Pinnacle Financial Partners Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brett Rabatin - Hovde Group LLC - Analyst : Hey guys, good morning. Great quarter from you on -- hey, guys. Great quarter from you on the growth in the core loan portfolio. I wanted to ask, if I look at the slides on the legacy markets on 28 and 43, the legacy markets are not growing. And the deposit growth this quarter in legacy markets was lower than 1Q. How much of that is the repositioning of the loan portfolio and is there some slowing of growth in legacy markets, kind of due to either pricing selectivity or just -- you kind off already penetrated those markets and further penetration is more difficult?

Question: Brett Rabatin - Hovde Group LLC - Analyst : Okay, that's helpful. And then the increase in the incentive target from 80% to 85% obviously, your outlook is a little better. Let's just say in the back half of the year, the margin NII ends up being better than what you've adjusted the target for to 85%. Is there a relationship we can think about if the NII is $1 better? How much of that might get taken out or taken reduced by the incentive increase if you got to 100%? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:30PM, PNFP.OQ - Q2 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Brett Rabatin - Hovde Group LLC - Analyst : Okay. That's really helpful. Thanks for all the color, guys.

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : Hey. Good morning, everyone.

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : I want to start -- so on loan growth, the second quarter was a little bit softer, and you guys are taking the full year guide down a bit. I know most of the growth has come from newer bankers moving books of business over. The CRE runoff is a factor too. But has the pace of movement from new bankers moving business to you guys -- has that slowed a bit here? Is that a factor?

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : Got it. That's helpful, Terry. I'm just wondering. Everybody's focused on loan growth, and I was wondering if peers are doing a better job of defending share from some of the bankers they lost, but it doesn't sound that way from your response.

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : Okay. And then, Harold, on the securities repositioning, I don't know if you said this earlier, but when did that happen in the quarter? And can you help us think about the NIM impact, net interest margin impact, from that in the third quarter. How much should that benefit the NIM?

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : Okay, but it was back-end loaded in terms of when you did this?

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : Okay, thank you. And final question on BHG. So there's a pretty notable change in the outlook, right? You went from up mid single digit for the year, now you're down 10% to 15%. Could you zoom out 30,000 feet and talk about what's really driving the change in the expectations for net income from them? Thanks. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:30PM, PNFP.OQ - Q2 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Steven Alexopoulos - JPMorgan Chase & Co. - Analyst : Got it. Okay. Thanks for taking my questions.

Question: Jared Shaw - Barclays Bank PLC - Analyst : Hey. Good morning, everybody. Thanks.

Question: Jared Shaw - Barclays Bank PLC - Analyst : Hey. Maybe just going back to the discussion around the expansion markets, looking more on the deposit side, is there a noticeable difference in the cost of deposits in those expansion markets, or are you using pricing on the deposits to really drive some of that? And is that also, I guess, to include ECR in that discussion as well as overall interest expense?

Question: Jared Shaw - Barclays Bank PLC - Analyst : That's great color. Thanks. And then when we look at the CRE book and you're letting that slowly run down with payoffs, once you hit your target of the 225% capital, do you expect to continue to see that go lower from there, or at that point, you would reevaluate the appetite and we could expect to see growth in loans to maintain that 225%?

Question: Jared Shaw - Barclays Bank PLC - Analyst : Great. Thanks very much.

Question: Brandon King - Truist Securities Inc. - Analyst : Hey, good morning.

Question: Brandon King - Truist Securities Inc. - Analyst : You mentioned indicate that the fixed rate lending has been challenged by the rate environment. So you mentioned in the deck that the fixed-rate lending has been challenged by the rate environment. So could you give us some context as far as how you're trying to navigate that? And also, how does that inform how you think about long yields going forward?

Question: Brandon King - Truist Securities Inc. - Analyst : Yes. That answers it. And then, in regards to the shift from the negotiated deposit to index deposits, is that move complete or are you planning to do more of that in the coming quarters?

Question: Brandon King - Truist Securities Inc. - Analyst : All right, thanks for taking my questions.

Question: Catherine Mealor - Keefe, Bruyette, & Woods, Inc. - Analyst : Thanks. Good morning.

Question: Catherine Mealor - Keefe, Bruyette, & Woods, Inc. - Analyst : Maybe just following up on some of the margin outlook, just maybe first on the security deals, I know you mentioned, Harold, that most of this bond restructure happened in the back half of the quarter. But you still saw a pretty big increase in your bond yields this quarter. And so just trying to think about if you can give us kind of an indication of where you think maybe bond yields will maybe start third quarter once this is all put together.

Question: Catherine Mealor - Keefe, Bruyette, & Woods, Inc. - Analyst : Got it. Okay. So it's fair to say -- I mean, we're not only just bond yields. One, it calculates the impact of the bond restructure, the $1.5 billion at 3% better spread, but then add in -- there was also an increase in just kind of core bond yields in the second quarter, more relative to what we saw in the first quarter.

Question: Catherine Mealor - Keefe, Bruyette, & Woods, Inc. - Analyst : Okay, great. And then on loan yields, is it fair to also think that with the $2 billion repricing, maybe you get a little bit of a better fixed rate, new origination levels, and then maybe a little bit better growth in the second half of the year that we could see a higher kind of per-quarter increase in loan yields in the back half of the year than what we saw in the first half of the year?

Question: Catherine Mealor - Keefe, Bruyette, & Woods, Inc. - Analyst : Okay, great. And then maybe just one more off of the margin. On BHG, you mentioned that you probably won't see another securitization until the first quarter of next year. And so what do you think BHG's preference is for placements? Do you think you'll see more kind of auction movement

Question: Catherine Mealor - Keefe, Bruyette, & Woods, Inc. - Analyst : Okay, great. Perfect. Thank you. I appreciate it.

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Hi, good morning.

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Maybe just following up on Catherine's last question there on BHE, just looking at the placements this quarter, kind of the linked quarter decline, and then the bank buyers and the funding network, that unique buyer kind of declined in the quarter as well. Is that any indication for broader demand for the product, or is there something else going on there as to why placements may be slow quarter on quarter? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:30PM, PNFP.OQ - Q2 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Yes, that's helpful, thanks for that. Maybe switching over to margin and a nuanced question just on your guidance. So the current guidance is for margin up in 3Q. The previous year-on-year guide for the margin is flat to slightly up. Does the current guidance kind of supersede that or year-on-year margin, are you still expecting that flat to slightly up for the year?

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Okay. And then just last for me, maybe revisiting Brett's first question on incentives. If I remember correctly, I think on the fourth-quarter call, there was some comment made that in order to hit the 100% of incentives, earnings would need to grow year on year. Is that still the right way to think about it? If earnings don't grow, the incentive rate should be somewhere lower than 100%?

Question: Timur Braziler - Wells Fargo Securities LLC - Analyst : Great. Thank you.

Question: Stephen Scouten - Piper Sandler Companies - Analyst : Yes, thanks, guys. I guess I had one question around the reduction in asset sensitivity that shows in your disclosure quarter over quarter. Is a lot of that coming from this move in the negotiated rate to index deposits? And if so, should we see a near-term spike in kind of the cost related to that migration? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:30PM, PNFP.OQ - Q2 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Stephen Scouten - Piper Sandler Companies - Analyst : Yes, and that's the biggest -- that was the biggest quarter-over-quarter shift there. Was that transition?

Question: Stephen Scouten - Piper Sandler Companies - Analyst : Got it, okay. Great. And then just kind of thinking about the CRE concentration and the guide at this 225% and such, I mean, obviously, it's a lot lower than maybe stated regulatory concern level. So I'm wondering, and I know, Terry, you commented on this one already, but is there any part of this that create or is intended to create optionality if an M&A opportunity ever were to occur? Because to me, like the last time you guys really got elevated was when you bought BNC in. And so I'm just wondering if starting at this low level in any way increases optionality to be able to buy something that might be more concentrated.

Question: Stephen Scouten - Piper Sandler Companies - Analyst : Got it. Makes sense. Thanks for all the color. I appreciate it.

Question: Russell Gunther - Stephens Inc. - Analyst : Hey. Good morning, guys.

Question: Russell Gunther - Stephens Inc. - Analyst : Just one for me at this point. The release referenced commercial loan categories where you were able to put enhanced control processes in place and reduce related RWA. Just -- it would be helpful to get some increased colors to what portfolios were impacted and if there's the potential for similar actions going forward.

Question: Russell Gunther - Stephens Inc. - Analyst : Understood. I appreciate what you're able to share. And the rest of my questions have been asked and answered, so thank you, guys.

Question: Zach Westerlind - UBS Investment Bank - Analyst : Good morning. Just a quick one for me on the deposit front. You guys have been able to keep non-interest-bearing deposits flat pretty much since year end. I'm just kind of curious how that fits into your overall deposit guide. Is there any point where you guys are starting to think that you can win back those interest-bearing deposits? Any color you can give there would be helpful. Thanks.

Question: Zach Westerlind - UBS Investment Bank - Analyst : Got it. Thanks for taking my question.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Hey. Good morning, guys.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Just a couple of small ones for me. Just the tax rate, Harold, going forward, I know you mentioned something in the release, but just as far as how we should think about that going forward, where that lands. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 17, 2024 / 1:30PM, PNFP.OQ - Q2 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Okay, so like a 4Q level. Okay, and then just on the fee income, was there anything kind of non-sustainable in the run rate when you look at this quarter without focusing on individual line? I mean, it felt pretty good. It was strong across the board, but anything unusual in there that might not be sustainable as you look going forward?

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Right, understood. Okay. And then just last two is maybe on the loan growth for Terry, just the optimism on the loan growth in the second half versus first half. I mean, the key driver of that, Terry, I guess what would you point to there, just given you seem a lot more optimistic than the first half?

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. Okay. Makes sense. And then just the last one on the margin. I mean, I guess given the repositioning, I guess, if you think about the margin the back half of the year, it would seem that the third-quarter margin expansion is greater than the fourth-quarter margin given the full-quarter impacts. So just kind of wanted to confirm that and just kind of puts and takes there and then just remind us the impact of -- in a down rate environment, the sensitivity of the balance sheet and how that would perform.

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Okay. And then just the thought on the margin, Harold, with the linked quarter change in 3Q versus 4Q, would that comment make sense as far as the pickup you could see in 3Q being greater than the 4Q just given a full-quarter impact of the optimization? Is that the right way to look at that?

Question: Brian Martin - Janney Montgomery Scott LLC - Analyst : Got you. Okay. All right, that's all I had. Thanks for taking the questions, guys.