PNFP - NASDAQ

Good morning, everyone, and welcome to the Pinnacle Financial Partners Second Quarter 2025 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; and Mr. Harold Carpenter, Chief Financial Officer. Please note, Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their website at www.pnfp.com. Today's call is being recorded and will be available for replay on Pinnacle Financial's website for the next 90 days. [Operator Instructions] During this presentation, we may make comments which may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties and other facts that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Many of such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's annual report on Form 10-K for the year ended December 31, 2024, and its subsequently filed quarterly reports. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial's website at www.pnfp.com. With that, I'm now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.

Thank you, Matt. Everyone who's been on one of these calls with us over the last decade or more knows that we begin every one of them with our shareholder value dashboard, GAAP measures first, then the non-GAAP measures, which are most reflective of how we manage this firm. And specifically, I'm always going to comment on revenue growth, EPS growth and tangible book value per share growth because our analysis is that these 3 measures are the most highly correlated with share price performance. I believe that our relentless focus on these 3 simple metrics accounts for the extraordinary total shareholder return we produced over more than 2 decades now. Other metrics like net interest margin, cost of funds, deposit betas, efficiency ratios are all interesting, but in my opinion, they're not highly correlated with total shareholder returns. And so that's why we're so dogged in our pursuit of revenue, EPS and tangible book value per share growth. Here, you can see the extraordinary reliability by quarter over the last 4.5 years with second quarter being more of the same. In 2Q '25, revenue was up 15.1% over the same quarter last year. Adjusted EPS was up 22.7% over the same quarter last year, and tangible book value per share was up 10.9% over the same quarter last year. And as you can see on this slide, we've produced double-digit CAGRs over the last decade on those same 3 metrics, which is meaningfully outsized versus the peers. But to peel the onion back just a little on how we produce such reliable growth since between 75% and 80% of our revenues are spread revenues, as far as I can see, you're going to have to figure out how to sustainably grow net interest income at a double-digit pace, which we've done over the long term, as you can see on the left. And our way of doing that is to reliably grow our earning assets at a double-digit pace, which we've done over the long term, as you can see in the center. And then the most important ingredient of all is to be able to sustainably grow core deposits fast enough to effectively fund that double-digit earning asset growth, which we've done over the long term, as you can see on the right. So having looked at it quarterly over the last 4.5 years and then looking at the CAGRs over the last decade, I thought it might also be instructive to look at it in the current very challenging rate cycle. Since 2Q '23, we've lived through a disastrous rate environment with an inverted yield curve. And as you can see on the leftmost chart, peers have been unable to grow net interest income while we grew 7%. It's been a time of slow economic growth, leading to very limited loan growth over the last couple of years. And so you can see in the center chart, peers have been unable to grow their earning assets, while our model produced double-digit earning asset growth. And I think perhaps most impressively, despite the Fed shrinking the money supply, making it really difficult for peers to produce meaningful deposit growth, we produced 13% core deposit growth, roughly 5x the peer median. Remember those 2 double-digit balance sheet growth metrics, 10% earning asset growth and 13% core deposit growth, even in a difficult operating environment when peers struggle to grow. Now I'm always cautious when I'm telling the story about our ability to produce such rapid and reliable balance sheet growth. I'll never forget Dick Kavocevich, long-time CEO at Wells Fargo saying, if it's growing like a weed, it is one. And so I want to peel back another layer of the onion for you to create clarity about how we do it and not just how we do it, but why it's the safest way to grow that I'm aware of. Said simply, ours is a market share takeaway strategy. In general, we target the largest market share leaders in our footprint, which happily are the most vulnerable competitors in our footprint and capitalize on the very difficult experience that they create for both their associates and their clients. In my opinion, we've become the employer of choice for many of those revenue producers and our largest competitors. The recruiting mechanism is simply to rely on referrals from our existing associates to certify which candidates we should hire based on, number one, their personal knowledge that the candidate is really good at what they do; and number two, that they'll fit in here at our firm. The average experience of the associates we hire when we hire them is 18 years. So if you think through that idea right there, generally, we're hiring revenue producers with nearly 2 decades of experience. And what that means is they can move their book quickly, which produces both rapid and reliable growth, and they intentionally leave their bad credits behind, which, in my view, produces outstanding asset quality. On the left, look at the rate at which we add these highly experienced revenue producers, a 12% CAGR. That sounds a lot like the earning asset and core deposit CAGRs we just looked at on the last slide. I'm working hard to connect those 2 dots for you, hiring revenue producers and both balance sheet and fee income growth. On the right slide, you can see the power of that ability to attract experienced talent from these larger competitors. The third quarter of 2024 was the last time I gave a more detailed look at how the balance sheet book build on average. We've also included that information on Slide 49 in the supplemental slides this quarter. But using those average production statistics for just our new relationship managers who produce balance sheet growth over an extended period, the relationship managers hired from 2020 through 2024 should yield an approximated $19 billion in organic asset growth through 2029. And that growth, in general, is not really dependent on economic growth or rate cycles, as you saw in the previous slides. It's simply the consolidation of the books of business held by those relationship managers that we have already onboarded through 2024 from their previous employer to Pinnacle. And don't miss, all of that growth is produced by folks who are already in our expense run rates. And so hopefully, that creates a little more clarity around how we have historically produced reliable, sustainable and outsized growth even when peers are struggling as a result of the difficult operating environment. If you can bear with me just one more minute, let me peel the onion back still one more layer on why and how the growth is so reliable and sustainable. It sounds pretty simple, right? Just go out and start hiring a bunch of revenue producers, but it's not as easy as just hiring people. It's critical to hire the right people, which sometimes can be tricky. But because we don't use headhunters, because we generally don't hire folks that are circulating resumes, and instead, we rely on our existing associates who make referrals for candidates that they've worked with at other banks, we're able to literally attract the best talent. I think -- when I think about that idea there, there's almost -- I won't say no possibility, but a very minimal possibility of making a mistake when you use that hiring formula. So on the left, you're looking at Greenwich data for businesses with sales from $1 million to $500 million in our 8-state footprint. Greenwich assesses relationship manager quality scores across 7 metrics. And here in the blue bars, you're looking at the range of ratings for the top 10 banks in our market for each measure. The white line within each of those blue bars represents the median score for the 10 banks. And the orange dot is where Pinnacle ranks on each of those measures within the range. And so as you can see, we haven't just hired people, we have literally hired the best. And now to the most important part of the whole formula on the right, you can see that not only have we hired the best, but we've also done the really hard work to build and operate a service model that literally yields a banking experience second to none. Our belief has always been as long as you can routinely attract large volumes of the best talent and then arm them with a differentiated service level that clients rave about, which ours do, as evidenced by our 83 Net Promoter Score, then you can reliably and sustainably grow your revenue, your EPS and your tangible book value per share. So with that, let me turn it over to Harold to quickly highlight the key elements of our performance in the second quarter, which is just a natural extension of the long-term execution of this differentiated model.

Thanks, Terry. Good morning, everybody. We will again start with loans. End-of-period loans increased by 10.7% linked quarter annualized, which was better than we thought at the beginning of the quarter. We continue to lean on our new markets and new relationship managers to provide the punch for our loan growth. Again, as we've said many times before, our loan growth is not so much dependent on economic tailwinds. It's about all these great bankers we've hired and the movement of their relationships to us. There was a lot of macro uncertainty last time, and there remains a lot this time around. Our pipelines continue to remain in great shape. Given second quarter results in our pipelines, we've adjusted the low end of our loan outlook range to consider now 9% to 11% growth this year. The yield curve continues to bounce around and continues to do so as we begin the third quarter. But in the end, we are pleased with how our loan rates performed during the second quarter. Our fixed rate loan repricing came in at 6.39% for the quarter, just shy of our targeted 6.5% to 7% range. Although the lift from fixed rate repricing is not as opportunistic as it once was, we still anticipate continued lift in fixed rate loan rates throughout this year. Absent a surprise rate decrease by the Fed, our loan yield estimate for the third quarter is that rates are flat to perhaps slightly up from here. Deposit growth came in at a 4.7% linked quarter annualized growth rate. This was less than we had anticipated at the start of the quarter, but given the strength of our first quarter growth and as we mentioned last time, the impact of second quarter tax payments, we are pleased with the result. We typically experience more deposit growth in the second half of the year than the first half. And with our new markets and new relationship managers, this should provide for another strong year of deposit growth for us. As a result, we are maintaining our estimated growth rate for total deposits at 7% to 10% for 2025. We're also very pleased with how deposit pricing has performed thus far and how both our deposit and loan betas have performed through the current rate cycle. For both loan and deposit pricing, we don't see a lot of change as we head into the third quarter. We anticipated a flat to slightly up NIM for the second quarter, so we're pleased that our NIM finished up 2 basis points at 3.23%. Our outlook for the third quarter of 2025 is the same, that our NIM will remain flattish with some upward bias. As to net interest income, we anticipate -- we anticipated a nice bounce in the second quarter, so we're pleased with better than 16% linked quarter annualized growth. As to 2025, we have adjusted the lower end and thus tightened our estimated growth range for net interest income to now believing our net interest income growth outlook will approximate a range of 12% to 13%. Any surprise rate cuts and the slope of the yield curve will have influence on how all this plays out for the remainder of the year, but we remain optimistic. As to rate cuts, we've modeled out many scenarios and again, feel we're in pretty good shape to manage through most rate forecasts that are talked about in the markets today. We continue to delay rate cuts now forecasting only one rate cut in October. We do believe more rate cuts are helpful than no cuts, but given the timing, we don't believe whatever happens will have a substantial impact on our 2025 results either way. As to credit. Our net charge-offs decreased to 20 basis points -- increased to 20 basis points in the second quarter from 16 basis points in the first quarter with almost $7 million of the second quarter charge-offs arising from relationships where we had set aside reserves in prior quarter. For 2025, the current view of our charge-off outlook is that net charge-offs for 2025 should come in around 18 to 20 basis points with the only change from our prior estimate being up 2 basis points on the lower end of the range and no change to the high end of the estimated range. With the charge-offs of previously reserved for loans, our reserve did decrease 2 basis points this quarter. We still believe our reserves will remain at or near these levels for the remainder of 2025 if economic conditions don't materially deteriorate from here. We modified our estimated 2025 outlook for our provision to average loans to 24 to 25 basis points as we kept the low end of the range consistent but lowered the upper end of the range. This is considering use of a 70% baseline economic forecast and a 30% more pessimistic forecast going forward. Merely as a reference point, if we were to use 100% pessimistic, we've estimated that we would have had needed about $35 million in increased reserves. As to BHG, consistent with the last quarter, all of the usual slides are in the supplementals for your reference. BHG had a strong second quarter, providing fee revenues to us of over $26 million. Production was again strong in the second quarter and loans sold in their community bank network were at the largest spread since 2022. Credit was consistent with the prior quarter and vintage loss curves also seem to mark continued improvement in the quality of the book. We and BHG are both comfortable in raising our earnings estimate for 2025 from 20% growth to now approximately 40% growth over the result reported in 2024. Several factors are contributing to this decision, lower operating costs this year, better credit performance than anticipated and stronger production lead flow, all of which point to what should be a much stronger year for Bankers Healthcare. Lastly, as to our guide for 2025, I've already mentioned much of the information on the slide previously. Again, the investments we've made in our new markets and our hiring success are the building blocks we will lean into in order to position us for top quartile results amongst our peers. As to our outlook for fees and expenses, we continue to be pleased in our fee line. Banking fees and wealth management are performing well. Along with strength in core banking fees and BHG's estimated growth this year, we are comfortable increasing our guidance from 8% to 10% growth to now 12% to 15% growth in fees this year. As to expenses, our prior outlook reflected a target award for our associates, which now given our more positive outlook, we are increasing to an anticipated 115% of target payout as of June 30. Obviously, our goal is to maximize our award and increase it to 125% max payout but we can't do that unless we achieve the results required to warrant the maximum payout. And as always, we will decrease the incentive award if our earnings fail to support increased incentive costs. Through all of that, we are modifying our total expense outlook to now a range of $1.145 billion to $1.155 billion for estimated expenses for this year. As the tariff discussion plays out, as the yield curve and rate cut discussions play out, we are hopeful that more clarity will come forward. But as it sits today, we are more positive today and remain very optimistic about our prospects for this year and are confident that 2025 should be another strong year for Pinnacle. With that, I'll send it back to Matt for Q&A.

[Operator Instructions] Your first question is coming from Ben Gerlinger from Citi.

I want to take a moment to look at Slide #9. It's the vintage of hires from 2020 to 2024. Just want to make sure I got that correctly, that kind of 5-year cohort, you're expecting them to have kind of peak out at roughly $19 billion.

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

Right. No, I totally get that. Where I was going with it was I'm just kind of thinking that the 5-year cohort, you essentially hired what would be the kind of 70th largest bank in the United States with no dilution or no M&A. So when I think about just the magnitude of your hiring and the flywheel, if the rules change and let's just say, you took away every bright line, whether it be 100 or whatever, do you have any appetite to do M&A? Or is it simply just the Pinnacle brand and workhorse of the onboarding staff within HR can sustain a pretty healthy growth, you really have no appetite at all?

Yes. So I think -- one, I think you're on the right track. Obviously, we're -- this organic growth model, we love and believe it produces rapid and reliable growth. Again, I'm just giving you what this cohort produces. As you know, I've got other relationship managers that say in a difficult period of time may have net negative growth. If you run a $300 million loan book, as an example, in a difficult loan demand environment, you may not produce enough growth to cover your ammo. So you got all those things playing through. But you have the math right on just how these hires work and how they fold on to our balance sheet and trade through the revenue cycle and all those kinds of things. I think I would say this, Ben, I always get asked about M&A and so forth. As you know, in our company's history, I think we've done 6 transactions maybe account for roughly $12 billion of the $55 billion that we have. So we view ourselves to primarily be an organic grower, and it is exactly because of what you just said. When you can hire this volume of people and have them produce this volume of growth, it's difficult to say, okay, I'd like to go out and start acquiring banks and take on the integration risk and so forth that would be associated with that just for the sake of producing growth. We can produce outsized growth. The only other consideration I just footnote for you, I think also we get asked about succession planning a lot. And so I always try to walk people through, hey, our Board understands their responsibility for succession planning. They look at it routinely. They study it in 5 different lanes, if you will, 5 different ways to accomplish succession. One is using our high-performing or high potential candidates inside the company. There's an outside candidate too who have the capacity to do this job and have an affinity for Nashville. Obviously, we could buy banks, we could do MOEs or we could sell the company. So those are avenues that our Board is constantly considering and expect me to keep them updated on where we are on all those things. But that seems like the only application for M&A if you ever got to that. But again, just to try to figure out how to grow faster, I can't imagine we would want to take on that integration risk.

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

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

Your next question is coming from Jared Shaw from Barclays Capital. As a quick reminder, Jared Shaw from Barclays Capital.

Sorry, I couldn't hear you there for a minute. I guess just focusing -- staying on growth. And if we look at Slide 9, that's showing the growth potential from those new hires ramping up and bringing those businesses over. What are you hearing from your existing customers or existing RMs in terms of sort of the appetite for growth, whether that's through utilization increases or just sort of customer sentiment overall?

Jared, this is Harold. That's a great question. During the quarter, the credit officers put out a survey. I think they surveyed over 1,100 clients, both commercial and commercial real estate, about $13 billion in commitments altogether. Primarily, that was about tariffs and other current macro items. But I think where the current customer base probably sits is in a cautious state. We're not really feeling like the current client base is willing to take a whole lot of additional risk right now. Perhaps over the next 2 or 3 quarters as some of these issues play out, they'll be back to where we thought they'd be at the beginning of the year, and we'd be looking at some significant kind of opportunities to enhance our growth rates. But right now, I think, Terry, I believe our client base is not worried, not concerned. Our credit is holding up really well, but at the same time, cautious.

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

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

Yes. We've already started back into the commercial real estate business probably about 3 to 4 months ago, and we're starting to write new credits there. It will just take a couple of quarters before we start seeing those balances turn back positive in any kind of substantial way. We're not increasing our appetite beyond what we currently believe in multifamily industrial solid projects are where we're headed. So we don't think there's any significant risk component that we're adding to our balance sheet. We want to try to stay at kind of our target levels on both construction and overall CRE, which is about 70% of capital for construction and 225% for -- the 300% level of commercial real estate. We're just slightly above the 225, but we think where the puck is going, we will skate towards that puck, and I think we'll be below that 225 here shortly.

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

Yes. There was -- every so often, the CEO at BHG, there will be a dividend payment that he'll need for whatever reason. And so there was a sizable dividend we received in the second quarter. So that's why the equity came down or the investment came down. As for the second half of the year and whether or not it's production growth or whether it's credit, yes, it's both. Obviously, it's both. But I think credit has really been the bigger surprise for the year. And we feel like that it looks like it's pivoted and hopefully, it will continue to pivot. They're going to continue to build reserves, I believe, for the remainder of the year. But at the same time, the loss content appears to be well in hand right now. Catherine Fitzhugh Summerson Mealor Okay. Great. And then maybe one other question just back on deposits on the funding piece of the growth. Can you talk a little -- it was great to see your deposit costs kind of stabilize. And I assume that's part of your margin guidance into next quarter is that you kind of see maintain kind of stabilization of deposit costs. Any -- can you give us any color on just what incremental deposit costs look like today as we grow, especially as deposit growth improves in the back half of the year?

Yes. The numbers that I look at right now for interest-bearing deposits kind of in one big bucket, we're about 50 basis points over the book. So that would be where -- what kind of new accounts. And that's just looking at new accounts that are coded into the trial balances. So... Catherine Fitzhugh Summerson Mealor You're saying -- so your current cost of interest-bearing deposits is [ 319 ], let's say. So you're saying 50 bps over that is about where new deposits are coming on?

Yes, something in that neighborhood. I'd say [ 350 ] to [ 360 ] are the reports that I'm looking at. Catherine Fitzhugh Summerson Mealor Okay. Okay. Great. But your incremental loan yields are still coming on, it seems like in the high 6s.

Yes. Yes.

Your next question is coming from Stephen Scouten from Piper Sandler.

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

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

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

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

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

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

Great. And then just lastly for me, can you guys give an update on the opportunity in Richmond, the new hires you have there and kind of what you think the scale of that opportunity could be over the next 2 or 3 years?

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

Well, I mean, just how big a bank you think you could run in Richmond, if that's $1 billion in asset kind of franchise there in the Richmond market.

I'm sorry, in Richmond specifically. Yes. I think our target would be to build a $1 billion to $1.5 billion asset bank over a 5-year period of time.

Okay. And feel pretty good about that based on the initial -- I guess, the initial progress and opportunity set there.

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

Your next question is coming from Casey Haire from Autonomous Research.

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

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

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

Well, there's always room for improvement, but I'm not anticipating our beta will change much at least over the next 3 months. What we need is a rate decrease. We're kind of just sitting on the start line, hoping that the Fed will lower rates here more sooner than later, but we're not anticipating anything until October. But with the rate decrease, that gives us kind of a backdrop to really dig into the deposit book and lower some rates in that deposit -- on the deposit side of the balance sheet.

Your next question is coming from Samuel Varga from UBS.

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

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

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

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

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

Just wanted to follow up on the BHG conversation and kind of a bigger picture question, but the EPS contribution from that business has increased the past couple of quarters. And based on the new guide, it sounds like it will continue to do so. So I was just curious your thoughts on whether there's a level that you would target or not want to exceed in terms of earnings contribution. And then within that context, if there's any change to your attitude toward the investment in BHG.

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

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

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

Your next question is coming from Timur Braziler from Wells Fargo. Timur Felixovich Braziler Wells Fargo Securities, LLC, Research Division First question is -- first question is back on deposits. I'm just wondering with future rate cuts, do you think you'll be able to get the same type of beta on the way down with the future rate cuts? Or does the competitive landscape and/or increased lending, does that maybe mitigate some of the potential benefit from reducing deposit costs with subsequent rate cuts?

No, I think we'll be ready to reduce deposit costs. I'm sure that when you get to the line of scrimmage, there will be a lot of blocking and tackling going on around those kind of issues. But our intent is to get that beta to at least maintain where we are currently and try to get as much out of a rate cut as we can because I think that's going to be one of the key ways that we're going to see our margin expand in a much more meaningful way. Timur Felixovich Braziler Wells Fargo Securities, LLC, Research Division Okay. And I think the last comment was around 50% of the deposit base was indexed and you got close to 100% beta on that. So we should expect similar type of performance on the next call.

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

Just to make sure I understand your question, you're asking does ambiguity around succession planning temper our ability to hire people? Timur Felixovich Braziler Wells Fargo Securities, LLC, Research Division Yes.

Well, I mean, I don't know what to say to you on that, Tim. I mean, I guess you can tell me how long that ambiguity has existed, and you can compare that to what the hiring chart looks like. But it feels like our hiring ability is incredibly strong. We have hired 71 revenue producers year-to-date, which is a pretty rapid clip. And I would say that the momentum seems incredibly strong and that I believe we have at quarter end, 59 job offers out to revenue producers. We won't get 100% of those people hired, but I guess you'd have to draw your own conclusions, but it looks like to me, our ability to hire people seems as good as it's ever been. Timur Felixovich Braziler Wells Fargo Securities, LLC, Research Division Okay. Could you just maybe comment on monetization of BHG and what that time line might look like?

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

Your next question is coming from Brian Martin from KKR. Brian Martin Just a couple of things. Harold, just clarifying on the BHG, given kind of the annual outlook for revenue, I guess, could second quarter be the high point for the year and it maybe drift a bit lower in terms of the quarterly performance in the back half of the year? Does that seem fair based on your commentary on the outlook for growth?

Yes. I think that's possible. I like flattish from here. So your comment is a good one. I think from here, we're looking at probably a flat for BHG for the rest of the year, somewhere in that neighborhood. Brian Martin Okay. Around the $25 million level. Okay. And then just in terms of -- Terry, you talked about just the outlook for hiring. Just if you talk about just the opportunity like you did this quarter to go to Richmond, so go to a new market versus kind of backfilling the markets you're currently in, is there -- is the outlook still pretty positive that you can get to these new markets wherever they are? I know you mentioned Florida and a couple of others, but are you optimistic about new markets more so than new people hired or just both at this point?

I would say both, Brian. But again, just to put it in perspective, we'll hire more people across the existing footprint than we'll hire in new markets. I mean that's just sort of how the math of it works because we're -- we run a continuous recruitment cycle, and we're hiring everywhere. I mean we're still hiring people in Nashville, if you believe that. So at any rate. So I don't want to just kind of pound away on the same thing too much. But generally, Brian, I think you understand the catalyst for us to go to a new market isn't so much because we sit up here and work on maps and census tracks and demographics and psychographics. The catalyst for us to go to a new market is because we've got a team of people that we think can build us a big bank in that market. And so if we found another opportunity or 2 this year, we'd do it. If we don't find any more opportunities, we're good with that. We believe we're going to produce outsized growth without doing market extension. Brian Martin Got you. Okay. And just the last one for me was just on the kind of the current -- the new loan yield production in the quarter? And then just -- Harold, just in terms of the margin, I think you talked about maybe getting that to expand at a bit more rapid pace than kind of what we're seeing currently. Just what does it take to really see the margin climb north of that, let's say, 3.30% level or in the coming quarters? I guess, what's the recipe for that just as we think about where it trends to in '26?

Yes. I think the near-term recipe has to involve a rate decrease. I think that's going to give us the opportunity to reduce our deposit costs in an outsized way and make that happen. So yes, we need that. You're talking about a near term. as far as a near-term event. Brian Martin Okay. And as you get into -- I guess, the yield curve itself, I guess, what are your expectations on that, at least in the near term? It's not based on your kind of your guidance or kind of what your outlook is in the near term? No.

That is flat. No real change. It's a flat yield curve. For us to really get kind of a longer-term margin that we think this client base that we call on will deliver to us, we need a more traditional curve, something that's got sloped from overnight to call it, the 5-year part of the curve is where we operate. And if we can get a decent amount of steepness in that from overnight to 5 years, we ought to be in great shape.

Your next question is coming from Anthony Elian from JPMorgan.

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

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

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

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

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

Tony, I don't want to spend too much time on it, but you're asking about something that's really important to me in terms of how we do business. I'd just refer you back to Slide 10, which is the Greenwich ratings across an 8-state Southeastern footprint. And if you think about a lot of these people coming in and hiring, they're trying to hire against us where we have the #1 rating for being easy to do business with. We have the #1 rating for being a bank that you can trust. We have a #1 rating for bank and long-term relationships. You can work on down through there, the #1 rating for treasury management capabilities, the #1 rating for the service level of our treasury management, the #1 digital experience. So I just -- I don't mean to beat it up too much, but I'm just saying I like recruiting with that as a backdrop. My guess is we're going to continue to be able to hire the best bankers in the market.