Earnings Call Transcript
Pinnacle Financial Partners, Inc. (PNFP)
Earnings Call Transcript - PNFP Q1 2021
Operator, Operator
Good morning, everyone, and welcome to Pinnacle Financial Partners First Quarter 2021 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; Mr. Harold Carpenter, Chief Financial Officer; and Mr. Tim Huestis, Chief Credit 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 in a listen-only mode. The floor will be open for your questions following the presentation.
Terry Turner, CEO
Thank you, operator, and thank you for joining us this morning. Q1 was an outstanding quarter in my view. Most of you who have been following us know that during the pandemic, we transitioned quickly beginning last January, not only to shore up asset quality, but we also launched a number of initiatives that would continue to drive PPNR through 2020 and put us in a position to accelerate the impact of the pandemic. In Q1, we were able to get off to a really fast start and recognize some of that PPNR growth. We begin every quarterly call with a dashboard reflecting our key performance metrics on a GAAP basis, but as we most always do, because there are so many adjustments required in order to focus on the variables that we're truly managing here at Pinnacle, I’ll move quickly to the chart reflecting the adjusted non-GAAP measures. Part of our first quarter 2020 earnings call last April, I told you that my expectation was in the final analysis, 2020 wouldn't be about 2020 earnings, but more about how well we positioned our firm to return to our previous earnings trajectory following the pandemic.
Harold Carpenter, CFO
Thanks, Terry. Good morning, everybody. Many of my slides I have shown for quite some time, so I'm going to hit the high points. We're pleased with our first quarter loan growth. Excluding PPP, average loans were up 7.2% between the first quarter and fourth quarter. Excluding PPP, inter-period loans at March 31 compared to December 31 were up 4.6% annualized, so call it a mid-single digit growth quarter. As the loan yields, in spite of the steep in the yield curve, and as we mentioned last time, loan yields will be tight in 2021. We will lean into our relationships even harder to maintain our yields. There's a lot of equity out there. It sure feels like it's a borrower's market right now. Our problem-based credits only saw a slight decrease in yields while LIBOR was down 4 basis points and fixed rates down 7 basis points. Overall loan rates were down 9 basis points, with PPP loans being down 13% and the biggest contributor to overall loan yield decline and likely to be the most difficult to model over the next few quarters but more on that in a second. Our market leaders continue to believe that our inter-period loan growth forecast, excluding PPP in the high single digits for 2021, is a reasonable number for our firm. As always, we will lean on our new hires to give us an advantage on loan growth. Coupled with our markets, which we believe to be the best making markets with the best bankers in the Southeast, we're optimistic about our loan growth goals for 2021. As to yields, we still have about 60% of our floating variable rate loan book on in-the-money floor to help shield some of the financial long rates that continue to be under pressure. Speaking of PPP and the tons of work that's been accomplished here, we've funded around $3.4 billion between the two 2020 programs and the 2021 program. We're just over $900 million in 2021 fundings, about where we thought we'd end up. New application volume is slowing, so we don't anticipate a great deal more. Here's what we're hearing: the 2021 program hit the mark and was primarily used to help smaller businesses at least from our perspective. The process has improved since last year, and this has made life somewhat easier for us and our clients.
Tim Huestis, Chief Credit Officer
Thank you, Harold. Good morning, everyone. Using the traditional credit metrics of net charge-offs, NPAs, classified assets, and past due accruing loans, Pinnacle’s loan portfolio continues to perform very well. In the first quarter, as in prior quarters during COVID, our bankers and credit teams continued their thorough credit reviews, with particular emphasis placed on non-pass credit, our hotel portfolio, and credits in our COVID-specific low pass risk grade. Our first quarter credit metrics are very encouraging. Our classified assets decreased again this quarter, dropping by $17 million, and our classified asset ratio declined to a very modest 7.3%. NPAs also decreased this quarter, down to just 36 basis points, and finally criticized loans decreased during the quarter by $85 million. Similar to prior quarters in 2020, we conducted a four-question survey during March of 405 C&I clients with loan balances totaling $931 million, specifically targeting our low-pass risk grade clients in a wide variety of segments such as entertainment, restaurants, consumer services, and healthcare. The survey results reported more optimism than our fourth quarter 2020 responses that we previously shared with you. Of particular note, 87% versus 60% in December said first quarter 2021 revenue should be between 75% and 100% of first quarter 2020. 62% versus 53% in December have seven months of liquidity or greater. This slide is to provide an update on Pinnacle's loans modified under Section 4013 of the CARES Act. Our Section 4013 modifications were negotiated with borrowers from the perspective of providing the client a longer-term solution to help them bridge to the other side of COVID. Our approach was to improve Pinnacle’s position while simultaneously helping the client. With each modification, we collected very current borrower information as we sought to accurately rate risk grade loans and contemplate the terms of our modifications. A key distinction between deferrals offered in the first and second quarters of 2020 and these modifications executed in the third and fourth quarters is that the vast majority of our clients with Section 4013 modifications are at a minimum paying interest monthly. Our modifications for hotel loans were negotiated to fit the borrower's specific circumstances. Our modifications generally consist of changing loan repayment terms to interest-only for 3 to 12 months in consideration for borrower concessions such as paying the accrued interest that accumulated during the earlier deferral period, establishing an interest reserve on deposit with Pinnacle, and shortening the loan maturity. As illustrated in our supplemental deck, Pinnacle’s hotel book has held up. Of particular note, our hotel portfolio occupancy has been stronger than the national average as reported by STR for eight of the last nine months. As an example, our average occupancy for February was 50% versus the national average at that time of 45%. On a very positive note, STR reported that for the week ending April 10, national hotel occupancy was 59.7%, the highest level in the past 12 months. Given that 74% of our hotel loans are in the economy, limited service, or extended stay segments, we believe this improving occupancy trend bodes well for our portfolio. Many of our hotel clients in these segments can cover operating expenses and interest when occupancy is in the mid-40% range. As a testament to our conservative hotel underwriting prior to COVID, we only have four loans totaling $6.6 million that are rated classified. With the American Rescue Plan, the deadline for banks to complete Section 4013 modifications was extended from December 31, 2020 to January 1, 2022. This next slide provides a brief overview of our different credit delivery channels. While the structure of our channels may not appear unique, we believe it is our model of hiring experienced bankers in combination with Pinnacle's loan underwriting channels that drives our results. Our credit teams in markets working directly with our financial advisors have historically joined bankers on prospect or client calls for loans greater than a million. At Pinnacle, our financial advisors partner and collaborate with credit very early in the loan request. We believe that by quickly involving credit on loan requests, we differentiate ourselves from our competitors. Our credit teams’ experience level has served us well in converting prospects to customers and serving our clients. Pinnacle’s credit metrics have held up well and although we have shifted back to an offensive stance, we will continue our thorough defensive work on clients in the impacted segment, particularly our hospitality book. And now Terry, I'll hand it back over to you.
Terry Turner, CEO
Okay. Thanks, Tim. On one hand, I think it's too early to celebrate COVID, but it seems apparent to me that due to the progress on vaccines, along with all the stimulus poured into the economy, we're positioned for a strong second half of 2021. It means that it has been our intent since last January to get in a position to seize those opportunities that would inevitably exist in the Southeast as the economy begins to reignite. In my view, the first quarter was outstanding, with NPAs at 36 basis points, classified assets down to 7.3%, past dues down to just 9 basis points, and asset quality appearing excellent. Many of the threats we once feared seem to have subsided. Adjusted EPS was up 313% over the same quarter last year. Importantly, adjusted PPNR was up 25.2% over the same quarter last year, and revenues were up roughly 20% over the same quarter last year. During a time when both fintech and asset generators are garnering enormous multiples, we believe that BHG validated the power of their differentiated model as they continue to originate and sell record volumes of loans through their proprietary auction platform. As Harold mentioned, we expect that they'll do another securitization in Q2. Harold also mentioned even with the securitization, they are now forecasting income growth of 20% to 25% this year. This sets up for a great 2021. Building on that foundation and momentum, we are extremely bullish on our organic growth opportunities coming out of the pandemic. Greenwich Associates has estimated, based on their market research among business owners, that roughly 20% of revenues to banks is in motion. There is a high level of dissatisfaction with large banks' responsiveness during COVID. Contributing factors include handling the payment deferrals early on, then PPP, and then subsequent loan requests. Furthermore, Greenwich has developed a crisis response index which ranks banks based on their response to the crisis through client feedback. In their fourth quarter 2020 data, Pinnacle is one of the highest rated banks in the nation, making us one of the best positioned banks in the country to capitalize on this money in motion. Beyond that, we’re one of the most highly ranked banks to work for in the country, recently listed again in Fortune magazine as one of the top 100 places to work. That reputation has enabled us to hire a record number of revenue producers in 2019, another record in 2020, and as predicted for the first quarter, we should track another record number of revenue producers in 2021, suggesting outsized organic growth potential. Most importantly, we are located in some of the fastest growing markets in the country. Nashville continues to create jobs, most recently with Oracle's expansion which will create 8,500 jobs with a $1.2 billion capital investment. There have also been recent announcements of a partnership with an LNG on a $2.3 billion investment to build a battery plant in Middle Tennessee, creating 1,200 jobs. Similarly, Raleigh recently announced that North America's largest end-to-end biopharmaceutical manufacturing facility will be located in Wake County, creating more than 725 jobs. It will also establish an engineering hub that may potentially add as many as 1,000 jobs. Additionally, Atlanta continues to shine as a business hub, having been named the top state for business for the seventh consecutive year. The Metro Atlanta Chamber’s list of meaningful relocations and expansions for 2020 is an impressive seven pages long. I have previously discussed the importance we place on being in the largest and fastest growing markets in the Southeast. We published maps of the Southeast, excluding Florida, to demonstrate our target markets and filled the majority of those markets with the acquisition of BNC in 2017. Going forward, I believe our distinctive model is effective in the Southeast. We see unprecedented opportunities to enter those markets, both through potential strategic combinations and on a de novo basis. Our firm has almost always been a high growth financial services firm, and we expect to attract bankers in both our existing and potentially attractive markets throughout the Southeast. We love the size and growth profile of our existing markets and expect opportunities to expand in other attractive Southeastern markets. So again, I’m excited about our potential growth, both in the short and long term. Operator, I’m going to stop there, and we’ll be glad to open the floor for questions.
Operator, Operator
Thank you, Mr. Turner. The floor is now open for your questions. Our first question comes from Jared Shaw from Wells Fargo. Your line is now open.
Jared Shaw, Analyst
Maybe if we start with BHG, I mean that's great trends that you're seeing there and with the securitization. Are they doing that just really to keep that avenue open or should we expect as we go through the year that securitizations will be a bigger part of that? And I guess how big could the balance sheet at BHG get or how big would they be comfortable with that getting versus selling them?
Terry Turner, CEO
Yes. I think they're pretty confident about growing their balance sheet. They will have a securitization accomplished here in the second quarter, and we would not be surprised to see them accomplish another one before the end of this year. They have not moved away from that diversification strategy. So we fully anticipate them to grow it. They think they can get their balance sheet up meaningfully here over the next couple or three years.
Jared Shaw, Analyst
And then with that revenue coming in and then Terry's comments about the opportunities in these other markets, including Florida; is there an opportunity for you all to dramatically increase the hiring pace of revenue producers in these new markets? And can you take this as an opportunity to really expand that Atlanta model into other markets? And if so is that included in your expense outlook or would that be additional as those opportunities come up?
Harold Carpenter, CFO
I’ll talk about the expense outlook and what’s in it and what’s not, and what Terry will do in the hiring plan for the rest of this year and other markets. We do include a kind of placeholder for new revenue hires for the rest of the year. Traditionally, I think we would call that de minimus so that every market leader has at least some room in their plan for new hires. But it's in no way, shape, or form a target we are looking for from these market leaders. Does that make sense, Jared?
Jared Shaw, Analyst
Yes. So if there's a bigger opportunity, then that would not be reflected in the budget at this point.
Harold Carpenter, CFO
That's right. They can get outside hiring underway, and we'll fully support that.
Terry Turner, CEO
Yes. Jared, I guess I would add to Harold’s comments. I do believe that we are likely to have incremental opportunities in markets that we're not currently in. We have a great reputation, and as you know, there's a fair amount of turmoil around the Southeast with some of the bigger companies. We have people contacting us from various markets that are interested in joining our team, and we continue to evaluate those opportunities and bet those updates. I believe we will very likely have incremental hiring opportunities in markets we're not currently in.
Jared Shaw, Analyst
And then just finally for me, can you give an update on how the new hires that have been brought on over the last 18 months are doing in terms of actual production versus the goal? Has COVID thrown everyone for a loop, but are they getting traction? Are they able to start progressing on that 20% of bank revenue that's in motion right now?
Terry Turner, CEO
Yes. We think so, Jared. We track our revenue producers based on how long they've been with us. Obviously, the ones that have been here the longest are the ones producing most of the continual revenues for us. We track them based on 10 years, one year, three years, five years, and more than five years. The newer hires are coming up the ranks, and we're pleased with that. We fully anticipate that they will be the ones that give us the momentum we need over the next couple of years.
Jared Shaw, Analyst
As Terry mentioned, I think it's something like 20% to 25% of our revenue producers have been hired during the last couple of years. We think that's an incredible opportunity for us here in the near-term.
Terry Turner, CEO
Jared, again, I'll add to Harold's comments. I think your question is on the right track. COVID does impact, and I would say it this way: it lengthens the sales cycle both in terms of our ability to recruit people as well as their ability to recruit clients to the firm. It does lengthen in COVID, making it more difficult to get in front of clients. That said, as Harold mentioned, we are gaining traction, and we believe that based on the pipeline we are building, they will be able to deliver and gain traction on this 20% of the share that’s in motion.
Jared Shaw, Analyst
Okay. I guess that then when you look at your loan optimism overall, is it a combination driven by new clients or better utilization, or is it sort of equally both?
Terry Turner, CEO
Well, I think it is about we see increased line of credit draws which are helpful. But we also see an extraordinarily high level of pay downs in commercial real estate. They sort of balance each other, so when you work your way down to the net growth, I think the biggest factor in our ability to produce that will be the ability of our new hires to gain market share.
Operator, Operator
And our next question comes from Stephen Scouten from Piper Sandler. Your line is now open.
Stephen Scouten, Analyst
I apologize if I missed the first couple questions. But I guess one of my questions for you Terry, just longer term as you think about BHG and obviously I know there's a lot of unknowns, if that ever creates a liquidation event. But how do you think about capital priorities if and when that were to occur, and maybe specifically around M&A given you probably do have that advantage currency you have been seeking in terms of M&A over time? I think you're about two times tangible today, so I’m just wondering how you think about that capital deployment and opportunity set there.
Terry Turner, CEO
Yes. I think, as I have sort of alluded to in the prepared remarks, we are stock advantaged. I do think there's M&A opportunity, and it seems to be picking up again, with not just a wild stream of announcements, but it seems to me there are lots of dialogues going on, and we continue to evaluate M&A opportunities across the front. Going back to last year, somebody asked about M&A, and my response was that I wouldn't spend my currency trading slightly above tangible book value, but now that is a different equation. We look to optimize both the opportunity and advantage of the stock. There are thousands of circumstances that can come together to make it work, but certainly we're in a different position than we would have been even six months ago as it relates to M&A.
Stephen Scouten, Analyst
Yes. Definitely a high-class problem, I suppose. It's been a great investment. Does it make you want to think about other non-bank acquisitions moving forward, or is that something you're exploring more than just the traditional bank deals, whether that be fintech-type investments—I know you've done some of those already—or other line of business type acquisitions?
Terry Turner, CEO
Yes. I would say that we have continued to look at alternative kinds of investments like BHG. We've made a smaller scale deal, but it has been a meaningful deal. Our approach on these things is generally to find opportunities when we can. We are interested in fintech asset generators that are differentiated. So, you can expect us to continue looking in that vein. It may take some serendipity, but certainly we're interested in those kinds of opportunities. On the lines of business side, I'm not saying there aren't any, but I’ll be candid. We've built out our product capabilities pretty well, and getting into some of those roll-ups creates too much goodwill for us. Thus, I'd be less excited about certain business lines than I am about bank M&A or other fintech asset generators.
Stephen Scouten, Analyst
And then maybe just one last thing for me. I might need you to stop talking about Atlanta so much because there's people everywhere here and the traffic is bad again. So you can't highlight it too much, but I'm wondering kind of where you are on the progress front there in terms of how many lenders you have on the team now, maybe the base of loans, and then I know you mentioned specifically wealth management for Atlanta and North Carolina. Is that just building out the teams, or is there a specific opportunity around wealth management in those environments that you're really seeing that's leading you to push into that space in particular?
Terry Turner, CEO
Yes. I think, again, our opportunities in some of these North Carolina markets, specifically Charlotte and Raleigh, are really similar to Atlanta. Atlanta is the largest and most vibrant, but those other two markets are also very promising, and we have such small market shares that we look at those much like we would a de novo start in Atlanta. Our hiring has been pretty steady. I can't recite the numbers in each of those markets, but we're hiring revenue producers in each of those markets—both traditional financial advisors or relationship managers—as well as mortgage originators, brokers, and trust administrators. As for the opportunity, I believe that the large banks we’re working with are really vulnerable in some of these wealth management businesses, and that gives us an opportunity to seize more revenue producers.
Operator, Operator
And our next question comes from Brock Vandervliet from UBS. Your line is now open.
Brock Vandervliet, Analyst
On BHG, just to confirm, that’s a 20% to 25% net income growth guide for this year. Is that right, Harold?
Harold Carpenter, CFO
Yes, or more.
Brock Vandervliet, Analyst
Okay. And where's that growth coming from? A couple of quarters ago you had a lot of disclosure about new verticals. Is that being sidestepped, and is this all the traditional growth areas, or are there new verticals that you've played?
Terry Turner, CEO
I think there's a list of things that they— we asked them the same question. The wholesale model is operating at pretty much peak efficiency. They’ve got better data. They can send out more opportunities to engage with clients. Their resolution of substituting loans is better than they anticipated post-COVID, so they've got some breaks there. With the improved credit outlook, you're likely to see some reduction in reserves for losses. It won't be a cliff, but I suspect it'll be steady for the rest of the year. So, given all that, they feel this year is going to be great for them, and that’s how we arrive at the 20%-25% growth forecast.
Brock Vandervliet, Analyst
And shifting over to the funding side, I believe part of this went into a reduction in some of your wholesale deposits. But it did stand out to me that you're showing a decline in the rate of deposit growth it seems. Could you speak to that? Are you seeing any peaking there?
Terry Turner, CEO
Well, we hope we're seeing some peaking there, but I can't really give you any assurance that we're going to see core deposit growth lessen. We're active in several different initiatives to grow lower-cost, smaller account balance deposits. However, we anticipate we will see more runoff in our wholesale book. We've got about $1 billion coming out this quarter, but hopefully that will be enough so that we don't grow the funding book as we did in the first quarter.
Operator, Operator
And our next question comes from Stephen Alexopoulos from JPMorgan. Your line is now open.
Stephen Alexopoulos, Analyst
I want to start on the loan outlook. I appreciate the improved optimism on loan growth. Given the industry is awash in liquidity, particularly your larger competitors, can you discuss the competitive environment today for lending, and could that impact your ability to achieve that high-single-digit growth?
Terry Turner, CEO
Yes. That's a great question. I think Harold alluded to in his comments that it feels like a borrower's market. One of the reasons for that is limited loan demand which drives pricing lower and those kinds of dynamics. Your theme is correct. We believe we have taken that into account in our forecasts. Nobody knows the future, I guess, but if you look at economic loan demand in our footprint, it's still very low. We expect that it will pick up in the latter half of the year but will likely be subdued by the liquidity in the system. Therefore, the growth we're anticipating will come more from increasing market share than it will from economic demand.
Stephen Alexopoulos, Analyst
And then if we look at the COVID-19 impacted segments, like hotels and restaurants, how do you look at those exposures from a long-term view, and do you have plans to reduce those over time?
Terry Turner, CEO
Certainly in hospitality, we have no appetite for new hotel loans. We haven’t generated any new hotel loans since the first quarter of last year. I would tell you that our underwriting for CRE retail has also changed; we've focused on single-tenant and grocery-anchored exposures. So, part of the answer lies in how we are shifting our appetite for CRE. Regarding restaurants, we are maintaining a guardedly optimistic outlook and strict underwriting.
Stephen Alexopoulos, Analyst
My last question, Terry. Given the earlier commentary about improved valuations and potentially looking at M&A opportunities differently, are you not looking as actively on the buyback side? I know you have a $125 million plan, but how are you thinking about that given the stock's valuation?
Terry Turner, CEO
Yes, Stephen, I'll answer your question directly on the buyback. Just to be clear, I don't want to oversell it, overbill it, or mislead. I'm not saying we're going to make an acquisition; I'm saying we're in a different position, and there are discussions and opportunities to consider those kinds of things. Regarding buyback yields, I think you're right; I don't believe you should have an expectation that we would re-enter and buy shares right now, primarily due to the valuation. We look at that differently. We'll keep an authorization in place, but I quickly want to clarify that we do not intend to buy back shares at the current price.
Operator, Operator
And our next question comes from Brett Rabatin from Hovde Group. Your line is now open.
Brett Rabatin, Analyst
First, Harold, I was curious what your crystal ball might be telling you about liquidity. I understand you thought that might start to drain at some point, and it has obviously extended out for yourselves and the industry. Can you give us some color on how you expect that liquidity to be deployed over time? How much of that might happen and how much is just going to drain naturally with clients using cash?
Harold Carpenter, CFO
Yes, that is a crystal ball kind of question, Brett. We likely will see a modest amount of bonds go into the market over the next two to three quarters. We could build our percentage up from around 13.5% to 14.5% or so, maybe more. It's likely that we'll have about $5 billion worth of PPP loans coming to us over the next four quarters, which will provide additional liquidity to offset the redemption of some of these wholesale funds. It will be a challenge to drain some of this liquidity, but we remain optimistic about our loan growth targets and reducing deposit rates. We have larger depositors that are more rate-sensitive and they appreciate the value equation. If they find a better number at another institution, they'll move that money. We’re okay with this; we don't think it jeopardizes our relationship with our clients.
Brett Rabatin, Analyst
Appreciate the color. One additional question; in your guidance for expenses, you mention requiring increased infrastructure support. However, you're providing guidance for non-personnel expenses to be lower this year. Can you discuss this increased infrastructure support a bit? Are you doing any infrastructure investments that might change the dynamics outside of personnel?
Terry Turner, CEO
Yes, not really. I don't think we're doing anything as far as bricks and mortar. We do have a couple of branches in play here this year, but there's nothing big in terms of buildings or technology that would create a notable impact. Most of our infrastructure builds come from personnel, which is usually around one resident producer we hire that leads to two or three additional people supporting that revenue production.
Brett Rabatin, Analyst
If I could sneak in one last question around the change to equity compensation; the addition of tangible book value per share growth, does that impact how you view M&A in terms of considering payback periods or changes in book dilution?
Terry Turner, CEO
Certainly, it is impactful. It would be something we would need to consider. Traditionally, our board has been supportive regarding significant events and how that might impact longer-term incentive plans.
Operator, Operator
And our next question comes from Matt Olney from Stephens. Your line is now open.
Matt Olney, Analyst
I want to ask about the bank's sensitivity to interest rates. On slide 52, you gave us some good disclosures, and it looks like the bank continues to shift to a liability-sensitive position. However, when I read your comments, it sounds like you have some levers to pull to offset this over the next year or two. Should we be assuming that by the time rates do increase, whether it's next year, 2023, or whenever, Pinnacle will at least be in a rate-neutral position, if not asset sensitive?
Terry Turner, CEO
Yes, that's a great question, Matt, and you're correct. We've got some levers we can pull out. We've got $1.5 billion in loans right now that we can unwind today and that will free us up to floating rate assets to make us more asset-sensitive. We don’t panic over our balance sheet. We think we have a great opportunity when rates begin to move. Most of our liability sensitivity is tied to loan floors, so it's really all about that.
Matt Olney, Analyst
Circling back on the loan growth and outlook, I appreciate the guidance. It's kind of a bottom-up review with your lenders at the bank. I'm curious about the utilizations now versus levels a few years ago. If utilization rebounds, how much incremental benefit could we see from loan balances at the bank?
Tim Huestis, Chief Credit Officer
Yes. Utilization is at 43% now from around 46%. Those would be loans currently on our books. However, we aren't anticipating a significant growth in utilization, so most of our growth will come from loans that are currently not on someone else's balance sheet.
Operator, Operator
And our question comes from Catherine Mealor from KBW. Your line is now open.
Catherine Mealor, Analyst
Wanted to follow up on the GAAP NII. How much PPP do you expect to come through in 2021 within that guide?
Tim Huestis, Chief Credit Officer
Yes, that's a great question. We see around $63 million in additional accretion that will likely come to us this year. It's probably more than 50%, maybe upwards of 70% of what we may realize this year.
Catherine Mealor, Analyst
As we think about the big picture PPNR growth, I remember a couple quarters ago we looked at PPNR per share kind of excluding BHG, excess liquidity, and PPP. Do you think this is a year where PPNR minus those three variables can grow, or does it look like BHG is helping you fund this expense growth this year, and maybe that's more of a next-year thing?
Terry Turner, CEO
There’s no question that BHG is helpful, but reserve releases and provision expense are also helping fund some of that incentive growth. The broader dynamic for PPNR growth for all banks remains benign this year, in many cases negative. So we’ve challenged our folks to see at least incremental positive growth and hopefully we can work our way through the whole year towards that top quartile performance.
Catherine Mealor, Analyst
If I could get you one more just for Tim; what's the path to moving loans off the criticized list?
Tim Huestis, Chief Credit Officer
Yes, Catherine, that's a good question. Most of that is from our hospitality book. My team and I go through every hotel loan, particularly those over $5 million, every quarter. I anticipate some movement out of criticized this quarter, more in the second quarter, and potentially third and fourth quarters, but some from the criticized book will take until early 2022. So you’ll see a positive acceleration in terms of loans moving back into the past due.
Operator, Operator
And our next question comes from Michael Rose from Raymond James. Your line is now open.
Michael Rose, Analyst
I just wanted to address that BHG is significantly adding to their staff this year, and there are reports they may look into point-of-sale lending at home improvement stores. Can you guys clarify what the plans are there and where that stands?
Tim Huestis, Chief Credit Officer
You know Michael, I think their hiring plans will be similar to last year's. They are planning to add about 100 or 110 people in 2020, and they anticipate a similar number this year. The point-of-sale is one of the many new product verticals they are looking at.
Michael Rose, Analyst
I thought they had an employee count of about 800 and were going to add about 650 this year. Your comments sound a little different. Where does that stand?
Terry Turner, CEO
Yes, I think the article was based on an Internet report. I believe they can reach 650 over the next few years, but for this year, the number for new hires is around 100 to 125.
Michael Rose, Analyst
Maybe just back to the net interest income guide this year. It seems like the PPP fees will be higher, and then core will be low. Can you reconcile this versus 90 days ago, and are we at a point where ex-PPP, the net interest income will grow from here? Is that the expectation?
Terry Turner, CEO
Well, we are very hopeful of course that net interest income, excluding PPP, will grow along with core loan growth for sure. Currently, we will stick with our forecast that NII growth will be in the high single digits for this year.
Operator, Operator
And our next question comes from Jennifer Demba from Truist Securities. Your line is now open.
Jennifer Demba, Analyst
Thank you, can I circle back to the M&A topic? Terry, just curious, you said the higher currency now makes M&A a little bit more attractive. Can you talk about what kind of properties would be of interest to you right now from a size, geographic standpoint? We know you're kind of biased towards more commercially oriented properties.
Terry Turner, CEO
Yes, I appreciate the question. Regarding M&A, if you have stock to trade, tangible book value isn't much of an option to strike people going forward. To your question about what kinds of things would be considered, we have a full range of options to consider, including strategic combinations and acquisitions. However, I am not interested in making acquisitions that wouldn't produce close to double-digit accretion in earnings. I estimate that would require acquiring an organization of at least $7.5 billion to create that kind of impact. You understand the criteria well: being in major urban markets and having a commercial orientation that allows for that level of accretion.
Operator, Operator
And our next question comes from Brian Martin from Janney Montgomery. Your line is now open.
Brian Martin, Analyst
Thanks for taking the question. Most of my questions have been answered. Just one or two things, Harold. Just going back to the expense guide, can you detail how you're thinking about it versus what you laid out last quarter? Is there a significant change between the end of last year and currently?
Harold Carpenter, CFO
Yes, I think so, Brian. It hasn't moved much between the end of last year and currently.
Brian Martin, Analyst
On the topic of PPP loan forgiveness, as it occurs, will most of that come back in cash until you can redeploy it? How is it changing your balance sheet size?
Harold Carpenter, CFO
Yes, I don't think so, Brian. As those loans get forgiven, we'll try to deploy that cash into new loans. Is that what you meant?
Brian Martin, Analyst
Yes. Just kind of average earning assets; as the loans are forgiven and turn to cash, it will come back into cash until it can be redeployed. That’s what’s continuing to occur.
Terry Turner, CEO
Yes, of course. We will gather additional liquidity from the forgiven PPP credits and hopefully get our loan engine moving to quickly redeploy that money.
Brian Martin, Analyst
Got it. One last point regarding M&A. I understand what you’ve mentioned. Geographically, is there more focus or interest in new targets? Would you be more inclined to add to your existing footprint or is it more likely that you'd need to go to a different market than you're currently in?
Terry Turner, CEO
Yes. I would assume it leans more towards different markets than existing markets but that's not to say existing markets lack opportunity. You could logically assume you'll find more opportunities in additional markets than in existing ones that would meet our criteria.
Operator, Operator
Thank you. I am showing no further questions. This concludes today's conference call. Thank you for participating. You all may now disconnect.