Q1 2025 Pinnacle Financial Partners Inc Earnings Call
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Terry Turner: Good morning, everyone, and welcome to the Pinnacle Financial Partners Quarter 2025 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer and Mr. Harold Carpenter, Chief Financial Officer.
Speaker Change: Good morning, everyone and welcome to the Pinnacle financial partners quarter 2025 earnings Conference call.
Speaker Change: Hosting the call today from Pinnacle financial partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer.
Operator: 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.
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. N S. P dot com.
Operator: Today's call is being recorded and will be available for replay on Pinnacle Financial's website for the next 90 days. At this time, all participants have been placed on a listen-only mode.
Speaker Change: Today's call is being recorded and will be available for replay on pinnacle Financial's website for the next 90 days.
Speaker Change: At this time all participants have been placed on a listen only mode. That's all will be open for your questions. Following the presentation.
Operator: The floor will be open for your questions following the presentation. If you'd like to ask a question at that time, please press star 1 on your touchtone phone. Analysts will be given preference during the Q&A. We do ask that you please pick up your handset to allow optimal sound quality.
Speaker Change: You'd like to ask a question at that time. Please press star one on your Touchtone phone.
Speaker Change: Analyst will be given preference during the Q&A.
Speaker Change: We do ask that you. Please pickup your handset to allow optimal sound quality.
Operator: During this presentation, we may make comments that may constitute forward-looking All forward-looking statements are subject to risks, uncertainties, and other facts that may cause the actual results, performance, or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. 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: During this presentation, we may make comments that may constitute forward looking statements.
Speaker Change: All forward looking statements are subject to risks uncertainties and other facts that may cause the actual results performance or achievements of pinnacle financial to differ materially from any results expressed or implied by such forward looking statements.
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.
Operator: A more detailed description of these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31, 2024 and its subsequently filed quarterly report. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events, or otherwise.
Speaker Change: A more detailed description of these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31, 2024, and subsequently filed quarterly reports.
Pinnacle financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information future events or otherwise.
Operator: 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 made available on Pinnacle Financial's website at www.pnfp.com.
Speaker Change: In addition, these remarks may include certain non-GAAP financial measures as defined by S. E C regulation G.
Speaker Change: 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 made available on pinnacle Financial's website at www Dot P. N F P dot com.
Terry Turner: With that, I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO. Thank you, Matt. Good morning. Well, I know it's not news to anyone on this call this morning that we're living in a time of unusual volatility, and periods of volatility generally have the impact of slowing economic growth and damaging bank performance. But irrespective of the environment, as most of you know, at Pinnacle, we've got a relentless focus on producing shareholder value. It's why we begin every call with this shareholder value dashboard, gap measures first, then quickly to the adjusted numbers to give you the best insight into how we see the numbers and how we manage the firm.
Speaker Change: With that I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's, President and CEO.
Terry Turner: Thank you Matt.
Speaker Change: Yeah.
Speaker Change: Well I know, it's not news to anyone on this call. This morning that we're living in a time of unusual volatility.
Speaker Change: Periods of volatility generally have the impact of slowing economic growth and damage and bank performance, but irrespective of the environment as most of you know vertical we've got a relentless focus on producing shareholder value.
Speaker Change: While we begin every call with this shareholder value dashboard GAAP measures first.
Speaker Change: Then quickly to the adjusted numbers to give you the best insight into how we see the numbers and how we manage the firm.
Terry Turner: Anyone that has ever listened to these calls knows and expects that I'm going to particularly highlight revenue growth, EPS growth, and tangible book value per share growth, the three metrics that we believe are most highly correlated with long-term shareholder returns. As you can see here regarding revenue growth, first quarter 25 was another great quarter, continuing the double-digit trajectory. Not only have we had a 10.1% CAGR over the last four years, but a 14.2% growth rate first quarter 25 over first quarter 24. The industry had a two-year downdraft on EPS for a number of reasons, including limited loan demand and a downward slope yield curve.
Anyone that has ever listened to these calls know as an expense and I'm going to particularly highlight revenue growth EPS growth and tangible book value per share growth. The three metrics that we believe are most highly correlated with long term shareholder returns.
Speaker Change: As you can see here regarding revenue growth first quarter 'twenty five was another great quarter, continuing the double digit trajectory not only have we had a 10, 1% CAGR over the last four years, but a 14, 2% growth rate first quarter 'twenty over first quarter 2012.
Speaker Change: The industry had a two year downdraft on EPS for a number of reasons.
Including limited loan demand in a downward slope yogurt.
Terry Turner: Despite that difficult operating environment, you can see here that our adjusted EPS grew 24.2% first quarter 25 over first quarter 24. And lastly, through it all, we've compounded tangible book value per share at a 10.3% rate over the last four years and 10.6% first quarter 25 over first quarter 24.
Speaker Change: Despite the difficult operating environment, you can see here that our adjusted EPS grew 22% first quarter 'twenty five over first quarter 'twenty.
Speaker Change: And lastly through it all we compound to tangible book value per share at a 10, 3% rate over the last four years and 10, 6% first quarter 'twenty over first quarter 'twenty.
Terry Turner: So I think at least three questions come to mind about our unusual ability to grow these metrics that I believe are most highly correlated with shareholder returns, almost irrespective of the economic landscape. Number one, how do we grow so reliably when the industry appears to not? Number two, is it a high-risk strategy? And number three, is it sustainable? The answer to all three of those is centered in our hedgehog strategy, which is to continuously attract the best bankers in the market and to enable them to consolidate their books of business from where they were to Pinnacle.
Speaker Change: So I think at least three questions come to mind about our unusual ability to grow these metrics that I believe are most highly correlated with shareholder returns almost irrespective of the economic landscape number one how do we grow so reliably when the industry peers.
Speaker Change: Is it a high risk strategy and number three is it sustainable.
Speaker Change: And I answered all three of those are centered in our Hedgehog strategy, which is to continuously to attract the best bankers in the market and to enable them to consolidate their books of business from where they were identical we run a continuous recruitment cycle for revenue producers, which is different from most competitors and peers, who generally constrained the hiring revenue producers.
Terry Turner: We run a continuous recruitment cycle for revenue producers, which is different from most competitors and peers who generally constrain the hiring of revenue producers in an attempt to constrain non-interest expense growth. We are always recruiting and hiring the best bankers in our market, not just when we have an opening. And why wouldn't you? The profit leverage on even an average producer is extraordinary. Another critical distinction in our model is that we don't hire these revenue producers if they're circulating a resume or they come in to fill out an application. Our assumption is that they're either unhappy or unsuccessful and therefore not a target for us.
Speaker Change: In an attempt to constraining noninterest expense growth.
Speaker Change: We're always recruiting and hiring the best bankers in our market not just when we have an opening and why wouldn't you the profit leverage on them, even an average producer is extraordinary.
Speaker Change: Another critical distinction in our model is that we don't hire these revenue producers if they are circulating a resume or they come in to fill out an application. Our assumption is that they're either unhappy your own successful and therefore, not a target for us we don't use head hunters to hire these revenue producers.
Terry Turner: We don't use headhunters to hire these revenue producers. They tend to produce talent that hop from job to job for the next best offer. In general, the only way a revenue producer will be hired at Pinnacle is that a current Pinnacle associate says, first of all, I've worked with them before and they're good at what they do, and secondly, that they share our values and they'll fit. This distinct recruitment model provides insight into both how we're able to hire so many and how we consistently get outsized performance from those that we hire.
Speaker Change: Tend to produce talent the top from job to job for the next best offer in general the only way of revenue producer of being hard at Pinnacle is.
Speaker Change: The current Pinnacle Associates is first of all I've worked with them before and they're good what they do and secondly that they share our values they'll fit.
Speaker Change: This distinct recruitment model provides insight and about how we are able to hire so many and how we consistently get outsized performance from those that we hire.
Terry Turner: I've used this call in the past to highlight how all of this bears on growth, and so I don't want to do that in detail on this call, but as a quick reminder, at a very high level, you might think about it this way. We hire a large number of highly experienced revenue producers every year. On average, it takes them roughly four years to consolidate their clients to Pinnacle, and the growth comes in on a roughly straight-line basis. This is a market share takeaway strategy that's not meaningfully reliant on economic growth. As new RMs consolidate their long-standing clients to Pinnacle over that roughly four-year period, it forms an embedded level of growth in clients and balance sheet volumes, which are almost entirely removed from economic growth rates.
Speaker Change: I've used this call in the past to highlight how all of these buyers on growth and so I don't want to do that in detail on this call, but as a quick reminder, at a very high level you might think about it. This way we are a large number of highly experienced revenue producers every year on average it takes roughly four years to consolidate their clients to pinnacle and the growth comes in on a run.
Speaker Change: Straight line basis. This is a market share takeaway strategy does not meaningfully rely on economic growth as New Orleans consolidate their long standing clients to pinnacle over that roughly full year period. It forms an embedded level of growth in clients and balance sheet volumes, which are almost entirely removed from economic growth rates.
Terry Turner: As you can see here, that ability to attract revenue producers has been successful in our legacy footprint, in our areas of specialization that we've added over the years, and in de novo market extensions. Last year, we set a new firm record for the number of highly experienced revenue producers that joined our firm, and we're on a similar track for this year, 37 revenue producers in first quarter of 24 versus 33 first quarter of 25. Revenue producers that have been with our firm less than three years accounted for all of our growth in first quarter of 25.
Speaker Change: As you can see here that ability to attract revenue producers has been successful in our legacy footprint and our areas of specialization that we've added over the years and in de Novo market extensions last year, we set a new firm record for the number of highly experienced revenue producers that joined our firm and we're on a similar drag for this year 30.
Speaker Change: Seven revenue producers in first quarter 'twenty four versus 33 first quarter 'twenty.
Speaker Change: Revenue producers that have been with our firm less than three years accounted for all of our growth in first quarter 'twenty five.
Terry Turner: The same was true for all of 24. It only makes sense to me that in periods of low or no economic loan demand, relationship managers with large books will be lucky to originate enough volume to just cover their amortization. Generally, the bigger the book, the bigger the headwind. Additionally, in our case specifically, we made a strategic choice roughly two years ago to lower our concentration in commercial real estate, which has also served as a drag on the legacy markets.
Speaker Change: Same was true for all of 'twenty four it only makes sense to me that in periods of low or no economic long demand relationship managers with large boats will be lucky to originate enough volume to just cover their amortization generally the bigger the book the bigger the headwind initially in our case, specifically, we made a strategic choice roughly two years ago.
Speaker Change: To lower our concentration in commercial real estate, which has also served as a drag on the legacy markets, but net net there's ability to continuously attract highly experienced lenders and enable them to consolidate the glass clinical answers. The question, how we grow so reliably.
Terry Turner: But net-net, this ability to continuously attract highly experienced lenders and enable them to consolidate their clients to pinnacle answers the question how we grow so reliably. Is it safe? We believe our track record demonstrates that it is. The average years of experience for the associates we hire when we hire them is 18 years. So if you think about it, when you hire revenue producers that may have been handling clients nearly two decades, two things happen. Number one, you get rapid growth. You'd fully expect that the rate at which they bring loan volumes would be substantially faster than RMs that you give a Dun & Bradstreet list of prospects to and ask them to go meet someone to loan money.
Speaker Change: Is it safe we believe our track record demonstrates Indians. The average years of experience for the associates, we hire when we hire them is 18 years. So if you think about it when you hire revenue producers that may have been handling clients nearly two decades, two things happen number one you get rented grow you would fully expect that the rate at which they bring loan.
Speaker Change: Volumes will be substantially faster than our Ams that you gave at Dun and Bradstreet list of prospects to and asked them to go meet someone to loan money.
Terry Turner: And in general, number two, you get great loan quality. It's the opposite adverse selection. They're bringing their clients with whom they're well familiar. They leave criticized and classified loans behind, bringing only their best clients, again, substantially less risky. Then give them a Dun & Brad list of prospects, which is what most banks do.
Speaker Change: In general number two you get great loan quality.
Speaker Change: It's the opposite adverse selection, they're bringing their clients with whom they're well familiar they leave criticized and classified loans behind bringing all of their best clients again substantially less risky than give them are done in brand list of prospects.
Speaker Change: Which is what most banks do so this model not only produces rapid and remarkably reliable growth, but high quality growth as well.
Terry Turner: So this model not only produces rapid and remarkably reliable growth, but high quality growth as well. These charts serve as a further demonstration of the reliability of our growth almost irrespective of the economic environment. On the left, from the Great Recession through 2022, our growth in total loans was nearly three times the U.S. commercial banks and was more than two times that of our peers, a remarkable difference in a period that included such catastrophes as the COVID pandemic. And on the right, you can see the quarterly year-over-year growth comparisons for total loans from first quarter of 23 through fourth quarter of 24, which included a liquidity crisis that literally caused some of our peers to fail.
Speaker Change: These charts arb as part of the demonstration of the reliability of our growth almost irrespective of the economic environment on the lab from the great recession through 2022, our growth in total loans was nearly three times the U S commercial banks and with more than two times that of our peers are marketable difference in a period that included such.
Speaker Change: Catastrophes as Coca.
Speaker Change: The Covid pandemic.
Speaker Change: And on the right you can see the quarterly year over year growth comparisons for total loans from first quarter 'twenty, three and fourth quarter 'twenty, four which included the liquidity crisis that literally call some of our peers to fail.
Terry Turner: For me, this is a great illustration of how the continuous attraction of highly experienced relationship managers who consolidate their clients to Pinnacle has provided something of an underlying floor for loan growth, even during periods of virtually no economic loan demand. I also want to point out on the chart on the right that we added a line for C&I loan growth as well. As I've already mentioned, total loans have actually endured a downdraft as we shrink our concentration of commercial real estate. So, the C&I growth may be an even better illustration of the rapid and reliable growth produced by this model.
Speaker Change: For me. This is a great illustration of how the continuous subtraction of highly experienced relationship managers, who consolidate their clients to pinnacle has provided something of an underlying slower loan growth even during periods of virtually no economic loan demand also want to point out on the chart on the right that we added a land for C&I loan growth as well.
Speaker Change: No.
Speaker Change: As I've already mentioned total loans are actually endured a downdraft as we shrank our concentration of commercial real estate. So the C&I growth may be an even better illustration of the rapid and reliable growth produced by this model.
Terry Turner: And as it relates to sustainability, of course, one of the keys to talent attraction is our unique work environment. Just in the last couple of weeks, we were listed by Fortune magazine as the ninth best workplace in America, up from number 11 last year. Many have conjectured that as we grow, we'll no longer be able to propel our culture and work environment, causing a reversion to the mean for our growth rates. This year's ranking is our best yet, as was the case last year, by the way. We've pretty well debunked the thesis that we cannot maintain our special sauce as we grow.
Speaker Change: And as it relates to the sustainability of course, one of the key talent attraction is our unique work environment. Just in the last couple of weeks. We were listed by Fortune magazine as the ninth best workplace in America up from number 11 last year. Many of conjecture that as we grow we will no longer be able to propel our culture and work.
Speaker Change: Environment, causing a reversion to the mean for our growth rates. This year. This year's Reagan is our best yet as was the case last year by the way, we've pretty well debunks a thesis that we cannot maintain our financial sources we grow.
Terry Turner: And of course, while the power of our ability to attract the best talent accounts for a great deal of the success that we've had, the truth is an equally important key to our success is the differentiated service level that we offer clients compared to client satisfaction with our competitors. According to Coalition Greenwich, there are 21 drivers of client satisfaction among businesses with annual sales from $1 million to $500 million. In our eight-state footprint, we lead on all 21 of those drivers, every single one of them. The experience is overwhelmingly differentiated, and that feels like a sustainable competitive advantage.
Speaker Change: And of course, while the power of our ability to attract the best talent accounts for a great deals.
Speaker Change: Since then we've had the truth is an equally important key to our success is the differentiated service level that we offer clients compared to client satisfaction with our competitors. According to college coalition granted there are 21 drivers of client satisfaction among businesses with annual sales from 1 million to $500 million.
Speaker Change: In our eight state footprint, we lead on all 21 of those drivers every single one of them. The experience is overwhelmingly differentiated and that feels like a sustainable competitive advantage. So without a doubt my preference would be for a less volatile environment as I'm sure for everyone on this call, but that said even in this.
Terry Turner: So without a doubt, my preference would be for a less volatile environment, as I'm sure is the case for everyone on this call. But that said, even in this more volatile environment, given how we grow, we continue to expect client balance sheet growth for 2025 consistent with our prior guidance.
Speaker Change: More volatile environment, given how we grow we continue to expect client balance sheet growth for 2025, consistent with our prior guidance with that let me turn it over to Harold for more detail look at the quarter.
Harold Carpenter: With that, let me turn it over to Harold for a more detailed look at the quarter. Thanks, Terry. Good morning, everybody.
Harold: Thanks, Terry good morning, everybody.
Harold Carpenter: As you may have already concluded, we've reduced the number of slides in the prepared remarks portion of the deck this morning. All the slides I've traditionally discussed, if you were in the supplemental portion of the deck, our goal is to quicken the pace and point out the highlights and get to your questions.
Harold: As you May have already concluded we've reduced the number of slides in the prepared remarks portion of the deck. This morning.
Harold: All the slides are traditionally discussed the euro in the supplemental portion of the deck. Our goal is to quicken the pace.
Harold: <unk> out the highlights and get to your questions.
Harold Carpenter: We'll start with loans. In the period loans increased 7.3% lean quarter annualized. That was about what we thought at the beginning of the quarter.
Harold: We'll start with loans end of period loans increased seven 3% linked quarter annualized that was about what we thought at the beginning of the quarter as Terry mentioned, we continue to lean on our new markets and our rig crews to provide the punch in loan growth for us.
Harold Carpenter: As Terry mentioned, we continue to lean on our new markets and our recruits to provide the punch and loan growth for Again, our long growth is not so much dependent on economic tailwinds, it's all about these great bankers we've hired and the movement of their prior relationships to us. There's a ton of uncertainty right now in the broader economy, and we've had many conversations with our relationship managers about pipeline development over the course of the next few quarters. Our clients have a lot of the same uncertainties that the rest of us are wrestling with, but appear to remain generally confident about the future, and that eventually, all of this will translate into stronger, more resilient economy for all of us.
Harold: Again, our loan growth is not so much dependent on economic tailwind. It's all about these great bankers, we've hired and the movement of their prior relationships to us.
Harold: There is a ton of uncertainty right now on the broader economy, and we've had many conversations with our relationship managers about pipeline development over the course of the next few quarters. Our clients have a lot of the same uncertainties, but the rest of us are wrestling with but appear to remain generally confident about the future and that eventually all of this will translate into strong.
Harold: Or more resilient economy for all of US when that will happen is certainly something folks are debating intensely.
Harold Carpenter: When that will happen is certainly something folks are debating intensely.
Harold Carpenter: Given first quarter impact in our pipelines, we'll stay with our estimated outlook at 8 to 11 percent growth this year. The yield curve bounced around a lot in the first quarter and continues to do so as we begin the second quarter, but in the end, we're pleased with how our loan rates performed through the quarter. Although the lift from fixed rate repricing is not as opportunistic as it once was, we still anticipate continued lift in fixed rate loan rates throughout this year.
Harold: Given first quarter impact on our pipelines will stay with our estimated outlook at 8% to 11% growth this year.
Harold: The yield curve bounced around a lot in the first quarter and continues to do so as we begin the second quarter, but in the end we were pleased with how our loan rates performed through the quarter.
Harold: Although the lift from fixed rate repricing is not as opportunistic as it once was we still anticipate continued lift in fixed rate loan rates throughout this year.
Harold Carpenter: Deposit growth was again, a real bright spot for us in the first quarter as we increased deposits by 1.6 billion in the first quarter. This is after $1.9 billion increase last quarter. Contributing to outsized growth were our investments in our deposit verticals, as well as the work of our new associates in several of our newer markets. As for 2025, we're maintaining our estimated growth rate for total deposits at 7% to 10% for 2025. We believe this is reasonable, given our performance in the first quarter.
Deposit growth was again, a real bright spot for us in the first quarter as we increased deposits by $1 6 billion in the first quarter. This is after 1.9 billion dollar increase last quarter contribute outsized growth, where our investments in our deposit verticals as well as the work of our new associates in several of our newer markets as.
Harold: The 2020, we're maintaining our estimated growth rate for total deposits at 7% to 10% for 2025. We believe this is reasonable given our performance in the first quarter. We don't anticipate similar growth in the second quarter in the second quarter might be our toughest deposit growth quarter given that we believe some runoff occurred at March 31 for taxes.
Harold Carpenter: We don't anticipate similar growth in the second quarter, as the second quarter may be our toughest deposit growth quarter, given that we believe some run-up occurred in March 31 for taxes. We're also very pleased with how deposit pricing has performed thus far this year and how our deposit how both our deposit and loan betas have performed thus far through the cycle. The chart on the top right of the slide shows that during the upright cycle from the end of 21 to the end of June 24, our loan rates increased with a 59% beta, while over the last six months or so, as rates have come down, our loan rates have decreased with a 42% beta.
Harold: Yeah.
Harold: We're also very pleased with how deposit pricing has performed thus far this year and how our deposit.
Harold: How both our deposit and loan betas have performed thus far through the cycle. The chart on the top right of the slide shows that during the upright cycle from the end of 'twenty one to the end of June 24, our loan rates increase with a 59% beta while over the last six months or so as rates have come down our loan rates have decreased with a 40.
Harold: 2% data all the while our deposit betas at 56%, which is the same as what transpired during the upright cycle. So far so good for both loans and deposits.
Harold Carpenter: All the while, our deposit beta is at 56%, which is the same as what transpired during the upright cycle. So far, so good for both loans and deposits. As expected, we're pleased that our NIM was flattish at 3.21%. Our outlook for the second quarter of 2025 is that we believe our NIM will remain flattish with some upward bias. As to net interest income, we are estimating welcome lift in the second quarter, given we have an additional day, but also increased volumes, which should support our estimate for more revenue. As for 2025, we believe our net interest income growth outlook will continue to approximate a range of 11 to 13%.
Harold: As expected we are pleased that our name was flattish at 3.21% our outlook for the second quarter of 2025 is that we believe our NIM will remain flattish with some upward bias.
Harold: As to net interest income were estimated welcome to lift in the second quarter, given we have an additional day, but also increased volumes, which should support our estimate for more revenues.
Harold: As to 2025, we believe our net interest income growth outlook will continue to approximate a range of 11% to 13% and again the slope of the yield curve will have significant influence on how all this plays out for the remainder of this year.
Harold Carpenter: And again, the slope of the yield curve will have significant influence on how all this plays out for the remainder of this year.
Harold Carpenter: So what's up with rank? We've modeled out many scenarios and feel we're in pretty good shape to manage through most rate forecasts that are out there in the markets today. We have constructed our base case outlook around two rate cuts for this year. If there's more rate cuts, we feel we have enough flexibility to modify our game plan and given rates are still elevated from just a few years ago, the ability to match off the impact from lower asset yields with similar actions on our funding base. A quick word on credit, our net charge-offs dropped to 16 basis points in the second quarter from 24 basis points in the fourth quarter.
Harold: So what's up with rate cuts, we've modeled out many scenarios and feel we're in pretty good shape to manage through most rate forecasts that are out there in the markets. Today, we have constructed our base case outlook around two rate cuts for this year, if theres more rate cuts, we feel we have enough flexibility to modify our game plan and given rates.
Harold: We are still elevated from just a few years ago, the ability to match off the impact from lower asset yields with similar actions on our funding base.
Harold: Yeah.
Harold: A quick word on credit our net charge offs dropped to 16 basis points in the second quarter from 24 basis points in the fourth quarter for.
Harold Carpenter: For 2025, the current view of our charge-off outlook remains that net charge-offs for 2025 should come in around 16 to 20 basis So no change there from last quarter. We did downgrade an apartment loan in Atlanta with around 90 to 95% occupancy, which was the reason our NPAs picked up this quarter. That project is in process of being marketed and we feel like we're in good shape with this $35 million loan with an anticipated loss already accounted for in the reserve. Our belief is that resolution should occur over the next couple of quarters. Our reserve did decrease one basis point, which we thought was possible given our position at the end of the fourth quarter and if credit continued to perform well.
Harold: For 'twenty 'twenty five the current view of our charge off outlook remains that net charge offs for 2025 should come in around 16% to 20 basis points. So no change there from last quarter.
Harold: We did downgrade on apartment loan in Atlanta with around 90% to 95% occupancy, which was the reason our npa's ticked up this quarter.
Harold: That project is in process of being marketed and we feel like we're in good shape with this $35 million loan with an anticipated loss already accounted for in the reserve.
Harold: Our belief is that resolution should occur over the next couple of quarters.
Harold: Our reserve did decreased one basis point, which we thought was possible given our position at the end of the fourth quarter and if credit continues to perform well, we still believe our reserve who will remain at or near these levels for the remainder of 2025, if the economic conditions don't materially deteriorate from those and we are anticipating that.
Harold Carpenter: We still believe our reserve will remain at or near these levels for the remainder of 2025 if the economic conditions don't materially deteriorate from those we are anticipating.
Harold Carpenter: That said, we don't want to appear tone deaf. Our credit officers are working their portfolios, trying to understand what tariffs or protracted trade war could do to our portfolio. We have our eyes on several portfolios, trying to appreciate which ones may feel more stressed, perhaps more sooner than others. Our outlook for our provision to average loans remains at 24 to 27 basis points for this year. We are assuming here that we don't find our way to accommodate some significant increase in forecasted unemployment, like we did during COVID, only to see the impact of that reverse the next year, which could drive this range up.
Harold: That said, we don't want to appear tone deaf or.
Harold: Our credit officers are working their portfolios trying to understand what tariffs or protracted trade war could do to our portfolio. We have our eyes on several portfolios trying to appreciate which ones might feel more stress, perhaps more sooner than others.
Harold: Our outlook for our provision to average loans remains at 24 to 27 basis points for this year.
Harold: We are assuming here that we don't find our way to accommodate some significant inquiries and forecasted unemployment like we did during COVID-19 only to see the impact of that reverse the next year, which could drive this range up we do believe a modest increase in unemployment is manageable given our sensitivity analysis.
Harold Carpenter: We do believe a modest increase in unemployment is manageable, given our sensitivity analysis.
Harold Carpenter: As to BHG, all of the usual slides are in the supplementals for your reference. BHG had a strong quarter, providing fee revenues to us of over $20 million, which was more than the $12.1 million in the fourth quarter and more than we had previously estimated would be the case. BHG closed its 10th ABS issuance in the first quarter for approximately $400 million. Spreads on this issue were 12.6%, which was the strongest of any issuance for BHG. Wall Street continues to acquire BHG credit with increased appetite for its volume. Production was strong in the first quarter.
Speaker Change: As a ph D. All of the usual slides or in the supplemental for your reference.
Speaker Change: <unk> had a strong quarter, providing fee revenues drove us to us of over $20 million with more than which was more than the $12 1 million in the fourth quarter and more than we had previously estimated would be the case.
Speaker Change: <unk> closed his 10th ABS issuance in the first quarter for approximately $400 million spreads on decisions were 12, 6%, which was the strongest of any issuance for BHG.
Speaker Change: Wall Street continues to acquire BHG credit with increased appetite for its volumes.
Speaker Change: Production was strong in the first quarter credit was better than anticipated with past dues continued to improve vintage loss curves also seem to signal better days ahead. We in BHG are both comfortable in raising our earnings estimates for 2025 from 10% growth to 20% growth over 2020 for several factors are contributing to this decision.
Harold Carpenter: Credit was better than anticipated with past dues continued to improve. Vintage loss curves also seem to signal better days ahead.
Harold Carpenter: We in BHG are both comfortable in raising our earnings estimates for 2025 from 10% growth to 20% growth over 2024. Several factors are contributing to this decision. Lower operating costs this year, better credit performance, and stronger production lead flow along with better hit rates all point to what could be a much stronger year for BHG.
Speaker Change: Lower operating cost this year better better credit performance and stronger production lead flow along with better hit rates all point to what could be a much stronger a year from the ACG.
Harold Carpenter: Lastly, as to our guide for 2024, we've talked about much of the information on this slide previously. Again, the investments we've made in our new markets and our hiring success are the building blocks we will lean on as we target top quartile results amongst our peers, which we believe this guide should point toward.
Speaker Change: Lastly, as to our guide for 2024, we've talked about most of the information on this slide previously again the investments we've made in our new markets and are hiring success are the building blocks, we will lean on as we target top quartile result, amongst our peers, which we believe this guide should point toward.
Harold Carpenter: Other than BSG, we've not spent a lot of time this morning on fees or expenses thus far. As to highlights, we continue to be pleased in our fee line. Banking fees and wealth management are performing quite well. We're keeping a cautious eye on wealth management, given the market performance and how that might impact our revenue targets this year, but feel like currently the range provided is reasonable. As the chart indicates, we remain comfortable with an 8% to 10% growth rate in fees inclusive of VSG's increase to 20% growth this year.
Speaker Change: Other than BSG, we must have been a lot of time. This morning, all of these were expenses thus far.
Speaker Change: As to highlights we continue to be pleased in our fee line banking fees and wealth management are performing quite well, we're keeping a cautious all wealth management, given the market performance and how that might impact our revenue targets. This year, but feel like currently the range provided is reasonable.
Speaker Change: As the chart indicates we remain comfortable with an 8% to 10% growth rate in fees inclusive of the <unk> increased to 20% growth this year.
Harold Carpenter: We also restructured about $189 million of our investment securities at a loss of approximately $12.5 million. This trade met our criteria of an expected three-year payback. Thus, we anticipate the restructuring should add approximately a million dollars of spread revenues to us per quarter. As to expenses, our outlook does reflect the target award for our associates, and as always, should our performance warrant, we will increase the award if our earnings support any additional incentive costs. We remain at $1.3 million to $1.15 million as estimated expenses for this year.
Speaker Change: We also restructured about $189 million of our investment securities at a loss of approximately $12 5 million.
This trade met our criteria of an expected three year payback, thus, we anticipate the restructuring should.
Speaker Change: Add approximately a $1 million of spread revenues to us per quarter.
Speaker Change: As to expenses our outlook does reflect the target award for our associates and all and as always we're always shut our performance warrant we will increase the award if our earnings support any initial incentive costs.
Speaker Change: We remain at $1 3 million from $1, one 5 million as estimated expenses for this year.
Harold Carpenter: As the tariff discussion plays out, as the recession discussion plays out, as the yield curve and rate cut discussions play out, we are hopeful that more clarity will come forward. But as it sits today, we remain optimistic about our prospects for this year and are confident that 2025 should be another strong year for Pinnacle.
Speaker Change: As the tariff discussion plays out as the recession precession discussion plays out as the yield curve and rate cut discussions play out we were hopeful that more clarity will come forth.
Speaker Change: But as it sits today, we remain optimistic about our prospects for this year and are confident that 2025 should be another strong year for pinnacle.
Matthew Olney: With that, I will send it back to Matt for Q&A. Thank you, Mr. Turner. Everyone, the floor is now open for your questions. If you'd like to ask a question at this time, please press star 1 on your touch-tone phone. Analysts will be given preference during the Q&A. Again, we do ask that when you ask your question, please pick up your handset to provide optimal sound quality.
Speaker Change: With that I'll send it back to Matt for Q&A.
Speaker Change: Thank you Mr. Turner, everyone. 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.
Speaker Change: Analyst will be given preference during the Q&A.
Speaker Change: Again, we do ask that when you ask a question. Please pickup your handset to provide optimal sound quality.
Jared Shaw: Your first question is coming from Jared Shaw from Barclays Capital. Your line is live. Hey, good morning, guys. Morning, hi Jared. Hey, so maybe just the first, you know, I appreciate the discussion around the uncertainty here. Did you change the baseline assumption under CECL for calculating the reserves? Did you go to an adverse scenario or are you just keeping it unchanged? We kept it unchanged, but we used the adverse scenario to kind of influence where a lot of our qualitative assumptions go. So, but no, we did keep it the same with the base.
Speaker Change: Our first question is coming from Jared Shaw from Barclays Capital. Your line is live.
Jared Shaw: Hey, good morning, guys.
Speaker Change: Hi, Jared.
Speaker Change: Hey.
Jared Shaw: So maybe just the first you know I appreciate the discussion around the uncertainty here did you change.
Speaker Change: The baseline assumption under Cecil.
Speaker Change: For calculating the reserves if you go to an adverse scenario or are you just keeping it keeping it unchanged.
Speaker Change: We kept it unchanged, but we use the adverse scenario kind of influence where a lot of our qualitative assumptions go.
Speaker Change: So, but no we did keep it the same with the baseline.
Harold Carpenter: Okay, and then on BHG, that's great, you know, great quarter there with the with the securitization, you know, it feels like the securitization markets a little locked up right now. Is that growth or that higher target dependent on continued securitizations or is there flexibility there that they can hold more through the or they can place more through the bank sale channel? Oh, I think they have they have plenty of room through the bank channel. I think they do believe like there's another ABS issuance towards the end of the year that they're planning for. But at the end of the day, they've got capacity and liquidity in the bank channel to place their Okay.
Speaker Change: Okay.
Speaker Change: Then on BHG that's great.
Speaker Change: Great quarter, there with the with the securitization.
Speaker Change: It feels like the securitization markets are little locked up right now.
Speaker Change: Is that.
Speaker Change: Growth or that higher target dependent on.
Speaker Change: Continued securitizations or is there a flexibility there that they can they can hold more through the or they can play smart through the.
Speaker Change: The bank sale channel.
Speaker Change: Oh I think they have they are.
Speaker Change: Plenty of room through the bank channel.
Speaker Change: They do believe like Theres, another ABS issuance towards the end of the year that Theyre planning for but at the end of the day, they've got capacity and liquidity in the bank channel to place their credits.
Jared Shaw: And then just on the other fees, sort of where are we seeing the most offset to that higher BHG target? Is that in sort of the other equity investments or where? I think the other equity investments has given us some pause that, you know, traditionally, we've gotten quite a bit of punch out of there that we probably need to back off on for the rest of the year. And I think BHG is going to help us offset that. Okay, great. Thanks a lot. I'll step back. Thanks, Jared.
Speaker Change: Okay, and then just on the the other fees sort of what where are we seeing the the most offset to that higher BHG target.
Speaker Change: Is that in sort of the other other other equity investments or are aware of I think the other equity investments has given us some pause that you know.
Speaker Change: Traditionally we've gotten quite a bit of punch out of there that we probably need to backhaul home for the rest of the year and I think BHG is going to help us offset that.
Speaker Change: Okay, great. Thanks, a lot I'll step back.
Jack: Thanks Jack.
Speaker Change: Thank you. Your next question is coming from Ben Garlinger from Citi. Your line is live.
Ben Gerlinger: Your next question is coming from Ben Gerlinger from Citi. Your line is live. Thank you very much. Morning, Boo. How you doing?
Ben Garlinger: Hey, good morning, guys.
Speaker Change: Good morning, Dan.
Harold Carpenter: So, when you guys look at the four-year guide of unchanged for loan and deposits, well, first, congrats on those strong starts of the year. I think, Harold, you said that deposits could slow a little bit here in 2Q, and I think you said you cited tax reasons. I just kind of think of, like, if 1Q had really strong loan growth and even stronger deposit growth, do you think that'll flip in 2Q, or is it just kind of a seasonality, or is it pricing willing to let someone walk away? I get the loan side is strong because of it Yeah, traditionally, April has been a tough month as far as deposit growth is concerned, even for a commercial firm like ours.
Speaker Change: So moving to the full year guide unchanged for loans and deposits as well first congrats again, a strong start to the year.
Speaker Change: Gerald you said that deposits could slow a little bit here in <unk>.
And you said you cited tax reasons, I'm, just kind of thinking Blake.
Speaker Change: Once you had really strong loan growth and even stronger deposit growth do you think that would slip into <unk> or <unk>.
Speaker Change: Just kind of a seasonality or is it pricing or willing to let some walk away I guess.
Speaker Change: Loan side is strong.
Speaker Change: Bankers added over time and the flywheel is create over 20 years.
Speaker Change: Says to me I'm, just trying to think like that.
Speaker Change: Fits and starts are starting on the deposit side.
Speaker Change: Yeah Traditionally April has been a tough month as far as deposit growth is concerned.
Speaker Change: Even for a commercial firm like ours. So we're hedging our bet a little bit from that perspective, and we do have we believe summit vein is when it comes to deposit pricing given the growth over the last two quarters that we don't have to be nearly as front footed on making sure we get the growth here going into the <unk>.
Harold Carpenter: So we just we're hedging our bet a little bit from that perspective. And we do have, we believe some advantage when it comes to deposit pricing, given the growth of the last two quarters that we don't have to be nearly as front footed on making sure we get the growth here going into the second quarter. As to loans, we feel like that is enough pipeline there for us to see similar growth in loans in the second quarter, if not just a tad more. And hopefully, hopefully, you know, that'll transpire. Did I get to your question?
Speaker Change: In the second quarter.
Speaker Change: As the loans, we feel like that there is enough pipeline there for us to see similar growth in loans in the second quarter, if not just a tad more.
Speaker Change: And hopefully hopefully it'll.
Speaker Change: That will transpire did I get to your question Okay Ben.
Harold Carpenter: Yeah, that was helpful. And then just kind of thinking about loans and the pricing component of them, relative to potential payoffs, like, we've seen the yield curve be pretty crazy over day-to-day range so far this month. So I don't necessarily think there's a lot of payoff potential. But if we see the middle or the belly of the curve come in a little bit, like a five-year, do you think there's potential payoff headwinds on CRE? And do you still feel with the current range in that kind of scenario? I'm just trying to think through, like, you guys have been more C&I growth lately.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Just kind of thinking about loans and the pricing component of them relative to potential payoffs like we've seen in the yield curve.
Speaker Change: Crazy Arbor day to day range, so far this month.
Speaker Change: So we think theres a lot of payoff potential, but if we see the middle or the belly of the curve come in.
Speaker Change: A little bit higher.
Speaker Change: Five years do you think there's potential payoff headwinds on CRE and you still feel comfortable with the current range.
Speaker Change: Our scenario I'm, just trying to think through.
Speaker Change: You guys have made.
Speaker Change: More C&I growth lately to re stuffing into CRE it should have but.
Harold Carpenter: If you're re-stepping into CRE, it should help. But legacy products are also terming out a little bit here, too. So people might hit the bid if there is a refinance opportunity. Yeah, first off, you're right. If the five year does come in, or the three year, that's where most of these loans are. So true, we could see some prepayments coming back to us. But hopefully, these clients will give us the opportunity to meet or at least stay in the game with them.
Speaker Change: Legacy products are also terming out a little bit here too so people might have to bid if there is a refinance opportunity.
Yeah first off you're right at the five year does coming in or the three year, that's where most of these loans are.
Speaker Change: So.
Speaker Change: True, we could see some prepayments coming back to us, but hopefully these clients will give us the opportunity to meet or at least stay.
Harold Carpenter: So we're not as concerned about the volume aspect of it, as perhaps maybe the price If I could sneak one more in, BHG seems like it's an improvement relative to what it might have been 90 days ago. Has the family, or have you guys changed any thoughts on the stake of ownership? Oh, no. No, I think we're still in the same position we've been in as far as our 49%. Our partnership is strong with Al and Eric and his senior management groups. So we're in good shape with BHG right now. There's a lot of optimism around that firm.
Speaker Change: Stay in the game with them. So we're not as concerned about the volume aspect of it as perhaps maybe the pricing aspect of it.
Speaker Change: Gotcha.
Speaker Change: One more in BHG seems like it's an improvement relative to what might have been 90 days ago.
Speaker Change: The fan where you guys changed any thoughts on the state of ownership.
Speaker Change: Oh no no I think we're still in the same position we've been in as far as our 49%. Our partnership is strong with al and Eric and his senior management groups. So so we're we're in good shape with BHG right now there's a lot of optimism.
Speaker Change: Around that firm and I.
Jared Shaw: And I think they believe that what's transpired with the 21 and 22 vintages is hopefully in the rearview mirror. Appreciate it. Thanks, guys. All right. Thanks, man.
Speaker Change: I think they believe that the.
That what's transpired with the 'twenty one.
Speaker Change: <unk> 'twenty, one and 'twenty two vintages is hopefully in the rearview mirror.
Speaker Change: I appreciate it.
Speaker Change: Alright. Thanks.
Speaker Change: Thank you. Your next question is coming from Catherine Mealor from K B W. Your line is live.
Catherine Mealor: Your next question is coming from Catherine Mealor from KBW. Your line is live. Thanks. Good morning. Good morning, Catherine.
Catherine Mealor: Thanks, Good morning.
Speaker Change: Good morning Catherine.
Catherine Mealor: I apologize if you addressed this in your prepared remarks, but I just was curious if you could talk a little bit about slide 20, which is the lines of credit that you give per loan type, and just how you would expect those to move as we move through the year. Yeah, I'll start and I'll let I'll let Terry kind of finish on that. I believe our basically the way our clients approach lines of credit, and we saw a pretty big uptick in lines of credit in the first quarter is that they will try to keep the and I'm talking about CNI and non owner-occupied commercial real estate primarily.
Speaker Change: I apologize if you addressed this in your prepared remarks.
Speaker Change: I'm curious if you could talk a little bit about slide 20, which is that the lines of credit that you guys are.
Perry 11 tight and just how you would expect those to move through.
Speaker Change: For the year.
Speaker Change: Sure.
Speaker Change: Yeah, I'll start and I'll, let I'll, let Terry.
Terry Turner: Finish on that I believe are basically the way our clients approach lines of credit and we saw a pretty big uptick in lines of credit in the first quarter.
Speaker Change: Is that they will try to keep.
Terry Turner: And I'm talking about C&I and non owner occupied commercial real estate primarily.
Harold Carpenter: is they'll try to pretty much hang with about a 50% kind of usage rate. And they always like that number. So if, if a firm is going to grow, they're probably going to come back to us and rather than just you know, increase the usage amount of their line, they'll probably come back and just increase Now, what's going on, we've reopened on construction, and so we should see some more increases there with lines of credit, provided rates remain, you know, in an acceptable place, particularly around the five-year and the 10-year. So really, the growth outlook that you have isn't there, it doesn't seem to be a change necessarily, and how you're thinking about lines of credit, it's still customer, bringing new customers over ramping up your, your, your new markets, your new revenue producers, and it's all just still market share.
Terry Turner: As they all try to pretty much hang with about a 50% kind of usage rate.
Terry Turner: And they always like that number so if if a firm is going to grow theyre, probably going to come back to us and rather than just.
Terry Turner: You know increase the usage amount of their line they'll probably come back and just increase the line.
Terry Turner: Now, what's what's going on we've reopened on construction.
Terry Turner: And so we should see some more increases there with lines of credit provided rates remain.
Terry Turner: In an acceptable place, particularly around the five year tenure.
Terry Turner: Okay great.
Terry Turner: They're really good.
Terry Turner: The growth outlook that you have is it does it seem to be a change necessarily in how youre thinking about lines of credit is still.
Terry Turner: Customer, bringing new customers that are ramping next year Eric here.
Terry Turner: New markets or new revenue producers in your deposit market share.
Terry Turner: Yeah, I think that's accurate, you know. To Harold's point, the biggest component, you've sort of got two components that work a little differently. One's CRE, and he talked about that, the other's C&I, generally on C&I financing, you're financing working assets. And so what has to happen there is you have to start driving up the revenues and increasing inventories and receivables and those kinds of things. And so for me at this point, it'd be hard to say, okay, well, I feel like there's something I can identify here where that's going to be a lot better or a lot worse.
Terry Turner: Yes.
Terry Turner: Line of credit.
Yes, I think thats accurate.
Speaker Change: To Harold's point, you know the biggest component you still got two components and work a little differently, one CRE and <unk> talked about that the other C&I geron I don't see in our financing refinancing work in assets and so what has to happen. There is you have to start driving up the revenues and.
Speaker Change: Increase in inventories and receivables and those those kinds of things and so you know for me at this point it would be hard to say, okay, well I feel like there is something I can identify here, where that's going to be a lot better or a lot worse.
Catherine Mealor: And so, again, Harold made the point, we'll be watching all these variables as we go forward. We'll get, you know, more information. But today, our belief about our growth, and really, I think what's an important thing that I wanted to get communicated was, look, What we're going to do is move market share and add clients, which ought to get us into the range of the growth that we said if we get other economic growth, we'll do better. Got it. Okay.
Speaker Change: And so again, Harold Mike Booth will be watching all of these variables as we go forward we'll get.
Speaker Change: More information, but today.
Speaker Change: Our belief about our growth and really I think was an important thing that I wanted to get communicated at world lung.
Speaker Change: Well, we're going to do is move market share and add lives, which ought to get us into the range of the growth that we said if we get other economic growth will do better.
Speaker Change: Got it.
Catherine Mealor: Thank you.
Speaker Change: Makes sense.
Catherine Mealor: And then on the margin outlook, I know that originally you had talked about the margin being a little bit more stable in the first half of the year and then expanding in the second half of the year as we get some cuts. Can you just talk a little bit about kind of sensitivity to that with the rate environment? It feels like you're a little bit more neutral today than you have been and, gosh, your ability to lower deposit costs has been really great. But just kind of curious if there's a little bit more risk to that back half of the year expansion in the market.
Speaker Change: And then on the margin outlook I know originally you had talked about.
Speaker Change: And being a little bit more stable in the first half of the year and then expanding in the second half of the year as we get some cuts can you just talk a little bit about kind of sensitivity to that with with the rate environment. It seems like you're a little bit more neutral today than you have been an early alert.
Speaker Change: Really it's just kind of curious if theres, a little bit more risk to that back half of the year.
Speaker Change: And the margin.
Harold Carpenter: Yeah, I think there's more risk, primarily because just we don't know what's going to happen. So give us that, give us that. But the way our sensitivity works out, as long as we're, call it two rate cuts, give me a range of one to four, we're, we're in really good shape for 25. And we think we can manage it in 26 as well. We still got elevation and deposit rates that we can work through to kind of recapture what we're going to lose on the earning assets side. But what's more important to us is just the yield curve itself and just trying to figure out how to get to a flattish to maybe a slightly steepening yield curve.
Speaker Change: Yeah, I think theres more risk, primarily because we don't know what's going to happen so give us that give us that.
Speaker Change: But the way our sensitivity works out as long as we're call. It two rate cuts give me a range of one to four.
Speaker Change: We're in we're in really good shape for 25, and we think we can manage into 26 as well.
Speaker Change: We still got elevation in deposit rates that we can work through to kind of recapture what we're going to lose on the earning asset side, but what's more important to US is just the the yield curve itself and just trying to figure out how to get to a flattish to maybe a slightly steepening yield curve.
Harold Carpenter: If we go back to an inverted curve that say was around for the, you know, the last two to three years, then that's a more difficult assertion. Okay, great. Thanks. Great order. Thank you.
Speaker Change: If we go back to an inverted curve that say was around for the.
Speaker Change: The last two to three years, then that's a more difficult assertion for us.
Speaker Change: Makes sense.
Speaker Change: Thanks, Great quarter.
Speaker Change: Thanks, Ken.
Speaker Change: Thank you. Your next question is coming from Timur <unk> from Wells Fargo. Your line is live.
Timur Braziler: Your next question is coming from Timur Braziler from Wells Fargo. Hi, good morning.
Timur: Hi, good morning.
Terry Turner: Rounding out the growth conversation, I guess in what type of an environment might the RM consolidation story not play out? Or in what type of an environment might you not want to take on those types of loans? And I guess just from where you're seeing today versus just a couple of months ago, what are you seeing from the borrower side and what is the internal appetite to continue to grow in the balance sheet into some of this?
Speaker Change: And rounding out the <unk>.
Speaker Change: Rounding out the the growth conversation I guess and what type of an environment.
Speaker Change: The RM consolidation story, not play out or what type of an environment.
Speaker Change: Not want to take out and those those types of those loans and I guess just from where you are seeing today versus just a couple of months ago. What are you seeing from the borrower side and what is the internal appetite to continue to growing the balance sheet. It does some of this uncertainty.
Terry Turner: Yeah, Timur, I think what the way I would go at this is, I use that phrase hedgehog strategy. This is what we do. This is what we've done for 25 years is go attract the best bankers in the market, get them to consolidate their book of business from where it is to us. That's a wildly different approach than just hiring people and giving them a Dun & Bradlist. It's a wildly different approach than hiring trainees. It's a wildly different approach than using headhunters to hire people you don't know. We're hiring people that, for the most part, somebody in this company has said, I worked with them before, they're good, and they share our values.
Speaker Change: Yeah Tomorrow I think.
Speaker Change: I would go at this is.
Speaker Change: I use that phrase Hedgehog strategy. This is what we do this when we've done for 25 years is going to drag the best bankers in the market get them to consolidate their book of business from where it is to us that's a wildly different approach than just hiring people and giving them a Don and Brad list, it's wildly different approach and iron trainees.
Speaker Change: It's a wildly different approach than using head honors to hire people you don't know we're hiring people that for the most part somebody in this company has said I worked with them before they're good and they share our values and so that's what gives us such a high.
Terry Turner: That's what gives us such a high execution rate on having these successful people move their books of business. My own belief, any time you're growing as rapidly as we are, I think Dick Kovacevich well said, if it's growing like a weed, it is one. You have to get down to, how do you produce this growth and not worry so much about the asset quality? The way that works is, when you're hiring people who have 18 years experience, they move a book of business they're well familiar with, they leave criticized and classified assets behind, and they move only their best clients.
Speaker Change: Execution right on having these successful people move their books of business my own belief anytime youre growing as rapidly as we are.
Speaker Change: I think <expletive> Kovacevich, well said I, if it's growing like a weed. It is one and so you know you have to.
Get down to so how do you produce that is growth and not worry so much about the asset quality and the way that works is when you're hiring people, who have 18 years experience. They move a book of business, they're well familiar with they leave criticized and classified assets behind and they move only their best clients and so my belief is.
Terry Turner: My belief is, that is a substantially less risky approach than what many banks are doing that are people out calling on folks they don't know, trying to meet somebody to loan money to, and so forth, which I think is a substantially higher risk. All that said, I've just tried to give you the case for why we continue to be bullish on our ability to attract people, and why we believe that we can grow assets at that rate and do it in a safe way. I guess the bottom line of all that is, it's hard for me to imagine a time when we wouldn't want to hire a high producing relationship manager.
Speaker Change: Is that is a substantially less risky approach than what many banks are doing that are producing two 3% growth rates, because whatever growth, they're getting they're getting at bison and people out calling on folks I don't know drive to meet somebody to loan money to and so forth would jot things are substantially higher risk. So all of that said I'd just drive.
Speaker Change: To give you the case for why we continue to be bullish on our ability to attract people and why we believe that we can grow assets at that rate.
Speaker Change: And do it in a safe.
Speaker Change: I'll do it in a safe way so.
Speaker Change: Yes, the bottom line all of that is it.
Speaker Change: Hard for me to imagine a time, when we wouldn't want a higher a high producing relationship manager that's what we've done for 25 years.
Terry Turner: That's what we've done for 25 years.
Harold Carpenter: Thanks. Maybe switching to DHG. I know it's only been 15 days in the new quarter, but a lot has changed. I'm just wondering what the demand is for that paper for the partner banks. Has there been a mark kind of stepping away from some of that demand subsequent Liberation Day? Or is the origination activity that we saw in OneCube pretty indicative for the type of activity you're expecting here, more so in the near term? Based on my last conversations with them, which was probably a week ago, on that topic, their, their deal flow is still strong.
Speaker Change: Great. Thanks.
Speaker Change: Switching to BHG I know, it's only been 15 days in the new quarter, but a lot of change I'm just wondering what the demand is for that paper for the partner banks has there been a mark kind of stepping away from some of that demand subsequent liberation day or the origination activity that we saw in <unk>.
Speaker Change: Indicative for the type of activity or expect to hear more so in the near term.
Speaker Change: And based on my last conversations with them, which was a probably a week ago on that topic. There their deal flow was still strong the banks are anxious to buy paper from BHG and they they have to be Cree.
Harold Carpenter: The banks are anxious to buy paper from BHG and they, they have to be creative. I'll use that word on making sure that they meet the bank's demands as well as the demands for some of their institutional buyers.
Speaker Change: Creative I'll use that word.
Speaker Change: Making sure that they meet the.
Speaker Change: The bank's demands as well as the demands for some of their institutional buyers.
Harold Carpenter: So. Call it Main Street and Wall Street, but right now they're not having any issues placing their debt through the bank channel, and they've got plenty of volume requests from the Wall Street channel as well. Now, that's not the ABS Wall Street, that's just some of the large institutional buyers just showing up saying, hey, I want 100 million.
Speaker Change: So.
Speaker Change: Call It main street and Wall Street.
Speaker Change: But right now, they're not having any issues, placing their debt.
Speaker Change: Through the bank channel and they've got plenty of.
Speaker Change: Volume requests from the Wall Street channel as oil now that's that's not that's not the ABS Wall Street. That's just some of the large institutional buyers, just showing up saying, hey, I want $100 million.
Harold Carpenter: Okay, and then just last for me, the timing of the bond restructure. Oh, it was in the last... two weeks of the course. So yeah, it's very little, very little impact to the first quarter, Tamir. Thank you.
Speaker Change: Yeah, Okay, and then just last for me the timing of the bond restructure.
Speaker Change: So it was in the last two weeks of the core.
Speaker Change: Great.
Speaker Change: Very little very little impact to the first quarter <unk>. Thank you.
Speaker Change: Thanks.
Speaker Change: Thank you. Your next question is coming from Michael Rose from Raymond James Your line is live.
Michael Rose: Your next question is coming from Michael Rose from Raytheon. Your line is live. Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on I think in the prepared remarks, you talked about some portfolios you'd be doing some some work on to kind of assess the impacts of the tariff. Sorry if I missed it.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Just wanted to start on I think in the prepared remarks, you talked about some portfolios you'd be doing some some work on.
Michael Rose: To kind of assess the impacts of the tariffs sorry, if I missed it but can you just describe what.
Harold Carpenter: But can you just describe, you know, what, what are the first areas of focus for you guys? And, you know, how encompassing this review would be? Thanks. Yeah, we've had a lot of questions with credit officers and relationship managers about tariffs and trade wars and that like. Right now, the credit officers are focused on trucking, they're focused on multifamily, they're focused on leverage lending. They're looking at all those clients in all those various areas and just making sure that we're in a good spot. I feel like that the truckers are probably going to be the most stressed right now just because of the supply chain impact that they have.
Michael Rose: What are the first areas of focus for you guys.
Michael Rose: How encompassing review would be thanks.
Michael Rose: Yeah, we've had a lot of questions with credit officers and relationship managers about tariffs.
Michael Rose: Trade wars and that like right now the credit officers are focused on trucking, they're focused on multifamily theyre focused on leverage lending.
Michael Rose: They're looking at all of those clients and all of those various areas and just making sure that we're in a good spot.
Michael Rose: Feel like that the truckers are probably going to be the most stressed right now.
Michael Rose: Because just because of the supply chain impact that they that they have and.
Harold Carpenter: Right now, so far, so good as what we're feeling as a bank, banking those particular trucking firms, but we've got our eye out on them.
Michael Rose: Right now so far so good.
Michael Rose: What we're feeling as a bank banking those particular trucking firms.
Michael Rose: But we've got our eye on them so.
Harold Carpenter: Okay, and then if there's any, you know, sort of You know, the longer this goes on, right, the more pressure there would be. So there could be potentially some reserve bill, perhaps related to that if things continue, I would assume. Yeah, I'm sure that'll all translate into unemployment and GDP. And that'll that'll require us to build reserves. For sure.
Michael Rose: Okay, and then if theres any sort of.
Michael Rose: The longer this goes on right the more pressure there would be so there could be potentially some reserve bill perhaps related to that.
Michael Rose: Thanks continue out with them.
Michael Rose: Yeah, I'm sure that will all translate into.
Michael Rose: Unemployment and GDP and that'll.
Michael Rose: That'll that will require us to build reserves.
Michael Rose: For sure.
Harold Carpenter: And keep in mind, like what happened in COVID, you know, that'll mean we'll have to probably reassess our incentive payouts and all of that as well to help counter some of Okay, perfect. And then, thanks for all the, appreciate all the color on slide 10 on the betas, both on the loan and deposit side. I think you mentioned that you have, you know, some ability to continue to lower costs.
And keep in mind perfect light like what happened in Covid.
Michael Rose: That will mean, we will have to probably.
Michael Rose: Reassess, our incentive payouts and all of that as well to help counter some of that.
Michael Rose: Okay perfect.
Michael Rose: And then thanks for all the.
Michael Rose: Appreciate all the color on on slide 10 on the beta is both on the loan.
Speaker Change: And deposit side I think you mentioned that you have some ability to continue to lower costs can you just be more specific around that in terms of how much I'm sorry, if I missed it in the slides what what's coming up for renewal this year, the CD percentage, it's around 10%.
Harold Carpenter: Can you just be more specific around that in terms of, you know, how much, I'm sorry if I missed it in the slides, you know, what's coming up for renewal this year, you know, the CD percentage is around, you know, 10%, you know, is there room for that to come down? It's just some greater color on kind of beta expectations as you move forward. I know it's hard with the four curve moving every day, but just any help would be would be great. Yeah, substantially all of our CD book is going to be 12 months or less.
Speaker Change: Look for that to come down just just some greater color on kind of bet expectations. As you move forward I know its hard with the fourth sharp moving everyday but just any help would be would be great. Thanks, yeah substantially all of our CD book is going to be 12 months or less and we've got some broker deposits are a little bit longer out there that we help manage and trade risk all but substantially all of it.
Harold Carpenter: And we've got some broker deposits that are a little bit longer out there that we help manage entry risk on but substantially all of it's going to be within 12 months. So We'll lean on that. But I've also got more than 50% of my other deposit categories are in index to the fed funds rate. So and right now we're very intentional about making sure we we go dollar for dollar with respect to a rate. And that's how we're going to do it, Michael. As we believe there's a rate cut coming, we're going to start softening the dirt with our relationship managers to make sure they understand that, you know, it's coming and we need to be prepared to lower these rates with our deposit.
Speaker Change: It's gonna be within 12 months so.
Speaker Change: We will lean on that but I'm also got more than 50% of my other deposit categories.
Speaker Change: And indexed to the fed funds rate so.
Speaker Change: And right now we're very intentional about making sure. We we go dollar for dollar with respect to a rate cut.
Speaker Change: And that's how we're going to do it Michael as we believe there is a rate cut coming we're going to start softening in the dirt with our relationship managers to make sure they understand that.
Speaker Change: Come in and we need to be prepared to lower those rates with our depositors.
Harold Carpenter: Okay, great.
Michael Rose: Okay, great maybe.
Michael Rose: Maybe just final one for me in the release, you know, you mentioned maybe pursuing other geographies for expansion. I know you successfully obviously gone to Atlanta, Jacksonville, the D.C. market, but it read that maybe that could be an option. Maybe I'm reading into it, but nearer term, but just give us any thoughts around, you know, I know you've talked about Florida before, just some other markets that, you know, would be of interest to you. And is that, you know, where you plan to be opportunistic at the you know, just markets you'd be interested in. Thanks.
Speaker Change: Maybe just final one for me in the release you mentioned, maybe pursuing other geographies for for expansion I know you've successfully obviously got to Atlanta Jacksonville The D C market.
Speaker Change: But it read that maybe that could be an option, maybe I'm reading into it but near term, but just give us any thoughts around I know you've talked about Florida before just just some other markets that would be of interest to you and as that.
Speaker Change: Where you plan to be opportunistic.
Speaker Change: Just just markets you'd be interested in thanks.
Terry Turner: Yeah, I think, um... Michael, you've heard this so many times. I think, you know, our target market is the Southeast. We want to be in all the large urban markets. The voids that exist today are primarily in Florida. We're in Jacksonville, but south of Jacksonville, we're not. And then as you head up the East Coast, there's some other markets that sort of would be attractive to us, albeit less attractive than some markets like Atlanta and D.C. and some that you mentioned there. Those would include places like Columbia, South Carolina, which is the capital of South Carolina.
Speaker Change: Yes, I think.
Speaker Change: Michael.
Speaker Change: Her desk. So many times I think our target market is in the southeast.
Speaker Change: We won't be in all of the large urban markets. The voids that exist today are primarily in Florida were in Jacksonville, but south of Jacksonville, where not.
Speaker Change: And then as you add up the east coast there are some other markets.
Speaker Change: Would be.
Speaker Change: Attracted to us, albeit less attractive than some markets like Atlanta, and DC and some that you mentioned there are those would include places like Columbia, South Carolina, which is the capital South Carolina, It's a little less loss.
Terry Turner: It's a little less large and a little less growthy than some, but it would be an attractive market. Richmond, Virginia, Tidewater area, Virginia, those are all places that we have opportunities. The catalyst for when we go is only when we have a team that we think can build us a large bank. We're not going somewhere because we studied census tracts or demographics or psychographics or any of that stuff. We simply go to those markets that you and I know are attractive when we have a group of people that we believe can build us a large bank.
Speaker Change: Large and a little less growth than some but it would be an attractive market.
Speaker Change: Richmond, Virginia.
Speaker Change: Tidewater area, Virginia. Those are all places that we have opportunities the catalyst for when we go is only when we have a team that we think can build us a large bank, we're not going somewhere it goes we studied census, drags or demographics or psychographics or any of that stuff. We simply go to those.
Markets that do not know where attractive.
Speaker Change: When we have a group of people that we believe can build this large bank and that means like.
Terry Turner: And that means they have the stature to hire a large number of people and hire across multiple disciplines and all those kinds of things. So if those people came available today, we would go. If they come available in six months, we'll go then. Two years, we'll go then. If they never come available, that's okay. We intend to produce outsized growth in our existing footprint. So the opportunity is really when the talent becomes available. We appreciate it, guys.
Speaker Change: Had the stature to hire a large number of people and hire across multiple disciplines and all those kinds of things so.
Speaker Change: Those people came available today, we would go if they become available in six months will go then two years will go then if they never come available. That's okay. We intend to produce outsized growth in our existing foot brands. So.
Speaker Change: The opportunity is really when the talent becomes available.
Speaker Change: Appreciate it guys. Thanks for taking my questions.
Casey Haire: Thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Casey Haire from Autonomous your line is live.
Casey Haire: Your next question is coming from Casey Haire from Autonomous. Your line is live. Great. Thanks. Good morning, guys. follow up on that on the NAM.
Casey Haire: Great. Thanks, Good morning, guys.
Speaker Change: Okay.
Follow up on that on the NIM.
Casey Haire: So loan yields just wondering, I know you guys have some Fed cuts that you're expecting, but you know, X those have loan yields bottomed at this call it low six level, given the fixed rate repricing opportunities and you know, new money yields coming on the Yeah, well, if we, our forecast would say that over the next two quarters, we'll get another, we'll get some more rate cuts. So I don't think loan rates have bottomed. Hopefully, hopefully the yield curve will shape up for us that the fixed rate repricing will create the punch that we want.
Speaker Change: So loan yields just wondering I know you guys have some fed cuts that you are expecting but.
Speaker Change: Those have loan yields bottomed at this call it low six level given the fixed rate.
Speaker Change: Pricing opportunities and new money yields coming on in the high sixes.
Speaker Change: Yeah, well, if we our forecast would say that over the next two quarters, we'll get another we'll get some more rate cuts so.
Speaker Change: I don't think long rates have bottomed.
Speaker Change: Hopefully open of the yield curve will shape up for us that the fixed rate repricing will create the punch that we want.
Harold Carpenter: You know, with respect to the yield curve. So I got a feeling we'll probably see, see loan yields track down once we see rate cuts and right now the first one we've got projected is in June. Right. Yeah. Okay. I mean, I was I was thinking more along the lines of X cuts, like, the June cut probably won't factor much into the second quarter. But okay, understood. Oh, I thought you were talking about all in year. Casey, I apologize. We don't think long rates are going to... Second quarter, it's not going to move much.
Speaker Change: With respect to the yield curve so.
Speaker Change: I got a feeling we will probably see see loan yields.
Speaker Change: Track down once we see.
Speaker Change: <unk> cuts and right now the first one we've got projected is in June.
Speaker Change: Right Okay.
Speaker Change: I was thinking more along the lines of ex cats like the <unk>.
Speaker Change: <unk> got probably one factor much into end of the second quarter, but.
Speaker Change: Okay understood Oh, I thought you were talking about one year Casey I apologize, we don't think rates are going to.
Speaker Change: Second quarter is not going to move much.
Speaker Change: Okay.
Harold Carpenter: And then on the expense side, I think... So you're the, you guys are doing it. You're hiring at a pretty fast clip here. right on pace with last year, which was a record year. you know, how is that pipeline shaping up for the balance of the year? And does this expense guide support that level of I think the pipeline is shaping up well. Our guidance going into the year was that we would hire a similar number of people in 2025 as we did in 2024. That's still the best estimate that I have. I believe that we have hired a number like 13 thus far in the second quarter.
Speaker Change: And then on the on the expense.
Speaker Change: Side of things so you're.
Speaker Change: You guys are doing it.
Speaker Change: Youre hiring at a pretty fast clip here.
Speaker Change: Right on pace with last year, which was a record year.
Speaker Change: How is that pipeline shaping up for the balance of the year and does this expense guidance support that level of hiring.
I think the pipeline is shaping up well our guidance going into the year was that we would hire a similar number of people in 2025 as we did in 2024, that's still the best estimate that I have.
Speaker Change: I believe that we have.
Speaker Change: Hired a number like 13, thus far in the second quarter. So.
Harold Carpenter: So, you know, we'll continue to move forward just as we have said we would. And the expense guide does contemplate the hiring. Okay, great.
Speaker Change: We will continue to move forward just as we have.
Speaker Change: <unk> said, we would in the expense guide does contemplate the hiring.
Speaker Change: Okay, Great and just lastly on the capital front.
Harold Carpenter: And just just lastly, on the capital front, the CT1 ratio, assume that would bleed a little bit lower, given the growth outlook that you have. Just how, you know, how comfortable, where would you no longer feel comfortable? What's what's like a floor for the CT1? Yeah, we've never really put a floor out there in the markets. It did bleed down 10 basis points this quarter. We're, we're not, I'm not particularly pleased with that. I think we can engineer some things to kind of create more stability in that number so that we don't see it go down.
Speaker Change: <unk> ratio assume that would bleed a little bit lower given the growth outlook that you have.
How how comfortable.
Speaker Change: Where would you no longer feel comfortable whats.
Speaker Change: What's like a floor for the CET one.
Speaker Change: Yeah, we've never really put a floor out there in the market.
Speaker Change: It did bleed down.
Speaker Change: 10 basis points this quarter.
Speaker Change: Where we're not.
Speaker Change: Not particularly pleased with that I think we can engineer some things to kind of create.
Speaker Change: More stability in that number so that we don't see it go down typically.
Harold Carpenter: Typically, the way our growth works here this year is about, call it $900 million in loan growth, maybe a little bit north of that, should keep our risk-based capital ratios pretty flat.
Speaker Change: The way our growth works here. This year is about call it $900 million in loan growth may be a little bit north of that should keep our risk based capital ratios pretty flat.
Harold Carpenter: Thank you.
Speaker Change: Yes, so thank you.
Harold Carpenter: That's kind of the marker we're using. Thank you.
Speaker Change: Since kind of the marker we're using.
Speaker Change: Thank you. Your next question is coming from Steve Scouten from Piper Sandler Your line is live.
Steve Scouten: Your next question is coming from Steve Scouten from Piper Sandler. Your line is live. Yeah, good morning. Thanks, guys. So thinking about kind of deposit growth a little bit, I think, you know, to me, you guys have always grown loans fantastically, but the strength of deposit growth has really been the welcome part of the story that's been so exemplary. The 7 to 10% deposit growth I mean, I guess, is more of that weighted towards the newer markets is maybe the first part of that. And secondarily, the strength on the beta is on the way down that you've had on deposits relative to loans.
Steve Scouten: Yeah. Good morning, Thanks, guys.
Steve Scouten: So thinking about kind of deposit growth a little bit I think to me you guys have always grown loans fantastically, but the strength of the deposit growth has really been the.
Steve Scouten: Welcome part of the story, that's been so exemplary the 7% to 10% deposit growth.
Steve Scouten: I mean, I guess, it's more of that weighted towards the newer markets with maybe the first part of that and secondarily the strength on the betas on the way down that you've had on deposits relative to loans do you think thats sustainable or could we have a little bit of a catch up there just as as we move further down this path.
Harold Carpenter: Do you think that's sustainable or could we have a little bit of a catch up there just as we move further down this path? Well, as far as the loan beta is concerned, I'm sure there's probably some acceleration. that could occur with steeper rate cuts. But as we see it here over this year, we don't think that's really in the cards. We like the way our pricing metrics are working currently on the left side of the balance sheet. We fully intend on the right side of the balance sheet to be as aggressive on deposit cuts here over the next two cuts as we have been.
Steve Scouten: Well as far as the loan beta is concerned I'm sure there's probably some acceleration.
Steve Scouten: That could occur with steeper rate cuts.
Steve Scouten: But as we see it here over this year, we don't think Thats really in the cards.
Steve Scouten: We like the way our pricing metrics are working currently on the left side of the balance sheet.
Steve Scouten: We fully intend on the right side of the balance sheet to be as aggressive on deposit cuts here over the next two cuts as as we have been.
Harold Carpenter: Your point is a good one. Eventually, with deposit rates, if they get, if we get too many rate cuts, or more, you know, say, if we get down into the 150 to 200 rate cuts into the 2% Fed funds rate, then it becomes more difficult to get those rate cuts to pair, you know, to get a higher beta on that deposit. But again, just just a few years ago, we were dealing with 25 basis points in Fed funds, and we were running close to a call it a 320 margin after you factored out a lot of the liquidity that was on the balance sheet.
Steve Scouten: Your point is a good one eventually.
Steve Scouten: With deposit rates, if they get if we get too many rate cuts are more saying, if we get down into the 150 to 200 rate cuts into the 2% fed funds rate then it becomes more difficult.
Steve Scouten: To get those rate cuts to pair.
Steve Scouten: A higher beta on that deposit book.
Steve Scouten: But again.
Steve Scouten: Just a few years ago, we were dealing with 25 basis points in fed funds and we were running close to a call. It a $3 20 margin. After you factor out a lot of the liquidity that was on the balance sheet. So.
Harold Carpenter: So We're not afraid of... Steeper, deeper rate cuts, what we don't want to see is that inverted curve again.
Steve Scouten: We're not afraid of.
Steve Scouten: Steeper deeper rate cuts.
Steve Scouten: Don't want to see is that inverted curve again.
Harold Carpenter: Steve, I think on the question about is the growth skewed toward new markets and so forth, I think that's a variable. We have some markets that have done extremely well. I think Washington, D.C. is a great example, north of 2 billion in deposits in a pretty short period of time, so that's a great success story, but we have other markets that the loan growth would be a net user of funds as opposed to a net provider of funds, so it's a little mixed in terms of how those things play out. The big item that has goosed the growth rates on deposits is all the specialty verticals that we built.
Steve Scouten: So you've got to think on the.
Steve Scouten: Question about is it skewed toward the ground skewed toward new markets and so forth.
Steve Scouten: I think that's a variable we have some markets that have done extremely well I think Washington D. C is a great example, north of 2 billion in deposits in a pretty short period of time. So that's a great success story, but we have other markets that.
The loan growth would be a net user of bonds as opposed to a net provider of funds. So it's a little mixed in terms of how those things play out the big.
Steve Scouten: Big item.
Steve Scouten: As good as the growth rates on deposits is all the specialty verticals that we bill I think we've mentioned those a number of times things that had to do with escrow accounting or.
Terry Turner: I think we've mentioned those a number of times, things that have to do with escrow accounting or captive insurance companies or health and benefits, different things like that. We built eight or so specializations, and so they have provided a good part of the growth, and we expect that to be the case for the foreseeable future. Got it. Fantastic color there.
Steve Scouten: Captive insurance companies or.
Steve Scouten: Health and benefits different things.
Steve Scouten: Like that we built eight or so specializations and so they have really provided.
Steve Scouten: A good part of the growth and we expect that to be the case for the foreseeable future.
Steve Scouten: Got it fantastic color there and then you guys have always been just fantastic C&I loan growth has really been the focused apart from M&A has added since CRE in there but.
Steve Scouten: And then you guys have always been just fantastic C&I loan growers. It's really been the focus, apart from M&A, it's added some CRE in there. But, you know, with all these concerns around tariffs and the economy and uncertainty, and I know you mentioned, Harold, I think, you know, kind of trucking, leverage lending and so forth. How do you think about C&I lending today as people start to get more concerned? Do you do you start? take part in this event. Fluent Lending, or anything you guys can get from what you guys are seeing on the ground.
Steve Scouten: With all these concerns around tariffs and the economy and uncertainty and I know you mentioned, Harold I think kind of trucking leveraged lending and so forth.
Steve Scouten: How do you think about C&I lending today as people start to get more concerned do you start.
Steve Scouten: To take up in any way or do you increase reserves around small.
Steve Scouten: So fluent Linda here.
Steve Scouten: You can get from what you guys are seeing on <unk>.
Steve Scouten: Alright.
Steve Scouten: Steve, you kind of broke up there at the end. Just kind of what you're seeing on the ground as it pertains. Steve, I'm not sure if that's you or us, but we're not able to hear your question.
Steve Scouten: Steve you kind of broke up there.
Speaker Change: So what youre seeing on the ground as it pertains.
Steve Scouten: Hello.
Steve Scouten: Okay.
Steve Scouten: Okay.
Speaker Change: Steve I'm not sure if thats your us, but we're not able to hear your question.
Steve Scouten: Joe, your line is coming through.
Speaker Change: Joe Your line is coming through clearly.
Steve Scouten: Steve, once again, please restate your question. Thank you.
Speaker Change: Steve Once again, please restate your question.
Speaker Change: Thank you. Your next question is coming from Brett rather 10 from Hovde Group. Your line is live.
Brett Rabatin: Your next question is coming from Brett Rabatin from Hobed Group. Your line is live. Hey, guys. Good morning. Hey, Brad. Brad, how are you doing? Good.
Brett: Hey, guys good morning.
Speaker Change: Hey, Brian.
Harold Carpenter: Wanted to ask, you know, if you look at slide 44 with BHG, the thing that stood out to me is just that, you know, the 30-day past-due trend is really good on the consumer side. And just wanted to see, I mean, everyone's waiting for the consumer to break. Just wanted to see if that was a function of what you guys consider to be, you know, underwriting standards, or if there's anything else that's underlying that positive trend for the consumer past-due trends for BHG. Yeah, I think BHG's got, you know, they're obviously watching, you know, where credit trends are headed.
Speaker Change: Good I wanted to ask if you.
Speaker Change: Look at slide 44, with BHG the thing that stood out to me is just that.
Speaker Change: 30 day past due trends is is a really good on the consumer side.
Speaker Change: And just wanted to see I mean everyone's waiting for the consumer to break just wanted to see if that was a function of.
Speaker Change: What you guys consider to be.
Speaker Change: Underwriting standards or if there's anything else that's underlying that.
Speaker Change: The positive trend for the consumer path to transfer BHG.
Speaker Change: Yes, I think <unk>.
Speaker Change: She's got there obviously.
Speaker Change: Watching.
Speaker Change: Where credit trends are headed right now.
Harold Carpenter: Right now, in comparison to the prior two years, they feel pretty excited that they don't see nearly the kind of the weakness in their borrower base that they saw two or three years ago. The new accounts that are coming on they believe are significantly stronger than what they what they've experienced even pre COVID. So Like I said, they're pretty excited about where it's going, but they're going to keep a keen eye on, particularly around, call it near-term defaults, like people that maybe borrow money and six months later they're past due. So they're going to keep an eye on those kind of credits, which became pretty evident, call it, in the 21 and 22 vintages.
Speaker Change: <unk> from the prior two years I feel pretty excited that they don't see nearly the.
Speaker Change: Kind of the weakness and their borrower base that they saw two or three years ago. The new accounts that are coming on they belabor significantly stronger.
Speaker Change: Then what they what they have experienced even pre COVID-19.
Speaker Change: No.
Speaker Change: Like I said, they are pretty excited about where it's going but theyre going to keep it they're going to keep them.
Speaker Change: Keener on.
Speaker Change: Particularly around call it near near term defaults like people that.
Speaker Change: Maybe borrowed money in six months later their past due so they're going to they're going to keep an eye on those kind of those kind of credits.
Speaker Change: Which became pretty evident colored in the 'twenty, one and 'twenty two vintages.
Brett Rabatin: Okay.
Speaker Change: Okay.
Terry Turner: And I'm kind of surprised no one's asked a question about a pivot. You know, Terry, you always say you grow through recessions. But in the press release, you talk about being nimble. You know, assuming we did tilt into a recession, what does nimble mean for Pinnacle in terms of how you guys are operating and what strategies you guys might do with the balance sheet or expansion? Yeah, I think, Brad, honestly, the You know this as well as I do, man. It's a headline a day. It's up for half a day, down for half a day.
Speaker Change: And I'm kind of surprised no one's asked the question about a pivot.
Speaker Change: Terry you always always say you.
Speaker Change: Growth or recession, but in the press release, you talk about being nimble.
Speaker Change: We did tilt into recession, what what is nimble mean for for Pinnacle in terms of how they are how you guys are operating and what strategies you guys might do with the balance sheet or expansion.
Speaker Change: Yes, I think.
Speaker Change: Brad honestly the.
Speaker Change: You know this as well.
Speaker Change: It's a headline a day, it's up for half the 90 down for half a day of maintenance moving and a lot of different directions and so our approach is just to stay close drive listen our clients know, what's going on with them and be responsive to that.
Terry Turner: I mean, it's moving in a lot of different directions. And so our approach is just to stay close, try to listen to our clients, know what's going on with them, and be responsive to that. I wouldn't want to imply that we've developed a lot of contingency plans where we're gonna alter our strategy dramatically or those kinds of things. I think you've watched this over the years. We have tapped the brakes a time or two on hiring. We've never stopped it for sure, but we have tapped the brakes and slowed the growth, which I think we did two or three years ago.
Speaker Change: I wouldn't want to imply that we have developed a lot of contingency plans, where we're going to alter our strategy dramatically or those kinds of things I think you've watched us over the years we have.
Speaker Change: Tap the brakes, a time or two on hiring we've never stopped it for sure, but we have to tap the brakes and slowed the growth, which I think we did two or three years ago.
Terry Turner: Obviously, the incentive is the big lever that provides the cushion if revenues don't show up and so forth. Obviously, the revenues and earnings have to show up to pay the incentive. So that always is a big cushion for us. In all honesty, Harold mentioned we're studying loan portfolios, trying to make sure we're up to speed on how they're being impacted by tariffs and those kinds of things. But at this point, I would not want to indicate that we started developing contingency plans.
Speaker Change: Obviously, the incentive is the big lever that.
Speaker Change: <unk> provides the.
Speaker Change: Cushion if revenues don't show up in.
Speaker Change: And so forth, obviously, the revenues and earnings that show up to buy them and so that always has a big cushion for us but in all honesty. Harrow mentioned, we're studying loan portfolio was trying to make sure web speed on how they're being impacted by tariffs and those kinds of things, but at this point I would not want.
Speaker Change: Indicate that we started developing contingency plans.
Terry Turner: Okay, and then if I can do one last quick one, you know, I was a little surprised you guys started out the year at 100% incentive payout ratio that you just mentioned, Terry, just given the uncertainty, just wanted to maybe hear if that was a function of anything in particular. Uh, Brett, no, not really, um... We think we're pretty much on plan as of the end of the quarter, so hopefully we can continue that going through the rest of the year and be able to deliver it, but obviously there's a lot of uncertainties right now that hopefully will play out with some degree of clarity in the second quarter.
Speaker Change: Okay.
Speaker Change: And then if I can.
Speaker Change: Do one last quick one I was little surprised you guys started out the year at 100% incentive payout ratio that you just mentioned Terri just given the uncertainty.
Speaker Change: Just wanted to maybe hear if that was a function of anything in particular.
Speaker Change: No not really.
Speaker Change: We think we're pretty much on plan as of the end of the quarter.
Speaker Change: So hopefully we can continue that going through the rest of the year and be able to deliver it but obviously theres a lot of uncertainties right now of them hopefully will play out with some degree of clarity in the second quarter.
Brett Rabatin: Okay, great, appreciate all the color guys. All right, thanks, Brad. Thank you.
Speaker Change: Okay, Great appreciate all the color guys.
Brian: Alright, Thanks, Brian.
Speaker Change: Thank you. Your next question is coming from Anthony Elian from J P. Morgan Your line is live.
Anthony Elian: Your next question is coming from Anthony Elian from J.P. Morgan. Your line is locked.
Harold Carpenter: Hi, everyone. Just to follow up to the previous question on the loan portfolios you're watching, Harold, could you size up for us the trucking portfolio in terms of outstanding balances, just given that may be the most stressed right now? Yeah, I'll throw a number at you, Tony. And if it's not right, I'll, I'll give you a buzz back. But I think it's about, I think transportation is about $700 million. So that would include more than just truckers, but I think it's about 700 million. Okay. Okay, got it.
Anthony Elian: Hi, everyone just a follow up to the previous question on the loan portfolios you're watching.
Anthony Elian: Can you size up for us the trucking portfolio in terms of outstanding balances just given that maybe the most stressed right now.
Anthony Elian: Yes, I'll throw a number at you Tony and if it's not right. All I'll give you a buzz back, but I think it's about.
Anthony Elian: Think transportation is about $700 million.
Anthony Elian: So that would include more than just truckers, but I think it's about $700 million.
Anthony Elian: Okay.
Speaker Change: Okay got it and then my follow up just one on loan growth So outstanding quarter again in the first quarter for loan growth, but that was before the terrorists were fully announced I know you still expect a strong second quarter for loan growth, but can you just dive a bit deeper anecdotally on what you've heard over the past two weeks from your customers in.
Terry Turner: And then my follow-up, just one on loan growth. So outstanding quarter again in the first quarter for loan growth, but that was before the tariffs were fully announced. I know you still expect a strong second quarter for loan growth, but can you just dive a bit deeper anecdotally on what you've heard over the past two weeks from your customers in terms of CapEx, other investments they may be thinking about in their pipeline, and if they're making any adjustments now given the elevated uncertainty around tariffs? Thank you. Yeah, Tony, my sense of it is that, you know, economic loan demand would be near zero.
Speaker Change: Terms of Capex other investments they may be thinking about in their pipeline and if theyre, making any adjustments now given the elevated uncertainty around tariffs. Thank you.
Speaker Change: Yes.
Tony Elian: Tony My sense of it is that you know economic loan demand would be near zero.
Terry Turner: Today, I think, you know, everybody would put the clutch in and say, boy, I just need to see more variables. I don't think you're gonna see people wait out and do a lot of deferred capital expenditures. And I don't think anybody believes that, you know, you're gonna get the growth in working assets here that requires a lot of financing either. And so, again, I think it's everybody's just watching to see how it plays through. So, again, if I were dependent in any way on what the economic loan demand is to produce the 8 to 11% loan growth, I'd be really nervous.
Speaker Change: Today I think.
Speaker Change: Everybody would put the Claude Gn and say boy I, just need to see more variables I don't think you're going to see people wait out and do a lot of FERC capital expenditures and I don't think anybody believes that.
Speaker Change: Youre going to get the.
Speaker Change: Growth in work in assets here that requires a lot of financing either and so.
Speaker Change: Again, I think it's everybody's just watching to see how it plays through.
Speaker Change: So.
Speaker Change: Again, if I were.
Speaker Change: Dependent in any way on what the economic loan demand is to produce the 8% to 11% loan growth I'd be really nervous I'd, probably be taking that down but really that's the reason we.
Terry Turner: I'd probably be taking that down. But really, that's the reason we spent so much time just talking about, look, we get growth from our new hires and our new hires are getting it because they're consolidating their balances. It's not really dependent upon new loans as much as it is just moving pre-existing loans from where they were to us. And so, anyway, I think most people are viewing this to be a time of extreme uncertainty. I had a person tell me yesterday he never remembers a time with more uncertainty in it. And so, anyway, I think that's going to be the order of the day until we can find a landing spot on tariff.
Speaker Change: Spent so much time, just talking about we get growth from our new hires and our new hires are getting it because they are consolidating their balances is not really dependent upon new loans as much as it is just moving pre existing loans from where they were to us.
Speaker Change: So anyway I think.
Speaker Change: Most people are.
Speaker Change: Viewing this to be a time of extreme uncertainty.
Speaker Change: Person to him yesterday, he never remembers a time with more uncertainty in it.
Speaker Change: So anyway, I think that's going to be in the order of the day until we can find a landing spot on tariffs.
Terry Turner: Right, Terry.
Terry Turner: And just to follow up to that, so do you feel like your footprint across the Southeast, which is one of the fastest growing markets in the country, gives you more insulation relative to other parts of the country in terms of eventually seeing economic loan demand come back and what that could mean for your overall loan growth outlook, potentially above the guidance that you have? Yeah, I do believe that if you could get certainty, I mean, you know, I do think there is an expectation that you're going to reshore, you're going to have increased manufacturing and so forth.
Speaker Change: Right, Terry and just a follow up to that do you feel like your footprint across the southeast which is one of the fastest growing markets in the country gives.
Speaker Change: It gives you more insulation relative to other parts of the country in terms of eventually seeing economic loan demand come back and what that could mean for your overall loan growth outlook potentially above the guidance that you have.
Speaker Change: Yes, I do believe that if you could get certainty I mean.
Speaker Change: Do think there is an expectation that youre going ratio or youre going to have an increased manufacturing and so forth. The question is when is that going to get here, but I do believe whenever each of the our footprint is extraordinarily advantaged we have been.
Terry Turner: The question is, when's that going to get here? But I do believe whenever it shows up, our footprint is extraordinarily advantaged. We have been a major in-migrator of jobs all over the Southeast and would have an expectation that, you know, that phenomenon is going to continue almost irrespective of total growth. We still have folks that are in the pipeline to relocate businesses to the Southeast and in these urban markets and so forth. So anyway, yeah, I'm When we get beyond uncertainty, my expectation is that we're going to get outside job growth here, which will translate into increased financing opportunities.
Speaker Change: A major in my greater of jobs, all over the southeast and would have an expectation that.
Speaker Change: That phenomenon is going continue almost irrespective of.
Speaker Change: Total growth we still have.
Speaker Change: Folks that are in the pipeline.
Speaker Change: Relocate businesses to the southeast in these urban markets and so forth so anyway, yes.
Speaker Change: Okay.
Speaker Change: When we get beyond the uncertainty.
Speaker Change: The agent is that.
Speaker Change: We're going to get outsized job growth there with jewel.
Speaker Change: Translate into increased financing opportunities.
Anthony Elian: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is coming from Brian Martin from Janney. Your line is live.
Brian Martin: Your next question is coming from Brian Martin from Janney. Your line is... Hey, good morning, guys. Hey, Brian.
Brian Martin: Hey, good morning, guys.
Speaker Change: Hey, Brian.
Brian Martin: Hey, Terry, just wondering if your sense today, given the hiring appears on track, that if going to a new market appears more likely, you know, given kind of the pipelines you have in terms of recruiting, or is that, again, is that similar to the other question earlier, maybe reading more into it? It just feels like mentioning it suggests that maybe it's getting more likely that some of these other markets are gaining traction in terms of hiring. Yeah, let me just sort of see if I can clear that up. I wanted to put that in there because what is so important to me, as you can tell from our comments, what I need people to understand is, look, we're operating a model that we've been operating for 25 years, which is when we have opportunities to hire good people, we hire them.
Speaker Change: Terry just wondering if you or your sense today, given hirings appears on track that if going to a new market appears more likely given kind of the pipelines you have in terms of recruiting or is that.
Speaker Change: Again is that some of the other question earlier, maybe reading more into it just feels like mentioning it suggests that maybe it's getting more likely it's in these other markets are gaining traction in terms of hiring.
Speaker Change: Yes, let me just sort of say if I can clear that up.
Speaker Change: I wanted to put that in there because what what is so important to me as you can tell from our comments.
Speaker Change: I need people to understand is we're operating a model that we've been operating for 25 years, which is when we have opportunities to hire good people, we hire them and you ought to have an expectation that we're going to do that and.
Terry Turner: And you ought to have an expectation that we're going to do that. And that's what's going to produce the growth. It is the reason that we can produce both reliable, rapid and quality growth is that that specific model. And so I think there's likelihood. But if you my sentiment about is it more likely today than it was when we started the year? Or is it less likely today than when we started the year? I would say neither. It just sort of feels the same to me. But the, you know, may have made a mistake by calling it out.
Speaker Change: And that's what's going to produce.
Speaker Change: Growth. It is the reason that we can produce both reliable rapid and quality growth is that.
Speaker Change: Civic model, and so I think theres likelihood, but if you.
Speaker Change: Sentiment about is it more likely today than it was when we started the year or is it less likely today than when we started the year I would say either just sort of feels the same to me but.
Terry Turner: But I just I didn't want to sneak up on somebody. We're going to keep hiring people a lot of, you know, a lot of my peers are trying to cut staffs and cut expenses and so forth. And so I just want to be clear, that's not what we're doing. And so that was the point for putting it in there. But it would not want it to indicate that it's more likely or less likely than it was when we started the year.
Speaker Change: Made a mistake by calling it out but I just I didn't want to sneak up on somebody were going to keep hiring people a lot of you know a lot of my peers are trying to cut.
Speaker Change: Staffs and cut expenses and so forth and so I just want to be clear that's not what we're doing.
Speaker Change: So that was the point for putting it in there, but I would not want it to indicate that it's more likely or less likely than it was when we started the year.
Brian Martin: No, thanks for clearing that up, Terry. I understand. And it's been your strategy all along to look at new markets. So, totally understand that.
Speaker Change: Thanks for clearing that up Terry I understand that it's been been your strategy all along to look at new market, so totally understand that.
Harold Carpenter: Just one other question, two other questions, just in terms of loan growth, Harold, I think you said construction had opened up a little bit, just in terms of, you know, the growth, you know, the C&I growth, you put the slide there on has been strong. Would you expect these other buckets to continue or begin to start growing again, contributing to kind of your loan growth outlook for the year, meaning the, you know, the multifamily, the non-owner occupied in the construction? Should we expect to see some growth there in the coming quarter? Yeah, I think, and I'll let Terry correct me if I'm wrong here, but we don't think we'll see meaningful lift from construction volumes probably until the first part of next year.
Speaker Change: Just one other question just in terms of loan growth Harold I think he said.
Speaker Change: Construction had opened up a little bit just in terms of the growth you see.
Speaker Change: C&I growth you put the slide in Iran has been strong would you expect these other buckets to continue begin to start growing again contributing to kind of your loan growth outlook for the year, meaning that the multifamily the non owner occupied and the construction should we expect to see some growth there in the coming quarters.
Terry Turner: Yeah, I think and I'll, let Terry.
Terry Turner: Correct me, if I'm wrong here, but we don't think we will see meaningful lift from construction volume is probably until the first part of next year.
Harold Carpenter: As you know, the projects take about six months to start funding, and we're just now beginning to open that back up, so it'll take a little bit before we see volumes from new projects begin to impact our numbers, and until then, we will see current projects continue to fund up. Like I said, we've had a lot of conversations with relationship managers, and particularly in construction. They feel pretty good that our construction borrowers that they've already had, they've got the materials in place to go ahead and do those projects and complete those projects, and don't really, we're not really as concerned about what, you know, may be happening with steel or concrete or other raw materials to kind of complete some of these projects.
Terry Turner: As you know the.
Terry Turner: The projects take about six months to start funding.
Terry Turner: And we're just now beginning to open that back up so it'll take a little bit before we see volumes from new projects begin to impact our numbers and until then we will see current projects continue to fund up.
Terry Turner: Like I said, we've had a lot of conversations with relationship managers and particularly in construction they feel I feel pretty good that our construction borrowers that they've already had they've got the materials in place.
Terry Turner: To go ahead, and do those projects and complete those projects and don't really we're not really as concerned about what might.
Terry Turner: It might be happening with steel or concrete or other raw materials to kind of complete some of these projects. So.
Harold Carpenter: So hopefully that'll pan out like we think it will. Brian, I think when Harold mentioned CRE opening up, I think the point he was trying to make is, you know, we've been really trying to reduce our concentration in CRE, both construction and the total CRE bucket. And so we are inside the target for construction, and we're close on the target for total CRE. The glide path will take us below those targets before they begin to fund up. And so I think to Harold's point, it's probably late this year before that thing begins to bend north because of the length of time it takes for a project to launch and get through, burn through the equity to get into the bank financing.
Terry Turner: So hopefully that will pan out like we think it will right I think.
Terry Turner: When apparel mentioned CRE opening up I think the.
He was trying to make as you know we've been.
Terry Turner: Really trying to reduce our concentration in CRE, both construction and then the total CRE bucket.
Terry Turner: And so we are inside the target full construction.
And.
Terry Turner: We're close on the target for total CRE that glide path will take us below those targets before they begin to fund up.
Terry Turner: And.
Terry Turner: So I think to Harold's point is probably late this year before that thing begins to been north.
Terry Turner: Because of the length of time it takes for a project to launch and get the burnt through the equity to get into the bank financing. So.
Harold Carpenter: So anyway, hopefully that's how it works. Yeah, no, perfect.
Terry Turner: Hopefully that's helpful.
Terry Turner: Yes, no perfect and last one.
Harold Carpenter: And last one, just modeling, Harold, in terms of the tax rate, how should we think about the tax rate here in the coming quarter? Yeah, I think the rate in the first quarter is going to be indicative of what we think for the rest of the year. I don't see any significant increases in the tax rate. From here on out. I think we're, I think we're pretty, I think we're pretty good. Okay, you know, I might put 100 basis points in there just to keep it, you know, conservative. Okay, so around 18% or so seems fair.
Terry Turner: Just modeling Harold in terms of the tax rate.
Terry Turner: Can we think about the tax rate here in the coming quarters.
Terry Turner: Yes, I think the right in the first quarter is going to be indicative of what we think for the rest of the year.
Terry Turner: Not see any significant increases in the tax rate.
Terry Turner: From here on out.
Terry Turner: I think we're I think we're pretty I think we're pretty good.
Terry Turner: Okay.
Terry Turner: I might put a 100 basis points in there just to keep it conservative.
Terry Turner: Okay, so around 18% or so it seems fair so okay I appreciate it thanks guys.
Harold Carpenter: So okay. I appreciate it. Thanks, guys. Thank you, Brian. Thank you.
Brian Martin: Hey, Brian.
Speaker Change: Thank you that completes our Q&A session everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.
Matthew Olney: That completes our Q&A session. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Brian Martin: Yes.