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, 2024

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: 001-39309

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)

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

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 ☒    

As of July 31, 2024 there were 77,235,869 shares of common stock, $1.00 par value per share, issued and outstanding.

Pinnacle Financial Partners, Inc.

Report on Form 10-Q

June 30, 2024

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	40
Item 3. Quantitative and Qualitative Disclosures about Market Risk	64
Item 4. Controls and Procedures	64
PART II – Other Information:	65
Item 1. Legal Proceedings	65
Item 1A. Risk Factors	65
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3. Defaults Upon Senior Securities	65
Item 4. Mine Safety Disclosures	65
Item 5. Other Information	65
Item 6. Exhibits	65
Signatures	67

2

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, including as a result of persistent elevated interest rates, the negative impact of inflationary pressures and challenging economic conditions 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 the Southeast region of the United States, 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 of Pinnacle Financial, Pinnacle Bank or BHG, or companies with whom they do business; (xi) BHG's ability to profitably grow its business and successfully execute on its business plans; (xii) risks of expansion into new geographic or product markets; (xiii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xiv) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xv) 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; (xvi) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvii) 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; (xviii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xix) 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; (xx) 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; (xxi) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xxii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (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 involving Pinnacle Financial, Pinnacle Bank or BHG; 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, 2023, 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.

3

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, 2024		December 31, 2023
ASSETS
Cash and noninterest-bearing due from banks	$	219,110	$	228,620
Restricted cash	50,924		86,873
Interest-bearing due from banks	2,107,883		1,914,856
Cash and cash equivalents	2,377,917		2,230,349
Securities purchased with agreement to resell	71,903		558,009
Securities available-for-sale, at fair value	4,908,967		4,317,530
Securities held-to-maturity (fair value of $2.7 billion and $2.8 billion, net of allowance for credit losses of $1.7 million and $1.7 million at June 30, 2024 and Dec. 31, 2023, respectively)	2,973,924		3,006,357
Consumer loans held-for-sale	187,154		104,217
Commercial loans held-for-sale	16,046		9,280
Loans	33,769,150		32,676,091
Less allowance for credit losses	(381,601)		(353,055)
Loans, net	33,387,549		32,323,036
Premises and equipment, net	282,775		256,877
Equity method investment	433,073		445,223
Accrued interest receivable	220,232		217,491
Goodwill	1,846,973		1,846,973
Core deposits and other intangible assets	24,313		27,465
Other real estate owned	2,636		3,937
Other assets	2,633,507		2,613,139
Total assets	$	49,366,969	$	47,959,883
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	7,932,882	$	7,906,502
Interest-bearing	12,600,723		11,365,349
Savings and money market accounts	14,437,407		14,427,206
Time	4,799,368		4,840,753
Total deposits	39,770,380		38,539,810
Securities sold under agreements to repurchase	220,885		209,489
Federal Home Loan Bank advances	2,110,885		2,138,169
Subordinated debt and other borrowings	425,380		424,938
Accrued interest payable	58,881		66,967
Other liabilities	605,890		544,722
Total liabilities	43,192,301		41,924,095
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, 2024 and Dec. 31, 2023, respectively	217,126		217,126
Common stock, par value $1.00; 180.0 million shares authorized; 77.2 million and 76.8 million shares issued and outstanding at June 30, 2024 and Dec. 31, 2023, respectively	77,217		76,767
Additional paid-in capital	3,110,993		3,109,493
Retained earnings	2,919,923		2,784,927
Accumulated other comprehensive loss, net of taxes	(150,591)		(152,525)
Total shareholders' equity	6,174,668		6,035,788
Total liabilities and shareholders' equity	$	49,366,969	$	47,959,883

See accompanying notes to consolidated financial statements (unaudited).

4

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,
	2024		2023		2024		2023
Interest income:
Loans, including fees	$	551,659	$	478,896	$	1,092,858	$	910,798
Securities:
Taxable	51,578		31,967		96,048		61,325
Tax-exempt	24,372		24,603		48,972		48,405
Federal funds sold and other	40,781		39,773		80,995		60,750
Total interest income	668,390		575,239		1,318,873		1,081,278
Interest expense:
Deposits	304,449		228,668		605,417		405,257
Securities sold under agreements to repurchase	1,316		783		2,715		1,378
Federal Home Loan Bank advances and other borrowings	30,363		30,395		60,445		47,019
Total interest expense	336,128		259,846		668,577		453,654
Net interest income	332,262		315,393		650,296		627,624
Provision for credit losses	30,159		31,689		64,656		50,456
Net interest income after provision for credit losses	302,103		283,704		585,640		577,168
Noninterest income:
Service charges on deposit accounts	14,563		12,180		28,002		23,898
Investment services	15,720		14,174		30,471		25,769
Insurance sales commissions	3,715		3,252		7,567		7,716
Gain on mortgage loans sold, net	3,270		1,567		6,149		3,620
Investment losses on sales, net	(72,103)		(9,961)		(72,103)		(9,961)
Trust fees	8,323		6,627		15,738		13,056
Income from equity method investment	18,688		26,924		34,723		46,003
Gain on sale of fixed assets	325		85,724		383		85,859
Other noninterest income	41,787		33,352		93,461		67,408
Total noninterest income	34,288		173,839		144,391		263,368
Noninterest expense:
Salaries and employee benefits	150,117		132,443		296,127		268,151
Equipment and occupancy	41,036		33,706		80,682		64,059
Other real estate expense, net	22		58		106		157
Marketing and other business development	6,776		5,664		12,901		11,606
Postage and supplies	3,135		2,863		5,906		5,682
Amortization of intangibles	1,568		1,780		3,152		3,574
Other noninterest expense	68,735		35,127		114,880		70,139
Total noninterest expense	271,389		211,641		513,754		423,368
Income before income taxes	65,002		245,902		216,277		417,168
Income tax expense	11,840		48,603		39,171		82,598
Net income	53,162		197,299		177,106		334,570
Preferred stock dividends	(3,798)		(3,798)		(7,596)		(7,596)
Net income available to common shareholders	$	49,364	$	193,501	$	169,510	$	326,974
Per share information:
Basic net income per common share	$	0.65	$	2.55	$	2.22	$	4.30
Diluted net income per common share	$	0.64	$	2.54	$	2.21	$	4.30
Weighted average common shares outstanding:
Basic	76,506,121		76,030,081		76,392,287		75,975,982
Diluted	76,644,227		76,090,321		76,531,419		76,061,883

See accompanying notes to consolidated financial statements (unaudited).

5

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,
	2024		2023		2024		2023
Net income	$	53,162	$	197,299	$	177,106	$	334,570
Other comprehensive gain (loss), net of tax:
Change in fair value on available-for-sale securities, net of tax	(18,247)		(6,040)		(21,350)		31,406
Change in fair value of cash flow hedges, net of tax	(3,497)		(23,339)		(23,143)		(11,361)
Accretion of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax	(1,547)		(1,452)		(2,916)		(4,402)
Net gain on cash flow hedges reclassified from other comprehensive income into net income, net of tax	(2,473)		(2,268)		(4,945)		(4,744)
Net loss on sale of investment securities reclassified from other comprehensive income into net income, net of tax	54,288		7,473		54,288		7,473
Total other comprehensive gain (loss), net of tax	28,524		(25,626)		1,934		18,372
Total comprehensive income	$	81,686	$	171,673	$	179,040	$	352,942

See accompanying notes to consolidated financial statements (unaudited).

6

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, 2022	$	217,126	76,454	$	76,454	$	3,074,867	$	2,341,706	$	(190,761)	$	5,519,392
Exercise of employee common stock options & related tax benefits	—		40	40		920		—		—		960
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.22 per share)	—		—	—		—		(17,173)		—		(17,173)
Issuance of restricted common shares, net of forfeitures	—		193	193		(193)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(41)	(41)		(3,035)		—		—		(3,076)
Issuance of common stock pursuant to restricted stock unit (RSU) and performance stock unit (PSU) agreements, net of shares withheld for taxes & related tax benefits	—		93	93		(3,738)		—		—		(3,645)
Compensation expense for restricted share awards, RSUs and PSUs	—		—	—		10,199		—		—		10,199
Net income	—		—	—		—		137,271		—		137,271
Other comprehensive income	—		—	—		—		—		43,998		43,998
Balance at March 31, 2023	$	217,126	76,739	$	76,739	$	3,079,020	$	2,458,006	$	(146,763)	$	5,684,128
Exercise of employee common stock options & related tax benefits	—		—	—		11		—		—		11
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.22 per share)	—		—	—		—		(17,192)		—		(17,192)
Issuance of restricted common shares, net of forfeitures	—		7	7		(7)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(6)	(6)		(310)		—		—		(316)
Issuance of common stock pursuant to RSU and PSU agreements, net of shares withheld for taxes & related tax benefits	—		—	—		—		—		—		—
Compensation expense for restricted share awards, RSUs and PSUs	—		—	—		9,253		—		—		9,253
Net income	—		—	—		—		197,299		—		197,299
Other comprehensive loss	—		—	—		—		—		(25,626)		(25,626)
Balance at June 30, 2023	$	217,126	76,740	$	76,740	$	3,087,967	$	2,634,315	$	(172,389)	$	5,843,759

7

	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, 2023	$	217,126	76,767	$	76,767	$	3,109,493	$	2,784,927	$	(152,525)	$	6,035,788
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.22 per share)	—		—	—		—		(17,269)		—		(17,269)
Issuance of restricted common shares, net of forfeitures	—		190	190		(190)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(49)	(49)		(4,088)		—		—		(4,137)
Issuance of common stock pursuant to RSU and PSU agreements, net of shares withheld for taxes & related tax benefits	—		311	311		(14,738)		—		—		(14,427)
Compensation expense for restricted share awards, RSUs and PSUs	—		—	—		10,340		—		—		10,340
Net income	—		—	—		—		123,944		—		123,944
Other comprehensive loss	—		—	—		—		—		(26,590)		(26,590)
Balance at March 31, 2024	$	217,126	77,219	$	77,219	$	3,100,817	$	2,887,804	$	(179,115)	$	6,103,851
Preferred dividends paid ($16.88 per share)	—		—			—		(3,798)		—		(3,798)
Common dividends paid ($0.22 per share)	—		—			—		(17,245)		—		(17,245)
Issuance of restricted common shares, net of forfeitures	—		4	4		(4)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(6)	(6)		(441)		—		—		(447)
Issuance of common stock pursuant to RSU and PSU agreements, net of shares withheld for taxes & related tax benefits	—		—	—		—		—		—		—
Compensation expense for restricted share awards, RSUs and PSUs	—		—			10,621		—		—		10,621
Net income	—		—			—		53,162		—		53,162
Other comprehensive income	—		—			—		—		28,524		28,524
Balance at June 30, 2024	$	217,126	77,217	$	77,217	$	3,110,993	$	2,919,923	$	(150,591)	$	6,174,668

See accompanying notes to consolidated financial statements (unaudited).

8

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(dollars in thousands)	Six months ended June 30,
	2024		2023
Operating activities:
Net income	$	177,106	$	334,570
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization/accretion of premium/discount on securities	27,648		29,913
Depreciation, amortization and accretion	47,601		40,284
Provision for credit losses	64,656		50,456
Gain on mortgage loans sold, net	(6,149)		(3,620)
Investment losses on sales, net	72,103		9,961
Gain on other equity investments, net	(6,148)		(3,674)
Stock-based compensation expense	20,961		19,452
Deferred tax expense (benefit)	(1,565)		2,496
Losses on dispositions of other real estate and other investments	63		82
Gain on sale of fixed assets	(383)		(85,859)
Income from equity method investment	(34,723)		(46,003)
Dividends received from equity method investment	46,873		27,592
Excess tax benefit from stock compensation	(2,515)		(257)
Gain on commercial loans sold, net	(369)		(206)
Commercial loans held for sale originated	(108,808)		(223,275)
Commercial loans held for sale sold	102,411		221,860
Consumer loans held for sale originated	(1,113,306)		(763,489)
Consumer loans held for sale sold	1,036,518		723,366
Increase in other assets	(83,051)		(69,360)
Increase (decrease) in other liabilities	44,052		(14,974)
Net cash provided by operating activities	282,975		249,315
Investing activities:
Activities in securities available-for-sale:
Purchases	(1,642,975)		(260,201)
Sales	822,741		173,477
Maturities, prepayments and calls	108,049		77,729
Activities in securities held-to-maturity:
Maturities, prepayments and calls	17,847		32,338
Net decrease in securities purchased under agreements to resell	486,106		6,041
Increase in loans, net	(1,158,262)		(2,251,711)
Proceeds from sale of loans	20,470		117,216
Purchases of software, premises and equipment	(44,204)		(46,550)
Proceeds from sales of software, premises and equipment	684		198,228
Proceeds from sale of other real estate	1,672		5,749
Proceeds from bank owned life insurance settlements	4,160		—
Proceeds from bank owned life insurance surrender	141,308		—
Purchase of FHLB stock, net	(38)		(48,599)
Increase in other investments, net	(73,637)		(29,412)
Net cash used in investing activities	(1,316,079)		(2,025,695)
Financing activities:
Net increase in deposits	1,230,586		2,761,440
Net increase (decrease) in securities sold under agreements to repurchase	11,396		(31,136)
Federal Home Loan Bank: Advances	450,000		3,425,000
Federal Home Loan Bank: Repayments/maturities	(450,000)		(1,675,000)
Principal payments of finance lease obligation	(189)		(148)
Issuance of common stock pursuant to RSA, RSU and PSU agreements, net of shares withheld for taxes	(14,427)		(3,645)
Exercise of common stock options, net of shares surrendered for taxes	(4,584)		(2,421)
Common stock dividends paid	(34,514)		(34,365)
Preferred stock dividends paid	(7,596)		(7,596)
Net cash provided by financing activities	1,180,672		4,432,129
Net increase in cash, cash equivalents, and restricted cash	147,568		2,655,749
Cash, cash equivalents, and restricted cash, beginning of period	2,230,349		1,177,382
Cash, cash equivalents, and restricted cash, end of period	$	2,377,917	$	3,833,131

See accompanying notes to consolidated financial statements (unaudited).

9

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Nature of Business — Pinnacle Financial Partners, Inc. (Pinnacle Financial) is a financial holding company whose primary business is conducted by its wholly-owned subsidiary, Pinnacle Bank. Pinnacle Bank is a commercial bank headquartered in Nashville, Tennessee. Pinnacle Financial completed its acquisitions of CapitalMark Bank & Trust (CapitalMark), Magna Bank (Magna), Avenue Financial Holdings, Inc. (Avenue) and BNC Bancorp (BNC) on July 31, 2015, September 1, 2015, July 1, 2016 and June 16, 2017, respectively. Pinnacle Bank completed its acquisitions of Advocate Capital, Inc. (Advocate Capital) and JB&B Capital, LLC (JB&B) on July 2, 2019 and March 1, 2022, respectively. Pinnacle Bank also holds a 49% interest in Bankers Healthcare Group, LLC (BHG), a company that primarily serves as a full-service commercial loan provider to healthcare providers and other skilled professionals for business purposes but also makes consumer loans for various purposes. Pinnacle Bank provides a full range of banking services, including investment, mortgage, insurance, and comprehensive wealth management services, in several primarily urban markets and their surrounding communities.

Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2023 (2023 10-K).

These unaudited consolidated financial statements include the accounts of Pinnacle Financial and its wholly-owned subsidiaries. Certain statutory trust affiliates of Pinnacle Financial, as noted in Note 12. Other Borrowings, are included in these unaudited consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses and determination of any impairment of goodwill or intangible assets. It is reasonably possible Pinnacle Financial's estimate of the allowance for credit losses and determination of impairment of goodwill or intangible assets could change as a result of the uncertainty in current macroeconomic conditions. The resulting change in these estimates could be material to Pinnacle Financial's consolidated financial statements.

Mortgage Servicing Rights — On March 31, 2024, Pinnacle Financial recognized a mortgage servicing asset totaling $11.8 million related to a commercial mortgage loan portfolio. Upon the sale of these commercial loans, the rights to service loans (MSRs) are capitalized and represent the fair value of future net servicing fees from servicing activities associated with these commercial mortgage loans. Pinnacle Financial has elected to account for this class of MSRs under the fair value measurement method. Under this method, capitalized MSRs are recorded in other assets in the accompanying consolidated balance sheet with changes in the fair value of the MSRs for each period presented recorded in other noninterest income in the accompanying consolidated statement of income.

MSRs are recorded at fair value utilizing a number of assumptions, including prepayment speeds, interest rates, discount rates and other economic factors. Changes in the underlying assumptions could materially affect the fair value of MSRs. The value of servicing rights is initially measured using a discounted cash flow model. All servicing rights capitalized have involved the retention of servicing rights only; Pinnacle Financial does not retain residual interest, "first loss" obligations, or other similar on-going financial interests in the loans it sells to third parties, nor has Pinnacle Financial participated in any securitizations with any special purpose entities with respect to these MSRs.

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Except for recovery of amounts invested in acquiring servicing rights, servicing mortgage loans for others does not generally impose significant financial risks to the servicer. There are, however, certain investors for whom servicing does involve some risk of loss. For example, servicing Federal Housing Administration insured or Veterans Administration guaranteed loans can result in the servicer advancing principal and interest payments for delinquent borrowers, or incurring a shortfall in the total amount of principal collected under certain foreclosure circumstances.

Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for the six months ended June 30, 2024 and 2023 was as follows (in thousands):

	For the six months ended June 30,
	2024		2023
Cash Transactions:
Interest paid	$	676,054	$	418,668
Income taxes paid, net	25,933		19,485
Operating lease payments	18,703		10,858
Noncash Transactions:
Loans charged-off to the allowance for credit losses	49,634		32,907
Loans foreclosed upon and transferred to other real estate owned	435		435
Loans foreclosed upon and transferred to other assets	124		561
Right-of-use asset recognized during the period in exchange for lease obligations	14,733		133,264

Income Per Common Share — Basic net income per common share (EPS) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The difference between basic and diluted weighted average common shares outstanding is attributable to common stock options, restricted share awards, and restricted share unit awards, including those with performance-based vesting provisions. The dilutive effect of outstanding options, restricted share awards, and restricted share unit awards is reflected in diluted EPS by application of the treasury stock method.

The following is a summary of the basic and diluted net income per common share calculations for the three and six months ended June 30, 2024 and 2023 (in thousands, except per share data):

	Three months ended June 30,				Six months ended June 30,
	2024		2023		2024		2023
Basic net income per common share calculation:
Numerator - Net income available to common shareholders	$	49,364	$	193,501	$	169,510	$	326,974
Denominator - Weighted average common shares outstanding	76,506		76,030		76,392		75,976
Basic net income per common share	$	0.65	$	2.55	$	2.22	$	4.30
Diluted net income per common share calculation:
Numerator - Net income available to common shareholders	$	49,364	$	193,501	$	169,510	$	326,974
Denominator - Weighted average common shares outstanding	76,506		76,030		76,392		75,976
Dilutive common shares contingently issuable	138		60		139		86
Weighted average diluted common shares outstanding	76,644		76,090		76,531		76,062
Diluted net income per common share	$	0.64	$	2.54	$	2.21	$	4.30

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Recently Adopted Accounting Pronouncements — In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance was initially effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued an update to Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting with Accounting Standards Update 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which updated the effective date to be March 12, 2020 through December 31, 2024. Pinnacle Financial implemented a transition plan to identify and convert its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. Pinnacle Financial has moved substantially all of its LIBOR-based loans to its preferred replacement index, a Secured Overnight Financing Rate (SOFR) based index as of June 30, 2024. For Pinnacle Financial's currently outstanding LIBOR-based loans, the timing and manner in which each customer's interest rate transitions to a replacement index will vary on a case-by-case basis and should occur at the next repricing date for these loans.

In June 2022, the FASB issued Accounting Standards Update 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance in ASC 820 when measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of an equity security. This update also requires specific disclosures related to these types of securities. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Pinnacle Financial adopted ASU 2022-03 on January 1, 2024 and it did not have a material impact on Pinnacle Financial's accounting or disclosures.

In March 2023, the FASB issued Accounting Standards Update 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which permits the use of the proportional amortization method of accounting for tax equity investments if certain conditions are met. A reporting entity makes the accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity or individual investment level. The amendments require specific disclosures that must be applied to all investments that generate tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Pinnacle Financial adopted ASU 2023-02 on January 1, 2024 and it did not have a material impact on Pinnacle Financial's accounting or disclosures.

Newly Issued Not Yet Effective Accounting Standards — In December 2023, the FASB issued Accounting Standards Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which amends the guidance for income tax disclosures to include certain required disclosures related to tax rate reconciliations, including certain categories of expense requiring disclosure, income taxes paid, including disclosure of taxes paid disaggregated by nation, state, and foreign taxes, and other disclosures for disaggregation of income before income tax expense (or benefit) and income tax expense (or benefit) by domestic and foreign allocation. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024. Early adoption is permitted. An entity should apply ASU 2023-09 on a prospective basis once adopted with retrospective application permitted. Pinnacle Financial is assessing ASU 2023-09 and its potential impact on its accounting and disclosures.

Other than those pronouncements discussed above and those which have been recently adopted, Pinnacle Financial does not believe there were any other recently issued accounting pronouncements that may materially impact its consolidated financial statements.

Subsequent Events — ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Pinnacle Financial evaluated all events or transactions that occurred after June 30, 2024 through the date of the issued financial statements with no subsequent events being noted as of the date of this filing.

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Note 2. Equity method investment

A summary of BHG's financial position as of June 30, 2024 and December 31, 2023 and results of operations as of and for the three and six months ended June 30, 2024 and 2023, were as follows (in thousands):

	As of
	June 30, 2024		December 31, 2023
Assets	$	3,723,436	$	4,304,835
Liabilities	3,194,211		3,749,821
Equity interests	529,225		555,014
Total liabilities and equity	$	3,723,436	$	4,304,835

	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Revenues	$	228,808	$	311,333	$	506,068	$	613,284
Net income	$	38,762	$	57,395	$	71,565	$	104,038

At June 30, 2024, technology, trade name and customer relationship intangibles associated with Pinnacle Bank's investment in BHG, net of related amortization, totaled $5.8 million compared to $6.0 million as of December 31, 2023. Amortization expense of $59,000 and $118,000, respectively, was included for the three and six months ended June 30, 2024 compared to $87,000 and $174,000, respectively, for the same periods in the prior year. Accretion income of $35,000 and $74,000, respectively, was included in the three and six months ended June 30, 2024 compared to $45,000 and $140,000, respectively, for the same periods in the prior year.

During the three and six months ended June 30, 2024, Pinnacle Bank received dividends of $43.3 million and $46.9 million, respectively, from BHG compared to $3.6 million and $27.6 million, respectively, received during the three and six months ended June 30, 2023. Earnings from BHG are included in Pinnacle Financial's consolidated tax return. Profits from intercompany transactions are eliminated. During the three and six months ended June 30, 2024 and 2023, Pinnacle Bank purchased no loans from BHG. At June 30, 2024 and December 31, 2023, there were $204.9 million and $263.0 million, respectively, of BHG joint venture program loans held by Pinnacle Bank. These loans were purchased from BHG by Pinnacle Bank at par and BHG and Pinnacle Bank share proportionately in the credit risk of the acquired loans based on the rate on the loan and the rate of the purchase. The yield on this portfolio to Pinnacle Bank is anticipated to be between 4.50% and 6.00% per annum. During the three and six months ended June 30, 2024, Pinnacle Bank sold $20.5 million of BHG joint venture program loans back to BHG at par.

Note 3.  Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at June 30, 2024 and December 31, 2023 are summarized as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2024:
Securities available-for-sale:
U.S. Treasury securities	$	1,399,084	$	1	$	6,877	$	1,392,208
U.S. Government agency securities	262,915		20		23,880		239,055
Mortgage-backed securities	1,500,690		1,308		111,817		1,390,181
State and municipal securities	1,325,113		24,795		38,108		1,311,800
Asset-backed securities	128,481		304		698		128,087
Corporate notes and other	479,906		146		32,416		447,636
	$	5,096,189	$	26,574	$	213,796	$	4,908,967

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2024:
Securities held-to-maturity:
U.S. Treasury securities	$	90,089	$	—	$	2,649	$	87,440
U.S. Government agency securities	365,028		—		19,093		345,935
Mortgage-backed securities	373,826		113		37,777		336,162
State and municipal securities	1,871,366		2,430		178,688		1,695,108
Asset-backed securities	190,762		7		11,530		179,239
Corporate notes and other	84,560		—		8,808		75,752
	$	2,975,631	$	2,550	$	258,545	$	2,719,636
Allowance for credit losses - securities held-to-maturity	(1,707)
Securities held-to-maturity, net of allowance for credit losses	$	2,973,924

December 31, 2023:
Securities available-for-sale:
U.S. Treasury securities	$	907,990	$	2	$	14,580	$	893,412
U.S. Government agency securities	284,607		—		21,877		262,730
Mortgage-backed securities	1,071,963		444		125,017		947,390
State and municipal securities	1,604,874		26,129		45,108		1,585,895
Asset-backed securities	201,577		338		10,280		191,635
Corporate notes and other	477,761		69		41,362		436,468
	$	4,548,772	$	26,982	258,224		$	4,317,530
Securities held-to-maturity:
U.S Treasury securities	$	90,309	$	—	$	3,840	$	86,469
U.S. Government agency securities	364,769		—		19,187		345,582
Mortgage-backed securities	382,100		637		34,900		347,837
State and municipal securities	1,886,459		6,079		159,027		1,733,511
Asset-backed securities	198,418		—		14,228		184,190
Corporate notes	86,009		—		8,414		77,595
	$	3,008,064	$	6,716	$	239,596	$	2,775,184
Allowance for credit losses - securities held-to-maturity	(1,707)
Securities held-to-maturity, net of allowance for credit losses	$	3,006,357