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Summary of Significant Accounting Policies (Policies)
 3 Months Ended
Mar. 31, 2023
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes appearing in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2022 (2022 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 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 Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for credit losses and determination of any impairment of goodwill or intangible assets. It is reasonably possible Pinnacle Financial's estimate of the allowance for credit losses and determination of impairment of intangible assets could change as a result of the uncertainty in current macroeconomic conditions. The resulting change in this estimate could be material to Pinnacle Financial's consolidated financial statements. There have been no significant changes to Pinnacle Financial's significant accounting policies as disclosed in the 2022 10-K.
Income Per Common Share
Income Per Common Share — Basic net income per common share (EPS) is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The difference between basic and diluted weighted average common shares outstanding is attributable to common stock options, restricted share awards, and restricted share unit awards, including those with performance-based vesting provisions. The dilutive effect of outstanding options, restricted share awards, and restricted share unit awards is reflected in diluted EPS by application of the treasury stock method.

The following is a summary of the basic and diluted net income per common share calculations for the three months ended March 31, 2023 and 2022 (in thousands, except per share data):
 Three months ended
March 31,
 20232022
Basic net income per common share calculation:
Numerator - Net income available to common shareholders
$133,473 $125,312 
Denominator - Weighted average common shares outstanding
75,921 75,655 
Basic net income per common share$1.76 $1.66 
Diluted net income per common share calculation:
Numerator - Net income available to common shareholders
$133,473 $125,312 
Denominator - Weighted average common shares outstanding
75,921 75,655 
Dilutive common shares contingently issuable121 275 
Weighted average diluted common shares outstanding76,042 75,930 
Diluted net income per common share$1.76 $1.65 
Recently Adopted Accounting Pronouncements Recently Adopted Accounting Pronouncements — In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance was initially effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued an update to Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting with Accounting Standards Update 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which updated the effective date to be March 12, 2020 through December 31, 2024. Pinnacle Financial has implemented a transition plan to identify and modify its loans and other financial instruments, including certain indebtedness, with attributes that are
either directly or indirectly influenced by LIBOR. Pinnacle Financial has implemented a transition plan to identify and modify its loans and other financial instruments, including certain indebtedness, with attributes that are either directly or indirectly influenced by LIBOR. Pinnacle Financial 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.

In March 2022, the FASB issued Accounting Standards Update 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. Pinnacle Financial adopted ASU 2022-01 on January 1, 2023 and it did not impact Pinnacle Financial's accounting or 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. Pinnacle Financial adopted ASU 2022-02 on January 1, 2023 and incorporated the required disclosures into Note 4. Loans and Allowance for Credit Losses.
Newly Issued Not Yet Effective Accounting Standards
Newly Issued Not Yet Effective Accounting Standards — 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.

In March 2023, the FASB issued Accounting Standards Update 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method, which permits the use of the proportional amortization method of accounting for tax equity investments if certain conditions are met. A reporting entity makes the accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity or individual investment level. The amendments require specific disclosures that must be applied to all investments that generate tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted, including early adoption in an interim period. An entity should apply ASU 2023-02 on a retrospective or modified retrospective basis once adopted. Pinnacle Financial is assessing ASU 2023-02 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.
Subsequent Events
Subsequent Events — ASC Topic 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Pinnacle Financial evaluated all events or transactions that occurred after March 31, 2023 through the date of the issued financial statements.

On April 21, 2023, Pinnacle Bank consummated a sale-leaseback transaction pursuant to which it sold 36 properties to PNB TN Portfolio Owner LLC and PNB Portfolio Owner, LLL (each, a "Purchaser" and collectively, the "Purchasers") each of whom is an affiliate of Oak Street Real Estate Capital, for an aggregate cash purchase price of $127.5 million and concurrently agreed to separately lease each of those properties from a purchaser for an initial term of 14.5 years, with two five (5) year renewal options that the Bank may exercise to extend the term of any of the leases.
The pre-tax, net gain associated with these 36 properties is expected to be approximately $55.4 million, after deducting estimated transaction-related expenses. The after-tax portion of this gain will be recognized by the Company in the second quarter of 2023. The aggregate annual lease expense associated with these properties will be approximately $9.6 million for the first twelve months of the lease term, with each lease including a 1.9% annual rent escalation during the initial term, and a 2% annual rent escalation during each of the two five-year renewal terms.

On April 21, 2023, Pinnacle Bank also entered into a purchase and sale agreement with the Purchasers to sell an additional 15 properties to the Purchasers for an aggregate cash purchase price of $90.5 million, subject to the Purchasers’ satisfactory completion of final due diligence with respect to these properties and the satisfaction of other customary closing conditions. Pinnacle Bank would lease those properties back from the Purchasers pursuant to leases containing terms substantially similar to those governing the 36 properties that closed April 21, 2023. If all these 15 properties are sold, the pre-tax, net gain associated with these additional 15 properties is estimated to be approximately $37.4 million, after deducting estimated transaction-related expenses. The after-tax portion of this gain will be recognized by the Company when the sale is consummated, which the Company anticipates will be late in the second quarter, or early in the third quarter, of 2023. In the event that all of the properties are sold, the aggregate annual lease expense associated with these properties is estimated to be approximately $6.8 million for the first twelve months of the lease term, with each lease including a 1.9% annual rent escalation during the initial term, and a 2% annual rent escalation during each of the two five-year renewal terms.

Subsequent to the execution of the sale-leaseback transaction, Pinnacle Financial restructured a portion of its bond portfolio selling on April 27, 2023 and April 28, 2023, respectively, $137.7 million and $28.3 million in available-for-sale securities for a net loss of $9.2 million which will offset a portion of the net gain recognized from the sale-leaseback transaction. The proceeds of these securities sales are expected to be initially retained in Pinnacle Bank's cash accounts at the Federal Reserve.

Other than the above noted sale-leaseback transaction and available-for-sale securities sales, no other subsequent events were noted as of the date of this filing.