4Q22 annualized linked-quarter loans grew 19.2%, while deposits grew 15.1%

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.76 for the quarter ended Dec. 31, 2022, compared to net income per diluted common share of $1.71 for the quarter ended Dec. 31, 2021, an increase of 2.9 percent. Net income per diluted common share was $7.17 for the year ended Dec. 31, 2022, compared to $6.75 for the year ended Dec. 31, 2021, an increase of 6.2 percent.

Paycheck Protection Program (PPP) net interest income for the three months ended Dec. 31, 2022 and 2021 was approximately $72,000 and $15.1 million, respectively. PPP net interest income for the years ended Dec. 31, 2022 and 2021 was $15.6 million and $81.4 million, respectively. PPP net interest income had minimal impact on diluted earnings per common share for the three months ended Dec. 31, 2022 and a $0.15 impact to diluted earnings per common share for the year ended Dec. 31, 2022, compared to impacts of $0.15 and $0.79 for the three months and year ended Dec. 31, 2021, respectively.

"Overall, I am very pleased with our operating performance in 2022," said M. Terry Turner, Pinnacle's president and chief executive officer. "Our core banking business continues to produce outsized growth as we capitalize on vulnerabilities at the larger banks. With a macro environment dominated by rapidly rising short-term interest rates and a very volatile yield curve, maintaining a fortress balance sheet became even more important. Throughout 2022, in addition to protecting tangible book value per common share our credit metrics remained strong and, though there are many economic uncertainties, we remain cautiously optimistic going into 2023. Additionally, even though the competitive pressures to maintain and grow deposits intensified, we were able to grow deposits by 11.7 percent during 2022, which, along with the excess liquidity we had on our balance sheet going into the year, allowed us to fund 24.0 percent loan growth for the year. Perhaps most importantly, we continue to win the war for talent having hired a record 147 revenue producers to our firm in 2022, compared to 119 in 2021. All in all, 2022 was a successful year.

"We believe the operating environment for banks in 2023 will also be challenging. The outlook for the macro environment in 2023 is uncertain at best. Nevertheless, we operate in some of the best banking markets in the country with an organic growth model that we believe further differentiates itself in times such as these. As we enter 2023, we will direct our efforts toward both strong profitability and earnings growth. Our senior leadership and associates are all in and stand ready to meet the challenges ahead."

BALANCE SHEET GROWTH:

Total assets at Dec. 31, 2022 were $42.0 billion, an increase of approximately $3.5 billion from Dec. 31, 2021, reflecting a year-over-year increase of 9.1 percent. A further analysis of select balance sheet trends follows:

"I am pleased to report that end-of-period loans grew $1.3 billion during the fourth quarter," Turner said. "Importantly, our deposit base also increased by $1.3 billion during the fourth quarter. We experienced a $755 million reduction in noninterest-bearing account balances during the fourth quarter of 2022 as depositors accelerated their desire for higher yields. Our relationship managers are tightly focused on both deposit acquisition and retention, and are armed with a number of specialized deposit products, including what we believe is a "best-in-class" treasury suite, that should allow us to meet our targets for both volumes and mix in 2023."

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

Pre-tax, pre-provision net revenues (PPNR) for the quarter ended Dec. 31, 2022 were $199.7 million, an increase of 18.1 percent from the $169.1 million recognized in the quarter ended Dec. 31, 2021.

• Revenue per fully diluted common share was $5.27 for the three months ended Dec. 31, 2022, compared to $5.40 for the third quarter of 2022 and $4.47 for the fourth quarter of 2021, a 17.9 percent year-over-year growth rate.
• Net interest income for the quarter ended Dec. 31, 2022 was $319.5 million, compared to $305.8 million for the third quarter of 2022 and $238.8 million for the fourth quarter of 2021, a year-over-year growth rate of 33.8 percent.
  • Revenues from PPP loans approximated $72,000 in the fourth quarter of 2022, compared to $755,000 in the third quarter of 2022 and $15.1 million in the fourth quarter of 2021. At Dec. 31, 2022, remaining unamortized fees for PPP loans were approximately $250,000.
  • Included in net interest income for the fourth quarter of 2022 was $1.2 million of discount accretion associated with fair value adjustments, compared to $1.3 million of discount accretion recognized in the third quarter of 2022 and $2.2 million in the fourth quarter of 2021. There remains $3.3 million of purchase accounting discount accretion as of Dec. 31, 2022.
• Noninterest income for the quarter ended Dec. 31, 2022 was $82.3 million, compared to $104.8 million for the third quarter of 2022 and $100.7 million for the fourth quarter of 2021, a year-over-year decline of 18.3 percent.
  • Wealth management revenues, which include investment, trust and insurance services, were $20.2 million for the fourth quarter of 2022, compared to $19.4 million for the third quarter of 2022 and $19.3 million reported for the fourth quarter of 2021, a year-over-year increase of 4.5 percent.
  • Service charges on deposit accounts were $11.1 million for the quarter ended Dec. 31, 2022, compared to $10.9 million for the quarter ended Sept. 30, 2022 and $12.7 million for the quarter ended Dec. 31, 2021. Service charge revenues were negatively impacted by changes to the firm's insufficient funds and overdraft programs implemented during the third quarter of 2022.
  • During the fourth quarter of 2022, mortgage loans sold resulted in a net $65,000 loss primarily due to reduction in the volume of mortgage loan pipelines and the resulting reduction in the pipeline's market valuation of approximately $966,000.
  • Income from the firm's investment in BHG was $21.0 million for the quarter ended Dec. 31, 2022, down from $41.3 million for the quarter ended Sept. 30, 2022 and $30.8 million for the quarter ended Dec. 31, 2021, a year-over-year decline of 31.9 percent for the quarter. Income from the firm's investment in BHG was $145.5 million for the year ended Dec. 31, 2022, a 19.0 percent increase over 2021.
    • During the fourth quarter of 2022, BHG accelerated its strategy of retaining more loans on its balance sheet, which was aided by expanding its liquidity platform through the establishment of three new borrowing facilities. These facilities, which are secured by loans on BHG's balance sheet, represent incremental funding sources to BHG. At Dec. 31, 2022, BHG had fully drawn on one of these funding sources, a $500 million facility from a U.S. asset manager which carried an annualized interest rate of 7.95 percent. As a result of drawing on this facility, BHG elected to place fewer loans though its auction platform in the fourth quarter than was previously planned at the beginning of the quarter. This compares to $446 million in fundings through its securitization platform in the third quarter of 2022.
    • Loans sold to BHG's community bank partners were approximately $600 million in the fourth quarter of 2022 compared to approximately $555 million in the third quarter of 2022 and $375 million in the fourth quarter of 2021. Loan originations decreased to $1.07 billion in the fourth quarter of 2022 compared to $1.17 billion in the third quarter of 2022, its all-time quarterly high for originations. Originations decreased in the fourth quarter primarily due to BHG electing to tighten its underwriting and thus increase the quality of its originations.
    • BHG increased its reserves for on-balance sheet loan losses to $146.9 million, or 4.59 percent of loans held for investment at Dec. 31, 2022, compared to 3.53 percent at Sept. 30, 2022. BHG also increased its accrual for losses attributable to loan substitutions and prepayments for loans previously sold through its community bank auction platform to $313.9 million, or 5.66 percent of the loans that have been previously sold and were unpaid, at Dec. 31, 2022 compared to 5.28 percent at Sept. 30, 2022.
  • Other noninterest income was $30.1 million for the quarter ended Dec. 31, 2022, compared to $31.8 million for the quarter ended Sept. 30, 2022 and $33.2 million for the quarter ended Dec. 31, 2021, a year-over-year decline of 9.6 percent.
    • Fourth quarter 2022 gains from market valuation adjustments in other equity investments were $1.5 million, compared to $725,000 in the third quarter of 2022 and $4.1 million in the fourth quarter of 2021.
• Noninterest expense for the quarter ended Dec. 31, 2022 was $202.0 million, compared to $199.3 million in the third quarter of 2022 and $170.4 million in the fourth quarter of 2021, reflecting a year-over-year increase of 18.6 percent.
  • Salaries and employee benefits were $131.8 million in the fourth quarter of 2022, compared to $129.9 million in the third quarter of 2022 and $110.0 million in the fourth quarter of 2021, reflecting a year-over-year increase of 19.8 percent.
    • Increase in headcount contributed to the growth in compensation. Total full-time equivalent associates amounted to 3,241.5 associates at Dec. 31, 2022, compared to 2,841.0 full-time equivalent associates at Dec. 31, 2021, a year-over-year increase in headcount of 14.1 percent.
    • Costs related to the firm's incentive plans were $28.5 million in the fourth quarter of 2022 compared to $30.7 million in the third quarter of 2022 and $24.2 million in the fourth quarter of 2021. The reduction in incentive costs in the fourth quarter of 2022 from the third quarter was caused by the fact that the firm did not achieve its fourth quarter PPNR targets under its annual cash incentive plan. Thus, the costs associated with the annual cash incentive award was reduced in the fourth quarter. This reduction was offset by increased headcount. Additionally, a significant portion of the firm's leadership team members' equity compensation is performance-based. After evaluation of the impact of the company's performance in the fourth quarter of 2022 on the company's full year performance against the performance metrics applicable to these performance-based equity awards, it was determined that a smaller accrual was required in the fourth quarter than the company had recorded in each of the first three quarters of 2022.
  • Noninterest expense categories, other than salaries and employee benefits, were $70.2 million in the fourth quarter of 2022, compared to $69.3 million in the third quarter of 2022 and $60.4 million in the fourth quarter of 2021, reflecting a year-over-year increase of 16.4 percent.

"Our fourth quarter 2022 PPNR results decreased by 5.5 percent from the third quarter, while full year 2022 PPNR results exceeded 2021 results by 14.6 percent," said Harold R. Carpenter, Pinnacle’s chief financial officer. "Loan growth, as well as the impact of the rising short-term rate environment, contributed to an increase of $13.7 million in net interest income in the fourth quarter of 2022 as compared to the third quarter of 2022. As to BHG, we anticipated a reduction in its fourth quarter results. Further impacting its fourth quarter results was the successful closing of three new funding sources, showcasing BHG's unique access to liquidity at a time when many asset generators are struggling to fund their growth. BHG's decision to tap into one of these funding sources contributed to fewer loans being placed on the auction platform than was originally anticipated resulting in reduced fourth quarter BHG revenues. However, by electing to hold more loans on BHG's balance sheet, this should support increased net interest income to BHG in the future.

"Total revenues increased by approximately $217.3 million between 2022 and 2021, again primarily due to loan growth and the impact of the rising short-term rate environment; however, this increase was negatively impacted by approximately $65.9 million in reduced PPP revenues in 2022 compared to 2021 and rising deposit costs. Thus, excluding PPP revenues of $15.6 million and $81.4 million, from 2022 and 2021, respectively, total revenues were up approximately 22.7 percent between the two periods. Total expenses increased by $119.9 million between 2022 and 2021, primarily due to the increased personnel costs associated with the net addition of approximately 400 associates during 2022.

"Obviously, increased wages and inflation will have a bearing on our expense run rates as we enter 2023. We have built another strong hiring plan for 2023, but we will retain the flexibility to reduce this hiring plan at any time during the year should our leadership deem it necessary. Another item that is impactful to our compensation expense is our incentive burden which would be lower should our results not achieve our 2023 cash incentive plan targets. As many investors are aware, our annual cash incentive awards are always subject to the achievement of predetermined EPS targets. Also, we have several projects and events slated for 2023 which, we could postpone or cancel to reduce our non-compensation cost for this year. We will be closely monitoring our costs and believe we have sufficient flexibility to reduce our noninterest expense run rates at any time should revenues to support these investments not materialize."

PROFITABILITY AND SOUNDNESS:

• Net interest margin was 3.60 percent for the fourth quarter of 2022, compared to 3.47 percent for the third quarter of 2022 and 2.96 percent for the fourth quarter of 2021. Net interest margin for the year ended Dec. 31, 2022 was 3.29 percent, compared to 3.02 percent for the year ended Dec. 31, 2021.
• Provision for credit losses was $24.8 million in the fourth quarter of 2022, compared to $27.5 million in the third quarter of 2022 and $2.7 million in the fourth quarter of 2021. Net charge-offs were $11.7 million for the quarter ended Dec. 31, 2022, compared to $11.0 million for the quarter ended Sept. 30, 2022 and $8.1 million for the quarter ended Dec. 31, 2021. Annualized net loan charge-offs for the fourth quarter of 2022 were 0.17 percent.
• Nonperforming assets were $46.1 million at Dec. 31, 2022, compared to $41.9 million at Sept. 30, 2022 and $40.1 million at Dec. 31, 2021, up 14.9 percent over the same quarter last year. The ratio of the allowance for credit losses to nonperforming loans at Dec. 31, 2022 was 788.8 percent, compared to 844.5 percent at Sept. 30, 2022 and 833.8 percent at Dec. 31, 2021.
• Classified assets were $104.2 million at Dec. 31, 2022, compared to $107.9 million at Sept. 30, 2022 and $151.3 million at Dec. 31, 2021, down 31.1 percent over the same quarter last year.

"We were pleased that our net interest margin increased by approximately 13 basis points during the fourth quarter," Carpenter said. "The growth of our net interest margin slowed from the prior quarter, primarily due to increased deposit costs of 74 basis points in the quarter as depositors increasingly sought a higher return for their deposit dollars and competition for deposits remained fierce. We were also pleased that our tangible book value per common share increased in the fourth quarter to $44.74 at Dec. 31, 2022.

"As to credit metrics, they were consistent with the prior quarter’s results and we believe they remain strong in comparison to historical results. Thus, we enter 2023 from a position of strength should any negative trends materialize. We believe we have some of the most experienced relationship managers and credit officers in our markets and, as a result, believe this experience and their long-tenured relationships translate into client selection practices that result in a borrower base that is better able to weather these challenging economic conditions."

BOARD OF DIRECTORS DECLARES DIVIDENDS AND AUTHORIZES SHARE REPURCHASE PLAN

On Jan. 17, 2023, Pinnacle Financial's Board of Directors approved a quarterly cash dividend of $0.22 per common share to be paid on Feb. 24, 2023 to common shareholders of record as of the close of business on Feb. 3, 2023. 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 March 1, 2023 to shareholders of record at the close of business on Feb. 14, 2023. 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.

The firm also announced that its Board of Directors has authorized a new share repurchase program for up to $125 million of the Company’s common stock to commence upon expiration of its existing share repurchase program that is set to expire on March 31, 2023. Repurchases of the Company’s common stock will be made in accordance with applicable laws and may be made at management’s discretion from time to time in the open market, through privately negotiated transactions or otherwise. The board authorized the repurchase program to remain in effect through March 31, 2024, unless the entire repurchase amount has been acquired before that date.

The share repurchase program may be extended, modified, amended, suspended or discontinued at any time at the Company’s discretion and does not commit the Company to repurchase shares of its common stock. The actual timing, number and value of the shares to be purchased under the program will be determined by the Company at its discretion and will depend on a number of factors, including the performance of the Company’s stock price, the Company’s ongoing capital planning considerations, general market and other conditions, applicable legal requirements and compliance with the terms of the Company’s outstanding indebtedness.

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CT on Jan. 18, 2023, to discuss fourth 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 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 $42.0 billion in assets as of Dec. 31, 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, Virginia and Kentucky, 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 the negative impact to net interest margin from rising deposit and other funding costs; (ix) the results of regulatory examinations; (x) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xi) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xii) BHG's ability to profitably grow its business and successfully execute on its business plans; (xiii) risks of expansion into new geographic or product markets; (xiv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xv) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xvi) 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; (xvii) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xviii) 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; (xix) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xx) 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; (xxi) 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; (xxii) 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); (xxiii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxiv) fluctuations in the valuations of Pinnacle Financial's equity investments and the ultimate success of such investments; (xxv) the availability of and access to capital; (xxvi) 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 (xxvii) 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.