KBRA Affirms Ratings for Pinnacle Financial Partners, Inc. Following Acquisition Announcement

KBRA affirms the senior unsecured debt rating of A-, the subordinated debt rating of BBB+, the preferred stock rating of BBB, and the short-term debt rating of K2 for Nashville, Tennessee-based Pinnacle Financial Partners, Inc. (NASDAQ: PNFP) following the recently proposed merger announcement with Columbus, Georgia-based Synovus Financial Corp. (NYSE: SNV). In addition, KBRA affirms the deposit and senior unsecured debt ratings of A, the subordinated debt rating of A-, and the short-term deposit and debt ratings of K1 for the subsidiary, Pinnacle Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The proposed merger between PNFP and SNV (not KBRA rated) will create one of the largest Southeastern regional banks with meaningful scale and enhanced geographic diversity in demographically attractive markets. With a ~380 pro-forma branch footprint, the deal pairs SNV’s denser branch network across Georgia and Florida (as well as more modest operations in Alabama and South Carolina) with PNFP’s comparatively “branch lite” model spanning Tennessee, North Carolina, Virginia, Maryland, and Kentucky. The company is expected to reflect favorable levels of deposit market share in its core footprint, notably combining PNFP’s ~12% market share in Tennessee with SNV’s ~8% in Georgia (note: PNFP’s TN deposit market share may be modestly overstated per FDIC methodology for accounting of reciprocal deposits). Regarding the combined franchise’s overall scale, it appears that the institutions’ market share across Tennessee and Georgia will be exceeded only by Truist and Bank of America. The prospective institution will be led by a strong management team featuring a mix of PNFP and SNV leadership. Importantly, SNV’s existing CEO and CFO will head the combined organization, while PNFP’s current CEO will transition to the position of Chairman. Deal terms and assumptions seem reasonable, in our opinion, with the transaction valued at approximately $8.6 billion, equivalent to a 10% premium to SNV. The merger will create a pro forma institution with $116 billion of assets (thereby potentially propelling it into “Category IV” regulatory status), $95 billion of deposits, and $81 billion of loans.

KBRA believes there are a number of favorable diversifying effects inherent as a result of the PNFP / SNV combination; most notably, supplementing the former’s distinctly commercially focused depositor base with that of SNV’s, which features a larger proportion of granular, low-cost consumer / retail deposits (~37% of SNV’s total). Importantly, we think adding SNV’s lower-beta, lower-cost, and more rural deposit base will help offset PNFP’s sometimes more rate sensitive depositors that are more centered in select urban markets. This should result in a more interest rate neutral institution than that reflected by PNFP historically, and accordingly, earnings, at least with respect to spread lending operations, could experience less volatility to changes in market interest rates. The proposed deal will also significantly dilute ICS/reciprocal deposit concentration within PNFP’s deposit base ($9.4 billion of related balances, or 21% of total deposits as of 1Q25). As a reminder, the vast majority of PNFP’s reciprocal usage is to secure public/municipal funds in lieu of collateral requirements that involve encumbering securities.

The company’s merger model expectations reflect enhanced profitability over the intermediate-term, including a forecasted FY27 ROA of ~1.4%, which is projected to stem principally from $250 million of run‐rate net expense savings expected from the merger (or 10% of the combined institution’s non-interest expense, with 50% expense synergies recognized in year one and 75% through year two). Ultimately, a <50% efficiency ratio is being targeted, and we think the largest efficiency gain will come from SNV being able to spread out its higher physical occupancy costs associated with its robust branch network over a larger asset base. In this sense, an average deposits per branch figure of $202 million, if achieved, would screen as particularly efficient compared to similarly sized peers. Neither institution reflects outsized fee income contributions to total revenues (especially when adjusting equity method investment income from PNFP’s partial ownership of Bankers Healthcare Group), but we note PNFP’s fee income diversification will benefit from the addition of SNV’s more developed capital markets and brokerage businesses.

Another creditor benefit of the transaction, in our view, is the comparatively reduced impact Bankers Healthcare Group (“BHG”) will have on the larger organization. Having originally invested in February 2015, PNFP owns a 49 percent interest in BHG, which provides unsecured consumer, small business, and commercial loans primarily to prime, high income professionals. As BHG has grown in recent years, so too has its financial impact on PNFP’s P&L (associated income has represented as much as 9% of total revenues at times), and KBRA notes the business can vary significantly quarter to quarter. We think the pending transaction makes it more probable that PNFP exits its investment in BHG in one way or another over the next several years.

PNFP’s asset quality has been solid, recognizing that neither the company nor the U.S. banking industry broadly has been truly tested by an economic recession (the brief COVID-related contraction aside) in their contemporary history. In our view, PNFP’s strong asset quality is partly related to its intelligent and risk-averse growth strategy – one that focuses on lift-outs of talented and experienced in-market bankers with decades of experience. We think this strategy naturally leads to a degree of positive client selection in that more recently recruited bankers are typically less likely to pursue their respective higher risk borrower relationships. Credit quality trends at PNFP were largely positive in the quarter, evidenced by a decline in NPAs, classified loans, and still contained NCOs. Additionally, in 2Q25, PNFP provided updated guidance for full-year 2025 NCOs, guiding the expected ratio to a range of 0.18% to 0.20%, which suggests to us that management feels strongly about its credit outlook in the short-to-intermediate term. Moreover, credit quality appears to remain solid in PNFP’s office portfolio with the segment reflecting a WALTV of 53%, 97% pass rated, and zero past due balances. While we are less intimately familiar with SNV’s loan portfolio and underwriting, the company’s 2Q25 asset quality performance was sound, with NCOs, NPLs, and criticized loans all improving QoQ. SNV’s management also appears confident in their credit outlook and suggested that 2H25 NCOs are expected to be relatively stable compared to 0.19% in 1H25. The pro-forma loan book is anticipated to be 36% C&I (including owner-occupied CRE), 35% investor CRE (including C&D and multifamily), 16% residential mortgage, 2% consumer, and 11% other. Though the merger moderately increases PNFP’s non-owner occupied CRE exposure, it also reduces its C&D exposure from 10% of loans to 7%.

With certain positive traits of the merger noted above, KBRA also recognizes that the pending transaction comes with risks. Certainly, MOEs within the banking industry have been difficult to execute for a variety of reasons, including contrasting cultures, employee attrition, and differing operating models and credit cultures, to name a few. Furthermore, the acquisition of SNV by PNFP marks a deviation from the company’s historical growth strategy that has prided itself on spurning M&A, and instead, electing to recruit bankers from competitors undergoing disruption. There is also the matter of whether or not the pro-forma company can achieve its 47% targeted efficiency ratio and ~1.4% ROA while 1) making the necessary investments required to achieve management’s stated desire for higher-than-peer growth, 2) compensating existing producers in a manner required to avoid employee attrition during a potentially disruptive MOE, and 3) making required investments necessary to prepare the company for Category IV regulatory status. From a more quantitative perspective, we also view the anticipated core capital depletion as a less attractive part of the deal, recognizing that PNFP’s CET1 ratio is expected to decline by 90 bps to 9.8% at deal close. While we appreciate the company intends to rebuild core capital higher post-close and aims to achieve a CET1 ratio of 11.1% by YE27, it is clear to us that there will be an 18 – 24 month period where PNFP operates with core capital levels that are solidly below peer.

Rating Sensitivities

The maintenance of the Stable Outlook reflects our assumption that PNFP and SNV’s experienced management teams can adequately navigate the combined institution through what is likely to be a disruptive merger and integration process without detrimentally impacting the company’s safety and soundness. However, should integration prove more difficult than anticipated, we could revisit the ratings. A failure to steadily rebuild core capital higher post deal close, greater-than-peer credit quality degradation, or a more aggressive profile with respect to liquidity would also be viewed negatively.

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Methodologies