Business Overview and History Pinnacle Financial Partners, Inc. (PNFP) is a regional bank holding company headquartered in Nashville, Tennessee. The company, founded in 2000, has grown to become a dominant player in the Southeastern United States, with a focus on providing a full range of banking, investment, trust, mortgage, and insurance products and services to businesses, their owners, and individuals.
Pinnacle Financial's journey began in October 2000 when it opened its first location in downtown Nashville. Over the past 24 years, the company has executed a consistent strategy of organic growth, strategic acquisitions, and market expansions to establish itself as a leading financial institution in the region. In 2015, Pinnacle Financial completed the acquisitions of CapitalMark Bank & Trust, Magna Bank, and Avenue Financial Holdings, Inc., which allowed the company to expand its presence in Tennessee. In 2017, Pinnacle acquired BNC Bancorp, which expanded its footprint into North Carolina, South Carolina, and Virginia. Since then, the company has further bolstered its presence in the Carolinas and Virginia through de novo market extensions, adding locations in markets like Atlanta, Washington, D.C., and Jacksonville, Florida.
Pinnacle's success is rooted in its ability to attract and retain top talent in its markets. The company has consistently been recognized as one of the best places to work in the banking industry, including being named the No. 3 Best Large Workplace in Financial Services and Insurance by FORTUNE magazine and Great Place to Work® in 2024. This award-winning culture has enabled Pinnacle to build a differentiated client experience, both for consumers and businesses, that has translated into sustained market share gains and long-term value creation.
Pinnacle Bank, the company's banking subsidiary, has grown to become the largest bank headquartered in Tennessee. As of September 30, 2024, Pinnacle Bank had $50.7 billion in total assets, making it the second-largest bank holding company in Tennessee. One key challenge Pinnacle Financial has faced over the years is maintaining its strong company culture and high levels of associate engagement as the organization has grown rapidly through acquisitions and organic expansion. The company's focus on its workplace culture has been critical to its ability to attract and retain top talent as it has grown.
Financial Performance and Ratios As of September 30, 2024, Pinnacle Financial had total assets of $50.7 billion, an increase of 6.7% from the prior year. The company's loan portfolio stood at $34.3 billion, up 7.4% year-over-year, while its deposit base grew to $41.0 billion, a 6.6% increase compared to the same period in 2023.
Pinnacle's financial performance has been characterized by consistent growth and profitability. For the nine months ended September 30, 2024, the company reported net income of $323.8 million, or $4.08 per diluted share, compared to $467.2 million, or $5.99 per diluted share, for the same period in 2023. The decrease in net income was primarily due to elevated investment losses on the sale of securities and the recognition of a mortgage servicing asset in 2024, among other one-time items.
The company's key financial ratios remain strong, with a tangible common equity to tangible assets ratio of 8.7% and a Tier 1 capital ratio of 11.7% as of September 30, 2024. Pinnacle's net interest margin was 3.14% for the nine months ended September 30, 2024, compared to 3.22% for the same period in 2023, reflecting the impact of the rising interest rate environment.
Loan Portfolio and Asset Quality Pinnacle's loan portfolio is diversified, with a focus on commercial real estate, commercial and industrial, and consumer real estate mortgage loans. As of September 30, 2024, the company's loan mix was as follows: commercial real estate (36.1%), commercial and industrial (37.9%), consumer real estate mortgage (14.3%), construction and land development (10.2%), and consumer and other (1.5%).
Asset quality remains strong, with nonperforming assets to total loans, ORE, and other nonperforming assets at 0.35% as of September 30, 2024, up from 0.27% at the end of 2023. The company's allowance for credit losses to total loans ratio stood at 1.14% at the end of the third quarter of 2024, compared to 1.08% at the end of 2023. Net charge-offs to average loans were 0.21% and 0.17% for the nine months ended September 30, 2024, and the full year 2023, respectively.
Pinnacle has maintained a disciplined approach to its commercial real estate portfolio, with a focus on owner-occupied commercial real estate and a measured strategy for non-owner occupied commercial real estate, including construction and land development loans. The company's construction and land development loans as a percentage of total capital decreased to 68.2% as of September 30, 2024, from 84.2% at the end of 2023, as Pinnacle continues to actively manage this concentration.
Expansion and Market Share Gains Pinnacle's growth strategy has been centered on expanding its presence in high-growth Southeastern markets and taking market share from larger, less nimble regional banks. The company has a strong foothold in its home state of Tennessee, where it is the largest bank in the Nashville metropolitan statistical area (MSA) with a 21.2% deposit market share as of June 30, 2024.
Beyond Tennessee, Pinnacle has made significant inroads in other Southeastern markets. In the Washington, D.C., Arlington, and Alexandria MSA, the company added $357.4 million in deposits over the 12 months ended June 30, 2024, representing a 56.1% growth rate. In the Atlanta MSA, Pinnacle is now a top 25 bank by deposits, while in the Chattanooga MSA, it has become the second-largest bank by deposits.
Pinnacle's success in gaining market share is a testament to its differentiated service model, which has resonated with both business and consumer clients. The company's net promoter score, a measure of customer loyalty, is the best among the largest 50 banks in the nation, according to J.D. Power.
Outlook and Guidance For the full year 2024, Pinnacle Financial expects loan growth to be in the range of 7% to 8% and deposit growth to be between 7% and 9%. The company has revised its net interest income growth outlook to 7% to 8% for 2024, down from its previous guidance of 8% to 10%, due to the impact of recent interest rate cuts. Pinnacle has increased its fee revenue growth guidance (excluding BHG) from 14% to 17% up to 23% to 26% for 2024.
The company has narrowed its guidance for credit metrics, projecting net charge-offs to be between 21 and 23 basis points and provision for loan losses to be between 32 and 35 basis points of average loans for 2024. Pinnacle expects BHG fees to be around $16.4 million in Q4 2024, similar to Q3 2024.
Pinnacle's management team remains optimistic about the company's prospects, especially if the yield curve becomes more favorable in 2025. The company believes it is well-positioned to capitalize on a declining interest rate environment, given its focus on managing the impact of rate changes on its net interest margin and net interest income.
Financials Pinnacle Financial's financial performance has been solid, with consistent growth in assets, loans, and deposits. The company's total assets reached $50.7 billion as of September 30, 2024, representing a 6.7% increase from the previous year. The loan portfolio grew by 7.4% year-over-year to $34.3 billion, while deposits increased by 6.6% to $41.0 billion. Despite challenges in the interest rate environment, Pinnacle has maintained strong profitability metrics, with a net interest margin of 3.14% for the nine months ended September 30, 2024.
For the most recent quarter, Pinnacle reported revenue of $414,103,000 and net income of $146,691,000. The company's operating cash flow (OCF) for the quarter was $38,201,000, while free cash flow (FCF) stood at $82,405,000. These figures represent year-over-year growth, attributed to continued expansion in loans, deposits, and fee income, as well as improvements in net interest margin.
Pinnacle's commercial banking segment, which includes commercial real estate, commercial and industrial, and construction and land development loans, comprises a significant portion of the company's loan portfolio. As of September 30, 2024, commercial real estate loans made up 36.1% of the total loan portfolio, commercial and industrial loans accounted for 37.9%, and construction and land development loans represented 10.2%. The allowance for credit losses on these segments stood at $144.84 million, $194.75 million, and $32.38 million, respectively.
The consumer banking segment, which includes consumer real estate mortgage loans (14.3% of the total loan portfolio) and consumer and other loans (1.5%), had allowances for credit losses of $76.19 million and $8.14 million, respectively, as of September 30, 2024.
Pinnacle's wealth management segment has shown strong growth, with income from investments, insurance, and trust services increasing by $6.8 million, or 26.3%, during the three months ended September 30, 2024, compared to the same period in 2023. The trust department was receiving fees on approximately $6.8 billion of managed assets as of September 30, 2024, up from $5.0 billion a year earlier.
Liquidity Pinnacle Financial maintains a strong liquidity position to support its operations and growth initiatives. The company's deposit base provides a stable source of funding, with a loan-to-deposit ratio of 83.7% as of September 30, 2024. This indicates that Pinnacle has ample liquidity to fund its loan growth while maintaining a buffer for unforeseen circumstances. Additionally, the company's strong capital ratios, including a Tier 1 capital ratio of 11.7%, provide further support to its liquidity position and overall financial stability.
The company's debt-to-equity ratio stands at 0.40540517110117524, reflecting a balanced approach to leverage. Pinnacle had $192 million in cash at the parent company level that could be used to support the bank. Furthermore, the company has $3 billion in additional borrowing capacity with the Federal Home Loan Bank, subject to collateral requirements, providing significant financial flexibility.
Pinnacle's current ratio and quick ratio are both 0.706009752797209, indicating the company's ability to meet its short-term obligations with its most liquid assets.
Industry Trends and Performance Pinnacle Financial has demonstrated a strong track record of growth, with 5-year compound annual growth rates (CAGRs) exceeding 10% for revenue, earnings per share (EPS), and tangible book value. The company has consistently outperformed peers on these key metrics, positioning itself as a leader in the regional banking sector.
Pinnacle's performance across its geographic markets has been robust, with particularly strong growth in newer markets such as Atlanta and Washington D.C. The company's ability to attract top talent and gain market share has been a key driver of its success in these competitive markets.
Conclusion Pinnacle Financial's story is one of consistent growth, market share gains, and a relentless focus on providing a differentiated client experience. The company's strong market position, diversified loan portfolio, and award-winning culture have positioned it for continued success in the Southeastern United States. While the company faces some near-term headwinds from the rising rate environment, Pinnacle's management team remains confident in the long-term prospects of the business. With solid financial performance, a strong liquidity position, and a clear strategy for growth, Pinnacle Financial Partners is well-positioned to navigate the evolving banking landscape and continue its trajectory of value creation for shareholders.