Pinnacle Financial Reports Strong Loan Growth and Earnings of $0.03 Per Fully Diluted Share for First Quarter of 2009

Pinnacle Financial Partners Inc. (Nasdaq/NGS: PNFP) today reported continued loan growth for the quarter ended March 31, 2009. Fully diluted earnings per common share available to common stockholders were $0.03 for the quarter ended March 31, 2009, compared to $0.26 per fully diluted common share available to common stockholders for the quarter ended March 31, 2008, which included the fully-diluted per common share impact of $0.08 of merger expenses related to the Pinnacle’s acquisition of Mid-America Bancshares Inc.

Pinnacle also reported $119 million in organic loan growth during the first quarter of 2009 which approximated the $117 million reported in the same quarter of 2008. At March 31, 2009, Pinnacle’s allowance for loan losses was 1.30 percent of total loans, compared to 1.04 percent at March 31, 2008.

"Our first quarter 2009 results reflect increased provisioning and adherence to new and stricter underwriting standards for residential construction and development loans,” said M. Terry Turner, Pinnacle president and chief executive officer. "In recent investor conferences and other public disclosures during the first quarter, we have emphasized we expect to experience increased charge-offs and provisioning due to the continued economic weakness of our local economy, particularly in residential construction and development.

"It is difficult to project a substantial strengthening of the residential real estate market in Nashville in 2009. We are encouraged by recent valuations of residential real estate and development projects as it appears appraisal values are beginning to stabilize. In addition, we intend to continue our long-standing core business strategies which we believe will enable us to continue to grow the pre-tax, pre-provision capacity of this firm during 2009,” Turner said.

Turner noted that the firm continues to monitor the progress of a $21.5 million loan to a financial institution which originated at PrimeTrust Bank and was acquired by Pinnacle in the Mid-America Bancshares Inc. merger in 2007. The borrower has been under increased regulatory pressure with respect to its capital position in recent months due to the borrower’s deteriorating real estate portfolio. Turner noted that Pinnacle had downgraded the loan from criticized to classified status during the first quarter of 2009.

"This loan is our only loan to a financial institution,” said Turner. "During the course of the last few weeks and even as late as today, we have been in discussions with this borrower regarding this loan and suitable repayment options. We are encouraged about the progress this borrower has made in its recapitalization efforts and in resolving its regulatory issues. However, this borrower’s future is uncertain which ultimately could require further downgrades and a reevaluation of our collateral position. We remain hopeful that we will be paid in full on this loan.”

FIRST QUARTER 2009 HIGHLIGHTS:

• Earnings
  • Net income available to common stockholders for the first quarter of 2009 was $643,000, down 89.4 percent from the prior year's first quarter net income of $6.1 million. Included in net income available to common stockholders was $1.43 million of charges related to securities issued under the U.S. Treasury’s Capital Purchase Program.
  • Revenue (the sum of net interest income and noninterest income) for the quarter ended March 31, 2009, amounted to $41.84 million, compared to $35.73 million for the same quarter of last year, an increase of 17.1 percent. Excluding the gains on sales of investment securities, revenues increased by 4.9 percent between the first quarter of 2009 and first quarter of 2008.
• Continued balance sheet growth
  • Loans at March 31, 2009, were $3.47 billion, up $607 million from $2.87 billion at March 31, 2008, representing a growth rate of 21.2 percent.
  • Total deposits at March 31, 2009, were $3.75 billion, up $784 million from $2.97 billion at March 31, 2008, representing a growth rate of 26.4 percent.
• Credit quality
  • Net charge-offs as a percentage of average loan balances were 0.56 percent (annualized) for the three months ended March 31, 2009, compared to 0.03 percent (annualized) for the three months ended March 31, 2008.
  • Nonperforming assets were 1.54 percent of total loans and other real estate at March 31, 2009, compared to 0.86 percent at Dec. 31, 2008, and 0.72 percent at March 31, 2008.
  • Past due loans over 30 days, excluding nonperforming loans, were 1.12 percent of total loans and other real estate at March 31, 2009, 0.60 percent at Dec. 31, 2008, and 0.77 percent at March 31, 2008.
• Capital
  • At March 31, 2009, Pinnacle’s ratio of tangible common stockholders’ equity to tangible assets was 6.0 percent, compared to 6.2 percent at Dec. 31, 2008. Pinnacle’s tangible book value per common share was $11.75 at March 31, 2009, compared to $11.70 at Dec. 31, 2008.
  • At March 31, 2009, Pinnacle’s total risk based capital ratio was 13.3 percent, compared to 13.5 percent at Dec. 31, 2008.

"We continue to be well-capitalized pursuant to regulatory guidelines which provides us a great deal of flexibility during this time of both significant growth opportunities and a weaker overall economy. We are in the sixth quarter of a national recessionary period that is beginning to weigh on some of our borrowers. Our most important strategy since our inception in 2000 has been to hire experienced professionals who are able to attract the market’s best clients, grow loans, deposits and fee-based businesses and apply sound credit practices. Their efforts helped our nonperforming asset ratio remain better than peer averages this quarter,” Turner said. "We continue to believe that Nashville and Knoxville are two of the best banking markets in the country and the competitive landscape continues to offer solid growth potential for our firm.”

FINANCIAL PERFORMANCE AND BALANCE SHEET GROWTH

• Return on average assets for the first quarter 2009 was 0.05 percent, compared to 0.65 percent for the first quarter of 2008.
• Return on average stockholders' equity for the quarter ended March 31, 2009, was 0.41 percent, compared to 5.14 percent for the first quarter of 2008.
• Return on average tangible stockholders' equity (average stockholders' equity less goodwill and core deposit intangibles) for the quarter ended March 31, 2009, was 0.70 percent, compared to 11.31 percent for the first quarter of 2008.

Total assets grew to $4.95 billion as of March 31, 2009, up $1.06 billion from the $3.89 billion reported at the same time last year.

CREDIT QUALITY

• Allowance for loan losses represented 1.30 percent of total loans at March 31, 2009, compared to 1.04 percent a year ago.
  • The ratio of the allowance for loan losses to nonperforming loans decreased to 134 percent at March 31, 2009, compared to 174 percent at March 31, 2008.
• Provision for loan losses was $13.61 million for the first quarter of 2009, compared to $1.59 million for the first quarter of 2008.
  • During the first quarter of 2009, the firm recorded net charge-offs of $4.8 million, compared to net charge-offs of $190,000 during the same period in 2008. Net charge-offs to total average loans were 0.56 percent for the quarter ended March 31, 2009.

As noted above, Pinnacle reported that nonperforming loans and other real estate as a percentage of total loans and other real estate increased from 0.86 percent at Dec. 31, 2008, to 1.54 percent at March 31, 2009. The following is a summary of the activity in various nonperforming asset categories for the quarter ended March 31, 2009:

REVENUE

• Net interest income for first quarter 2009 was $28.70 million, compared to $27.36 million for the same quarter last year, an increase of 4.9 percent.
  • Net interest margin for the first quarter of 2009 was 2.72 percent, compared to a net interest margin of 3.37 percent for the same period last year.
• Noninterest income for the first quarter 2009 was $13.14 million, a 57.0 percent increase over the $8.37 million recorded during the same quarter in 2008.

"We have traditionally been an asset sensitive institution,” said Harold R. Carpenter, chief financial officer of Pinnacle Financial Partners. "However, we are optimistic, absent any unforeseen competitive pressures or economic events, that continued stabilization of LIBOR rates, increased balances of new loans with interest rate floors and repricing of our time deposits over the next few months will result in modest increases in our net interest margin for the balance of 2009.”

The 57.0 percent increase in noninterest income between the first quarter of 2009 and the first quarter of 2008 was due primarily to gains on the sale of investment securities. During the first quarter of 2009, the firm recorded gains on the sale of investment securities of approximately $4.3 million as a result of restructuring of the bond portfolio. Excluding gains on the sale of investment securities, Pinnacle’s noninterest income increased by 5.0 percent between the first quarter of 2009 and the first quarter of 2008. During the first quarter of 2009, Pinnacle's mortgage origination unit sold a record $192.93 million of mortgage loans, compared to $59.76 million during the first quarter of 2008, an increase of 223 percent. Gross fees on these loan sales were $2.7 million in the first quarter of 2009, compared to $1.1 million in the first quarter of 2008.

Noninterest income during the first quarter of 2009 represented approximately 31.40 percent of total revenues, compared to 23.42 percent for the same quarter in 2008.

NONINTEREST EXPENSE

• Noninterest expense for the quarter ended March 31, 2009, was $25.24 million, compared to $25.49 million in the first quarter of 2008 which includes $3.1 million of merger related expenses.
• Compensation expense was $14.75 million during the first quarter of 2009, compared to $9.98 million during the fourth quarter of 2008 and $13.87 million during the first quarter of 2008. The increase in compensation expense between the first quarter of 2009 and fourth quarter of 2008 was due to the reversal of previously accrued incentives during the fourth quarter of 2008 and increased number of associates during the first quarter of 2009.
• The efficiency ratio (noninterest expense divided by net interest income and noninterest income) was 60.3 percent during the first quarter of 2009, compared to 59.5 percent for the fourth quarter of 2008 and 71.4 percent in the first quarter of 2008. Excluding merger related expenses, the efficiency ratio was 62.7 percent in the first quarter of 2008.

Carpenter noted that the firm will continue to make investments in future growth and, consequently, anticipates modest increases in noninterest expense for the remainder of 2009 over the amount the firm has experienced during the first quarter of 2009.

Carpenter did note that the firm anticipates an incremental additional FDIC insurance assessment of approximately $3.5 million during the second quarter of 2009 and that the firm would evaluate impairment of goodwill, if required, prior to filing its Form 10-Q with the Securities and Exchange Commission.

INVESTMENTS IN FUTURE GROWTH

• Pinnacle has hired 32 highly experienced associates for its denovo expansion to Knoxville that was announced on April 9, 2007. Loans outstanding in Knoxville at March 31, 2009, were $330 million. Pinnacle currently has a second full-service office under construction in the Fountain City area of Knoxville and has announced plans to build a third in the Farragut area. Both will open in the fourth quarter of 2009.
• Pinnacle also has two new Nashville offices under construction – in the Belle Meade area and in Brentwood, Tenn., in adjacent Williamson County. Both are expected to open in the fourth quarter of 2009 with the new Brentwood location being the consolidation of two existing Brentwood locations.
• Pinnacle's total associate base at March 31, 2009, was 736.0 full-time equivalents (FTEs), compared to 686.0 at March 31, 2008. Pinnacle anticipates increasing its associate base by approximately 45 associates during 2009.

Pinnacle Financial Partners provides a full range of banking, investment, mortgage and insurance products and services designed for small- to mid-sized businesses and their owners, real estate professionals and individuals interested in a comprehensive relationship with their financial institution. Comprehensive wealth management services, such as financial planning and trust, help clients increase, protect and distribute their assets. The firm also has a well-established expertise in commercial real estate.

The firm began operations in a single downtown Nashville location in October 2000 and has since grown to $4.9 billion in assets. In 2007, Pinnacle launched an expansion into Knoxville, another high growth MSA. The addition of Mid-America has made Pinnacle the second-largest bank holding company headquartered in Tennessee, with 31 offices in eight Middle Tennessee counties and two in Knoxville.

Additional information concerning Pinnacle can be accessed at www.pnfp.com.

Certain of the statements in this release 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," "intend," "plan," "believe," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other facts that may cause the actual results, performance or achievements of Pinnacle to differ materially from any results expressed or implied by such forward-looking statements. Such factors include, without limitation, (i) unanticipated deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) continuation of the historically low short-term interest rate environment, (iii) the inability of Pinnacle to continue to grow its loan portfolio at historic rates in the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA, (iv) increased competition with other financial institutions, (v) deterioration or lack of sustained growth in the national or local economies including the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA, (vi) rapid fluctuations or unanticipated changes in interest rates, (vii) the development any new market other than Nashville or Knoxville, (viii) a merger or acquisition, (ix) any activity in the capital markets that would cause Pinnacle to conclude that there was impairment of any asset including intangible assets and (x) changes in state and Federal legislation or regulations applicable to banks and other financial services providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy. A more detailed description of these and other risks is contained in Pinnacle’s most recent annual report on Form 10-K. Many of such factors are beyond Pinnacle's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle 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.