SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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

(Exact name of registrant as specified in its charter)

Tennessee

62-1812853

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

150 Third Avenue South, Suite 900 ~~Nashville, Tennessee~~

Nashville,

37201

(Address of principal executive offices)

(Zip Code)

~~(615) 744-3700~~

~~(Registrant's telephone number, including area code)~~

~~Not Applicable~~

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

(Registrant's telephone number, including area code)

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

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

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



~~Large Accelerated Filer~~ x	~~Accelerated Filer~~ o
~~Non-accelerated Filer~~ o ~~(do not check if you are a smaller reporting company)~~	~~Smaller reporting company~~ o
	~~Emerging growth company~~ o

Large Accelerated Filer ☒Accelerated Filer ☐

Non-accelerated Filer ☐Smaller reporting company ☐

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

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

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

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

FORWARD-LOOKING STATEMENTS

~~Certain~~All statements, other than statements of ~~the statements~~historical fact, included in this ~~Quarterly Report on Form 10-Q may constitute~~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 ~~as amended,~~ and Section 21E of the Securities Exchange Act of ~~1934, as amended.~~1934. The words "expect," "anticipate," "intend," "may," "should," "plan," "believe," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (i) deterioration in the financial condition of borrowers of Pinnacle Bank and its subsidiaries or Bankers Healthcare Group, LLC (BHG), including as a result of the negative impact of inflationary pressures on our and BHG's customers and their businesses resulting in significant increases in loan losses and provisions for those ~~losses;~~losses and, in the case of BHG, substitutions; (ii) ~~continuation~~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 ~~historically low~~changes in the short-term ~~interest~~ rate ~~environment;~~environment, or that affect the yield curve; (iii) adverse conditions in the national or local economies including in Pinnacle Financial's markets throughout Tennessee, North Carolina, South Carolina, Georgia, Alabama and Virginia, particularly in commercial and residential real estate markets; (iv) the inability of Pinnacle Financial, or entities in which it has significant investments, like ~~Bankers Healthcare Group, LLC (BHG),~~BHG, to maintain the long-term historical growth rate of its, or such entities', loan portfolio; ~~(iv)~~(v) 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; (vi) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; ~~(v)~~(vii) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; ~~(vi) increased~~(viii) the impact of competition with other financial ~~institutions; (vii) greater than anticipated adverse~~institutions, including pricing pressures and the resulting impact on Pinnacle Financial’s results, including as a result of compression to net interest margin;(ix) the effects of new outbreaks of COVID-19, including actions taken by governmental officials to curb the spread of the virus, and the resulting impact on general economic and financial market conditions ~~in the national or local economies including in~~and on Pinnacle Financial's ~~markets throughout Tennessee, North Carolina, South Carolina~~ and ~~Virginia, particularly in commercial~~its customers' business, results of operations, asset quality and ~~residential real estate markets; (viii) rapid fluctuations~~financial condition; (x) further public acceptance of the booster shots of the vaccines that were developed against the virus as well as the decisions of governmental agencies with respect to vaccines including recommendations related to booster shots and requirements that seek to mandate that individuals receive or ~~unanticipated changes in interest rates on loans or deposits; (ix)~~employers require that their employees receive the vaccine; (xi) those vaccines' efficacy against the virus, including new variants; (xii) the results of regulatory examinations; ~~(x) the~~(xiii) Pinnacle Financial's ability to ~~retain large, uninsured deposits; (xi) a merger~~identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xiv) difficulties and delays in integrating acquired businesses or ~~acquisition, like Pinnacle Financial's merger with BNC Bancorp (BNC); (xii)~~fully realizing costs savings and other benefits from acquisitions; (xv) BHG's ability to profitably grow its business and successfully execute on its business plans; (xvi) risks of expansion into new geographic or product markets; ~~(xiii)~~(xvii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including goodwill or other intangible assets; ~~(xiv)~~(xviii) the ineffectiveness of Pinnacle Bank's hedging strategies, or the unexpected counterparty failure or hedge failure of the underlying hedges; (xix) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Bank), to retain financial advisors (including as a result of the competitive environment for associates) or otherwise to attract customers from other financial institutions; ~~(xv) further~~(xx) deterioration in the valuation of other real estate owned and increased expenses associated therewith; ~~(xvi)~~(xxi) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, ~~and~~ required capital maintenance ~~levels; (xvii) risks associated with litigation, including the applicability~~levels or regulatory requests or directives, particularly if Pinnacle Bank's level of ~~insurance coverage; (xviii) the risk~~applicable commercial real estate loans were to exceed percentage levels of ~~successful integration of the businesses Pinnacle Financial has recently acquired with~~total capital in guidelines recommended by its ~~business; (xix)~~regulators; (xxii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; ~~(xx)~~(xxiii) the vulnerability of Pinnacle Bank's network and online banking portals, and the systems of parties with whom Pinnacle Bank contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; ~~(xxi)~~(xxiv) the possibility of increased compliance and operational costs as a result of increased regulatory oversight (including by the Consumer Financial Protection Bureau), including oversight of companies in which Pinnacle Financial or Pinnacle Bank have significant investments, like BHG, and the development of additional banking products for Pinnacle Bank's corporate and consumer clients; ~~(xxii)~~(xxv) the risks associated with Pinnacle Financial and Pinnacle Bank being a minority investor in BHG, including the risk that the owners of a majority of the equity interests in BHG decide to sell the company or all or a portion of their ownership interests in BHG (triggering a similar sale by Pinnacle Financial and Pinnacle Bank) if not prohibited from doing so by ~~the terms of our agreement with them; (xxii)~~Pinnacle Financial or Pinnacle Bank; (xxvi) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, like BHG, including regulatory or legislative developments; ~~(xxiv)~~(xxvii) fluctuations in the risk that the cost savings and any revenue synergies from Pinnacle Financial's merger with BNC may not be realized or take longer than anticipated to be realized; (xxv) disruption from Pinnacle Financial's merger with BNC with customers, suppliers, employee or other business partners relationships; (xxvi) the risk of successful integrationvaluations of Pinnacle Financial's equity investments and ~~BNC's businesses; (xxvii)~~ the ~~amount~~ultimate success of such investments; (xxviii) the availability of and access to capital; (xxix) adverse results (including costs, ~~fees, expenses~~fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of Pinnacle Bank's participation in and ~~charges~~execution of government programs related to ~~Pinnacle Financial's merger with BNC; (xxviii) reputational risk and~~ the reaction of the parties' customers, suppliers, employees or other business partners to Pinnacle Financial's merger with BNC; (xxix) the risk that the integration of Pinnacle Financial's and BNC's operations (including the conversion of Pinnacle Financial's core processing system to that of BNC) will be materially delayed or will be more costly or difficult than expected;COVID-19 pandemic; and (xxx) general competitive, economic, political and market conditions. ~~A more detailed description of these and other risks is contained herein and~~Additional factors which could affect the forward-looking statements can be found in Pinnacle Financial's ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30, 2017 as~~December 31, 2021 and subsequently filed Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the ~~Securities~~SEC and ~~Exchange commission~~available on ~~August 4, 2017 and in Part II, Item 1A "Risk Factors" below. Many~~the SEC's website at http://www.sec.gov. Pinnacle



Item 1.			Part I. Financial Information

September 30, 2017 December 31, 2016
ASSETS
Cash and noninterest-bearing due from banks $ 132,324,313
$ 84,732,291
Interest-bearing due from banks 270,563,317
97,529,713
Federal funds sold and other 5,394,587
1,383,416
Cash and cash equivalents 408,282,217
183,645,420

Securities available-for-sale, at fair value 2,880,180,805
1,298,546,056
Securities held-to-maturity (fair value of $21,021,555 and $25,233,254 at September 30, 2017 and December 31, 2016, respectively) 20,847,849
25,251,316
Consumer loans held-for-sale 105,031,578
47,710,120
Commercial mortgage loans held-for-sale 20,385,491
22,587,971

Loans 15,259,785,972
8,449,924,736
Less allowance for loan losses (65,159,286 ) (58,980,475 )
Loans, net 15,194,626,686
8,390,944,261

Premises and equipment, net 270,136,166
88,904,145
Equity method investment 211,501,901
205,359,844
Accrued interest receivable 54,286,991
28,234,826
Goodwill 1,802,534,059
551,593,796
Core deposits and other intangible assets 59,780,903
15,104,038
Other real estate owned 24,338,967
6,089,804
Other assets 738,437,468
330,651,002
Total assets $ 21,790,371,081
$ 11,194,622,599

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

Noninterest-bearing $ 4,099,086,158
$ 2,399,191,152
Interest-bearing 2,571,764,582
1,808,331,784
Savings and money market accounts 6,595,639,931
3,714,930,351
Time 2,523,094,175
836,853,761
Total deposits 15,789,584,846
8,759,307,048
Securities sold under agreements to repurchase 129,557,107
85,706,558
Federal Home Loan Bank advances 1,623,946,639
406,304,187
Subordinated debt and other borrowings 465,460,556
350,768,050
Accrued interest payable 10,715,285
5,573,377
Other liabilities 97,757,463
90,267,267
Total liabilities 18,117,021,896
9,697,926,487
Stockholders' equity:

Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding —
—
Common stock, par value $1.00; 90,000,000 shares authorized; 77,652,143 and 46,359,377 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 77,652,143
46,359,377
Additional paid-in capital 3,105,577,594
1,083,490,728
Retained earnings 503,270,311
381,072,505
Accumulated other comprehensive loss, net of taxes (13,150,863 ) (14,226,498 )
Total stockholders' equity 3,673,349,185
1,496,696,112
Total liabilities and stockholders' equity $ 21,790,371,081
$ 11,194,622,599


(dollars in thousands, except per share data)	June 30, 2022		December 31, 2021
ASSETS
Cash and noninterest-bearing due from banks	$	265,507	$	188,287
Restricted cash	29,739		82,505
Interest-bearing due from banks	1,336,667		3,830,747
Federal funds sold and other	—		—
Cash and cash equivalents	1,631,913		4,101,539
Securities purchased with agreement to resell	1,328,876		1,000,000
Securities available-for-sale, at fair value	3,809,338		4,914,194
Securities held-to-maturity (fair value of $2.5 billion and $1.2 billion, net of allowance for credit losses of $1.2 million and $161 at June 30, 2022 and Dec. 31, 2021, respectively)	2,744,555		1,155,958
Consumer loans held-for-sale	67,467		45,806
Commercial loans held-for-sale	25,901		17,685
Loans	26,333,096		23,414,262
Less allowance for credit losses	(272,483)		(263,233)
Loans, net	26,060,613		23,151,029
Premises and equipment, net	302,389		288,182
Equity method investment	403,191		360,833
Accrued interest receivable	116,038		98,813
Goodwill	1,846,466		1,819,811
Core deposits and other intangible assets	37,617		33,819
Other real estate owned	8,237		8,537
Other assets	1,738,691		1,473,193
Total assets	$	40,121,292	$	38,469,399
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	11,058,198	$	10,461,071
Interest-bearing	6,617,324		6,530,015
Savings and money market accounts	12,492,329		12,179,663
Time	2,427,452		2,133,784
Total deposits	32,595,303		31,304,533
Securities sold under agreements to repurchase	199,585		152,559
Federal Home Loan Bank advances	1,289,059		888,681
Subordinated debt and other borrowings	423,614		423,172
Accrued interest payable	13,551		12,504
Other liabilities	284,941		377,343
Total liabilities	34,806,053		33,158,792
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, 2022 and Dec. 31, 2021, respectively	217,126		217,126
Common stock, par value $1.00; 180.0 million shares authorized; 76.4 million and 76.1 million shares issued and outstanding at June 30, 2022 and Dec. 31, 2021, respectively	76,385		76,143
Additional paid-in capital	3,056,228		3,045,802
Retained earnings	2,096,950		1,864,350
Accumulated other comprehensive income (loss), net of taxes	(131,450)		107,186
Total shareholders' equity	5,315,239		5,310,607
Total liabilities and shareholders' equity	$	40,121,292	$	38,469,399

See accompanying notes to consolidated financial statements (unaudited).

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Interest income:
Loans, including fees $ 183,841,608
$ 90,090,166
$ 389,379,255
$ 241,537,476
Securities:

Taxable 12,066,502
5,012,047
26,764,815
14,050,757
Tax-exempt 4,620,340
1,544,535
8,533,438
4,481,309
Federal funds sold and other 1,638,704
732,951
3,375,817
2,046,244
Total interest income 202,167,154
97,379,699
428,053,325
262,115,786

Interest expense:

Deposits 19,103,495
6,625,534
38,216,351
16,614,664
Securities sold under agreements to repurchase 148,442
51,270
276,646
138,852
Federal Home Loan Bank advances and other borrowings 9,733,510
4,067,951
20,984,034
9,781,363
Total interest expense 28,985,447
10,744,755
59,477,031
26,534,879
Net interest income 173,181,707
86,634,944
368,576,294
235,580,907
Provision for loan losses 6,920,184
6,108,183
17,383,595
15,281,854
Net interest income after provision for loan losses 166,261,523
80,526,761
351,192,699
220,299,053

Noninterest income:

Service charges on deposit accounts 5,920,824
3,778,070
13,955,043
10,651,145
Investment services 3,660,103
2,592,077
9,592,025
7,437,396
Insurance sales commissions 2,123,549
1,233,098
5,443,599
4,131,784
Gain on mortgage loans sold, net 5,962,916
5,096,838
14,785,405
12,885,690
Gain on sale of investment securities, net —
—
—
—
Trust fees 2,636,212
1,522,763
6,018,570
4,595,330
Income from equity method investment 8,936,626
8,474,899
25,514,081
23,266,733
Other noninterest income 13,736,779
8,994,164
33,106,437
27,292,477
Total noninterest income 42,977,009
31,691,909
108,415,160
90,260,555

Noninterest expense:

Salaries and employee benefits 64,287,986
36,053,673
146,315,721
102,824,676
Equipment and occupancy 16,590,119
9,401,001
36,977,488
25,843,737
Other real estate expense 512,490
17,032
827,423
351,777
Marketing and other business development 2,222,290
1,349,557
6,228,189
4,150,761
Postage and supplies 1,754,789
922,078
4,073,485
2,929,007
Amortization of intangibles 3,077,277
1,424,956
5,744,974
3,144,786
Merger related expense 8,847,306
5,672,731
12,740,382
8,482,385
Other noninterest expense 12,443,659
8,685,238
30,679,179
25,793,600
Total noninterest expense 109,735,916
63,526,266
243,586,841
173,520,729
Income before income taxes 99,502,616
48,692,404
216,021,018
137,038,879
Income tax expense 35,060,471
16,316,209
68,839,305
45,910,648
Net income $ 64,442,145
$ 32,376,195
$ 147,181,713
$ 91,128,231
Per share information:

Basic net income per common share $ 0.84
$ 0.71
$ 2.48
$ 2.16
Diluted net income per common share $ 0.83
$ 0.71
$ 2.46
$ 2.12
Weighted average shares outstanding:

Basic 76,678,584
45,294,051
59,371,202
42,228,280
Diluted 77,232,098
45,918,368
59,910,344
42,928,467


(dollars in thousands)	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Net income	$	145,127	$	131,790	$	274,237	$	257,218
Other comprehensive income (loss), net of tax:
Change in fair value on available-for-sale securities, net of tax	(96,191)		28,242		(231,086)		(5,130)
Change in fair value of cash flow hedges, net of tax	—		(631)		—		(18,373)
Accretion of net unrealized gains on securities transferred from available-for-sale to held-to-maturity, net of tax	(1,595)		(2,098)		(2,575)		(3,789)
Net gain on cash flow hedges reclassified from other comprehensive income into net income, net of tax	(2,511)		(2,692)		(5,020)		(2,188)
Net loss (gain) on sale of investment securities reclassified from other comprehensive income into net income, net of tax	—		(270)		45		(270)
Total other comprehensive income (loss), net of tax	(100,297)		22,551		(238,636)		(29,750)
Total comprehensive income	$	44,830	$	154,341	$	35,601	$	227,468

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Net income $ 64,442,145
$ 32,376,195
$ 147,181,713
$ 91,128,231
Other comprehensive (loss) income, net of tax:

Change in fair value on available-for-sale securities, net of tax (1,014,484 ) (1,444,262 ) (27,633 ) 8,198,248
Change in fair value of cash flow hedges, net of tax 99,972
438,078
1,103,268
(825,586 )
Net gain on sale of investment securities reclassified from other comprehensive income into net income, net of tax —
—
—
—
Total other comprehensive (loss) income, net of tax (914,512 ) (1,006,184 ) 1,075,635
7,372,662
Total comprehensive income $ 63,527,633
$ 31,370,011
$ 148,257,348
$ 98,500,893


	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, 2021	$	217,126	76,143	$	76,143	$	3,045,802	$	1,864,350	$	107,186	$	5,310,607
Exercise of employee common stock options & related tax benefits	—		6	6		124		—		—		130
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.22 per share)	—		—	—		—		(16,976)		—		(16,976)
Issuance of restricted common shares, net of forfeitures	—		158	158		(158)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(35)	(35)		(3,736)		—		—		(3,771)
Issuance of common stock pursuant to RSU and PSU agreements, net of shares withheld for taxes & related tax benefits	—		105	105		(5,566)		—		—		(5,461)
Compensation expense for restricted shares & performance stock units	—		—	—		9,448		—		—		9,448
Net income	—		—	—		—		129,110		—		129,110
Other comprehensive loss	—		—	—		—		—		(138,339)		(138,339)
Balance at March 31, 2022	$	217,126	76,377	$	76,377	$	3,045,914	$	1,972,686	$	(31,153)	$	5,280,950
Exercise of employee common stock options & related tax benefits	—		8	8		185		—		—		193
Preferred dividends paid ($16.88 per share)	—		—	—		—		(3,798)		—		(3,798)
Common dividends paid ($0.22 per share)	—		—	—		—		(17,065)		—		(17,065)
Issuance of restricted common shares, net of forfeitures	—		8	8		(8)		—		—		—
Restricted shares withheld for taxes & related tax benefits	—		(8)	(8)		(623)		—		—		(631)

Compensation expense for restricted shares & performance stock units	—		—	—		10,760		—		—		10,760
Net income	—		—	—		—		145,127		—		145,127
Other comprehensive loss	—							—		(100,297)		(100,297)
Balance at June 30, 2022	$	217,126	76,385	$	76,385	$	3,056,228	$	2,096,950	$	(131,450)	$	5,315,239

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended
September 30,
2017 2016
Operating activities:
Net income $ 147,181,713
$ 91,128,231
Adjustments to reconcile net income to net cash provided by operating activities:

Net amortization/accretion of premium/discount on securities 8,387,520
5,051,304
Depreciation, amortization and accretion (14,847,816 ) 1,897,617
Provision for loan losses 17,383,595
15,281,854
Gain on mortgage loans sold, net (14,785,405 ) (12,885,690 )
Stock-based compensation expense 14,412,692
8,101,176
Deferred tax expense 15,646,059
6,130,773
Losses on dispositions of other real estate and other investments 74,126
191,650
Income from equity method investment (25,514,081 ) (23,266,733 )
Excess tax benefit from stock compensation (4,607,840 ) (2,796,548 )
Gain on other loans sold, net (791,260 ) (703,680 )
Other loans held for sale:

Loans originated (116,013,551 ) (79,939,089 )
Loans sold 119,007,292
65,111,181
Consumer loans held for sale:

Loans originated (772,239,380 ) (541,282,243 )
Loans sold 756,729,398
549,421,861
Increase in other assets (13,206,158 ) (14,772,526 )
Increase (decrease) in other liabilities (30,057,022 ) 11,353,236
Net cash provided by operating activities 86,759,882
78,022,374
Investing activities:

Activities in securities available-for-sale:

Purchases (1,158,037,705 ) (372,949,548 )
Sales 7,492,168
29,470,014
Maturities, prepayments and calls 207,209,100
220,047,077
Activities in securities held-to-maturity:

Purchases —
(560,000 )
Maturities, prepayments and calls 4,115,000
4,960,000
Increase in loans, net (1,194,966,485 ) (756,625,718 )
Purchases of software, premises and equipment (36,045,278 ) (10,691,917 )
Capital improvements to other real estate (658,032 ) —
Proceeds from sales of software, premises and equipment 23,038
2,156,831
Proceeds from sale of other real estate 6,930,571
2,468,699
Acquisitions, net of cash acquired 155,141,674
17,608,471
Purchase of bank owned life insurance policies (55,000,000 ) —
Increase in equity method investment —
(74,100,000 )
Dividends received from equity method investment 19,372,024
26,776,629
Increase in other investments (7,850,556 ) (16,736,665 )
Net cash used in investing activities (2,052,274,481 ) (928,176,127 )
Financing activities:

Net increase in deposits 825,059,947
732,811,751
Net increase (decrease) in securities sold under agreements to repurchase (18,459,533 ) 5,232,620
Advances from Federal Home Loan Bank:

Issuances 1,934,750,000
1,623,000,000
Payments/maturities (717,048,332 ) (1,647,078,975 )
Increase (decrease) in other borrowings, net (190,100 ) 80,946,100
Principal payments of capital lease obligation (110,471 ) —
Proceeds from common stock issuance, net 192,193,750
—
Exercise of common stock options and stock appreciation rights, net of repurchase of restricted shares (1,059,958 ) 6,688,572
Excess tax benefit from stock compensation —
2,796,548
Common stock dividends paid (24,983,907 ) (18,217,159 )
Net cash provided by financing activities 2,190,151,396
786,179,457
Net increase (decrease) in cash and cash equivalents 224,636,797
(63,974,296 )
Cash and cash equivalents, beginning of period 183,645,420
320,951,333
Cash and cash equivalents, end of period $ 408,282,217
$ 256,977,037


(dollars in thousands)	Six months ended June 30,
	2022		2021
Operating activities:
Net income	$	274,237	$	257,218
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization/accretion of premium/discount on securities	34,643		25,413
Depreciation, amortization and accretion	29,328		27,057
Provision for credit losses	15,627		10,069
Gain on mortgage loans sold, net	(6,216)		(20,366)
Investment losses (gains) on sales, net	61		(366)
Gain on other equity investments, net	(8,379)		(10,397)
Stock-based compensation expense	20,208		11,068
Deferred tax expense	2,807		4,427
Gains on dispositions of other real estate and other investments	(20)		(806)
Gain on remeasurement of previously held noncontrolling interest	(5,500)		—
Income from equity method investment	(83,120)		(61,021)
Dividends received from equity method investment	40,762		49,409
Excess tax benefit from stock compensation	(2,921)		(1,867)
Gain on commercial loans sold, net	(1,679)		(2,356)
Commercial loans held for sale originated	(274,755)		(288,031)
Commercial loans held for sale sold	268,218		295,743
Consumer loans held for sale originated	(844,206)		(1,117,635)
Consumer loans held for sale sold	828,761		1,168,854
Decrease in other assets	10,524		24,016
Decrease in other liabilities	(98,201)		(83,266)
Net cash provided by operating activities	200,179		287,163
Investing activities:
Activities in securities available-for-sale:
Purchases	(597,249)		(1,075,927)
Sales	2,866		2,240
Maturities, prepayments and calls	240,767		280,795
Activities in securities held-to-maturity:
Purchases	(578,716)		—
Maturities, prepayments and calls	34,324		23,300
Increase in securities purchased under agreements to resell	(328,876)		(500,000)
Increase in loans, net	(2,899,140)		(492,984)
Purchases of software, premises and equipment	(23,065)		(10,451)
Proceeds from sales of software, premises and equipment	292		281
Proceeds from sale of other real estate	320		4,183
Purchase of bank owned life insurance policies	(75,000)		—
Proceeds from bank owned life insurance settlements	1,002		952
Proceeds from derivative instruments	—		99,710
Proceeds from sale (purchase) of FHLB stock	(15,853)		10,329
Acquisition, net of cash acquired	(30,415)		—


Increase in other investments	(62,669)		(19,239)
Net cash used in investing activities	(4,331,412)		(1,676,811)
Financing activities:
Net increase in deposits	1,295,442		512,121
Net increase in securities sold under agreements to repurchase	47,026		49,497
Federal Home Loan Bank: Advances	400,000		—
Federal Home Loan Bank: Repayments/maturities	—		(200,000)

Repayments of other borrowings	(29,547)		—
Principal payments of finance lease obligation	(137)		(128)

Issuance of common stock pursuant to RSU and PSU agreements, net of shares withheld for taxes	(5,461)		(3,764)
Exercise of common stock options, net of shares surrendered for taxes	(4,079)		(2,791)

Common stock dividends paid	(34,041)		(27,765)
Preferred stock dividends paid	(7,596)		(7,596)
Net cash provided by financing activities	1,661,607		319,574
Net decrease in cash, cash equivalents, and restricted cash	(2,469,626)		(1,070,074)
Cash, cash equivalents, and restricted cash, beginning of period	4,101,539		3,961,449
Cash, cash equivalents, and restricted cash, end of period	$	1,631,913	$	2,891,375

See accompanying notes to consolidated financial statements (unaudited).

Note 1. Summary of Significant Accounting Policies

Nature of Business — Pinnacle Financial Partners, Inc. (Pinnacle Financial) is a ~~bank~~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) and Advocate Capital, Inc. (Advocate Capital) on July 31, 2015, September 1, 2015, July 1, 2016, ~~and~~ June 16, 2017 and July 2, 2019, respectively. Pinnacle Financial and Pinnacle Bank also collectively hold a 49% interest in Bankers Healthcare Group, LLC (BHG), a company that primarily serves as a full-service commercial loan provider to healthcare and other professional ~~practices.~~practices but also makes consumer loans for various purposes. Pinnacle Bank provides a full range of banking services, including investment, mortgage, insurance, ~~services,~~ and comprehensive wealth management services, in its 1115 primarily urban markets ~~within Tennessee,~~across the ~~Carolinas~~Southeast.

On March 1, 2022, Pinnacle Bank acquired the remaining 80% outstanding membership interest of JB&B Capital, LLC (JB&B) for a cash price of $32.0 million. JB&B is a commercial equipment financing business headquartered in Knoxville, TN. Pinnacle Bank had previously acquired 20% of JB&B in 2017. Pinnacle Financial accounted for the acquisition of JB&B under the acquisition method in accordance with ASC Topic 805. Accordingly, the purchase price is allocated to the fair value of the assets acquired and ~~Virginia.~~liabilities assumed as of the date of the acquisition. Determining the fair value of assets and liabilities, particularly illiquid assets and liabilities, is a complicated process involving significant judgment regarding estimates and assumptions used to calculate estimated fair value. Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the JB&B acquisition. At the acquisition date, JB&B's net assets were initially recorded at a fair value of $12.9 million, consisting mainly of loans and leases receivable. JB&B's $29.5 million of indebtedness was also paid off in connection with consummation of the acquisition. The preexisting noncontrolling interest of JB&B held by Pinnacle Bank was remeasured at a fair value of $8.0 million on the acquisition date resulting in a gain on remeasurement of $5.5 million that was recorded in other noninterest income during the six months ended June 30, 2022. The purchase price allocations for the acquisition of JB&B are preliminary and will be finalized upon the receipt of final valuations on certain assets and liabilities.

Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the ~~Pinnacle Financial~~ consolidated financial statements and related notes appearing in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, ~~2016 (2016~~2021 (2021 10-K).

These 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. Subordinated Debt and~~11. Other Borrowings are included in these consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for ~~loan~~credit losses and determination of any impairment of goodwill or intangible ~~assets and the valuation of deferred tax~~ assets. Certain refinements to the determination of the allowance for loan losses were made during the quarter ended September 30, 2017 and are discussed more fully below. Additionally, the adoption of ASU 2016-09, which became effective January 1, 2017, and is described more fully in ~~Recently Adopted Accounting Pronouncements~~ ~~below is representative of a change in estimate. Other than the items noted herein, there~~There have been no significant changes to Pinnacle Financial's significant accounting policies as disclosed in the ~~2016~~2021 10-K.

~~Allowance for Loan Losses (allowance)~~ ~~- Pinnacle Financial's management assesses the adequacy~~

Pinnacle Financial's allowance for loan loss assessment methodology was modified in the quarter ended September 30, 2017 to (i) extend the lookback period from 24 quarters to a period beginning January 1, 2006 to better capture a complete economic cycle, (ii) eliminate the use of risk ratings in the calculation of the loss rate and instead focus on risk by loan type and (iii) expand the economic variables used in the qualitative assessment to incorporate our expanded footprint. Pinnacle Financial also eliminated the use of a loss emergence period in light of the minimal population of losses available to evaluate that were previously being extrapolated to the full population of loans, and shifted the focus of its analysis to more of a quantitative model. There was no material impact on the adoption of the change in the allowance for loan loss assessment methodology.

~~Pinnacle Financial's allowance for loan losses is composed of the result of two independent analyses pursuant to the provisions of ASC 450-20,~~ ~~Loss Contingencies~~ ~~and ASC 310-10-35,~~ ~~Receivables~~. The ASC 450-20 analysis is intended to quantify the inherent risks in its performing loan portfolio. The ASC 310-10-35 analysis includes a loan-by-loan analysis of impaired loans, both those reported as nonaccrual and troubled-debt restructurings.

In assessing the adequacy of the allowance, Pinnacle Financial also considers the results of Pinnacle Financial's ongoing independent loan review process. Pinnacle Financial undertakes this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in its overall evaluation of the risk characteristics of the entire loan portfolio. Its loan review process includes the judgment of management, independent internal loan reviewers, and reviews that may have been conducted by third-party reviewers including regulatory examiners. Pinnacle Financial incorporates relevant loan review results in the allowance.

The ASC 450-20 component of the allowance for loan losses begins with a historical loss rate calculation for each loan pool with similar risk characteristics. The losses realized over a rolling four-quarter cycle are utilized to determine an annual loss rate for each loan pool for each quarter-end in our look-back period. The look-back period in our loss rate calculation begins with January 2006, as we believe the period from January 1, 2006 to September 30, 2017 is more representative of a complete economic cycle. The loss rates for each category are then averaged and applied to the end of period loan portfolio balances to determine estimated losses. The loss rates provide a quantitative estimate of credit losses inherent in our end of period loan portfolio based on our actual loss experience.

The estimated loan loss allocation for all loan segments is then adjusted for management's estimate of probable losses for a number of qualitative factors that have not been considered in the quantitative analysis. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management, but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting factor is applied to the non-impaired loan portfolio. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified either in its risk rating or impairment process, as of the balance sheet date, and is based upon quarterly trend assessments in portfolio concentrations, policy exceptions, economic conditions, associate retention, independent loan review results, collateral considerations, credit quality, competition and regulatory requirements, enterprise wide risk assessments, and peer group credit quality. 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.

The allowance for loan losses for purchased loans is calculated similar to that utilized for legacy Pinnacle Bank loans. Pinnacle Financial's accounting policy is to compare the computed allowance for loan losses for each purchased loan to the remaining fair value adjustment at the individual loan level. If the computed allowance at the loan level is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a charge to the provision for loan losses.

The ASC 450-20 portion of the allowance includes a small unallocated component. Pinnacle Financial believes that the unallocated amount is warranted for inherent factors that cannot be practically assigned to individual loan categories, such as the imprecision in the overall loss allocation measurement process, the subjectivity risk of potentially not considering all relevant environmental categories and related measurements and imprecision in its credit risk ratings process. The appropriateness of the unallocated component of the allowance is assessed each quarter end based upon changes in the overall business environment not otherwise captured.

The impaired loan allowance is determined pursuant to ASC 310-10-35. Loans are impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means collecting all interest and principal payments of a loan as scheduled in the loan agreement. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a "confirming event" has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the provision for loan losses and is a component of the allowance for loan losses. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan's effective interest rate, or if the loan is collateral dependent, at the fair value of the collateral, less estimated disposal costs. If the loan is cash flow dependent, a specific reserve is established as a component of the allowance. If the loan is collateral dependent, the principal balance of the loan is charged-off in an amount equal to the impairment measurement. The fair value of collateral dependent loans is derived primarily

~~Pursuant to the guidance set forth in ASU No. 2011-02,~~ ~~A Creditor's Determination of Whether a Restructuring is a Troubled Debt Restructuring,~~ ~~the above impairment methodology is also applied to those loans identified as troubled debt restructurings.~~

Sufficiency of the computed allowance is then tested by comparison to historical trends and industry and peer information. Pinnacle Financial then evaluates the result of the procedures performed, including the results of our testing, and concludes on the appropriateness of the balance of the allowance in its entirety. The audit committee of the board of directors reviews and approves the methodology and resultant allowance prior to the filing of quarterly and annual financial information.

While its policies and procedures used to estimate the allowance for loan losses, as well as the resultant provision for loan losses charged to income, are considered adequate by management and are reviewed from time to time by regulators, they are necessarily approximate and imprecise. There are factors beyond its control, such as conditions in the local, national, and international economy, a local real estate market or particular industry conditions which may negatively impact materially asset quality and the adequacy of the allowance for loan losses and thus the resulting provision for loan losses.

Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~September 30, 2016~~2021 was as ~~follows:~~follows (in thousands):


	For the six months ended June 30,
	2022		2021
Cash Transactions:
Interest paid	$	45,298	$	63,683
Income taxes paid, net	70,182		56,073
Operating lease payments	7,669		7,133
Noncash Transactions:
Loans charged-off to the allowance for credit losses	15,685		27,029
Loans foreclosed upon and transferred to other real estate owned	—		620



Available-for-sale securities transferred to held-to-maturity portfolio	1,059,737		—



Right-of-use asset recognized during the period in exchange for lease obligations	7,276		4,771

For the nine months ended
September 30,
2017 2016
Cash Transactions:
Interest paid $ 56,804,275
$ 27,053,796
Income taxes paid, net 53,199,410
37,434,336
Noncash Transactions:

Loans charged-off to the allowance for loan losses 16,308,540
25,256,610
Loans foreclosed upon and transferred to other real estate owned 3,573,211
3,166,176
Loans foreclosed upon and transferred to other assets 640,737
1,842,318
Common stock issued in connection with equity-method investment —
39,694,036
Common stock issued in connection with acquisition ⁽¹⁾
1,858,132,809
182,468,604

~~___________________~~

⁽¹⁾ ~~See Note 2 to these consolidated financial statements for more detailed information.~~

Income Per Common Share — Basic net income per common share (EPS) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The difference between basic and diluted weighted average common shares outstanding is attributable to common stock options, ~~common stock appreciation rights,~~ restricted share awards, and restricted share unit ~~awards.~~awards, including those with performance-based vesting provisions. The dilutive effect of outstanding options, ~~common stock appreciation rights,~~ 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016:~~2021 (in thousands, except per share data):


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Basic net income per common share calculation:
Numerator - Net income available to common shareholders	$	141,329	$	127,992	$	266,641	$	249,622

Denominator - Weighted average common shares outstanding	75,751		75,481		75,703		75,427
Basic net income per common share	$	1.87	$	1.70	$	3.52	$	3.31
Diluted net income per common share calculation:
Numerator - Net income available to common shareholders	$	141,329	$	127,992	$	266,641	$	249,622

Denominator - Weighted average common shares outstanding	75,751		75,481		75,703		75,427
Dilutive common shares contingently issuable	189		329		231		308
Weighted average diluted common shares outstanding	75,941		75,810		75,934		75,736
Diluted net income per common share	$	1.86	$	1.69	$	3.51	$	3.30

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
Basic net income per share calculation:
Numerator - Net income
$ 64,442,145
$ 32,376,195
$ 147,181,713
$ 91,128,231

Denominator - Weighted average common shares outstanding
76,678,584
45,294,051
59,371,202
42,228,280
Basic net income per common share $ 0.84
$ 0.71
$ 2.48
$ 2.16

Diluted net income per share calculation:

Numerator – Net income
$ 64,442,145
$ 32,376,195
$ 147,181,713
$ 91,128,231

Denominator - Weighted average common shares outstanding
76,678,584
45,294,051
59,371,202
42,228,280
Dilutive shares contingently issuable 553,514
624,317
539,142
700,187
Weighted average diluted common shares outstanding 77,232,098
45,918,368
59,910,344
42,928,467
Diluted net income per common share $ 0.83
$ 0.71
$ 2.46
$ 2.12

On January 27, 2017, Pinnacle Financial completed the issuance and sale of 3,220,000 shares of common stock (including 420,000 shares issued as a result of the underwriter exercising its over-allotment option) in an underwritten public offering, which shares are included in the share count above. The net proceeds of the offering, after deducting the underwriting discount and estimated offering expenses, were approximately $192.2 million. Also, Pinnacle Financial issued 27,687,100 shares of common stock in conjunction with the acquisition of BNC on June 16, 2017.

Recently Adopted Accounting Pronouncements—In March ~~2016,~~2020, the FASB issued ~~updated guidance to~~ Accounting Standards Update ~~2016-09 Stock Compensation Improvements~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ~~Employee Share-Based Payment Activity~~ ~~(ASU 2016-09)~~ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to ~~simplify~~help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Pinnacle Financial has implemented a transition plan to identify and ~~improve several aspects~~modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. Pinnacle Financial intends to discontinue originating LIBOR-based loans during 2022 and has begun negotiating loans primarily using its preferred replacement index, the Secured Overnight Financing Rate ("SOFR"). For Pinnacle Financial's currently outstanding LIBOR-based loans, the timing and manner in which each customer's contract transitions to SOFR will vary on a case-by-case basis. Pinnacle Financial expects to complete all loan transitions by June 30, 2023.

Newly Issued Not Yet Effective Accounting Standards — In March 2022, the accounting for share-based payment transactions, including the income tax consequences, classification of such awards as either equity or liabilities and classification of such awards on the statement of cash flows. This FASB issued Accounting Standards Update ~~(ASU) impacted~~2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method, which allows multiple hedged layers to be designated for a single closed portfolio of financial assets resulting in a greater portion of the interest rate risk in the closed portfolio being eligible to be hedged. The amendments allow the flexibility to use different types of derivatives or combinations of derivatives to better align with risk management strategies. Furthermore, among other things, the amendments clarify that basis adjustments of hedged items in the closed portfolio should be allocated at the portfolio level and not the individual assets within the portfolio. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2022-01 prospectively. If an entity elects to early adopt ASU 2022-01 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. Pinnacle ~~Financial's~~Financial is assessing ASU 2022-01 and its impact on its accounting and disclosures.

In March 2022, the FASB issued Accounting Standards Update 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which removes the accounting guidance for troubled debt restructurings and requires entities to evaluate whether a modification provided to a borrower results in a new loan or continuation of an existing loan. The amendments enhance existing disclosures and require new disclosures for receivables when there has been a modification in contractual cash flows due to a borrower experiencing financial difficulties. Additionally, the amendments require public business entities to disclose gross charge-off information by year of origination in the vintage disclosures. The guidance is effective for entities that have adopted ASU 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2022-02 prospectively. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period. Pinnacle Financial is assessing ASU 2022-02 and its impact on its accounting and disclosures.

In June 2022, the FASB issued Accounting Standards Update 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance in ASC 820 when measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of an equity security. This update also requires specific disclosures related to these types of securities. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2022-03 prospectively once adopted. Pinnacle Financial is assessing ASU 2022-03 and its 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 by requiring that all income tax effects related to settlements of share-based payment awards be reported as increases (or decreases) to income tax expense. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital. The ASU also requires that all income tax related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows whereas these cash flows were previously reported as a reduction to operating cash flows and an increase to financing cash flows. The guidance became effective for Pinnacle Financial on January 1, 2017. During the three and nine months ended September 30, 2017, the newly adopted standard resulted in a reduction in tax expense of $59,000 and $4.6 million, respectively.statements.

Subsequent Events— ~~Accounting Standards Codification (ASC)~~ ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Pinnacle Financial evaluated all events or transactions that occurred after ~~September~~June 30, ~~2017~~2022 through the date of the issued financial statements.

~~Note 2. Acquisitions~~

~~BNC Bancorp.~~ On June 16, 2017, Pinnacle Financial consummated its merger with BNC. Pursuant to the terms of the Agreement and Plan of Merger, dated as of January 22, 2017, by and between Pinnacle Financial and BNC, BNC merged with and into Pinnacle Financial, with Pinnacle Financial continuing as the surviving corporation (the BNC Merger). On that same day, Pinnacle Bank and Bank of North Carolina, BNC's wholly-owned bank subsidiary, merged, with Pinnacle Bank continuing as the surviving entity.

~~The following summarizes the consideration paid and presents a preliminary allocation of purchase price to net assets acquired (dollars in thousands):~~

Number of Shares Amount
Equity consideration:
Common stock issued 27,687,100
$ 1,858,133
Total equity consideration $ 1,858,133
Non-equity consideration:
Cash paid to redeem common stock $ 129
Total consideration paid $ 1,858,262
Allocation of total consideration paid:
Fair value of net assets assumed including estimated identifiable intangible assets $ 607,275
Goodwill 1,250,987
$ 1,858,262

Subsequently, Pinnacle Financial recorded costs incurred in connection with the issuance of Pinnacle Financial common stock resulting from the BNC Merger of $10.3 million which was recorded as a reduction to additional paid in capital. Certain merger-related charges resulting from cultural and systems integrations, as well as stock-based compensation expense incurred as a result of change-in-control provisions applicable to assumed equity-based awards were recorded as merger-related expense.

Goodwill originating from the BNC Merger resulted primarily from anticipated synergies arising from the combination of certain operational areas of the businesses of BNC and Pinnacle Financial as well as the purchase premium inherent in buying a complete and successful banking operation. Goodwill associated with the BNC Merger is not amortizable for book or tax purposes. Adjustments totaling $1.8 million were recorded to goodwill to appropriately reflect the valuation of the loan portfolio, OREO acquired, and certain liabilities assumed and have been included in the table below.

Pinnacle Financial accounted for the BNC Merger under the acquisition method in accordance with ASC Topic 805. Accordingly, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of merger.

The following purchase price allocations on the BNC Merger are preliminary and will be finalized upon the receipt of final valuations on certain assets and liabilities. Upon receipt of final fair value estimates, which must be received within one year of the BNC Merger date, Pinnacle Financial will make any final adjustments to the purchase price allocation and prospectively adjust any goodwill recorded. Information regarding Pinnacle Financial's loan discount and related deferred tax asset, core deposit intangible asset and related deferred tax liability, as well as income taxes payable and the related deferred tax balances recorded in the BNC Merger, may be adjusted as Pinnacle Financial refines its estimates. Determining the fair value of assets and liabilities, particularly illiquid assets and liabilities, is a complicated process involving significant judgment regarding estimates and assumptions used to calculate estimated fair value. Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the BNC Merger. Pinnacle Financial may incur losses on the acquired loans that are materially different from losses Pinnacle Financial originally projected.

As of June 16, 2017

BNC
Historical Cost Basis

Fair Value Adjustments⁽¹⁾
As Recorded by Pinnacle Financial
Assets
Cash and cash equivalents $ 155,271
$ —
$ 155,271
Investment securities 643,875
1,667
645,542
Loans ⁽²⁾
5,782,720
(181,430 ) 5,601,290
Mortgage loans held for sale 27,026
—
27,026
Other real estate owned ⁽³⁾
20,143
880
21,023
Core deposit and other intangible ⁽⁴⁾
—
50,422
50,422
Property, plant and equipment ⁽⁵⁾
156,805
—
156,805
Other assets ⁽⁶⁾
320,988
50,468
371,456
Total Assets $ 7,106,828
$ (77,993 ) $ 7,028,835

Liabilities

Interest-bearing deposits ⁽⁷⁾
$ 5,003,653
$ 4,355
$ 5,008,008
Non-interest bearing deposits 1,199,342
—
1,199,342
Borrowings ⁽⁸⁾
183,389
(6,412 ) 176,977
Other liabilities 35,729
1,504
37,233
Total Liabilities $ 6,422,113
$ (553 ) $ 6,421,560
Net Assets Acquired $ 684,715
$ (77,440 ) $ 607,275

~~Explanation of certain fair value adjustments:~~

~~Supplemental Pro Forma Combined Results of Operations~~

The supplemental proforma information below for the three and nine months ended September 30, 2017 and 2016 gives effect to the BNC acquisition as if it had occurred on January 1, 2016. These results combine the historical results of BNC into Pinnacle Financial's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are not indicative of what would have occurred had the BNC Merger taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of BNC's provision for credit losses for the first nine months of 2016 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2016. Additionally, these financials were not adjusted for non-recurring expenses, such as merger-related charges incurred by either Pinnacle Financial or BNC. Pinnacle Financial expects to achieve operating cost savings and other business synergies as a result of the acquisition which are also not reflected in the proforma amounts.

Three months ended Nine months ended
September 30, September 30,
(dollars in thousands) 2017 2016 2017 2016
Revenue ⁽¹⁾
$ 218,919
$ 185,181
$ 619,326
$ 513,565

Income before income taxes $ 98,218
$ 73,446
$ 261,516
$ 203,454

~~_______________________~~



⁽¹⁾	~~Net interest income plus noninterest income.~~

Note 3.2. Equity method investment

A summary of BHG's financial position as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 and results of operations as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, were as follows (in thousands):


	As of
	June 30, 2022		December 31, 2021
Assets	$	3,465,380	$	2,724,542

Liabilities	2,980,649		2,355,256
Equity interests	484,731		369,286
Total liabilities and equity	$	3,465,380	$	2,724,542


	For the three months ended June 30,				For the six months ended June 30,
	2022		2021		2022		2021
Revenues	$	297,947	$	178,984	$	536,559	$	336,607
Net income	$	107,207	$	62,353	$	177,033	$	120,915

As of
September 30, 2017 December 31, 2016
Assets $ 296,267
$ 223,246

Liabilities 202,336
139,531
Membership interests 93,931
83,715
Total liabilities and membership interests $ 296,267
$ 223,246

Table of Contents

For the three months ended
September 30, For the nine months ended
September 30,
2017 2016 2017 2016
Revenues $ 41,997
$ 37,587
$ 113,244
$ 108,205
Net income $ 20,428
$ 17,440
$ 54,453
$ 51,033

At ~~September~~June 30, ~~2017,~~2022, technology, trade name and customer relationship intangibles, net of related amortization, totaled ~~$14.3~~$6.6 million compared to ~~$16.8~~$6.8 million as of December 31, ~~2016.~~2021. Amortization expense of ~~$832,000~~$128,000 and ~~$2.5 million~~$256,000, respectively, was included for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$1.5 million~~$188,000 and ~~$2.4 million,~~$376,000, respectively, for the same periods in the prior year. Accretion income of ~~$758,000~~$188,000 and ~~$2.3 million~~$431,000, respectively, was included in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$599,000~~$395,000 and ~~$1.8 million for the same periods in the prior year, respectively.~~

During the three and nine months ended September 30, 2017, Pinnacle Financial and Pinnacle Bank received dividends from BHG of $4.5 million and $19.4 million in the aggregate, respectively, compared to $5.0 million and $26.8 million,$846,000, respectively, for the same periods in the prior year.

During the three and six months ended June 30, 2022, Pinnacle Financial and Pinnacle Bank received dividends of $28.5 million and $40.8 million, respectively, from BHG in the aggregate compared to $39.4 million and $49.4 million, respectively, during the three and six months ended June 30, 2021. Earnings from BHG are included in Pinnacle Financial's consolidated tax return. Profits from intercompany transactions are eliminated. NoDuring the three and six months ended June 30, 2022, Pinnacle Bank purchased $76.0 million of loans from BHG. Pinnacle Bank purchased $50.3 million and $124.9 million, respectively, of loans from BHG during the three and six months ended June 30, 2021. These loans were purchased ~~from~~at par pursuant to BHG's joint venture loan program whereby BHG and Pinnacle Bank share proportionately in the credit risk of the acquired loans based on the rate on the loan and the rate of the purchase. The yield on this portfolio to Pinnacle Bank is anticipated to be between 4.50% and 5.50% per annum. At June 30, 2022 and December 31, 2021, there were $351.4 million and $319.1 million, respectively, of BHG joint venture program loans held by Pinnacle ~~Bank for the nine-month periods ended September 30, 2017 or 2016, respectively.~~Bank.

Note 4.3. Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 are summarized as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2022:
Securities available-for-sale:
U.S. Treasury securities	$	246,604	$	184	$	685	$	246,103
U.S. Government agency securities	440,148		—		24,633		415,515
Mortgage-backed securities	1,524,170		685		127,177		1,397,678
State and municipal securities	1,558,987		4,741		78,341		1,485,387
Asset-backed securities	165,825		—		12,415		153,410
Corporate notes and other	117,162		490		6,407		111,245
	$	4,052,896	$	6,100	$	249,658	$	3,809,338
Securities held-to-maturity:
U.S. Treasury securities	$	92,938	$	—	$	4,748	$	88,190
U.S. Government agency securities	328,982		—		16,433		312,549
Mortgage-backed securities	404,608		—		30,356		374,252
State and municipal securities	1,741,998		306		197,534		1,544,770
Asset-backed securities	163,210		—		11,827		151,383
Corporate notes and other	14,027		—		813		13,214
	$	2,745,763	$	306	$	261,711	$	2,484,358
Allowance for credit losses - securities held-to-maturity	(1,208)
Securities held-to-maturity, net of allowance for credit losses	$	2,744,555

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value
September 30, 2017:
Securities available-for-sale:
U.S. Treasury securities $ 31,004
$ —
$ 26
$ 30,978
U.S. government agency securities 162,686
170
1,774
161,082
Mortgage-backed securities 1,629,860
5,004
16,065
1,618,799
State and municipal securities 754,474
5,703
3,452
756,725
Asset-backed securities 184,981
194
415
184,760
Corporate notes and other 128,480
460
1,103
127,837
$ 2,891,485
$ 11,531
$ 22,835
$ 2,880,181
Securities held-to-maturity:

State and municipal securities $ 20,848
$ 209
$ 35
$ 21,022
$ 20,848
$ 209
$ 35
$ 21,022

Table of Contents


December 31, 2016:
December 31, 2021:									December 31, 2021:
Securities available-for-sale:									Securities available-for-sale:
U.S. Treasury securities	$	250	$	—	$	—	$	250	U.S. Treasury securities	$	194,490	$	—	$	881	$	193,609
U.S. government agency securities	22,306		—		537		21,769
U.S. Government agency securities									U.S. Government agency securities	634,611		2,359		4,961		632,009
Mortgage-backed securities	988,008		4,304		15,686		976,626		Mortgage-backed securities	1,908,675		29,874		18,310		1,920,239
State and municipal securities	211,581		4,103		2,964		212,720		State and municipal securities	1,774,119		52,961		3,243		1,823,837
Asset-backed securities	79,318		111		849		78,580		Asset-backed securities	232,294		60		2,785		229,569
Corporate notes and other	8,608		39		46		8,601		Corporate notes and other	114,355		3,082		2,506		114,931
	$	1,310,071	$	8,557	20,082		$	1,298,546		$	4,858,544	$	88,336	32,686		$	4,914,194
Securities held-to-maturity:									Securities held-to-maturity:
U.S. Government agency securities									U.S. Government agency securities	11,920		—		37		11,883
Mortgage-backed securities									Mortgage-backed securities	106,555		86		196		106,445
State and municipal securities	$	25,251	$	87	$	105	$	25,233	State and municipal securities	1,037,644		32,966		889		1,069,721
	$	25,251	$	87	$	105	$	25,233		$	1,156,119	$	33,052	$	1,122	$	1,188,049
Allowance for credit losses - securities held-to-maturity									Allowance for credit losses - securities held-to-maturity	(161)
Securities held-to-maturity, net of allowance for credit losses									Securities held-to-maturity, net of allowance for credit losses	$	1,155,958

AtDuring the quarters ended March 31, 2022, March 31, 2020 and September 30, ~~2017,~~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, 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, 2022, approximately ~~$1.19 billion~~$685.1 million 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 ~~September~~June 30, ~~2017,~~2022, repurchase agreements comprised of secured borrowings totaled ~~$129.6~~$199.6 million and were secured by ~~$129.6~~$199.6 million of pledged U.S. government agency securities, mortgage-backed securities, municipal securities, ~~asset backed~~asset-backed securities and corporate debentures. As the fair value of securities pledged to secure repurchase agreements may decline, Pinnacle Financial regularly evaluates its need to pledge additional securities to remain adequately secured.

The amortized cost and fair value of debt securities as of ~~September~~June 30, ~~2017~~2022 by contractual maturity ~~are~~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):


	Available-for-sale				Held-to-maturity
June 30, 2022:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	34,637	$	34,521	$	1,979	$	1,965
Due in one year to five years	169,777		171,874		317,795		300,462
Due in five years to ten years	374,434		359,517		112,841		109,314
Due after ten years	1,784,053		1,692,338		1,745,330		1,546,982
Mortgage-backed securities	1,524,170		1,397,678		404,608		374,252
Asset-backed securities	165,825		153,410		163,210		151,383
	$	4,052,896	$	3,809,338	$	2,745,763	$	2,484,358

Available-for-sale Held-to-maturity
September 30, 2017:
Amortized
Cost

Fair
Value
Amortized Cost
Fair
Value
Due in one year or less $ 63,065
$ 62,852
$ 1,017
$ 1,019
Due in one year to five years 65,300
66,392
6,565
6,593
Due in five years to ten years 186,811
188,734
10,466
10,577
Due after ten years 761,468
758,644
2,800
2,833
Mortgage-backed securities 1,629,860
1,618,799
—
—
Asset-backed securities 184,981
184,760
—
—
$ 2,891,485
$ 2,880,181
$ 20,848
$ 21,022

Table of Contents

At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, the following ~~investments~~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, 2022
U.S. Treasury securities	$	182,142	$	685	$	—	$	—	$	182,142	$	685
U.S. Government agency securities	386,971		22,017		28,543		2,616		415,514		24,633
Mortgage-backed securities	1,149,133		94,808		220,024		32,369		1,369,157		127,177
State and municipal securities	1,238,230		76,205		19,632		2,136		1,257,862		78,341
Asset-backed securities	149,344		12,045		4,066		370		153,410		12,415
Corporate notes	65,464		3,900		19,870		2,507		85,334		6,407
Total temporarily-impaired securities	$	3,171,284	$	209,660	$	292,135	$	39,998	$	3,463,419	$	249,658

At December 31, 2021
U.S. Treasury securities	$	178,610	$	881	$	—	$	—	$	178,610	$	881
U.S. Government agency securities	353,951		2,987		54,266		1,974		408,217		4,961
Mortgage-backed securities	744,996		11,663		178,956		6,647		923,952		18,310
State and municipal securities	309,605		2,198		57,270		1,045		366,875		3,243
Asset-backed securities	198,349		2,595		6,513		190		204,862		2,785
Corporate notes	14,991		554		20,270		1,952		35,261		2,506
Total temporarily-impaired securities	$	1,800,502	$	20,878	$	317,275	$	11,808	$	2,117,777	$	32,686

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 September 30, 2017

U.S. Treasury securities $ 30,228
$ 26
$ —
$ —
$ 30,228
$ 26
U.S. government agency securities 158,315
1,774
—
—
158,315
1,774
Mortgage-backed securities 1,001,269
10,985
231,553
5,080
1,232,822
16,065
State and municipal securities 325,168
2,252
45,374
1,235
370,542
3,487
Asset-backed securities 59,102
146
19,098
269
78,200
415
Corporate notes 66,306
975
13,332
128
79,638
1,103
Total temporarily-impaired securities $ 1,640,388
$ 16,158
$ 309,357
$ 6,712
$ 1,949,745
$ 22,870

At December 31, 2016

U.S. Treasury securities $ —
$ —
$ —
$ —
$ —
$ —
U.S. government agency securities —
—
20,820
537
20,820
537
Mortgage-backed securities 801,213
15,073
43,148
613
844,361
15,686
State and municipal securities 87,277
3,068
312
1
87,589
3,069
Asset-backed securities 14,510
32
34,097
817
48,607
849
Corporate notes 4,810
46
—
—
4,810
46
Total temporarily-impaired securities $ 907,810
$ 18,219
$ 98,377
$ 1,968
$ 1,006,187
$ 20,187

The applicable dates for determining when available-for-sale securities ~~are~~were in an unrealized loss position ~~are September~~were June 30, ~~2017~~2022 and December 31, ~~2016.~~2021. As such, it is possible that aan available-for-sale security had a market value ~~that exceeded~~less than its amortized cost on other days during the ~~past~~ twelve-month periods ended ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, but is not in the "Investments with an Unrealized Loss of lessthan 12 months" category above.

As shown in the tables above, ~~including both available-for-sale and held-to-maturity investment securities,~~ at ~~September~~June 30, ~~2017,~~2022, Pinnacle Financial had approximately ~~$22.9~~$249.7 million in unrealized losses on ~~$1.95~~approximately $3.5 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, 2022, 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 ~~these investment~~available-for-sale securities at June 30, 2022 are driven by changes in interest rates and are not due to the credit quality of the ~~securities.~~securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at June 30, 2022. These securities will continue to be monitored as a part of Pinnacle Financial's ongoing ~~impairment analysis.~~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. ~~Because~~

The allowance for credit losses on held-to-maturity securities is measured on a collective basis by major security type. Pinnacle Financial ~~currently does not intend~~has a zero loss expectation for U.S. treasury securities in addition to ~~sell those~~U.S. Government agency securities ~~that have an unrealized~~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 ~~at September~~given default models driven primarily by macroeconomic factors over a reasonable and supportable period of eighteen months with a twelve month reversion to average loss factors. At June 30, ~~2017,~~2022 and ~~it is not more-likely-than-not that~~ December 31, 2021, the estimated allowance for credit losses on these held-to-maturity securities was $1.2 million and $161,000, respectively, with the change driven largely by the increase in the balance of held-to-maturity securities and by changes in macroeconomic forecasts.

Table of Contents

Pinnacle Financial ~~will be required~~utilizes bond credit ratings assigned by third party ratings agencies to ~~sell~~monitor the credit quality of debt securities ~~before recovery of their amortized cost bases, which may be maturity, Pinnacle Financial does not consider these~~held-to-maturity. At June 30, 2022, all debt securities ~~to be other-than-temporarily impaired at September 30, 2017.~~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.~~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 six months ended June 30, 2022, $2.9 million of available-for-sale securities were sold resulting in gross realized losses of $61,000. During the six months ended June 30, 2021, $2.2 million of available-for-sale securities were sold resulting in gross realized gains of $366,000.

~~The carrying~~Pinnacle Financial has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair values of Pinnacle Financial's investment securities could decline in the future if the financial condition of issuers deteriorates and management determines it is probable that Pinnacle Financial will not recover the entire amortized cost basesavailable for sale securities. See Note 8. Derivative Instruments for disclosure of the ~~securities. As a result, there is a risk that other-than-temporary impairment charges may occur in~~gains and losses recognized on derivative instruments and the ~~future. Additionally, there is a risk that other-than-temporary impairment charges may occur in~~cumulative fair value hedging adjustments to the ~~future if management's intention to hold these securities to maturity and/or recovery changes.~~ carrying amount of the hedged securities.

Note 5.4. Loans and Allowance for ~~Loan~~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 ~~five~~the following loan ~~categories:~~categories for presentation of loan balances and the related allowance for credit losses on loans:

•Owner occupied commercial real estate mortgage ~~consumer~~loans - Owner occupied commercial real estate mortgage ~~construction and land development, commercial and industrial, and consumer and other.~~

~~Commercial real-estate mortgage loans. Commercial real-estate mortgage~~ loans are ~~categorized as~~secured by commercial office buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such ~~based on investor exposures where~~loans, repayment is largely dependent upon the operation ~~refinance, or sale~~ of the ~~underlying real estate. Commercial real-estate mortgage also includes owner~~borrower's business.

•Non-owner occupied commercial real estate ~~which shares a similar risk profile to Pinnacle Financial's commercial~~loans - These loans represent investment real estate loans secured by office buildings, industrial buildings, warehouses, retail buildings, and ~~industrial products.~~

multifamily residential housing. Repayment is primarily dependent on lease income generated from the underlying collateral.

•Consumer ~~real-estate~~real estate mortgage loans. - Consumer ~~real-estate~~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. Loans totaling $51.1 million and $371.1 million granted under the Paycheck Protection Program are included in this category as of June 30, 2022, and December 31, 2021, respectively.

•Consumer and other loans. - Consumer and other loans include all loans issued to individuals not included in the consumer ~~real-estate~~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.

Table of Contents

Loans at June 30, 2022 and December 31, 2021 were as follows (in thousands):


	June 30, 2022		December 31, 2021
Commercial real estate:
Owner occupied	$	3,243,018	$	3,048,822
Non-owner occupied	5,861,596		5,221,704
Consumer real estate – mortgage	4,047,051		3,680,684
Construction and land development	3,386,866		2,903,017
Commercial and industrial	9,295,808		8,074,546
Consumer and other	498,757		485,489
Subtotal	$	26,333,096	$	23,414,262
Allowance for credit losses	(272,483)		(263,233)
Loans, net	$	26,060,613	$	23,151,029

Commercial loans receive risk ratings assigned by a financial advisor ~~and approved by a senior credit officer~~ 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. Pass rated loans include multiple ratings categories representing varying degrees of risk attributes lesser than those of the other defined risk categories further described below. Pinnacle Financial believes ~~that~~ its categories follow those used by Pinnacle Bank's primary regulators. At ~~September~~June 30, ~~2017,~~2022, approximately ~~81%~~78.4% 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~~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 $1.0 million or more be subject to a formal credit risk review ~~process by the assigned financial advisor.~~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 ~~loan~~ 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.

~~The following table presents Pinnacle Financial's loan balances by primary loan classification and~~Following are the ~~amount within each~~definitions of the risk rating ~~category.~~categories used by Pinnacle Financial. Pass rated loans include all credits other than those included ~~in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:~~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 ~~sound~~net worth and ~~paying~~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.

Table of Contents

The ~~following~~ table ~~outlines the amount of each~~below presents loan ~~classification categorized into~~balances classified within each risk rating category by primary loan type and based on year of origination or most recent renewal as of ~~September~~June 30, ~~2017~~2022 (in thousands):


June 30, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Commercial real estate - Owner occupied
Pass	$	574,287	$	858,414	$	658,343	$	355,582	$	280,823	$	366,273	$	51,913	$	3,145,635
Special Mention	24,128		20,434		9,556		1,621		1,247		11,280		12,990		81,256
Substandard (1)	2,260		1,007		1,664		5,620		184		2,636		—		13,371
Substandard-nonaccrual	—		1,151		—		257		959		389		—		2,756
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	600,675	$	881,006	$	669,563	$	363,080	$	283,213	$	380,578	$	64,903	$	3,243,018
Commercial real estate - Non-owner occupied
Pass	$	1,336,133	$	1,589,780	$	987,203	$	829,154	$	381,453	$	539,685	$	67,906	$	5,731,314
Special Mention	7,457		13,390		60,295		13,927		—		26,254		—		121,323
Substandard (1)	—		1,654		3,806		1,315		—		—		—		6,775
Substandard-nonaccrual	—		1,040		—		—		461		683		—		2,184
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - Non-owner occupied	$	1,343,590	$	1,605,864	$	1,051,304	$	844,396	$	381,914	$	566,622	$	67,906	$	5,861,596
Consumer real estate – mortgage
Pass	$	572,274	$	1,186,965	$	523,748	$	261,456	$	148,454	$	304,406	$	1,040,556	$	4,037,859
Special Mention	—		—		—		—		224		48		—		272
Substandard (1)	—		—		349		—		—		—		—		349
Substandard-nonaccrual	—		192		1,047		4,093		989		2,087		163		8,571
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer real estate – mortgage	$	572,274	$	1,187,157	$	525,144	$	265,549	$	149,667	$	306,541	$	1,040,719	$	4,047,051
Construction and land development
Pass	$	1,027,671	$	1,642,080	$	515,833	$	157,522	$	8,281	$	10,448	$	14,171	$	3,376,006
Special Mention	—		—		—		9,849		—		—		—		9,849
Substandard (1)	441		—		—		8		13		146		—		608
Substandard-nonaccrual	—		—		—		204		—		199		—		403
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Construction and land development	$	1,028,112	$	1,642,080	$	515,833	$	167,583	$	8,294	$	10,793	$	14,171	$	3,386,866
Commercial and industrial
Pass	$	2,226,356	$	2,187,721	$	609,856	$	468,021	$	191,181	$	165,983	$	3,258,859	$	9,107,977
Special Mention	1,832		22,789		6,528		35,529		5,922		1,274		48,454		122,328
Substandard (1)	13,506		11,325		299		5,938		1,386		1,041		30,463		63,958
Substandard-nonaccrual	184		126		—		255		217		467		296		1,545
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial and industrial	$	2,241,878	$	2,221,961	$	616,683	$	509,743	$	198,706	$	168,765	$	3,338,072	$	9,295,808
Consumer and other
Pass	$	84,705	$	124,829	$	68,254	$	3,471	$	1,365	$	1,776	$	214,357	$	498,757
Special Mention	—		—		—		—		—		—		—		—
Substandard (1)	—		—		—		—		—		—		—		—
Substandard-nonaccrual	—		—		—		—		—		—		—		—
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer and other	$	84,705	$	124,829	$	68,254	$	3,471	$	1,365	$	1,776	$	214,357	$	498,757


Total loans
Pass	$	5,821,426	$	7,589,789	$	3,363,237	$	2,075,206	$	1,011,557	$	1,388,571	$	4,647,762	$	25,897,548
Special Mention	33,417		56,613		76,379		60,926		7,393		38,856		61,444		335,028
Substandard (1)	16,207		13,986		6,118		12,881		1,583		3,823		30,463		85,061
Substandard-nonaccrual	184		2,509		1,047		4,809		2,626		3,825		459		15,459
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total loans	$	5,871,234	$	7,662,897	$	3,446,781	$	2,153,822	$	1,023,159	$	1,435,075	$	4,740,128	$	26,333,096

Table of Contents

(1) Potential problem loans represent those 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, excluding troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $85.1 million at June 30, 2022, compared to $109.6 million at December 31, ~~2016 (in thousands):~~2021.

Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial
Consumer
and other
Total
September 30, 2017
Pass $ 6,267,036
$ 2,440,653
$ 1,909,631
$ 3,862,830
$ 355,786
$ 14,835,936
Special Mention 107,739
57,482
8,552
33,828
1,375
208,976
Substandard ⁽¹⁾
58,276
22,310
15,234
65,541
101
161,462
Substandard-nonaccrual 16,920
19,981
6,392
9,028
266
52,587
Doubtful-nonaccrual 71
754
—
—
—
825
Total loans $ 6,450,042
$ 2,541,180
$ 1,939,809
$ 3,971,227
$ 357,528
$ 15,259,786

December 31, 2016
Pass $ 3,137,452
$ 1,160,361
$ 897,556
$ 2,782,713
$ 264,723
$ 8,242,805
Special Mention 21,449
1,856
2,716
25,641
802
52,464
Substandard ⁽¹⁾
29,674
15,627
5,788
75,861
129
127,079
Substandard-nonaccrual 4,921
8,073
6,613
7,492
475
27,574
Doubtful-nonaccrual —
—
—
3
—
3
Total loans $ 3,193,496
$ 1,185,917
$ 912,673
$ 2,891,710
$ 266,129
$ 8,449,925

~~(1)~~

Potential problem loans represent those 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, excluding the impact of nonaccrual loans and troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $148.7 million at September 30, 2017, compared to $114.6 million at December 31, 2016.

The table below presents the aging of past due balances by loan segment at June 30, 2022 and December 31, 2021 (in thousands):


June 30, 2022	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	$	650	$	756	$	2,564	$	3,970	$	3,239,048	$	3,243,018
Non-owner occupied	631		—		1,723		2,354		5,859,242		5,861,596
Consumer real estate – mortgage	1,834		9,961		5,604		17,399		4,029,652		4,047,051
Construction and land development	4		—		200		204		3,386,662		3,386,866
Commercial and industrial	7,064		3,074		3,260		13,398		9,282,410		9,295,808
Consumer and other	2,531		1,566		498		4,595		494,162		498,757
Total	$	12,714	$	15,357	$	13,849	$	41,920	$	26,291,176	$	26,333,096

December 31, 2021
Commercial real estate:
Owner occupied	$	727	$	—	$	2,426	$	3,153	$	3,045,669	$	3,048,822
Non-owner occupied	1,434		—		645		2,079		5,219,625		5,221,704
Consumer real estate – mortgage	8,710		122		4,450		13,282		3,667,402		3,680,684
Construction and land development	61		—		127		188		2,902,829		2,903,017
Commercial and industrial	4,926		2,677		7,311		14,914		8,059,632		8,074,546
Consumer and other	1,715		568		372		2,655		482,834		485,489
Total	$	17,573	$	3,367	$	15,331	$	36,271	$	23,377,991	$	23,414,262

The following table details the changes in the allowance for credit losses for the three and six months ended June 30, 2022 and 2021, 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, 2022:
Balance at March 31, 2022	$	19,505	$	56,078	$	32,320	$	29,823	$	112,412	$	11,480	$	261,618
Charged-off loans	(879)		(185)		(92)		(150)		(5,275)		(2,592)		(9,173)
Recovery of previously charged-off loans	207		184		578		75		5,600		1,652		8,296
Provision for credit losses on loans	776		(3,530)		1,077		(1,067)		13,035		1,451		11,742
Balance at June 30, 2022	$	19,609	$	52,547	$	33,883	$	28,681	$	125,772	$	11,991	$	272,483

Three months ended June 30, 2021:
Balance at March 31, 2021	$	22,065	$	80,519	$	30,199	$	37,642	$	101,076	$	9,380	$	280,881
Charged-off loans	(6)		(332)		(161)		—		(10,972)		(1,284)		(12,755)
Recovery of previously charged-off loans	476		147		548		200		645		771		2,787
Provision for credit losses on loans	(3,224)		(1,253)		(141)		(4,355)		11,352		455		2,834
Balance at June 30, 2021	$	19,311	$	79,081	$	30,445	$	33,487	$	102,101	$	9,322	$	273,747

Table of Contents


	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
Six months ended June 30, 2022:
Balance at December 31, 2021	$	19,618	$	58,504	$	32,104	$	29,429	$	112,340	$	11,238	$	263,233
Charged-off loans	(965)		(185)		(254)		(150)		(9,655)		(4,476)		(15,685)
Recovery of previously charged-off loans	334		247		872		149		7,524		2,724		11,850
Provision for credit losses on loans	622		(6,019)		1,161		(747)		15,563		2,505		13,085
Balance at June 30, 2022	$	19,609	$	52,547	$	33,883	$	28,681	$	125,772	$	11,991	$	272,483
Six months ended June 30, 2021:
Balance at December 31, 2020	$	23,298	$	79,132	$	33,304	$	42,408	$	98,423	$	8,485	$	285,050
Charged-off loans	(703)		(472)		(532)		(367)		(22,721)		(2,234)		(27,029)
Recovery of previously charged-off loans	1,078		159		913		237		1,851		1,426		5,664
Provision for credit losses on loans	(4,362)		262		(3,240)		(8,791)		24,548		1,645		10,062
Balance at June 30, 2021	$	19,311	$	79,081	$	30,445	$	33,487	$	102,101	$	9,322	$	273,747

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 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.

Pinnacle Financial adopted ASU 2016-13 on January 1, 2020, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset. Under the CECL methodology the allowance for credit losses is measured on a collective basis for pools of loans ~~acquired~~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 experience and certain macroeconomic factors as determined through a statistical regression analysis. All loan segments modeled using this approach consider changes in the national unemployment rate. In addition to the national unemployment rate, GDP and the three month treasury rate are considered for owner occupied commercial real estate, the commercial real estate price index and the five year treasury rate are considered for construction loans, and the three month treasury rate is considered for commercial and industrial loans. 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 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 24 months was utilized for all loan segments at June 30, 2022 and December 31, 2021, followed by a 12 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, collateral considerations, risk ratings, 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 ~~BNC and~~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 ~~adjustment with respect thereto as~~ of ~~September 30, 2017 (dollars in thousands):~~collateral.

Table of Contents

Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial
Consumer
and other
Fair value adjustment Net total acquired loans
September 30, 2017
Pass $ 3,049,607
$ 1,241,566
$ 746,206
$ 496,445
$ 78,137
$ (129,907 ) $ 5,482,054
Special Mention 69,746
57,359
5,868
6,242
632
(4,439 ) 135,408
Substandard 47,027
13,619
10,220
8,724
—
(17,227 ) 62,363
Substandard-nonaccrual 7,742
13,786
6,966
2,102
44
(10,934 ) 19,706
Doubtful-nonaccrual 189
854
—
—
—
(217 ) 826
Total loans $ 3,174,311
$ 1,327,184
$ 769,260
$ 513,513
$ 78,813
$ (162,724 ) $ 5,700,357

~~Loans acquired with deteriorated credit quality are recorded pursuant to the provisions of ASC 310-30, and are referred to as purchase credit impaired loans.~~ The following table ~~provides a rollforward~~presents the amortized cost basis of ~~purchase~~collateral dependent loans, which are individually evaluated to determine expected credit ~~impaired loans from~~losses, as of June 30, 2022 and December 31, ~~2016 through September 30, 2017~~2021 (in thousands):


	Real Estate		Business Assets		Other		Total
June 30, 2022
Commercial real estate:
Owner occupied	$	5,203	$	—	$	—	$	5,203
Non-owner occupied	4,707		—		—		4,707
Consumer real estate – mortgage	14,067		—		—		14,067
Construction and land development	1,240		—		—		1,240
Commercial and industrial	—		1,491		—		1,491
Consumer and other	—		—		—		—
Total	$	25,217	$	1,491	$	—	$	26,708
December 31, 2021
Commercial real estate:
Owner occupied	$	5,300	$	—	$	—	$	5,300
Non-owner occupied	5,631		—		—		5,631
Consumer real estate – mortgage	16,392		—		—		16,392
Construction and land development	1,208		—		—		1,208
Commercial and industrial	—		6,976		206		7,182
Consumer and other	—		—		—		—
Total	$	28,531	$	6,976	$	206	$	35,713

Gross Carrying Value
Accretable
Yield
Nonaccretable
Yield
Net Carrying
Value
December 31, 2016 $ 12,451
$ —
$ (3,633 ) $ 8,818
Acquisition 80,229
(300 ) (32,211 ) 47,718
Year-to-date settlements (10,868 ) 4
2,659
(8,205 )
September 30, 2017 $ 81,812
$ (296 ) $ (33,185 ) $ 48,331

~~Certain~~The table below presents the amortized cost basis of ~~these~~ loans ~~have been deemed to be collateral dependent~~on nonaccrual status and ~~as such, no accretable yield has been recorded for these loans. The carrying value~~loans past due 90 or more days and still accruing interest at June 30, 2022 and December 31, 2021. Also presented is adjusted for additional draws, pursuant to contractual arrangements, offset by loan paydowns. Year-to-date settlements include both loans that were charged-off as well as loans that were paid off, typically as a result of refinancings at other institutions.

~~For~~ the ~~three and nine months ended September 30, 2017, the average~~ balance of loans on nonaccrual ~~loans~~status at June 30, 2022 for which there was ~~$52.4 million and $66.9 million, respectively, compared to $31.6 million and $35.1 million, respectively,~~no related allowance for ~~the same periods in 2016.~~ credit losses recorded (in thousands):


	June 30, 2022						December 31, 2021
	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	$	2,756	$	—	$	—	$	2,694	$	—	$	—
Non-owner occupied	2,184		1,040		—		1,404		—		—
Consumer real estate – mortgage	8,572		—		1,181		10,264		—		144
Construction and land development	403		—		—		356		—		—
Commercial and industrial	1,545		184		2,160		16,849		13,188		1,091
Consumer and other	—		—		498		2		—		372
Total	$	15,460	$	1,224	$	3,839	$	31,569	$	13,188	$	1,607

Pinnacle Financial's policy is ~~that~~ 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 ~~the above mentioned~~ loans ~~were~~are placed on nonaccrual status, Pinnacle Financial ~~reversed~~reverses all previously accrued interest income against current year earnings. Pinnacle Financial's policy is ~~that~~ 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 ~~September~~June 30, ~~2017~~2022 and ~~$65,000 during the nine months ended September 30, 2017, compared to approximately $47,000 and $95,000, respectively, during the three and nine months ended September 30, 2016.~~2021, respectively. Had these ~~nonaccruing~~ loans been on accruing status, an additional $459,000 and $903,000 of interest income would have been ~~higher by $849,000~~recognized for the three and ~~$2.1~~six months ended June 30, 2022 compared to an additional $776,000 and $1.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively, compared to $478,000~~2021, respectively. Approximately $3.5 million and ~~$999,000 higher for the three and nine months ended September 30, 2016, respectively.~~

~~The following table details the recorded investment, unpaid principal balance and related allowance~~$15.5 million of ~~Pinnacle Financial's~~ nonaccrual loans ~~at September~~were performing pursuant to their contractual terms as of June 30, ~~2017~~2022 and December 31, ~~2016 by loan classification (in thousands):~~2021, respectively.

Table of Contents

At September 30, 2017 At December 31, 2016
Recorded investment
Unpaid principal balances⁽¹⁾
Related allowance⁽²⁾
Recorded investment
Unpaid principal balances⁽¹⁾
Related allowance⁽²⁾
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage $ 16,600
$ 18,992
$ —
$ 2,308
$ 2,312
$ —
Consumer real estate – mortgage 16,406
19,808
—
2,880
2,915
—
Construction and land development 4,472
8,587
—
3,128
3,135
—
Commercial and industrial 8,077
9,393
—
6,373
6,407
—
Consumer and other 15
17
—
—
—
—
Total $ 45,570
$ 56,797
$ —
$ 14,689
$ 14,769
$ —

Cash flow dependent nonaccrual loans:

Commercial real estate – mortgage $ 391
$ 616
$ —
$ 2,613
$ 3,349
$ 59
Consumer real estate – mortgage 4,329
4,386
723
5,193
5,775
688
Construction and land development 1,920
2,369
13
3,485
4,154
20
Commercial and industrial 951
941
108
1,122
2,714
77
Consumer and other 251
154
88
475
851
227
Total $ 7,842
$ 8,466
$ 932
$ 12,888
$ 16,843
$ 1,071

Total nonaccrual loans $ 53,412
$ 65,263
$ 932
$ 27,577
$ 31,612
$ 1,071


⁽¹⁾	~~Unpaid principal balance presented net of fair value adjustments recorded in conjunction with purchase accounting.~~


⁽²⁾	~~Collateral dependent loans are typically charged-off to their net realizable value and no specific allowance is carried related to those loans.~~

The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three and nine months ended September 30, 2017 and 2016, respectively, on Pinnacle Financial's nonaccrual loans that remain on the balance sheets as of such date (in thousands):

For the three months ended
September 30, For the nine months ended
September 30,
2017 2016 2017 2016
Average recorded investment Interest income recognized Average recorded investment Interest income recognized Average recorded investment Interest income recognized Average recorded investment Interest income recognized
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage $ 15,602
$ —
$ 3,579
$ —
$ 17,854
$ —
$ 3,786
$ —
Consumer real estate – mortgage 16,895
—
4,457
—
24,557
—
4,638
—
Construction and land development 2,741
—
6,575
47
2,716
65
6,808
95
Commercial and industrial 8,768
—
9,900
—
10,437
—
10,308
—
Consumer and other 14
—
—
—
13
—
—
—
Total $ 44,020
$ —
$ 24,511
$ 47
$ 55,577
$ 65
$ 25,540
$ 95

Cash flow dependent nonaccrual loans:

Commercial real estate – mortgage $ 487
$ —
$ 1,563
$ —
$ 1,069
$ —
$ 1,599
$ —
Consumer real estate – mortgage 4,662
—
2,391
—
4,788
—
2,533
—
Construction and land development 1,927
—
323
—
2,109
—
346
—
Commercial and industrial 508
—
312
—
1,089
—
2,160
—
Consumer and other 804
—
2,517
—
2,237
—
2,915
—
Total $ 8,388
$ —
$ 7,106
$ —
$ 11,292
$ —
$ 9,553
$ —

Total nonaccrual loans $ 52,408
$ —
$ 31,617
$ 47
$ 66,869
$ 65
$ 35,093
$ 95

At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, there were ~~$15.2~~$2.3 million and ~~$15.0~~$2.4 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which were accruing interest. Troubled commercial loans are restructured by specialists within Pinnacle Bank's Special Assets Group, and all restructurings are approved by committees and/or credit officers separate and apart from the normal loan approval process. These specialists are charged with reducing Pinnacle Financial's overall risk and exposure to loss in the event of a restructuring by obtaining some or all of the following: improved documentation, additional guaranties, increase in curtailments, reduction in collateral release terms, additional collateral or other similar strategies.

~~The~~ ~~following table outlines the amount of each loan category where~~There were no troubled debt restructurings ~~were~~ made during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016 (dollars in thousands):~~

Three months ended
September 30, Nine months ended
September 30,
2017
Number
of contracts
Pre Modification Outstanding Recorded Investment Post Modification Outstanding Recorded Investment, net of related allowance
Number
of contracts
Pre Modification Outstanding Recorded Investment Post Modification Outstanding Recorded Investment, net of related allowance
Commercial real estate – mortgage —
$ —
$ —
—
$ —
$ —
Consumer real estate – mortgage —
—
—
1
7
5
Construction and land development —
—
—
—
—
—
Commercial and industrial 1
501
145
3
2,472
1,773
Consumer and other —
—
—
—
—
—
1
$ 501
$ 145
4
$ 2,479
$ 1,778

2016

Commercial real estate – mortgage —
$ —
$ —
—
$ —
$ —
Consumer real estate – mortgage —
—
—
—
—
—
Construction and land development —
—
—
—
—
—
Commercial and industrial 1
20
17
2
1,008
254
Consumer and other —
—
—
—
—
—
1
$ 20
$ 17
2
$ 1,008
$ 254

2021. During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016, Pinnacle Financial did not have any~~2021, there were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring.

~~To monitor~~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 ~~September~~June 30, ~~2017~~2022 with the comparative exposures for December 31, ~~2016~~2021 (in thousands):


	June 30, 2022
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2021
Lessors of nonresidential buildings	$	4,499,466	$	2,062,884	$	6,562,350	$	5,368,638
Lessors of residential buildings	1,621,735		1,572,489		3,194,224		2,566,352

New housing for-sale builders	677,418		1,109,695		1,787,113		1,534,789

September 30, 2017
Outstanding Principal Balances Unfunded Commitments Total exposure Total Exposure at December 31,
2016
Lessors of nonresidential buildings $ 2,814,079
$ 3,236,499
$ 6,050,578
$ 1,701,853
Lessors of residential buildings 662,014
847,583
1,509,597
874,234
Hotels (except Casino Hotels) and Motels 598,177
763,496
1,361,673
291,865

~~The table below presents past due~~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 ~~loan classification and segment at September~~Pinnacle Bank’s total risk-based capital. At June 30, ~~2017~~2022 and December 31, ~~2016, allocated between accruing~~2021, Pinnacle Bank’s construction and ~~nonaccrual status (in thousands):~~

Accruing Nonaccruing
September 30, 2017 30-89 days past due and accruing 90 days or more past due and accruing Total past due and accruing Purchased credit impaired Current and accruing
Nonaccrual⁽¹⁾
Purchased credit impaired Total loans
Commercial real estate:
Owner-occupied $ 6,999
$ —
$ 6,999
$ 5,065
$ 2,408,065
$ 11,154
$ 1,258
$ 2,432,541
All other 4,919
—
4,919
12,124
3,995,879
929
3,650
4,017,501
Consumer real estate – mortgage 8,980
1,072
10,052
7,880
2,502,513
11,172
9,563
2,541,180
Construction and land development 3,621
240
3,861
3,811
1,925,745
2,058
4,334
1,939,809
Commercial and industrial 4,623
560
5,183
374
3,956,642
8,759
269
3,971,227
Consumer and other 6,676
1,138
7,814
—
349,448
263
3
357,528
$ 35,818
$ 3,010
$ 38,828
$ 29,254
$ 15,138,292
$ 34,335
$ 19,077
$ 15,259,786

December 31, 2016
Commercial real estate:
Owner-occupied $ 3,505
$ —
$ 3,505
$ —
$ 1,347,134
$ 2,297
$ 1,956
$ 1,354,893
All other —
—
—
—
1,837,936
240
428
1,838,603
Consumer real estate – mortgage 3,838
53
3,891
—
1,173,953
5,554
2,520
1,185,917
Construction and land development 2,210
—
2,210
—
903,850
3,205
3,408
912,673
Commercial and industrial 4,475
—
4,475
—
2,879,740
6,971
524
2,891,710
Consumer and other 7,168
1,081
8,249
—
257,405
475
—
266,129
$ 21,196
$ 1,134
$ 22,330
$ —
$ 8,400,018
$ 18,742
$ 8,836
$ 8,449,925


~~(1)~~	~~Approximately $40.2 million and $16.7 million of nonaccrual loans as of September 30, 2017 and December 31, 2016, respectively, were performing pursuant to their contractual terms at those dates~~.

~~The following table shows the allowance allocation by loan classification~~land development loans as a percentage of total risk-based capital were 87.4% and ~~accrual status at September~~79.1%, 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 250.2% and 234.1% as of June 30, ~~2017~~2022 and December 31, ~~2016 (in thousands):~~

Impaired Loans
Accruing Loans Nonaccrual Loans
Troubled Debt
Restructurings ⁽¹⁾
Total Allowance
for Loan Losses
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Commercial real estate –mortgage $ 20,790
$ 13,595
$ —
$ 59
$ —
$ 1
$ 20,790
$ 13,655
Consumer real estate – mortgage 4,562
5,874
723
688
18
2
5,303
6,564
Construction and land development 7,510
3,604
13
20
—
—
7,523
3,624
Commercial and industrial 22,878
24,648
108
77
421
18
23,407
24,743
Consumer and other 6,831
9,293
88
227
—
—
6,919
9,520
Unallocated —
—
—
—
—
—
1,217
874
$ 62,571
$ 57,014
$ 932
$ 1,071
$ 439
$ 21
$ 65,159
$ 58,980


~~(1)~~	Troubled debt restructurings of $15.2 million and $15.0 million as of both September 30, 2017 and December 31, 2016, respectively, are classified as impaired loans pursuant to U.S. GAAP; however, these loans continue to accrue interest at contractual rates.

~~The following table details the changes in the allowance for loan losses~~2021, respectively. Banking regulations have established guidelines for the ~~three~~construction ratio of less than 100% of total risk-based capital and ~~nine months ended September 30, 2017 and 2016, respectively, by loan classification (in thousands):~~

Commercial real estate - mortgage
Consumer
real estate - mortgage
Construction and land development Commercial and industrial
Consumer
and other
Unallocated Total
Three months ended September 30, 2017:
Balance at July 1, 2017 $ 16,002
$ 7,835
$ 5,126
$ 24,235
$ 7,549
$ 1,197
$ 61,944
Charged-off loans (572 ) (395 ) (99 ) (1,625 ) (3,296 ) —
(5,987 )
Recovery of previously charged-off loans 169
565
716
562
269
—
2,281
Provision for loan losses 5,191
(2,702 ) 1,780
235
2,397
20
6,920
Balance at September 30, 2017 $ 20,790
$ 5,303
$ 7,523
$ 23,407
$ 6,919
$ 1,217
$ 65,159

Three months ended September 30, 2016:

Balance at July 1, 2016 $ 13,665
$ 6,540
$ 3,923
$ 25,090
$ 11,138
$ 1,056
$ 61,412
Charged-off loans (80 ) (336 ) (231 ) (3,165 ) (5,072 ) —
(8,884 )
Recovery of previously charged-off loans 11
67
434
233
868
—
1,613
Provision for loan losses 434
623
(230 ) 1,399
4,150
(268 ) 6,108
Balance at September 30, 2016 $ 14,030
$ 6,894
$ 3,896
$ 23,557
$ 11,084
$ 788
$ 60,249

Nine months ended September 30, 2017:
Balance at December 31, 2016 $ 13,655
$ 6,564
$ 3,624
$ 24,743
$ 9,520
$ 874
$ 58,980
Charged-off loans (581 ) (663 ) (99 ) (3,278 ) (11,687 ) —
(16,309 )
Recovery of previously charged-off loans 184
1,147
845
1,264
1,663
—
5,103
Provision for loan losses 7,532
(1,745 ) 3,153
678
7,423
343
17,384
Balance at September 30, 2017 $ 20,790
$ 5,303
$ 7,523
$ 23,407
$ 6,919
$ 1,217
$ 65,159

Nine months ended September 30, 2016:

Balance at December 31, 2015 $ 15,513
$ 7,220
$ 2,903
$ 23,643
$ 15,616
$ 537
$ 65,432
Charged-off loans (276 ) (714 ) (231 ) (5,408 ) (18,627 ) —
(25,257 )
Recovery of previously charged-off loans 203
223
540
1,848
1,977
—
4,791
Provision for loan losses (1,410 ) 165
684
3,474
12,118
251
15,282
Balance at September 30, 2016 $ 14,030
$ 6,894
$ 3,896
$ 23,557
$ 11,084
$ 788
$ 60,249

~~The following table details~~for the ~~allowance for loan losses and recorded investment~~non-owner occupied ratio of less than 300% of total risk-based capital. When a bank’s ratios are in ~~loans by loan classification and by impairment evaluation method as~~excess of ~~September 30, 2017 and December 31, 2016, respectively (in thousands):~~

Commercial real estate - mortgage
Consumer
real estate - mortgage
Construction and land development Commercial and industrial
Consumer
and other
Unallocated Total
September 30, 2017

Allowance for Loan Losses:

Collectively evaluated for impairment $ 20,790
$ 4,562
$ 7,510
$ 22,878
$ 6,831
$ 1,217
$ 63,788
Individually evaluated for impairment —
741
13
529
88
—
1,371
Loans acquired with deteriorated credit quality —
—
—
—
—
—
—
Total allowance for loan losses $ 20,790
$ 5,303
$ 7,523
$ 23,407
$ 6,919
$ 1,217
$ 65,159

Loans:

Collectively evaluated for impairment $ 6,415,862
$ 2,512,565
$ 1,929,606
$ 3,961,825
$ 357,262

$ 15,177,120
Individually evaluated for impairment 12,083
11,172
2,058
8,759
263

34,335
Loans acquired with deteriorated credit quality 22,097
17,443
8,145
643
3

48,331
Total loans $ 6,450,042
$ 2,541,180
$ 1,939,809
$ 3,971,227
$ 357,528

$ 15,259,786

December 31, 2016

Allowance for Loan Losses:

Collectively evaluated for impairment $ 13,595
$ 5,874
$ 3,604
$ 24,648
$ 9,293
$ 874
$ 57,888
Individually evaluated for impairment 60
690
20
95
227
—
1,092
Loans acquired with deteriorated credit quality —
—
—
—
—
—
—
Total allowance for loan losses $ 13,655
$ 6,564
$ 3,624
$ 24,743
$ 9,520
$ 874
$ 58,980

Loans:

Collectively evaluated for impairment $ 3,188,362
$ 1,174,456
$ 906,053
$ 2,872,855
$ 265,613

$ 8,407,339
Individually evaluated for impairment 2,750
8,941
3,212
18,331
516

33,750
Loans acquired with deteriorated credit quality 2,384
2,520
3,408
524
—

8,836
Total loans $ 3,193,496
$ 1,185,917
$ 912,673
$ 2,891,710
$ 266,129

$ 8,449,925

~~The adequacy~~one or both of ~~the allowance for loan losses is assessed at the end of each calendar quarter. The~~these guidelines, banking regulations generally require an increased level of ~~the allowance is based upon evaluation of the loan portfolio, current asset quality trends, known and inherent risks~~monitoring in the portfolio, adverse situations that may affect the borrowers' ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, historical loss experience, industry and peerthese lending areas by bank ~~loan quality indications and other pertinent factors, including regulatory recommendations. The allowance for loan losses for purchased loans is calculated similarly to the method utilized for legacy~~management. At June 30, 2022, Pinnacle Bank ~~loans. Pinnacle Financial's accounting policy is~~was within the 100% and 300% guidelines and has established what it believes to ~~compare~~be appropriate controls to monitor its lending in these areas as it aims to keep the ~~computed allowance for loan losses for purchased~~level of these loans ~~on a loan-by-loan basis to any remaining fair value adjustment. If~~below the ~~computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a charge to the provision for loan losses.~~100% and 300% thresholds.

At ~~September~~June 30, ~~2017,~~2022, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately ~~$26.3~~$47.0 million to current directors, executive officers, and their related ~~entities,~~interests, of which ~~$16.7~~$36.9 million had been drawn upon. At December 31, ~~2016,~~2021, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately ~~$22.6~~$45.2 million to directors, executive officers, and their related ~~entities,~~interests, of which approximately ~~$14.8~~$14.5 million had been drawn upon. ~~None of these~~All loans to directors, executive officers, and their related ~~entities~~interests were ~~impaired~~performing in accordance with contractual terms at ~~September~~June 30, ~~2017 or~~2022 and December 31, ~~2016.~~2021.

Loans Held for Sale

At ~~September~~June 30, ~~2017,~~2022, Pinnacle Financial had approximately ~~$20.4~~$25.9 million in commercial loans held for sale compared to $17.7 million at December 31, 2021, which primarily included ~~loans previously held in Pinnacle Bank's~~ commercial ~~loan portfolio that it has elected to sell, as well as~~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.

~~Residential Lending~~

At ~~September~~June 30, ~~2017,~~2022, Pinnacle Financial had approximately ~~$105.0~~$21.7 million of mortgage loans held-for-sale compared to approximately ~~$47.7~~$30.3 million at December 31, ~~2016.~~2021. Total loan volumes sold during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 were approximately ~~$756.7~~$510.5 million compared to approximately ~~$549.4~~$941.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. During the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2022, Pinnacle Financial recognized ~~$14.8~~$2.2 million and $6.2 million, respectively, in gains on the sale of these loans, net of commissions paid, compared to ~~$12.9~~$6.7 million and $20.4 million, respectively, during the ~~nine~~three and six months ended ~~September~~June 30, ~~2016.~~2021.

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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 (GSE) and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs (HUD/VA) 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 pursuant to the terms of these representations and warranties has been insignificant to Pinnacle Bank.

Note 6.5. 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 ~~$1.3~~$12.7 million at ~~September~~June 30, ~~2017 compared to $196,000 at September 30, 2016.~~2022 and December 31, 2021, respectively. No change was recorded to the unrecognized tax benefit related to uncertain tax positions in each of the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021.

Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. ~~For~~During the three and six months ended ~~September~~June 30, ~~2017 there were no~~2022, Pinnacle Financial recognized $264,000 in interest and penalties. No interest and penalties were recorded in the income statement ~~and $22,000 for the nine months ended September 30, 2017, compared to no interest and penalties~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021.

Pinnacle Financial's effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~35.2%~~19.9% and ~~31.9%~~19.0%, respectively, compared to ~~33.5%~~18.9% and ~~33.5%~~18.6%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The difference between the effective tax rate and the federal and state income tax statutory rate of ~~39.23%~~26.14% at June 30, 2022 and 2021 is primarily due to ~~state excise tax expense,~~ investments in bank qualified municipal securities, tax benefits of Pinnacle ~~Financial's~~Bank's real estate investment trust subsidiary, participation in the Tennessee Community Investment Tax Credit (CITC) program, and tax benefits associated with share-based compensation, bank-owned life insurance and ~~our~~Pinnacle Financial's captive insurance subsidiary, offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC premiums and ~~certain merger-related expenses. The impact~~non-deductible executive compensation.

Income tax expense is also impacted by the vesting of equity-based awards and the exercise of employee stock options, which expense or benefit is 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 ~~adoption of ASU 2016-09 (as described in Note 1) was included in income tax expense~~underlying award. Accordingly, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, resulting in the recognition~~2022 and 2021, Pinnacle Financial recognized excess tax benefits of ~~$59,000~~$282,000 and ~~$4.6~~$2.9 million, respectively, compared to benefits of ~~tax benefits which reduced income tax expense. Prior to~~$302,000 and $1.9 million, respectively, for the ~~adoption of ASU 2016-09, these tax benefits were recorded as an increase to additional paid-in-capital.~~three and six months ended June 30, 2021.

Note 7.6. 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 concerns that use lines of credit to supplement their treasury management functions, ~~and~~ 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 ~~September~~June 30, ~~2017,~~2022, these commitments amounted to ~~$5.2 billion.~~$14.4 billion, of which approximately $1.5 billion related to home equity lines of credit.

Standby letters of credit are generally issued on behalf of an applicant ~~(our customer)~~(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 beforehand due to criteria specified in the standby

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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 ~~September~~June 30, ~~2017,~~2022, these commitments amounted to ~~$137.3~~$330.0 million.

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 ~~Financial's~~Bank's customers default on their resulting obligation to Pinnacle ~~Financial,~~Bank, the maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those commitments. At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, Pinnacle Financial had accrued ~~$3.1~~reserves of $24.0 million and ~~$1.1~~$22.5 million, respectively, for the inherent risks associated with these off-balance sheet commitments.

Various legal claims also arise from time to time in the normal course of business. In the opinion of management, the ~~resolution~~resolutions of these claims outstanding at ~~September~~June 30, ~~2017 will~~2022 are not expected to have a material adverse impact on Pinnacle Financial's consolidated financial condition, operating results or cash flows.

Note 8.7. Stock Options and Restricted Shares

~~As described more fully in the Annual Report on Form 10-K, as of December 31, 2016,~~ Pinnacle ~~Financial has one equity incentive plan under which it is able to grant awards, the 2014~~Financial's Amended and Restated 2018 Omnibus Equity Incentive Plan ~~(2014 Plan) and has assumed the stock option plan of CapitalMark~~ (the CapitalMark Option Plan) in connection with the CapitalMark Merger and the BNC Bancorp 2013 Amended and Restated Omnibus Stock Incentive Plan (BNC Plan) in connection with the acquisition of BNC. In addition, awards previously granted remain outstanding under equity plans previously adopted by Pinnacle Financial's board of directors and shareholders. No new awards may be granted under plans other than the 2014 Plan, or, in the case of associates that were former associates of BNC or its subsidiaries, the BNC Plan.

Total shares available for issuance under the 2014 Plan were 703,396 shares as of September 30, 2017, inclusive of shares returned to plan reserves during the nine months ended September 30, 2017. The 2014 Plan also"2018 Plan") permits Pinnacle Financial to reissue outstanding awards ~~currently outstanding~~ that are subsequently forfeited, settled in cash, withheld by Pinnacle Financial to cover withholding taxes or ~~expired~~expire unexercised and returned to the ~~2014~~2018 Plan. At June 30, 2022, there were approximately 1.4 million shares available for issuance under the 2018 Plan.

Upon the acquisition of CapitalMark, Pinnacle Financial assumed approximately 858,000 stock options under the CapitalMark Option Plan. No further ~~shares~~awards remain available for issuance under the CapitalMark Option Plan. ~~Approximately 33,000 shares remain available for issuance to existing BNC associates in future periods, related to~~At June 30, 2022, all of the ~~BNC~~options remaining outstanding under any equity incentive plan of Pinnacle Financial were granted under the CapitalMark Option Plan. ~~No options were assumed upon the acquisition of Magna, Avenue or BNC as all preexisting Magna, Avenue and BNC stock options were converted to cash upon acquisition.~~

Common Stock Options

A summary of the stock option activity within the equity incentive plans during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and information regarding, ~~expected vesting,~~ contractual terms remaining, intrinsic values and other matters is as follows:


	Number	Weighted-Average Exercise Price		Weighted-Average Contractual Remaining Term (in years)	Aggregate Intrinsic Value (000's)
Outstanding at December 31, 2021	56,147	$	24.51	1.19	$	3,985	(1)
Granted	—
Exercised	(14,000)
Forfeited	—
Outstanding at June 30, 2022	42,147	$	25.00	0.82	$	1,994	(2)
Options exercisable at June 30, 2022	42,147	$	25.00	0.82	$	1,994	(2)

(1)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $95.50 per common share at December 31, 2021 for the 56,147 options that were in-the-money at December 31, 2021.

(2)The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $72.31 per common share at June 30, 2022 for the 42,147 options that were in-the-money at June 30, 2022.

Number
Weighted-Average
Exercise
Price
Weighted-Average
Contractual
Remaining Term
(in years)
Aggregate
Intrinsic
Value
(000's)

Outstanding at December 31, 2016 550,490
$ 20.75
2.61 $ 26,728
⁽¹⁾
Granted —

Exercised⁽³⁾
(194,340 )

Forfeited —

Outstanding at September 30, 2017 356,150
$ 21.17
2.62 $ 16,305
⁽²⁾
Options exercisable at September 30, 2017 356,150
$ 21.17
2.62 $ 16,305
⁽²⁾


~~(1)~~	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $69.30 per common share at December 31, 2016 for the 550,490 options that were in-the-money at December 31, 2016.


~~(2)~~	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $66.95 per common share at September 30, 2017 for the 356,150 options that were in-the-money at September 30, 2017.


~~(3)~~	~~Includes 750 stock options which were exercised in a stock swap transaction which settled in 277 shares of Pinnacle Financial common stock.~~

Compensation costs related to stock options granted under Pinnacle Financial's equity incentive ~~plan~~plans have been fully recognized and all outstanding option awards are fully vested.

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Restricted Share Awards

A summary of activity for unvested restricted share awards for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 is as follows:


	Number	Grant Date Weighted-Average Cost
Unvested at December 31, 2021	613,335	$	64.93
Shares awarded	199,545
Restrictions lapsed and shares released to associates/directors	(157,077)
Shares forfeited	(24,224)
Unvested at June 30, 2022	631,579	$	77.39

Number
Grant Date
Weighted-Average Cost
Unvested at December 31, 2016 820,539
$ 36.47
Shares awarded 246,157

Conversion of previously awarded restricted share units to restricted share awards 43,680

Shares assumed in connection with acquisition of BNC 136,890

Restrictions lapsed and shares released to associates/directors (246,144 )
Shares forfeited ⁽¹⁾
(25,849 )
Unvested at September 30, 2017 975,273
$ 50.53


~~(1)~~	~~Represents shares forfeited due to employee termination and/or retirement. No shares were forfeited due to failure to meet performance targets.~~

Pinnacle Financial has granted restricted share awards to associates ~~senior management~~ and outside directors with a ~~combination~~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 ~~time and, in~~ the ~~case of senior management, performance vesting criteria.~~award. The following table outlines restricted stock grants that were ~~awarded,~~made, grouped by similar vesting criteria, during the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2022. 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
2022	Associates (2)	3	-	5	190,065	55	51	5,200	184,759
Outside Director Awards (3)
2022	Outside directors			1	9,480	—	—	—	9,480

Grant
Year

Group ⁽¹⁾

Vesting
Period in years

Shares
awarded
Restrictions Lapsed and shares released to participants
Shares Forfeited by participants ⁽⁶⁾
Shares Unvested
Time Based Awards
2017
Associates ⁽²⁾
3 - 5 232,480
358
7,638
224,484
2017
Associates ⁽³⁾
3 - 5 136,690
—
—
136,690

Performance Based Awards

2017
Leadership team ⁽⁴⁾
3 43,680
—
—
43,680

Outside Director Awards ⁽⁵⁾

2017 Outside directors 1 13,677
2,376
796
10,505

~~(1)~~

~~Groups include employees (referred to as associates above),~~(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 leadership team which includes our named executive officers and other key senior leadership members, 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 may elect to sell some shares (or have Pinnacle Financial withhold some shares) to pay the applicable income taxes associated with the award. Alternatively, the recipient can pay the withholding taxes in cash. 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 ~~performance-based awards and time-based~~ awards to Pinnacle Financial's ~~executive officers,~~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 issued to associates that were former associates of BNC in connection with acquisition of BNC.~~


~~(4)~~	Reflects conversion of restricted share units issued in prior years to restricted share awards. The forfeiture restrictions on these restricted share awards lapse in separate equal installments should Pinnacle Financial achieve certain soundness targets over each year of the subsequent vesting period. See further details of these awards under the caption "Restricted Share Units" below.


~~(5)~~	Restricted share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on February 28, 2018 based on each individual board member meeting their attendance goals for the various board and board committee meetings to which each member was scheduled to attend.


~~(6)~~	These shares represent forfeitures resulting from recipients whose employment or board membership is terminated during the year-to-date period ended September 30, 2017. Any dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination.

(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, 2023 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 or board membership was terminated during the year-to-date period ended June 30, 2022. 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.

Restricted ~~Share Units~~Stock Unit Awards

A summary of activity for unvested restricted stock units for the six months ended June 30, 2022 is as follows:


	Number	Grant Date Weighted-Average Cost
Unvested at December 31, 2021	56,368	$	71.22
Shares awarded	38,133
Restrictions lapsed and shares released to associates/directors	(18,897)
Shares forfeited	(1,479)
Unvested at June 30, 2022	74,125	$	88.21

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

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following table outlines restricted stock unit grants that were made, grouped by similar vesting criteria, during the six months ended June 30, 2022. 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
2022	3	38,133	15	—	431	37,687

(1)These shares represent forfeitures resulting from recipients whose employment was terminated during the year-to-date period ended June 30, 2022. 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 ~~restricted share~~performance stock unit awards outstanding at ~~September~~June 30, ~~2017:~~2022:


	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 to be settled into shares of common stock(2)
2022	56,465	—	135,514	32,320	2022-2024	0	0	2025
2022	—	—	230,000	—	2022-2024	0	1	2026
2021	89,234	—	214,155	45,240	2021-2023	0	0	2024
2020	136,137	—	204,220	59,648	2020	2	3	2025
					2021	2	2	2025
					2022	2	1	2025
2019	166,211	—	249,343	52,244	2019	2	3	2024
					2020	2	2	2024
					2021	2	1	2024
2018	96,878	—	145,339	25,990	2018	2	3	2023
					2019	2	2	2023
					2020	2	1	2023

(1)The named executive officers 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 230,000 performance units awarded to the NEOs in 2022 may be earned based on target level performance and do not include maximum level payout.

Units Awarded
Grant year
Named Executive Officers
(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)
Shares settled into RSAs as of period end ⁽²⁾
2017 72,537-109,339 24,916
2017 2 3 N/A

2018 2 2 N/A

2019 2 1 N/A

2016 73,474-110,223 26,683
2016 2 3 N/A

2017 2 2 N/A

2018 2 1 N/A

2015 58,200-101,850 28,378
2015 2 3 N/A

2016 2 2 N/A

2017 2 1 N/A

2014 ⁽³⁾
58,404-102,209 29,087
2014 5 N/A 21,856

2014 4 N/A 21,856

2015 4 N/A 21,847

2015 3 N/A 21,847

2016 3 N/A 21,840

2016 2 N/A 21,840
(2)Performance stock unit awards granted in or after 2021, if earned, will be settled 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.


~~(1)~~	~~The named executive officers are awarded a range of awards that may be earned based on attainment of goals between a target level of performance and a maximum level of performance.~~


~~(2)~~	Restricted share unit awards granted in 2017, 2016 and 2015 will be earned if certain performance targets are achieved. Additional forfeiture restrictions may lapse based on Pinnacle Financial's attainment of certain soundness thresholds in future periods and thereafter the unit awards will be settled in shares of Pinnacle Financial common stock.


~~(3)~~	~~Restrictions on half of the shares previously converted to RSAs will lapse commensurate with the filing of the Form 10-K for the year ended December 31, 2017 and 2018, respectively.~~

During the six months ended June 30, 2022 and 2021, the restrictions associated with 149,893 and 133,041 performance stock unit awards granted in prior years lapsed, based on the terms of the agreement and approval by Pinnacle Financial's Human Resources and Compensation Committee, and were settled into shares of Pinnacle Financial common stock with 53,125 and 46,332 shares being withheld to pay the taxes associated with the settlement of those shares.

Additionally, during the six months ended June 30, 2021, 199,633 performance stock unit awards granted in prior years were forfeited due to the failure to reach performance targets for the year ended December 31, 2020 as defined in the associated performance stock unit award agreements.

Stock compensation expense related to restricted share awards, restricted stock unit awards and ~~restricted share units~~performance stock unit awards for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$5.8~~$10.8 million and ~~$14.4~~$20.2 million, respectively, compared to ~~$2.6~~$5.7 million and ~~$8.1~~$11.1 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. Included in~~2021. As of June 30, 2022, the ~~above three~~total compensation cost related to unvested restricted share awards, restricted stock unit awards and ~~nine months ended September 30, 2017~~performance stock ~~compensation~~unit awards estimated at maximum performance not yet recognized was $92.3 million. This expense, ~~was $1.4 million and $2.9 million, respectively,~~if the underlying units are earned, is expected to be recognized over a weighted-average period of ~~stock-based compensation expense incurred as a result~~2.16 years.

Table of ~~change-in-control provisions applicable to assumed BNC equity-based awards that was recorded as merger-related expense.~~Contents

Note 9.8. 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.

Non-hedge derivatives

For derivatives not designated as hedges, the gain or loss is recognized in current period earnings.

~~Non-hedge derivatives~~

Pinnacle Financial enters into interest rate swaps (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 ~~are~~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 ~~related~~ to ~~customers~~facilitate customers' transactions as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 is included in the following table (in thousands):


	June 30, 2022				December 31, 2021
	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Interest rate swap agreements:
Assets	$	1,625,725	$	21,235	$	1,540,992	$	39,770
Liabilities	1,625,725		(21,465)		1,540,992		(40,241)
Total	$	3,251,450	$	(230)	$	3,081,984	$	(471)

September 30, 2017 December 31, 2016

Notional
Amount

Estimated
Fair Value

Notional
Amount

Estimated
Fair Value
Interest rate swap agreements:
Pay fixed / receive variable swaps $ 770,359
$ 15,659
$ 666,572
$ 16,004
Pay variable / receive fixed swaps 770,359
(15,773 ) 666,572
(16,138 )
Total $ 1,540,718
$ (114 ) $ 1,333,144
$ (134 )

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, 2022 and 2021 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,
		2022		2021		2022		2021
Interest rate swap agreements	Other noninterest income	$	(40)	$	51	$	241	$	501

~~Hedge derivatives~~

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. There were no cash flow hedges outstanding as of June 30, 2022 and December 31, 2021.

The hedging strategy converts the LIBOR-based variable interest rate on forecasted borrowings to a fixed interest rate and is used in an effort to protect Pinnacle Financial from floating interest rate variability. A summaryeffects of Pinnacle Financial's cash flow hedge relationships ason the statement of ~~September~~comprehensive income (loss) during the three and six months ended June 30, ~~2017~~2022 and ~~December 31, 2016 are~~2021 were as follows, net of tax (in thousands):


	Amount of Loss Recognized in Other Comprehensive Income (Loss)
	Three Months Ended June 30,				Six Months Ended June 30,
Asset derivatives	2022		2021		2022		2021
Interest rate floor - loans	$	—	$	240	$	—	$	(15,034)

September 30, 2017 December 31, 2016

Forecasted
Notional
Amount
Receive Rate
Pay
Rate
Term ⁽¹⁾
Asset/
(Liabilities)
Unrealized Loss in Accumulated Other Comprehensive Income Asset/ (Liabilities)
Unrealized
Loss in Accumulated
Other Comprehensive Income
Interest Rate Swap $ 33,000
3 month LIBOR 2.265 % April 2016-April 2020 $ (494 ) $ (300 ) $ (727 ) $ (442 )
Interest Rate Swap 33,000
3 month LIBOR 2.646 % April 2016-April 2022 (1,164 ) (707 ) (1,304 ) (792 )
Interest Rate Swap 33,000
3 month LIBOR 2.523 % Oct. 2016-Oct. 2020 (823 ) (500 ) (1,081 ) (657 )
Interest Rate Swap 33,000
3 month LIBOR 2.992 % Oct. 2017-Oct. 2021 (1,390 ) (845 ) (1,200 ) (729 )
Interest Rate Swap 34,000
3 month LIBOR 3.118 % April 2018-July 2022 (1,482 ) (901 ) (1,222 ) (743 )
Interest Rate Swap 34,000
3 month LIBOR 3.158 % July 2018- Oct. 2022 (1,454 ) (884 ) (1,198 ) (728 )
$ 200,000

$ (6,807 ) $ (4,137 ) $ (6,732 ) $ (4,091 )


⁽¹⁾	~~No cash will be exchanged prior to the beginning of the term.~~

Pinnacle Financial has interest rate swap agreements designated as cash flow hedges intended to protect against the variability of cash flows on selected LIBOR-based loans. The swaps hedge the interest rate risk, wherein Pinnacle Financial receives a fixed rate of interest from a counterparty and pays a variable rate, based on one month LIBOR. The swaps were entered into with a counterparty that met Pinnacle Financial's credit standards and the agreements contain collateral provisions protecting the at-risk party. The following outlines the interest rate swap agreements in place at September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017 December 31, 2016

Forecasted
Notional
Amount
Receive
Rate
Pay
Rate
Term
Asset/
(Liabilities)
Unrealized
Gain in Accumulated Other Comprehensive Income
Asset/
(Liabilities)
Unrealized Gain (Loss) in Accumulated Other Comprehensive Income
Interest Rate Swap ⁽¹⁾
$ 27,500
2.090 % 1 month LIBOR July 2014 - July 2021 $ —
$ —
$ 395
$ 240
Interest Rate Swap ⁽¹⁾
25,000
2.270 % 1 month LIBOR July 2014 - July 2022 —
—
610
371
Interest Rate Swap ⁽¹⁾
27,500
2.420 % 1 month LIBOR July 2014 - July 2023 —
—
874
531
Interest Rate Swap ⁽¹⁾
30,000
2.500 % 1 month LIBOR July 2014 - July 2024 —
—
900
547
Interest Rate Swap ⁽¹⁾
15,000
1.470 % 1 month LIBOR Aug. 2015-Aug. 2020 —
—
(75 ) (46 )
$ 125,000

$ —
$ —
$ 2,704
$ 1,643


⁽¹⁾	Each of these swaps were terminated via cash settlement in the second quarter of 2017. As a result of terminating these contracts in the second quarter of 2017, Pinnacle Financial began recognizing a gain of $3.1 million over the original terms of these agreements.

The cash flow hedges were determined to be ~~fully~~highly effective during the periods presented. Therefore, no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in fair value recorded in accumulated other comprehensive (loss) income, net of tax.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) ~~income~~ 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. ~~Other than the interest rate swaps agreements terminated in the second quarter~~Gains on cash flow hedges totaling $2.5 million and $5.0 million, net of ~~2017, Pinnacle Financial expects the hedges to remain fully effective~~tax, were reclassified from accumulated other comprehensive income (loss) into net income during the ~~remaining terms~~three and six months ended June 30, 2022, respectively, compared to gains totaling $2.7 million and $2.2 million, net of tax, during the ~~swaps. Pinnacle Financial does not expect any amounts~~three and six months ended June 30, 2021,

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respectively. Approximately $9.9 million in unrealized gains, net of tax, are expected to be reclassified from accumulated other comprehensive income (loss) into net income ~~related to these swaps~~ over the next twelve ~~months.~~months 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 LIBOR or federal funds rates. 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.

A summary of Pinnacle Financial's fair value hedge relationships as of June 30, 2022 and December 31, 2021 is as follows (in thousands):


					June 30, 2022				December 31, 2021
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Asset derivatives
Interest rate swaps - securities	Other assets	8.53	1.98%	3 month LIBOR/ Federal Funds/ SOFR	$	1,094,534	$	41,928	$	559,820	$	15,109
Liability derivatives
Interest rate swaps - securities	Other liabilities	5.81	3.15%	3 month LIBOR/ SOFR	$	333,190	$	(2,417)	$	471,670	$	(39,781)
					$	1,427,724	$	39,511	$	1,031,490	$	(24,672)

Notional amounts of $471.7 million included in the table above receive a variable rate of interest based on three month LIBOR, notional amounts totaling $392.2 million receive a variable rate of interest based on the daily compounded federal funds rate, and notional amounts totaling $563.8 million receive a variable rate of interest based on the daily compounded secured overnight financing rate.

The effects of Pinnacle Financial's securities fair value hedge relationships on the income statement during the three and six months ended June 30, 2022 and 2021 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,
		2022		2021		2022		2021
Interest rate swaps - securities	Interest income on securities	$	15,344	$	(8,092)	$	64,183	$	26,674
Securities available-for-sale	Interest income on securities	$	(15,344)	$	8,092	$	(64,183)	$	(26,674)

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at June 30, 2022 and December 31, 2021 (in thousands):


	Carrying Amount of the Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021
Line item on the balance sheet
Securities available-for-sale	$	1,476,346	$	1,165,773	$	(39,511)	$	24,672

During the three and six months ended June 30, 2022, amortization expense totaling $544,000 and $1.2 million, respectively, related to previously terminated fair value hedges was recognized as a reduction to interest income on loans compared to $927,000 and $1.9 million, respectively, during the three and six months ended June 30, 2021.

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In April 2022, interest rates swaps designated as fair value hedges with notional amounts totaling $164.3 million and market values totaling $14.3 million were terminated. Approximately $986,000 in gains were recognized at the time of termination and the remaining $13.3 million will be accreted as additional interest income on the previously hedged available-for-sale mortgage backed and municipal securities over the same period as existing purchase discounts or premiums on these securities.

Note ~~10.~~9. Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements and Disclosures, ~~which~~ 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. ~~Following~~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 ~~assets~~investments are ~~other~~ investments recorded at fair value primarily in certain nonpublic ~~private equity~~investments and funds. The valuation of these nonpublic ~~private equity~~ 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 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 ~~ongoing reviews~~financial reports provided by ~~senior investment managers.~~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 ~~as these~~if the entities and funds are not widely traded and the underlying investments ~~of such funds~~ are ~~often~~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.

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Other assets – Included in other assets are certain assets carried at fair value, including interest rate swap agreements ~~the cash flow hedge~~to facilitate customer transactions and interest rate locks associated with the mortgage loan pipeline. The carrying amount 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.

~~Nonaccrual~~Collateral dependent loans – A loan is classified as nonaccrual when it is probable Pinnacle Financial will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. NonaccrualCollateral dependent loans are measured ~~based on the present value of expected payments using the loan's original effective rate as the discount rate, the loan's observable market price, or~~at the fair value of the collateral ~~less selling costs if~~securing the loan ~~is collateral dependent. If the recorded investment in the nonaccrual loan exceeds the measure of~~less estimated selling costs. The fair value ~~a valuation allowance may be established as a component~~ of ~~the allowance~~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 ~~loan losses or the difference may be recognized as a charge-off. Nonaccrual~~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. ~~Substantially all~~A significant portion of these amounts relate to lots, homes and development projects that are either completed or are in various stages of ~~construction~~completion for which Pinnacle Financial believes it has adequate collateral. Upon foreclosure, 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 ~~loan~~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. Appraisal~~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, ~~and the cash flow hedge~~interest rate swaps designated as fair value 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.

The following tables present financial instruments measured at fair value on a recurring basis as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in ~~thousands:~~

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, 2022
Investment securities available-for-sale:
U.S. Treasury securities	$	246,103	$	—	$	246,103	$	—
U.S. Government agency securities	415,515		—		415,515		—
Mortgage-backed securities	1,397,678		—		1,397,678		—
State and municipal securities	1,485,387		—		1,484,731		656
Agency-backed securities	153,410		—		153,410		—
Corporate notes and other	111,245		—		111,245		—
Total investment securities available-for-sale	3,809,338		—		3,808,682		656
Other investments	144,589		—		22,978		121,611
Other assets	97,153		—		97,153		—
Total assets at fair value	$	4,051,080	$	—	$	3,928,813	$	122,267

Other liabilities	$	56,579	$	—	$	56,579	$	—
Total liabilities at fair value	$	56,579	$	—	$	56,579	$	—

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										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)
September 30, 2017	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)

December 31, 2021									December 31, 2021
Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. treasury securities	$	30,978	$	—	$	30,978	$	—
U.S. government agency securities	161,082		—		161,082		—
U.S. Treasury securities									U.S. Treasury securities	$	193,609	$	—	$	193,609	$	—
U.S. Government agency securities									U.S. Government agency securities	632,009		—		632,009		—
Mortgage-backed securities	1,618,799		—		1,618,799		—		Mortgage-backed securities	1,920,239		—		1,920,239		—
State and municipal securities	756,725		—		756,725		—		State and municipal securities	1,823,837		—		1,823,009		828
Agency-backed securities	184,760		—		184,760		—		Agency-backed securities	229,569		—		229,569		—
Corporate notes and other	115,284		24,616		103,221		—		Corporate notes and other	114,931		—		114,931		—
Total investment securities available-for-sale	$	2,867,628	$	24,616	$	2,855,565	$	—	Total investment securities available-for-sale	4,914,194		—		4,913,366		828
Other investments	28,477		—		—		28,477		Other investments	125,969		—		24,973		100,996
Other assets	12,604		—		12,604		—		Other assets	57,441		—		57,441		—
Total assets at fair value	$	2,908,709	$	24,616	$	2,868,169	$	28,477	Total assets at fair value	$	5,097,604	$	—	$	4,995,780	$	101,824

Other liabilities	$	15,519	$	—	$	15,519	$	—	Other liabilities	$	80,106	$	—	$	80,106	$	—
Total liabilities at fair value	$	15,519	$	—	$	15,519	$	—	Total liabilities at fair value	$	80,106	$	—	$	80,106	$	—

December 31, 2016
Investment securities available-for-sale:
U.S. treasury securities	$	250	$	—	$	250	$	—
U.S. government agency securities	21,769		—		21,769		—
Mortgage-backed securities	976,626		—		976,626		—
State and municipal securities	212,720		—		212,720		—
Agency-backed securities	78,580		—		78,580		—
Corporate notes and other	8,601		—		8,601		—
Total investment securities available-for-sale	1,298,546		—		1,298,546		—
Other investments	10,478		—		—		10,478
Other assets	13,340		—		13,340		—
Total assets at fair value	$	1,322,364	$	—	$	1,311,886	$	10,478

Other liabilities	$	15,758	$	—	$	15,758	$	—
Total liabilities at fair value	$	15,758	$	—	$	15,758	$	—

The following table presents assets measured at fair value on a nonrecurring basis as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 (in thousands):


June 30, 2022	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	$	8,237	$	—	$	—	$	8,237

Collateral dependent loans (1)	24,270		—		—		24,270
Total	$	32,507	$	—	$	—	$	32,507

December 31, 2021
Other real estate owned	$	8,537	$	—	$	—	$	8,537
Collateral dependent loans (1)	30,799		—		—		30,799
Total	$	39,336	$	—	$	—	$	39,336

September 30, 2017 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)

Total
losses for the year-to-date period then ended
Other real estate owned $ 24,339
$ —
$ —
$ 24,339
$ (72 )
Nonaccrual loans, net ⁽¹⁾
52,480
—
—
52,480
(4,905 )
Total $ 76,819
$ —
$ —
$ 76,819
$ (4,977 )

December 31, 2016

Other real estate owned $ 6,090
$ —
$ —
$ 6,090
$ (135 )
Nonaccrual loans, net ⁽¹⁾
26,506
—
—
26,506
(7,173 )
Total $ 32,596
$ —
$ —
$ 32,596
$ (7,308 )

⁽¹⁾ ~~Amount is~~ The carrying values of collateral dependent loans at June 30, 2022 and December 31, 2021 are net of valuation ~~allowance~~allowances of ~~$932,000~~$1.5 million and ~~$1.1~~$1.7 million, ~~at September 30, 2017 and December 31, 2016, respectively, as required by ASC 310-10, "Receivables."~~respectively.

In the case of the available-for-sale investment securities portfolio, Pinnacle Financial monitors the portfolio to ascertain when transfers between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. For the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2022, there were no transfers between Levels 1, 2 or 3.

The table below includes a rollforward of the balance sheet amounts for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and 2021 (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):

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	For the three months ended September 30,										For the nine months ended September 30,											For the Three months ended June 30,									For the Six months ended June 30,
	2017					2016					2017					2016						2022				2021					2022	2021
	Other assets			Other liabilities		Other assets			Other liabilities		Other assets			Other liabilities		Other assets			Other liabilities			Available-for-sale Securities		Other investments			Available-for-sale Securities		Other investments			Available-for-sale Securities		Other investments		Available-for-sale Securities		Other investments
Fair value, beginning of period	$	27,850		$	—	$	10,380		$	—	$	10,478		$	—	$	9,764		$	—	Fair value, beginning of period	$	662	$	106,694		$	13,513	$	62,129		$	828	$	100,996	$	15,497	$	47,759
Total realized gains included in income	188			—		59			—		625			—		395			—		Total realized gains included in income	1		6,669			1,256		6,957			3		8,379		1,298		10,397
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at September 30	—			—		—			—		—			—		—			—
Acquired	—			—		—			—		17,062			—		—			—
Changes in unrealized gains/losses included in other comprehensive income																					Changes in unrealized gains/losses included in other comprehensive income	(7)		—			(1,293)		—			(17)		—		(3,168)		—
Purchases	815			—		493			—		1,584			—		1,063			—		Purchases	—		11,352			—		13,124			—		18,763		—		25,556
Issuances	—			—		—			—		—			—		—			—		Issuances	—		—			—		—			—		—		—		—
Settlements	(376		)	—		(626		)	—		(1,272		)	—		(916		)	—		Settlements	—		(3,104)			(12,636)		(3,455)			(158)		(6,527)		(12,787)		(4,957)
Transfers out of Level 3	—			—		—			—		—			—		—			—		Transfers out of Level 3	—		—			—		—			—		—		—		—
Fair value, end of period	$	28,477		—		10,306			$	—	$	28,477		$	—	$	10,306		$	—	Fair value, end of period	$	656	$	121,611		$	840	$	78,755		$	656	$	121,611	$	840	$	78,755
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at September 30	$	188		$	—	$	59		$	—	$	625		$	—	$	395		$	—
Total realized gains included in income																					Total realized gains included in income	$	1	$	6,669		$	1,256	$	6,957		$	3	$	8,379	$	1,298	$	10,397

The following methods and assumptions were used by Pinnacle Financial in estimating its fair value disclosures for financial instruments that are not measured at fair value. In cases where quoted market prices are not available, fair values are based on estimates using discounted cash flow models. Those models are significantly affected by the assumptions used, including the discount rates, estimates of future cash flows and borrower creditworthiness. The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2017 and December 31, 2016. Such amounts have not been revalued for purposes of these consolidated financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

~~Securities held-to-maturity~~ - Estimated fair values for investment securities are based on quoted market prices where available. 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.

~~Loans, net~~ - The fair value of our loan portfolio includes a credit risk factor in the determination of the fair value of our loans. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. Our loan portfolio is initially fair valued using a segmented approach. We divide our loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk.

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values approximate carrying values. Fair values for impaired loans are estimated using discounted cash flow models or based on the fair value of the underlying collateral. For other loans, fair values are estimated using discounted cash flow models, using current market interest rates offered for loans with similar terms to borrowers of similar credit quality. The values derived from the discounted cash flow approach for each of the above portfolios are then further discounted to incorporate credit risk to determine the exit price.

~~Mortgage loans held-for-sale -~~ ~~Mortgage loans held-for-sale are carried at the lower of cost or fair value. The estimate of fair value is based on pricing models and other information.~~

~~Deposits, securities sold under agreements to repurchase, Federal Home Loan Bank (FHLB) advances, subordinated debt and other borrowings~~ - The fair value of demand deposits, savings deposits and securities sold under agreements to repurchase are derived from a selection of market transactions reflecting our peer group. Fair values for certificates of deposit, FHLB advances and subordinated debt are estimated using discounted cash flow models, using current market interest rates offered on certificates, advances and other borrowings with similar remaining maturities.

~~Off-balance sheet instruments~~ - The fair values of Pinnacle Financial's off-balance-sheet financial instruments are based on fees charged to enter into similar agreements. However, commitments to extend credit do not represent a significant value to Pinnacle Financial until such commitments are funded.

~~The following table presents~~tables present the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016.~~2021. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash, ~~and~~ 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/ Notional 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, 2022
Financial assets:
Securities purchased with agreement to resell	$	1,328,876	$	1,267,352	$	—	$	—	$	1,267,352
Securities held-to-maturity	2,744,555		2,484,358		—		2,484,358		—
Loans, net	26,060,613		25,535,858		—		—		25,535,858
Consumer loans held-for-sale	67,467		67,477		—		67,477		—
Commercial loans held-for-sale	25,901		25,905		—		25,905		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	32,794,888		31,729,054		—		—		31,729,054
Federal Home Loan Bank advances	1,289,059		1,476,589		—		—		1,476,589
Subordinated debt and other borrowings	423,614		445,745		—		—		445,745

Off-balance sheet instruments:
Commitments to extend credit (2)	14,772,651		25,821		—		—		25,821

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												Carrying/ Notional 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)
(in thousands) September 30, 2017	Carrying/ Notional 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)

December 31, 2021											December 31, 2021
Financial assets:											Financial assets:
Securities purchased with agreement to resell											Securities purchased with agreement to resell	$	1,000,000	$	980,543	$	—	$	—	$	980,543
Securities held-to-maturity	$	20,848	$	21,022	$	—	$	21,022	$	—	Securities held-to-maturity	1,155,958		1,188,049		—		1,188,049		—
Loans, net	15,194,627		14,748,141		—		—		14,748,141		Loans, net	23,151,029		23,223,299		—		—		23,223,299
Mortgage loans held-for-sale	105,032		106,545		—		106,545		—
Loans held-for-sale	20,385		20,675		—		20,675		—
Consumer loans held-for-sale											Consumer loans held-for-sale	45,806		46,288		—		46,288		—
Commercial loans held-for-sale											Commercial loans held-for-sale	17,685		17,871		—		17,871		—

Financial liabilities:											Financial liabilities:
Deposits and securities sold under											Deposits and securities sold under
agreements to repurchase	15,919,142		15,441,568		—		—		15,441,568		agreements to repurchase	31,457,092		30,812,222		—		—		30,812,222
Federal Home Loan Bank advances	1,623,947		1,623,238		—		—		1,623,238		Federal Home Loan Bank advances	888,681		1,006,866		—		—		1,006,866
Subordinated debt and other borrowings	465,461		448,022		—		—		448,022		Subordinated debt and other borrowings	423,172		479,879		—		—		479,879

Off-balance sheet instruments:											Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	5,209,747		2,279		—		—		2,279		Commitments to extend credit (2)	13,063,942		24,351		—		—		24,351
Standby letters of credit ⁽³⁾	137,277		785		—		—		785

December 31, 2016
Financial assets:
Securities held-to-maturity	$	25,251	$	25,233	$	—	$	25,233	$	—
Loans, net	8,390,944		8,178,982		—		—		8,178,982
Mortgage loans held for sale	70,298		70,480		—		70,480		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	8,845,014		8,579,664		—		—		8,579,664
Federal Home Loan Bank advances	406,304		406,491		—		—		406,491
Subordinated debt and other borrowings	350,768		328,049		—		—		328,049

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	3,374,269		383		—		—		383
Standby letters of credit ⁽³⁾	131,418		740		—		—		740

(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.

~~2016,~~(2)At the end of each quarter, Pinnacle Financial evaluates the inherent risks of the outstanding off-balance sheet commitments, including both commitments for unfunded loans and standby letters of credit. In making this evaluation, Pinnacle Financial utilizes credit loss expectations on funded loans from our allowance for credit losses methodology and evaluates the probability that the outstanding commitment will eventually become a funded loan. As a result, at June 30, 2022 and December 31, 2021, Pinnacle Financial included in other liabilities ~~$2.3~~$24.0 million and ~~$383,000,~~$22.5 million, respectively, representing ~~the inherent risks associated with these~~expected credit losses on off-balance sheet commitments, which are reflected in the estimated fair values of the related commitments.

Also included in the fair values at June 30, 2022 and December 31, 2021 are unamortized fees related to these commitments of $1.9 million.

Note ~~11.~~10. 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. 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 addition, 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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, Pinnacle Bank paid ~~$38.1~~$49.6 million inof dividends to Pinnacle Financial. As of June 30, 2022, Pinnacle Bank could pay approximately $806.0 million of additional dividends to Pinnacle Financial without prior approval of the Commissioner of the TDFI. Since the ~~first~~fourth quarter of ~~2016,~~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 18, 2022 when the board of directors increased the dividend to $0.22 per common share from $0.18 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 ~~$0.14~~$16.88 per ~~share.~~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 and other factors, including ~~then applicable~~ 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 ~~ability to pay dividends to Pinnacle Financial.~~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.

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 I1 capital to risk-weighted assets, total risk-based capital to risk-weighted assets and of Tier 1 capital to average assets.

~~The~~As permitted by the interim final ~~rules implementing~~rule issued on March 27, 2020 by the ~~Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for~~federal banking regulatory agencies, each of Pinnacle Bank and Pinnacle Financial has elected the option 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 will be 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, ~~2015 with full compliance with all~~2025, the temporary regulatory capital benefits will be fully reversed.

Management believes, as of ~~September~~June 30, ~~2017,~~2022, 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 ~~Financial and Pinnacle~~ Bank must maintain ~~minimum~~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):

To Be Well-Capitalized

(*) Average assets for the above calculations were based on the most recent quarter.

Note ~~12. Subordinated Debt and~~11. Other ~~borrowings~~Borrowings

Pinnacle Financial has ~~twelve~~12 wholly-owned subsidiaries that are statutory business trusts created for the exclusive purpose of issuing 30-year capital trust preferred ~~securities. Additionally, Pinnacle Financial~~securities and has entered into certain other subordinated debt ~~agreements and a revolving credit facility as~~agreements. These instruments are outlined below ~~and, with respect to the legacy Pinnacle Financial indebtedness,~~ as ~~fully described in its Annual Report on Form 10-K~~of June 30, 2022 (in thousands):

Name Date
Established Maturity Total Debt Outstanding Interest Rate at
September 30, 2017 Coupon Structure
Trust preferred securities
Pinnacle Statutory Trust I December 29, 2003 December 30, 2033 $ 10,310
4.12 % 30-day LIBOR + 2.80%
Pinnacle Statutory Trust II September 15, 2005 September 30, 2035 20,619
2.74 % 30-day LIBOR + 1.40%
Pinnacle Statutory Trust III September 7, 2006 September 30, 2036 20,619
2.99 % 30-day LIBOR + 1.65%
Pinnacle Statutory Trust IV October 31, 2007 September 30, 2037 30,928
4.17 % 30-day LIBOR + 2.85%
BNC Capital Trust I April 3, 2003 April 15, 2033 5,155
4.55 % 30-day LIBOR + 3.25%
BNC Capital Trust II March 11, 2004 April 7, 2034 6,186
4.15 % 30-day LIBOR + 2.85%
BNC Capital Trust III September 23, 2004 September 23, 2034 5,155
3.70 % 30-day LIBOR + 2.40%
BNC Capital Trust IV September 27, 2006 December 31, 2036 7,217
3.04 % 30-day LIBOR + 1.70%
Valley Financial Trust I August 5, 2005 September 30, 2035 4,124
4.43 % 30-day LIBOR + 3.10%
Valley Financial Trust II June 6, 2003 June 26, 2033 7,217
2.74 % 30-day LIBOR + 1.49%
Valley Financial Trust III September 26, 2005 December 15, 2035 5,155
3.04 % 30-day LIBOR + 1.73%
Southcoast Capital Trust III December 15, 2006 January 30, 2037 10,310
2.84 % 30-day LIBOR + 1.50%

Subordinated Debt

Pinnacle Bank Subordinated Notes July 30, 2015 July 30, 2025 60,000
4.88 %
Fixed ⁽¹⁾
Pinnacle Bank Subordinated Notes March 10, 2016 July 30, 2025 70,000
4.88 %
Fixed ⁽¹⁾
Avenue Subordinated Notes December 29, 2014 December 29, 2024 20,000
6.75 %
Fixed ⁽²⁾
Pinnacle Financial Subordinated Notes November 16, 2016 November 16, 2026 120,000
5.25 %
Fixed ⁽³⁾
BNC Subordinated Notes September 25, 2014 October 1, 2024 60,000
5.50 % Fixed
BNC Subordinated Note October 15, 2013 October 15, 2023 10,530
6.04 %
30-day LIBOR + 5.00% ⁽⁴⁾

Other Borrowings

Revolving credit facility ⁽⁵⁾
March 29, 2016 March 27, 2018 —
—

Debt issuance costs and fair value adjustments (8,064 )

Total subordinated debt and other borrowings $ 465,461

~~______________________~~


Name	Date Established	Maturity	Total Debt Outstanding		Interest Rate at June 30, 2022		Coupon Structure
Trust preferred securities
Pinnacle Statutory Trust I	December 29, 2003	December 30, 2033	$	10,310	4.83	%	30-day LIBOR + 2.80% (1)
Pinnacle Statutory Trust II	September 15, 2005	September 30, 2035	20,619		3.65	%	30-day LIBOR + 1.40% (1)
Pinnacle Statutory Trust III	September 7, 2006	September 30, 2036	20,619		3.90	%	30-day LIBOR + 1.65% (1)
Pinnacle Statutory Trust IV	October 31, 2007	September 30, 2037	30,928		4.68	%	30-day LIBOR + 2.85% (1)
BNC Capital Trust I	April 3, 2003	April 15, 2033	5,155		4.29	%	30-day LIBOR + 3.25% (1)
BNC Capital Trust II	March 11, 2004	April 7, 2034	6,186		3.89	%	30-day LIBOR + 2.85% (1)
BNC Capital Trust III	September 23, 2004	September 23, 2034	5,155		3.44	%	30-day LIBOR + 2.40% (1)
BNC Capital Trust IV	September 27, 2006	December 31, 2036	7,217		3.95	%	30-day LIBOR + 1.70% (1)
Valley Financial Trust I	June 26, 2003	June 26, 2033	4,124		5.30	%	30-day LIBOR + 3.10% (1)
Valley Financial Trust II	September 26, 2005	December 15, 2035	7,217		3.32	%	30-day LIBOR + 1.49% (1)
Valley Financial Trust III	December 15, 2006	January 30, 2037	5,155		3.02	%	30-day LIBOR + 1.73% (1)
Southcoast Capital Trust III	August 5, 2005	September 30, 2035	10,310		3.75	%	30-day LIBOR + 1.50% (1)

Subordinated Debt



Pinnacle Financial Subordinated Notes	September 11, 2019	September 15, 2029	300,000		4.13	%	Fixed (2)





Debt issuance costs and fair value adjustments			(9,381)
Total subordinated debt and other borrowings			$	423,614

~~(3) Migrates to three month LIBOR + 3.884% beginning November 16,~~On July 30, 2021, ~~through the end of the term.~~

~~(4) Coupon structure includes a floor of 5.0% and a cap of 9.5%~~

~~(5) Borrowing capacity on the revolving credit facility is $75.0 million. At September 30, 2017, there was no outstanding balance under this facility.~~

~~As reflected in the table above,~~ Pinnacle ~~Financial assumed BNC's obligations under its outstanding $60.0~~Bank redeemed $130.0 million aggregate principal amount of subordinated notes ~~issued in September 2014 that mature in October 2024. These notes bear interest at a rate of 5.5% per annum until September~~due July 30, ~~2019 and may not be repaid prior to that date. Beginning~~2025. Additionally on October 1, 2019, if not redeemed on that date, these notes will bear interest at a floating rate equal to the three-month LIBOR determined on the determination date of the applicable interest period plus 359 basis points.November 16, 2021, Pinnacle Financial ~~also assumed BNC's obligations under its outstanding subordinated note with a principal balance of $10.6~~redeemed $120.0 million as of December 31, 2016. This note bears interest at a variable rate of 30-day LIBOR plus 5.00% per annum, with a floor of 5.00% and a cap of 9.50%, and has a maturity date of October 15, 2023. The interest rate for this subordinated note was 5.61% at December 31, 2016. The $50.5 million in aggregate principal amount of subordinated ~~debentures issued by trust affiliates of BNC in connection~~notes due November 16, 2026. The redemption was funded with existing cash on hand. Pursuant to regulatory guidelines, once the ~~issuance of trust preferred securities was also assumed in connection with Pinnacle Financial's merger with BNC.~~

~~Upon consummation~~maturity date on subordinated notes is within five years, a portion of the merger with BNC, Pinnacle Financial's total assets were in excess of $15.0 billion as a result of a merger, which caused the subordinated debentures Pinnacle Financial and BNC have issued in connection with prior trust preferred securities offerings to cease to qualify as Tier 1 capital under applicable banking regulations. Though these securitiesnotes will no longer ~~qualify as Tier 1~~be eligible to be included in regulatory capital, ~~from and after~~with an additional portion being excluded each year over the ~~closing~~five year period approaching maturity.

Table of ~~the merger, Pinnacle Financial believes these subordinated debentures continue to qualify as Tier 2 capital.~~Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of our financial condition at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 and our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. 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.~~herein and the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2021 (Form 10-K) and the other reports we have filed with the Securities and Exchange Commission since we filed that Form 10-K.

Overview

General.Our diluted net income per common share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$0.83~~$1.86 and ~~$2.46~~$3.51, respectively, compared to ~~$0.71~~$1.69 and ~~$2.12~~$3.30, respectively, for the same periods in ~~2016.~~2021. At ~~September~~June 30, ~~2017,~~2022, loans ~~had~~ increased to ~~$15.26~~$26.3 billion, as compared to ~~$8.45~~$23.4 billion at December 31, ~~2016,~~2021, and total deposits increased to ~~$15.79~~$32.6 billion at ~~September~~June 30, ~~2017~~2022 from ~~$8.76~~$31.3 billion at December 31, ~~2016. The comparability~~2021.

Impact of COVID-19 Pandemic. Information regarding the impact of the COVID-19 pandemic on our financial condition and ~~performance has been impacted by~~results of operations as of and for the ~~July 1, 2016 acquisition~~three and six months ended June 30, 2022 and comparable prior year periods is noted throughout “Management’s Discussion and Analysis of ~~Avenue~~ Financial ~~Holdings, Inc. (Avenue)~~Condition and ~~the June 16, 2017 acquisition~~Results of ~~BNC Bancorp (BNC).~~Operations” in this Quarterly Report on Form 10-Q.

~~Acquisitions.~~ We acquired a 30% membership interest in Bankers Healthcare Group, LLC (BHG) on February 1, 2015 for $75.0 million in cash and acquired an additional 19% membership interest in BHG on March 1, 2016 for $74.1 million in cash and 860,470 shares of Pinnacle Financial common stock, with a fair value of $39.9 million on the date of the acquisition. We acquired CapitalMark Bank and Trust (CapitalMark) on July 31, 2015 and Magna Bank (Magna) on September 1, 2015.

We acquired Avenue and its bank subsidiary Avenue Bank on July 1, 2016. At the acquisition date, Avenue had net assets valued at $81.7 million, including loans of $952.5 million and deposits valued at $966.7 million. The Avenue acquisition further expanded our franchise into our Tennessee market. We acquired BNC on June 16, 2017. At the acquisition date, BNC's net assets were preliminarily fair valued at $607.3 million, including loans valued at $5.60 billion and deposits valued at $6.21 billion. This acquisition expanded our footprint into the Carolinas and Virginia.

Our merger with BNC was consummated on June 16, 2017. Each holder of BNC common stock (including restricted shares) received 0.5235 shares of Pinnacle Financial's common stock for each share of BNC common stock held by each shareholder on the closing date. We issued 27,687,100 shares of common stock and paid cash consideration of approximately $129,000, related to fractional shares, to the BNC shareholders. Included in the common stock issued were 136,890 assumed shares of unvested restricted stock that will continue to vest over their original contractual terms. The fair value of these awards was $9.2 million, with $5.4 million attributable to precombination services provided by the recipients prior to the merger, that accordingly was included as merger consideration.

Results of Operations. Our net interest income increased to ~~$173.2~~$264.6 million and ~~$368.6~~$504.0 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2022 compared to ~~$86.6~~$233.2 million and ~~$235.6~~$456.1 million, respectively, for the same periods in the prior year, representing

increases of ~~$86.6~~$31.3 million and ~~$133.0~~$48.0 million, respectively. For the three and six months ended June 30, 2022 when compared to the comparable periods in 2021, this increase was largely the result of organic loan growth and lower cost of funds. Partially offsetting the increase was a decrease in the interest and fees related to PPP loans and discount accretion associated with fair value adjustments as well as yield compression in our earning asset portfolio during the year-to-date period. The net interest margin (the ratio of net interest income to average earning assets) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~3.87%~~3.17% and ~~3.75%~~3.03%, respectively, compared to ~~3.60%~~3.08% and ~~3.69%~~3.05%, respectively, for the same periods in ~~2016.~~2021 and reflects the rising short-term interest rate environment, including the initial impact of exceeding a significant portion of our loan floors in the second quarter of 2022, and the deployment of excess funds in higher yielding loans offset in part by the diminishing impact of loans made and fees recognized pursuant to the PPP, declining levels of positive impact from purchase accounting as well as the competitive rate environments for loans and deposits in our markets.

Our provision for ~~loan~~credit losses was ~~$6.9~~$12.9 million and ~~$17.4~~$15.6 million for the three and six months ended June 30, 2022 compared to $2.8 million and $10.1 million for the same periods in 2021. The increase in provision expense as compared to the same periods in 2021 is primarily due to growth in the loan portfolio and the developing uncertain economic environment. Also contributing to the provision expense for the three and six months ended June 30, 2022 were net charge-offs totaling $877,000 and $3.8 million, respectively, compared to $10.0 million and $21.4 million for the same periods in 2021.

Noninterest income increased by $27.3 million, or 27.8%, and $38.1 million, or 19.9%, respectively, during the three and six months ended June 30, 2022 compared to the same periods in 2021. The growth was in part attributable to an increase in wealth management revenues which were $21.8 million and $42.5 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$6.1~~$16.5 million and ~~$15.3~~$32.6 million, ~~for~~respectively, in the same periods in ~~2016. Net charge-offs were $3.7~~the prior year as well as an increase in income from our equity method investment in BHG of $17.4 million, or 54.2%, and ~~$11.2~~$22.1 million, or 36.2%, respectively, ~~for~~during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 compared to ~~$7.3 million and $20.5 million, respectively, for~~ the same periods in ~~2016. Provision expense for both periods was negatively impacted by charge-offs realized in our consumer portfolio, primarily related to non-prime automobile loans.~~

~~Our allowance for loan losses as a percentage of total loans decreased from 0.70% at December 31, 2016 to 0.43% at September 30, 2017. The decrease in~~ the allowance as a percentage of loans is primarily attributable to the acquired BNC loan portfolio being accounted for at its fair value as of the merger date. For the BNC loan portfolio, a preliminary fair value discount of $181.4 million was determined as of the acquisition date. At September 30, 2017, the remaining fair value discount for all acquired portfolios (inclusive of BNC) was $182.4 million. For loans acquired in connection with our mergers, the calculation of the allowance for loan losses subsequent to the acquisition date is consistent with that utilized for legacy Pinnacle Financial loans. Our accounting policy is to compare the computed allowance for loan lossesprior year. Additionally, service charges on purchased loans to the remaining fair value adjustment at the individual loan level. Generally the fair value adjustments are expected to accrete to interest income over the remaining expected life of the underlying loan agreements and decrease proportionately with the related loan balance. However, if the computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a provision for loan losses. Additional provisioning for purchased portfolios results from credit deterioration on the individual loan or fromdeposit accounts increased borrowings on loans and lines that existed as of the acquisition date. Should a loan with a remaining fair value discount be paid off prior to maturity, the remaining fair value discount is recognized as interest income. As more fully discussed in the Critical Accounting Policies below, our allowance for loan loss methodology was modified during the quarter ended September 30, 2017.

~~Noninterest income increased by $11.3~~$2.7 million and ~~$18.2~~$5.4 million, respectively, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 due to fluctuations in transaction volumes in these accounts. 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 investments. Income related to these investments decreased $287,000 and $2.0 million, respectively, during the three and six months ended June 30, 2022 when compared to the same periods in ~~2016. Income from equity method~~the prior year as we experienced greater increases in certain of our venture fund investment ~~was $8.9 million and $25.5 million, respectively, for~~valuations, due to changes in the valuations in their underlying portfolios, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $8.5~~2021 than was the case in the three and six months ended June 30, 2022. Other noninterest income, which includes fee revenue lines of business other than those noted above, also increased during the three and six months ended June 30, 2022 by $6.7 million and ~~$23.3~~$15.2 million, ~~for~~respectively, when compared to the same periods in the prior year. The ~~nine months ended September 30, 2017, included nine months~~year-to-date increase is largely the result of ~~earnings~~a $5.5 million gain on the remeasurement of our previously held equity investment in JB&B Capital, LLC (JB&B), resulting from ~~BHG at~~our bank subsidiary's acquisition of the 80% equity interests of JB&B it did not previously own. The increases we experienced in certain noninterest income items were offset by a ~~49% ownership level compared to two months of earnings from BHG at a 30% ownership level and seven months of earnings at the 49% ownership level for the nine months ended September 30, 2016. Gains~~significant decline in gains on mortgage loans sold, ~~increased $866,000~~ net, which decreased by $4.6 million

Table of Contents

and ~~$1.9~~$14.2 million, ~~over~~respectively, for the three and ~~nine month~~six months ended June 30, 2022 as compared to the same periods in the prior year ~~due to the expanded footprint and continued strength~~as increases in the ~~local~~rate environment and declines in housing economy and continued favorable refinancing market conditions. The additional growth within noninterest income was attributable to increased loan swap fees and gains on bank owned life insurance, as well as increased contributions frominventory in our ~~fee-based businesses such as investments, insurance and trust.~~markets negatively impacted originations.

Noninterest expense increased by ~~$46.2~~$29.9 million, or 18.0%, and ~~$70.1~~$57.9 million, or 18.0%, respectively, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, as~~2022 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021. Impacting noninterest expense for the three and ~~reflects~~six months ended June 30, 2022 as compared to the ~~impact~~same prior year periods were increases of ~~our July 1, 2016 acquisition of Avenue~~$15.8 million and ~~June 16, 2017 acquisition of BNC, resulting~~$34.9 million, respectively, in ~~increased~~ salaries and ~~employment~~employee benefits. The change in salaries and employee benefits ~~intangible amortization and merger-related charges. Our~~was primarily the result of an increase in our associate base ~~has expanded from 1,177.5~~to 3,074 full-time equivalent associates at ~~September~~June 30, ~~2016~~2022 versus 2,706 at June 30, 2021 as well as annual merit increases effective in January 2022. Increased equity compensation expenses also contributed to ~~2,194.5 full-time equivalent associates at September 30, 2017, due to both opportunistic hires~~the year-over-year increase. Noninterest expense categories, other than salaries and ~~our acquisition of Avenue~~employee benefits, were $69.4 million and ~~BNC. At September 30, 2017, approximately 947 full-time equivalent associates were deployed in the former BNC footprint.~~

~~During~~$130.2 million, respectively, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, Pinnacle Financial recorded income tax expense of $35.1~~2022, compared to $55.3 million and ~~$68.8~~$107.3 million, respectively, ~~compared to $16.3 million and $45.9 million for the~~during three and ~~nine~~six months ended ~~September~~June 30, 2016. Pinnacle Financial's effective tax rate for the three and nine months ended September 30, 2017 was 35.2% and 31.9%, respectively, compared to 33.5% and 33.5%, respectively, for the three and nine months ended September 30, 2016. Pinnacle Financial's effective tax rate differs from the combined federal and state income tax statutory rate primarily due to our investments in bank-qualified municipal securities, tax benefits from our real estate investment trust subsidiary, participation in Tennessee's Community Investment Tax Credit (CITC) program, tax benefits associated with bank-owned life insurance and tax savings from our captive insurance subsidiary, offset in part by the limitation on deductibility of meals and entertainment expense and certain merger-related expenses. We also recorded tax benefits associated with our equity-based compensation program pursuant to the adoption of ASU 2016-09 for the three and nine months ended September 30, 2017, resulting in the recognition of $59,000 and $4.6 million, respectively, of tax benefits. Prior to the adoption of ASU 2016-09, these tax benefits were recorded in the statement of stockholders' equity directly to additional paid-in-capital.2021.

Our efficiency ratio (the ratio of noninterest expense to the sum of net interest income and noninterest income) was ~~50.8%~~50.3% and ~~51.1%~~51.7%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 compared to ~~53.7%~~50.1% and ~~53.3%~~49.6%, respectively, for ~~the same periods in 2016. Net income for~~

the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 was $64.4~~2021. The efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue.

During the three and six months ended June 30, 2022, we recorded income tax expense of $36.0 million and ~~$147.2~~$64.5 million, respectively, compared to ~~$32.4~~$30.7 million and ~~$91.1~~$58.9 million, respectively, for the ~~same periods~~three and six months ended June 30, 2021. Our effective tax rate for the three and six months ended June 30, 2022 was 19.9% and 19.0%, respectively, compared to 18.9% and 18.6%, respectively, for the three and six months ended June 30, 2021. Our tax rate in ~~2016.~~each period was impacted by the vesting and exercise of equity-based awards previously granted under our equity-based compensation program, resulting in the recognition of tax benefits of $282,000 and $2.9 million, respectively, for the three and six months ended June 30, 2022 compared to benefits of $302,000 and $1.9 million, respectively, for the three and six months ended June 30, 2021.

Financial Condition. ~~Reflecting a combination of organic growth and our acquisition of BNC, net loans~~ Loans increased ~~$6.81~~$2.9 billion, or ~~80.6%~~12.5%, during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, when compared to December 31, ~~2016. Similarly, total~~2021. The increase is primarily the result of loans made to borrowers that principally operate or are located in our core markets, including the markets in which we recently expanded, increases in the number of relationship advisors we employ and continued focus on attracting new customers to our company offset in part by the $320.0 million decrease in the amount of PPP loans in our portfolio during the six months ended June 30, 2022 as these loans are paid down or forgiven by the SBA. Loan growth was also positively impacted during the six months ended June 30, 2022 by the addition of certain specialty lending groups, including franchise lending and equipment lease financing. Total deposits were ~~$15.79~~$32.6 billion at ~~September~~June 30, ~~2017,~~2022, compared to ~~$8.76~~$31.3 billion at December 31, ~~2016,~~2021, an increase of ~~$7.03 billion.~~ $1.3 billion, or 4.1%. Deposit growth slowed during the quarter ended June 30, 2022, increasing approximately $299.5 million from March 31, 2022, as a result of seasonal outflows including those associated with our clients tax obligations.

At ~~September~~June 30, ~~2017,~~2022, our allowance for credit losses was $272.5 million compared to $263.2 million at December 31, 2021. The increase in the allowance for credit losses is largely the result of growth in the loan portfolio.

Capital and Liquidity. At June 30, 2022 and December 31, 2021, our capital ratios, including our bank's capital ratios, exceeded regulatory minimum capital requirements and those ~~levels~~ necessary to be considered well-capitalized under applicable ~~regulatory guidelines.~~federal regulations. See Note ~~11.~~10. Regulatory Matters in the Notes to our Consolidated Financial ~~Statements.~~

Statements elsewhere in this 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 ~~September~~June 30, ~~2017,~~2022, we had approximately ~~$47.1~~$163.5 million of cash at the ~~holding~~parent company ~~substantially all of which~~that could be used to support our bank. ~~We have established~~

On January 19, 2021, our board of directors authorized a ~~line of credit with another bank that can be utilized to provide~~share repurchase program for up to ~~$75~~$125.0 million of ~~additional capital support~~our outstanding common stock. The authorization for this program remained in effect through March 31, 2022. On January 18, 2022, our board of directors authorized a share repurchase program for up to ~~Pinnacle Bank, if needed.~~$125.0 million of our common stock which commenced upon the expiration of the share repurchase program that expired on March 31, 2022. The new authorization is to remain in effect through March 31, 2023. We did not repurchase any shares under either share repurchase program during the six months ended June 30, 2022 or 2021, respectively.

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 ~~Policies~~Estimates as described in our ~~Annual Report on~~ Form ~~10-K for the year ended December 31, 2016 with the exception~~10-K.

Table of ~~changes to our policy for determining the allowance for loan losses which has been adjusted to better align the allowance with the current economic cycle and is described below.~~Contents

Selected Financial Information

~~Allowance for Loan Losses (allowance).~~ Our management assesses the adequacy of the allowance prior to the end of each calendar quarter. 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 the loan portfolio, loan loss experience, 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, economic conditions, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of allowance maintained is believed by management to be adequate to absorb probable 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. Allocation of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, is deemed to be uncollectible.

Our allowance for loan loss assessment methodology was modified in the quarter ended September 30, 2017 to (i) extend the lookback period from 24 quarters to a period beginning January 1, 2006 to better capture a complete economic cycle, (ii) eliminate the use of risk ratings in the calculation of the loss rate and instead focus on risk by loan type and (iii) expand the economic variables used in the qualitative assessment to incorporate our expanded footprint. We also eliminated the use of a loss emergence period in light of the minimal population of losses available to evaluate that were previously being extrapolated to the full population of loans, and shifted the focus of our analysis to more of a quantitative model. There was no material impact on the adoption of the change in the allowance for loan loss assessment methodology.

~~Our allowance for loan losses is composed of the result of two independent analyses pursuant to the provisions of ASC 450-20,~~ ~~Loss Contingencies~~ ~~and ASC 310-10-35,~~ ~~Receivables~~. The ASC 450-20 analysis is intended to quantify the inherent risks in our performing loan portfolio. The ASC 310-10-35 analysis includes a loan-by-loan analysis of impaired loans, both those reported as nonaccrual and troubled-debt restructurings.

In assessing the adequacy of the allowance, we also consider the results of our ongoing independent loan review process. We undertake this process both to ascertain those loans in the portfolio with elevated credit risk and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, independent internal loan reviewers, and reviews that may have been conducted by third-party reviewers primarily regulatory examiners. We incorporate relevant loan review results in the allowance.

The ASC 450-20 component of the allowance for loan losses begins with a historical loss rate calculation for each loan pool with similar risk characteristics. The losses realized over a rolling four-quarter cycle are utilized to determine an annual loss rate for each loan pool for each quarter-end in our look-back period. The look-back period in our loss rate calculation begins with January 2006, as we believe this period is representative of an economic cycle. The loss rates for each category are then averaged and applied to the end of period loan portfolio balances to determine estimated losses. The loss rates provide a quantitative estimate of credit losses inherent in our end of period loan portfolio based on our actual loss experience.

The estimated loan loss allocation for all loan segments also considers management's estimate of probable losses for a number of qualitative factors that have not been considered in the quantitative analysis. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management, but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting factor is applied to the non-impaired loan portfolio. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified either in our risk rating or impairment process, as of the balance sheet date, and is based upon quarterly trend assessments in portfolio concentrations, policy exceptions, economic conditions, associate retention, independent loan review results, collateral considerations, credit quality, competition and regulatory requirements, enterprise wide risk assessments, and peer group credit quality. 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.

The allowance for loan losses for purchased loans is calculated similar to that utilized for our legacy loans. Our accounting policy is to compare the computed allowance for loan losses for purchased loans to any remaining fair value adjustment on a loan-by-loan basis. If the computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a provision for loan losses.

The ASC 450-20 portion of the allowance also includes a small unallocated component. We believe that the unallocated amount is warranted for inherent factors that cannot be practically assigned to individual loan categories, such as the imprecision in the overall loss allocation measurement process, the subjectivity risk of not considering all relevant environmental categories and related measurements and imprecision in our credit risk ratings process. The appropriateness of the unallocated component of the allowance is assessed each quarter end based upon changes in the overall business environment not otherwise captured.

The second component of the allowance for loan losses is determined pursuant to ASC 310-10-35. Loans are impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means collecting all interest and principal payments of a loan as scheduled in the loan agreement. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loan losses are charged off when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a "confirming event" has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan (recorded investment in the loan is the principal balance plus any accrued interest, net of deferred loan fees or costs and unamortized premium or discount). The impairment is recognized through the provision for loan losses and is a component of the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan's effective interest rate, or if the loan is collateral dependent, at the fair value of the collateral, less estimated disposal costs. If the loan is collateral dependent, the principal balance of the loan is charged-off in an amount equal to the impairment measurement. The fair value of collateral dependent loans is derived primarily from collateral appraisals performed by independent third-party appraisers. Management believes it follows appropriate accounting and regulatory guidance in determining impairment and accrual status of impaired loans.

We then test the resulting allowance by comparing the balance in the allowance to historical trends and industry and peer information. Our management then evaluates the result of the procedures performed, including the results of our testing, and decides on the appropriateness of the balance of the allowance in its entirety. The audit committee of our board of directors approves the allowance for loan loss policy annually and reviews the methodology and approves the resultant allowance prior to the filing of quarterly and annual financial information.

While our policies and procedures used to estimate the allowance for loan losses, as well as the resultant provision for loan losses charged to operations, are considered adequate by management and are reviewed from time to time by our regulators, they are necessarily approximate and inherently imprecise. There are factors beyond our control, such as conditions in the local, national, and international economy, a local real estate market or particular industry conditions which may negatively impact materially our asset quality and the adequacy of our allowance for loan losses and thus the resulting provision for loan losses.

~~Results of Operations~~

The following is a summary of ~~our results~~certain financial information for the three and six month periods ended June 30, 2022 and 2021 and as of ~~operations~~June 30, 2022 and December 31, 2021 (dollars in thousands, except per share data):


	Three Months Ended June 30,						2022 - 2021 Percent		Six Months Ended June 30,						2022 - 2021 Percent
	2022			2021			Increase (Decrease)		2022			2021			Increase (Decrease)
Income Statement:
Interest income	$	292,376		$	259,236		12.8	%	$	550,993		$	511,153		7.8	%
Interest expense	27,802			26,011			6.9	%	46,944			55,058			(14.7)	%
Net interest income	264,574			233,225			13.4	%	504,049			456,095			10.5	%
Provision for credit losses	12,907			2,834			>100%		15,627			10,069			55.2	%
Net interest income after provision for credit losses	251,667			230,391			9.2	%	488,422			446,026			9.5	%
Noninterest income	125,502			98,207			27.8	%	228,998			190,916			19.9	%
Noninterest expense	196,038			166,140			18.0	%	378,699			320,836			18.0	%
Net income before income taxes	181,131			162,458			11.5	%	338,721			316,106			7.2	%
Income tax expense	36,004			30,668			17.4	%	64,484			58,888			9.5	%
Net income	145,127			131,790			10.1	%	274,237			257,218			6.6	%
Preferred stock dividends	(3,798)			(3,798)			—	%	(7,596)			(7,596)			—	%
Net income available to common shareholders	$	141,329		$	127,992		10.4	%	$	266,641		$	249,622		6.8	%

Per Share Data:
Basic net income per common share	$	1.87		$	1.70		10.0	%	$	3.52		$	3.31		6.3	%
Diluted net income per common share	$	1.86		$	1.69		10.1	%	$	3.51		$	3.30		6.4	%

Performance Ratios:
Return on average assets (1)	1.46		%	1.46		%	—	%	1.39		%	1.44		%	(3.5)	%
Return on average shareholders' equity (2)	10.66		%	10.19		%	4.6	%	10.10		%	10.07		%	0.3	%
Return on average common shareholders' equity (3)	11.12		%	10.65		%	4.4	%	10.53		%	10.53		%	—	%

	June 30, 2022			December 31, 2021
Balance Sheet:
Loans, net of allowance for credit losses	$	26,060,613		$	23,151,029		12.6%
Deposits	$	32,595,303		$	31,304,533		4.1%

(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.

Three months ended
September 30,
2017 - 2016
Percent
Nine months ended
September 30, 2017 - 2016
Percent
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
Interest income $ 202,167
$ 97,380
107.6 % $ 428,053
$ 262,116
63.3 %
Interest expense 28,985
10,745
169.8 % 59,477
26,535
124.1 %
Net interest income 173,182

86,635
99.9 % 368,576

235,581
56.5 %
Provision for loan losses 6,920
6,108
13.3 % 17,384
15,282
13.8 %
Net interest income after provision for loan losses 166,262

80,527
106.5 % 351,192

220,299
59.4 %
Noninterest income 42,977
31,692
35.6 % 108,415
90,261
20.1 %
Noninterest expense 109,736
63,526
72.7 % 243,587
173,521
40.4 %
Net income before income taxes 99,503

48,693
104.3 % 216,020

137,039
57.6 %
Income tax expense 35,060
16,316
114.9 % 68,839
45,911
49.9 %
Net income $ 64,443

$ 32,377
99.0 % $ 147,181

$ 91,128
61.5 %

Basic net income per common share $ 0.84
$ 0.71
18.3 % $ 2.48
$ 2.16
14.8 %

Diluted net income per common share $ 0.83
$ 0.71
16.9 % $ 2.46
$ 2.12
16.0 %
(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 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 ~~$173.2~~$264.6 million and ~~$368.6~~$504.0 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, an increase of $86.6~~2022 compared to $233.2 million and ~~$133.0~~$456.1 million, from the levels recorded in the same periods of 2016. We were able to increase net interest income during the three and nine months ended September 30, 2017 compared to the same periods in 2016 due primarily to our focus on growing our loan portfolio both organically and by acquisition; this growth was partially offset by our increased funding costs. Average loans for the three and nine months ended September 30, 2017 were 82.4% and 52.2% greater than average balancesrespectively, for the same periods in ~~2016.~~the prior year, representing increases of $31.3 million and $48.0 million, respectively. For the three and six months ended June 30, 2022 when compared to the comparable periods in 2021, this increase was largely the result of organic loan growth and lower cost of funds when comparing the comparable periods. Partially offsetting the increase was a decrease in the interest and fees related to PPP loans and discount accretion associated with fair value adjustments as well as yield compression in our earning asset portfolio during the year-to-date period.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 (dollars in thousands):

Three months ended
September 30, 2017 Three months ended
September 30, 2016
Average Balances Interest Rates/ Yields Average Balances Interest Rates/ Yields
Interest-earning assets:

Loans (1) $ 15,016,642
$ 183,842
4.91 % $ 8,232,963
$ 90,090
4.43 %
Securities:
Taxable 2,080,512
12,066
2.30 % 1,010,090
5,012
1.97 %
Tax-exempt ⁽²⁾
660,981
4,620
3.72 % 222,883
1,545
3.70 %
Federal funds sold and other 379,769
1,639
1.71 % 328,158
733
0.89 %
Total interest-earning assets 18,137,904
$ 202,167
4.50 % 9,794,094
$ 97,380
3.98 %
Nonearning assets
Intangible assets 1,860,282
590,348

Other nonearning assets 1,213,273
499,105

Total assets $ 21,211,459
$ 10,883,547

Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking $ 2,658,733
$ 3,368
0.50 % $ 1,437,196
$ 985
0.27 %
Savings and money market 6,727,136
10,725
0.63 % 3,808,388
4,003
0.42 %
Time 2,488,756
5,010
0.80 % 904,307
1,638
0.72 %
Total interest-bearing deposits 11,874,625
19,103
0.64 % 6,149,891
6,626
0.43 %
Securities sold under agreements to repurchase 160,726
148
0.37 % 87,067
51
0.23 %
Federal Home Loan Bank advances 1,059,032
3,959
1.48 % 583,724
1,280
0.87 %
Subordinated debt and other borrowings 473,805
5,775
4.84 % 266,934
2,788
4.15 %
Total interest-bearing liabilities 13,568,188
28,985
0.85 % 7,087,616
10,745
0.60 %
Noninterest-bearing deposits 3,953,855
—
— % 2,304,533
—
— %
Total deposits and interest-bearing liabilities 17,522,043
$ 28,985
0.66 % 9,392,149
$ 10,745
0.46 %
Other liabilities 34,387
48,958

Stockholders' equity 3,655,029
1,442,440

Total liabilities and shareholders' equity $ 21,211,459
$ 10,883,547

Net interest income
$ 173,182
$ 86,635

Net interest spread ⁽³⁾
3.65 % 3.38 %
Net interest margin ⁽⁴⁾
3.87 % 3.60 %


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
	Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
Interest-earning assets
Loans (1) (2)	$	25,397,389	$	252,182	4.07	%	$	23,179,803	$	232,788	4.11	%
Securities
Taxable	3,420,950		12,725		1.49	%	2,581,063		8,359		1.30	%
Tax-exempt (2)	3,025,824		19,898		3.19	%	2,455,723		16,546		3.25	%
Interest-bearing due from banks	1,332,463		2,611		0.79	%	2,484,192		556		0.09	%
Securities purchased under agreements to resell	1,326,790		3,844		1.16	%	484,066		410		0.34	%
Federal funds sold	—		—		—	%	17,405		—		—	%
Other	178,426		1,116		2.51	%	157,415		577		1.47	%
Total interest-earning assets	34,681,842		$	292,376	3.49	%	31,359,667		$	259,236	3.42	%
Nonearning assets
Intangible assets	1,882,546						1,859,170
Other nonearning assets	2,216,398						1,834,935
Total assets	$	38,780,786					$	35,053,772

Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking	$	6,520,804	6,134		0.38	%	$	5,453,520	2,407		0.18	%
Savings and money market	12,084,911		9,071		0.30	%	11,288,119		5,658		0.20	%
Time	2,074,946		2,976		0.58	%	2,771,555		5,796		0.84	%
Total interest-bearing deposits	20,680,661		18,181		0.35	%	19,513,194		13,861		0.28	%
Securities sold under agreements to repurchase	216,846		82		0.15	%	173,268		56		0.13	%
Federal Home Loan Bank advances	1,095,531		5,231		1.92	%	888,184		4,501		2.03	%
Subordinated debt and other borrowings	427,191		4,308		4.04	%	674,162		7,593		4.52	%
Total interest-bearing liabilities	22,420,229		27,802		0.50	%	21,248,808		26,011		0.49	%
Noninterest-bearing deposits	10,803,439		—		0.00	%	8,500,465		—		0.00	%
Total deposits and interest-bearing liabilities	33,223,668		$	27,802	0.34	%	29,749,273		$	26,011	0.35	%
Other liabilities	240,899						264,891
Total liabilities	33,464,567						30,014,164
Shareholders' equity	5,316,219						5,039,608
Total liabilities and shareholders' equity	$	38,780,786					$	35,053,772
Net interest income			$	264,574					$	233,225
Net interest spread (3)					2.99	%					2.93	%
Net interest margin (4)					3.17	%					3.08	%

(1) Average balances of ~~nonaccrual~~nonperforming loans, consumer loans held-for-sale and commercial loans held-for-sale are included in the above amounts.

(2) Yields ~~based~~computed on ~~the carrying value of those tax exempt~~tax-exempt instruments ~~are shown~~ on a ~~fully~~ tax equivalent ~~basis.~~basis and include $9.6 million of taxable equivalent income for the three months ended June 30, 2022 compared to $7.9 million for the three months ended June 30, 2021. 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 ~~September~~June 30, ~~2017~~2022 would have been ~~3.84%~~3.16% compared to a net interest spread of ~~3.53%~~3.07% for the three months ended ~~September~~June 30, ~~2016.~~2021.

(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.

Net interest spread ⁽³⁾

Net interest spread (3)

Net interest margin ⁽⁴⁾

Net interest margin (4)

(1) Average balances of ~~nonaccrual~~nonperforming loans, consumer loans held-for-sale and commercial loans held-for-sale are included in the above amounts.

(2) Yields ~~based~~computed on ~~the carrying value of those tax exempt~~tax-exempt instruments ~~are shown~~ on a ~~fully~~ tax equivalent ~~basis.~~basis and include $18.1 million of taxable equivalent income for the six months ended June 30, 2022 compared to $15.2 million for the six months ended June 30, 2021. 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 would have been ~~3.72%~~3.02% compared to a net interest spread of ~~3.62%~~3.04% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021.

(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.

We continue to deploy various asset liability management strategies to manage our risk to interest rate fluctuations. Pricing remains competitive in our markets. We believe this challenging competitive environment will continue throughout the second half of 2022. The additional on-balance sheet liquidity that has accumulated primarily due to government stimulus efforts in response to the COVID-19 pandemic has and will continue to negatively impact our net interest ~~income should increase throughout~~margin until on-balance sheet liquidity returns to more normalized levels, though that impact was less during the ~~remainder~~three and six months ended June 30, 2022 as a result of ~~2017~~our organic loan growth in those periods as compared to ~~2016 due~~the same periods in 2021 and is expected to ~~an increase in average earning asset volumes, including~~continue to lessen during the ~~earning assets we acquired in connection with~~second half of 2022 and into 2023. Our 'most likely' forecast has short-term interest rates moving higher during the ~~BNC transaction. We anticipate funding these increased earning assets by growing our core deposits,~~second half of 2022 and ~~utilizing limited wholesale funding to fund any shortfall, if any, resulting from loan growth outpacing deposit growth.~~2023.

Provision for ~~Loan~~Credit Losses.The provision for ~~loan~~credit losses represents a charge to earnings necessary to establish an allowance for ~~loan~~credit losses that, in management's evaluation, ~~should be~~is adequate to provide coverage for the inherent losses on outstanding loans. Based upon management's assessment of the loan portfolio, we adjust our allowance for loan losses to an amount deemed appropriate to adequately cover probable losses inherent in the loan portfolio.all expected credit losses. Our allowance for loan losses as a percentage of total loans decreased from 0.70% at December 31, 2016 to 0.43% at September 30, 2017, largely driven by the acquired BNC loan portfolio which was recorded at fair value at the acquisition date.

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 customer growth trends, while fees from our wealth management departments, ~~the origination of~~gains on mortgage loans ~~income from our equity method investment and~~sold, gains and losses on the sale of securities and gains or losses related to our efforts to mitigate risks associated with interest rate volatility will often reflect financial market conditions or our asset/liability management efforts and fluctuate from period to period.


	Three Months Ended June 30,				2022 - 2021	Six Months Ended June 30,				2022 - 2021
	2022		2021		Increase (Decrease)	2022		2021		Increase (Decrease)
Noninterest income:
Service charges on deposit accounts	$	11,616	$	8,906	30.4%	$	22,646	$	17,213	31.6%
Investment services	13,205		8,997		46.8%	23,896		17,188		39.0%
Insurance sales commissions	2,554		2,406		6.2%	6,590		5,631		17.0%
Gains on mortgage loans sold, net	2,150		6,700		(67.9)%	6,216		20,366		(69.5)%
Investment gains (losses) on sales of securities, net	—		366		NM	(61)		366		>(100)%
Trust fees	6,065		5,062		19.8%	12,038		9,749		23.5%
Income from equity method investment	49,465		32,071		54.2%	83,120		61,021		36.2%
Other noninterest income:
Interchange and other consumer fees	19,216		14,136		35.9%	33,846		26,728		26.6%
Bank-owned life insurance	5,124		4,743		8.0%	9,760		9,469		3.1%
Loan swap fees	1,668		985		69.3%	3,442		1,888		82.3%
SBA loan sales	1,562		3,834		(59.3)%	4,658		5,689		(18.1)%
Income from other equity investments	6,669		6,956		(4.1)%	8,379		10,396		(19.4)%
Other noninterest income	6,208		3,045		>100%	14,468		5,212		>100%
Total other noninterest income	40,447		33,699		20.0%	74,553		59,382		25.5%
Total noninterest income	$	125,502	$	98,207	27.8%	$	228,998	$	190,916	19.9%

Three months ended
September 30,
2017 - 2016
Percent
Nine months ended
September 30, 2017 - 2016
Percent
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
Noninterest income:
Service charges on deposit accounts $ 5,921
$ 3,778
56.7% $ 13,955
$ 10,651
31.0%
Investment services 3,660
2,592
41.2% 9,592
7,437
29.0%
Insurance sales commissions 2,124
1,233
72.3% 5,444
4,132
31.8%
Gains on mortgage loans sold, net 5,963
5,097
17.0% 14,786
12,886
14.7%
Gain on sale of investment securities, net —
—
NA —
—
NA
Income from equity method investment 8,937
8,475
5.5% 25,515
23,267
9.7%
Trust fees 2,636
1,523
73.1% 6,018
4,595
31.0%
Other noninterest income:

Interchange and other consumer fees 7,393
6,464
14.4% 21,102
18,051
16.9%
Bank-owned life insurance 2,623
955
174.7% 5,117
2,595
97.2%
Loan swap fees 1,011
859
17.7% 1,608
3,370
(52.3)%
Other noninterest income 2,709
716
278.4% 5,278
3,276
61.1%
Total other noninterest income 13,736

8,994
52.7% 33,105

27,292
21.3%
Total noninterest income $ 42,977

$ 31,692
35.6% $ 108,415

$ 90,260
20.1%

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The increase in service charges on deposit accounts in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016 is primarily related to increased analysis fees due~~2021 relates to an increase in ~~the volume~~analysis fees and ~~number of~~increased transaction volumes in commercial checking ~~accounts.~~accounts which we believe is the result of the increased economic activity in our markets. We expect future service charge revenues to be negatively impacted by the previously announced changes to our insufficient funds programs.

Income from our wealth management groups (investments, insurance and trust) is also included in noninterest income. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, 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 ~~$1.1~~$4.2 million and ~~$2.2~~$6.7 million, asrespectively, when compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. At ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, Pinnacle Asset Management was receiving commissions and fees in connection with approximately ~~$3.0~~$6.8 billion and ~~$2.1~~$6.3 billion, respectively, in brokerage assets. The increases in these fees for the three and six months ended June 30, 2022 when compared to the three and six months ended June 30, 2021 were favorably impacted by an increase in investment and transaction advisory fees from PNFP Capital Markets, Inc. which increased $2.3 million during the six months ended June 30, 2022 when compared to the six months ended June 30, 2021. Revenues from the sale of insurance products by our insurance subsidiaries for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were up approximately $890,000~~2022 increased by $148,000 and ~~$1.3 million when~~$959,000, respectively, compared to the ~~three and nine months ended September 30, 2016.~~same periods in the prior year. Included in insurance revenues for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$652,000~~$1.4 million of contingent income ~~received~~that was based on ~~2016~~2021 sales production and ~~improved~~ claims experience compared to ~~$475,000~~$927,000 recorded in the same period in the prior year. Additionally, at ~~September~~June 30, ~~2017,~~2022, our trust department was receiving fees on approximately ~~$1.9~~$4.2 billion of managed assets compared to ~~$978.3 million~~$3.6 billion at ~~September~~June 30, ~~2016,~~2021, reflecting organic growth and changes in market valuations. We believe the ~~$488.2 million~~improvement in ~~assets we added with~~ the ~~BNC merger. The growth in~~results of our wealth management businesses during the three and six months ended June 30, 2022 when compared to the comparable periods in 2021 is primarily attributable to ~~our expanded associate base~~an increased number of wealth management advisors and ~~distribution platform in our new markets.~~corresponding client acquisition.

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 interest rate environments and more challenging housing markets. Mortgage origination fees will fluctuate from quarter to quarter as the rate environment changes. Gains on mortgage loans sold, net, were ~~$6.0~~$2.2 million and ~~$14.8~~$6.2 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 as~~2022 compared to ~~$5.1~~$6.7 million and ~~$12.9~~$20.4 million, resepctively, for the same periods in the prior ~~year, reflecting~~year. This decrease is the direct result of the increases in the rate environment and the decrease in housing inventory in the markets where we operate negatively impacting originations. We hedge a portion of our ~~expanded operations.~~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 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, 2022, the mortgage pipeline included $93.4 million in loans expected to close in 2022 compared to $180.8 million in loans at June 30, 2021 expected to close in 2021.

Investment gains and losses on sales, net, represent the net gains and losses on sales of investment securities in our available-for-sale securities portfolio during the periods noted. During the six months ended June 30, 2022, $2.9 million of securities were sold for a net loss of $61,000 as compared to the six months ended June 30, 2021, when we sold $2.2 million of securities for a net gain of $366,000.

Income from equity-method investment.Income from equity-method investment is comprised solely of income from our 49% equity-method investment in BHG. ~~We acquired a 30% investment during the first quarter of 2015 and subsequently increased our investment to 49%~~BHG is engaged in the ~~first quarter~~origination of ~~2016.~~ 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 ~~$8.9~~$49.5 million and ~~$25.5~~$83.1 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$8.5~~$32.1 million and ~~$23.3~~$61.0 million, respectively, for the same periods last year. Historically, 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. In recent years, BHG began an effort to retain more loans on its balance sheet. BHG’s decision to sell loans through its auction platform or retain loans on its balance sheet will be impacted by a variety of factors, including interest rates. In a rising rate environment, it may choose to sell more loans through its auction platform if the cost of financing loans on its balance sheet is not as attractive as a sale through its auction platform. Since 2020, BHG has completed five securitizations totaling $1.7 billion, with the latest securitization of $300 million having been completed in the second quarter of 2022. We anticipate that in the second half of 2022, BHG will retain a larger percentage of the loans it originates on its balance sheet than it did in the first half of 2022.

Income from equity-method investment is recorded net of ~~associated expenses, including~~ amortization expense associated with customer lists and other intangible assets of ~~$832,000~~$128,000 and ~~$2.5 million,~~$256,000, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$1.5 million~~$188,000 and ~~$2.4 million,~~$376,000, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. At ~~September~~June 30, ~~2017,~~2022, there were ~~$14.3~~$6.6 million of these intangible assets ~~which will~~that are expected to be amortized in lesser amounts over the next 1813 years. Also included in income from equity-method investment is

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accretion income associated with the fair valuation of certain of BHG's liabilities of ~~$758,000~~$188,000 and ~~$2.3 million,~~$431,000, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, compared to ~~$599,000~~$395,000 and ~~$1.8 million,~~$846,000, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. At ~~September~~June 30, ~~2017,~~2022, there were ~~$11.0 million~~$700,000 of these liabilities ~~which will be accreted~~that are expected to accrete into income in lesser amounts over the next 9four years.

AsDuring the three and six months ended June 30, 2022, Pinnacle Financial and Pinnacle Bank received dividends of $28.5 million and $40.8 million, respectively, from BHG in the aggregate compared to $39.4 million and $49.4 million, respectively, during the three and six months ended June 30, 2021. Dividends from BHG during such periods reduced the carrying amount of our ~~ownership interest~~investment in BHG, ~~is 49%, we do not consolidate BHG's results~~while earnings from BHG during such periods increased the carrying amount of ~~operations or financial position into~~ our ~~financial statements but record the net result of BHG's activities at our percentage ownership in income from equity method~~ investment in ~~noninterest income.~~ 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, 2022, Pinnacle Bank purchased $76.0 million of loans from BHG. Pinnacle Bank purchased $50.3 million and $124.9 million, respectively, of loans from BHG during the three and six months ended June 30, 2021. These loans were purchased at par pursuant to BHG's joint venture loan program whereby BHG and Pinnacle Bank share proportionately in the credit risk of the acquired loans based on the rate on the loan and the rate of the purchase. The yield on this portfolio to Pinnacle Bank is anticipated to be between 4.50% and 5.50% per annum. At June 30, 2022 and December 31, 2021, there were $351.4 million and $319.1 million, respectively, of BHG joint venture program loans held by Pinnacle Bank.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, BHG reported ~~$42.0~~$297.9 million and ~~$113.2~~$536.6 million, respectively, in revenues, net of substitution losses of ~~$9.1~~$18.8 million and ~~$31.9~~$38.1 million, respectively, compared to revenues of ~~$37.6~~$179.0 million and ~~$108.2~~$336.6 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2021, net of substitution losses of ~~$6.4~~$25.0 million and ~~$16.4~~$53.5 million, respectively.

Earnings from BHG are likely to fluctuate from period-to-period. Approximately ~~$33.5~~$190.0 million and ~~$89.6~~$338.0 million, respectively, of BHG's revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 related to gains on the sale of commercial ~~loans BHG had previously issued to doctor, dentist~~ and ~~other medical practices~~consumer loans compared to ~~$27.7~~$127.5 million and ~~$73.9~~$243.5 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. BHG refers to this activity as its core product. BHG~~2021. These loans have typically ~~funds these loans from cash reserves on its balance sheet. Subsequent to origination, these core product loans are~~been sold by BHG with ~~limited or~~ no recourse to a network of community banks and other financial institutions at a premium to the par value of the ~~loan. 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. At ~~September~~June 30, ~~2017,~~2022 and 2021, there were ~~$1.4~~$4.7 billion ~~in core product~~and $4.0 billion, respectively, of these loans previously sold by BHG that were being actively serviced by BHG's ~~bank~~ network of bank purchasers.

~~Traditionally,~~ BHG, at its sole option, may also provide purchasers of these ~~core product~~ 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. This substitution is subject to the purchaser having adhered to the standards of its purchase agreement with BHG. Additionally, all substitutions are subject to the approval by BHG's board of managers. As a result, the reacquired loans are deemed purchase credit impaired and recorded on BHG's balance sheet at the net present value of the loan's anticipated cash flows. BHG will then initiate collection efforts and attempt to restore the reacquired loan to performing status. Substitution losses are recorded as a contra revenue account and reduce total revenues discussed above. BHG maintained a liability as of ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 of ~~$63.9~~$234.9 million and ~~$39.9~~$267.1 million, respectively, that represents an estimate of the future inherent losses for the outstanding core portfolio that may be subject to future ~~substitution.~~substitution due to payment default or loan prepayment. This liability represents 5.0% and 6.7%, respectively, of core product loans previously sold by BHG that remain outstanding as of June 30, 2022 and 2021, respectively. The decrease in this liability in the six months ended June 30, 2022 compared to the period ended June 30, 2021 was principally the result of a partial release of the reserve BHG recorded in 2020 related to the economic disruption associated with the COVID-19 pandemic which adversely impacted physician and dental practices in a material manner in 2020 and into 2021. We anticipate that the gain on sale premium earned by BHG on the sale of commercial and consumer loans, including in connection with substitutions, will be negatively impacted by the rising rate environment.

In addition to these loans that BHG ~~will maintain~~sells into its auction market, at June 30, 2022, BHG reported loans that remained on BHG's balance sheet totaling $2.9 billion compared to $1.6 billion as of June 30, 2021. A portion of these loans do not qualify for sale accounting and accordingly an offsetting secured borrowing liability has been recorded. At June 30, 2022 and 2021, BHG had $2.1 billion and $1.1 billion, respectively, of secured borrowings associated with loans held for investment. At June 30, 2022 and 2021, BHG reported allowance for loan losses totaling $75.8 million and $33.7 million, respectively, with respect to the loans on its balance ~~sheet~~sheet. BHG records its allowance for ~~a period of time prior~~loan losses under the incurred loss method, but will be required to ~~sale or transfer to a purchaser. BHG also has an investment portfolio on which it earns interest and dividend income. Net interest~~adopt CECL effective October 1, 2023. Interest income and fees ~~associated with this activity~~ amounted to ~~$5.0~~$98.1 million and ~~$13.8~~$181.3 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, as~~2022 compared to ~~$4.2~~$44.0 million and ~~$15.5 million, respectively, for same periods in the prior year.~~

Additionally, BHG will also refer loans to other financial institutions and, based on an agreement with the institution, earn a fee for doing so. Typically, these are loans that BHG believes would either be classified as consumer-type loans rather than commercial loans, the loans fail to meet the credit underwriting standards of BHG but another institution will accept the loans or these are loans to borrowers in certain geographic locations where BHG has elected not to do business. For the three and nine months ended September 30, 2017, BHG recognized fee income of $1.9 million and $5.8 million, respectively, as compared to $3.5 million and $9.6 million, respectively, for the same periods in the prior year related to these activities.

During the three and nine months ended September 30, 2017, Pinnacle Financial and Pinnacle Bank received $4.5 million and $19.4 million, respectively, in dividends in the aggregate from BHG compared to $5.0 million and $26.8$78.6 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, 2016. These dividends reduced the carrying amount of our investment in BHG while earnings from BHG increased the carrying amount of our investment in BHG. Our proportionate share of earnings from BHG are included in our consolidated tax return. Profits from intercompany transactions are eliminated. Earnings from BHG will fluctuate from period-to-period.2021.

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, SBA loan sales, gains or losses on other equity investments and other noninterest income items. Interchange revenues increased in35.9% and 26.6%, respectively, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 as a result of an increase in the number of cards being used~~2022 as compared to the ~~comparable~~same periods in ~~2016. Interchange revenues~~2021 due to increased ~~year-over-year, but were negatively impacted by the Durbin amendment which was applicable~~commercial credit card volumes period-over-period as compared to ~~us beginning on July 1, 2017. We estimate that the Durbin amendment negatively impacted our noninterest income by approximately $1.8 million to $2.0 million in the third quarter of 2017.~~2021. Other noninterest income included changes in the cash surrender value of bank-owned life insurance which was ~~$2.6~~$5.1 million and ~~$5.1~~$9.8 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$955,000~~$4.7 million and ~~$2.6~~$9.5 million, respectively, ~~for~~in the ~~three and nine months ended September 30, 2016.~~same periods in the prior year. The assets that support these policies are administered by the life insurance carriers and the income we ~~receive~~recognize (i.e., increases or decreases in the cash surrender value of the policies) on these policies is dependent upon the ~~returns~~crediting rates applied by the insurance carriers, which are ~~able~~subject to ~~earn on~~change at the ~~underlying investments that support~~discretion of the ~~policies.~~carriers, subject to any applicable floors. Earnings on these policies generally are not taxable. ~~Loan swap fees~~During the first six months of 2022, we

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purchased an additional $75 million of bank owned life insurance. SBA loan sales are ~~also~~ included in other noninterest income and ~~increased by $152,000 and~~ decreased by ~~$1.8~~$2.3 million and $1.0 million, respectively, during the three and six months ended June 30, 2022 when compared to the same periods in the prior year. The decrease is primarily due to the changing market conditions in the second quarter of 2022 as SBA loan sales generally fluctuate based on general market conditions. Additionally, the carrying values of other equity investments we have made 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. Income related to these investments decreased $287,000 and $2.0 million, respectively, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022 when compared to the same periods in the prior year as we experienced greater increases in certain of our venture fund investment valuations, due to changes in the valuations in their underlying portfolios, during the three and six months ended June 30, 2021 than was the case in the three and six months ended June 30, 2022. Loan swap fees increased by $683,000 and $1.6 million, respectively, during the three and six months ended June 30, 2022 as compared to the same periods in 2021 due primarily to a change in the volume of activity resulting from the current interest rate environment. The other components of other noninterest income increased $3.2 million and $9.3 million, respectively, during the three and six months ended June 30, 2022 compared to the same periods in the prior year. The increase during the six months ended June 30, 2022 is largely the result of ~~many~~a $5.5 million gain on remeasurement of our ~~clients opting for current lower-coupon variable rate structures.~~previously held investment in JB&B resulting from our bank subsidiary's purchase of the remaining outstanding equity interests of JB&B it did not previously own on March 1, 2022.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 (in thousands):


	Three Months Ended June 30,				2022-2021	Six Months Ended June 30,				2022-2021
	2022		2021		Increase (Decrease)	2022		2021		Increase (Decrease)
Noninterest expense:
Salaries and employee benefits:
Salaries	$	70,405	$	58,622	20.1%	$	139,547	$	116,211	20.1%
Commissions	6,353		5,452		16.5%	12,575		10,176		23.6%
Cash and equity incentives	31,808		31,293		1.6%	57,702		54,934		5.0%
Employee benefits and other	18,045		15,457		16.7%	38,639		32,231		19.9%
Total salaries and employee benefits	126,611		110,824		14.2%	248,463		213,552		16.3%
Equipment and occupancy	26,921		23,321		15.4%	52,457		46,541		12.7%
Other real estate (income) expense, net	86		(657)		>100%	191		(670)		>100%
Marketing and other business development	4,759		2,652		79.4%	8,536		5,001		70.7%
Postage and supplies	2,320		2,115		9.7%	4,691		3,921		19.6%
Amortization of intangibles	2,051		2,167		(5.4%)	3,922		4,373		(10.3%)

Other noninterest expense:
Deposit related expense	7,311		7,041		3.8%	14,373		13,845		3.8%
Lending related expense	14,744		9,634		53.0%	25,839		17,416		48.4%
Wealth management related expense	630		509		23.8%	1,253		945		32.6%
Other noninterest expense	10,605		8,534		24.3%	18,974		15,912		19.2%
Total other noninterest expense	33,290		25,718		29.4%	60,439		48,118		25.6%
Total noninterest expense	$	196,038	$	166,140	18.0%	$	378,699	$	320,836	18.0%

Three months ended
September 30,
2017 - 2016
Percent
Nine months ended
September 30, 2017 - 2016
Percent
2017 2016 Increase (Decrease) 2017 2016 Increase (Decrease)
Noninterest expense:
Salaries and employee benefits:
Salaries $ 41,252
$ 22,255
85.4% $ 90,979
$ 60,853
49.5%
Commissions 2,042
1,537
32.9% 5,512
4,455
23.7%
Cash and equity incentives 13,042
5,657
130.5% 28,028
19,421
44.3%
Employee benefits and other 7,952
6,605
20.4% 21,797
18,096
20.5%
Total salaries and employee benefits 64,288
36,054
78.3% 146,316
102,825
42.3%
Equipment and occupancy 16,590
9,401
76.5% 36,978
25,844
43.1%
Other real estate expense 512
17
NM 827
352
134.9%
Marketing and business development 2,222
1,350
64.6% 6,228
4,151
50.0%
Postage and supplies 1,755
922
90.3% 4,074
2,929
39.1%
Amortization of intangibles 3,077
1,425
115.9% 5,745
3,145
82.7%
Merger related expense 8,848
5,673
56.0% 12,740
8,482
50.2%
Other noninterest expense 12,444
8,685
43.3% 30,679
25,794
18.9%
Total noninterest expense $ 109,736
$ 63,527
72.7% $ 243,587
$ 173,522
40.4%

Total salaries and employee benefits expenses increased ~~approximately $28.2~~$15.8 million and ~~$43.5~~$34.9 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the same periods in ~~2016.~~2021. The ~~increase~~change in salaries isand employee benefits was largely the result of ~~our annual merit increases that are effective on January 1 of each year as well as the overall~~an increase in our associate ~~base. At September 30, 2017, our~~base in 2022 versus 2021 as well as annual merit increases effective in January 2022. Our associate base ~~had expanded~~increased to ~~2,194.5~~3,074 full-time equivalent associates ~~as compared to 1,177.5~~ at ~~September~~June 30, ~~2016. At September~~2022 from 2,706 at June 30, ~~2017, the BNC footprint represented approximately 947 full-time equivalent associates.~~2021. We expect salary and benefit expenses ~~will~~

~~continue~~in 2022 to ~~rise~~increase when compared to 2021 as we ~~hire more~~continue our focus on hiring experienced bankers ~~throughout~~in all of our expanded franchise or new markets in which we might expand and add associates resulting from acquisitions. Moreover, as our total assets now exceed $20 billion, we also expect our compliance costs and FDIC insurance assessment expense will continue to increase.markets.

We believe that cash and equity incentives are a valuable tool in motivating an ~~employee~~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 2022 annual cash incentive plan, the targeted level of incentive payments requires achievement of a certain soundness threshold ~~a revenue component~~ and a targeted level of

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quarterly pre-tax, pre-provision net revenue (PPNR) and annual earnings per common share (subject to certain adjustments). To the extent that the soundness threshold is met and ~~revenues~~PPNR and earnings per common share 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. ~~We are currently accruing~~For 2022, maximum payouts under the plan could reach 125% of target compared to 160% of target for 2021. Through both the second quarter of 2022 and 2021, we accrued incentive costs for the cash incentive plan ~~in 2017 slightly below~~at maximum payout of our targeted ~~awards.~~awards of 125% and 160%, respectively.

Also included in employee benefits and other expense for the three and six months ended June 30, 2022 were approximately $10.8 million and $20.2 million, respectively, of compensation expenses related to equity-based awards for restricted shares, restricted stock units and performance stock unit awards, compared to $5.7 million and $11.1 million, respectively, for the three and six months ended June 30, 2021. Under our equity incentive plans, we provide a broad-based equity incentive program for all of our bank's associates. 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. ~~We expect that~~Our compensation expense associated with equity awards ~~for~~with time-based vesting criteria is likely to continue to increase during the remainder of ~~2017 will continue to increase~~2022 when compared to ~~comparable periods in 2016~~2021 as a result of the ~~additional~~increased number of associates ~~we have hired in 2017~~ and our intention to hire additional experienced financial ~~advisors throughout~~advisors. Compensation expense associated with our performance-based vesting awards will continue to be impacted by our performance in 2022 and will likely be higher than the comparable prior year period during the remainder of ~~2017,~~2022 as ~~well as~~the amount of performance-based vesting awards granted in 2022 was greater than those ~~additional associates obtained~~granted in the prior year. Through the three and six months ended June 30, 2022, we have accrued for that portion of our performance awards with performance tied to 2022 at above-target payout.

Employee benefits and other expenses were $18.0 million and $38.6 million, respectively, for the ~~acquisition~~three and six months ended June 30, 2022 compared to $15.5 million and $32.2 million, respectively, for the three and six months ended June 30, 2021 and include costs associated with our 401k plan, health insurance and payroll taxes. These costs fluctuate based on changes in our associate base and the level of ~~BNC.~~participation in these programs by our associates. Costs associated with our health insurance and 401k plan programs increased $737,000 and $3.0 million, respectively, in the aggregate during the three and six months ended June 30, 2022 when compared to the same periods in 2021.

Equipment and occupancy expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, increased $7.2~~2022 were $26.9 million and ~~$11.1~~$52.5 million, respectively, compared to $23.3 million and $46.5 million, respectively, for the three and six months ended June 30, 2021. The increases are in part the result of the three new office locations that we opened after June 30, 2021, one in Georgia, one in Alabama and the other in our Middle Tennessee market. We expect to incur additional costs in future periods as we continue to enhance and expand our current locations, including in our new markets, and further develop our technology infrastructure. Additionally, during 2021, we announced our intention to move our corporate headquarters to an office tower under construction in Nashville, where we will be a founding partner and sponsor of the project. This move is currently planned for 2025 and will impact equipment and occupancy costs as we plan for this move.

Other real estate income and expenses, net, for the three and six months ended June 30, 2022 was expense of $86,000 and $191,000, respectively, as compared to benefits of $657,000 and $670,000, respectively, for the same periods in the prior year due to our acquisitions and two new locations opened in our Tennessee markets in 2017. In future periods, any new facilities, either branches or operational offices will lead to higher equipment and occupancy expenses as well as related increases in salaries and benefits expense.year.

Marketing and business development expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~$2.2~~$4.8 million and ~~$6.2~~$8.5 million, respectively, compared to ~~$1.3~~$2.7 million and ~~$4.2~~$5.0 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The primary source of the increase for the three and six months ended June 30, 2022 as compared to the same periods in 2021 is ~~related to our advertising~~the result of increased associate engagement as we brought back in-person orientation and ~~banking sponsorships with a professional sports franchise in Memphis, which was entered into late~~associate meetings in the ~~third~~first quarter of ~~2016,~~2022 and increased client engagement as ~~well as the increase~~COVID restrictions lapsed. We expect these costs to rise modestly and return to more normalized levels in 2022 taking into account anticipated increases associated with ~~our acquisition of BNC.~~the associates we have hired since December 31, 2020.

Intangible amortization expense was ~~$3.1~~$2.1 million and ~~$5.7~~$3.9 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~$1.4~~$2.2 million and ~~$3.1~~$4.4 million, respectively, for the same periods in ~~2016.~~2021. The following table outlines our amortizing intangible assets, their initial valuation and amortizable lives at ~~September~~June 30, ~~2017:~~2022:


	Year acquired	Initial Valuation (in millions)		Amortizable Life (in years)	Remaining Value (in millions)
Core Deposit Intangible:



Avenue	2016	$	8.8	9	$	1.0
BNC	2017	48.1		10	18.5

Book of Business Intangible:
Miller Loughry Beach Insurance	2008	$	1.3	20	$	0.1
CapitalMark	2015	0.3		16	0.1

Table of Contents

Year Acquired Initial Valuation (in millions)
Amortizable Life
(in years)
Core Deposit Intangible:
Mid- America 2007 $ 9.5
10
CapitalMark 2015 6.2
7
Magna 2015 3.2
6
Avenue 2016 8.8
9
BNC 2017 48.1
10
Book of Business Intangibles:

Miller Loughry Beach 2008 1.3
20
CapitalMark 2015 0.3
16
BNC 2017 0.4
20
BNC 2017 1.9
10


	Year acquired	Initial Valuation (in millions)	Amortizable Life (in years)	Remaining Value (in millions)
BNC Insurance	2017	0.4	20	0.2
BNC Trust	2017	1.9	10	0.9
Advocate Capital	2019	13.6	13	7.1
JB&B Capital	2022	6.7	10	6.4

These assets are being amortized on an accelerated basis which reflects the anticipated life of the underlying assets. ~~Amortization~~Annual amortization expense of these intangibles is estimated to decrease from ~~$11.3~~$7.4 million to ~~$5.4~~$4.6 million per year over the next five years with lesser amounts for the remaining amortization period.

~~During~~Other noninterest expenses, which consists primarily of deposit, lending, wealth management and administrative expenses increased by $7.6 million and $12.3 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, 2017, merger related charges of $8.8 million and $12.7 million, respectively, were incurred primarily associated with our acquisition of BNC, and included $1.4 million and $2.9 million, respectively, of stock-based compensation expense incurred as a result of change-in-control provisions applicable2022 when compared to ~~assumed equity-based awards that was recorded as merger related expense during~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017. We will continue to incur merger~~2021. Lending related charges as we complete our integration of BNC throughout the remainder of 2017 and into the first quarter of 2018. Merger-related charges will include costs associated with associate retention packages, and cultural and technology integrations, including the conversion of our core

~~processing system to BNC's system, which we currently anticipate will occur on or before November 30, 2017, which is slightly delayed from our earlier anticipated date of November 11, 2017.~~

~~Total other noninterest expenses~~expense increased by ~~$3.8~~$5.1 million and ~~$4.9~~$8.4 million, respectively, ~~during~~for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 when compared to the same periods in ~~2016. These~~the prior year. This increase is primarily the result of increased expense associated with our consumer and commercial credit card programs for which transaction volumes also increased in the respective period. Deposit related expense increased by $270,000 and $528,000, respectively, during the three and six months ended June 30, 2022 when compared to the same periods in 2021. Wealth management related expenses increased $121,000, or 23.8%, and $308,000, or 32.6%, respectively, during the three and six months ended June 30, 2022 when compared to the same periods in 2021 due primarily to an increased number of accounts being serviced by these areas. Other noninterest expenses increased $2.1 million and $3.1 million, respectively, during the three and six months ended June 30, 2022 as compared to the same periods in 2021 due in part to increases ~~are attributable to a variety of factors including increased directors~~in consultant fees, ~~regulatory~~contributions and ~~audit fees.~~other miscellaneous expense items.

Our efficiency ratio ~~(ratio~~(the ratio of noninterest expense to the sum of net interest income and noninterest income) was ~~50.8%~~50.3% and ~~51.1%~~51.7%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to ~~53.7%~~50.1% and ~~53.3%~~49.6%, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. The efficiency ratio measures the amount of expense that is incurred to generate a dollar of revenue.~~2021. The efficiency ratio for the ~~quarter~~three and six months ended ~~September~~June 30, ~~2017,~~2022 compared to the same periods in 2021 was negatively impacted in part by ~~merger related expense.~~increased noninterest expense during the periods as a result of increased salaries and employee benefits, a decrease in the amount of gains on mortgage loans sold, which decrease was offset, in part, by increased income from our equity method investment in BHG.

Income Taxes. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, Pinnacle Financial~~2022, we recorded income tax expense of ~~$35.1~~$36.0 million and ~~$68.8~~$64.5 million, respectively, compared to ~~$16.3~~$30.7 million and ~~$45.9~~$58.9 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016. Pinnacle Financial's~~2021. Our effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 was ~~35.2%~~19.9% and ~~31.9%~~19.0%, respectively, compared ~~to 33.5%~~18.9% and ~~33.5%~~18.6%, respectively, ~~at September~~for the three and six months ended June 30, ~~2016. Pinnacle Financial's~~2021. Our effective tax rate differs from the combined federal and state income tax statutory rate in effect of 26.14% primarily due to our investments in bank-qualified municipal securities, tax benefits from our real estate investment trust subsidiary, participation in Tennessee's Community Investment Tax Credit (CITC) program, ~~and~~ tax benefits associated with share-based compensation, bank-owned life insurance and our captive insurance subsidiary, offset in part by the limitation on deductibility of meals and entertainment expense, non-deductible FDIC insurance premiums and ~~certain merger-related expenses. The impact~~non-deductible executive compensation. Our tax rate in each period was also impacted by the vesting and exercise of ~~the adoption of ASU 2016-09 was included in income tax expense for the three and nine months ended September 30, 2017,~~equity-based awards previously granted under our equity-based compensation program, resulting in the recognition of ~~$59,000~~tax benefits of $282,000 and ~~$4.6~~$2.9 million, respectively, for the three and six months ended June 30, 2022 compared to $302,000 and $1.9 million, respectively, for the three and six months ended June 30, 2021.

Table of ~~tax benefits which reduced income tax expense. Prior to the adoption of ASU 2016-09, these tax benefits were recorded in the statement of owner's equity directly to additional paid-in-capital.~~Contents

Financial Condition

Our consolidated balance sheet at ~~September~~June 30, ~~2017~~2022 reflects an increase in total loans outstanding to ~~$15.26~~$26.3 billion compared to ~~$8.45~~$23.4 billion at December 31, ~~2016.~~2021. Total deposits increased by ~~$7.03~~$1.3 billion to $32.6 billion between December 31, ~~2016~~2021 and ~~September~~June 30, ~~2017.~~2022. Total assets were ~~$21.79~~$40.1 billion at ~~September~~June 30, ~~2017~~2022 compared to ~~$11.20~~$38.5 billion at December 31, ~~2016. Loans acquired from BNC totaled $5.60 billion on June 16, 2017, while BNC contributed $6.21 billion in deposits and $7.0 billion in total assets.~~2021.

Loans. The composition of loans at ~~September~~June 30, ~~2017~~2022 and at December 31, ~~2016~~2021 and the percentage (%) of each classification to total loans are summarized as follows ~~(dollars in~~(in thousands):


	June 30, 2022				December 31, 2021
	Amount		Percent		Amount		Percent
Commercial real estate:
Owner occupied	$	3,243,018	12.3	%	$	3,048,822	13.0	%
Non-owner occupied	5,861,596		22.2	%	5,221,704		22.3	%
Consumer real estate – mortgage	4,047,051		15.4	%	3,680,684		15.7	%
Construction and land development	3,386,866		12.9	%	2,903,017		12.4	%
Commercial and industrial	9,295,808		35.3	%	8,074,546		34.5	%
Consumer and other	498,757		1.9	%	485,489		2.1	%
Total loans	$	26,333,096	100.0	%	$	23,414,262	100.0	%

September 30, 2017 December 31, 2016
Amount Percent Amount Percent
Commercial real estate – mortgage $ 6,450,042
42.3 % $ 3,193,496
37.8 %
Consumer real estate – mortgage 2,541,180
16.7 % 1,185,917
14.0 %
Construction and land development 1,939,809
12.7 % 912,673
10.8 %
Commercial and industrial 3,971,227
26.0 % 2,891,710
34.2 %
Consumer and other 357,528
2.3 % 266,129
3.2 %
Total loans $ 15,259,786
100.0 % $ 8,449,925
100.0 %

~~The composition of~~At June 30, 2022, our loan portfolio composition had changed modestly from the composition at ~~September 30, 2017 when compared to~~ December 31, ~~2016 was impacted by our acquisition of BNC, which had more of a~~2021 with commercial real estate ~~focus, including construction, than we did in~~and commercial and industrial lending generally continuing to make up the largest segments of our ~~legacy Tennessee markets. The commercial real estate – mortgage category includes owner-occupied~~portfolio. At June 30, 2022, approximately 35.6% of the outstanding principal balance of our commercial real estate loans ~~which we believe are~~was secured by owner occupied commercial real estate properties, compared to 36.9% at December 31, 2021. 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. At September 30, 2017, approximately 37.7% of the outstanding principal balance of our commercial real estate mortgage loans was secured by owner-occupied properties compared to 42.4% at December 31, 2016. Growth inAdditionally, the construction and land development loan segment continues to be a meaningful portion of our portfolio and reflects the development and growth of the local ~~economies~~communities in which we ~~participate~~operate and is diversified between commercial, residential and land.

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, 2022, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital was 87.4% compared to 79.1% at December 31, 2021. Construction and land development, non-owner occupied commercial real estate and multifamily loans as a percentage of total risk-based capital were 250.2% and 234.1% as of June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, Pinnacle Bank was within the 100% and 300% guidelines and has established what it believes to be appropriate controls to monitor 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 ~~classifies~~presents the maturity distribution of our ~~fixed and variable rate loans~~loan portfolio by loan segment at ~~September~~June 30, ~~2017~~2022 according to contractual maturities of (1) one year or less, (2) after one ~~year through~~but within five years, ~~and~~ (3) after five but within fifteen years and (4) after fifteen years. The table also ~~classifies our~~presents the portion of loans by loan segment that have fixed interest rates or variable ~~rate loans pursuant to~~interest rates that fluctuate over the ~~contractual repricing dates~~life of the ~~underlying~~ 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	$	230,740	$	1,268,128	$	1,372,706	$	371,444	$	3,243,018
Non-owner occupied	1,099,234		3,868,566		834,620		59,176		5,861,596
Consumer real estate - mortgage	91,503		454,156		375,635		3,125,757		4,047,051
Construction and land development	943,146		2,088,905		290,889		63,926		3,386,866
Commercial and industrial	2,391,413		4,969,905		1,683,894		250,596		9,295,808
Consumer and other	138,570		185,058		159,174		15,955		498,757
Total loans	$	4,894,606	$	12,834,718	$	4,716,918	$	3,886,854	$	26,333,096

Table of Contents

Amounts at September 30, 2017 Percentage Percentage

Fixed
Rates

Variable
Rates
Totals At September 30,
2017 At December 31, 2016
Based on contractual maturity:
Due within one year $ 913,118
$ 1,888,165
$ 2,801,283
18.4% 20.9%
Due in one year to five years 3,953,481
3,247,184
7,200,665
47.2% 46.6%
Due after five years 2,560,348
2,697,490
5,257,838
34.4% 32.5%
Totals $ 7,426,947
$ 7,832,839
$ 15,259,786
100.0% 100.0%

Based on contractual repricing dates:
Daily floating rate (*) $ —
$ 2,581,679
$ 2,581,679
16.9% 23.6%
Due within one year 3,830,930
4,902,804
8,733,734
57.2% 35.8%
Due in one year to five years 2,316,660
300,226
2,616,886
17.1% 27.7%
Due after five years 1,279,357
48,130
1,327,487
8.7% 12.9%
Totals $ 7,426,947
$ 7,832,839
$ 15,259,786
100.0% 100.0%


Loans with fixed interest rates:
Commercial real estate:
Owner-occupied	$	139,424	$	921,327	$	1,035,711	$	270,403	$	2,366,865
Non-owner occupied	368,178		2,100,039		521,463		41,243		3,030,923
Consumer real estate - mortgage	48,260		312,340		151,370		1,959,608		2,471,578
Construction and land development	160,575		471,820		179,122		36,353		847,870
Commercial and industrial	957,317		1,634,052		1,138,735		179,893		3,909,997
Consumer and other	85,108		104,168		157,763		15,953		362,992
Total loans	$	1,758,862	$	5,543,746	$	3,184,164	$	2,503,453	$	12,990,225

Loans with variable interest rates:
Commercial real estate:
Owner-occupied	$	91,316	$	346,801	$	336,995	$	101,041	$	876,153
Non-owner occupied	731,056		1,768,527		313,157		17,933		2,830,673
Consumer real estate - mortgage	43,243		141,816		224,265		1,166,149		1,575,473
Construction and land development	782,571		1,617,085		111,767		27,573		2,538,996
Commercial and industrial	1,434,096		3,335,853		545,159		70,703		5,385,811
Consumer and other	53,462		80,890		1,411		2		135,765
Total loans	$	3,135,744	$	7,290,972	$	1,532,754	$	1,383,401	$	13,342,871

The above information does not consider the impact of scheduled principal payments.

(*) Daily floating rate loans are tied to Pinnacle Bank's prime lending rate or a national interest rate index with the underlying loan rates changing in relation to changes in these indexes. Included in variable rate loans are $370.0 million of loans which are currently priced at their contractual floors with a weighted average rate of 4.95%. The weighted average contractual rate on these loans is 4.25%. As a result, interest income on these loans will not change until the contractual rate on the underlying loan exceeds the interest rate floor.

~~Accruing~~ Loans in Past Due Status. The following table is a summary of our ~~accruing~~ loans that were past due at least 30 days but less than 89 days and 90 days or more past due as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016 (dollars in~~2021 (in thousands):


	June 30,			December 31,
Loans past due 30 to 89 days:	2022			2021
Commercial real estate:
Owner occupied	$	1,406		$	727
Non-owner occupied	631			1,434
Consumer real estate – mortgage	11,795			8,832
Construction and land development	4			61
Commercial and industrial	10,138			7,603
Consumer and other	4,097			2,283
Total loans past due 30 to 89 days	$	28,071		$	20,940

Loans past due 90 days or more:
Commercial real estate:
Owner occupied	$	2,564		$	2,426
Non-owner occupied	1,723			645
Consumer real estate – mortgage	5,604			4,450
Construction and land development	200			127
Commercial and industrial	3,260			7,311
Consumer and other	498			372
Total loans past due 90 days or more	$	13,849		$	15,331

Ratios:
Loans past due 30 to 89 days as a percentage of total loans	0.11		%	0.09		%
Loans past due 90 days or more as a percentage of total loans	0.05		%	0.06		%
Total loans in past due status as a percentage of total loans	0.16		%	0.15		%

September 30, December 31,
Accruing loans past due 30 to 89 days: 2017 2016
Commercial real estate – mortgage $ 11,918
$ 3,505
Consumer real estate – mortgage 8,980
3,838
Construction and land development 3,621
2,210
Commercial and industrial 4,623
4,475
Consumer and other 6,676
7,168
Total accruing loans past due 30 to 89 days $ 35,818
$ 21,196

Accruing loans past due 90 days or more:
Commercial real estate – mortgage $ —
$ —
Consumer real estate – mortgage 1,072
53
Construction and land development 240
—
Commercial and industrial 560
—
Consumer and other 1,138
1,081
Total accruing loans past due 90 days or more $ 3,010
$ 1,134

Ratios:
Accruing loans past due 30 to 89 days as a percentage of total loans 0.23 % 0.25 %
Accruing loans past due 90 days or more as a percentage of total loans 0.02 % 0.01 %
Total accruing loans in past due status as a percentage of total loans 0.25 % 0.26 %

Potential Problem Loans. Potential problem loans, which are not included in nonperforming assets, amounted to approximately ~~$148.7~~$85.1 million, or ~~1.2%~~0.3% of total loans at ~~September~~June 30, ~~2017,~~2022, compared to ~~$114.6~~$109.6 million, or ~~1.4%~~0.5% of total loans at December 31, ~~2016.~~2021. Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have ~~serious~~ 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, ~~excluding~~or worse, but not considered nonperforming loans. None of the ~~impact of substandard nonaccrual loans and substandard troubled debt restructurings. Troubled debt restructurings are not included in potential problem loans. Approximately $3.9 million of~~ potential problem loans were past due at least 30 days but less than 90 days as of ~~September~~June 30, ~~2017.~~2022.

Table of Contents

Nonperforming Assets and Troubled Debt Restructurings. At ~~September~~June 30, ~~2017,~~2022, we had ~~$78.1~~$23.7 million in nonperforming assets compared to ~~$33.7~~$40.1 million at December 31, ~~2016.~~2021. Included in nonperforming assets were ~~$53.4~~$15.5 million in nonaccrual loans and ~~$24.7~~$8.2 million in OREO and other nonperforming assets at ~~September~~June 30, ~~2017~~2022 and ~~$27.6~~$31.6 million in nonaccrual loans and ~~$6.1~~$8.5 million in OREO and other nonperforming assets at December 31, ~~2016. The increase in nonperforming assets at September~~2021. At June 30, ~~2017 is primarily a result of the acquisition of such assets related to our BNC Merger. At September 30, 2017~~2022 and December 31, ~~2016,~~2021, there were ~~$15.2~~$2.3 million and ~~$15.0~~$2.4 million, respectively, of troubled debt restructurings, all of which were accruing as of the restructured date and remain on accrual ~~status but are considered impaired loans pursuant to U.S. GAAP.~~status.

Allowance for ~~Loan~~Credit Losses ~~(allowance)~~on Loans (ACL). ~~We maintain~~On January 1, 2020, we adopted FASB ASU 2016-13, which introduced the ~~allowance at a level that~~current expected credit losses (CECL) methodology and required us to estimate all expected credit losses over the remaining life of our ~~management deems appropriate to adequately cover the probable losses inherent in the~~ 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 ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, our ~~allowance for loan losses~~ACL was approximately ~~$65.2~~$272.5 million and ~~$59.0~~$263.2 million, respectively, which our management ~~deemed~~believed to be adequate at each of the respective dates. Our allowance for loan losses is adjusted to an amount deemed appropriate to adequately cover probable losses in the loan portfolio based on our allowance for loan loss methodology. Our allowance for loan lossesACL as a percentage of total loans, ~~decreased~~inclusive of PPP loans, was 1.03% at June 30, 2022, down from ~~0.70%~~1.12% at December 31, ~~2016~~2021. No ACL has been recorded for PPP loans as they are fully guaranteed by the SBA.

Our CECL models rely largely on recent historical and projected future macroeconomic conditions to ~~0.43% at September 30, 2017, primarily attributable~~estimate future credit losses. Macroeconomic factors used in the model include the national unemployment rate, gross domestic product, the commercial real estate price index and certain U.S. Treasury interest rates. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to predict quarterly rates of default.

Under the ~~BNC portfolio being recorded at fair value upon acquisition. As a result of our acquired loan portfolios being recorded at fair value upon acquisition, no~~CECL methodology, the allowance for ~~loan~~credit losses is ~~assigned~~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 ~~purchased loans as~~be reasonable and supportable, and at the end of the ~~date~~reasonable and supportable period losses are reverted to long term historical averages. At June 30, 2022, a reasonable and supportable period of ~~acquisition. However, an allowance~~twenty-four months was utilized for all loan ~~losses is recorded for purchased loans that have experienced credit deterioration subsequent~~segments followed by a twelve month straight line reversion period to acquisition or increases in balances outstanding. As of September 30, 2017, net loans included a remaining net fair value discount of $182.4 million. For the nine months ended September 30, 2017, the net fair value discount changed as follows:long term averages.

Accretable
Yield

Nonaccretable
Yield
Total
December 31, 2016 $ 30,364
$ 3,633
$ 33,997
Acquisitions 149,204
32,211
181,415
Year-to-date accretion and settlements (30,353 ) (2,659 ) (33,012 )
September 30, 2017 $ 149,215
$ 33,185
$ 182,400

The following table sets forth, based on management's estimate, the allocation of the allowance for credit losses on loans to categories of loans ~~as well as the unallocated portion as of September 30, 2017~~ and ~~December 31, 2016~~loan balances by category and the percentage of loans in each category to total loans ~~(dollars in~~and allowance for credit losses as a percentage of total loans within each loan category as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022								December 31, 2021
	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	$	19,609	$	3,243,018	0.60	%	12.3	%	$	19,618	$	3,048,822	0.64	%	13.0	%
Non-owner occupied	52,547		5,861,596		0.90	%	22.2	%	58,504		5,221,704		1.12	%	22.3	%
Consumer real estate - mortgage	33,883		4,047,051		0.84	%	15.4	%	32,104		3,680,684		0.87	%	15.7	%
Construction and land development	28,681		3,386,866		0.85	%	12.9	%	29,429		2,903,017		1.01	%	12.4	%
Commercial and industrial	125,772		9,295,808		1.35	%	35.3	%	112,340		8,074,546		1.39	%	34.5	%
Consumer and other	11,991		498,757		2.40	%	1.9	%	11,238		485,489		2.31	%	2.1	%

Total	$	272,483	$	26,333,096	1.03	%	100.0	%	$	263,233	$	23,414,262	1.12	%	100.0	%

September 30, 2017 December 31, 2016
Amount Percent Amount Percent
Commercial real estate - mortgage $ 20,790
42.3 % $ 13,655
37.8 %
Consumer real estate - mortgage 5,303
16.7 % 6,564
14.0 %
Construction and land development 7,523
12.7 % 3,624
10.8 %
Commercial and industrial 23,407
26.0 % 24,743
34.2 %
Consumer and other 6,919
2.3 % 9,520
3.2 %
Unallocated 1,217
NA
874
NA
Total allowance for loan losses $ 65,159
100.0 % $ 58,980
100.0 %

The following ~~is a summary of changes in the allowance for~~table presents information related to credit losses on loans by loan ~~losses~~segment for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~for the~~ year ended December 31, ~~2016 and the ratio of the allowance for loan losses to total loans as of the end of each period (dollars in~~2021 (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, 2022:
Commercial real estate:
Owner occupied	$	622	$	(631)	$	3,107,066	(0.04)	%
Non-owner occupied	(6,019)		62		5,466,113		—	%
Consumer real estate - mortgage	1,161		618		3,821,545		0.03	%
Construction and land development	(747)		(1)		3,175,347		—	%
Commercial and industrial	15,563		(2,131)		8,517,402		(0.05)	%
Consumer and other	2,505		(1,752)		456,394		(0.77)	%
Total loans	$	13,085	$	(3,835)	$	24,543,867	(0.03)	%

Table of Contents

Nine months ended
September 30, 2017
Year ended
December 31, 2016
Balance at beginning of period $ 58,980
$ 65,432
Provision for loan losses 17,384
18,328
Charged-off loans:
Commercial real estate – mortgage (581 ) (276 )
Consumer real estate – mortgage (663 ) (788 )
Construction and land development (99 ) (231 )
Commercial and industrial (3,278 ) (5,801 )
Consumer and other loans (11,687 ) (24,016 )
Total charged-off loans (16,308 ) (31,112 )
Recoveries of previously charged-off loans:
Commercial real estate – mortgage 184
208
Consumer real estate – mortgage 1,147
546
Construction and land development 845
545
Commercial and industrial 1,264
2,138
Consumer and other loans 1,663
2,895
Total recoveries of previously charged-off loans 5,103
6,332
Net charge-offs (11,205 ) (24,780 )
Balance at end of period $ 65,159
$ 58,980
Ratio of allowance for loan losses to total loans outstanding at end of period 0.43 % 0.70 %
Ratio of net charge-offs to average total loans outstanding for the period ⁽¹⁾
0.14 % 0.33 %


	Provision for credit losses		Net (charge-offs) recoveries		Average loans		Ratio of net (charge-offs) recoveries to average loans (1)
For the year ended December 31, 2021:
Commercial real estate:
Owner occupied	$	(3,869)	$	189	$	2,891,798	0.01	%
Non-owner occupied	(20,811)		183		5,358,828		—	%
Consumer real estate - mortgage	(2,856)		1,656		3,320,083		0.05	%
Construction and land development	(12,984)		5		2,845,957		—	%
Commercial and industrial	52,645		(38,728)		8,154,391		(0.47)	%
Consumer and other	4,781		(2,028)		403,624		(0.05)	%
Total loans	$	16,906	$	(38,723)	$	22,974,681	(0.17)	%

(1)Net charge-offs for the year-to-date period ended ~~September~~June 30, ~~2017~~2022 have been annualized.

~~Management~~Pinnacle Financial's management assesses the adequacy of the ~~allowance prior to the end of each calendar quarter.~~ACL on a quarterly basis. This assessment includes procedures to estimate the ~~allowance~~ACL and test the adequacy and appropriateness of the resulting balance. The level of the ~~allowance~~ACL is based upon management's evaluation of ~~the loan portfolios, past loan~~historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, ~~the views of Pinnacle Bank's regulators,~~ adverse situations that may affect the ~~borrower's~~borrowers' ability to repay the loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio, ~~economic conditions,~~ industry and peer bank loan quality indications and other pertinent ~~factors. This evaluation~~factors, including regulatory recommendations. The ACL is ~~inherently subjective as it requires material estimates including the~~increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. For further discussion regarding our allowance for loan losses, refer to Critical Accounting Estimates above.previously charged-off.

Based upon our evaluation of the loan portfolio, we believe the ~~allowance for loan losses~~ACL to be adequate to absorb our estimate of ~~inherent~~expected future credit losses ~~existing in the loan portfolio~~on loans outstanding at ~~September~~June 30, ~~2017.~~2022. While our policies and procedures used to estimate the ~~allowance for loan losses~~ACL as well as the resultant provision for ~~loan~~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 loan losses~~ACL and, thus, the resulting provision for ~~loan~~credit losses.

Investments.Our investment securities portfolio, consisting primarily of Federal agency bonds, mortgage-backed securities, and state and municipal securities, amounted to ~~$2.90 billion and $1.32~~$6.6 billion at ~~September~~June 30, ~~2017 and~~2022 compared to $6.1 billion at December 31, ~~2016, respectively.~~2021. 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 ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 follows:


	June 30, 2022	December 31, 2021
Weighted average life	11.40 years	6.26 years
Effective duration*	4.57%	4.07%
Tax equivalent yield	2.29%	2.08%

September 30, 2017 December 31, 2016
Weighted average life 5.96 years 5.26 years
Effective duration 3.25% 3.16%
Tax equivalent yield 2.64% 2.42%
(*) 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, 2022 and December 31, 2021 was 6.26% and 5.21%, respectively.

Restricted Cash. Our restricted cash balances totaled approximately $29.7 million at June 30, 2022, compared to $82.5 million at December 31, 2021. This restricted cash is maintained at other financial institutions as collateral primarily for our derivative portfolio. The decrease in restricted cash is attributable primarily to a decrease in collateral requirements on certain derivative instruments for which the fair value has increased. See Note 8. 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, 2022 and December 31, 2021, we had $1.3 billion and $1.0 billion, respectively, in securities purchased with agreement to resell. This balance is the result of repurchase agreement transactions with financial institution counterparties. These investments deployed some of our liquidity position into an instrument that improved the return on those funds in the historically low interest rate environment we recently experienced, and we believe it has positioned us more favorably for the current rising interest rate environment. No securities were purchased with agreement to resell prior to 2021.

Deposits and Other Borrowings.We had approximately ~~$15.79~~$32.6 billion of deposits at ~~September~~June 30, ~~2017~~2022 compared to ~~$8.76~~$31.3 billion at December 31, ~~2016. Total deposits acquired from BNC on June 16, 2017 were $6.21 billion.~~2021. Our deposits consist of noninterest and interest-bearing demand accounts, savings accounts, money market accounts and time deposits. Additionally, we ~~entered~~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 ~~$129.6~~ $199.6

Table of Contents

million at ~~September~~June 30, ~~2017~~2022 and ~~$85.7~~$152.6 million at December 31, ~~2016.~~2021. Additionally, at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, Pinnacle Bank had borrowed ~~$1.62~~$1.3 billion and ~~$406.3~~$888.7 million, respectively, in advances from the Federal Home Loan Bank of Cincinnati (FHLB). At ~~September~~June 30, ~~2017,~~2022, Pinnacle Bank ~~also~~ had approximately ~~$2.44~~$3.2 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 ~~non-core funding. Core~~noncore funding ~~consists of all deposits other than time deposits issued~~as shown in ~~denominations greater than $250,000. All other funding is deemed to be non-core.~~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 ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016 (dollars in~~2021 (in thousands):


	June 30, 2022		Average Rate Paid	Percent	December 31, 2021		Average Rate Paid	Percent
Core funding:
Noninterest-bearing deposit accounts	$	11,058,198	0.00%	32.0%	$	10,461,071	0.00%	31.9%
Interest-bearing demand accounts	4,843,826		0.31%	14.0%	4,936,735		0.14%	15.1%
Savings and money market accounts	10,094,308		0.26%	29.3%	9,792,104		0.18%	29.9%
Time deposit accounts less than $250,000	1,013,085		0.37%	3.0%	998,586		0.65%	3.0%
Reciprocating demand deposit accounts (1)	1,280,101		0.27%	3.7%	1,075,774		0.21%	3.3%
Reciprocating savings accounts (1)	1,546,076		0.36%	4.5%	1,885,806		0.26%	5.8%
Reciprocating CD accounts (1)	175,850		0.43%	0.5%	166,836		0.57%	0.5%
Total core funding	30,011,444		0.18%	87.0%	29,316,912		0.14%	89.5%
Noncore funding:
Relationship based noncore funding:
Other time deposits	594,420		0.50%	1.7%	565,184		0.76%	1.7%
Securities sold under agreements to repurchase	199,585		0.15%	0.6%	152,559		0.15%	0.5%
Total relationship based noncore funding	794,005		0.40%	2.3%	717,743		0.65%	2.2%
Wholesale funding:
Brokered deposits	1,345,342		1.14%	3.9%	1,019,259		0.31%	3.1%
Brokered time deposits	644,097		1.28%	1.9%	403,178		1.15%	1.2%
Federal Home Loan Bank advances	1,289,059		1.92%	3.7%	888,681		2.01%	2.7%

Subordinated debt and other funding	423,614		4.19%	1.2%	423,172		4.38%	1.3%
Total wholesale funding	3,702,112		1.89%	10.7%	2,734,290		1.60%	8.3%
Total noncore funding	4,496,117		1.57%	13.0%	3,452,033		1.42%	10.5%
Totals	$	34,507,561	0.34%	100.0%	$	32,768,945	0.33%	100.0%

(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.

September 30, 2017 Percent
December 31,
2016
Percent
Core funding:
Noninterest-bearing deposit accounts $ 4,099,086
22.8% $ 2,399,191
25.0%
Interest-bearing demand accounts 2,473,902
13.7% 1,737,996
18.1%
Savings and money market accounts 5,589,254
31.0% 3,185,186
33.2%
Time deposit accounts less than $250,000 1,226,952
6.8% 512,599
5.3%
Total core funding 13,389,194
74.3% 7,834,972
81.6%
Non-core funding:

Relationship based non-core funding:

Reciprocating NOW deposits ⁽¹⁾
61,386
0.3% 30,328
0.3%
Reciprocating money market accounts ⁽¹⁾
456,622
2.5% 519,769
5.4%
Reciprocating time deposits 109,004
0.6% 58,838
0.6%
Other time deposits 394,593
2.2% 198,689
2.1%
Securities sold under agreements to repurchase 129,557
0.7% 85,707
0.9%
Total relationship based non-core funding 1,151,162
6.4% 893,331
9.3%
Wholesale funding:

Brokered deposits 586,241
3.3% 49,983
0.5%
Brokered time deposits 792,545
4.4% 66,727
0.7%
Federal Home Loan Bank advances 1,623,947
9.0% 406,304
4.2%
Pinnacle Financial line of credit —
— —
—
Subordinated debt- Pinnacle Bank 242,314
1.3% 127,486
1.3%
Subordinated debt- Pinnacle Financial 223,146
1.2% 223,282
2.3%
Total wholesale funding 3,468,193
19.3% 873,782
9.1%
Total non-core funding 4,619,355
25.7% 1,767,113
18.4%
Totals $ 18,008,549
100.0% $ 9,602,085
100.0%

~~______________________~~


~~(1)~~	The reciprocating categories consists of deposits we receive from a bank network (the CDARS network) in connection with deposits of our customers in excess of our FDIC coverage limit that we place with the CDARS network.

Our funding policies impose limits on the amount of non-core funding we can utilize. Periodically, we may exceed our policy limitations, at which time management will develop plans to bring our funding sources back into compliance with our core funding ratios. At September 30, 2017 and December 31, 2016, we were in compliance with our core funding policies. As noted in the table above, our core funding as a percentage of total funding ~~decreased~~declined slightly moving from ~~81.6%~~89.5% at December 31, ~~2016~~2021 to ~~74.3%~~87.0% at ~~September~~June 30, ~~2017, primarily~~2022. Total core funding slowed during the second quarter of 2022 largely as a result of seasonal outflows including those associated with our ~~increased FHLB advances and increased~~clients tax obligations. We are optimistic that we will again be able to grow our levels of core funding in the second half of 2022 and believe that the growth in noninterest bearing deposits in the year-to-date period shows strength in our core funding portfolio as these deposits become increasingly valuable in a rising rate environment. When wholesale funding is necessary to complement the company's core deposit base, including during those times when our loan growth outpaces our ability to increase levels of core funding, management determines which source is best suited to address both liquidity risk management and interest rate risk management objectives. Increased reliance on non-core funding sources, which can be more expensive than core funding, could negatively impact our net interest margin. 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 ~~resulting from among other things, the impact~~were within those policy limitations as of ~~our completed acquisitions. FHLB advances increased between December 31, 2016 and September~~June 30, ~~2017 by $1.2 billion. Our use~~2022.

Table of FHLB advances will likely remain elevated as we continue to fund significant organic growth and rebalance the composition of BNC's deposit portfolio primarily focused on reducing the reliance on higher cost brokered time deposits.Contents

Growing our core deposit base particularly in our markets is a key strategic objective of our firm. We have numerous commercial and affluent consumer depositors that maintain significant balances in their transaction and money market accounts. These deposits are subject to significant fluctuations from time to time for such purposes as distributions to owners, taxes, business acquisitions, etc. As a result, our core funding ratios may also fluctuate meaningfully based on these factors.

The amount of time deposits as of ~~September~~June 30, ~~2017~~2022 amounted to ~~$2.5~~$2.4 billion. The following table shows our time deposits in denominations of less than $250,000 ~~and less~~ and in denominations of $250,000 and greater ~~than $250,000~~ by category based on time remaining until maturity and the weighted average rate for each category as of ~~September~~June 30, ~~2017~~2022 (in thousands):


	Balances		Weighted Avg. Rate
Denominations less than $250,000
Three months or less	$	384,986	0.34	%
Over three but less than six months	367,989		0.51	%
Over six but less than twelve months	506,630		0.82	%
Over twelve months	515,217		1.90	%
	$	1,774,822	0.96	%
Denominations $250,000 and greater
Three months or less	$	222,993	0.43	%
Over three but less than six months	154,948		0.67	%
Over six but less than twelve months	176,626		0.58	%
Over twelve months	98,063		1.41	%
	$	652,630	0.68	%
Totals	$	2,427,452	0.89	%

Balances Weighted Avg. Rate
Denominations less than $250,000
Three months or less $ 404,499
0.67 %
Over three but less than six months 121,631
0.85 %
Over six but less than twelve months 958,963
1.04 %
Over twelve months 512,793
1.22 %
$ 1,997,886
1.00 %
Denominations $250,000 and greater
Three months or less $ 112,426
0.69 %
Over three but less than six months 34,137
0.81 %
Over six but less than twelve months 269,307
1.21 %
Over twelve months 109,338
1.52 %
$ 525,208
1.14 %
Totals $ 2,523,094
1.03 %

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, 2022, Pinnacle Bank had received advances from the FHLB totaling $1.3 billion. At June 30, 2022, the scheduled maturities of FHLB advances and interest rates are as follows (in thousands):


	Scheduled maturities		Weighted average interest rates (1)
2022	$	400,000	1.84	%
2023	—		—	%
2024	—		—	%
2025	116,250		2.06	%
2026	—		—	%
Thereafter	775,013		2.15	%
	1,291,263
Deferred costs	2,204
Total Federal Home Loan Bank advances	1,289,059
Weighted average interest rate			2.04	%

(1)Some FHLB advances include variable interest rates and could increase in the future. The table reflects rates in effect as of June 30, 2022.

We have ~~entered into and~~established, or through acquisition acquired, ~~a number of~~twelve statutory business trusts which were established to issue 30-year trust preferred securities and ~~related junior subordinated debt instruments and~~ certain other subordinated debt agreements. ~~We also have a $75.0 million revolving credit facility, which we have not drawn upon~~These securities qualify as ~~of September 30, 2017 and which matures on March 27, 2018.~~Tier 2 capital subject to annual phase outs beginning five years from maturity. These instruments are outlined below (in thousands):

Name

Date
Established

Maturity

Total Debt Outstanding

Interest Rate at June 30, 2022

Coupon Structure

Trust preferred securities

Pinnacle Statutory Trust I

December 29, 2003

December 30, 2033

10,310

4.83

30-day LIBOR + 2.80%

Pinnacle Statutory Trust II

September 15, 2005

September 30, 2035

20,619

3.65

30-day LIBOR + 1.40%

Pinnacle Statutory Trust III

September 7, 2006

September 30, 2036

20,619

3.90

30-day LIBOR + 1.65%

Pinnacle Statutory Trust IV

October 31, 2007

September 30, 2037

30,928

4.68

30-day LIBOR + 2.85%

BNC Capital Trust I

April 3, 2003

April 15, 2033

5,155

4.29

30-day LIBOR + 3.25%

BNC Capital Trust II

March 11, 2004

April 7, 2034

6,186

3.89

30-day LIBOR + 2.85%

Table of Contents

Name Date
Established Maturity Total Debt Outstanding Interest Rate at
September 30, 2017 Coupon Structure
Trust preferred securities
Pinnacle Statutory Trust I December 29, 2003 December 30, 2033 $ 10,310
4.12 % 30-day LIBOR + 2.80%
Pinnacle Statutory Trust II September 15, 2005 September 30, 2035 20,619
2.74 % 30-day LIBOR + 1.40%
Pinnacle Statutory Trust III September 7, 2006 September 30, 2036 20,619
2.99 % 30-day LIBOR + 1.65%
Pinnacle Statutory Trust IV October 31, 2007 September 30, 2037 30,928
4.17 % 30-day LIBOR + 2.85%
BNC Capital Trust I April 3, 2003 April 15, 2033 5,155
4.55 % 30-day LIBOR + 3.25%
BNC Capital Trust II March 11, 2004 April 7, 2034 6,186
4.15 % 30-day LIBOR + 2.85%
BNC Capital Trust III September 23, 2004 September 23, 2034 5,155
3.70 % 30-day LIBOR + 2.40%
BNC Capital Trust IV September 27, 2006 December 31, 2036 7,217
3.04 % 30-day LIBOR + 1.70%
Valley Financial Trust I August 5, 2005 September 30, 2035 4,124
4.43 % 30-day LIBOR + 3.10%
Valley Financial Trust II June 6, 2003 June 26, 2033 7,217
2.74 % 30-day LIBOR + 1.49%
Valley Financial Trust III September 26, 2005 December 15, 2035 5,155
3.04 % 30-day LIBOR + 1.73%
Southcoast Capital Trust III December 15, 2006 January 30, 2037 10,310
2.84 % 30-day LIBOR + 1.50%

Subordinated Debt

Pinnacle Bank Subordinated Notes July 30, 2015 July 30, 2025 60,000
4.88 %
Fixed ⁽¹⁾
Pinnacle Bank Subordinated Notes March 10, 2016 July 30, 2025 70,000
4.88 %
Fixed ⁽¹⁾
Avenue Subordinated Notes December 29, 2014 December 29, 2024 20,000
6.75 %
Fixed ⁽²⁾
Pinnacle Financial Subordinated Notes November 16, 2016 November 16, 2026 120,000
5.25 %
Fixed ⁽³⁾
BNC Subordinated Notes September 25, 2014 October 1, 2024 60,000
5.50 % Fixed
BNC Subordinated Note October 15, 2013 October 15, 2023 10,530
6.04 %
30-day LIBOR + 5.00%⁽⁴⁾

Other Borrowings

Revolving credit facility ⁽⁵⁾
March 29, 2016 March 27, 2018 —
—

Debt issuance costs and fair value adjustments (8,064 )

Total subordinated debt and other borrowings $ 465,461

Name

Date
Established

Maturity

Total Debt Outstanding

Interest Rate at June 30, 2022

Coupon Structure

BNC Capital Trust III

September 23, 2004

September 23, 2034

5,155

3.44

30-day LIBOR + 2.40%

BNC Capital Trust IV

September 27, 2006

December 31, 2036

7,217

3.95

30-day LIBOR + 1.70%

Valley Financial Trust I

June 26, 2003

June 26, 2033

4,124

5.30

30-day LIBOR + 3.10%

Valley Financial Trust II

September 26, 2005

December 15, 2035

7,217

3.32

30-day LIBOR + 1.49%

Valley Financial Trust III

December 15, 2006

January 30, 2037

5,155

3.02

30-day LIBOR + 1.73%

Southcoast Capital Trust III

August 5, 2005

September 30, 2035

10,310

3.75

30-day LIBOR + 1.50%

Subordinated Debt

Pinnacle Financial Subordinated Notes

September 11, 2019

September 15, 2029

300,000

4.13

Fixed (1)

Debt issuance costs and fair value adjustments

(9,381)

Total subordinated debt and other borrowings

423,614

~~____________________~~

⁽¹⁾ – Migrates to three month LIBOR + ~~3.128%~~2.775% (or an alternative benchmark rate plus a comparable spread in the event three month LIBOR is no longer published on such adjustment date) beginning ~~July 30, 2020~~September 15, 2024 through the end of the term.

⁽²⁾ ~~– Migrates~~

On July 30, 2021, Pinnacle Bank redeemed $130.0 million aggregate principal amount of subordinated notes due July 30, 2025. Additionally, Pinnacle Financial redeemed $120.0 million aggregate principal amount of subordinated notes due November 16, 2026 on November 16, 2021. The redemptions were funded with existing cash on hand. Pursuant to ~~three month LIBOR + 4.95% beginning January 1, 2020 through~~regulatory guidelines, once the ~~end~~maturity date on subordinated notes is within five years, a portion of the ~~term.~~

⁽³⁾ ~~– Migrates to three month LIBOR + 3.884% beginning November 16, 2021 through the end of the term.~~

⁽⁴⁾ ~~– Coupon structure includes a floor of 5.00% and a cap of 9.50%.~~

⁽⁵⁾ ~~– Borrowing capacity on the revolving credit facility is $75.0 million. At September 30, 2017, there was no outstanding balance under this facility.~~

Following the Merger with BNC, Pinnacle Financial's total assets were in excess of $15.0 billion as a result of the acquisition of BNC, which caused the subordinated debentures Pinnacle Financial and BNC issued to cease to qualify as Tier 1 capital under applicable banking regulations. Though these securitiesnotes will no longer ~~qualify as Tier 1~~be eligible to be included in regulatory capital, ~~Pinnacle Financial believes these subordinated debentures continue to qualify as Tier 2 capital.~~with an additional portion being excluded each year over the five year period approaching maturity.

Capital Resources. At ~~September~~both June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, our shareholders' equity amounted to ~~$3.67 billion~~$5.3 billion. During the six months ended June 30, 2022, shareholders' equity was negatively impacted by accumulated other comprehensive losses on our available-for-sale securities portfolio that were caused by the rising short-term interest rate environment. At June 30, 2022 and ~~$1.50 billion, respectively, an increase~~December 31, 2021, 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 10. Regulatory Matters in the Notes to our Consolidated Financial Statements elsewhere in this 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, 2022, we had approximately ~~$2.17 billion. Approximately $192.2~~$163.5 million of ~~this increase is attributable to our issuance of common equity in~~cash at the ~~first quarter of 2017~~parent company that could be used to support our ~~future growth. Additionally, $1.85 billion~~bank.

Share Repurchase Program. On January 19, 2021, our board of directors authorized a share repurchase program for up to $125.0 million of our outstanding common stock. The authorization for this program remained in effect through March 31, 2022. On January 18, 2022, 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 share repurchase program that expired on March 31, 2022. The new authorization is ~~attributable~~ to ~~our acquisition of BNC. The remaining increase is attributable to net income, equity compensation and changes~~remain in ~~our other comprehensive income.~~effect through March 31, 2023. We did not repurchase any shares under either share repurchase program during the six months ended June 30, 2022 or 2021, respectively.

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 ~~$466.8~~$806.0 million at ~~September~~June 30, ~~2017.~~2022. During the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, our~~2022, the bank paid dividends of ~~$22.4~~$49.6 million ~~and $38.1 million, respectively,~~ to us which is within the limits allowed by the TDFI.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, we paid ~~$10.9~~$17.1 million and ~~$25.0~~$34.0 million, respectively, in dividends to our common ~~shareholders.~~shareholders and $3.8 million and $7.6 million, respectively, in dividends on our Series B Preferred Stock. On ~~October 17, 2017,~~July 19, 2022, our board of directors declared a ~~$0.14~~$0.22 per share quarterly cash dividend to common shareholders which should approximate ~~$10.9~~$17.1 million in aggregate dividend payments that ~~will~~are expected to be paid on ~~November 24, 2017~~August 26, 2022 to common shareholders of record as of the close of business on ~~November 3, 2017.~~August 5, 2022. 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, 2022 to shareholders of record at the close of business on August 17, 2022. 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.~~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

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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 ~~assume~~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 is 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.

There were several noteworthy factors when comparing the results of both the earnings simulation and the economic value of equity modeling results as of June 30, 2022 to the modeling results as of June 30, 2021:

•The Federal Reserve increased the Federal Funds target rate by 150 basis points since December 31, 2021, which brought a significant portion of our floating-rate loans above contractual interest-rate floors.

•The fixed-rate PPP loan portfolio declined $1.3 billion with most proceeds transitioning to floating-rate assets.

•Short term floating-rate assets comprised of interest-bearing cash and repurchase agreements decreased $410 million.

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.~~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 ~~up or down~~ in rates from management's flat interest rate forecast over the next twelve months, ~~management establishes policy limits~~assuming a static balance sheet, the following estimated changes are calculated:


	Estimated % Change in Net Interest Income Over 12 Months
	June 30, 2022*		June 30, 2021*
Instantaneous Rate Change
300 bps increase	7.83	%	7.48	%
200 bps increase	5.57	%	4.93	%
100 bps increase	2.86	%	1.87	%
100 bps decrease	(7.67)	%	(1.83)	%

*: Negative interest rates are not contemplated in these scenarios. The Treasury curve and all short-term rate indices, such as Fed Funds, LIBOR, etc., are assumed to be zero bound.

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 behavior of our deposit portfolio in the ~~decline~~baseline forecast and in alternate interest rate scenarios set out in the table above is a key assumption in our projected estimates of net interest income. The projected impact on net interest income ~~assuming~~in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the assumed benefit of those deposits. The projected impact on net interest income in the table above also assumes a ~~flat balance sheet, for the following scenarios:~~"through-the-cycle" non-maturity deposit beta which may not be an accurate predictor of actual deposit rate changes realized in scenarios of smaller and/or non-parallel interest rate movements.

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•~~-10.0% for gradual change of 400 basis points; -20.0% instantaneous change of 400 basis points~~

•~~-7.5 % for gradual change of 300 basis points; -15.0% instantaneous change of 300 basis points~~

•~~-5.0% for gradual change of 200 basis points; -10.0% instantaneous change of 200 basis points~~

•~~-2.5% for gradual change of 100 basis points; -5.0% instantaneous change of 100 basis points~~

At ~~September~~June 30, ~~2017,~~2022, our earnings simulation model indicated we were in compliance with our policies for ~~both the gradual and instantaneous~~all interest rate changes. However, our policies provide that during certain interest rate cycles, the down basis point rate changes may not be particularly significant given the current level and slope of the yield curve. Accordingly, we have currently suspended the calculation of the down rate scenarios for ~~earnings simulation measurement for the down 300 and down 400 scenarios.~~which we model as required by our board approved Asset Liability Policy.

Economic value of equity. ~~Our~~ 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 ~~extent that estimated~~ economic values of our assets, liabilities and off-balance sheet items ~~will change~~ 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. ~~To help limit~~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, 2022, our EVE modeling calculated the following estimated changes in EVE due to instantaneous upward and downward changes in rates:


	June 30, 2022*		June 30, 2021*
Instantaneous Rate Change
300 bps increase	(17.17)	%	(9.26)	%
200 bps increase	(11.04)	%	(5.67)	%
100 bps increase	(5.71)	%	(1.33)	%
100 bps decrease	4.33	%	(7.71)	%

*: Negative interest rates are not contemplated in these scenarios. The Treasury curve and all short-term rate ~~risk, we have stated policy guidelines for~~indices, such as Fed Funds, LIBOR, etc., are assumed to be zero bound.Funds, LIBOR, etc., are assumed to be zed.

While an instantaneous ~~basis point change~~and severe shift in interest rates was used in ~~the following scenarios:~~

•~~+/- 400 basis point change~~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 ~~shall not decrease by more than 40 percent~~

•~~+/- 300 basis point~~measures the discounted present value of cash flows over the estimated lives of instruments, the change in ~~interest rates,~~ EVE ~~shall~~does not ~~decrease by more than 30 percent~~

•~~+/- 200 basis point change~~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, EVE shall not decrease by more than 20 percent~~rates.

•~~+/- 100 basis point change in interest rates, EVE shall not decrease by more than 10 percent~~

At ~~September~~June 30, ~~2017,~~2022, our EVE model indicated we were in compliance with our policies for ~~the scenarios noted above. However, our policies provide that during certain~~all interest rate cycles, the down basis point rate changes may not be particularly significant given the current level and slope of the yield curve. Accordingly, we have currently suspended the calculation of the down rate scenarios for ~~EVE measurement for the down 300 and down 400 scenarios.~~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) 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 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

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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. At present, ALCO has determined that its "most likely" rate scenario assumes an additional 100 basis point increase in the Federal Funds Rate during 2022. 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 ~~also~~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 ~~to improve the balance between interest-sensitive assets and interest-sensitive liabilities~~ 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 8. 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.

~~Based on information gathered from these various modeling scenarios management believes that at September 30, 2017, our balance sheet would likely be modestly asset sensitive.~~

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 the firm's conclusions as to anticipated interest rate fluctuations in future periods. At present, ALCO has determined that its "most likely" rate scenario considers one additional increase in short-term interest rates in 2017. Our "most likely" rate forecast has been basically consistent for several quarters and is based primarily on information we acquire from a service which includes a consensus forecast of numerous benchmarks. Over the last several quarters we have taken steps to make our balance sheet more asset sensitive, which has favorably impacted us in the current rising rate environment and should continue to positively impact our results with additional rate increases unless we are unable to hold our funding costs at levels that don't eliminate the positive impact to interest income of these rising rates. However, BNC’s balance sheet was less asset sensitive which neutralizes some, if not most, of the impact of those steps, nonetheless, we have implemented and may implement additional actions designed to achieve our desired sensitivity position.

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. Maintaining increased levels of liquid assets on our balance sheet, in the form of readily marketable investment securities or other highly liquid assets, could negatively impact our profitability as the interest we earn on these assets is less than that we earn on other earning assets like loans.

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 ona sufficiently liquid asset balance ~~sheet liquidity consisting of cash and unpledged securities at a level we believe will allow us~~to ensure our ability to meet our obligations. The ~~size~~amount of the appropriate minimum liquid asset balance is determined through severe liquidity stress ~~testing.~~testing as measured by our liquidity coverage ratio calculation. At ~~September~~June 30, ~~2017,~~2022, we were in compliance with our liquidity ~~stress testing policy requirements.~~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. ~~Alternatively, we may have to raise the rates we pay on deposits which would negatively impact our net interest income.~~

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 ~~competition~~ and ~~the specific needs of our customers.~~competition. Additionally, debt security investments are subject to prepayment and call provisions that could accelerate their payoff prior to stated maturity. We 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 and may require that we increase our levels of liquidity or the mixture of our liquidity components which could negatively impact our results of operations.~~basis.

~~In addition, our bank~~As noted previously, Pinnacle Bank is a member of the FHLB ~~Cincinnati. As a result, our bank receives advances from the FHLB~~ Cincinnati and, pursuant to ~~the terms of various~~a borrowing ~~agreements, which assist it in the funding of its home mortgage and commercial real estate loan portfolios. Under the borrowing agreements~~agreement with the FHLB Cincinnati, ~~our bank~~ has pledged certain ~~qualifying residential mortgage loans and,~~assets pursuant to a blanket ~~lien, all qualifying commercial mortgage loans as collateral.~~lien. As such, Pinnacle Bank may use the FHLB Cincinnati as a source of liquidity depending on ~~its~~the firm's ALCO strategies. Additionally, we may pledge additional qualifying assets or reduce the amount of pledged assets with the FHLB Cincinnati to increase or decrease our borrowing capacity ~~with~~at the FHLB Cincinnati. At ~~September~~June 30, ~~2017,~~2022, we believe we had an estimated ~~$2.44~~$3.2 billion in additional borrowing capacity with the FHLB ~~Cincinnati. However,~~Cincinnati; however, incremental borrowings are made via a formal request by Pinnacle Bank and the subsequent approval by the FHLB Cincinnati. At September 30, 2017, our bank had received advances from the FHLB Cincinnati totaling $1.62 billion. Pinnacle Financial has recognized a discount on FHLB Cincinnati advances in conjunction with its acquisitions within its Tennessee markets. The remaining discount was $33,000 at September 30, 2017. At September 30, 2017, the scheduled maturities of the Pinnacle Bank's FHLB Cincinnati advances and interest rates are as follows (in thousands):

Scheduled Maturities Amount
Interest Rates ⁽¹⁾
2017 $ 759,000
1.22%
2018 252,501
1.38%
2019 206,000
1.59%
2020 272,641
1.74%
2021 133,750
1.87%
Thereafter 22
2.75%
Total $ 1,623,914

Weighted average interest rate 1.43%

~~______________________~~

~~(1)Some FHLB Cincinnati advances include variable interest rates and could increase in the future. The table reflects rates in effect as of September 30, 2017.~~

Pinnacle Bank also has accommodations with upstream correspondent banks ~~available~~ for unsecured short-term advances which aggregate ~~$160.0~~$155.0 million. These accommodations have various covenants related to their term and availability, and in most cases must be repaid within ~~a month of borrowing. We had~~less than one month. There were no outstanding borrowings ~~at September 30, 2017~~ under these ~~agreements. Our bank~~agreements at June 30, 2022, or during the three months then ended, although we test the availability of these accommodations periodically. Pinnacle Bank also ~~has~~had approximately ~~$3.08~~$4.7 billion in available Federal Reserve discount window lines of ~~credit.~~credit at June 30, 2022.

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At ~~September~~June 30, ~~2017,~~2022, excluding reciprocating time and money market deposits issued through the ~~Promontory Network,~~IntraFiNetwork, we had ~~$1.38~~approximately $2.0 billion ofin brokered deposits. Historically, we have issued brokered ~~deposits~~certificates through several different ~~firms~~brokerage houses based on competitive bid. ~~Typically,~~During 2020, and in response to the ~~brokered funds have been for varying~~uncertainty resulting from the COVID-19 pandemic, we intentionally increased our levels of on-balance sheet liquidity. Core deposit growth during 2021 increased such that we were able to prepay certain wholesale maturities while maintaining an elevated level of upon-balance sheet liquidity. We intend to four years and were issued at rates which were competitive to rates we would be required to pay to attract similar deposits within our local markets as well as rates for FHLB Cincinnati advances of similar maturities. Although we consider these deposits to be a ready source of liquidity under current market conditions, we anticipate that these deposits will continue to ~~represent a small percentage of our total~~prepay and/or let mature wholesale funding ~~in 2017~~ as ~~we seek to continue maintaining a higher level of~~ core ~~deposits.~~deposit levels allow.

~~Industry~~Banking regulators have defined additional liquidity guidelines, through the issuance of the Basel III Liquidity Coverage Ratio (LCR) and the Modified ~~LCR, for banking institutions greater than $250 billion in assets, and $50 billion in assets respectively, in the United States.~~LCR. These regulatory guidelines became effective January 2015 with phase in over subsequent years and ~~will~~ 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. Consequently, this~~sheet, which could result in lower net interest margins for us in future periods.

At ~~September~~June 30, ~~2017,~~2022, we had no individually significant commitments for capital ~~expenditures, although~~expenditures. But, we ~~intend~~believe the number of our locations, including non-branch locations, will increase over an extended period of time across our footprint, including the markets to ~~construct~~which we have recently expanded, and that certain of our locations will be in need of required renovations. In future periods, these expansions and renovation projects may lead to additional ~~retail locations~~equipment and occupancy expenses as well as related increases in salaries and benefits expense. Additionally, we expect we will continue to incur costs associated with technology improvements to enhance the infrastructure of our ~~various markets.~~ 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) and FHLB Cincinnati advances.

We ~~will also incur additional capital expenditures~~have certain contractual obligations as ~~we develop an infrastructure~~of June 30, 2022, which by their terms have a contractual maturity and termination dates subsequent to ~~incorporate BNC into our network.~~June 30, 2022. 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.~~months and that we will have adequate liquidity to meet our obligations over a longer-term as well.

Off-Balance Sheet Arrangements. At ~~September~~June 30, ~~2017,~~2022, we had outstanding standby letters of credit of ~~$137.3~~$330.0 million and unfunded loan commitments outstanding of ~~$5.2~~$14.4 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 ~~Federal~~federal funds sold or securities available-for-sale, or on a short-term basis to borrow and purchase ~~Federal~~federal funds from other financial institutions.

~~Impact of Inflation~~

~~The consolidated financial statements~~We follow the same credit policies and ~~related consolidated financial data presented herein have been prepared in accordance with U.S. GAAP and~~underwriting practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impactwhen making these commitments as we do for on-balance sheet instruments. Each customer's creditworthiness is evaluated on a ~~financial institution's performance than~~case-by-case basis and the ~~effects~~amount of ~~general levels of inflation.~~

~~Recent Accounting Pronouncements~~

~~Except as set forth below, there are currently no new accounting standards that have been issued that will have a significant impact~~collateral obtained, if any, is based on ~~the Company's financial position, results of operations or cash flows upon adoption that were not disclosed in the Company's most recent Annual Report on Form 10-K.~~

~~In August 2017, the FASB issued~~ ~~Accounting Standards Update No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities~~. The amendments in this ASU makes more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The amendments will be effective for the Company for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. Pinnacle Financial is currently evaluating the impactmanagement's credit evaluation of the ~~new guidance~~customer. However, should the commitments be drawn upon and should our customers default on ~~its consolidated financial statements.~~

~~In March 2017,~~their resulting obligation to us, our maximum exposure to credit loss, without consideration of collateral, is represented by the ~~FASB issued~~ ~~Accounting Standards UpdateNo. 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendment in this ASU shortens the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendment does not require an~~

accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted with modified retrospective application. Pinnacle Financial is currently evaluating the impact of the new guidance on its consolidated financial statements.

~~In January 2017, the FASB issued~~ ~~Accounting Standards UpdateNo. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ to simplify how an entities other than private companies, such as public business entities and not-for-profit entities, are required to test goodwill for impairment by eliminating the comparison of the implied fair value of the reporting unit's goodwill with the carryingcontractual amount of ~~that goodwill. The amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within~~ those ~~periods. Pinnacle Financial is currently evaluating the impact~~instruments. At June 30, 2022, we had accrued reserves of ~~the new guidance on its consolidated financial statements.~~

~~In January 2017, the FASB issued~~ ~~Accounting Standards Update2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendment in this ASU clarifies the definition of a business with the objective of adding guidance~~$24.0 million related to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) or assets or businesses. The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those periods. Pinnacle Financial is currently evaluating the impact of the new guidance on its consolidated financial statements.

~~In February 2016, the FASB issued~~ ~~Accounting Standards Update 2016-02, Leases~~ guidance requiring the recognition in the statement of financial position of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. The guidance requires that a lessee should recognize lease assets and lease liabilities as compared to previous U.S. GAAP that did not require lease assets and lease liabilities to be recognized for most leases. The guidance becomes effective for us on January 1, 2019. In September 2017, the FASB issued ~~Accounting Standards Update 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which provides additional implementation guidance on the previously issued ASU 2016-02. Pinnacle Financial is currently evaluating the impact on its consolidated financial statements.~~

~~In June 2016, the FASB issued~~ ~~Accounting Standards Update 2016-13~~, ~~Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments~~ ~~(the ASU), which introduces the current~~ expected credit losses ~~methodology. Among other things, the ASU requires the measurement~~associated with off-balance sheet commitments.

Recently Adopted Accounting Pronouncements

See "Part I - Item 1. Consolidated Financial Statements - Note. 1 Summary of all expected credit losses for financial assets, including loans and available-for-sale debt securities, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The new model will require institutions to calculate all probable and estimable losses that are expected to be incurred through the loan's entire life. The ASU also requires the allowance for credit losses for purchased financial assets with credit deterioration since origination to be determined in a manner similar to that of other financial assets measured at amortized cost; however, the initial allowance will be added to the purchase price rather than recorded as credit loss expense. The disclosure of credit quality indicators related to the amortized cost of financing receivables will be further disaggregated by year of origination (or vintage). Institutions are to apply the changes through a cumulative-effect adjustment to their retained earnings as of the beginning of the first reporting period in which the standard is effective. The amendments are effective for fiscal years beginning after December 15, 2019. Early application will be permitted for fiscal years beginning after December 15, 2018. Pinnacle Financial is currently assessing the impact of the new guidance on its consolidated financial statements.

~~In August 2016, the FASB issued~~ Significant Accounting ~~Standards Update 2016-15,Statement of Cash Flows (Topic 230),~~ intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. The guidance is effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted with retrospective application. Pinnacle Financial is currently evaluating the impact of the new guidance on its consolidated financial statements.

~~In May 2014, the FASB issued~~ ~~Accounting Standards Update 2014-09,Revenue from Contracts with Customers (Topic 606),~~ the ASU developed as a joint project with the International Accounting Standards Board to remove inconsistencies in revenue requirements and provide a more robust framework for addressing revenue issues. The ASU's core principle is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ~~Accounting Standards Update 2015-14~~, which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). Early adoption is permitted, but not before the original effective date (i.e., interim and annual reporting periods beginning after December 15, 2016). The ASU may be adopted using either a modified retrospective method or a full retrospective method. Pinnacle Financial intends to adopt the ASU during the first quarter of 2018, as required, using a modified retrospective approach. Pinnacle Financial's preliminary analysis suggests that the adoptionPolicies" of this ~~accounting guidance is not expected to have a material impact on the Company's consolidated financial statements as the majority~~Report for further information.

Table of ~~its revenue stream is generated from financial instruments which are not within the~~Contents

scope of this ASU. However, Pinnacle Financial is still evaluating the impact for other fee-based income. The FASB continues to release new accounting guidance related to the adoption of this ASU and the results of Pinnacle Financial's materiality analysis may change based on conclusions reached as to the application of this new guidance.

Other than those pronouncements discussed above and those which have been recently adopted, there were no other recently issued accounting pronouncements that are expected to materially impact Pinnacle Financial.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item 3 is included on pages 3738 through 59 of Part I - Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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.~~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

~~There were no changes~~No change in ~~Pinnacle Financial's~~our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) or 15d-(f)) occurred during ~~Pinnacle Financial's~~the fiscal quarter ended ~~September~~June 30, ~~2017~~2022 that ~~have~~ materially affected, or ~~are~~is reasonably likely to materially affect, ~~Pinnacle Financial's~~our internal control over financial reporting.

Table of Contents

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 our ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30, 2017.~~December 31, 2021. 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. There has been no material change to our risk factors as previously disclosed in the above described ~~Quarterly~~Annual Report on Form ~~10-Q.~~10-K.

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 ~~September~~June 30, ~~2017.~~

Period
Total Number of Shares Repurchased ⁽¹⁾
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
July 1, 2017 to July 31, 2017 2,032
$ 63.73
—
—
August 1, 2017 to August 31, 2017 4,332
62.78
—
—
September 1, 2017 to September 30, 2017 2,997
62.45
—
—
Total 9,361
$ 62.88
—
—
2022.


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, 2022 to April 30, 2022	5,166	$	85.67	—	125,000,000
May 1, 2022 to May 31, 2022	147	78.08		—	125,000,000
June 1, 2022 to June 30, 2022	2,410	73.15		—	125,000,000
Total	7,723	$	82.13	—	125,000,000

______________________


~~(1)~~	During the quarter ended September 30, 2017, 33,585 shares of restricted stock previously awarded to certain of our associates vested. We withheld 9,361 shares to satisfy tax withholding requirements associated with the vesting of these restricted shares.

(1)During the quarter ended June 30, 2022, 26,037 shares of restricted stock or time-based vesting restricted stock units previously awarded to certain of the participants in our equity incentive plans vested. We withheld 7,723 shares of common stock to satisfy tax withholding requirements associated with the vesting of these awards.

(2)On January 18, 2022, 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 share repurchase program that expired on March 31, 2022. The new authorization is to remain in effect through March 31, 2023. 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 affected 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, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

E~~ffective October 17, 2017, Pinnacle Financial’s board~~None

Table of directors approved the amendment and restatement of Pinnacle Financial’s amended and restated bylaws, as amended (Bylaws), effective immediately. The amendments to the Bylaws include, among other changes, the adoption of changes to special shareholder meeting provisions and advance notice provisions.Contents

Section 2.2 of the Bylaws was amended to specify that in order to be eligible to call a special meeting of shareholders, holders of record of 25% of the outstanding shares of Pinnacle Financial’s common stock (the aggregate percentage required to call a special meeting under the existing Bylaws) seeking to call a special meeting must hold such shares in a “net long” position. Section 2.2 of the Bylaws was also amended to add (a) that the Chairman of the board of directors may call a special meeting of shareholders and (b) provisions regarding the procedural and disclosure requirements applicable to shareholders when requesting that a special meeting be called under Section 2.2.

Section 2.10 and Section 2.11 of the Bylaws were added, and Section 3.9 of the Bylaws was deleted, to modify deadlines for advance notice of shareholders’ director nominations and shareholder proposals (other than proposals made in accordance with Rule 14a-8 under the Exchange Act for possible consideration at a meeting of shareholders. For annual meetings, notice of a shareholder’s director nomination or a shareholder proposal generally shall be submitted not later than the ninetieth (90th) day, nor earlier than the one hundred twentieth (120th) day, prior to the anniversary date of the immediately preceding annual meeting. For special meetings, notice of a shareholder’s director nomination or a shareholder proposal generally shall be submitted not later than the ninetieth (90th) day, nor earlier than the one hundred twentieth (120th) day, prior to the special meeting, or if later, the tenth (10th) day following the date that public disclosure of the date of the meeting was first made. In addition, Section 2.12 of the Bylaws was added regarding the administration of shareholder meetings, and Section 2.13 of the Bylaws was added regarding the procedural and disclosure requirements for director nominations and shareholder proposals.

The foregoing description is qualified in all respects by reference to the text of the Second Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q.

ITEM 6. EXHIBITS



~~3.1~~31.1*		Second Amended and Restated Bylaws of Pinnacle Financial Partners, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 20, 2017).
~~31.1~~	Certification pursuant to Rule 13a-14(a)/15d-14(a)
~~31.2~~31.2*		Certification pursuant to Rule 13a-14(a)/15d-14(a)
~~32.1~~32.1**		Certification pursuant to 18 USC Section 1350 –- Sarbanes-Oxley Act of 2002
~~32.2~~32.2**		Certification pursuant to 18 USC Section 1350 –- Sarbanes-Oxley Act of 2002
~~101.INS~~101.INS*		Inline XBRL Instance Document
~~101.SCH~~101.SCH*		Inline XBRL Schema ~~Document~~Documents
~~101.CAL~~101.CAL*		Inline XBRL Calculation Linkbase Document
~~101.LAB~~101.LAB*		Inline XBRL Label Linkbase Document
~~101.PRE~~101.PRE*		Inline XBRL Presentation Linkbase Document
~~101.DEF~~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, 2021, formatted in Inline XBRL (included in Exhibit 101)
*		The Company has omitted schedules and similar attachments to the subject agreement pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish a copy of any omitted schedule or similar attachment to the United States Securities and Exchange Commission upon request.
*		Filed herewith.
**		~~Management compensatory plan or arrangement~~Furnished herewith.

Table of Contents

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 5, 2022		/s/ M. Terry Turner
		M. Terry Turner
		President and Chief Executive Officer

August 5, 2022		~~PINNACLE FINANCIAL PARTNERS, INC.~~

~~November 7, 2017~~	~~/s/ M. Terry Turner~~
	~~M. Terry Turner~~
	~~President and Chief Executive Officer~~

~~November 7, 2017~~	/s/ Harold R. Carpenter
		Harold R. Carpenter
		Chief Financial Officer



~~Yes~~ o Title of Each Class	No x Trading Symbol	Name of Exchange on which Registered
Common Stock, par value $1.00	PNFP	The Nasdaq Stock Market LLC
Depositary Shares (each representing 1/40th interest in a share of 6.75% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series B)	PNFPP	The Nasdaq Stock Market LLC



TABLE OF CONTENTS			Page No.

PART I – Financial Information:			45
Item 1. Consolidated Financial Statements (Unaudited)			45
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			3738
Item 3. Quantitative and Qualitative Disclosures about Market Risk			5960
Item 4. Controls and Procedures			5960

PART II – Other Information:			5960
Item 1. Legal Proceedings			5961
Item 1A. Risk Factors			5961
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			5961
Item 3. Defaults Upon Senior Securities			6061
Item 4. Mine Safety Disclosures			6061
Item 5. Other Information			6061
Item 6. Exhibits			61
Signatures			6263


~~For the quarterly period ended September 30, 2017~~
or
o☐	TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934



	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016
Interest income:
Loans, including fees	$	183,841,608	$	90,090,166	$	389,379,255	$	241,537,476
Securities:
Taxable	12,066,502		5,012,047		26,764,815		14,050,757
Tax-exempt	4,620,340		1,544,535		8,533,438		4,481,309
Federal funds sold and other	1,638,704		732,951		3,375,817		2,046,244
Total interest income	202,167,154		97,379,699		428,053,325		262,115,786

Interest expense:
Deposits	19,103,495		6,625,534		38,216,351		16,614,664
Securities sold under agreements to repurchase	148,442		51,270		276,646		138,852
Federal Home Loan Bank advances and other borrowings	9,733,510		4,067,951		20,984,034		9,781,363
Total interest expense	28,985,447		10,744,755		59,477,031		26,534,879
Net interest income	173,181,707		86,634,944		368,576,294		235,580,907
Provision for loan losses	6,920,184		6,108,183		17,383,595		15,281,854
Net interest income after provision for loan losses	166,261,523		80,526,761		351,192,699		220,299,053

Noninterest income:
Service charges on deposit accounts	5,920,824		3,778,070		13,955,043		10,651,145
Investment services	3,660,103		2,592,077		9,592,025		7,437,396
Insurance sales commissions	2,123,549		1,233,098		5,443,599		4,131,784
Gain on mortgage loans sold, net	5,962,916		5,096,838		14,785,405		12,885,690
Gain on sale of investment securities, net	—		—		—		—
Trust fees	2,636,212		1,522,763		6,018,570		4,595,330
Income from equity method investment	8,936,626		8,474,899		25,514,081		23,266,733
Other noninterest income	13,736,779		8,994,164		33,106,437		27,292,477
Total noninterest income	42,977,009		31,691,909		108,415,160		90,260,555

Noninterest expense:
Salaries and employee benefits	64,287,986		36,053,673		146,315,721		102,824,676
Equipment and occupancy	16,590,119		9,401,001		36,977,488		25,843,737
Other real estate expense	512,490		17,032		827,423		351,777
Marketing and other business development	2,222,290		1,349,557		6,228,189		4,150,761
Postage and supplies	1,754,789		922,078		4,073,485		2,929,007
Amortization of intangibles	3,077,277		1,424,956		5,744,974		3,144,786
Merger related expense	8,847,306		5,672,731		12,740,382		8,482,385
Other noninterest expense	12,443,659		8,685,238		30,679,179		25,793,600
Total noninterest expense	109,735,916		63,526,266		243,586,841		173,520,729
Income before income taxes	99,502,616		48,692,404		216,021,018		137,038,879
Income tax expense	35,060,471		16,316,209		68,839,305		45,910,648
Net income	$	64,442,145	$	32,376,195	$	147,181,713	$	91,128,231
Per share information:
Basic net income per common share	$	0.84	$	0.71	$	2.48	$	2.16
Diluted net income per common share	$	0.83	$	0.71	$	2.46	$	2.12
Weighted average shares outstanding:
Basic	76,678,584		45,294,051		59,371,202		42,228,280
Diluted	77,232,098		45,918,368		59,910,344		42,928,467


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



	For the nine months ended September 30,
	2017		2016
Cash Transactions:
Interest paid	$	56,804,275	$	27,053,796
Income taxes paid, net	53,199,410		37,434,336
Noncash Transactions:
Loans charged-off to the allowance for loan losses	16,308,540		25,256,610
Loans foreclosed upon and transferred to other real estate owned	3,573,211		3,166,176
Loans foreclosed upon and transferred to other assets	640,737		1,842,318
Common stock issued in connection with equity-method investment	—		39,694,036
Common stock issued in connection with acquisition ⁽¹⁾	1,858,132,809		182,468,604



	Number of Shares	Amount
Equity consideration:
Common stock issued	27,687,100	$	1,858,133
Total equity consideration		$	1,858,133
Non-equity consideration:
Cash paid to redeem common stock		$	129
Total consideration paid		$	1,858,262
Allocation of total consideration paid:
Fair value of net assets assumed including estimated identifiable intangible assets		$	607,275
Goodwill		1,250,987
		$	1,858,262



	As of June 16, 2017
	BNC Historical Cost Basis		Fair Value Adjustments⁽¹⁾			As Recorded by Pinnacle Financial
Assets
Cash and cash equivalents	$	155,271	$	—		$	155,271
Investment securities	643,875		1,667			645,542
Loans ⁽²⁾	5,782,720		(181,430		)	5,601,290
Mortgage loans held for sale	27,026		—			27,026
Other real estate owned ⁽³⁾	20,143		880			21,023
Core deposit and other intangible ⁽⁴⁾	—		50,422			50,422
Property, plant and equipment ⁽⁵⁾	156,805		—			156,805
Other assets ⁽⁶⁾	320,988		50,468			371,456
Total Assets	$	7,106,828	$	(77,993	)	$	7,028,835

Liabilities
Interest-bearing deposits ⁽⁷⁾	$	5,003,653	$	4,355		$	5,008,008
Non-interest bearing deposits	1,199,342		—			1,199,342
Borrowings ⁽⁸⁾	183,389		(6,412		)	176,977
Other liabilities	35,729		1,504			37,233
Total Liabilities	$	6,422,113	$	(553	)	$	6,421,560
Net Assets Acquired	$	684,715	$	(77,440	)	$	607,275


~~(1)~~	The amount represents the adjustment of the book value of BNC's assets and liabilities to their estimated fair value on the date of acquisition. Fair value adjustments are updated subsequent to the merger date based on the results of finalized valuation assessements.


~~(3)~~	~~Although not complete this adjustment reflects the Day 1 value of OREO properties subsequently sold.~~


~~(4)~~	The amount represents the fair value of the core deposit intangible asset representing the intangible value of the deposit base acquired and the fair value of the customer relationship intangible assets representing the intangible value of customer relationships acquired.


~~(5)~~	~~A fair value adjustment for property and equipment will be recorded, but no estimate is determinable at this time.~~


~~(6)~~	~~The amount represents the deferred tax asset recognized on the fair value adjustment of BNC's acquired assets and assumed liabilities.~~


~~(7)~~	The amount represents the adjustment necessary because the weighted average interest rate of BNC's deposits exceeded the cost of similar funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest expense over the life of the portfolio.



	Three months ended				Nine months ended
	September 30,				September 30,
(dollars in thousands)	2017		2016		2017		2016
Revenue ⁽¹⁾	$	218,919	$	185,181	$	619,326	$	513,565
Income before income taxes	$	98,218	$	73,446	$	261,516	$	203,454



	Available-for-sale				Held-to-maturity
September 30, 2017:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	63,065	$	62,852	$	1,017	$	1,019
Due in one year to five years	65,300		66,392		6,565		6,593
Due in five years to ten years	186,811		188,734		10,466		10,577
Due after ten years	761,468		758,644		2,800		2,833
Mortgage-backed securities	1,629,860		1,618,799		—		—
Asset-backed securities	184,981		184,760		—		—
	$	2,891,485	$	2,880,181	$	20,848	$	21,022



	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
September 30, 2017
Pass	$	6,267,036	$	2,440,653	$	1,909,631	$	3,862,830	$	355,786	$	14,835,936
Special Mention	107,739		57,482		8,552		33,828		1,375		208,976
Substandard ⁽¹⁾	58,276		22,310		15,234		65,541		101		161,462
Substandard-nonaccrual	16,920		19,981		6,392		9,028		266		52,587
Doubtful-nonaccrual	71		754		—		—		—		825
Total loans	$	6,450,042	$	2,541,180	$	1,939,809	$	3,971,227	$	357,528	$	15,259,786



December 31, 2016
Pass	$	3,137,452	$	1,160,361	$	897,556	$	2,782,713	$	264,723	$	8,242,805
Special Mention	21,449		1,856		2,716		25,641		802		52,464
Substandard ⁽¹⁾	29,674		15,627		5,788		75,861		129		127,079
Substandard-nonaccrual	4,921		8,073		6,613		7,492		475		27,574
Doubtful-nonaccrual	—		—		—		3		—		3
Total loans	$	3,193,496	$	1,185,917	$	912,673	$	2,891,710	$	266,129	$	8,449,925



	Gross Carrying Value			Accretable Yield			Nonaccretable Yield			Net Carrying Value
December 31, 2016	$	12,451		$	—		$	(3,633	)	$	8,818
Acquisition	80,229			(300		)	(32,211		)	47,718
Year-to-date settlements	(10,868		)	4			2,659			(8,205		)
September 30, 2017	$	81,812		$	(296	)	$	(33,185	)	$	48,331



	At September 30, 2017						At December 31, 2016
	Recorded investment		Unpaid principal balances⁽¹⁾		Related allowance⁽²⁾		Recorded investment		Unpaid principal balances⁽¹⁾		Related allowance⁽²⁾
Collateral dependent nonaccrual loans:
Commercial real estate – mortgage	$	16,600	$	18,992	$	—	$	2,308	$	2,312	$	—
Consumer real estate – mortgage	16,406		19,808		—		2,880		2,915		—
Construction and land development	4,472		8,587		—		3,128		3,135		—
Commercial and industrial	8,077		9,393		—		6,373		6,407		—
Consumer and other	15		17		—		—		—		—
Total	$	45,570	$	56,797	$	—	$	14,689	$	14,769	$	—

Cash flow dependent nonaccrual loans:
Commercial real estate – mortgage	$	391	$	616	$	—	$	2,613	$	3,349	$	59
Consumer real estate – mortgage	4,329		4,386		723		5,193		5,775		688
Construction and land development	1,920		2,369		13		3,485		4,154		20
Commercial and industrial	951		941		108		1,122		2,714		77
Consumer and other	251		154		88		475		851		227
Total	$	7,842	$	8,466	$	932	$	12,888	$	16,843	$	1,071

Total nonaccrual loans	$	53,412	$	65,263	$	932	$	27,577	$	31,612	$	1,071



	Accruing										Nonaccruing
September 30, 2017	30-89 days past due and accruing		90 days or more past due and accruing		Total past due and accruing		Purchased credit impaired		Current and accruing		Nonaccrual⁽¹⁾		Purchased credit impaired		Total loans
Commercial real estate:
Owner-occupied	$	6,999	$	—	$	6,999	$	5,065	$	2,408,065	$	11,154	$	1,258	$	2,432,541
All other	4,919		—		4,919		12,124		3,995,879		929		3,650		4,017,501
Consumer real estate – mortgage	8,980		1,072		10,052		7,880		2,502,513		11,172		9,563		2,541,180
Construction and land development	3,621		240		3,861		3,811		1,925,745		2,058		4,334		1,939,809
Commercial and industrial	4,623		560		5,183		374		3,956,642		8,759		269		3,971,227
Consumer and other	6,676		1,138		7,814		—		349,448		263		3		357,528
	$	35,818	$	3,010	$	38,828	$	29,254	$	15,138,292	$	34,335	$	19,077	$	15,259,786



					Impaired Loans
	Accruing Loans				Nonaccrual Loans				Troubled Debt Restructurings ⁽¹⁾				Total Allowance for Loan Losses
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Commercial real estate –mortgage	$	20,790	$	13,595	$	—	$	59	$	—	$	1	$	20,790	$	13,655
Consumer real estate – mortgage	4,562		5,874		723		688		18		2		5,303		6,564
Construction and land development	7,510		3,604		13		20		—		—		7,523		3,624
Commercial and industrial	22,878		24,648		108		77		421		18		23,407		24,743
Consumer and other	6,831		9,293		88		227		—		—		6,919		9,520
Unallocated	—		—		—		—		—		—		1,217		874
	$	62,571	$	57,014	$	932	$	1,071	$	439	$	21	$	65,159	$	58,980



	Number		Grant Date Weighted-Average Cost
Unvested at December 31, 2016	820,539		$	36.47
Shares awarded	246,157
Conversion of previously awarded restricted share units to restricted share awards	43,680
Shares assumed in connection with acquisition of BNC	136,890
Restrictions lapsed and shares released to associates/directors	(246,144	)
Shares forfeited ⁽¹⁾	(25,849	)
Unvested at September 30, 2017	975,273		$	50.53



Grant Year	Group ⁽¹⁾	Vesting Period in years	Shares awarded	Restrictions Lapsed and shares released to participants	Shares Forfeited by participants ⁽⁶⁾	Shares Unvested
Time Based Awards
2017	Associates ⁽²⁾	3 - 5	232,480	358	7,638	224,484
2017	Associates ⁽³⁾	3 - 5	136,690	—	—	136,690

Performance Based Awards
2017	Leadership team ⁽⁴⁾	3	43,680	—	—	43,680

Outside Director Awards ⁽⁵⁾
2017	Outside directors	1	13,677	2,376	796	10,505



	Units Awarded
Grant year	Named Executive Officers (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)	Shares settled into RSAs as of period end ⁽²⁾
2017	72,537-109,339	24,916	2017	2	3	N/A
			2018	2	2	N/A
			2019	2	1	N/A

2016	73,474-110,223	26,683	2016	2	3	N/A
			2017	2	2	N/A
			2018	2	1	N/A

2015	58,200-101,850	28,378	2015	2	3	N/A
			2016	2	2	N/A
			2017	2	1	N/A

2014 ⁽³⁾	58,404-102,209	29,087	2014	5	N/A	21,856
			2014	4	N/A	21,856
			2015	4	N/A	21,847
			2015	3	N/A	21,847
			2016	3	N/A	21,840
			2016	2	N/A	21,840



							September 30, 2017						December 31, 2016
	Forecasted Notional Amount		Receive Rate	Pay Rate		Term ⁽¹⁾	Asset/ (Liabilities)			Unrealized Loss in Accumulated Other Comprehensive Income			Asset/ (Liabilities)			Unrealized Loss in Accumulated Other Comprehensive Income
Interest Rate Swap	$	33,000	3 month LIBOR	2.265	%	April 2016-April 2020	$	(494	)	$	(300	)	$	(727	)	$	(442	)
Interest Rate Swap	33,000		3 month LIBOR	2.646	%	April 2016-April 2022	(1,164		)	(707		)	(1,304		)	(792		)
Interest Rate Swap	33,000		3 month LIBOR	2.523	%	Oct. 2016-Oct. 2020	(823		)	(500		)	(1,081		)	(657		)
Interest Rate Swap	33,000		3 month LIBOR	2.992	%	Oct. 2017-Oct. 2021	(1,390		)	(845		)	(1,200		)	(729		)
Interest Rate Swap	34,000		3 month LIBOR	3.118	%	April 2018-July 2022	(1,482		)	(901		)	(1,222		)	(743		)
Interest Rate Swap	34,000		3 month LIBOR	3.158	%	July 2018- Oct. 2022	(1,454		)	(884		)	(1,198		)	(728		)
	$	200,000					$	(6,807	)	$	(4,137	)	$	(6,732	)	$	(4,091	)


~~(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.


														Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized
	Actual				Minimum Capital Requirement				Minimum To Be Well-Capitalized					Amount		Ratio		Amount		Ratio		Amount		Ratio
	Amount		Ratio		Amount		Ratio		Amount		Ratio
At September 30, 2017
At June 30, 2022													At June 30, 2022
Total capital to risk weighted assets:													Total capital to risk weighted assets:
Pinnacle Financial	$	2,242,099	12.3	%	$	1,453,181	8.0	%	NA		NA		Pinnacle Financial	$	4,289,120	12.9	%	$	2,669,286	8.0	%	$	3,336,607	10.0	%
Pinnacle Bank	$	2,129,643	11.8	%	$	1,449,329	8.0	%	$	1,811,661	10.0	%	Pinnacle Bank	$	3,877,155	11.7	%	$	2,651,969	8.0	%	$	3,314,961	10.0	%
Tier 1 capital to risk weighted assets:													Tier 1 capital to risk weighted assets:
Pinnacle Financial	$	1,703,298	9.4	%	$	1,089,886	6.0	%	NA		NA		Pinnacle Financial	$	3,622,608	10.9	%	$	2,001,964	6.0	%	$	2,669,286	8.0	%
Pinnacle Bank	$	1,933,754	10.7	%	$	1,086,997	6.0	%	$	1,449,329	8.0	%	Pinnacle Bank	$	3,639,643	11.0	%	$	1,988,976	6.0	%	$	2,651,969	8.0	%
Common equity Tier 1 capital to risk weighted assets													Common equity Tier 1 capital to risk weighted assets
Pinnacle Financial	$	1,703,175	9.4	%	$	817,414	4.5	%	NA		NA		Pinnacle Financial	$	3,405,359	10.2	%	$	1,501,473	4.5	%	NA
Pinnacle Bank	$	1,933,631	10.7	%	$	815,247	4.5	%	$	1,177,580	6.5	%	Pinnacle Bank	$	3,639,521	11.0	%	$	1,491,732	4.5	%	$	2,154,724	6.5	%
Tier 1 capital to average assets (*):													Tier 1 capital to average assets (*):
Pinnacle Financial	$	1,703,298	8.9	%	$	769,125	4.0	%	NA		NA		Pinnacle Financial	$	3,622,608	9.8	%	$	1,485,542	4.0	%	NA
Pinnacle Bank	$	1,933,754	10.1	%	$	767,531	4.0	%	$	959,414	5.0	%	Pinnacle Bank	$	3,639,643	9.9	%	$	1,477,760	4.0	%	$	1,847,200	5.0	%

At December 31, 2021													At December 31, 2021
Total capital to risk weighted assets:													Total capital to risk weighted assets:
Pinnacle Financial													Pinnacle Financial	$	4,060,598	13.8	%	$	2,347,963	8.0	%	$	2,934,953	10.0	%
Pinnacle Bank													Pinnacle Bank	$	3,670,111	12.6	%	$	2,334,243	8.0	%	$	2,917,804	10.0	%
Tier 1 capital to risk weighted assets:													Tier 1 capital to risk weighted assets:
Pinnacle Financial													Pinnacle Financial	$	3,425,751	11.7	%	$	1,760,972	6.0	%	$	2,347,963	8.0	%
Pinnacle Bank													Pinnacle Bank	$	3,464,265	11.9	%	$	1,750,683	6.0	%	$	2,334,243	8.0	%
Common equity Tier 1 capital to risk weighted assets													Common equity Tier 1 capital to risk weighted assets
Pinnacle Financial													Pinnacle Financial	$	3,208,503	10.9	%	$	1,320,729	4.5	%	NA
Pinnacle Bank													Pinnacle Bank	$	3,464,142	11.9	%	$	1,313,012	4.5	%	$	1,896,573	6.5	%
Tier 1 capital to average assets (*):													Tier 1 capital to average assets (*):
Pinnacle Financial													Pinnacle Financial	$	3,425,751	9.7	%	$	1,412,747	4.0	%	NA
Pinnacle Bank													Pinnacle Bank	$	3,464,265	9.9	%	$	1,406,063	4.0	%	$	1,757,578	5.0	%



	Three months ended September 30,				2017 - 2016 Percent		Nine months ended September 30,				2017 - 2016 Percent
	2017		2016		Increase (Decrease)		2017		2016		Increase (Decrease)
Interest income	$	202,167	$	97,380	107.6	%	$	428,053	$	262,116	63.3	%
Interest expense	28,985		10,745		169.8	%	59,477		26,535		124.1	%
Net interest income	173,182		86,635		99.9	%	368,576		235,581		56.5	%
Provision for loan losses	6,920		6,108		13.3	%	17,384		15,282		13.8	%
Net interest income after provision for loan losses	166,262		80,527		106.5	%	351,192		220,299		59.4	%
Noninterest income	42,977		31,692		35.6	%	108,415		90,261		20.1	%
Noninterest expense	109,736		63,526		72.7	%	243,587		173,521		40.4	%
Net income before income taxes	99,503		48,693		104.3	%	216,020		137,039		57.6	%
Income tax expense	35,060		16,316		114.9	%	68,839		45,911		49.9	%
Net income	$	64,443	$	32,377	99.0	%	$	147,181	$	91,128	61.5	%

Basic net income per common share	$	0.84	$	0.71	18.3	%	$	2.48	$	2.16	14.8	%

Diluted net income per common share	$	0.83	$	0.71	16.9	%	$	2.46	$	2.12	16.0	%



	Three months ended September 30, 2017						Three months ended September 30, 2016
	Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
Interest-earning assets:
Loans (1)	$	15,016,642	$	183,842	4.91	%	$	8,232,963	$	90,090	4.43	%
Securities:
Taxable	2,080,512		12,066		2.30	%	1,010,090		5,012		1.97	%
Tax-exempt ⁽²⁾	660,981		4,620		3.72	%	222,883		1,545		3.70	%
Federal funds sold and other	379,769		1,639		1.71	%	328,158		733		0.89	%
Total interest-earning assets	18,137,904		$	202,167	4.50	%	9,794,094		$	97,380	3.98	%
Nonearning assets
Intangible assets	1,860,282						590,348
Other nonearning assets	1,213,273						499,105
Total assets	$	21,211,459					$	10,883,547

Interest-bearing liabilities:
Interest-bearing deposits:
Interest checking	$	2,658,733	$	3,368	0.50	%	$	1,437,196	$	985	0.27	%
Savings and money market	6,727,136		10,725		0.63	%	3,808,388		4,003		0.42	%
Time	2,488,756		5,010		0.80	%	904,307		1,638		0.72	%
Total interest-bearing deposits	11,874,625		19,103		0.64	%	6,149,891		6,626		0.43	%
Securities sold under agreements to repurchase	160,726		148		0.37	%	87,067		51		0.23	%
Federal Home Loan Bank advances	1,059,032		3,959		1.48	%	583,724		1,280		0.87	%
Subordinated debt and other borrowings	473,805		5,775		4.84	%	266,934		2,788		4.15	%
Total interest-bearing liabilities	13,568,188		28,985		0.85	%	7,087,616		10,745		0.60	%
Noninterest-bearing deposits	3,953,855		—		—	%	2,304,533		—		—	%
Total deposits and interest-bearing liabilities	17,522,043		$	28,985	0.66	%	9,392,149		$	10,745	0.46	%
Other liabilities	34,387						48,958
Stockholders' equity	3,655,029						1,442,440
Total liabilities and shareholders' equity	$	21,211,459					$	10,883,547
Net interest income			$	173,182					$	86,635
Net interest spread ⁽³⁾					3.65	%					3.38	%
Net interest margin ⁽⁴⁾					3.87	%					3.60	%


														Six Months Ended June 30, 2022						Six Months Ended June 30, 2021
	Nine months ended September 30, 2017						Nine months ended September 30, 2016							Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
	Average Balances		Interest		Rates/ Yields		Average Balances		Interest		Rates/ Yields
Interest-earning assets:
Loans (1)	$	11,154,340	$	389,379	4.73	%	$	7,327,519	$	241,538	4.48	%
Securities:
Interest-earning assets													Interest-earning assets
Loans (1) (2)													Loans (1) (2)	$	24,627,240	$	479,229	4.01	%	$	23,014,861	$	460,160	4.11	%
Securities													Securities
Taxable	1,593,590		26,765		2.25	%	901,059		14,051		2.08	%	Taxable	3,381,538		23,773		1.42	%	2,427,050		16,087		1.34	%
Tax-exempt ⁽²⁾	404,756		8,533		3.78	%	196,340		4,481		4.09	%	Tax-exempt (2)	2,914,519		37,344		3.12	%	2,425,501		32,044		3.20	%
Federal funds sold and other	300,552		3,376		1.50	%	303,996		2,046		0.90	%
Interest-bearing due from banks													Interest-bearing due from banks	2,334,566		3,914		0.34	%	2,824,360		1,268		0.09	%
Securities purchased under agreements to resell													Securities purchased under agreements to resell	1,304,392		5,058		0.78	%	245,857		410		0.34	%
Federal funds sold													Federal funds sold	—		—		—	%	20,092		—		—	%
Other													Other	174,434		1,675		1.94	%	158,741		1,184		1.50	%
Total interest-earning assets	13,453,238		$	428,053	4.34	%	8,728,914		$	262,116	4.04	%	Total interest-earning assets	34,736,689		$	550,993	3.30	%	31,116,462		$	511,153	3.41	%
Nonearning assets													Nonearning assets
Intangible assets	1,075,109						490,804						Intangible assets	1,873,190						1,860,272
Other nonearning assets	830,337						465,156						Other nonearning assets	2,099,522						1,880,809
Total assets	$	15,358,684					$	9,684,874					Total assets	$	38,709,401					$	34,857,543

Interest-bearing liabilities:													Interest-bearing liabilities:
Interest-bearing deposits:													Interest-bearing deposits:
Interest checking	$	2,206,934	$	7,774	0.47	%	$	1,398,494	$	2,820	0.27	%	Interest checking	$	6,456,418	8,733		0.27	%	$	5,459,919	5,007		0.18	%
Savings and money market	5,043,033		21,175		0.56	%	3,299,102		9,974		0.40	%	Savings and money market	12,334,678		14,195		0.23	%	11,304,640		12,371		0.22	%
Time	1,498,114		9,267		0.83	%	743,882		3,820		0.69	%	Time	2,078,477		5,503		0.53	%	2,990,753		13,951		0.94	%
Total interest-bearing deposits	8,748,081		38,216		0.58	%	5,441,478		16,614		0.41	%	Total interest-bearing deposits	20,869,573		28,431		0.27	%	19,755,312		31,329		0.32	%
Securities sold under agreements to repurchase	113,687		277		0.33	%	73,821		139		0.25	%	Securities sold under agreements to repurchase	198,459		138		0.14	%	158,509		128		0.16	%
Federal Home Loan Bank advances	560,121		6,347		1.52	%	540,360		3,073		0.76	%	Federal Home Loan Bank advances	992,710		9,705		1.97	%	911,295		8,995		1.99	%
Subordinated debt and other borrowings	401,814		14,637		4.87	%	218,424		6,709		4.10	%	Subordinated debt and other borrowings	434,433		8,670		4.02	%	673,913		14,606		4.37	%
Total interest-bearing liabilities	9,823,703		59,477		0.81	%	6,274,083		26,535		0.56	%	Total interest-bearing liabilities	22,495,175		46,944		0.42	%	21,499,029		55,058		0.52	%
Noninterest-bearing deposits	3,050,640		—		—	%	2,090,165		—		—	%	Noninterest-bearing deposits	10,641,819		—		0.00	%	8,062,995		—		0.00	%
Total deposits and interest-bearing liabilities	12,874,343		$	59,477	0.62	%	8,364,248		$	26,535	0.42	%	Total deposits and interest-bearing liabilities	33,136,994		$	46,944	0.29	%	29,562,024		$	55,058	0.38	%
Other liabilities	20,486						27,295						Other liabilities	248,637						298,649
Stockholders' equity	2,463,855						1,293,331
Total liabilities													Total liabilities	33,385,631						29,860,673
Shareholders' equity													Shareholders' equity	5,323,770						4,996,870
Total liabilities and shareholders' equity	$	15,358,684					$	9,684,874					Total liabilities and shareholders' equity	$	38,709,401					$	34,857,543
Net interest income			$	368,576					$	235,581			Net interest income			$	504,049					$	456,095
Net interest spread ⁽³⁾					3.53	%					3.48	%	Net interest spread (3)					2.88	%					2.89	%
Net interest margin ⁽⁴⁾					3.75	%					3.69	%	Net interest margin (4)					3.03	%					3.05	%



	Year Acquired	Initial Valuation (in millions)		Amortizable Life (in years)
Core Deposit Intangible:
Mid- America	2007	$	9.5	10
CapitalMark	2015	6.2		7
Magna	2015	3.2		6
Avenue	2016	8.8		9
BNC	2017	48.1		10
Book of Business Intangibles:
Miller Loughry Beach	2008	1.3		20
CapitalMark	2015	0.3		16
BNC	2017	0.4		20
BNC	2017	1.9		10