Pinnacle Financial Partners(PNFP) - 2024 Q2 - Quarterly Report

PART I – Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated balance sheets, income, equity, and cash flow statements as of June 30, 2024 Consolidated Balance Sheets The balance sheet details the company's assets, liabilities, and shareholders' equity at the end of the reporting period Consolidated Balance Sheet Summary (Unaudited) | Account | June 30, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :--- | :--- | :--- | | Total Assets | $49,366,969 | $47,959,883 | | Loans, net | $33,387,549 | $32,323,036 | | Securities (AFS & HTM) | $7,882,891 | $7,323,887 | | Goodwill | $1,846,973 | $1,846,973 | | Total Liabilities | $43,192,301 | $41,924,095 | | Total Deposits | $39,770,380 | $38,539,810 | | FHLB Advances | $2,110,885 | $2,138,169 | | Total Shareholders' Equity | $6,174,668 | $6,035,788 | - Total assets grew to $49.4 billion at June 30, 2024, up from $48.0 billion at year-end 2023, driven primarily by a $1.1 billion increase in net loans[9] - Total deposits increased by $1.2 billion to $39.8 billion during the first six months of 2024[9] Consolidated Statements of Income The income statement outlines revenues, expenses, and net income for the second quarter and first half of 2024 Consolidated Income Statement Summary (Unaudited) | Metric | Q2 2024 ($ thousands) | Q2 2023 ($ thousands) | Six Months 2024 ($ thousands) | Six Months 2023 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $332,262 | $315,393 | $650,296 | $627,624 | | Provision for Credit Losses | $30,159 | $31,689 | $64,656 | $50,456 | | Noninterest Income | $34,288 | $173,839 | $144,391 | $263,368 | | Noninterest Expense | $271,389 | $211,641 | $513,754 | $423,368 | | Net Income | $53,162 | $197,299 | $177,106 | $334,570 | | Diluted EPS | $0.64 | $2.54 | $2.21 | $4.30 | - Net income for Q2 2024 was $53.2 million, a significant decrease from $197.3 million in Q2 2023, primarily driven by a $72.1 million net loss on the sale of investment securities and the absence of a large gain on sale of fixed assets that occurred in Q2 2023 ($85.7 million)[11] Notes to Consolidated Financial Statements This section provides detailed explanations of accounting policies and specific financial statement items - Pinnacle Bank holds a 49% interest in Bankers Healthcare Group, LLC (BHG), a significant equity method investment that provides loans to healthcare professionals[19] - The company adopted several new accounting standards in 2024, including ASU 2022-03 on fair value measurement and ASU 2023-02 on investments in tax credit structures, neither of which had a material impact[30][31] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial performance, highlighting trends in income, expenses, credit quality, and liquidity Overview This section provides a high-level summary of key performance indicators and balance sheet growth Key Performance Indicators | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Diluted EPS | $0.64 | $2.54 | $2.21 | $4.30 | | Net Interest Margin | 3.14% | 3.20% | 3.09% | 3.30% | - Loans grew to $33.8 billion and deposits increased to $39.8 billion as of June 30, 2024, compared to $32.7 billion and $38.5 billion, respectively, at December 31, 2023[145] Results of Operations This section details the performance of net interest income, credit loss provisions, and noninterest income and expenses - Net interest income increased 5.3% YoY for Q2 2024, driven by organic loan growth, though partially offset by rising funding costs, with the net interest margin compressing slightly to 3.14%[160][164] - The provision for credit losses was $30.2 million in Q2 2024, influenced by reserves for a specific $38 million nonaccrual loan and concerns about a higher-for-longer interest rate environment[167] - Noninterest income decreased 80.3% YoY for Q2 2024, primarily due to a $72.1 million net loss from the sale of $822.7 million of available-for-sale securities to reposition the portfolio[148][173] - Noninterest expense increased 28.2% YoY for Q2 2024, driven by higher salaries, increased occupancy costs, and a $27.6 million fee to terminate a securities resale agreement[149] - The efficiency ratio for Q2 2024 was 74.0%, a sharp increase from 43.3% in Q2 2023, reflecting the significant drop in noninterest income and rise in noninterest expense[150] Financial Condition This section examines the composition and quality of the loan portfolio, credit loss allowance, and funding sources Loan Portfolio Composition | Loan Category | June 30, 2024 ($ thousands) | % of Total | Dec 31, 2023 ($ thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | $12,328,622 | 36.5% | $11,666,691 | 35.7% | | Non-owner occupied CRE | $8,184,184 | 24.2% | $7,535,494 | 23.1% | | Consumer real estate – mortgage | $4,874,846 | 14.4% | $4,851,531 | 14.8% | | Owner occupied CRE | $4,217,351 | 12.5% | $4,044,896 | 12.4% | | Construction and land development | $3,621,563 | 10.8% | $4,041,081 | 12.4% | | Total Loans | $33,769,150 | 100.0% | $32,676,091 | 100.0% | - The Allowance for Credit Losses (ACL) increased to $381.6 million (1.13% of total loans) at June 30, 2024, from $353.1 million (1.08% of total loans) at year-end 2023[205] - Nonperforming assets rose to $100.4 million at June 30, 2024, from $86.6 million at December 31, 2023, mainly due to an increase in nonaccrual consumer real estate loans[204] - Core funding represented 82.2% of total funding at June 30, 2024, a slight increase from 81.7% at year-end 2023, with noninterest-bearing deposits stabilizing[216] Market and Liquidity Risk Management This section discusses the company's management of interest rate sensitivity and available liquidity resources Interest Rate Sensitivity - Estimated % Change in Net Interest Income Over 12 Months | Instantaneous Rate Change | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | +300 bps | (0.15)% | 7.59% | | +200 bps | 0.37% | 5.58% | | +100 bps | 0.48% | 3.00% | | -100 bps | (0.54)% | (2.92)% | - The company's interest rate sensitivity profile has shifted to a more neutral position as of June 30, 2024, compared to being asset-sensitive a year prior[234] - At June 30, 2024, the company had significant available liquidity, including an estimated $3.0 billion in FHLB borrowing capacity and $6.3 billion in Federal Reserve discount window lines[246][247] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section references the MD&A for details on the company's exposure to market and interest rate risk - The disclosures for market risk are incorporated by reference from the Management's Discussion and Analysis section (pages 40-62)[256] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and notes no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[257] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[258] PART II – Other Information Item 1. Legal Proceedings The company reports no material pending legal proceedings involving itself or its subsidiaries - Pinnacle Financial reports no material pending legal proceedings[260] Item 1A. Risk Factors The company confirms no material changes to risk factors disclosed in the annual 10-K report - There has been no material change to the company's risk factors as disclosed in the Annual Report on Form 10-K[261] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details share repurchase activity and a new buyback authorization effective through March 2025 - No shares were repurchased under the company's publicly announced share repurchase program during the three months ended June 30, 2024[264] - The company withheld 5,638 shares of common stock during the quarter to satisfy tax withholding requirements for employees on vested equity awards[263] - A share repurchase program for up to $125.0 million of common stock is authorized and in effect through March 31, 2025[264] Item 6. Exhibits This section lists all exhibits filed with the report, including CEO/CFO certifications and XBRL data - The report lists exhibits filed, including CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and the Second Amended and Restated 2018 Omnibus Equity Incentive Plan (10.1)[266]