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Equity method investment | 12 Months Ended
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Dec. 31, 2024
Equity Method Investments and Joint Ventures [Abstract] |
Equity Method Investment | Note 2. Equity Method Investment On February 1, 2015, Pinnacle Bank acquired a 30% interest in Bankers Healthcare Group, LLC (BHG) for $75 million in cash. On March 1, 2016, Pinnacle Bank and Pinnacle Financial increased their investment in BHG by a combined 19%, for a total investment in BHG of 49%. The additional 19% interest was acquired pursuant to a purchase agreement whereby both Pinnacle Financial and Pinnacle Bank acquired 8.55% and an additional 10.45%, respectively, of the outstanding membership interests in BHG in exchange for $74.1 million in cash and 860,470 shares of Pinnacle Financial common stock valued at $39.9 million. The investment in BHG previously held by Pinnacle Financial was contributed to Pinnacle Bank effective September 30, 2022. On March 1, 2016, Pinnacle Financial, Pinnacle Bank and the other members of BHG entered into an Amended and Restated Limited Liability Company Agreement of BHG and subsequently entered into a Second Amended and Restated Limited Liability Company Agreement on February 2, 2021. The Second Amended and Restated Limited Liability Company Agreement, provides for, among other things, the following terms: •co-sale rights for Pinnacle Bank in the event the other members of BHG decide to sell all or a portion of their ownership interests; and •a right of first refusal for BHG and the other members of BHG in the event that Pinnacle Bank decides to sell all or a portion of its ownership interests, except in connection with a transfer of its ownership interests to an affiliate or in connection with the acquisition of Pinnacle Financial or Pinnacle Bank or a merger in which Pinnacle Financial or Pinnacle Bank is not the surviving entity. Pinnacle Financial accounts for this investment pursuant to the equity method for unconsolidated subsidiaries and recognizes its interest in BHG's profits and losses in noninterest income with corresponding adjustments to the BHG investment account. Because BHG has been determined to be a voting interest entity of which Pinnacle Financial controls less than a majority of the board seats, this investment does not require consolidation and is accounted for pursuant to the equity method of accounting. Additionally, Pinnacle Financial did not recognize any goodwill or other intangible assets associated with these transactions as of the respective purchase dates, however, it will recognize accretion income and amortization expense associated with the fair value adjustments to the net assets acquired including the fair value of certain of BHG's liabilities which are recorded as a component of income from equity method investment, pursuant to the equity method of accounting. In accordance with Regulation S-X 3-09, the audited consolidated balance sheets of BHG as of September 30, 2024 and 2023, and the related consolidated statements of income, comprehensive income, members’ equity, and cash flows for each of the three years in the period ended September 30, 2024 are filed herewith as Exhibit 99.1 as a result of the fact that Pinnacle Bank’s share of BHG’s pre-tax net income for the year ended December 31, 2022 exceeded 20% of Pinnacle Financial’s consolidated pre-tax net income for the same period. Pinnacle Bank's share of BHG's pre-tax net income for the years ended December 31, 2024 and 2023 did not exceed 20% of Pinnacle Financial's consolidated pre-tax net income for the same periods. BHG has a fiscal year-end of September 30th. For each of the fiscal years in the period from December 31, 2016 through December 31, 2021, Pinnacle Financial included summarized financial information for BHG as of and for the periods presented in the footnotes to Pinnacle Financial’s consolidated financial statements in its Annual Reports on Form 10-K in accordance with Regulation S-X 4-08(g), as a result of the fact that Pinnacle Financial’s share of BHG’s pre-tax net income exceeded 10%, but not 20%, of Pinnacle Financial’s consolidated pre-tax net income for the relevant periods presented. At December 31, 2024, Pinnacle Financial has recorded technology, trade name and customer relationship intangibles of BHG, net of related amortization, of $5.7 million compared to $6.0 million as of December 31, 2023. Amortization expense of $237,000 was included in Pinnacle Financial's results for the year ended December 31, 2024 compared to $349,000 for 2023 and $512,000 for 2022. Accretion income of $139,000 was included in Pinnacle Financial's results for the year ended December 31, 2024, while $225,000 of accretion income was recorded in 2023 and $718,000 was recorded in 2022. Additionally, at December 31, 2024, Pinnacle Financial had recorded accretable discounts associated with certain liabilities of BHG of $100,000 compared to $200,000 as of December 31, 2023. During the year ended December 31, 2024, Pinnacle Bank received dividends from BHG of $71.7 million, compared to $36.7 million during the year ended December 31, 2023 and $63.1 million received by Pinnacle Bank and Pinnacle Financial in the aggregate during the year ended December 31, 2022, respectively. Pinnacle Financial's and Pinnacle Bank's share of earnings from BHG are included in Pinnacle Financial's consolidated tax return. Profits from intercompany transactions are eliminated. Pinnacle Bank has a participating interest in a $675.0 million revolving line of credit for the benefit of BHG in the amount of $150.0 million. At December 31, 2024, there was $82.8 million of outstanding balance on the line related to Pinnacle Bank's interest in the line. The line accrues interest at SOFR plus 200 basis points and is secured by all assets of BHG. The credit agreement contains covenants requiring BHG to maintain certain financial ratios and satisfy certain other affirmative and negative covenants. At December 31, 2024, neither BHG nor the originating bank had represented to Pinnacle Bank that BHG was not in compliance, in all material respects, with these covenants. During the year ended December 31, 2024, BHG entered into a new revolving line of credit with Pinnacle Bank in the amount of $50.0 million with no outstanding balance at December 31, 2024. The line accrues interest at SOFR plus 300 basis points and is unsecured. The credit agreement related to this line of credit contains covenants requiring BHG to maintain certain financial ratios and satisfy certain other affirmative and negative covenants. At December 31, 2024, BHG had not represented to Pinnacle Bank that BHG was not in compliance, in all material respects, with these covenants. BHG partners with third party lenders, including Pinnacle Bank, to facilitate loan originations as part of BHG’s alternative financing portfolio, whereby BHG acts as the marketing firm and refers loans to the third party lenders for funding. The third party lenders receive a fee for each loan funded and subsequently sold to BHG. These loans are ultimately sold through BHG's network of clients, which includes Pinnacle Bank. During the years ended December 31, 2024, 2023 and 2022, respectively, BHG purchased $1.8 billion, $1.4 billion and $1.0 billion of loans originated by Pinnacle Bank, respectively. Pinnacle Bank purchases loans from BHG 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. During the years ended December 31, 2024 and 2023, Pinnacle Bank purchased no joint ventures loans from BHG. During the year ended December 31, 2022, Pinnacle Bank purchased $125.6 million of joint venture loans from BHG. The yield on this portfolio to Pinnacle Bank is anticipated to be between 4.50% and 6.00% per annum. At December 31, 2024 and 2023, there were $161.7 million and $263.0 million, respectively, of BHG joint venture program loans held by Pinnacle Bank. During the year ended December 31, 2024, Pinnacle Bank sold $30.7 million of joint venture loans back to BHG at par. During the year ended December 31, 2024, Pinnacle Bank purchased $24.2 million in Small Business Administration (SBA) loans from BHG for $10.0 million to facilitate the orderly transition of BHG's decision to exit the SBA loan program. Pinnacle Bank assigned $14.2 million in reserves for these loans in its allowance for credit losses at the time of purchase as they were considered purchased credit deteriorated loans. See Note 5. Loans and Allowance for Credit Losses for additional disclosures. BHG adopted ASU 2016-13 on October 1, 2023, which introduced the CECL methodology for estimating all expected losses over the life of the financial asset. Upon adoption of ASU 2016-13, BHG's balance for the allowance for credit losses was increased by $95.2 million through retained earnings. Pinnacle Bank recorded its proportionate share of the impact of BHG's CECL adoption by recording a $35.0 million entry to retained earnings, net of deferred taxes, with corresponding entries to the equity method investment in BHG and deferred taxes. Prior to October 1, 2023, BHG recorded its allowance for loan losses under the incurred loss method. The following summary of BHG's financial position and results of operations as of December 31, 2024 and 2023 and for the years ended December 31, 2024, 2023 and 2022 are presented as unaudited due to BHG's fiscal year end being September 30 (in thousands):
Banker's Healthcare Group | December 31, 2024 |  | December 31, 2023
Assets | $ | 3,784,225 |  |  | $ | 4,304,835 |
Liabilities | $ | 3,257,078 |  |  | $ | 3,749,821 |
Equity interests | 527,147 |  |  | 555,014 |
Total liabilities and equity | $ | 3,784,225 |  |  | $ | 4,304,835 |
| For the year ended December 31,
| 2024 |  | 2023 |  | 2022
Revenues | $ | 931,909 |  |  | $ | 1,175,756 |  |  | $ | 1,110,230 |
Net income, pre-tax | $ | 129,695 |  |  | $ | 181,326 |  |  | $ | 295,186 |

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/recommendedDisclosureRef -Topic 740 -SubTopic 323 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478156/740-323-50-2 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 323 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (a)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481687/323-10-50-3 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 323 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 3 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147481687/323-10-50-3 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 323 -Publisher FASB -URI https://asc.fasb.org/323/tableOfContent + Details
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