Pinnacle Financial Partners Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 17, 2024

There are 14 speakers on the call.

Operator

Good morning, everyone, and welcome to the Pinnacle Financial Partners 4th Quarter 2023 Earnings Call. Hosting the call from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer and Mr. Harold Carpenter, Chief Financial Officer. Today, 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.

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. The floor will be open for your questions following the presentation. Is to allow optimum sound quality. During the presentation, we may make comments which may constitute forward looking statements.

Operator

All forward looking statements are subject to risks, uncertainties and other facts that may cause ACT's 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 to not put undue reliance on such forward looking statements. The more detailed description of these and other risks contained in Pinnacle Financial's Annual Report on Form 10 ks for the year ended December 31, 2022, and at subsequently filed quarterly reports. Today, 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.

Operator

A presentation of the most directly comparable GAAP financial measures and a reconciliation of non GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com. With that, I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.

Speaker 1

Today is today's conference call.

Speaker 2

Thank you, Matthew. Good morning.

Speaker 1

Thank you

Speaker 2

for joining us this morning for the Q4 2023 earnings call. Today, obviously, we'll focus on performance in the Q4 of 'twenty three and our outlook for 2024, both of which I think are very good. Today We always start with the shareholder value dashboard on a GAAP basis. And then as adjusted, which is is really what I focus on in trying to manage the firm. There is no doubt 2023 presented one of the most difficult operating environments for banks since the Great Recession.

Speaker 2

Today, I expect few if any banks were able to completely outrun the rate environment, its impact on revenue and earnings growth in 2023. Today is a very strong quarter. Despite the difficult operating environment, we grew our tangible book value 14.8% in 2023 today and produced a 20% total shareholder return. Our unusual approach of investing in our business, particularly in terms of acquiring new talent, even during difficult times is one of the primary reasons we've been able to continue to take share and grow balance sheet volumes, today, which of course is accounted for our rapid and reliable growth in revenue and earnings, which we believe accounts for our extraordinary total shareholder return over today is nearly 2.5 decades now. We've said for some time that it's our expectation that credit metrics have to normalize.

Speaker 2

Today is impossible to operate over time at the very low level of problem loans that we've enjoyed over the last 2 years. We saw a little bit of that in the 4th quarter, but today. NPAs and classified assets still remain below our 5 year median, which is itself very low today, and that charge off during the quarter was just 17 basis points. So Q4 of 2023 was an excellent quarter for us, particularly on those metrics, the on future shareholder value creation. And so with that in mind, let me turn it over to Harold for a more in-depth look at the quarter.

Speaker 3

Today. Thanks, Terry. Good morning, everybody. We'll again start with deposits reporting late quarter annualized average growth of 4.6% in the 4th quarter, today, which we believe was a real positive for us. We did see some end of year deposit outflows that lowered our EOP balances and are hopeful to see those balances return this quarter, EOP deposit rates were up only 7 basis points, the smallest increase in quite some time.

Speaker 3

Today will be down quite a bit with fluctuations in our overall rates driven somewhat by mix shift as several larger more expensive depositors built balances at year end. We remain disciplined as to the relationship between pricing and growth of deposits. We will continue at a more deliberate pace for gathering deposits without leaning heavily on the rate component for our group. As to loans, the 4th quarter was another strong loan growth quarter for us as we are reporting a is 10.7 Percent Linked Quarter Annualized Average Loan Growth for the 4th quarter. As we've mentioned over the last several quarters, we are pleased with our results on fixed rate loan pricing, which ended the quarter with average fixed rate loan yields on newer rate originations of 7.33%.

Speaker 3

Spread maintenance on floating and variable rate loans continues to be strong with coupons in the high 7s and low 8s on new loans. Today. This slide segments our net loan growth based on several categories to help everyone better understand the source of are expansion in the DC, Atlanta, Birmingham, etcetera, was a source of much of our loan growth in 2023. That's why we're so excited about our announced entry into Jacksonville. We hire experienced bankers in these new markets and give them the tools and resources to build a large local franchise.

Speaker 3

Today is not to new borrowers showing up at Pinnacle Bank with a new idea to pitch. Our borrowers have extended relationships with today, we have a relationship managers over, in many cases, decades of working with each other. This is not just true for Charlotte, Nashville, Charleston and other legacy markets, today will be recorded in the Q4 of 2019. As the top chart reflects our NIM today was flat quarter over quarter. We had hoped to see a modest increase and continue to believe we have great opportunity to see NIM expansion in 2024.

Speaker 3

As we entered the Q4, we felt like we were fairly close to following our margin and have some confidence that we have. Is a very strong quarter. Our interest rate forecast, we believe, is consistent with most

Speaker 4

today is a great forecast

Speaker 3

out there. Our planning assumption is that future Fed rate decreases begin in May and then we see 3 more before the end of the year. Is important to note that our yield curve shift is that it will be less inverted by year end.

Speaker 4

Today is a great day.

Speaker 3

As for credit, we're again presenting our traditional credit metrics. Pinnacle's loan portfolio continued to perform very well in the 4th quarter. Our belief is that credit should continue to perform well as we move into 2024. Absent a couple of large charge offs in 2023, today, 2023 was a good year as to losses realized from our portfolio. We mentioned 1 nonperforming credit in the press release last night, today is debated on whether to call it out or not as the add on for all of our NPAs is 27 basis points, which is very respectable in comparison to prior quarters, but given the change from prior quarter, we decided to talk about that one credit.

Speaker 3

We feel that particular credit is well down the road of being rehabilitated and expect no loss currently. Similarly, there was an isolated incidence in both classifieds and past dues. We've downgraded the Chattanooga credit to classified late in the 4th quarter and One Credit also accounts for substantially all the net change in past dues. For that credit, the borrower did pay interest current before year end, but we were past maturity and waiting on the bar to settle a few matters before granting the renewal, which we anticipate in the next week or so. Today is now open.

Speaker 3

Concerning Commercial Real Estate, again some select information. As to the top left chart, construction originations are very selective and reserved for projects where we have today is a strategic reason to participate. For those that follow regulatory ratios, our 100% drug concentration ratio was at 84% at year end, is roughly the same as the prior quarter. Our goal is to reduce debt ratio by approximately 70% of today's appetite for construction lending will remain limited at this time. Secondly, much discussion about renewals of commercial real estate fixed rate loans, which is the objective of the chart on the top right.

Speaker 3

Over the next 4 quarters, we will have approximately $500,000,000 in fixed rate commercial real estate coming up for repricing with 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. Today, we have about $6,000,000,000 of fixed rate loans maturing over the next 2 years with a weighted average yield of 4.8%. Today, we see real opportunity from a repricing perspective for these loans. Now on to fees, and as always, I'll speak to BHG in a few minutes. Excluding BHG and various other nonrecurring fees, fee revenues are up 1% to 2% linked quarter.

Speaker 3

We are very pleased to report that our wealth management units had a strong 2023 and we fully expect the efforts of our wealth management professionals will continue into 2024. Today. As we noted in last night's press release, we accomplished a significant boe restructuring program during the quarter as we we feel like the payback period on the approximately $16,000,000 in charges we incurred during the quarter is around 1.5 years. We believe the anticipated tax equivalent cash yield on our entire BOLI portfolio as a result of all this will approximate 4.5% in 2024 and 5.5% in 2025. This compares to approximately a 3.4% yield currently.

Speaker 3

Now expenses. 4th quarter expenses came in about where we thought. As we noted in Q3, we expect today is a special assessment from the FDIC in the 4th quarter. A $29,000,000 FDIC special assessment was recorded in the Q4, which we will pay to the FDIC over 8 quarters beginning in June of 2024. Today.

Speaker 3

Our incentive costs for the Q4 include the final calculations for our 2023 cash bonus awards. The total cost for 2023 were is slightly over $46,000,000 In comparison to our target payout, plan would have required about $30,000,000 more in cost. So our 2023 earnings include $30,000,000 of incentive savings, which is exactly how the plan is supposed to work. If we hit targets, participants are eligible for target awards. If we don't, then we aren't.

Speaker 3

I will speak more about our outlook for expenses in 2024 in a few minutes. Today is our capital. Our tangible book value per common share increased to $51.38 at quarter end, up 14.8% year over year. Today, our focus on tangible book value generation has been a big positive for our firm and has, we believe, benefited our firm meaningfully. Today.

Speaker 3

Growing tangible book value has been top of mind to leadership over the last several years and has impacted decisioning as management has not been willing to risk is significant tangible book value dilution by perhaps building a large investment portfolio. If we had, we could have put tangible book value generation at risk. Impacting capital ratio in the 4th quarter were several matters that we discussed in the press release last night. In addition to the Boe restructuring and the FDIC special assessment, we incurred a $35,000,000 capital charge for our adoption of BHG's adoption of CECL on October 1, 2023, which was consistent with expectations for the last year or so. Again, this amount did not impact 4th quarter earnings, today, but didn't impact our capital and our capital ratios.

Speaker 3

The chart on the bottom left of the slide details several pro form a capital ratios at the end of today is on how we compare to peers on these ratios as of the end of September. Although we don't anticipate significant changes to the capital rules, we are pleased with these results and believe they will continue to compare favorably to other banks and speaks to our efforts to manage tangible book value effectively. Now to BHG. Today. As we look at 4th quarter originations and as we mentioned last quarter, 4th quarter origination volumes were less than the 3rd quarter as they continue to shrink their credit box, today, I'd like to emphasize that point.

Speaker 3

BHG estimates that 25% of their borrowers in 2021 and the first half of twenty twenty two will not qualify for a BHG loan today. We are very supportive of the efforts by our BHG partners with respect to credit discipline and client selection. We are also very pleased to see that sales in the bank network during the Q4 were basically consistent with the Q3. Today, the banks continue to have a strong appetite for BH Street Credit. With original 4th quarter placements to institutional buyers were about $200,000,000 less today is the 3rd quarter.

Speaker 3

BHC did increase held for sale inventories on its balance sheet by $170,000,000 in the 4th quarter, which provides a nice is the runway going into 2024. As to liquidity, not a lot of change here from last time. BHC's liquidity platform remains exceptionally strong. Today, during the Q4 and again as we mentioned at the end of the Q3, BHD did place about $300,000,000 in loans as a result of their 2nd ABS transaction for 2023. BSG also successfully negotiated is a $50,000,000 private hold on sale during the Q4.

Speaker 3

Importantly, these private sale transactions are executed with no recourse to BHG with many of these clients coming back to BSG routinely and planning on being back in 2024 as well. Today is the usual information we've shown in the past detailing spread trends since the Q1 of 20 today, on the bottom chart, the spreads for all balance sheet loan placements have expanded as lower coupon loans originated more than 2 to 3 years ago pay off today for the borrower coupons for the on balance sheet continue to increase. Again, as we've mentioned for several quarters, the spreads on the chart for on balance sheet loans represents the is a buildup of the book over the last few years. BHGE believes that should the Fed begin to reduce rates in mid year 2024, such a move would likely result in a foreseeable spread for BHG for both the bank and institutional platforms. Now to BHG Credit.

Speaker 3

As we've noted in previous quarters, BHG has tightened its credit box today is the today has improved to 7.45% from 7.32% in 2022. The chart on the right details originations in 2012 through 2015 today, we will level out cumulative loss rates of 10% to 12%, whereas vintages after 2015 begin to reflect improved is a good balance with the lines rolling out within the 5% to 10% ranges. On the reserves, again, the usual trends on loss reserves for both on and off balance sheet loans. As expected the adoption of CECL on October 1 for the on balance sheet loans resulted in about 300 basis point increase in reserves. Today are showing 12 month losses for on balance sheet amounted to 6.5% in the 4th quarter.

Speaker 3

If you just look at the 4th quarter, losses were 7.6 is a very strong quarter for all in balance sheet loans. BHGE has been anticipating that credit losses will begin to trend down after the 4th quarter. Today, BHG believes they have a great shot at seeing reduced credit losses in the Q1 and with a much greater degree of confidence will reduce losses by the Q2 of 2024. Now about BHT's earnings and production. Last quarter, we anticipated that 4th quarter loan production to approximate $600,000,000 to $800,000,000 and it came in at the high end of that range, today impacting earnings and also as we mentioned last time, BHG recorded several one time expenses that approximated $10,000,000 in the 3rd quarter.

Speaker 3

Impacting our Q4 results was approximately $4,000,000 in severance and other non recurring costs. A lot of work has been done by BHG to get ready for 2024. Today, with a tighter credit box, BHG anticipates flattish production comparing 24 to 20. That said, the bank network and today. Also as the post COVID credit issues fade into the background, today, along with a potentially better yield curve, all of this could add up to make 2024 a much more accommodating year for BHG than 2023.

Speaker 3

With that, I'll turn it back over to Terry.

Speaker 2

All right. Thank you, Harold. Well, as Harold mentioned earlier in the Q4 of 2023, we hired our leadership team for our market extension to Jacksonville, Florida. Earlier, when I was discussing the 2023 performance, I highlighted the fact that we continue to invest in our business even during the difficult times, which in my judgment has been the key to the extraordinary total shareholder return we continue to produce. One of the good things about 2023 was that it showcased our enterprise wide risk management system, which provided the necessary guardrails to protect us when a number stumbled, but will be more importantly put us in a position to stay in the course while many are trying to restructure their business model with major expense initiatives which may aid short term earnings, but have a devastating impact on long term shareholder value creation.

Speaker 2

Our conservative approach today The credit, liquidity and interest rates put us in a great position as we continue investing in our business. The risk management system not only protected us, but again, left us a capital base and an ability to today. Most of you know that our target market has been all the large urban markets in the Southeast, today, which are so advantaged, where Florida has been our principal board. Most of you heard me talk about this for a long time. The catalyst for when we decide to extend to a new market is when we have the availability of leadership that we believe can build a $3,000,000,000 bank over a 5 year Last quarter, I used this slide to build on the fact that having started on a de novo basis back in 2000 in Nashville, today, we now dominate the national market by almost any measure, including things like FDIC deposit share.

Speaker 2

Today. And we're actually running faster in the relatively recent startups in Atlanta and Washington DC Florida is on par with our other large high growth markets, extraordinarily healthy and rapidly growing. Today is the same as the competitive landscape. It's dominated by the same exact competitors today that we've been facing off with for now 23 years, I always try to help people understand this, the size and growth dynamics are really important today in terms of the success in the markets that we've been in, but more important than the size and growth dynamics today would be the competitive landscape. It's important to have competitors from whom you can take market share.

Speaker 4

Today is

Speaker 2

the first time we have the opportunity to take advantage of the company. As you can see, our leadership team in Jacksonville is uniquely today is prepared to build a big bank there. Scott Keith, who will run that market for us, is a is a 34 year veteran in that market. He was the former Regional President for North Florida at Truist today, he led an 1100 employee group serving 100,000 clients in that market. Today is joined by Debbie Buckland, who has 27 years of local experience and was the former Market President in Jacksonville at today is SunTrust and prior to that SunTrust.

Speaker 2

And they are also joined by Brian Taylor, who has 21 years is experienced in the BB and T Truist franchise as well. He most recently led North Florida, the middle market effort today is a very strong quarter. So I think it's evident why Jacksonville and why now. So with that, I think I'll turn it over to Harold and we'll walk you through the 2024 outlook.

Speaker 3

Today. Thanks, Terry. Quickly, we'll go through the 2024 financial outlook. What I'd like to do is condense will take all the information on the slide down to 5 key points. First is deposits.

Speaker 3

We have to maintain today is consistent with our deposit book at a reasonable price. That's what makes all the initiatives that we've invested in to gather new deposits so critical. Today, I believe we've made great headway. I think we have got great tools in place. I think we've hired experienced professionals promote and lead these deposit gathering initiatives.

Speaker 3

So high single to low double digit growth seems reasonable. Is a very strong quarter. Secondly, BHG. We don't anticipate BHG to have a great year. We do expect modest growth, mid single digit growth, but I think that comes basically today is from a new firm, one that has the ability to achieve sustainable growth with an intense focus on growing core businesses.

Speaker 3

We've had a great partnership with BHG and we believe that the partnership is as strong as ever. We believe the leadership at BHG is focused on the franchise and not on pushing more widgets through the pipe. If credit can get back to its usual run rate by the second half of this year, today. Loans and loan pricing, primarily fixed rate loan pricing. We've done well to get fixed rate loans pricing to their current levels.

Speaker 3

In comparison to peers, we did quite well, but we can be better. We will continue to focus on that as I think that will be absolutely critical to our ability to grow net interest income high single to low double digits in 2024. Today is now available. Now I'd like to talk about expenses. It seems like our expense growth rates are always a topic of great discussion.

Speaker 3

Today is in the Q3, we harvested at least $30,000,000 out of our incentive plan to help support our EPS results for 2023. In order to support our people in 2024, we need to have a plan that accommodates upwards of $40,000,000 to $50,000,000 in additional incentive expense. Today. As always, we absolutely have to hit numbers. If we don't hit numbers, we won't pay.

Speaker 3

We've averaged about 80% of targeted payout in my is a very strong quarter for the quarter. We are not bashful about using the incentive pool to help support our earnings results. I do think a reasonable expense target at this point for 2024 probably in the range of between $960,000,000 $985,000,000 So as you're putting together your models, that range seems fair for today. Lastly, earnings. Today.

Speaker 3

This management group understands to get the share price moving up, you've got to grow core EPS. We believe 2023 was a 6.0¢ year, today, we're aiming north of that. We've looked at peers and have stacked ranked earnings growth rate projections for 2024. Our plan will be comfortably in the top quartile of earnings growth. We have to grow earnings in 2024, so our targets reflect that.

Speaker 3

Today, we can't let expense growth outpace revenues. It's that simple. Hopefully, we can achieve our planning assumptions such that all of our associates today, while at the same time the share price reflects all the hard work they've accomplished. Today

Operator

is now open for questions. Your first question is coming from Ben Gurlinger from Citi, your line is live.

Speaker 1

Hi, good morning guys.

Speaker 3

Hi Dan. Good morning.

Speaker 1

Today is just kind of touch base on the expenses, Harold, good clarity just a second ago. So when you think about just expenses overall, today is just entirely going to or majority going to lenders or is there some technology or back office spending that needs to be done? Today, I mean, it just seems like Pinnacle getting back to legacy Pinnacle of kind of low double digit growth is good, but it could put some pressure on PPNR over

Speaker 3

today Yes, Ben, I'll start and I'll let Terry kind of add his comments as well on this whole topic. Today, our non personnel expense base for next year is fairly reasonable. Today, I think last night we talked about in the press release that our if you exclude incentives, growth rate is probably in the low double digit range. Today I think that's pretty conservative. With the call it an 8.60 to 8.85 kind of target for this year, I think we're more of a high is a single digit kind of grower with respect to excluding incentives.

Speaker 3

Our IT team has gone through What they believe they're going to need to do this year, we spent a lot of extra time on operational expenses and information technology expenses for 2024, we think we've got a good plan. We think we've got a plan that they can accomplish today is the same time not overboard on kind of the expense burden. With that, I'll stop and let Terry kind of finish.

Speaker 2

Today. Yes, Ben, I think to your point, we continue to invest. I think it would be full hearty not to invest in today? Technology, I mean, you've got all the digital progression, AI, all those sorts of things. So we're not a do nothing company.

Speaker 2

We continue to today, I think you know about our firm. We're not trying to innovate anything. We're not trying to today is something particularly new and different. Our idea is to be a fast follower. And so to do that, we have to stay current.

Speaker 2

So certainly, there are expenditures today Other than incentive type expenditures, but one of the things that I guess I would offer for clarity In this company, your question was phrased around is it all going to lenders. So in this company, 100 percent of our salaried employees participate in annual cash incentive plan and 100% of us today, we are going to continue to invest in our earnings growth targets and keeping asset quality strong. So today, 3,400 people are aimed at that outcome and that's who gets paid. And so having only paid today is at a 62% level this year, you would expect most of our associates desire to make 100%. Therefore, we have to today will run fast enough to produce enough revenue and earnings growth to satisfy the shareholder returns, but get our associates today, I think we can do that.

Speaker 2

Sure. That's good color.

Speaker 1

I think just philosophically hitting commission targets today and bonus payouts is a good thing because it literally means

Speaker 5

you hit your upside targets.

Speaker 1

If you could kind of just parse through here a little bit. So when you think about to adding additional lenders and just revenue more lenders specifically than just revenue producers. How are they incentivized or how much What flexibility do you give them on gathering deposits in this environment? I mean, given your pretty rapid pace of growth, today are you giving them a little bit more slack to gather deposits? I'm sure that's on the scorecard as well.

Speaker 1

Kind of tangentially, today, does that kind of put a lid on the margin overall? I guess the back book repricing will produce a higher margin by the end of the year. I'm just kind of curious on how you guys are structuring their incentive on gathering deposits and any flexibility on a rate they might have?

Speaker 2

Today. Yes. Ben, let me just reinforce the point I made earlier. Most people have a hard time understanding the incentive today. Most people are used to structure plans where relationship managers get paid on one basis and branch today, Andrew might be paid on a different basis and so forth.

Speaker 2

That's not what happens here. 100% of our salary based today, which would include lenders, financial advisors, office leaders, every category of today. Their incentive is tied to this company hitting its revenue and its earnings targets. And so that's a really important thing that I think a lot of people don't get that direct connection. And so when you ask about the incentives for the lenders, if you will, to gather deposits and so forth, today, we have an incentive, which is we're going to have to hit the revenue and earnings growth targets and to get that done, we've got to today, we have to produce satisfactory deposit volumes.

Speaker 2

And so that's the mindset inside this company, 3,400 people today, individually based incentive plan. I don't mind to say to you, I don't want to go today, you're too far afield from what you're asking, but that idea is really important. Every quarter we meet with all the associates of the firm and we talk to them about, hey, here's where we are on our today is performance on revenue and where we are on earnings and how that impacts incentives and these are the things we need to do. But it is really easy to crystallize for every single person as an example, if we're not hitting if we're not re pricing fixed rate loans at a satisfactory margin, Man, every quarter you can stand in here and say, okay, look, here's what the target is, here's what we did, here's what that cost us in terms of revenue and earnings. Today, everybody can see through clearly to exactly what has happened and what needs to happen in order to hit the target.

Speaker 2

So I I don't mean to go on too much about it. I hope that's

Speaker 1

helpful. Yes, it is. I was just more so curious like How much flexibility are you giving them on rate in order to gather those deposits?

Speaker 2

Today. Again, we're getting way down into the philosophy here. But as you know, we hire experienced people. The average experience of the people that we've hired is 26 years. Today.

Speaker 2

Fundamentally, what we do is try to make sure they know what our targets are and then give them plenty of freedom to today, generally, the relationship manager has the flexibility to decide what the price is for the deposits and what the price is for the loans. Today What happens is in fact, because of this idea, they know we have to hit the targets. They're not inclined to over today, we are going to be able to pay on deposits or get underpaid on loans and so forth. And of course, we have a tight management system where every month we're is going down through everybody's performance with key performance indicators talking about, hey, what's the reason for this? Why are you doing this?

Speaker 2

This price needs to come down, all those today So it takes an active management, but generally we're handling that in arrears and empowering our client facing people today to be able to handle client needs without a lot of bureaucracy.

Speaker 1

Today. Got you. I appreciate that. Thanks, guys.

Speaker 2

All right. Thank you, Bill.

Operator

Thank you. Your next question is coming is from Brett Rabatin from Hovde Group. Your line is live.

Speaker 6

Hey, guys. Good morning.

Speaker 4

Today. Hi, Brett. Hi, Brett.

Speaker 6

Wanted to start with BHG and just try and understand a little better the Confidence on the reduced losses by 2Q. Can you just walk us through your thought process on BHG today, and obviously, it's the guidance is for fairly minimal growth and contribution this year, but it sounds like you're thinking it could be today is a lot better if certain things play out right with

Speaker 3

credit and perhaps growth. Yes, that's a great question. Today, we have conversations with BHG quite frequently and they still believe that the first today, we are pleased with the half of twenty twenty two and the 2021 loans where these outsized losses are originating today will see substantially all their losses within, call it, the 1st 30 months of origination. Today. And given the grade inflation, a lot of those loans have come to today is kind of knowledge that they're not there won't be good loans fairly quickly.

Speaker 3

So they believe that today have already gone through this proverbial pig through the python. And so they're still looking at some of the 22 credits today and watching those, but they believe that they're substantially through the bulk of the problems.

Speaker 6

Today is Okay. And then, I'm just thinking about FinTech.

Speaker 7

I'm sorry, Terry.

Speaker 2

Today. Brett, I was just going to say, I think said simply, they're watching their migration analysis. And to Harold's point, the losses the today, the largest part of the losses occur in the 1st 30 months. So when you look at those migrations, they really have just a few more months to go before they will have today, we are pleased to report that 30 month cycle for that period where the grade inflation occurred. And so, again, I think Harold tried to isolate out today is ongoing FICO scores and so forth for more recently originated credits.

Speaker 2

And so it's just a matter, as he today Getting that pig through the python, which is literally just several months away.

Speaker 6

Okay. That's helpful. And then just around BHG conceptually, the IPO market for FinTech was fairly minimal today, last year and this year, it could be better. Is there a potential for you guys to maybe sell a portion of today is BHG's ownership to potentially increase capital ratios or how do you think about BHG ownership from here and today, Al, they obviously at one point were it would appear a bit to have been thinking about an IPO. Can you maybe just walk through your ownership of them from here?

Speaker 2

Today. Yes. Brad, I think I would say this. It's really just a reinforcement, I think, I hope, of what I've today. So we still enjoy a fabulous partnership with BHG.

Speaker 2

I continue to love that business. Today. As I've tried to say, if I own 100 percent of Pinnacle, I'd want to own 100 percent of BHG and we would focus on gain on sale transactions, today. But it doesn't work that way. And so I think we've come to the conclusion that the volatility and the difficulty in getting bank investors today.

Speaker 2

I understand the model. At some point, it's just not worth continuing the battle. And so we have decided whenever today That's right that we would like to reduce our ownership interest at BHG in whole or in part, today is not to be trite, but I'm more of a buyload, sell high guy. And so it's not an ideal time to liquidate our position. We're comfortable today provides a great source of income to us and so we'll continue in the current arrangement.

Speaker 2

But today Whenever the markets get to a point where you could enjoy a higher price, we would be willing to sell today is some or all of our position in BHG.

Operator

Thank you. Today. Your next question is coming from Timur Braziler from Wells Fargo. Your line is live.

Speaker 8

Today is Hi, good morning.

Speaker 9

Can you maybe

Speaker 10

talk through the expectation for net interest margin cadence throughout the course of the year with the expectation for it to be relatively flat in the Q1 and then for your outlook with 3 rate cuts, it seems like there maybe isn't that much NIM upside. I'm just wondering kind of what your expectation is for NIM cadence throughout the year given the broader NII guidance.

Speaker 3

Yes. Tamara, I think what's in our plan for this year is that we will see continued increases in our fixed rate lending. So that will provide somewhat of a tailwind here in 2020 today is for, call it earning asset yields. I think we will have to be very aggressive today, if there is a rate cut. Now keep in mind that basically 27% of my deposit book is indexed.

Speaker 3

So I do have that head start, probably more so than maybe some others. But our relationship managers will have to maintain constant contact and discuss this with their depositors today is over the course of 2024, so that we can respond very quickly with respect to rate cuts. Today, I appreciate that other banks can go into their systems and punch a button and lower deposit rates. We can do that too for some portion of our deposit book, but what it's going to do for us or what we're going to have to do is be in touch with our clients in a way today, because we're going to be taking money away from them basically.

Speaker 9

Today is Okay, got it. And then just looking at

Speaker 10

the 2024 commercial real estate maturities, Can you talk through what years those loans were originated? And I'm just wondering for the 2019 and prior vintages, how different are those credits given just how different the world is today compared to pre pandemic?

Speaker 3

Today Well, I think most of our commercial real estate loans are probably on a 3 to 5 year today. Most of the both owner occupied and non owner occupied loans are on a fixed rate. So today, I think by and large, most are ready for rent increases. I think the last number I saw was that they've seen today is some 20% to 30% increase in rentals over the last 3 to 4 years. So we feel like they've got the cash flow to support today, the increased interest rates.

Operator

Thank you. Your next question is coming from Steven Alexopoulos from JPMorgan. Today, your line is live.

Speaker 5

Hey, good morning, everyone.

Speaker 3

Hi, Steve. Hi, Steve.

Speaker 5

I'll start today Guys, following up on that, so when I look at Slide 12, you guys are pretty excited about these renewal rates coming in much higher today is on your commercial real estate portfolio, but that same phenomenon is keeping many investors out of the banks, particularly the regional banks. Today And all of the regionals are being painted with the same brush no matter where your markets are. So I have two questions. One is for the commercial real estate loans that were re today, in the Q4, including office, I know you don't have a large office portfolio. Could you just share with the investor community what's happening with these loans?

Speaker 5

Today There's this pretend and extend mentality that you guys are just extending these and they're not renewed. Can you share with us what's happening? How much of the value today is unchanged. Are you able to just renew these without any impact on credit? And as you look at 1Q 2024, 2Q24, 3,

Speaker 3

today, Steve, I'll start and let Terry clean me up here. Today, I'm not hearing from the credit officers. They're having any kind of particularly onerous time with respect to getting renewals accomplished today are having to sacrifice concessions or whatever to get these new loans booked. I think today, what we do enjoy and you mentioned you kind of mentioned it is that we are in great markets and we're seeing today, rent increases, we're not seeing any kind of reductions in occupancy rates. Today, we think our commercial real estate book by and large is probably one of the best performing today is a very strong quarter for the quarter.

Speaker 3

So we're pleased with where it is. A lot of these developers, builders, today, borrowers have been with Pinnacle now for a long time or with their relationship managers for a long time. So We feel pretty strongly that our client selection processes have been good. And so we don't feel necessarily the need today is to be overly concerned. That said, our credit officers are looking under rocks today is everything they can to be prepared should something come up that we didn't expect and they're having conversations with clients today, I'll let you go from there.

Speaker 2

Yes. I think I would hit 2 or 3 today as it relates to commercial real estate in Hull and particularly as it relates to the office portfolio. Today. I think one thing, Steve, that amazes people, if you go through our 40 largest today is, loans that are being handled by special asset people, people that work difficult credits. Today.

Speaker 2

I think there are 2 loans in that top forty that would be CRE related. And so again, I just say that you know the phrase, the past performance doesn't ensure future today, but it certainly is a strong indicator to me that portfolio was held up so well so far. I think one of the reasons that it has is 2 things. 1, as we underwrote those loans when they went on the books to begin with in the construction phase and so forth, we always underwrite with a mortgage constant that projects a future today, constant on what the firm that would take you out at. And I would say, most of the loans on the books would have been underwritten, Assuming the mortgage cost in the 6.5% or 7% range.

Speaker 2

So granted that might be a tick below the renewal rates, but it's not is substantially below the renewal rates. It was underwritten to perform at that level. I think the other thing, this might be the most important aspect. Today, I like you. I mean, I've got CNBC on and I watch these disaster stories from markets like San Francisco or today, up the East and so forth.

Speaker 2

But in these southeastern markets, we use the math, we talked about the growth going on in those markets, But the rent growth over the last 3 or 4 years has really been extraordinary. And so that rent growth obviously is what today enables those borrowers to absorb the elevated fixed rates and puts us in a good position. I think on the idea of the extend and pretend, every now and then we do as we renew, we have people that have to right size today. But if they have to right size it, they have to right size it. I mean, we're not just rolling it and hoping for the best.

Speaker 2

They need to do whatever it takes to right size that credit. Today. So anyway, as I say, I don't want to overemphasize past performance, but it is a comforting thing to me.

Speaker 5

Yes. Today That's helpful color. I want to pivot to the margin. So, Harold, I think you said you're assuming 4 cuts today is in the guidance. Is that right?

Speaker 3

That's right.

Speaker 5

Okay. So if I look at your margin before the pandemic, right, you guys are pretty is routinely at 3.5% to 3.8% range, which is way above where you are now. If we think about is a more normal curve at this level of rates, which is normal, won't go back eventually into that range. I know it will take time, but as these renewals play out, today You cut deposit costs. Is there any reason to think over time we're not somewhere back in that range?

Speaker 1

Today I think that's

Speaker 3

a great question and we debate that quite a bit as to what we think our long term net interest margin is. And we believe it's somewhere in the $3.40 to $3.60 range and we get there based on what our current spreads on our floating rate credits And then what we think our depositors will need to pay in relation to Fed funds. So today We think we're at 3.40 to 3.60. I'm not hinting at that we'll get to that this year. But at the same time, we do believe our margin today is in great shape right now.

Speaker 3

We think our balance sheet is in good shape. We think we can definitely take advantage of what today. The market will present us this year provided we can see some call it less steepening in the yield curve.

Operator

Today, thank you. Your next question is coming from Casey Haire from Jefferies.

Speaker 1

Today. I wanted to just follow-up again on expenses. So just to clarify the base, I'm assuming that today is the 9.22, which includes the FDIC assessment. And then just what is the what are some of the factors Given it's a wide range, about 5 percentage points between the high low, like what are some

Speaker 11

of the factors that get you to the high end of that range versus the low end?

Speaker 3

So, Casey, just to be clear, what you said a $9.22?

Speaker 1

Yes. Today Sorry, whatever GAAP expenses were in 2022. Basically, your guide is based on today is 23 expenses, which includes the FDIC assessment, correct?

Speaker 3

Yes. What's on the slide would not include the FDIC insurance is a special assessment. So with the mid to high double digit, you need to take out that special assessment.

Speaker 1

Today. Okay. Got you. All right. And then just what are the some

Speaker 11

of the factors that get you to the high end versus the low end?

Speaker 3

Today I think if we can hit our revenue targets in the way we think we can, I think that will drive our incentive costs up today and that will drive our expense base up? I think if we have a strong year in today, our hiring, that will also trend our expenses up. Today, our expense guide does include Jacksonville. So we've embedded that today is well in there, and we've got high aspirations for what we believe today, the leader we hired in that market can accomplish.

Operator

Thank you.

Speaker 2

Today I think that's it, Harold. Okay.

Operator

Thank you. Your next question is coming from Michael Rose from Raymond James. Your line is

Speaker 8

live. Hey, good morning. Thanks for taking my questions. Just a follow-up on BHG. In the press release, you mentioned that they exited today are some businesses.

Speaker 8

Can you just discuss what those are and what the kind of the impact was to their kind of origination guidance as we think about 2024? Thanks.

Speaker 3

Yes. They had that buy now, pay later franchise that they were developing. Today, I think last year they originated like $50,000,000 in production, something like that. So that they will wean off that. Today, they've always experimented with this patient lending franchise.

Speaker 3

I think they've decided to abandon that as well. There's a couple of others that are also on the list that I'm aware of, I'm not sure where they are with discussions with the people that work in those units. I I think they've had discussions with them. I'm just not sure, Michael. But that is embedded in the production guidance they have for this year.

Speaker 8

Today. Okay. That's helpful. And then, just as my follow-up back to the margin. I think if I'm doing my math right, it implies today is a pretty steep ramp in NIM progression as we move beyond kind of the Q4 even against your expectations for rate cuts.

Speaker 8

Just wanted to kind of today Put a finer point on just that progression or earning asset growth, if you could. Thanks.

Speaker 3

Yes. I think we do see NIM increases this year. I don't know what how fast you had it going up, But I think it will be fairly gradual. We might have kind of a down the Q1 is going to be a challenging today, I think after that, we ought to see NIM progression that you all ought to be happy with.

Operator

Thank you. Your next question is coming from Brandon Kagan from Truist Securities. Your line is live.

Speaker 1

Hey, good morning. Thanks for taking my questions. Today Hi, Brandon. Hey. So I noticed that the spot rate for deposits was lower at the end of the year compared to the average for the quarter.

Speaker 1

So is it fair to say that deposit costs have already peaked? Today

Speaker 3

is Well, I think until we get today, there will be some deposit creep, but it won't be nearly at the pace we saw in all of 2022.

Speaker 1

Today. Okay. Okay. And then on the mix side of things, how are you thinking about how the mix today. And how does that kind of flow into your assumptions on deposit costs?

Speaker 3

Today Yes, that's a great question. As far as the mix shift out of DDA into higher yielding deposit products, today, we still plan to see some more of that, but again, not like we saw earlier in 2023, today, but we do believe there will be some more attrition out of non interest bearing into interest bearing products, today, again, not at the same pace.

Operator

Thank you. Your next question is coming from Matt Olney from Stephens. Your line is live.

Speaker 7

Hey, thanks. Good morning, everybody. Just wanted to go back and revisit the 2024 outlook today, and what this implies for the year over year PPNR growth, it feels like you're trying to say that there will be today is modest year over year PPNR growth even with the higher expense guidance, but just looking for any clarification around that.

Speaker 3

Yes. I think our planning assumption is that we will. I think it will be If you look at what the peers are looking at for next year, it's a modest at best kind of year for 2024, today, we fully intend to outperform the peer group. It probably won't be consistent with, call it, today is a year prior, but at the same time, we fully expect to see PPNR and net earnings accretion in 2024. Today.

Speaker 7

Okay. Appreciate the clarification. And then just a follow-up on BHG. I guess, I appreciate The guidance you gave us there, it sounds like cost cutting will be a driver of the positive modest positive fee growth there. Today, any more color on moving parts?

Speaker 7

How much do you expect the BHG revenues to decline year over year? And then for you to hit that kind of guidance you put out there, How much do we need to see expenses decline? Thanks.

Speaker 3

Yes. They had a pretty significant decrease in the Q4 from the Q3. I don't think they'll have today, that much more here in the next year, but they will see, today, call it some reduction in 2024 expenses in comparison to 2023. Today, they had a cost cutting exercise in the 4th quarter, that will be the primary contributor to that. Today, I think their revenues should shape up to be flattish maybe next year.

Speaker 3

Today, I think they're optimistic with respect to growth there, but the whole idea is to right size the today, we will be conducting a more focused on their core products and then get into kind of a sustainable growth rate going into 2025.

Operator

Today. Thank you. Your next question is coming from Stephen Scouten from Piper Sandler. Your line is live. Today

Speaker 1

is Yes, thanks. I guess my first question is just around the Jacksonville today, I may have missed this, but is the belief that this can be $1,000,000,000 to $2,000,000,000 in asset bank and then with the you also have Louisville noted on the map. I'm wondering if that's just the construct of the map or if that's intentional.

Speaker 2

Two things. Stephen, I think in the case of Louisville, we today. I have started a de novo operation there, I guess, Harold helped me, 3 or 4 quarters ago or something like that. So it's is an early stage build out using the same model that we have market leadership with a today Long career at Wells Fargo that's leading our effort there. Today In the case of Jacksonville, yes, we do believe I think you used the number $1,000,000,000 to $2,000,000,000 Generally, our target is a $3,000,000,000 bank is in a 5 year period of time.

Speaker 2

As you may know, generally for these build outs, today, we cross breakeven anywhere from 4 to 7 quarters, depending upon how steep or what the trajectory is there. But We're expecting a pretty rapid build out in Jacksonville that would likely resemble what we've done in D.

Speaker 4

C. Today is

Speaker 1

Okay, great. And then just my follow-up is around net charge off expectations. I think it was 16 basis points this year and you said 2024 should be consistent with that. Today, what's kind of embedded within those expectations in terms of overall economic scenario? I mean, are we thinking about a soft landing and if things get worse overall, that today could be worse as well or is that just a function of your book itself and the strength of your internal book?

Speaker 1

Today Yes, Steve.

Speaker 3

Go ahead, Jerry.

Speaker 2

No, go ahead.

Speaker 3

Today I think I'll say yes to all of that. I think before we release earnings, we have today are some conversations with the special asset people. We have conversations with the credit officers. They feel pretty good about where the book sits today. Today, they feel pretty good about what borrowers are doing and how they're cooperating with us for those that might be under some kind of special considerations.

Speaker 3

Today, we don't sense that in order we sense that the company is presenting huge challenges for today is the portfolio at large. So we think that was really healthy here this time going into 2024. And Appreciate that we could have a recession. It could be a soft landing. And I believe our assertion as to where we think charge offs will be in 2024 is under kind of a soft landing, no recession kind of scenario.

Speaker 3

Who knows what happens if we get into a hard landing? Today. Anyway, I would say yes to all the items that you talked about, Stephen.

Speaker 2

Today, I think our assumption is that we are most likely to have a soft landing, today is perhaps a modest recession and given the health and strength and current performance of the portfolio that today. Got it. It's all to hold up. I think to Harold's point, you have a great recession. I don't think you ought to assume we're going to have 16 basis points in net charge offs.

Operator

Today, thank you. Your next question is coming from Catherine Mealor from KBW. Your line is live.

Speaker 12

Today. Thanks. Good morning.

Speaker 3

Hi, Catherine. Hi, Catherine.

Speaker 12

A follow-up on BHG and just thinking about How to model the revenue for BHG next year. If you look back at the size of the balance sheet and the loans that stayed on balance sheet for BHG, today, that grew a lot throughout 2020 2022, as we are kind of shifting from the gain on sale strategy to more balance sheet. And of course, that today. This year, the balance sheet was basically flat in 2023, just given the rate environment. How do you think about how that looks as we move through 2024, today is as we kind of think about how much of origination stay on balance sheet versus how much go out into the bank network Or move off balance sheet in the private sales transaction.

Speaker 3

Yes. I think what's going to happen this year is, I believe based on conversations I've had with our CFO, you should see more headed into the bank network today, I think it was fairly close to even split in 2023. I think they'll try to lean into the bank network a little more this year than last. I think we still are planning 1 or 2 today is the largest company in the world. We are pleased with the company in the Q4, which we think was today is great news for them.

Speaker 3

But yes, I think they will use the bank network with a little more intensity in 2024.

Speaker 1

Today. Okay, great.

Speaker 12

And then on just the big picture kind of today is the 2020 4 outlook and just thinking about EPS growth. And I know you've kind of answered this in a bunch of different ways. But I mean, Your target for full actually maybe question 1 is, what is the incentive comp in today. 24 versus 2023. I think it started out the year 125 last year.

Speaker 12

So curious what that looks like for this year assuming a full payout. And then maybe within that, today, I'm assuming that even with a full payout, that is assuming you're going to grow EPS year over year kind of off of the, today, let's call it a $7 number in 2023. And so again, I just want to reiterate, today. There isn't a scenario where you're going to have this kind of mid double digit expense growth pace and today have decline in EPS or have mid single digit revenue growth. And just want to kind of clarify today How you're thinking about how those 2 pair together and ultimately what you think is an appropriate EPS growth rate to have in 2024

Speaker 3

today Yes. As we put together kind of the earnings number and we've had to do this in the past, but I think it's probably beneficial to do it. We're talking low to mid single digit kind of earnings growth for this year. Today. And so with that, what we have to do is build a plan that will get our associates their incentive.

Speaker 3

We're starting at, call call it 120 percent of target, and then we'll tier it upwards to where we think our earnings number needs to be for the year, And it will go all the way down to 0 as far as payout. Today, last year, you're right, we started at 125,000,000 we ended at 62,000,000. So basically, today from what our associates were looking at, at the beginning of last year to work it out, we cut it basically in half. Today for 2024, we're starting with like, call it, 120 percent payout. And today, that number is somewhere in the $100,000,000 range, if we can afford it.

Speaker 3

Today, but you're right, the earnings have to show up. And if they don't show up, that $100,000,000 gets today begins to get less fairly quickly.

Speaker 2

Hi, Catherine. I might jump in and add today is to Harold's comments, and I know you know this, but I get questions over time, which make me believe some people don't understand this. Today But that earnings target that gets set there, we've never said it to be less than the top quartile. As you know, this year, top quartile is not is all that high, but again, we are projecting earnings growth here. It will be top quartile.

Speaker 2

Today, and that earnings growth that we're projecting contemplates the full payout of the annual cash incentive plan. Today. And in the event that the revenues don't materialize to produce the earnings at the targeted level, today The way you pay for that is you trim the incentive expense. And so again, I think I know there are a lot of companies that have all kinds of today. Incentive plans where if they make some, then they pay out all this other stuff.

Speaker 2

Man, that's not the way it works for us. The incentive is built into the earnings projection. When the earnings today Show up, we pay it out. In the event they don't, we retrieve that or harvest that to fuel earnings to the shareholders. So I don't know if that's a helpful explanation or not, but

Speaker 12

No, it isn't. It's certainly what we saw this past year. Today. And it's just tough in a year where the rest of to your point, peers in general are forecasting a decline in EPS year over year. Today.

Speaker 12

And so top quartile may look really good, but it's or you may be tough quartile, but you still may be kind of flat EPS growth. So I was just trying to kind of think about how you're thinking today EPS growth, and marry that with the full payout to make sure we're thinking about an EPS target appropriately.

Speaker 2

Today Yes. I think Harold gave it to you, didn't he?

Speaker 12

Yes, he did. I'm good. Very helpful. Thank you.

Speaker 4

Today

Operator

Thank you. Your next question is coming from Brody Preston from UBS. Today, your line is

Speaker 1

live. Hey, good morning, everyone. Hi, Brody. Harold, today. I'm sorry to beat a dead horse on expenses.

Speaker 1

I just wanted to put a pretty fine point on it. So excluding the FDIC surcharge, you're at is $858,800,000 of expenses for the year. If I look at the guidance slide, I take kind of mid to high teens today to imply 14% to 19% kind of range. So the midpoint of that would imply $1,000,000,000 number off of your 858.8

Speaker 13

today versus the $960,000,000 to $985,000,000 you gave, which is about $972,500,000 So it's about a 3% difference there. And I was just wondering What's driving the delta between what you said on the call versus what's implied in the deck last night?

Speaker 3

Today Yes. I think, Brady, that's a great question. I think our number is more like 13% to 18% first. Today So we call that mid to high. The I think the delta is around 120 today percent payout versus 100 percent

Speaker 4

payout, and

Speaker 3

some other things that I'm aware of in our plan where I think we have some cushions. So today That's what got me to the $9.60 to $9.85 number I talked about earlier.

Speaker 13

Today. Got it. That's very helpful color. I appreciate it. And then I did just want to ask on NII, a couple of questions and one here.

Speaker 13

Harold, could today. You said May, I think, for the first cut. First part of the question is, could you clarify within your NII guidance when the today are the 3 cuts you have occurring are? And then secondly, just when I look at the loan growth guidance and compare it on an average basis, today implies about 11 plus percent average loan growth. And so I guess, I'm wondering, today is there the opportunity where you guys could kind of outperform even the high end of the guidance range that you've given just given the low double digit average loan growth you're expecting combined with pretty significant fixed rate re pricing throughout the year?

Speaker 3

Today. Yes. I think on, 1st of all, on the rate cuts, and don't hold me to this, but I had that question for some people here yesterday. I think it was I think we've got embedded July, September November, today, I think those are kind of splitting the dot plot. But anyway, I'll go with that.

Speaker 3

It's just a steady decrease. I think along with that, you should assume a high beta on our deposit today is the Q4. We had a high beta going up. We think we'll have a high beta going down. So we will try to recoup as much of those rate decreases today as we can from our deposit book or get let's try to get as close to 100% as we can.

Speaker 3

As far as loan growth, and I'll let Terry also talk to this as well. I think the guardrails we have on loans are related to capital today and related to client deposit growth. We can't let loans just outgrow deposits today is extended. In the Q4, we were like $700,000,000 to $200,000,000 something like that. Today, we need to push deposit growth up.

Speaker 3

At the same time, we've been steadily accreting capital over the last today, we think that's healthy. We think that we will continue to do that. But we can absolutely beat the loan growth target that we today on the

Speaker 13

outlook slide. Got it. Could I ask just one quick follow-up? I just wanted to follow-up on Brandon's question that he had on the spot rate on the interest bearing deposits being below the average for the quarter. Today, I know you said to expect further creep, but I'm just trying to think mathematically if you guys aren't raising today is the range of rates at this point, what drives the average up if the spot rate is below today, where it was for the Q4?

Speaker 3

Yes. I think what could contribute to increased deposit rates is just new accounts, I think that would be one of the primary contributors. Additionally, mix shift could occur primarily around our public fund deposits. Today, we believe the bulk of our public fund depositors have already built their balances up, but we could see some increase in their balances. Today, most of those accounts are indexed.

Speaker 3

And so consequently, as they collect property taxes and whatnot, that money finds its way to our bank. Today.

Operator

Thank you. Your next question is coming from Brian Martin from Janney Montgomery. Your line is live.

Speaker 9

Hey, good morning guys.

Speaker 3

Hey, Brian.

Speaker 4

Hey, just a is a

Speaker 9

couple of easy things. Terry, just the hiring outlook. I think last quarter you talked about it maybe being a little bit better in 2024 than 2023. Is that still your expectation? Just kind of especially with Jacksonville, how are you thinking about hiring in 2024?

Speaker 2

Yes. I think we had today is a little bit of a reduction in the hiring pace in 2023 from 2022. I think we're likely to migrate back Somewhere closer to the 2022 level of hiring. And to your point, Jacksonville will be a big contributor to that hiring.

Speaker 9

Got you. Okay. And I think you guys talked in the slides about some deposit initiatives. Just to your last point Harold about today, getting the deposit growth you need for the loan growth, are there any new initiatives you have in place or is it just the ones you talked about in the past?

Speaker 3

Today Yes. It's the ones we've talked about in the past. Terry, why don't you take the rest of it?

Speaker 2

I would say that we've today, the Enumerator talked about 4 in the past. We introduced 3 more toward the tail of 20 20 today, we'll probably introduce 2 or 3 more over the course of 2024. I think the 3 additional today is probably the one that holds the most opportunity for us is focused on all manner of escrow accounts, whether it be today, 1031 exchanges, mortgage escrows, attorney firms, all those kinds of things. Today But we believe that we have an advantaged software capability for people that are running today, as agent on escrow money, we think we've got some advantage software that's helpful there And look for that to be the biggest of these most recent 3 product specialties that we've introduced. Today.

Speaker 2

And so I think what's important about it, Brian, is 2 things. 1, the size of the market is huge. Today We have an Advantage product, which ought to let us penetrate it well. But the second thing that's really important is most of that money is either no cost or low cost money and so that's a powerful specialty that we have.

Speaker 9

Got you. Okay. That's helpful. And just the last one for me guys was just Harold back on the margin. It sounds like Q1 is flattish or stable and then Up from there, the biggest drivers of that cadence of increase throughout the year, is it outside of the fixed rate today, repricing is there something else in there, I guess that's the key driver, is that it?

Speaker 9

I know you have liquidity dropped a little bit this quarter, so just trying to understand today, the benefits there going forward.

Speaker 3

Yes. We do have today, liquidity shrinkage over the course of the year, that will be a contributor to the margin primarily, not necessarily net interest income. Today, we do intend to be very aggressive on reducing our deposit costs.

Speaker 8

Yes.

Speaker 3

I think we determined that based on what happened during the liquidity crisis last year that and our ability and the fact that we've raised rates so aggressively today, we've got the ability to lower and I believe a lot of the large caps are talking about that they're still trying to catch up on deposit rates. Well, we think We're pretty much already there. So we fully intend to take advantage of rate cuts on our deposit bill.

Speaker 9

Okay, perfect.

Speaker 4

Today is to be recorded.

Operator

Thank you. That completes our Q and A session. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.

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Earnings Conference Call
Pinnacle Financial Partners Q4 2023
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