PNFP Reports 4Q23 Diluted EPS of $1.19, Diluted EPS of $1.68 Excluding FDIC Special Assessment and BOLI Restructuring Charges

NASHVILLE, Tenn.–(BUSINESS WIRE)–Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.19 for the quarter ended Dec. 31, 2023, compared to net income per diluted common share of $1.76 for the quarter ended Dec. 31, 2022, a decrease of 32.4 percent. Net income per diluted common share was $7.14 for the year ended Dec. 31, 2023, compared to $7.17 for the year ended Dec. 31, 2022, a decrease of 0.4 percent.

After considering the adjustments noted in the table below for the three months ended Dec. 31, 2023 and 2022, net income per diluted common share was $1.68, compared to $1.76 for the three months ended Dec. 31, 2022. Net income per diluted common share adjusted for the items noted in the table below was $6.99 for the year ended Dec. 31, 2023, compared to $7.17 for the year ended Dec. 31, 2022.

During the fourth quarter of 2023, the firm restructured and surrendered approximately $740.0 million of bank owned life insurance contracts (BOLI) held by various insurance carriers. The restructuring is expected to increase the future yields of the underlying insurance contracts. Pursuant to the restructuring, the firm incurred approximately $7.2 million in restructuring charges and surrender penalties and $9.1 million in income taxes and penalties. The increased yield is expected to be fully phased in by mid-year 2024 and should result in an increase in non-taxable noninterest income of approximately $10.5 million in 2024.

Additionally, the firm accrued approximately $29.0 million for future payments to the FDIC pursuant to a special insurance assessment to recover losses incurred by the Deposit Insurance Fund associated with two bank failures which occurred in the spring of 2023. The firm expects to remit the amount in eight quarterly installments beginning in June of 2024. The FDIC has announced that the special assessment amount and payment periods could change if actual losses to the Deposit Insurance Fund from these failures are different from estimated losses.

“There is no doubt that 2023 presented a very difficult operating environment for banks,” said M. Terry Turner, Pinnacle’s president and chief executive officer. “But 2023 was actually a great year for our firm resulting in year-over-year tangible book value growth of 14.8 percent and a total shareholder return of 20 percent. The challenging environment allowed us to showcase two critical drivers of our unique ability to create long-term shareholder value. First, our extraordinary ability to attract experienced bankers from the larger regional and national competitors, coupled with a differentiated service model, enabled us to reliably take market share and grow our balance sheet volumes even when market conditions would have otherwise limited growth opportunities. Second, our risk management systems, though generally unseen by most investors, provide critical discipline that contributed to very strong growth in a year when many of our peers failed to grow. These two drivers, in particular, enabled us to stay on course as opposed to deploying an extensive cost reduction plan which risks both revenue generation momentum as well as the cultural foundation of the firm.

“With that in mind, we successfully recruited several experienced bankers in Jacksonville, Florida during the fourth quarter of 2023 building on the success we are experiencing in other market extensions like Atlanta and Washington, D.C. These bankers will provide the core leadership for what we believe will be a strong franchise in one of Florida’s finest banking markets. Due to the relative strength of our southeastern markets and the competitive advantage we possess over the large regional and national competitors, I remain excited about the ongoing opportunities that exist for our firm as we enter 2024.”

BALANCE SHEET GROWTH AND LIQUIDITY:

Total assets at Dec. 31, 2023 were $48.0 billion, an increase of approximately $6.0 billion from Dec. 31, 2022 and $436.1 million from Sept. 30, 2023, reflecting a year-over-year increase of 14.3 percent and a linked-quarter annualized increase of 3.7 percent. A further analysis of select balance sheet trends follows:

• Approximately 63 percent of fourth quarter 2023 loan growth was related to commercial and industrial and owner-occupied commercial real estate categories, two segments the firm intends to continue emphasizing for the foreseeable future.
• On-balance sheet liquidity, defined as cash and cash equivalents plus unpledged securities, remained strong, totaling $6.9 billion as of Dec. 31, 2023, representing a $448 million decrease from the on-balance sheet liquidity level of $7.4 billion as of Sept. 30, 2023.
• Available-for-sale investment securities increased by $454 million during the fourth quarter of 2023 which is primarily due to a $301 million increase in the fair value of the underlying securities.

“We grew loans 12.5 percent, core deposits 7.8 percent, and we hired 107 new revenue producers, showcasing our ability to reliably and responsibly grow during 2023,” Turner said. “With no further decline in the net interest margin in the fourth quarter, it appears we may be at or near the bottom for net interest margin. Consequently, the combination of our balance sheet growth and our ongoing pricing emphasis should enable us to reliably grow net interest income in 2024.”

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

Pre-tax, pre-provision net revenues (PPNR) for the three months and year ended Dec. 31, 2023 were $145.2 million and $807.6 million, respectively, a decrease of 27.3 percent and an increase of 5.5 percent, respectively from the three months and year ended Dec. 31, 2022.

• Revenue per fully diluted common share was $5.16 for the fourth quarter of 2023, compared to $5.35 for the third quarter of 2023 and $5.27 for the fourth quarter of 2022, a decline of 2.1 percent year-over-year. Excluding investment gains on sales of securities and the loss on the BOLI restructuring, revenue per fully diluted share for the fourth quarter of 2023 was $5.25 compared to $5.27 for the fourth quarter of 2022.
• Net interest income for the quarter ended Dec. 31, 2023 was $317.3 million, compared to $317.2 million for the third quarter of 2023 and $319.5 million for the fourth quarter of 2022, a year-over-year decline of 0.7 percent.
• Noninterest income for the quarter ended Dec. 31, 2023 was $79.1 million, compared to $90.8 million for the third quarter of 2023 and $82.3 million for the fourth quarter of 2022, a year-over-year decrease of 3.9 percent. Noninterest income results for the fourth quarter of 2023 were negatively impacted by the BOLI restructuring charges of $7.2 million noted above. Excluding the BOLI restructuring charges, year-over-year noninterest income would have increased by 4.8 percent between the fourth quarter of 2023 and the fourth quarter of 2022.
  • Wealth management revenues, which include investment, trust and insurance services, were $23.5 million for the fourth quarter of 2023, compared to $22.8 million for the third quarter of 2023 and $20.2 million for the fourth quarter of 2022, a year-over-year increase of 16.2 percent.
  • Gain on the sale of fixed assets was $102,000 for the quarter ended Dec. 31, 2023, compared to $87,000 and $32,000, respectively, for the quarters ended Sept. 30, 2023 and Dec. 31, 2022. Gain on the sale of fixed assets was $86.0 million for the year ended Dec. 31, 2023, compared to $457,000 for the year ended Dec. 31, 2022. The year ended Dec. 31, 2023 included a gain on the sale of fixed assets as a result of the previously announced sale-leaseback transaction completed in the second quarter of 2023 of $85.7 million.
  • Net gains on the sale of investment securities were $14,000 for the quarter ended Dec. 31, 2023, compared to $9.7 million in net losses for the quarter ended Sept. 30, 2023. There were no net gains or losses on the sale of investment securities for the quarter ended Dec. 31, 2022.
  • Income from the firm’s investment in BHG was $14.4 million for the fourth quarter 2023, compared to $25.0 million for the third quarter of 2023 and $21.0 million for the fourth quarter of 2022, a year-over-year decline of 31.3 percent. The firm estimated that BHG’s overall impact to Pinnacle’s earnings per diluted common share for the year ended Dec. 31, 2023 amounted to $0.61, down from $1.27 for the comparable period in 2022, in each case after considering reasonable funding costs to support the investment. BHG’s impact on Pinnacle’s earnings declined from 17.7 percent of Pinnacle’s 2022 total diluted earnings per common share to 8.5 percent of Pinnacle’s 2023 total diluted earnings per common share.
    • BHG’s loan originations decreased to $786 million in the fourth quarter 2023 compared to $1.0 billion in the third quarter of 2023 and $1.1 billion in the fourth quarter of 2022.
    • Loans sold to BHG’s community bank partners were approximately $446 million in the fourth quarter 2023 compared to approximately $435 million in the third quarter of 2023 and $600 million in the fourth quarter of 2022. BHG also sold $50 million in loans to private investors and closed an asset backed security facility with $300 million in loans during the fourth quarter of 2023 compared to $564 million in the third quarter of 2023 and $504 million in the fourth quarter of 2022.
    • BHG increased its reserves for on-balance sheet loan losses to $302.6 million, or 9.33 percent of loans held for investment at Dec. 31, 2023, compared to 6.44 percent at Sept. 30, 2023. The increase reflects BHG’s adoption for lifetime credit losses associated with its implementation of the current expected credit loss (CECL) methodology on Oct. 1, 2023.
      • The negative impact of the CECL adoption to Pinnacle’s equity as of Oct. 1, 2023 was $35.0 million net of tax.
    • BHG also decreased its accrual for losses attributable to loan substitutions and prepayments for loans previously sold through its community bank auction platform to $356.6 million, or 5.39 percent of the loans that have been previously sold and were unpaid, at Dec. 31, 2023 compared to 5.46 percent at Sept. 30, 2023.
• Noninterest expense for the quarter ended Dec. 31, 2023 was $251.2 million, compared to $213.2 million in the third quarter of 2023 and $202.0 million in the fourth quarter of 2022, reflecting a year-over-year increase of 24.3 percent. Noninterest expense results for the fourth quarter of 2023 were negatively impacted by the $29.0 million FDIC special assessment. Excluding the FDIC special assessment, year-over-year noninterest expenses would have increased by 10.0 percent between the fourth quarter of 2023 and the fourth quarter of 2022.
  • Salaries and employee benefits were $133.3 million in the fourth quarter of 2023, compared to $130.3 million in the third quarter of 2023 and $131.8 million in the fourth quarter of 2022, reflecting a year-over-year increase of 1.2 percent. The increase in salaries and employee benefits expense, on a linked-quarter basis, of approximately $3.0 million was due to the increase in the costs related to increased headcount and additional expense for the firm’s annual cash and equity incentive plans. Full-time equivalent associates increased to 3,357.0 at Dec. 31, 2023 from 3,241.5 at Dec. 31, 2022, a year-over-year increase of 3.6 percent.
  • Equipment and occupancy costs were $38.0 million in the fourth quarter of 2023, compared to $36.9 million in the third quarter of 2023 and $29.3 million in the fourth quarter of 2022, reflecting a year-over-year increase of 29.6 percent. Contributing to the year-over-year increase is the impact of increased rent expense from the sale leaseback transaction completed in the second quarter of 2023.
  • Noninterest expense categories, other than those specifically noted above, were $50.8 million in the fourth quarter of 2023, compared to $46.0 million in the third quarter of 2023 and $40.9 million in the fourth quarter of 2022, reflecting a year-over-year increase of 24.2 percent.

“Continued increases in short-term rates, quantitative tightening and an inverted yield curve made for a difficult operating environment in 2023,” said Harold R. Carpenter, Pinnacle’s chief financial officer. “As we enter 2024, we find ourselves much more optimistic about the macro environment, particularly around the prospects of a ‘soft landing’, lower levels of inflation and the anticipated direction of interest rates. Even though many issues remain, including a stubborn inverted yield curve, we believe we will have the opportunity to manage our balance sheet to produce stronger earnings in 2024 than in 2023.

“As anticipated, BHG’s results for the fourth quarter of 2023 declined from those in the third quarter. Income related to BHG was down 41 percent in 2023 compared to 2022. During the fourth quarter of 2023, BHG implemented several initiatives aimed at increasing earnings in future periods, including eliminating several business lines with reduction of corresponding personnel costs. As a result, BHG’s total operating expense decreased between the fourth and third quarters of 2023 by 16 percent. Charges related to these matters in the fourth quarter of 2023 were $4.0 million compared to charges in the third quarter of 2023 of $10 million.

“Pinnacle’s incentive expenses did increase slightly in the fourth quarter from the amounts in the third quarter as we finalized our performance incentive calculations for 2023. Our performance in 2023 resulted in an award under our annual cash incentive plan to participants of approximately 62 percent of each participants’ target award. The payout was below target because the firm’s revenue and EPS were less than originally targeted. Our annual cash bonus plan award amounted to approximately $46.3 million for 2023 which reflects a savings in 2023 of approximately $30.0 million compared to what the firm would have incurred had we paid participants at target.”

SOUNDNESS AND PROFITABILITY:

• Net interest margin was 3.06 percent for the fourth quarter of 2023, compared to 3.06 percent for the third quarter of 2023 and 3.60 percent for the fourth quarter of 2022. Net interest margin decreased to 3.18 percent for the year ended Dec. 31, 2023, compared to 3.29 percent for the year ended Dec. 31, 2022.
• Provision for credit losses was $16.3 million in the fourth quarter of 2023, compared to $26.8 million in the third quarter of 2023 and $24.8 million in the fourth quarter of 2022. Net charge-offs were $13.5 million for the quarter ended Dec. 31, 2023, compared to $18.1 million for the quarter ended Sept. 30, 2023 and $11.7 million for the quarter ended Dec. 31, 2022. Annualized net charge-offs for the fourth quarter of 2023 were 0.17 percent.
• The effective tax rate for the fourth quarter of 2023 was 26.3 percent inclusive of BOLI restructuring taxes and penalties of $9.1 million.
• Nonperforming assets were $86.6 million at Dec. 31, 2023, compared to $46.0 million at Sept. 30, 2023 and $46.1 million at Dec. 31, 2022. The ratio of the allowance for credit losses to nonperforming loans at Dec. 31, 2023 was 429.0 percent, compared to 806.0 percent at Sept. 30, 2023 and 788.8 percent at Dec. 31, 2022.
  • Although at Dec. 31, 2023, the ratio of nonperforming assets to total loans and ORE was near historically low levels at 0.27 percent, the ratio did increase during the fourth quarter due primarily to the downgrade of a $40.2 million loan to a company headquartered in Middle Tennessee which owns facilities that are leased to healthcare operators around the country. The firm believes that this borrower is addressing the weaknesses identified in a prudent manner and believes no further action on this loan is required at this time.
• Classified assets were $251.3 million at Dec. 31, 2023, compared to $218.9 million at Sept. 30, 2023 and $104.2 at Dec. 31, 2022.

“We are obviously pleased that our net interest margin held at 3.06 percent during the fourth quarter of 2023 and was essentially flat with the third quarter,” Carpenter said. “Another positive for the quarter was the increase in tangible book value per common share, which was $51.38 at Dec. 31, 2023, an increase of 14.8 percent over the $44.74 at Dec. 31, 2022. As you know, increasing our tangible book value per common share remains an important priority for our firm’s leadership.

“Lastly, net charge-offs to average loans for the fourth quarter of 2023 decreased during the quarter to 0.17 percent from 0.23 percent in the prior quarter. Our credit officers continue to work our loan portfolio looking for weaknesses and engaging borrowers where circumstances warrant. We are pleased with the performance of our loan portfolio thus far with our credit metrics continuing to reflect a loan portfolio that has performed well thus far through the challenging operating environment we have experienced.”

BOARD OF DIRECTORS DECLARES DIVIDENDS

On Jan. 16, 2024, Pinnacle Financial’s Board of Directors approved a quarterly cash dividend of $0.22 per common share to be paid on Feb. 23, 2024 to common shareholders of record as of the close of business on Feb. 2, 2024. Additionally, the Board of Directors approved a quarterly cash 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 Mar. 1, 2024 to shareholders of record at the close of business on Feb. 15, 2024. 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. CST on Jan. 17, 2024, to discuss fourth quarter 2023 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 and fastest growing bank in the Nashville-Murfreesboro-Franklin MSA according to 2023 deposit data from the FDIC, and is listed by Forbes as No. 27 among Americas Best Banks, higher than any other bank headquartered in Tennessee, North Carolina, South Carolina and Georgia. Pinnacle also earned a spot on the 2023 list of 100 Best Companies to Work For® in the U.S., its seventh consecutive appearance and was recognized by American Banker as one of America’s Best Banks to Work For 11 years in a row and No. 1 among banks with more than $10 billion in assets in 2023.

Pinnacle owns a 49 percent interest in BHG Financial, which provides innovative, hassle-free financial solutions to healthcare practitioners and other professionals. Great Place to Work and FORTUNE have listed BHG as a best workplace in multiple categories since 2016.

The firm began operations in a single location in downtown Nashville, TN in October 2000 and has since grown to approximately $48.

Contacts

MEDIA CONTACT: Joe Bass, 615-743-8219

FINANCIAL CONTACT: Harold Carpenter, 615-744-3742
WEBSITE: www.pnfp.com

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