3Q22 annualized linked-quarter loan growth of 20.9% while core deposits grew 9.8%

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.91 for the quarter ended Sept. 30, 2022, compared to net income per diluted common share of $1.75 for the quarter ended Sept. 30, 2021, an increase of 9.1 percent. Net income per diluted common share was $5.42 for the nine months ended Sept. 30, 2022, compared to $5.05 for the nine months ended Sept. 30, 2021, an increase of 7.3 percent.

Paycheck Protection Program (PPP) net interest income for the three months ended Sept. 30, 2022 and 2021 was approximately $755,000 and $20.4 million, respectively. PPP net interest income for the nine months ended Sept. 30, 2022 and 2021 was $15.5 million and $66.0 million, respectively. PPP net interest income contributed $0.01 and $0.15 to diluted earnings per common share for the three and nine months ended Sept. 30, 2022, respectively, compared to contributions of $0.20 and $0.64 for the three and nine months ended Sept. 30, 2021, respectively.

"There is little doubt that we continue to operate in a weakening economy," said M. Terry Turner, Pinnacle’s president and chief executive officer. "Nevertheless our relentless focus on those items that we believe are most highly correlated with total shareholder returns resulted in year-over-year growth in earnings per diluted share of 9.1 percent, organic revenue growth of 20.2 percent, book value per share accretion of 2.6 percent and tangible book value per share accretion of 3.6 percent.

"The key to our continued strong growth and strong asset quality metrics has been our ability to attract the best bankers in our markets from our competitors. We have hired 118 revenue producers thus far this year, including 53 in the third quarter, so we are well on pace to surpass our hiring successes of the past two years. As a result, we believe we are extremely well positioned to seize the significant opportunities arising from the substantial market disruption we see occurring across our footprint and to continue producing sound growth in what is likely to be a more challenging economic landscape. Our third quarter results increased our belief that our proven and unique business model should continue to produce outsized revenue growth, earnings growth and tangible book value accretion through a more challenging operating environment."

BALANCE SHEET GROWTH:

Total assets at Sept. 30, 2022 were $41.0 billion, an increase of approximately $4.5 billion from Sept. 30, 2021, reflecting a year-over-year increase of 12.3 percent. A further analysis of select balance sheet trends follows:

"In conjunction with our hiring success in recent years, we again experienced strong growth in loans during the third quarter with an annualized growth rate of 20.9 percent over June 30, 2022 balances," Turner said. "Our core deposits increased during the third quarter by 9.8 percent annualized over the June 30, 2022 balances. Also, during the quarter we got further confirmation regarding the effectiveness of our model based on FDIC summary of deposit data as of June 30, 2022 where we learned that we increased our deposit market share in virtually every market in which we operate. The Nashville MSA was particularly noteworthy where total deposits grew approximately 3.5 percent year-over-year, and we captured 57 percent of all that growth. We believe our longstanding ability to take deposit market share will serve us well in a period where many are forecasting a contraction in M2, which is highly correlated to shrinking deposit balances."

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

Pre-tax, pre-provision net revenues (PPNR) for the quarter ended Sept. 30, 2022 were $211.3 million, an increase of 22.3 percent from the $172.8 million recognized in the quarter ended Sept. 30, 2021.

• Revenue per fully diluted common share increased for the 11th consecutive quarter to $5.40 for the three months ended Sept. 30, 2022, compared to $5.14 for the second quarter of 2022 and $4.50 for the third quarter of 2021, a 20.0 percent year-over-year growth rate.
• Net interest income for the quarter ended Sept. 30, 2022 was $305.8 million, compared to $264.6 million for the second quarter of 2022 and $237.5 million for the third quarter of 2021, a year-over-year growth rate of 28.7 percent.
  • Revenues from PPP loans approximated $755,000 in the third quarter of 2022, compared to $4.1 million in the second quarter of 2022 and $20.4 million in the third quarter of 2021. At Sept. 30, 2022, remaining unamortized fees for PPP loans were approximately $333,000.
  • Included in net interest income for the third quarter of 2022 was $1.3 million of discount accretion associated with fair value adjustments, compared to $1.6 million of discount accretion recognized in the second quarter of 2022 and $2.8 million in the third quarter of 2021. There remains $4.4 million of purchase accounting discount accretion as of Sept. 30, 2022.
• Noninterest income for the quarter ended Sept. 30, 2022 was $104.8 million, compared to $125.5 million for the second quarter of 2022 and $104.1 million for the third quarter of 2021, a year-over-year growth rate of 0.7 percent.
  • Wealth management revenues, which include investment, trust and insurance services, were $19.4 million for the third quarter of 2022, compared to $21.8 million for the second quarter of 2022 and $17.3 million reported for the third quarter of 2021, a year-over-year increase of 12.5 percent.
  • Service charges on deposit accounts were $10.9 million for the quarter ended Sept. 30, 2022, compared to $11.6 million for the quarter ended June 30, 2022 and $11.4 million for the quarter ended Sept. 30, 2021. Service charge revenues were negatively impacted by the previously disclosed changes in the firm's insufficient funds and overdraft programs during the third quarter of 2022 by approximately $500,000.
  • Income from the firm's investment in BHG was $41.3 million for the quarter ended Sept. 30, 2022, down from $49.5 million for the quarter ended June 30, 2022 and up from $30.4 million for the quarter ended Sept. 30, 2021. During the third quarter of 2022, BHG placed approximately $555 million in loans with community banks compared to approximately $658 million in the second quarter of 2022. Additionally, BHG completed another securitization during the third quarter of 2022 for approximately $412 million in funding secured by previously funded loans. This was the third securitization completed in 2022.
  • Other noninterest income was $31.8 million for the quarter ended Sept. 30, 2022, compared to $40.4 million for the quarter ended June 30, 2022 and $37.2 million for the quarter ended Sept. 30, 2021, a linked-quarter annualized decrease of 85.4 percent and year-over-year decline of 14.5 percent, respectively.
    • Third quarter 2022 gains from market valuation adjustments in other equity investments decreased to approximately $725,000, compared to $6.7 million in the second quarter of 2022 and $8.6 million in the third quarter of 2021.
• Noninterest expense for the quarter ended Sept. 30, 2022 was $199.3 million, compared to $196.0 million in the second quarter of 2022 and $168.9 million in the third quarter of 2021, reflecting a linked-quarter annualized growth rate of 6.6 percent and a year-over-year increase of 18.0 percent.
  • Salaries and employee benefits were $129.9 million in the third quarter of 2022, compared to $126.6 million in the second quarter of 2022 and $112.4 million in the third quarter of 2021, reflecting a linked-quarter annualized growth rate of 10.4 percent and a year-over-year increase of 15.6 percent.
    • Increase in headcount is a meaningful factor to the growth in compensation. Total full-time equivalent associates amounted to 3,184.5 associates at Sept. 30, 2022, compared to 2,769.5 full-time equivalent associates at Sept. 30, 2021, a year-over-year increase in headcount of 15.0 percent.
    • Costs related to the firm's incentive plans increased to $30.7 million in the third quarter of 2022 compared to $30.2 million in the third quarter of 2021 due to increased personnel as well as increased earnings and PPNR, which are primary factors in determining the costs of the firm's annual cash incentive compensation awards.
  • Noninterest expense categories, other than salaries and employee benefits, were $69.3 million in the third quarter of 2022, compared to $69.4 million in the second quarter of 2022 and $56.4 million in the third quarter of 2021, reflecting a year-over-year increase of 22.9 percent.

"We are very pleased with our PPNR results for the third quarter," said Harold R. Carpenter, Pinnacle’s chief financial officer. "We continue to overcome the headwinds from declines in residential mortgage lending, the winding down of PPP lending, declining stock market valuations and the broader impact of inflation. Loan growth, as well as the impact of the rising short-term rate environment, contributed to an increase of $41.2 million in net interest income in the third quarter of 2022 as compared to the second quarter of 2022.

"We anticipated fee revenues to decrease in the third quarter, since the second quarter included all-time high marks from BHG and other fee categories, with significant contributions from market valuation adjustments for other equity investments that we own. Although BHG reported less revenue, they had another extremely strong quarter. Market valuation adjustments from our other equity investments fell by $5.9 million between the second and third quarters. We now estimate our total 2022 revenues (net interest income and noninterest income) should approximate a high-teens percentage increase over that of 2021.

"As to expenses, compensation costs increased approximately 15.6 percent over the same quarter last year, due primarily to increased opportunities to hire the best bankers and investment professionals in our markets. We are optimistic that our hiring model will continue to provide us even more opportunities to add revenue producers this year. Including the impact of inflation and the acquisition of JB&B Capital, LLC in the first quarter of this year, our expenses, comparing the third quarter of 2022 to the same quarter in 2021, have increased by 18.0 percent. We now estimate our total 2022 noninterest expense should approximate a high-teens percentage increase over that of 2021."

SOUNDNESS AND PROFITABILITY:

• Net interest margin was 3.47 percent for the third quarter of 2022, compared to 3.17 percent for the second quarter of 2022 and 3.03 percent for the third quarter of 2021. Net interest margin for the nine months ended Sept. 30, 2022 was 3.18 percent compared to 3.05 percent for the nine months ended Sept. 30, 2021.
  • PPP loans impacted the firm’s net interest margin beginning in the second quarter of 2020 and have continued to impact net interest margin through the third quarter of 2022. Additionally, the firm’s decision early in the pandemic to maintain additional on-balance sheet liquidity also impacted net interest margin in each of fiscal years 2020 and 2021. The firm estimates its second and third quarter 2022 net interest margin was negatively impacted by approximately 12 and 9 basis points, respectively, compared to approximately 12 basis points in each of the second and third quarter of 2021 as a result of these factors.
• Provision for credit losses was $27.5 million in the third quarter of 2022 compared to $12.9 million in the second quarter of 2022 and $3.4 million in the third quarter of 2021. Net charge-offs were $11.0 million for the quarter ended Sept. 30, 2022, compared to $877,000 for the quarter ended June 30, 2022 and $9.3 million for the quarter ended Sept. 30, 2021. Annualized net loan charge-offs for the third quarter of 2022 were 0.16 percent.
• Nonperforming assets were $41.9 million at Sept. 30, 2022, compared to $23.7 million at June 30, 2022 and $55.1 million at Sept. 30, 2021, down 24.0 percent over the same quarter last year. The ratio of the allowance for credit losses to nonperforming loans at Sept. 30, 2022 was 844.5 percent, compared to 1,762.6 percent at June 30, 2022 and 575.3 percent at Sept. 30, 2021.
• Classified assets were $107.9 million at Sept. 30, 2022, compared to $112.5 million at June 30, 2022 and $196.3 million at Sept. 30, 2021, down 45.0 percent over the same quarter last year.

"During the third quarter, our net interest margin increased by approximately 30 basis points, our efficiency ratio improved by 173 basis points, and our return metrics were basically consistent with our strong second quarter results," Carpenter said. "We are also pleased that our tangible book value per share increased again this quarter, despite the impact of rising rates on our investment securities portfolio. Our credit metrics declined slightly in the quarter but remain strong in comparison to historical metrics, which we believe is the result of our credit officers continuing to remain active in proactively conducting portfolio reviews and fine tuning underwriting given forecasts for a weakening economy.

"We believe we have the most experienced bankers in our markets and, as a result, believe this experience translates into a client base of seasoned borrowers. We have long shown that we can grow our franchise organically, which we also believe enhances long-term credit soundness. Furthermore, we operate in many of the best banking markets in the nation where the local economies seem to be better weathering the current economic challenges."

BOARD OF DIRECTORS DECLARES DIVIDENDS

On Oct. 18, 2022, Pinnacle Financial's Board of Directors approved a quarterly cash dividend of $0.22 per common share to be paid on Nov. 25, 2022 to common shareholders of record as of the close of business on Nov. 4, 2022. Additionally, the Board of Directors approved a quarterly 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, 2022 to shareholders of record at the close of business on Nov. 16, 2022. 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. CT on Oct. 19, 2022, to discuss third quarter 2022 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 bank in the Nashville-Murfreesboro-Franklin MSA, according to 2022 deposit data from the FDIC, is listed by Forbes among the top 25 banks in the nation and earned a spot on the 2022 list of 100 Best Companies to Work For® in the U.S., its sixth consecutive appearance. Pinnacle was also listed in Fortune magazine as the second best company to work for in the U.S. for women. American Banker recognized Pinnacle as one of America’s Best Banks to Work For nine years in a row and No. 1 among banks with more than $11 billion in assets in 2021.

Pinnacle owns a 49 percent interest in Bankers Healthcare Group (BHG), which provides innovative, hassle-free financial solutions to healthcare practitioners and other licensed 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 $41.0 billion in assets as of Sept. 30, 2022. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in 15 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 the negative impact of inflationary pressures 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) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia, Alabama and Virginia, particularly in commercial and residential real estate markets; (iv) 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; (v) 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; (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) 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 compression to net interest margin; (ix) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions and on Pinnacle Financial's and its customers' business, results of operations, asset quality and financial condition; (x) the efficacy of vaccines against the COVID-19 virus, including new variants; (xi) the results of regulatory examinations; (xii) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xiii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xiv) BHG's ability to profitably grow its business and successfully execute on its business plans; (xv) risks of expansion into new geographic or product markets; (xvi) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xvii) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xviii) 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; (xix) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xx) 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; (xxi) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxii) 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; (xxiii) 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; (xxiv) the risks associated with Pinnacle Financial and 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 Financial and Pinnacle Bank); (xxv) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxvi) fluctuations in the valuations of Pinnacle Financial's equity investments and the ultimate success of such investments; (xxvii) the availability of and access to capital; (xxviii) 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, including as a result of Pinnacle Bank's participation in and execution of government programs related to the COVID-19 pandemic; and (xxix) 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, 2021, 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, earnings per diluted common share, PPNR, efficiency ratio 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 and other matters for the accounting periods presented. This release also includes non-GAAP financial measures which exclude the impact of loans originated and forgiven and repaid under the PPP. 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 2022 versus certain periods in 2021 and to internally prepared projections.