Good morning, everyone. And welcome to the Pinnacle Financial Partners First Quarter 2024 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's website for the next 90 days. At this time, all participants have been placed on a listen-only mode. The floor will be opened for your questions following the presentation. During the presentation, we may make comments that may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results, performance, or achievements of Pinnacle Financial Partners to differ materially from any results expressed or implied by such forward-looking statements. Many of these 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’s financial annual report on Form 10-K for the year ended December 31, 2023, 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 the 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 am now going to turn the presentation over to Mr. Terry Turner, Pinnacle’s President and CEO.

Thank you, Paul. And thank all of you for joining us here this morning. Most of you have endured these calls, and so we're going to begin every one of these calls with this shareholder value dashboard. These metrics are really our North Star. There are a lot of interesting things that can be talked about, and obviously, Harold will talk about more things in more detail here in just a few minutes. But ultimately, we're here to produce shareholder value and this is how we think you do it over time. Looking at the GAAP measures first and then the adjusted numbers, which really better reflect how we run the business. At a glance, you can see that we continue to grow revenue more rapidly and reliably than peers, and we continue to grow our balance sheet volumes more rapidly and reliably than peers, which is the fuel for our future revenue growth. And that we relentlessly focus on compounding tangible book value. And then across the bottom, now the key asset quality metrics we focus on reflect both problem loan formation and losses. In general, those measures continue to be among the best in the peer group, and as you can see, compare favorably to our longer-term historical averages. But that said, during the quarter, we increased our allowance for credit losses on loans from 1.08% to 1.12%, primarily as a result of further deterioration in a previously disclosed problem borrower and to provide additional protection, given the higher interest rate scenario. So from 30,000 feet this quarter, we've got the reserve build on one side, largely being offset by the recognition of a conversion mortgage servicing right and lower expenses in the form of a reduction in associate incentives. Nevertheless, for me, there's a lot to celebrate here, particularly in terms of revenue growth with growth in both noninterest income and net interest income, double-digit core deposit growth, and even net growth in noninterest-bearing deposits. So with that, Harold, let's take a more in-depth look at the quarter.

Thanks, Terry. Good morning, everybody. Another strong quarter of deposit growth. We were also pleased with how our noninterest-bearing deposits performed during the quarter, giving us additional optimism about where those balances might be added for the year. As to 2024 deposit growth, we still believe we can grow deposits within the previous range of high single to low double digits this year. Obviously, the latest Federal Open Market Committee meeting will impact our rate projections for the remainder of the year. As a result, we've taken more time looking at the back book on deposits. Two years ago, 100% of our money market accounts had rates less than 2%. Today, only 15% of our rates are less than 2%. Additionally, 65% of our money markets are at rates greater than 4%. So we feel that our deposits are priced very competitively. We have made some preemptive strikes here late in the quarter, successfully reducing some of our more expensive accounts as well as conducting a deep dive on our pool of reciprocal deposits. This effort is helpful to our outlook as we enter the second quarter. As to new accounts added to our lenders in the first quarter, the average onboarding rate was around 3.75%. As we've said, we like our position regarding deposit rates in our markets. So for us, deposit rates will likely be more like a slow creep from here, not any sort of rapid increase. Recently, I have listened to a few conference calls, particularly by large caps, as some believe they've acknowledged outsized deposit spreads and are letting people know that benefit may be going away in the near future. That said, we believe as we head into the second quarter, deposit rates for us may increase a few basis points, but it won't be a lot. Loans came in slightly less than we anticipated. We did have some large payoffs late in the quarter, which impacted our end-of-period balances, but still feel we will be outside loan growers for the year, estimating around 9% to 11% growth. We still believe that we are doing a good job on spreads, particularly for prime and SOFR priced credit, and fixed rate spreads continue to come along nicely. One of the keys to our financial plan is repricing our fixed rate loans. We're expecting about $3 billion in cash flows from our fixed rate loan books, which are scheduled to come in over the remainder of 2024 with an average yield of around 4.65%. As to renewals and new fixed rate loans originated in the first quarter, we averaged around 7.35% with a target range of 7.5% to 8%. I believe our relationship managers are doing a great job here, and I'm looking forward to seeing what happens in the second quarter as it is the most important quarter for net interest income growth for 2024, given we have a lot of opportunities to influence the success of this initiative. Our loan growth targets, which we feel good about, coupled with our efforts on fixed rate repricing will go a long way to hitting our net interest income outlook for the year. We did see some contraction in the margin this quarter at 3.04 after two quarters of 3.06. We noted last time that we were optimistic that we would see net interest margin expansion in 2024. We feel confident that we will see margin expansion happen in the second quarter. We modified our interest rate forecast from four cuts to two, with the two not happening until later in the year, one in September and one in November. That said, given the volatility of the data, we could decide that no rate cuts will happen this year, as the trends seem to point to fewer at this point. We feel like the no rate cut scenario on the short end of the curve is likely neutral to our current outlook as we move through the year. As you might expect, we just would like to see the intermediate part of the curve continue to steepen. So on March 31, you might ask if PNFP is asset sensitive or liability sensitive? Considering our technical balance sheet modeling, as well as how we think our relationship managers and their clients typically respond to these sorts of environments, where net interest income is initially higher for longer, this is probably helpful. But longer-term, deposit rates will likely rise somewhat and potentially squeeze the margin over time. As for credit, we're again presenting our traditional credit metrics. We mentioned one nonperforming credit in the fourth quarter press release that weakened further during the first quarter. As we noted above, this credit contributed to the 4 basis point increase in our allowance this quarter. This loan started out in 2020 as a $40 million loan to a borrower that leases highly specialized healthcare facilities to operators in various states. We did report a partial charge off of $2 million relating to this credit in the first quarter. The operators of the borrower's buildings were impacted by COVID as the operators were unable to collect sufficient and timely reimbursement, which was needed to recover the incremental cost of inflation for their clients and patients. As a result, operators incurred revenue shortfalls, skilled labor, lab census went down, etc. Our borrower is cooperative and is helping facilitate resolution, which could take a few quarters. This is one where the lesson learned is a hard pill to swallow, much reliance on the wisdom of the management team that we have banked for many years. The management team has executed a simpler business model before and done it successfully, and was experienced in the very specific corners of the healthcare industry. We will work to resolve this matter as quickly as possible and minimize the loss to our firm. The buildings are in good markets and are in attractive areas within those markets. So given all the above, we're anticipating a net charge off rate of 20 to 25 basis points for 2024, inclusive of the loan I mentioned previously. Currently, we have no reason to believe that our allowance count will increase from here, so we are flattish on the reserves for the rest of 2024. Now about commercial real estate. And just so you know, we've added some more information on credit primarily for commercial real estate and construction in the supplemental deck. Our commercial real estate construction portfolio continues to perform very well. As you might expect, our credit officers continue to pay particular attention to our multifamily, hospitality, and office portfolios. We continue to push for lower exposure in construction. Our target of 70% of total risk-based capital we believe can be achieved before the year end of 2024. Our appetite, as noted by the almost solid red table on the bottom right, is largely unchanged, and we don't anticipate any change as to appetite in 2024, even when we go below 70%. We continue to be somewhat interested in high-quality real estate, primarily warehouse and some multifamily, but let me stress, any new commitments to this space are limited to strategic client relationships only, and in no way should anyone perceive we are on any sort of offense here. As to the impact of a higher for longer environment, there’s lots of discussion around liquidity and takeout availability in the institutional commercial real estate space. We would agree that liquidity is tight for, say, downtown multi-tenant office, power center retail, high-end hospitality, and other specific segments where COVID and now inflation has been very impactful. We just don't have much, if any, exposure to these segments. For our segments, we, like other banks, are seeing our institutional borrowers delayed decision-making regarding any sort of exit on these projects, whether it’d be marketing for sale or securing a permanent loan. I know there's a lot of noise out there that lenders are panicked and borrowers are desperate to get out of these construction projects; not so for the property type PNFP has long supported. There remains ample liquidity, which recently appears to be getting somewhat more attractive to our borrowers, specifically take out from life insurance companies and the agency lenders, Fannie Mae and Freddie Mac. These capital sources are generally more favorably priced than our bank debt, usually by 1% to 2% in most cases. We are seeing 10-year terms from insurance firms and agencies in the 7% range versus bank rates, call it, between 8% and 8.5%. The CMBS market is available; however, our officers are typically not big fans given the inherent flexibility of the CMBS debt structures. All in for now, many borrowers have elected to remain with banks by executing the embedded extension options in their original construction loan contracts, rightsizing the outstanding balance if necessary, and thus waiting for a better rate environment to sell or refinance. Again, some select information on commercial real estate credit and various asset quality measurements. We have added some loan-to-value information to this slide. Our loan-to-values, we believe, are solid and as the chart indicates, with lots of room for valuation adjustments should markets require. We have also analyzed recent loan renewals for non-owner occupied commercial real estate with principal balances greater than $5 million and have seen some modest declines in loan-to-value for these credits. The worst was a $22 million office loan where the loan-to-value went from 34% in January 2020, before the start of COVID and before work-from-home was a thing, to now 45% currently, an 11% reduction but still very comfortable at 45%. The best result was a longer-term $11 million hotel loan that moved from a loan-to-value of 59% to now 38%. Both of these loans are performing and we have no reason to believe there's any issues with them. We have experienced some increases in credit metrics, classified assets, and non-performing loans from a year ago, but these levels remain enviable in our humble opinion. Additionally, as to our market data, our occupancy levels remain strong, and rental rates have experienced several years of increases, which has served to strengthen our sponsors. Some of that information is also in the supplemental deck. Now on the fees, and as always, I'll speak to BHG in a few minutes. Excluding BHG and various other nonrecurring items, fee revenues were up 11.4% linked quarter. We are pleased to report that our wealth management units had a strong first quarter and fully expect the efforts of our wealth management professionals will continue in the remainder of 2024. The BOLI work we did last quarter is performing as planned. So we expect to see incremental revenue from that work, some in the second quarter but also into the third quarter. As to the mortgage servicing right asset that Terry mentioned earlier, we elected to report it this quarter. We have been serving Freddie Mac SBL loans since we merged with Magna Bank in Memphis several years ago. SBL is the small business lending program Freddie Mac offers. It's really the standard for HC Bank’s small apartment financing with loan amounts of $1 million to $7.5 million. PNFP originates the loan for Freddie, who purchased the loan from the unit with PNFP retaining the service. Over the years, and as we do each year, we perform strategic assessments on various business lines to determine strategic fit, growth potential, cultural alignment, and so on. As rates escalate, the value of the servicing right increases, especially over the last several quarters. We've also increased the volume of loans being serviced in that unit in recent years. In line with that, we obtained a third-party appraisal to determine the value of $11.8 million, which we will now need to revalue every quarter. All in, we are raising guidance for fee revenues this year, primarily driven by the growth in our primary fee businesses. A range of 10% to 14% seems reasonable, given the performance of several of our primary business lines in the first quarter. First quarter expenses came in slightly less than we anticipated after backing out the FDIC special assessment. We, like everyone else, recorded the FDIC special assessment accrual of $7.25 million in additional expense in the first quarter. Importantly, we’ve lowered our incentive target from a 100% to 120% payout for fiscal year 2024 to now 80% here at the end of the first quarter. Obviously, our goal is to bring it back to target this year, but that can't happen unless we feel like we're going to achieve our financial targets. In the end, the relationship we've created since we started the firm between our financial performance and our incentive plan works is intentional and helps ensure that we don't sacrifice one to benefit the other. We have elected to keep our expense outlook unchanged at $950 million to $975 million for the year. You might ask why not lower it more? We have some reason to believe that we can find our way back into this, so we hope to get back some of the incentives we eliminated in the first quarter. But we also have other ways to manage our costs, and we will deploy those as considered necessary. We believe our overall expense outlook for 2024 is largely intact, so we're going to keep it consistent for now. Now to BHG. As the slide indicates, our origination trends were down in the first quarter given the tighter credit box and the impact of the macro interest rate environment. Last quarter, we anticipated a flattish year as to production. BHG believes that their 2024 production target is still in reach, but a higher for longer rate environment could impact those assumptions. As to placements, it was again a very strong quarter for sales into the bank network, and they also closed on their ninth securitization for $300 million, and as we mentioned in the press release last night with a net spread of greater than 10%, which we were all very excited to see. Also, my understanding is that over 35 firms participated in the issuance, thus, great demand for BHG paper. Additionally, keep in mind this securitization added more than $30 million in provision expense to the first quarter results. BHG doesn't anticipate another ABS issuance until probably the fourth quarter of this year. As to spreads, auction platform spreads did widen during the first quarter to 8.1%, while the balance sheet spreads are fairly consistent with the prior quarter. All in, BHG believes spreads are holding in this rate environment. BHG believes when rate decreases start, that will be a good thing for them, not only from a volume perspective but also from a spread perspective. On reserves, and there's a lot of information on this slide. BHG did increase reserves during the first quarter for both on and off-balance sheet loans, with a modest uptick in the first quarter for credit losses for the off-balance sheet business going from 3.1% to 3.3%. On-balance sheet was at 6.8%, but the news is good as it pertains to BHG's credit experience. We have been anticipating for at least a year or more that the first half of 2024 was critical to our assumptions around credit improving. Even though the charge-off rates for on-balance sheet increased during the first quarter, the actual dollar value of charge-offs for on-balance sheet decreased along with average balances. That’s why the charge-off rate increased; because the average balance is now mid. Even though the charge-off rate for both on and off-balance sheet was up in the first quarter, BHG believes that they may have turned the corner on tackling the COVID overhang of great inflation in 2021 and 2022. As the bottom left chart indicates, client delinquencies, which are past dues greater than 30 days for all of BHG's loans, both on and off-balance sheet, appear to have topped off over the last few months and are bending down at the end of the first quarter, especially in consumer credit. Also, BHG believes, based on information gathered from the rating agencies, their loss experience thus far post-COVID will be better than that of other fintech competitors. Again, as the pass-through chart indicates, the consumer line is very encouraging. It's too early to declare victory, but BHG has worked tirelessly to get back to their pre-COVID credit environment. More progress to come over the next few quarters. As to origination and earnings, achieving the same level of originations as last year will take great effort. That said, BHG does not intend or is not interested in adjusting their credit models to achieve volume goals. Suffice it to say, as to placing BHG's originated credit, the appetite for BHG's credit is as strong as ever. That in and of itself should help spreads going forward. As to earnings, BHG is holding to their mid-single-digit earnings growth target for this year. Additionally, BHG has tactics they can deploy to help their bottom line and increase potential earnings. The important assumption for BHG this year is what happens with credit. If improvement continues, as we believe it will, BHG will have an impressive year. With that, I'll turn it back over to Terry.

Thanks, Harold. In general, it seems to me that the operating environment for banks is both difficult and volatile; inflation appears to be more difficult to tame than predicted, even as recently as several weeks ago by Jerome Powell. It seems to me that rates are now more likely to stay higher for longer, resulting in an inverted yield curve for longer. And with all the uncertainty and rapidly changing market conditions, bank stock investors are obviously finding it challenging to forecast bank earnings and discern the dependable creators. In my opinion, in this environment, a company like PNFP that over the longer term has been able to generate such reliable growth should be an attractive alternative. We built a truly differentiated model that attracts the industry's best talents like none of its competitors, creating loyal clients which results in persistent growth of clients and therefore, persistent growth in loans, deposits, and net interest income over the long haul. It's how we consistently grew our EPS over the last decade without having to take on many of the risks that some in our industry have taken, which almost always come back to haunt them in times of volatility. In fact, we produced the highest total shareholder return among our peers over the last decade, a decade that witnessed a great deal of volatility. Over the decade, I watched bank management take extraordinary risks and investor themes change with every swing in market conditions. During the pandemic, slow growth and no growth banks came into favor, and we saw price-to-earnings ratios for banks with net negative balance sheet growth to be significantly higher than for growth banks. During the liquidity crisis, we saw valuations pick up for the money center banks on one end and slow growth in rural markets on the other versus high growth regions like PNFP. During the Federal Reserve tightening cycle, we observed low deposit beta banks rewarded prominently while high beta banks like PNFP lagged. But through it all, at Pinnacle, we simply focused on rapidly and reliably growing our earnings stream—not betas, not margins, or trending niches, but earnings. Our approach at Pinnacle reminds me of those old John Houseman commercials for Smith Barney, where he said they made money the old-fashioned way; they earned it. Over the last decade, our price-to-earnings for the next 12 months contracted meaningfully. It then becomes obvious that our ability to grow earnings accounted for our peer-leading total shareholder return and not the uptick in the multiple that investors were assigning, based on their most recent thesis. Let me be clear: at PNFP, our focus is primarily on sustainable long-term growth in earnings and tangible book value. I'm not saying that deposit cost betas are of no importance. I'm not dismissing it as irrelevant to screen for net interest margins, return on assets, or efficiency ratios. I’m simply asserting that at Pinnacle, our principal objective is sustainably compounding earnings and tangible book value. We could slow hiring, reduce noninterest expense, and improve our short-term earnings. We could concentrate on lowering our deposit betas instead of funding a high growth balance sheet before we go into what could be a once-in-a-generation opportunity to continue taking market share from all our competitors. But instead, our focus is on sustainable growth in earnings and compounded tangible book value. In pursuing sustainable earnings growth and compounded tangible book value, we cannot afford to take a temporary influx of liquidity based on government stimulus and put it in securities to reduce our short-term earnings when interest rates are near all-time lows. We must not risk the duration of loading our balance sheet with unhedged long-term fixed-rate mortgages when yields are at all-time lows. We simply protect our hard-earned tangible book value against loss-absorbing capital. There are banks that excel when rates fall and others that win when rates rise, and some banks with really low average deposit balances, all of which have achieved lofty multiples at some point over the last decade. However, in the banking business, perhaps the only way to reliably and consistently produce total shareholder returns better than peers over the long haul is to possess a sustainable competitive advantage—a differentiated model—and that's what I believe we have at Pinnacle. This is the 2023 market tracking data from Greenwich Associates, our coalition Greenwich as they refer to themselves now. This is for businesses with annual revenues from $1 million to $500 million in our market area, which for these purposes is defined as Tennessee, North Carolina, South Carolina, Washington, D.C., and Atlanta, Georgia. It compares the top 10 banks in the footprint. More specifically, in addition to Pinnacle, the top 10 banks in that footprint include Truist, Bank of America, Wells Fargo, First Citizens Bank & Trust, PNC, First Horizon, JPMorgan, Regions, and SouthState. Looking at client satisfaction on the left of the slide, the crosshairs are set at the mean for market penetration on the Y-axis and the percentage of excellent client satisfaction ratings on the X-axis. The banks in the top left quadrant are large-share banks with the lowest level of client satisfaction, which we refer to as vulnerable competitors. Banks in the lower right quadrant are providing the highest level of client satisfaction, theoretically, the market share takers. As you can see, PNFP provides the single highest level of client satisfaction in our footprint, that's differentiation and a particularly wide differentiation when compared to the largest, most vulnerable banks in the market. On the right side of the slide, you can see that the banks at the top with the highest overall client satisfaction are generally the market share takers, those banks with improving market penetration over the last year as shown in the rightmost column. The banks at the bottom of the list are the lowest client satisfaction banks, and they are indeed giving up market share penetration. Honestly, more important than client satisfaction scores is the Net Promoter Score; satisfied clients will many times leave if they get a better offer, while net promoters are substantially less likely to leave because they're mostly engaged with the brand. Not surprisingly, PNFP has the highest level of net promoters, not by a little, but by a lot. And not only do we have far and away the highest percentage of promoters, but the Greenwich survey data found no detractors—literally zero. Hopefully, as you study this comparison with the top 10 banks in the Southeastern footprint, our sustainable competitive advantage is beginning to crystallize. It's no secret that for relationship-managed banks like us, the quality of the relationship managers must be the principal differentiator. Greenwich has identified seven important metrics that are valued by business clients. You see them listed in the first column there. In the rightmost column, you see the peer comparison ratings for the same 10 competitors in our footprint that I just walked through. The blue bars represent the range of scores for that set of 10 banks on that metric. The white line is the median score and the white circle is the Pinnacle score for that metric. As you can see, PNFP is the market leader for every single relationship management metric. Think about that in terms of a sustainable competitive advantage. Not only are we widely viewed to be the most prolific hirer of relationship managers in our footprint, but the quality of those we’ve attracted are literally the best in the market. And as a slight aside, I want to make a point regarding our forecast for loan growth, where some might fear that the risk profile is elevated due to high growth in loans. However, as you consider that we're not only hiring the most relationship managers but that they are also the best in our footprint, which in my judgment, should produce a lower risk profile, not a higher risk one. Much has been said and written about the advantage that the large money center banks possess due to their technology budgets, and there's no doubt that every money center's tech spend would substantially swamp ours. However, using a similar graphic for client percentage and regarding treasury management and the digital experience, for the top ten banks in our footprint, again, you can see that Pinnacle actually has the single best perception among business surveys by Greenwich in our footprint, both in terms of capability and delivery. This is one of the clearest examples of how we combine tech and touch to create this sustainable competitive advantage. Ultimately, there's no more powerful brand among businesses in our footprint than Pinnacle. Greenwich has identified five pillars of brand perceptions among businesses. As you can see, the range of scores for the top 10 banks in our footprint is pretty wide, but again, Pinnacle is the leader on every single pillar. So as you think about sustainable competitive advantage, it's highly unlikely that competitors can easily address their market perceptions regarding how easy they are to do business with, how trustworthy they are, or whether they value long-term relationships. Even if they recognize these substantial deficiencies and even if they have the will to change, and even if they're successful in addressing all the root causes of why they’re so difficult to do business with and why they aren’t trusted, those reputations with customers are more likely built over decades. As I attempt to connect the dots for you on exactly why we've been able to attract clients faster than competitors, while we've grown our interest-earning assets faster than peers, and therefore, our net interest income faster than peers over the last decade, it's due to the significant hard work we've done to build an environment that attracts not only the most but also the best talent in the industry, to create a demonstrably differentiated level of service. That’s why substantially fewer clients see any vulnerability in their relationships with us and substantially more clients intend to reward us with more business over the next six to 12 months—by far more than for any of our competitors. That linkage spans from our work environment—recently ranked by Forbes Magazine as the 11th best in all the United States—through to recruiting effectiveness, to the client experience, to the volume clients intend to move to us. This all bears on our outlook for the remainder of 2024 and for the next decade, for that matter. So, Harold, let me turn it over to you.

Thanks, Terry. Now to our slide on our outlook for 2024. We've tightened our expectations in some cases and modified others. In the end, we've concluded that our overall outlook for 2024 is basically consistent with last quarter. I’ve listened to a few conference calls this quarter. There's a lot of chatter around world events, inflation, mergers and acquisitions, politics, and so on, and how those events are impacting their outlooks for 2024 and 2025. For me, I find myself thinking a lot about interest rates and credit. I have a lot of confidence in where our balance sheet sits with respect to both. I've mentioned to a few of my CFO friends over the last few years that I was a bit envious of their asset sensitivity. Our goal has been managing our balance sheet with an aim towards interest rate risk neutrality. We may drift slightly to either asset or liability sensitivity from time to time. But in the end, our belief is that we let the client-gathering engine drive our earnings growth. Regarding credit, I personally spend a lot of time with our credit team, and also spend a lot of time with relationship managers, particularly our real estate lenders. I likely will spend even more time with all of them for the rest of this year to try to better understand what happens to credit when rates go up or go down, as I should and as you would expect. For what it's worth, our folks are at the line of scrimmage actively working with our borrowers every day, ensuring we deliver great service and protect the financial silos of this firm. Because of that, I feel good about where we are, where we're headed in 2024 and what we hope 2025 will shape up to be—even after you consider what we know today about world events, inflation, and so forth. So with that, Paul, the group, I know, is thankful that I am done. And if you would, let's open it up for Q&A.

And the first question today is coming from Casey Haire from Jefferies.

Quick question – question on the, I guess, the net interest margin outlook. You guys mentioned that you expect it to go up in the second quarter. And the spot deposit costs are down relative to the first quarter, but some of the yields— the loan yields and muni bond yields were also lower. Just trying to get a sense of what's going on the yield side.

I think the muni bond yields indicate a volume issue there. But I think we should see some of that recover here in the second quarter. The deposit rate forecast, I think, will be just a small creep. What's really dependent on our net interest margin forecast is how well we do on fixed rate loan repricing and whether our DDA accounts hang in there as we think they'll hang in there. So if those two things happen, we think our net interest margin forecast is solid. Obviously, loan growth is an important element to all that. And so we still feel pretty good about the 9% to 11% loan growth for the year.

And then I guess just switching to the BHG outlook. The guide implies a pretty steep ramp in the remaining quarters here. Harold, you mentioned credit as a fairly significant wild card. Just wondering how you get BHG's run rate up to that sort of mid-$20 million level to hit that guide? Is it credit or is it more originations? Just some color there.

We think originations are going to be probably a little better here for the rest of the year. The first quarter was heavily impacted by that ABS placement. I don’t think they're going to spend as much time working on balance sheet growth, and they'll spend more time on the gain-on-sale part. But you're right, credit is the issue. We're all optimistic to see those numbers decrease, and they feel pretty good about where they are right now.

Harold, maybe to start, going back to the question Casey just asked. When I look at the margin, it’s pretty flat; earnings asset yields were pretty flat, deposit costs were also flat this quarter. It's not really clear to me what's driving the expectation for net interest margin expansion in the second quarter?

Well, as I said, we've got a lot more fixed rate loans to reprice this quarter. We think also the work we did at the end of the quarter on some deposit preemptive strikes into the deposit book should be helpful. So that and DDA balances staying steady are the primary kind of tailwinds to the margin uplift.

So you're expecting earning asset yield to pick up a bit in the second quarter and deposit costs to come down a bit, is that what you're saying?

That's right. I think there’ll be a mix shift in the earning assets, yes.

And then on the expense side, we know you guys took the incentive compensation down to 80% of target, but kept the full year expense outlook intact. Could you just run through a little more detail on what's expected to fill that bucket up, and why we're still at the same expense outlook?

So what we elected to do is not take it down. We're going to keep it the same. We felt like as that flowed into our overall outlook for 2024, that was the fair thing to do. If the incentive accrual gets reapplied, then we add back to, call it, $30 million into that incentive accrual for the year, that will come along with revenue increases. But we have other opportunities to manage our expense outlook to keep that still within that $950 million to $975 million range if that makes sense.

I guess the one last part is the new hiring was really solid with 37 new hires. What is embedded in the expense outlook? Is this going to be a much stronger year than typical for hiring, just given the pipeline?

I think we put in the same hiring profile for 2024 as we did for 2023. I'll have to go back and look at my numbers, but I think overall headcount was up around 100 people last year. So that includes revenue producers in every segment. It was around 115, something like that, so the revenue producer plan was basically the same this year as it was last year.

One more on the margin here. So you mentioned that even in a no rate cut scenario that's neutral to your outlook on your net interest income guide. How should we think about the downside risk to growth if we don't see rate cuts later on this year?

I think it will impact growth maybe to the low end of our number. But at the same time, a lot of our growth, if you look—there's a chart in the back that shows where our loan growth came in the first quarter, and it all came from new markets and new people. That’s what we're leaning into for our loan growth for the year. We're not expecting any significant growth, call it, if it's not 11 overall, we might be looking in the legacy markets for about 5% to 7%. So that chart in the back shows that we didn't have hardly any growth; in fact we had negative growth in the legacy markets in the first quarter.

Similarly, on the margin in a scenario where we don't have cuts, do you feel like there's enough momentum for DDA balances holding in, and you've got better fixed rate loan rate repricing for the back half of the year to keep the margin expanding throughout the rest of the year with cuts or even without cuts?

We're definitely keeping our fingers crossed on that for sure. Right now, our average DDA balances as far as individual accounts are pretty consistent with pre-COVID levels. There might be a little excess there that we need to worry about. But so far, so good with respect to that. But that's a really important component to our overall net interest income plan for the year.

And one just really small question, if you don't mind. Service charges were a lot higher this quarter. Any color on what's going on there? Is that a good run rate to grow from?

I don't think there's anything specific that we can talk about; maybe Terry has some ideas here. But I think we did do some kind of like everyone else looking under rocks—looking at fee waivers and things like that—where we've, over the years, kind of just gotten into maybe some places with certain clients that we need to readdress some of those charges. But I don't think we did any kind of...

There were no universal price changes. There were some initiatives that were aimed at reviewing long-term waivers and long-term special pricing, those kinds of things that I think have made a difference.

So just to round out the deposit cost question, I think I've heard mixed names. So are you expecting interest-bearing deposit costs to incrementally creep a little higher from here? Is that correct?

Yes, I think they will creep, but it will be 1 to 2 basis points. I don't think it will be any more than that. I think our group is doing a good job of holding the line on deposit costs. So long as our core deposit growth continues, I think that will be accurate. If for some reason, core deposit growth doesn't happen and we have to go to the wholesale market, that money is really expensive, and we're hoping to avoid that.

And then, Harold, in your prepared remarks, you mentioned that there could be other ways to manage costs besides the incentive accrual. So do you care to go into more details about what could potentially be done on that front?

Well, we can always delay hiring. For all practical purposes, our hiring plan for support units is really restricted right now, not to put a damper on the call. But we can do that, we can delay hiring. We've got some projects that are slated to start this year, and we can delay those. There are several things that we can do to bring the expense number back in line if we need to.

And then just lastly, on BOLI came in around $11 million in the quarter. I think you mentioned that you could see some incremental revenue from that. Should we expect that kind of $11 million figure to increase incrementally, or should that normalize to a smaller amount?

Well, I think probably, call it, $10 million is probably a fair number to think about going forward. There were some death benefits in the first quarter. But yes, I think somewhere around $10 million would be a fair number for BOLI.

I guess one of my first questions was just curious around customer appetite for the higher fixed rate loan yields today versus maybe last quarter or previously. Do you feel like customers are becoming more acclimated to this rate environment and you're not getting as much pushback, or what are the dynamics there as you reprice these loans?

I think it is fair that there is more acclimation on the clients' part to higher fixed rate quotes. That's a true statement, but I wouldn't want to act like it's easy. I mean, it's quite competitive for sure. But I think during the quarter, our repricing was at 7.35%, the target being 7.5% to 8%. So we're within striking distance and it's way up from where it was. So again, I don't want to act like it's easy. It's not easy, but we are getting it done. I think it's a combination of the clients' acclimation to the rate and the distinctive service levels and, so forth, client loyalty is an important variable as well.

I would think—the renewal spreads look like they continue to widen a bit? And is that largely a function of just the 2021 kind of vintage origination being the lowest yielding fixed rate loans that remain on the books?

I think, Stephen, I don't know if I caught all of your question, but there's a chart on the loan side that shows the first bar is the biggest as far as rates. I think it came in at around 4.90%, which is what the renewal rate is coming into the second quarter. The reason is that it is probably at the tail end of where rates started moderating a few years ago. So that's why that line on that chart is highest at 4.90% and then it drops pretty meaningfully down into the 4.60s and down into the 4.40s over the rest of this year. Does that answer your question?

And then just last thing from me. I know there were times in the past 10 to 12 years when you guys have done a really good job of having floors in place before rates went down and taking them off as the risk remained higher. Do you have any meaningful floors in the portfolio today or has that been a part of the pricing conversation at this point?

We've got floors in place, and we've got some balance sheet floors. I think we can—I believe we've got $3 billion to $4 billion covering some of the floating rate credit. But largely, we've encouraged floors at the line of scrimmage into individual loan contracts. I don't have the number for you today, but I'll dig it out and get it to you.

Harold, I know you guys have a pretty robust assumption for deposit betas on the way down. Has there been any change in that, and what is the kind of swing factor there if we don't get any cuts this year as it relates to the net interest income guide?

I think on the short end, I don't think there's a whole lot of change to our net interest income guide today, Michael. We still plan on our relationship managers being well aware that, when rates do come down, we will be aggressive on the downside. I think if you've gone back and looked at what our beta was on the way up on our negotiated rates, it was about 70% or 80%, somewhere in that range. So we intend to be aggressive on the way down. I think the critical question is around what happens if rates don’t move from here. Again, I think on the short end and also for the near term, we feel like it's fairly neutral.

And then maybe just on the deposit growth. You guys have done a great job over a very long period of time growing deposits. Can you just talk about the complexion of the growth—maybe how much will come from some of the more expansionary markets that might be higher cost in nature just given maybe some introductor or teaser rates as you build out those markets versus what you're expecting in the legacy markets and how that could be a swing factor if we are higher for longer?

Michael, I think when we look at the deposit growth that really we generated for the better part of last year and our outlook for 2024, the biggest single component of that deposit growth is the deposit specialties that we've developed over the last several years. I won’t go through or bore you with all those things, but I think you may have heard us talk about deposit products that we have for escrow accounting, deposit products that we have for captive insurance businesses, deposit products that we have for bankruptcy trustees. I mean, there are a variety of these specialties that we've focused on and built over the last several years; really trying to make sure we had some value add for particularly large pools of money. So we've developed a mechanism where we’ve got market champions in every market for all those products and there's a lot of energy on targeted calling on clients that utilize those particular products. To be honest, the biggest piece of the growth comes from what we're able to produce through those deposit specialties. There is no doubt we are also benefiting from what goes on in our market extensions. You're growing off a base of zero; hence, all the numbers look pretty good there. But as it relates to teaser rates and so forth, keep in mind those strategies are not retail in any way, shape, or form. So we're not doing rate promotions or any of that kind of thing. There's no doubt you're moving market share. You're generally not going to convince the client to move from where they are here and pay them a lot less than what they’re currently receiving. So again, I don't mean to act like there's no price pressure; there certainly is. But again, it's not a retail or teaser rate strategy. But again, I'd point you back to the deposit specialties.

And maybe just the last one for me. I know you had two credits that drove a little bit of an increase in non-performing loans, obviously, at a very low level. You built the reserves. Can you just help us get comfortable? I know there's been a lot written about multifamily supply coming online in some of your markets, particularly in Nashville, down to Atlanta, as being some of the highest, just as it relates to kind of your specific reserves against commercial real estate, I think they're sub 1% for the last call reports. So can you just help us get comfortable that you guys are well-positioned? You'll see some migration, but you're not overly worried about credit?

Yes, what we're leaning into is probably one of the—well it is—my most high-performing segment in my loan portfolio is my commercial real estate segment. That's been true for many, many years. Where we get choppy is in the C&I book when things happen. So I think it has to do with just looking at the macro environment and where we are with these loan-to-values. Our multifamily book, we think, is the strongest as it's ever been, rental rates are at 95%, 98%, loan-to-value in the 60% range. I think it’s largely on the macro side where we get it. I believe we’re on top of it and I think we understand what the markets are. I don't think we have any significant appetite for multifamily right now. I think we believe that we like our book and we like our sponsors.

I wanted to follow up on expenses. The 80% incentive kind of accrual rate right now, is that based on the guidance that you're giving? Like you said, you have to— you can work your way back to kind of hitting those numbers. What is the expectation for performance needed to hit that 80%?

I'm not going to get into actual EPS targets, what it takes to get to 80% in terms of awards. You can look at the proxy and see how it works over time in the tiering and how the revenue component flows through it and all that. But basically, we have to reconcile where we think we're going to be for the year to what we're going to accrue in that incentive bucket every quarter. And that’s not only true for cash but also for equity. We have to go through a process to try to rightsize that accrual every quarter to where we think the tiering is with the plan for the year. I don't know if that generally answers your question but maybe a follow-up could help clarify it for you.

I guess just relative to the guidance; if you hit your guidance, does that equal 80% on the incentive? Or is there upside to that number if the guidance is hit? Or downside to that number if the guidance is hit? I guess is that 80% relative to your broader guidance?

Yes, it is. The outlook would give us a range of results for the year, and that's kind of like where we believe it’s going to end up within that range. Just looking at the loan book, construction loans, that reduction there and your broader commentary around where you want to get that as a percentage of capital, what does the contractual funding look like in the construction book? Has that already taken place from originations booked in prior years, or is that comment on working that down more so just other segments growing faster than the construction bucket? Effectively, we’ve gone pencils down on construction about a year, maybe a year and a half ago. So new commitments are limited to existing developer sponsors. We’re still funding old projects, but the funding on those older projects is not keeping up with the projects receiving their certificates of occupancy. Once they get that certificate, they move out of construction and either go into the apartment market, get paid off, or the project gets sold or we move it into commercial real estate. We anticipate over the rest of the year that this funding for new construction will not be large enough to prevent us from heading towards that 70% target based on actual fundings and projects as they complete their construction.

I wanted to start with the hires, and I know that you doubled the Jacksonville team already. I'm curious which geographies are you more interested in growing from here? And if anything, that's going on with interest rates or higher rates for longer, maybe that slows some of your projects. Are there any new markets being explored at this point?

So Brett, I think in terms of hiring, Jacksonville obviously is a key area of hiring as are the other newer markets, specifically D.C., Atlanta, and so forth. So there is incremental hiring all over the footprint. And I would say it's a pretty good time for us to be attracting talent universally. But clearly, there's a concentration in the newer markets, where the hiring is currently occurring. Now, as it relates to new markets, I know you've heard me say this before, we love the Southeastern markets—all the large urban markets in the Southeast—the principal voids are in Florida. But the catalyst for when we go is when there’s availability of a team that we feel can build as a big bank. That was the catalyst for our expansion into Jacksonville. We had a fabulous leadership team that I think is extraordinary and going to build something special there. We may find our way to other markets at that same phenomenon occurs, but we're not trying to get to other markets, nor are we working on how to get to other markets.

And then the other quick question was around Slide 23, where you have the customer penetration and overall satisfaction levels. I'm curious if I understand that the national banks have higher customer penetration levels, but is that an area of opportunity for you, either client by client or product set, to grow the penetration on your clients?

Absolutely, that's really the whole point to me, Brett, is across that whole footprint, we have markets where we dominate like Nashville. But across the whole footprint, we are in some robust markets where we are a low share player. So as I look at that chart, I would say, ‘Okay, what I want to do is attack those banks that are in the top left quadrant because they have all the share and are showing vulnerability.’ That's exactly the plan we have been implementing, producing our share growth over the last almost decade now, and that's where I would expect growth to continue.

I want to go back to the discussion around loan yields. I think the loan yields increased this quarter around 5 basis points, and I think you've mentioned the benefits of fixed rate repricing tailwinds could build throughout the year. So any color for us on modeling those loan yields over the next few quarters? Assuming no rate changes.

Well, I think our loan growth will be fairly solid. We should get into that 9% to 11% range. I don't think there’s any meaningful seasonality there, Matt. As you plan the loan growth, you understand this and then I think you’ll have to back into what our margin expectations are. The loan yields, we believe, will be accretive. We think we will see more accretion in the second quarter than we did in the first. For context, $3 billion, if you apply $3 billion of new loans at around 7.35 or 7.40 would serve as a positive factor. And kind of a similar question on the securities yields; you had some nice repricing throughout 2023. I think you've got one of the higher yielding securities books in the peer group. Are we seeing any more benefits this year if we assume higher for longer, or are we kind of topping out here? I think we're getting close to the top, but we obviously see some accretion in the second quarter. It won't be a lot, but hopefully, we will see some—especially on the cash side, we had a larger mix of cash balances versus the Fed account in the first quarter than we typically carry. So we are likely to see more money at the Fed, earning a higher rate on the cash side.

I just wanted to go back to the fixed rate loan yields for a moment. The current originations are obviously a little bit below the target range of the 7.5% to 8%. I wanted to get a sense of especially with the potential rate hike in September, do you expect to hit the low end or the middle of that range for that target range, or should we just expect that this is going to stay below 7.50 for the second and third quarters?

As far as new accounts go, Samuel, we're actually pretty pleased with hitting 7.35%. We did have a handful of larger credits that came in the first quarter at, say, in the high 6s that diluted that target from 7.50% down to 7.35%. Am I getting to your question?

Yes, that's perfect. That's very helpful. And then the other question was just on credit. So you upgraded the NCO guidance a little bit. You provided commentary around that MCA and the specific reserve. Just wanted to get a sense of moving to the 20 to 25 basis points; is that a chunky sort of outcome or is this a more broad-based expectation of moving up in loss content?

For our planning, I think that's a fantastic question. I think it will end up being chunky. But right now, we're saying it's fairly consistent. So we don't see a big rise either in the second, third, or fourth quarters. What we're planning is to maintain those levels from here on out.

Maybe just looking at the—going back to the penetration—market penetration slide. How should we be thinking about maybe longer-term loan growth from here? Looking out toward 2025, 2026, as you're able to take market share in these high-growth markets?

I'm not sure—ask it again. Jared, I'm not—I didn't quite catch that.

Just with all the hiring you've been doing with people who are the best in their markets and going into higher growth markets, how should we be thinking about longer-term loan growth if we look out maybe over '25 and '26 as you are able to successfully, or hopefully successfully, take market share in these markets?

My expectation is that it will work like it has worked. And when I say that, I think the last few quarters, we've had a slide in the actual call presentation deck that sort of showed what was coming from all the new hiring versus not from the new hiring. And of course, as you know, it's substantially from the new hiring. I think that slide finds its way to the back of the deck as in the additional slides in the back, but you've seen the percentages come from there. My expectation is that phenomenon will continue into '25 and '26, both because we'll continue to hire more people and they'll continue to move those books. What I think—6% loan growth is a pretty good number, at least based on what I expect others to produce, but it is—that is being done with legacy markets that have more tepid growth. So once you get to a better economic landscape and you get the growth out of those legacy markets as we've talked about a lot, Jared, the growth that comes from the new hires is not dependent upon economic conditions. But the growth in the legacy markets is. Anyway, I don't mean to go on too much, but I expect that phenomenon to continue—we’ll hire more people, they’ll move their clients, and it will produce outsized growth as it has for some time. If you get a tailwind when economic conditions improve, you ought to produce even more outsized growth.

And then just finally for me on BHG. I mean, Harold, maybe where do you see reserves peaking there? I can't really—what they've told me, Jared, is that they believe the reserves will probably tweak up from here, but they will basically remain flattish from this point onward. They feel like they're in pretty good shape with respect to the absolute levels—well, the percentage levels in relation to loans.

The next question will be from Brian Martin from Janney Montgomery.

Most of mine have been answered here. Just a couple minor things, Harold, just on the loan repricing that occurs, the $300 million is helpful. Is there a significant amount or a similar amount of net repricing that goes in next year as well? Just kind of thinking further out on the fixed-rate side.

I think that chart would show, Brian, something like—I think the blue bars go down to like $750 million or something a quarter in 2025, in some neighborhood like that. One thing—and I hope Matt is still on the phone that I remembered—is that the mix of our new loan generation has shifted from a 60-40 floating rate to 40% fixed; today, it's running around 75% floating to 25% fixed. So those floating rate credits are coming at a yield greater than the 7.35 or the 7.50 fixed rates. That’s another tailwind we’ve had to loan yields, and that will happen again in the second quarter.

So that margin should continue to ramp, if that repricing occurs and the deposits stabilize. And then, Harold, just housekeeping, on the equity investment line and the other fees in the income line. Was there anything funky this quarter, or was that a pretty clean, normal type of level on those equity investments?

I don't recall anything going on. We did have a solar gain again this quarter, but we think that's going to be replicated throughout the year. So we didn't point out any unusual numbers for that line item.

And then just the last one was just on the deposit, the proactive preemptive strikes you talked about. Is that continuing in the second quarter? I guess if you kind of backed off that or, I guess, do you expect that to kind of continue and also support your margin commentary?

What we have done is conduct an initiative where we ask people to go through and review and gave list and try to provide infrastructure and basis for reducing rates and so forth. So that initiative has been done. In my view, in this environment, it's a war. We will continue to look for ways and provide emphasis and opportunities to drive our cost of funds lower. I can't recite what they are right now, but we will continue to push on it. My point is Harold expressed some optimism about lower costs; that’s a function of an initiative that has been conducted.

Thank you. And that does conclude today's conference. You may disconnect your lines at this time, and have a wonderful day. Thank you all for your participation.