Pinnacle Financial Partners Inc Q3 2024 Earnings Call Transcript

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

Question: Brett Rabatin - Hovde Group - Analyst : Hey, guys. morning. Wanted to start with Slide 23 and just talking about the flattish margin expectations for 4Q. Given the beta performance that you've seen so far with loans and deposits and the fixed rate loans repricing in 4Q, I'm a little surprised some margin expectations aren't a little better for at least the fourth quarter. Can you just walk through again kind of your expectations for the fourth quarter betas of loans and deposits and maybe how you see some of those SOFR tied loans performing in 4Q? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 1:30PM, PNFP.OQ - Q3 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Brett Rabatin - Hovde Group - Analyst : Okay. That's helpful, Harold. And then just thinking about one of the pushbacks I tend to get is like, hey, you guys have obviously done a great job moving a lot of deposits to being indexed but the loan portfolio is fairly variable with over 60% through pricing fairly quickly. Do you guys think the margin I know you got a lot of things to think about, and it's maybe not fair to ask until we know what the yield curve. Looks like in a quarter or two, but just thinking about timing maybe versus liability sensitive versus asset sensitive, is it fair that the margin to be lower in a quarter or two from here? Or do you think you can outrun maybe some of the longer pricing as betas matriculate through that SOFR portfolio in particular?

Question: Brett Rabatin - Hovde Group - Analyst : Okay. And then if I could sneak in one last one, just around DDA. Impressive in your period growth versus average. Any seasonality in the DDA this quarter and just maybe any comments around your efforts to grow that bucket, which the whole industry is focused on?

Question: Brett Rabatin - Hovde Group - Analyst : Thanks to all the color guys. Right.

Question: Russell Gunther - Stephens - Analyst : Hey, good morning, guys. You spent some time in the prepared remarks and the slides discussing how successful you've been in terms of M&A and then organically taking share from there into the Carolinas into Memphis. Is that a strategy today that still makes sense or is of interest to you? Could you just touch on your thoughts there?

Question: Russell Gunther - Stephens - Analyst : Understood. Okay. I appreciate your thoughts there, guys. And then just one more for me, switching gears, if we could, to BHG, I appreciate the thoughts on the 4Q trend. But as we think about to comment that lower rates should be better from a volume and rate perspective and past due is trending in the right direction. Is it reasonable to think that, that revenue could grow in '25? Or are there big picture takes you could share in terms of the revenue trajectory going forward?

Question: Russell Gunther - Stephens - Analyst : Got it. Okay, guys, thank you very much for taking my question.

Question: Stephen Scouten - Piper Sandler - Analyst : Your line is live. Hey, good morning. Just a clarifying question around the move in index deposits. I know, Harold, you touched on this a little bit last quarter as well. But how exactly are you getting those customers to move from negotiated to index? And do you think that this creates any sort of pressure on potential outflows as rates presumably move lower in the future?

Question: Stephen Scouten - Piper Sandler - Analyst : Fantastic. That's helpful. And Terry, I mean, you guys added in a lot of great slides in the deck this quarter. And clearly, like you showed, you crossed 10 and nothing changed across 50, nothing changed. The growth profile is still what it is. But as you continue to look more and more like one of the large regional banks that you've kind of taken a lot of the personnel from through the years. How do you continue to outperform them so significantly? Or how do you keep yourself from starting to look like a large regional bank? Is it really just the incentives and the culture? Or is there anything in particular that keeps you from I don't know, centralizing in the ways that they have that becomes an impediment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 1:30PM, PNFP.OQ - Q3 2024 Pinnacle Financial Partners Inc Earnings Call

Question: Stephen Scouten - Piper Sandler - Analyst : Perfect. Congrats on all the continued success.

Question: Ben Gerlinger - Citi - Analyst : Thanks. Good morning, everyone. Maybe one more item is doing well, I appreciate it. Also, I really appreciate Slide 21. I know you touched on it quite a bit. I think it's really just illustrative of kind of the DNA you guys have, like when you look at it roughly one-six of the bank isn't there yet. Like you have the people, but you don't have the loan, so it kind of just shows that like even if you stopped hiring, you should still ramp up pretty materially. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 16, 2024 / 1:30PM, PNFP.OQ - Q3 2024 Pinnacle Financial Partners Inc Earnings Call It kind of leads into my next question is, when you think about like most things manageable side of the balance sheet, left and right with rates. Were you guys you have so much growth potential, I think it's much more of the kind of the calculus. What are you putting on rates and deposits that's come on?

Question: Ben Gerlinger - Citi - Analyst : Yes, we can always do things to slow down the hiring. I don't think we'll do that. The biggest impact that we will have to our expense growth next year will be where we end up in the incentive pool this year and how much more will take us to get back to target next year because we will load the expense target for next year, the expense growth number at target. And that will be the biggest influencer of how much growth we'll have next year or at least at the first part of the year.

Question: Anthony Elian - JPMorgan - Analyst : In the prepared remarks, you commented that if the yield curve slopes more favorably in the coming quarters, that could lead to a better 2025 revenue outlook? But if the yield curve doesn't become more positively sloped than it currently is, for example, if long rates continue to decline, to what degree would that impact the optimism you have for next year's revenue outlook?

Question: Anthony Elian - JPMorgan - Analyst : And then my follow-up on slide just going back to Slide 21. The cumulative growth capacity that you highlighted in deposits and loans for 2025 and 2026, do the numbers you have on the bar, the 5.9% and the 5.6% for loans represent the blue sky scenario that you expect to come on to the balance sheet over the next two years? Or is that just an average basis of what you expect could be recognized on the balance sheet?

Question: Catherine Mealor - KBW - Analyst : Your line is live. Thanks. Good morning. One follow-up on just the NII outlook. I mean if you have the ability to grow the balance sheet at a double-digit pace into next year, is there any reason and I know it's all maybe dependent on the yield curve. But I mean, is there any reason to believe that we can't grow NII at a double-digit pace as we move into next year? Or is it safer to kind of do this high single-digit level that we saw in 2024?

Question: Catherine Mealor - KBW - Analyst : Okay. That's great. And then on fees, that was a really great beat this quarter and kind of higher guide for '24. Can you talk a little bit about especially I've noticed the service charges are coming in higher. I'm assuming this is just account growth, but just any kind of commentary there? And then maybe your outlook for growth in service charges and with and in this quarter or maybe I could even say like in the back half of 24 C run rate. Is there anything that feels elevated that we need to be aware of to kind of pull back as we model 25.

Question: Sam Varga - UBS - Analyst : I just wanted to put fees for a second and specifically the investment services line item. And I just wanted to I guess, ask for some commentary on what you think the run rate is here. It seems like based on just the AUM numbers you're getting better at monetizing that again? And so I wanted to see if some of that is impacted by private banker hires or just talk about that business over the next couple of years even?

Question: Sam Varga - UBS - Analyst : Sorry, I might have been muted there. So as you bring the private bankers over, I guess how quickly do the brokerage accounts come over as well?

Question: Sam Varga - UBS - Analyst : Got it. And just my last 1 really quickly on the bond book. Harold, I guess. Can you comment on seems like you have more variable rate now? Are you hoping to keep that bond book shorter? Are you hoping to extend it out a little bit to capture sort of the back end of the yield curve?

Question: Sam Varga - UBS - Analyst : Got it barrels appreciate it. Thank you.

Question: Brian Martin - Janney - Analyst : A couple of quick ones for me. Just, Harold, on the margin, just on the loans that reprice immediately with rates. Can you remind us what that is?

Question: Brian Martin - Janney - Analyst : With rate cuts, what will move immediately as rates cut on the loan side? I know you talked about the fixed rates that are going to continue to move higher. But just in terms of rates declining on the variable rate loans kind of the variable rate loan percentage.

Question: Brian Martin - Janney - Analyst : Yes.

Question: Brian Martin - Janney - Analyst : Daily. Got you. Okay. Perfect. And then just 1 question. I know you're not commenting a lot about the loan growth outlook. But just in terms of '25, just in terms of the mix, like this year, we've seen that the focus on reducing the CRE exposure. As we look to next year, does the mix of loan growth look similar? Or should I guess, seems like it would include a bit more from your comments earlier, Harold, that CRE, maybe the back half of next year of '25? Or just how we should be thinking about that in terms of your comments also about maybe looking for a little bit better loan growth next year than this year.

Question: Brian Martin - Janney - Analyst : For next year. Got you. Okay. And then just the deposit growth was very strong this quarter. Just can you just was any part of that? I know you guys have been focused on the deposit verticals. Was some of that driven by those verticals? Or was there anything outsized in terms of contributing to that growth this quarter?

Question: Brian Martin - Janney - Analyst : Got you. Okay. Okay. And last two for me, just housekeeping, Harold. Just the tax rate, how to think about that. And I think you said on the fee income side, the only two really nonrecurring, Non sustainable numbers to think about are that the securities the equity investments and the gains this quarter, about the $2 million in gains this quarter, everything else is pretty repeatable.

Question: Brian Martin - Janney - Analyst : Okay. And then the tax rate, how to think about the tax rate going forward?

Question: Tim Mitchell - Raymond James - Analyst : Hey, good morning, everyone. This is Tim on for Michael. Just 1 question on deposits. Most talked a lot about the index portion of the portfolio. But on the CD portion. I was hoping you could shed some color on the maturity schedule, kind of the roll-off rates, the renewal rates as we move into next year?