuance of trust preferred securities
Dividends:
Trust preferred securities
Common- paid to Pinnacle Financial
Balances, December 31, 2013
Net income
Issuance of trust preferred securities
Dividends:
Trust preferred securities
Common- paid to Pinnacle Financial
Balances, December 31, 2014
Net income
Issuance of trust preferred securities
Dividends:
Trust preferred securities
Common- paid to Pinnacle Financial
Balances, December 31, 2015
Note 12. Income Taxes
Trust
Preferred
Securities
80,000
-
-
$
-
-
80,000
-
-
-
-
80,000
-
-
-
-
80,000
$
$
$
Retained
Earnings
Stockholder's
Equity
$
$
$
$
2,476 $
-
-
-
-
2,476 $
-
-
-
-
2,476 $
-
-
-
-
2,476 $
- $
2,057
-
(1,995)
(62)
- $
2,020
-
(1,957)
(63)
- $
2,068
-
(2,006)
(62)
- $
82,476
2,057
-
(1,995)
(62)
82,476
2,020
-
(1,957)
(63)
82,476
2,068
-
(2,006)
(62)
82,476
Income tax expense (benefit) attributable to continuing operations for each of the years ended December 31 is as follows
(in thousands):
Current tax expense :
Federal
State
Total current tax expense
Deferred tax expense (benefit):
Federal
State
Total deferred tax expense (benefit)
Total income tax expense
2015
2014
2013
$
$
$
41,721 $
48
41,769
4,963
857
5,820
47,589 $
34,068 $
719
34,787
(1,260)
1,655
395
35,182 $
26,317
-
26,317
240
1,601
1,841
28,158
(cid:20)(cid:19)(cid:27)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinnacle Financial's income tax expense (benefit) differs from the amounts computed by applying the Federal income tax
statutory rates of 35% to income (loss) before income taxes. A reconciliation of the differences for each of the years in the three-
year period ended December 31, 2015 is as follows (in thousands):
Income tax expense at statutory rate
State excise tax expense, net of federal tax effect
Tax-exempt securities
Federal tax credits
Bank owned life insurance
Insurance premiums
Change in uncertain tax positions
Other items
Income tax expense
2015
2014
2013
$
$
50,084
588
(2,543)
-
(892)
(306)
-
658
47,589
$
$
36,978 $
1,827
(2,675)
-
(849)
(401)
392
(90)
35,182 $
30,059
1,601
(2,603)
-
(740)
(349)
-
190
28,158
Pinnacle Financial's effective tax rate for 2015 and 2014 differs from the Federal income tax statutory rate of 35% primarily
due to a state excise tax expense, investments in bank qualified municipal securities, our real estate investment trust,
participation in the Community Investment Tax Credit (CITC) program, bank owned life insurance and tax savings from our
captive insurance subsidiary, PNFP Insurance, Inc. offset in part by the limitation on deductibility of meals and entertainment
expense.
The components of deferred income taxes included in other assets in the accompanying consolidated balance sheets at
December 31, 2015 and 2014 are as follows (in thousands):
Deferred tax assets:
Loan loss allowance
Loans
Insurance
Accrued liability for supplemental retirement agreements
Restricted stock and stock options
Cash flow hedge
Net operating loss carryforward
Other real estate owned
Other deferred tax assets
Total deferred tax assets
Deferred tax liabilities:
Depreciation and amortization
Core deposit intangible asset
Securities
Cash flow hedge
REIT dividends
FHLB related liabilities
Mortgage servicing rights
Other deferred tax liabilities
Total deferred tax liabilities
Net deferred tax assets
(cid:20)(cid:19)(cid:28)
2015
2014
$
$
24,959 $
11,568
823
2,476
4,824
949
-
587
2,905
49,091
6,273
3,786
2,337
-
1,772
1,385
2,468
473
18,494
30,597 $
25,783
971
773
531
4,159
-
377
1,540
1,525
35,659
4,827
904
5,954
161
1,523
1,187
-
489
15,045
20,614
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements
as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition,
measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance
concerning accounting for income tax uncertainties in interim periods.
A reconciliation of the beginning and ending unrecognized tax benefit related to State uncertain tax positions is as follows
(in thousands):
Balance at January 1,
Decreases due to tax positions taken during the current year
Increases due to tax positions taken during a prior year
Decreases due to the lapse of the statute of limitations during the current year
Decreases due to settlements with the taxing authorities during the current year
Balance at December 31,
2015
2014
2013
$
$
391
(257)
-
-
-
134
-
-
391
-
-
391
-
-
-
-
-
-
Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The
total amounts of interest and penalties recorded in the income statement for the years ended December 31, 2015 and 2014 were a
benefit of $96,000 and expense of $140,000, respectively. No interest and penalties were recorded for the year ended December
31, 2013.
Note 13. Commitments and Contingent Liabilities
In the normal course of business, Pinnacle Financial has entered into off-balance sheet financial instruments which include
commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend
credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding
indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns
that use lines of credit to supplement their treasury management functions, thus their total outstanding indebtedness may
fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other
typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed
expiration dates or other termination clauses and may require payment of a fee. At December 31, 2015, these commitments
amounted to $2.219 billion, of which approximately $297.0 million related to home equity lines of credit.
Standby letters of credit are generally issued on behalf of an applicant (customer) to a specifically named beneficiary and
are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of
credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria
specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary
for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The
standby letter of credit would permit the beneficiary to obtain payment from Pinnacle Financial under certain prescribed
circumstances. Subsequently, Pinnacle Financial would then seek reimbursement from the applicant pursuant to the terms of the
standby letter of credit. At December 31, 2015, these commitments amounted to $93.5 million.
Pinnacle Financial follows the same credit policies and underwriting practices when making these commitments as it does
for on-balance sheet instruments. Each customer's creditworthiness is evaluated on a case-by-case basis and the amount of
collateral obtained, if any, is based on management's credit evaluation of the customer. Collateral held varies but may include
cash, real estate and improvements, marketable securities, accounts receivable, inventory, equipment, and personal property.
The contractual amounts of these commitments are not reflected in the consolidated financial statements and would only
be reflected if drawn upon. Since many of the commitments are expected to expire without being drawn upon, the contractual
amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should
our customers default on their resulting obligation to us, Pinnacle Financial's maximum exposure to credit loss, without
consideration of collateral, is represented by the contractual amount of those instruments. At December 31, 2015, Pinnacle
Financial had accrued $1.4 million for the inherent risks associated with off balance sheet commitments.
(cid:20)(cid:20)(cid:19)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the
resolution of these routine claims outstanding at December 31, 2015 will not have a material impact on Pinnacle Financial's
consolidated financial condition, operating results or cash flows.
Note 14. Salary Deferral Plans
Pinnacle Financial has a 401(k) retirement plan (the 401k Plan) covering all employees who elect to participate, subject to
certain eligibility requirements. The Plan allows employees to defer up to 50% of their salary subject to regulatory limitations
with Pinnacle Financial matching 100% of the first 4% of employee self-directed contributions during 2015, 2014, and 2013.
Pinnacle Financial's expense associated with the matching component of the plan for each of the years in the three-year period
ended December 31, 2015 was approximately $2,655,000, $2,381,000 and $2,241,000, respectively, and is included in the
accompanying consolidated statements of operations in salaries and employee benefits expense.
Prior to the merger with Pinnacle Financial on March 15, 2006, Cavalry had adopted nonqualified noncontributory
supplemental retirement agreements (the Cavalry SRAs) for certain directors and executive officers of Cavalry. Cavalry invested
in and, as a result of the Cavalry merger, Pinnacle Financial is the owner of single premium life insurance policies on the life of
each participant and is the beneficiary of the policy value. When a participant retires, the accumulated gains on the policy
allocated to such participant, if any, will be distributed to the participant in equal installments for 15 years (the Primary Benefit).
In addition, any annual gains after the retirement date of the participant will be distributed on an annual basis for the lifetime of
the participant (the Secondary Benefit). As a result of the merger with Pinnacle Financial, all participants became fully vested in
the Cavalry SRAs. No new participants have been added to the Cavalry SRAs following the merger with Pinnacle Financial.
The Cavalry SRAs also provide the participants with death benefits, which is a percentage of the net death proceeds for
the policy, if any, applicable to the participant. The death benefits are not taxable to Pinnacle Financial or the participant's
beneficiary.
Pinnacle Financial recognized approximately $83,000, $99,000, and $178,000 in compensation expense in each year of the
three-year period ended December 31, 2015 related to the Cavalry SRAs. During 2007, Pinnacle Financial offered a settlement to
all participants in the Cavalry SRAs with eleven participants accepting the settlement. Two individuals remain as participants in
the Cavalry SRAs. At December 31, 2015, 2014 and 2013, included in other liabilities is $1,312,000, $1,352,000, and $1,373,000,
respectively, which represents the net present value of the future obligation owed the two remaining participants in the Cavalry
SRAs using a discount rate of 5% at December 31, 2015, 2014 and 2013.
In conjunction with the acquisitions of CapitalMark, Pinnacle assumed a liability of $5.0 million associated with existing
supplemental executive retirement plans. These plans provide benefits for former CapitalMark executives and will be paid out
over the next 23 years.
Note 15. Stock Options, Stock Appreciation Rights and Restricted Shares
As of December 31, 2015, Pinnacle Financial has one equity incentive plan under which it is able to grant awards, the 2014
Equity Incentive Plan (the 2014 Plan), and has assumed the stock option plan (the CapitalMark Option Plan) of CapitalMark in
connection with the CapitalMark Merger. In addition, awards previously granted remain outstanding under equity plans
previously adopted by Pinnacle Financial's Board of Directors or assumed in connection with acquisitions of Mid-America
Bancshares, Inc. and Cavalry Bancorp, Inc. No new awards may be granted under these other plans or the CapitalMark Option
Plan.
Total shares available for issuance under the 2014 Plan were approximately 1.1 million shares as of December 31, 2015,
inclusive of shares returned to plan reserves during the year ended December 31, 2015. The 2014 Plan also permits Pinnacle
Financial to issue additional awards to the extent that currently outstanding awards are subsequently forfeited, settled in cash
of expired unexercised and returned to the 2014 Plan. Upon the acquisition of CapitalMark, Pinnacle Financial assumed
approximately 858,000 of stock options under the CapitalMark Plan. No further shares remain available for issuance under the
CapitalMark Option Plan. No options were assumed upon the acquisition of Magna as all preexisting Magna stock options
were cancelled in exchange for a cash payment upon acquisition.
(cid:20)(cid:20)(cid:20)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock Options and Stock Appreciation Rights
As of December 31, 2015, of the 1,249,166 stock options and 2,435 stock appreciation rights outstanding, approximately
392,000 options were granted with the intention to be incentive stock options qualifying under Section 422 of the Internal
Revenue Code for favorable tax treatment to the option holder while 859,000 options would be deemed non-qualified stock
options or stock appreciation rights and thus not subject to favorable tax treatment to the option holder. Favorable treatment
generally refers to the recipient of the award not having to report ordinary income at the date of exercise. All stock options
granted under the Pinnacle Financial equity incentive plans vested in equal increments over five years from the date of grant
and are exercisable over a period of ten years from the date of grant. All stock options and stock appreciation rights granted
under plans assumed in connection with Pinnacle Financial's mergers with Cavalry and Mid-America were fully-vested at the
date of those mergers.
A summary of stock option and stock appreciation right activity within the equity incentive plans during each of the years
in the three-year period ended December 31, 2015 and information regarding expected vesting, contractual terms remaining,
intrinsic values and other matters was as follows:
Weighted-
Average
Exercise
Price
Weighted-
Average
Contractual
Remaining Term
(in years)
Aggregate
Intrinsic
Value (1)
(000's)
Outstanding at December 31, 2012
Granted
Stock options exercised
Stock appreciation rights exercised (2)
Forfeited
Outstanding at December 31, 2013
Granted
Stock options exercised
Stock appreciation rights exercised (2)
Forfeited
Outstanding at December 31, 2014
Options assumed upon acquisition of
CapitalMark
Granted
Stock options exercised
Stock appreciation rights exercised (2)
Forfeited
Outstanding at December 31, 2015
Outstanding and expected to vest at
December 31, 2015
Number
1,318,381
-
(279,534)
(1,732)
(34,615)
1,002,500
-
(301,794)
(1,586)
(632)
698,488
858,148
-
(303,754)
(1,276)
(5)
1,251,601
$
$
$
$
23.36
-
14.07
15.60
29.31
25.77
-
23.21
15.60
24.95
26.89
17.62
-
24.09
15.60
23.88
21.23
1,251,601
$
21.23
2.54
2.54
$37,714
$37,714
(1)
(2)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of Pinnacle Financial
common stock of $51.36 per common share at December 31, 2015 for the 1,251,601 options and stock appreciation rights that were in-the-money at
December 31, 2015.
The 1,732 stock appreciation rights exercised during 2013 settled in 471 shares of Pinnacle Financial common stock. The 1,586 stock appreciation rights
exercised during 2014 settled in 609 shares of Pinnacle Financial common stock. The 1,276 stock appreciation rights exercised during 2015 settled in 559
shares of Pinnacle Financial common stock.
During each of the years in the three-year period ended December 31, 2015, the aggregate intrinsic value of options and
stock appreciation rights exercised under Pinnacle Financial's equity incentive plans was $7.6 million, $4.0 million and $3.6
million, respectively, determined as of the date of option exercise.
As of December 31, 2015, compensation costs related to unvested stock options and stock appreciation rights granted
under Pinnacle Financial's equity incentive plans and the CapitalMark Option Plan had been fully recognized in prior periods
and all outstanding option awards are fully vested.
(cid:20)(cid:20)(cid:21)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinnacle Financial adopted ASC 718-20 Compensation using the modified prospective transition method on January 1,
2006. Accordingly, during the three-years ended December 31, 2015, Pinnacle Financial recorded stock-based compensation
expense using the Black-Scholes valuation model for awards granted prior to, but not yet vested, as of January 1, 2006 and for
all stock-based awards granted after January 1, 2006, based on fair value estimates using the Black-Scholes valuation model.
For these awards, Pinnacle Financial has recognized compensation expense using a straight-line amortization method. As ASC
718-20 requires that stock-based compensation expense be based on awards that are ultimately expected to vest, stock-based
compensation for the years ended December 31, 2015, 2014, and 2013 has been reduced for estimated forfeitures. The impact on
the results of operations (compensation and employee benefits expense) and earnings per share of recording stock-based
compensation in accordance with ASC 718-20 (related to stock option awards) for the three-year period ended December 31,
2015 was as follows (in thousands, except per share data):
Non-qualified stock options
Stock-based compensation expense
Income tax benefit
Stock-based compensation expense after income tax benefit
Impact on per share results from stock-based compensation:
Basic
Fully diluted
For the year ended December 31,
2014
2013
2015
$
$
$
$
-
-
-
0.00
0.00
$
$
$
$
-
-
-
0.00
0.00
$
$
$
$
13
5
8
0.00
0.00
There have been no options granted by Pinnacle Financial since 2008.
Restricted Shares
Additionally, the 2014 Plan (and Pinnacle Financial's prior equity incentive plans), provides for the granting of restricted
share awards and other performance or market-based awards. There were no market-based awards or stock appreciation rights
outstanding as of December 31, 2015 under the 2014 Plan or any of Pinnacle Financial's other equity incentive plans. During the
three-year period ended December 31, 2015, Pinnacle Financial awarded 231,504, 126,117 and 164,602 shares of restricted stock
to certain Pinnacle Financial associates and outside directors. Pinnacle Financial also issued 225,228 restricted share units in
2012 which converted to 193,189 restricted share awards in 2013, 186,943 restricted share units in 2013 which converted to
186,943 restricted share awards in 2014 and 131,296 restricted share units in 2014 of which the first traunche converted to 43,711
restricted share awards in 2015.
A summary of activity for unvested restricted share awards for the years ended December 31, 2015, 2014, and 2013 follows:
Unvested at December 31, 2012
Shares awarded
Conversion of restricted share units to restricted share awards
Restrictions lapsed and shares released to associates/directors
Shares forfeited
Unvested at December 31, 2013
Shares awarded
Conversion of restricted share units to restricted share awards
Restrictions lapsed and shares released to associates/directors
Shares forfeited
Unvested at December 31, 2014
Shares awarded
Conversion of restricted share units to restricted share awards
Restrictions lapsed and shares released to associates/directors
Shares forfeited
Unvested at December 31, 2015
(cid:20)(cid:20)(cid:22)
Grant Date
Weighted-
Average Cost
Number
$
$
$
739,909
164,602
193,189
(221,325)
(54,680)
821,695
126,117
186,943
(249,684)
(35,873)
849,198
231,504
43,711
(240,102)
(17,997)
866,314
$
15.45
21.78
21.51
15.97
15.30
19.18
33.32
31.68
18.19
20.70
24.26
45.71
34.50
23.00
30.01
31.39
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinnacle Financial grants restricted share awards to associates, including members of executive management, and outside
directors with a combination of time and performance vesting criteria. The following tables outline restricted stock grants that
were made by grant year, grouped by similar vesting criteria, during the three year period ended December 31, 2015. The table
below reflects the life-to-date activity for these awards:
Grant
Year
Group(1)
Time Based Awards
2013
2014
2015
2015
Associates(2)
Associates(2)
Associates(2)
Leadership team(3)
Performance Based Awards
2013
2014
2015
2015
Leadership team(4)
Leadership team(4)
Leadership team(4)
Leadership team(5)
Outside Director Awards (6)
2013
2014
2015
Outside directors
Outside directors
Outside directors
Vesting
Period in
years
Shares
awarded
Restrictions Lapsed
and shares released to
participants
Shares Withheld
for taxes by
participants
Shares Forfeited
by participants(7) Shares Unvested
5
5
5
5
5
5
5
3
1
1
1
150,125
113,918
190,528
16,605
193,189
186,943
43,711
11,302
14,477
12,199
13,069
41,263
15,543
28
-
55,693
27,129
-
-
12,062
10,537
678
16,067
6,258
-
-
20,525
9,375
-
-
2,415
1,662
227
12,545
9,158
4,391
-
4,219
4,386
-
-
-
-
-
80,250
82,959
176,940
16,605
112,752
146,053
43,711
11,302
-
-
12,164
(1) Groups include employees (referred to as associates above), the leadership team which includes our named executive officers and other key senior leadership
members, and outside directors. When the restricted shares are awarded, a participant receives voting rights and forfeitable dividend rights with respect to the
shares, but is not able to transfer the shares until the restrictions have lapsed. Once the restrictions lapse, the participant is taxed on the value of the award and
may elect to sell some shares to pay the applicable income taxes associated with the award. For time-based restricted share awards, dividends paid on shares for
which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination. For performance-based awards, dividends are
placed into escrow until the forfeiture restrictions on such shares lapse.
(2) The forfeiture restrictions on these restricted share awards lapse in equal annual installments on the anniversary date of the grant.
(3) These shares were awarded to individuals joining the leadership team upon Pinnacle Financial's acquisition of Magna. The forfeiture restrictions on these
restricted share awards lapse in equal installments on the anniversary date of the grant.
(4) The forfeiture restrictions on these restricted share awards lapse in separate equal installments should Pinnacle Financial achieve certain earnings and soundness
targets over each year of the subsequent vesting period.
(5) These share were awarded to individuals joining the leadership team upon Pinnacle Financial's acquisition of CapitalMark. The forfeiture restrictions on these
restricted share awards lapse in separate equal installments should Pinnacle Financial achieve certain earnings targets over each year of the vesting period and
should the recipient thereafter remain employed by Pinnacle Financial for a subsequent vesting period.
(6) Restricted share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on the
one year anniversary date of the award based on each individual board member meeting their attendance goals for the various board and board committee
meetings to which each member was scheduled to attend.
(7) These shares represent forfeitures resulting from recipients for when employment terminated during the year-to-date period ended December 31, 2015. Any
dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by the Company at the time of termination.
Compensation expense associated with the performance based restricted share awards is recognized over the time period
that the restrictions associated with the awards are anticipated to lapse based on a graded vesting schedule such that each
traunche is amortized separately. Compensation expense associated with the time based restricted share awards is recognized
over the time period that the restrictions associated with the awards lapse on a straight-line basis based on the total cost of the
award.
(cid:20)(cid:20)(cid:23)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of compensation expense, net of the impact of income taxes, related to restricted stock awards for the three-year
period ended December 31, 2015, follows (in thousands, except per share data):
Restricted stock expense
Income tax benefit
Restricted stock expense, net of income tax benefit
Impact on per share results from restricted stock expense:
Basic
Fully diluted
2015 Restricted Share Units
2015
2014
2013
$
$
$
$
6,033 $
2,368
3,665 $
0.10 $
0.10 $
4,970 $
1,951
3,019 $
0.09 $
0.09 $
4,070
1,597
2,473
0.07
0.07
Pinnacle Financial granted restricted share units to the senior executive officers and the other members of the Leadership
Team in the first quarter of 2015. The senior executive officers' restricted share unit award included a range from 58,200 units at
the target compensation level to 101,850 units at the maximum compensation level. These restricted share units will convert to a
number of shares of Pinnacle Financial's common stock based on the achievement of certain performance metrics. The
Leadership Team restricted share unit award of 28,378 units was granted at a target level of performance. For both senior
executive officers and the Leadership Team, approximately one-third of these awards are eligible to be earned based on the
achievement of certain predetermined performance goals for each of the fiscal years ended December 31, 2015, 2016 and 2017,
respectively. The performance metrics for each of the impacted fiscal years were established concurrently with the issuance of
the restricted share unit grants in January 2015 by the Human Resources and Compensation Committee of the Board of
Directors (HRCC). The awards include a one-year performance period and an additional one-year service period following the
performance period for a combined two-year service period per traunche. At the end of each respective two-year service period,
the restricted share units are then subject to a post-vest holding period to extend the term of each traunche of the award to five
years from the date of grant. During the post-vest holding period, the shares of Pinnacle Financial's common stock will not be
issued in settlement of the units and cannot be transferred, subject to limited exceptions, but will continue to accrue dividends
until the awards are released, which is expected to be commensurate with the filing of Pinnacle Financial's Annual Report on
Form 10-K for the year ended December 31, 2019 provided Pinnacle Bank achieves a certain soundness threshold as of
December 31, 2019. These restricted share units are being expensed based on their grant date fair value over the requisite
service period of the underlying traunche of the award. Each period, the number of units that is expected to be earned by the
recipient is reevaluated and the associated compensation expense is adjusted accordingly. For the year ended December 31,
2015, Pinnacle Financial recognized expense associated with the first traunche of this award totaling approximately $533,000.
The expense is being accrued using an anticipated performance level for the senior executive officers between the target and
maximum performance levels and at the target performance level for the other members of the Leadership Team.
2014 Restricted Share Units
Pinnacle Financial granted restricted share units to the senior executive officers and to other members of the Leadership
Team in the first quarter of 2014. The senior executive officers' restricted share unit award included a range from 58,404 units at
the target compensation level to 102,209 units at the maximum compensation level. The Leadership Team restricted share unit
award of 29,087 units was granted at a target level of performance. For both senior executive officers and the Leadership Team,
one-third of these restricted share units were settled with the issuance of 43,711 restricted shares upon the filing of Pinnacle
Financial's 2014 Annual Report on Form 10-K. An additional one-third of these restricted share units will be settled with the
issuance of 43,711 restricted shares upon the filing of Pinnacle Financial's 2015 Annual Report on Form 10-K. The remaining
restricted share units are eligible for conversion to restricted share awards based on the Company's achievement of certain
predetermined goals for the fiscal year ended December 31, 2016. Upon conversion to restricted share awards, the restrictions
on these shares will lapse in 2018 and 2019 in 50% increments based on the attainment of certain soundness targets as of
December 31, 2017 and December 31, 2018, respectively. The performance metrics and soundness criteria for each of the
impacted fiscal years were established concurrently with the restricted share unit grants in January 2014 by the HRCC. These
restricted share units are being expensed based on the requisite service period of the underlying traunche of the award. Each
period, the number of units that the recipient is expected to earn is reevaluated and the associated compensation expense is
adjusted accordingly. For the year ended December 31, 2015, Pinnacle Financial expensed approximately $776,000 attributable to
these awards compared to approximately $339,000 for the same period in the prior year.
(cid:20)(cid:20)(cid:24)
Note 16. Derivative Instruments
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair
value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives
not designated as hedges, the gain or loss is recognized in current earnings.
Non-hedge derivatives
Pinnacle Financial enters into interest rate swaps (swaps) to facilitate customer transactions and meet their financing needs.
Upon entering into these instruments to meet customer needs, Pinnacle Financial enters into offsetting positions in order to
minimize the risk to Pinnacle Financial. These swaps qualify as derivatives, but are not designated as hedging instruments.
Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms.
When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or customer
owes Pinnacle Financial, and results in credit risk to Pinnacle Financial. When the fair value of a derivative instrument contract
is negative, Pinnacle Financial owes the customer or counterparty and therefore, Pinnacle Financial has no credit risk.
A summary of Pinnacle Financial's interest rate swaps to facilitate customer transactions as of December 31, 2015 and
December 31, 2014 is included in the following table (in thousands):
Interest rate swap agreements:
Pay fixed / receive variable swaps
Pay variable / receive fixed swaps
Total
Hedge derivatives
At December 31, 2015
At December 31, 2014
Notional
Amount
Estimated Fair
Value
Notional
Amount
Estimated Fair
Value
$
$
396,112
396,112
792,224
$
$
16,130 $
(16,329)
(199) $
251,321
251,321
502,642
$
$
13,030
(13,435)
(405)
Pinnacle Financial has forward cash flow hedge relationships to manage future interest rate exposure. The hedging strategy
converts the LIBOR based variable interest rate on forecasted borrowings to a fixed interest rate and protects Pinnacle Financial
from floating interest rate variability. The initial hedge relationships were entered into during the second quarter of 2013. During
the third quarter of 2014, Pinnacle Financial terminated three individual contracts of the initial hedge relationships based on
changes in internal forecasts for future interest rates. As a result of terminating these contracts, Pinnacle Financial began
recognizing a gain of $64,000 over the original terms of these agreements. Pinnacle Financial entered into additional forward
cash flow hedge relationships for interest rate risk management purposes given the aforementioned changes in forecasted
interest rates. The terms of the individual contracts within the relationship are as follows (in thousands):
Forecasted
Notional
Amount
33,000
33,000
33,000
33,000
34,000
34,000
200,000
$
Receive Rate
3 month
LIBOR
3 month
LIBOR
3 month
LIBOR
3 month
LIBOR
3 month
LIBOR
3 month
LIBOR
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Pay
Rate
Term(1)
April 2016-
April 2020
April 2016-
April 2022
Oct. 2016-
Oct. 2020
Oct. 2017-
Oct. 2021
April 2018-
July 2022
July 2018-
Oct. 2022
2.265%
2.646%
2.523%
2.992%
3.118%
3.158%
(1)
No cash will be exchanged prior to the beginning of the term.
(cid:20)(cid:20)(cid:25)
December 31, 2015
December 31, 2014
Unrealized Loss
in Accumulated
Other
Comprehensive
Income
Asset/
(Liabilities)
Unrealized Loss
in Accumulated
Other
Comprehensive
Income
Asset/
(Liabilities)
(784)
(1,478)
(908)
(1,112)
(1,170)
(1,158)
(6,610)
(476)
(898)
(552)
(676)
(711)
(704)
(4,017)
(96)
(531)
(210)
(517)
(590)
(602)
(2,546)
(58)
(323)
(128)
(314)
(359)
(366)
(1,548)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pinnacle Financial has seven interest rate swap agreements designated as cash flow hedges intended to protect against the
variability of cash flows on selected LIBOR based loans. The swaps hedge the interest rate risk, wherein Pinnacle Financial
receives a fixed rate of interest from a counterparty and pays a variable rate, based on one month LIBOR. The terms of the
respective swaps range from three to ten years and started on various dates between July 2014 and August 2015. The swaps
were entered into with a counterparty that met Pinnacle Financial's credit standards and the agreements contain collateral
provisions protecting the at-risk party. Pinnacle Financial believes that the credit risk inherent in the contract is not significant.
Forecasted
Notional
Amount
Receive
Rate
Pay
Rate
$
27,500
2.090% 1 month LIBOR
25,000
2.270% 1 month LIBOR
27,500
2.420% 1 month LIBOR
30,000
2.500% 1 month LIBOR
15,000
1.048% 1 month LIBOR
15,000
1.281% 1 month LIBOR
15,000
$ 155,000
1.470% 1 month LIBOR
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Interest Rate
Swap
Term(2)
July 2014 - July 2021
July 2014 - July 2022
July 2014 - July 2023
July 2014 - July 2024
August 2015 - August
2018
August 2015 - August
2019
August 2015 - August
2020
December 31, 2015
December 31, 2014
Unrealized
Gain in
Accumulated
Other
Comprehensive
Income
Asset/
(Liabilities)
Unrealized
Gain in
Accumulated
Other
Comprehensive
Income
Asset/
(Liabilities)
663
968
1,320
1,333
(46)
(34)
(14)
4,190
403
588
802
810
(28)
(21)
941
409
651
956
-
-
572
249
396
581
-
-
(9)
2,545
-
2,957
-
1,798
The cash flow hedges were determined to be fully effective during the period presented. And therefore, no amount of
ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other assets with changes
in fair value recorded in accumulated other comprehensive (loss) income, net of tax. If a hedge was deemed to be ineffective, the
amount included in accumulated other comprehensive (loss) income would be reclassified into a line item within the statement
of income that impacts operating results. The hedge would no longer be considered effective if a portion of the hedge becomes
ineffective, the item hedged is no longer in existence or Pinnacle Financial discontinues hedge accounting. Pinnacle Financial
expects the hedges to remain fully effective during the remaining terms of the swaps.
Note 17. Employment Contracts
Pinnacle Financial has entered into, and subsequently amended, employment agreements with four of its senior executives:
the President and Chief Executive Officer, the Chairman of the Board, the Chief Administrative Officer and the Chief Financial
Officer. These agreements, as amended, automatically renew each year on January 1 for an additional year unless any of the
parties to the agreements gives notice of intent not to renew the agreement prior to November 30th of the preceding year, in
which case the agreement terminates 30 days later. The agreements specify that in certain defined "Terminating Events,"
Pinnacle Financial will be obligated to pay each of the four senior executives certain amounts, which vary according to the
Terminating Event, which is based on their annual salaries and bonuses. These Terminating Events include disability, cause,
without cause and other events. During 2012, Pinnacle Financial entered into, and subsequently amended, a change of control
agreement with its Senior Credit Officer providing the employee with certain benefits if his employment is terminated under
certain scenarios within twelve months of a change in control. This agreement automatically renews each year on January 1
unless a party to the agreement notifies the other parties of intent not to renew the agreement prior to November 30th of the
preceding year, in which case the agreement terminates 30 days later.
(cid:20)(cid:20)(cid:26)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Related Party Transactions
A local public relations company, of which one of Pinnacle Financial's directors is a principal, has previously provided
various services for Pinnacle Financial. During the year ended December 31, 2015, Pinnacle Financial did not incur any
expenses relating to services rendered by this public relations company. However, for the years ended December 31, 2014 and
2013, Pinnacle Financial incurred approximately $36,000 and $72,000, respectively.
Also see Note 6- "Loans and Allowance for Loan Losses", concerning loans and other extensions of credit to certain
directors, officers, and their related entities and individuals and Note 14 – Salary Deferral Plans regarding supplemental
retirement agreement obligations to two directors who were formerly directors of Cavalry.
Note 19. Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for
measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses
on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset
or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based
measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the
assumptions that market participants would use in pricing the asset or liability.
Valuation Hierarchy
FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The
three levels are defined as follows:
(cid:120)
(cid:120)
(cid:120)
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active
markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the
financial instrument.
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement. Following is a description of the valuation methodologies used for assets and
liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation
hierarchy.
Assets
Securities available-for-sale – Where quoted prices are available for identical securities in an active market, securities are
classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain
other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that
use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation
hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex
pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
(cid:20)(cid:20)(cid:27)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other investments – Included in other investments are certain investments recorded at fair value primarily in certain
nonpublic private equity funds. The valuation of nonpublic private equity investments requires management judgment due to
the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These
investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either
upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale
transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing reviews by
senior investment managers. A variety of factors are reviewed and monitored to assess positive and negative changes in
valuation including, but not limited to, current operating performance and future expectations of the particular investment,
industry valuations of comparable public companies and changes in market outlook and the third-party financing environment
over time. In determining valuation adjustments resulting from the investment review process, emphasis is placed on current
company performance and market conditions. These investments are included in Level 3 of the valuation hierarchy as these
funds are not widely traded and the underling investments of such funds are often privately-held and/or start-up companies for
which market values are not readily available.
Other assets – Included in other assets are certain assets carried at fair value, including interest rate swap agreements, the
cash flow hedge and interest rate locks associated with mortgage loans held for sale. The carrying amount of interest rate swap
agreements is based on Pinnacle Financial's pricing models that utilize observable market inputs. The fair value of the cash flow
hedge is determined by calculating the difference between the discounted fixed rate cash flows and the discounted variable rate
cash flows. The fair value of the mortgage loan pipeline is based upon the projected sales price of the underlying loans, taking
into account market interest rates and other market factors at the measurement date, net of the projected fallout rate. Pinnacle
Financial reflects these assets within Level 2 of the valuation hierarchy as these assets are valued using similar transactions
that occur in the market.
Nonaccrual loans – A loan is classified as nonaccrual when it is probable Pinnacle Financial will be unable to collect all
principal and interest payments due in accordance with the contractual terms of the loan agreement. Nonaccrual loans are
measured based on the present value of expected payments using the loan's original effective rate as the discount rate, the
loan's observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent. If the
recorded investment in the nonaccrual loan exceeds the measure of fair value, a valuation allowance may be established as a
component of the allowance for loan losses or the difference may be recognized as a charge-off. Nonaccrual loans are classified
within Level 3 of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and
the borrower's underlying financial condition. Also included in nonaccrual loans are loans acquired with deteriorated credit
quality.
Other real estate owned – Other real estate owned (OREO) represents real estate foreclosed upon by Pinnacle Bank
through loan defaults by customers or acquired by deed in lieu of foreclosure. Substantially all of these amounts relate to lots,
homes and development projects that are either completed or are in various stages of construction for which Pinnacle Financial
believes it has adequate collateral. Upon foreclosure, the property is recorded at the lower of cost or fair value, based on
appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the
allowance for loan losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a
specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses
realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the
valuation hierarchy due to the lack of observable market inputs into the determination of fair value. Appraisal values are
property-specific and sensitive to the changes in the overall economic environment.
Liabilities
Other liabilities – Pinnacle Financial has certain liabilities carried at fair value including certain interest rate swap
agreements. The fair value of these liabilities is based on Pinnacle Financial's pricing models that utilize observable market
inputs and is reflected within Level 2 of the valuation hierarchy.
(cid:20)(cid:20)(cid:28)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables present the financial instruments carried at fair value as of December 31, 2015 and 2014, by caption on
the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):
December 31, 2015
Investment securities available-for-sale:
U.S. government agency securities
Mortgage-backed securities
State and municipal securities
Asset- backed securities
Corporate notes and other
Total investment securities available-for-sale
Other investments
Other assets
Total assets at fair value
Other liabilities
Total liabilities at fair value
December 31, 2014
Investment securities available-for-sale:
U.S. government agency securities
Mortgage-backed securities
State and municipal securities
Asset- backed securities
Corporate notes and other
Total investment securities available-for-sale
Other investments
Other assets
Total assets at fair value
Other liabilities
Total liabilities at fair value
Total carrying
value in the
consolidated
balance sheet
Quoted market
prices in an
active market
(Level 1)
Models with
significant
observable
market
parameters
(Level 2)
Models with
significant
unobservable
market
parameters
(Level 3)
$
$
$
$
$
$
$
$
128,193 $
582,916
165,042
48,801
10,113
935,065
9,764
15,147
959,976 $
16,568 $
16,568 $
113,456 $
455,839
138,578
13,018
11,164
732,055
8,004
15,987
756,046 $
15,981 $
15,981 $
- $
-
-
-
-
-
-
- $
- $
- $
- $
-
-
-
-
-
-
- $
- $
- $
128,193 $
582,916
165,042
48,801
10,113
935,065
-
15,147
950,212 $
16,568 $
16,568 $
113,456 $
455,839
138,578
13,018
11,164
732,055
-
15,987
748,042 $
15,981 $
15,981 $
-
-
-
-
-
9,764
-
9,764
-
-
-
-
-
-
-
-
8,004
-
8,004
-
-
The following table presents assets measured at fair value on a nonrecurring basis as of December 31, 2015 and 2014 (in
thousands):
December 31, 2015
Other real estate owned
Nonaccrual loans, net (1)
Total
December 31, 2014
Other real estate owned
Nonaccrual loans, net (1)
Total
Total carrying
value in the
consolidated
balance sheet
Quoted market
prices in an
active market
(Level 1)
Models with
significant
observable
market
parameters
(Level 2)
Models with
significant
unobservable
market
parameters
(Level 3)
Total losses for
the period
ended
$
$
$
$
5,083 $
25,690
30,773 $
11,186 $
15,551
26,737 $
- $
-
- $
- $
-
- $
- $
-
- $
- $
-
- $
5,083 $
25,690
30,773 $
11,186 $
15,551
26,737 $
(41)
(2,637)
(2,678)
(509)
(1,032)
(1,541)
(1) Amount is net of a valuation allowance of $3.7 million and $1.2 million at December 31, 2015 and 2014,
respectively, as required by ASC 310-10, "Receivables."
(cid:20)(cid:21)(cid:19)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the case of the bond portfolio, Pinnacle Financial monitors the valuation technique utilized by various pricing agencies
to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that
transfers in and out of any level are expected to be rare. For the year ended December 31, 2015, there were no transfers between
Levels 1, 2 or 3.
The table below includes a rollforward of the balance sheet amounts for the years ended December 31, 2015 and
2014 (including the change in fair value) for financial instruments classified by Pinnacle Financial within Level 3 of the valuation
hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a
financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the
unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in
addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and
can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to
observable factors that are part of the valuation methodology (in thousands):
Fair value, January 1
Total net realized gains included in income
Change in unrealized gains/losses included in other comprehensive income for assets
$
and liabilities still held at December 31
Purchases
Issuances
Settlements
Transfers out of Level 3
Fair value, December 31
Total realized losses included in income related to financial assets and liabilities still
on the consolidated balance sheet at December 31
$
$
For the year ended December 31,
2015
2014
Other
assets
Other
liabilities
Other
assets
Other
liabilities
8,004 $
149
-
2,254
-
(643)
-
9,764 $
149 $
- $
-
-
-
-
-
-
- $
- $
6,701 $
670
-
633
-
-
-
8,004 $
670 $
-
-
-
-
-
-
-
-
-
The following methods and assumptions were used by Pinnacle Financial in estimating its fair value disclosures for
financial instruments that are not measured at fair value. In cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used,
including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented
herein are based on pertinent information available to management as of December 31, 2015 and 2014, respectively. Such
amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from the amounts presented herein.
Held-to-maturity securities - Estimated fair values for investment securities are based on quoted market prices where
available. If quoted market prices are not available, then fair values are estimated by using pricing models that use
observable inputs or quoted prices of securities with similar characteristics.
Loans - The fair value of Pinnacle Financial's loan portfolio includes a credit risk factor in the determination of the fair value
of its loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize
in a hypothetical orderly transaction. Pinnacle Financial's loan portfolio is initially fair valued using a segmented
approach. Pinnacle Financial divides its loan portfolio into the following categories: variable rate loans, impaired loans
and all other loans. The results are then adjusted to account for credit risk.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate
carrying values. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair
value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using
current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values
derived from the discounted cash flow approach for each of the above portfolios are then further discounted to
incorporate credit risk to determine the exit price.
(cid:20)(cid:21)(cid:20)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage loans held-for-sale - Mortgage loans held-for-sale are carried at the lower of cost or fair value. The estimate of
fair value is based on pricing models and other information.
Deposits, Securities sold under agreements to repurchase, Federal Home Loan Bank (FHLB) advances, Subordinated
debt and other borrowings - The carrying amounts of demand deposits, savings deposits, securities sold under
agreements to repurchase, floating rate advances from the Federal Home Loan Bank, floating rate subordinated debt
and other borrowings, and floating rate loans approximate their fair values. Fair values for certificates of deposit, fixed
rate advances from the Federal Home Loan Bank and fixed rate subordinated debt are estimated using discounted cash
flow models, using current market interest rates offered on certificates, advances and other borrowings with similar
remaining maturities. For fixed rate subordinated debt, the maturity is assumed to be as of the earliest date that the
indebtedness will be repriced.
Off-Balance Sheet Instruments - The fair values of Pinnacle Financial's off-balance-sheet financial instruments are based
on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant
value to Pinnacle Financial until such commitments are funded.
(cid:20)(cid:21)(cid:21)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of
Pinnacle Financial's financial instruments at December 31, 2015 and 2014. This table excludes financial instruments for which the
carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its
expected realization. For financial liabilities such as non-interest bearing demand, interest-bearing demand, and savings
deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.
December 31, 2015
Financial assets:
Securities held-to-maturity
Loans, net
Mortgage loans held-for-sale
Financial liabilities:
Carrying/
Notional
Amount
Estimated
Fair Value (1)
Quoted market
prices in an
active market
(Level 1)
$
31,377 $
6,477,803
47,930
31,586 $
6,379,153
48,365
Deposits and securities sold under agreements to repurchase
Federal Home Loan Bank advances
Subordinated debt and other borrowings
7,050,498
300,305
142,476
6,562,509
299,214
131,494
Off-balance sheet instruments:
Commitments to extend credit (2)
Standby letters of credit (3)
December 31, 2014
Financial assets:
Securities held-to-maturity
Loans, net
Mortgage loans held for sale
Financial liabilities:
2,218,784
93,534
1,017
354
$
38,676 $
4,522,668
14,039
38,789 $
4,406,581
14,322
Deposits and securities sold under agreements to repurchase
Federal Home Loan Bank advances
Subordinated debt and other borrowings
4,876,600
195,476
96,158
4,603,915
195,450
77,433
Off-balance sheet instruments:
Commitments to extend credit (2)
Standby letters of credit (3)
1,390,593
65,955
1,078
293
Models with
significant
observable
market
parameters
(Level 2)
Models with
significant
unobservable
market
parameters
(Level 3)
31,586 $
-
48,365
-
6,379,153
-
-
-
-
-
-
6,562,509
299,214
131,494
1,017
354
38,789 $
-
14,322
-
4,406,581
-
-
-
-
-
-
4,603,915
195,450
77,433
1,078
293
- $
-
-
-
-
-
-
-
- $
-
-
-
-
-
-
-
(1)
Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those
that a market-participant would realize in a hypothetical orderly transaction.
(2) At the end of each quarter, Pinnacle Financial evaluates the inherent risks of the outstanding off-balance sheet commitments. In making this
evaluation, Pinnacle Financial evaluates the credit worthiness of the borrower, the collateral supporting the commitments and any other factors
similar to those used to evaluate the inherent risks of our loan portfolio. Additionally, Pinnacle Financial evaluates the probability that the
outstanding commitment will eventually become a funded loan. As a result, at both December 31, 2015 and 2014, Pinnacle Financial included in
other liabilities $1.0 million representing the inherent risks associated with these off-balance sheet commitments.
(3) At December 31, 2015 and 2014, the fair value of Pinnacle Financial's standby letters of credit was $354,000 and $293,000, respectively. This
amount represents the unamortized fee associated with these standby letters of credit, which were priced at market when issued, and is included in
the consolidated balance sheet of Pinnacle Financial and is believed to approximate fair value. This fair value will decrease over time as the existing
standby letters of credit approach their expiration dates.
(cid:20)(cid:21)(cid:22)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Other Borrowings
On June 15, 2012, Pinnacle Financial entered into a loan agreement with a bank for $25 million (the Loan Agreement).
Borrowings under the Loan Agreement, combined with available cash, were used for the redemption, on June 20, 2012, of the
remaining 71,250 shares of preferred stock owned by the Treasury that had been issued under the CPP. Pinnacle Financial's
borrowings under the Loan Agreement bore interest at a LIBOR rate generally defined as the sum of (i) the average of the
offered rates of interest quoted in the London Inter-Bank Eurodollar Market for U.S. Dollar deposits with prime banks (as
published by Reuters or other commercially available sources) for three months (all as selected by the Company), and (ii) an
applicable margin. The applicable margin under the Loan Agreement ranged from 2.25% (225 basis points) to 3.00% (300 basis
points) depending on the total aggregate principal amount outstanding under the Loan Agreement. The initial applicable margin
for both base rate and LIBOR rate loans was 3.00% (300 basis points). During the third quarter of 2015, the $12.4 million balance
of this loan was paid in full.
On February 4, 2015, Pinnacle Bank entered into a loan agreement with an unaffiliated bank for $40 million. Pinnacle
Bank's borrowings under the loan agreement bore interest at rates at the greater of (i) zero percent (0%) and (ii) the one-month
LIBOR rate quoted by the lender (as published by Reuters), plus in each case an applicable margin. The applicable margin under
the loan agreement ranged from 1.65% (165 basis points) to 1.95% (195 basis points) depending on the total aggregate principal
amount outstanding under the loan agreement. During the third quarter of 2015, the $39.0 million balance of this loan was paid in
full.
On July 30, 2015, Pinnacle Bank issued $60.0 million in aggregate principal amount of Fixed-to-Floating Rate
Subordinated Notes due 2025 (the Notes) in a private placement transaction to accredited institutional investors. The maturity
date of the Notes is July 30, 2025, although Pinnacle Bank may redeem some or all of the Notes beginning on the interest
payment date of July 30, 2020 and on any interest payment date thereafter at a redemption price equal to 100% of the principal
amount of the Notes to be redeemed plus accrued and unpaid interest to the date of redemption, subject to the prior approval of
the FDIC.
From the date of the issuance through July 29, 2020, the Notes will bear interest at the rate of 4.875% per year and will be
payable semi-annually in arrears on January 30 and July 30 of each year, beginning on January 30, 2016. From July 30, 2020, the
Notes will bear interest at a rate per annum equal to the three-month LIBOR rate plus 3.128%, payable quarterly in arrears on
each January 30, April 30, July 30, and October 30, beginning on July 30, 2020, through the maturity date or the early redemption
date of the Notes.
The sale of the Notes yielded net proceeds of approximately $59.1 million after deducting the placement agents' fees and
estimated expenses payable by Pinnacle Bank. Pinnacle Bank used the net proceeds from the offering, together with available
cash, to pay the cash portion of the merger consideration payable to the shareholders of CapitalMark and Magna in connection
with the Mergers and to pay the amounts necessary to redeem the preferred shares that each of CapitalMark and Magna had
previously issued to the United States Department of the Treasury in connection with their participation in the Treasury's Small
Business Lending Fund and for general corporate purposes.
Note 21. Variable Interest Entities
Under ASC 810, Pinnacle Financial is deemed to be the primary beneficiary and required to consolidate a variable interest
entity (VIE) if it has a variable interest in the VIE that provides it with a controlling financial interest. For such purposes, the
determination of whether a controlling financial interest exists is based on whether a single party has both the power to direct
the activities of the VIE that most significantly impact the VIE's economic performance and the obligation to absorb losses of
the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. ASC 810 requires continual
reconsideration of conclusions reached regarding which interest holder is a VIE's primary beneficiary and disclosures
surrounding those VIE's which have not been consolidated. The consolidation methodology provided in this footnote as of
December 31, 2015 and 2014 has been prepared in accordance with ASC 810.
(cid:20)(cid:21)(cid:23)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-consolidated Variable Interest Entities
At December 31, 2015, Pinnacle Financial did not have any consolidated variable interest entities to disclose but did have
the following non-consolidated variable interest entities: low income housing partnerships, trust preferred issuances, troubled
debt restructuring commercial loans, and managed discretionary trusts.
Since 2003, Pinnacle Financial has made equity investments as a limited partner in various partnerships that sponsor
affordable housing projects. The purpose of these investments is to achieve a satisfactory return on capital and to support
Pinnacle Financial's community reinvestment initiatives. The activities of the limited partnerships include the identification,
development, and operation of multi-family housing that is leased to qualifying residential tenants generally within Pinnacle
Financial's primary geographic region. These partnerships are considered VIEs because Pinnacle Financial, as the holder of the
equity investment at risk, does not have the ability to direct the activities that most significantly affect the success of the entity
through voting rights or similar rights. While Pinnacle Financial could absorb losses that are significant to these partnerships as
it has a risk of loss for its initial capital contributions and funding commitments to each partnership, it is not considered the
primary beneficiary of the partnerships as the general partners whose managerial functions give them the power to direct the
activities that most significantly impact the partnerships' economic performance and who are exposed to all losses beyond
Pinnacle Financial's initial capital contributions and funding commitments are considered the primary beneficiaries.
Pinnacle Financial has previously issued subordinated debt totaling $82.5 million to PNFP Statutory Trust I, II, III, and IV.
These trusts are considered VIEs because Pinnacle Financial's capital contributions to these trusts are not considered "at risk"
in evaluating whether the holders of the equity investments at risk in the trusts have the power through voting rights or similar
rights to direct the activities that most significantly impact the entities' economic performance. These trusts were not
consolidated by Pinnacle Financial because the holders of the securities issued by the trusts absorb a majority of expected
losses and residual returns.
For certain troubled commercial loans, Pinnacle Financial restructures the terms of the borrower's debt in an effort to
increase the probability of receipt of amounts contractually due. However, Pinnacle Financial does not assume decision-making
power or responsibility over the borrower's operations. Following a debt restructuring, the borrowing entity typically meets the
definition of a VIE as the initial determination of whether the entity is a VIE must be reconsidered and economic events have
proven that the entity's equity is not sufficient to permit it to finance its activities without additional subordinated financial
support or a restructuring of the terms of its financing. As Pinnacle Financial does not have the power to direct the activities
that most significantly impact such troubled commercial borrowers' operations, it is not considered the primary beneficiary even
in situations where, based on the size of the financing provided, Pinnacle Financial is exposed to potentially significant benefits
and losses of the borrowing entity. Pinnacle Financial has no contractual requirements to provide financial support to the
borrowing entities beyond certain funding commitments established upon restructuring of the terms of the debt to allow for
completion of activities which prepare the collateral related to the debt for sale.
Pinnacle Financial serves as manager over certain discretionary trusts, for which it makes investment decisions on behalf of
the trusts' beneficiaries in return for a management fee. The trusts meet the definition of a VIE since the holders of the equity
investments at risk do not have the power through voting rights or similar rights to direct the activities that most significantly
impact the entities' economic performance. However, since the management fees Pinnacle Financial receives are not considered
variable interests in the trusts as all of the requirements related to permitted levels of decision maker fees are met, such VIEs are
not consolidated by Pinnacle Financial because it cannot be the trusts' primary beneficiary. Pinnacle Financial has no
contractual requirements to provide financial support to the trusts.
(cid:20)(cid:21)(cid:24)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes VIE's that are not consolidated by Pinnacle Financial as of December 31, 2015 and 2014 (in
thousands):
Type
Low Income Housing Partnerships
Trust Preferred Issuances
Commercial Troubled Debt Restructurings
Managed Discretionary Trusts
Note 22. Regulatory Matters
December 31, 2015
December 31, 2014
Maximum
Loss Exposure
13,889
$
N/A
4,368
N/A
$
Liability
Recognized
-
82,476
-
N/A
Maximum
Loss Exposure
10,769
$
N/A
3,773
N/A
$
Liability
Recognized
-
82,476
-
N/A
Classification
Other Assets
Subordinated Debt
Loans
N/A
Pursuant to Tennessee banking law, Pinnacle Bank may not, without the prior consent of the Commissioner of the
Tennessee Department of Financial Institutions (TDFI), pay any dividends to Pinnacle Financial in a calendar year in excess of
the total of Pinnacle Bank's retained net income for that year plus the retained net income for the preceding two years. During
the year ended December 31, 2015, Pinnacle Bank paid $19.0 million in dividends to Pinnacle Financial. As of December 31, 2015,
Pinnacle Bank could pay approximately $180.0 million of additional dividends to Pinnacle Financial without prior approval of the
Commissioner of the TDFI. Pinnacle Financial initiated payment of a quarterly dividend of $0.08 per share of common stock in
the fourth quarter of 2013 and has since increased the dividend to $0.12 beginning in the first quarter of 2015 and to $0.14
beginning in the first quarter of 2016. The amount and timing of all future dividend payments, if any, is subject to the discretion
of Pinnacle Financial's board of directors and will depend on Pinnacle Financial's earnings, capital position, financial condition
and other factors, including new regulatory capital requirements, as they become known to us.
Pinnacle Financial and Pinnacle Bank are subject to various regulatory capital requirements administered by federal
banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional
discretionary actions, by regulators that, if undertaken, could have a direct material effect on the financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, Pinnacle Financial and Pinnacle Bank
must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices.
The minimum capital level requirements applicable to bank holding companies and banks are:
(i) a new common equity Tier 1 capital ratio of 4.5%;
(ii) a Tier 1 risk-based capital ratio of 6%;
(iii) a total risk-based capital ratio of 8%;
(iv) a Tier 1 leverage ratio of 4% for all institutions.
The capital level requirements also establish a "capital conservation buffer" of 2.5% (to be phased in over three years)
above the regulatory minimum risk-based capital ratios, and result in the following minimum risk-based capital ratios once the
capital conservation buffer is fully phased in:
(i) a common equity Tier 1 risk-based capital ratio of 7%,
(ii) a Tier 1 risk-based capital ratio of 8.5%, and
(iii) a total risk-based capital ratio of 10.5%.
To be considered well capitalized under applicable banking regulations for January 1, 2015 through December 31, 2015,
Pinnacle Financial and Pinnacle Bank must maintain the following minimum capital ratios and not be subject to a written
agreement, order or directive to maintain a higher capital level:
(i) a common equity Tier 1 capital ratio of 6.5%
(ii) a Tier 1 risk based capital ratio of 8%
(iii) a Total risk based capital ratio of 10%, and
(iv) in the case of Pinnacle Bank, a Tier 1 leverage ratio of 5%
(cid:20)(cid:21)(cid:25)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The capital conservation buffer requirement is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets
and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying
dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the
buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such
actions.
Under current capital level requirements, Tier 1 capital generally consists of common stock (plus related surplus) and
retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative
preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets
and other regulatory deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010 will no
longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding
companies with less than $15 billion in total assets at that date, trust preferred securities issued prior to that date, will continue
to count as Tier 1 capital subject to certain limitations. As a result, Pinnacle Financial's Trust Preferred Securities continue to
qualify as Tier 1 capital. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to
certain new eligibility criteria.
Common equity Tier 1 capital generally consist of common stock (plus related surplus) and retained earnings plus limited
amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other
regulatory deductions.
The current capital level requirements allow banks and their holding companies with less than $250 billion in assets a one-
time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income
in their capital calculation. Pinnacle Financial and Pinnacle Bank have opted-out of this requirement.
Management believes, as of December 31, 2015, that Pinnacle Financial and Pinnacle Bank met all capital adequacy
requirements to which they are subject. To be categorized as well-capitalized under applicable banking regulations, Pinnacle
Financial and Pinnacle Bank must maintain minimum total risk-based, Tier I risk-based, common equity Tier I and Tier I leverage
ratios as set forth in the following table and not be subject to a written agreement, order or directive to maintain a higher capital
level. Pinnacle Financial's and Pinnacle Bank's actual capital amounts and ratios are presented in the following table (in
thousands):
Actual
Minimum Capital
Requirement
Amount
Ratio
Amount
Ratio
Minimum
To Be Well-Capitalized
Ratio
Amount
At December 31, 2015
Total capital to risk weighted assets:
Pinnacle Financial
Pinnacle Bank
Tier I capital to risk weighted assets:
Pinnacle Financial
Pinnacle Bank
Common equity Tier I capital:
Pinnacle Financial
Pinnacle Bank
Tier I capital to average assets (*):
Pinnacle Financial
Pinnacle Bank
At December 31, 2014
Total capital to risk weighted assets:
Pinnacle Financial
Pinnacle Bank
Tier I capital to risk weighted assets:
Pinnacle Financial
Pinnacle Bank
Tier I capital to average assets (*):
$
$
$
$
$
$
$
$
$
$
$
$
883,085
830,863
756,316
704,095
676,316
704,095
756,316
704,095
698,810
657,576
633,348
592,298
Pinnacle Financial
Pinnacle Bank
11.3% $
$
10.6% $
$
(*) Average assets for the above calculations were based on the most recent quarter.
633,348
592,298
(cid:20)(cid:21)(cid:26)
11.2% $
10.6% $
628,500
626,486
9.6% $
9.0% $
8.6% $
9.0% $
9.4% $
8.8% $
13.4% $
12.6% $
12.1% $
11.4% $
471,375
469,864
353,531
352,398
322,920
321,991
418,748
417,511
209,374
208,756
224,406
223,656
8.0% $
8.0% $
6.0% $
6.0% $
4.5% $
4.5% $
4.0%
4.0% $
8.0% $
8.0% $
4.0% $
4.0% $
4.0%
4.0% $
785,624
783,107
628,500
626,486
510,656
509,020
N/A
402,489
523,760
522,234
314,256
313,340
N/A
279,570
10.0%
10.0%
8.0%
8.0%
6.5%
6.5%
N/A
5.0%
10.0%
10.0%
6.0%
6.0%
N/A
5.0%
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 23. Parent Company Only Financial Information
The following information presents the condensed balance sheets, statements of operations, and cash flows of Pinnacle
Financial as of December 31, 2015 and 2014 and for each of the years in the three-year period ended December 31, 2015 (in
thousands):
CONDENSED BALANCE SHEETS
Assets:
Cash and cash equivalents
Investments in consolidated subsidiaries
Investment in unconsolidated subsidiaries:
PNFP Statutory Trust I
PNFP Statutory Trust II
PNFP Statutory Trust III
PNFP Statutory Trust IV
Other investments
Current income tax receivable
Other assets
Liabilities and stockholders' equity:
Income taxes payable to subsidiaries
Subordinated debt and other borrowings
Other liabilities
Stockholders' equity
Revenues
Expenses:
Interest expense
Stock-based compensation expense
Other expense
2015
2014
$
21,740 $
1,194,713
310
619
619
928
5,453
10,132
4,260
1,238,774 $
12
82,476
675
1,155,611
1,238,774 $
$
$
36,497
850,583
310
619
619
928
5,254
(181)
4,493
899,122
-
96,158
271
802,693
899,122
CONDENSED STATEMENTS OF OPERATIONS
2015
2014
2013
$
78 $
907 $
266
2,288
7,342
820
(10,372)
(4,119)
(6,253)
101,762
95,509
2,488
5,308
768
(7,657)
(3,065)
(4,592)
75,063
70,471
2,730
4,082
770
(7,316)
(2,870)
(4,446)
62,172
57,726
Loss before income taxes and equity in undistributed income (loss) of subsidiaries
Income tax benefit
(Loss) income before equity in undistributed income of subsidiaries and accretion on preferred stock discount
Equity in undistributed income of subsidiaries
Net income
(cid:20)(cid:21)(cid:27)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED STATEMENTS OF CASH FLOWS
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense
Loss (gain) on other investments
Increase in income tax payable, net
Decrease (increase) in other assets
Increase in other liabilities
Excess tax benefit from stock compensation
Deferred tax expense
Equity in undistributed income of subsidiaries
Net cash provided by (used in) operating activities
Investing activities:
Investment in consolidated subsidiaries:
Banking subsidiaries
Investments in other entities
Net cash provided by investing activities
Financing activities:
Net decrease in subordinated debt and other borrowings
Exercise of common stock options
Common dividends paid
Excess tax benefit from stock compensation arrangements
Net cash used in financing activities
Net increase (decrease) in cash
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2015
2014
2013
$
95,509
$
70,471
$
57,726
7,342
136
(10,870)
1,194
3,771
(4,116)
(394)
(101,762)
(9,190)
19,038
(335)
18,703
(13,682)
3,603
(18,307)
4,116
(24,270)
(14,757)
36,497
21,740
$
5,308
(710)
-
1,854
203
(1,699)
27
(75,063)
391
21,185
(398)
20,787
(2,500)
6,422
(11,398)
1,699
(5,778)
15,401
21,096
36,497
$
$
4,082
22
81
1,608
9
(389)
(454)
(62,172)
513
14,910
(954)
13,956
(7,500)
2,895
(2,815)
389
(7,030)
7,439
13,657
21,096
Pinnacle Bank is subject to restrictions on the payment of dividends to Pinnacle Financial under Tennessee banking laws.
Pinnacle Bank paid dividends of $19.0 million, $21.2 million and $14.9 million, respectively to Pinnacle Financial in each of the
years ended December 31, 2015, 2014 and 2013.
(cid:20)(cid:21)(cid:28)
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 24. Quarterly Financial Results (unaudited)
A summary of selected consolidated quarterly financial data for each of the years in the three-year period ended December
31, 2015 follows:
(in thousands, except per share data)
2015
Interest income
Net interest income
Provision for loan losses
Net income before taxes
Net income
Net income available to common stockholders
Basic net income per share available to common stockholders
Diluted net income per share available to common stockholders
2014
Interest income
Net interest income
Provision for loan losses
Net income before taxes
Net income
Net income available to common stockholders
Basic net income per share available to common stockholders
Diluted net income per share available to common stockholders
2013
Interest income
Net interest income
Provision for loan losses
Net income before taxes
Net income
Net income available to common stockholders
Basic net income per share available to common stockholders
Diluted net income per share available to common stockholders
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
$
$
$
54,679
51,269
315
32,617
21,843
21,843
0.62
0.62
49,291
45,908
488
24,506
16,367
16,367
0.47
0.47
47,156
42,758
2,172
20,048
13,448
13,448
0.40
0.39
$
$
$
$
$
$
$
$
$
55,503 $
51,831
1,186
33,917
22,665
22,665
0.65 $
0.64 $
50,564 $
47,226
254
25,668
17,170
17,170
0.49 $
0.49 $
47,544 $
43,599
2,774
21,289
14,311
14,311
0.42 $
0.42 $
67,192 $
62,059
2,228
36,134
24,149
24,149
0.64 $
0.62 $
52,782 $
49,537
851
27,215
18,197
18,197
0.52 $
0.52 $
48,177 $
44,573
685
21,952
14,647
14,647
0.43 $
0.42 $
77,797
71,475
5,459
40,432
26,854
26,854
0.67
0.65
53,533
50,313
2,041
28,264
18,737
18,737
0.54
0.53
48,405
44,969
2,225
22,597
15,321
15,321
0.45
0.44
(cid:20)(cid:22)(cid:19)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pinnacle Financial maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be
disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and
communicated to Pinnacle Financial's management, including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Pinnacle Financial carried out an evaluation,
under the supervision and with the participation of its management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the
end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the
Chief Executive Officer and Chief Financial Officer concluded that Pinnacle Financial's disclosure controls and
procedures were effective.
Management Report on Internal Control Over Financial Reporting
The report of Pinnacle Financial's management on Pinnacle Financial's internal control over financial reporting is set
forth on page 67 of this Annual Report on Form 10-K. The report of Pinnacle Financial's independent registered public
accounting firm on Pinnacle Financial's internal control over financial reporting is set forth on page 69 of this Annual
Report on Form 10-K.
Changes in Internal Controls
There were no changes in Pinnacle Financial's internal control over financial reporting during Pinnacle Financial's fiscal
quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, Pinnacle
Financial's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
(cid:20)(cid:22)(cid:20)
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The responses to this Item will be included in Pinnacle Financial's Proxy Statement for the Annual Meeting of Stockholders to
be held April 19, 2016 under the headings "Corporate Governance-Code of Conduct," "Proposal #1 Election of Directors-Audit
Committee," "Proposal #1 Election of Directors," "Executive Management," and "Section 16A Beneficial Ownership Reporting
Compliance" and are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The responses to this Item will be included in Pinnacle Financial's Proxy Statement for the Annual Meeting of Stockholders to
be held April 19, 2016 under the heading, "Proposal #1 Election of the Directors-Director Compensation," "Executive
Compensation" and "Human Resources and Compensation Committee Interlocks and Insider Participation" and are
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The responses to this Item regarding security ownership of certain beneficial owners management and will be included in
Pinnacle Financial's Proxy Statement for the Annual Meeting of Stockholders to be held April 19, 2016 under the heading,
"Security Ownership of Certain Beneficial Owners and Management," and are incorporated herein by reference.
The following table summarizes information concerning Pinnacle's equity compensation plans at December 31, 2015:
Plan Category
Equity compensation plans approved by shareholders:
2004 Equity Incentive Plan
Bank of the South 2001 Stock Option Plan
PrimeTrust Bank 2005 Statutory-Non-Statutory Stock Option Plan
Mid-America Bancshares, Inc. 2006 Omnibus Equity Incentive Plan
2014 Equity Incentive Plan
Equity compensation plans not approved by shareholders
Total
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
Warrants and
Rights(1)
Weighted
Average
Exercise Price
of Outstanding
Options,
Warrants and
Rights
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in First
Column)
470,571
-
-
13,011
-
N/A
483,582
27.44
-
-
16.29
-
N/A
27.14
-
-
-
-
1,050,015
N/A
1,050,015
(1) All of CapitalMark's outstanding stock options vested upon consummation of the CapitalMark merger and were converted
into options to purchase shares of Pinnacle Financial's common stock. 768,019 shares of Pinnacle Financial's common stock will
be issued upon the exercise of the outstanding converted CapitalMark options and the weighted average exercise price of those
options is $17.50.
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The responses to this Item will be included in Pinnacle Financial's Proxy Statement for the Annual Meeting of Stockholders to
be held April 19, 2016 under the headings, "Certain Relationships and Related Transactions," and "Corporate Governance-
Director Independence" and are incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The responses to this Item will be included in Pinnacle Financial's Proxy Statement for the Annual Meeting of Stockholders to
be held April 19, 2016 under the heading, "Independent Registered Public Accounting Firm" and are incorporated herein by
reference.
(cid:20)(cid:22)(cid:21)
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No.
Description
2.1 Merger Agreement, dated September 30, 2005, by and between Pinnacle Financial Partners, Inc. and Cavalry
Bancorp, Inc. (schedules and exhibits to which have been omitted pursuant to Item 601(b)(2) of Regulation S-K)
(1)
2.2 Agreement and Plan of Merger by and between Pinnacle Financial Partners, Inc. and Mid-America Bancshares,
Inc. (schedules and exhibits to which been omitted pursuant to Item 601(b)(2) of Regulation S-K) (2)
2.3 Agreement and Plan of Merger by and among Pinnacle Financial Partners, Inc., Pinnacle Bank and CapitalMark
Bank & Trust (schedules and exhibits to which have been omitted pursuant to Item 601(b)(2) of Regulation S-K)
(3)
2.4 Agreement and Plan of Merger by and among Pinnacle Financial Partners, Inc., Pinnacle Bank and Magna Bank
(schedules and exhibits to which have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (4)
2.5 Agreement and Plan of Merger by and among Pinnacle Financial Partners, Inc. and Avenue Financial Holdings,
Inc., dated January 28, 2016 (schedules and exhibits to which have been omitted pursuant to Item 601(b)(2) of
Regulation S-K) (5)
3.1 Amended and Restated Charter, as amended (Restated for SEC filing purposes only)(6)
3.2 Bylaws (6)
4.1.1 Specimen Common Stock Certificate (7)
4.1.2 See Exhibits 3.1 and 3.2 for provisions of the Charter and Bylaws defining rights of holders of the Common
Stock
4.2 Form of 4.875% Fixed-to-Floating Rate Subordinated Note due July 30, 2025(8)
10.1 Letter Agreement dated March 14, 2000 and accepted March 16, 2000 by and between Pinnacle Financial
Corporation (now known as Pinnacle Financial Partners, Inc.) and Atkinson Public Relations (7)
10.2 Pinnacle Financial Partners, Inc. 2000 Stock Incentive Plan (7) *
10.3 Form of Pinnacle Financial Partners, Inc.'s Stock Option Award (7) *
10.4 Form of Incentive Stock Option Agreement (9)
10.5 Form of Non-Qualified Stock Option Agreement (10) *
10.6 Cavalry Bancorp, Inc. 1999 Stock Option Plan (11) *
10.7 Amendment No. 1 to Cavalry Bancorp, Inc. 1999 Stock Option Plan (11) *
10.8 Form of Non-Qualified Stock Option Agreement (11)*
10.9 Amendment No. 1 to Pinnacle Financial Partners, Inc. 2000 Stock Incentive Plan (11) *
10.10 Form of Restricted Stock Award Agreement (12) *
10.11 Amended Employment Agreement by and among Pinnacle Bank, Pinnacle Financial Partners, Inc. and M. Terry
Turner (13) *
10.12 Amended Employment Agreement by and among Pinnacle Bank, Pinnacle Financial Partners, Inc. and Robert A.
McCabe, Jr. (13) *
10.13 Amended Employment Agreement by and among Pinnacle Bank, Pinnacle Financial Partners, Inc. and Hugh M.
Queener (13) *
10.14 Amended Employment Agreement by and among Pinnacle Bank, Pinnacle Financial Partners, Inc. and Harold R.
Carpenter (13) *
10.15 Bank of the South 2001 Stock Option Plan (13)
10.16 PrimeTrust Bank 2001 Statutory – Nonstatutory Stock Option Plan (13) *
10.17 PrimeTrust Bank 2005 Statutory – Nonstatutory Stock Option Plan (13) *
10.18 Form of 2011 TARP CPP Executive Officer Time Vested Restricted Stock Agreement (14)*
10.19 Form of Named Executive Officers 2012 Restricted Stock Unit Award Agreement (15)*
10.20 Pinnacle Financial Partners, Inc. Amended and Restated 2004 Equity Incentive Plan (16)
10.21 Loan Agreement, dated as of June 15, 2012, by and between Pinnacle Financial Partners, Inc., as Borrower, and
US Bank, National Association, as Lender (17)
10.22 Change of Control Agreement dated as of September 4, 2012 by and among Pinnacle Financial Partners, Inc.,
Pinnacle Bank and Joseph Harvey White (18)
10.23 Form of Named Executive Officers 2013 Restricted Stock Unit Award Agreement (19)
10.24 Amendment No. 1 dated November 20, 2012 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and M. Terry Turner(20)*
10.25 Amendment No. 1 dated November 20, 2012 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and Robert A. McCabe(20)*
10.26 Amendment No. 1 dated November 20, 2012 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and Hugh M. Queener(20)*
10.27 Amendment No. 1 dated November 20, 2012 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and Harold R. Carpenter(20)*
(cid:20)(cid:22)(cid:22)
10.28 Amendment No. 1 dated November 20, 2012 to Amended Change of Control Agreement by and among Pinnacle
Bank, Pinnacle Financial Partners, Inc. and J. Harvey White(20)*
10.29 First Amendment to Loan Agreement between U.S. Bank National Association and Pinnacle Financial Partners,
Inc., dated October 2, 2013 (21)
10.30 Form of Named Executive Officers 2014 Performance Unit Award Agreement (22)
10.31 Amendment No. 2 dated February 4, 2014 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and M. Terry Turner (23)*
10.32 Amendment No. 2 dated February 4, 2014 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and Robert A. McCabe (23)*
10.33 Amendment No. 2 dated February 4, 2014 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and Hugh M. Queener (23)*
10.34 Amendment No. 2 dated February 4, 2014 to Amended Employment Agreement by and among Pinnacle Bank,
Pinnacle Financial Partners, Inc. and Harold R. Carpenter (23)*
10.35 Amendment No. 1 to Pinnacle Financial Partners, Inc. 2004 Amended and Restated Equity Incentive Plan (23)*
10.36 Second Amended and Restated Mid-America Bancshares, Inc. 2006 Omnibus Equity Incentive Plan (23)*
10.37 Form of Directors' 2014 Restricted Stock Agreement (23)*
10.38 Pinnacle Financial Partners, Inc. 2014 Equity Incentive Plan (24)*
10.39 Form of Named Executive Officers 2015 Performance Unit Award Agreement (25)*
10.40 Pinnacle Financial Partners, Inc. 2015 Annual Cash Incentive Plan (25)*
10.41 Loan Agreement dated as of February 4, 2015, by an between Pinnacle Bank, as Borrower and US Bank, National
Association, as Lender (26)
10.42 Second Amendment to Loan Agreement between US Bank National Association and Pinnacle Financial
Partners, Inc., dated March 11, 2015 (27)
10.43 CapitalMark Bank & Trust Stock Option Plan (28)*
10.44 Pinnacle Financial Partners, Inc. 2016 Annual Cash Incentive Plan (29)*
21.1 Subsidiaries of Pinnacle Financial Partners, Inc.
23.1 Consent of KPMG LLP
31.1 Certification pursuant to Rule 13a-14(a)/15d-14(a)
31.2 Certification pursuant to Rule 13a-14(a)/15d-14(a)
32.1 Certification pursuant to 18 USC Section 1350 – Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 USC Section 1350 – Sarbanes-Oxley Act of 2002
99.1 Certification of Chief Executive Officer under the Capital Purchase Program of the Troubled Assets Relief
Program
99.2 Certification of the Chief Financial Officer under the Capital Purchase Program of the Troubled Assets Relief
Program
101.INS XBRL Instance Document
101.SCH XBRL Schema Documents
101.CAL XBRL Calculation Linkbase Document
101.LAB XBRL Label Linkbase Document
101.PRE XBRL Presentation Linkbase Document
101.DEF XBRL Definition Linkbase Document
(*) Management compensatory plan or arrangement
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on October 3, 2005.
Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on August 15, 2007.
Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on April 8, 2015.
Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on April 29, 2015.
Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 29, 2016.
Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on April 27, 2015.
Registrant hereby incorporates by reference to the Registrant's Registration Statement on Form SB-2, as amended
(File No. 333-38018).
Registrant hereby incorporates by reference to the Registrant's Current Report on Form 8-K filed on August 5, 2015.
(8)
(9)
Registrant hereby incorporates by reference to Registrant's Form 10-Q for the quarter ended September 30, 2004.
(10) Registrant hereby incorporates by reference to Registrant's Form 10-K for the fiscal year ended December 31, 2005
as filed with the SEC on February 24, 2006.
(11) Registrant hereby incorporates by reference to Registrant's Form 10-Q for the quarter ended on September 30, 2006.
(12) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 25, 2008.
(13) Registrant hereby incorporates by reference to Registrant's Form 10-K for the fiscal year ended December 31, 2007
as filed with the SEC on March 7, 2008.
(14) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on August 19, 2011.
(cid:20)(cid:22)(cid:23)
(15) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 20, 2012.
(16) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on April 20, 2012.
(17) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on June 20, 2012.
(18) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on September 6, 2012.
(19) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 17, 2013.
(20) Registrant hereby incorporates by reference to Registrant's Form 10-K for the fiscal year ended December 31, 2012
as filed with the SEC on February 22, 2013.
(21) Registrant hereby incorporates by reference to Registrant's Form 10-Q for the quarter ended on September 30, 2013
as filed with the SEC on November 1, 2013.
(22) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 24, 2014.
(23) Registrant hereby incorporates by reference to Registrant's Form 10-K for the fiscal year ended December 31, 2013
as filed with the SEC on February 25, 2014.
(24) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on April 17, 2014
(25) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 27, 2015.
(26) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on February 5, 2015.
(27) Registrant hereby incorporates by reference to Registrant's Amendment No. 1 to Form 10-Q for the quarter ended
March 31, 2015 filed with the SEC on May 22, 2015.
(28) Registrant hereby incorporates by reference to Registrant's Post-Effective Amendment No. 1 to the Registration
Statement on Form S-8 filed on August 10, 2015.
(29) Registrant hereby incorporates by reference to Registrant's Current Report on Form 8-K filed on January 26, 2016.
Pinnacle Financial is a party to certain agreements entered into in connection with the offering by PNFP Statutory Trust I, PNFP
Statutory Trust II, PNFP Statutory Trust III, and PNFP Statutory Trust IV of an aggregate of $80,000,000 in trust preferred
securities, as more fully described in this Annual Report on Form 10-K. In accordance with Item 601(b)(4)(ii) of Regulation SB,
and because the total amount of the trust preferred securities is not in excess of 10% of Pinnacle Financial's total assets,
Pinnacle Financial has not filed the various documents and agreements associated with the trust preferred securities herewith.
Pinnacle Financial has, however, agreed to furnish copies of the various documents and agreements associated with the trust
preferred securities to the Securities and Exchange Commission upon request.
(cid:20)(cid:22)(cid:24)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
Date: February 29, 2016
PINNACLE FINANCIAL PARTNERS, INC
By:/s/ M. Terry Turner
M. Terry Turner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURES
TITLE
DATE
/s/ Robert A. McCabe, Jr.
Robert A. McCabe, Jr.
/s/ M. Terry Turner
M. Terry Turner
/s/ Harold R. Carpenter
Harold R. Carpenter
/s/ Sue R. Atkinson
Sue R. Atkinson
/s/ H. Gordon Bone
H. Gordon Bone
/s/ Charles E. Brock
Charles E. Brock
/s/ Renda J. Burkhart
Renda J. Burkhart
/s/ Gregory L. Burns
Gregory L. Burns
/s/ Colleen Conway-Welch
Colleen Conway- Welch
/s/ James C. Cope
James C. Cope
/s/Thomas C. Farnsworth, III
Thomas C. Farnsworth, III
/s/ Glenda Baskin Glover
Glenda Baskin Glover
/s/ William F. Hagerty, IV
William F. Hagerty, IV
/s/ William H. Huddleston, IV
William H. Huddleston, IV
/s/ Ed C. Loughry, Jr.
Ed C. Loughry, Jr.
/s/ Gary Scott
Gary Scott
/s/ Reese L. Smith, III
Reese L. Smith, III
Chairman of the Board
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 20, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
February 29, 2016
Director, President and Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
(cid:20)(cid:22)(cid:25)
Subsidiaries
Pinnacle Bank (2)
PFP Title Company (3)
Pinnacle Community Development Corporation (3)
PNFP Statutory Trust I (4)
PNFP Statutory Trust II (4)
PNFP Statutory Trust III (4)
PNFP Statutory Trust IV (4)
PNFP Holdings, Inc. (5)
PNFP Properties, Inc. (6)
Pinnacle Advisory Services, Inc. (7)
Pinnacle Credit Enhancement Holdings, Inc. (7)
Pinnacle Rutherford Real Estate, Inc. (3)
Pinnacle Nashville Real Estate, Inc. (3)
Pinnacle Rutherford Towers, Inc.(3)
Pinnacle Service Company, Inc.(3)
PNFP Insurance, Inc.(7)
Miller & Loughry, Inc. (2)
PNB Holding Co. 1, Inc. (3)
PNB Holding Co. 2, Inc. (3)
PNFP Capital Markets, Inc. (3)
List of Subsidiaries
Jurisdiction or State of
Incorporation
Names Under Which Subsidiary
Does Business (1)
Exhibit 21.1
Tennessee
Tennessee
Tennessee
Connecticut
Delaware
Connecticut
Delaware
Nevada
Maryland
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Tennessee
Nevada
Tennessee
Tennessee
Tennessee
Tennessee
Miller Loughry Beach
1. Unless otherwise noted, each Subsidiary only does business under its legal name as set forth under the heading
2.
3.
4.
5.
6.
7.
"Subsidiaries."
Pinnacle Bank is organized under the laws of the State of Tennessee.
PFP Title Company, Pinnacle Community Development Corporation, Pinnacle Rutherford Real Estate, Inc., Pinnacle
Nashville Real Estate, Inc., Pinnacle Rutherford Towers, Inc., Pinnacle Service Company, Inc., Miller & Loughry, Inc.,
PNB Holding Co. 1, Inc., PNB Holding Co. 2, Inc. and PNFP Capital Markets, Inc. are wholly-owned subsidiaries of
Pinnacle Bank.
PNFP Statutory Trust I, PNFP Statutory Trust II, PNFP Statutory Trust III and Statutory Trust IV are statutory
business trusts which were established to issue capital trust preferred securities.
PNFP Holdings, Inc. is a wholly-owned subsidiary of PFP Title Company.
PNFP Properties, Inc. is a wholly-owned subsidiary of PNFP Holdings, Inc.
Pinnacle Advisory Services, Inc., Pinnacle Credit Enhancement Holdings, Inc. and PNFP Insurance, Inc. are wholly
owned subsidiaries of Pinnacle Financial Partners, Inc.
(cid:20)(cid:22)(cid:26)
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Pinnacle Financial Partners, Inc.:
We consent to the incorporation by reference in the registration statements Nos. 333-49564, 333-68756, 333-114799, 333-124199,
333-132816, 333-135411, 333-147804, 333-148251, 333-158825, 333-180865, 333-195712 and 333-206092 on Form S-8 of Pinnacle
Financial Partners, Inc. of our reports dated February 29, 2016, with respect to the consolidated balance sheets of Pinnacle
Financial Partners, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of
operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period
ended December 31, 2015, and the effectiveness of internal control over financial reporting as of December 31, 2015, which
reports appear in the December 31, 2015 annual report on Form 10-K of Pinnacle Financial Partners, Inc.
Nashville(cid:15)(cid:3)(cid:55)(cid:72)(cid:81)(cid:81)(cid:72)(cid:86)(cid:86)(cid:72)(cid:72)(cid:3)
February 29, 2015
(signed) KPMG LLP
(cid:20)(cid:22)(cid:27)
I, M. Terry Turner, certify that:
CERTIFICATIONS
Exhibit 31.1
1.)
I have reviewed this annual report on Form 10-K of Pinnacle Financial Partners, Inc.;
2.) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
3.) Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4.) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f)) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially affect,
the registrant's internal control over financial reporting; and
5.) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 29, 2016
Signature:/s/ M. Terry Turner
M. Terry Turner
President and Chief Executive Officer
(cid:20)(cid:22)(cid:28)
Exhibit 31.2
I, Harold R. Carpenter, certify that:
CERTIFICATIONS
1.)
I have reviewed this annual report on Form 10-K of Pinnacle Financial Partners, Inc.;
2.) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3.) Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4.) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f)) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5.) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
Date: February 29, 2016
Signature:/s/ Harold R. Carpenter
Harold R. Carpenter
Chief Financial Officer
(cid:20)(cid:23)(cid:19)
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Pinnacle Financial Partners (the "Company") on Form 10-K for the period ended
December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, M. Terry Turner,
President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act
of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 29, 2016
By:/s/ M. Terry Turner
M. Terry Turner
President and Chief Executive Officer
Pinnacle Financial Partners, Inc.
(cid:20)(cid:23)(cid:20)
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Pinnacle Financial Partners (the "Company") on Form 10-K for the period ended
December 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Harold R.
Carpenter, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act
of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 29, 2016
By:/s/ Harold R. Carpenter
Harold R. Carpenter
Chief Financial Officer
Pinnacle Financial Partners, Inc.
(cid:20)(cid:23)(cid:21)
STOCKHOLDER RETURN PERFORMANCE GROWTH
STOCKHOLDER RETURN PERFORMANCE GROWTH
Set forth below is(cid:3)a line graph comparing the(cid:3)yearly percentage change in the cumulative total shareholder return on(cid:3)the(cid:3)Company’s(cid:3)
Common Stock against the cumulative total(cid:3)return of the NASDAQ(cid:3)Composite Index,(cid:3)the(cid:3)NASDAQ(cid:3)Bank(cid:3)Composite(cid:3)Index,(cid:3)our peer(cid:3)
Set forth below is(cid:3)a line graph comparing the(cid:3)yearly percentage change in the cumulative total shareholder return on(cid:3)the(cid:3)Company’s(cid:3)
group, and(cid:3)the(cid:3)SNL(cid:3)$1(cid:3)Billion to $5(cid:3)Billion(cid:3)Bank(cid:3)Asset Size Index(cid:3)for the period commencing on December 31, 20(cid:20)(cid:19)(cid:3)and ending(cid:3)
Common Stock against the cumulative total(cid:3)return of the NASDAQ(cid:3)Composite Index,(cid:3)the(cid:3)NASDAQ(cid:3)Bank(cid:3)Composite(cid:3)Index,(cid:3)our peer(cid:3)
December 31, 201(cid:24)(cid:3)(the “Measuring(cid:3)Period”).(cid:3)The graph assumes that the(cid:3)value(cid:3)of the investment(cid:3)in(cid:3)the Company’s Common Stock
group, and(cid:3)the(cid:3)SNL(cid:3)$1(cid:3)Billion to $5(cid:3)Billion(cid:3)Bank(cid:3)Asset Size Index(cid:3)for the period commencing on December 31, 20(cid:20)(cid:19)(cid:3)and ending(cid:3)
and each index(cid:3)was(cid:3)$100 on December 31, 20(cid:20)(cid:19).(cid:3)The change in cumulative total return is(cid:3)measured by dividing the(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:3)
December 31, 201(cid:24)(cid:3)(the “Measuring(cid:3)Period”).(cid:3)The graph assumes that the(cid:3)value(cid:3)of the investment(cid:3)in(cid:3)the Company’s Common Stock
(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:15)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)change in(cid:3)share price between
and each index(cid:3)was(cid:3)$100 on December 31, 20(cid:20)(cid:19).(cid:3)The change in cumulative total return is(cid:3)measured by dividing the(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:3)
the beginning(cid:3)and end of each Measuring Period by(cid:3)the share price at the beginning(cid:3)of the Measuring Period.(cid:3)Cash dividends(cid:3)may(cid:3)
(cid:70)(cid:88)(cid:80)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:80)(cid:82)(cid:88)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:15)(cid:3)(cid:68)(cid:86)(cid:86)(cid:88)(cid:80)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)change in(cid:3)share price between
impact the(cid:3)cumulative returns of the indices.
the beginning(cid:3)and end of each Measuring Period by(cid:3)the share price at the beginning(cid:3)of the Measuring Period.(cid:3)Cash dividends(cid:3)may(cid:3)
impact the(cid:3)cumulative returns of the indices.
Cumulative Total Returns(1)
Cumulative Total Returns(1)
Comparison of
PINNACLE FINANCIAL PARTNERS, INC.
Comparison of
NASDAQ COMPOSITE INDEX, NASDAQ BANK COMPOSITE INDEX,
PINNACLE FINANCIAL PARTNERS, INC.
PEER GROUP(2), and SNL $1B-$5B BANK ASSET SIZE INDEX(3)
NASDAQ COMPOSITE INDEX, NASDAQ BANK COMPOSITE INDEX,
PEER GROUP(2), and SNL $1B-$5B BANK ASSET SIZE INDEX(3)
Total Return Performance
Total Return Performance
Pinnacle Financial Partners, Inc.
Pinnacle Financial Partners, Inc.
NASDAQ Composite
NASDAQ Composite
NASDAQ Bank
NASDAQ Bank
PNFP Peer Group Index*
PNFP Peer Group Index*
SNL Bank $5B-$10B
SNL Bank $5B-$10B
400
400
350
350
300
300
250
250
200
200
150
150
100
100
e
u
l
e
a
u
V
l
a
x
V
e
d
x
n
e
I
d
n
I
50
12/31/10
50
12/31/10
12/31/11
12/31/11
12/31/12
12/31/12
12/31/13
12/31/13
12/31/14
12/31/14
12/31/15
12/31/15
(1)(cid:3) Assumes(cid:3)$100 invested on(cid:3)December 31, 20(cid:20)(cid:19)(cid:3)in Pinnacle Financial Partners, Inc. Common Stock (PNFP) and the(cid:3)four
(1)(cid:3) Assumes(cid:3)$100 invested on(cid:3)December 31, 20(cid:20)(cid:19)(cid:3)in Pinnacle Financial Partners, Inc. Common Stock (PNFP) and the(cid:3)four
(2)(cid:3) The peer group consists of(cid:3)Southeast Banks between $3 billion and $10 billion as of September 30, 201(cid:24). The peer group
(2)(cid:3) The peer group consists of(cid:3)Southeast Banks between $3 billion and $10 billion as of September 30, 201(cid:24). The peer group
indices noted above.
indices noted above.
was developed by SNL and is a composite of(cid:3)2(cid:24)(cid:3)banking institutions headquartered in the United States. SNL Financial is a
research firm focused on banking and other industries and is located in Charlottesville, Virginia.
was developed by SNL and is a composite of(cid:3)2(cid:24)(cid:3)banking institutions headquartered in the United States. SNL Financial is a
research firm focused on banking and other industries and is located in Charlottesville, Virginia.
assets between(cid:3)$1 billion and $5 billion as(cid:3)of(cid:3)September 30, 201(cid:24).
assets between(cid:3)$1 billion and $5 billion as(cid:3)of(cid:3)September 30, 201(cid:24).
(3) SNL $1 Billion to $5 Billion Bank Asset Size Index includes all major exchange banks in SNL’s coverage universe with
(3) SNL $1 Billion to $5 Billion Bank Asset Size Index includes all major exchange banks in SNL’s coverage universe with
(cid:20)(cid:23)(cid:22)
(cid:20)(cid:23)(cid:22)
Board of Directors
Sue G. Atkinson
Chairman
Atkinson Public Relations
Gordon Bone
Partner and Licensed
General Contractor
B & B Enterprise
Charles E. Brock
President and
Chief Executive Officer
Launch Tennessee
Renda Burkhart
Founder and President
Burkhart & Company, P.C.
Gregory L. Burns
President
Gregory Burns Consulting
Group, LLC
Colleen Conway Welch
Dean Emerita
Vanderbilt University
School of Nursing
James C. Cope
Partner
Cope, Hudson, Reed
& McCreary, PLLC
Thomas C. Farnsworth, III
President and Owner
Farnsworth Investment Company
Glenda Baskin Glover, Ph.D.,
JD, CPA
President
Tennessee State University
William F. Hagerty, IV
Co-Founder and
Managing Director
Hagerty Peterson & Company
William H. Huddleston, IV
President
Huddleston-Steele
Engineering, Inc.
Ed C. Loughry, Jr.
Vice Chairman
Pinnacle Financial Partners, Inc.
(Formerly Chairman and CEO of
Cavalry Bancorp, Inc.)
Robert A. McCabe, Jr.
Chairman
Pinnacle Financial Partners, Inc.
Gary L. Scott
Retired Chairman and
Chief Executive Officer
Mid-America Bancshares, Inc.
and PrimeTrust Bank
Reese L. Smith, III
President
Haury & Smith Contractors, Inc.
M. Terry Turner
President and
Chief Executive Officer
Pinnacle Financial Partners, Inc.
Director Emeritus
Robert E. McNeilly, Jr.
Retired Chairman,
First American’s Nashville Bank
and President, First American
Trust Company
Leadership Team
M. Terry Turner
President and
Chief Executive Officer
Robert A. McCabe, Jr.
Chairman
Hugh M. Queener
Executive Vice President and
Chief Administrative Officer
Harold R. Carpenter
Executive Vice President and
Chief Financial Officer
Kirk P. Bailey
Memphis Chairman
Damon C. Bell
Memphis President
John D. Cannon
Senior Vice President and
Manager, Commercial Real Estate
Ronald K. Carter
Senior Vice President and
Manager, Client Services
Group—Rutherford/Bedford
County
Gary L. Collier
Executive Vice President and
Manager, Pinnacle Asset
Management
Doug Brian Daugherty
Senior Vice President and Senior
Credit Officer
Michael B. DiStefano
Knoxville President
Kenneth C. Dyer, III
Chattanooga President
R. Dale Floyd
Senior Vice President and Senior
Lending Officer
Investor Relations:
Shareholders and others seeking
a copy of the Firm’s public filings
should visit the Investor Relations
section of our website at
www.pnfp.com or contact:
Chief Financial Officer
Pinnacle Financial Partners, Inc.
150 Third Ave. South, Suite 900
Nashville, TN 37201
(615) 744-3742
Lisa G. Foley
Senior Vice President and Area
Manager, Client Services—Memphis
D. Michael Hammontree, Jr.
Senior Vice President and
Corporate Services Manager
Gerald M. Hampton
Executive Vice President and
Financial Advisor
Karen C. Hargis
Senior Vice President and Area
Manager, Client Services—
Nashville
Patti D. Harris
Senior Vice President and Human
Resources Manager
Michael E. Hendren
Senior Vice President and Senior
Credit Officer
Christopher Andrew
Higgins, Sr.
Senior Vice President and
Business Banking Team Leader
R. Craig Holley
Chattanooga Chairman
Timothy H. Huestis
Senior Vice President and Senior
Credit Officer
Joanne B. Jackson
Executive Vice President
and Director of Associate
and Client Experience
D. Kim Jenny
Senior Vice President and
Risk and Performance
Management Officer
Hugh Maclin Johnston
Chief Investment Officer
William S. Jones
Executive Vice President and
Rutherford County Area Executive
Steven Ross Kinney
Senior Vice President and
Manager, Residential Mortgage
M. Glenn Layne
Senior Vice President and
Senior Credit Officer
Sarae Janes Lewis
Senior Vice President and
Communications Director
R. Ryan Murphy, III
Senior Vice President and Area
Manager, Client Services—
Chattanooga
Robert D. Newman
Senior Vice President and
Manager, Trust and Investment
Advisory
Roger D. Osborne
President and CEO of PNFP
Capital Markets, Inc.
Dianne C. Porter
Senior Vice President and
Manager, Loan Review
Lisa W. Reid
Senior Vice President and
Manager, Residential
Mortgage—Memphis
Edward L. Simpson
Senior Vice President and Senior
Credit Officer
B. Frank Stallworth
Senior Vice President and
Manager, Commercial Real
Estate—Memphis
Herman W. Strickland, Jr.
Senior Vice President and Senior
Credit Officer
Dan L. Stubblefield
Senior Vice President and
Corporate Controller
David A. Sturdivant
Senior Vice President and
Treasury Management Manager
James O. Sweeney, III
Senior Vice President and Senior
Product Manager
Thomas Vance
Senior Lending Officer and
Manager, Client Advisory
Group—Rutherford County
Martha Swain Wallen
Knoxville Chairman
Larry J. Whisenant
Senior Vice President and
Manager, Client Services—Nashville
J. Harvey White
Chief Credit Officer and Knoxville
Regional Executive
J. Edward White
Executive Vice President and
Manager, Client Advisory Group
Randall L. Withrow
Senior Vice President and Chief
Information Officer
General Counsel:
Bass, Berry & Sims PLC
Nashville, Tennessee
Stock Listing:
The common stock of Pinnacle
Financial Partners, Inc. is traded
on the Nasdaq Global Select
market under the trading symbol
“PNFP.”
Shareholders Services:
Shareholders desiring to change
address or ownership of stock,
report lost certificates or to consoli-
date accounts should contact:
Computershare
Shareholder Services
P.O. Box 30170
College Station, TX 77842-3170
Annual Meeting of
Shareholders:
The Annual Meeting of
Shareholders will convene at
11 a.m. on Tuesday, April 19,
2016. The meeting will be held
at Pinnacle Financial Partners,
Pinnacle at Symphony Place, 150
Third Ave. South, Nashville, TN.
Further information regarding this
meeting can be found in the firm’s
proxy statement for the 2016
Annual Meeting.
Annual Report Design by Curran & Connors, Inc. / www.curran-connors.com
Middle Tennessee
Bedford County
diCkson County
SHELBYVILLE
604 North Main St.
Shelbyville, TN 37160
(931) 680-0734
DICKSON
501 Highway 46 South
Dickson, TN 37055
(615) 740-8240
Cheatham County
ASHLAND CITY
524 South Main St.
Ashland City, TN 37015
(615) 743-8330
davidson County
100 OAKS
2833 Bransford Ave.
Nashville, TN 37204
(615) 690-1440
BELLE MEADE
4328 Harding Pike
Nashville, TN 37205
(615) 690-1460
BELLEVUE
7651 Hwy. 70 South
Nashville, TN 37221
(615) 743-8300
DONELSON
424 Donelson Pike
Nashville, TN 37214
(615) 743-6010
DOWNTOWN NASHVILLE
150 Third Ave. South
Nashville, TN 37201
(615) 744-3705
GOODLETTSVILLE
847 Conference Drive
Goodlettsville, TN 37072
(615) 744-3290
GREEN HILLS
2307 Crestmoor Drive
Nashville, TN 37215
(615) 743-3500
HERMITAGE
4715 Andrew Jackson
Pkwy.
Hermitage, TN 37076
(615) 743-6060
WEST END
2300 West End Ave.
Nashville, TN 37203
(615) 690-4000
rutherford
County
MURFREESBORO
123 Cason Lane
Murfreesboro, TN 37128
(615) 849-4241
1645 N.W. Broad St.
Murfreesboro, TN 37129
(615) 849-4242
2035 S.E. Broad St.
Murfreesboro, TN 37130
(615) 849-4239
114 West College St.
Murfreesboro, TN 37130
(615) 849-4236
1745 Memorial Blvd.
Murfreesboro, TN 37129
(615) 849-4240
2604 South Church St.
Murfreesboro, TN 37127
(615) 849-4243
SMYRNA
69 South Lowry
Smyrna, TN 37167
(615) 904-3210
467 Sam Ridley Pkwy. West
Smyrna, TN 37167
(615) 849-4244
sumner County
HENDERSONVILLE
270 East Main St.
Hendersonville, TN 37075
(615) 690-4045
Williamson
County
BRENTWOOD
128 Franklin Road
Brentwood, TN 37027
(615) 744-5100
COOL SPRINGS
7040 Carothers Pkwy.
Franklin, TN 37067
(615) 744-3770
1717 Mallory Lane
Brentwood, TN 37027
(615) 743-8230
FRANKLIN
216 South Royal Oaks Blvd.
Franklin, TN 37064
(615) 690-4030
Wilson County
LEBANON
1412 W. Baddour Pkwy.
Lebanon, TN 37087
(615) 466-5480
411 South Cumberland
Lebanon, TN 37087
(615) 466-5700
MT. JULIET
551 North Mt. Juliet Road
Mt. Juliet, TN 37122
(615) 773-6600
11400 Lebanon Road
Mt. Juliet, TN 37122
(615) 773-6680
knox County
EMORY ROAD
1520 E. Emory Road
Knoxville, TN 37938
(865) 602-3650
FARRAGUT
241 Brooklawn St.
Knoxville, TN 37934
(865) 766-3070
FOUNTAIN CITY
5019 North Broadway
Knoxville, TN 37918
(865) 766-3050
NORTHSHORE
1111 Northshore Drive
Suite S130
Knoxville, TN 37919
(865) 766-3000
SEVEN OAKS
9601 Kingston Pike
Knoxville, TN 37922
(865) 602-3600
easT Tennessee
anderson
County
OAK RIDGE
231 Jackson Square
Oak Ridge, TN 37830
(865) 481-7800
Blount County
MARYVILLE
108 West Church Ave.
Maryville, TN 37801
(865) 602-5200
Bradley County
CLEVELAND
10 Church St.
Cleveland, TN 37311
(423) 478-6540
hamilton County
CHATTANOOGA
801 Broad St.
Chattanooga, TN 37402
(423) 756-7878
WesT Tennessee
shelBy County
CORDOVA
894 N. Germantown
Pkwy., Suite 4
Cordova, TN 38018
(901) 624-9469
FOREST HILL
9057 Poplar Ave.
Germantown, TN 38138
(901) 309-4990
GERMANTOWN/
WOLF RIVER
1264 Germantown Road
Germantown, TN 38138
(901) 309-4940
POPLAR/OAK COURT
4445 Poplar Ave.
Memphis, TN 38117
(901) 309-4960
QUAIL HOLLOW
6525 Quail Hollow Road,
Suite 107
Memphis, TN 38120
(901) 259-5620