Pinnacle Financial Partners Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 18, 2023

There are 13 speakers on the call.

Operator

Good morning, everyone, and welcome to the Pinnacle Financial Partners Third Quarter 2023 Earnings Conference Call. Partners is Mr. Terry Turner, Chief Executive Officer and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their website at www.pnfp.

Operator

Dotcom. Today's call is being recorded and will be available for replay on Pinnacle's website for the next 90 days. Financial. Financial. During this presentation, we may make comments which constitute forward looking statements.

Operator

All forward looking statements are subject to risks, uncertainties and other factors 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 ability to control or predict, and listeners are cautioned not to put undue reliance on such forward looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's Annual Report on Form 10 ks for the year ended December 31, 2022, and it subsequently filed quarterly reports. Pinnacle Financial disclaims any obligation to update or revise any forward looking statements contained in this presentation whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non GAAP financial measures as defined by SEC Regulation G, a presentation of the most directly comparable GAAP financial measures and a reconciliation of non GAAP measures at the comparable non GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com.

Operator

With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.

Speaker 1

Thank you, Paul, and thank you for joining us here this morning. Most of you have endured these calls Warren, so you know, we're going to begin every one of these calls with the shareholder value dashboard because these metrics are our North Star. There are a lot of interesting things that can be talked about, but ultimately, we're here to produce shareholder value and this is how we think you do that. And of course, I always hustle to these non GAAP measures because this is how I really manage the business. At a glance, you can We continue to grow revenue and EPS more rapidly and reliably than peers, that we continue to grow our balance sheet volumes more rapidly and reliably than peers, and that we relentlessly focus on tangible book value.

Speaker 1

Also, our asset quality continues to be strong with You can see that they jumped up just a little bit this quarter because of a large much publicized syndication we were in. But generally, our non Number 2 among peers. So from 30,000 feet, it's my opinion that we continue to deliver on all the key drivers of real long term shareholder value creation. So with that, Harold, let's take a more in-depth look at the quarter.

Speaker 2

Thanks, Jerry. Good morning, everybody. We will again start with deposits reporting linked quarter annualized average growth of almost 19% in the 3rd quarter was again a real positive for us. Financial. The 3rd quarter was yet another indication that obtaining deposits in an environment where competitors can be unpredictable is very much doable for this franchise.

Speaker 2

Earnings conference call. Early in the Q3, competitive rate pressures remained fairly intense. As we approached the middle part of the quarter, it appeared that rate pressures did subside somewhat. Mix shift of non interest bearing to interest bearing slowed during the Q3 as we were down $112,000,000 much less than the prior quarters of this year. Financial.

Speaker 2

All in deposit costs increased to 2.92%. I'd like to point out that we ended the quarter with a spot rate at quarter end of 2.97%, is only 5 basis points higher than the average for the quarter. That is the smallest difference we've seen between the average rate and the quarter and have some much more modest increase in deposit rates in the near term and our Q4. We also believe we will continue to be disciplined as to the relationship between pricing and growth of our deposit book. We believe we are leaning heavily on the rate component for our growth.

Speaker 2

As many of you know, our goal is to be the best organic deposit grower and we build these Financial. The 3rd quarter was another strong loan growth quarter for us as we were reporting 8 points for maintaining our EOP loan and Company. For 2023, we are exhibiting much more discipline on fixed rate loan pricing, which ended the quarter with average fixed Financial. Great loan yields on new origination of Blumming and variable rate loans continues to be strong. We are pleased with yields on our originations and As the top chart reflects, our NIM decreased 14 basis points, which is more than we anticipated at the start of the quarter.

Speaker 2

What we did anticipate was an increase in average cash as we had more cash on our balance sheet spillover at the end of the second quarter into the third quarter. So we're believing that liquidity will be less impactful on our margins in the Q4. That said, with a backdrop of slowing deposit pricing Financial. And with fixed rate loan repricing at better spreads, we're growing more confident that our NIM has found a bottom or we at least are fairly close. We're anticipating our 4th quarter NIM to approximate our 3rd quarter NIM or perhaps be slightly down.

Speaker 2

Obviously, should Financial. Deposit pricing heat up in conjunction with competitors just becoming more aggressive. We might need to revisit that assertion, but as we sit here today, Financial Results. Our rate forecast, we believe, is consistent with most rate forecasts out there. Our planning assumption is that we're not going to see another Fed rate Financial.

Speaker 2

The increase in future Feb rate decreases are not expected until the second half of next year. Carl is a believer in the higher for longer rate environment. Financial Partners. With that, we don't believe a near term Fed rate increase will be that impactful to us either in the Q4 or as we enter 2024. As you know, the macro environment is volatile and very unpredictable right now.

Speaker 2

And given that, we will have a continued bias towards elevated interest rate risk management, Financial. As for credit, we're again presenting our traditional credit metrics. Pinnacle's loan portfolio continued to perform well in the Q3. Our belief is that credit should remain consistent Financial. Our credit officers continue their routine periodic credit reviews on the portfolio and bring resources to bear for borrowers exhibiting potential signs of weakness.

Speaker 2

The CRE appetite chart on the bottom right is largely unchanged from the prior quarter, but does reflect perhaps a slightly more conservative appetite for multifamily and industrial from what we have shown over the last few quarters. Charge offs did increase to 23 basis points during the quarter. During the quarter, there was a lot of information out there about a single syndicated credit out of Atlanta. We are a participant in the syndication for about $10,000,000 Not sure of any recovery opportunities at this point, but we will continue to work Financial. We have shown this slide before.

Speaker 2

The top left chart deals Financial. We began dramatically reducing our appetite for construction last summer, which is consistent with the chart. Financial. A modest amount of new construction originations during the Q3 was primarily due to new home construction loans under existing officer guidance lines to our residential homebuilders. Secondly, much discussion about renewals of the commercial real estate fixed rate loans, which is the objective of the chart on the top right.

Speaker 2

Financial. Over the next several quarters, we will have approximately $100,000,000 in fixed rate commercial real estate renewals coming up for repricing Financial, where the average rate on these loans is currently around 4.5%. Our current yield target for these loans at renewal will be in the 7.5% to 8% range. Altogether, we have about $6,000,000,000 in fixed rate loans maturing over the next 2 years with a weighted average yield of 4.4%. Financial.

Speaker 2

Now on to fees. And as always, I'll speak to BHG in a few minutes. Excluding BHG, the impact of the gain on sale of fixed assets and the loss on the sale of investment securities, fee revenues were up slightly from the Q2. Couple of items to point out here, which we believe are noteworthy. During the quarter, we recognized $5,900,000 in revenues from quarter which provided us the support for the results we posted.

Speaker 2

We're excited about our solar business and what we believe it can and will accomplish. Financial. Starting last year, it's relatively new to us as we only have about $130,000,000 in balances, but we have a staff with seasoned industry veterans from large cap franchises, 2nd, I wanted to emphasize that BSG continues to represent less of our pretax revenues this quarter than in previous quarters. As we noted in last night's press release, we believe BSG has decreased to a 9% contribution to this year's fully diluted EPS Financial. The gain on the sale of fixed assets and investment security losses will come in at around a mid to high single digit growth rate for 2023 over 20 22.

Speaker 2

Not a lot to say here this time on expenses. Total expenses came in about where we thought. We did adjust our incentive accrual downward to 65 2022 remains in the high single, low double digit range same as last time. One quick comment on FDIC Insurance. We are expecting a special assessment to replenish the bank insurance fund before year end.

Speaker 2

Our understanding is that the industry will likely recognize that as a charge Just so you know, we expect that charge to be in the $25,000,000 to $30,000,000 range and this charge is not reflected and our outlook for 2023 expense growth. Our tangible book value per common share decreased to $48.78 quarter ended down slightly from June 30. The decrease was primarily attributable to the rise in intermediate term interest rates during the Q3 and the resulting impact of that on the market values of our AFS portfolio and of course AOCI. Our outlook for the 4th quarters that our capital ratios will likely be flat to down next quarter. Contributing to this will be the usual Q4 P and L matters, 4th quarter loan growth, etcetera.

Speaker 2

Financial. Of note is that DHE will record their day 1 CECL adjustment in the 4th quarter and this will serve to reduce our capital accounts by a modest amount. This day 1 non cash adjustment will not impact our 4th quarter earnings. Repeat, it will not impact our 4th quarter earnings and should approximate Financial, a charge to capital of approximately $40,000,000 Subsequently, BSG will likely need to maintain their reserves that amounts approximately 9% Financial. The impact of maintaining loss reserves at those levels going forward has been considered in our 4th quarter outlook for BHG.

Speaker 2

We believe the actions we've taken to preserve tangible book value and our tangible capital ratio have served us well, and we have no plans currently to alter our Tier 1 capital stack The chart on the bottom left of the slide details several pro form a capital ratios as of the end of September. Although we don't anticipate significant changes to the capital rules, we're pleased with these results and believe they will likely compare favorably to other peer banks. Now a few comments about BHG. The top right chart is consistent with our previous quarterly earnings calls and details that production has been consistent over the last several quarters at about $1,000,000,000 to $1,200,000,000 per quarter. Placements to the bank network were less in the 3rd quarter, while placements Solutions.

Speaker 2

As they continue to shrink their credit box and they believe sales under the bank network could experience some decline over the next few quarters Financial. As that client base continues to wrestle with a more restricted funding environment and we also believe BHG will likely want to build loan inventories in the Q4 as they head into 2024. That said, BHGE's bank network, which we believe is very unique and we believe would As to liquidity, we presented this slide last time in order to provide additional insight with regard to the significant liquidity channels available to BHG in placement of their loan production. Financial. We are currently anticipating the volume for the securitization will likely be in the $300,000,000 range.

Speaker 2

All things considered, we believe BHGE has Financial. This is the usual information we've shown in the past detailing spread trends since the Q1 of 2021. The top chart represents the gain on sale of the Financial. The balance sheet bank network and the bottom chart is a blended chart of all on balance sheet funding, which incorporates the historical buildup of balances. During the Q3, the blended spreads for all balance sheet loans was slightly higher than the bank network given the balance sheet loans reflect the build up of balances over the last 3 years.

Speaker 2

As we head into the 4th quarter, BHG believes that spreads for both on and off balance sheet loans should be consistent with the 3rd quarter. As we've noted in previous quarters, BHG has tightened its credit box over the last several quarters, particularly with respect to lower tranches of its borrowing base. Financial. Production volumes remain strong even with tighter credit underwriting. BHG refreshes its credit score monthly, always looking for indications of weakness in its borrowing base.

Speaker 2

Financial. The vintage chart on the right is helpful to understand how much underwriting has improved and thus impacted the loss content in the portfolio. At the top of the chart are the lines reflecting originations in 2012 through 2015. Financial. Lines begin to level out at cumulative loss rates of 10% to 12%.

Speaker 2

Vintages after 2015 begin to reflect improved performance with the lines leveling out within the 5% to 10% loss ranges. BSG continues to allocate resources to the post COVID vintages Financial. 2020 one through the first half of twenty twenty two has those advantages BHG believes were greater higher than the borrower ultimately warranted and thus utilize loss rates higher for those loans. This slide again provides more information on Financial. Typically for BSG, approximately 70% of the loss is incurred within the 1st 3 years of origination.

Speaker 2

But with rate inflation as was mentioned about the

Speaker 3

will be the bulk up collection activities and will

Speaker 2

be instituting in person closings for new borrowers, which was suspended during COVID. Although higher than historical losses are likely for the near term, the credit performance of the portfolio does appear to be improving, reporting towards cautious optimism as we enter the Q4 and into 2024. Is slightly less than last year, but consistent with our outlook from the last quarter. As we mentioned last quarter, BHG had a conservative bias The current Q4 loan production forecast should approximate $600,000,000 to $800,000,000 in order to fall under 2023 full year guidance, Financial, which is less than the quarterly production levels thus far this year. During the quarter, BH did record Several one time expenses related to the markdown of a building they anticipate selling as well as markdowns of some software assets and other items that were related to some business lines that DSG has elected to not support any longer.

Speaker 2

These one time charges amounted to approximately $10,000,000 during the Q3. These amounts have been incorporated in BSG's results and outlook for 2023. Net earnings for 2023 are forecasted at $175,000,000 to $185,000,000 inclusive of the one time adjustments just mentioned Financial. And it's basically consistent with the range from last year's forecast. Quickly, the usual slide detailing our financial Financial.

Speaker 2

Our business model remains relationship based, nimble and resilient. Financial Partners. Our management team has significant experience and has tackled economic downturns before. We have great confidence that we'll be able to manage the high and Company, we are now in the company's financial position to be able to handle all the banking franchise that our shareholders have come to expect from us and can currently handle whatever curveballs get thrown our way. And with that, I'll turn it back over to Terry.

Speaker 1

Thanks, Harold. Warren Buffett and others Financial. I believe that. Financial Results. At Pinnacle, we are managing what we believe are the fundamentals, the critical variables to creating outsized shareholder value.

Speaker 1

Financial. And so my goal here now is to tell the story to crystallize extraordinarily valuable deposit franchise we've built. As an industry, we've been in a war the last three quarters and in the fog of war, it's easy to get confused about what's really important. We've all just witnessed 3 high profile franchises go to 0, primarily because of 2 things. Number 1, their enterprise wide risk management.

Speaker 1

In my judgment, they all took extraordinary risk and 2, the stickiness of their deposits. And so the risk a management team is willing to take matters Financial. And how they manage interest rate sensitivity matters and how they manage concentrations matters And then how they attract and retain their deposits matters. Personally, I wouldn't want to be long any bank our size that's stuck in the commodity trap. That means an undifferentiated franchise from a client's perspective Because in that case, there is no ability to reliably gather deposits at a pace sufficient to sustain outside of revenue and EPS growth Financial Partners and no ability to retain deposits in difficult times, which again jeopardizes the reliability of their growth.

Speaker 1

But a bank that can attract talent by virtue of being an Employer of choice, a bank that utilizes its client experience as the primary basis by which it attracts clients and retains clients, Anyone who has heard me tell the Pinnacle story has heard me talk about the Pinnacle philosophy, that excited associates produce engaged clients and nothing enriches shareholders like engaged clients, meaning Raven fans that bring more business to you and refuse to leave you in times of uncertainty. Conference Call. Many times when I discuss that philosophy, I try to list the prove its, the workplace awards we've won, the service and brand awards we've won, The outsized shareholder returns we've produced over short, medium and long term timeframes. But today, I want to shows you the power of building a great workplace, of being an employer of choice. Happily, most of the banks that have leading market share positions in our footprint Financial.

Speaker 1

And while I can't provide a metric to prove it, I do believe we're the employer of choice throughout our footprint. 7% per annum increase in the number of experienced revenue producers, while still producing top quartile profitability. Financial Capital, that's a deposit, a valuable deposit franchise. And by virtue of the associate engagement you're able to create, you provide clients an experience that lights them up, Conference Call. At 57, according to J.

Speaker 1

D. Power, we have the 2nd highest net promoter score of all the top 50 banks in the United Financial. Number 2 in the country, that's pretty tall cotton. Of course, J. D.

Speaker 1

Power has more of a consumer slant, Financial Partners. So we rely a little more on Coalition Greenwich, which is more focused on businesses. According to Greenwich, our ability to create an experience that results in Raven Vance performance in terms of deposit growth shown here on the far right, our net deposit growth, our ability to attract and retain deposits Financial is wildly better than peers, both prior to the bank failures and subsequent to the bank failures, and I'd say that's a valuable deposit franchise. Nashville is the best case study of how this all works using the FDIC summary of deposit market share data. You can see on the far left Market share leaders in Nashville in June of 2000 prior to Pinnacle opening in October of 2000.

Speaker 1

I included the 2022 data in the middle, not only so you can easily see the outstanding market share we took and who we took it from, So you can see the most recent data on the far right that our model continues to grow deposit market share in Nashville in 2023 at a very rapid pace, So much for the law of large numbers. What I hope I can bring to life for you is that while it is incredibly advantageous to be in large, high growth markets, Financial, which we are, nothing, literally nothing is more valuable than a differentiated experience that can reliably take share from the weaker Financials gave up 27% share and we took nearly 21% of the market from them. That's a valuable Financial. And honestly, I'm not aware of a single bank in the country with that kind of deposit building franchise. And while we've been at it the longest in Nashville, Based on FDIC market share data for 2023, we're growing share in virtually every market that we're in.

Speaker 1

Financial Partners. And look at this, when you compare the deposit volumes we're now producing in markets like Atlanta and Washington, D. C. Financial Services. As I've alluded to several times now, to be a valuable deposit franchise in addition to your ability to attract I would say the best test of a bank's ability to retain And really that's we saw 3 relatively large bank failures fail precisely for that reason.

Speaker 1

But at Pinnacle, in that extreme crisis, not one of our 200 largest depositors left us in the month following those failures, not one. And the balances of those $200,000,000 total $3,900,000,000 at the time of the SVB failure and $3,900,000,000 roughly a month after that failure. It's just hard to leave a bank you love and trust and that's a valuable deposit franchise. A Further proof of the power of the franchise is that according to Greenwich, over the next 6 to 12 months in our footprint, Financial. Pinnacle is the most likely bank to earn more business and the least at risk of losing business, the most likely bank to earn business and the least likely of losing business.

Speaker 1

For each of the 3 banks that dominate our footprint in terms of existing deposit client share, in other words, for each of the 3 market share leaders, Between 17% 22% of their clients indicate they're likely to lose business in the next 6 to 12 months. Financial. That's a huge opportunity for us to produce outsized growth given our proven ability to take their share. And because our clients engagement with us, nearly 40 Our clients indicate a likelihood that we'll earn more of their business. I would say the franchise is most likely to earn new business and least likely to lose business Financial is a very valuable deposit franchise.

Speaker 1

And of course, the ultimate goal of all that is to rapidly and reliably increase total shareholder returns. Financial. Over the last 10 years, our total shareholder returns have substantially outperformed all our peers. As we've grown in asset size, our PE multiple has contracted more than most of our peers, largely, I suspect, due to fear of the law of large numbers. And so for us to produce outsized Total shareholder returns as our PE contracts, we had to substantially outgrow peers in terms of EPS, which we did.

Speaker 1

But given that net interest income is by far the largest component of EPS, it'd be hard to substantially outgrow peers in terms of EPS over an extended period of time Financial. So hopefully, you'll agree that a bank that can attract talent by virtue of being an employer of choice,

Speaker 4

Financial. The bank that utilizes its client

Speaker 1

experience is the primary basis by which it attracts clients and retains clients, a bank that can rapidly and reliably grow its Net interest income, the largest component of EPS, that's a highly deposit highly valuable deposit franchise. Paul, I'll stop there and we'll take questions.

Operator

At this time.

Speaker 3

Financial.

Operator

Financial. And the first question today is coming from Steven Alexopoulos from JPMorgan. Steven, your line is live.

Speaker 5

Hey, good morning, everyone.

Speaker 2

Good morning, James.

Speaker 3

So I

Speaker 5

want to start on the deposit side and specifically on deposit mix. So you guys had very strong growth in the Customers are coming into the bank or see a migration from non interest bearing into that account. Is that where we should expect to see outsized growth?

Speaker 2

Yes. I think we'll see more in the money market accounts, interest checking accounts. I think a lot of the new strategies, the new verticals Financial. Looking at our new account growth over the last, call it, 3 months, Steve, about 10% to 15% of it is in non interest bearing. So we're still attracting clients that need operating accounts, but I think a lot of the sales, Of course, it's aimed at more products that are more aimed towards those interest checking and money market accounts.

Speaker 5

Got it. And Harold, you called out the spot rate on total deposits, but what about this account? Where are you pricing relative to the 3.77 right now?

Speaker 2

Yes, I don't have that right now, but I would imagine That new account growth is probably in the 3.77%. Just a wild guess, Steve, I would think the spot rate is probably in the Call it probably pretty close to the $297,000,000 maybe a little lower than that.

Speaker 5

Okay. And then helping to offset that earning asset yields are picking up a bit of 21 bps quarter over quarter. Given where longer term rates have moved, how should we expect More of a lift in our earning asset yields coming in the Q4? Is that picking up?

Speaker 2

Yes. We are expecting Primarily through the repricing of the fixed rate loan renewals. We got like we mentioned about $100,000,000 in construction I think altogether, we're looking at somewhere close to maybe, call it, $300,000,000 or $400,000,000 in fixed rate renewals coming through this quarter.

Speaker 5

Okay. So if we put those together, you think NIM is

Speaker 2

cycle. Yes. That's what we're hoping for, Steve. We're really hoping that it was this quarter that the bottom is when we hit. But We've looked at the projections for the Q4 several different ways under several different scenarios and it looks like we're really close.

Speaker 5

Okay. And then on the expense side, I appreciate all the commentary that more of the expenses are now being directed at revenue producers versus support staff. When I balance the commentary that you're putting out Terry, you said you're putting out the word to accelerate the pace of new hiring, right, just given the market opportunity, But there's less pressure on back office. When I put those together, how should we start to think about expense growth Financial for next year. Could you give us just a rough range because I don't know how to put those 2 together?

Speaker 2

Yes. We're looking at the 2024 And we've got a big the largest increase in expenses that we're hopeful to Cover would be our incentive cost. We're good at 65%, so we'll add 35% into the plan for next year. We are introducing to our Board and the comp committee several different ways that we think we can cover that additional cost Financial. So We're obviously not going to introduce into our expense plan any number that is going to cause our EPS We're likely to try to achieve some percentage growth and likely what we'll always be trying to get into the top quartile of that group.

Speaker 2

So I know that's a lot of word salad for you, Steve. But at the same time, we're not really ready to kind of talk about where we are on expenses. Terry has challenged us So look at our expense base with a lot more diligence here this quarter as we look into the full end of 2024.

Speaker 5

Right. But Harold, if we just put together new hiring with less back office, does that imply less pressure on

Speaker 2

No, that will obviously produce better operating leverage On that particular notion for sure, we don't intend to hire as many in the support groups next year as we've done over the last 2 years. So that is an added benefit. What I want to make sure is that we get on the table that we're also planning to increase our expense base next year So more of a target payout on our incentive accruals, so just don't let us forget about that.

Speaker 1

Steve, I think on what you're chasing there on just the impact of The net hiring of revenue producers and non revenue producers, that ought to be a net positive. And again, I think what Harold is trying to do is make sure everybody gets it that our incentives are tied to performance. And so we're hoping to produce performance that warrants the target payout or above next year. And so that in and of itself is a big increase to the incentive line. But the item you're chasing on the net impact of hiring, it ought to be a net positive.

Speaker 1

Got it.

Speaker 5

Okay. And maybe just lastly, just if I zoom out, right, we look at loan and deposit growth, just full year expectations for this year. Yes, maybe for you, Terry. As you look at the strength of your markets, the pace of new hiring, do you see us exiting 2023 and Entering 2024 with more momentum than what we saw in 2023 or is it about the same?

Speaker 1

Thanks. I would think it'd be more momentum in 2024. This has been quite a year. Financial. Lots of concerns about interest rates when you had it in, lots of concerns about inflation quickly into the bank payers and boom, boom, boom, boy, just a lot of Opportunity for caution, but I would say, Steve, you know better than I do what all the Variables are out here to fear, but it feels a lot more stable as I look at what our business model is today than It did, in early 2023.

Speaker 1

Got it. Perfect.

Speaker 5

Thanks for taking my questions.

Operator

Thank you. The next question is coming from Brett Rabatin from Hovde Group. Brett, your line is live.

Speaker 6

Hey guys, good morning. Thanks for the questions. Wanted to talk about the kind of the normalization of credit and just you obviously We're in the one credit that quite a few regional banks were that raised the net charge offs a little bit this quarter. But wanted just to ask About the $65,000,000 increase in classified assets, if there was anything that was sort of

Speaker 3

More

Speaker 6

normal or can you talk maybe just about that in general? And then just Maybe we can talk about the SNC book and how big that is and how you think about that?

Speaker 2

Yes. As far as Charge offs for this quarter without the Mount Express charge off, I think we'd be somewhere Consistent with the prior quarters, we think going into the Q4, we don't see anything outsized currently that would warrant us Brett, did that get what you were talking about? Are you interested in more information on where we are?

Speaker 6

Yes, I know that one credit kind of impacted net charge offs, but just wanted to kind of hear about the increase in classified, if there was anything that was Underlying there, though, had a commonality. And then just maybe if you could give any color on the SNC book and just Any characteristics of that portfolio? How much you lead? How you kind of run that portfolio?

Speaker 2

Yes. The classifieds did bump up on us. I think credit officers are all over that one. It's a healthcare credit that we have banked for a while Financial. And they just believe that their metrics are not looking where they are not performing at where they need to be performing, and so they've downgraded it.

Speaker 2

That contributed to primarily the increase in classifieds this quarter was that one credit. So that was that. As far as the SNC book is concerned, we're running about 7% of total loans Financial. And our shared national credits, so the way we approach that Financial. Largely is we want end market the loans themselves.

Speaker 2

We want them to be end market. We want them to be relevant The one credit that charged off this quarter was a little bit of an anomaly for us, not only I I know there's been a lot of discussion about it being idiosyncratic and all of that. It was also kind of unusual for us because There was a bunch of banks in it, and we were at the end of the line. And so with that, That's not something we normally like to do. So I don't think you'll see a similar event on that on those particular matters.

Speaker 1

Hi, Brett. On that thing on the sort of normalization of credit metrics, I think you probably heard me say they'll have to normalize. There's no chance we can operate at historic lows forever, and so they'll have to normalize. But when you sort of Look in there, your non performers are down during the quarter. Class Bats, my bet is even after that increase will Probably still be the 3rd best in the peer group.

Speaker 1

And so again, it's they're going to have to pick up and normalize, but it It still feels really good from my perspective.

Speaker 6

Okay. That's helpful guys. And then maybe I just wanted to make sure I understood on the guidance Back on the margin in the Q4, it kind of seems like you've got, assuming the trend continues Slower upward trajectory of funding costs and quite a bit of assets repricing in the 4th quarter. I'm not saying you're sandbagging in the margin guidance, but it just seems like the tenor would be a little bit better. Are you just being cautious on that relative The deposit struggles for the industry this year and potentially an increase in competitiveness around deposit pricing or is there something else that I'm missing?

Speaker 2

No, I don't think you're missing. We do believe that we're like we said, We're near a bottom, if not at the bottom on our margin. We think we've got great opportunities on loan repricing like you talked about. We think the deposit book is behaving well. We will keep our fingers crossed as to whether or not we can move the margin up.

Speaker 2

But as we said today, we think we are where we are, and we think We're going to be in pretty good shape as we're going to 2024.

Speaker 6

Okay, great. Appreciate the color guys.

Speaker 1

Thanks, Brett.

Operator

Thank you. The next question is coming from Timur Braziler from Wells Fargo. Timur, your line is live.

Speaker 7

NII is accelerating, the growth in NII is accelerating or is there some offsetting dynamic that might

Speaker 2

Yes, Troy, that's a great question. I think from our perspective, the way our book typically behaves As we've got all these fixed rate loans that are going to reprice in this higher for longer kind of narrative, but if the Fed kind of keeps Financial. The lid on short term rates, that's where most of our deposit pricing will likely be influenced by. So If you don't see any more rate increases, then the competitive pressures will be what drives Financial. Our deposit cost and we believe that we're really competitive on deposit cost presently.

Speaker 2

So we don't think we've got a lot of I mean, we'll obviously have some increases in deposits due to competitive rate pressures. But at the same time, we don't think we've got Nearly the hill to get over that we've already talked.

Speaker 7

Okay. And then maybe one for Terry. In the release, you mentioned a couple of times more vulnerable competitors and asking your line leaders to accelerate their efforts in recruiting. Can you maybe just talk through the competitive landscape? I know you've had good success in picking up talent and market share from some of the larger banks.

Speaker 7

Now there's some dislocation from regional banks in that space as well. Maybe just talk through the broader competitive landscape and then if you could put some numbers around what I know accelerating effort

Speaker 1

I'll clarify here a little bit. So I think from a competitive standpoint, you know who They're going to be dominated by 3 and to some extent maybe 4 banks, Scrimmage for us, Timore. A lot of people over the years ask how do you compete with this little bank or that little bank. Generally, I don't know the answer Financial. Because the line of scrimmage is always those market share leaders.

Speaker 1

We are finding and I think I mentioned in my comments, a lot of those banks Dominator market are hemorrhaging talent, some due to integration issues, some due to, I think, regulatory All those sorts of things. But if you think about those banks I listed there, most of them have difficult landscape, which brings pressure in their organization. A lot of them are cutting staff. A lot of them are losing staff because of Continued rollout of tightened policies and all those kinds of things. And so my belief is there we've enjoyed vulnerability among Financial.

Speaker 1

Higher, say more than the vulnerabilities that we've enjoyed through our 1st 23 years. And so That's sort of the backdrop of what causes me to say, hey, we need to be seasoned this opportunity. I don't mean to be dramatic, but I do honestly believe That it is a once in a generation opportunity to build a big franchise on the shoulders of that disruption. In terms of what does that mean in terms of hiring people, I think you followed us a while. I think over the last 3 years prior to 2023, we set a record for the new volume Say 30% this year from previous records of revenue hires, My belief is we'll take it back north to approach those previous records.

Speaker 1

So, you might be able to hire 20% more revenue producers next year than this year.

Speaker 3

Okay.

Speaker 7

That's great color. Thank you for that. And then just lastly for me on BHG, I know in recent years, there's been discussion on maybe lowering overall ownership or getting more creative in an effort to avoid some of that CECL impact. With the CECL impact now here already and embedded in kind of Capital position in the Q4, does that change your longer term view on partnership with BHG? Does that Maybe entice you to stick with the current structure for a longer period of time or is there still a want to maybe

Speaker 2

Yes, it's fair. Thanks for the question. I don't believe CECL impacts Financial. Our view of BHG, our relationship with BHG and what our outlook is for BHG, we still have a great partnership with them. We meet with them routinely.

Speaker 2

We understand what their strategies are now going into 2024. We're optimistic about what they can accomplish and we think they're building a very valuable franchise over the short and intermediate terms Financial. That could be valuable to anyone that might need that might think that going into that market segment would be advantageous for them. So We're proud of what they've been able to accomplish and we're optimistic about what could be coming to us next year.

Speaker 7

Great. Thank you.

Operator

Thank you. The next question is coming from Stephen Scouten from is Piper Sandler. Steven, your line is live.

Speaker 8

Yes, thanks. Appreciate the time.

Speaker 4

I guess it sounds like most of the growth is going to continue to come Organically from the new hires, I assume that's a lot of D. C, Atlanta, some of these newer markets. I guess my question is any Any indication and weakness in other banks, do you think about M and A opportunities anymore intensely at this point?

Speaker 1

Yes. I think the let me take the last part first. I think as it relates to are we considering M and A more intensely than previously. I think the answer to that is no, we're not. I think As it relates to market extensions and so forth, Stephen, you've heard us talk about this over a long haul.

Speaker 1

If you go to Memphis and draw a line up to D. C. And down to South Florida, we won't be in all the large urban markets in that Triangle there, the obvious void is Florida. Florida is attractive to us because It's dominated by those same players I just mentioned in response to Tamir's question. And so, anyway, those are attractive markets.

Speaker 1

We do not and I think you know this, we don't We need to find our way to Jacksonville, Florida. We need to find our way to Tampa, Florida and set out some initiative to bring that about. It occurs the same way that all our other recruiting does. Generally, somebody in our organization will turn somebody up that says, Hey, this group right here, these are my buddies. I've worked with them.

Speaker 1

They could build you a big bank. And so we'll pursue those and see if we can find something that's good for them and good Financials. We don't feel like we have to go to do any market extensions to produce outsized growth. We think The current hiring methodology and the existing footprint will do that, but there's no doubt we do see opportunities. And If we find the right team that can build us a big bank, we'll go next week or next month or next year.

Speaker 1

If we don't find them, that's Okay, too. We don't have to get there. We believe the current recruiting model in the existing footprint is going to produce outsized growth. So I hope I've hit it what you want, but if I have not, ask again.

Speaker 4

No, 100%. That's very helpful, Terry. Appreciate that. And then maybe kind of hopping back to credit. I mean, I know, Terry, you said you obviously expect some normalization over time and you guys have been Running the bank successfully for a while and gone through credit cycles, there seems to be a big disconnect between what people are expecting or what fears there are around credit and what Financial.

Speaker 4

Can you tell us for you guys what gives you the most confidence that that normalization won't be Catastrophic or what have you or what some people seem to be expecting on the downside?

Speaker 1

Yes. I think The principal thing is how we develop our business. And so just a quick reminder, What we do is we target experienced bankers, who somebody has seen be successful at that job Financial. The average experience of the people we hire is 26 years. And so when you're hiring people that have been at it for 26 years, Handling the book of business for 2.5 decades, it does produce rapid growth because generally they've handled that book behind because they're well familiar with what's going on with those credits and so forth.

Speaker 1

And so again, my belief is that, that has accounted for the outstanding credit performance that we've had and I believe that it will continue To do that, some people can go back and say, well, Terry, how did you do in the Great Recession? Do you have outside losses? I think I'd say 2 things on that, Stephen, for whatever is worth, it's a little more than you asked, but I just I don't mind to comment on it. When you look at the if you call the Great Recession, the period from Q1 of 2008 to Q4 of 2012, In that period of time, we lost a little less than 5%. That's a horrible number.

Speaker 1

But all our major competitors, the banks that we've talked about here, Regions, First Horizon, Bank of America, SunTrust at the time lost anywhere from 2 to 3 times that level. And so it was an out performance, although it was a bad number. And so we say, well, what made it bad? We had just completed 2 acquisitions immediately We have a concentration in residential real estate at the worst possible time to have one. We don't have that concentration today.

Speaker 1

And so the combination of the model and the differences in our company today versus prior cycles are the principal reasons I feel good about where we are.

Speaker 4

Financial. Perfect. Helpful. And maybe one just last clarifying question here. You just mentioned consumer real estate, which you guys don't have a lot of this time around, which Great.

Speaker 4

But I did notice that you took the reserves up there to like 148 as a percentage of those loans from 127. Harold, was there anything Meaningful there that drove that increase? I think there's recoveries in that portfolio year to date. So we're just kind of surprised to see it tick up there.

Speaker 2

Yes. I think the Moody's model is what is driving that increase and the outlook for those borrowers May require that small percentage increase.

Speaker 4

Got it. But nothing specific that you're seeing there right now that gives you any real

Speaker 2

No, not really. I don't think we've seen anything of any consequence

Speaker 8

Great.

Speaker 4

Thanks so much for the color guys. Appreciate the time.

Speaker 1

All right. Thanks, Steven.

Operator

Thank you. The next question is coming from King from Truist Securities. Brandon, your line is live.

Speaker 9

Hey, good morning.

Speaker 2

Hey, Brandon.

Speaker 9

So just wanted to get an idea of thoughts on the securities portfolio. I know there was some more restructuring in the quarter. Just what are your plans there for how that should trend going forward?

Speaker 2

Yes. I think We're about where we need to be on securities. I don't we don't have any imminent plans to do anymore. We will probably hold right here and see what happens with intermediate rates here. I think we've gotten the segments of the securities book that we were looking to get.

Speaker 2

So we're going to hang on right here and see how it goes from here.

Speaker 9

Got it. And then and Terry, just wanted to take another angle just to plan to accelerate hiring. Could you just talk more about the type of talent that's available and kind of how that compares to maybe a more normalized environment?

Speaker 1

Yes. I think the so the type of talent that's available are the biggest category of revenue producers for us is we use the term financial advisors. Most of the industry calls them relationship managers. But what we're speaking of are bankers Wealth Management Advisors, Small Business Advisors Financial and Middle Market Advisors. So that's really where most of that hiring should occur.

Speaker 1

The other categories of revenue producers, we've been pretty successful in other wealth advisory. And when I say that, I'm speaking to both brokers, trust administrators and so forth. So those are

Speaker 3

Financial, a relationship manager that

Speaker 1

handles a large book of banking business. Am I answering what you're asking Brandon?

Speaker 9

Yes. And I just want to get a sense of, are you seeing kind of maybe A higher level of talent that's more available now compared to a couple of years ago?

Speaker 1

I think it would be hard for me to say that The talent itself would be at a higher level than the talent that we've hired, but I would say that We have an expectation that the volume that's available is more than it's been over the last 12 months to 24 months.

Speaker 9

Okay. That's fair. That's fair. And then just lastly, Harold, if you could give us a sense of what you're thinking about as far as the runoff of FHLB advances and run off in broker deposits and wholesale funding.

Speaker 2

Yes, FHLB advances, I think, have longer terms. I don't think they'll be running off very much here until next year. Broker deposits, I think we have So meaningful deposits that are coming up on renewal in the Q1 of next year, Brandon. And so right now, we intend to just Pay those off and rely on our core funding growth to replace it.

Speaker 9

Got it. Got it. And do you know do you have the amount on hand of what's up for renewal in the Q1?

Speaker 2

I think it's about $300,000,000 something like that, dollars 300,000,000 or 400, We reduced our wholesale deposits some this quarter, and we intend to do it some in the Q4 as well, but I think There's a meaningful number that comes up in the Q1.

Speaker 9

Got it. Thanks for taking my questions.

Speaker 2

Thanks, Brandon. Thanks, Brandon.

Operator

Thank you. The next question is coming from Matt Olney from Stephens. Matt, your line is live.

Speaker 8

Hey, thanks. Good morning, everybody. On that last point, Harold, on the broker deposits coming up for renewal next year, any color on the cost of those deposits

Speaker 2

Yes. I think those deposits were acquired right around the Q1, right around Silicon Valley and Signature. I think they were probably in the, call it, the mid-4s, somewhere in that.

Speaker 10

And how does that compare

Speaker 8

to the incremental deposit cost for the bank?

Speaker 1

Well, right now, new accounts

Speaker 2

are coming in at around 3.5% in a weighted average rate. So there ought to be some pickup there Just based on that,

Speaker 8

so. Okay. And then you mentioned earlier about the pressure on the non interest bearing deposits has slowed quite a bit. Any of the data points you can provide about what you saw maybe later in the quarter or the 1st few weeks of this quarter? And then as you talk to customers, what are your expectations for that balance from here?

Speaker 2

Yes. We think there's going to be some drift downward, but largely by about the call it the middle of July, the end of July, we started We see a stabilization in those numbers every day. So we've been hanging in there now for a while. And so hopefully, that will continue through the end of the year. We typically get a buildup in balances in the 4th quarter.

Speaker 2

So Financial. We're keeping our fingers crossed on all that, Matt. So we may be planning for some decreases, but are hopeful we're more flattish is going into

Speaker 3

the Q4. Okay. That's helpful.

Speaker 8

And then just lastly, just to clean up on the BHG commentary, I think you mentioned some adjustments that were made. Mark, I have a building and some software. I think you said the impact was around $10,000,000 Did I get that right? And how much has been accrued for so far through the Q3? And how much could we see in the Q4?

Speaker 2

Yes. I think they're done with respect to those two issues. They exited their call it their NALU, which is their merchant financing business, they decided to get out of it. I think that was about a $4,000,000 charge and they wrote down a building for about $6,000,000 So that was an accrual where they're putting that building on the market, hope to sell it here over the next couple of quarters. But for those two situations, they're done.

Speaker 2

They feel like they've got adequate reserves in place for those.

Speaker 8

And with respect to BHGE's repositioning, examples like that, any more are there any more items where there could be additional impairments Or events like what we just saw?

Speaker 2

Yes. I think BHGE has taken a much more diligent review of all their products set. I would imagine that going into 2024, they'll be keenly focused on our core lending products, Financial. The securitization network and those two products because they spent quite a bit of effort With some ancillary businesses that I think they're looking at whether or not they want to continue to invest.

Speaker 8

Okay. Thank you, guys.

Speaker 1

Thanks, Matt.

Operator

Thank you. The next question is coming from Catherine Mealor from KBW. Catherine, your line is live.

Speaker 11

Thanks. One follow-up on BHG. I guess maybe just a big picture question on BHG is how are you thinking preliminarily about earnings growth in DHT into 2024, it feels like we've got there are a lot of moving pieces, but it feels like we've got Potentially credit costs improving once we get through the losses in this E and S tranche from the 'twenty one vintages, but then you've got the impact of CECL and providing it 9 And maybe a little bit of a softer gain on sale margin. So is this a scenario where we can still see stable earnings into next year or potentially Could there be

Speaker 2

downside? Yes. I think we'll be looking at probably I'm not trying to be cut here, a more boring BHG going into 2024. And I think part of that is because they're going to be focused on their core businesses Financial. And less on some of these ancillary businesses that they've been investing in over time.

Speaker 2

So but you're right, there's a lot of puts and takes here.

Speaker 11

And is the difference in the gain on sale margin between the placements to banks versus the placements to institutional investors, is that difference Large enough to make a big difference in the revenue outlook?

Speaker 2

I think they will plan on a Stronger allocation to the bank network next year. Now keep in mind, those spreads are all point in time spreads. So those transactions The bank the on balance sheet spreads are a culmination of 3 years of buildup. So there's historical spreads built into that, which were higher 2 3 years ago than they are today. So there's a weighted average Financial.

Speaker 2

So but I do think as far as to your question on new production, They're likely to allocate more to the bank network, where they get the gain on Siltrete.

Speaker 11

Great. Okay. So your comment about that being less, that was more of just a 4th quarter comment versus a strategy into 2024?

Speaker 2

Yes, I think so. I think what they want to do is try to build some inventories going into 2024 and then be in a position to kind of Financial, make sure 2024 comes out where they want it to come out.

Speaker 11

Okay, great. And then circling back to the conversation of NII growth, It seems like you still have a fairly positive outlook for just balance sheet growth this year. And typically, you're able to hit EPS growth target because you grow revenue so fast. And so as we think about this next year with revenue growth, still better than your peers, but probably moderating just given the Great environment we're in. Can you help us think about just the optionality you have with actually generating positive operating leverage, growing Thank you in the scenario where revenue growth comes in lower than expected.

Speaker 2

Yes. I think we'll have a keener eye on operating leverage going into 2020 I think what we've got to do is position the firm in a spot to where revenue growth, whatever that number might be, Our expense growth is within that range. We'll have to sharpen our pencils pretty hard this year To see that, that happens. But as it sits today, that's kind of where we're pre positioning Financial. All the budgeters and the planners that are working, as a matter of fact, today on how to get a good 2024 plan, As Terry said, there are warrants and incentive accrual at 100% of target.

Speaker 1

Catherine, I think you know this, but just To make sure everybody gets it, the focus of our company has been and continues to be a top quartile performer In terms of revenue and earnings growth and so EPS growth. And so that hadn't changed at all. That will continue to be the case. And I think to Harold's point, it's our intent and our belief that we'll build a plan that does that even in the base of a meaningful pickup to The incentive expense because as you know, we're currently accruing at 65% and hopeful that we'll be accruing at 100% or north next year. So anyway, that gives you some sense of what our outlook and belief is.

Speaker 11

And I don't mean this to be a loaded question, but just kind of thinking about your peers and thinking about EPS growth in this year. Financial. Most of the Street is forecasting for EPS to be down for most of your peers into next year. And so Even if you're the top quartile and that's flat EPS growth or even down EPS growth, still better than peers, but still flat to down, Is that a scenario that you can still have a full payout of incentive comp? Or do you feel like you hold yourself to a higher standard where You might need to still kind of adjust to that to hit an EPS target that's appropriate for Pinnacle.

Speaker 1

Yes. Thank you for that. That's a good I'll describe there and just find our way to say, okay, all we got to do is get above 75% of peers. That wouldn't take much earnings growth and that would be about 3 years of flat earnings growth, EPS growth for Pinnacle, if that were to be the case. And you can be sure that is not my target.

Speaker 1

So at any rate, I guess the technical answer to your question is that something that could happen, I suppose it could happen, But I don't think you ought to expect it will happen.

Speaker 11

Okay, great. Thanks for the clarity. Appreciate it.

Speaker 1

All right.

Operator

Thank you. The next question is coming from Brody Preston from UBS. Brody, your line is live.

Speaker 12

Hey, good morning, everyone.

Speaker 10

Hey, Harold. I just wanted

Speaker 12

to follow-up on the deposit costs. I think you said the blended rate is coming Sean, at 3.5, is that inclusive of the non interest bearing, correct?

Speaker 2

Yes. Yes, that would include non interest bearing on now this is just new accounts. Financials. Right. So that's right.

Speaker 12

So just based on the commentary, I think you said 10% to 15% is non interest bearing Earlier on the call, so it implies about like an interest bearing cost on new money at about 4. Is that accurate?

Speaker 2

That's probably fair. CDs are built into that. So yes.

Speaker 12

Okay. So is that, I guess, on the interest bearing deposit cost slide, the spot rate, is that where we should expect that to trend maybe over the next couple of quarters?

Speaker 2

I don't think it will get that high. I think new account growth, the volumes are They're meaningful to us, but they're not what generates a lot of the bulk of the deposit growth. So the net deposit growth, I think core deposits was $826,000,000 Probably new account growth was maybe half of that, something like that.

Speaker 12

Okay. All right. And also just on the loan side, I think you said you had about $300,000,000 to $400,000,000 coming due for fixed rate loans next quarter, is that a fairly consistent level that we should be thinking about through on a quarterly basis through 2024?

Speaker 2

Yes. I was trying to do the math in my head because I've got about $6,000,000,000 coming up for renewal over the next 2 years And it's pretty evenly dispersed weighted more towards the near term. So whatever that number comes out to be, probably With the CRE renewals, you're yes, it's probably $750,000,000 something like that in the near term

Speaker 12

Okay, okay, cool. And then just on the BHG, I Appreciate the commentary on some of the puts and the takes there. You mentioned that they had a building that they were planning on selling that they wrote down. I don't know if you got this granular with them or not, but do you happen to know kind of what percentage the

Speaker 3

write down was? I'm assuming that that was like an office building

Speaker 12

or something that they no longer need. Assuming that was like an office building or something that they no longer need?

Speaker 2

Yes. I think the number I think they bought it like 20 something 1,000,000,000. It's down at South Florida, so I think that's what the write down is going to bring.

Speaker 12

You said they bought it for what?

Speaker 2

About 20 something million. I want to say it's about a 24 number, but don't actually do it right now. Okay.

Speaker 12

And And I think you said you had 7% of the loans were SNCs. Do you happen to know of that what you're the lead underwriter on?

Speaker 2

The SNCs that we're the lead underwriter on?

Speaker 12

Yes, sir.

Speaker 2

Those are all where the other bank is the lead underwriter on the SNCs. We've got about $1,400,000,000 in participations that we've sold, but none of those are in the SNC category.

Speaker 12

Okay. Okay. So the SNC exposure is all the 7% is just all SNCs that the other banks that will lead underwriters on?

Speaker 2

That's Right. And you know how all that works. In order for them to buy our loans, we got to buy their loans. There's a lot of reciprocity in this process. And right now, I'm running about $2,200,000,000 or $2,300,000,000 in acquired

Speaker 12

I did just want to follow-up, this isn't really a follow-up for this call, but I think it's been asked before. Just in terms of the long term view on succession planning and I think you guys have built a pretty unique model, which is attractive, but also Financial. Might be challenging for another bank to kind of maintain if they were to try to buy you guys, especially just given The independent culture that you have, I mean, how do you think about long term kind of the growth path for Pinnacle Succession planning and maybe partnering with another bank.

Speaker 2

Yes. I think

Speaker 1

Our Board understands and takes seriously its responsibility for succession planning. They review succession Most banks succession planning, they first of all, you got to plan on 2 axes. What do you do long term And what do you do in the event that our other key members get run over this afternoon. So kind of a long term plan, an They consider really 3 or 4 different variables for how you handle succession. Of course, the We continue to work with and give expanded responsibilities to and so forth to see how they develop and determine their capabilities over time.

Speaker 1

We have candidates that are outside the firm that we have talked to and continue to talk to from time to time that I have probably both an interest and a capability to come in and work with us and And moving the company forward and then of course, we can and do consider a full range of companies that we could acquire to pick up talent and maybe more likely MOEs, where there's a like mindedness Financial. So the Board considers all those variables and I think, Brody, I don't know, probably a year ago or more, we talked through Some grants that were issued to ensure that existing management stays in place until succession plans Financial Partners are set. And so my belief is the Board's active would work. It's much like I was a basketball player, you know, on fast break, you fill all the lanes and hit the open man. I think that's really what the Board view is.

Speaker 1

They look at all the

Speaker 12

Financial. Got it. I really appreciate that answer, Terry, I guess maybe if I could just sneak one more in for Harold. I forgot to ask you, Harold. Do you happen to have what the reserve on the office portfolio is?

Speaker 2

It's about 80 basis points, somewhere in that neighborhood. It didn't change much from the prior quarter. So that's where we are.

Speaker 12

Awesome. Thank you very much. I appreciate everyone.

Speaker 1

All right.

Operator

Thank you. And the next question is coming from Brian Martin from Janney. Brian, your line is live.

Speaker 10

Hey, guys. Good morning. I'll make it short here. Just the on the margin outlook, Harold, it sounds as though if we're at the bottom here, Those loans you talked about re pricing the fixed rate loans and then just kind of the hope the outlook on deposits remaining favorably, I guess, should see the margin trend higher as we get into 2024 assuming this higher for longer environment, is that In general, how you're thinking about the margin here in the coming quarters?

Speaker 2

Yes. I think we've got a lot more bias towards Probably a margin that's going to accrete up that feel the same kind of pressure to run down as we've had over the last couple of quarters for sure.

Speaker 10

Got you. Okay. All right. And then just on the fee income, just as far as the kind of big picture ex the BHG commentary you've already given, just As far as the growth you're seeing this year, kind of that mid single digit mid to high single digit rate, does that feel like a sustainable level? I know you talked about Solar piece this quarter being kind of maybe not one time in nature, but you sounded pretty optimistic about that business going forward as well.

Speaker 10

So just trying to think about How fee income looks here? What's sustainable?

Speaker 2

Yes. I mean, what we want to make sure is that People understand that's going to be a choppy line item, and it has been a choppy line item for the last several years. It's kind of a recurring, nonrecurring kind of thing. But we fully intend to support the solar business. I think we We've got several projects that we're looking at currently.

Speaker 2

The difficulty is trying to forecast when those projects close Financial. And when they get the necessary regulatory approval. So we're going to continue to invest in that product. Like I said, we've invested in several industry veterans there that came from some of the large cap franchises, and we like our prospects. So Along with our other equity investments that we've got, we still feel pretty good about the decisions we've made

Speaker 10

Okay. So kind of that core I guess you're calling it kind of the core fee income Inclusive of that those equity gains, but exclusive of BHG is still including some of the benefits you expect to get from the solar that Mid to high single digits still feels pretty sustainable as you look forward here at least in the near term.

Speaker 2

I think that's accurate, Ron.

Speaker 10

Okay. And then just lastly on the reserves, I guess is your outlook, maybe I don't know if you Harold or Terry, just with the normalization in credit, If you do see charge offs or NPAs tick up a bit here, is there any outlook for a change in building the reserve sum, Given what the outlook looks like, I know Q4 still sounds pretty strong, but just as you get into next year, should we be thinking about seeing some reserve builders, The current level we're at more likely

Speaker 2

sustainable. Yes. Right now, we don't anticipate any big buildup in the reserves coming into the 4th quarter. We think looking at the credit pipeline, it seems pretty solid at this point. Who knows what will happen going into 2024, but right now we feel pretty comfortable about where we are and what our charge off experience has been

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Earnings Conference Call
Pinnacle Financial Partners Q3 2023
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