Release Date: July 17, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pinnacle Financial Partners Inc (PNFP, Financial) reported an inflection point for revenue, EPS, and adjusted PPNR, indicating strong underlying growth.
- The treasury management team successfully repositioned the securities book, enhancing ongoing revenue and earnings run rates.
- Client deposits grew by more than $700 million, allowing the company to remix the deposit book away from higher-cost broker deposits.
- The company continues to attract record numbers of revenue producers, supporting them with incremental facilities.
- Pinnacle Financial Partners Inc (PNFP) has a strong competitive position in deposit rates, with a minimal increase in weighted average deposit rates over the past year.
Negative Points
- Loan growth came in lower than anticipated, leading to a slight reduction in the loan growth outlook to 7%-9%.
- Net charge-offs increased to 27 basis points in the quarter, although the company continues to guide 25 basis points for the year.
- The company experienced a $10 million charge-off related to an owner-occupied commercial real estate credit.
- BHG's second-half 2024 production is expected to be consistent with the first half, resulting in lower production targets for the year.
- Expenses are projected to be higher, primarily due to increased incentives, loss protection fees, and better-than-expected hiring success.
Q & A Highlights
Q: How much of the slower growth in legacy markets is due to the repositioning of the loan portfolio, and is there a slowing of growth in these markets due to pricing selectivity or market penetration?
A: Harold Carpenter, CFO: Over time, lenders in legacy markets may see growth contract from a percentage perspective, but we still expect them to keep up with the broader economy. We have high expectations for newer markets starting from a lower base. We are still hiring in legacy markets to drive growth.
Q: If net interest income (NII) ends up being better than expected, how much of that might be offset by the increased incentive target?
A: Harold Carpenter, CFO: There is a grid for incentive accruals, and if NII increases, approximately $0.20 to $0.25 of every additional dollar might go into the incentive accrual. However, this can vary as we approach year-end and adjust for named executive officers.
Q: Has the pace of new bankers moving business to Pinnacle slowed, impacting loan growth?
A: Terry Turner, CEO: No, we are not seeing a slowdown in bankers moving business. The pipelines for Q3 and Q4 feel much stronger and more vibrant than in Q2, suggesting better loan growth in the second half of the year.
Q: When did the securities repositioning occur, and what is the expected impact on the net interest margin (NIM) in Q3?
A: Harold Carpenter, CFO: The repositioning happened mid to late June. We expect a 3% spread differential on the $1.4 billion reinvested, which should positively impact the NIM in Q3.
Q: What is driving the notable change in BHG's net income outlook from mid-single-digit growth to a 10-15% decline?
A: Harold Carpenter, CFO: The primary driver is an increase in credit costs, particularly for off-balance-sheet loans. The pace of banks submitting for substitution has accelerated, leading to higher anticipated losses in the second half of the year.
Q: Is there a noticeable difference in the cost of deposits in expansion markets compared to legacy markets?
A: Terry Turner, CEO: Generally, there is no significant difference in the marginal production rates for deposits between expansion and legacy markets. Our relationship managers are moving clients and switching their lead bank to us without significantly higher rates.
Q: Once you hit the target of 225% capital allocation for CRE, will you continue to let it run down or maintain that level?
A: Terry Turner, CEO: We expect to reengage and target the allocation at 225%. CRE will remain an important asset class, but we aim to maintain a balanced allocation to manage risk effectively.
Q: How are you navigating the challenges in fixed-rate lending due to the rate environment, and what are your expectations for loan yields?
A: Harold Carpenter, CFO: We aim to increase fixed-rate loan yields closer to our target of 7.25% to 7.50%. Borrowers are opting for floating and SOFR-based credit, anticipating rate decreases. We manage this to maintain balance sheet stability.
Q: Is the shift from negotiated to index deposits complete, or will there be more in the coming quarters?
A: Harold Carpenter, CFO: The shift is mostly complete. We have hit our thresholds for index deposits, and our relationship managers have managed to keep overall yields in check.
Q: What is the outlook for non-interest-bearing deposits, and do you expect to win back interest-bearing deposits?
A: Harold Carpenter, CFO: We expect non-interest-bearing deposits to remain consistent or grow slightly. We are optimistic about new account growth, which should help maintain or expand non-interest-bearing volumes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
