Pinnacle Financial Partners, Inc. Q4 FY2024 earnings call

• Attracting Talent: Targets top revenue producers with large and loyal client followings, set a record in 2024 for hiring highly experienced revenue producers.
• Loan Growth: Grew loans by $2.8 billion or 8.6% in 2024, driven by strategic initiatives and new markets like DC and Jacksonville, Florida.
• Deposit Growth: Strong fourth quarter deposit growth, with core deposits up year-over-year and focus on deposit verticals and new markets.
• NIM: NIM held at 3.22% in Q4. Outlook for 2025 net interest income growth is 11% to 13%.
• Fees: Adjusted fees were up 15% year-over-year in 2024, with 2025 fee growth guide at 8% to 10%.
• BHG: Originations picked up in Q4, working on building balance sheet and production platform, with fees less than anticipated in 2024 but expected to have growth prospects in 2025.

Loans: End of period loans increased by 13.7% linked-quarter annualized. 2025 loan growth is expected to range from 8% to 11% end of period. Deposits: Increased by $1.9 billion in the fourth quarter, with core deposits up 13% year-over-year. 2025 total deposit growth is targeted to be between 7% and 10% over 2024.

• 2025 loan growth expected to be in the range of 8% to 11% end of period.
• 2025 total deposit growth targeted at 7% to 10% over 2024.
• 2025 net interest income growth approximated to range from 11% to 13%.
• 2025 fee growth guide is 8% to 10%.
• 2025 net charge-offs for the loan portfolio expected to be between 16 basis points and 20 basis points.

• Impact of rate cuts and yield curve on net interest margin (NIM) and net interest income.
• Credit risks including off-balance sheet substitution losses and prepayment losses.
• Competition affecting origination yields.

Q: Just wanted to touch base on expenses a little bit. I know that a large contributing factor is going to be the success of both hires and funding up their loan book. But when you think about just kind of the nuance between the high-end and the low-end, is it largely just that, or is there any flex you might have, Harold, to pull levers or potentially do something outside of just the personnel-related cost?

A: Yeah. I don't know if there's a whole lot we can do. There's obviously some expenses that we do around engagement and those kind of things that -- but those are all in the personnel line. Outside of that, I'm not really sure with non-personnel costs, if it's not already pretty much done, we could delay probably any build-out on branches, those kind of things, but as it sits today, I don't know if there'd be a material thing we could do with non-personnel costs. But where we do have a lot of variability in our expense base, like you know is around that incentive accrual as well as we have in the past delayed hiring and adjusted kind of our focus on where we want to grow the firm from a headcount perspective and those sort of things.

Q: Just maybe sticking with the variable expense, you said you're targeting sort of a full payout for the incentive comp. What does that assume for NII in revenues? Is that assuming sort of the higher end of the range or even beyond the range, or what does the revenue picture look like to...

A: Yeah, that's a great question. As far as the target payout, I think if you were to assume a midpoint in there, you're going to be really close. So, I don't know if that answers your question, but...

Q: Just as it relates to Slide 21, which I thought was really interesting, can you just help us frame that? And just given what you're expecting to bring on in terms of hires, which I think you said would be similar this year as opposed to last year, could we expect those kind of capacity numbers to actually continue to grow from here, so that as we move into 2027, those numbers would move higher? Just trying to get a better sense of how we should kind of use and kind of think about this slide.

A: There is likelihood of that, for sure. I think, again, what -- Michael, you've followed us a long time. Here's the way it generally works. You hire revenue producers. They generally consolidate their books over a five-year period of time. It more or less comes in on a straight line basis. And so, the first year as you're hiring people, you don't get 12 months' worth of the revenue growth and so forth. So, the timing, the pace, all those things provide opportunity for us to outrun this number. But again, you got to drive a stake in the ground and say, hey, let's just get it on a sort of steady state here. What do we think we're going to do? And as you know, we're generally pretty opportunistic as we hire people and when we find opportunities, we wait in and get them hired. So, to the extent we outrun those numbers, it will produce more balance sheet growth, both in the current period and in the future periods.