Pinnacle Financial Partners(PNFP) - 2023 Q1 - Quarterly Report

PART I – Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Q1 2023, detailing financial position, performance, and accounting policies Consolidated Balance Sheets Total assets increased to $45.1 billion by Q1 2023, driven by growth in loans and cash, with deposits and FHLB advances also rising Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $45,119,587 | $41,970,021 | | Cash and cash equivalents | $2,819,476 | $1,177,382 | | Loans, net | $29,984,030 | $28,740,940 | | Total deposits | $36,178,553 | $34,961,238 | | Federal Home Loan Bank advances | $2,166,508 | $464,436 | | Total Liabilities | $39,435,459 | $36,450,629 | | Total Shareholders' Equity | $5,684,128 | $5,519,392 | Consolidated Statements of Income Net income available to common shareholders rose to $133.5 million in Q1 2023, driven by a 30.4% increase in net interest income Consolidated Income Statement Highlights (in thousands, except per share data) | Account | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net Interest Income | $312,231 | $239,475 | | Provision for credit losses | $18,767 | $2,720 | | Noninterest Income | $89,529 | $103,496 | | Noninterest Expense | $211,727 | $182,661 | | Net Income | $137,271 | $129,110 | | Net Income Available to Common Shareholders | $133,473 | $125,312 | | Diluted Net Income per Common Share | $1.76 | $1.65 | Notes to Consolidated Financial Statements Detailed notes disclose accounting policies, BHG investment performance, portfolio credit quality, allowance for credit losses, and capital adequacy - Subsequent to quarter-end, the company completed a sale-leaseback of 36 properties for $127.5 million, expecting a pre-tax net gain of approximately $55.4 million in Q2 2023, with an additional 15 properties under agreement for sale for $90.5 million[34][35][36] - Following the sale-leaseback, the company restructured its bond portfolio, selling $166.0 million in available-for-sale securities for a net loss of $9.2 million to partially offset the property sale gain[37] - Income from the 49% equity method investment in Bankers Healthcare Group (BHG) was $19.1 million for Q1 2023, a significant decrease from $33.7 million in Q1 2022[20][179][180] - As of March 31, 2023, the company had approximately $280.1 million in unrealized losses on its available-for-sale securities portfolio, primarily due to interest rate changes[45] - The allowance for credit losses on loans stood at $313.8 million, or 1.04% of total loans, with a provision for credit losses of $18.8 million for the quarter[62][209] - Both Pinnacle Financial and Pinnacle Bank met all capital adequacy requirements to be considered well-capitalized under regulatory standards as of March 31, 2023[140] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2023 financial performance, covering net interest income, credit losses, noninterest income/expense, loan/deposit growth, and liquidity management Overview Q1 2023 diluted EPS rose to $1.76, driven by 30.4% net interest income growth, despite higher credit provisions and lower noninterest income Q1 2023 Key Performance Metrics (in millions) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Diluted EPS | $1.76 | $1.65 | | Net Interest Income | $312.2M | $239.5M | | Provision for Credit Losses | $18.8M | $2.7M | | Noninterest Income | $89.5M | $103.5M | | Noninterest Expense | $211.7M | $182.7M | - Subsequent to the quarter, the company executed a sale-leaseback of 36 properties for $127.5 million, expecting a pre-tax gain of $55.4 million in Q2 2023, and sold $166 million of AFS securities for a $9.2 million loss to partially offset the gain[159][160][162] Results of Operations Q1 2023 net interest income increased 30.4% to $312.2 million, with NIM at 3.40%, while credit provisions and noninterest expenses rose - Net interest margin was 3.40% for Q1 2023, compared to 2.89% for Q1 2022 and 3.60% for Q4 2022, reflecting the rising short-term interest rate environment[169] - The provision for credit losses increased to $18.8 million in Q1 2023 from $2.7 million in Q1 2022, primarily due to loan growth and a weaker economic forecast[172] - Income from the equity-method investment in BHG decreased 43.3% to $19.1 million in Q1 2023 from $33.7 million in Q1 2022[174][180] - Salaries and employee benefits expense increased by $13.9 million YoY, driven by an increase in full-time equivalent associates to 3,281.5 from 2,988.0 and annual merit increases[187][188] Financial Condition Total assets reached $45.1 billion, with loans at $30.3 billion and deposits at $36.2 billion, while credit quality remained stable Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2023 | % of Total | | :--- | :--- | :--- | | Commercial and industrial | $10,723,327 | 35.4% | | Non-owner occupied CRE | $6,887,733 | 22.7% | | Consumer real estate – mortgage | $4,531,285 | 15.0% | | Construction and land development | $3,909,024 | 12.9% | | Owner occupied CRE | $3,686,796 | 12.2% | | Consumer and other | $559,706 | 1.8% | | Total Loans | $30,297,871 | 100.0% | - Total deposits grew to $36.2 billion, with uninsured deposits estimated at $14.2 billion, of which $2.2 billion were collateralized[219] - Federal Home Loan Bank (FHLB) advances increased significantly to $2.2 billion from $464.4 million at year-end 2022 to bolster on-balance sheet liquidity[219] - Nonperforming assets were $44.8 million (0.10% of total assets) at March 31, 2023, down from $46.1 million at December 31, 2022[208] Market and Liquidity Risk Management The company manages interest rate and liquidity risk, showing asset sensitivity with a 2.5% NII increase in a +100 bps rate shock Estimated % Change in Net Interest Income Over 12 Months (Instantaneous Rate Change) | Rate Change | March 31, 2023 | | :--- | :--- | | +300 bps | 6.50% | | +200 bps | 4.90% | | +100 bps | 2.50% | | -100 bps | (2.00)% | | -200 bps | (3.60)% | - The company's percentage of deposits that were both uninsured and uncollateralized was approximately 33% as of March 31, 2023, which management believes is below peer average[254] - Available liquidity sources at March 31, 2023, included an estimated $2.2 billion in additional FHLB borrowing capacity, $155.0 million in correspondent bank lines, and $5.1 billion in Federal Reserve discount window and BTFP availability[251][252] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section cross-references market risk disclosures to the detailed analysis provided in Management's Discussion and Analysis - The report directs readers to the Management's Discussion and Analysis (MD&A) section for quantitative and qualitative disclosures about market risk[263] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting in Q1 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[263] - 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[264] PART II – Other Information Item 1. Legal Proceedings The company reports no material pending legal proceedings against it or its subsidiaries - There are no material pending legal proceedings to which Pinnacle Financial or its subsidiaries are a party[267] Item 1A. Risk Factors No material changes to the company's risk factors were reported since the 2022 Form 10-K filing - No material changes to the company's risk factors were reported since the filing of the 2022 Form 10-K[268] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No share repurchases occurred in Q1 2023, but a new $125 million share repurchase program was authorized effective April 1, 2023 - No shares were repurchased under the company's publicly announced plan during the three months ended March 31, 2023[271] - A new $125.0 million share repurchase program was authorized, effective from April 1, 2023, through March 31, 2024[271] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including award agreements, incentive plans, and certifications