Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.86 for the quarter ended Sept. 30, 2024, compared to net income per diluted common share of $1.69 for the quarter ended Sept. 30, 2023, an increase of approximately 10.1 percent. Net income per diluted common share was $4.08 for the nine months ended Sept. 30, 2024, compared to $5.99 for the nine months ended Sept. 30, 2023, a decrease of approximately 31.9 percent.

After considering the adjustments noted in the table below, net income per diluted common share was $1.86 for the three months ended Sept. 30, 2024, compared to $1.79 for the three months ended Sept. 30, 2023, and $1.63 for the three months ended June 30, 2024, an annualized linked-quarter growth rate of 56.4 percent. Net income per diluted common share adjusted for the items noted in the table below was $5.02 for the nine months ended Sept. 30, 2024, compared to $5.34 for the nine months ended Sept. 30, 2023.

"The third quarter was another outstanding quarter for our firm, highlighted by double-digit linked-quarter annualized growth in earning assets, nearly double-digit linked-quarter annualized core deposit growth, and an expanding net interest margin,” said M. Terry Turner, Pinnacle's President and Chief Executive Officer. "Not only am I excited that we grew diluted earnings per share to $1.86 in the quarter, but this growth has also been largely built on our longstanding ability to leverage our differentiated service levels to take market share in our advantaged Southeastern markets. The recently released 2024 FDIC deposit rankings again show that our firm continues to gain market share across our footprint and our client satisfaction scores continue to outperform our larger competitors in virtually every category according to Coalition Greenwich. Lastly, and importantly, Forbes recently reported that our firm was ranked the third best place to work among financial services and insurance firms in the United States, which is ultimately the foundation of all our success.

"Our robust hiring continues, as we have added 126 new revenue producers thus far this year. Our hiring pipelines remain very active heading into the last quarter of 2024, and we fully expect 2025 to yield double-digit growth as well. I also believe we are well positioned to capitalize on what appears to be a declining interest rate environment. Should the yield curve find its way to a more favorable slope in the coming quarters, this could result in an even better 2025 revenue outlook for our firm."

BALANCE SHEET GROWTH AND LIQUIDITY:

Total assets at Sept. 30, 2024, were $50.7 billion, an increase of approximately $1.3 billion from June 30, 2024, and $3.2 billion from Sept. 30, 2023, reflecting a linked-quarter annualized increase of 10.8 percent and a year-over-year increase of 6.7 percent. A further analysis of select balance sheet trends follows:

"Loan growth was approximately $539.2 million in the third quarter," Turner said. "We continue to be optimistic that we will see increases in the pace of loan growth as we close out 2024 and enter 2025. Importantly, our C&I and owner-occupied commercial real estate loan portfolios grew by $705.6 million, while our non-owner occupied commercial real estate portfolio decreased by $186.9 million. We are pleased to report that our exposure to construction and land development loans in relation to our total risk-based capital decreased to 68.2 percent, which is now below our target of 70 percent. It is our intent to continue reducing our exposure to non-owner occupied commercial real estate, multifamily and construction and land development loans from its level at Sept. 30, 2024 of 243.3 percent of total risk-based capital to below 225 percent. We believe this target will also be achieved within the next few quarters. As a result, we are beginning to consider new projects with our high-quality developers in our markets. During this time of reducing our exposure to non-owner occupied CRE, our credit experience in these segments has been remarkable and a great tribute to our client selection and credit underwriting process.

"A real highlight for 2024 has been our focus on growing core deposits. Our core deposits are up more than $2.0 billion so far this year, and our pipelines point toward expected continued growth in the fourth quarter. Additionally, we have seen our noninterest bearing deposits grow, with end-of-period growth at Sept. 30, 2024 up $296.5 million over the previous quarter end, a linked-quarter annualized growth rate of 15.0 percent. Over the last two years, we have invested in 16 new office locations, representing a 13.3 percent increase in outlets. So, we expect this significant investment in new people and facilities should enable us to continue to grow our core funding."

PRE-TAX, PRE-PROVISION NET REVENUE (PPNR) GROWTH:

Pre-tax, pre-provision net revenues (PPNR) for the three and nine months ended Sept. 30, 2024, were $207.4 million and $488.4 million, respectively, an increase of 6.5 percent and a decrease of 26.3 percent, respectively, from the $194.8 million and $662.4 million recognized in the three and nine months ended Sept. 30, 2023, respectively.

Net interest income for the third quarter of 2024 was $351.5 million, compared to $332.3 million for the second quarter of 2024 and $317.2 million for the third quarter of 2023, a year-over-year growth rate of 10.8 percent. Net interest margin was 3.22 percent for the third quarter of 2024, compared to 3.14 percent for the second quarter of 2024 and 3.06 percent for the third quarter of 2023.

Noninterest income for the third quarter of 2024 was $115.2 million, compared to $34.3 million for the second quarter of 2024 and $90.8 million for the third quarter of 2023.

• Wealth management revenues, which include investment, trust and insurance services, were $29.5 million for the third quarter of 2024, compared to $27.8 million for the second quarter of 2024 and $22.8 million for the third quarter of 2023, a year-over-year increase of 29.7 percent. The increase in wealth management revenues was attributable to several factors, but primarily is the result of an increase in capacity with more revenue producers and the placement of those producers in the areas of the firm's most recent strategic market expansions.
• Income from the firm's investment in Banker's Healthcare Group (BHG) was $16.4 million for the third quarter of 2024, compared to $18.7 million for the second quarter of 2024 and $25.0 million for the third quarter of 2023, a year-over-year decline of 34.4 percent.
  • BHG's loan originations were $989 million in the third quarter of 2024, compared to $871 million in the second quarter of 2024 and $1.0 billion in the third quarter of 2023.
  • Loans sold to BHG's community bank partners were approximately $521 million in the third quarter of 2024, compared to approximately $467 million in the second quarter of 2024 and $435 million in the third quarter of 2023.
  • BHG reserves for on-balance sheet loan losses were $237 million, or 9.1 percent of loans held for investment at Sept. 30, 2024, compared to 9.9 percent at June 30, 2024 and 6.4 percent at Sept. 30, 2023.
  • BHG increased its accrual for estimated losses attributable to loan substitutions and prepayments to $454 million, or 6.2 percent of the unpaid balances on loans that were previously purchased by BHG's community bank network, at Sept. 30, 2024, compared to $415 million, or 5.9 percent, at June 30, 2024 and $350.3 million, or 5.5 percent, at Sept. 30, 2023.
• Other noninterest income was $48.6 million for the quarter ended Sept. 30, 2024, an increase of $6.8 million from the second quarter of 2024 and $10.6 million from the third quarter of 2023. Third quarter 2024 other noninterest income was positively impacted by increased bank-owned life insurance revenues attributable to restructuring activities initiated last year, increased customer swap revenues and fair value adjustments related to the firm’s interest in other equity investments.

Noninterest expense for the third quarter of 2024 was $259.3 million, compared to $271.4 million for the second quarter of 2024 and $213.2 million for the third quarter of 2023.

• Salaries and employee benefits were $160.2 million in the third quarter of 2024, compared to $150.1 million in the second quarter of 2024 and $130.3 million in the third quarter of 2023, reflecting a year-over-year increase of 22.9 percent.
  • Full-time equivalent associates increased to 3,516.5 at Sept. 30, 2024 from 3,469.0 at June 30, 2024 and 3,329.5 at Sept. 30, 2023, a year-over-year increase of 5.6 percent.
  • Cash and equity incentive costs in the third quarter of 2024 were approximately $5.2 million higher than the second quarter of 2024 due to the firm anticipating an increased payout percentage for its cash incentive plan than was anticipated at June 30, 2024 and $15.0 million higher than the amounts recorded in the third quarter of 2023 due to an increased number of personnel and the anticipated payout percentage for 2024 being higher than what was anticipated for the 2023 award at Sept. 30, 2023.
• Equipment and occupancy costs were $42.6 million in the third quarter of 2024, compared to $41.0 million in the second quarter of 2024, reflecting an increase of 3.7 percent, and $36.9 million in the third quarter of 2023, reflecting a year-over-year increase of 15.3 percent. Comparing the third quarter of 2024 to the third quarter of 2023, several factors contributed to the increase of equipment and occupancy costs, including new equipment and facilities and rent escalators on various properties.
• Noninterest expense categories, other than those specifically noted above, were $56.5 million in the third quarter of 2024, compared to $80.2 million in the second quarter of 2024, reflecting a decrease of 29.6 percent, and $46.0 million in the third quarter of 2023, reflecting a year-over-year increase of 22.9 percent. Several factors contributed to the decrease in other noninterest expense in the third quarter of 2024 compared to the second quarter of 2024, including recognition of the $28.4 million fee related to terminating an agreement to resell securities previously purchased and professional fees associated with the firm's capital optimization initiatives completed in the second quarter of 2024 partially offset by increased lending-related expenses associated with the loss protection fee for the credit default swap which was also entered into in the second quarter of 2024.

"We anticipated margin expansion in the third quarter, due primarily to the securities portfolio restructuring initiatives we executed during the second quarter," said Harold R. Carpenter, Pinnacle's Chief Financial Officer. "Also during the third quarter, our relationship managers focused on mitigating the impact of the recent reduction in the Federal funds rate. We are pleased to report that our deposit pricing was well contained throughout the quarter, aided by the stability of our noninterest bearing deposit balances. Furthermore, from Aug. 31, 2024, a few weeks prior to the FOMC meeting, through Oct. 11, 2024, our deposit pricing has decreased by 28 basis points, while our loan yields have dropped by 24 basis points, signaling to us that we are doing quite well in managing our net interest spreads here in the initial stages of this new interest rate environment.

"We are again very excited about our core fee performance during the third quarter. Expanding our fee revenues has been a key initiative for us this year, with many of our business lines experiencing the best performance in the history of our firm, particularly with respect to our wealth management unit. Fee revenues from BHG were less in the third quarter than we anticipated at the end of the second quarter, with BHG’s contribution now representing approximately 8 percent of our third quarter pre-tax, pre-provision revenues.

"Our expense results for the third quarter came in slightly higher than we originally anticipated at the beginning of the quarter, with most of this attributable to personnel costs. Our hiring has been better than anticipated as it continues to be a strong recruiting year for our firm, which should serve to bolster revenues in future periods. Another contributor to increased expense for the third quarter was that we increased our accrual for annual cash incentive plan payouts to approximately 90 percent of target level payouts as of the end of the third quarter."

CAPITAL, SOUNDNESS AND TAXES:

"Net charge-offs to average loans for the third quarter of 2024 were 0.21 percent, down from 0.27 percent in the prior quarter," Carpenter said. "Net charge-offs in the third quarter included a partial charge-off of a commercial and industrial loan of approximately $9.0 million. The remaining balance on this loan, which was previously classified, was downgraded to nonaccrual during the third quarter, which was the primary reason for the increase in nonaccrual loans and nonperforming assets from the second quarter. In summary, from a credit perspective, thus far this year, we believe our credit performance has remained strong all year long.

"Lastly, our book value per common share increased during the quarter from $77.15 to $79.33, an annualized linked-quarter increase of 11.3 percent. Concurrently, our tangible book value per common share increased from $52.92 to $55.12 during the third quarter, a linked-quarter annualized increase of 16.6 percent. Additionally, the firm's common equity Tier one risk-based capital ratio increased to 10.8 percent at Sept. 30, 2024 from 10.3 percent at Dec. 31, 2023, which we also consider a great accomplishment."

BOARD OF DIRECTORS DECLARES DIVIDENDS

On Oct. 15, 2024, Pinnacle Financial's Board of Directors approved a quarterly cash dividend of $0.22 per common share to be paid on Nov. 29, 2024 to common shareholders of record as of the close of business on Nov. 1, 2024. Additionally, the Board of Directors approved a quarterly cash dividend of approximately $3.8 million, or $16.88 per share (or $0.422 per depositary share), on Pinnacle Financial's 6.75 percent Series B Non-Cumulative Perpetual Preferred Stock payable on Dec. 1, 2024 to shareholders of record at the close of business on Nov. 16, 2024. The amount and timing of any future dividend payments to both preferred and common shareholders will be subject to the approval of Pinnacle's Board of Directors.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CDT on Oct. 16, 2024, to discuss third quarter 2024 results and other matters. To access the call for audio only, please call 1-877-209-7255. For the presentation and streaming audio, please access the webcast on the investor relations page of Pinnacle's website at www.pnfp.com.

For those unable to participate in the webcast, it will be archived on the investor relations page of Pinnacle's website at www.pnfp.com for 90 days following the presentation.

Pinnacle Financial Partners provides a full range of banking, investment, trust, mortgage and insurance products and services designed for businesses and their owners and individuals interested in a comprehensive relationship with their financial institution. The firm is the No. 1 and fastest growing bank in the Nashville-Murfreesboro-Franklin MSA, according to June 30, 2024 deposit data from the FDIC. Pinnacle is No. 11 on the 2024 list of 100 Best Companies to Work For® in the U.S., its eighth consecutive appearance and was recognized by American Banker as one of America's Best Banks to Work For 11 years in a row and No. 1 among banks with more than $10 billion in assets in 2023.

Pinnacle Bank owns a 49 percent interest in Bankers Healthcare Group (BHG), which provides innovative, hassle-free financial solutions to healthcare practitioners and other professionals. Great Place to Work and FORTUNE ranked BHG No. 4 on its 2021 list of Best Workplaces in New York State in the small/medium business category.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $50.7 billion in assets as of Sept. 30, 2024. As the second-largest bank holding company in Tennessee, Pinnacle operates in several primarily urban markets across the Southeast.

Additional information concerning Pinnacle, which is included in the Nasdaq Financial-100 Index, can be accessed at www.pnfp.com.

Forward-Looking Statements

All statements, other than statements of historical fact, included in this press release, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "expect," "anticipate," "intend," "may," "should," "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 statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (i) deterioration in the financial condition of borrowers of Pinnacle Bank and its subsidiaries or BHG, including as a result of persistent elevated interest rates, the negative impact of inflationary pressures and challenging economic conditions on our and BHG's customers and their businesses, resulting in significant increases in loan losses and provisions for those losses and, in the case of BHG, substitutions; (ii) fluctuations or differences in interest rates on loans or deposits from those that Pinnacle Financial is modeling or anticipating, including as a result of Pinnacle Bank's inability to better match deposit rates with the changes in the short-term rate environment, or that affect the yield curve; (iii) the sale of investment securities in a loss position before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs; (iv) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout the Southeast region of the United States, particularly in commercial and residential real estate markets; (v) the inability of Pinnacle Financial, or entities in which it has significant investments, like BHG, to maintain the long-term historical growth rate of its, or such entities', loan portfolio; (vi) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, including during times when Pinnacle Bank is seeking to limit the rates it pays on deposits or uncertainty exists in the financial services sector; (vii) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (viii) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (ix) the impact of competition with other financial institutions, including pricing pressures and the resulting impact on Pinnacle Financial’s results, including as a result of the negative impact to net interest margin from elevated deposit and other funding costs; (x) the results of regulatory examinations of Pinnacle Financial, Pinnacle Bank or BHG, or companies with whom they do business; (xi) BHG's ability to profitably grow its business and successfully execute on its business plans; (xii) risks of expansion into new geographic or product markets; (xiii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xiv) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xv) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Bank), to retain financial advisors (including as a result of the competitive environment for associates) or otherwise to attract customers from other financial institutions; (xvi) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvii) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels or regulatory requests or directives, particularly if Pinnacle Bank's level of applicable commercial real estate loans were to exceed percentage levels of total capital in guidelines recommended by its regulators; (xviii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xix) the vulnerability of Pinnacle Bank's network and online banking portals, and the systems of parties with whom Pinnacle Bank contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xx) the possibility of increased compliance and operational costs as a result of increased regulatory oversight (including by the Consumer Financial Protection Bureau), including oversight of companies in which Pinnacle Financial or Pinnacle Bank have significant investments, like BHG, and the development of additional banking products for Pinnacle Bank's corporate and consumer clients; (xxi) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xxii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xxiii) the risks associated with Pinnacle Bank being a minority investor in BHG, including the risk that the owners of a majority of the equity interests in BHG decide to sell the company or all or a portion of their ownership interests in BHG (triggering a similar sale by Pinnacle Bank); (xxiv) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxv) fluctuations in the valuations of Pinnacle Financial's equity investments and the ultimate success of such investments; (xxvi) the availability of and access to capital; (xxvii) adverse results (including costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions involving Pinnacle Financial, Pinnacle Bank or BHG; and (xxviii) general competitive, economic, political and market conditions. Additional factors which could affect the forward looking statements can be found in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2023, and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC and available on the SEC's website at http://www.sec.gov. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this press release, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Matters

This release contains certain non-GAAP financial measures, including, without limitation, total revenues, net income to common shareholders, earnings per diluted common share, revenue per diluted common share, PPNR, efficiency ratio, noninterest expense, noninterest income and the ratio of noninterest expense to average assets, excluding in certain instances the impact of expenses related to other real estate owned, gains or losses on sale of investment securities, gains associated with the sale-leaseback transaction completed in the second quarter of 2023, losses on the restructuring of certain bank owned life insurance (BOLI) contracts, charges related to the FDIC special assessment, income associated with the recognition of a mortgage servicing asset in the first quarter of 2024, fees related to terminating an agreement to resell securities previously purchased and professional fees associated with capital optimization initiatives in the second quarter of 2024 and other matters for the accounting periods presented. This release may also contain certain other non-GAAP capital ratios and performance measures that exclude the impact of goodwill and core deposit intangibles associated with Pinnacle Financial's acquisitions of BNC, Avenue Bank, Magna Bank, CapitalMark Bank & Trust, Mid-America Bancshares, Inc., Cavalry Bancorp, Inc. and other acquisitions which collectively are less material to the non-GAAP measure as well as the impact of Pinnacle Financial's Series B Preferred Stock. The presentation of the non-GAAP financial information is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with GAAP. Because non-GAAP financial measures presented in this release are not measurements determined in accordance with GAAP and are susceptible to varying calculations, these non-GAAP financial measures, as presented, may not be comparable to other similarly titled measures presented by other companies.

Pinnacle Financial believes that these non-GAAP financial measures facilitate making period-to-period comparisons and are meaningful indications of its operating performance. In addition, because intangible assets such as goodwill and the core deposit intangible, and the other items excluded each vary extensively from company to company, Pinnacle Financial believes that the presentation of this information allows investors to more easily compare Pinnacle Financial's results to the results of other companies. Pinnacle Financial's management utilizes this non-GAAP financial information to compare Pinnacle Financial's operating performance for 2024 versus certain periods in 2023 and to internally prepared projections.