Q1 2022 Pinnacle Financial Partners Inc Earnings Call

Okay.

Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, please stay on the line.

Yeah.

[music].

Okay.

Good morning, everyone and welcome to the Pinnacle financial partners first quarter 2022 earnings conference call hosting the call today from Pinnacle Financial partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer. Please note pinnacle's, earning release and this morning's presentation are available on the Investor Relations page of their website at W.

W. W. W. P N F. P. Dot com today's call is being recorded and will be available for replay on pinnacle's website for the next 90 days.

At this time, all participants have been placed in a listen only mode. The floor will be open for your questions. Following the presentation. If you would like to ask a question at that time. Please press star one on your Touchtone telephone analyst will be giving a preference during the Q&A. We ask that you. Please pickup your handset to allow optimal sound quality.

During the presentation. We may we may make comments, which may constitute forward looking statements. All forward looking statements are subject to risks uncertainties and other facts that may cause actual results.

So critical financial to differ materially from any results expressed or implied in such forward looking statements.

Many of such factors are beyond pinnacle financial stability control or predict and listened to all our listeners are cautioned not to put undue reliance on such forward looking statements a more detailed description of these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31, 2021 and subsequently filed quarterly reports pinnacle financial disclaims any.

Legations to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise.

In addition, these remarks may include certain non-GAAP financial measures as defined by SEC regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on critical financial's website at www Dot P. N F. P dot com with that I'm going to turn the presentation over to Mr. Terry Turner critic.

President and CEO .

Thank you operator, and thank you for joining us this morning by way of introduction I would say that our.

Third quarter 2022 was another outstanding quarter for us.

I think the power of our ability to attract the best and experienced bankers in our markets. Both in the legacy markets and in the market extensions and translate that hiring into outsize high quality growth was on full display again. This quarter. In addition to all the macro issues that are creating a great deal of economic uncertainty.

Industry also has a number of other headwinds.

Outrunning the loss of PPP revenues as those loans pay off in like a substantial reduction in mortgage loan originations Dave's right movements are pretty well eliminated the robust mortgage refinance market. We've enjoyed for several years just to name a few are.

Our belief has been that our ability to overcome those headwinds will be our ability to produce outsized balance sheet growth and so I think that's the most important storyline for us during the <unk>.

First quarter.

We moved on every quarterly conference calls this dashboard for years, beginning with the GAAP measures I'll focus first on the credit matrix alone the bottom row.

Green bars show, our median quarterly performance over the last five years.

You can see our asset quality over the last five years has been very strong.

But even so again this quarter for all three measures problem loan metrics continue to trend down and are a decade long lows are five year median for NPA to loans and Oreo as in bread and 46 basis points Q1. They were just 14 basis points five year median.

Bad asset ratio, just 12% Q1, it was three 6% a five year median annualized net charge off ratio was 10 basis points Q1, it was five basis points and honestly, it's hard to get much better than that.

Moving now to the non-GAAP measures, which are the ones.

Generally most focus on let's look at the top row of charge first.

You can see revenues in fully diluted EPS continued their upward slope.

Adjusted pre tax pre provision net income was actually flattish down just.

We werent quite able that run impacts reduced.

P revenue in mortgage origination fees in this quarter as I mentioned, a few moments ago I do expect that run those headwinds this year based on our outlook for loan growth going forward.

On that later.

Looking at the second row, as I've already outlined loan and deposit volumes continued to grow at a double digit pace.

<unk> loans were up 18, 5% annualized 22, 5% annualized excluding the impact of the P. P. P. A core deposits were up 14, 8% and I would say that that growth is directly tied to the growth in non interest expense, we've invested over the last year or two.

At the tangible book value per share, we actually saw our first production there in more than five years with interest rates rising we saw a decrease of two 1% this quarter, primarily due to the impact on accumulated other comprehensive income on a peer relative basis I believe our conservative balance sheet is L. A is in relatively good stead there.

All of those lines early in the quarter, we transferred approximately $1 1 billion of available for sale securities to held to maturity in order to help counter the impact of rising rates on tangible equity Errol talk more about that in just a minute also so in summary based on our previous investment in revenue producers were continuing to grow our bag.

She's an outsize pace, we're translating that into revenue and earnings growth and our asset quality is blemish free so with that I'll turn it over to <unk> for a more detailed look at scores.

Thanks, Jerry and good morning, everybody as usual, we'll start with loans in the first quarter was largely one of the strongest loan growth quarter for us in our history and with our current pipelines provides us with much confidence.

We entered the second quarter, even inclusive of TPP Paydowns average loans were up 14, 7% annualized between the first and fourth quarters and as we mentioned in the press release last night.

Wants to at least mid teen percentage growth for this year is a reasonable growth low.

Loan rates were down in the first quarter due to reduced impact of CPP on our loan yields we recognized $10 8 million in PPD revenues in the first quarter down from $15 five in the fourth quarter.

P P balances decreased to approximately $157 million in the first quarter and consistent with what we discussed last quarter. We believe the 2022 PPP revenues will likely range between $15 million to $20 million compared to approximately $86 million in 2021.

We were down about 25 million in the loan volume so far in the second quarter. So not much left to go related to PPP.

N D D D with a huge program for this mine and a big Thank you to all those that were connected with getting Pvp up and running because from a client service perspective, and our desire to gather clients worldwide.

Thank you very much enhanced our standing with our client base.

Also we did see some uptick in commercial line utilization. This quarter first time, that's happened in quite a while and we have some reasonably that increases to continue this year as borrowers look to lock in inventory and at current price levels. We also anticipate increases in construction fundings through the spring and summer.

Laurel borrowers when I speak to credit in a few minutes. We responded to a lot of questions about loan floors over the past year or so and their impact on our yields in a rising rate environment.

Again, we do not apologize for our own board because we'd realize the ongoing benefit of these floor for quite some time during the first quarter given the impact from our recent 25 basis point increase in short term rates approximately 824 million in loans escaped their floors and are now priced based on our original house brands and the <unk>.

Left chart on this slide indicate we have about $2 2 billion of our floating rate loans that should push through floor pricing with the next 50 basis point range, which we anticipate will occur next month.

We're focused on deposit betas, but at this point, we're also focused on the walls and making sure we achieve a strong of a push and loan yields as possible as rates increase.

As we mentioned in the press release, we are pleased to see approximately a six basis point lift in aggregate loan yields after only four weeks post the latest fed increase and at the top chart indicates we experienced strong yields in the 2% range back in 2019 now that was a much different time, and we don't expect achieving those levels this year, but we could Microsoft.

Dan and the current Delta between where yields are now in those prior levels.

Lastly at the levels of our market leaders are excited about our loan growth prospects and about a mid teens percentage growth rate, which is inclusive of PPP paydowns. Additionally, in 2021, our new markets, including Atlanta, and our new special Linden use provided approximately $130 million in loan growth for the first quarter and including J D.

Ladies increments, they incremented, our incremented, our loan growth by 386 million or 34% of our <unk> 22 in loan growth and we expect strong participations from our new markets in the second quarter as well.

Now on to deposits, we had yet another big deposit growth quarter.

We're up almost $1 1 billion in the first quarter, we don't anticipate that sort of growth in the second quarter with tax payments and with some projected deposit outflows by some relatively large depositors, but still believe that high single digit growth in core deposits remains a reasonable target for us for this year. So no change there.

Our average deposit rates decreased 13 basis points, while end of period deposit rates were slightly higher than average and 14 basis points. Since the last M. O M. C me our deposit rates are up almost two basis points. So we're pleased with the effort of our relationship managers thus far.

We've never abandon our view that core deposit growth was a key long term strategic objectives.

The first one years of our existence, our number one goal was developing strategies and tactics around funding our growth we continue to like our chances given the significant investment we made in both our relationship managers in new markets over the last few years.

We're also we also like our start point on deposit costs as we enter an upgrade cycle. We continue to forecast an aggregate, 40% beta on total deposit cost through the cycle, but we'll keep an eye on what our competitors are doing given they are amortizing Muslim betas, which we believe gives us some breathing room at least initially.

Now to liquidity deployment.

We continue to look at ways to create increased orange momentum through deployment of excess liquidity into higher yielding assets are liquid assets actually increased this quarter responding with strong core deposit growth and the impact of PPP Paydown. We are optimistic that loan growth in 2022 should serve to reduce our overall liquidity, but in our view this will be.

A multiyear effort again, our objective here is to find ways to put money to work in a rising rate environment without placing unreasonable pressure on our tangible book value.

During the first quarter, our investment securities increased by in total of approximately 1% as we continued to reinvest cash flows from the bond both back into the bond book.

The increase in balances actually represented a decrease in our bonds to total asset ratio, which was 15, 6% at March 31, we do believe we have some opportunities on the short end of the curve put some money to work at slightly higher yields and did some of that in the first quarter. We will continue to have a modest measured response and how we elect to put.

Liquidity to work in this rate environment.

We did execute a transfer of about $1 $1 billion in securities from a U S. T M D.

Doing so did help support tangible book value by almost 73 cents per share in the first quarter.

And the gray bars on the top left chart reflect I believe we've done a remarkable job attending our core margins over the last few years, we tend to hover in the 3.2 to three to five range and will work hard to lift our margins going forward given the operating environment, we have confidence that we should see some margin expansion along with increased net.

Interest income this year.

We're up in our guidance on net interest income to low double digit growth for 2022 over last year.

As a credit where again presenting our traditional credit metrics pinnacle's loan portfolio continued to perform very well and again. These are some of the best credit metric ratios we've experienced ever.

Modifications may pursuant to section 40, 13 of the cares Act continued to decrease and was at 660 million at March 31, 2022, and poorly over 91% of our 40 13 credits our own monthly principal pay downs and likely a similar amortization of pre COVID-19 and only 1% of the 40 13.

Loans are in the classified risk category.

Importantly, and as noted on the highlights in the slide we do anticipate further declines in our allowance for credit losses to total loans ratio over the next several quarters given continued improvement in our credit metrics as well as macroeconomic factors we've.

We've had a lot of conversations with borrowers over the last few months about inflation and how it's impacting their business. So far so good our truckers are hospitality borrowers apartment owners et cetera are thus far able to pass along price increases to their customers.

This issue that most all point to is labor and finding enough labor to grow their businesses backlogs for some or some of the highest levels ever obviously, we all need inflation to slow down the supply chain needs to be less of an issue.

We can only hope that over the next few quarters will all get our arms around some of these issues.

Now all of these are run rate for 2022 after BHG, we are maintaining our estimate of approximately 20% gross growth and we will speak to that in a few minutes also included in our planning assumption is that we're not anticipating a repeat of $40 million in income we experienced in 2020.

One from valuation adjustments for several of our joint venture investments. Thus, we're planning for revenues from these investments to be much less in 2022 other than that our wealth management and several other fee based business lines blade may array for a breakout year in 2022 and believe that an aggregate of seven 9% increase in all.

Our other remaining fee categories is reasonable for us for this year.

A lot of interest in our mortgage forecast for 2022, we've lowered expectations for this year not only because rates were increasing but housing stock in our markets, where our levels at wholesales are being impacted and along with that the price of housing and the increased significantly with some amazing stories, where solar from seeding the above list price has become fairly common.

Additionally, there are a larger percentage of cash buyers acquired homes in our markets as our markets continue to attract jobs and people from other states warehousing costs had been much power for many years.

Yeah.

As to expenses, we are increasing our overall total expense run rate from low double digit percentage growth in 2020 to the mid teen percentage growth. This increase is primarily attributable to head count growth in the new markets market disruption initiatives across our market. The addition of Jay D&B and our belief that we should lie.

We approach Max payouts for cash incentives this year.

As a reminder, as we mentioned last time, our current plan is that our incentives will increase in 2022 should we achieve some fairly aggressive performance performance targets.

The increase is based on head count adds in 2021, and our planned recruiting ads for this year offsetting the increases that we are reducing our target pay out in our annual cash bonus plan from an outsized amount of 160% target.

Last year to the traditional 125% target this year we.

We are also providing more cost for equity plans for our leadership.

Lots of discussion currently about expense growth, particularly in the large cap space.

Not sure what their costs are escalating our expense increases are primarily attributable to the successful recruitment of new bankers, who will help drive our growth over the next several years Terry will discuss more on that point in a few minutes. We believe in our organic growth model and we'll continue to lean into it and the opportunities to harvest Atlas revenue.

Producers in our markets has never been better.

As capital, we did see 2% pullback on tangible book value per share was the impact of increased rates on ALC and tangible book value per share just to reiterate a point our leaderships equity compensation plans are designed to perform upon how we rank with our peers on tangible book value growth.

So our leadership is focused on growing tangible book value over the longer term our strategy and tactics are focused on building franchise value using an organic growth model over the long term that includes a focus on earnings growth revenue growth soundness and tangible book value per share.

Quickly as to an update on our outlook for 2022.

We've increased our outlook to mid teens growth for 2022 and are optimistic about the second quarter is shaping up well.

We are adjusting our rate forecast of six rate increases from three last time on our bonds that we could increase that assumption again here shortly.

Given that we believe we should see NIM improvement this year, which should result in net interest income growth of low double digits.

We've also increased our expense outlook for increased hires and other factors to mid teens percentage growth.

Very optimistic that hiring will ramp up here in the near term.

All in we're thinking that we're going to have a really strong year all funded.

Obviously inflation of macro events will influence how this ultimately turns out but as for our group we will work to balance the risk of whatever comes our way with an intense focus on growing the franchise value of this firm.

Now quickly to BHG another quarter of record originations the GAAP between origination and sold loans as one is ESG has been holding more loans on its balance sheet. We anticipated that these G may accelerate sales into their network as capital market interest rates have been volatile.

While the origin platform continues to be Super reliable, which is obviously one of their great competitive benefits as BHG can quickly pivot between the bike network and the securitization debt during times such as the.

Once these she can better to start on the impact of rising rates on our securitization platform. They will likely go back to the.

More on that in a second.

Spreads continued to expand in the first quarter some of the wider spreads and their history with rates rising spreads might decrease some but at these margins BHG has the capacity to execute this business model with a great deal accomplished regardless of some shrinkage in spreads the bottom line chart details the 1400, plus buying can be achieved network and just.

<unk> 600 <unk> bars.

In the last 12 months.

As you know we considered one of the strongest we've considered the strongest funding platform in the country for companies in their space and that there is a significant hunger for more products.

As many of you know the recourse obligation is reserved for potential loss absorption for the sole loan portfolio at the end of the first quarter recourse reserve were up slightly at approximately $208 million while rates, while the ratio of the sold loans decreased modestly to $4 eight 2% as the blue bars on the bottom right chart.

Show the credit portion of recourse losses for <unk> 22 for some of the lowest levels in the past 10 years.

The quality of the borrowing base in our opinion remains impressive and is much stronger than just a few years ago BHG refreshes credit scores monthly always looking for signs of weakness.

Past dues and credit scores were at consistent levels and the portfolio appears to be as strong as it's ever been national and regional unemployment gives them confidence that DHT borrowers should be able to withstand forecasted inflationary increase they and we believe in their credit models and Theyre experienced gives them reason to do so.

Yeah.

BSG had another great operating quarter in the first quarter, we still believe BHG learning growth for 2022 over 2021 will be at least 20%, which is consistent with our discussion from last quarter.

Originations as noted in the bottom right chart are anticipated to grow at least 30%. This year, which is also consistent with our last quarter's discussion.

855 million in originations in the first quarter there they are at a good pace to achieve that growth.

As I mentioned earlier with the volatility in rates. These she believes revenues in the earlier quarters of 'twenty to 'twenty, two will likely be stronger as they likely send more loans to the bank auction platform revenue whole loans on their balance sheet until they can better understand how the securitization markets are and will be behaving.

We are hopeful that as the year plays out. These you will pivot back and retaining more loans on its balance sheet.

As to the balance sheet model and as the slide indicates BHG closed their fourth securitization in the first quarter it amounted to $492 million with a weighted average funding rate of 279% loans.

Loans are secured or securitize, the debt had a weighted average coupon of 14.1.

So with that I will turn it back over to Terry to wrap up.

Alright, Thank you Harold.

In our view the economic landscape remains fragile, Russia and baggage in the Ukraine and various economic sanctions enacted in response likely to continue to weigh on our economy for some time the full impact of the ongoing supply chain issues inflation inverted yield curves and a potential sale.

Aren't yet known but our response thus far.

As Harold has already mentioned has really been to say Ted our tangible book value to initiate a number of targeted loan portfolio reviews, including our COVID-19 impact in commercial real estate portfolios and the heightened our delegate some cyber security and fraud detection, but despite the uncertain economic environment. We are extremely pleased learn first board.

<unk> and remain optimistic for 2022 as a result buyer lifting hiring over the last few years not only are we realized an outsized growth in our legacy, Tennessee, the Carolinas and Virginia markets, but we're also having great success in our market extensions to Atlanta, Washington, D C Birmingham and Huntsville.

Blip hiring continued during the first quarter with 28 additional revenue producers loan growth we experienced during the first quarter along with our current loan pipelines and our continued ability to drive new associates and bolstered our confidence that we should meet or exceed mid teen percentage loan growth for this year not all.

Only that but theres tremendous market disruption in our markets and we believe we are uniquely suited to capitalize on that.

We fully expect to see this opportunity by continuing to hire the best most experienced bankers in our markets and consolidate their boats. This company was formed for the purpose of capitalizing on market disruption due to the consolidation of 22 years ago. This is who we are as I look at our current environment. This literally feels to me.

Like the best market opportunity that we've ever had.

I don't think its the secret to anyone that merger integration pose great risk for those banks that are involved system integrations are extraordinarily difficult cultural war generally command and persist invariably there'll be winners and losers in those organizations and a great deal of the revenues lost as associates and clients get frustrated and leave.

I believe these are the current integrations going on in the markets we serve.

Here's a great way to think about the magnitude of the vulnerability.

That creates an on which were focused this is FDIC deposit market share data. Obviously you use other measures, but this is a pretty good proxy for the potential vulnerabilities in the markets. We serve as a result of consolidation or in the case of wells on their own go on issues.

Taken these 12 markets as a whole I would say that 325 billion is bone and even though this company was formed to take advantage of the same kind of margin related turmoil. Following the consolidation of the nineties frankly I've never in my line same competitor vulnerability at this level.

We successfully exported what we started in Nashville by de Novo market extensions as well as the M&A I spent some time demonstrating success in B and C merger several quarters no. So today I want to highlight our most recent marketing extensions Margaret related term malls really catalyzed our Adrian foreign.

New markets and two new specialty lending practices equipment finance and franchise lending.

And this is snapshot of our progress, which I think you'll agree as rapid and Atlanta waste.

We successfully hired 42 closings 24 album revenue producing at quarter end that had $1 billion and loan commitments nearly $600 million in loan Outstandings and as you can see they're already through breakeven Huntsville, and Birmingham, Alabama have now been in Wuhan has now been with us or just three quarters.

In hospital, we hired 12000 at six am revenue provision, we still got a great iron pipeline in front of US loan production is not bad the deposit promotions off the chart there almost breakeven in just three quarters, Birmingham as it relates to loan and deposit volumes as sort of the opposite story similar.

Hiring levels Fabulous loan production and in D. C. We've just been there four months great initial hiring success with continued large pipeline for hires Pavel.

Seed volumes barely scratched the surface yet in that pipeline was massive domain I cannot tell you how excited I am about what I believe were meant little layer and found that mentioned two new specialties were equipped mask franchise lending by weakness in the euro.

You can see that like the other markets, we've had strong hiring and really ramp in loan growth. So all in last quarter. The EPS drag was about refinance.

We're growing core volume so rapidly we can absorb that drag and still outgrow peers in terms of earnings and you can see the pace.

Our continuing to build out.

We've been talking for quite some time about the number of revenue producers that were hiring because honestly that's the principal vein for the success we've enjoyed.

For a good number of years now revenue producers include financial advisers. Many of you would refer to them as relationship managers, but also includes other revenue producers like mortgage originators brokers trust administrators in the line, but just for one moment I want to drag you to just the number of balance sheet loan and deposit producer.

<unk> is a subset of the revenue producers in order to provide the simple illustration of how we convert new hires to sound balance sheet volumes would translate to revenue growth. We are all kinds of experienced loan and deposit producers not trainees not rookies that producers with at least 10 years experience with their own book of business.

Small business private banking enphase commercial middle market F as corporate values and so forth.

And the volumes associated with each type of those Enphase Barry.

But if you took the average since 2008 2018 for all types of Enphase.

Our new hires generally consolidate their book over five years volumes continue to build post five years, but for today, we just want to concentrate on the first five years on average loans build 8 million imbalances in year 128 million and year to $30 million in year 344 million years more $86 million.

Fine.

All of that growth as noted on the chart on the top right. Both of these charts on the top are intended to illustrate how we go about our planet is a lot of numbers, but it simply didn't illustrate in our planning assumptions for the balance sheet growth is associated with new hires and the market share consolidation over the last four plus years I don't want you to Miss that.

This is an incredibly powerful growth engine to them already bill the table at the bottom aggregates volumes were the same 176 financial advisers admired what our planning assumption is for new volume growth for 2022 and future periods again based on historical averages and for <unk>.

22, thus far we would expect the same individuals to generate $6 4 billion in lost volumes that number's about $2 2 billion in growth over the previous year. That's how it works and all we've talked about here is just balance sheet grow theyre meaningful fee revenues that go with that as well so the obvious point.

<unk> is an.

As the shareholder given these volumes, making this investment in these experienced producers.

It's hard to me.

Here's another way to think about our ability to grow the revenues. This is a chart. That's really important to me normally gets relegated to the back of the Dayton, We haven't addressed them call for a few years, but the reason it's important to me because first and foremost we're in an earnings per share focused company and our path to produce that earnings growth is.

Through revenue per share sustainable revenue per share true franchise value creation not expense good.

The blue bars on our revenue per share ground since first quarter of.

2018, you can see it's a pretty steep and reliable slow.

The Green dashed land is the year over year percentage growth in revenue per share Red dashed line is designed for peers and so I'd point out a couple of things number one we grow revenue per share in quarter in quarter out two we almost always grow faster than peers and not by a little dialogue and during 2021.

On the gap to peers in terms of the rate of growth in revenue per share is widened every quarter. So we have quite a track record for successfully invest in growth.

Pardon named Bob with the French General and World War, one so no variety of actually uses famous quote before without fail somewhat the same way our economies volatile advanced in collapsed worse, there are significant headwinds associated with things like PPP paydowns in the disappearance mortgage refinance market, but ours.

Situations is excellent the competitive landscape still to Norway, we're attracting talent clients and Madden pace and we expect to continue top quartile EPS growth based on top quartile revenue grow upright and would be glad to stop there and take questions.

Thank you Mr. Turner the floor is open for your questions. If you would like to ask a question. Please press star one on your Touchtone phone and so will be given preference during the Q&A again, we do ask that you again.

Again, we do ask why you pose your question that you pick up your handset for the best optimal sound quality.

First question comes from Brett reps.

Chris.

Hey, guys good morning.

Good morning, Brett.

Congrats on a really strong quarter saw some impressive loan growth.

Wanted to first start with BHG and usually when I'm, having a conversation about you guys. It's within the first 30 seconds that D. H J comes up and sorry, I think I said.

A big focus wanted to get an update on any any thoughts on that investment and their thoughts on what they might do.

To either monetize that or.

Look to capitalize on the strength in <unk>.

I wanted to wanted to see what you thought the margin.

Harold you talked about spreads how much bride compression, we think that business might be seen here in the next next few quarters.

Yes.

I'll answer the second question first.

They don't think spread compression is going to be that great here in the near term.

Sure.

They have been successful with coupon rates.

North of 15%, 16% and the payer so they feel like they can they can move rates up with borrowers.

Do think that the buy side or the auction platform side that they'll have to probably be a little more aggressive to get those rates up a little bit but.

I'll say, perhaps some spread compression up maybe 1% or maybe to something like that but they don't think it's going to be.

<unk>.

Put that big of a dent into their business model.

Now over the years, we've had all kinds of conversations about liquidity events and when the market's right and when the market is not right.

I think our belief is that market the market is not shaping up.

To their advantage currently.

I think they've got a lot of growth in a lot of runway in front of them. So they will likely be focused on growing the revenues of this of their burn because they believe that.

As they grow their revenues by two we'll see increased franchise value at some point whenever that occurs.

There is a liquidity event.

I think al and Eric and chemical where all the same page we have a great partnership we communicate would communicate frequently.

That said I do believe that al and Eric.

Or at a point personally that they think that.

They need to keep their eyes open and aware of what's going on in the various fintech lending markets and what kind of appetite there might need for their firm who they believe is very profitable and they are there.

Very proud of it so.

I don't know of anything on like we've always said and on opening I know some the biocide or get tired of me, saying this but it's still the truth.

We don't know if there was a liquidity event. This year and next year are five years from now, but we do know there's likely to be one.

And when that occurs we hope to enjoy a very nice gain and we hope to be able to look at a variety of options on how we execute on that game, so with that I'll stop and see if Terry got any additional comments or whatever so.

No I wouldn't add anything.

Okay.

I appreciate the color on BHG wanted to ask about the margin as well just when I look at your filings and things like that.

And they would suggest that you're being somewhat conservative with your assumptions for 102 hundred basis point.

And rates just given the liquidity that you still have on the balance sheet.

Can you talk maybe about the assumptions that go into your upside for NII and then let's talk about you know what.

Prices in the first 90 days on our loan portfolio following a rate hike.

Yeah, well I think the.

The advantage we got here in the near term is that we anticipate a 50 basis point increase in rates from the fed and so that's good.

Tape.

Little over $2 billion in loans.

Out from their floors and put them back on what the note coupon is but.

You know what we do is we're talking to are market leaders. We're trying to anticipate what they think their growth is going to be over the next several quarters and then we just fashion that on out we also look at what our pricing.

Has traditionally ban and use that as a board on the forward curve. So.

It's not.

Some people might say, it's not rocket science, but there are a blue million assumptions that go into this this forecast and just to get on my Soapbox just just for a second because I know Tom's types of pressures.

The disclosures that we include a regarding our asset sensitivity in the back are primarily weighted towards what the regulators generally require.

So it's a.

It's a stable balance sheet are Adam.

Parallel shift in the curve and all those kind of assumptions that go into it.

And it really lacks a lot of creativity and a lot of ingenuity that we're always thinking about around here to improve both the earnings content of our of our firm as well as what we think our growth is going to be so.

We've got we've got several levers here that we can pull peer periodically that that helps us either in the near term to short term or the long term.

And that's what we'll do and so what we tried to do is provide that information that's in that asset sensitivity table, but at the same time kind of get you to a real world kind of growth perspective that we think is going to.

As more likely.

Okay Fair enough I appreciate the color congrats on the quarter.

Thanks, Brett.

Our next question comes from Jared Shaw with Wells Fargo.

Hi, This is John Rowan for GERD.

Got it got it.

I just wanted to go back to the comment.

Earlier in the <unk>.

Paired remarks about line utilization was a benefit this quarter.

Was hoping you can just quantify how much that increase from the fourth quarter and what the dollar impact of that was and I guess, if there's any.

Further for that to go as we move through the year.

Yeah, John I'm looking for the slide 35 in the bag I think generally it will give you that information so.

Thank you.

Commercial real estate loans went up.

Yes.

The.

Active balances on commercial real estate went up 370 320 to one C&I. So.

The utilization went up.

Half a percent on commercial real estate and C&I.

So John it just a mine.

The color commentary in addition to that slide and Harold's comments.

I think you have to then do we see an opportunity for that to pick up speed I think the answer to that is yes, I mean, you know.

Sort of two components to it.

He is the sort of inevitable fund up of construction loans. So you know that utilization ought to pick up and then.

Secondly.

In the case of C&I My belief is that you know if you look at the.

The economy moves forward it spends the sales cycle and that results in receivable and inventory financing land utilization in our lives. So.

But what dragged gnomic outlook is.

Do you think the economy is going to find a good footing you ought to expect land utilization of big.

Okay, that's very helpful.

And then just.

And the rate hike assumptions.

Does the faster.

Assumption of an increase in short term rates impact your beta assumptions at all like moving to a 50 basis point hike in Nabors is kind of spread out throughout the year does that kind of a ramp up how quickly you have to pass through that.

Hazardous.

Yeah, our planning would be that initially our beta will be relatively small.

That over the course of the rate cycle, we increase the data hub.

Meaningfully.

Okay, but so.

The peso is factored into that though.

For sure.

Yeah, Okay, great. Thank you.

And then sorry, just one last one for me.

On the prepared remarks, he talked about fix rate hikes being assumed in the guidance, but on the slides I'm seeing.

Six additional hikes throughout the rest of the year.

I'm just wondering if that's if the actual guidance assumes six or seven total for the year.

Oh, Yeah, we were thinking six more for the rest of this year.

Okay, great. So seven in total.

Yes, okay. Thank you. Thank you very much that's all for me thanks for answering my questions.

Nice job.

Our next question comes from Brock Vandervliet with UBS.

Hey, good morning.

Just going back to BHG.

Loan growth guide for this year.

Just wondering.

You've been talking to them.

Some of the macro clouds.

Materially year to date or at least gotten more uncertain.

How much discussion has there been internally in terms of okay.

Yes.

Or less comfortable with the environment what would.

What would need to happen do we need to narrow the.

The credit box drop.

Drop guidance on loan growth boost reserves.

Much of those discussions have been been happening behind the curtain.

Yes.

Yeah the only.

My exposure to BHG is through their board meetings and we.

We have access to their obviously their credit people.

I'm not sure how much.

Increased diligence.

I can't really put a put a measurement on that other than that.

They are they are looking at.

The portfolio statistics, they've added people into their credit units.

And so on and so forth so.

You know they they like us have an enterprise wide risk group that is.

You know trying to look out and around the corner.

I don't know if that's exactly get to what you had already brought but that's where I'm headed.

Okay, Yeah, that's close enough.

And separately just on your <unk>.

Pinnacle's.

Their reserve guidance.

We've repeatedly.

Estimated way to the high side and provisioning it sounds like.

We should be expecting.

Neighborhood of provisioning.

Near to intermediate term as that reserve.

<unk> continues to trend down as that.

On target there.

Yeah, I think so.

We don't we have a we have a stronger charge off forecast.

<unk>.

For this year in our numbers, but I think thats just out of caution.

When I've talked to the credit officers.

They're really excited about where the book is we've had now a string of probably four quarters, where provisioning has been a lot less than even we anticipated. So there may be some elevation toward the back end of the year.

Okay. Thank you.

Our next question comes from Steven Alexopoulos with J P. Morgan.

Hey, good morning, everybody.

Good morning.

I wanted to start carry on slide 23, you have quite a few markets, where first horizon has really strong market shares I'm curious based on your experience in these local markets do you see this is a similar opportunity to what happened with the truest or you think this could be even better from a talent acquisition perspective, what's your what's your take there.

I would say comparable to be honest with you Steven I think you know this I would say view.

And I'm speaking off top my head I have to go get number to frame it but what I believe is that if you looked at over the last.

Five years Suntrust would have been.

The principal benefactor to us in terms of new hires.

When you.

Make it a more recent time period millions over the last two or three years that evolved to wells being the biggest benefactor for us and so.

Today.

I think the balance of sort of moving back to <unk>, there's lots of vulnerability there and.

You know I don't know my own sense of this first horizon's, probably going be a comparable.

Same for us.

Okay. That's helpful and then on the next side Terry will you breakout this once in a generation opportunity of these different markets.

I'm, a big picture view, where do you see the revenue producers moving too in these markets. So not looking for an exact number but you know is.

It is this the start of these other markets moving towards Atlanta in Atlanta, continuing forward.

Well I think so as you know there are some differences in those markets and so Atlanta in D. C are the Grand market is just in terms of total size and growth dynamics and so you know when we go into those when we our leadership in those markets.

Part of our discussion centered around I mean, you think you can build a $3 billion bank over a five year period of time or something and so.

You know that's that's.

It would be indicative of what we set out to do.

Market Hospital in Birmingham are meaningfully smaller markets and so.

The penetration should be similar in those markets might be even better but the growth opportunity in the number of revenue producers that we hired in those markets will be less but yeah, just sitting here today.

I love, what's going on in Atlanta.

I'll be shocked if we don't run faster in D C than even in Atlanta, I don't know, we just have to see but I'm. So encouraged by what's going on there.

Okay. That's good color.

And then finally I'll get Harold into the mix on.

Deposit rates. So the end of period deposit rates were up modestly maybe how what's going on behind the scenes you have many customers now asking for higher rate how are the arms handling that and maybe what are you seeing from competitor banks on that front. Thanks.

Yeah. I mean, we are first of all we're not seeing anything from competitor banks.

So I don't think competitor rates are competitors or increase in rates.

Any consequence at all.

<unk>.

We are getting phone calls.

From various.

That.

Tend to focus on their rate and we are working with those clients as you might expect us to do.

And they are primarily the ones, but now we do have several clients that are on an index.

Posit rates pricing scale, so they obviously got increased rates.

But you know Theres a lot of there's a lot of our client base out there and all of the not for profits and the churches and those kind of.

Businesses, where they pay attention to every last nickel and so we expect them to call in.

You should expect us to work with them. So so.

That's what's really going on we're not.

A lot of the operating companies that are around fewer call. It but most of the operating companies are more concerned about where theyre going to get there next person to put out on the line to drive the truck to do those sort of things.

Okay.

Based on Harold what you expected right from an exception pricing view is it is it about in line what you've seen so far.

The amount and the number of requests coming in for exception pricing.

Well I think we're I think we're doing a little better than I would've thought I would have thought with that 25 basis point.

That we would see more.

The increase in our deposit cost because we look at it every day and we particularly took interest.

The fed increased rates 25 basis points. So we had some.

We had some inclination as to what rates would do given the indexed accounts.

But I think I really do I met that and the comment is that arm.

Hats off to.

My relationship managers, because because I think they're doing a great job.

Explain to our clients, where we are in this rate cycle.

Okay great.

Great. Thanks for taking my questions.

Thank you.

Our next question comes from Michael Rose with Raymond James.

Hey, good morning, Thanks for taking my questions.

Just wanted to get an update on how many or how much loans you guys are adding from from BHG each quarter.

And if that would be expected to increase I know they did a securitization.

In February and it could be a little copper given the environment. So just wanted to get a sense for how much of this quarter's growth and maybe expectations.

For adding BHG loans are kind of built into the guidance for the year. Thanks.

Yeah, Michael I don't think we added any loans in the first part from BHG. If we added any it was about $25 million.

And I think what we've.

Always communicated between us and them as that.

We may look to add $150 million or so this year.

But I'm not sure if we added any here in the first quarter.

Okay, Great and then maybe just switching to credit quality, obviously things are really good but clearly some ups some potential clouds on the horizon. If I look at post. They once you saw I mean, it's definitely lower than where the reserve is down you talked about that going down can you just kind of talk about the countervailing forces there.

In terms of improving credit metrics versus kind of what could happen out in the horizon and what that could mean for <unk>.

Provisions and reserves.

Yes, I think the.

Inflows to seasonal for us would be that the.

The migration period in the past is gradually moving forward and credit metrics are improving with that so that will put downward pressure on it and the same thing exists with respect to the forward outlook.

There's less near term kind of macroeconomic pressure on our reserve Bill.

So I think those two things will in combination give us.

More confidence that the reserve will likely go down.

<unk> been up here over the next at least the next couple of quarters.

Now, we don't expect it to get down into the top of the day one seasonal.

Area code.

We don't think that'll happen, but.

But we do think we've got some more room here like I said over the next couple of quarters.

Okay, great. Thanks for taking my questions.

Our next question comes from Matt Olney with Stephens, Inc.

Hey, Thanks, good morning.

I wanted to go back to the discussion of the impact of higher rates on the bank.

And my question is really on new new loan spreads.

It's 33, you gave us a good summary.

The higher rates I know you are hoping to see that flow into the new loan originations.

Curious what your expectations are for this year. It seems like the the market is assuming that many of your competitors also have really strong liquidity.

Does that could really slow down the list of the new spreads but.

Curious kind of what your expectations are this year.

Yes, Matt This is Harold I think for new loan originations.

We hope to get kind of a similar spreads to the what.

What the bogie is currently.

Our planning assumption is that we likely won't.

That in order to bring a new borrower across the street, we probably won't get the 100% loan beta.

We anticipate that.

We'd like to get out of our current book.

So there is some.

Some caution built into what pricing is going to be on the new credit.

That were booking.

Okay.

And then I guess just.

Taking a step back and thinking about pinnacle rate activity more broadly throughout the cycle.

Seems like last rate cycle, the bank performed pretty well in the first half the cycle, but then.

<unk> provided in the back half so I guess what are the expectations for.

This cycle it sounds like you think that deposit betas.

Could be lower given the higher levels of liquidity, but what else should we think about in terms of how the bank's balance sheet has changed since a few years ago.

Yeah, I don't know I don't know if there's a whole lot.

Uh huh.

Significant.

Change in how our balance sheet is.

Is.

Bill as far as on the left side I think our bond book is.

Probably you know maybe a couple percentage points bigger than what it was back in the last upright cycle.

Obviously this liquidity has influenced.

How our balance sheet has moved since the last time, so and I think.

That gives us some comfort that maybe the deposit beta won't be significant.

At this time as it was last time.

But I think you know.

The structure of the balance sheet I think just the macro environment here, where there is massive.

Massive liquidity and modest loan demand is a pretty different phenomenon than what we.

We faced before so I think that we will have more impact perhaps than just changes to the structure of the balance sheet.

Okay.

Okay. That's all from me thanks, guys.

Our next question comes from Jennifer <unk> with <unk> Securities.

Thank you good morning.

Thank you.

Terry could you kind of elaborate on your commentary on your optimism for the greater Washington D. C market and then my second question is on <unk>.

And of course buyback appetite right now.

Okay.

In the case, though Washington D C Denver.

The so it just starts with a large market with high growth as you know beyond that for us the whole stories about people and who are the people to giant and where they come from and who else can they hire and what business getting they move in.

All those sorts of things and so.

Uh huh.

Still early stages as you saw on the slide there the balance sheet volumes it barely.

Scratched the surface there in the first four months, but the pipeline is very large.

You know again, you gained celebrate till you get both but my belief is they will be successful in getting the boat.

They're off to a really rapid pace on hiring and their pipeline for hiring is also.

Large and so the combination of the people that are there.

Loan pipelines that they've generated.

The hiring pipelines that also.

Our building is the basis for my optimism.

Okay.

And the appetite for buybacks at this point.

Yes, Jennifer this apparel.

I'm not really I don't.

I think we're at a point to execute on any kind of buybacks right now.

One thing that we do consider and buybacks is what are all growth forecast looks like.

And so currently it looks like our loan growth is going to be.

Barely significant and we'll look at that in relation to capital so.

Right now I think we're well.

On a whole, but obviously, if we see more pressure on the stock.

Then we might we might start wading in trying to independents talk little more effort.

Great. Thank you so much.

Thank you.

Our next question comes from Stephen Scouten with Piper Sandler.

Hey, good morning, guys appreciate the time.

Terry I'm curious, how you're thinking about loan growth from a from a market expansion standpoint, if I do the math on the slide you laid out for the new hires it looks like maybe that's about 10% growth just on their potential.

Then the next you know amount to get to the up gains with more market expansion is that a fair way to think about it and how do you see the prospects shaken out from a market expansion standpoint correct.

Yeah, Stephen I think I might go the other way.

So we don't have.

Specifically market extensions baked into the forecast, but when you start compartmentalizing that grow.

Growth from new hires and you get growth from existing.

Bikers and footprint and so that's where that mid teen growth would come from is is that you know the.

People that we.

We have hired and the people that are sort of legacy <unk>.

Lenders here.

In terms of market extensions I think it is a good question you know we drive.

He comes up David as you know, there's always a question about M&A.

And so you know what drives I load my and our opportunity in the markets that we're in is so strong I don't it's hard to figure out it hasn't been overwhelming transaction for M&A same thing for marketing extensions I think we will have more market expansion opportunities. We have had discussions and a number of March.

Yes.

And just to remind you for us it's not about hiring a sales team that's about hiring somebody who we think can build a big bank in that market.

So when we find those will move.

And so when you think about where might we move.

Steven.

Basically we keep going back to this triangle, if you go to Memphis and draw a line up to D C down to the state of Florida.

The big.

Major urban markets are the markets, we'd like to be in and so as we find people who we think can boost big bank will we'll pull the trigger at that point, but that's not included in sort of the growth.

Our projection.

Okay perfect. That's really helpful. I appreciate that economic expansion not margin, but that's a great answer there I appreciate that.

And then if I'm thinking about BH.

D H G Atlas.

Atlanta expansion I think that was noted in the presentation was that about any extension of their product set or is that just more about being able to tap a new market for talent to run that platform.

I think as I think it's a little of both I think a lot of the people that are part of some of their new.

Products.

Our in Atlanta, and so they just thought they decided to establish a kind of a foothold there.

In Atlanta, and I think that gives them opportunities to.

We introduced their brand Tucson.

More potential employees.

They have the talents that theyre looking for.

Got it that's helpful. And then just one more question, maybe around BHG and kind.

Kind of put a credit outlook as a whole I know you said.

Some of the stuff could change in the back half of the year, but with ph D. How do you combat maybe some of the Investor pushback.

Hey, this is more unsecured consumer type of lending with what we might be worried about if we enter a recession. How do you maybe come back that sort of ideology. As you think about that book and their visit and then if the Moody's modeling where to start to shift would that also have an impact on.

Near term, where you're provisioning could get.

Yes, I think it.

Obviously, if moody's were to change our position on what are they think GDP and unemployment goes that that could be that could be impactful to everybody.

As to.

BHG and their credit systems.

And their borrowers now granted.

<unk> gotten into the shallow into the pool on point of sale.

But as far as their traditional business lines.

They are lending to.

Consumers at an average ticket size of $50000.

So these are not.

No.

Low ticket kind of credits. These are credits that are established.

They believe in their credit scoring system and so these are.

These are.

Folks that have legitimate credit histories.

They can lean into with confidence so.

I wouldn't I wouldn't classify it as a.

Traditional consumer book based on what I understand traditional consumer books look like.

These are folks that are focused on different things with respect to use of proceeds.

So one example.

Got it makes sense well congrats on a great quarter, guys and I appreciate a lot of the new slides in the deck very helpful stuff.

Thanks, David.

Our next question comes from Catherine Mealor with K B W.

Thanks, Good morning.

Hi, Kevin.

One follow up on just the balance sheet and the margin the cash is sitting at 14%.

Average, earning assets today, how do you think about where that ratio.

The back half of the year and how that.

How that senior GAAP NII guide.

Yeah, I mean, we do have some reduction in that but not a lot.

We think it's going to be fairly stable for the rest of the year.

We are looking at a couple of near term products.

That'll give us some.

Some exposure on the shorter end of the curve with some floating rate.

Instruments.

Maybe give us a little bit of an extra little punch, but.

For all intents purposes that'll be just just another cash item, that's making a little more money.

I think I think technically it will be in the bond book, but it'll be a short term securities.

Okay Alright.

And then just the picture on credit and credit so good.

We're seeing charge offs flow and MTA decline in reserves are still coming down yes, yes, there's a big disconnect between.

What we're seeing from the guidance.

And third that we have with investors on wall Street and any commentary on.

What you can do to prepare for any potential increase in credit costs Patrick of credit Youre looking more closely at Youre staying away from parts of your book that you think are at relatively higher risk today and things you can do to prepare ourselves to be really helpful. Thank you.

Oh well.

Like I mentioned before I spend a lot of time with the credit officers, particularly the chief credit officer on.

What kind of diligence thereabout doing today.

What forecast looks like regarding inflation and so on and so forth.

There we've got it.

I think one of the I think one of the things that gave me some comfort from what <unk> was talking about to me is that theyre going back into that Covid book that we looked at over the last two years revisiting those credits.

Particularly around hotels.

Probably the first the first exposure will be to discretionary spending so on and so we're in right now, but I believe that our client selection processes are sound.

That we feel good that those type credits that are more subject to discretionary spending are looked to be in good shape.

Now past that then you look at all the fuel consumers call. It truckers in concrete companies and none of that and and right now all of them are passing that cost along.

How long that's going to be able to do that not sure but right.

Right now everybody.

Everybody is up to their neck and business opportunities.

The biggest issue like we talked about is can they find workers.

Yes.

Sure.

Okay, Great. That's helpful. Thank you so much great quarter.

Thank you.

Our next question comes from Steven Alexopoulos with Jpmorgan.

Yes.

Steve you there.

You must have dropped okay I'll move on to the next one our next question comes from Brian Martin with Janney Montgomery Scott.

Hey, Good morning, guys, Hey, Harold maybe I joined a little bit late but just maybe the last question you talked a little bit about the liquidity it sounded as though last quarter, you kind of expected that liquidity to drop a little bit in conjunction with the loan growth.

Has your stance a little bit different this quarter based on your comments to the last question is how would that maybe it's not going to change all that much.

Yes.

It will come down, but I don't think it's going to change a lot.

Catherine noted 14%.

Go to 12.

Nothing like that I don't think its going to jump it will go down that much.

Gotcha, Okay, Alright, and then just.

If you gave it helped maybe I missed it just the timing of your rate increased expectations. I said 50 next next.

Meeting in May beyond that if you just kind of want it when they are meeting our way alright, I think that I think thats right Brian .

Okay, Alright, and then just the.

Yields on new loans that you guys are getting and then you talked about spreads, but just new loan yield today on the commercial side in general can you give any thoughts on those relative to what's coming off the books right now on the books.

Well I don't think there's a whole lot of big Delta between the new loans.

No.

Former loans right right now we are hopeful that we can get some increased rates on the fixed rate credit.

I think we've been we've been accountable.

I don't know, we just need to probably do a little better on fixed rate lending and what kind of rates, we're getting on those but other than that I think our spreads are hanging in there. The other issue that's out there that that our folks I think are doing a really good job on is this whole LIBOR sensation thing.

I think our rates.

During on software that the spreads are hanging in there its not increasing a little bit so.

So we feel pretty good about that.

Gotcha Okay.

Thats all I had guys I appreciate it thanks and great quarter.

Thanks, Brian .

And im not showing any further questions at this time. So this does conclude today's presentation. You may now disconnect and have a wonderful day.

Yes.

Okay.

Okay.

Yes.

Yes.

[music].

Okay.

Yes.

Yes.

Okay.

Okay.

Sure.

[music].

Yes.

Sure.