Good morning, everyone, and welcome to the Pinnacle Financial Partners Fourth 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. 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 in a listen-only mode. The floor will be open for your questions following the presentation. 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. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation. 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. With that, I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.

Thank you, Paul. Good morning. We'll begin where we always do, with the shareholder value dashboard on a GAAP basis first, then the non-GAAP measures by which we actually run the business. I expect most people on this call are well familiar with the strong correlation between share price performance and three key performance metrics: revenue growth, fully diluted EPS growth, and tangible book value per share accretion. When I think about how a firm like ours delivers on those three key performance metrics, asset quality is a really critical measure that must be sustained; nothing will be more damaging to EPS and tangible book value per share growth than outsized loan losses. The balance sheet has to grow reliably. Between 70% and 80% of our earnings will always be derived from the margin on our balance sheet volumes. Obviously, we can and do work on protecting and enhancing our margin percentage, but in the end, without sustainable loan and deposit growth, it will be difficult to reliably grow revenue, EPS, and tangible book value; the only three metrics I'm familiar with to deliver elevated shareholder returns. On this firm, we measure an immense number of performance variables, like net promoter scores, associate retention rates, deposit cost betas, loan yield betas, net interest margin percentages, efficiency ratios, ROAs, and so forth, but as far as I know, none of those financial metrics are highly correlated with share price performance. That's why I work so hard to avoid distractions from all kinds of interesting but extraneous measures, and at least as it relates to PNFP, why I try to keep investors from being distracted by them either. The goal here is to crystallize for you our performance on those specific measures that I believe truly result in elevated total shareholder returns. The fourth quarter was a whale of a quarter for us, in my opinion. Adjusted revenue growth was strong, adjusted fully-diluted EPS growth was strong, and tangible book value per share growth was strong, all with double-digit five-year CAGRs. Asset quality remained strong and balance sheet growth was extraordinarily strong, which, as I just alluded to, tends to predict strong ongoing growth in revenue, EPS, and tangible book value. Harold is going to review in detail the quarterly financials, including betas and efficiency ratios and so forth, in just a minute. He will provide our 2025 outlook, which calls for double-digit revenue growth, but my objective here is to help investors focus on how we deliver, how we're executing on our hedgehog strategy, which is our simple, repeatable formula for delivering on those variables we believe result in outsized shareholder returns. It all begins with attracting talent. We target the best revenue producers in our markets, those who have large and loyal client followings. I believe this is likely Pinnacle's greatest core confidence. This has been our primary confidence for nearly 25 years now, but we set a new record in 2024 for the number of highly experienced revenue producers we were able to attract. Not only is this at the core of our strategy to grow revenue, EPS, and tangible book value per share in general, but the fact that we set a new record for hiring revenue producers in 2024 is primarily what fuels our optimism for 2025. Everyone, including me, is hoping for a better operating environment for banks in 2025, but as you can see here with this kind of longstanding and ongoing market share momentum, we have a lot more than just hope to rely on. Here's how it worked for 2024. We were able to grow our loans $2.8 billion or 8.6%, well beyond our peers and what the market would have yielded had we simply relied on economic and market growth trends for the year. At Pinnacle, we relentlessly build strategic growth initiatives, like new specialties in franchise lending and equipment lending to name a couple, along with market extensions to large high-growth markets like DC and Jacksonville, Florida, and so forth. We continue to leverage our reputation as a great place to work in order to successfully recruit and hire in our legacy markets. The combination of revenue producers that we hired over the last three years in both our strategic initiatives and our legacy markets accounted for more than 100% of our loan growth in 2024. So, you can see the power of our continuous recruitment of revenue producers again, given that we set a record for revenue producer hires in 2024 and are targeting similar results for 2025. It's easy to understand our cause for optimism regarding ongoing growth in 2025 and beyond. But in the final analysis, going back to the shareholder value dashboard, the end game has to be growth in revenue, growth in EPS, and growth in tangible book value per share. Our ongoing track record for delivering net interest income, which is far and away the largest component of our revenue and EPS, shows a 10-year CAGR for net interest income at a peer-leading 12.7%. The number of times in the last 40 quarters we failed to deliver year-over-year growth in net interest income is a peer-leading one quarter; that compares to a peer median of 11 failures out of the last 40 quarters. We produced positive net interest income growth during each of the three up or down rate cycles since the third quarter of 2015. Therefore, that's how we deliver outsized total shareholder returns year in and year out. We focus on revenue growth, fully diluted EPS growth, and tangible book value per share growth. It all begins with our unique ability to attract revenue producers with large and loyal client followings, which produce reliable and outsized balance sheet growth that yields strong and reliable net interest income growth quarter in and quarter out. With that as a backdrop, Harold, why don't you walk us through the fourth quarter in greater detail and how that sets us up for further growth in 2025?

Thanks, Terry. Good morning, everybody. We will start with loans. End of period loans increased by 13.7% linked-quarter annualized. This was better than we thought at the beginning of the quarter and provides us a strong running start going into 2025. We're introducing our loan growth expectations for 2025 with a range of 8% to 11% end of period growth. It remains an uncertain environment regarding rates, but with the yield curve trending more positively and the election now decided, we believe we enter 2025 with even more optimism than we've had in several years, and our clients are gaining more confidence about growth. As to our end of period rates, SOFR and prime rates are reflective of the Fed decreases, but as you know, one of the keys to our financial plan all year long has been increasing pricing on the renewal of fixed-rate credit. We're expecting slightly less than $1 billion in cash flows from our fixed-rate loan portfolio coming to us in the first quarter of 2025 with an average yield of around 5.06. We believe the yield lift on these volumes of nearly 150 basis points to 200 basis points is a reasonable assumption as a key component to our near-term net interest growth. Deposit growth was again a real bright spot for us in the fourth quarter, as we increased deposits by $1.9 billion, one of the strongest growth quarters we've ever experienced. There was some seasonality in our fourth quarter growth, but as Terry mentioned, contributing to outsized growth were our investments in deposit verticals and the work of our new associates in several of our newer markets. Another bright spot is that core deposits are up year-over-year by 13%, while non-core deposits are essentially flat from last December. For 2025, we're introducing a growth rate for total deposits of 7% to 10% over 2024. We believe this is reasonable as we balance deposit growth with a keen eye on pricing. We're very pleased with how deposit pricing has performed over the last few months, as our relationship managers have been diligent in making sure we can reprice our deposits as quickly as we can to offset the impact of a lower rate environment to our earning assets. So far, our deposit beta has outperformed our loan beta. Our fixed-rate loans have a negative beta, which helps slow the pace of these loan rate decreases. This is where the yield curve is critical. If it steepens, those fixed-rate renewals become even more helpful. What I believe most are interested in is deposit pricing. We are on pace to match our up-rate deposit beta as we are pacing at around 58% so far. We believe we can continue to manage our deposit rates down over the next several months, even if we do not experience any near-term rate decreases. We will pursue reduced rates on accounts where we believe rates are out of market and look to improve our deposit mix given our liquidity posture, which we believe is very strong at present. As expected, we are pleased that our NIM held at 3.22%. Our outlook for the first quarter of 2025 is that we believe our NIM and net interest income will be flat after we consider the impact of fewer calendar days in the first quarter of 2025. For 2025, we believe our net interest income growth will approximate a range of 11% to 13%. The yield curve will significantly influence how all that plays out in 2025, but so far call us optimistic about our prospects. In summary, as Terry discussed earlier, we have enormous market share momentum that should result in net interest income growth. With the national elections now determined and assuming the macro environment can maintain a more traditional yield curve, we believe all point to a better operating environment for a bank like ours. We are again presenting our traditional credit metrics. Our net charge-offs were consistent with the third quarter and brought our net charge-offs to around 23 basis points for the year. For 2025, the current view of our loan portfolio is that net charge-offs for 2025 should come in between 16 and 20 basis points. That's based on recent scrubs of our non-performing classified and weaker consumer credits by our credit teams. Overall, no real change in how we feel about credit as we head into the first quarter of 2025. Now, to fees, which have been a bright spot in 2024, with adjusted fees up 15% year-over-year. Excluding the impact of BHG, fee revenues were basically flat quarter-over-quarter. Our wealth management units have had a strong year and fully expect the efforts of our wealth management professionals will have a strong year in 2025. Our outlook for 2025, including BHG, is around 8% to 10% fee growth this year. Expenses came in slightly more than we thought, primarily due to incentive costs. Given we are reporting stronger earnings here in the fourth quarter, this impacted our incentive plans. We increased our incentive accrual by about $3 million in the fourth quarter, reaching approximately 98% of target award. Our fourth quarter fully diluted EPS came in better than anticipated. Additionally, our hiring was again robust in the fourth quarter with 35 new revenue producers for a total of 161 added for the full year. Going into the first quarter, our recruiting pipeline continues to be strong across the franchise. We're introducing our 2025 expense guide at a low of $1.13 billion to a high of $1.15 billion. Our incentives will always influence our ultimate expense result. If we are not achieving our plan, then our incentive costs will be lower. Conversely, if we are overachieving our plan, our expense burden will need to be more, but so will EPS. Assuming hiring is consistent through 2025 and considering we are awarding an almost 4% merit raise to our current associate base, our quarterly run rate for expenses should reflect consistency with our 2024 run rates. Regarding BHG, as the slide indicates, originations picked up again in the fourth quarter with originations at $1.16 billion, exceeding our last quarter's expectations. BHG continues to build inventory to execute another ABS transaction either during the latter part of the first quarter of '25 or early second quarter. There remains great demand for BHG paper both in the community bank network and Wall Street. BHG has not expanded its credit box at all. They began restricting their credit appetite in late '22 and early '23 and have not adjusted it for consumer or commercial credit since that time. As for production growth increases, they continue to refine their marketing platform to better target potential borrowers and expand their footprint with partnerships with other fintech firms. BHG believes that the future of consumer lending will be through digital channels and is working hard to capitalize on this. Their auction platform spreads increased to 9.7% in the fourth quarter, concurrent with balance sheet loan spreads increasing to 10.2%. BHG's recent strategies have been successful as Wall Street keeps returning for more. We believe BHG remains a unique, profitable, and dynamic fintech model with an even stronger balance sheet, positioning it as a strong competitor in the fintech space in the future. In terms of our guide for 2025, we will continue to focus on the building blocks we have established to deliver strong performance among our peers. We believe we can generate positive operating leverage in 2025, but right now we will focus on our goal of growing revenues while carefully managing our investments in talent and capacity.

Thank you. Mr. Turner. The floor is now open for questions. And the first question today is coming from Ben Gerlinger from Citi. Ben, your line is live.

Hey. Good morning, guys.

Good morning.

Hi, Ben.

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

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

Got you. Well, don't delay any hiring. People are upset on the expenses. They can deal with it from the franchise value. When you think about the cadence of margin or NII throughout the year, I mean, repricing on the funding side has been pretty solid. Do you think that there's a little bit of a backlog still up to go there that could drive it for the second half of the year? Or is it really just kind of getting fixed asset repricing on the left-hand side higher that drives the latter 3Q and 4Q of this year?

I think there are two things on the funding side that we can work on. First of all, we do have some outsized pricing on deposits and we're working on that currently to bring those accounts back in line with the rest of the group. Also, I think we'll have a significant push on growing operating accounts this year, whether they be commercial or consumer, and attempting to increase our DDA percentage back to what we had pre-COVID.

Hey, Ben, I might add to Harold's comments there. I believe we have some room to drive down lower deposit rates that are not necessarily tied to the Fed movement. We will work hard on the beta as the Fed moves, but we will drive some of those costs down irrespective of whether there’s a Fed move.

Got you. Yes, I appreciate that. I just wanted to double-check, you can drive them lower in the next six months, or is this kind of looking over the next 12-plus?

No, I think this is the current initiative we've got going on. We’re looking at all kinds of data and trying to point the troops in the right direction there. We had a belief here over the last month that a near-term Fed rate decrease was not as likely, so we need to figure a way to get some more cost out of that funding book.

Okay. Sounds good. I appreciate it, guys.

Thank you. The next question will be from Jared Shaw from Barclays. Jared, your line is live.

Hey, good morning, guys.

Good morning.

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

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

Yes, okay. That's good color. And just looking at the slide that Terry pointed out earlier, just with the 10-year trend in NII being above, basically at the high end of this range, what would have to happen to see NII come in higher than the range? It feels like you're talking about some good trends and continued growth, continued hiring, the benefit of potentially being able to reprice some of those deposits. What would have to happen to sort of come in higher than the range?

If we are at the high end on the loan growth number, I think we can do that. Also, if our pricing and our margin assumption holds for this year, I think we could do that as well. We feel confident about our net interest income guide. We've got some more work we can do with some other items as they present themselves. But as we look at 2025 and our revenue picture, we feel pretty strongly that it'll be a solid year for this firm.

The principal thing that would create upside is to the extent the economy heats up and loan demand outpaces what we've planned for. Essentially, all our loan growth came from new revenue producer hires, which increases market share. So, a pickup in economic loan demand is your opportunity for upside.

Okay. All right. That's good color. Thanks. And just finally, for me, maybe any updated strategic expectations for BHG as we look at them continuing to grow the reserve for the off-balance sheet loans? Does that continue to sort of be the biggest area they're trying to backfill right now?

That's one big thing they're going to focus on this year. Also, they’re working on their production platform. They're really excited about some opportunities that they're working on to drive production here for the next several years.

Thank you. The next question will be from Michael Rose from Raymond James. Michael, your line is live.

Hey. Good morning, guys. Thanks for taking my questions. Just as it relates to Slide 21, can you just help us frame that? Given what you're expecting to bring on in terms of hires, could we expect those capacity numbers to actually continue to grow from here, so that as we move into 2027, those numbers would move higher? Just trying to get a better sense of how we should think about this slide.

If I understand correctly, you're interested in the likelihood that we can outpace our revenue hiring?

Just as it relates to Slide 21, you provided the $5.9 billion and the $5.6 billion in loans, but I assume that's based on the lenders you have today. You're going to continue to hire, right? Is it a fair assumption those numbers would move higher over time as you hire lenders or RMs?

There is a likelihood of that, for sure. Generally, you hire revenue producers, and they consolidate their books over a five-year period of time, which can result in a straight-line basis. Thus, it’s reasonable to assume we could outperform those numbers, and as we're opportunistic in hiring, it may produce more balance sheet growth in future periods.

Yeah. So, it seems like you can run at these levels or even higher over the next couple of years in terms of growth at least in dollars.

I believe that's true, Michael.

Perfect. And then maybe just given the change in administration, does it change your worldview on M&A? You have a nice currency; I know you're growing organically, but is there any change in thought as it relates to M&A potential as we move forward?

I don't think so. Honestly, when we can hire at our current pace and produce double-digit growth without the risk of acquisition, the premium, and integration risks, we prefer our current approach. I'm not ruling it out; you’re correct that our currency is strong, and if something unusually attractive came along, we could consider it. Fundamentally, we’re sticking with the same model we've been using for a long time.

Thank you. The next question will be from Catherine Mealor from KBW. Catherine, your line is live.

Thanks. Good morning.

Hi. Good morning.

I wanted to ask about the fee growth guide of 8% to 10%. We've seen a higher level of fee growth in 2024. Is there just conservatism in that range, or why would that not be similar to levels seen over the past couple of quarters?

The guide has a level of conservatism to it. We want to push for higher numbers because this points to a target payout, and our folks want to aim for maximum payouts, which implies much stronger results. We felt we needed to present some conservatism in our numbers for this call. There were a number of one-time events impacting fee growth this year that we think will recur but don’t plan for at the same growth rate as the core banking strategies. Wealth management and other lines we've invested in should perform towards the upper end of our fee growth target.

Catherine, my personal objective is to achieve that incentive paid at a higher level, which means producing more growth and EPS than what it takes to hit the target.

That's fair. On the fees, it's likely just due to the income from other equity investments, which can be so lumpy and hard to model. Conceptually, should we start lower, anticipating some surprises that could lead to upside?

Yes, that’s accurate. There are other places where we have one-offs this year that we plan on taking a more conservative posture for, too.

Okay. Great. Thank you so much.

Thanks, Catherine.

Thank you. The next question will be from Anthony Elian from JPMorgan. Anthony, your line is live.

Hi, everyone. Can you give more color on the strong loan and deposit growth you saw in the fourth quarter? Was there anything specific that contributed to 4Q being one of your strongest-ever growth quarters, particularly on the loan side?

Regarding loan growth, timing often plays a significant role, with some items landing in the quarter that we thought might occur later. It was fundamental growth across both geographies and product lines.

There is an intangible factor as a lot of relationship managers mentioned they are busier today than six months ago, with many inbound calls from clients looking to acquire capital to grow their franchises. That indicates a strong shift in sentiment as we move into 2025.

Thank you. You noted that BHG exited the SBA loan program. Is there anything else BHG has in the pipeline regarding optimization and refocusing on the core business?

They exited the SBA program and the buy now, pay later business. We believe that as BHG returns to that core business profile, it will enhance their earnings stream and the franchise value.

Thank you. The next question will be from Nick Holowko from UBS. Nick, your line is live.

Hi, good morning.

Hi, Nick.

Good morning.

I think on Slide 10, you noted that the origination yields you experienced in the quarter were impacted by rate volatility and competition. Was there anything that stood out during the quarter on the competitive front? If we don't get any cuts and the yield curve maintains its current shape, could we expect some improvement in origination yields going forward?

If we don’t get any further cuts, I don’t think it will be impactful to our net interest income for 2025. Competitive pressures remain steady, and borrowers appear excited about what their future risks look like. The yield curve will influence activity, and if rates go down, that would positively impact lending.

Yes, that's perfect. Thank you. Can you provide insight regarding your outlook on credit calls for improvement in charge-off experience and provisioning for 2025? I believe the bulk of the increase you saw in '24 was more on the C&I side, but you have maturities coming up on CRE in 2025. Where do you expect to see improvement in the year ahead?

We don't expect significant losses in commercial real estate. Lumps in net charge-offs generally occur in the C&I book, and we don't anticipate that changing.

Thanks for taking my questions.

Sure, Nick.

Thank you. The next question will be from Brian Martin from Janney Montgomery. Brian, your line is live.

Hey, good morning, guys.

Good morning.

I was wondering if you could comment on the margin outlook. If we see a steepening in the curve here, where do you expect the margin trend to go throughout the year and going into '26? How should we think about that in the new environment?

Steeper is better. While there are limitations, we think we can see the margin improve over the year by maybe 10 to 20 basis points, depending on how the curve responds.

Got you. Okay. Regarding fee income, can you provide more specifics related to non-recurring or volatile items? Were there one-time gains that impacted the other line?

We had a gain on a lease termination estimated at around $750,000, with a few others totaling about $1.5 million.

So about $1.5 million was in the lumpy range for that other line?

I think so. Call it $2 million.

Yeah. Okay. If we don't see the cuts you're expecting, it sounds like that still leaves margin dynamics in play based on actions you're taking?

Yes, we've been in an inverted curve for a long time. With the prospects of a traditional curve in 2025, there’s a lot to be optimistic about.

Got you. And as far as the deposit outlook, given the initiatives you've had, the momentum seems likely to continue. Is there a specific area on the deposit front you expect to see growth, perhaps on the DDA side?

We began developing deposit verticals aimed at large money pools, things like community associations and title attorneys. We continue to grow in these areas, using specialists to support our relationship managers in the field. Additionally, our reliance on treasury management functions continues to yield significant deposit growth.

Are there any areas or geographies where you're more focused on recruiting, or where you see more optimism in terms of hiring?

While we find success across our footprint, newer markets yield higher growth rates for recruitment. We continue to add people even in dominant markets like Nashville.

Okay. Thanks for taking the questions, and congrats on a great quarter.

Thanks.

Thank you. The next question will be from Russell Gunther from Stephens. Russell, your line is live.

Hey, good morning, guys. I had one follow-up question. Harold, you alluded to some potential work regarding the bond book, and I wanted to better understand how you're thinking about that. Is that a lever that would be purely gravy for the NII guide, or is it something you'd only pursue if the NII guide becomes more challenging?

That's not in our guide. We have some tactics to help improve investment income over the course of the year. We accomplished a strong restructuring in Q2 of '24 and may pursue some additional actions this year; however, it won’t be as influential as that intervention.

Okay, great. Understood. Thanks for taking my question, guys.

Thanks, Russell.

Thank you. There are no other questions. This concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.