Pinnacle Financial Partners, Inc.

Good morning, everyone, and welcome to the Pinnacle Financial Partners' second quarter 2025 earnings conference call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer. 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. 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. If you'd like to ask a question at that time, please press star 1 on your touchtone phone. Analysts will be given preference during the Q&A. We do ask that you please pick up your handset to allow optimal sound quality. During this presentation, we may make comments which may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties, and other facts that may cause the actual 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 not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31, 2024, and its subsequently filed quarterly reports. 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. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the 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.

Thank you, Matt. Everyone who's been on one of these calls with us over the last decade or more knows that we begin every one of them with our shareholder value dashboard. Gap measures first, then the non-gap measures, which are most reflective of how we manage this firm. And specifically, I'm always going to comment on revenue growth, EPS growth, and tangible book value for share growth, because our analysis is that these three measures are the most highly correlated with share price performance. I believe that our relentless focus on these three simple metrics accounts for the extraordinary total shareholder return we've produced over more than two decades now. Other metrics like net interest margin, cost of funds, deposit betas, efficiency ratios are all interesting, but in my opinion, they're not highly correlated with total shareholder returns. And so that's why we're so dogged in our pursuit of revenue, EPS, and tangible book value for share growth. Here you can see the extraordinary reliability by quarter over the last four and a half years with second quarter being more of the same. In 2Q25, revenue was up 15.1% over the same quarter last year. Adjusted EPS was up 22.7% over the same quarter last year. And tangible book value per share was up 10.9% over the same quarter last year. And as you can see on this slide, we've produced double-digit CAGRs over the last decade on those same three metrics, which is meaningfully outsized versus the peers. But to peel the onion back just a little on how we produce such reliable growth, since between 75 and 80% of our revenues are spread revenues, as far as I can see, you're going to have to figure out how to sustainably grow net interest income at a double-digit pace. which we've done over the long term, as you can see on the left. And our way of doing that is to reliably grow our earning assets at a double-digit pace, which we've done over the long term, as you can see in the center. And then the most important ingredient involved is to be able to sustainably grow core deposits fast enough to effectively fund that double-digit earning asset growth, which we've done over the long term, as you can see on the right. So having looked at it quarterly over the last four and a half years, and then looking at the CAGRs over the last decade, I thought it might also be instructive to look at it in the current very challenging rate cycle. Since 2Q23, we've lived through a disastrous rate environment with an inverted yield curve. And as you can see on the leftmost chart, peers have been unable to grow net interest income while we grew 7%. It's been a time of slow economic growth, leading to very limited loan growth over the last couple of years. And so you can see in the center chart, peers have been unable to grow their earning assets, while our model produced double-digit earning asset growth. And I think perhaps most impressively, despite the Fed shrinking the money supply, making it really difficult for peers to produce meaningful deposit growth, we produced 13% core deposit growth, roughly five times the peer median. Remember those two double-digit balance sheet growth metrics, 10% earning asset growth and 13% core deposit growth, even in a difficult operating environment when peers struggle to grow. Now, I'm always cautious when I'm telling the story about our ability to produce such rapid and reliable balance sheet growth. I'll never forget Dick Kovacevic, longtime CEO at Wells Fargo, saying, if it's growing like a weed, it is one. And so I want to peel back another layer of the onion for you to create clarity about how we do it, and not just how we do it, but why it's the safest way to grow that I'm aware of. Said simply, ours is a market share takeaway strategy. In general, we target the largest market share leaders in our footprint, which happily are the most vulnerable competitors in our footprint, and capitalize on the very difficult experience that they create for both their associates and their clients. In my opinion, we've become the employer choice for many of those revenue producers and our largest competitors. The recruiting mechanism is simply to rely on referrals from our existing associates to certify which candidates we should hire based on, number one, their personal knowledge that the candidate is really good at what they do, and number two, that they'll fit in here at our firm. The average experience of the associates we hire when we hire them is 18 years. So if you think through that idea right there, generally we're hiring revenue producers with nearly two decades of experience. And what that means is they can move their book quickly, which produces both rapid and reliable growth. And they intentionally leave their bad credits behind, which in my view produces outstanding asset quality. On the left, look at the rate at which we add these highly experienced revenue producers, a 12% CAGR. That sounds a lot like the earning asset and core deposit CAGRs we just looked at on the last slide. I'm working hard to connect those two dots for you, hiring revenue producers and both balance sheet and fee income growth. On the right slide, you can see the power of that ability to attract experienced talent from these larger competitors. The third quarter of 2024 was the last time I gave a more detailed look at how the balance sheet books bill on average. We've also included that information on slide 49 in the supplemental slides this quarter. But using those average production statistics for just our new relationship managers who produce balance sheet growth over an extended period, the relationship managers hired from 2020 through 2024 should yield an approximate $19 billion in organic asset growth through 2029. And that growth in general is not really dependent on economic growth or rate cycles, as you saw in the previous slides. It's simply the consolidation of the books of business held by those relationship managers that we have already onboarded through 2024 from their previous employer to Pinnacle. And don't miss, all of that growth is produced by folks who are already in our expense run rates. And so hopefully that creates a little more clarity around how we have historically produced reliable, sustainable, and outsized growth even when peers are struggling as a result of the difficult operating environment. If you can bear with me just one more minute, let me peel the onion back still one more layer on why and how the growth is so reliable and sustainable. It sounds pretty simple, right? Just go out and start hiring a bunch of revenue producers. But it's not as easy as just hiring people. It's critical to hire the right people, which sometimes can be tricky. But because we don't use headhunters, because we generally don't hire folks that are circulating resumes. And instead, we rely on our existing associates who make referrals for candidates that they've worked with at other banks. We're able to literally attract the best talent. I think, you know, when I think about that idea there, there's almost, I won't say no possibility, but a very minimal possibility of making a mistake when you use that hiring formula. So, on the left, you're looking at Greenwich data for businesses with sales from 1 million to 500 million in our eight-state footprint. Greenwich assesses relationship manager quality scores across seven metrics. In the, here in the blue bars, you're looking at the range of ratings for the top 10 banks in our market for each measure. The white line within each of those blue bars represents the median score for the 10 banks. And the orange dot is where Pinnacle ranks on each of those measures within the range. And so, as you can see, we haven't just hired people. We have literally hired the best. And now to the most important part of the whole formula. On the right, you can see that not only have we hired the best, but we've also done the really hard work to build and operate a service model that literally yields a banking experience second to none. Our belief has always been as long as you can routinely attract large volumes of the best talent, and then arm them with a differentiated service level that clients rave about, which ours do, as evidenced by our 83 net promoter score, then you can reliably and sustainably grow your revenue, your EPS, and your tangible book value per share. So, with that, let me turn it over to Harold to quickly highlight the key elements of our performance in the second quarter, which is just the natural extension of the long-term execution of this differentiated model.

Thanks, Terry. Good morning, everybody. We will again start with loans. End-of-period loans increased by 10.7% late quarter annualized, which was better than we thought at the beginning of the quarter. We continue to lean on our new markets and new relationship managers to provide the punch for our loan growth. Again, as we've said many times before, our loan growth is not so much dependent on economic tailwinds. It's about all these great bankers we've hired and the movement of their relationships to us. There was a lot of macro uncertainty last time, and there remains a lot this time around. Our pipelines continue to remain in great shape. Given second quarter results in our pipelines, we've adjusted the low end of our loan outlook range to consider now 9% to 11% growth this year. The yield curve continues to bounce around and continues to do so as we begin the third quarter. But in the end, we're pleased with how our loan rates performed during the second quarter. Our fixed rate loan repricing came in at 6.39% for the quarter, just shy of our targeted 6.5% to 7% range. Although the lift from fixed rate repricing is not as opportunistic as it once was, we still anticipate continued lift in fixed rate loan rates throughout this year. Absent a surprise rate decrease by the Fed, our loan yield estimate for the third quarter is that rates are flat to perhaps slightly up from here. Deposit growth came in at a 4.7% linked quarter annualized growth rate. This was less than we'd anticipated at the start of the quarter, but given the strength of our first quarter growth, and as we mentioned last time, the impact of second quarter tax payments, we are pleased with the result. We typically experience more deposit growth in the second half of the year than the first half, and with our new markets and new relationship managers, this should provide for another strong year of deposit growth for us. As a result, We're maintaining our estimated growth rate for total deposits at 7% to 10% for 2025. We're also very pleased with how deposit pricing has performed thus far and how both our deposit and loan betas have performed through the current rate cycle. For both loan and deposit pricing, we don't see a lot of change as we head into the third quarter. We anticipated a flat to slightly up NEM for the second quarter, so we're pleased that our NEM finished up two basis points at 3.23%. Our outlook for the third quarter of 2025 is the same, that our NEM will remain flattish with some upward bias. As to net interest income, we anticipated a nice bounce in the second quarter, so we're pleased with better than 16% linked quarter annualized growth. As to 2025, we have adjusted the lower end and thus tightened our estimated growth range for net interest income to now believing our net interest income growth Outlook will approximate a range of 12% to 13%. Any surprise rate cuts in the slope of the yield curve will have influence on how all this plays out for the remainder of the year, but we remain optimistic. As to rate cuts, we've modeled out many scenarios, and again, Phil, we're in pretty good shape to manage through most rate forecasts that are talked about in the markets today. We continue to delay rate cuts, now forecasting only one rate cut in October. We do believe more rate cuts are helpful than no cuts, But given the timing, we don't believe whatever happens will have a substantial impact on our 2025 results either way. As to credit, our net charge-offs increased to 20 basis points in the second quarter from 16 basis points in the first quarter with almost $7 million of the second quarter charge-offs arising from relationships where we had set aside reserves in prior quarters. For 2025, the current view of our charge off outlook is that net charge off for 2025 should come in around 18 to 20 basis points with the only change from our prior estimate being up two basis points on the lower end of the range and no change to the high end of the estimated range. With the charge offs of previously reserved for loans, our reserve did decrease two basis points this quarter. We still believe our reserves will remain at or near these levels for the remainder of 2025. if economic conditions don't materially deteriorate from here. We modified our estimated 2025 outlook for our provision to average loans to 24 to 25 basis points as we kept the low end of the range consistent but lowered the upper end of the range. This is considering use of a 70% baseline economic forecast and a 30% more pessimistic forecast going forward. Merely as a reference point, if we were to use 100% pessimistic we've estimated that we would have needed about $35 million in increased reserves. As to BHG, consistent with the last quarter, all of the usual slides are in the supplementals for your reference. BHG had a strong second quarter, providing fee revenues to us of over $26 million. Production was again strong in the second quarter, and loans sold in their community bank network were at the largest spread since 2022. Credit was consistent with the prior quarter, and vintage loss curves also seemed to mark continued improvement in the quality of the book. We and BHG are both comfortable in raising our earnings estimate for 2025 from 20% growth to now approximately 40% growth over the result reported in 2024. Several factors are contributing to this decision. Lower operating costs this year, better credit performance than anticipated, and a stronger production lead flow, all of which point to what should be a much stronger year for bankers' healthcare. Lastly, as to our guide for 2025, I've already mentioned much of the information on the slide previously. Again, the investments we've made in our new markets and our hiring success are the building blocks we will lean into in order to position us for top quartile results amongst our peers. As to our outlook for fees and expenses, we continue to be pleased in our fee line. Banking fees and wealth management are performing well. Along with strength in core banking fees and BHG's estimated growth this year, we are comfortable increasing our guidance from 8% to 10% growth to now 12% to 15% growth in fees this year. As to expenses, our prior outlook reflected a target award for our associates, which now, given our more positive outlook, we are increasing to an anticipated 115% of target payout as of June 30th. Obviously, our goal is to maximize our award and increase it to 125% max payout, but we can't do that unless we achieve the results required to warrant the maximum payout. And as always, we will decrease the incentive award if our earnings fail to support increased incentive costs. Through all of that, we are modifying our total expense outlook to now a range of $1.145 billion to $1.155 billion for estimated expenses for this year. As the tariff discussion plays out, as the yield curve and rate discussions play out, we are hopeful that more clarity will come forward. But as it sits today, we are more positive today and remain very optimistic about our prospects for this year and are confident that 2025 should be another strong year for Pinnacle. With that, I'll send it back to Matt for Q&A.

Thank you, Mr. Turner. Everyone, the floor is now open for your questions. If you'd like to ask a question at this time, please press star 1 on your touch-tone phone. Analysts will be given preference during the Q&A. Again, we do ask that when you ask your question, please pick up your handset to provide optimal sound quality. Your first question is coming from Ben Gerlinger from Citi. Your line is live.

Hey, good morning. Hey, Ben. Good morning, Ben. I want to take a moment and look at slide number 9. That's the vintage of hires from 2020 to 2024. Just want to make sure I got that correctly, that kind of five-year cohort, you're expecting them to have kind of peak out at roughly $19 billion?

Yeah, I think that's a fair way to look at it, Ben. Just keep in mind, we're showing you the annual revenue producer hires. As you know, we have revenue producers that are not balance sheet growers. In other words, you've got brokers, you've got trusted administrators that grow fee income. And so what we're talking about here are relationship managers. If you go back to the slide on, I think it's slide 49 back in the supplemental deck, what you will see is the relationship manager. So you can see that as a function of the total revenue producers. And then there's also just sort of what the average growth is for our hiring practice of relationship managers in terms of the balance sheet, both loans and deposits. And so that's just the build-out of the number of relationships hired and their ability to grow that book to round numbers of a $65 million book on both sides of the balance sheet.

Right. No, I totally get that. Where I was going with it was I'm just kind of thinking that the five-year cohort, you essentially hired what would be the kind of 70th largest bank in the United States with no dilution or no M&A. So when I think about just the magnitude of your hiring and the flywheel, if the rules changed, and let's just say you took away every bright line, whether it be 100 or whatever, Do you have any appetite to do M&A, or is it simply just the pinnacle brand and workhorse of the onboarding staff within HR can sustain a pretty healthy growth that you really have no appetite at all?

Yeah, so I think, one, I think you're on the right track. Obviously, we're this organic growth model. we love and believe it produces rapid and reliable growth. Again, I'm just giving you what this cohort produces. As you know, I've got other relationship managers that say in a difficult period of time may have net negative growth. You know, if you run a $300 million loan book, as an example, in a difficult loan demand environment, you may not produce enough growth to cover your ammo. So you got all those things playing through, but you have the math right on just how these hires work and how they fold onto our balance sheet and trade through the revenue cycle and all those kinds of things. I think I would say this, Ben, I always get asked about M&A and so forth. As you know, in our company's history, I think we've done six transactions, maybe account for roughly $12 billion of the $55 billion that we have. So we view ourselves to primarily be an organic grower, and it is exactly because of what you just said. When you can hire this volume of people and have them produce this volume of growth, you know, it's difficult to say, okay, I'd like to go out and start acquiring banks and take on, you know, the integration risk and so forth that would be associated with that just for the sake of producing growth. We can produce outsized growth. The only other consideration I just footnote for you, I think also we get asked about succession planning a lot. And so I always try to walk people through, hey, our board understands their responsibility for succession planning. They look at it routinely. They study it in five different lanes, if you will, five different ways to accomplish succession. One is using our high-performing or high-potential candidates inside the company. There's an outside candidate or two who have the capacity to do this job and have an affinity for Nashville. Obviously, we could buy banks, we could do MOEs, or we could sell the company. So those are avenues that our board is constantly considering and expect me to keep them updated on where we are on all those things. But that seems like the only application for M&A if you ever got to that. But again, just to try to figure out how to grow faster, I can't imagine we would want to take on that integration risk.

No, absolutely. I think that's great. The only other question I had in terms of just growth is I know it started with Nashville and Tennessee and the southeast and kind of drifted north up the Atlantic a little bit. Is there any other geographies to think about at this point or is it just deepening the current map that you have laid out in front of you?

I think it's largely deep in the map that we have in front of us. You know, we talk about this triangle that if you go to Memphis and draw a line up to D.C. and down to South Florida, we want to be in all the large urban markets there. So we've probably got opportunities in Florida in particular. You know, we're in Jacksonville, but there are other attractive markets in Florida that might be useful to us. And Very honestly, if we ran out of turf, you know, I think we obviously would turn our sights toward Texas. But I think you're on the right point. Fundamentally, we just need to push ahead in these markets that we're in that ought to produce outsized growth going forward. All right.

Sounds good. I appreciate it, guys. Thank you, Ben. Thanks, Ben.

Thank you. Your next question is coming from Jared Shaw from Barclays Capital. Your line is live.

And once again, Jared, your line is live.

And as a quick reminder, Jared Shaw from Barclays Capital, your line is live.

Oh, thanks. Sorry, couldn't hear you there for a minute. Morning, everybody. I guess just focusing, staying on growth, and if we look at slide nine, you know, that's showing the growth potential from those new hires ramping up and bringing those businesses over. What are you hearing from your existing customers or existing RMs in terms of sort of the appetite for growth, whether that's through utilization increases or just sort of customer sentiment overall?

Jared, this is Harold. That's a great question. During the quarter, The credit officers put out a survey. I think they surveyed over 1,100 clients, both commercial and commercial real estate, about $13 billion in commitments altogether. Primarily, that was about tariffs and other current macro items. But I think where the current customer base probably sits is in a cautious state. We're not really feeling like the current client base is willing to take a whole lot of additional risk right now. perhaps over the next two or three quarters, as some of these issues play out, they'll be back to where we thought they'd be at the beginning of the year. And we'd be looking at some significant kind of opportunities to enhance our growth rates. But right now, I think, Terry, I believe, you know, our client base is not worried, not concerned. Our credit's holding up really well, but at the same time, cautious.

I think that's a great description. I think there's sort of an underlying optimism around the general direction for business owners. I mean, you just look at things like accelerated depreciation, and they've got a lot of things that excite them, but they're going to keep the clutch in until they can get a little clearer on tariffs and so forth.

Okay, thanks. And then you talked a little bit about the appetite for increasing CRE. How should we think about that? you looking into that from here and where would you like to see that as a target of capital?

Yeah, we've already started back into the commercial real estate business probably about three to four months ago. And we're starting to write new credits there. It'll just take a couple of quarters before we start seeing those balances turn back positive in any kind of substantial way. We're not increasing our appetite beyond what we're currently believing, multifamily industrial solid projects are where we're headed. So we don't think there's any significant risk component that we're adding to our balance sheet. We want to try to stay at kind of our target levels on both construction and overall CRE, which is about 70% of capital for construction and 225 for the 300 level of commercial real estate. We're just slightly above the 225, but we think where the puck's going, we'll skate towards that puck, and I think we'll be below that 225 here shortly.

Great. Thanks a lot.

Thanks, Jerry. Thank you. Your next question is coming from Catherine Mueller from KBW. Your line is live.

Thanks. Good morning.

How you doing?

I wanted to just turn to BHG for a minute. It was really nice to see the higher earnings coming from BHG. I guess my first question on just the bigger outlook for the second half of the year in BHG, is that primarily coming from just kind of better origination growth and better volumes, or is it also a part of that coming from credit? Just kind of curious what's really driving that. And then just within that, a secondary question was, I noticed that the equity in BHG and then your equity method on your balance sheet both declined this quarter and was just curious what was driving that.

Yeah, there was every so often the CEO at BHG, there will be a dividend payment that he'll need for whatever reason. And so there was a sizable dividend we received in the second quarter. So that's why the equity came down or the investment came down. As to the second half of the year and whether or not it's production growth or whether it's credit, yeah, it's both. Obviously, it's both. But I think credit has really been the bigger surprise for the year. And we feel like that it looks like it's pivoted. And hopefully, it'll continue to pivot. They're going to continue to build reserves, I believe, for the remainder of the year. But at the same time, the loss content appears to be well in hand right now.

Okay, great. And then maybe one other question just back on deposits, on the funding piece of the growth. Can you talk a little – it was great to see your deposit costs kind of stabilize, and I assume that's part of your margin guidance into next quarter is that you kind of maintain kind of stabilization of deposit costs. Can you give us any color on – what incremental deposit costs look like today as we grow, especially as deposit growth improves in the back half of the year?

Yeah, the numbers that I look at right now for interest-bearing deposits kind of in one big bucket, we're about 50 basis points over the book. So that would be what kind of new accounts. And that's just looking at new accounts that are coded into the trial balances. So

You're saying so your current cost of interest-bearing deposits is 319, let's say. So you're saying 50-bets over that is about where new deposits are coming on.

Yeah, something in that neighborhood. I'd say 350 to 360 are the reports that I'm looking at.

Okay. Okay, great. But your incremental loan yields are still coming on, it seems like, in the high 60s.

Yes.

Yeah. Great. Thank you. Great quarter.

Thanks, Kathleen. Thank you. Your next question is coming from Steven Scouten from Piper Sandler. Your line is live.

Hey, good morning, everyone. I just wanted to follow up on the BHG business mix. I noticed some of the trends around the commercial delinquencies were kind of going up, but the consumer looks to be improving. It looks like maybe that mix of business is pretty close to balance between commercial and consumer loans based on those trends you disclosed on slide 45, but Can you give us a better feel for what that BHG business mix looks like currently?

Yeah, I'd say that right now, and I'll go back and look at the slide, but I think it's more of a 70-30 consumer commercial kind of business mix right now.

Okay. So the improvement in the consumer would be more impactful than the slight kind of worsening maybe in commercial, if I think about it broadly.

Yes, for sure. They've just allocated a lot more resources towards that consumer end. Perfect. Great.

And then can you remind us with the incentive payout, it's great to see it going up to 115% because of what it implies, obviously, for the success of the franchise. What would you need to see to take it to that 125%? Because obviously the guide in and of itself didn't change a lot, but is it just greater certainty around what EPS will be for the full year? Just kind of give us a feel for what would take it to the top end of that payout range.

Yeah, you're on it. I think our internal forecast gave us a path to get there. But if you look at the ranges, we'd have to be on the better side of those estimated ranges. I'll put it that way. If we can get on the higher end of the loan growth, on the higher end of the deposit growth, on the higher end of the fee growth, that ought to support, you know, towards that 125 that we're all looking for.

Great. And then just lastly for me, can you guys give an update on the opportunity in Richmond, the new hires you have there, and kind of what you think the scale of that opportunity could be over the next two or three years?

David, I'm not understanding your question. You're asking about our ability to keep hiring people.

Well, I mean, just how big a bank you think you could run in Richmond, if that's a billion in asset kind of franchise there in the Richmond market. Yeah.

I'm sorry, in Richmond specifically. Yeah. I think, you know, our target would be to build a billion to billion and a half asset bank over a five-year period of time.

Okay. And feel pretty good about that based on the initial, I guess, the initial progress and opportunities out there.

We have hired an extraordinary team up there. Been in the market a long time. The average experience of the people is 28 years. People that ran commercial lending units, middle market lending units, and so forth at big market share banks there. And so, yeah, we feel great about our launch there in Richmond.

Fantastic. Thanks for all the color. Congrats on the quarter. All right. Thank you.

Thank you. Your next question is coming from Casey Hare from Autonomous Research. Your line is live.

Good morning. This is Jackson Singleton on for Casey Hare. Just wanted to touch on the NIM. Could you just please provide some more color on the drivers and what could drive the 3Q NIM to maybe be up a couple of bips?

Yeah, I think it's just the way the model is working out right now.

We think if we can keep loans flat to a little bit up this quarter, which we think we'll do with the fixed rate loan repricing, our non-interest bearing deposit balances are hanging in there. So we don't see any kind of degradation in deposit yields because of erosion of non-interest bearing. So we think just based on what our growth metrics look like right now, Jackson, we think we're in pretty good shape to have at least a stable, if not a bias towards a you know, a few basis points up in them.

Okay, great. And then as my follow-up, I was wondering if you could provide some colors just on beta expectations and if you feel like there's more room for improvement here going forward.

Well, there's always room for improvement, but I'm not anticipating our beta will change much at least over the next, you know, three months. What we need is a rate decrease. We're kind of Just sitting on the start line, hoping that the Fed will lower rates here more sooner than later, but we're not anticipating anything until October. But with a rate decrease, that gives us kind of a backdrop to really dig into the deposit book and lower some rates in that deposit on the deposit side of the balance sheet.

Okay. Got it. Great. Thanks for taking my questions.

Thanks, Jackson. Thank you. Your next question is coming from Samuel Varga from UBS. Your line is live. Hey, good morning.

I just wanted to drill down on the fixed rate loan renewals. You obviously noted that that part of the story is a bit less exciting, which makes sense given just the increased competition for these loans. Can you comment a bit on this situation? sort of the pace of spread compression? Could we see that slow down now, or do you think that more and more people are likely to come in and try to compete for these loans?

Well, if you're talking about the spread on the originated credit, those spreads are hanging in there okay, based on what we're seeing across the curve. The decreased opportunity we have that we're trying to point out this morning is that the renewal rate on the loans that we're renewing is not as great as what was there before. So several quarters ago, these loans were coming in at, call it, 4.5% handles, and now they're coming in at, call it, 5% handles or better. So we don't have quite the opportunity to punch the NIM that we did today that we had back several quarters ago. But I think as far as our loan spread, regardless if you're talking about fixed rate loans or floating rate or SOFR-based, it feels pretty good. I think they're hanging in there.

Okay, great. Thank you for that. And then just a broader question. Can you provide any updates on regulatory developments over the past few months? There's been a lot of different proposals talked about and coming out. I'm just curious if that changes at all how you think about running the bank from an operational standpoint. Thank you.

I think, you know, it seems to me that clearly there's a more positive tone set by regulators. You know, we've seen things, as you point out, like the FDIC sort of rescinding their previous position on M&A. I think, you know, there's dialogue, who knows where to land on, you know, the $100 billion threshold. But I would just say broadly that all the and all the conversation seems generally more positive for banks and so forth. In terms of, you know, altering our own plans as, you know, we've sort of hit at here. We like the markets that we're in and, you know, sort of anxious to continue executing this model that we think produces outsized growth.

Great. Thanks for taking my questions. Sure. Thanks, Sam. Thank you.

Your next question is coming from Tim Mitchell from Raymond James. Your line is live.

Hey, good morning, everyone. Thanks for taking my questions. Just want to follow up on the BHC conversation and kind of a bigger picture question. But, you know, the EPS contribution from that business has increased the past couple of quarters. And based on the new guide, it sounds like it will continue to do so. So I was just curious your thoughts on whether there's a level that you would target or not want to exceed in terms of earnings contribution. And then within that context, if there's any change to your attitudes towards the investment in BHG.

Yeah.

Many years ago, BHG was in the 15% to 20% category as contribution to earnings. It's less than that today. I think over time our goal is to try to not minimize, but bring down the rate of that contribution to our overall rate. That's primarily going to get done by us increasing our side of that equation. And so hopefully we'll be able to get that done. But as far as us putting any kind of backstops on them or anything like that, no, we're not looking to do that. I think they're running a franchise down there that's Again, I've used the word pivoted. That's pivoted. I think they're on their plan. I think this year is going to be a strong year for them and looking forward to 2026 where all the overhangs related to COVID, they're back to a pre-COVID kind of operating model.

Okay. Makes sense.

And then just one follow-up on loan growth. on your comments around kind of sentiment from existing customers. It sounds like the vast majority of your loan growth outlook is tied to the benefit from hiring and so forth. So is it fair to think that if loan growth were to accelerate for the industry more broadly, you know, essentially banks that are relying on economic growth, that you could actually exceed the range for 2025? Or are there other considerations that maybe that's not so realistic?

No, I think that makes sense. I mean, you hit it exactly. Essentially, over the last handful of quarters, 100% of our loan growth has come from new hires. As I mentioned in response to the other question, biggest producers, when there's no loan demand, have a difficult time covering amortization in their portfolio, so it ends up being a drag. And so our relationship managers control those clients. Should there be loan demand, then I would view that to be on top of what our current projections call for.

Okay, great.

Thanks for taking my questions.

All right. Thank you, Tim.

Thank you. Your next question is coming from Tamir Bresler from Wells Fargo. Your line is live.

Hi, good morning. First question is, First question is back on deposits. I'm just wondering, with future rate cuts, do you think you'll be able to get the same type of beta on the way down with the future rate cuts? Or does the competitive landscape and or increased lending, does that maybe mitigate some of the potential benefit from reducing deposit costs with subsequent rate cuts?

No, I think we'll be ready to reduce deposit costs.

I'm sure that when you get to the line of scrimmage, there will be a lot of blocking and tackling going on around those kind of issues. But our intent is to get that beta to at least maintain where we are currently and try to get as much out of a rate cut as we can. Because I think that's going to be one of the But the key way is that we're going to see our margin expand in a much more meaningful way.

Okay. And I think the last comment was around 50% of the deposit base was indexed, and then you got close to 100% beta on that. So, we should expect similar type of performance on the next cut.

Yeah, we do.

Okay. Great. On BHG, again, just bigger picture, just can you talk to the monetization there, if the improvement in the credit, the build-out on the reserve side, do you feel like the partners are closer to getting something done there, or is the macro still somewhat prohibiting? And I'm just wondering, in general... You know, Terry talked about succession planning. There's a lot of kind of speculation out in the market as to what might happen to Pinnacle. Is that at all impacting your ability to hire new producers, or do you expect that to impact your ability to hire new producers with some of this ambiguity out there in the marketplace?

Just to make sure I understand your question, you're asking does Pinnacle ambiguity around succession planning, temporary ability to hire people?

Yes.

Well, I mean, I don't know what to say to you on that, Timmer. I mean, I guess you can tell me how long that ambiguity has existed. And you can compare that to what the hiring chart looks like. But it feels like our hiring ability is incredibly strong. We have hired 71 revenue producers year-to-date, which is a pretty rapid clip, and I would say that the momentum seems incredibly strong in that I believe we have at quarter end 59 job offers out to revenue producers. We won't get 100% of those people hired, but I guess you'd have to draw your own conclusions. But it looks like to me our ability to hire people seems as good as it's ever been.

Okay. Can you just maybe comment on monetization of BHG and what that timeline might look like?

I don't, you know, I don't think we have any different position than what we've expressed before. You know, BHG has been an extraordinary investment for this company. We love it. We would expect, I would expect, that there ought to be some opportunity for a monetization event that would be good for our partner shareholders as well as Pinnacle. But I can't tell you when it is. I've tried to communicate over an extended period of time that, you know, For us, I don't want to monetize it when the market's not good. The market hadn't been good. It looks like the market's getting better. If it gets good enough, then something could likely happen, but it'd be impossible to quantify a timeline.

Great. Thank you. I appreciate that, Collin.

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

Hey, good morning, guys. Hey, Brian, Brian. Hey, just a couple things. Harold, just clarifying on the BHG, given kind of the annual outlook for revenue, I guess could second quarter be the high point for the year and it maybe drift a bit lower in terms of the quarterly performance in the back half of the year? Does that seem fair based on your commentary on the outlook for growth?

Yeah, I think that's possible. I like flattish from here. So your comments – is a good one. I think from here, we're looking at probably a flat for BHG for the rest of the year, somewhere in that neighborhood.

Okay. We're on the $25 million level. Okay. And then just in terms of, Terry, you talked about just the outlook for hiring. Just if you talk about just the opportunity like you did this quarter to go to Richmond, so go to a new market versus kind of backfilling the markets you're currently in, is the outlook still pretty positive that you can get to these new markets, whatever they are. I know you mentioned Florida and a couple others, but are you optimistic about new markets more so than new people hired or just both at this point?

I would say both, Brian, but again, just to put it in perspective, we'll hire more people across the existing footprint than we'll hire in new markets. That's just sort of how the math of it works. Because we run a continuous recruitment cycle, and we're hiring everywhere. I mean, we're still hiring people in Nashville, if you can believe that. So at any rate, I don't want to just kind of pound away on the same thing too much. But generally, Brian, I think you understand the catalyst for us to go to a new market isn't so much because we sit up here and work on maps and census tracts and demographics and psychographics. The catalyst for us to go to a new market is because we've got a team of people that we think can build us a big bank in that market. And so, you know, if we found another opportunity or two this year, we'd do it. If we don't find any more opportunities, we're good with that. We believe we're going to produce outsized growth without doing market extensions.

Gotcha. Okay. And just the last one for me was just on – The kind of current, you know, the new loan yield production in the quarter, and then just, Harold, just in terms of the margin, you know, I think you talked about maybe getting that, you know, to expand it a bit more rapid-paced than the, you know, kind of what we're seeing currently. Just what does it take to, you know, really see the margin, you know, climb north of that, let's say, 330 level or in the coming quarters? I guess what's the recipe for that just as we think about where trends do in 26th?

Yeah, I think the near-term recipe has to involve a rate decrease. I think that's going to give us the opportunity to reduce our deposit costs in an outsized way and make that happen. So, yeah, we need that.

Okay.

If you're talking about a near-term, as far as a near-term event,

Okay. And as you get into, I guess, the yield curve itself, I guess, what are your expectations on that, at least in the near term? It's not based on kind of your guidance or kind of what your outlook here is in the near term.

That is flat. Yeah. No real change. It's a flat yield curve. For us to really get a kind of a longer-term margin that we think this client base that we call on will deliver to us, we need a more traditional curve. something that's got slope from overnight to call it the five-year part of the curve is where we operate. And if we can get, you know, a decent amount of steepness in that from overnight to five years, we ought to be in great shape. Yeah.

Okay. That's all I have. Thanks, guys. Nice quarter.

Thanks, Brian.

Thank you. Your next question is coming from Anthony Alain from JP Morgan. Your line is live. Hi, everyone.

Harold, on the 22% annualized CNI growth you saw in the quarter, I was wondering if you could provide more color. What drove that? Any specific subsegments within CNI that contributed to that strong growth?

Yeah, I think it was pretty broad-based. I don't think there was any, like, one particular industry or I don't think there was like a concentration of big credits in there. I think it was generally all over the franchise, Tony. I don't sense that there was any kind of single thing I can point to right now.

Fair enough. And then, Terry, my follow-up, another question on the revenue producers. So you hired 38 in 2Q, total of 71 in the first half. My question is, is the pool of talent available in the Southeast and adjacent markets still as robust as it's been the past few years? I only ask this because there are a couple of other banks in the Southeast that are now also active with hiring talent. I'm just curious if there's enough talent, enough experienced talent to go around.

It's a great question, Tony. You know, I guess. the only way I really know how to answer that is that we're still having extraordinary success. And, you know, the quality of the people that we're hiring today is as good as it's ever been. And so, and you can see the volume, as I say, if we've hired 71, we got 59 job offers outstanding. We won't get all those hired, but we'll get a lot of them hired. You know, it just feels like the pace of recruitment and hiring is not slowing down for sure, if anything, it's picking up. And so that's about the only way I know to answer that. There is no doubt there are other people that are trying to recruit and hire. I made some comments I'm not sure people get, but Our recruiting mechanism really is different. And all I mean by that is the way we hire our people is we hire somebody after they've been here, we ask them who else they worked with that we need to hire, and then we recruit them. And so for us, the more people that we do hire, the more people we can hire. And I think it's so important to the speed of the growth that those people produce and the quality of growth that those people produce. it is a differentiated recruitment model for some of these banks that are wandering in using headhunters to find their people and sort of blind recruitment, hiring out of resume pools, all that sort of stuff. It's a pretty different model that I think bears on the pace of our balance sheet growth and the quality of our balance sheet growth.

And Tony, I'll just add to that a little bit. We spent a lot of time on work environment. I know a lot of sell-siders and buy-siders, they gloss over when we start talking about work environment. But you really do have to put effort in to making sure these relationship managers feel like they've got an opportunity to be successful. And I think we put together some pieces in there, and we won't go into them here, around comp plans and other things, how we monitor their KPIs and all that sort of stuff that makes life for them a lot better than it would be at a traditional large cap regional bank, even the experience they have with how we do our credit culture. So I think there's a lot to it and why we've been what we believe is more successful on the hiring side than perhaps others that may be embarking on, call it a more significant organic growth strategy.

Tony, I don't want to spend too much time on it, but you're asking about something that's really important to me in terms of how we do business. I just refer you back to slide 10, which is the Greenwich ratings across an eight-state southeastern footprint. If you think about a lot of these people coming in and hiring, they're trying to hire against us where we have the number one rating for being easy to do business with. We have the number one rating for being a bank that you can trust. We have a number one rating for value in long-term relationships. You can work on down through there. The number one rating for treasury management capabilities, the number one rating for the service level of our treasury management, the number one digital experience. I don't mean to beat it up too much, but I'm just saying I like recruiting with that as a backdrop. My guess is we're going to continue to be able to hire the best bankers in the market.

That's great. Appreciate the caller. Thank you. Thank you, Tony.

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

Goodbye.