1Q23 annualized linked-quarter, end-of-period loans grew 17.3%, while deposits grew 13.9%

Pinnacle Financial Partners, Inc. (Nasdaq/NGS: PNFP) reported net income per diluted common share of $1.76 for the quarter ended March 31, 2023, compared to net income per diluted common share of $1.65 for the quarter ended March 31, 2022, an increase of 6.7 percent.

Paycheck Protection Program (PPP) net interest income for the three months ended March 31, 2023 and 2022 was approximately $20,000 and $10.7 million, respectively. PPP net interest income had minimal impact on diluted earnings per common share for the three months ended March 31, 2023, and a $0.10 impact to diluted earnings per common share for the three months ended March 31, 2022. Excluding the impact of PPP net interest income for the three months ended March 31, 2023 and 2022, diluted earnings per share increased by 13.5 percent from $1.55 to $1.76.

"Never before has the depth, sustainability and durability of our business model proven itself as it has over the past several weeks," said M. Terry Turner, Pinnacle's president and chief executive officer. "For community and regional banks, it was a remarkable quarter. We were all impacted by the failure of two well-known banks. There was much concern over the amount of deposit growth regional banks could sustain, if any, as a result of the anxiety created by these two banks. But, our disciplined execution and the depth of client loyalty that we have built over the last two decades enabled us not only to retain substantially all of our clients, but to grow our clients' deposits at an annualized growth rate of 9.6 percent during the first quarter, a portion of which came after the two bank failures.

"Despite the volatility impacting the banking sector, I am pleased with our operating performance during the first quarter. We added 26 revenue producers to our ranks, which was consistent with our original expectations. Our deposit growth annualized for the quarter was 13.9 percent, as several of the strategic deposit gathering initiatives that we have invested in over the last two years continued to find traction. Linked-quarter annualized loan growth was 17.3 percent, in the quarter. Our credit metrics remain strong, which we believe is a result of our practice of hiring only long-experienced lenders which leads to exceptional client selection. Our funding platform also proved impressive. Some may say this is not the right time to be a community or regional bank, but our performance during the quarter further confirms that this is the exact right time to bank with Pinnacle."

BALANCE SHEET GROWTH:

Total assets at March 31, 2023 were $45.1 billion, an increase of approximately $5.7 billion from March 31, 2022, reflecting a year-over-year increase of 14.5 percent. A further analysis of select balance sheet trends follows:

"We are pleased to report that end-of-period loans grew by $1.3 billion over last quarter and even more pleased that end-of-period deposits grew by $1.2 billion over the same period," Turner said. "We continue to experience a shift in the mix of our deposit book and our funding costs continued to increase, which is unsurprising given the interest rate environment and the events of the last few weeks of the quarter. We believe our linked-quarter loan growth for the remainder of the year is likely to moderate to some extent based on slower loan demand as a result of macroeconomic factors and the fact that we have continued to tighten the credit box, particularly as it pertains to construction and commercial real estate lending."

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

Pre-tax, pre-provision net revenues (PPNR) for the quarter ended March 31, 2023 were $190.0 million, an increase of 18.5 percent from the $160.3 million recognized in the quarter ended March 31, 2022.

• Revenue per fully diluted common share was $5.28 for the three months ended March 31, 2023, compared to $5.27 for the fourth quarter of 2022 and $4.52 for the first quarter of 2022, a 16.8 percent year-over-year growth rate.

• Net interest income for the quarter ended March 31, 2023 was $312.2 million, compared to $319.5 million for the fourth quarter of 2022 and $239.5 million for the first quarter of 2022, a year-over-year growth rate of 30.4 percent.

• Revenues from PPP loans approximated $20,000 in the first quarter of 2023, compared to $72,000 in the fourth quarter of 2022 and $10.7 million in the first quarter of 2022. At March 31, 2023, remaining unamortized fees for PPP loans were approximately $212,000.

• Included in net interest income for the first quarter of 2023 was $852,000 of discount accretion associated with fair value adjustments, compared to $1.2 million of discount accretion recognized in the fourth quarter of 2022 and $1.7 million in the first quarter of 2022. There remains $2.5 million of purchase accounting discount accretion as of March 31, 2023.

• Noninterest income for the quarter ended March 31, 2023 was $89.5 million, compared to $82.3 million for the fourth quarter of 2022 and $103.5 million for the first quarter of 2022, a year-over-year decline of 13.5 percent.

• Wealth management revenues, which include investment, trust and insurance services, were $22.5 million for the first quarter of 2023, compared to $20.2 million for the fourth quarter of 2022 and $20.7 million for the first quarter of 2022, a year-over-year increase of 8.6 percent.

• During the first quarter of 2023, mortgage loans sold resulted in a $2.1 million net gain compared to a $4.1 million net gain in the first quarter of 2022. In both periods, this is the result of the volume of mortgage loans sold during the period.

• Income from the firm's investment in BHG was $19.1 million for the quarter ended March 31, 2023, down from $21.0 million for the quarter ended Dec. 31, 2022 and $33.7 million for the quarter ended March 31, 2022, a year-over-year decline of 43.3 percent.

• During the first quarter of 2023, BHG increased loans held on its balance sheet by approximately $225.1 million. BHG also successfully completed its seventh securitization transaction in the first quarter of 2023 which amounted to approximately $265 million in balance sheet funding during a time when such funding was difficult to obtain. Additionally, BHG utilized approximately $90 million in loans to secure various other private funding sources during the first quarter.

• Loans sold to BHG's community bank partners were approximately $704 million in the first quarter of 2023, the highest quarterly volume of purchases ever, compared to approximately $600 million in the fourth quarter of 2022 and $343 million in the first quarter of 2022. Loan originations decreased to $1.0 billion in the first quarter of 2023 compared to $1.1 billion in the fourth quarter of 2022. Again, originations decreased primarily due to BHG continuing to tighten its underwriting and as it sought to increase the quality of its originations.

• BHG increased its reserves for on-balance sheet loan losses to $178 million, or 5.19 percent of loans held for investment at March 31, 2023, compared to 4.59 percent at Dec. 31, 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 $350 million, or 5.81 percent of the loans that have been previously sold and were unpaid, at March 31, 2023 compared to 5.66 percent at Dec. 31, 2022.

• Other noninterest income was $34.2 million for the quarter ended March 31, 2023, compared to $30.1 million for the quarter ended Dec. 31, 2022 and $34.1 million for the quarter ended March 31, 2022, essentially flat year-over-year.

• Noninterest expense for the quarter ended March 31, 2023 was $211.7 million, compared to $202.0 million in the fourth quarter of 2022 and $182.7 million in the first quarter of 2022, reflecting a year-over-year increase of 15.9 percent.

• Salaries and employee benefits were $135.7 million in the first quarter of 2023, compared to $131.8 million in the fourth quarter of 2022 and $121.9 million in the first quarter of 2022, reflecting a year-over-year increase of 11.4 percent.

• Increase in headcount contributed to the growth in salaries and employee benefits expense. Total full-time equivalent associates amounted to 3,281.5 associates at March 31, 2023, compared to 2,988.0 full-time equivalent associates at March 31, 2022, a year-over-year increase in headcount of 9.8 percent.

• Costs related to the firm's cash and equity incentive plans were $22.5 million in the first quarter of 2023 compared to $28.5 million in the fourth quarter of 2022 and $25.9 million in the first quarter of 2022.

• Noninterest expense categories, other than salaries and employee benefits, were $76.0 million in the first quarter of 2023, compared to $70.2 million in the fourth quarter of 2022 and $60.8 million in the first quarter of 2022, reflecting a year-over-year increase of 25.0 percent.

"Our net interest income was positively impacted by increased yields on earning assets offset by increased funding costs, resulting in a decline of $7.2 million between the first quarter of 2023 and fourth quarter of 2022," said Harold R. Carpenter, Pinnacle's chief financial officer. "Increases in fee income in the first quarter of 2023 compared to the fourth quarter of 2022 essentially offset the decrease in net interest income over that same time period. Most fee categories increased in the first quarter of 2023 as compared to the fourth quarter of 2022. The fee increase was primarily attributable to mortgage pipelines improving significantly during the quarter, the receipt of annual insurance contingency payments from carriers due to favorable claims experience and increased fees from our back-to-back interest rate swap program, which we use to facilitate derivative transactions for our clients. BHG revenues decreased $1.9 million between fourth quarter 2022 and first quarter 2023. Most of this decrease was attributable to increased reserves for probable incurred credit losses.

"Expenses increased by approximately $9.7 million linked-quarter. Salaries and employee benefits expense increased by $3.9 million linked-quarter though incentive costs were lower in the first quarter of 2023 than the last quarter of 2022 as during the quarter we accrued expense assuming a lower payout percentage would likely be achieved in 2023 than was the case in 2022 for the firm’s annual cash bonus plan and we estimated that our performance would likely lead to a reduced number of shares being earned under our various performance-based equity awards. Compensation costs increased due to increased headcount and higher benefit costs which are traditionally higher in the first quarter due to the seasonality of payroll taxes and the firm’s 401k match program. We will continue to monitor our expense burden in light of our anticipated revenue growth and adjust incentives and/or reduce other expenses through either reduced hiring, deferral of anticipated projects or implementation of other cost saving measures as required."

PROFITABILITY, LIQUIDITY AND SOUNDNESS:

• Net interest margin was 3.40 percent for the first quarter of 2023, compared to 3.60 percent for the fourth quarter of 2022 and 2.89 percent for the first quarter of 2022.

• Provision for credit losses was $18.8 million in the first quarter of 2023, compared to $24.8 million in the fourth quarter of 2022 and $2.7 million in the first quarter of 2022. Net charge-offs were $7.3 million for the quarter ended March 31, 2023, compared to $11.7 million for the quarter ended Dec. 31, 2022 and $3.0 million for the quarter ended March 31, 2022. Annualized net loan charge-offs for the first quarter of 2023 were 0.10 percent.

• Nonperforming assets were $44.8 million at March 31, 2023, compared to $46.1 million at Dec. 31, 2022 and $35.1 million at March 31, 2022, up 27.8 percent over the same quarter last year. The ratio of the allowance for credit losses to nonperforming loans at March 31, 2023 was 848.5 percent, compared to 788.8 percent at Dec. 31, 2022 and 982.9 percent at March 31, 2022.

• Classified assets were $120.3 million at March 31, 2023, compared to $104.2 million at Dec. 31, 2022 and $137.0 at March 31, 2022, down 12.2 percent over the same quarter last year.

"Our net interest margin declined on a linked-quarter basis by approximately 20 basis points," Carpenter said. "In addition to increased funding costs, contributing to the reduced net interest margin was the $1.7 billion increase in on-balance sheet liquidity, which we acquired during mid-March given the uncertainty in the broader banking industry. We intend to hold elevated levels of liquidity for the next few quarters.

"We believe our liquidity metrics are as strong as they have ever been. Our wholesale funding ratios are consistent quarter to quarter. We also experienced a meaningful reduction in our uninsured deposit base, as approximately $2.1 billion in deposits were added to a reciprocal deposit insurance funding network during March. Our investment securities portfolio, including both the held-to-maturity and available-for-sale portfolios, has performed very well for us in recent months. Our AOCI loss decreased, or improved, by $44.0 million this quarter, and we think our held-to-maturity loss when considered in relation to our tangible capital ratios compared favorably to most of our peers at March 31, 2023.

"Credit metrics remain consistent with prior quarter’s results, and we continue to believe the loan portfolio remains healthy. Should a recession materialize as we believe is likely in 2023, we continue to believe we enter it from a position of strength with a great deal of confidence as to the financial health of many of our borrowers and their ability to weather what could be a more challenging economic environment."

WEBCAST AND CONFERENCE CALL INFORMATION

Pinnacle will host a webcast and conference call at 8:30 a.m. CT on April 18, 2023, to discuss first 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 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 $45.1 billion in assets as of March 31, 2023. As the second-largest bank holding company headquartered in Tennessee, Pinnacle operates in 17 primarily urban markets and their surrounding communities.

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) the sale of investment securities in a loss position before their value recovers, including as a result of asset liability management strategies or in response to liquidity needs; (iv) 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; (v) 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; (vi) 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 or uncertainty exists in the financial services sector; (vii) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (viii) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (ix) 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; (x) the results of regulatory examinations; (xi) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xiii) BHG's ability to profitably grow its business and successfully execute on its business plans; (xiv) risks of expansion into new geographic or product markets; (xv) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xvi) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xvii) 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; (xviii) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xix) 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; (xx) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxi) 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; (xxii) 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; (xxiii) 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); (xxiv) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxv) fluctuations in the valuations of Pinnacle Financial's equity investments and the ultimate success of such investments; (xxvi) the availability of and access to capital; (xxvii) 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; and (xxviii) 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, 2022, 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, total revenues, net income to common shareholders, earnings per diluted common share, revenue per diluted common share, PPNR, efficiency ratio, noninterest expense, noninterest income 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 2023 versus certain periods in 2022 and to internally prepared projections.