[10-Q] Pinnacle Financial Partners In Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Table of Contents
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, 2025
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
, Inc.| (Exact name of registrant as specified in its charter) | ||||||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||
(Registrant's telephone number, including area code)
150 Third Avenue South, Suite 900, Nashville, TN 37201
(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 | ||||||
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):
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, 2025 there were 77,563,948 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, 2025
| TABLE OF CONTENTS | Page No. | ||||
PART I – Financial Information: | 5 | ||||
Item 1. Consolidated Financial Statements (Unaudited) | 5 | ||||
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 43 | ||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | 67 | ||||
Item 4. Controls and Procedures | 67 | ||||
PART II – Other Information: | 68 | ||||
Item 1. Legal Proceedings | 68 | ||||
Item 1A. Risk Factors | 68 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 71 | ||||
Item 3. Defaults Upon Senior Securities | 71 | ||||
Item 4. Mine Safety Disclosures | 71 | ||||
Item 5. Other Information | 71 | ||||
Item 6. Exhibits | 72 | ||||
Signatures | 73 | ||||
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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," "aim," "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 impact of U.S. and global economic conditions, trade policies and tensions, including changes in, or the imposition of, tariffs and/or trade barriers and the economic impacts, volatility and uncertainty resulting therefrom, and geopolitical instability; (iv) 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; (v) 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; (vi) 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; (vii) 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; (viii) a merger or acquisition, like Pinnacle Financial's proposed merger with Synovus Financial Corp. (“Synovus”); (ix) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (x) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (xi) 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 elevated deposit and other funding costs; (xii) the results of regulatory examinations of Pinnacle Financial, Pinnacle Bank or BHG, or companies with whom they do business; (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) the risk that the cost savings and synergies from Pinnacle Financial’s proposed merger with Synovus may not be fully realized or may take longer than anticipated to be realized; (xvi) disruption to Synovus’ business and to Pinnacle Financial’s business as a result of the announcement and pendency of the proposed merger; (xvii) the risk that the integration of Pinnacle Financial’s and Synovus’ respective businesses and operations will be materially delayed or will be more costly or difficult than expected, including as a result of unexpected factors or events; (xviii) the failure to obtain the necessary approvals of the proposed merger by the shareholders of Synovus or Pinnacle Financial; (xix) the amount of the costs, fees, expenses and charges related to the proposed merger; (xx) the ability by each of Synovus and Pinnacle Financial to obtain required governmental approvals of the proposed transaction on the timeline expected, or at all, and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company after the closing of the proposed transaction or adversely affect the expected benefits of the proposed transaction; (xxi) reputational risk and the reaction of Pinnacle Financial’s and Synovus’ customers, suppliers, employees or other business partners to the proposed merger; (xxii) the failure of the closing conditions in the merger agreement related to the proposed merger to be satisfied, or any unexpected delay in closing the proposed merger or the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (xxiii) the dilution caused by the issuance of shares of the common stock of the company resulting from the proposed merger of Pinnacle Financial and Synovus; (xxiv) the possibility that the proposed merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; (xxv) risks related to management and oversight of the expanded business and operations of the combined company following the closing of the proposed merger; (xxvi) the possibility the combined company resulting from the proposed merger is subject to additional regulatory requirements as a result of the proposed merger or expansion of the resulting company’s business operations following the proposed merger; (xxvii) the outcome of any legal or regulatory proceedings or governmental inquiries or investigations that may be currently pending or later instituted against Synovus, Pinnacle Financial or the combined company resulting from the proposed merger; (xxviii) general competitive, economic, political and market conditions and other factors that may affect future results of Synovus and Pinnacle Financial including changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; and capital management activities; (xxix) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xxx) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xxxi) 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; (xxxii) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xxxiii) 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; (xxxiv) approval of the declaration of any dividend by
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Pinnacle Financial's board of directors; (xxxv) 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 or ransomware attacks, human error, natural disasters, power loss and other security breaches; (xxxvi) 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; (xxxvii) Pinnacle Financial's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xxxviii) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xxxix) 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); (xl) changes in or interpretations of state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; (xli) fluctuations in the valuations of Pinnacle Financial's equity investments and the ultimate success of such investments; (xlii) the availability of and access to capital; (xliii) 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 (xliv) general competitive, economic, political and market conditions. Additional factors which could affect the forward looking statements included in this report can be found in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q, Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2024, 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, 2025 | December 31, 2024 | |||||||||
| ASSETS | |||||||||||
| Cash and noninterest-bearing due from banks | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Interest-bearing due from banks | |||||||||||
| Cash and cash equivalents | |||||||||||
| Securities purchased with agreement to resell | |||||||||||
| Securities available-for-sale, at fair value | |||||||||||
| Securities held-to-maturity (fair value of $2.4 billion and $2.6 billion, net of allowance for credit losses of $1.7 million and $1.7 million at June 30, 2025 and Dec. 31, 2024, respectively) | |||||||||||
| Consumer loans held-for-sale | |||||||||||
| Commercial loans held-for-sale | |||||||||||
| Loans | |||||||||||
| Less allowance for credit losses | ( | ( | |||||||||
| Loans, net | |||||||||||
| Premises and equipment, net | |||||||||||
| Equity method investment | |||||||||||
| Accrued interest receivable | |||||||||||
| Goodwill | |||||||||||
| Core deposits and other intangible assets | |||||||||||
| Other real estate owned | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Deposits: | |||||||||||
| Noninterest-bearing | $ | $ | |||||||||
| Interest-bearing | |||||||||||
| Savings and money market accounts | |||||||||||
| Time | |||||||||||
| Total deposits | |||||||||||
| Securities sold under agreements to repurchase | |||||||||||
| Federal Home Loan Bank advances | |||||||||||
| Subordinated debt and other borrowings | |||||||||||
| Accrued interest payable | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| 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, 2025 and Dec. 31, 2024, respectively | |||||||||||
| Common stock, par value $1.00; 180.0 million shares authorized; 77.5 million and 77.2 million shares issued and outstanding at June 30, 2025 and Dec. 31, 2024, respectively | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss, net of taxes | ( | ( | |||||||||
| Total shareholders' equity | |||||||||||
| Total liabilities and shareholders' equity | $ | $ | |||||||||
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, | |||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Interest income: | |||||||||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | |||||||||||||||||||
| Securities: | |||||||||||||||||||||||
| Taxable | |||||||||||||||||||||||
| Tax-exempt | |||||||||||||||||||||||
| Federal funds sold and other | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| Interest expense: | |||||||||||||||||||||||
| Deposits | |||||||||||||||||||||||
| Securities sold under agreements to repurchase | |||||||||||||||||||||||
| Federal Home Loan Bank advances and other borrowings | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| Provision for credit losses | |||||||||||||||||||||||
| Net interest income after provision for credit losses | |||||||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||
| Service charges on deposit accounts | |||||||||||||||||||||||
| Investment services | |||||||||||||||||||||||
| Insurance sales commissions | |||||||||||||||||||||||
| Gain on mortgage loans sold, net | |||||||||||||||||||||||
| Investment losses on sales, net | ( | ( | ( | ||||||||||||||||||||
| Trust fees | |||||||||||||||||||||||
| Income from equity method investment | |||||||||||||||||||||||
| Gain on sale of fixed assets | |||||||||||||||||||||||
| Other noninterest income | |||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||
| Equipment and occupancy | |||||||||||||||||||||||
| Other real estate expense, net | |||||||||||||||||||||||
| Marketing and other business development | |||||||||||||||||||||||
| Postage and supplies | |||||||||||||||||||||||
| Amortization of intangibles | |||||||||||||||||||||||
| Other noninterest expense | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Preferred stock dividends | ( | ( | ( | ( | |||||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Per share information: | |||||||||||||||||||||||
| Basic net income per common share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted net income per common share | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
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, | |||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive gain (loss), net of tax: | |||||||||||||||||||||||
| Change in fair value on available-for-sale securities, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Change in fair value of cash flow hedges, net of tax | ( | ( | |||||||||||||||||||||
| Accretion of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax | ( | ( | ( | ( | |||||||||||||||||||
| Net gain on cash flow hedges reclassified from other comprehensive income into net income, net of tax | ( | ( | |||||||||||||||||||||
| Net loss on sale of investment securities reclassified from other comprehensive income into net income, net of tax | |||||||||||||||||||||||
| Total other comprehensive gain (loss), net of tax | ( | ( | |||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
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, 2023 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||
| Preferred dividends paid ($16.88 per share) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Common dividends paid ($0.22 per share) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Issuance of restricted common shares, net of forfeitures | — | ( | — | — | |||||||||||||||||||
| Restricted shares withheld for taxes & related tax benefits | — | ( | ( | ( | — | — | ( | ||||||||||||||||
| 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 | — | ( | — | — | ( | ||||||||||||||||||
| Compensation expense for restricted share awards, RSUs and PSUs | — | — | — | — | — | ||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | ( | ( | ||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||
| Preferred dividends paid ($16.88 per share) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Common dividends paid ($0.22 per share) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Issuance of restricted common shares, net of forfeitures | — | ( | — | — | |||||||||||||||||||
| Restricted shares withheld for taxes & related tax benefits | — | ( | ( | ( | — | — | ( | ||||||||||||||||
| 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 | — | — | — | — | — | ||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||
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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, 2024 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||
| Preferred dividends paid ($16.88 per share) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Common dividends paid ($0.24 per share) | — | — | — | — | ( | — | ( | ||||||||||||||||
| Issuance of restricted common shares, net of forfeitures | — | ( | — | — | |||||||||||||||||||
| Restricted shares withheld for taxes & related tax benefits | — | ( | ( | ( | — | — | ( | ||||||||||||||||
| 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 | — | — | — | — | — | ||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||
| Preferred dividends paid ($16.88 per share) | — | — | — | ( | — | ( | |||||||||||||||||
| Common dividends paid ($0.24 per share) | — | — | — | ( | — | ( | |||||||||||||||||
| Issuance of restricted common shares, net of forfeitures | — | ( | ( | — | — | ||||||||||||||||||
| Restricted shares withheld for taxes & related tax benefits | — | ( | ( | ( | — | — | ( | ||||||||||||||||
| 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 | — | — | — | — | |||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||
| Other comprehensive loss | — | — | — | — | ( | ( | |||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||
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, | ||||||||||
| 2025 | 2024 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Net amortization/accretion of premium/discount on securities | |||||||||||
| Depreciation, amortization and accretion, net | |||||||||||
| Provision for credit losses | |||||||||||
| Gain on mortgage loans sold, net | ( | ( | |||||||||
| Investment losses on sales, net | |||||||||||
| Gain on other equity investments, net | ( | ( | |||||||||
| Stock-based compensation expense | |||||||||||
| Deferred tax benefit | ( | ( | |||||||||
| Losses on dispositions of other real estate and other investments | |||||||||||
| Gain on sale of fixed assets | ( | ( | |||||||||
| Income from equity method investment | ( | ( | |||||||||
| Dividends received from equity method investment | |||||||||||
| Excess tax benefit from stock compensation | ( | ( | |||||||||
| Gain on commercial loans sold, net | ( | ( | |||||||||
| Commercial loans held for sale originated | ( | ( | |||||||||
| Commercial loans held for sale sold | |||||||||||
| Consumer loans held for sale originated | ( | ( | |||||||||
| Consumer loans held for sale sold | |||||||||||
| Increase in other assets | ( | ( | |||||||||
| Increase (decrease) in other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Activities in securities available-for-sale: | |||||||||||
| Purchases | ( | ( | |||||||||
| Sales | |||||||||||
| Maturities, prepayments and calls | |||||||||||
| Activities in securities held-to-maturity: | |||||||||||
| Maturities, prepayments and calls | |||||||||||
| Net decrease (increase) in securities purchased under agreements to resell | ( | ||||||||||
| Increase in loans, net | ( | ( | |||||||||
| Proceeds from sale of loans | |||||||||||
| Purchases of software, premises and equipment | ( | ( | |||||||||
| Proceeds from sales of software, premises and equipment | |||||||||||
| Proceeds from sale of other real estate | |||||||||||
| Purchase of bank owned life insurance policies | ( | ||||||||||
| Proceeds from bank owned life insurance settlements | |||||||||||
| Proceeds from bank owned life insurance surrender | |||||||||||
| Purchase of derivative instruments | ( | ||||||||||
| Proceeds from sale (purchase) of FHLB stock, net | ( | ||||||||||
| Purchase of intangible asset | ( | ||||||||||
| Increase in other investments, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing activities: | |||||||||||
| Net increase in deposits | |||||||||||
| Net increase in securities sold under agreements to repurchase | |||||||||||
| Federal Home Loan Bank: Advances | |||||||||||
| Federal Home Loan Bank: Repayments/maturities | ( | ( | |||||||||
| Principal payments of finance lease obligation | ( | ( | |||||||||
| Restricted shares withheld for taxes & related tax benefits | ( | ( | |||||||||
| Issuance of common stock pursuant to RSU and PSU agreements, net of shares withheld for taxes & related tax benefits | ( | ( | |||||||||
| Common stock dividends paid | ( | ( | |||||||||
| Preferred stock dividends paid | ( | ( | |||||||||
| Net cash provided by financing activities | |||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | ( | ||||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | $ | |||||||||
See accompanying notes to consolidated financial statements (unaudited).
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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. Additionally, as noted in the Subsequent Events disclosure below, on July 24, 2025, Pinnacle Financial entered into an Agreement and Plan of Merger with Synovus Financial Corp. a Georgia corporation (“Synovus”) and a newly formed company jointly owned by Pinnacle Financial and Synovus.
Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with the 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, 2024 (2024 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.
Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for the six months ended June 30, 2025 and 2024 was as follows (in thousands):
| For the six months ended June 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| Cash Transactions: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid, net | |||||||||||
| Operating lease payments | |||||||||||
| Noncash Transactions: | |||||||||||
| Loans charged-off to the allowance for credit losses | |||||||||||
| Loans foreclosed upon and transferred to other real estate owned | |||||||||||
| Loans foreclosed upon and transferred to other assets | |||||||||||
| Right-of-use asset recognized during the period in exchange for lease obligations | |||||||||||
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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 restricted share awards and restricted share unit awards, including those with performance-based vesting provisions. The dilutive effect of 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, 2025 and 2024 (in thousands, except per share data):
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||
| Basic net income per common share calculation: | |||||||||||||||||
Numerator - Net income available to common shareholders | $ | $ | $ | $ | |||||||||||||
Denominator - Weighted average common shares outstanding | |||||||||||||||||
| Basic net income per common share | $ | $ | $ | $ | |||||||||||||
| Diluted net income per common share calculation: | |||||||||||||||||
Numerator - Net income available to common shareholders | $ | $ | $ | $ | |||||||||||||
Denominator - Weighted average common shares outstanding | |||||||||||||||||
| Dilutive common shares contingently issuable | |||||||||||||||||
| Weighted average diluted common shares outstanding | |||||||||||||||||
| Diluted net income per common share | $ | $ | $ | $ | |||||||||||||
Recently Adopted Accounting Pronouncements — In December 2023, the Financial Accounting Standards Board (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. Pinnacle Financial adopted ASU 2023-09 on January 1, 2025 and will incorporate the required annual disclosures into the consolidated financial statements for the year ended December 31, 2025 with required interim disclosures being incorporated in subsequent interim periods.
Newly Issued Not Yet Effective Accounting Standards — In November 2024, the FASB issued Accounting Standards Update 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which amends the guidance to require additional disaggregation and disclosures about certain expenses. The guidance is effective for public business entities for fiscal years beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. Pinnacle Financial is assessing ASU 2024-03 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.
Combination with Synovus Financial Corp.
On July 24, 2025, Pinnacle Financial entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Synovus and Steel Newco Inc., a newly formed Georgia corporation jointly owned by Pinnacle and Synovus (“Newco”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Pinnacle and Synovus will each simultaneously merge with and into Newco (such mergers, collectively, the “Merger”), with Newco continuing as the surviving corporation in the Merger
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and named Pinnacle Financial Partners, Inc. Upon the terms and subject to the conditions set forth in the Merger Agreement, immediately following the effective time of the Merger (the “Effective Time”), Pinnacle Bank will become a member bank of the Federal Reserve System (the “FRS Membership”), and immediately following the effectiveness of the FRS Membership, Synovus Bank, a Georgia-chartered bank (“Synovus Bank”), will merge with and into Pinnacle Bank (the “Bank Merger”), with Pinnacle Bank continuing as the surviving entity in the Bank Merger. The Merger Agreement was unanimously approved by the boards of directors of each of Pinnacle, Synovus and Newco.
Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of common stock, par value $1.00 per share, of Pinnacle Financial (“Pinnacle Common Stock”) outstanding immediately prior to the Effective Time, other than certain shares held by Pinnacle or Synovus, will be converted into the right to receive one share of common stock of Newco (“Newco Common Stock”), and each share of common stock, par value $1.00 per share, of Synovus (“Synovus Common Stock”) outstanding immediately prior to the Effective Time, other than certain shares held by Pinnacle or Synovus, will be converted into the right to receive 0.5237 shares of Newco Common Stock. Holders of Synovus Common Stock will receive cash in lieu of fractional shares.
Subject to the terms and conditions of the Merger Agreement, at the Effective Time, (i) each share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, no par value, of Synovus (“Synovus Series D Preferred Stock”), (ii) each share of Fixed-Rate Reset Non-Cumulative Perpetual Preferred Stock, Series E, no par value, of Synovus (“Synovus Series E Preferred Stock”), and (iii) each share of 6.75% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series B, no par value, of Pinnacle Financial (“Pinnacle Financial Preferred Stock”), in each case outstanding immediately prior to the Effective Time, will be converted into the right to receive one share of an applicable newly created series of preferred stock of Newco having terms that are not materially less favorable than the Synovus Series D Preferred Stock, Synovus Series E Preferred Stock or Pinnacle Preferred Stock, respectively.
The Merger Agreement provides that, (i) effective as of the Effective Time, the number of directors that will comprise the board of directors of each of Newco and Pinnacle Bank will be fifteen (15), (ii) eight (8) members of the board of directors of Pinnacle Financial (including M. Terry Turner, Robert A. McCabe, Jr. and G. Kennedy Thompson) as of immediately prior to the Effective Time will become directors of Newco and Pinnacle Bank as of the Effective Time, and (iii) seven (7) members of the board of directors of Synovus (including Kevin S. Blair and Tim E. Bentsen) as of immediately prior to the Effective Time will become directors of Newco and Pinnacle Bank as of the Effective Time. The Merger Agreement also provides that, effective as of the Effective Time, Mr. Turner will serve as Non-Executive Chairman of the boards of directors of Newco and Pinnacle Bank and Mr. Bentsen will serve as Lead Independent Director of the boards of directors of Newco and Pinnacle Bank. The Merger Agreement provides that, effective as of the Effective Time, Mr. Blair will serve as Chief Executive Officer and President of Newco and Pinnacle Bank, A. Jamie Gregory, Jr. will serve as Chief Financial Officer of Newco and Pinnacle Bank, and Mr. McCabe will serve as Vice Chairman of the boards of directors and Chief Banking Officer of Newco and Pinnacle Bank. The headquarters of Newco will be in Atlanta, Georgia, and the headquarters of Pinnacle Bank will be in Nashville, Tennessee.
The Merger Agreement contains customary representations and warranties of both Synovus and Pinnacle Financial, and each party has agreed to customary covenants, including, among others, covenants relating to (1) the conduct of its business during the interim period between the execution of the Merger Agreement and the Effective Time, (2) its obligations to call a meeting of its shareholders to adopt the Merger Agreement and the transactions contemplated thereby (such approval, in the case of Synovus, the “Requisite Synovus Vote”, and in the case of Pinnacle, the “Requisite Pinnacle Vote”) and, subject to certain exceptions, for the board of directors of each of Synovus and Pinnacle Financial to recommend that its shareholders vote in favor of such approvals, and (3) its non-solicitation obligations relating to alternative acquisition proposals. Synovus and Pinnacle Financial have also agreed to use their reasonable best efforts to obtain all necessary permits, consents, approvals and authorizations for consummation of the transactions contemplated by the Merger Agreement.
The completion of the Merger is subject to customary conditions, including (1) receipt of the Requisite Pinnacle Vote and the Requisite Synovus Vote, (2) authorization for listing on the New York Stock Exchange of the shares of Newco Common Stock and Newco Preferred Stock (or, as applicable, depositary shares in respect thereof) to be issued in the Merger, subject to official notice of issuance, (3) receipt of required regulatory approvals, including the approval of the Board of Governors of the Federal Reserve System, the Commissioner of the Tennessee Department of Financial Institutions and the Georgia Department of Banking and Finance, (4) effectiveness of the registration statement on Form S-4 for the shares of Newco Common Stock and Newco Preferred Stock (or, as applicable, depositary shares in respect thereof) to be issued in the Merger, and (5) the absence of any order, injunction, decree or other legal restraint preventing the completion of the Merger, the Bank Merger or any of the other transactions contemplated by the Merger Agreement or making the completion of the Merger, the Bank Merger or any of the other transactions contemplated by the Merger Agreement illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (1) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (2)
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performance in all material respects by the other party of its obligations under the Merger Agreement and (3) receipt by such party of an opinion from its counsel to the effect that such party’s merger with and into Newco will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
The Merger Agreement provides certain termination rights for both Synovus and Pinnacle Financial and further provides that a termination fee of $425.0 million will be payable by either Synovus or Pinnacle, as applicable, in the event of a termination of the Merger Agreement under certain circumstances.
Note 2. Equity method investment
A summary of BHG's financial position as of June 30, 2025 and December 31, 2024 and results of operations as of and for the three and six months ended June 30, 2025 and 2024, were as follows (in thousands):
| As of | |||||||||||
| June 30, 2025 | December 31, 2024 | ||||||||||
| Assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Equity interests | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
| For the three months ended June 30, | For the six months ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
At June 30, 2025 and December 31, 2024, technology, trade name and customer relationship intangibles associated with Pinnacle Bank's investment in BHG, net of related amortization, totaled $5.6 million and $5.7 million, respectively. Amortization expense of $41,000 and $81,000 , respectively, was included for the three and six months ended June 30, 2025 compared to $59,000 and $118,000 , respectively, for the same periods in the prior year. Accretion income of $26,000 and $55,000 , respectively, was included in the three and six months ended June 30, 2025 compared to $35,000 and $74,000 , respectively, for the same periods in the prior year.
Note 3. Securities
The amortized cost and fair value of securities available-for-sale and held-to-maturity at June 30, 2025 and December 31, 2024 are summarized as follows (in thousands):
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| June 30, 2025: | |||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
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| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| June 30, 2025: | |||||||||||||||||||||||
| Corporate notes and other | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Securities held-to-maturity: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Corporate notes and other | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Allowance for credit losses - securities held-to-maturity | ( | ||||||||||||||||||||||
| Securities held-to-maturity, net of allowance for credit losses | $ | ||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||
| December 31, 2024: | |||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Corporate notes and other | |||||||||||||||||||||||
| $ | $ | $ | |||||||||||||||||||||
| Securities held-to-maturity: | |||||||||||||||||||||||
| U.S Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| Corporate notes | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Allowance for credit losses - securities held-to-maturity | ( | ||||||||||||||||||||||
| Securities held-to-maturity, net of allowance for credit losses | $ | ||||||||||||||||||||||
During the quarters ended March 31, 2022, March 31, 2020 and September 30, 2018, Pinnacle Financial transferred, at fair value, $1.1 billion, $873.6 million and $179.8 million, respectively, of securities from the available-for-sale portfolio to the held-to-maturity portfolio. The related net unrealized after tax losses of $1.5 million, net unrealized after tax gains of $69.0 million and net unrealized after tax losses of $2.2 million, respectively, on these transferred securities remained in accumulated other comprehensive income (loss) and are being amortized over the remaining life of the transferred securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfer. At June 30, 2025, approximately $4.0 billion of securities within Pinnacle Financial's investment portfolio were pledged to secure either public funds and other deposits or securities sold under agreements to repurchase. At June 30, 2025, repurchase agreements comprised of secured borrowings totaled $258.5 million and were secured by $258.5 million of pledged U.S. government agency securities, mortgage-backed securities, municipal securities, asset-backed securities and corporate notes. As the fair value of securities pledged to secure repurchase agreements may decline, Pinnacle Financial regularly evaluates its need to pledge additional securities to the customers with whom it has entered into the repurchase agreements for the customers to remain adequately secured.
The amortized cost and fair value of debt securities as of June 30, 2025 by contractual maturity is shown below. Actual maturities may differ from contractual maturities of mortgage- and asset-backed securities since the mortgages and assets underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories in the following summary (in thousands):
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| Available-for-sale | Held-to-maturity | ||||||||||||||||||||||
| June 30, 2025: | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||
| Due in one year or less | $ | $ | $ | $ | |||||||||||||||||||
| Due in one year to five years | |||||||||||||||||||||||
| Due in five years to ten years | |||||||||||||||||||||||
| Due after ten years | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
At June 30, 2025 and December 31, 2024, the following available-for-sale securities had unrealized losses. The table below classifies these investments according to the term of the unrealized losses of less than twelve months or twelve months or longer (in thousands):
| Investments with an Unrealized Loss of less than 12 months | Investments with an Unrealized Loss of 12 months or longer | Total Investments with an Unrealized Loss | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| At June 30, 2025 | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||||||||||||||
| Corporate notes | |||||||||||||||||||||||||||||||||||
| Total temporarily-impaired securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| At December 31, 2024 | |||||||||||||||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||||||||||||||
| Asset-backed securities | |||||||||||||||||||||||||||||||||||
| Corporate notes | |||||||||||||||||||||||||||||||||||
| Total temporarily-impaired securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The applicable dates for determining when available-for-sale securities were in an unrealized loss position were June 30, 2025 and December 31, 2024. As such, it is possible that an available-for-sale security had a market value less than its amortized cost on other days during the twelve-month periods ended June 30, 2025 and December 31, 2024, but is not included in the "Investments with an Unrealized Loss of less than 12 months" category above.
As shown in the tables above, at June 30, 2025, Pinnacle Financial had approximately $290.6 million in unrealized losses on approximately $4.9 billion of available-for-sale securities. For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, Pinnacle Financial assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because Pinnacle Financial currently does not intend to sell those available-for-sale securities that have an unrealized loss at June 30, 2025, and it is not more-likely-than-not that Pinnacle Financial will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, Pinnacle Financial has determined that no write-down is necessary. In addition, Pinnacle Financial evaluates whether any portion of the decline in fair value of available-for-sale securities is the result of credit deterioration, which would require the recognition of an allowance for credit losses. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. The unrealized losses associated with available-for-sale securities at June 30, 2025 are driven by changes in interest rates and are not due to the credit quality of the securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at June 30, 2025. These securities will continue to be monitored as a part of Pinnacle Financial's
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ongoing evaluation of credit quality. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments.
The allowance for credit losses on held-to-maturity securities is measured on a collective basis by major security type. Pinnacle Financial has a zero loss expectation for U.S. treasury securities in addition to U.S. Government agency securities and mortgage-backed securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, and accordingly, no allowance for credit losses is estimated for these securities. Credit losses on held-to-maturity state and municipal securities and corporate notes and other securities are estimated using third-party probability of default and loss given default models driven primarily by macroeconomic factors over a reasonable and supportable period of twenty-four months with an eight month reversion to average loss factors. At both June 30, 2025 and December 31, 2024, the estimated allowance for credit losses on these held-to-maturity securities was $1.7 million.
Pinnacle Financial utilizes bond credit ratings assigned by third party ratings agencies to monitor the credit quality of debt securities held-to-maturity. At June 30, 2025, all debt securities classified as held-to-maturity were rated A or higher by the ratings agencies. Updated credit ratings are obtained as they become available from the ratings agencies.
Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality or marketability, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes or preparing for anticipated changes in market interest rates. Additionally, if an available-for-sale security loses its investment grade or tax-exempt status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management, Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these factors become known. During the three months ended June 30, 2025, no available for sale securities were sold. During the six months ended June 30, 2025, $188.5 million of available-for-sale securities were sold resulting in gross realized gains of $42,000 and gross realized losses of $12.6 million. During the three and six months ended June 30, 2024, $822.7 million of available-for-sale securities were sold resulting in gross realized gains of $86,000 and gross realized losses of $72.2 million.
Pinnacle Financial has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair values of available-for-sale securities. See Note 9. Derivative Instruments for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities.
Note 4. Loans and Allowance for Credit Losses
For financial reporting purposes, Pinnacle Financial classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed by Pinnacle Bank with the Federal Deposit Insurance Corporation (FDIC).
Pinnacle Financial uses the following loan categories for presentation of loan balances and the related allowance for credit losses on loans:
•Owner occupied commercial real estate mortgage loans - Owner occupied commercial real estate mortgage loans are secured by commercial office buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such loans, repayment is largely dependent upon the operation of the borrower's business.
•Non-owner occupied commercial real estate loans - These loans represent investment real estate loans secured by office buildings, industrial buildings, warehouses, retail buildings, and multifamily residential housing. Repayment is primarily dependent on lease income generated from the underlying collateral.
•Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by 1-4 family residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.
•Construction and land development loans - Construction and land development loans include loans where the repayment is dependent on the successful completion and eventual sale, refinance or operation of the related real estate project. Construction and land development loans include 1-4 family construction projects and commercial construction endeavors such as warehouses, apartments, office and retail space and land acquisition and development.
•Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.
•Consumer and other loans - Consumer and other loans include all loans issued to individuals not included in the consumer real estate mortgage classification. Examples of consumer and other loans are automobile loans, consumer credit cards and loans to finance education, among others. Many consumer loans are unsecured. Repayment is primarily dependent on the personal cash flow of the borrower.
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Loans at June 30, 2025 and December 31, 2024 were as follows (in thousands):
| June 30, 2025 | December 31, 2024 | |||||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | $ | ||||||||||||
| Non-owner occupied | ||||||||||||||
| Consumer real estate – mortgage | ||||||||||||||
| Construction and land development | ||||||||||||||
| Commercial and industrial | ||||||||||||||
| Consumer and other | ||||||||||||||
| Subtotal | $ | $ | ||||||||||||
| Allowance for credit losses | ( | ( | ||||||||||||
| Loans, net | $ | $ | ||||||||||||
Commercial loans receive risk ratings assigned by a financial advisor subject to validation by Pinnacle Financial's independent loan review department. Risk ratings are categorized as pass, special mention, substandard, substandard-nonaccrual or doubtful-nonaccrual. Each of the risk rating categories is further described below. Pass rated loans include multiple ratings categories representing varying degrees of risk attributes that are less than those of the other defined risk categories further described below. Pinnacle Financial believes its categories follow those used by Pinnacle Bank's primary regulators. At June 30, 2025, approximately 80.1 % of Pinnacle Financial's loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating. Consumer loans and small business loans are generally not assigned an individual risk rating but are evaluated as either accrual or nonaccrual based on the performance of the individual loans. However, certain consumer real estate-mortgage loans and certain consumer and other loans receive a specific risk rating due to the loan proceeds being used for commercial purposes even though the collateral may be of a consumer loan nature. Consumer loans that have been placed on nonaccrual but have not otherwise been assigned a risk rating are believed by management to share risk characteristics with loans rated substandard-nonaccrual and have been presented as such in Pinnacle Financial's risk rating disclosures.
Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, Pinnacle Financial's credit procedures require that every risk rated loan of $1.5 million or more be subject to a formal credit risk review process. Each loan's risk rating is also subject to review by Pinnacle Financial's independent loan review department, which reviews a substantial portion of Pinnacle Financial's risk rated portfolio annually. Included in the coverage are independent reviews of loans in targeted higher-risk portfolio segments such as certain commercial and industrial loans, land loans and/or loan types in certain geographies.
Following are the definitions of the risk rating categories used by Pinnacle Financial. Pass rated loans include all credits other than those included within these categories:
•Special mention loans have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle Financial's credit position at some future date.
•Substandard loans are inadequately protected by the current net worth and financial capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize collection of the debt. Substandard loans are characterized by the distinct possibility that Pinnacle Financial could sustain some loss if the deficiencies are not corrected.
•Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.
•Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.
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Table of Contents
The following tables present loan balances classified within each risk rating category by primary loan type and year of origination or most recent renewal as of June 30, 2025 and December 31, 2024, as well as the gross loan charge-offs by primary loan type and year of origination or most recent renewal for the six months ended June 30, 2025 (in thousands):
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Total | ||||||||||||||||||||||
| June 30, 2025 | |||||||||||||||||||||||||||||
| Commercial real estate - owner occupied | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Commercial real estate - owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | ( | ( | ( | $ | ( | |||||||||||||||||||||||
| Commercial real estate - non-owner occupied | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Commercial real estate - non-owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | ( | $ | ( | |||||||||||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Consumer real estate – mortgage | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | ( | ( | ( | ( | ( | ( | $ | ( | ||||||||||||||||||||
| Construction and land development | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | $ | |||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | ( | ( | ( | ( | ( | ( | ( | $ | ( | |||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Consumer and other | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | ( | ( | ( | ( | ( | ( | ( | $ | ( | |||||||||||||||||||
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Table of Contents
| 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans | Total | ||||||||||||||||||||||
| Total loans | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Current period gross charge-offs | $ | ( | ( | ( | ( | ( | ( | ( | $ | ( | |||||||||||||||||||
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total | ||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Commercial real estate - owner occupied | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Commercial real estate - owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Commercial real estate - non-owner occupied | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Commercial real estate - non-owner occupied | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Consumer real estate – mortgage | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Construction and land development | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Construction and land development | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Commercial and industrial | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
20
Table of Contents
| 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans | Total | ||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total Consumer and other | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Total loans | |||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Special Mention | |||||||||||||||||||||||||||||
Substandard (1) | |||||||||||||||||||||||||||||
| Substandard-nonaccrual | |||||||||||||||||||||||||||||
| Doubtful-nonaccrual | |||||||||||||||||||||||||||||
| Total loans | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
The table below presents the aging of past due balances by loan segment at June 30, 2025 and December 31, 2024 (in thousands):
| June 30, 2025 | 30-59 days past due | 60-89 days past due | 90 days or more past due | Total past due | Current | Total loans | |||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Non-owner occupied | |||||||||||||||||||||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||||||||||||||||||||
| Construction and land development | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Non-owner occupied | |||||||||||||||||||||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||||||||||||||||||||
| Construction and land development | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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Table of Contents
The following table details the changes in the allowance for credit losses for the three and six months ended June 30, 2025 and 2024, respectively, by loan classification (in thousands):
| Commercial real estate - owner occupied | Commercial real estate - non-owner occupied | Consumer real estate - mortgage | Construction and land development | Commercial and industrial | Consumer and other | Total | |||||||||||||||||
| Three months ended June 30, 2025: | |||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Charged-off loans | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Recovery of previously charged-off loans | |||||||||||||||||||||||
| Provision for credit losses on loans | ( | ( | |||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Three months ended June 30, 2024: | |||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Charged-off loans | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Recovery of previously charged-off loans | |||||||||||||||||||||||
| Provision for credit losses on loans | ( | ||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Six months ended June 30, 2025: | |||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Charged-off loans | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Recovery of previously charged-off loans | |||||||||||||||||||||||
| Provision for credit losses on loans | ( | ( | |||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Six months ended June 30, 2024: | |||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Charged-off loans | ( | ( | ( | ( | ( | ( | |||||||||||||||||
| Recovery of previously charged-off loans | |||||||||||||||||||||||
| Provision for credit losses on loans | ( | ||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
The adequacy of the allowance for credit losses is reviewed by Pinnacle Financial's management on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.
The current expected credit losses (CECL) methodology requires the allowance for credit losses to be measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For commercial real estate, consumer real estate, construction and land development, and commercial and industrial loans, Pinnacle Financial primarily utilizes a probability of default and loss given default modeling approach. These models utilize historical correlations between default and loss experience, loan level attributes, and certain macroeconomic factors as determined through a statistical regression analysis. Segments using this approach incorporate various economic drivers.
Commercial and industrial loans consider gross domestic product (GDP), the consumer credit index and the national unemployment rate, commercial construction loans and commercial real estate loans including nonowner occupied and owner occupied commercial real estate loans consider the national unemployment rate and the commercial property and commercial real estate price indices, construction and land development loans consider the commercial property, consumer credit and home price indices dependent upon their use as residential versus commercial, consumer real estate loans consider the home price index and household debt ratio and other consumer loans consider the national unemployment rate and the household financial obligations ratio.
22
Table of Contents
A third-party provides management with quarterly macroeconomic scenarios, which management evaluates to determine the best estimate of the expected losses. For the consumer and other loan segment, a non-statistical approach based on historical charge off rates is utilized.
Losses are predicted over a period of time determined by management to be reasonable and supportable, and at the end of the reasonable and supportable period, losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by Pinnacle Financial and are dependent on the current economic environment among other factors. A reasonable and supportable period of fifteen months was utilized for all loan segments at June 30, 2025 and December 31, 2024, followed by a twelve month straight line reversion to long term averages at each measurement date.
The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. These adjustments are based upon quarterly trend assessments in portfolio concentrations, policy exceptions, associate retention, independent loan review results, competition and peer group credit quality trends. The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.
Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $1.0 million which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral.
The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, as of June 30, 2025 and December 31, 2024 (in thousands):
| Real Estate | Business Assets | Other | Total | |||||||||||
| June 30, 2025 | ||||||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | $ | $ | $ | ||||||||||
| Non-owner occupied | ||||||||||||||
| Consumer real estate – mortgage | ||||||||||||||
| Construction and land development | ||||||||||||||
| Commercial and industrial | ||||||||||||||
| Consumer and other | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
| December 31, 2024 | ||||||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | $ | $ | $ | ||||||||||
| Non-owner occupied | ||||||||||||||
| Consumer real estate – mortgage | ||||||||||||||
| Construction and land development | ||||||||||||||
| Commercial and industrial | ||||||||||||||
| Consumer and other | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. Pinnacle Financial uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, a loan modification will be granted by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is charged-off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.
23
Table of Contents
In some cases, a loan restructuring will result in providing multiple types of modifications. Typically, one type of modification, such as a payment delay or term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness or an interest rate reduction, may be granted. Additionally, multiple types of modifications may be made on the same loan within the current reporting period. Such a combination is at least two of the following: a payment delay, term extension, principal forgiveness, or interest rate reduction. Upon determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025 and 2024, disaggregated by class of loans and type of modification granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty (in thousands):
| Three months ended June 30, 2025 | ||||||||||||||
| Term Extension | Combination¹ | |||||||||||||
| Amortized Cost Basis | % of Total Loan Type | Amortized Cost Basis | % of Total Loan Type | |||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | % | $ | % | ||||||||||
| Non-owner occupied | % | % | ||||||||||||
| Consumer real estate – mortgage | % | % | ||||||||||||
| Construction and land development | % | % | ||||||||||||
| Commercial and industrial | % | % | ||||||||||||
| Consumer and other | % | % | ||||||||||||
| Total | $ | $ | ||||||||||||
¹ The combination includes a payment delay and term extension.
| Six months ended June 30, 2025 | ||||||||||||||
| Term Extension | Combination¹ | |||||||||||||
| Amortized Cost Basis | % of Total Loan Type | Amortized Cost Basis | % of Total Loan Type | |||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | % | $ | % | ||||||||||
| Non-owner occupied | % | % | ||||||||||||
| Consumer real estate – mortgage | % | % | ||||||||||||
| Construction and land development | % | % | ||||||||||||
| Commercial and industrial | % | % | ||||||||||||
| Consumer and other | % | % | ||||||||||||
| Total | $ | $ | ||||||||||||
¹ The combination includes a payment delay and term extension.
| Three months ended June 30, 2025 | |||||||||||||||||||||||
| Financial Effect | |||||||||||||||||||||||
| Term Extension: | |||||||||||||||||||||||
| Commercial and industrial | Added a weighted average 0.23 years to the term of the modified loans | ||||||||||||||||||||||
| Combination: | |||||||||||||||||||||||
| Commercial real estate - non-owner occupied | Implemented interest only payments until loan maturity and added a weighted average .49 years to the term | ||||||||||||||||||||||
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Table of Contents
| Six months ended June 30, 2025 | |||||||||||||||||||||||
| Financial Effect | |||||||||||||||||||||||
| Term Extension: | |||||||||||||||||||||||
| Commercial and industrial | Added a weighted average 0.35 years to the term of the modified loans | ||||||||||||||||||||||
| Combination: | |||||||||||||||||||||||
| Commercial real estate - non-owner occupied | Implemented interest only payments until loan maturity and added a weighted average .49 years to the term | ||||||||||||||||||||||
| Three months ended June 30, 2024 | |||||||||||
| Term Extension | |||||||||||
| Amortized Cost Basis | % of Total Loan Type | Financial Effect | |||||||||
| Commercial real estate: | |||||||||||
| Owner occupied | $ | % | |||||||||
| Non-owner occupied | % | ||||||||||
| Consumer real estate – mortgage | % | ||||||||||
| Construction and land development | % | ||||||||||
| Commercial and industrial | % | Added a weighted average 0.51 years to the term of the modified loans | |||||||||
| Consumer and other | % | ||||||||||
| Total | $ | ||||||||||
| Six months ended June 30, 2024 | |||||||||||
| Term Extension | |||||||||||
| Amortized Cost Basis | % of Total Loan Type | Financial Effect | |||||||||
| Commercial real estate: | |||||||||||
| Owner occupied | $ | % | |||||||||
| Non-owner occupied | % | ||||||||||
| Consumer real estate – mortgage | % | ||||||||||
| Construction and land development | % | ||||||||||
| Commercial and industrial | % | Added a weighted average 0.92 years to the term of the modified loans | |||||||||
| Consumer and other | % | ||||||||||
| Total | $ | ||||||||||
| Six months ended June 30, 2024 | ||||||||||||||
| Payment Delay | Term Extension | Combination | Total | |||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | $ | $ | $ | ||||||||||
| Non-owner occupied | ||||||||||||||
| Consumer real estate – mortgage | ||||||||||||||
| Construction and land development | ||||||||||||||
| Commercial and industrial | ||||||||||||||
| Consumer and other | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
25
Table of Contents
The table below presents the aging of past due balances as of June 30, 2025 and June 30, 2024 of loans made to borrowers experiencing financial difficulty that were modified in the previous twelve months:
| June 30, 2025 | 30-59 days past due | 60-89 days past due | 90 days or more past due | Current | Total modified loans | ||||||||||||
| Commercial real estate: | |||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | ||||||||||||
| Non-owner occupied | |||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||
| Construction and land development | |||||||||||||||||
| Commercial and industrial | |||||||||||||||||
| Consumer and other | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
| June 30, 2024 | |||||||||||||||||
| Commercial real estate: | |||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | ||||||||||||
| Non-owner occupied | |||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||
| Construction and land development | |||||||||||||||||
| Commercial and industrial | |||||||||||||||||
| Consumer and other | |||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||
The table below presents the amortized cost basis of loans on nonaccrual status and loans past due 90 or more days and still accruing interest at June 30, 2025 and December 31, 2024. Also presented is the balance of loans on nonaccrual status at June 30, 2025 and December 31, 2024 for which there was no related allowance for credit losses recorded (in thousands):
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||
| Total nonaccrual loans | Nonaccrual loans with no allowance for credit losses | Loans past due 90 or more days and still accruing | Total nonaccrual loans | Nonaccrual loans with no allowance for credit losses | Loans past due 90 or more days and still accruing | ||||||||||||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||||||||||||||
| Owner occupied | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Non-owner occupied | |||||||||||||||||||||||||||||||||||
| Consumer real estate – mortgage | |||||||||||||||||||||||||||||||||||
| Construction and land development | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||
| Consumer and other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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Pinnacle Financial's policy is the accrual of interest income will be discontinued when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or (2) the principal or interest is more than 90 days past due, unless the loan is both well secured and in the process of collection. As such, at the date loans are placed on nonaccrual status, Pinnacle Financial reverses all previously accrued interest income against current year earnings. Pinnacle Financial's policy is once a loan is placed on nonaccrual status each subsequent payment is reviewed on a case-by-case basis to determine if the payment should be applied to interest or principal pursuant to regulatory guidelines. Pinnacle Financial recognized no interest income from cash payments received on nonaccrual loans during the three and six months ended June 30, 2025 and 2024. Had these loans been on accruing status, an additional $2.7 million and $5.1 million of interest income would have been recognized for the three and six months ended June 30, 2025, respectively, compared to an additional $2.3 million and $4.5 million for the three and six months ended June 30, 2024, respectively. Approximately $66.2 million and $36.3 million of nonaccrual loans were performing pursuant to their contractual terms as of June 30, 2025 and December 31, 2024, respectively.
Pinnacle Financial analyzes its commercial loan portfolio to determine if a concentration of credit risk exists to any industries. Pinnacle Financial utilizes broadly accepted industry classification systems in order to classify borrowers into various industry classifications. Pinnacle Financial has a credit exposure (loans outstanding plus unfunded lines of credit) exceeding 25 % of Pinnacle Bank's total risk-based capital to borrowers in the following industries at June 30, 2025 with the comparative exposures for December 31, 2024 (in thousands):
| June 30, 2025 | |||||||||||||||||||||||
| Outstanding Principal Balances | Unfunded Commitments | Total exposure | Total Exposure at December 31, 2024 | ||||||||||||||||||||
| Lessors of nonresidential buildings | $ | $ | $ | $ | |||||||||||||||||||
| Lessors of residential buildings | |||||||||||||||||||||||
| New Housing For-Sale Builders | |||||||||||||||||||||||
| Music Publishers | |||||||||||||||||||||||
Among other data, Pinnacle Financial monitors two ratios regarding construction and commercial real estate lending as part of its concentration management processes. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by Pinnacle Bank’s total risk-based capital. At June 30, 2025 and December 31, 2024, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital were 61.8 % and 70.5 %, respectively. Non-owner occupied commercial real estate and multifamily loans (including construction and land development loans) as a percentage of total risk-based capital were 228.6 % and 242.2 % as of June 30, 2025 and December 31, 2024, respectively. Banking regulations have established guidelines for the construction ratio of less than 100% of total risk-based capital and for the non-owner occupied ratio of less than 300% of total risk-based capital. When a bank’s ratios are in excess of one or both of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. At June 30, 2025, Pinnacle Bank was within the 100% and 300% guidelines and has established what it believes to be appropriate monitoring of its lending in these areas as it aims to keep the level of these loans below the 100% and 300% thresholds within the applicable guidelines.
At June 30, 2025, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $54.3 million to current directors, executive officers, and their related interests, of which $48.1 million had been drawn upon. At December 31, 2024, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $39.4 million to directors, executive officers, and their related interests, of which approximately $37.4 million had been drawn upon. All loans to directors, executive officers, and their related interests were performing in accordance with contractual terms at June 30, 2025 and December 31, 2024.
Loans Held for Sale
At June 30, 2025, Pinnacle Financial had approximately $10.3 million in commercial loans held for sale compared to $19.7 million at December 31, 2024. These include commercial real estate and apartment loans originated for sale to a third-party as part of a multi-family loan program. Such loans are closed under a pass-through commitment structure wherein Pinnacle Bank's loan commitment to the borrower is the same as the third party's take-out commitment to Pinnacle Bank and the third party purchase typically occurs within thirty days of Pinnacle Bank closing with the borrowers. Also included are commercial loans originated for sale to BHG as part of BHG's alternative financing portfolio.
At June 30, 2025, Pinnacle Financial had approximately $177.2 million in consumer loans held for sale, excluding mortgage loans, compared to $160.2 million at December 31, 2024. These include consumer loans originated for sale to BHG as part of BHG's alternative financing portfolio.
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At June 30, 2025, Pinnacle Financial had approximately $24.1 million of mortgage loans held-for-sale compared to approximately $15.4 million at December 31, 2024. Total mortgage loan volumes sold during the six months ended June 30, 2025 were approximately $338.5 million compared to approximately $365.7 million for the six months ended June 30, 2024. During the three and six months ended June 30, 2025, Pinnacle Financial recognized $2.0 million and $4.5 million, respectively, in gains on the sale of these loans, net of commissions paid, compared to $3.3 million and $6.1 million, respectively, during the three and six months ended June 30, 2024.
These residential mortgage loans held-for-sale are originated internally and are primarily to borrowers in Pinnacle Bank's geographic markets. These sales are typically on a mandatory basis to investors that follow conventional government sponsored entities and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs guidelines.
Each purchaser of a residential mortgage loan held-for-sale has specific guidelines and criteria for sellers of loans and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require Pinnacle Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties, Pinnacle Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan. To date, Pinnacle Bank's liability due to the breach of these representations and warranties has been insignificant.
Note 5. 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. Pinnacle Financial recognizes MSRs upon the sale of commercial mortgage loans to external third parties when it retains the obligation to service the loans. MSRs are included in other assets on the consolidated balance sheets with any subsequent changes in fair value being recognized in other noninterest income. The MSR asset fair value is determined using a discounted cash flow model which incorporates key assumptions such as prepayment speeds, interest rates, discount rates, and other economic factors.
The following is a summary of the changes in the carrying value of MSRs, accounted for at fair value, for the three and six months ended June 30, 2025 and 2024 (in thousands):
| Three months ended June 30 | Six months ended June 30 | ||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||
| Fair value, beginning of period | $ | $ | $ | $ | |||||||||||||
| Initial recognition of servicing asset | |||||||||||||||||
| Additions from loans sold with servicing retained | |||||||||||||||||
| Estimate of changes in fair value due to: | |||||||||||||||||
| Payoffs, paydowns, and repurchases | ( | ( | ( | ( | |||||||||||||
| Changes in valuation inputs or assumptions | ( | ( | ( | ( | |||||||||||||
| Fair value, end of period | $ | $ | $ | $ | |||||||||||||
Note 6. Income Taxes
ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods.
The unrecognized tax benefit related to uncertain tax positions related to state income tax filings was $6.4 million and $10.1 million at June 30, 2025 and December 31, 2024, respectively. During the three and six months ended June 30, 2025, Pinnacle Financial paid $3.7 million of taxes related to state income tax filings for tax years prior to 2025. During the three and six months ended June 30, 2024, Pinnacle Financial paid $306,000 and $309,000 , respectively, of taxes related to state income tax filings for tax years prior to 2024.
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Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. No interest and penalties were recognized during the three and six months ended June 30, 2025 and June 30, 2024.
Pinnacle Financial's effective tax rate for the three and six months ended June 30, 2025 was 18.4 % and 18.0 %, respectively, compared to 18.2 % and 18.1 %, respectively, for the three and six months ended June 30, 2024. The difference between the effective tax rate and the federal and state income tax statutory rate of 25.00 % at June 30, 2025 and 2024, respectively, is primarily due to investments in bank qualified municipal securities, tax benefits of Pinnacle Bank's real estate investment trust and municipal investment subsidiaries, participation in the Tennessee Community Investment Tax Credit program, and tax benefits associated with share-based compensation and bank-owned life insurance, offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC premiums and non-deductible executive compensation.
Income tax expense is also impacted by the vesting of equity-based awards, with expense or benefit recorded as a discrete item as a component of total income tax, the amount of which is dependent upon the change in the grant date fair value and the vest date fair value of the underlying award. For the three and six months ended June 30, 2025 and 2024, Pinnacle Financial recognized excess tax benefits of $128,000 and $3.7 million, respectively, compared to $100,000 and $2.5 million, respectively, with respect to the vesting of equity-based awards.
On July 4, 2025, H.R. 1, a bill to provide for reconciliation pursuant to title II of H. Con. Res. 14, informally known as the “One Big Beautiful Bill Act” (OBBBA), was signed into law, which includes a broad range of tax reform provisions that may affect Pinnacle Financial's financial results. Pinnacle Financial is currently evaluating the impact of the OBBBA which could affect Pinnacle Financial's effective tax rate and deferred tax assets in 2025 and future periods. A quantitative estimate of the specific financial effects cannot be reasonably determined at this time due to the complexity of the changes in the OBBBA. The impact of the tax provisions in the OBBBA will depend on facts in each year and anticipated guidance from the U.S. Department of the Treasury.
Note 7. Commitments and Contingent Liabilities
In the normal course of business, Pinnacle Financial has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial customers that use lines of credit to supplement their treasury management functions, thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. At June 30, 2025, these commitments amounted to $16.0 billion, of which approximately $1.9 billion related to home equity lines of credit.
Standby letters of credit are generally issued on behalf of an applicant (customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated earlier due to criteria specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The standby letter of credit would permit the beneficiary to obtain payment from Pinnacle Financial under certain prescribed circumstances. Subsequently, Pinnacle Financial would then seek reimbursement from the applicant pursuant to the terms of the standby letter of credit. At June 30, 2025 and December 31, 2024, these commitments amounted to $486.6 million and $387.3 million, respectively.
Pinnacle Financial typically follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer's creditworthiness is typically evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management's credit evaluation of the customer. Collateral held varies but may include cash, real estate and improvements, marketable securities, accounts receivable, inventory, equipment and personal property.
The contractual amounts of these commitments are not reflected in the consolidated financial statements and only amounts drawn upon would be reflected in the future. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should Pinnacle Bank's customers default on their resulting obligation to Pinnacle Bank, the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those commitments. At June 30, 2025 and December 31, 2024, Pinnacle Financial had accrued reserves of $13.3 million and $12.5 million, respectively, for the inherent risks associated with these
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off-balance sheet commitments in other liabilities on its balance sheet. The provision for these unfunded commitments increased $845,000 for the three and six months ended June 30, 2025 compared to a decrease of $3.0 million for the three and six months ended June 30, 2024.
Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the resolutions of these claims outstanding at June 30, 2025 are not expected to have a material adverse impact on Pinnacle Financial's consolidated financial condition, operating results or cash flows.
Note 8. Equity Compensation
Pinnacle Financial's Second Amended and Restated 2018 Omnibus Equity Incentive Plan (2018 Plan) permits Pinnacle Financial to reissue outstanding awards that are subsequently forfeited, settled in cash, withheld by Pinnacle Financial to cover withholding taxes or expire unexercised and returned to the 2018 Plan. At June 30, 2025, there were approximately 1.6 million shares available for issuance under the 2018 Plan.
Restricted Share Awards
A summary of activity for unvested restricted share awards for the six months ended June 30, 2025 is as follows:
| Number | Grant Date Weighted-Average Cost | ||||||||||
| Unvested at December 31, 2024 | $ | ||||||||||
| Shares awarded | |||||||||||
| Restrictions lapsed and shares released to associates/directors | ( | ||||||||||
| Shares forfeited | ( | ||||||||||
| Unvested at June 30, 2025 | $ | ||||||||||
Pinnacle Financial has granted restricted share awards to associates (including certain members of executive management) and outside directors with time-based vesting criteria. Compensation expense associated with time-based vesting restricted share awards is recognized over the time period that the restrictions associated with the awards lapse on a straight-line basis based on the total cost of the award. The following table outlines restricted stock grants that were made, grouped by similar vesting criteria, during the six months ended June 30, 2025. The table reflects the life-to-date activity for these awards:
| Grant year | Group (1) | Vesting period in years | Shares awarded | Restrictions lapsed and shares released to participants | Shares withheld for taxes by participants | Shares forfeited by participants (4) | Shares unvested | ||||||||||||||||||||||
| Time Based Awards | |||||||||||||||||||||||||||||
| 2025 | Associates (2) | ||||||||||||||||||||||||||||
Outside Director Awards (3) | |||||||||||||||||||||||||||||
| 2025 | Outside directors | ||||||||||||||||||||||||||||
(1)Groups include employees (referred to as associates above) and outside directors. When the restricted shares are awarded, a participant receives voting rights and forfeitable dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. Once the restrictions lapse, the participant is taxed on the value of the award and shares are withheld by Pinnacle Financial to pay the applicable income taxes associated with the award. For time-based vesting restricted share awards, dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination. For awards to Pinnacle Financial's directors, dividends are placed into escrow until the forfeiture restrictions on such shares lapse.
(2)The forfeiture restrictions on these restricted share awards lapse in equal annual installments on the anniversary date of the grant.
(3)Restricted share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on March 1, 2026 based on each individual board member meeting attendance goals for the various board and board committee meetings to which each member was scheduled to attend.
(4)These shares represent forfeitures resulting from recipients whose employment was terminated during the year-to-date period ended June 30, 2025. Any dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination or will not be distributed from escrow, as applicable.
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Restricted Stock Unit Awards
A summary of activity for unvested restricted stock units for the six months ended June 30, 2025 is as follows:
| Number | Grant Date Weighted-Average Cost | ||||||||||
| Unvested at December 31, 2024 | $ | ||||||||||
| Shares awarded | |||||||||||
| Restrictions lapsed and shares released to associates | ( | ||||||||||
| Shares forfeited | ( | ||||||||||
| Unvested at June 30, 2025 | $ | ||||||||||
Pinnacle Financial grants restricted stock units to its Named Executive Officers (NEOs) and leadership team members with time-based vesting criteria. Compensation expense associated with time-based vesting restricted stock unit awards is recognized over the time period that the restrictions associated with the awards lapse on a straight-line basis based on the total cost of the award. The following table outlines restricted stock unit grants that were made, grouped by similar vesting criteria, during the six months ended June 30, 2025. The table reflects the life-to-date activity for these awards:
| Grant year | Vesting period in years | Shares awarded | Restrictions lapsed and shares released to participants | Shares withheld for taxes by participants | Shares forfeited by participants (1) | Shares unvested | ||||||||||||||||||||||||||
| 2025 | ||||||||||||||||||||||||||||||||
(1)These shares represent forfeitures resulting from recipients whose employment was terminated during the year-to-date period ended June 30, 2025. Dividend equivalents are held in escrow for award recipients for dividends paid prior to the forfeiture restrictions lapsing. Such dividend equivalents are not released from escrow if an award is forfeited.
Performance Stock Unit Awards
The following table details the performance stock unit awards outstanding at June 30, 2025:
| Units Awarded | ||||||||||||||||||||||||||
| Grant year | NEOs (1) | Leadership Team other than NEOs | Applicable performance periods associated with each tranche (fiscal year) | Service period per tranche (in years) | Subsequent holding period per tranche (in years) | Period in which units are expected to be settled into shares of common stock (2) | ||||||||||||||||||||
| 2025 | — | 2025-2027 | 2028 | |||||||||||||||||||||||
| 2024 | — | 2024-2026 | 2027 | |||||||||||||||||||||||
| 2023 | — | 2023-2025 | 2026 | |||||||||||||||||||||||
| 2022 | — | 2022-2024 | 2026 | |||||||||||||||||||||||
(1)The NEOs are awarded a range of awards that generally may be earned based on attainment of goals between a target level of performance and a maximum level of performance. The 190,000 performance units awarded to the NEOs in 2022 for which the three-year performance period was completed on December 31, 2024 were earned at the target level of performance and are currently in the required one-year hold period.
(2)Performance stock unit awards granted in or after 2023, if earned, are expected to settle in shares of Pinnacle Financial common stock in the period noted in the table, if the performance criterion included in the applicable performance unit award agreement are met. Performance units granted in 2022 have been earned and will settle in shares of Pinnacle Financial common stock following their post-vest holding period. At the Effective Time of the Merger, all then outstanding performance units will become fully vested at the maximum payout level and thereafter a like number of shares of Newco common stock , less tax withholdingd, will be released to the grantee.
During the six months ended June 30, 2025 and 2024, respectively, the restrictions associated with 290,036 and 435,881 performance stock unit awards previously granted lapsed based on the terms of the underlying award agreements and approval by Pinnacle Financial's Human Resources and Compensation Committee, and were settled into shares of Pinnacle Financial common stock with 103,319 and 158,117 shares, respectively, being withheld to pay the taxes associated with the settlement of those shares.
Stock compensation expense related to restricted share awards, restricted stock unit awards and performance stock unit awards for the three and six months ended June 30, 2025 was $11.0 million and $21.6 million, respectively, compared to $10.6 million and $21.0 million, respectively, for the three and six months ended June 30, 2024. As of June 30, 2025, the total compensation cost related to unvested restricted share awards, restricted stock unit awards and performance stock unit awards estimated at maximum performance
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not yet recognized was $84.2 million. This expense, if the underlying units are earned, is expected to be recognized over a weighted-average period of 2.06 years.
At the Effective Time of the Merger, all then outstanding equity-based awards previously issued by Pinnacle Financial will become fully vested and the grantee will be entitled to receive a like number of shares of Newco Common Stock. In the case of the performance units, these award will vest at maximum payout levels.
Note 9. Derivative Instruments
Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship and classification as either a cash flow hedge or fair value hedge for those derivatives which are designated as part of a hedging relationship.
Pinnacle Financial's derivative instruments with certain counterparties contain legally enforceable netting that allow multiple transactions to be settled into a single amount. The fair value hedge and interest rate swaps (swaps) assets and liabilities are presented at gross fair value before the application of bilateral collateral and master netting agreements, but after the initial margin posting and daily variation margin payments made with central clearing house organizations. Total fair value hedge and swaps assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of June 30, 2025 and December 31, 2024. The resulting net fair value hedge and swaps asset and liability fair values are included in other assets and other liabilities, respectively, on the consolidated balance sheets. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.
Non-hedge derivatives
For derivatives not designated as hedges, the gain or loss is recognized in current period earnings. Pinnacle Financial enters into swaps to facilitate customer transactions and meet their financing needs. Upon entering into these instruments to meet customer needs, Pinnacle Financial enters into offsetting positions in order to minimize the risk to Pinnacle Financial. These swaps qualify as derivatives, but are not designated as hedging instruments. The income statement impact of the offsetting positions is limited to changes in the reserve for counterparty credit risk. A summary of Pinnacle Financial's interest rate swaps to facilitate customers' transactions as of June 30, 2025 and December 31, 2024 is included in the following table (in thousands):
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| Notional Amount | Estimated Fair Value (1) | Notional Amount | Estimated Fair Value (1) | |||||||||||||||||||||||
| Interest rate swap agreements: | ||||||||||||||||||||||||||
| Assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Liabilities | ( | ( | ||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At June 30, 2025 and December 31, 2024, there were no interest rate swap agreements designated as non-hedge derivatives cleared through clearing houses.
The effects of Pinnacle Financial's interest rate swaps to facilitate customers' transactions on the income statement during the three and six months ended June 30, 2025 and 2024 were as follows (in thousands):
| Amount of Gain (Loss) Recognized in Income | |||||||||||||||||||||||||||||
| Location of Gain (Loss) Recognized in Income | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| Interest rate swap agreements | Other noninterest income | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||
On June 28, 2024, Pinnacle Financial executed a credit default swap (CDS) with a counterparty with a notional amount of $86.5 million. At the execution date, the CDS notional amount was equal to 5% of a reference pool of $1.7 billion in first lien consumer real estate - mortgage loans whereby the counterparty assumed the first loss position for these loans up to approximately $86.5 million in aggregate losses. Pinnacle Financial pays to the counterparty an annual loss protection fee equal to 7.95 % of the corresponding notional amount of the CDS for as long as the loans in the reference pool remain outstanding. The notional amount of the CDS will decline over time as the loans in the reference portfolio are paid down, mature or the counterparty absorbs the first loss portion of losses on those loans. The CDS qualifies as a derivative, but is not designated as a hedging instrument. Changes in the fair value of the
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CDS are recognized as a gain or loss in current period earnings in other noninterest income. A summary of Pinnacle Financial's CDS as of June 30, 2025 and December 31, 2024 is included in the following table (in thousands):
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| Notional Amount | Estimated Fair Value | Notional Amount | Estimated Fair Value | |||||||||||||||||||||||
| Credit default swap | $ | $ | ( | $ | $ | |||||||||||||||||||||
The effects of Pinnacle Financial's CDS on the income statement during the three and six months ended June 30, 2025 and 2024 were as follows (in thousands):
| Amount of Gain (Loss) Recognized in Income | |||||||||||||||||||||||||||||
| Location of Gain (Loss) Recognized in Income | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||
| Credit default swap | Other noninterest income | $ | $ | $ | ( | $ | |||||||||||||||||||||||
Derivatives designated as cash flow hedges
For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income (loss), net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. Pinnacle Financial uses forward cash flow hedge relationships in an effort to manage future interest rate exposure. During the six months ended June 30, 2025, Pinnacle Financial paid $11.8 million to purchase an interest rate floor with a notional amount of $1.5 billion to mitigate the impact of changing interest rates on SOFR-based variable rate loans. The floor has an effective start date beginning in the third quarter of 2026. Pinnacle Financial also paid $22.9 million during the six months ended June 30, 2025 to purchase interest rate caps with notional amounts totaling $2.0 billion to mitigate the impact of changing deposits rates on federal funds-based deposit accounts. The caps have effective start dates ranging from the first quarter of 2026 to the third quarter of 2026. A summary of the cash flow hedge relationships as of June 30, 2025 and December 31, 2024 is as follows (in thousands):
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||
| Balance Sheet Location | Weighted Average Remaining Maturity (In Years) | Receive Rate | Pay Rate | Notional Amount | Estimated Fair Value | Notional Amount | Estimated Fair Value | ||||||||||||||||||||||
| Asset derivatives | |||||||||||||||||||||||||||||
| Interest rate floor - loans | $ | $ | $ | $ | |||||||||||||||||||||||||
| Interest rate collars - loans | |||||||||||||||||||||||||||||
| Interest rate cap - deposits | |||||||||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||||||||
The effects of Pinnacle Financial's cash flow hedge relationships on the statement of comprehensive income (loss) during the three and six months ended June 30, 2025 and 2024 were as follows, net of tax (in thousands):
| Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Asset derivatives | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||
| Interest rate floors, collars and caps | $ | $ | ( | $ | $ | ( | |||||||||||||||||
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The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. If a hedge was deemed to be ineffective, the amount included in accumulated other comprehensive income (loss) would be reclassified into a line item within the statement of income that impacts operating results. The hedge would no longer be considered effective if a portion of the hedge becomes ineffective, the item hedged is no longer in existence or Pinnacle Financial discontinues hedge accounting. No gains on cash flow hedges were reclassified from accumulated other comprehensive income (loss) into net income during the three and six months ended June 30, 2025 compared to $2.5 million and $4.9 million, respectively, net of tax during the three and six months ended June 30, 2024. There are no further amounts to be reclassified from accumulated other comprehensive income (loss) into net income related to previously terminated cash flow hedges.
Derivatives designated as fair value hedges
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. Pinnacle Financial utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate callable available-for-sale securities. The hedging strategy converts the fixed interest rates to variable interest rates based on federal funds rates or SOFR. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. Pinnacle Financial also utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on Federal Home Loan Bank of Cincinnati (FHLB) advances. During the third quarter of 2024, Pinnacle Financial entered into a portfolio layer method fair value hedge with a notional amount of $300 million. Under the portfolio layer method, the hedged item is designated as a hedged layer of a closed portfolio of available-for-sale securities that is anticipated to remain outstanding throughout the hedge period ending September 1, 2026.
A summary of Pinnacle Financial's fair value hedge relationships as of June 30, 2025 and December 31, 2024 is as follows (in thousands):
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance Sheet Location | Weighted Average Remaining Maturity (In Years) | Weighted Average Pay Rate | Receive Rate | Notional Amount | Estimated Fair Value (1) | Notional Amount | Estimated Fair Value (1) | |||||||||||||||||||||||||||||||||||||||||||
| Asset derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps - securities | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Liability derivatives | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps - borrowings | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
(1) The variation margin payments for derivatives cleared through central clearing houses are characterized as settlements. At June 30, 2025 and December 31, 2024, the notional amount of fair value derivatives cleared through central clearing houses was $3.2 billion and $3.0 billion, respectively, with a fair value that approximates zero due to $26.2 million and $72.7 million in variation margin payments.
Notional amounts of $244.4 million as of June 30, 2025 receive a variable rate of interest based on the daily compounded federal funds rate and notional amounts totaling $4.2 billion as of June 30, 2025 receive a variable rate of interest based on the daily compounded SOFR.
The effects of Pinnacle Financial's fair value hedge relationships on the income statement during the three and six months ended June 30, 2025 and 2024 were as follows (in thousands):
| Location of Gain (Loss) | Amount of Gain (Loss) Recognized in Income | ||||||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| Securities | 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||
| Interest rate swaps - securities | Interest income on securities | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
| Securities available-for-sale | Interest income on securities | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||
| FHLB advances | |||||||||||||||||||||||||||||
| Interest rate swaps - FHLB advances | Interest expense on FHLB advances and other borrowings | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||
| FHLB advances | Interest expense on FHLB advances and other borrowings | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||
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The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at June 30, 2025 and December 31, 2024 (in thousands):
| Carrying Amount of the Hedged Assets/Liabilities | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/Liabilities | ||||||||||||||||||||||
| June 30, 2025 | December 31, 2024 | June 30, 2025 | December 31, 2024 | ||||||||||||||||||||
| Line item on the balance sheet | |||||||||||||||||||||||
| Securities available-for-sale | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| Federal Home Loan Bank advances | $ | $ | $ | ( | $ | ( | |||||||||||||||||
During the three and six months ended June 30, 2025, amortization expense totaling $49,000 and $103,000 , respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans compared to $93,000 and $197,000 , respectively, for the three and six months ended June 30, 2024.
Note 10. Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.
Valuation Hierarchy
FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Assets
Securities available-for-sale – Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.
Other investments – Included in other investments are investments recorded at fair value primarily in certain nonpublic investments and funds. The valuation of these nonpublic investments requires management judgment due to the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based
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upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through financial reports provided by the portfolio managers of the investments. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of the particular investment, industry valuations of comparable public companies and changes in market outlook and the third-party financing environment over time. In determining valuation adjustments resulting from the investment review process, emphasis is placed on current company performance and market conditions. These investments are included in Level 3 of the valuation hierarchy if the entities and funds are not widely traded and the underlying investments are in privately-held and/or start-up companies for which market values are not readily available. Certain investments in funds for which the underlying assets of the fund represent publicly traded investments are included in Level 2 of the valuation hierarchy.
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 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. Fair value for MSRs is determined utilizing a discounted cash flow model which calculates the fair value of each servicing right based on the present value of the expected cash flows from servicing revenues less servicing costs of the portfolio. The valuation of MSRs uses assumptions market participants would use in determining fair value, including prepayment speeds, interest rates, discount rates and other economic factors, which are considered significant unobservable inputs. Due to the nature of the inputs used in the valuation, MSRs are classified within Level 3 of the valuation hierarchy.
Other assets – Included in other assets are certain assets carried at fair value, including interest rate swap agreements to facilitate customer transactions, interest rate swap agreements designated as fair value hedges, interest rate caps, collars and floors designated as cash flow hedges and interest rate locks associated with the mortgage loan pipeline. The fair value of interest rate swap agreements is based on Pinnacle Financial's pricing models that utilize observable market inputs. The fair value of the cash flow hedge agreements is determined by calculating the difference between the discounted fixed rate cash flows and the discounted variable rate cash flows. The fair value of the mortgage loan pipeline is based upon the projected sales price of the underlying loans, taking into account market interest rates and other market factors at the measurement date, net of the projected fallout rate. Pinnacle Financial reflects these assets within Level 2 of the valuation hierarchy as these assets are valued using similar transactions that occur in the market.
Collateral dependent loans – Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on various sources, including third party asset valuations and internally determined values based on cost adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's underlying financial condition.
Other real estate owned – Other real estate owned (OREO) represents real estate foreclosed upon by Pinnacle Bank through loan defaults by customers or acquired by deed in lieu of foreclosure. Upon Pinnacle Bank's acquisition of OREO, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for credit losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value as appraisal values are property-specific and sensitive to the changes in the overall economic environment.
Liabilities
Other liabilities – Pinnacle Financial has certain liabilities carried at fair value including certain interest rate swap agreements to facilitate customer transactions, interest rate swaps designated as fair value hedges, interest rate caps, collars and floors designated as cash flow hedges and interest rate locks associated with the funding for its mortgage loan originations. The fair value of these liabilities is based on Pinnacle Financial's pricing models that utilize observable market inputs and is reflected within Level 2 of the valuation hierarchy.
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The following tables present financial instruments measured at fair value on a recurring basis as of June 30, 2025 and December 31, 2024, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):
| Total carrying value in the consolidated balance sheet | Quoted market prices in an active market (Level 1) | Models with significant observable market parameters (Level 2) | Models with significant unobservable market parameters (Level 3) | ||||||||||||||||||||
| June 30, 2025 | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||
| Agency-backed securities | |||||||||||||||||||||||
| Corporate notes and other | |||||||||||||||||||||||
| Total investment securities available-for-sale | |||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Other liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Investment securities available-for-sale: | |||||||||||||||||||||||
| U.S. Treasury securities | $ | $ | $ | $ | |||||||||||||||||||
| U.S. Government agency securities | |||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||
| State and municipal securities | |||||||||||||||||||||||
| Agency-backed securities | |||||||||||||||||||||||
| Corporate notes and other | |||||||||||||||||||||||
| Total investment securities available-for-sale | |||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||
| Mortgage servicing rights | |||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||
| Total assets at fair value | $ | $ | $ | $ | |||||||||||||||||||
| Other liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total liabilities at fair value | $ | $ | $ | $ | |||||||||||||||||||
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The following table presents assets measured at fair value on a nonrecurring basis as of June 30, 2025 and December 31, 2024 (in thousands):
| June 30, 2025 | Total carrying value in the consolidated balance sheet | Quoted market prices in an active market (Level 1) | Models with significant observable market parameters (Level 2) | Models with significant unobservable market parameters (Level 3) | |||||||||||||||||||
| Other real estate owned | $ | $ | $ | $ | |||||||||||||||||||
Collateral dependent loans (1) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Other real estate owned | $ | $ | $ | $ | |||||||||||||||||||
Collateral dependent loans (1) | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1) The carrying values of collateral dependent loans at June 30, 2025 and December 31, 2024 are net of valuation allowances of $39.9 million and $54.7 million, respectively.
In the case of the available-for-sale (AFS) investment securities portfolio, Pinnacle Financial monitors the portfolio to ascertain when transfers between levels have been affected. For the six months ended June 30, 2025, there were no transfers between Levels 1, 2 or 3. During the six months ended June 30, 2024, one AFS security with a carrying value of $12.8 million previously classified as Level 2 was transferred to Level 3 due to unobservable inputs becoming significant. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare.
The table below includes a rollforward of the balance sheet amounts for the three and six months ended June 30, 2025 and 2024 (including the change in fair value) for financial instruments classified by Pinnacle Financial within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):
| For the Three months ended June 30, | For the Six months ended June 30, | ||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities | Other investments | Mortgage servicing rights | Available-for-sale securities | Other investments | Mortgage servicing rights | Available-for-sale securities | Other investments | Mortgage servicing rights | Available-for-sale securities | Other investments | Mortgage servicing rights | ||||||||||||||||||||||||||||||
| Fair value, beginning of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total realized gains (losses) included in income | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Changes in unrealized gains/losses included in other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||||||||
| Transfers into Level 3 | |||||||||||||||||||||||||||||||||||||||||
| Purchases | |||||||||||||||||||||||||||||||||||||||||
| Issuances | |||||||||||||||||||||||||||||||||||||||||
| Settlements | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Transfers out of Level 3 | |||||||||||||||||||||||||||||||||||||||||
| Fair value, end of period | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total net realized gains (losses) included in income | $ | $ | $ | ( | $ | $ | $ | ( | $ | $ | $( | $ | $( | $ | |||||||||||||||||||||||||||
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The following tables present the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at June 30, 2025 and December 31, 2024. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash, cash equivalents, and restricted cash, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity (in thousands):
| Carrying Amount | Estimated Fair Value (1) | Quoted market prices in an active market (Level 1) | Models with significant observable market parameters (Level 2) | Models with significant unobservable market parameters (Level 3) | |||||||||||||||||||||||||
| June 30, 2025 | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Securities purchased with agreement to resell | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Securities held-to-maturity | |||||||||||||||||||||||||||||
| Loans, net | |||||||||||||||||||||||||||||
| Consumer loans held-for-sale | |||||||||||||||||||||||||||||
| Commercial loans held-for-sale | |||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits and securities sold under | |||||||||||||||||||||||||||||
| agreements to repurchase | |||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | |||||||||||||||||||||||||||||
| Subordinated debt and other borrowings | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Securities purchased with agreement to resell | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Securities held-to-maturity | |||||||||||||||||||||||||||||
| Loans, net | |||||||||||||||||||||||||||||
| Consumer loans held-for-sale | |||||||||||||||||||||||||||||
| Commercial loans held-for-sale | |||||||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits and securities sold under | |||||||||||||||||||||||||||||
| agreements to repurchase | |||||||||||||||||||||||||||||
| Federal Home Loan Bank advances | |||||||||||||||||||||||||||||
| Subordinated debt and other borrowings | |||||||||||||||||||||||||||||
(1)Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction.
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Note 11. Regulatory Matters
Pursuant to Tennessee banking law, Pinnacle Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (TDFI), pay any dividends to Pinnacle Financial in a calendar year in excess of the total of Pinnacle Bank's retained net income for that year plus the retained net income for the preceding two years . Additionally, approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Pinnacle Bank to fall below specified minimum levels. Under Tennessee corporate law, Pinnacle Financial is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than the sum of its total liabilities plus any amounts needed to satisfy any preferential rights if it were dissolving. In deciding whether or not to declare a dividend of any particular size, Pinnacle Financial's board of directors must consider its and Pinnacle Bank's current and prospective capital, liquidity and other needs. In addition to state law limitations on Pinnacle Financial's ability to pay dividends, the Federal Reserve imposes limitations on Pinnacle Financial's ability to pay dividends. Federal Reserve regulations limit dividends, stock repurchases and discretionary bonuses to executive officers if Pinnacle Financial's regulatory capital is below the level of regulatory minimums plus the applicable 2.5% capital conservation buffer.
In addition, the Federal Reserve has issued supervisory guidance advising bank holding companies to eliminate, defer or reduce dividends paid on common stock and other forms of Tier 1 capital where the company’s net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, the company’s prospective rate of earnings retention is not consistent with the company’s capital needs and overall current and prospective financial condition or the company will not meet, or is in danger of not meeting, minimum regulatory capital adequacy ratios. Recent supplements to this guidance reiterate the need for bank holding companies to inform their applicable reserve bank sufficiently in advance of the proposed payment of a dividend in certain circumstances.
During the six months ended June 30, 2025, Pinnacle Bank paid $60.9 million of dividends to Pinnacle Financial. As of June 30, 2025, based on the criteria noted above Pinnacle Bank could pay approximately $1.2 billion of additional dividends to Pinnacle Financial without prior approval of the Commissioner of the TDFI. Since the fourth quarter of 2013, Pinnacle Financial has paid a quarterly common stock dividend. The board of directors of Pinnacle Financial has increased the dividend amount per share over time. The most recent increase occurred on January 21, 2025 when the board of directors increased the dividend to $0.24 per common share from $0.22 per common share. During the second quarter of 2020, Pinnacle Financial issued 9.0 million depositary shares, each representing a 1/40th fractional interest in a share of Series B noncumulative, perpetual preferred stock (the "Series B Preferred Stock") in a registered public offering to both retail and institutional investors. Beginning in the third quarter of 2020, Pinnacle Financial began paying a quarterly dividend of $16.88 per share (or $0.422 per depositary share), on the Series B Preferred Stock. The amount and timing of all future dividend payments by Pinnacle Financial, if any, including dividends on Pinnacle Financial's Series B Preferred Stock (and associated depositary shares), is subject to discretion of Pinnacle Financial's board of directors and will depend on Pinnacle Financial's receipt of dividends from Pinnacle Bank, earnings, capital position, financial condition, liquidity and other factors, including regulatory capital requirements, as they become known to Pinnacle Financial and receipt of any regulatory approvals that may become required as a result of each of Pinnacle Financial's or Pinnacle Bank's financial results.
Pinnacle Financial and Pinnacle Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Pinnacle Financial and Pinnacle Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Pinnacle Financial's and Pinnacle Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Pinnacle Financial and Pinnacle Bank periodically evaluate risk weightings and may enter into transactions or undertake procedures that may reduce risk weightings, such as during the second quarter of 2024 when Pinnacle Financial entered into a CDS on a pool of first lien consumer real estate-mortgage loans, as more fully described in Note 9. Derivative Instruments, and implemented enhanced control processes with respect to certain commercial loans which permitted recharacterization of the loans, each of which reduced risk weighted assets of both Pinnacle Financial and Pinnacle Bank.
Quantitative measures established by regulation to ensure capital adequacy require Pinnacle Financial and its banking subsidiary to maintain minimum amounts and ratios of common equity Tier 1 capital to risk-weighted assets, Tier 1 capital to risk-weighted assets, total risk-based capital to risk-weighted assets and Tier 1 capital to average assets.
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As permitted by the interim final rule issued on March 27, 2020 by the federal banking regulatory agencies, each of Pinnacle Bank and Pinnacle Financial elected to delay the estimated impact on regulatory capital of Pinnacle Financial's and Pinnacle Bank's adoption of ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which was effective January 1, 2020. The initial impact of adoption of ASU 2016-13, as well as 25% of the quarterly changes in the allowance for credit losses subsequent to adoption of ASU 2016-13 (collectively the “transition adjustments”), was delayed until December 31, 2021. As of January 1, 2022, the cumulative amount of the transition adjustments became fixed and were phased out of the regulatory capital calculations evenly over a three year period, with 75% recognized in 2022, 50% recognized in 2023 and 25% recognized in 2024. Beginning on January 1, 2025, the temporary regulatory capital benefits were fully reversed.
Management believes, as of June 30, 2025, that Pinnacle Financial and Pinnacle Bank met all capital adequacy requirements to which they are subject. To be categorized as well-capitalized under applicable banking regulations, Pinnacle Bank must maintain certain total risk-based, Tier 1 risk-based, common equity Tier 1 and Tier 1 leverage ratios as set forth in the following table and not be subject to a written agreement, order or directive to maintain a higher capital level. The capital conservation buffer is not included in the required ratios of the table presented below. Pinnacle Financial's and Pinnacle Bank's actual capital amounts and resulting ratios, not including the applicable 2.5% capital conservation buffer, are presented in the following table (in thousands):
| Actual | Minimum Capital Requirement | Minimum To Be Well-Capitalized (1) | ||||||||||||||||||||||||
| Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||
| At June 30, 2025 | ||||||||||||||||||||||||||
| Total capital to risk weighted assets: | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Common equity Tier 1 capital to risk weighted assets | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | N/A | N/A | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Tier 1 capital to average assets (*): | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | N/A | N/A | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| At December 31, 2024 | ||||||||||||||||||||||||||
| Total capital to risk weighted assets: | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Common equity Tier 1 capital to risk weighted assets | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | N/A | N/A | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Tier 1 capital to average assets (*): | ||||||||||||||||||||||||||
| Pinnacle Financial | $ | % | $ | % | N/A | N/A | ||||||||||||||||||||
| Pinnacle Bank | $ | % | $ | % | $ | % | ||||||||||||||||||||
(1) Well-capitalized minimum Common equity Tier 1 capital to risk weighted assets and Tier 1 capital to average assets are not formally defined under applicable banking regulations for bank holding companies.
(*) Average assets for the above calculations were based on the most recent quarter.
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Note 12. Other Borrowings
Pinnacle Financial has twelve wholly-owned subsidiaries that are statutory business trusts created for the exclusive purpose of issuing 30 -year capital trust preferred securities and from time to time Pinnacle Financial has entered into certain other subordinated debt agreements. These instruments are outlined below as of June 30, 2025 (in thousands):
| Name | Date Established | Maturity | Total Debt Outstanding | Interest Rate at June 30, 2025 | Coupon Structure at June 30, 2025 | ||||||||||||
| Trust preferred securities | |||||||||||||||||
| PNFP Statutory Trust I | $ | % | |||||||||||||||
| PNFP Statutory Trust II | % | ||||||||||||||||
| PNFP Statutory Trust III | % | ||||||||||||||||
| PNFP Statutory Trust IV | % | ||||||||||||||||
| BNC Capital Trust I | % | ||||||||||||||||
| BNC Capital Trust II | % | ||||||||||||||||
| BNC Capital Trust III | % | ||||||||||||||||
| BNC Capital Trust IV | % | ||||||||||||||||
| Valley Financial Trust I | % | ||||||||||||||||
| Valley Financial Trust II | % | ||||||||||||||||
| Valley Financial Trust III | % | ||||||||||||||||
| Southcoast Capital Trust III | % | ||||||||||||||||
| Subordinated Debt | |||||||||||||||||
| Pinnacle Financial Subordinated Notes | % | ||||||||||||||||
| Debt issuance costs and fair value adjustments | ( | ||||||||||||||||
| Total subordinated debt and other borrowings | $ | ||||||||||||||||
(1) Rate transitioned to three month SOFR plus a comparable tenor spread adjustment beginning after July 1, 2023 as three month LIBOR ceased to be published effective July 1, 2023.
Note 13. Segment Reporting
Pinnacle Financial operates through a single operating and reporting segment primarily as a bank, although Pinnacle Financial does provide additional non-banking services customary for a financial services institution including investment, insurance, trust and mortgage lending services. The chief operating decision maker (CODM) is comprised of Pinnacle Financial’s senior leadership team which during the six months ended and at June 30, 2025 consisted of thirteen individuals including the Chief Executive Officer and Chief Financial Officer. The CODM assesses the performance, allocates resources and makes operating decisions for Pinnacle Financial on a consolidated basis primarily based on Pinnacle Financial’s combined net interest income and noninterest income as well as net income as presented on the same basis as in the accompanying consolidated statement of operations. As Pinnacle Financial’s operations comprise of a single reporting segment, the segment assets are reflected on the accompanying consolidated balance sheet as “total assets” and the significant segment expenses are listed on the accompanying consolidated statement of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of our financial condition at June 30, 2025 and December 31, 2024 and our results of operations for the three and six months ended June 30, 2025 and 2024. The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from our consolidated financial statements. The following discussion and analysis should be read along with our consolidated financial statements and the related notes included elsewhere herein and the risk factors discussed elsewhere in this report including without limitation, Part II, Item 1A "Risk Factors" below and in our Annual Report on Form 10-K for the year ended December 31, 2024 (Form 10-K) and the other reports we have filed with the Securities and Exchange Commission since we filed the Form 10-K. Unless the context otherwise requires, the terms "Pinnacle Financial," "we," the "company," "our," or similar terms refer to Pinnacle Financial Partners, Inc. and, where appropriate, its subsidiaries.
Overview
General. Our diluted net income per common share for the three and six months ended June 30, 2025 was $2.00 and $3.77, respectively, compared to $0.64 and $2.21, respectively, for the same periods in 2024. At June 30, 2025, loans increased to $37.1 billion as compared to $35.5 billion at December 31, 2024, and total deposits increased to $45.0 billion at June 30, 2025 from $42.8 billion at December 31, 2024.
Results of Operations. Our net interest income increased to $379.5 million and $744.0 million, respectively, for the three and six months ended June 30, 2025 compared to $332.3 million and $650.3 million, respectively, for the same periods in the prior year, representing an increase of $47.3 million, or 14.2%, and $93.7 million, or 14.4%, respectively. For the three and six months ended June 30, 2025 when compared to the comparable periods in 2024, this increase was largely the result of organic loan growth and a declining cost of funds in the three and six months ended June 30, 2025 when compared to the three and six months ended June 30, 2024. The net interest margin (the ratio of net interest income to average earning assets) for the three and six months ended June 30, 2025 was 3.23% and 3.22%, respectively, compared to 3.14% and 3.09%, respectively, for the same periods in 2024 and reflects increased average earning asset balances as well as a meaningful reduction in our cost of funds despite increased average interest-bearing balances. Additionally, our noninterest bearing deposit balances increased during the three and six months ended June 30, 2025 when compared to the same periods in 2024.
Our provision for credit losses was $24.2 million and $41.2 million, respectively, for the three and six months ended June 30, 2025 compared to $30.2 million and $64.7 million, respectively, for the same periods in 2024. The change in provision expense for the three and six months ended June 30, 2025 as compared to the same periods in 2024 is in part the result of a reduction in specific reserves associated with certain loans due to charge-offs, improved financial conditions of the borrowers or payoff of a portion of or, in certain cases, the full, outstanding balances. Also impacting provision expense for the three and six months ended June 30, 2025 were net charge-offs totaling $18.7 million and $32.7 million, respectively, compared to $22.9 million and $39.1 million, respectively, for the same periods in 2024.
Noninterest income increased by $91.2 million, or 265.9%, and $79.5 million, or 55.1%, respectively, during the three and six months ended June 30, 2025 compared to the same periods in 2024 due in large part to our intentional repositioning of our securities portfolio with the goal of meaningfully enhancing its future performance with the sale of approximately $822.7 million of available-for-sale securities at a net loss of $72.1 million during the three and six months ended June 30, 2024. Also, positively impacting the change in noninterest income for the three and six months ended June 30, 2025 when compared to the same periods in 2024 was income from our equity method investment in BHG which increased $7.3 million, or 39.3%, and $11.7 million, or 33.7%, respectively, during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024. Income from our wealth management groups (investments, insurance and trust) also contributed to the increase in noninterest income and continued to reflect strong revenue growth increasing $4.5 million and $11.4 million, respectively, during the three and six months ended June 30, 2025 compared to the same periods in 2024. Service charges on deposit accounts increased $2.5 million, or 17.4%, and $6.1 million, or 21.8%, respectively, during the three and six months ended June 30, 2025 compared to the same periods in 2024. Additionally, during the three and six months ended June 30, 2025, income from bank-owned life insurance increased $2.9 million and $1.6 million, respectively, due to the purchase of an additional $150.0 million in policies during the first six months of 2025. The increases in noninterest income were offset in part by a decrease in income from our other equity investments of $275,000 and $3.3 million, respectively, for the three and six months ended June 30, 2025 when compared to the same periods in 2024.
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Noninterest expense increased by $15.1 million, or 5.5%, and $48.2 million, or 9.4%, respectively, during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024. Impacting noninterest expense for the three and six months ended June 30, 2025 as compared to the same prior year periods was an increase of $31.1 million and $57.2 million, respectively, in salaries and employee benefits. The increase in salaries and employee benefits was primarily the result of an increase in our associate base to 3,627.0 full-time equivalent associates at June 30, 2025 compared to 3,469.0 at June 30, 2024, as well as annual merit increases effective in January 2025 and increases in cash and equity incentive accruals due to our belief at June 30, 2025 that we were likely to achieve a payout percentage under our annual cash incentive plan in 2025 that would be higher than what we believed we would pay out at June 30, 2024 under our 2024 annual cash incentive plan and increased vesting under our performance-based vesting restricted stock unit awards based on estimated full-year performance through June 30, 2025. Noninterest expense categories, other than salaries and employee benefits, were $105.2 million and $208.6 million, respectively, during the three and six months ended June 30, 2025 compared to $121.3 million and $217.6 million, respectively, during three and six months ended June 30, 2024, a decrease of 13.3% and 4.1%, respectively. Noninterest expense for the three and six months ended June 30, 2024 included approximately $27.6 million in fees paid during the second quarter of 2024 to terminate an agreement to resell $500.0 million of securities we had previously purchased. Additionally impacting the change in noninterest expense during the three and six months ended June 30, 2025 when compared to the same periods in 2024 are changes in equipment and occupancy costs, marketing and other business development costs, lending and deposit-related expenses. Equipment and occupancy costs increased $7.0 million and $13.5 million, respectively, for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 and were negatively impacted by the overall growth in our infrastructure, construction and operation of additional locations, including our new Nashville headquarters and the implementation of new technology. Marketing and business development expense for the three and six months ended June 30, 2025 increased $2.0 million and $4.5 million, respectively, compared to the three and six months ended June 30, 2024 primarily as a result of our partnership with The Pinnacle, Nashville's newest live music venue, which opened in March 2025, and other factors including increases in both client and associate engagement expenses due to our increased headcount and recent market extensions. Other noninterest expense includes lending-related expenses, deposit-related expenses, wealth-management expenses and other items. Lending-related expenses increased $2.9 million and $6.3 million, respectively, during the the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 and were impacted by the loss protection fees of $1.7 million and $3.3 million, respectively, during the three and six months ended June 30, 2025 associated with a credit default swap which we entered into in the second quarter of 2024. Deposit-related expenses decreased $761,000 and $4.3 million, respectively, during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024. Contributing to the decline in deposit-related expenses during the first six months of 2025 was the lack of an FDIC special assessment in 2025 compared to a $7.3 million special assessment in the first six months of 2024. Offsetting the decreased FDIC assessment costs in the first six months of 2025 were increases in costs associated with our specialty deposit programs.
Our efficiency ratio (the ratio of noninterest expense to the sum of net interest income and noninterest income) was 56.7% and 58.1%, respectively, for the three and six months ended June 30, 2025 compared to 74.0% and 64.6%, respectively, for the three and six months ended June 30, 2024. The efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue. Our efficiency ratio during the three and six months ended June 30, 2025 compared to the same periods in 2024 was both positively and negatively impacted by the changes to net interest income, noninterest income and noninterest expense discussed above.
During the three and six months ended June 30, 2025, we recorded income tax expense of $35.8 million and $65.8 million, respectively, compared to $11.8 million and $39.2 million, respectively, for the three and six months ended June 30, 2024. Our effective tax rate for the three and six months ended June 30, 2025 was 18.4% and 18.0%, respectively, compared to 18.2% and 18.1%, respectively, for the three and six months ended June 30, 2024. Our tax rate in each period was impacted by, among other things, the vesting of equity-based awards previously granted under our equity-based compensation program. For the three and six months ended June 30, 2025, we recognized excess tax benefits of $128,000 and $3.7 million, respectively, in connection with the vesting of these equity-based awards compared to excess tax benefits of $100,000 and $2.5 million, respectively, for the three and six months ended June 30, 2024.
Financial Condition. Loans increased $1.6 billion, or 4.6%, during the six months ended June 30, 2025 when compared to December 31, 2024. The increase is primarily the result of loans made to borrowers that principally operate or are located in the markets in which we have recently entered or expanded our presence, increases in the number of relationship advisors we employ and continued focus on attracting new customers to our company, including those targeted by our franchise and leasing segments. Loan growth was also positively impacted during the six months ended June 30, 2025 by the continued growth of certain specialty lending groups, including franchise lending and equipment lease financing. Total deposits were $45.0 billion at June 30, 2025 compared to $42.8 billion at December 31, 2024, an increase of $2.2 billion, or 5.0%. Interest-bearing deposits grew during the six months ended June 30, 2025 by approximately $176.0 million, or 1.2%, from December 31, 2024, as a result of our intentional focus on gathering and retaining these deposits and increases in the number of relationship advisors we employ.
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At June 30, 2025, our allowance for credit losses was $422.1 million compared to $414.5 million at December 31, 2024. The dollar increase in the allowance for credit losses during the six months ended June 30, 2025 was primarily the result of overall growth in the portfolio year-over-year. The ratio of our allowance for credit losses to total loans was 1.14% at June 30, 2025, down from 1.17% at December 31, 2024. The decline in the ratio of our allowance for credit losses to total loans was largely the result of a reduction in specific reserves associated with certain loans due to charge-offs, improvement in the financial condition of the borrowers or payoff of a portion of or, in certain cases, the full, outstanding balances of the related loans. Additionally, during the three and six months ended June 30, 2025 net charge-offs were $18.7 million and $32.7 million, respectively, compared to $22.9 million and $39.1 million, respectively, for the same periods in 2024.
Capital and Liquidity. At June 30, 2025 and December 31, 2024, our capital ratios, including the capital ratios of our bank subsidiary, Pinnacle Bank ("Pinnacle Bank"), exceeded regulatory minimum capital requirements and those necessary to be considered well-capitalized under applicable federal regulations. See Note 11. Regulatory Matters in the Notes to our Consolidated Financial Statements elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q) for additional information regarding our capital ratios. From time to time we may be required to support the capital needs of our bank (Pinnacle Bank). At June 30, 2025, Pinnacle Financial had approximately $222.0 million of cash that could be used to support our bank. We believe we have various capital raising techniques available to us to provide for the capital needs of our company and bank, such as issuing subordinated debt or entering into a revolving credit facility with a financial institution. We also periodically evaluate capital markets conditions to identify opportunities to access those markets if necessary or prudent to support our capital levels.
On January 21, 2025, our board of directors authorized a share repurchase program for up to $125.0 million of our common stock which commenced upon the expiration of the previously authorized share repurchase program that expired on March 31, 2025. The new authorization is set to remain in effect through March 31, 2026. We did not repurchase any shares under the prior or current share repurchase programs during 2024 or the first six months of 2025.
On July 24, 2025, we entered into the Merger Agreement with Synovus and Newco, pursuant to which we and Synovus will merge with and into Newco, with Newco surviving the merger.
Subject to the terms and conditions of the Merger Agreement, at the Effective Time, each share of Pinnacle Financial Common Stock outstanding immediately prior to the Effective Time, other than certain shares held by Pinnacle Financial or Synovus, will be converted into the right to receive one share of Newco Common Stock, and each share of Synovus Common Stock outstanding immediately prior to the Effective Time, other than certain shares held by Pinnacle Financial or Synovus, will be converted into the right to receive 0.5237 shares of Newco Common Stock. Holders of Synovus Common Stock will receive cash in lieu of fractional shares.
Subject to the terms and conditions of the Merger Agreement, at the Effective Time, (i) each share of Synovus Series D Preferred Stock, (ii) each share of Synovus Series E Preferred Stock, and (iii) each share of Pinnacle Financial Preferred Stock, in each case outstanding immediately prior to the Effective Time, will be converted into the right to receive one share of an applicable newly created series of preferred stock of Newco having terms that are not materially less favorable than the Synovus Series D Preferred Stock, Synovus Series E Preferred Stock or Pinnacle Financial Preferred Stock, respectively. For more information regarding the proposed merger of Pinnacle Financial and Synovus with and into Newco, see Note 1. Summary of Significant Accounting Policies – Subsequent Events in the Notes to the Consolidated Financial Statements elsewhere in this Form 10-Q.
Critical Accounting Estimates
The accounting principles we follow and our methods of applying these principles conform with U.S. GAAP and with general practices within the banking industry. There have been no significant changes to our Critical Accounting Estimates as described in our Form 10-K.
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Selected Financial Information
The following is a summary of certain financial information for the three and six month periods ended June 30, 2025 and 2024 and as of June 30, 2025 and December 31, 2024 (dollars in thousands, except per share data):
| Three Months Ended June 30, | 2025 - 2024 Percent | Six Months Ended June 30, | 2025 - 2024 Percent | |||||||||||||||||
| 2025 | 2024 | Increase (Decrease) | 2025 | 2024 | Increase (Decrease) | |||||||||||||||
| Income Statement: | ||||||||||||||||||||
| Interest income | $ | 694,770 | $ | 668,390 | 3.9 | % | $ | 1,362,930 | $ | 1,318,873 | 3.3 | % | ||||||||
| Interest expense | 315,237 | 336,128 | (6.2) | % | 618,969 | 668,577 | (7.4) | % | ||||||||||||
| Net interest income | 379,533 | 332,262 | 14.2 | % | 743,961 | 650,296 | 14.4 | % | ||||||||||||
| Provision for credit losses | 24,245 | 30,159 | (19.6) | % | 41,205 | 64,656 | (36.3) | % | ||||||||||||
| Net interest income after provision for credit losses | 355,288 | 302,103 | 17.6 | % | 702,756 | 585,640 | 20.0 | % | ||||||||||||
| Noninterest income | 125,457 | 34,288 | >100.0% | 223,883 | 144,391 | 55.1 | % | |||||||||||||
| Noninterest expense | 286,446 | 271,389 | 5.5 | % | 561,933 | 513,754 | 9.4 | % | ||||||||||||
| Income before income taxes | 194,299 | 65,002 | >100.0% | 364,706 | 216,277 | 68.6 | % | |||||||||||||
| Income tax expense | 35,759 | 11,840 | >100.0% | 65,758 | 39,171 | 67.9 | % | |||||||||||||
| Net income | 158,540 | 53,162 | >100.0% | 298,948 | 177,106 | 68.8 | % | |||||||||||||
| Preferred stock dividends | (3,798) | (3,798) | — | % | (7,596) | (7,596) | — | % | ||||||||||||
| Net income available to common shareholders | $ | 154,742 | $ | 49,364 | >100.0% | $ | 291,352 | $ | 169,510 | 71.9 | % | |||||||||
| Per Share Data: | ||||||||||||||||||||
| Basic net income per common share | $ | 2.01 | $ | 0.65 | >100.0% | $ | 3.79 | $ | 2.22 | 70.7 | % | |||||||||
| Diluted net income per common share | $ | 2.00 | $ | 0.64 | >100.0% | $ | 3.77 | $ | 2.21 | 70.6 | % | |||||||||
| Performance Ratios: | ||||||||||||||||||||
Return on average assets (1) | 1.15 | % | 0.41 | % | >100.0% | 1.10 | % | 0.70 | % | 57.1 | % | |||||||||
Return on average shareholders' equity (2) | 9.40 | % | 3.23 | % | >100.0% | 8.96 | % | 5.58 | % | 60.6 | % | |||||||||
Return on average common shareholders' equity (3) | 9.72 | % | 3.35 | % | >100.0% | 9.26 | % | 5.78 | % | 60.2 | % | |||||||||
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||
| Balance Sheet: | ||||||||||||||||||||
| Loans, net of allowance for credit losses | $ | 36,683,039 | $ | 35,071,282 | 4.6% | |||||||||||||||
| Deposits | $ | 44,999,244 | $ | 42,842,992 | 5.0% | |||||||||||||||
(1) Return on average assets is the result of net income available to common shareholders for the reported period on an annualized basis, divided by average assets for the period.
(2) Return on average shareholders' equity is the result of net income available to common shareholders for the reported period on an annualized basis, divided by average shareholders' equity for the period.
(3) Return on average common shareholders' equity is the result of net income available to common shareholders for the reported period on an annualized basis, divided by average common shareholders' equity for the period.
Results of Operations
Net Interest Income. Net interest income represents the amount by which interest earned on various interest-earning assets exceeds interest paid on deposits and other interest-bearing liabilities and is the most significant component of our revenues. Net interest income totaled $379.5 million and $744.0 million, respectively, for the three and six months ended June 30, 2025 compared to $332.3 million and $650.3 million, respectively, for the same periods in the prior year, representing an increase of $47.3 million, or 14.2%, and $93.7 million, or 14.4%, respectively. For the three and six months ended June 30, 2025 when compared to the comparable periods in 2024, the increase was largely the result of organic loan growth and a declining cost of funds during the three and six months ended June 30, 2025 when compared to the three and six months ended June 30, 2024.
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The following tables set forth the amount of our average balances, interest income or interest expense for each category of interest-earning assets and interest-bearing liabilities and the average interest rate for interest-earning assets and interest-bearing liabilities, net interest spread and net interest margin for the three and six months ended June 30, 2025 and 2024 (dollars in thousands):
| Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | |||||||||||||||||||
| Average Balances | Interest | Rates/ Yields | Average Balances | Interest | Rates/ Yields | |||||||||||||||
| Interest-earning assets | ||||||||||||||||||||
Loans (1) (2) | $ | 36,967,754 | $ | 568,857 | 6.26 | % | $ | 33,516,804 | $ | 551,659 | 6.71 | % | ||||||||
| Securities | ||||||||||||||||||||
| Taxable | 5,625,309 | 66,989 | 4.78 | % | 4,085,859 | 51,578 | 5.08 | % | ||||||||||||
Tax-exempt (2) | 3,361,233 | 27,104 | 3.87 | % | 3,236,729 | 24,372 | 3.61 | % | ||||||||||||
| Interest-bearing due from banks | 2,523,742 | 26,449 | 4.20 | % | 2,541,394 | 33,607 | 5.32 | % | ||||||||||||
| Securities purchased under agreements to resell | 77,378 | 2,116 | 10.97 | % | 476,435 | 3,641 | 3.07 | % | ||||||||||||
| Federal funds sold | — | — | — | % | — | — | — | % | ||||||||||||
| Other | 252,993 | 3,255 | 5.16 | % | 250,478 | 3,533 | 5.67 | % | ||||||||||||
| Total interest-earning assets | 48,808,409 | $ | 694,770 | 5.82 | % | 44,107,699 | $ | 668,390 | 6.20 | % | ||||||||||
| Nonearning assets | ||||||||||||||||||||
| Intangible assets | 1,869,405 | 1,872,282 | ||||||||||||||||||
| Other nonearning assets | 3,146,686 | 2,774,110 | ||||||||||||||||||
| Total assets | $ | 53,824,500 | $ | 48,754,091 | ||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||
| Interest-bearing deposits: | ||||||||||||||||||||
| Interest checking | $ | 14,220,572 | 114,693 | 3.23 | % | $ | 12,118,160 | 118,785 | 3.94 | % | ||||||||||
| Savings and money market | 16,816,295 | 124,409 | 2.97 | % | 14,659,713 | 134,399 | 3.69 | % | ||||||||||||
| Time | 4,710,080 | 45,512 | 3.88 | % | 4,675,796 | 51,265 | 4.41 | % | ||||||||||||
| Total interest-bearing deposits | 35,746,947 | 284,614 | 3.19 | % | 31,453,669 | 304,449 | 3.89 | % | ||||||||||||
| Securities sold under agreements to repurchase | 255,662 | 1,222 | 1.92 | % | 213,252 | 1,316 | 2.48 | % | ||||||||||||
| Federal Home Loan Bank advances | 1,838,449 | 21,325 | 4.65 | % | 2,106,786 | 24,395 | 4.66 | % | ||||||||||||
| Subordinated debt and other borrowings | 427,805 | 8,076 | 7.57 | % | 427,256 | 5,968 | 5.62 | % | ||||||||||||
| Total interest-bearing liabilities | 38,268,863 | 315,237 | 3.30 | % | 34,200,963 | 336,128 | 3.95 | % | ||||||||||||
| Noninterest-bearing deposits | 8,486,681 | — | — | % | 8,000,159 | — | — | % | ||||||||||||
| Total deposits and interest-bearing liabilities | 46,755,544 | $ | 315,237 | 2.70 | % | 42,201,122 | $ | 336,128 | 3.20 | % | ||||||||||
| Other liabilities | 467,294 | 414,247 | ||||||||||||||||||
| Total liabilities | 47,222,838 | 42,615,369 | ||||||||||||||||||
| Shareholders' equity | 6,601,662 | 6,138,722 | ||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 53,824,500 | $ | 48,754,091 | ||||||||||||||||
Net interest income | $ | 379,533 | $ | 332,262 | ||||||||||||||||
Net interest spread (3) | 2.52 | % | 2.25 | % | ||||||||||||||||
Net interest margin (4) | 3.23 | % | 3.14 | % | ||||||||||||||||
(1) Average balances of nonperforming loans, consumer loans held-for-sale and commercial loans held-for-sale are included in the above amounts.
(2) Yields computed on tax-exempt instruments on a tax equivalent basis and include $13.8 million of taxable equivalent income for the three months ended June 30, 2025 compared to $11.9 million for the three months ended June 30, 2024. The tax-exempt benefit has been reduced by the projected impact of tax-exempt income that will be disallowed pursuant to IRS Regulations as of and for the then current period presented.
(3) Yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. The net interest spread calculation excludes the impact of demand deposits. Had the impact of demand deposits been included, the net interest spread for the three months ended June 30, 2025 would have been 3.12% compared to a net interest spread of 3.00% for the three months ended June 30, 2024.
(4) Net interest margin is the result of annualized net interest income calculated on a tax-equivalent basis divided by average interest-earning assets for the period.
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| Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |||||||||||||||||||
| Average Balances | Interest | Rates/ Yields | Average Balances | Interest | Rates/ Yields | |||||||||||||||
| Interest-earning assets | ||||||||||||||||||||
Loans (1) (2) | $ | 36,507,201 | $ | 1,116,225 | 6.25 | % | $ | 33,279,379 | $ | 1,092,858 | 6.69 | % | ||||||||
| Securities | ||||||||||||||||||||
| Taxable | 5,529,552 | 128,842 | 4.70 | % | 4,002,696 | 96,048 | 4.83 | % | ||||||||||||
Tax-exempt (2) | 3,304,533 | 52,334 | 3.82 | % | 3,312,198 | 48,972 | 3.54 | % | ||||||||||||
| Interest-bearing due from banks | 2,584,209 | 55,342 | 4.32 | % | 2,509,097 | 66,359 | 5.32 | % | ||||||||||||
| Securities purchased under agreements to resell | 67,945 | 3,751 | 11.13 | % | 510,111 | 7,499 | 2.96 | % | ||||||||||||
| Federal funds sold | — | — | — | % | — | — | — | % | ||||||||||||
| Other | 253,890 | 6,436 | 5.11 | % | 251,976 | 7,137 | 5.70 | % | ||||||||||||
| Total interest-earning assets | 48,247,330 | $ | 1,362,930 | 5.81 | % | 43,865,457 | $ | 1,318,873 | 6.15 | % | ||||||||||
| Nonearning assets | ||||||||||||||||||||
| Intangible assets | 1,869,783 | 1,873,076 | ||||||||||||||||||
| Other nonearning assets | 3,061,641 | 2,794,141 | ||||||||||||||||||
| Total assets | $ | 53,178,754 | $ | 48,532,674 | ||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||
| Interest-bearing deposits: | ||||||||||||||||||||
| Interest checking | $ | 14,178,740 | 226,444 | 3.22 | % | $ | 11,842,966 | 231,513 | 3.93 | % | ||||||||||
| Savings and money market | 16,581,963 | 243,251 | 2.96 | % | 14,634,200 | 269,151 | 3.70 | % | ||||||||||||
| Time | 4,521,453 | 88,312 | 3.94 | % | 4,766,414 | 104,753 | 4.42 | % | ||||||||||||
| Total interest-bearing deposits | 35,282,156 | 558,007 | 3.19 | % | 31,243,580 | 605,417 | 3.90 | % | ||||||||||||
| Securities sold under agreements to repurchase | 243,273 | 2,248 | 1.86 | % | 212,070 | 2,715 | 2.57 | % | ||||||||||||
| Federal Home Loan Bank advances | 1,857,914 | 42,596 | 4.62 | % | 2,160,637 | 48,515 | 4.52 | % | ||||||||||||
| Subordinated debt and other borrowings | 427,715 | 16,118 | 7.60 | % | 427,768 | 11,930 | 5.61 | % | ||||||||||||
| Total interest-bearing liabilities | 37,811,058 | 618,969 | 3.30 | % | 34,044,055 | 668,577 | 3.95 | % | ||||||||||||
| Noninterest-bearing deposits | 8,347,489 | — | — | % | 7,981,188 | — | — | % | ||||||||||||
| Total deposits and interest-bearing liabilities | 46,158,547 | $ | 618,969 | 2.70 | % | 42,025,243 | $ | 668,577 | 3.20 | % | ||||||||||
| Other liabilities | 461,187 | 396,762 | ||||||||||||||||||
| Total liabilities | 46,619,734 | 42,422,005 | ||||||||||||||||||
| Shareholders' equity | 6,559,020 | 6,110,669 | ||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 53,178,754 | $ | 48,532,674 | ||||||||||||||||
Net interest income | $ | 743,961 | $ | 650,296 | ||||||||||||||||
Net interest spread (3) | 2.51 | % | 2.21 | % | ||||||||||||||||
Net interest margin (4) | 3.22 | % | 3.09 | % | ||||||||||||||||
(1) Average balances of nonperforming loans, consumer loans held-for-sale and commercial loans held-for-sale are included in the above amounts.
(2) Yields computed on tax-exempt instruments on a tax equivalent basis and include $26.3 million of taxable equivalent income for the six months ended June 30, 2025 compared to $23.7 million for the six months ended June 30, 2024. The tax-exempt benefit has been reduced by the projected impact of tax-exempt income that will be disallowed pursuant to IRS Regulations as of and for the then current period presented.
(3) Yields realized on interest-bearing assets less the rates paid on interest-bearing liabilities. The net interest spread calculation excludes the impact of demand deposits. Had the impact of demand deposits been included, the net interest spread for the six months ended June 30, 2025 would have been 3.10% compared to a net interest spread of 2.96% for the six months ended June 30, 2024.
(4) Net interest margin is the result of annualized net interest income calculated on a tax-equivalent basis divided by average interest-earning assets for the period.
For the three and six months ended June 30, 2025, our net interest margin was 3.23% and 3.22%, respectively, compared to 3.14% and 3.09%, respectively, for the same periods in 2024. The expansion in our net interest margin between the comparable three and six month periods ended June 30, 2025 and 2024, respectively, reflects increased average earning asset balances as well as a meaningful reduction in our cost of funds despite increased average interest-bearing deposit and interest-bearing liability balances. Additionally, our noninterest-bearing average deposit balances increased during the three and six months ended June 30, 2025 when compared to the comparable periods in 2024. During the three and six months ended June 30, 2025, our earning asset yield decreased by 38 basis points and 34 basis points, respectively, from the same periods in the prior year reflecting the impact of the 100 basis point decrease in short-term interest rates since September 2024. Our total funding rates, led by decreases in interest-bearing deposits rates, decreased by 50 basis points during both the three and six months ended June 30, 2025 compared to the same periods in the prior year.
We seek to fund increased loan volumes by growing our core deposits, but, subject to internal policy limits on the amount of wholesale funding we may maintain, will utilize wholesale funding to fund shortfalls, if any, or provide additional liquidity. To the extent that our dependence on wholesale funding sources increases, our net interest margin would likely be negatively impacted as we
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may not be able to reduce the rates we pay on these deposits as quickly as we can on core deposits as rates have and may continue to decline. We continue to deploy various asset liability management strategies to manage our risk to interest rate fluctuations.
Provision for Credit Losses. The provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management's evaluation, is adequate to provide coverage for all expected credit losses. Our provision for credit losses was $24.2 million and $41.2 million, respectively, for the three and six months ended June 30, 2025 compared to $30.2 million and $64.7 million, respectively, for the same periods in 2024. The provision for credit losses is impacted by growth in our loan portfolio, recent historical and projected future economic conditions, our internal assessment of the credit quality of the loan portfolio and net charge-offs. The change in provision expense for the three and six month periods ended June 30, 2025 as compared to the same periods in 2024 is in part the result of a reduction in specific reserves associated with certain loans due to charge-offs, improvement in the financial condition of the borrowers or payoff of a portion of or, in certain cases, the full, outstanding balances of the related loans. Also impacting provision expense for the three and six months ended June 30, 2025 were net charge-offs totaling $18.7 million and $32.7 million, respectively, compared to $22.9 million and $39.1 million, respectively, for the same periods in 2024.
Noninterest Income. Our noninterest income is composed of several components, some of which vary significantly between quarterly and annual periods. Service charges on deposit accounts and other noninterest income generally reflect our growth, while investment services, fees from the origination of mortgage loans, swap fees and gains or losses on the sale of securities will often reflect financial market conditions or our asset/liability management efforts and fluctuate from period to period.
The following is a summary of our noninterest income for the three and six months ended June 30, 2025 and 2024 (in thousands):
| Three Months Ended June 30, | 2025 - 2024 | Six Months Ended June 30, | 2025 - 2024 | ||||||||||||||||||||
| 2025 | 2024 | Increase (Decrease) | 2025 | 2024 | Increase (Decrease) | ||||||||||||||||||
| Noninterest income: | |||||||||||||||||||||||
| Service charges on deposit accounts | $ | 17,092 | $ | 14,563 | 17.4% | $ | 34,120 | $ | 28,002 | 21.8% | |||||||||||||
| Investment services | 19,324 | 15,720 | 22.9% | 38,141 | 30,471 | 25.2% | |||||||||||||||||
| Insurance sales commissions | 3,693 | 3,715 | (0.6)% | 8,367 | 7,567 | 10.6% | |||||||||||||||||
| Gains on mortgage loans sold, net | 1,965 | 3,270 | (39.9)% | 4,472 | 6,149 | (27.3)% | |||||||||||||||||
| Investment losses on sales of securities, net | — | (72,103) | 100.0% | (12,512) | (72,103) | 82.6% | |||||||||||||||||
| Trust fees | 9,280 | 8,323 | 11.5% | 18,620 | 15,738 | 18.3% | |||||||||||||||||
| Income from equity method investment | 26,027 | 18,688 | 39.3% | 46,432 | 34,723 | 33.7% | |||||||||||||||||
| Gain on sale of fixed assets | 202 | 325 | (37.8)% | 412 | 383 | 7.6% | |||||||||||||||||
| Other noninterest income: | |||||||||||||||||||||||
| Interchange and other consumer fees | 20,248 | 20,191 | 0.3% | 40,244 | 38,223 | 5.3% | |||||||||||||||||
| Bank-owned life insurance | 11,630 | 8,754 | 32.9% | 21,263 | 19,698 | 7.9% | |||||||||||||||||
| Loan swap fees | 2,117 | 1,262 | 67.7% | 3,502 | 1,840 | 90.3% | |||||||||||||||||
| SBA loan sales | 1,729 | 2,439 | (29.1)% | 3,232 | 3,668 | (11.9)% | |||||||||||||||||
| Gain from other equity investments | 2,990 | 3,266 | (8.5)% | 2,831 | 6,149 | (54.0)% | |||||||||||||||||
| Other noninterest income | 9,160 | 5,875 | 55.9% | 14,759 | 23,883 | (38.2)% | |||||||||||||||||
| Total other noninterest income | 47,874 | 41,787 | 14.6% | 85,831 | 93,461 | (8.2)% | |||||||||||||||||
| Total noninterest income | $ | 125,457 | $ | 34,288 | >100% | $ | 223,883 | $ | 144,391 | 55.1% | |||||||||||||
Service charges on deposit accounts increased $2.5 million, or 17.4%, and $6.1 million, or 21.8%, respectively, during the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 primarily as a result of revenues from commercial deposit accounts, including analysis fee revenue, as well as increased merchant and check card fees reflective of growth in our deposit accounts and the economic strength of our markets.
Income from our wealth management groups (investments, insurance and trust) is also included in noninterest income and was impacted in part during the three and six months ended June 30, 2025 by market volatility. For the three and six months ended June 30, 2025, commissions and fees from investment services at our financial advisory unit, Pinnacle Asset Management, a division of Pinnacle Bank, and fees from our wealth advisory group, PNFP Capital Markets, Inc., increased by approximately $3.6 million and $7.7 million, respectively, when compared to the three and six months ended June 30, 2024. At June 30, 2025 and 2024, Pinnacle Asset Management was receiving commissions and fees in connection with approximately $14.7 billion and $11.9 billion,
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respectively, in brokerage assets. Revenues from the sale of insurance products by our insurance subsidiaries for the three and six months ended June 30, 2025 decreased by $22,000 and increased by $800,000, respectively, compared to the same periods in the prior year. Included in insurance revenues for the six months ended June 30, 2025 was $1.3 million of contingent income that was recorded in the period but based on 2024 sales production and claims experience compared to $949,000 recorded in the same period in the prior year that was based on 2023 sales production and claims experience. Additionally, at June 30, 2025 our trust department was receiving fees on approximately $7.7 billion of managed assets compared to $6.4 billion at June 30, 2024. We believe the improvement of $4.5 million, or 16.4%, and $11.4 million, or 21.1%, respectively, in income from our wealth management lines of business during the three and six months ended June 30, 2025 when compared to the three and six months ended June 30, 2024 is primarily attributable to an increase in capacity as we hire more revenue producers across the firm, but particularly in the areas of our most recent market extensions.
Gains on mortgage loans sold, net, consists of fees from the origination and sale of mortgage loans. These mortgage fees are for loans primarily originated in our current markets that are subsequently sold to third-party investors. Substantially all of these loan sales transfer servicing rights to the buyer. Generally, mortgage origination fees increase in lower interest rate environments and more robust housing markets and decrease in rising or higher interest rate environments and more challenging housing markets. Mortgage origination fees will fluctuate from quarter to quarter as the mortgage interest rate environment changes. Gains on mortgage loans sold, net, were $2.0 million and $4.5 million, respectively, for the three and six months ended June 30, 2025 compared to $3.3 million and $6.1 million, respectively, for the same periods in the prior year. The reduction in mortgage fee income was primarily attributable to higher mortgage interest rates year-over-year. We hedge a portion of our mortgage pipeline as part of a mandatory delivery program whereby the hedge protects against changes in the fair value of the pipeline. The hedge is not designated as a hedge for U.S. GAAP purposes and, as such, changes in its fair value are recorded directly through the income statement. The change in the fair value of the outstanding mortgage pipeline at the end of any reporting period will directly impact the amount of gain recorded for mortgage loans held for sale during that reporting period. At June 30, 2025, the mortgage pipeline included $80.4 million in loans expected to close in 2025 compared to $101.3 million in loans at June 30, 2024 expected to close in 2024.
During the six months ended June 30, 2025, $188.5 million of investment securities were sold in our available-for-sale securities portfolio. Net losses on the sale of these investment securities were $12.5 million. During the six months ended June 30, 2024, $822.7 million of investment securities were sold in our available-for-sale securities portfolio. Net losses on the sale of these investment securities were $72.1 million. These securities were sold in an effort to reposition a portion of our securities portfolio to enhance future earning potential.
For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, we assess whether or not we intend to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because we did not intend to sell those available-for-sale securities that were in an unrealized loss position at June 30, 2025, and it was not more-likely-than-not that we would be required to sell the securities before recovery of their amortized cost bases, which may be maturity, we determined that no write-down was necessary at June 30, 2025.
Income from equity-method investment. Income from equity-method investment is comprised solely of income from Pinnacle Bank's 49% equity-method investment in BHG. BHG is engaged in the origination of commercial and consumer loans largely to healthcare providers and other skilled professionals throughout the United States. The loans originated by BHG are either financed by secured borrowings or sold to independent financial institutions and investors.
Income from this equity-method investment was $26.0 million and $46.4 million, respectively, for the three and six months ended June 30, 2025 compared to $18.7 million and $34.7 million, respectively, for the same periods last year. In 2019, BHG began retaining more loans on its balance sheet. For much of its history, BHG has sold the majority of the loans it originates to a network of bank purchasers through a combination of online auctions, direct sales and its direct purchase option. BHG’s decision to sell loans through its auction platform (or, recently, directly to institutional investors) or retain loans on its balance sheet is impacted by a variety of factors, including interest rates, credit experience and demand levels from the community bank network of buyers and institutional buyers to whom BHG markets these loans. In a rising or elevated rate environment, BHG may choose to sell more loans if the cost of financing loans on its balance sheet is not as attractive as a sale, either directly to asset managers or through its auction platform, while in a falling or lower rate environment it may choose to retain more loans on its balance sheet if funding alternatives for doing so are attractive. During 2024 and the first six months of 2025, BHG sold loans totaling approximately $806 million and $919 million, respectively, directly to asset managers. Since 2020, BHG has completed ten securitizations totaling approximately $3.3 billion, with the latest securitization of approximately $400 million having been completed in the first quarter of 2025. BHG also entered into funding facilities in the fourth quarter of 2022, first quarter of 2023 and third quarter of 2024 including facilities with U.S. asset managers with outstanding balances of $375 million and $455 million at June 30, 2025 and December 31, 2024, respectively, and an annualized interest rate at June 30, 2025 of approximately 7.65%. These facilities, which are secured by loans on BHG's balance sheet,
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represent incremental funding sources to BHG. We anticipate that BHG will complete additional securitizations in the future or otherwise establish other borrowing facilities to facilitate the retention of additional loans on BHG's balance sheet.
Income from equity-method investment is recorded net of amortization expense associated with customer lists and other intangible assets associated with Pinnacle Bank's investment in BHG of $41,000 and $81,000, respectively, for the three and six months ended June 30, 2025 compared to $59,000 and $118,000, respectively, for the three and six months ended June 30, 2024. At June 30, 2025, there were $5.6 million of these intangible assets that are expected to be amortized in lesser amounts over the next 11 years. Also included in income from equity-method investment is accretion income associated with the fair valuation of certain of BHG's liabilities of $26,000 and $55,000, respectively, for the three and six months ended June 30, 2025 compared to $35,000 and $74,000, respectively, for the three and six months ended June 30, 2024. At June 30, 2025, there were $42,000 of these liabilities that are expected to accrete into income in lesser amounts within the next year.
During the three and six months ended June 30, 2025, Pinnacle Bank received dividends of $77.2 million and $102.1 million, respectively, from BHG compared to $43.3 million and $46.9 million, respectively, received during the three and six months ended June 30, 2024. Dividends from BHG during such periods reduced the carrying amount of Pinnacle Bank's investment in BHG, while earnings from BHG during such periods increased the carrying amount of Pinnacle Bank's investment in BHG. Profits from intercompany transactions are eliminated. Our proportionate share of earnings from BHG is included in our consolidated tax return. During the three and six months ended June 30, 2025 and June 30, 2024, Pinnacle Bank purchased no loans from BHG. At June 30, 2025 and December 31, 2024, there were $132.1 million and $161.7 million, respectively, of BHG joint venture program loans held by Pinnacle Bank. These loans were purchased at par from BHG by Pinnacle Bank 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 between 4.50% and 6.00% per annum. During the three and six months ended June 30, 2025, Pinnacle Bank sold no BHG joint venture program loans back to BHG. 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.
For the three and six months ended June 30, 2025, BHG reported $270.1 million and $510.8 million, respectively, in revenues, net of substitution and prepayment losses of $137.2 million and $269.8 million, respectively, compared to revenues of $228.8 million and $506.1 million, respectively, for the three and six months ended June 30, 2024, net of substitution and prepayment losses of $81.8 million and $160.7 million, respectively. Earnings from BHG are likely to fluctuate from period-to-period. Approximately $113.6 million and $208.6 million, respectively, or 42.1% and 40.8%, respectively, of BHG's revenues for the three and six months ended June 30, 2025 related to gains on the sale of commercial and consumer loans compared to $92.1 million and $201.9 million, respectively, or 40.3% and 39.9%, respectively, for the three and six months ended June 30, 2024. These loans have typically been sold by BHG with no recourse to a network of community banks and other financial institutions at a premium to the par value of the loan, although the purchaser may access a BHG cash reserve account of up to 3% of the loan balance to support loan payments. BHG retains no servicing or other responsibilities related to the core product loan once sold. As a result, this gain on sale premium represents BHG's compensation for absorbing the costs to originate the loan as well as marketing expenses associated with maintaining its business model. During the three and six months ended June 30, 2025, BHG sold loans to its network of community banks and other financial institutions totaling $1.2 billion and $2.6 billion, respectively, compared to $699 million and $1.6 billion, respectively, during the three and six months ended June 30, 2024. At June 30, 2025 and 2024, there were $8.0 billion and $7.1 billion, respectively, of these loans previously sold by BHG that were being actively serviced by the purchasing banks. BHG, at its sole option, may also provide purchasers of these loans the ability to substitute the acquired loan with another more recently-issued BHG loan should the previously-acquired loan become at least 90-days past due as to its monthly payments. As a result, BHG maintained a liability as of June 30, 2025 and 2024 of $624.4 million and $415.4 million, respectively, that represents an estimate of the future inherent losses for the outstanding core portfolio that may be subject to future substitution due to payment default or prepayment. This liability represents 7.8% and 5.9%, respectively, of core product loans previously sold by BHG that remain outstanding as of June 30, 2025 and 2024, respectively. The change in the dollar amount of this liability and the percentage of this liability to core product loans sold by BHG that remain outstanding during the six months ended June 30, 2025 compared to the comparable period ended June 30, 2024 was principally the result of an increase in the amount of loans previously sold by BHG to financial institutions that remain outstanding, BHG's historical loss experience with these loans and BHG management's estimate of future substitution and prepayment losses.
In addition to these loans that BHG sells into its auction market or directly to institutional investors, at both June 30, 2025 and 2024, BHG reported loans that remained on BHG's balance sheet totaling $3.1 billion. A portion of these loans do not qualify for sale accounting and accordingly an offsetting secured borrowing liability has been recorded. At June 30, 2025 and 2024, BHG had $2.1 billion and $2.4 billion, respectively, of secured borrowings associated with loans held for investment. At June 30, 2025 and 2024, BHG reported an allowance for credit losses totaling $279.1 million and $270.9 million, respectively, with respect to the loans on its balance sheet. The increase in allowance for credit losses for the six months ended June 30, 2025 compared to the six months ended June 30, 2024 was principally the result of projected changes in macroeconomic conditions incorporated into BHG's allowance for credit losses model. Interest income and fees associated with these on-balance sheet loans amounted to $136.1 million and $270.6
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million, respectively, for the three and six months ended June 30, 2025 compared to $124.9 million and $265.5 million, respectively, for the three and six months ended June 30, 2024.
Included in our other noninterest income are interchange and other consumer fees, gains from bank-owned life insurance, swap fees earned for the facilitation of derivative transactions for our clients, Small Business Administration (SBA) loan sales and other noninterest income items. Interchange revenues were flat and increased 5.3% during the three and six months ended June 30, 2025 as compared to the same periods in 2024 primarily as a result of the volume of commercial credit card usage. Changes in the cash surrender value of bank-owned life insurance was $11.6 million and $21.3 million, respectively, for the three and six months ended June 30, 2025 compared to $8.8 million and $19.7 million, respectively, in the same periods in the prior year. The assets that support these policies are administered by the life insurance carriers and the income we recognize (i.e., increases or decreases in the cash surrender value of the policies) on these policies is dependent upon the crediting rates applied by the insurance carriers, which are subject to change at the discretion of the carriers, subject to any applicable floors. Earnings on these policies generally are not taxable. During the first and second quarters of 2025, we purchased an additional $100 million and $50 million, respectively, in bank-owned life insurance policies. Loan swap fees increased $855,000 and $1.7 million, respectively, during the three and six months ended June 30, 2025 as compared to the same periods in 2024. SBA loan sales are included in other noninterest income and decreased by $710,000 and $436,000, respectively, during the three and six months ended June 30, 2025 when compared to the same periods in the prior year. The change in both loan swap fees and SBA loan sales are most directly impacted by the changing market conditions during the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024. Additionally, the carrying values of other equity investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through financial reports provided by the portfolio managers of the investment. Income related to these investments decreased $276,000 and $3.3 million during the three and six months ended June 30, 2025 when compared to the same periods in the prior year. The other components of other noninterest income increased $3.3 million and decreased $9.1 million during the three and six months ended June 30, 2025 compared to the same periods in the prior year. The change during the six months ended June 30, 2025 is primarily the result of recognition during the first quarter of 2024 of an $11.8 million mortgage servicing right associated with our Freddie Mac Small Business Loan platform offset by processing fees related to various services provided to consumer clients and business partners.
Noninterest Expense. Noninterest expense consists of salaries and employee benefits, equipment and occupancy expenses, other real estate expenses and other operating expenses. The following is a summary of our noninterest expense for the three and six months ended June 30, 2025 and 2024 (in thousands):
| Three Months Ended June 30, | 2025-2024 | Six Months Ended June 30, | 2025-2024 | ||||||||||||||||||||
| 2025 | 2024 | Increase (Decrease) | 2025 | 2024 | Increase (Decrease) | ||||||||||||||||||
| Noninterest expense: | |||||||||||||||||||||||
| Salaries and employee benefits: | |||||||||||||||||||||||
| Salaries and commissions | $ | 111,897 | $ | 100,434 | 11.4% | $ | 224,069 | $ | 198,206 | 13.0% | |||||||||||||
| Cash and equity incentives | 44,763 | 28,273 | 58.3% | 75,622 | 52,184 | 44.9% | |||||||||||||||||
| Employee benefits and other | 24,586 | 21,410 | 14.8% | 53,644 | 45,737 | 17.3% | |||||||||||||||||
| Total salaries and employee benefits | 181,246 | 150,117 | 20.7% | 353,335 | 296,127 | 19.3% | |||||||||||||||||
| Equipment and occupancy | 48,043 | 41,036 | 17.1% | 94,223 | 80,682 | 16.8% | |||||||||||||||||
| Other real estate expense, net | 137 | 22 | >100% | 195 | 106 | 84.0% | |||||||||||||||||
| Marketing and other business development | 8,772 | 6,776 | 29.5% | 17,438 | 12,901 | 35.2% | |||||||||||||||||
| Postage and supplies | 3,192 | 3,135 | 1.8% | 6,562 | 5,906 | 11.1% | |||||||||||||||||
| Amortization of intangibles | 1,400 | 1,568 | (10.7%) | 2,817 | 3,152 | (10.6%) | |||||||||||||||||
| Other noninterest expense: | |||||||||||||||||||||||
| Deposit related expense | 14,988 | 15,749 | (4.8%) | 32,708 | 36,995 | (11.6%) | |||||||||||||||||
| Lending related expense | 16,401 | 13,537 | 21.2% | 32,496 | 26,230 | 23.9% | |||||||||||||||||
| Wealth management related expense | 980 | 856 | 14.5% | 2,163 | 1,778 | 21.7% | |||||||||||||||||
| Other noninterest expense | 11,287 | 38,593 | (70.8%) | 19,996 | 49,877 | (59.9%) | |||||||||||||||||
| Total other noninterest expense | 43,656 | 68,735 | (36.5%) | 87,363 | 114,880 | (24.0%) | |||||||||||||||||
| Total noninterest expense | $ | 286,446 | $ | 271,389 | 5.5% | $ | 561,933 | $ | 513,754 | 9.4% | |||||||||||||
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Total salaries and employee benefits expenses increased $31.1 million and $57.2 million, respectively, for the three and six months ended June 30, 2025 compared to the same periods in 2024. The change in salaries and employee benefits was largely the result of an increase in our associate base in 2025 versus 2024 as well as annual merit increases effective in January 2025 and increases in cash and equity incentive accruals due to our belief at June 30, 2025 that we were likely to achieve a payout percentage under our annual cash incentive plan in 2025 that would be higher than what we believed we would pay out at June 30, 2024 under our 2024 annual cash incentive plan and an increase in the percentage of our performance-based vesting restricted stock units that we currently estimate our associates will earn under our performance-based vesting restricted stock unit awards based on estimated full-year performance through June 30, 2025. Our associate base increased to 3,627.0 full-time equivalent associates at June 30, 2025 from 3,469.0 at June 30, 2024. We expect total salary and benefit expenses for the year ended 2025 to increase when compared to the comparable period in 2024 as we continue our focus on hiring experienced bankers in all of our markets.
We believe that cash and equity incentives are a valuable tool in motivating an associate base that is focused on providing our clients effective financial advice and increasing shareholder value. As a result, and unlike many other financial institutions, all of our bank's non-commissioned associates participate in our annual cash incentive plan with a minimum targeted bonus equal to 10% of each associate's annual salary, and all of our bank's associates participate in our equity compensation plans. Under the 2025 annual cash incentive plan, the targeted level of incentive payments requires achievement of a certain soundness threshold and a targeted level of annual earnings per common share and annual revenues (subject to certain adjustments). To the extent that the soundness threshold is met and earnings per common share and revenues are above or below the targeted amount, the aggregate incentive payments are increased or decreased. Historically, we have paid between 0% and 125% of our targeted incentives. For 2025, our annual incentive plan provides for maximum payouts of up to 125% of target, as well as increased levels of targeted percentage payouts for certain of our senior associates.
Cash incentive expense for the three and six months ended June 30, 2025 totaled $33.5 million and $53.6 million, respectively, compared to $17.5 million and $30.8 million, respectively, during the same prior year periods due to an increased number of associates and our estimate at June 30, 2025 that we are likely to achieve a payout percentage under our annual cash incentive plan in 2025 that would be higher than what we estimated we would pay out in the second quarter of 2024 under our annual cash incentive plan in 2024.
Also included in cash and equity incentives for the three and six months ended June 30, 2025 were approximately $4.8 million and $9.6 million, respectively, of compensation expenses related to equity-based restricted share awards compared to $4.5 million and $9.0 million, respectively, for the three and six months ended June 30, 2024 as well as approximately $6.3 million and $12.0 million, respectively, for the three and six months ended June 30, 2025 of compensation expenses related to equity-based restricted share units with either time-based or performance-based vesting criteria compared to $6.1 million and $12.0 million, respectively, for the three and six months ended June 30, 2024. Under our equity incentive plans, we provide a broad-based equity incentive program for all of our bank's associates, a significant percentage of which is performance-based for our senior executive officers. We believe that equity incentives provide a vehicle for all associates to become meaningful shareholders of Pinnacle Financial over an extended period of time and create a shareholder-centric culture throughout our organization.
Employee benefits and other expenses include costs associated with our 401k plan, health insurance, payroll taxes and contract labor. These expenses increased by $3.2 million and $7.9 million, respectively, for the three and six months ended June 30, 2025 compared to the same prior year periods. These increases reflect the increase in our associate base and increased employer costs to support the health insurance plans offered to our associate base in the respective periods.
Equipment and occupancy expenses for the three and six months ended June 30, 2025 were $48.0 million and $94.2 million, respectively, compared to $41.0 million and $80.7 million, respectively, for the three and six months ended June 30, 2024. The increases during the three and six month periods ended June 30, 2025 and 2024 are in part due to the relocation of our corporate headquarters to a new Nashville location in April 2025, the overall growth of our infrastructure, the construction and operation of additional locations and new technology implemented.
Marketing and business development expense for the three and six months ended June 30, 2025 was $8.8 million and $17.4 million, respectively, compared to $6.8 million and $12.9 million, respectively, for the three and six months ended June 30, 2024. The primary drivers of the increases in marketing and business development costs were our partnership with The Pinnacle, Nashville's newest live music venue, which opened in March 2025, and other factors including increases in both client and associate engagement expenses due to our increased headcount and market extensions. We continue to expect these costs to rise modestly in 2025 when compared to 2024 taking into account anticipated increases associated with the associates we have hired in the last twelve months and expect to hire during the remainder of 2025.
Intangible amortization expense was $1.4 million and $2.8 million, respectively, for the three and six months ended June 30, 2025 compared to $1.6 million and $3.2 million, respectively, for the same periods in 2024. At June 30, 2025, we had $6.7 million in core
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deposit intangible and $9.4 million in book of business intangible assets remaining, net of amortization. These assets are being amortized on an accelerated basis which reflects the anticipated life of the underlying assets. Annual amortization expense of these intangibles is estimated to decrease from $5.4 million to $1.1 million per year over the next five years with lesser amounts for the remaining amortization period.
Other noninterest expenses, which consists primarily of deposit, lending, wealth management and administrative expenses decreased by $25.1 million and $27.5 million, respectively, for the three and six months ended June 30, 2025 when compared to the three and six months ended June 30, 2024. The decrease is largely the result of approximately $27.6 million in fees paid during the second quarter of 2024 to terminate an agreement to resell $500.0 million of securities we had previously purchased. Additionally, deposit-related expenses were $15.0 million and $32.7 million, respectively, during the three and six months ended June 30, 2025 compared to $15.7 million and $37.0 million, respectively, for the three and six months ended June 30, 2024. Contributing to the decline in deposit-related expenses during the first six months of 2025 was the lack of an FDIC special assessment in 2025 compared to a $7.3 million special assessment in the first six months of 2024. Offsetting the decreased FDIC assessment costs were increases in costs associated with our specialty deposit programs. Lending related expenses, which represents costs associated with loan origination as well as operation of our credit card program, were $16.4 million and $32.5 million, respectively, for three and six months ended June 30, 2025 compared to $13.5 million and $26.2 million, respectively, for the three and six months ended June 30, 2024 and were impacted by the loss protection fees of $1.7 million and $3.3 million, respectively, during the three and six months ended June 30, 2025 associated with a credit default swap which we entered into in the second quarter of 2024. Wealth management related expenses during the three and six months ended June 30, 2025 grew $124,000 and $385,000, respectively, when compared to the same periods in 2024.
Our efficiency ratio (the ratio of noninterest expense to the sum of net interest income and noninterest income) was 56.7% and 58.1%, respectively, for the three and six months ended June 30, 2025 compared to 74.0% and 64.6%, respectively, for the three and six months ended June 30, 2024. Our efficiency ratio during the three and six months ended June 30, 2025 compared to the same periods in 2024 was both positively and negatively impacted by the changes to net interest income, noninterest income and noninterest expense discussed above.
Income Taxes. During the three and six months ended June 30, 2025, we recorded income tax expense of $35.8 million and $65.8 million, respectively, compared to $11.8 million and $39.2 million, respectively, for the three and six months ended June 30, 2024. Our effective tax rate for the three and six months ended June 30, 2025 was 18.4% and 18.0%, respectively, compared to 18.2% and 18.1%, respectively, for the three and six months ended June 30, 2024. Our effective tax rate differs from the combined federal and state income tax statutory rate in effect of 25.00% at June 30, 2025 and 2024 primarily due to our investments in bank-qualified municipal securities, tax benefits from our real estate investment trust and municipal investment subsidiaries, participation in Tennessee's Community Investment Tax Credit program, tax benefits associated with share-based compensation and bank-owned life insurance, offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC insurance premiums and non-deductible executive compensation. Our tax rate in each period was also impacted by the vesting of equity-based awards previously granted under our equity-based compensation program. For the three and six months ended June 30, 2025, we recognized excess tax benefits of $128,000 and $3.7 million, respectively, compared to excess tax benefits of $100,000 and $2.5 million, respectively, during the three and six months ended June 30, 2024 with respect to the vesting of equity-based awards.
Financial Condition
Our consolidated balance sheet at June 30, 2025 reflects an increase in total loans outstanding to $37.1 billion compared to $35.5 billion at December 31, 2024. Total deposits increased by $2.2 billion to $45.0 billion between December 31, 2024 and June 30, 2025. Total assets were $54.8 billion at June 30, 2025 compared to $52.6 billion at December 31, 2024.
Loans. The composition of loans at June 30, 2025 and at December 31, 2024 and the percentage (%) of each classification to total loans are summarized as follows (in thousands):
| June 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||
| Commercial real estate: | |||||||||||||||||||||||
| Owner occupied | $ | 4,744,806 | 12.8 | % | $ | 4,388,531 | 12.4 | % | |||||||||||||||
| Non-owner occupied | 8,285,390 | 22.3 | % | 8,130,118 | 22.9 | % | |||||||||||||||||
| Consumer real estate – mortgage | 5,163,761 | 13.9 | % | 4,914,482 | 13.9 | % | |||||||||||||||||
| Construction and land development | 3,412,060 | 9.2 | % | 3,699,321 | 10.4 | % | |||||||||||||||||
| Commercial and industrial | 14,905,306 | 40.2 | % | 13,815,817 | 38.9 | % | |||||||||||||||||
| Consumer and other | 593,841 | 1.6 | % | 537,507 | 1.5 | % | |||||||||||||||||
| Total loans | $ | 37,105,164 | 100.0 | % | $ | 35,485,776 | 100.0 | % | |||||||||||||||
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At June 30, 2025, our loan portfolio composition had changed slightly from the composition at December 31, 2024 with commercial real estate and commercial and industrial lending generally continuing to make up the largest segments of our portfolio. At June 30, 2025, approximately 36.4% of the outstanding principal balance of our commercial real estate loans was secured by owner occupied commercial real estate properties compared to 35.1% at December 31, 2024. Owner occupied commercial real estate is similar in many ways to our commercial and industrial lending in that these loans are generally made to businesses on the basis of the cash flows of the business rather than on the valuation of the real estate.
Lending Concentrations. We periodically analyze our loan portfolio to determine if a concentration of credit risk exists to any one or more industries. We use broadly accepted industry classification systems in order to classify borrowers into various industry classifications. We have a credit exposure (loans outstanding plus unfunded commitments) exceeding 25% of Pinnacle Bank's total risk-based capital to borrowers in the following industries at June 30, 2025 and December 31, 2024 (in thousands):
| June 30, 2025 | |||||||||||||||||||||||
| Outstanding Principal Balances | Unfunded Commitments | Total exposure | Total Exposure at December 31, 2024 | ||||||||||||||||||||
| Lessors of nonresidential buildings | $ | 4,666,080 | $ | 1,047,600 | $ | 5,713,680 | $ | 5,439,776 | |||||||||||||||
| Lessors of residential buildings | 2,331,534 | 505,820 | 2,837,354 | 2,871,227 | |||||||||||||||||||
| New Housing For-Sale Builders | 569,213 | 892,547 | 1,461,760 | 1,394,494 | |||||||||||||||||||
| Music Publishers | 869,544 | 457,952 | 1,327,496 | 1,114,105 | |||||||||||||||||||
Banking regulations have established guidelines for the construction ratio of less than 100% of total risk-based capital and for the non-owner occupied ratio of less than 300% of total risk-based capital. Should a bank’s ratios be in excess of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by Pinnacle Bank’s total risk-based capital. At June 30, 2025, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital were 61.8% compared to 70.5% at December 31, 2024. Construction and land development, non-owner occupied commercial real estate and multifamily loans as a percentage of total risk-based capital were 228.6% and 242.2% as of June 30, 2025 and December 31, 2024, respectively. Over time, we have targeted a non-owner occupied commercial real estate, multifamily and construction and land development loans to total risk-based capital ratio of less than 225% and construction and land development loans to total risk-based capital ratio of less than 70%. As Pinnacle Bank is currently below its internal target for construction and land development loans, new loans are being originated using a measured underwriting process, focusing on high-quality developer clients primarily focused in the industrial and multifamily commercial real estate segments. Pinnacle Bank believes it has established appropriate controls to monitor and regulate its lending in these areas as it aims to keep the level of these loans to below the 100% and 300% thresholds.
The following table presents the maturity distribution of our loan portfolio by loan segment at June 30, 2025 according to contractual maturities of (1) one year or less, (2) after one but within five years, (3) after five but within fifteen years and (4) after fifteen years. The table also presents the portion of loans by loan segment that have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with changes in an interest rate index (dollars in thousands):
| Due in one year or less | After one but within five years | After five but within fifteen years | After fifteen years | Total | |||||||||||||
| Commercial real estate: | |||||||||||||||||
| Owner occupied | $ | 280,546 | $ | 2,777,650 | $ | 1,190,063 | $ | 496,547 | $ | 4,744,806 | |||||||
| Non-owner occupied | 2,751,127 | 4,957,738 | 475,862 | 100,663 | 8,285,390 | ||||||||||||
| Consumer real estate - mortgage | 142,455 | 508,279 | 335,403 | 4,177,624 | 5,163,761 | ||||||||||||
| Construction and land development | 1,417,575 | 1,796,565 | 142,760 | 55,160 | 3,412,060 | ||||||||||||
| Commercial and industrial | 3,653,125 | 8,776,963 | 2,025,029 | 450,189 | 14,905,306 | ||||||||||||
| Consumer and other | 214,545 | 328,716 | 49,132 | 1,448 | 593,841 | ||||||||||||
| Total loans | $ | 8,459,373 | $ | 19,145,911 | $ | 4,218,249 | $ | 5,281,631 | $ | 37,105,164 | |||||||
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| Loans with fixed interest rates: | |||||||||||||||||
| Commercial real estate: | |||||||||||||||||
| Owner occupied | $ | 201,615 | $ | 1,501,315 | $ | 626,748 | $ | 249,958 | $ | 2,579,636 | |||||||
| Non-owner occupied | 594,364 | 2,531,449 | 173,803 | 44,128 | 3,343,744 | ||||||||||||
| Consumer real estate - mortgage | 76,929 | 317,038 | 66,040 | 1,967,215 | 2,427,222 | ||||||||||||
| Construction and land development | 135,506 | 254,197 | 46,696 | 47,098 | 483,497 | ||||||||||||
| Commercial and industrial | 1,007,544 | 2,817,538 | 1,135,399 | 333,899 | 5,294,380 | ||||||||||||
| Consumer and other | 93,494 | 147,726 | 47,589 | 1,377 | 290,186 | ||||||||||||
| Total loans | $ | 2,109,452 | $ | 7,569,263 | $ | 2,096,275 | $ | 2,643,675 | $ | 14,418,665 | |||||||
| Loans with variable interest rates: | |||||||||||||||||
| Commercial real estate: | |||||||||||||||||
| Owner occupied | $ | 78,931 | $ | 1,276,335 | $ | 563,315 | $ | 246,589 | $ | 2,165,170 | |||||||
| Non-owner occupied | 2,156,763 | 2,426,289 | 302,059 | 56,535 | 4,941,646 | ||||||||||||
| Consumer real estate - mortgage | 65,526 | 191,241 | 269,363 | 2,210,409 | 2,736,539 | ||||||||||||
| Construction and land development | 1,282,069 | 1,542,368 | 96,064 | 8,062 | 2,928,563 | ||||||||||||
| Commercial and industrial | 2,645,581 | 5,959,425 | 889,630 | 116,290 | 9,610,926 | ||||||||||||
| Consumer and other | 121,051 | 180,990 | 1,543 | 71 | 303,655 | ||||||||||||
| Total loans | $ | 6,349,921 | $ | 11,576,648 | $ | 2,121,974 | $ | 2,637,956 | $ | 22,686,499 | |||||||
The above information does not consider the impact of scheduled principal payments. Loans totaling $1.1 billion at their contractual floor or ceiling rate at June 30, 2025 are presented as fixed interest rate loans in the table above.
Loans in Past Due Status. The following table is a summary of our loans that were past due at least 30 days but less than 89 days and 90 days or more past due as of June 30, 2025 and December 31, 2024 (in thousands):
| June 30, | December 31, | ||||||||||
| 2025 | 2024 | ||||||||||
| Loans past due 30 to 89 days: | |||||||||||
| Commercial real estate: | |||||||||||
| Owner occupied | $ | 3,879 | $ | 10,583 | |||||||
| Non-owner occupied | 1,368 | 1,217 | |||||||||
| Consumer real estate – mortgage | 25,174 | 21,607 | |||||||||
| Construction and land development | 345 | 125 | |||||||||
| Commercial and industrial | 22,355 | 24,507 | |||||||||
| Consumer and other | 3,853 | 4,092 | |||||||||
| Total loans past due 30 to 89 days | $ | 56,974 | $ | 62,131 | |||||||
| Loans past due 90 days or more: | |||||||||||
| Commercial real estate: | |||||||||||
| Owner occupied | $ | 11,821 | $ | 10,089 | |||||||
| Non-owner occupied | 29,765 | 39,469 | |||||||||
| Consumer real estate – mortgage | 16,696 | 20,615 | |||||||||
| Construction and land development | 1,691 | 1,541 | |||||||||
| Commercial and industrial | 25,470 | 31,077 | |||||||||
| Consumer and other | 1,226 | 1,160 | |||||||||
| Total loans past due 90 days or more | $ | 86,669 | $ | 103,951 | |||||||
| Ratios: | |||||||||||
| Loans past due 30 to 89 days as a percentage of total loans | 0.16 | % | 0.18 | % | |||||||
| Loans past due 90 days or more as a percentage of total loans | 0.23 | % | 0.29 | % | |||||||
| Total loans in past due status as a percentage of total loans | 0.39 | % | 0.47 | % | |||||||
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Potential Problem Loans. Potential problem loans, which are not included in nonperforming assets, amounted to approximately $45.8 million, or 0.1% of total loans at June 30, 2025, compared to $46.9 million, or 0.1% of total loans at December 31, 2024. Potential problem loans represent loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by Pinnacle Bank's primary regulators for loans classified as substandard, or worse, but not considered nonperforming loans. No potential problem loans were past due at least 30 days but less than 90 days as of June 30, 2025.
Nonperforming Assets and Modified Loans. At June 30, 2025, we had $162.0 million in nonperforming assets compared to $149.1 million at December 31, 2024. Included in nonperforming assets were $157.2 million in nonaccrual loans and $4.8 million in OREO and other nonperforming assets at June 30, 2025 and $147.8 million in nonaccrual loans and $1.3 million in OREO and other nonperforming assets at December 31, 2024. The change in nonaccrual loans at June 30, 2025 as compared to December 31, 2024 is largely the result of one commercial real estate loan being assigned to nonaccrual status. At June 30, 2025, there were $46.2 million of modified loans to borrowers experiencing financial difficulty, of which $4.6 million were accruing as of the modification date and remain on accrual status.
Allowance for Credit Losses on Loans (ACL). The current expected credit losses (CECL) methodology requires us to estimate all expected credit losses over the remaining life of our loan portfolio. Accordingly, the ACL represents an amount that, in management's evaluation, is adequate to provide coverage for all expected future credit losses on outstanding loans as of the date of its calculation. As of June 30, 2025 and December 31, 2024, our ACL was approximately $422.1 million and $414.5 million, respectively, which our management believed to be adequate at each of the respective dates. Our ACL as a percentage of total loans was 1.14% at June 30, 2025 compared to 1.17% at December 31, 2024. The change in the ACL as a percentage of total loans since December 31, 2024 is in large part the result of a reduction in specific reserves associated with certain loans due to charge-offs, improvement in the financial condition of the borrowers or payoff of a portion of or, in certain cases, the full, outstanding balances of the related loans. Changes in the macroeconomic environment were less impactful to the overall change in the ACL in the six months ended June 30, 2025.
Our CECL models rely largely on recent historical and projected future macroeconomic conditions to estimate future credit losses. Macroeconomic factors used in the model include the unadjusted and seasonally adjusted national unemployment rate, GDP, commercial property price index, consumer credit, commercial real estate price index, household debt ratio, household financial obligations ratio and certain home price indices. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to predict quarterly rates of default.
Under the CECL methodology, the allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period, losses are reverted to long term historical averages. At both June 30, 2025 and December 31, 2024, a reasonable and supportable period of fifteen months was utilized for all loan segments followed by a twelve month straight line reversion period to long term averages.
The following table sets forth, based on management's estimate, the allocation of the allowance for credit losses on loans to categories of loans, loan balances by category, the percentage of loans in each category to total loans and allowance for credit losses as a percentage of total loans within each loan category as of June 30, 2025 and December 31, 2024 (in thousands):
| June 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| ACL Allocated ($) | Total Loans ($) | ACL to Total Loans (%) | Loans to Total Loans (%) | ACL Allocated ($) | Total Loans ($) | ACL to Total Loans (%) | Loans to Total Loans (%) | |||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||
| Owner occupied | $ | 37,070 | $ | 4,744,806 | 0.78 | % | 12.8 | % | $ | 36,997 | $ | 4,388,531 | 0.84 | % | 12.4 | % | ||||||||||
| Non-owner occupied | 69,661 | 8,285,390 | 0.84 | % | 22.3 | % | 80,654 | 8,130,118 | 0.99 | % | 22.9 | % | ||||||||||||||
| Consumer real estate - mortgage | 87,296 | 5,163,761 | 1.69 | % | 13.9 | % | 80,042 | 4,914,482 | 1.63 | % | 13.9 | % | ||||||||||||||
| Construction and land development | 32,753 | 3,412,060 | 0.96 | % | 9.2 | % | 33,620 | 3,699,321 | 0.91 | % | 10.4 | % | ||||||||||||||
| Commercial and industrial | 187,020 | 14,905,306 | 1.25 | % | 40.2 | % | 174,799 | 13,815,817 | 1.27 | % | 38.9 | % | ||||||||||||||
| Consumer and other | 8,325 | 593,841 | 1.40 | % | 1.6 | % | 8,382 | 537,507 | 1.56 | % | 1.5 | % | ||||||||||||||
| Total | $ | 422,125 | $ | 37,105,164 | 1.14 | % | 100.0 | % | $ | 414,494 | $ | 35,485,776 | 1.17 | % | 100.0 | % | ||||||||||
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The following table presents information related to credit losses on loans by loan segment for the six months ended June 30, 2025 and year ended December 31, 2024 (in thousands):
| Provision for credit losses | Net (charge-offs) recoveries | Average loans | Ratio of net (charge-offs) recoveries to average loans (1) | |||||||||||
For the six months ended June 30, 2025: | ||||||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | 327 | $ | (254) | $ | 4,523,105 | (0.01) | % | ||||||
| Non-owner occupied | (10,918) | (75) | 8,328,918 | — | % | |||||||||
| Consumer real estate - mortgage | 7,932 | (678) | 4,994,612 | (0.03) | % | |||||||||
| Construction and land development | (869) | 2 | 3,537,733 | — | % | |||||||||
| Commercial and industrial | 41,331 | (29,110) | 14,414,970 | (0.41) | % | |||||||||
| Consumer and other | 2,557 | (2,614) | 507,310 | (1.04) | % | |||||||||
| Total | $ | 40,360 | $ | (32,729) | $ | 36,306,648 | (0.18) | % | ||||||
| For the year ended December 31, 2024: | ||||||||||||||
| Commercial real estate: | ||||||||||||||
| Owner occupied | $ | 14,734 | $ | (9,242) | $ | 4,148,383 | (0.22) | % | ||||||
| Non-owner occupied | 35,597 | (12,630) | 8,025,805 | (0.16) | % | |||||||||
| Consumer real estate - mortgage | 8,176 | (31) | 4,859,901 | — | % | |||||||||
| Construction and land development | (5,521) | (1) | 3,720,471 | — | % | |||||||||
| Commercial and industrial | 65,542 | (49,712) | 12,534,846 | (0.40) | % | |||||||||
| Consumer and other | 7,061 | (6,649) | 466,804 | (1.42) | % | |||||||||
| Total | $ | 125,589 | $ | (78,265) | $ | 33,756,210 | (0.23) | % | ||||||
(1) Net charge-offs for the year-to-date period ended June 30, 2025 have been annualized.
Pinnacle Financial's management assesses the adequacy of the allowance for credit losses on loans on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.
Based upon our evaluation of the loan portfolio, we believe the allowance for credit losses on loans to be adequate to absorb our estimate of expected future credit losses on loans outstanding at June 30, 2025. While our policies and procedures used to estimate the allowance for credit losses as well as the resultant provision for credit losses charged to operations are considered adequate by management, they are necessarily approximate and imprecise. There are factors beyond our control, such as conditions in the local and national economy, local real estate market or a particular industry or borrower which may negatively impact, materially, our asset quality and the adequacy of our allowance for credit losses and, thus, the resulting provision for credit losses.
Investments. Our investment securities portfolio, consisting primarily of U.S. Treasury securities, Federal agency bonds, mortgage-backed securities and state and municipal securities, amounted to $9.1 billion and $8.4 billion at June 30, 2025 and December 31, 2024, respectively. Our investment portfolio serves many purposes including serving as a stable source of income, as collateral for public funds deposits and as a potential liquidity source. A summary of our investment portfolio at June 30, 2025 and December 31, 2024 follows:
| June 30, 2025 | December 31, 2024 | ||||||||||
| Weighted average life | 10.90 years | 11.03 years | |||||||||
| Effective duration* | 2.66% | 2.11% | |||||||||
| Tax equivalent yield | 4.44% | 4.27% | |||||||||
(*) The metric is presented net of fair value hedges tied to certain investment portfolio holdings. The effective duration of the investment portfolio without the fair value hedges as of June 30, 2025 and December 31, 2024 was 6.39% and 6.18%, respectively.
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Restricted Cash. Our restricted cash balances totaled approximately $112.5 million at June 30, 2025 compared to $93.6 million at December 31, 2024. This restricted cash is maintained at other financial institutions as collateral primarily for our derivative portfolio. The increase in restricted cash is attributable primarily to an increase in collateral requirements on certain derivative instruments for which the fair value has decreased. See Note 9. Derivative Instruments in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q.
Securities Purchased with Agreement to Resell. At June 30, 2025 and December 31, 2024, we had $93.3 million and $66.4 million, respectively, in securities purchased with agreement to resell. This balance is the result of repurchase agreement transactions with financial institution counterparties. We initially secured many of these investments to allow us to deploy some of our then excess liquidity position into instruments that improved the return on funds in the then current historically low interest rate environment. The remaining repurchase agreements are set to mature in 2026.
Deposits and Other Borrowings. We had approximately $45.0 billion of deposits at June 30, 2025 compared to $42.8 billion at December 31, 2024. Our deposits consist of noninterest and interest-bearing demand accounts, savings accounts, money market accounts and time deposits. At June 30, 2025 and December 31, 2024, we estimate that we had approximately $18.6 billion and $16.5 billion, respectively, in uninsured deposits, which are the portion of deposit accounts that exceed the FDIC insurance limit. We estimate that we had approximately $3.1 billion and $2.4 billion, respectively, in our uninsured deposits at June 30, 2025 and December 31, 2024, respectively, which were collateralized at those dates. We routinely enter into agreements with certain customers to sell certain securities under agreements to repurchase the security the following day. These agreements (which are typically associated with comprehensive treasury management programs for our clients and provide them with short-term returns for their excess funds) amounted to $258.5 million at June 30, 2025 and $230.2 million at December 31, 2024. Additionally, at June 30, 2025 and December 31, 2024, Pinnacle Bank had borrowed $1.8 billion and $1.9 billion, respectively, in advances from the Federal Home Loan Bank of Cincinnati (FHLB). The amount of FHLB advances at each date was impacted by our decision in the first half of 2023 to increase our levels of on-balance sheet liquidity in response to the then current economic environment and its impact on the banking sector following the failures of multiple high-profile banking institutions. At June 30, 2025, Pinnacle Bank had approximately $3.1 billion in additional availability with the FHLB; however, incremental borrowings are subject to applicable collateral requirements and are made in a formal request by Pinnacle Bank and the subsequent approval by the FHLB.
Generally, we have classified our funding base as either core funding or noncore funding as shown in the table below. The following table represents the balances of our deposits and other funding, the average rate paid for each type and the percentage of each type to the total at June 30, 2025 and December 31, 2024 (in thousands):
| June 30, 2025 | Average Rate Paid | Percent | December 31, 2024 | Average Rate Paid | Percent | ||||||||||||||||||
| Core funding: | |||||||||||||||||||||||
| Noninterest-bearing deposit accounts | $ | 8,640,759 | 0.00% | 18.2% | $ | 8,170,448 | 0.00% | 18.0% | |||||||||||||||
| Interest-bearing demand accounts | 7,376,272 | 2.79% | 15.5% | 6,557,434 | 3.11% | 14.5% | |||||||||||||||||
| Savings and money market accounts | 12,940,019 | 2.60% | 27.3% | 11,871,478 | 3.18% | 26.2% | |||||||||||||||||
| Time deposit accounts less than $250,000 | 1,759,314 | 3.61% | 3.7% | 1,811,134 | 4.01% | 4.0% | |||||||||||||||||
Reciprocating deposits (1) | 8,304,840 | 3.57% | 17.5% | 8,868,699 | 4.27% | 19.5% | |||||||||||||||||
Reciprocating CD accounts (1) | 739,833 | 4.22% | 1.6% | 767,711 | 4.67% | 1.7% | |||||||||||||||||
| Total core funding | 39,761,037 | 2.37% | 83.8% | 38,046,904 | 2.77% | 83.9% | |||||||||||||||||
| Noncore funding: | |||||||||||||||||||||||
| Relationship based noncore funding: | |||||||||||||||||||||||
| Other time deposits | 2,067,693 | 4.03% | 4.4% | 1,492,395 | 4.58% | 3.3% | |||||||||||||||||
| Securities sold under agreements to repurchase | 258,454 | 1.86% | 0.5% | 230,244 | 2.46% | 0.5% | |||||||||||||||||
| Total relationship based noncore funding | 2,326,147 | 3.76% | 4.9% | 1,722,639 | 4.34% | 3.8% | |||||||||||||||||
Wholesale funding: | |||||||||||||||||||||||
| Brokered deposits | 2,796,919 | 4.39% | 5.9% | 3,024,980 | 4.79% | 6.7% | |||||||||||||||||
| Brokered time deposits | 373,595 | 4.72% | 0.8% | 278,713 | 4.91% | 0.6% | |||||||||||||||||
| Federal Home Loan Bank advances | 1,775,470 | 4.62% | 3.7% | 1,874,134 | 4.57% | 4.1% | |||||||||||||||||
| Subordinated debt and other funding | 426,263 | 7.63% | 0.9% | 425,821 | 6.36% | 0.9% | |||||||||||||||||
| Total wholesale funding | 5,372,247 | 4.74% | 11.3% | 5,603,648 | 4.83% | 12.3% | |||||||||||||||||
| Total noncore funding | 7,698,394 | 4.48% | 16.2% | 7,326,287 | 4.71% | 16.1% | |||||||||||||||||
| Totals | $ | 47,459,431 | 2.70% | 100.0% | $ | 45,373,191 | 3.11% | 100.0% | |||||||||||||||
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(1)The reciprocating categories consists of deposits we receive from a bank network (the IntraFi network) in connection with deposits of our customers in excess of our FDIC coverage limit that we place with the IntraFi network. Regulatory guidance defines reciprocating deposits in a portfolio of a bank of our size over and above $5.0 billion as noncore funding. However, we have witnessed no distinction in the behavior of the deposits in our portfolio over and above $5.0 billion versus the deposits up to $5.0 billion. Therefore, we have included the entire portfolio of reciprocating deposits in the table above as core funding.
As noted in the table above, our core funding as a percentage of total funding decreased slightly, decreasing from 83.9% at December 31, 2024 to 83.8% at June 30, 2025 and remained above internal policies. We continue to create and implement new and enhanced deposit gathering initiatives each year as part of our annual strategic planning process in recognition of the more challenging deposit gathering environment we are currently experiencing. When wholesale funding is necessary to complement our core deposit base, management determines which source is best suited to address both liquidity risk management and interest rate risk management objectives. Our Asset Liability Management Policy imposes limitations on overall wholesale funding reliance and on brokered deposit exposure specifically. Both our overall reliance on wholesale funding and exposure to brokered deposits and brokered time deposits were within those policy limitations as of June 30, 2025.
The amount of time deposits as of June 30, 2025 amounted to $4.9 billion. The following table shows our time deposits in denominations of less than $250,000 and in denominations of $250,000 and greater by category based on time remaining until maturity and the weighted average rate for each category as of June 30, 2025 (in thousands):
| Balances | Weighted Avg. Rate | ||||||||||
| Denominations less than $250 | |||||||||||
| Three months or less | $ | 871,714 | 3.65 | % | |||||||
| Over three but less than six months | 728,384 | 3.68 | % | ||||||||
| Over six but less than twelve months | 864,672 | 3.79 | % | ||||||||
| Over twelve months | 349,874 | 3.54 | % | ||||||||
| $ | 2,814,644 | 3.69 | % | ||||||||
| Denominations $250 and greater | |||||||||||
| Three months or less | $ | 1,079,693 | 4.08 | % | |||||||
| Over three but less than six months | 467,576 | 3.85 | % | ||||||||
| Over six but less than twelve months | 466,155 | 3.81 | % | ||||||||
| Over twelve months | 112,367 | 3.60 | % | ||||||||
| $ | 2,125,791 | 3.95 | % | ||||||||
| Totals | $ | 4,940,435 | 3.80 | % | |||||||
Subordinated debt and other borrowings. Pinnacle Bank receives advances from the FHLB pursuant to the terms of various borrowing agreements which assist it in the funding of its home mortgage and commercial real estate loan portfolios. Under the borrowing agreements with the FHLB, Pinnacle Bank has pledged certain qualifying residential mortgage loans and, pursuant to a blanket lien, all qualifying commercial mortgage loans as collateral. At June 30, 2025 and December 31, 2024, Pinnacle Bank had received advances from the FHLB totaling $1.8 billion and $1.9 billion, respectively. At June 30, 2025, the scheduled maturities of FHLB advances and interest rates are as follows (in thousands):
| Scheduled maturities | Weighted average interest rates (1) | ||||||||||
| 2025 | $ | — | — | % | |||||||
| 2026 | 162,500 | 4.00 | % | ||||||||
| 2027 | 242,063 | 4.15 | % | ||||||||
| 2028 | 1,375,000 | 3.97 | % | ||||||||
| 2029 | — | — | % | ||||||||
| Thereafter | 11 | 2.75 | % | ||||||||
| 1,779,574 | |||||||||||
| Fair value hedging adjustment | (4,104) | ||||||||||
| Total Federal Home Loan Bank advances | $ | 1,775,470 | |||||||||
| Weighted average interest rate | 4.00 | % | |||||||||
(1)Some FHLB advances include variable interest rates that could increase or decrease in the future. The table reflects rates in effect as of June 30, 2025.
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We have established, or through acquisition acquired, twelve statutory business trusts which were established to issue 30-year trust preferred securities and certain other subordinated debt agreements. From time to time we, or our bank subsidiary, have issued subordinated notes to enhance our capital positions. These trust-preferred securities and subordinated notes qualify as Tier 2 capital subject to annual phase outs, with such phase outs beginning five years from maturity, as is the case with the subordinated notes we issued in September 2019 beginning in the third quarter of 2024. These instruments are outlined below (in thousands):
| Name | Date Established | Maturity | Total Debt Outstanding | Interest Rate at June 30, 2025 | Coupon Structure at June 30, 2025 | |||||||||||||||||||||||||||
| Trust preferred securities | ||||||||||||||||||||||||||||||||
| PNFP Statutory Trust I | December 29, 2003 | December 30, 2033 | $ | 10,310 | 7.37 | % | 3-month SOFR + 2.80% (1) | |||||||||||||||||||||||||
| PNFP Statutory Trust II | September 15, 2005 | September 30, 2035 | 20,619 | 5.96 | % | 3-month SOFR + 1.40% (1) | ||||||||||||||||||||||||||
| PNFP Statutory Trust III | September 7, 2006 | September 30, 2036 | 20,619 | 6.21 | % | 3-month SOFR + 1.65% (1) | ||||||||||||||||||||||||||
| PNFP Statutory Trust IV | October 31, 2007 | September 30, 2037 | 30,928 | 7.43 | % | 3-month SOFR + 2.85% (1) | ||||||||||||||||||||||||||
| BNC Capital Trust I | April 3, 2003 | April 15, 2033 | 5,155 | 7.77 | % | 3-month SOFR + 3.25% (1) | ||||||||||||||||||||||||||
| BNC Capital Trust II | March 11, 2004 | April 7, 2034 | 6,186 | 7.37 | % | 3-month SOFR + 2.85% (1) | ||||||||||||||||||||||||||
| BNC Capital Trust III | September 23, 2004 | September 23, 2034 | 5,155 | 6.92 | % | 3-month SOFR + 2.40% (1) | ||||||||||||||||||||||||||
| BNC Capital Trust IV | September 27, 2006 | December 31, 2036 | 7,217 | 6.26 | % | 3-month SOFR + 1.70% (1) | ||||||||||||||||||||||||||
| Valley Financial Trust I | June 26, 2003 | June 26, 2033 | 4,124 | 7.66 | % | 3-month SOFR + 3.10% (1) | ||||||||||||||||||||||||||
| Valley Financial Trust II | September 26, 2005 | December 15, 2035 | 7,217 | 6.07 | % | 3-month SOFR + 1.49% (1) | ||||||||||||||||||||||||||
| Valley Financial Trust III | December 15, 2006 | January 30, 2037 | 5,155 | 6.27 | % | 3-month SOFR+ 1.73% (1) | ||||||||||||||||||||||||||
| Southcoast Capital Trust III | August 5, 2005 | September 30, 2035 | 10,310 | 6.06 | % | 3-month SOFR + 1.50% (1) | ||||||||||||||||||||||||||
| Subordinated Debt | ||||||||||||||||||||||||||||||||
| Pinnacle Financial Subordinated Notes | September 11, 2019 | September 15, 2029 | 300,000 | 7.36 | % | 3-month SOFR + 3.04% (2) | ||||||||||||||||||||||||||
| Debt issuance costs and fair value adjustments | (6,732) | |||||||||||||||||||||||||||||||
| Total subordinated debt and other borrowings | $ | 426,263 | ||||||||||||||||||||||||||||||
(1) Rate transitioned to three month SOFR plus a comparable tenor spread adjustment beginning after July 1, 2023 as three month LIBOR ceased to be published effective July 1, 2023.
(2) Previously was to migrate to three month LIBOR + 2.775%, but migrated to three month SOFR + 3.04% beginning September 15, 2024 through the end of the term as three month LIBOR ceased to be published effective July 1, 2023.
Capital Resources. At June 30, 2025 and December 31, 2024, our shareholders' equity amounted to $6.6 billion and $6.4 billion, respectively. At June 30, 2025 and December 31, 2024, our capital ratios, including our bank's capital ratios, exceeded regulatory minimum capital requirements and those necessary to be considered well-capitalized under applicable federal regulations. See Note 11. Regulatory Matters in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q for additional information regarding our capital ratios.
We and our bank periodically evaluate risk weightings and may enter into transactions or undertake procedures that may reduce risk weightings, such as during the second quarter of 2024 when we entered into a credit default swap (CDS), as more fully described in Note 9. Derivative Instruments in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q, and implemented enhanced control processes with respect to certain commercial loans which permitted recharacterization of the loans. As a result, the loans subject to the CDS and the loans where risk ratings were able to be recharacterized now qualify for reduced risk weights pursuant to risk-based capital guidelines.
From time to time we may be required to support the capital needs of our bank. At June 30, 2025, we had approximately $222.0 million of cash at the parent company that could be used to support our bank. We believe we have various capital raising techniques available to us to provide for the capital needs of our company and bank, such as issuing subordinated debt or entering into a revolving credit facility with a financial institution. We also periodically evaluate capital markets conditions to identify opportunities to access those markets if necessary or prudent to support our capital levels.
Share Repurchase Program. On January 21, 2025, our board of directors authorized a share repurchase program for up to $125.0 million of our common stock which commenced upon expiration of the share repurchase program that expired on March 31, 2025. The new authorization is to remain in effect through March 31, 2026. We did not purchase any shares under the prior or current share repurchase programs during 2024 or the first six months of 2025.
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Dividends. Pursuant to Tennessee banking law, our bank may not, without the prior consent of the Commissioner of the TDFI, pay any dividends to us in a calendar year in excess of the total of our bank's retained net profits for that year plus the retained net profits for the preceding two years, which was $1.2 billion at June 30, 2025. Additionally, approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of Pinnacle Bank to fall below specified minimum levels. During the six months ended June 30, 2025, the bank paid dividends of $60.9 million to us which is within the limits allowed by banking regulations.
During the three and six months ended June 30, 2025, we paid $18.9 million and $37.8 million, respectively, in dividends to our common shareholders and $3.8 million and $7.6 million, respectively, in dividends on our Series B Preferred Stock. On July 15, 2025, our board of directors declared a $0.24 per share quarterly cash dividend to common shareholders which should approximate $18.8 million in aggregate dividend payments that are expected to be paid on August 29, 2025 to common shareholders of record as of the close of business on August 1, 2025. Additionally, on that same day, our board of directors approved a quarterly dividend of approximately $3.8 million, or $16.88 per share (or $0.422 per depositary share), on the Series B Preferred Stock payable on September 1, 2025 to shareholders of record at the close of business on August 17, 2025. The amount and timing of all future dividend payments, if any, is subject to board discretion and will depend on our earnings, capital position, financial condition and other factors, including, if necessary, our receipt of dividends from Pinnacle Bank, regulatory capital requirements, as they become known to us and receipt of any regulatory approvals that may become required as a result of our and our bank subsidiary's financial results.
Market and Liquidity Risk Management
Our objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies. Our Asset Liability Management Committee (ALCO) is charged with the responsibility of monitoring these policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management.
Interest Rate Sensitivity. In the normal course of business, we are exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates the interest rate risk so that we can meet customer demands for various types of loans and deposits. ALCO determines the most appropriate amounts of on-balance sheet and off-balance sheet items. Measurements which we use to help us manage interest rate sensitivity include an earnings simulation model and an economic value of equity (EVE) model.
Our interest rate sensitivity modeling incorporates a number of assumptions for both earnings simulation and EVE, including loan and deposit re-pricing characteristics, the rate of loan prepayments, etc. ALCO periodically reviews these assumptions for accuracy based on historical data and future expectations. Our ALCO policy requires that the base scenario assumes rates remain flat and is the scenario to which all others are compared in order to measure the change in net interest income and EVE. Policy limits are applied to the results of certain modeling scenarios. While the primary policy scenarios focus on a twelve month time frame for the earnings simulations model, longer time horizons are also modeled. All policy scenarios assume a static volume forecast where the balance sheet is held constant, although other scenarios are modeled.
Earnings simulation model. We believe interest rate risk is best measured by our earnings simulation modeling. Earning assets, interest-bearing liabilities and off-balance sheet financial instruments are combined with forecasts of interest rates for the next 12 months and are combined with other factors in order to produce various earnings simulations over that same 12-month period. To limit interest rate risk, we have policy guidelines for our earnings at risk which seek to limit the variance of net interest income in both gradual and instantaneous changes to interest rates. For instantaneous upward and downward changes in rates from management's flat interest rate forecast over the next twelve months, assuming a static balance sheet, the following estimated changes are calculated:
Estimated % Change in Net Interest Income Over 12 Months | ||||||||
| June 30, 2025 | June 30, 2024 | |||||||
Instantaneous Rate Change | ||||||||
300 bps increase | (2.22)% | (0.15)% | ||||||
200 bps increase | (0.69)% | 0.37% | ||||||
100 bps increase | 0.06% | 0.48% | ||||||
100 bps decrease | 0.57% | (1.41)% | ||||||
200 bps decrease | 0.91% | (2.12)% | ||||||
300 bps decrease | (0.55)% | (3.24)% | ||||||
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While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging activities we might take and changing product spreads that could mitigate any potential adverse impact of changes in interest rates.
The change in interest rate sensitivity between June 30, 2025 and June 30, 2024 set out in the table above is due to factors impacting both the asset and liability side of the balance sheet. Over the past year, securities with an effective variable rate have increased as a percentage of interest-earning assets while non-maturity deposits indexed to the federal funds rate increased as a percentage of interest-bearing liabilities. These two factors were the primary drivers behind reduced asset sensitivity and a more neutral interest rate position at June 30, 2025 as compared to June 30, 2024.
At June 30, 2025, our earnings simulation model indicated we were in compliance with our policies for interest rate scenarios for which we model as required by our board approved Asset Liability Policy.
Economic value of equity model. While earnings simulation modeling attempts to determine the impact of a changing rate environment to our net interest income, our EVE model measures estimated changes to the economic values of our assets, liabilities and off-balance sheet items as a result of interest rate changes. Economic values are determined by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case EVE. We then shock rates as prescribed by our Asset Liability Policy and measure the sensitivity in EVE values for each of those shocked rate scenarios versus the base case. The Asset Liability Policy sets limits for those sensitivities. At June 30, 2025, our EVE modeling calculated the following estimated changes in EVE due to instantaneous upward and downward changes in rates:
| June 30, 2025 | June 30, 2024 | |||||||
Instantaneous Rate Change | ||||||||
300 bps increase | (15.41)% | (18.92)% | ||||||
200 bps increase | (10.07)% | (12.95)% | ||||||
100 bps increase | (4.92)% | (6.61)% | ||||||
100 bps decrease | 5.14% | 7.05% | ||||||
200 bps decrease | 8.13% | 11.61% | ||||||
300 bps decrease | (1.88)% | 1.93% | ||||||
While an instantaneous and severe shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a gradual shift in interest rates would have a more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, hedging activities we might take and changing product spreads that could mitigate the adverse impact of changes in interest rates.
At June 30, 2025, our EVE model indicated we were in compliance with our policies for all interest rate scenarios for which we model as required by our board approved Asset Liability Policy.
Most likely earnings simulation models. We also analyze a most-likely earnings simulation scenario that projects the expected change in rates based on a forward yield curve adopted by management using expected balance sheet volumes forecasted by management. Separate growth assumptions are developed for loans, investments, deposits, etc. Other interest rate scenarios analyzed by management may include delayed rate shocks, yield curve steepening or flattening, or other variations in rate movements to further analyze or stress our balance sheet under various interest rate scenarios. Each scenario is evaluated by management. These processes assist management to better anticipate our financial results and, as a result, management may determine the need to invest in other operating strategies and tactics which might enhance results or better position the firm's balance sheet to reduce interest rate risk going forward.
Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps and floors)
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which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising or elevated interest rates. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies.
Management's model governance, model implementation and model validation processes and controls are subject to review in our regulatory examinations to ensure they are in compliance with the most recent regulatory guidelines and industry and regulatory practices. Management utilizes a respected, sophisticated third party asset liability modeling software to help ensure implementation of management's assumptions into the model are processed as intended in a robust manner. That said, there are numerous assumptions regarding financial instrument behavior that are integrated into the model. The assumptions are formulated by combining observations gleaned from our historical studies of financial instruments and our best estimations of how these instruments may behave in the future given changes in economic conditions, technology, etc. These assumptions may prove to be inaccurate. Additionally, given the large number of assumptions built into our asset liability modeling software, it is difficult, at best, to compare our results to other firms.
ALCO may determine that Pinnacle Financial should over time become more or less asset or liability sensitive depending on the underlying balance sheet circumstances and our conclusions as to anticipated interest rate fluctuations in future periods. Our "most likely" rate forecast is based primarily on information we acquire from a service which includes a consensus forecast of numerous interest rate benchmarks. We may implement additional actions designed to achieve our desired sensitivity position which could change from time to time.
We have in the past used, and may in the future continue to use, derivative financial instruments as one tool to manage our interest rate sensitivity, including in our mortgage lending program, while continuing to meet the credit and deposit needs of our customers. For further details on the derivatives we currently use, see Note 9. Derivative Instruments in the Notes to our Consolidated Financial Statements elsewhere in this Form 10-Q.
We may also enter into interest rate swaps to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, even though they are not designated as hedging instruments.
Liquidity Risk Management. The purpose of liquidity risk management is to ensure that there are sufficient cash flows to satisfy loan demand, deposit withdrawals, and our other needs. Traditional sources of liquidity for a bank include asset maturities and growth in core deposits. A bank may achieve its desired liquidity objectives from the management of its assets and liabilities and by internally generated funding through its operations. Funds invested in marketable instruments that can be readily sold and the continuous maturing of other earning assets are sources of liquidity from an asset perspective. The liability base provides sources of liquidity through attraction of increased deposits and borrowing funds from various other institutions.
To assist in determining the adequacy of our liquidity, we perform a variety of liquidity stress tests including idiosyncratic, systemic and combined scenarios for both moderate and severe events. Liquidity is defined as the ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management involves maintaining our ability to meet the daily cash flow requirements of our customers, both depositors and borrowers. We seek to maintain a sufficiently liquid asset balance to ensure our ability to meet our obligations. The amount of the appropriate minimum liquid asset balance is determined through severe liquidity stress testing as measured by our liquidity coverage ratio calculation. At June 30, 2025, we were in compliance with our liquidity coverage ratio.
Changes in interest rates also affect our liquidity position. We currently price deposits in response to market rates, and our management intends to continue this policy. If deposits are not priced in response to market rates, a loss of deposits could occur which would negatively affect our liquidity position.
Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit flows fluctuate significantly, being influenced by interest rates, general economic conditions and competition. Additionally, debt security investments are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. Our financial advisors attempt to price our deposit products to meet our asset/liability objectives consistent with local market conditions. Our ALCO is responsible for monitoring our ongoing liquidity needs. Our regulators also monitor our liquidity and capital resources on a periodic basis.
As noted previously, Pinnacle Bank is a member of the FHLB and, pursuant to a borrowing agreement with the FHLB, has pledged certain assets pursuant to a blanket lien. As such, Pinnacle Bank may use the FHLB as a source of liquidity depending on the firm's ALCO strategies. Additionally, we may pledge additional qualifying assets or reduce the amount of pledged assets with the FHLB to increase or decrease our borrowing capacity at the FHLB. At June 30, 2025, we believe we had an estimated $3.1 billion in additional
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borrowing capacity with the FHLB; however, incremental borrowings are made via a formal request by Pinnacle Bank and the subsequent approval by the FHLB.
Pinnacle Bank also has accommodations with upstream correspondent banks for unsecured short-term advances which aggregate $105.0 million. These accommodations have various covenants related to their term and availability, and in most cases must be repaid within less than one month. There were no outstanding borrowings under these agreements at June 30, 2025, or during the period then ended, although we test the availability of these accommodations periodically. Pinnacle Bank also had approximately $6.4 billion in available Federal Reserve discount window lines of credit at June 30, 2025.
At June 30, 2025, excluding reciprocating time and money market deposits issued through the IntraFi network, we had approximately $3.2 billion in brokered deposits and $15.5 billion in uninsured and uncollateralized deposits. Historically, we have issued brokered certificates through several different brokerage houses based on competitive bid.
Banking regulators have defined additional liquidity guidelines, through the issuance of the Basel III Liquidity Coverage Ratio (LCR) and the Modified LCR. These regulatory guidelines became effective January 2015 with phase in over subsequent years and require these large institutions to follow prescriptive guidance in determining an absolute level of a high quality liquid asset (HQLA) buffer that must be maintained on their balance sheets in order to withstand a potential liquidity crisis event. Although Pinnacle Financial follows the principles outlined in the Interagency Policy Statement on Liquidity Risk Management, issued March 2010, to determine its HQLA buffer, Pinnacle Financial is not currently subject to these regulations. However, these formulas could eventually be imposed on smaller banks, such as Pinnacle Bank, and require an increase in the absolute level of liquidity on our balance sheet, which could result in lower net interest margins for us in future periods.
At June 30, 2025, we had no individually significant commitments for capital expenditures as substantially all of the capital expenditures related to the relocation of our corporate headquarters have been incurred. Expansion of our locations, including non-branch locations, will increase over an extended period of time across our footprint, including the markets to which we have recently expanded, and certain of our locations will be in need of required renovations. In future periods, these expansions and renovation projects may lead to additional equipment and occupancy expenses as well as related increases in salaries and benefits expense. In addition to the above noted expenditures, if we were to breach the terms of one of the leases entered into in the sale-leaseback transaction completed in the second quarter of 2023 and the counterparty terminated the lease in accordance with its terms, we may be forced to expend significant amounts of capital expenditures to lease, procure and build or renovate a suitable replacement office. Additionally, we expect we will continue to incur costs associated with planned technology improvements to enhance the infrastructure of our firm.
Our short-term borrowings (borrowings which mature within the next fiscal year) consist primarily of securities sold under agreements to repurchase (these agreements are typically associated with comprehensive treasury management programs for our clients and provide them with short-term returns on their excess funds).
We have certain contractual obligations as of June 30, 2025, which by their terms have a contractual maturity and termination dates subsequent to June 30, 2025. Each of these commitments is noted throughout Item 2. Management's Discussion and Analysis. Our management believes that we have adequate liquidity to meet all known contractual obligations and unfunded commitments, including loan commitments and reasonable borrower, depositor and creditor requirements over the next twelve months and that we will have adequate liquidity to meet our obligations over a longer-term as well.
Off-Balance Sheet Arrangements. At June 30, 2025, we had outstanding standby letters of credit of $486.6 million and unfunded loan commitments outstanding of $16.0 billion. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, Pinnacle Bank has the ability to liquidate securities available-for-sale, or on a short-term basis, to borrow and purchase federal funds from other financial institutions.
We follow the same credit policies and underwriting practices when making these commitments as we do for on-balance sheet instruments. Each customer's creditworthiness is evaluated on a case-by-case basis and the amount of collateral obtained, if any, is based on management's credit evaluation of the customer. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments. At June 30, 2025, we had accrued reserves of $13.3 million related to expected credit losses associated with off-balance sheet commitments.
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Recently Adopted Accounting Pronouncements
See "Part I - Item 1. Consolidated Financial Statements - Note. 1 Summary of Significant Accounting Policies" of this Form 10-Q for further information.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item 3 is included on pages 43 through 66 of Part I - Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Pinnacle Financial maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to Pinnacle Financial's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Pinnacle Financial carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that Pinnacle Financial's disclosure controls and procedures were effective as of the end of the period covered by this report in ensuring that the information required to be disclosed by Pinnacle Financial in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to Pinnacle Financial's management (including the Principal Executive Officer and Principal Financial Officer) to allow timely decisions regarding required disclosure, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Changes in Internal Controls
No change in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) or 15d-(f)) occurred during the fiscal quarter ended June 30, 2025 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various legal proceedings to which Pinnacle Financial or a subsidiary of Pinnacle Financial is a party arise from time to time in the normal course of business. There are no material pending legal proceedings to which Pinnacle Financial or a subsidiary of Pinnacle Financial is a party or of which any of their property is the subject.
ITEM 1A. RISK FACTORS
Investing in Pinnacle Financial involves various risks which are particular to our company, our industry and our market area. We believe all significant risks to investors in Pinnacle Financial have been outlined in Part II, Item 1A of the Form 10-K. However, other risks may prove to be important in the future, and new risks may emerge at any time. We cannot predict with certainty all potential developments which could materially affect our financial performance or condition. Except as set forth in this Item 1A, there has been no material change to our risk factors as previously disclosed in the Form 10-K.
The consummation of our proposed merger with Synovus is contingent upon the satisfaction of a number of conditions, including shareholder and regulatory approvals, that may be outside of our and Synovus’ control and that we and Synovus may be unable to satisfy or obtain or which may delay the consummation of the merger or result in the imposition of conditions that could reduce the anticipated benefits from the merger or cause the parties to abandon the merger.
Consummation of our proposed merger with Synovus is contingent upon the satisfaction of a number of conditions, some of which are beyond our and Synovus’ control, including, among others:
•adoption of the merger agreement by our shareholders and by Synovus’ shareholders;
•authorization for listing on the NYSE of the shares of Newco common stock to be issued in the merger, subject to official notice of issuance;
•the receipt of required regulatory approvals, including the approval of the Board of Governors of the Federal Reserve System, the Tennessee Department of Financial Institutions and the Georgia Department of Banking and Finance;
•effectiveness of the registration statement on Form S-4 for the Newco common stock to be issued in the proposed merger; and
•the absence of any order, injunction, decree or other legal restraint preventing the completion of the merger or making the completion of the merger illegal.
Each party's obligation to complete the merger is also subject to certain additional customary conditions, including:
•subject to certain exceptions, the accuracy of the representations and warranties of the other party;
•performance in all material respects by the other party of its obligations under the merger agreement; and
•receipt by such party of an opinion from its counsel to the effect that the proposed merger will qualify as a reorganization within the meaning of Section 368(a) of the IRC.
These conditions to the closing of our proposed merger with Synovus may not be fulfilled in a timely manner or at all, and, accordingly, the proposed merger may not be completed. In addition, the parties can mutually decide to terminate the merger agreement at any time, before or after receipt of the requisite approvals by our and Synovus’ shareholders, or we or Synovus may elect to terminate the merger agreement in certain other circumstances.
As a condition to granting required regulatory approvals, governmental entities may impose conditions, limitations or costs, require divestitures or place restrictions on the conduct of Newco’s business after the closing of the proposed merger. Such conditions or changes and the process of obtaining regulatory approvals could, among other things, have the effect of delaying completion of the proposed merger or of imposing additional costs or limitations on Newco following the proposed merger, any of which may have an adverse effect on Newco following the proposed merger.
We and Synovus may also be subject to lawsuits challenging the proposed merger, and adverse rulings in these lawsuits may delay or prevent the proposed merger from being completed or require us or Synovus to incur significant costs to defend or settle these lawsuits. Any delay in completing the proposed merger could cause Newco not to realize, or to be delayed in realizing, some or all of the benefits that we and Synovus expect to achieve if the proposed merger is successfully completed within its expected time frame.
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We may not be able to successfully integrate Synovus or to realize the anticipated benefits of our proposed merger with Synovus.
Upon the consummation of the proposed merger with Synovus, we and Synovus will begin the process of integrating our two companies. A successful integration of our and Synovus’ businesses will depend substantially on our ability to consolidate operations, corporate cultures, systems and procedures and to eliminate redundancies and costs. We may not be able to combine our business with Synovus’ business without encountering difficulties, such as:
• the loss of key employees;
• the disruption of operations and business;
•inability to maintain and increase competitive presence;
•loan and deposit attrition, customer loss and revenue loss;
•possible inconsistencies in standards, control procedures and policies;
• unexpected problems with costs, operations, personnel, technology and credit; and/or
•problems with the assimilation of new operations, sites or personnel, which could divert resources from regular banking operations.
Additionally, general market and economic conditions or governmental actions affecting the financial industry generally may inhibit our and Synovus’ successful integration of our businesses.
Further, we have entered into the merger agreement with Synovus, with the expectation that our combination with Synovus will result in various benefits including, among other things, benefits relating to enhanced revenues, a strengthened market position for the combined company, cross selling opportunities, technological efficiencies, cost savings and operating efficiencies. Achieving the anticipated benefits of the proposed merger with Synovus is subject to a number of uncertainties, including whether we integrate our and Synovus’s businesses in an efficient and effective manner, and general competitive factors in the marketplace. Failure to achieve these anticipated benefits on the anticipated timeframe, or at all, could result in a reduction in the price of the shares of the combined company resulting from the proposed merger as well as in increased costs, decreases in the amount of expected revenues and diversion of management's time and energy and could materially and adversely affect our and the combined company’s business, financial condition and operating results. Additionally, upon consummation of the proposed merger with Synovus, we will make fair value estimates in recording that transaction. Actual values of these assets and liabilities could differ from our estimates, which could result in our not achieving the anticipated benefits of the proposed merger. Finally, any cost savings that are realized may be offset by losses in revenues or other charges to earnings.
While the proposed merger is pending, we will be subject to business uncertainties and contractual restrictions that could adversely affect our business and operations.
Uncertainty about the effect of the proposed merger on employees, customers and other persons with whom we or Synovus have a business relationship may have an adverse effect on our business, operations and stock price. Existing customers of ours and Synovus could decide to no longer do business with us, Synovus or the combined company, reducing the anticipated benefits of the merger. We and Synovus are also subject to certain restrictions on the conduct of our respective businesses while the proposed merger is pending. As a result, certain other projects may be delayed or abandoned and business decisions could be deferred. Employee retention at our company or Synovus may be challenging before completion of the proposed merger, as certain employees may experience uncertainty about their future roles with the combined company, and these retention challenges will require us to incur additional expenses in order to retain key employees. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us, Synovus or the combined company, the benefits of the proposed merger could be materially diminished.
The combined company following our proposed merger with Synovus will incur significant transaction and merger-related costs in connection with the proposed merger.
We expect to incur significant costs associated with combining the operations of Synovus with our operations. We just recently began collecting information in order to formulate detailed integration plans to deliver anticipated cost savings. Additional unanticipated costs may be incurred in the integration of our and Synovus’ businesses. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction and merger-related costs over time, this net benefit may not be achieved in the near term, or at all.
Whether or not our proposed merger with Synovus is consummated, we will incur substantial expenses, such as legal, accounting and financial advisory fees, in pursuing the proposed merger which will adversely impact our earnings. Completion of the proposed merger is conditioned upon customary closing conditions, including the receipt of all required governmental authorizations, consents, orders and approvals, including approval by certain federal and state banking regulators. We and Synovus intend to pursue all required
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approvals in accordance with the requirements of the merger agreement that we and Synovus have executed in connection with the proposed merger. However, there can be no assurance that such approvals will be obtained on the anticipated timeframe, or at all.
Failure to complete our proposed merger with Synovus could cause our results to be adversely affected, our stock price to decline or have a material and adverse effect on our liquidity and capital resources.
If our proposed merger with Synovus is not completed for any reason, our stock price may decline because costs related to the proposed merger, such as legal, accounting and certain financial advisory fees, must be paid even if the proposed merger is not completed. In addition, if the proposed merger is not completed our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the proposed merger with Synovus, we would be subject to a number of risks, including the following:
•we may experience negative reactions from the financial markets, including negative impacts on our stock price;
•we may experience negative reactions from our customers, vendors and associates; and
•our management team will have devoted substantial time and resources to matters relating to the proposed merger (including integration planning), and would otherwise have devoted their time and resources to other opportunities that may have been beneficial to us as an independent financial institution.
Moreover, if Synovus terminates the merger agreement because our board of directors withdraws or modifies or qualifies its recommendation that our shareholders vote in favor of the proposed merger, we may be required to pay a termination fee of $425.0 million to Synovus. In addition, if our proposed merger with Synovus is not completed, whether because of our failure to receive approval from our shareholders or required regulatory approvals in a timely fashion or because we have breached our obligations in a way that permits Synovus to terminate the merger agreement, or for any other reason, our stock price may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed.
Our proposed merger with Synovus involves risks unlike those we have faced in connection with our other acquisitions.
For the proposed merger with Synovus to be successful, we will need to, among other things, successfully export our business strategies to the markets in which Synovus operates where we do not operate today and effectively manage a combined company that is over 50% larger than our present size, measured by total assets. The company resulting from our proposed merger with Synovus will rely heavily on Synovus’ existing personnel to grow loan and deposit balances in those markets where we don’t currently have a presence and if the resulting company is unable to retain our and Synovus’ key employees that company’s results of operations may be materially and adversely affected. In addition, if the combined company is not able to increase the amount of core funding, particularly in lower cost deposits, its net interest margin and liquidity may be adversely affected which could result in a material and adverse impact on its results of operations.
In order to consummate the proposed merger, and the proposed merger of our and Synovus’ bank subsidiaries, the company into which we and Synovus are merging will be required to receive certain regulatory approvals. The complexity, size and geographic scope of our proposed merger with Synovus may result in these required regulatory approvals being granted more slowly or not at all. If the company into which we and Synovus are merging is unable to secure the required regulatory approvals to consummate the proposed merger as quickly as we have in other transactions that we have consummated, that combined company’s ability to achieve the synergies and cost savings that we and Synovus have estimated can be achieved in this transaction may be delayed and the combined company’s results of operations may be materially and adversely affected. Moreover, a delay in receiving any required regulatory approvals may cause our stock price to decline. Moreover, as a condition to their approval of the proposed merger, certain regulators may require the resulting company to increase its capital levels above those we or Synovus maintain separately or may impose requirements, limitations or costs or place restrictions on the conduct of the business of the combined company after the closing of the proposed merger. Any one of these requirements, limitations, costs or restrictions could jeopardize or delay the effective time of the proposed merger or materially reduce the anticipated benefits of the transaction and could adversely affect the ability of the combined company to integrate our and Synovus’ businesses and/or reduce or eliminate the anticipated benefits of the proposed merger. This could result in a failure to consummate the proposed merger or have a material adverse effect on the business and results of operations of the combined company.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table discloses shares of our common stock repurchased during the three months ended June 30, 2025.
| Period | Total Number of Shares Repurchased (1)(2) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| April 1, 2025 to April 30, 2025 | 4,888 | $ | 95.36 | — | 125,000,000 | |||||||||||||||||||||
| May 1, 2025 to May 31, 2025 | 102 | 107.73 | — | 125,000,000 | ||||||||||||||||||||||
| June 1, 2025 to June 30, 2025 | 175 | 109.56 | — | 125,000,000 | ||||||||||||||||||||||
| Total | 5,165 | $ | 96.14 | — | 125,000,000 | |||||||||||||||||||||
______________________
(1)During the quarter ended June 30, 2025, 16,624 shares of restricted stock and restricted stock units previously awarded to certain of the participants in our equity incentive plans vested. We withheld 5,165 shares of common stock to satisfy tax withholding requirements associated with the vesting of these awards.
(2)On January 21, 2025, our board of directors authorized a share repurchase program for up to $125.0 million of our common stock which commenced upon the expiration of the previously authorized share repurchase program that expired on March 31, 2025. The new authorization is to remain in effect through March 31, 2026. Share repurchases may be made from time to time, on the open market or in privately negotiated transactions, at the discretion of the management of Pinnacle Financial, after the board of directors of Pinnacle Financial authorizes a repurchase program. The approved share repurchase program does not obligate Pinnacle Financial to repurchase any dollar amount or number of shares, and the program may be extended, modified, suspended or discontinued at any time. Stock repurchases generally are effected through open market purchases, and may be made through unsolicited negotiated transactions. The timing of these repurchases will depend on market conditions and other requirements. Pinnacle Financial did not repurchase any shares under its share repurchase program during the three months ended June 30, 2025.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
During the quarter ended June 30, 2025, no director or officer of the Company adopted or terminated any "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as such terms are defined in Item 408(a) and (c) of Regulation S-K.
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ITEM 6. EXHIBITS
2.1 | Agreement and Plan of Merger, dated as of July 24, 2025, by and among Pinnacle Financial Partners, Inc., Synovus Financial Corp. and Steel Newco Inc., incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on 8-K filed with the SEC on July 25, 2025.## | |||||||
3.1 | Amended and Restated Charter, as amended (restated for SEC filing purposes only), incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, filed on May 9, 2025. | |||||||
10.1 | Letter Agreement, dated July 24, 2025, by and between Pinnacle Financial Partners, Inc. and M. Terry Turner, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on 8-K filed with the SEC on July 25, 2025.# | |||||||
10.2 | Letter Agreement, dated July 24, 2025, by and between Pinnacle Financial Partners, Inc. and Robert A. McCabe, Jr., incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on 8-K filed with the SEC on July 25, 2025.# | |||||||
31.1* | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |||||||
31.2* | Certification pursuant to Rule 13a-14(a)/15d-14(a) | |||||||
32.1** | Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002 | |||||||
32.2** | Certification pursuant to 18 USC Section 1350 - Sarbanes-Oxley Act of 2002 | |||||||
| 101.INS* | Inline XBRL Instance Document | |||||||
| 101.SCH* | Inline XBRL Schema Documents | |||||||
| 101.CAL* | Inline XBRL Calculation Linkbase Document | |||||||
| 101.LAB* | Inline XBRL Label Linkbase Document | |||||||
| 101.PRE* | Inline XBRL Presentation Linkbase Document | |||||||
| 101.DEF* | Inline XBRL Definition Linkbase Document | |||||||
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, formatted in Inline XBRL (included in Exhibit 101) | |||||||
| # | Management contract or compensatory plan or arrangement. | |||||||
| * | Filed herewith. | |||||||
| ** | Furnished herewith. | |||||||
| ## | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule will be furnished supplementally to the SEC upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished. | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PINNACLE FINANCIAL PARTNERS, INC. | ||||||||
| August 7, 2025 | /s/ M. Terry Turner | |||||||
| M. Terry Turner | ||||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| August 7, 2025 | /s/ Harold R. Carpenter | |||||||
| Harold R. Carpenter | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial and Accounting Officer) | ||||||||
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Pinnacle Finl Partners Inc
NASDAQ:PNFP
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