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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 000-31225

Pinnacle Financial Partners Inc.

, Inc.

(Exact name of registrant as specified in its charter)
Tennessee			62-1812853
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
150 Third Avenue South, Suite 900	Nashville,	TN	37201
(Address of principal executive offices)			(Zip Code)

(615) 744-3700

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changes since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒     No ☐    

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit such files).  Yes ☒     No ☐    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer ☒                            Accelerated Filer ☐    

Non-accelerated Filer  ☐                            Smaller reporting company ☐

(do not check if you are a smaller reporting company)                Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐     No ☒    

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Exchange on which Registered
Common Stock, par value $1.00	PNFP	The Nasdaq Stock Market LLC
Depositary Shares (each representing 1/40th interest in a share of 6.75% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series B)	PNFPP	The Nasdaq Stock Market LLC

As of July 30, 2021 there were 76,107,958 shares of common stock, $1.00 par value per share, issued and outstanding.

Table of Contents

Pinnacle Financial Partners, Inc.

Report on Form 10-Q

June 30, 2021

TABLE OF CONTENTS	Page No.
PART I – Financial Information:	4
Item 1. Consolidated Financial Statements (Unaudited)	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3. Quantitative and Qualitative Disclosures about Market Risk	59
Item 4. Controls and Procedures	59
PART II – Other Information:	59
Item 1. Legal Proceedings	60
Item 1A. Risk Factors	60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3. Defaults Upon Senior Securities	60
Item 4. Mine Safety Disclosures	60
Item 5. Other Information	60
Item 6. Exhibits	60
Signatures	62

2

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FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this report, 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 resulting in significant increases in loan losses and provisions for those losses and, in the case of BHG, substitutions; (ii) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb its spread, and the resulting impact on general economic and financial market conditions and on Pinnacle Financial's and its customers' business, results of operations, asset quality and financial condition; (iii) the speed with which the COVID-19 vaccines can be widely distributed, decisions of governmental agencies to pause the use of one or more vaccines, those vaccines' efficacy against the virus, including new variants and public acceptance of the vaccines; (iv) the failure of announced or anticipated stimulus programs to be timely approved, or approved at all, or the failure of such programs to provide sufficient relief when approved, and the resulting impact on the economy and our customers and their businesses; (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) 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 compression to net interest margin; (ix) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia, Alabama and Virginia, particularly in commercial and residential real estate markets; (x) 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; (xi) the results of regulatory examinations; (xii) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xiii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xiv) BHG's ability to profitably grow its business and successfully execute on its business plans; (xv) risks of expansion into new geographic or product markets; (xvi) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, including during times when Pinnacle Bank is seeking to lower rates it pays on deposits; (xvii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xviii) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xix) 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; (xx) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xxi) 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; (xxii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xxiii) 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; (xxiv) 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; (xxv) the risks associated with Pinnacle Financial and 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 Financial and Pinnacle Bank) if not prohibited from doing so by Pinnacle Financial or Pinnacle Bank; (xxvi) the possibility of increased personal or corporate tax rates and the resulting reduction in our and our customers' businesses as a result of any such increases; (xxvii) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xxviii) the availability of and access to capital; (xxiv) 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 (xxx) 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, 2020, 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 report, which speak only as of the date hereof, whether as a result of new information, future events or otherwise.

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Item 1. Part I. Financial Information

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(dollars in thousands, except per share data)	June 30, 2021		December 31, 2020
ASSETS
Cash and noninterest-bearing due from banks	$	159,863	$	203,296
Restricted cash	155,275		223,788
Interest-bearing due from banks	2,576,237		3,522,224
Federal funds sold and other	—		12,141
Cash and cash equivalents	2,891,375		3,961,449
Securities purchased with agreement to resell	500,000		—
Securities available-for-sale, at fair value	4,331,070		3,586,681
Securities held-to-maturity (fair value of $1.0 billion and $1.1 billion, net of allowance for credit losses of $198 and $191 at June 30, 2021 and Dec. 31, 2020, respectively)	995,838		1,028,359
Consumer loans held-for-sale	56,968		87,821
Commercial loans held-for-sale	25,843		31,200
Loans	22,897,935		22,424,501
Less allowance for credit losses	(273,747)		(285,050)
Loans, net	22,624,188		22,139,451
Premises and equipment, net	287,992		290,001
Equity method investment	320,167		308,556
Accrued interest receivable	99,664		104,078
Goodwill	1,819,811		1,819,811
Core deposits and other intangible assets	37,963		42,336
Other real estate owned	9,602		12,360
Other assets	1,411,828		1,520,757
Total assets	$	35,412,309	$	34,932,860
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	8,926,200	$	7,392,325
Interest-bearing	5,581,651		5,689,095
Savings and money market accounts	11,079,165		11,099,523
Time	2,630,587		3,524,632
Total deposits	28,217,603		27,705,575
Securities sold under agreements to repurchase	177,661		128,164
Federal Home Loan Bank advances	888,304		1,087,927
Subordinated debt and other borrowings	671,994		670,575
Accrued interest payable	15,776		24,934
Other liabilities	339,740		411,074
Total liabilities	30,311,078		30,028,249
Shareholders' equity:
Preferred stock, no par value, 10.0 million shares authorized; 225,000 shares non-cumulative perpetual preferred stock, Series B, liquidation preference $225.0 million, issued and outstanding at June 30, 2021 and Dec. 31, 2020, respectively	217,126		217,126
Common stock, par value $1.00; 180.0 million shares authorized; 76.1 million and 75.9 million shares issued and outstanding at June 30, 2021 and Dec. 31, 2020, respectively	76,088		75,850
Additional paid-in capital	3,032,338		3,028,063
Retained earnings	1,629,580		1,407,723
Accumulated other comprehensive income, net of taxes	146,099		175,849
Total shareholders' equity	5,101,231		4,904,611
Total liabilities and shareholders' equity	$	35,412,309	$	34,932,860

See accompanying notes to consolidated financial statements (unaudited).

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PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(dollars in thousands, except per share data)	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Interest income:
Loans, including fees	$	232,788	$	226,281	$	460,160	$	462,701
Securities:
Taxable	8,359		9,589		16,087		19,857
Tax-exempt	16,546		14,596		32,044		28,420
Federal funds sold and other	1,543		1,272		2,862		3,829
Total interest income	259,236		251,738		511,153		514,807
Interest expense:
Deposits	13,861		33,727		31,329		84,425
Securities sold under agreements to repurchase	56		94		128		209
Federal Home Loan Bank advances and other borrowings	12,094		17,260		23,601		35,964
Total interest expense	26,011		51,081		55,058		120,598
Net interest income	233,225		200,657		456,095		394,209
Provision for credit losses	2,834		68,332		10,069		168,221
Net interest income after provision for credit losses	230,391		132,325		446,026		225,988
Noninterest income:
Service charges on deposit accounts	8,906		6,910		17,213		15,942
Investment services	8,997		5,971		17,188		15,210
Insurance sales commissions	2,406		2,231		5,631		5,471
Gain on mortgage loans sold, net	6,700		19,619		20,366		28,202
Investment gains (losses) on sales, net	366		(128)		366		335
Trust fees	5,062		3,958		9,749		8,128
Income from equity method investment	32,071		17,208		61,021		32,800
Other noninterest income	33,699		17,185		59,382		37,243
Total noninterest income	98,207		72,954		190,916		143,331
Noninterest expense:
Salaries and employee benefits	110,824		73,887		213,552		154,367
Equipment and occupancy	23,321		22,026		46,541		43,004
Other real estate (income) expense, net	(657)		2,888		(670)		5,303
Marketing and other business development	2,652		2,142		5,001		5,393
Postage and supplies	2,115		2,070		3,921		4,060
Amortization of intangibles	2,167		2,479		4,373		4,999
Other noninterest expense	25,718		26,113		48,118		51,828
Total noninterest expense	166,140		131,605		320,836		268,954
Income before income taxes	162,458		73,674		316,106		100,365
Income tax expense	30,668		11,230		58,888		9,565
Net income	131,790		62,444		257,218		90,800
Preferred stock dividends	(3,798)		—		(7,596)		—
Net income available to common shareholders	$	127,992	$	62,444	$	249,622	$	90,800
Per share information:
Basic net income per common share	$	1.70	$	0.83	$	3.31	$	1.20
Diluted net income per common share	$	1.69	$	0.83	$	3.30	$	1.20
Weighted average common shares outstanding:
Basic	75,481,198		75,210,869		75,427,340		75,507,136
Diluted	75,809,974		75,323,259		75,735,763		75,645,768

See accompanying notes to consolidated financial statements (unaudited).

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PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands)	Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020
Net income	$	131,790	$	62,444	$	257,218	$	90,800
Other comprehensive income (loss), net of tax:
Change in fair value on available-for-sale securities, net of tax	28,242		36,007		(5,130)		68,879
Change in fair value of cash flow hedges, net of tax	(631)		4,555		(18,373)		65,639
Accretion of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax	(2,098)		(1,514)		(3,789)		(1,981)
Net (gain) loss on cash flow hedges reclassified from other comprehensive income into net income, net of tax	(2,692)		(123)		(2,188)		1,702
Net (gain) loss on sale of investment securities reclassified from other comprehensive income into net income, net of tax	(270)		95		(270)		(247)
Total other comprehensive income (loss), net of tax	22,551		39,020		(29,750)		133,992
Total comprehensive income	$	154,341	$	101,464	$	227,468	$	224,792

See accompanying notes to consolidated financial statements (unaudited).

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PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited)

(dollars and shares in thousands)	Preferred Stock  Amount		Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comp. Income (Loss), net		Total Shareholders' Equity
			Shares	Amounts
Balance at December 31, 2019	$	—	76,564	$	76,564	$	3,064,467	$	1,184,183	$	30,534	$	4,355,748
Exercise of employee common stock options & related tax benefits	—		1	1		4		—		—		5
Common stock dividends paid ($0.16 per share)	—		—	—		—		(12,442)		—		(12,442)
Repurchase of common stock	—		(1,015)	(1,015)		(49,775)		—		—		(50,790)
Issuance of restricted common shares, net of forfeitures	—		198	198		(198)		—		—		—
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes & related tax benefits	—		84	84		(2,552)		—		—		(2,468)
Restricted shares withheld for taxes & related tax benefit	—		(32)	(32)		(1,926)		—		—		(1,958)
Compensation expense for restricted shares & performance stock units	—		—	—		5,501		—		—		5,501
Net income	—		—	—		—		28,356		—		28,356
Cumulative effect of change in accounting principle	—		—	—		—		(31,796)		—		(31,796)
Other comprehensive income	—		—	—		—		—		94,972		94,972
Balance at March 31, 2020	$	—	75,800	$	75,800	$	3,015,521	$	1,168,301	$	125,506	$	4,385,128
Issuance of preferred stock, net of issuance cost	217,632		—	$	—	$	—	—		$	—	$	217,632
Exercise of employee common stock options & related tax benefits	—		9	9		216		—		—		225
Common stock dividends paid ($0.16 per share)	—		—	—		—		(12,378)		—		(12,378)
Issuance of restricted common shares, net of forfeitures	—		38	38		(38)		—		—		—
Restricted shares withheld for taxes & related tax benefit	—		(13)	(13)		(540)		—		—		(553)
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes & related tax benefits	—		2	2		(21)		—		—		(19)
Compensation expense for restricted shares & performance stock units	—		—	—		4,148		—		—		4,148
Net income	—		—	—		—		62,444		—		62,444
Other comprehensive income	—		—	—		—		—		39,020		39,020
Balance at June 30, 2020	$	217,632	75,836	$	75,836	$	3,019,286	$	1,218,367	$	164,526	$	4,695,647

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	Preferred Stock  Amount		Common Stock							Accumulated Other Comp. Income (Loss), net		Total Shareholders' Equity
			Shares	Amounts		Additional Paid-in Capital		Retained Earnings
Balance at December 31, 2020	$	217,126	75,850	$	75,850	$	3,028,063	$	1,407,723	$	175,849	$	4,904,611
Exercise of employee common stock options & related tax benefits	—		13	13		291		—		—		304
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.18 per share)	—		—	—		—		(13,902)		—		(13,902)
Issuance of restricted common shares, net of forfeitures	—		172	172		(172)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(34)	(34)		(2,422)		—		—		(2,456)
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes & related tax benefits	—		86	86		(3,848)				—		(3,762)
Compensation expense for restricted shares & performance stock units	—		—	—		5,399		—		—		5,399
Net income	—		—	—		—		125,428		—		125,428
Other comprehensive loss	—		—	—		—		—		(52,301)		(52,301)
Balance at March 31, 2021	$	217,126	76,087	$	76,087	$	3,027,311	$	1,515,451	$	123,548	$	4,959,523
Exercise of employee common stock options & related tax benefits	—		5	5		95		—		—		100
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.18 per share)	—		—	—		—		(13,863)		—		(13,863)
Issuance of restricted common shares, net of forfeitures	—		3	3		(3)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(8)	(8)		(731)		—		—		(739)
Issuance of common stock pursuant to restricted stock unit agreement, net of shares withheld for taxes & related tax benefits	—		1	1		(3)		—		—		(2)
Compensation expense for restricted shares & performance stock units	—		—	—		5,669		—		—		5,669
Net income	—		—	—		—		131,790		—		131,790
Other comprehensive income	—		—	—		—		—		22,551		22,551
Balance at June 30, 2021	$	217,126	76,088	$	76,088	$	3,032,338	$	1,629,580	$	146,099	$	5,101,231

See accompanying notes to consolidated financial statements (unaudited).

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PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in thousands)	Six months ended June 30,
	2021		2020
Operating activities:
Net income	$	257,218	$	90,800
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization/accretion of premium/discount on securities	25,413		16,092
Depreciation, amortization and accretion	27,057		21,031
Provision for credit losses	10,069		168,221
Gain on mortgage loans sold, net	(20,366)		(28,202)
Investment gains on sales, net	(366)		(335)
Stock-based compensation expense	11,068		9,649
Deferred tax expense (benefit)	4,427		(24,038)
Losses (gains) on dispositions of other real estate and other investments	(806)		5,033
Income from equity method investment	(61,021)		(32,800)
Dividends received from equity method investment	49,409		7,957
Excess tax benefit from stock compensation	(1,867)		(590)
Gain on commercial loans sold, net	(2,356)		(1,221)
Commercial loans held for sale originated	(288,031)		(180,238)
Commercial loans held for sale sold	295,743		182,844
Consumer loans held for sale originated	(1,117,635)		(955,401)
Consumer loans held for sale sold	1,168,854		995,979
Decrease (increase) in other assets	24,016		(173,328)
Increase (decrease) in other liabilities	(83,266)		83,745
Net cash provided by operating activities	297,560		185,198
Investing activities:
Activities in securities available-for-sale:
Purchases	(1,075,927)		(810,119)
Sales	2,240		100,055
Maturities, prepayments and calls	280,795		186,492
Activities in securities held-to-maturity:
Maturities, prepayments and calls	23,300		8,948
Increase in securities purchased under agreements to resell	(