Q4 2022 Pinnacle Financial Partners Inc Earnings Call
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Good morning, everyone.
Welcome to the Pinnacle financial partners fourth 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 earnings release, and this morning's presentation are available on the Investor Relations page of their website at Www Dot 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.
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During this presentation, 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 the actual results performance or achievements of pinnacle financial.
To differ materially from any results expressed or implied by such forward looking statements my.
Such factors are beyond pinnacle financial's ability to control or predict and 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 31st 2021.
That subsequently filed quarterly reports.
Pinnacle financial disclaims any obligation 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 pinnacle Financial's website at www.
P M S P dot com.
That I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's, President and CEO .
Good morning.
Thanks for joining us for our fourth quarter earnings call.
Looking at performance in the fourth quarter, Keith as measured by net interest income grow tangible book value creation go round grow core deposit growth asset quality all continued to be strong there.
There is a fair amount of noise in our fourth quarter numbers. So we're going to move quickly to the performance data over the fourth quarter to try to create clarity there.
And of the outlook for 2023 model builders and finally I'll spend wildly.
While I believe we have a unique ability to continue producing shareholder value.
As you likely know, we believe asset quality revenue growth earnings per share growth in tangible book value creation result in long term shareholder returns. That's why our incentives are aligned zone and that's why we Jonathan dashboard every second quarter, where you can see in the relentless upward flows.
Matrix, most closely tied to the shareholder returns.
<unk>.
Followed by the non-GAAP measures, which I'm personally most problems.
If you believe that asset quality revenue grows earnings per share growth and book value accretion, both standalone and shareholder returns with that.
Then you have to appreciate that persistent excellent performance against those variables.
Okay.
Mentioned a minute ago, there is considerable noise in our fourth quarter financials. So we're anxious to get all of those data. The most impactful of those items based gene lesson on roughly $500 million in originations on our balance sheet, thereby incurring the income will no longer own the lives of the loans as opposed to direct the remainder of their orphan black.
Which when resolved with the size of the gain on sale upfront significantly increasing their and our earnings during the fourth quarter. Nevertheless, I blame you should be able to see that combined business continues to have great momentum so our own let's move all those are all good quarter.
Thanks, Terry and good morning, everybody as usual, we'll start with low fourth quarter, although the strong loan growth quarter for us and we believe annualized mid teen loan growth was a 2023 as Bruce Ross.
We anticipate loan growth loan growth in the fourth quarter and we anticipate further escalation in loan yields in the first quarter, along with that were forecasted increases of 25 basis points in February .
By sports embark our modeling indicates that loan yield will be onboarding.
It's about two points or so.
The talent we've added over the last several years resulted in extraordinary balance sheet momentum as we've done over the past few quarters, where again by affecting net loan growth by category.
To help everyone better understand the source of our growth it's been a huge year for us as far as loan growth is concerned and it works out with the new markets that are new hires contributed to more than half of our growth.
That represents more than just the annuity stream for interest income those are new clients with our new opportunities are all part of making progress.
Definitely.
For all of our footprint with new markets, but also a much deeper footprint given our model.
Now deposits really pleased to report the growth in deposits for the fourth quarter growing deposits at a reasonable price and 43 of our key focus for our firm.
We are actively build our deposit gathering franchise around HSA comedian associations, and nonprofits and others and we believe we're making headway with these and other special deposit initiatives.
Our average deposit cost payment behavior, and 74 basis point increase over the third quarter.
Although we believe we remain inside of our total deposit beta guidance, 40% through the end of 2022, we experienced an acceleration in deposit costs in the fourth quarter above our expectations.
Yes.
Additive pressure around deposit costs are significant so we fully anticipate that increases.
That rates will continue to have a tailwind where increased volatility.
2020.
Average deposit cost we believe may approach one 2% in the first quarter of this year as the mix. We are seeing the positive move more noninterest bearing lower yielding interest accounts into hard products on top of our advertising for deposits were down approximately 440 million or breakeven averages even.
More based on peer to peer events. Our plan contemplates. This decrease to continue at a lesser pace than the first half.
90% of our non interest bearing balances our commercial with a barcode 43, 5% of that number being analyzed over the last year analyze commercial has dropped from around $425000 per door.
Right.
While not a lot of commercial has dropped from 35000 to 30000.
Pre COVID-19 levels will be around 300000 for a while.
25000.
So average account size is still 10% or so far with pre COVID-19 levels.
Our number one objective, providing developing strategies and tactics around bundling hardware, we continue to like our chances given the significant investment we made in both the relationship manager or new markets over the last few years, hopefully you'll hear the spikes leadership ever talk about having too many deposits. Our belief is that we have and will fund our deposit growth effect.
We can prudently maintaining the appropriate balance.
Profitability and growth.
Now liquidity, we believe we have ample liquidity fund our near term growth.
This investment experienced our outpatient bond was flattish in the quarter, we don't anticipate any systemic broken bonds. This year at the top left chart reflect our GAAP NIM increased by 13 basis points compared to 28 30 basis points from the previous two quarters as we mentioned last time.
<unk> and our NIM expansion was not unexpected although we felt like the name will expand in the fourth quarter about basis points.
Our planning assumption is our name will likely be flat to down next year and likely down in the first quarter. During the first quarter is burdened by a few days.
Our growth model should provide for increases in net interest income.
As we enter 2023, we believe net interest income guidance in the high teens percentage growth for 2023 over 2022 is reasonable at this.
As credit were again, presenting our credit metrics total loan portfolio continues to grow very well our current ACL is one 4% well, which again compares to a pre seasonal pre COVID-19 reserves of 48 basis points at the end of 2019, we did modify our seasonal modeling this quarter.
Domestic consumption so from baseline at 20%. So your question of 30% and the peso.
Domestic scenario that 50%, we continue to have conversations with borrowers about supply chain inflation and how it's impacting their businesses. We've been all about sustaining sustainable credit diligence efforts with the intent to accurately identify any weaknesses in our borrowing base.
We continue to have a very limited appetite for new construction.
Residential our perf.
Thus the growth of our construction portfolio is limited to fund a previously approved for members with no new projects being added at least through the first quarter 2020. We also remain attentive to our concentration limits in all areas of our portfolio, particularly in CRE as a table in the bottom right of the slide details.
No changes regarding our CRT appetite from last quarter.
In summary, our outlook for credit remains strong as we enter 2003 from a position of strength so negative trends put against the belt. We believe we are advantaged.
Now all of these and as always I will speak to you Bill.
Excluding BHG fee revenues were flattish for the third quarter all of that said, we're pleased with the effort of our generating units are putting forth as several units are negatively impacted by the current operating environment. The way obviously residential mortgage volumes were down this year mortgage does see their pipeline is building back modestly in the first quarter.
Interest rates, hopefully will be less volatile in the spring home buying season yet.
Gains on SBA loan sales are also down significantly from the third quarter.
Their business was impacted by the elimination of incentive from the cares Act, which drove more business SBA lenders improve before.
We've got a few questions on earnings credit rates and the impact of the policies. So here's the status that we have approximately $2 billion.
And it allows commercial non interest bearing accounts, our current ECR at around 35 basis points, which we feel is competitive.
At the moment, our run rate on analysis fees with flavors is about $4 million to $5 million per quarter.
For every 25 basis points move rates ECR that reduces our analysis.
That 400 to $500000 each for our goal is to stay in the building of our competition peer group on earnings credit rates. So we have to release some lift in the ECR seller, but it will come in small bites.
We had anticipated 20 to 2022 to return to high single digit growth over 2021, excluding BHG and other non equity investments of <unk>, 5% growth, we achieved 5% growth for the year.
Think mortgage should recover modestly in 2012.
And we've also added some strong revenue producers in wealth management late in 2022.
Excluding BHG and the impact of other equity investments, we believe that high single digit or low teens growth at 43 over 42 degrees.
Okay.
Expenses came in about where we thought for the quarter. We did see non compensation expense declined for both U a.
<unk> been attributable to the reversal of those franchise taxes hurdles with some of that being added to the tax line. It's also reclassification 20 franchise tax expense and income taxes. All in we anticipate an effective tax rate of approximately 20% and 23.
Our incentive costs also decreased in for Keith.
Primarily as a result of the impact for Q2, <unk> and the cash language came in below target and overall performance metrics on performance based equity incentive.
These statements are below our expectations.
All of this is the segment a few comments about variable cost nature of our expense base.
We feel like our expense base should result in mid teens growth for 'twenty three over 22.
As to how we can manage expenses as I mentioned, we reduced our 'twenty two payoffs do firm not achieving selected incentive targets, particularly on our quarterly <unk> and various other measures.
Equity compensation, which is by the way primarily impact senior leadership.
How it works our cash incentive plan has always thought of the ETF growth targets for 2022 was also tied to PPR targets for each quarter.
First our fourth quarter peak in our target segments.
H R.
Our leadership equity plans are tied results in relation to our peers. Some a return on tangible common equity summer tangible book value accretion summer fee and tangible book value.
It's all based on rising in relation to a figure for.
That we think are directly linked to shareholder value.
<unk> and the better we do we believe we have a very shareholder friendly compensation system that is objective not subjective.
Which is a meaningful variable cost involved.
The other element that brings bearable cost attribute to our expense growth as our hiring model.
We can always back down are all improving and have done it a few times in our history I can recall, what's during the financial crisis and the other historic vote.
Both times, we slowed recruiting until better understood the depth of the macro environment.
Lastly, and as we mentioned in the press release, we've got the ability to modify our canceled postponed various events and projects with gasoline will do should.
Our target is to be in January about being achieved.
All of the capital tangible book value per common share increased to $44 74 up slightly from last quarter, our capital ratios remain above well capitalized levels black our tangible common equity ratio, which stands at eight 5% currently.
Mindful of our tier two cap levels, particularly at the bank.
We monitor our capital levels as we enter the total group we believe the actions we've taken to preserve tangible book value and our tangible capital ratio that served us well and have no plans currently to alter our view that the tier one capital stack means MISO column, where it all.
Now, let's see promise.
Forward looking at the outlook for the rest of the year.
As slide indicates BSG had another great quarter on the origination segment has been the history.
Relations did decrease from prior quarter with Bhg's implementation of a tighter credit box. So you're on the lower credit score levels, which are typically more profitable were funded in the fourth quarter. As a result spreads did coming out from the last quarter from that 7% to eight 5% as the chart on the bottom.
That is more spread shrinkage than originally planned but is it targeting today for several quarters in 2020.
Current spread above our near historical norms.
The accrual for loans institutions, and prepayments increased by six 6% to.
Two 8% last quarter as a result of them cautionary posture.
BHG van.
Accrual overhaul services repayments for our sold loan portfolio increased.
$207 million.
We entered 2014.
As the Blue bars on the bottom chart shows reports losses still slide 4%.
6% at year end.
Additionally, given the macro environment and as we mentioned last quarter. The HC also reached all balance sheet reserve for loan losses of $147 million or four 5%, but it all balance sheet goals.
We filed three last quarter.
<unk> was still on the radar for adoption of October the FERC 2023, we continue to anticipate seasonal reserve the 85%, but that certainly is an estimate at this point.
The quality of the AC borrowing base in our opinion remains impressive.
As mentioned earlier, we achieved modified its credit box, particularly respect the lower tranches of it tomorrow.
This will have an impact on loan production and spreads.
BSG regressions with credit score and loan was always looking for indications of weakness as far as credit score for a consistent level of previous quarters. So that borrowers have provided brasilia during the cycle thus far.
Comparison to other consumer lenders, we believe BHG remains well call BSG borrowers remain well compensated with average borrowed earnings.
Around $293000.
Bhg's trailing 12 month charge off ratio has increased from one 8% to nine 4%. Similarly as delinquency ratio has increased from one two to $1 seven 8%. All of these ratios are in line with early 2021 ratios.
The AC recognizes the macro environment could lead to further deterioration of similar credits.
In an effort to keep performance near historical levels DHA DHT is by the number of credit cost of both our marketing and underwriting.
Models, we believe that Bhg's management has taken a proactive approach to managing credit.
Great.
Okay.
The ACG had another great year in 2022.
As I mentioned there are earnings calls this year, we have always believed the AG borrowings in the first half of 2022 would likely be stronger than the second half and as I said more loans to the bank auction platform.
First half of the year around the old loans on our balance sheet.
As you know the bank offered by some immediate gains also bill.
All loans that they retained on the balance sheet and fund through various funding options deliver interest income over the life of the loan.
These DXP accomplished three securitization this year aggregating almost.
$3 billion in volume there.
The last part of the center.
Added $550 million in new facilities.
Bruce this.
This represents incremental funding available to DST in 2023.
Third facility for 500 million was closed in late December as well closing of this facility required more loans to remain on balance sheet.
Then we otherwise had been expected. This facility was fully funded at year end.
So here's a simple example.
Issuance through the bank auction platform could generate anywhere from $30 million to $40 million in games <unk> securitization platform at an 8% spread would yield approximately $7 million to $8 million in interest income.
In the fourth quarter <unk> order balance sheet than originally anticipated.
So the <unk> model.
So again looking forward some key points I'd like to reemphasize, which are basically the same topics I'll mention for year three months ago.
BHG management is responsible for the macro environment and a very real way.
She is and will be increasing reserve based on macroeconomic and reached over the next few quarters.
ESG has been modifying our credit models force originating less risky assets with that Spreadtrum, which may occur as we get it right.
Production volumes are strong and we believe they will they will maintain production levels going into 2023.
<unk>, new funding Alzheimer alternatives, it will broaden their already strong liquidity platform.
We also believe is unmatched by our peers.
Lastly, a few weeks ago. The HD you took steps to limit its head count job eliminations and alumina.
Patients are most open positions as well as other expense reductions with shield, which should yield a 10% reduction in its expense burden in 2012.
Two.
For all those reasons, we have great partners and our partners at bankers healthcare group to deliver strong results over the long term.
Here's our final initial outlook for 2023, along with a comparison of our comments on 2022 third quarter conference call in October we.
We expect mid teens growth in loans low to mid teens growth in deposits. This correlates to a similar outlook for net interest income with Sugar result, we believe that positive growth.
<unk> built our plan for 43 pounds with like our NIM to be flat to down for the year. This will obviously be a challenge and we need to be nimble with respect to product, especially with all the bonds <unk>.
Revenues might be our biggest challenge.
Units are facing more than their fair share of economic headwind, but.
But we've had some key hires in several of these areas and are optimistic that we should see a lift from those new associates, we believe DXP started.
We'll be flat to slightly up for 2023, we've reduced our expense growth outlook to mid teens are seen legs are still committed to a strong recruiting year, especially as it pertains to revenue our asset quality is in great shape early and we believe we are inheriting a year from a position of strength, which should be a break things should get negative trends.
We began to develop.
Putting the final touches on our strategic plan.
For 2023 with Justice with many other wells now as they were last year, but our goal remains the same.
Quartile earnings performance no matter what this growth.
With that I will turn it back over to Gerry.
Alright, Thank you Harold.
There are two things that have not that much.
You did as well one is noise in the numbers in my opinion no. It just forces discussion today around trying to create clarity about the noise and tight focus off the underlying ability to produce outsized shareholder returns, which I think should be the second thing is as economic uncertainty so frequently enforces inverse.
To the sidelines, regardless of substantial shareholder value creation and so on.
I'll take just a minute.
Understanding how we intend to produce outsized shareholder returns regardless of whether the legacy balance sheet more loans, regardless of the economic uncertainties that persist.
What.
It's not lost on anyone on this call is there is a problem that we're heading into a difficult economic landscape granted as loans are valued commercial executives to their view of the duration of the economy going forward. Their optimism index is simply a Nash score of the Pos is less negative than as you can see here commercially today, there has not been so pessimistic since the.
Great recession.
The economic headwind bearing on commercial banks are widely known and includes a shrink in money supply, which means the triangle deposit pool increase.
Increased rate bank competition for deposits and inverted yield our inflation and ultimately a recession just to name a few and there is no doubt that the banking business is subject to the economic environment.
Our growth model is more a function of our ability to take both talent and market share and therefore substantially less dependent on short term interest rate movements inflation ups and downs and those kinds of things and we literally have been pursuing this model for 23 years. So frankly, it's just hard for me to understand that our competitors have not been building.
Differentiation can either catch up or defend against it. It is the classic sustainable advantage beginning with the far right. The Jacobs is total shareholder returns here you can see the dramatic outperformance over the last 10 years generally that would be driven if you look at our first 10 years of existence drove.
He lives in our second 10 years of existence drove he looked at our first 20 years of existence and while past results are no guarantees of future performance.
I believe it will be through over the next two years because this model is intended to produce value through thick and thin over the long term. The reason I say that because we built a demonstrably different client experience everybody says they give great service in our case, it's our clients. So you say that and they tell.
So the independent researchers that prepares to data not only sabbatical, but for virtually all of our competitors you can see in the center of the chart that our client engagement with this firm is literally unparallel and as a result presented by that differentiated service is largely contingent on our ability to excite and engage our associates.
I've just got a range of the list to say it simply in 2022, and we've been raising his best place to work in virtually every market we operate in and on a national scale. We've been ranked as the second best workplace for women and the <unk> best workplace for millennials in the country, we excite and engage ourselves so as desired.
For me to imagine that competitors that have not been building. This out of an extended period of time will be very successful as a tightening of our associates and class are stopping us from taking layers move at all.
Onto the advantaged markets using United Van lines movers that in the southeast continues to attract people all over the country.
Our challenge is to find a bank with a more advantaged footprint than ours in terms of population migration and grow and then as it relates to our chosen footprint. We operate in the vast vast majority of the large high growth urban markets. So we're located in the most of any region of the country and then that region were generally low.
And the largest and fastest growing cities.
Beyond incredibly dragged the size and growth dynamics of our markets frankly.
Frankly, the more important traction is the competitive landscape.
The net promoter score is the best indicator of <unk> ability to protect or expand market share beginning on the left authority granted just national study. Despite all their investments in technology, you can see sort of a horribly low for the national franchises slightly better, but declining at the Super regionals and not surprisingly better by declining.
Community banks moving to a variety of you can see it depends on scores are unmatched and getting better I fully expect that gap to widen as the industry adopts and work from home platform. While we operate a work from office platform, primarily for the purpose of further differentiating our service levels lower women.
Do keep in mind that net promoter score magic glass willingness to recommend so that's how you continue to grow safely in the face of a declining economy.
Speaking on the competitive vulnerabilities never in our existing Xyrem remember a time when the banks that have the bulk of the share in our markets, we're more likely to give it up here.
Here's a smattering of recent headlines in our markets regarding our competitors.
Here's not inspiring them to simply to crystallize the sustainability of our ongoing market share for.
For both associates and clients.
And he is further demonstration of our winning the war for talent I believe we become an employer of choice for bankers that are frustrated with the large bank employers in our markets. It seems like every year, we set a new record for hiring many of the most experienced and successful revenue producers in our markets from those banks that still have the largest market shares.
And when they work in a company. The despises bureaucracy is universally focused online class. These revenue producers create literally the best experience and market knowledge.
Not to belabor the license point, but the three banks on the left of that chart or the market share leaders. So how do you expect anything from us, but rapid growth over the long term completely agnostic economic conditions. When you recognize that those banks are where most of our revenue producers come from and you say the differentiated service that they're now.
We're able to provide it.
Here's another way to visualize that opportunity banks above the cross hairs have share dominance.
Thanks to the lessons across layers are least successful engaging their class they're volatile.
Thanks to the rise in the crosshairs are most successful and engaging their clients and best position to capitalize on those competitive vulnerabilities paying a fee being the most advantage against the market share leaders all of volatile.
But it's been written about competitive advantage is being created by the state expand as the nation's largest banks and engraved Ya study of the National brands and then you can see it.
There is a strong correlation between client perceptions of advanced digital capabilities, and our class willingness to add them as a bank provider.
But according to Greenwich and Iron markets. The best overall digital experience as being divided by 10 bps.
Product capabilities, the best service professionals, the best overall experience.
Thinking about long term shareholder value creation, Greenwich research as long isolated the three pillars on which client loyalty is bill number one value long term relationships number to ease of doing business number three device you can trust.
Last couple of years, they've actually expanded to a fourth pillar which is data.
And analytics driven insights a key area of investment again for those largest competitors.
But again in our market, we dominate all four of those metrics further indication that our net growth of clients is likely to continue.
And now I'm trying to connect the dots I recognize many associate engagement client services at little or no bearing on earnings and shareholder returns some ddos things as expenses.
This slide you can answer that for you why do we believe iron grow should be insulated from economic conditions.
All of the people, we hire and the service, we give very Dupont would consider lately.
And a great many intend to add us as a provider on their next product needs.
As you stand up and down those net momentum percentages from the banks in our market irrespective of economic conditions R&M momentum achieved in the case of small businesses more than twice as much as the next best competitor and in the case of the middle market and tough environment, particularly when you compare to the market share leaders the top three banks on both of those.
Chart without understanding our unit price has been a drag the market largely by hiring experienced bankers, enabling them to be easy to do business with the uninvolved micro completion that it is growing like the way. It is one so many of our competitors out prospecting for new client server blade done and brand by us or some other prospects.
List <unk> prospect borrowing money.
I'd say, even slow growers that physically has done.
And you can see here Gordon Greenidge, we're dead last in prospect, calling as previously discussed we're not out trying to make glass loan money to simply supporting our relationship managers and calling on the class of <unk> now known by many times for decades, we believe that strategy provides better protection than our peers in the us.
Yeah.
Credit terms, some key ball was a noisy quarter.
Economic uncertainties are bound by encouragement is the key.
Bob is on the rise to a level as it relates to the AG fundamentals remain strong.
Originations were the second highest in the industry.
A brief scored their loan book in scores not deteriorated.
And again the strength in the loan book they continue to have liquidity sources and utilize those liquidity sources.
From some of the most sophisticated investors in the market and at the end of the day nearly $300 million in pre tax earnings 23% growth over prior year, It's an incredible story and continues to be a handsome asset.
Beyond that and I think this is most important to me we run our core banking franchise.
They used to dominate continues to have momentum regardless of what circumstances are we compete in the advantage southeast footprint, we have a cultural thousands that results in a differentiated client experience and there is no more sustainable advantage than that.
Organic growth model that we are having a premium successes that resonate throughout our markets. One of the best loan growth stories in the U S. One of the best tangible book value growers in the country from a credit perfect. We're top quartile in terms of NPA to loans and Oreo clearly the place you want to start with Greg does turn.
And then lastly, I'll just hit on this idea of Harold's talked about it a little bit, but I think an important consideration as they began to focus on how do we get into 2023 estimates said.
It has to do with our compensation systems, how those go.
Or said, particularly as it relates to leadership compensation.
Specifically those incentive plans focused on tangible book value generation by gave you some insight into why our tangible book value grew at a pace did versus peers in 2022.
Savings that we have that runs peers apparel than you guys were looking for top quartile performance on things like EPS and revenue growth in 2023.
As many of you trying to develop those 2023 estimates.
Maybe you can go to school, a little bit on 2022, and Oh I mean by that is if you think back to 2022 generally the outlook for the industry as a whole was that there would be negative earnings.
The negative earnings growth in 2022.
Hey, this is because most believe that the industry has faced momentum to outrun the loss of the PPP income but.
But I will say this obviously this information ends up in our property, but regardless of what those industry expectations are we still targeting top quartile growth, which was not negative and we've met mines in Ireland and saying is.
The incentives of the roughly 3000 salary based employees of this company on bad idea that's been our methodology from the start that could be our methodology and so if you think through that you get some insight into our belief about the momentum in our core banking franchise and order.
Give that.
So I'll stop there and we'll be glad to take questions.
Thank you Mr Turner.
Or has that opened up for your questions.
We'd like to ask a question at this time.
Please press star one on your Touchtone phone analysts would be given preference journey into Q&A.
Again, we do ask that when you ask a question that you pick up your handset to provide optimum sound quality.
And the first question is coming from Jared Shaw from Wells Fargo Securities.
Jared Your line is now.
Yeah.
Good morning, guys. Thank you.
Maybe just starting on on margin in the guidance.
Harold when you're saying it's down and.
Should we assume that's down from fourth quarter's 360 or the full year over full year.
Should be it should be slightly down.
Yes, we believe that it will be flat to down from the fourth quarter.
We think the first quarter is going to be.
<unk> got a lot more because it just asked fewer number of days.
But.
We believe.
It could be three to five basis points something like that.
Okay, and then when you look at the the asset sensitivity disclosure. It looks like you became more asset sensitive in the fourth quarter. So is this just you know you anticipate increased.
Acceleration of deposit funding pressure and I'm assuming here.
Yeah, I mean, we our plan is still.
See rates increase here in the near term.
We think our deposit beta might.
Oh level off somewhere around 45% by midyear, maybe a little north of that by mid year.
<unk>.
Yes.
Okay.
Alright, thanks for that.
<unk>.
What are some of the assumptions you have for provision in 'twenty three with the weakening credit backdrop and how sensitive is is your BHG outlook too to the provision.
Okay.
Yes, that's a great question they plan on.
Not nearly as significant increases and they're provisioning or their reserves going forward.
So I think they've gotten the bulk of it done here this quarter, but they will just have to monitor.
Past dues were looking like what charge offs were looking like to see if they can stay within that guidance.
Okay, and then decide can you give us an update on the estimate for that tier one I am sorry that day, one seasonal impact in October .
For pinnacle.
For political.
Yeah, Yeah, let's take a portion well.
Well the number I've seen from BHG would be about $190 million.
So we'd be 49% of that.
That will run through our equity.
Okay. Thanks, I'll step back thanks for the questions.
Thanks Jess.
Okay.
Thank you. The next question is coming from Stephen Scouten from Piper Sandler Steven Your line is live.
Thanks, Good morning, guys.
I think Terry and Harold you guys have said you know you spend spend NII you don't spend the NIM, but obviously some of the optics around the deposit betas can be tough you guys laid out a really good slide I think in second quarter kind of showing you guys have traditionally had higher betas, but also higher NII growth.
Is there anything.
Today within the balance sheet that makes you think moving forward will be any different whether that'd be.
Funding mix the reduction in noninterest bearing deposits.
Scale of funding pressures there or do you think that the story that will continue to play out that yes, we will have higher betas, but will also have this better NOI growth, resulting in better earnings over time.
Yes for sure.
We're talking about high teens growth in net interest income this year and with a margin that could be flat to down so.
<unk>.
That thesis is how we how we operate so.
Several years ago I remember.
Call somebody asked the question about how are we going to deal with this thrift like margin.
And that was back when it was down around two to $2 50, or so so there is a point, where our pricing and our margins get too low for us to live with and we have to adjust but as we sit right now our growth engine.
Appears more than capable of providing significant net interest income growth.
<unk>.
With this some I'd say higher deposit rate.
Okay great.
And within that composition, Harold you mentioned, some other niche kind of verticals and I noticed it appeared in the slide deck that index deposits jumped maybe to 17, 2% of deposits from like 11, three was there any meaningful changes there in terms of products or verticals, there that drove that increase.
Yes, I think most of that would be public bonds.
We've attracted some public cloud plus here locally as well and as well as in Washington.
And I think some most of those are tied to some kind of index.
Okay and then just last thing for me just on that share repurchase the $125 million plan as well as you noted a potential sub debt rate can you give us an idea about.
How youre thinking about that into 'twenty, three how aggressive you might plan to be and what the size of the potential sub debt raised might look like.
Yeah.
We've modeled out a couple of hundred million a $300 million right. Now we think we can step through it step through the year without.
Any kind of need to go out and raise sub debt.
But we'll just have to see how that plans out how loan growth performs all of that all of that.
Okay, great. Thanks, a lot for the color I appreciate it.
Thanks, Steve.
Thank you and the next question is coming from Steven Alexopoulos from J P. Morgan Steven Your line is nice.
Hey, good morning, everyone.
So I.
I wanted to start on expenses. So if the revenue environment proves to be worse than expected could you walk us through which levers would you expect to pull early on right like first to go last to go and how quickly could you throttled down expense levels if needed.
Yes, there are several things that we can respond to fairly quickly one is that if Terry believes the.
Kind of a revenue number appears to be kind of will be consistent for the year.
Like we've done in the past we can always.
Reduce our hiring profile of our hiring plans for the year. We also anticipate what the payouts going beyond incentive plans. So those accruals would also come down.
And then we've got plans for various advance throughout the year that could get all of them get off the table for complete elimination or reduction or whatever so.
This year I think.
Given what's going on here today, and what we reported in the earnings.
I think theres going to be an intense focus on not only expenses, but revenue growth pricing all of that bothers me regroup.
Make sure that we achieve our targets this year.
Terry's allocated time and he is.
Senior level way.
To review those kind of things and so.
I think our firm our particularly our senior leadership is committed to hitting our targets and doing whatever we need to do to accomplish that.
Thanks, David.
Yes.
They are a little bit maybe.
Maybe not exactly what James but I think some color related to that topic.
As you know in terms of annual cash incentive plan generally that's clear sound. This threshold, we can't make bad loans and when assuming we clear that.
Most of our existence, the two variables that determine the payout were earnings per share growth and revenue growth that was required to hit that earnings per share growth.
Last year, we looked at <unk>.
And I guess for a year or two you are in a difficult period allows us to rebuild those kind of things.
We plan on PPE and are more of the revenue our board has not approved the comp plan they'll do that here in the next few weeks.
February BD, but the anticipation is that they will go back to.
Almost where it wouldn't be an earnings per share growth and revenue growth.
Just put that in perspective I get it you are asking about expenses, but it does create a great focus on getting the revenue generated which drives up the odds of success there and secondarily the earnings that we're not in that revenue growth. There's plenty of focus on it we will get it in here and start working in a different way on expenses.
Got it.
Okay. That's helpful.
If I could change to the margin to follow up on your answer to <unk> question.
Well the commentary you gave about the competitive environment for deposits.
How should we think about it.
The trajectory for NIM, how are you thinking about it here I think you said down three to five basis points in the first quarter, but do you think it's slow and steady declines for the year or do you think.
We bought them out in the first half recover in the second half how are you thinking about that.
Yeah.
As far as the rate increases and our impact on our margins, we think they will have.
That that'll drive some of the reduction in our margins.
So in all likelihood Steve.
Margin is probably going to just.
Kind of rotate around this 355 bucks.
Call. It 360 number we believe all year long.
If funding pressures.
Not able within our deposit targets, then obviously, that's going to impact that assertion.
But as it sits right now.
We believe we are just going to we're just going to be growth.
And that $3 55 to $3 60 right.
Okay.
That's helpful.
And then finally on BHG, if we look at the prior expectations for 2023 versus what you are coming out with now or it's a reduced outlook for the contribution.
It doesn't sound like that's related to you anticipating higher provisions at BHG is this all related to them just holding more production in portfolio is that really what's driving this or is there something else.
Well I think there will be a year over year.
More credit costs related to provisioning.
So call it 10% 20%.
But they intend to probably backhaul some of their balance sheeting.
And more money through the auction platform this year.
I think theyre going to have to do that with the elimination of these lower tiers.
These higher credits I mean, lower credit score accounts in order to hit the revenue numbers for this year. So I think they'll send more to the auction platform.
And I think that will also be still adding more money to the reserves.
Sure.
But not at the same pace that they did.
Got it okay.
That's helpful. Thanks for the color.
Thank you and the next question is coming from Michael Rose from Raymond James Michael Your line is live.
Hey, good morning, Thanks for taking my questions.
I think last quarter, you talked about a cumulative deposit beta.
Somewhere in the 60% range and you kind of estimated 40% by the end of this year, which you would show kind of bad.
Any changes to that just given the competitive pressure from that longer term cumulative beta.
<unk>.
If the fed does stayed higher for longer does that impact that.
Yes, I don't know I'm, not really thought about.
Or put any kind of math to what deposit costs could look like at the end of 'twenty three as far as beta calculations and into 2024.
Scott talked about our beta through the middle of the year of somewhere between 45 and 50% given the two rate hikes.
Here in the near term, so I'm not really gone out and.
You know kind of looked at what the longer term deposit beta, but we fully expect that once the fed.
Stopped raising rates.
That youre likely to see deposit rate creep.
Just due to competitive pressures so.
I don't know how long, we're going to talk about deposit betas, but.
I think when you get into the latter part of the year and like you said, Michael assuming that were at a higher rate.
Barbara for a longer period of time.
We fully anticipate that deposit rates will continue to ignore.
And I was kind of a flat rate environment.
Yes.
Okay. Thanks for the color and maybe just one separate follow up question just wanted to kind of revisit where you guys are.
In terms of the BHG investment obviously, it's got a lot of great things for you all over the years.
I know you've kind of maybe you hinted at a maybe reducing the stake at some point in the future, but just wondering just given where the earnings contribution is expected to be over the next year, because obviously going to be lower than it has in the past.
Yes, I need any sort of strategic thought as we kind of move over the next.
Short to intermediate term and how you guys view that business and you know.
What the longer term strategic rationale of the investment is for you. Thanks.
Yeah.
I'll start and Terry can.
Add to his comments.
First of all I want to say that the partnership pointed out the Bac as strong a matter of fact I'll have a board meeting with the BHG folks here at about a couple of hours.
But.
The valuation of bankers healthcare group, we understand we realized.
We believe is.
Sure.
Kind of part of the bear case on our shares and try to figure out what that number is is in Florida, but absent an arm's length transaction.
<unk> sorry.
That said I think we in BHG are on the same page.
There are.
There have been opportunities to reduce our stake.
But right now the pricing is just not.
We believe at a point where that makes it worthwhile.
We think it's a valuable asset we think it has created quite a bit of earnings momentum for us.
We think.
BHG on another day could be worth quite a bit of money.
All of that said.
Okay.
In the.
Our opinion about BHG.
Is that a lessor ownership interest by our sales probably wouldn't be that bad.
And we should we should consider any kind of worthwhile transaction that does that carefully.
Yes, I think Michael maybe just.
Echo.
Harold's comments.
Starting with the right assumptions I think what I've tried to say is there's nobody can be happy we would like to reduce our dependence on BHG.
As a function of our earnings stream.
Not because we're not bullish on the company and not goes.
Any reason other than it just has become.
Sure.
Investor conversations investor outlooks, and so forth, it's just hard to keep telling the story. There's so many people either disagree with it doesn't understand and so again at least for me from a state standpoint, I'd like to have less dependence on BHG as a function of my earning stream I think the Harold forward.
Uh huh.
We think of it that I think BHG would be good to that I think.
There are.
There always are almost always are a number of people who have an interest to pursue.
<unk> ownership interest in BHG.
Then the question just comes down to what's the Bronx.
So if we found the right price in there I think we would have expressed a preference to lighten our load some.
You don't find the right price.
He loved the investment and what it does for our company that fuels our ongoing growth.
So again, it's the <unk>.
Worst case is a good case, but again just to be clear.
Right price certainly.
Lighten our exposure to BSG as a function of our earnings stream.
Okay.
I appreciate all the color thanks for taking my questions.
Yes.
Thank you and the next question is coming from Casey Haire from Jefferies. Casey Your line is live.
Yes, thanks, good morning, guys.
A question on the fee guide ex BHG.
I was just wondering what are the drivers because just to get to the low end of the guide implies kind of a mid teens.
Growth mid teens growth from the current run rate.
On average to hit the low end of that guidance and 23, just wondering what the drivers are.
Yes, I think mortgage is going to be impactful they had a big hit in the fourth quarter because of the valuation of the hedge.
Their pipeline is down to the lowest level, it's been at and I.
I don't know seven or eight years pace. So.
Size, the absolute size of the pipeline drives the valuation of that hedge. So we think we're going to get we're going to at least have that tailwind going into the call. It. The early part of 2023 and in the spring.
We've also hired.
A meaningful number of wealth management.
And we're particularly interested and a few that have been in the that have been at this for decades.
Their client base is broad and well supported.
We anticipate some pretty significant revenue bumps from that.
As we've also mentioned we are targeting.
Quite a bit of commercial accounts and so with that we believe we've got both analyze these add on seats not a lot of space that will become so.
That's that's kind of where that high single digit number comes from.
We're primarily <unk>.
Okay understood and then.
Just digging in a little more on BHG.
Just wondering what kind of.
Spread you guys are assuming.
Just given the bank by rate has increased.
And that spread has kind of come in.
Does the does the guide for 'twenty three assume.
That spread holds are or is there a little bit of deterioration in that.
Spirit that I'm looking at for them for next year is eight and a half the nine something like that.
Okay very good and then just last one from me.
I know, it's tricky, but the the noninterest bearing.
Deposits settling down to 28% any sense as to how much more attrition.
As possible before you start getting into like.
Core working capital and you had a Florida.
Yeah, that's a great question.
A unique kind of a crystal ball to figure it out.
But.
The best data that we have that we've looked at is when we start looking at average account sizes.
And what they were pre COVID-19 for what they are now.
And so you know it could be anywhere from call it.
You know, 5% or so there might be something north of that but.
Our planning assumption is somewhere around that.
Great. Thank you.
Thank you and the next question is coming from Matt Olney from Stephens, Inc.
Your line is live.
Hey, Thanks, Good morning first question.
For Harold with Michael Roses question, you mentioned, a flat rate environment and what this means for the margin, but what if the fed starts to cut its fed funds rate what are some incremental levers you guys can pull to help protect the margin and the NII.
Yeah, well, we have entered into a couple of swap transactions for about well, there's actually four of them that we've entered into for about $2 billion in coverage of the loan book at somewhere around call it for the quarter.
So we do have that.
The.
I think the biggest thing we've got is first of all we've mentioned we've got an increase in indexed accounts. So those will come down.
But the other thing we've got is relationship based business where.
We think we've been pretty.
Pretty strong pretty good at being fair with products and so what happened last time at a rate down environment. As we were also pretty fair on the on the way down.
So that takes a lot of communication with clients, but we've been doing that now for all of 2022, and if we get into a write down environment. We fully anticipate our relationship managers will begin to pull those deposit prices down quicker.
Mike.
Ed to Harold's comments, there is a lot of energy in the company.
Loan floors.
As you know going into this cycle, we had a lot of protection from the loan floors that we were able to successfully negotiate with our relationship. So that's also apparent in our quiver.
Yep, Okay, good points, and I guess shifting over towards the loan growth the.
The mid teens guidance, just trying to get better idea of assumptions behind this I know the bank always does kind of.
A bottoms up analysis three chip producers any other commentary you can share with us about the process for 2023, especially in light of the <unk>.
The slide in the deck you guys put out their own 23, where you include that the optimism index of commercial executives at the very low levels.
Yes.
If I understand the question, Matt if youre trying to get at what is our assumption on how we grow in the face of a declining economy.
I get it.
Yeah.
Terry I guess.
I know you did do the bottoms up analysis with each producer, but I'm trying to appreciate if there were any more adjustments at the end of that.
Typically do each year with your preliminary guidance.
Well.
I guess.
And given what Youre looking for we went through the same process.
This year that we always do which is both a top down and a bottoms up.
So.
When we if you would.
They expect us as we go through every relationship manager, where they are what they expected.
Production is.
Their targets as you would guess add us to meaningfully lower than what our target at the top of the house.
And so many of those targets are large because of the hiring.
Ladder that we have wherewith hired so many people over the last three years, there will be a big over the last two years. So many people over the last one year.
They.
Still owe us the bulk of their.
And so forth. So there is a level of detail that will be done as a relationship manager and those expectations would exceed what we believe will do.
What we are.
Okay will do.
Yes.
Okay. That's helpful. Thank you Terry.
Thank you and the next question is coming from Katherine Miller from K B W. Catherine your line of sight.
Thanks, Good morning, everybody.
Just one more question kind of following up on BHG and expenses. So if I just think back to the past few years. He has been really instrumental in really paying for it to build that you've had in the hiring process and building the core bank.
At a point in time or seem to be a true contribution stabilizing maybe at risk of pulling back a little bit.
I guess, what does it take for you to feel the need to adjust.
Outlook, a little bit more than this mid 15% range as it.
Is there a level of profitability that you feel like you shouldn't.
Okay.
So well and that might trigger more expense initiatives.
Or is it all just about making sure revenue growth is higher than expense growth.
And kind of growing EPS that way, but less about maybe what the ROI is there any kind of just color on that would be super helpful.
Hum.
Uh huh.
ROA.
Probably not.
At the top of our list.
We do we do have our OTC and all that but.
At the end of the day, Catherine what we've got our earnings targets revenue targets per share.
BHG is a component in that.
And so we're going to try to try to get to that bottom line number.
In the most effective way that we can.
If that means we need to cut costs, we will cut costs. If that means we need to go try to figure out how to grow revenues.
Some way to starting to play and we'll do that.
BHG in the past has provided us.
Some tailwind with respect to growth.
So they typically outgrown our number.
As of year end and year out and that's provided us a little extra.
The resource to go after and so forth our hiring plan.
This year it looks like their growth is going to be fairly flat to slightly up.
So that may you might imply from that that we may need to back off on hiring in order to kind of meet our our EPS targets.
So I don't know if I'm getting it all your question Katherine.
But.
We're going to we're going to basically nail down what we think top quartile growth needs to be for this firm and.
Simple plan that is the most likely to achieve.
And that would include bankers healthcare group in that.
And what do you use the latest and greatest information we have.
Hi, guys.
If I can just maybe make a slightly different point I don't know if it'll be helpful to you or not it's intended as I. Just gave you some insight into what our mindset is what we're trying to do here.
Comments during the presentation about how the incentive plans work here and it really just trying to clarify for people that I don't think anybody thought that banks were going to grow earnings in 2022, given the loss of the PPP income, but we believe that we had momentum in the core banking, Brian jobs in a bit.
To do that and our incentives were bet on that and we did that in fact, we outperformed a number of course, we've got the benefit of rate increases that were beyond our expectation all of those costs. So I guess I just wanted to be clear. We believe that they are going in that we had more momentum in the banking franchise, which will carry the day and that runs allows the PPP income.
Thats different than what I hear when I talk to most of my my peers that same phenomenon exists this year.
For me one of the reasons one of them.
So the momentum Nicole momentum does not get Gladstone, how much business momentum exists is going to occur regardless of economic conditions. In some cohorts is to try to help people get that even in a year when we're projected BHG to not be a major.
Florida the earnings growth story that we believe we have so much momentum in the core banking franchise, which just goes back to the story that we've been talking about for a long time all of the people that we've hired all of the business that they're most of them. All the success there haven't been afraid in the large banks that are given.
Given up share that we can outrun that and so again I won't guess, that's a different story and so I know, it's frustrating because most people will easily go to hey, let's difficult one with good expenses, we'll do that if that's what's required but it's just not game plan.
We have momentum that's going to produce outsized revenue growth and that's the play that we.
We want to make.
As I say that are not only mine in Ireland, but really the all of the associates at this firm on that.
Got it that makes sense, so you're you're saying and then B C revenue was less than expected the core bank is better.
That's why you don't have to tap into that center instead of from here revenue becomes more challenging or phe false more than expected. That's when you can start to flex the expense.
Makes sense.
That's exactly Catherine I've got.
About $125 million in cash bonuses in this point.
No.
That's all that's all subject to hitting or getting EPS growth targets.
Great. Okay, that's super helpful.
And then this is really a small net but just wanted to get from modeling purposes.
Key adjustments typically and I've looked historically typically popped up a little bit in the fourth quarter. The normalized should we expect.
I mean, you saw that linked quarter increase this quarter again, where should we expect to see that kind of normalize back down the first quarter.
Historically.
Yes, I think so.
Okay great.
And I think that's all I got thanks, so much.
Yeah.
Thank you and the next question is coming from Jennifer <unk> from <unk> Securities. Jennifer Your line is live.
Thank you good morning.
Good morning.
Harold.
We had a dead horse a little more.
You gave a pretty tight net interest margin guidance and would you would it be fair to say that.
The margin is probably the most at risk element of the fundamental guidance that you guys laid out for 'twenty three.
Yeah, I think so.
Deposit pricing will be key to it we feel pretty good about where oil pricing is we feel pretty good about our fixed rate loan pricing is definitely improving.
And we've been bidding on that Jerome for several quarters now and I think is finally getting some traction so.
The loan yields we think will hang in there.
And I think we've got support from Rob and Rick and Rob.
Around the franchise all of that.
It's.
The competition for deposit pricing for us extends beyond what truth is paying what region. Despite what.
Some of these other franchises paid around our competitive peers.
It extends into the money market accounts or go with a high yield savings accounts are done with the brokers are trying to do with folks all of that as well and so.
That point is that you know there is a limit to how much. These deposit costs will go. We don't think we have to go all the way up to those levels for sure.
But what we have told our our salesforce that we will not lose a deposit.
Because of the price.
So there their marching orders are to go out there and make sure that whenever they got a chance to standard deposit portfolio.
And we're not we're not letting those deposits.
Secondly.
There was an earlier question about the.
And where those are headed.
There is also a strong emphasis on that.
And protecting those deposits as best we can we did see kind of a.
And initial for us during the quarter that a lot of that DDA movement occur.
Around November and the November rate increases.
We didnt see nearly that kind of reduction in December and so we're hopeful that.
A lot of that.
Although we anticipate more to occur we just we're hopeful that it wont occur at the same kind of levels that it's occurred here in the fourth.
So the <unk> the other one more thing I'll as far as margin protection.
Tactically.
Jennifer.
As far as the loan guidance on all of that.
We are actively selling to our sales force.
The notion of prepayment penalties on all fixed rate credits and I think.
We've been working on that too for the last two or three quarters ago, we're getting traction there.
Hello.
We're hopeful that if rates do come down for us.
At least in the near term, we've got solved or at least in the longer term, we've got some protection there.
Okay.
And the deposit growth that you're projecting for this year.
You know would be would be very strong do you think is this a permanent shift for pinnacle in terms of just focused putting a more intense focus on deposit growth overall.
Jennifer.
That's the answer to that question is yes, not all I mean, but I think that GSA is I think we have since the founding of the company had an intense focus on deposit acquisition. As you know if you have a mature company you got to mature retail deposit book and you can sort of milk and ride that in our case, we got to fund it as we go and so.
It's a different energy and emphasis around that.
<unk> has been there since the beginning but clearly you're in.
The pandemic and all the influx of liquidity we didn't.
We didn't concentrate so much on the defense of our deposits we didn't have to do that.
And those kind of things. So it is a different day is the monies black labs as deposit those glasses. It does require a different level of energy heavily during this pandemic period, we've built a straightforward specialty deposit businesses that I'll add some level of traction in them I won't guess Jana.
Jennifer that in 2022 those four specialty it's probably produce I don't know 800.
$8 million to $900 million in deposits for us, we expect that growth to be still bigger as well.
We go forward we're in the early stages, we're still positive momentum in all four of those specialty if so that's the reason that say okay. Yes. Thank you, but there is a structural difference in our ability to do it.
In addition to all the energy and emphasis of the relationship managers. We do have some product specialties that are pretty meaningful in terms of either.
Ulster and our deposit growth.
Thank you.
Okay.
Thank you and the next question is coming from Brian Martin from Janney Montgomery, Brian Your line is live Hey.
Hey, guys. Good morning, I'll be brief just Harold James Terry just the hiring outlook for this year I mean, I think you've talked last quarter about where you thought it might be but given the fourth quarter is wrapped up in some of the commentary earlier, how are you thinking about hiring in 'twenty three relative to 'twenty two.
Yeah, I think one of the things that the board of Brian when we talked about hiring most of the time when we are.
Talking with investors, we really talk primarily about hiring revenue producers.
That's really the thrust of our company has been all along what we're driving those grow on our revenues grow our top line in order to grow our bottom line and all that sort of stuff, but again just to sort of maybe like a point this obvious sometimes forgotten those revenue producers.
Or are they going to be supported to the one non revenue producers installed the total number of people that have to be higher than a year.
Year I think net increases were in the 400 person range you don't.
What was the exact number but it'd be in that range for total associates hired whereas the revenue producers were down closer to 125.
Thanks.
For the year. So what are the point I'm really trying to get to with you is I think we'll we'll expect a similar year on revenue producers will expect less.
We would expect higher lab and support personnel.
2023 that in 2022.
Primarily it's got a lot of that full personnel building control infrastructure, and so forth, which generally in my view, a stair step kind of expense.
Got to build the capacity for your basic.
Compliance monitoring BSA risk loan review all of those kind of studies you invest in people and stair step mode I think we like.
Make significant investments in control infrastructure. So it's a long winded way to say look I think revenue higher might be a little less in 2023 to 2022, but in all the big comparable total number of hires ought to be less.
<unk> 20, 23% in 2022, because the stairstep nature of some of those control expenditures.
No that's helpful and maybe one or two for Harold just on the reserve level. Harold I guess, you talked about maybe being a little bit more pessimistic on rytary that on the kind of the outlook how should we think about the reserve level.
You kind of go through the next several quarters.
Given your outlook.
Yes.
Maybe with the credit officers quite a bit.
Right now there is.
Still having the same posture that our credit book is is strong we're not seeing any kind of systemic weakness.
And so our planning assumption today is that our reserves probably will be fairly flat here.
We rolled out.
We'll obviously monitor that so if we start seeing some weakness.
And adjust accordingly, but right now we think.
Thanks credit is in check as best we know today.
Got you, Okay, and then just coming back to your commentary about the fee income I guess, the you highlighted the wealth I mean, when you think about the mortgage and the SBA piece in there are those expected I guess kind of your big picture of planning to rebound a fair amount I guess, just kind of getting to this.
You talk about on the fee income side the height.
High single digit or low double digit growth in fee income X those kind of.
More volatile numbers.
It seems like there is more to it I guess on some of those other items that you're not calling out so like for.
For instance, the mortgage and SBA do you expect I know I've seen was down this quarter same thing with mortgage.
A pretty meaningful rebound in those coming in next couple of quarters.
Yes for sure in mortgage auto about SBA SBA has got some other headwinds.
Yes.
No.
Mortgage should have a better year this year than last year and.
Theres all wealth management investments that we've made should produce tangible results. We've also.
We've also hired some very tasteful individuals in our capital markets area that all of the help us.
So you have a long resume of success.
We're planning on that being.
Tonnage was up.
Got you, Okay and last one Harold I'll, let it go.
The margin outlook, you talked about that kind of assumes two rate hikes, if you see the fed lower.
Lower rates at all does that how does that change the margin outlook I guess, particularly as you get later in the year or into next year I guess that if it is not.
Material <expletive>.
Declines is it not much changed from what your forecast is today or kind of your outlook.
Yes, we actually have some rate decreases in November and December .
And our forecast right now, but they are they are pretty much in concert.
Got it okay. Thanks for taking the questions.
Thanks, Rob.
Thank you and that does conclude today's conference you may disconnect your lines at this time.
Have a wonderful day.
For your participation.