Enriched
Shareholders
Few, if any, banks were able to completely outrun the rate environment and its impact on revenue and earnings growth in 2023. Despite the difficult operating environment, we grew our tangible book value per common share 14.8% and produced a 20% total shareholder return for the 12 months ended Dec. 31, 2023.
- Q4
- Q3
- Q2
- Q1
For a reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures, see the Business Insights page.
*: excluding gains and losses on sales of investment securities, loss on BOLI restructuring, gain on the sale of fixed assets as a result of sale-leaseback transaction, ORE expense (income), FDIC special assessment, loss on sale of non-prime automobile portfolio, branch rationalization charges, FHLB restructuring charges and hedge termination charges. PPNR represents pre-tax, pre-provision net revenues.
**: excluding goodwill, core deposit and other intangible assets
Our unusual approach of investing in our business even during challenging times—particularly in terms of acquiring new talent—is one of the primary reasons we've been able to take market share and grow balance sheet volumes. That, in turn, has created rapid and reliable growth in revenue and earnings, which we believe accounts for our extraordinary total shareholder return over nearly 2½ decades.
Deposits
We've made great headway in gathering new deposits by building several specialty deposit programs, such as health and benefits, captive insurance companies, property managers, homeowners associations and our newest, escrow accounts for entities like law firms, 10-31 exchanges and more. We implemented easy-to-use technology platforms that provide a “value add” for our clients and have hired experienced professionals to lead these deposit-gathering initiatives.
Across our footprint, Pinnacle grew deposits by $3.58 billion in the 12 months ended Dec. 31, 2023, for an annual growth rate of 10.24% to a total of $38.54 billion. We saw growth in 19 out of our 25 MSAs measured by the FDIC, including 10 with double-digit growth rates, two hitting triple-digits and seven where we were the fastest growing bank by deposit dollars.
Market Share Winners
*According to FDIC deposit market share data for the 12 months ended June 30, 2023
We remain focused on the relationship between pricing and growth of deposits, exercising caution not to lean too heavily on the rate component for our growth.
Deposit Rate Growth
Loans
Our expansion into Washington D.C., Atlanta, Birmingham and our other newer markets was the source of much of our loan growth in 2023. We hire experienced bankers in these new locations (like Jacksonville, FL) and give them the tools and resources to build a large, local franchise. Our borrowers in all of our markets — legacy or de novo — have extended relationships with our financial advisors. In 2023 we made gains on fixed-rate loan pricing and will seek to continue that effort in 2024. Our portfolio is diversified, particularly with regard to commercial real estate. Office CRE represents just 3.3 percent of total loans, and among all CRE lending only 12 of 558 loans are above $20 million. The remaining 546 CRE credits average $1.41 million outstanding balance.
Loan Spread Improvements
*From Dec. 31, 2022 to Dec. 31, 2023
Liquidity
Liquidity was the buzz word for 2023. While the operating environment affected all banks' liquidity, we believe we ended the year with ample levels relative to Top 50 banks, with a loan-to-deposit ratio of 85 percent (the median was 81 percent) and a cash + securities to total assets ratio of 22 percent (26 percent was the median).
Deposit Ratio
Credit
Because we hire experienced bankers who typically move their strongest relationships, Pinnacle's loan portfolio continued to perform very well in the year. Problem loan metrics such as NPAs and classified assets remain below our five-year median, which is itself very low.
CRE Portfolio
Our CRE portfolio is vastly different than most of what is discussed in financial media both due to the health of our vibrant Southeastern markets and its extraordinary granularity. Construction originations were very selective in 2023 and reserved for projects where we had a strategic reason to participate. Our ratio of construction development and other land loans as a percentage of our total capital was at 84% at Dec. 31, 2024, well within regulatory guidelines.
Fees
We emphasized gathering more share of wallet from existing clients to meet all of their needs, and our wealth management units in particular had a strong 2023. Those teams generated $92.8 million in revenues due to an increase in assets under management. We also recognized an $85.7 million pre-tax gain on sale from fixed assets due to a sale leaseback transaction.
Expenses
The costs of investing in our firm by hiring revenue producers was offset by decreased incentive costs due to below target performance. Our 2023 earnings included $30 million of incentive savings, which is exactly how the plan is supposed to work. We win together and lose together, which means all non-commissioned associates are eligible for target awards only if we hit our targets. When revenue and earnings fall behind our pre-established targets, we reduce the incentive payout, thus reducing expenses and raising EPS. We consider this methodology to be the most shareholder friendly incentive plan among those of our peers and competitors. If we underachieve our targets, we reduce incentive payouts.
Also in 2023 we recorded $29 million for the FDIC Special Assessment that was assessed against several banks in the United States to help the FDIC rebuild the deposit insurance fund after several high-profile bank failures in the first half of 2023, which we expect to pay to the FDIC over eight quarters beginning in June 2024.
Capital
Our tangible book value per common share increased to $51.38 at the end of the year, up 14.8 percent from the end of 2022. Our focus on TBV generation has, we believe, benefited our firm and shareholders meaningfully. Growing TBV has been top of mind over the last several years because we believe it has a direct correlation with share price. That's why long-term executive compensation is tied to outperforming our peers on tangible book value accretion. We were not willing to risk significant TBV dilution by building a large investment portfolio with our excess liquidity during the pandemic, which has helped us achieve these results.
Common Share
Assets*
Capital Ratio
*8.6% excluding held-to-maturity bond loss
For a reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures, see the Business Insights page.