Q1 2024 Pinnacle Financial Partners Inc Earnings Call
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Operator: Good morning, everyone, and welcome to the Pinnacle Financial Partners first quarter 2024 earnings conference. 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.pnfp.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 on a listen-only mode.
Speaker Change: Good morning, everyone and welcome to the Pinnacle financial partners first quarter 2024 earnings Conference call.
Speaker Change: The call today from Pentagon Pinnacle financial partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer.
Speaker Change: 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. M. S. P dot com.
Speaker Change: Today's call is being recorded and will be available for replay on pinnacle's website for the next 90 days.
Speaker Change: At this time, all participants have been placed on 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 phone unless it would be given preference as during the Q&A. We ask that you. Please pick up your handset to allow for optimum sand quality.
Operator: 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 1 on your touch screen. Analysts will be given preference during, We ask that you please pick up your handset to allow for optimum sound quality. 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... Pinnacle Financial Partners. Many such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue A more detailed description of these and other risks is contained in the video description.
Speaker Change: 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 partners to differ materially from any results expressed or implied by such forward looking statements.
Speaker Change: Many of 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.
Speaker Change: A more detailed description of these and other risks is contained in Pinnacle's financial annual report on Form 10-K for the year ended December 31st 2023.
Operator: Pinnacle's financial annual report on Form 10-K for the year ended December 31, 2012, and it's subsequently filed quarterly. Pinnacle Financial disclaims any obligations 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 Regulations, Presentation of the Most Directly Comparable Gap Financial Measures, and the reconciliation of the non-GAAP measures.
Speaker Change: And that subsequently filed quarterly reports.
Speaker Change: Financial disclaims any obligations to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise.
Speaker Change: 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.
Operator: Powerable Gap Measures will be available at www.powerablegap.com and Pinnacle Financials' website www.pinnaclefinancials.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle Financials' presenter and sponsor. Thank you, Paul, and thank all of you for joining us here this morning.
Speaker Change: Www Dot P M S P dot com.
Speaker Change: With that I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's present, and finite and CEO.
Thank you Paul and thank all of you for joining US here. This morning, most of you've been doing these calls and so you know again every one of these calls and this shareholder value dashboard.
Michael Terry Turner: Most of you have endured these calls, and so you know we're going to begin every one of these calls with this shareholder value dashboard. These metrics are really our North Star. There are a lot of interesting things that can be talked about, and obviously, Harold will talk about more things in more detail here in just a few minutes, but ultimately, we're here to produce shareholder value, and this is how we think you do it over time, looking at the gap measures first.
Michael Terry Turner: These metrics are really our north star there are a lot of interesting things that can be talked about and obviously barrel will talk about more things and more.
Michael Terry Turner: More detail here in just a few minutes, but ultimately where blue shareholder value and this is how.
Michael Terry Turner: We think you're doing over time looking at the GAAP measure first.
Michael Terry Turner: And then the adjusted numbers, which really better reflect how we run the business. At a glance, you can see that we continue to grow revenue more rapidly and reliably than peers, and we continue to grow our balance sheet volumes more rapidly and reliably than peers, which is the fuel for our future revenue growth, and that we relentlessly focus on compounding tangible book value. And then across the bottom, the key asset quality metrics we focus on, reflecting both problem loan formation and loss.
Michael Terry Turner: And then the adjusted numbers, which really better reflect that we run the business at a glance you can say that we continue to grow revenue more rapidly and reliably than fingers and we continue to grow our balance sheet volumes more rapidly and reliably payers, which is the fuel for our future revenue growth.
Michael Terry Turner: And then we relentlessly focus on compounding tangible book value.
Michael Terry Turner: And then across the bottom now the key asset quality metrics, we felt like the boat problem loan formation in laws in general those metrics continue to be among the best in the peer group and as you can see compared favorably to our longer term historical averages, but that said during the quarter we inked.
Michael Terry Turner: In general, those metrics continue to be among the best in the peer group and, as you can see, compare favorably to our longer-term historical average. But that said, during the quarter, we increased our allowance for credit losses on loans from 1.08% to 1.12%, primarily as a result of further deterioration in a previously disclosed problem borrower and to provide additional protection given a higher for longer rates scenario.
Michael Terry Turner: Priest, our allowance for credit losses on loans from one of our 8% to $1 one 2% primarily as a result of a further further deterioration and a previously.
Michael Terry Turner: This flow problem borrower and to provide additional protection given the higher for longer rate scenario.
Michael Terry Turner: So from 30,000 feet this quarter, we've got the reserve billed on one side, largely being offset by the recognition of a commercial mortgage servicing right and lower expenses in the form of a reduction in associated incentives. Nevertheless, for me, there's a lot to celebrate here, particularly in terms of revenue growth with growth in both non-interest income and net interest income, double-digit core deposit growth, and even net growth in non-interest bearing deposits So with that, Harold, let's take a more in-depth look at the quarter. Thanks, Terry. Good morning, everybody.
So from 30000 feet. This.
Michael Terry Turner: This quarter, we've got the reserve build on one side largely being offset by the recognition of our commercial mortgage servicing rights and lower expenses in the form of a reduction in associate incentives.
Michael Terry Turner: Nevertheless.
Speaker Change: For me there is a lot to celebrate here, particularly in terms of revenue.
Speaker Change: Our revenue growth with growth in both noninterest income and net interest income double digit core deposit growth the name of net growth in noninterest bearing deposits.
Speaker Change: So with that <unk>, let's take a more in depth look at the quarter.
Speaker Change: Thanks, Jerry good morning, everybody another strong quarter on deposit growth. We were also pleased with how our noninterest bearing deposits during the quarter, giving us additional optimism about where those balances might be.
Harold R. Carpenter: Another strong quarter for deposit growth. We were also pleased with how our non-interest-bearing deposits performed in the quarter, giving us additional optimism about where those balances might be headed for the year. As to 2024 deposit growth, I still believe we can grow deposits within the previous range of high single to low double digits this year. Obviously, the latest FOMC meeting will impact our rate projections for the remainder of the year. As a result, we've taken more time looking at the back book on deposits. Two years ago, 100% of our MFAs had rates less than 2%.
Speaker Change: For the year.
Speaker Change: As to 2020 for deposit growth still believe and we can grow deposits than the previous range of high single to low double digits. This year.
Speaker Change: Obviously, the latest epilepsy meeting will impact our rate projections for the remainder of the year as a result, we've taken more time looking at the back book on deposits.
Speaker Change: Two years ago, a 100% of our msas at rates less than 2%.
Harold R. Carpenter: Today, only 15% are at rates less than 2%. Also today, 65% of our money markets are at rates greater than 4%. So we feel that our deposits are priced very competitively. We have made some preemptive strikes here late in the quarter, successfully reducing some of our more expensive accounts, as well as taking a deep dive on our pool of reciprocal deposits. This effort is helpful to our outlook as we enter the second quarter. As to new accounts added to our ledgers in the first quarter, the average onboarding rate was around 3.75%.
Speaker Change: Today, only 15% of our rates less than 2% also today, 65% of our money markets are at rates greater than Poland. So we feel that our deposits are priced very competitively. We have made some preemptive strikes here late in the quarter successfully reducing some of our more expensive accounts as.
Speaker Change: Well, it's a deep dive on our pool of reciprocal deposits. This effort is helpful to our outlook as we enter the second quarter as the new accounts added to our lenders in the first quarter. The average onboarding rate was around $3 75 per cent.
Speaker Change: As we've said, we like our position as the deposit rates in our market. So for us deposit rates will likely be more like a slow creep from here not any sort of a rapid increase I've listened to a few conference calls of late particularly the large caps in some ways they've acknowledged outsized deposit spreads and are letting people know that benefit might be going away in <unk>.
Harold R. Carpenter: As we've said, we like our position as to deposit rates in our markets. So for us, deposit rates will likely be more like a slow creep from here, not any sort of rapid increase. I've listened to a few conference calls of late, particularly. That said, we believe as we head into the second quarter, deposit rates for us may increase by a few basis points, but it won't be a lot. Loans came in slightly less than we anticipated. We did have some large payoffs late in the quarter, which impacted our EOP balances.
Speaker Change: Near future.
Speaker Change: We believe as we head into the second quarter deposit rates for Us may increase a few basis points, but it won't be a lot.
Speaker Change: Whilst came in slightly less than we anticipated we did have some large payoffs late in the quarter, which impacted our <unk> balances still feel like we will be outside growers for the year call. It 9% to 11% growth still believe and we are doing a good job all spreads, particularly for prime and Super Prime credit and fixed.
Harold R. Carpenter: Still feel like we will be outside loan growers for the year. Call it 9 to 11% growth. I still believe we are doing a good job on spreads, particularly for prime and so for price credit, and fixed rate spreads continue to come along nicely. One of the keys to our financial plan is repricing our fixed rate loans. We're expecting about $3 billion in cash flows from our fixed-rate loan books, which are scheduled to come in over the remainder of 2024, with, call it, an average yield of around $465. As to renewals and new fixed-rate loans originated in the first quarter, we averaged around 7.35% with a target of 7.5% to 8%.
Speaker Change: Fixed rate spreads are continuing to come along nicely.
Speaker Change: One of the keys to our financial players repricing, our fixed rate loans.
We're expecting about $3 billion in cash flows from our fixed rate all books, which are scheduled to come in over the remainder of 2020 with call. It an average yield of around 465.
Speaker Change: As to renewals and new fixed rate loans originated in the second and the first quarter, we averaged around 735% with a target of seven 5% to 8% I think our RMS are doing a great job here and are looking forward to seeing what happens in the second quarter as it is the most important quarter as far as net interest income growth for 2020 for concern.
Harold R. Carpenter: I think our RMs are doing a great job here and are looking forward to seeing what happens in the second quarter, as it is the most important quarter as far as net interest income growth for 2024 is concerned, given we have a lot of opportunity to influence the success of this initiative in the second quarter. Our long growth targets, which we feel good about, coupled with our efforts on fixed rate repricing, will go a long way to hitting our net interest income outlook for the year.
Speaker Change: Yeah, well, we have a lot of opportunity to it.
Speaker Change: The success of this initiative in the second quarter, our loan growth targets, which we feel good about coupled with our efforts all fixed rate repricing will go a long way to hitting our net interest income outlook for the year.
Speaker Change: We did see some contraction in the margin this quarter at 304 after two quarters of <unk>. Six we said last time that we were optimistic that we would see NIM expansion in 2024, we felt confident that we will see margin expansion happen in the second quarter.
Harold R. Carpenter: We did see some contraction in the margin this quarter at $3.04 after two quarters of $3.06. We said last time that we were optimistic that we would see NIM expansion in 2024. We feel confident that we will see margin expansion happen in the second quarter. We've modified our interest rate forecast from four cuts to two, with the two not happening until later in the year, one in September and one in November. That said, given the volatility of the data, we could decide that no rate cuts will happen this year as the trends seem to point to fewer at this point.
Speaker Change: Modified our interest rate forecast from all constitute and with the two not happening until later in the year one in September and one in November.
Speaker Change: Given the volatility of the data we could decide that no rate cuts will happen this year as the transferring the point of view we're at this point.
Harold R. Carpenter: We feel like the no rate cut scenario on the short end of the curve is likely neutral to our current outlook as we move through the year. As you might expect, we just would like to see the intermediate part of the curve continue to steepen. So on March 31, you might ask, is PNFP's assets sensitive or its liabilities? Considering our technical balance sheet modeling, as well as how we think our RMs and their clients typically respond to these sort of environments, for net extra income, initially higher for longer is probably helpful, but longer term deposit rates will likely rise somewhat and potentially squeeze the market over time. As for credit, we're again presenting our traditional credit metrics. We mentioned one non-performing credit in the fourth quarter press release that weakened further during the first quarter.
Speaker Change: We feel like the no rate cut scenario on the short end of the curve is likely neutral to our current outlook as we move through the year.
Speaker Change: As you might expect we just would like to see the intermediate part of the curve continue to sleep.
Speaker Change: So at March 31, you might ask is being at the asset sensitive reliability says.
Speaker Change: Considering our tactical balance sheet model as well as I always thank our R&M and their clients typically respond to these sorts of environments. Our dielectrics income initially higher for longer has probably helped but longer term deposit rates will likely rise somewhat and potentially squeeze of margin over time.
Speaker Change: As for credit, where again presenting our traditional credit metrics. We mentioned one nonperforming credits in the fourth quarter press release that weakened further during the first quarter as we noted above this credit contributed to the four basis point increase in our allowance this quarter.
Harold R. Carpenter: As we noted above, this credit contributed to the four-basis point increase in our allowances quarter. This loan started out in 2020 as a $40 million loan to a borrower that leases highly specialized health care facilities to operators in various states. We did record a partial charge-off of $2 million relating to this credit in the first quarter. The operators of the borrower's buildings were impacted by COVID, as the operators were unable to collect sufficient and timely reimbursement which was needed to recover the incremental cost of inflation for their clients and patients.
Speaker Change: This loan has started out 2020 of the $40 million loan to a borrower that laces highly specialized health care facilities to operators in various states.
Speaker Change: We did record a partial charge off of $2 million related to this credit in the first quarter. The operators of the borrowers buildings were impacted by Covid as the operators were unable to collect sufficient and timely reimbursement, which was named to recover the incremental cost of inflation for their clients and patients.
Harold R. Carpenter: As a result, operators incurred revenue shortfalls, skilled labor left, census went down, etc. Our borrower is cooperative and is helping facilitate resolutions, which could take a few quarters. This is one where the lesson learned is a hard pill to swallow.
Speaker Change: As a result, the operating current revenue shortfalls skilled labor lab census went down et cetera.
Speaker Change: Our borrower as cooperative that is helping facilitate resolution, which could take a few quarters.
Speaker Change: This is one where the lesson learned is a hard pill to swallow.
Harold R. Carpenter: Much relies on the wisdom of the management team that we have banked on for many years. The management team had executed a similar business model before and done it successfully, and they were experienced in the very specific corners of the health care industry. We will work to resolve this matter as quickly as possible and minimize loss to our firm. The buildings are in good markets and are in attractive areas in those markets. So, given all of the above, we're anticipating a net charge-off rate of 20 to 25 basis points for 2024, inclusive of the loan I mentioned previously. Currently, we have no reason to believe that our allowance account will increase from here, so we are flattish on the reserve for the rest of 2024. More about commercial real estate
Speaker Change: Relies on the wisdom of the management team that we have bank for many years the management team that executed a similar business model before and done it successfully and was experienced in the very specific corners of the health care industry.
Speaker Change: We will work to resolve this matter as quickly as possible and minimize the loss curve.
Speaker Change: The buildings are in good markets.
And are in attractive areas in those markets. So given all of the above we're anticipating a net charge off rate of 20 to 25 basis points for 2024 inclusive below I mentioned previously currently we have no reason to believe that our allowance Cal inquiries from here So were flattish on a reserve for the rest of 2020.
More about commercial real estate and just so you know we've added some more information on credit primarily for CRA and constant in construction in the supplemental deck.
Harold R. Carpenter: And just so you know, we've added some more information on credit, primarily for CRE and construction, in the supplemental deck. Our CRE construction portfolio continues to perform very well. As you might expect, our credit officers continue to pay particular attention to our multifamily hospitality and office portfolios. We continue to push for lower exposure in construction.
Speaker Change: Our CRE and construction portfolio continues to perform very well as you might expect our credit officers continue to pay particular attention to our multifamily hospitality and office portfolios.
Speaker Change: We continue to push for lower exposure in construction, our target of 70% of total risk based capital. We believe it can be achieved before year end, 2024th our appetite as noted by the almost solid red table on the bottom right is largely unchanged and we don't anticipate any change as to appetite in 2020 or even when we go.
Harold R. Carpenter: Our target of 70% of total risk-based capital, we believe, can be achieved before year-end 2024. Our appetite is noted by the almost solid red table on the bottom right. It's largely unchanged, and we don't anticipate any change as to appetite in 2024, even when we go below 70%. We continue to be somewhat interested in high-quality real estate, primarily warehouse and some multifamily, but let me stress, any new commitments to this space are limited to strategic client relationships only, and in no way should anyone perceive us as being on any sort of offense.
Speaker Change: Low 70%.
Speaker Change: We continue to be somewhat interested in high quality real estate, primarily warehouse and some multifamily, but let me stress any nuke amendments to this space are limited to strategic client relationships all in no way should anyone perceive where on any sort of offense here.
Harold R. Carpenter: As to the impact of Hire for Longer, there's lots of discussion around liquidity and takeout availability in the institutional CRE space. We would agree that liquidity is tight for, say, downtown multi-tenant office, power center retail, high-end hospitality, and other specific segments where COVID and now inflation have been very impactful. We just don't have much, if any, exposure to these segments.
Speaker Change: As to the impact of lower for longer lots of discussion discussion around liquidity and take out availability and the institutional CRE space. We would agree that liquidity is tied per se downtown multi tenant office power Center retail high end hospitality and other specific segments of our Covid and now inflation has been very impactful.
Speaker Change: We just don't have much if any exposure to these segments.
Speaker Change: Yeah.
Harold R. Carpenter: For our segments, we, like other banks, are seeing our institutional borrowers delay decisioning regarding any sort of exit from these projects, whether it be marketing for sale or securing a permanent loan. I know there's a lot of noise out there that lenders are panicked and borrowers are desperate to get out of these construction projects, but not so for the property type PNFT has long supported.
Speaker Change: For our segments, we like other banks are seeing our institutional borrowers delayed decisioning regarding any sort of exit from these projects, whether it be marketing for sale or securing a permanent loan.
Speaker Change: I know theres a lot of noise out there that lenders were panicked and borrowers are desperate to get out of these construction projects.
Speaker Change: The property type.
Speaker Change: He has long supported there remains ample liquidity, which recently appears to be getting somewhat more attractive to our borrowers specifically takeout from life insurance companies and the agency lenders Fannie Mae Freddie Mac.
Harold R. Carpenter: There remains ample liquidity, which recently appears to be getting somewhat more attractive to our borrowers, specifically takeouts from life insurance companies and agency lenders, Fannie Mae and Freddie Mac. These capital sources are generally more favorably priced than our bank debt, usually by 1 to 2% in most cases. We're seeing 10-year terms from insurance firms and agencies in the 7% range versus bank rates, call it between 8% and 8.5%. The CMBS market is also available. However, our borrowers are typically not big fans given the inherent inflexibility of the CMBS debt structure. All in all, I'm in.
Speaker Change: These capital sources are generally more favorably priced and our bank debt, usually about 1% to 2% in most cases, we're seeing 10 year terms from insurance firms and agencies in the 7% range versus bank rates call. It between 8 million now.
Speaker Change: The same MBS market is also available.
Speaker Change: However, our borrowers are typical are typically not big fans, given the inherent and flexibility of the <unk> debt structure.
Speaker Change: All in for now many borrowers are electric remain with banks.
Harold R. Carpenter: Many borrowers elect to remain with banks by executing the embedded extension options in their original construction loan contracts, right-sizing the outstanding balance if necessary, and thus waiting for a better rate environment to sell or refinance. Again, some select information on CRE credit, and various asset quality measurements. We have added some LTV information to this slide. Our LTVs, we believe, are solid, and as the chart indicates, with lots of room for valuation adjustments should the markets require them. We have also analyzed recent loan renewals for non-owner-occupied commercial real estate with principal balances greater than $5 million and have seen some modest declines in LTV for these loans.
Speaker Change: Executing the embedded extension options and our original construction low contracts right sizing the outstanding balance if necessary and thus waiting for a better rate environment to sell from a refinance.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Again, some select information all CRE credit.
Speaker Change: And various asset quality measurements.
Speaker Change: We have added some L. P D information to the slot our Ltvs. We believe are solid and as the chart indicates with lots of room for valuation adjustments should the markets require.
Speaker Change: We have also analyzed recent loan renewals for not all non owner occupied commercial real estate.
Speaker Change: With principal balances greater than $5 million and have seen some modest declines in LTV for these credits the worst the worst was $22 million alcohol, where the LTV went from 34% in January 2020 that was before the start of Covid and before work from home was a thing to now 45%.
Harold R. Carpenter: The worst was a $22 million office loan where the LTD went from 34% in January 2020, that was before the start of COVID and before work from home was a thing, to now 45% currently. An 11% reduction but still very comfortable at 45%. The best result was longer-term, an $11 million hotel loan that moved from an LTD of 59% to now 38%. Both of these loans are performing, and we have no reason to believe there are any issues.
Speaker Change: Currently an 11% reduction, but still very comfortable with 45%.
Speaker Change: The best result was longer term on 11 million hotel loan that moved from an LTV of 59% now 38%. Both of these loans are performing and we have no reason to believe there is any issues with them. We have experienced some increase in credit metrics and classified assets in npls from a year ago, but these levels remain.
Speaker Change: Enviable in our humble opinion.
Speaker Change: Additionally, as to our market data our occupancy levels remained strong and rental rates have experienced several years of increases which has served to strengthen our sponsors. Some of that information is also in the supplemental deck.
Harold R. Carpenter: We have experienced some increase in credit metrics and classified assets and NPLs from a year ago, but these levels remain enviable, in our humble opinion. Additionally, as to our market data, our occupancy levels remain strong, and rental rates have experienced several years of increases, which has served to strengthen our sponsors. Some of that information is also in the Supplemental Text.
Speaker Change: Yeah.
Now on the BS and as always I'll speak for DHT in a few minutes.
Speaker Change: Excluding BHG and various other nonrecurring items fee revenues were up 11, 4% linked quarter.
Harold R. Carpenter: Now on to fees, and as always, I'll speak to BHT in a few minutes. Excluding BSG and various other non-recurring items, fee revenues are up 11.4% lately. We are pleased to report that our Wealth Management units have a strong first order and fully expect the efforts of our Wealth Management professionals will continue into the remainder of 2024. The BOLI work we did last quarter is performing as planned, so expect to see incremental revenue from that work, some in the second quarter, but also into the third.
Speaker Change: We are pleased to report that our wealth management units had a strong first quarter and fully expect the efforts of our wealth management professionals will continue in the remainder of 2024.
Speaker Change: Boley work, we did last quarter is performing as planned so expect to see incremental revenue from that work some in the second quarter, but also into the third quarter.
Speaker Change: As to the mortgaging mortgage servicing right asset that Terry mentioned earlier, we elected to recorded this quarter.
Speaker Change: We have been serving Freddie Mac SBA allowance since we merged with Magna Bank and Memphis several years ago.
S. B L is the small business lending program for anymore, Freddie Mac all of ours.
It's really the standard for agency back small apartment financing with loan amounts of 1 million to seven and a half million feet.
Harold R. Carpenter: As to the mortgage servicing right asset that Terry mentioned earlier, we elected to record it this quarter. We have been serving Freddie Mac SBL loans since we merged with Magna Bank in Memphis several years ago. SBL is the small business lending program Freddie Mac offers.
Speaker Change: N F. P originates below for Friday, good parts of the below from a unit with T. N F. T. We're tightening the service.
Speaker Change: Over the years and as we do each year, we perform strategic assessments on various business loves to determine strategic growth.
Harold R. Carpenter: It's really the standard for agency-backed small apartment financing with loan amounts of $1 million to $7.5 million. PNFT originates the loan for Freddie, who purchases the loan from a unit with PNFT retaining the service. Over the years, and as we do each year, we perform strategic assessments on various business lines to determine strategic fit, growth potential, cultural alignment, so on and so forth. As rates escalated, the value of the servicing right increased.
Speaker Change: Growth potential cultural alignment, so on and so forth.
Speaker Change: As rates escalated the value of the servicing rights increase, especially over the last several quarters. We've also increased the volume of loans being serviced in that unit in recent years in light of that we obtain a third party appraisal to determine the value of $11 8 million, which we will now need to revalue every quarter.
Speaker Change: <unk>, we are raising guidance for fee revenues this year, primarily driven by the growth in our primary businesses.
Speaker Change: Range of 10% to 14% seems reasonable given the performance of several of our primary business lines in the first quarter.
Harold R. Carpenter: We've also increased the voluminous loans being serviced in that unit in recent years. In light of that, we obtained a third-party appraisal to determine the value at $11.8 million, which we will now need to revalue every quarter.
Speaker Change: Okay.
Speaker Change: First quarter expenses came in slightly less than we anticipated after backing out the FDIC special assessment.
Speaker Change: We like everyone else recorded the FDIC special assessment accrual of $7, two 5 million in additional expense in the first quarter in.
Harold R. Carpenter: All in, we are raising guidance for fee revenues this year primarily driven by the growth in our primary fee business. A range of 10-14% seems reasonable given the performance of several of our primary business lines in the first quarter. First quarter expenses came in slightly less than we anticipated after backing out the FDIC special assessment.
Speaker Change: Importantly, we've lowered our incentive target from 100% to 120% pay out fiscal year 2024 to now 80% here at the end of the first quarter.
Speaker Change: Obviously, our goal is to bring it back to target this year, but that can't happen unless we feel like we're going to achieve our financial targets.
Harold R. Carpenter: We, like everyone else, recorded the FBIC special assessment accrual of $7.25 million in additional expense in the first quarter. Importantly, we've lowered our incentive target from 100% to 120% payout in fiscal year 2024 to now 80% here at the end of the first quarter. Obviously, our goal is to bring it back to target this year, but that can't happen unless we feel like we're going to achieve our financial targets. In the end, the relationship we've created since we started the firm between our financial performance and our incentive plan works intentionally and helps ensure that we don't sacrifice one to benefit the other. We have elected to keep our expense outlook unchanged at $950 to $975 million for the year.
Speaker Change: And the relationship with great and since we started the firm between our financial performance and our incentive plan works is intentional and helps ensure that we don't sacrifice wanted to benefit the other.
Speaker Change: We have elected to keep our expense outlook unchanged at 950 about our $75 million for the year you might ask why that lowered more we have some reasonably that we can fight our way back into this so we hope to get back to some get back some of the incentive we eliminated in the first quarter, but we also have other ways to manage our costs and we will deploy those as <unk>.
Speaker Change: <unk> necessary.
Speaker Change: We believe our overall expense outlook for 2024, it is largely intact. So we're going to keep it consistent for that.
Speaker Change: Now to the agency.
Speaker Change: As a fly it indicates origination trends were down in the first quarter, given a tighter credit box and the impact of the macro interest rate environment.
Speaker Change: Last quarter, we would anticipate a flattish year Astro production BHG believes that their 2024 production target is still in range, but are higher for longer rate environment could impact those assumptions as to placements. It was again, a very strong quarter for sales into the bank network and they also closed on their ninth securitization for 300 million.
Harold R. Carpenter: You might ask, why not lower it more? We have some reason to believe that we can fight our way back into this, so we hope to get back some of the incentive we eliminated in the first quarter, but we also have other ways to manage our costs, and we will deploy those as necessary. We believe our overall expense outlook for 2024 is largely intact, so we're going to keep it consistent for now. Now the Ph.
Speaker Change: And as I mentioned in the press release last night with a net spread of greater than 10%, which we were all very excited to see.
Speaker Change: Also my understanding is that over 35 or participated in the issuance does great demand for BHG paper.
Speaker Change: Also keep in mind, the securitization added more than $30 million and provision expense.
The first quarter results.
Speaker Change: DHT it doesn't anticipate another ABS issuance until probably the fourth quarter of this year.
Speaker Change: As to spreads auction platform spreads did widen during the first quarter to eight 1%, while the balance sheet spreads are fairly consistent with prior quarter. All in Vegas. She believes spreads are holding in this rate environment based she believes when rate decreases start that will be a good thing for them not only from a volume.
Harold R. Carpenter: D. As the slide indicates, origination trends were down in the first quarter given a tighter credit box and the impact of the macro interest rate environment. Last quarter, we'd anticipated a flatter share as to production. BHG believes that its 2024 production target is still in reach, but a higher for longer rate environment could impact those assumptions. As to placements, it was, again, a very strong quarter for sales into the bank network, and they also closed on their ninth securitization for $300 million, and, as we mentioned in the press release last night, with a net spread of greater than 10%, which we were all very excited to see. Also, my understanding is that over 35 firms participated in the issue. That's a great demand for BHG paper. Also, keep in mind that this securitization added more than $30 million in provision expense to the first quarter results.
Speaker Change: Active but also from a spread perspective.
Speaker Change: Yeah.
Speaker Change: All reserves and Theres a lot of information on this slide the H D did increase reserves during the first quarter for both on and off balance sheet loan modest uptick in the first quarter for credit losses for the off balance sheet business going from three 1% to three 3% on balance sheet was at six 8%, but the news is.
Speaker Change: Good as it pertains to Bhg's credit experience, we have been anticipating for at least a year or more than the first half of 2024 was critical to our assumptions around credit improving.
Speaker Change: Even though the charge off rates for on balance sheet increased during the first quarter. The actual dollar value of charge offs for all our balance sheet decreased along with average balances. That's why the charge off rate increase because the average balances went down.
Harold R. Carpenter: BHG doesn't anticipate another ABS issuance until probably the fourth quarter of this year. As for spreads, auction platform spreads did widen during the first quarter to 8.1 percent, while the balance sheet spreads are fairly consistent with the prior quarter. All in all, BST believes spreads are holding in this rate environment. BST believes when rate decreases start, that will be a good thing for them, not only from a volume perspective but also from a spread perspective.
Speaker Change: Even though the charge off rate for both one at our balance sheet was up in the first quarter BHG believes that they may have turned the corner on tackling the COVID-19 overhang of grade inflation in 2021 and 2022.
And at the bottom left chart indicates clot delinquencies, which were past dues greater than 30 days for all of these loans, both on and off balance sheet appear to have topped off over the last few months and are bending down at the end of the first quarter, especially in consumer credit.
Speaker Change: So the agency believes based on information gathered from the rating agencies their loss experience, thus far post COVID-19 would be better than that of other fintech competitors.
Harold R. Carpenter: On reserves, and there's a lot of information on this slide. BHG did increase reserves during the first quarter for both on and off balance sheet loans. A modest uptick in the first quarter for credit losses for the off balance sheet business went from 3.1 to 3.3 percent.
Again as the pass through chart indicate the consumer a lot it was very encouraging.
Speaker Change: It's too early to declare victory, but because she has worked tirelessly to get back to their pre COVID-19 credit environment more progress to come over the next few quarters.
Harold R. Carpenter: The balance sheet was at 6.8 percent. But the news is good as it pertains to BHG's credit experience. We have been anticipating for at least a year or more that the first half of 2024 was critical to our assumptions around credit improvement. Even though the charge-off rates for on-balance sheet increased during the first quarter, the actual dollar value of charge-offs for on-balance sheet decreased along with average balances.
Speaker Change: Yeah.
Speaker Change: As to origination earnings achieving the same level of originations as last year will take great effort.
Speaker Change: That said BHG is not an emphasis all not interested in adjusting their credit models to achieve volume goals suffice it to say as to placing bhg's originated credit appetite for Bdcs credit is as strongly as ever that in and of itself should help spreads going forward.
Harold R. Carpenter: That's why the charge-off rate increased because the average balances went down. Even though the charge-off rate for both On and Out's balance sheets was up in the first quarter, BHG believes that they may have turned the corner on tackling the COVID overhang of Great Inflation in 2021 and 2022. As the bottom left chart indicates, client delinquencies, which are past dues greater than 30 days for all of BHG's loans, both on and off balance sheet, appear to have topped off over the last few months and are now falling down at the end of the first quarter, especially in consumer credit.
Speaker Change: As to earnings BHG is holding to their mid single digit earnings growth target for this year. Additionally, BHG has tactics they can deploy to help their bottom line and increase potential earnings the.
The important assumption for DHT. This year is what happens with credit.
Speaker Change: It is improvement continues like we believe it will BHG will have an impressive year with that I'll turn it back over to Terry.
Michael Terry Turner: Thanks Harold.
Michael Terry Turner: In general it seems to me that the operating environment for banks is both difficult and volatile inflation appears to be more difficult time than predicted even as recently as several weeks ago by Jerome Powell.
Harold R. Carpenter: Also, BHG believes, based on information gathered from the rating agencies, their loss experience thus far, post-COVID, would be better than that of other fintech competitors. Again, as the past due chart indicates, the consumer line is very encouraging.
Michael Terry Turner: It seems to me that rates are now more likely to stay higher for longer resulting in an inverted yield curve for longer and with all the uncertainty and rapidly changing market conditions bank stock investors, obviously, finding it challenging to forecast bank earnings and discern the creators.
Harold R. Carpenter: It's too early to declare victory, but BHG has worked tirelessly to get back to their pre-COVID credit environment. More progress to come over the next few quarters. As to origination and earnings, achieving the same level of originations as last year will take great effort. That said, BHG is not, and the emphasis is on not, interested in adjusting their credit models to achieve volume goals.
Michael Terry Turner: Creators.
Michael Terry Turner: And so in my opinion in this environment a company like pay in a pay you that over the longer term and it has been able to generate such reliable growth shouldn't be an attractive alternative.
Michael Terry Turner: The truly differentiated model that attracts the industry's best talent like none of its competitors and create raving fans like none of its competitors, which resolves and persistent growth of clients and therefore persistent growth in loans deposits and net interest income over the long haul.
Michael Terry Turner: Suffice it to say, as to placing BHG's originating credit, the appetite for BHG's credit is as strong as ever, and that in and of itself should help spread it going forward. As to earnings, BSG is holding to their mid-single-digit earnings growth target for this year. Additionally, BSG has tactics it can deploy to help its bottom line and increase potential earnings. The important assumption for BHC this year is what happens with credit. If improvement continues like we believe it will, BHG will have an impressive year.
Michael Terry Turner: How we consistently grew our a b S over the last decade that I havent to take all many of the risks that some of our some in our industry have taken which almost always come home to roost in times of volatility.
Michael Terry Turner: In fact, we produced the highest total shareholder return among our peers over the last decade, a decade that witnessed a great deal of volatility.
Michael Terry Turner: With that, I'll turn it back over to Tim. Thanks, Harold. In general, it seems to me that the operating environment for banks is both difficult and volatile. Inflation appears to be more difficult to tame than predicted, even as recently as several weeks ago by Jerome Powell.
Michael Terry Turner: Over the decade, I Watch Bank management take extraordinary risk and Investor things change with every swing in market conditions. During the pandemic slow growth in the number of banks came in favor and we saw a P E for banks with net negative balance sheet growth significantly higher than for the growth. Thanks.
Michael Terry Turner: It seems to me that rates are now more likely to stay higher for longer, resulting in an inverted yield curve for longer, and with all the uncertainty and rapidly changing market conditions, bank stock investors are obviously finding it challenging to forecast bank earnings and discern the dependable creator. And so, in my opinion, in this environment, a company like PNFP that, over the longer term, has been able to generate such reliable growth should be an attractive alternative. We built a truly differentiated model that attracts the industry's best talent like none of its competitors.
Michael Terry Turner: During the liquidity crisis, we saw valuations picked up with the money center banks on one end and slow growth rural markets on the other versus high growth regions like PE N N P.
Michael Terry Turner: During the fed tightening cycle, we saw low deposit beta the bank's highly rewarded while high beta banks like the N F. P. Where's G, but through all of that at Pinnacle, we simply focused on rapidly and reliably grow on our earnings stream not betas not margins are trending niches earnings.
Michael Terry Turner: Our approach Panama reminds me, though John Houseman Marshalls for Smith, Barney, where he said they make money the old fashioned way earn it.
Michael Terry Turner: It creates raving fans like none of its competitors, which results in persistent growth of clients and, therefore, persistent growth of loans, deposits, and net interest income over the long haul. It's how we consistently grew our EPS over the last decade without having to take on many of the risks that some in our industry have taken, which almost always come home to roost in times of volatility. In fact, we produced the highest total shareholder return among our peers over the last decade, a decade that witnessed a great deal of volatility.
Michael Terry Turner: During the last decade, our price. The next 12 months E. P S contracted meaningfully.
Michael Terry Turner: So then it becomes obvious that it was our ability to drive and grow earnings that accounted for our peer leading total shareholder return and not be pickup and the multiple that investors were sat and based on your most recent phases.
Michael Terry Turner: So let me be clear at TNMP. Our focus is primarily on sustainable long term growth in earnings and tangible book value and I'm, not saying the deposit cost beta reserve no importance I'm not saying this is meredith as to Scream for Nims are always or efficiency ratios I'm, just saying it panicle our principal objective is to sustain.
Michael Terry Turner: Over the decade, I watched bank management take extraordinary risk, and investor themes change with every swing in market conditions. During the pandemic, slow growth and no growth banks came into favor, and we saw PEs for banks with net negative balance sheet growth be significantly higher than for growth banks. During the liquidity crisis, we saw valuations pick up for money center banks on the one end and slow growth rural markets on the other versus high growth regionals like PNFP.
Michael Terry Turner: Compounding earnings and compounding tangible book value.
Michael Terry Turner: So you know it could slow hiring reduced noninterest expense and improve our short term earnings.
Michael Terry Turner: We can concentrate on lowering our deposit base instead of finding a high growth balance sheet, although the once in a generation opportunity. We have to continue taking market share from all our competitors are.
Michael Terry Turner: During the Fed tightening cycle, we saw low deposit beta banks highly rewarded, while high beta banks, like PNFT, were skewed. But through all of that, at Pinnacle, we simply focused on rapidly and reliably growing our earnings strength. Not betas, not margins or trendy niches, earnings. Our approach at Pinnacle reminds me of the old John Houseman commercials for Smith Barney where he said, they make money the old-fashioned way; they earn it. During the last decade, our price for the next 12 months, EPS, contracted meaningfully.
Michael Terry Turner: Instead, our focus is on sustainable growth and earnings compound in tangible book value.
Michael Terry Turner: And if you focus on sustainable earnings growth and compounding tangible book value. There is no chance you're going to take a temporary influx of liquidity based on government stimulus and put it into securities do short term earnings at a time when interest rates are near all time lows and you can't accept the duration risk with loading the balance sheet with unhedged.
Michael Terry Turner: So then it becomes obvious that it was our ability to reliably grow earnings that accounted for our peer-leading total shareholder return and not the pickup in the multiple that investors were assigned based on their most recent leases. And so, let me be clear, at PNFP, our focus is primarily on sustainable long-term growth and earnings and tangible book value. And I'm not saying that deposit cost betas are of no importance. I'm not saying it's meritless to scream for NIMS or ROAs or efficiency ratios.
Michael Terry Turner: Long term fixed rate mortgages when yields are at all time lows you just accept the lower net interest margin in order to protect hard on tangible book value that you focus you protect loss absorbing capital.
Michael Terry Turner: There are banks that we invest when rates are falling and they're buying some win backs when rates rise and then there are banks that have really low average deposit balances. All the words you garnered lofty multiples at one time or another over the last decade, but in the banking business, perhaps the only way to consistently and reliably produce total shareholder returns better than.
Michael Terry Turner: I'm just saying at Pinnacle, our principal objective is sustainably compounding earnings and compounded tangible book value. So, you know, we could slow hiring, reduce non-interest expense, and improve our short-term earnings. We can concentrate on lowering our deposit beta instead of funding a high-growth balance sheet and forego the once-in-a-generation opportunity we have to continue taking market share from all our competitors, but instead, our focus is on sustainable growth and earnings and compounding the tangible book value.
Michael Terry Turner: Figures over the long haul is to have a sustainable competitive advantage competitive advantage a differentiated model and that's what I believe we have at pinnacle.
Michael Terry Turner: This is the 2023 market tracking data from Greenwich Associates, our coalition Greenwich as they refer to themselves now.
Michael Terry Turner: That is for businesses with annual revenues from 1 million to 500 million in our market area, which for these purposes as defined as Tennessee, North Carolina, South Carolina, Washington, D C and Atlanta, Georgia.
Michael Terry Turner: And if you focus on sustainable earnings growth and compound intangible book value, there's no chance you're gonna take a temporary influx of liquidity based on government stimulus and put it in securities to boost your short-term earnings at a time when interest rates are near all-time lows. And you can't accept the duration risk of loading the balance sheet with unhedged long-term fixed-rate mortgages when yields are at all You just accept a lower net interest margin in order to protect hard-earned tangible book value. That's your focus.
Michael Terry Turner: Impairs the top 10 banks in the footprint more specifically in addition to pinnacle in the top 10 banks in that foot brand include through Bank of America Wells Fargo versus Bank and trust fancy first rather than JP Morgan regions in South study.
Michael Terry Turner: Looking at client satisfaction on the left in the slides. The crosshairs are set at the main for the market penetration on the Y axis and the percentage of excellent client satisfaction ratings on the X axis. So the banks in the top left quadrant of the large share buying with the lowest level of client satisfaction, that's what we referred to as vulnerable competitors.
Michael Terry Turner: You protect loss-absorbing capital. There are banks that win best when rates are falling, and there are banks that win best when rates are rising, and there are banks that have really low average deposit balances, all of which have garnered lofty multiples at one time or another over the last decade. But in the banking business, perhaps the only way to consistently and reliably produce total shareholder returns better than peers over the long haul is to have a sustainable competitive advantage, a differentiated model, and that's what I believe we have at Pinnacle.
Michael Terry Turner: Banks in the lower right quadrant of the bank, providing the highest level of client satisfaction theoretically the market share takers and as you can see pain M. P provides the single highest level of client satisfaction in our footprint that differentiation and a particularly wide differentiation when compared to the largest most vulnerable banks in the market.
Michael Terry Turner: And on the right side of the slide you can see that the banks at the top of the highest overall client satisfaction are generally the market share Tigers those are the banks with improving market penetration over the last year as shown in the rightmost column and the banks at the bottom of the list are the lowest client satisfaction banks and they are indeed.
Michael Terry Turner: This is the 2023 market tracking data from Greenwich Associates or Coalition Greenwich, as they refer to themselves now. The data is for businesses with annual revenues from 1 million to 500 million and our market, which for these purposes is defined as Tennessee, North Carolina, South Carolina, Washington, DC, and Atlanta, Georgia. It compares the top 10 banks in the footprint, more specifically, in addition to Pinnacle, the top 10 banks in that footprint include Truist, Bank of America, Wells Fargo, First Citizens Bank and Trust, PNC, First Horizon, JP Morgan, Regions, and Southside.
Michael Terry Turner: Given our market share penetration.
Michael Terry Turner: Honestly more important than client satisfaction scores as the net promoter score satisfied clients and many times leads that they get a better offer while net promoters are substantially less likely to leave because they are emotionally engage with the brand not surprisingly P. N. N. P has the highest level of net promoters not by a little bit by a lot and not only.
Michael Terry Turner: Do we have fallen away the highest percentage of motors, but granted survey data found no detractors literally zero outlays. You study. This comparison of the top 10 banks in the south eastern footprint, our sustainable competitive advantage is beginning to crystallize.
Michael Terry Turner: Looking at client satisfaction on the left of the slide, the crosshairs are set at the mean for market penetration on the WAG and the Percentage of Excellent Client Satisfaction Ratings on the EXAC. So the banks in the top left quadrant are the large share banks with the lowest level of client satisfaction. That's what we refer to as vulnerable competitors. Banks in the lower right quadrant are the banks providing the highest level of client satisfaction, and theoretically, they are market share takers. And as you can see, PNFP provides the single highest level of client satisfaction in our footprint.
Michael Terry Turner: It's no secret that for relationship management relationship managed banks like us.
Michael Terry Turner: Quality of the relationship managers must be the principal differentiator granted just identified seven important metrics that are valued by business class you see them listed in the first column there.
Michael Terry Turner: And the rightmost column you see the peer comparison writings for the same 10 competitors in our footprint that I just walked through the blue bars represent the range of scores for that set of 10 banks on that metric.
Michael Terry Turner: White wine is the median score and the wide circle is the pinnacle score for that metric.
Michael Terry Turner: That's differentiation, and a particularly wide differentiation when compared to the largest, most vulnerable banks in the market. And on the right side of the slide, you can see that the banks at the top with the highest overall client satisfaction are generally the market share takers. Those are the banks with improving market penetration over the last year, as shown in the right-most column. And the banks at the bottom of the list are the lowest client satisfaction banks, and they are indeed giving up market share penetration.
Michael Terry Turner: You can see that paying that pays the market later for every single relationship management metric to think about that in terms of a sustainable competitive advantage not only are we widely abused it made the most prolific horror of relationship managers in our footprint, but the quality of those we've attracted are literally the best in the market and there's a slight digression.
Michael Terry Turner: To make this point when we provide our outlook for loan growth as an example, which is substantially higher than peers somebody's fear that the risk profile is elevated as a result of the high growth in loans, but hopefully as you think about the fact that we're not only are the most relationship managers in our footprint, which explains the high growth, but where are in the best relationship.
Michael Terry Turner: Honestly, more important than client satisfaction scores is the net promoter score. Satisfied clients will often leave if they get a better offer, while net promoters are substantially less likely to leave because they're emotionally engaged with the brand. Not surprisingly, PNFP has the highest level of net promoters, not by a little, but by a lot.
Michael Terry Turner: <unk> in our footprint, which in my judgment should produce a lower risk profile not a higher awareness.
Michael Terry Turner: Much has been said and written about the advantage that the large money center banks have as a result of their technology budgets and there's no doubt that every money centers takes bandwidth substantially swamp hours, but using a similar grabbing for 5% and regarding Treasury management and the digital experience for the top 10 banks in our footprint again.
Michael Terry Turner: And not only do we have far and away the highest percentage of promoters, but the Greenwich survey data found no detractors, literally zero. Hopefully, as you study this comparison of the top 10 banks in the southeastern footprint, our sustainable competitive advantage is beginning to crystallize. It's no secret that for relationship-managed banks like us... the quality of the relationship managers must be the principal differentiator. Greenwich has identified seven important metrics that are valued by business clients.
Michael Terry Turner: Panicle actually had the single best perception among businesses surveyed by Greenwich in our footprint both in terms of capability and delivery. This is one of the clearest examples of how we combine tech and touch to create a sustainable competitive advantage.
Michael Terry Turner: You see them listed in the first column there. In the rightmost column, you see the peer comparison ratings for the same 10 competitors in our footprint that I just walked through. The blue bars represent the range of scores for that set of 10 banks on that metric. The white line is the median score, and the white circle is the Pinnacle score for that metric.
Michael Terry Turner: And ultimately Theres no more powerful brand among businesses in our footprint and benefits Greenwich's identified five pillars brand perceptions among businesses and as you can see the range of scores for the top 10 banks in our footprint is pretty wide, but again pinnacle's. The later on every single pillar and so as you think about a sustainable competitive advantage is.
Michael Terry Turner: Actually, you can see that PNFP is the market leader for every single relationship management metric. Think about that in terms of a sustainable competitive advantage. Not only are we widely viewed to be the most prolific hireer of relationship managers in our footprint, but the quality of those we've attracted is literally the best in the market.
Michael Terry Turner: Highly unlikely that competitors can easily addressed their market perceptions for how easy they are to do business with a trustworthy they are or why do they value long term relationships in socal, even if they recognize the substantial deficiencies and even if they have the will to change and even if they're successful addressing all of the root cause.
Michael Terry Turner: When we provide our outlook for loan growth, as an example, which is substantially higher than peers, some might fear that the risk profile is elevated as a result of the high growth in loans. But hopefully, as you think about the fact that we're not only hiring the most relationship managers in our footprint, which explains the high growth, but we're also hiring the best relationship managers in our footprint, which, in my judgment, should produce a lower risk profile, not a higher risk. Much has been said and written about the advantage that the large money center banks have as a result of their technology budgets, and there's no doubt that every money center's tech spend would substantially swamp ours.
Michael Terry Turner: This is why they are so hard to do business with and why they are not dressed in while they're viewed.
Michael Terry Turner: To not value long term relationships those reputations with custard customers are more likely built over decades.
Michael Terry Turner: And so attempted to connect the dots for you on exactly why we've been able to gather clients faster than competitors.
Michael Terry Turner: We've grown our interest, earning assets faster and bigger and therefore, our net interest income fashion and bigger and therefore, our E. P S faster than fingers over the last decade is because of the very hard work, we've done to build a kind of a work environment that attracts not only the most but the best talent in the industry and to create a demonstrably differentiated level of service.
Michael Terry Turner: But using a similar graphic for client perceptions regarding treasury management and the digital experience, for the top ten banks in our footprint, again, you can see that Pinnacle actually has the single best perception among businesses surveyed by Greenwich in our footprint, both in terms of capability and delivery. This is one of the clearest examples of how we combine tech and touch to create this sustainable competitive advantage. And ultimately, there's no more powerful brand among businesses in our footprint than Pinnacle.
Michael Terry Turner: That's why it's substantially less clients can see any vulnerability and their relationship with us and substantially more glass intend to reward us with more business over the next six to 12 months by far than for any of our competitors. That's the linkage from the work environment, which was recently ranked by Forbes magazine as the 11th best in all of these.
Michael Terry Turner: And states to the recruiting effectiveness to the client experience to the volume clients tend to move to us and all of this by Arizona our outlook for the remainder of 2024 and for the next decade for that matter. So let me turn it over to you.
Michael Terry Turner: Greenwich has identified five pillars of brand perceptions among businesses, and as you can see, the range is wide for the top 10 banks in our footprint is pretty wide. But again, Pinnacle's the leader on every single pillar.
Speaker Change: Turning now to our slide on our outlook for 2024, we've tightened our expectations in some cases and bought a part of it and the and we've concluded that our overall overall outlook for 2024 is basically consistent with last quarter.
Michael Terry Turner: And so as you think about sustainable competitive advantage, it's highly unlikely that competitors can easily address their market perceptions of how easy they are to do business with, how trustworthy they are. And even if they have the will to change, and even if they're successful addressing all the root causes of why they're so hard to do business with, and why they're not trusted, and why they're viewed to not value long-term relationships, those And so, attention to connect the dots for you on exactly why we've been able to attract clients faster than competitors.
It doesn't do a few conference calls this quarter, there's a lot of chatter around world events inflation M&A politics, so on and so forth and how those advance are impacting their outlooks for 'twenty four 'twenty five for me I find myself thinking a lot about interest rates and credit I have a lot of confidence in where our balance sheet sits with respect to both I've mentioned to a few of them.
Speaker Change: CFO friends over the last few years I was a bit envious of their asset sensitivity.
Speaker Change: Our goal is and has been managing our balance sheet with an aim towards interest rate risk neutrality, we may drift slightly to either asset or liability sensitivity from time to time, but in the in our belief is that we let the client gathering engine, but what drives our earnings growth.
Michael Terry Turner: While we've grown our interest-earning assets faster than peers, and therefore our net interest income faster than peers, and therefore our EPS faster than peers over the last decade, it's because of the very hard work we've done to build the kind of work environment that attracts not only the most, but the best talent in the industry and to create a demonstrably differentiated level of service. That's why substantially fewer clients can see any vulnerability in their relationship with us, and substantially more clients intend to reward us with more business over the next 6-12 months, by far, than any of our competitors.
Speaker Change: As to credit I personally spend a lot of time with our credit team.
Speaker Change: Also spend a lot of time with our hands than in recent quarters, particularly are a real estate lender.
Speaker Change: Likely will spend even more time with all of them for the rest of this year to try to better understand what happens to credit when rates go up or go down as I should and as you would expect for what it's worth our folks are at the line of scrubbed actively working with our borrowers everyday ensuring we deliver great service and protect the financial soundness of this firm.
Michael Terry Turner: That's the linkage from the work environment, which was recently ranked by Forbes magazine as the 11th best in all of the United States, to recruiting effectiveness, to the client experience, to the volume clients intend to move to us. And all this bears on our outlook for the remainder of 2024 and for the next decade, for that matter. So, Harold, let me turn it over to you.
Speaker Change: Because of that.
Speaker Change: Feel good about where we are where we're headed in 2024 and what we all know 2025 will shape up to be even after you consider what we know today about world events inflation, so on and so forth.
Speaker Change: So with that Paul the group I know its thankful that I'm done and if you would let's open it up for Q&A.
Paul: Thank you the floor is now open for your questions if you'd like to ask a question at this time. Please press star one on your Touchtone phone.
Harold R. Carpenter: Thanks, Terry. Now to our slide on our outlook for 2024. We've tightened our expectations in some cases and modified others. In the end, we've concluded that our overall outlook for 2024 is basically consistent with the previous quarter. I've listened to a few conference calls this quarter. There was a lot of chatter around world events, inflation, M&A, politics, so on and so forth, and how those events were impacting their outlooks for 2024 and 2025. For me, I find myself thinking a lot about interest rates and credit.
Speaker Change: We ask that in the interest of time participants today limit themselves to one question and one follow up.
Speaker Change: Analysts would be given preference during the Q&A.
Speaker Change: We do ask that when you ask your question you. Please pick up your handset if list.
Hang on speaker phone to provide optimum sound quality.
Speaker Change: Once again Thats Star one if you wish to ask a question on today's call.
Harold R. Carpenter: I have a lot of confidence in where our balance sheet sits with respect to both. I've mentioned to a few of my CFO friends over the last few years how I was a bit envious of their asset sensitivity. Our goal is and has been managing our balance sheet with an aim towards interest rate risk neutrality. We may drift slightly to either asset or liability sensitivity from time to time, but in the end, our belief is that we let the client gathering engine be what drives our earnings growth. As to credit, I personally spent a lot of time with our credit team. I also spent a lot of time with R.M.s.
Speaker Change: Please hold while we poll for questions.
Speaker Change: On the first question today is coming from Casey Haire from Jefferies. Casey Your line is nice.
Yeah. Thanks, good morning, everyone.
Quick question a question on the <unk>.
Casey Haire: I guess the NIM outlook.
Casey Haire: You guys mentioned that you expect it up in the second quarter.
Casey Haire: And the spot deposit costs are down.
Casey Haire: Relative to the first quarter, but the some of the yield.
Harold R. Carpenter: and in recent quarters, particularly our real estate line. I likely will spend even more time with all of them for the rest of this year to try to better understand what happens to credit when rates go up or go down, as I should and as you would expect. For what it's worth, our folks are at the line of scrimmage, actively working with our borrowers every day, ensuring we deliver great service and protect the financial soundness of this firm.
Casey Haire: Loan yield.
Casey Haire: Yields.
Casey Haire: Our lower than where they were in the first quarter and then the Muni bond yields were also Laura just trying to get a sense of what's going on on the on the yield side.
Laura: Yeah, well occasionally this era I think the Muni bond yields are so there's there's a volume issue there.
Laura: But I think we should see some of that recover here in the second quarter.
Harold R. Carpenter: Because of that, I feel good about where we are, where we're headed in 2024, and what we all hope 2025 will shape up to be, even after you consider what we know today about world events, inflation, so on and so forth. So with that, Paul, the group I know is thankful that I am done. And if you would, let's open it up for Q&A.
Speaker Change: The deposit rate forecast I think will be just a small creek, what's really dependent on our our NIM forecast is how well we do on fixed rate loan repricing.
Speaker Change: And whether our DDA accounts hanging in there like we think they'll hang in there. So if those two things if those two things happen, we think our NIM forecast is solid.
Obviously loan growth is an important element to all of that and so we still feel pretty good about the seven about the 9% to 11% loan growth for the year.
Operator: Thank you. The floor is now open to your questions. If you would like to ask a question at this time, please press star 1 on your touch-tone.
Speaker Change: Okay very good and then.
Speaker Change: I guess just switching to.
Speaker Change: The BHG.
Operator: We ask that in the interest of time, participants today limit themselves to one question and one vote. Analysts will be given preference during the Q&A. Again, we do ask that when you ask your question, you please pick up your handset if you are listening on.
Speaker Change: <unk> outlook.
Speaker Change: The guide implies a pretty steep ramp in the remaining quarters here Harold you mentioned.
Speaker Change: Credit is a pretty significant wildcard just wondering what does that.
Operator: [inaudible] Again, that's star 1 if you wish to ask a question on today's call, and please hold while we... The first question today is coming from Casey Haire from Jefferies. Casey, your line is open. Yeah, thanks. Good morning, everyone.
Harold R. Carpenter: How do you get the Phd run rate up to that sort of mid.
Harold R. Carpenter: $20 million level.
Harold R. Carpenter: That guy does it is it credit or is it more originations just some color there.
Yeah, we think originations are going to be probably.
Harold R. Carpenter: A little better here for the rest of the year what impact of the first quarter a lot was that a b S placement.
Casey Haire: Quick question on the NIM outlook. You guys mentioned that you expect it to go up in the second quarter. The spot deposit costs are down relative to the first quarter, but some of the yields, the loan yields, and the spot yields are lower than where they were in the first quarter, and then the muni bond yields were also lower. Just trying to get a sense of what's going on on the yield side. Yeah, well, Casey, this is Harold.
Harold R. Carpenter: I don't think they're going to spend as much time working on balance sheet.
Harold R. Carpenter: Kind of growth and they'll spend more time on the on the gain on sale of apartment.
Harold R. Carpenter: But you're right the credit is the issue.
Harold R. Carpenter: We're all optimistic to see those bars turns out.
Harold R. Carpenter: And they feel pretty good about where they are right now.
Speaker Change: Very good thank you.
Speaker Change: Sure.
Harold R. Carpenter: I think the immunity bottle yields, there's a volume issue there, but I think we should see some of that recover here in the second quarter. The deposit rate forecast, I think, will be just a small creep. What's really dependent on our NIM forecast is how well we do on fixed-rate loan repricing and whether our DDA accounts hang in there like we think they'll hang in there. So if those two things happen, we think our NIM forecast is solid. Obviously, loan growth is an important element to all that, and so we still feel pretty good about the 9-11% loan growth. Okay, very good. And then I guess I'm just switching to the BHG outlook.
Speaker Change: Thank you. The next question is coming from Steven Alexopoulos from Jpmorgan, Steven Your line is live.
Steven A. Alexopoulos: Hey, good morning, everyone.
Steven A. Alexopoulos:
Harold maybe just start to go back to the question Casey just asked.
Steven A. Alexopoulos: I look at the margin pretty flat, earning asset yields were pretty flat deposit costs pretty flat. This quarter, it's not really clear to me, what's driving the expectation for NIM expansion in the second quarter.
Harold R. Carpenter: Alright, well like I said, we've got a lot more fixed rate loans to reprice this quarter.
Speaker Change: Also the work we did at the end of the quarter on.
Speaker Change: Some deposit.
Speaker Change: Preemptive strikes into the deposit book.
Speaker Change: Should also be helpful.
Speaker Change: So those are there.
Speaker Change: And DDA balances hanging in there are the primary kind of.
Speaker Change: Tailwind to the margin uplift.
Casey Haire: The guide implies a pretty steep ramp in the remaining quarters here. Harold, you mentioned credit as a pretty significant wildcard. Just wondering what that means, you know, how do you get the BHG run rate up to that sort of mid $20 million level to hit that guide? Is it credit, or is it more originations? Just some color there.
Speaker Change: Got it okay, so you're expecting earning asset yields to pick up a bit into Q and deposit costs to come down a bit so what you're saying.
Speaker Change: That's right.
Speaker Change: That's right yes.
Speaker Change: Yes.
Speaker Change: Got it Okay, and then on the expense side.
So the incentive comp down to 80% of the target.
Harold R. Carpenter: You know, we think originations are probably going to be a little better here for the rest of the year. What impacted the first quarter a lot was that ABS placement. I don't think they're going to spend as much time working on balance sheets, kind of growing, and they'll spend more time on the gain on sale part. But you're right, the credit is the issue. We're all optimistic about seeing those bars turn south, and they feel pretty good about where they are right now. Very good. Thank you. Thank you. The next question is coming from Steven Alexopoulos from J.P. Morgan. Good morning, everyone.
Speaker Change: But kept the full year expense outlook intact can you just run through a little more detail what they expected to fill that bucket.
Speaker Change: While we are still the same expense outlook.
Speaker Change: Alright, so what we elected to do is not take it down so we're going to keep it. The same we felt like as that played into our overall outlook for 2024 that was the fair thing to do.
Speaker Change: If if if the.
Speaker Change: If the incentive accrual gets re applaud you know so we add back the call. It the 30 million bucks into.
Speaker Change: Into the incentive accrual for the year.
Speaker Change: That will come obviously with revenue increases.
Steven A. Alexopoulos: Harold, maybe to start, to go back to the question Casey just asked, you know, I look at the margin, it's pretty flat, earning asset yields were pretty flat, and positive cost was pretty flat this quarter. It's not really clear to me what's driving the expectation for NIM expansion in the second quarter. All right.
Speaker Change: But we have other opportunities to kind of manage our expense outlook to kind of keep that still within that 950 975.
Speaker Change: If that makes sense.
Okay.
Speaker Change: Yeah, Yeah that makes sense I guess, the one wildcard new hiring was really solid in Florida 37, new hires.
Harold R. Carpenter: Well, like I said, we've got a lot more fixed-rate loans to reprice this quarter. We think also the work we did at the end of the quarter on some preemptive strikes into the deposit book should also be helped. Um, so those and DDA balances hanging in there are the primary cutoff, uh, tail end of the margin up. Got it. Okay, so you're expecting earnings asset yield to pick up a bit in 2Q and deposit costs to come down a bit. We think that's right. Like, make sure you're going to describe the assets of those four.
Speaker Change: What is embedded in the expense outlook like that's going to be a much stronger year than typical for hiring just given the pipeline.
Speaker Change: Yeah, I think we put in the as far as the plan for this year basically the same hiring profile for 2024 as 2023.
Speaker Change: I'll have to go back and look at my numbers, but I think our overall head count was up.
Speaker Change: People are so last year something like that.
Speaker Change: So similar that includes revenue producers and everybody.
Speaker Change: Yeah, Yeah, Yeah. It was 115 something like that.
Steven A. Alexopoulos: Yes. Got it. And then on the expense side, we know you guys took the incentive comp down to 80% of target but kept the full year expense outlook intact. Could you just run through a little more detail on what's expected to fill that bucket up while we're still at the same expense outlook? All right, so what we elected to do is not take it down.
Speaker Change: Yeah, yeah, okay. So.
Speaker Change: But if you dissect the revenue producer plant was basically the same this year as it was what we did last year.
Speaker Change: Got it okay. Thanks for all the color.
Speaker Change: Thank you. The next question is coming from Katherine Miller from K B W.
Catherine Fitzhugh Summerson Mealor: Your line is live.
Catherine Fitzhugh Summerson Mealor: Thanks, Good morning.
Catherine Fitzhugh Summerson Mealor: On the margin.
Catherine Fitzhugh Summerson Mealor: Good morning, one of the market have you. So you mentioned that even in a no rate hike scenario, that's neutral to your outlook on on your NII Guide.
Harold R. Carpenter: So we're going to keep it the same. We felt like as that played into our overall outlook for 2024, that was the fair thing to do. If, if, if the incentive accrual gets reapplied, you know, so we add back the, call it, 30 million bucks, into the incentive accrual for the year. That'll come obviously with revenue increases, but we have other opportunities to kind of manage our expense outlook to kind of keep that still within that 950 to 975, if that makes you happy. Yep.
Should we think about the risk the downside risk to grasp if we don't pay rate cut later on this year.
Speaker Change: Yeah, that's a great question Catherine.
Speaker Change: I think it will it will impact growth maybe to the low end of our number.
Speaker Change: But at the same time.
Steven A. Alexopoulos: Yeah, that makes sense. I guess the one wild card is the new hiring was really solid as far as 37 new hires go. What is embedded in the expense outlook? Like, is this going to be a much stronger year than typical for hiring, just given the five? Yeah, I think we put in, as far as the plan for this year, basically the same hiring profile for 2024 as 2023. I'll have to go back and look at my numbers, but I think the overall hit count was up. A hundred people or so last year, something like that.
Speaker Change: Lot of our growth if you look there's a chart in the back that shows where our loan growth came in the first quarter and it all came from <unk>.
Speaker Change: New markets new people.
Speaker Change: And so that's what we're leaning into as far as our basically our loan growth for the whole year, we're not expecting.
Speaker Change: Any significant growth call it.
Speaker Change: If it's not 11 overall, we might be looking at in the legacy markets for call. It five to seven.
Speaker Change: So if that chart in the back would show that we didn't have hardly any growth, but we had negative growth in the legacy markets in the first quarter.
Speaker Change: Great.
Harold R. Carpenter: So, that includes revenue producers and everybody. It was 115, something like that. So, if you dissect that, the revenue producer plan was basically the same this year as it was last year. Okay, thanks for all the color. The next question is coming from Catherine Mealor from KBW. Catherine, your line is open. Thanks. Good morning.
And then similarly on the margin in a scenario, where we don't have cut do you feel like there is enough momentum and DDA balances.
Speaker Change: Holding in and you've got better fixed rate lending rate repricing for the back half of the year that the margin continues to expand throughout the rest of the year with cut or even without pets.
Catherine Fitzhugh Summerson Mealor: One more on the margin. So, good morning. One more on the margin, Harold. So you mentioned that even in a no rate cut scenario, that's neutral to your outlook for your NII guide. How should we think about the risk, the downside risk to growth if we don't see rate cuts later this year? Yeah, that's a great question, Catherine.
Speaker Change: Yeah.
Speaker Change: Keeping our fingers crossed all of that for sure right now our average DDA balances as far as individual accounts are pretty consistent with pre COVID-19 there might be a little excess there that we need to worry about.
Speaker Change: But.
Speaker Change: So far so good with respect to that but that that's a real important kind of component to the overall kind of.
Speaker Change: Net interest income plan for the year.
Speaker Change: For sure Okay, great. Thanks.
Harold R. Carpenter: I think it will impact growth, maybe to the low end of our number, but at the same time, a lot of our growth, if you look, there's a chart in the back that shows where our loan growth came from in the first quarter, and it all came from new markets, new people. And so that's what we're leaning into as far as our, basically, our loan growth for the whole year. We're not expecting... Any significant growth, call it, you know, if it's 9 to 11 overall, we might be looking in the legacy markets for 5 to 7.
Speaker Change: It's really small question.
Speaker Change: Service charges were a lot higher this quarter any any color on what's going on there is that good run rate to grow from.
Speaker Change: I don't think Theres anything specific that we can talk about maybe Terry has got some ideas here, but I think we did do some.
Speaker Change: Like everybody to look a lot of rocks looking at that fee waiver is looking at things like that where we bought over the years kind of just gotten into a maybe some some.
Harold R. Carpenter: So that chart in the back shows that we didn't have hardly any growth; in fact, we had negative growth in the legacy markets at first. And then similarly, on the margin, in a scenario where we don't have cuts, do you feel like there's enough momentum in DDA balances holding in, and you've got better fixed rate loan rate repricing for the back half of the year so that the margin continues to expand throughout the rest of the year with cuts or even without? Yeah, we're keeping our fingers crossed on that for sure. Right now, our average DDA balance is, as far as individual accounts are concerned, pretty consistent with pre-COVID.
Some places with certain clients, where we need to kind of go readdress some of those charges, but I don't think we did any kind of up there.
Speaker Change: There were no universal or price changes there were some initiatives that rain that review and long term waivers long term special pricing those kinds of things that I think it made a difference.
Speaker Change: Okay, Great alright, thank you.
Speaker Change: Thank you. The next question is coming from Brandon King from Truest Securities.
Brandon Thomas King: Your line of sight.
Brandon Thomas King: Hey, good morning, Thanks for taking my questions.
Brandon Thomas King: Hey, Brian.
Brandon Thomas King: So just to round out the deposit cost question kind of I think I've heard mixed things. So are you expecting interest bearing deposit costs could incrementally creep a little higher from here is that is that correct.
Catherine Fitzhugh Summerson Mealor: There might be a little excess there that we need to worry about. But, so far, so good with respect to that, but that's a really important kind of component to the overall net interest income plan for the year. Okay, great. Thanks. And one really small question, if you don't mind. Service charges were a lot higher this quarter. Any color on what's going on there?
Brian: Yeah, I think they will create but it'll be one to two basis points I don't think it'll be any more than that.
Brian: Well I think our group is doing a good job of holding the line on deposit cost. So long as our core deposit kind of growth continues I think that'll be I think that'll be accurate if for some reason core deposit growth doesn't happen and we have to go to the wholesale market that monies that money really expensive and we're hoping not to do that.
Harold R. Carpenter: Is that a good run rate to grow from? I don't think there's anything specific that we can talk about. Maybe Terry's got some ideas here.
Catherine Fitzhugh Summerson Mealor: But I think we did some kind of like everybody looking under rocks, looking at fee waivers, looking at things like that, where we've over the years kind of just gotten into maybe some places with certain clients where we need to kind of go re-address some of those charges. But I don't think we did any kind of... There were no universal price changes.
Brian: So.
Brian: So far so good.
Brian: Okay, Okay, and then Harold in your prepared remarks, you mentioned that.
Harold R. Carpenter: There could be other ways to manage these costs. Besides you know they seem to be cool. So do you care to go into more details about what could be done on that front.
Harold R. Carpenter: Oh, yeah, well, we can always delay hiring.
Harold R. Carpenter: For all practical purposes, our hiring plan for support units is really restricted right now not to put a damper on the call but.
Harold R. Carpenter: There were some initiatives that were aimed at reviewing long-term waivers, long-term special pricing, those kinds of things that I think have made a difference. Okay, great, great, thank you. The next question is coming from Brandon King from Truist.
Harold R. Carpenter: We can do that we can delay hiring we got some projects that are slated to start this year, we can delay those.
Harold R. Carpenter: There are several things that we can do.
Harold R. Carpenter:
In order to kind of kind of break the expense number back in line, if we need to.
Harold R. Carpenter: Okay. Okay, and then just lastly on Bali came in around $11 million in the quarter. I think you mentioned that could see some incremental revenue from that so should we expect that.
Brandon Thomas King: Hey, good morning. Thanks for taking my question. Hey, Brandon.
Brandon Thomas King: So just to round out the deposit cost question, I think I've heard mixed names. So are you expecting interest-bearing deposit costs to incrementally creep a little higher from here? Is that correct?
Harold R. Carpenter: Kind of $11 million figure to increase incrementally or should that normalize to a smaller amount.
Harold R. Carpenter: Yeah, I think they will creep, but it'll be one to two basis points. I don't think it'll be any more than that. We were, I think our group is doing a good job of holding the line on deposit costs so long as our core deposit kind of growth continues. I think that'll be accurate. If for some reason core deposit growth doesn't happen and we have to go to the wholesale market, that money is really expensive. And we're hoping not to do that. So far, so good.
Speaker Change: Well I think probably you know call. It $10 million is probably a fair number to think about going forward. There were some death benefits in the first quarter.
Speaker Change: But.
Speaker Change: Yeah, I think somewhere call. It 10 million dollar issue is probably a better number for Boeing.
Speaker Change: Okay.
Speaker Change: For taking my question.
Speaker Change: Thanks Brendan.
Speaker Change: Thank you. The next question will be from Stephen Scouten from Piper Sandler Steven Your line is live.
Brandon Thomas King: OK. And then, Harold, in your prepared remarks, you mentioned that... There could be other ways to manage costs besides, you know, the incentive accrual. So do you care to go into more details about what... Oh, yeah, well, we can always delay hiring. For all practical purposes, our hiring plan for support units is really restricted right now, not to put a damper on the call.
Speaker Change: Yeah.
Speaker Change: Yes.
Stephen Kendall Scouten: Hey, Thanks, good morning.
Stephen Kendall Scouten: I guess one of my first question here was just curious around customer kind of appetite for the higher fixed rate loan yields today versus maybe last quarter or previous do you feel like customers are becoming more acclimated with this rate environment and you're not getting as much pushback or you know kind of what are the dynamics there as you reprice.
Harold R. Carpenter: We can do that. We can delay hiring. We've got some projects that are slated to start this year. We can delay those.
Harold R. Carpenter: There are several things that we can do in order to kind of bring the expense number back in line if we need to. Okay, okay. And then just lastly, BOLI came in around $11 million in the quarter.
Stephen Kendall Scouten: These loans.
Stephen Kendall Scouten: I think it is fair that.
Stephen Kendall Scouten: You know there is more acclamation on the class part too you know higher fixed rate quote. So that's a true statement, but I wouldn't want to act like it's easy I mean, you know, it's it's a dogfight for sure.
Brandon Thomas King: I think you mentioned that you could see some incremental revenue from that. So should we expect that kind of $11 million figure to increase incrementally or should that normalize? Well, I think probably, you know, call it $10 million is probably a fair number to think about going forward. There were some death benefits in the first quarter.
Stephen Kendall Scouten: But you know I think.
Stephen Kendall Scouten: During the quarter R. R.
Stephen Kendall Scouten: Our repricing was at 735 the target seminar.
Stephen Kendall Scouten: So you know we're within striking distance and it's you know way up from from where it was so again I don't want to act like it's easy it's not easy, but but we are getting it done and I think you know is the combination of a client's acclamation to the right and I think some of this.
Harold R. Carpenter: But, Yeah, I think somewhere, call it the $10 million issue, is probably a fair number for Bowling. Okay. Thanks for taking my question. Thanks, Brandon.
Brandon Thomas King: Thank you. The next question will be from Steven Scouten on Piper Sandler. Hey, thanks. Good morning.
Stephen Kendall Scouten: Linked it service levels and so forth you know the client loyalty is an important variable in there as well.
Speaker Change: Yeah that makes sense and I would think I mean, the renewal spreads look like they continue to widen a bit and is that largely a function of just the 2021 kind of vintage originations being the lowest yielding fixed.
Stephen Kendall Scouten: I guess one of my first questions here was just curious around customer kind of appetite for the higher fixed rate loan yields today versus maybe last quarter or previous. Do you feel like customers are becoming more maybe acclimated with this rate environment and you're not getting as much pushback or, you know, kind of what are the dynamics there as you reprice? I think it is fair that, you know, there is more acclimation on the client's part to, you know, higher fixed rate quotes. So that's a true statement, but I wouldn't want to act like it's easy. I mean, you know, it's a dogfight for sure.
Speaker Change: Fixed rate loans that remain on the books.
Speaker Change: Yeah I think.
Speaker Change: Stephen I don't know if I got all the question, but Theres a chart that sold alone.
Speaker Change: One slide that first bar is the biggest as far as rates. Although it came in at like 490, as what the kind of the offer it's what the renewal rate is coming into the second quarter.
Harold R. Carpenter: But, you know, I think during the quarter, our repricing was at $7.35, the target $7.50 to $8.00. So, you know, we're within striking distance, and it's, you know, way up from where it was. So again, I don't want to act like it's easy.
Speaker Change: And the reason is that as probably at the tail end of where before rates started coming down back a few years ago.
Speaker Change: So that's why.
Speaker Change: And on that chart is highest at 490, and then it dropped pretty meaningfully down into the $4 60 is down into the four forties over the rest of this year does that make sense.
Speaker Change: Yep, that's perfect. Thanks for pointing that out and then just last thing for me.
Stephen Kendall Scouten: It's not easy, but we are getting it done. And I think, you know, it's the combination of the client's acclimation to the rate. I think some of the distinctive service levels and so forth, client loyalty is an important variable in there as well. Yeah, that makes sense.
Speaker Change: I know there were times in the past 10 to 12 years. When you guys have done a really good job of having floors in place before rates went down and taken them off as risks I mean higher or do you have any meaningful floors in the portfolio today or is that has that been a part of the pricing conversation at this point in time.
Harold R. Carpenter: And I would think, the renewal spreads look like they continue to widen a bit. And it's largely a function of just, you know, the 2021 kind of vintage originations being the lowest yielding 6 straight loans that remain on the book. Yeah, I think, Steven, I don't know if I got all the questions, but there's that chart that's on the loan. On the loan slide, that first bar is the biggest as far as rates go.
Speaker Change: Yeah, We've got we've got floors in place and we've got some balance sheet floors. I think we can I think we've got $3 billion to $4 billion in covering some of the floating rate credit, but largely we've encouraged floors at the loudest cry mentioned the individual loan contracts.
Speaker Change: I don't have the number as to what that is today.
Speaker Change: But I'll I'll dig it out and I'll get it to you.
Speaker Change: Okay, great. Thanks for the time today.
Stephen Kendall Scouten: I think it came in at like 490 is what the, kind of, what the renewal rate is coming into the second quarter. And the reason is that it is probably at the tail end of where rates started coming down a few years ago. So that's why that line on that chart is highest at 490, and then it drops pretty meaningfully down into the 460s, and down into the 440s over the rest of this year. Does that make sense?
Speaker Change: Got it.
Speaker Change: Thank you.
Speaker Change: The next question will be from Michael Rose from Raymond James Michael Your line is live.
Michael Edward Rose: Hey, good morning, guys. Thanks for taking my questions.
Michael Edward Rose: Harold I know you guys have a pretty.
Michael Edward Rose: Robust assumption for deposit betas on the way down has there been any change that and what is the.
Michael Edward Rose: Swing factor there if we don't get any cuts.
Harold R. Carpenter: Yep, that's perfect. Thanks for pointing that out. And then just one last thing for me.
Michael Edward Rose: This year as it relates to.
Stephen Kendall Scouten: I know there were times in the past 10, 12 years when you guys did a really good job of having floors in place before rates went down and taking them off as rates went higher. Do you have any meaningful floors in the portfolio today? Or has that been a part of the pricing conversation at this point?
Michael Edward Rose: The NII guide.
Harold R. Carpenter: Yeah, I think on the short end I don't think there's a whole lot of change our NII guide today, Michael we still plan on and I.
Harold R. Carpenter: Our relationship managers are well aware and they've been informing their clients that when rates do come down we will be aggressive on the downside.
Harold R. Carpenter: Yeah, we've got floors in place, and we've got some balance sheet floors. I think we can. I think we've got three to $4 billion in covering some of the floating rate credit. But largely, we've encouraged players at the line of scrimmage to sign individual loan contracts. I don't have the number as to what that number is today, but I'll dig it out, and I'll get it. Okay, great. Thanks for your time today.
Harold R. Carpenter: I think if you.
Harold R. Carpenter: We've gone back and looked at what our beta was on the way up on our negotiated rates. It was like 80, 70 or 80% somewhere in that range. So we intend to be aggressive on the way down.
Harold R. Carpenter:
Harold R. Carpenter: I think the critical question is around what happens if rates don't move from here.
Again, I think on the short end.
Harold R. Carpenter: And also for the near term.
Harold R. Carpenter: We feel like its fairly neutral.
Speaker Change: Okay. That's helpful. And then maybe just on the deposit growth.
Stephen Kendall Scouten: Thank you. Thank you. The next question will be from Michael Rose from Raymond James. Michael, your line is... Hey, good morning, guys.
Speaker Change: You know you guys have done a great job over a very long period of time growing deposits.
Speaker Change: Can you just talk about the complexion of the growth maybe how much will come from some of these more expansionary markets that might be higher cost in nature, just given maybe some introductory your teaser rates as you build out those markets versus what you're expecting in the year.
Michael Edward Rose: Thanks for taking my questions. Harold, I know you guys have a pretty robust assumption for deposit betas on the way down, but has there been any change to that, and what is the kind of swing factor there if we don't get any cuts this year as it relates to, you know, kind of the NII guide? Yeah, I think on the short end, I don't think there's a whole lot of change to our NII guide today, Michael. We still plan on, and our relationship managers are well aware, and they've been informing their clients that when rates do come down, we will be aggressive on the downside. Um... I'll play.
Speaker Change: The legacy markets.
Speaker Change: How that could yeah from a yield or from a cost perspective, how that could.
Speaker Change: It could be a swing factor.
Speaker Change: If we are higher for longer.
Speaker Change: Yeah, Michael I think.
Speaker Change: When we look at the deposit growth.
Harold R. Carpenter: Thank you. We've gone back and looked at what our beta was on the way up on our negotiated rates. It was like 80, 70, or 80 percent, somewhere in that range.
Speaker Change: Really we generated for the better part of last year.
Speaker Change: Our outlook for 2024, the biggest single component of that deposit growth is the deposit special days that we've developed over the last several years and I you know I won't go through or bore you with all of those things, but I think youre familiar you've heard US talk about you know deposit products that we have for <unk>.
Michael Edward Rose: So we intend to be aggressive on the way down. I think the critical question is around what happens if rates don't move from here. Again, I think on the short end... and also for the near term, we feel like it's fairly new. Okay, that's helpful.
Speaker Change: Escrow accounting deposit products that we have for our captive insurance businesses deposit products that we have for bankruptcy trustees I mean, there are a variety of these specialties that we've focused on and built over the last several years really trying to make sure. We had some value add for particularly large pools of money and.
Harold R. Carpenter: And then maybe just on deposit growth. You guys have done a great job over a very long period of time growing deposits. Can you just talk about the nature of the growth?
Michael Edward Rose: How much will come from some of the more expansionary markets that might, you know, be higher in cost in nature, just given, you know, maybe some introductory or teaser rates as you build out those markets versus what you're expecting in the future? you know, in the legacy markets and, you know, how that could, from a yield or from a cost perspective, how that could affect Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES, Yeah, Michael, I think when we look at the deposit growth that we generated for the better part of last year and our outlook for 2024, the biggest single component of that deposit growth is the deposit specialties that we And, you know, I won't go through or bore you with all those things.
Speaker Change: So we've developed a mechanism where we've got market champions in every market for all those products and there's a lot of energy on targeted calling on class a.
Speaker Change: They utilize those particular products and so in all honesty I think the biggest piece of the growth comes from what we're able to produce those deposit specialties. There is no doubt. We were also benefited by what goes on in our market extensions you know you're growing off a base of zero. So.
Speaker Change: You know all the numbers look pretty good buyer, but as it relates to teaser rates and so forth I just thought I'd keep in mind you know we're not those strategies are not retail in any way shape or form. So we're not doing right promotions or any of that kind of thing.
Speaker Change: You know Theres no doubt you're moving market share you're generally knock on wood, that's glad to move from where they are in here and you know pay them a lot less than what they're getting paid so again I don't want to act like there's no price pressure. There certainly is but again, it's not a retail teaser rate kind of strategy, but again I'd point, you back to that of the deposit space.
Harold R. Carpenter: But I think you're familiar with deposit products that we have for escrow accounting, deposit products that we have for captive insurance businesses, deposit products that we have for bankruptcy trustees. I mean, there are a variety of these specialties that we've focused on and built over the last several years, really trying to make sure we have some value added for particularly large pools of money. And so we've developed a mechanism where we have market champions in every market for all those products.
Speaker Change: Please.
Speaker Change: No I appreciate that.
The context, and maybe just last one for me I know you had two credits that drove.
Speaker Change: Drove a little bit of increase in Npls, obviously very low level you built the reserves can you just help us get comfortable I know, there's been a lot written about multifamily supply coming online and some of your markets, particularly Nashville.
Michael Edward Rose: And there's a lot of energy in targeted calling on clients that utilize those particular products. And so, in all honesty, I think the biggest piece of the growth comes from what we're able to produce through those deposit specialties. There is no doubt we're also benefiting from what goes on in our market extensions. You know, you're growing off the base of zero. So, you know, all the numbers look pretty good there. But as it relates to teaser rates and so forth, I just keep in mind that we're not retail in any way, shape, or form.
Speaker Change: Down to Atlanta, as being some of the highest.
Speaker Change: Just as it relates to kind of your specific reserves against commercial real estate I think there you have sub 1% over the last call reports. So can you just help us get comfortable that.
Speaker Change: You guys are are well reserved.
Michael Edward Rose: So we're not doing rate promotions or any of that kind of thing. You know, there's no doubt you're moving market share; you're generally not going to convince the client to move from where they are to here and, you know, pay them a lot less than what they're getting paid. So again, I don't mean to act like there's no price pressure; there certainly is.
Speaker Change: You'll see migration, but arent overly worried about credit.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: No what we're leaning into is.
Speaker Change: Probably one of the well it is my most.
Speaker Change: Well my highest performing.
Speaker Change: Segment and my loan portfolio is my commercial real estate cycle.
Harold R. Carpenter: But again, it's not a retail teaser rate kind of strategy. But again, I'd point you back to the deposit specialty. No, I appreciate the context.
Speaker Change: And that's been true for many many many years where.
Speaker Change: Where are we get choppy is in the C&I book a.
Michael Edward Rose: And maybe just last one for me. I know you had two credits, and you drove a little bit of an increase in NPLs, obviously a very low level. You built the reserves. Can you just help us get comfortable?
Speaker Change: With things out.
Speaker Change: So I think it has to do with just looking at the macro environment, where we are with these loan to values.
Speaker Change:
Harold R. Carpenter: I know there's been a lot written about multifamily supply coming online in some of your markets, particularly Nashville and down to Atlanta as being some of the highest. Just as it relates to your specific reserves against commercial real estate, I think they're sub 1% for the last call reports. So can you just help us get comfortable that you guys are well-reserved?
Speaker Change: Our multifamily book, we think is the strongest.
Speaker Change: As it's ever been.
Speaker Change: Rail rates are at 90, 598% loan to values in the 60% range.
Speaker Change: I think it's by and large on the macro side is where we get it.
Speaker Change: I think where else I get I get comfort is when I interview real estate lenders and my credit officers.
Michael Edward Rose: You know, you'll see migration, but you know, they aren't overly worried about credit. Um, yeah, the... What we're leaning into is probably one of the most high-performing segments in my loan portfolio is my commercial real estate. And that's been true for many, many, many years.
Speaker Change: They're able to talk in very granular data granular way about all these multifamily projects and sponsors.
Speaker Change: So I believe we're on them and I think we understand what the markets are.
Harold R. Carpenter: Where we get choppy is in the C&I book, When Things Happen. So, I think it has to do with just looking at the macro environment and where we are with these loan values, and our multifamily book, we think, is as strong as it's ever been. You know, rental rates are at 95, 98 percent, and loan values are in the 60 percent range. I think it's by and large on the macro side where we get it. I think where else I get comfort is when I interview my real estate lenders and my credit officers. They are able to talk in a very granular way about all these multifamily projects and sponsors.
Speaker Change: I don't think we have any significant appetite at all for multifamily right now I think we believe that we like our book and we like our sponsors.
Great. Thanks for taking all my questions.
Speaker Change: Thanks, Mike.
TMR presenter: Thank you. The next question is coming from TMR presenter from Wells Fargo T. Mo Your line is nice.
TMR presenter: Hi, good morning.
TMR presenter: Thanks Omar.
T. Mo: I wanted to follow up on expenses, the 80% and center kind of accrual rate right now.
T. Mo: Is that based on the guidance that you're giving them. Like you said you have to you know you can work your way back to kind of hitting those numbers.
Michael Edward Rose: So I believe we are on them, and I think we understand what the markets are. I don't think we have any significant appetite at all for multifamily right now.
Harold R. Carpenter: I think we believe that we like our book and we like our sponsor. Great, thanks for taking all my questions. The next question is coming from Timur Braziler from Wells Fargo. Hi, good morning.
I guess, what is the expectation for performance needed to hit that 80%.
Speaker Change: Yeah, I'm not going to get into actual EPS targets, what it takes to get to 8%.
Timur Felixovich Braziler: Thanks, everyone. I wanted to follow up on expenses. The 80% incentive kind of accrual rate right now, is that based on the guidance that you're giving? Like you said, you have to, you know, you can work your way back to kind of hitting those numbers. I guess what is the expectation for performance needed to hit that 80%?
Speaker Change: Kind of award.
Speaker Change: You can look at the proxy you can see how it works over time in the touring and how the revenue component flows through it and all that but basically we have to reconcile where are we think we're gonna be for the year to what we're gonna accrue and that incentive bucket every quarter and that's not that's not only true for cash but also for equity.
Harold R. Carpenter: Yeah, I'm not going to get into actual EPS targets, what it takes to get to 80%, and the kind of award. You can look at the proxy and see how it works over time and the tiering and how the revenue component flows through it and all that. But basically, we have to reconcile where we think we're going to be for the year to what we're going to accrue in that incentive bucket every quarter. And that's not only true for cash but also for equity.
Speaker Change: So we'd have to go through a process to try to make sure we right size, our accrual every quarter to where we think the cheering he is.
Speaker Change: The plan for the year I don't know if that gets at your question was.
Speaker Change: Generally but.
Speaker Change: Maybe I'll follow up maybe I can help you out.
Speaker Change: Yeah, I guess just relative to the guidance. If you hit your guidance does that equal 80% on the incentive or is there upside to that number if the guidance is fed downside to that number if the guidance is that I guess does that 80% relative to your broader guidance.
Timur Felixovich Braziler: So we have to go through a process to try to make sure we right-size that accrual every quarter to where we think the tiering is with the plan for the year. I don't know if that gets at your question generally, but maybe a follow-up question; maybe I can help you out. Yeah, I guess just relative to the guidance, if you hit your guidance, does that equal 80% of the incentive? Or is there upside to that number if the guidance is hit, downside to that number if the guidance is hit? I guess just that 80% relative to your broader guidance. Yeah, it is.
Speaker Change: Yeah. It is.
Speaker Change: The outlook would give us a range of results for the year.
Speaker Change: And that's kind of like where we believe it's going to end up.
Speaker Change: And within that range.
Speaker Change: Okay got it and then.
And maybe on the on the run.
Speaker Change: If I look at it.
Speaker Change: I'm sorry go ahead.
Speaker Change: No no go ahead finish it up.
Speaker Change: No no I'm good.
Speaker Change: Please go ahead.
Speaker Change: I guess on the loan book, just looking at linked quarter construction loans that reduction there in your broader commentary around where you wanted to get that as a percentage of capital.
Harold R. Carpenter: The outlook would give us a range of results for the year, and that's kind of like where we believe it is going to end up, you know, within that range. Okay, got it. And then maybe on the, I'm sorry, go ahead.
Speaker Change: I guess, what does the contractual funding look like in the construction book a lot of that already taken place from originations booked in prior years or is that comment on working that down.
Timur Felixovich Braziler: No, no, go on, finish it up. I don't know. I'm fine. Please, go ahead.
Harold R. Carpenter: I guess on the loan book, just looking at the link border construction loans, that reduction there, and your broader commentary around where you want to get that as a percentage of capital, I guess what does the contractual funding look like in the construction book? Has a lot of that already taken place from Origination's book in prior years, or is that a comment on working that down on a relative basis to capital more so, just other segments growing faster in the construction bucket? Well, we effectively went pencils down on construction about a year and maybe a year and a half ago.
Speaker Change: On a relative basis to capital more so just the other segments growing faster than the construction bucket.
Well, we were effectively we went pencils down on construction about a year, maybe a year and a half ago.
So new commitments, we limited to already.
Speaker Change: <unk>.
Speaker Change: Kind of a developer sponsors that we'd already previously committed so so we're still funding up on some of those commitments, but as it turned out now.
Timur Felixovich Braziler: So new commitments are limited to already, kind of, developing responses that we had already previously committed to. So we're still funding some of those commitments. But as it's turning out now, the funding for these older projects is not keeping up with the projects that are getting their certificate of occupancy. So once they get that certificate of occupancy, they move out of construction, and they either go into the permanent market, they either get paid off, or the project gets sold, or we move them into commercial real estate.
Speaker Change: The funding on these older projects.
Speaker Change: Not keeping up with the projects that are beginning their certificate of occupancy.
Speaker Change: So once they get that certificate of occupancy they move out of construction and they either go to the private market.
Speaker Change: They either get paid off.
Speaker Change: The project is sold or we move it into commercial real estate.
So we anticipate that over the rest of the year that that will still happen that our funding for new construction will not be as not be large enough.
Harold R. Carpenter: So we anticipate that over the rest of the year, that will still happen, that our funding for new construction will not be large enough to make that 70%, but we'll still go down towards that 70% based on actual funding, and then projects, as they complete, will move out of that construction bucket. Got it. Thanks for the questions.
Speaker Change: Make that 70.
Speaker Change: We will still go down all that 77 towards that 70% based on actual fundings.
Speaker Change: The projects and when complete will move out of that construction book.
Speaker Change: Got it thanks for the questions.
Timur Felixovich Braziler: Sure. Thank you. The next question will come from Brett Rabatin. From Hofty Group, Brett, your line is live. Hey, guys. Good morning.
Speaker Change: Sure.
Speaker Change: Thank you. The next question will come from Brett Robinson from Husky Group Brett Your line is now.
Brody Preston: Hey, guys. Good morning, I wanted to start with.
Brett D. Rabatin: I wanted to start with the hires, and I know that you doubled the Jacksonville team already. I'm curious what geographies you're more interested in growing from here, and if anything's going on with interest rates, you know, or higher rates for longer. Maybe that slows some of your projects.
Brody Preston: Wanted to start with the hires and I know that you double D. The Jacksonville team already I'm curious, where what geographies you're more interested in growing from here.
Brody Preston: And if anything that's going on with interest rates.
Brody Preston: Or.
Brody Preston: Higher rates for longer maybe that flows.
Brody Preston: Of your projects are there any new markets on the table at this point.
Michael Terry Turner: Are there any new markets on the table at this point? So, Brett, I think, you know, in terms of hiring, Jacksonville obviously is a key area of hiring, as are the other newer markets, you know, specifically D.C., Atlanta, and so forth. So there is incremental hiring all over the footprint, and I would say it's a pretty good time for us to be attracting talent universally, but clearly, there's a concentration in the newer markets, which is where the hiring is currently occurring.
Speaker Change: So Brad I think you know.
Speaker Change: In terms of hiring.
Speaker Change: Jacksonville, obviously is a key area of hiring as are the other newer markets physically D C Atlanta, and so but more so the so where.
Speaker Change: There is incremental hiring all over the footprint I would say, it's a pretty good time for us to be dragged in talent universally but clearly there's.
There's a concentration in the newer markets, which is where the hiring is currently occurring.
Michael Terry Turner: And then I guess as it relates to new markets, I know you've heard me say this before, we love the southeastern markets, all the large urban markets in the southeast, the principal voids are in Florida, but the catalyst for when we go is when there's the availability of a team that we feel like can build us a big bank. And so that was the catalyst for why we went to Jacksonville. When we did, we had a fabulous leadership team that I think is really extraordinary and is going to build something special there. And we may find our way to other markets when that same phenomenon occurs, but we're not trying to get into other markets. We're not working on how to get to other markets and so forth.
Speaker Change: And then I guess as it relates to new markets I know.
Speaker Change: You've heard me say this before.
Speaker Change: We love the southeastern markets all the large urban markets in the southeast the principal boards are in Florida.
But the catalyst for when we'd go is when Theres, a bio ability of a team that we feel like can build as a big Bang and so that was the catalyst for why we went to Jacksonville. When we did we had a fabulous leadership team that I think is really extraordinary and go build something special there and we may find a way to other mark.
Speaker Change: That's when that same phenomenon occurs but we're not trying to get the other markets. We're not working on how to get into other markets and so forth. So I hope I'm addressing what you ask Brett.
Brett D. Rabatin: So I hope I'm addressing what you asked, Brett. Yeah, that's helpful, Terry. And then the other quick question was around slide 23, where you have the customer penetration and the overall satisfaction levels. And I'm curious if, you know, I understand that the national banks have higher customer penetration levels, but is that an area of opportunity for you, client by client or product set, to grow the customer penetration on your clients?
Brody Preston: Yeah, that's that's helpful Terry.
Speaker Change: And then the other quick question was around slide 23, where you have the customer penetration and the overall satisfaction levels.
Brody Preston: I'm curious if I get that the national banks are the higher customer penetration levels, but is that an area of opportunity for you.
Brody Preston: Either client by client or products that too.
Brody Preston: The penetration on your clients.
Brett D. Rabatin: Absolutely, that's really the whole point to me, Brett, is across that whole footprint, we have markets we dominate like a national, but across the whole footprint, we're in some really attractive markets where we're a low-share player.
Speaker Change: Absolutely that's really the whole all point to me Bret as you know our cross Oh foot brand.
Speaker Change: We have markets, we dominate in like a national but you know across the whole footprint. We're in some really had some markets where you know we're a low share player and so as I look at the chart. What I'd say is okay. What I'm Gonna do is attack those banks that are in the top left.
Michael Terry Turner: And so as I look at that chart, what I'd say is, okay, what I want to do is attack those banks that are in the top left, because they've got all the shares and all the vulnerabilities. And so that's exactly the play that we have been making; that's where we've produced our share growth over the last, you know, almost for a decade now, and that's where I would expect growth to continue to come. And any idea, Terry, where your natural penetration would be versus the overall footprint?
Speaker Change: Because they've got all the sharing all the vulnerability and so that's exactly the play that we have been making that's where we produced our share growth over the last.
Speaker Change: You know almost for a decade now and that's what I that's.
That's where I would expect growth to continue to go.
Speaker Change: And any idea of Terry where your Nashville penetration would be versus the overall footprint.
Brett D. Rabatin: that with what our penetration across the United States would be. No, the Nashville MSA penetration of customers versus... Yeah, I'm sorry. I got it in Nashville.
Speaker Change: But.
Speaker Change: When our penetration across the United States would be.
Speaker Change: No the Nashville MSA penetration.
Michael Terry Turner: Yeah nurses.
Speaker Change: Yeah, I'm, sorry, I got it in Nashville, I can't recite the number but it would be a 30% sort of penetration.
Michael Terry Turner: I can't recite the number, but it would be a 30% sort of penetration. Okay. Great, that's helpful. Thanks to all the color guys.
Okay.
Speaker Change: Great. That's helpful. Thanks for all the color guys.
Brett D. Rabatin: All right. Thank you. The next question will be from Matt Olney, and Matt in the line of life. Thanks. Good morning.
Speaker Change: Alright.
Speaker Change: Thank you. The next question will be from Matt Olney from Stephens Matt.
Speaker Change: Hi.
Matthew Covington Olney: Thanks, Good morning, I want to go back to the discussion around loan yields and I think the loan yields increased this quarter around five bps and I think he mentioned the benefits of the fixed rate repricing tailwind could build throughout the year.
Matthew Covington Olney: I want to go back to the discussion around loan yields, and I think loan yields increased this quarter by around 5 bps. And I think you mentioned the benefits of the fixed rate repricing tailwinds could build throughout the year. Any color for us as far as how we can be modeling those loan yields for the next few quarters assuming no rate changes? Well, I think if you can, I think our loan growth will be fairly stable. We should get into that 9% to 11% range, so I don't think there's any kind of meaningful seasonality there, Matt.
Matthew Covington Olney: Colin for us as far as how we can be modeling those loan yields Oh. The next few quarters, assuming no rate changes.
Matthew Covington Olney: Yeah.
Matthew Covington Olney:
Colin: Well I think if you can I think our loan growth will be fairly we should get into that 9% to 11% range. So I don't think it'll be there if theres any kind of meaningful seasonality there Matt So as you plan out the loan growth.
Matthew Covington Olney: So as you plan out the loan growth, you know... do that, and then I think you'll have to back into what our margin expectations are. The loan yields, we believe, will be accretive. We think we'll do more accretion here in the second quarter than we did in the first quarter. Josh, I'm trying to give you some direction here. I think $3 billion, if you weigh $3 billion of new loans coming in at, call it $735 or $740, that would be helpful.
Colin:
Colin: You know.
Colin: Do that and that I think you'll have to back into what.
Colin: What our margin expectations are.
Colin: The.
Colin: The loan yields we believe will be accretive we think we'll do more accretion here in the second quarter than we did in the first quarter.
Colin:
Colin: Gosh.
Speaker Change: I'm trying to give you some.
Speaker Change: Some direction here.
Speaker Change: I think 3 billion. If you if you wait $3 billion of new loans coming in at call. It 735, or 740 that would be helpful.
Speaker Change: Okay got it well, we'll look at that and then I guess kind of a similar question Harold on the Securities yields you had some nice repricing all through 2023.
Harold R. Carpenter: Okay, got it. We'll look at that. And then I guess kind of a similar question, Harold, on the securities yields. You had some nice repricing all through 2023.
Matthew Covington Olney: I think you've got one of the higher yielding securities books in the peer group. Any more benefits this year if we assume higher rates for longer, or are we kind of topping out here? Well, I think we're getting close to kind of the top, but we ought to see some accretion in the, call it the second quarter. It won't be it.
Harold R. Carpenter: You've got one of the higher.
Harold R. Carpenter: Securities books, and the peer group any more benefits. This year, if we assume higher for higher for longer or are we kind of topping out here.
Harold R. Carpenter: Well I think we're getting close to kind of the top.
Harold R. Carpenter: But we ought to see some accretion in the.
Harold R. Carpenter: Call it the second quarter.
Speaker Change: It won't be.
Harold R. Carpenter: It won't be a lot, but hopefully, we'll see some, especially on the cash side. We had a kind of a larger mix of, call it, cash balances versus, [inaudible] here in the first quarter than we typically carry. So we're likely to see more money at the Fed earning at a higher rate on the cash side. Okay. Thanks, guys. Appreciate it. Thank you, Matt.
Speaker Change: It won't be a lot, but so hopefully we'll see some of it especially on the cash that we had a kind of a larger mix of call it cash balances versus.
Speaker Change: The bed count.
Speaker Change: Here in the first quarter than.
Speaker Change: Typically carry.
So we will we're likely to see more money at the fed earn into higher rate on the cash side.
Speaker Change: Okay.
Speaker Change: Thanks, guys appreciate it.
Speaker Change: Thank you Matt.
Matthew Covington Olney: Thank you. The next question will be from Samuel Varga from UBS. Samuel, your line is live. Hey, good morning.
Speaker Change: Thank you. The next question will be from Samuel Ivanka from UBS. Your line is nice.
Samuel Ivanka: Hey, good morning.
Samuel Varga: I just wanted to go back to the fixed rate loan yields for a moment. The current originations are obviously a little bit below the target range of 7.5 to 8. And so I wanted to get a sense of, especially with the potential rate hike in September, do you expect to hit the lower end or the middle of that range? For that target range, or should we just sort of expect that this is going to stay below 750 for 2Q, 3Q?
Samuel Ivanka: I just wanted to go back to the fixed rate loan yields for a moment on the current originations, obviously, a little bit below the target range of the seven five to eight and so I wanted to get a sense of.
Samuel Ivanka: Yes.
Samuel Ivanka: Especially with the potential rate hike in September do you expect to hit the low end or the middle of that range for.
So that target range or should we just sort of expect that this is gonna stay below 754, two Q3 Q.
Samuel Varga: As far as new accounts go, Samuel, we're actually pretty pleased with their hidden $735. We did have, I call it, a handful of larger credits that booked in the first quarter at college in the high sixes, that did dilute, you know, that target from 750 down to 735. Am I getting to your question? Yeah, that's perfect. That's very helpful. Thank you, Harold. And then the other question was just on credit.
Samuel Ivanka: As far as new accounts go Samuel wearing we're actually pretty pleased with their hidden and 735, we did have.
Samuel Ivanka: A call it a handful of larger credits that booked in the first quarter at call. It in the high sixes.
Samuel Ivanka: That did dilute you know that target from $7 50 down to 735.
Speaker Change: Am I getting to your question.
Speaker Change: Yeah, that's perfect. That's very helpful. Thank you Harold.
Speaker Change: And then the other question was just on credit. So you you up the NCO guide a little bit. Obviously, you gave some commentary around that M. P. A specific reserve.
Harold R. Carpenter: So you upped the NCO guide a little bit, obviously gave some commentary around that MPA and the specific reserve. I just wanted to get a sense of the move to the 20 to 25 basis points. Is that, should we expect that to be a chunky sort of outcome? Or is this a more broad-based expectation of moving up and left? Yeah, for our planning, I think that's a great question. I think I think it will end up being chunky.
Just wanted to get a sense of like the the move to the 20 to 25 basis points is that should we expect that to be a chunky sort of outcome.
Speaker Change: Or is this a more broad based sort of expectation of moving up in the loss content.
Speaker Change: Yeah for our planning I think that's a great question I think.
Speaker Change: I think it'll end up being chunky.
Samuel Varga: But right now, we're saying it's fairly consistent. So we don't see a big rise in it in the second quarter versus the third quarter versus the fourth quarter. I think what we're planning is to be fairly consistent from here on out. Thanks for taking my questions. [inaudible] The next question will be from Jared Shaw from Barclays. Jared, your line.
Speaker Change: But right now where we are.
Speaker Change: We're seeing is fairly consistent so we don't we don't see a big rise in it in the second quarter versus the third quarter versus the fourth quarter I think what we're planning is to be fairly consistent from here on out.
Understood. Thanks for taking my questions.
Speaker Change: Alright.
Thank you. The next question will be from Jared Shaw from Barclays charge. Your line is nice.
Jared David Wesley Shaw: Hey, guys. Maybe just looking at the going back to the penetration, market penetration slide, how should we think about maybe longer term loan growth from here, like, you know, looking out 2526, as you're able to take market share in these high growth markets? I'm not sure, ask it again, Jared. I'm sorry, I'm not, I didn't.
Thanks, Hey, guys.
Speaker Change: <unk>.
Jared David Wesley Shaw: Yeah, maybe just.
Jared David Wesley Shaw: Looking at the going back to the penetration.
Jared David Wesley Shaw: Market penetration slide how should we be thinking about maybe longer term.
Jared David Wesley Shaw: Loan growth from here like you know looking out 'twenty five 'twenty six.
Speaker Change: Well to take market share in these high growth markets.
Speaker Change: Yeah.
Yes.
Speaker Change: I'm not sure I ask it again.
Speaker Change: I'm, sorry, I'm not I didn't.
Michael Terry Turner: Yeah. I'm just wondering, with all the hiring you've been doing, with people who are the best in their markets and going into higher growth markets, how should we be thinking about longer-term loan growth if we look out maybe over 25 and 26, as you are able to successfully, or hopefully successfully, take market share in these markets? Yeah, my expectation is that it will work like it has worked before. And when I say that, you know, I think the last few quarters we've had a slide up in the actual call presentation deck that sort of showed what was coming from all the new hiring versus not from the new hiring.
Speaker Change: Yeah.
With all the hiring you've been doing.
Speaker Change: With with people, who are the best in their markets and going into <unk>.
Speaker Change: Higher growth markets, how should we be thinking about longer term loan growth. If we look out maybe over 25 and 26.
Speaker Change: You are able to successfully or hopefully successfully take market share in these markets.
Speaker Change: Yeah, I mean, my expectation is that it will work like it has worked and when I say that you know I think the last few quarters we've had.
Speaker Change: Ah slide up in the actual call presentation deck that sort of show what was coming from all the new hiring versus not from the new hiring and of course as you know it is substantially from the new hiring.
Michael Terry Turner: And of course, as you know, it's substantially from the new hiring. I think that slide found its way to the back of the deck, as in the So, you know, the additional slides in the back, but you can see the percentage is coming from there.
Speaker Change: I think that slide found its way to the back of the deck is in the.
Speaker Change: You know the additional slides in the back but you can see the percentage is coming from there and so my expectation is that phenomenon will continue out for 25 and 26.
Jared David Wesley Shaw: And so my expectation is that phenomenon will continue out for 25 and 26, both because we'll continue to hire more people and they'll continue to move those books. And so what I think, you know, I mean, 6% loan growth is a pretty good number, at least based on what I expect other people are able to produce, but that is being done with legacy markets that have more tepid growth. And so once you get to a better economic landscape and you get the growth out of those legacy markets, we've talked a lot, Jared, the growth that comes from new hires is not dependent upon economic conditions, but the growth in the legacy markets is.
Speaker Change: Both because we'll continue to hire more people and they'll continue to move those books and so what I think you know I mean, 6%.
Speaker Change: Loan growth is is a pretty good number at least based on what I expect other people are able to produce but it is that is being done with legacy markets that are have more tepid growth and so once you get to a better economic landscape and you can get.
Speaker Change: The growth out of those legacy markets.
Speaker Change: As we've talked a lot you're the the growth that come from the new hires is not dependent upon economic conditions, but the growth in our legacy markets is and so anyway I don't mean to go on too much but I expect that phenomenon to continue will hire more people they'll move their clients it will produce outsized growth.
Jared David Wesley Shaw: And so anyway, I don't mean to go on too much, but I expect that phenomenon to continue. We'll hire more people. They'll move their clients. It'll produce outsized growth as it has for some time and so forth. And then if you get a tailwind here when economic conditions improve, you ought to produce even more outsized growth. Okay, thanks. And then there's finally time for me on BHG.
Speaker Change: I ask for some time and.
Speaker Change: So forth and then if you get a tailwind here when economic conditions improve the auto produce even more outsized growth.
Speaker Change: Okay. Thanks, and then just finally for me on BHG.
Harold R. Carpenter: I mean, Harold, maybe where do you see the reserves peaking there? Yeah, I can't really, [inaudible] Yeah, what they've told me, Jared, is that they believe the reserves will probably maybe tweak up some from here. Uh, but basically flattish from here on out.
Speaker Change: And then Harold maybe where do you see where do you see reserves, peaking there.
Harold R. Carpenter: Yeah, I don't I.
Harold R. Carpenter: I can't really.
Harold R. Carpenter:
Harold R. Carpenter: Yeah, that's what they've told major is that that they believe the reserves or will probably maybe tweak up some from here.
Harold R. Carpenter: But basically flattish from here on out they feel like they're in pretty good shape.
Jared David Wesley Shaw: They feel like they're in pretty good shape, with respect to the absolute levels, well, the percentage levels in relation to loans. Great, thanks. This question will be from Brian Martin on behalf of Johnny Montgomery. Brian, your line. Hey guys, most of mine have been answered here.
Harold R. Carpenter: With respect to the absolute levels.
Harold R. Carpenter: The percentage levels in relation to alone.
Speaker Change: Great. Thanks.
Speaker Change: Thank you. The next question will be from Brian Martin from Janney Montgomery, Brian Your line is nice.
Brian Joseph Martin: Hey, guys. Most of mine have been answered here just a couple of minor things Harold just on the <unk>.
Brian Joseph Martin: Just a couple minor things, Harold, just on the loan repricing that occurs at 300 basis points. Is there a significant amount or a similar amount of that repricing that goes into next year as well? Just kind of thinking, you know, further out.
Brian Joseph Martin: Loan repricing that occurred at the 300 basis points. That's helpful. This is there a significant amount or a similar amount of that repricing that goes into next year as well just kind of thinking further out on the fixed rate side, Yes, I think the chart would show, but something like I think I think the blue bars go down to like 750 million or something a quarter.
Harold R. Carpenter: Yeah, I think that chart would show, Brian, something like, I think the blue bars go down to like $750 million or something a quarter in 2025, in some neighborhood like that. One thing, and I hope Matt's still on the phone, that I remembered, is that the mix of our new loan generation now has gone from a 60-40 floating rate to a 60% floating to 40% fixed. Today, it's running probably around 75% floating to 20-25% fixed, so those floating rate credits are coming on at a higher yield than the 735 or the 754 fixed rate. So that's another kind of tailwind that we've had to borrow use. That'll happen again in the second quarter.
Brian Joseph Martin: In 2025.
Brian Joseph Martin: And some neighborhood like that one thing and I hope that still on the phone that I remember is that the mix of our new loan generation now has gone from a 60 40 floating rate to a 40, 60% floating to 40% fixed today, it's running probably around 75% floating to 2025%.
Brian Joseph Martin: So those floating rate credits are coming on at a higher yield than the 735 or the 754 fixed rates. So that's another kind of tailwind that we've had to love needs that'll happen again in the fourth in the second quarter.
Brian Joseph Martin: Gotcha. So that margin should continue to ramp up if that repricing occurs and the deposits are stabilizing. So, okay. And then, Harold, just housekeeping, on the equity investment line and the fee income line, is there anything funky about this quarter, or is that a pretty clean, pretty normal type of level on those equity investments? Yeah, I don't recall anything going on. We did have a solar gain again this quarter, but we think that's gonna be replicated throughout the year. So I don't, we didn't point out any kind of unusual number for that line item.
Speaker Change #101: Gotcha, so that margin should continue to ramp if that's if that repricing occurs.
Pockets are stabilizing so okay.
Speaker Change #102: Okay, and then just Harold just housekeeping on the on the equity investment line in the other and the fee income line was there anything funky this quarter or was that a pretty clean pretty normal type of level on those equity investments.
Yeah, I don't recall anything going on we did have a solar again again this quarter, but we think that's gonna be replicated throughout the year. So I don't we didn't point out any kind of unusual number for that line item. Okay. Understood and then just the last one was just on the deposit.
Harold R. Carpenter: Okay, understood. And then just the last one was just on the deposit, you know, the proactive preemptive strikes you talked about. Is that continuing in the second quarter?
Speaker Change #103: The proactive preemptive strikes you talked about is that continuing in second quarter. I guess, if you kind of backed off that or I guess is that do you expect that to kind of continue and also support your kind of your market commentary.
Brian Joseph Martin: I guess if you kind of, you know, backed off that, or I guess is that, do you expect that to kind of continue and also support your, kind of, your margin commentary? Brian, it's a great question. What we have done is conduct an initiative where we ask people to go through and review and give lists and, you know, try to provide infrastructure and basis for reducing rates and so forth.
Speaker Change #104: Brian That's a great question, what we have done is kinda conduct an initiative, where we asked people to go through and review and gave list and you know try to provide infrastructure and basis for Doosan rights and so forth. So that initiative has been done.
Brian Joseph Martin: So that initiative has been done, but, you know, I mean, my view of it in this environment is that it's a war. We'll continue to look for ways to provide emphasis and opportunities to drive our cost of funds lower. I can't recite what they are right now, but, you know, again, we'll be continuing to push on it. But I think the specific point we were trying to make was that Harold expressed some optimism about a lower cost.
Speaker Change #105: But you know I mean.
Speaker Change #105: My my view of it in this environment is into Walmart will continue to look for ways to provide emphasis and opportunities to drive our cost of funds lower I can't recite what they are right. This minute, but you know again, we will be continuing to push on it but I think the specific point, we were trying to make is Harold expressed some optimism.
Lower cost that's a function and initiative that has been conducted.
Michael Terry Turner: That's the function of an initiative that has been conducted. Gotcha. Okay, perfect. Thank you for taking the question. Thank you. Thank you. And that does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you all for your participation.
Speaker Change #105: Okay.
Speaker Change #106: Got you Okay perfect. Thank you for taking the questions.
Speaker Change #107: Thank you.
Speaker Change #108: Thank you and that does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you all for your participation.