Pinnacle Financial Partners(US:PNFP)2024-05-10 18:36PART I – Financial Information Item 1. Consolidated Financial Statements (Unaudited) This section presents Pinnacle Financial Partners' unaudited consolidated financial statements for Q1 2024, including balance sheets, income statements, and cash flows, with detailed notes Consolidated Balance Sheets Total assets increased to $48.9 billion at March 31, 2024, from $48.0 billion at December 31, 2023, driven by loan and cash growth, funded by a rise in total deposits to $39.4 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $48,894,196 | $47,959,883 | | Cash and cash equivalents | $2,706,361 | $2,230,349 | | Loans, net | $32,791,536 | $32,323,036 | | Total Liabilities | $42,790,345 | $41,924,095 | | Total deposits | $39,402,025 | $38,539,810 | | Total Shareholders' Equity | $6,103,851 | $6,035,788 | Consolidated Statements of Income Net income available to common shareholders for Q1 2024 was $120.1 million, or $1.57 per diluted share, a decrease from $133.5 million, or $1.76 per diluted share, in Q1 2023, primarily due to higher provision for credit losses and noninterest expenses Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net Interest Income | $318,034 | $312,231 | | Provision for credit losses | $34,497 | $18,767 | | Noninterest Income | $110,103 | $89,529 | | Noninterest Expense | $242,365 | $211,727 | | Net Income | $123,944 | $137,271 | | Net Income Available to Common Shareholders | $120,146 | $133,473 | | Diluted EPS | $1.57 | $1.76 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $197.3 million in Q1 2024, while investing activities used $535.7 million for loan growth, and financing activities provided $814.4 million from increased deposits, resulting in a $476.0 million net increase in cash Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $197,283 | $359,870 | | Net cash used in investing activities | ($535,700) | ($1,563,161) | | Net cash provided by financing activities | $814,429 | $2,845,385 | | Net increase in cash, cash equivalents, and restricted cash | $476,012 | $1,642,094 | Notes to Consolidated Financial Statements This section details accounting policies and financial data, covering equity investments, securities and loan portfolios, allowance for credit losses, derivatives, fair value measurements, and regulatory capital - Pinnacle Financial's primary business is conducted by its wholly-owned subsidiary, Pinnacle Bank, and the company also holds a 49% interest in Bankers Healthcare Group, LLC (BHG)21 - The preparation of financial statements requires management to make material estimates, particularly for the allowance for credit losses and potential impairment of goodwill or intangible assets, which are susceptible to change due to macroeconomic conditions24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial performance, highlighting decreased diluted EPS, net interest margin compression, increased provision for credit losses and noninterest expenses, growth in noninterest income, and details on loan and deposit portfolios, capital adequacy, and risk management Overview In Q1 2024, diluted EPS decreased to $1.57 from $1.76 year-over-year, despite loan growth to $33.2 billion and total deposits increasing to $39.4 billion, reflecting pressure from higher credit loss provisions and operating expenses - Diluted net income per common share for Q1 2024 was $1.57, compared to $1.76 for the same period in 2023134 - Total loans increased to $33.2 billion and total deposits grew to $39.4 billion as of March 31, 2024134 Results of Operations Net interest income grew 1.9% to $318.0 million, but net interest margin compressed to 3.04%; provision for credit losses significantly increased to $34.5 million; noninterest income rose 23.0% to $110.1 million; and noninterest expense increased 14.5% to $242.4 million Key Performance Metrics (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Interest Income | $318.0M | $312.2M | | Net Interest Margin | 3.04% | 3.40% | | Provision for Credit Losses | $34.5M | $18.8M | | Noninterest Income | $110.1M | $89.5M | | Noninterest Expense | $242.4M | $211.7M | | Efficiency Ratio | 56.6% | 52.7% | - Income from the equity method investment in BHG declined 16.0% to $16.0 million in Q1 2024 from $19.1 million in Q1 2023137163 Financial Condition Total assets reached $48.9 billion with a loan portfolio of $33.2 billion and total deposits of $39.4 billion; the allowance for credit losses rose to $371.3 million (1.12% of total loans), reflecting increased reserves and a cautious economic outlook Loan Portfolio Composition (in thousands) | Loan Category | March 31, 2024 | % of Total | | :--- | :--- | :--- | | Commercial real estate | $12,108,615 | 36.5% | | Commercial and industrial | $11,893,198 | 35.9% | | Consumer real estate – mortgage | $4,828,416 | 14.5% | | Construction and land development | $3,818,334 | 11.5% | | Consumer and other | $514,310 | 1.6% | | Total loans | $33,162,873 | 100.0% | - The allowance for credit losses on loans (ACL) increased to $371.3 million (1.12% of total loans) at March 31, 2024, from $353.1 million (1.08% of total loans) at December 31, 2023189 - Nonperforming assets increased to $111.1 million at March 31, 2024, from $86.6 million at December 31, 2023, mainly due to the downgrading of two loans188 Market and Liquidity Risk Management The company manages interest rate risk using earnings simulation and EVE models, showing asset sensitivity with a 1.41% projected net interest income boost from a 100 bps rate increase, and maintains liquidity through stress testing and diverse funding sources, including $3.3 billion in FHLB borrowing capacity Net Interest Income Sensitivity (as of March 31, 2024) | Instantaneous Rate Change | Estimated % Change in NII Over 12 Months | | :--- | :--- | | +300 bps | 2.76% | | +200 bps | 2.31% | | +100 bps | 1.41% | | -100 bps | (1.42)% | | -200 bps | (2.01)% | | -300 bps | (3.00)% | - At March 31, 2024, the company had an estimated $3.3 billion in additional borrowing capacity with the FHLB and $105.0 million in unsecured lines with correspondent banks227228 - Management's 'most likely' rate scenario assumes two 25 basis point decreases in the Federal Funds Rate during 2024, with the first occurring in the third quarter220 Item 3. Quantitative and Qualitative Disclosures about Market Risk This section cross-references market risk disclosures provided within Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, specifically on pages 37 through 58 - The information required for this item is included in the 'Market and Liquidity Risk Management' section of the Management's Discussion and Analysis238 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period239 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls240 PART II – Other Information Item 1. Legal Proceedings The company reports no material pending legal proceedings outside the normal course of business - There are no material pending legal proceedings to which Pinnacle Financial or its subsidiaries are a party243 Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes have occurred in the company's risk factors since the filing of the 2023 Form 10-K244 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, the company did not repurchase shares under its program, but withheld 176,172 shares for tax related to equity awards, and authorized a new $125 million share repurchase program effective through March 31, 2025 - Pinnacle Financial did not repurchase any shares under its share repurchase program during the three months ended March 31, 2024246 - A total of 176,172 shares were repurchased (withheld) to satisfy tax withholding requirements for employees upon the vesting of equity awards246 - A new share repurchase program for up to $125.0 million was authorized, effective from April 1, 2024, through March 31, 2025246 Item 5. Other Information On March 12, 2024, President and CEO M. Terry Turner and Chairman Robert A. McCabe, Jr. terminated their Rule 10b5-1 trading plans adopted in December 2023, with no shares sold under either plan prior to termination - On March 12, 2024, CEO M. Terry Turner and Chairman Robert A. McCabe, Jr. terminated their Rule 10b5-1 trading plans adopted in December 2023, with no shares having been sold under these plans248249 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including award agreements, the 2024 Annual Cash Incentive Plan, the amended 2018 Omnibus Equity Incentive Plan, officer certifications, and XBRL data files