Good morning everyone, and welcome to the Pinnacle Financial Partners, Fourth Quarter 2021 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 in 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 before we'll be open for your questions following the presentation. [Operator Instructions]. Analysts will be given preference during the Q&A. We ask that you please pick up your handset to allow optimal sound quality.

During this presentation, we may make comments which may constitute forward-looking statements.

All forward-looking statements are subject to risks, uncertainties, and other facts, that may cause the actual results, performance, or achievements, of Pinnacle Financial to differ materially from any results expressed, or implied by such forward-looking statements.

Many of such factors are beyond Pinnacle Financial's ability to control or predict, and listeners are cautioned not to put undue reliance on such forward-looking statements.

A more detailed description of these and other risks is contained in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2020, and it subsequently filed quarterly report.

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 measure and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial website at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO..

Okay. Thanks, GG (ph). We'll start in just a minute as we always do with the dashboard the dashboard continue to provide you with the best insight possible as what we at Pinnacle view to be important, what we're managing to do.

In fact, we begin every quarter with the same dashboard at a minimum to showcase our relentless focus on these group variables. In short, we're tightly focused on EPS, growth and tangible book value per share accretion, revenue growth, and asset quality.

That's what we set aggressive targets for and that's what we've persistently talked about in our organization. That's how our both our short and long-term incentives are built.

Simply said, thinking about those critical variables that we focus on, the fourth quarter was another fabulous quarter for our firm with very strong core loan growth, core deposit growth, net interest income growth, real income growth, year-over-year pre-provision net revenue growth, tangible book value per share accretion, and asset quality metrics.

Beginning with the GAAP metrics I might focus your attention particularly on asset volume metrics at the bottom of the slide, the green bars show the median quarterly performance over the last five years and as you can see, our asset quality over the last five years has been very strong.

But for all three measures, even with a very strong performance over the last 5 years, total loan metrics continued to trend down in our decade long loads. Moving out of the non-GAAP measures on which I most focus, you can see throughout the top row the extraordinary growth in revenue and earnings.

On the second row, the extraordinary balance sheet growth, which goes for higher firms are our primary mechanism for growing revenue and earnings going forward. And on the far right of that second row, you can see the reliability of the tangible book value per share accretion.

So for me, 30,000 feet, the conclusion is that we're continuing to execute at a very high level on virtually every critical success measure for our firm.

Now I'm going to turn it over to Harold to talk in more depth about our 4Q performance, then I'll come back and try to do a little context setting in terms of where we've been and where we're headed.

Harold?.

Good morning, everybody. As usual, we will start with loans and again in the fourth quarter was another great loan growth quarter for us and provided us with strong momentum as we entered 2022. Excluding PPP average loans were up to 12.6% annualized between third quarter and fourth quarter.

Overall, loan rates were down in the fourth quarter due to the reduced inflows of PPP on our loan yields. We recognized $15.5 million on PPP revenues in the fourth quarter, down from $21.2 million in the third quarter.

Due to PPP balances decreasing to approximately $371 million at the end of the fourth quarter, we anticipate PPP revenues will range between $15 million and $20 million in 2022, compared to approximately $86 million in 2021. We've been getting a lot of questions about loan [Indiscernible] and their impact on our yields and arriving rate environment.

I'm not about to apologize for our loan [Indiscernible] because we enjoyed the ongoing benefit of these [Indiscernible] for quite some time, but they will cause us to experience some lag on realizing the full benefit of rate hikes in the near term.

As the bottom left chart indicates, 62% of our daily float loans will realize the full benefit of rate increases on day one, that number increases to almost 80% after the first 50 basis points in rate hikes.

Like I said, our relationship managers have done a great job in securing loan [Indiscernible] over the past several years and has paid a handsome dividend to us.

Lastly, our market leaders are excited about our loan growth prospects and about 10% to 15% growth rate in end of period loans, inclusive of the remaining PPP forgiveness for 2022 is a reasonable objective for our firm at this time.

In 2021, our new markets including Atlanta and our new specialty lending units, provided approximately $530 million in loan growth. Our view for 2022 is that these markets, including Washington DC and the specialty units should contribute 2 to 3 times that amount in the coming years. Now on to deposits; we had yet another big deposit growth quarter.

Core deposits were up almost $2.1 billion in the fourth quarter where we experienced significant growth in non-interest bearing deposits ending up at $10.5 billion at quarter-end up 41.5% since the end of last year. Our average deposit rates were 14 basis points while end of period deposits for rates were slightly less at 13 basis points.

Given the current rate outlook, we're likely approaching floors on deposit rates with our primary opportunities in near-term [Indiscernible] renewals. Helping us will be $1.7 billion in maturing CDs in 2022 with an average rate of approximately 48 basis points.

As the volumes and the projected growth for deposits in the macro environment is shifting and thus we have to believe that deposit growth will eventually find its way back to our traditional growth strategy with reliance on tracking the best bankers and having them bring their best clients to our firm.

We've never abandoned our long-term views, core deposit growth is a key strategic objective. And even though the last few years have provided us an ample supply of funding, initially, we will need to get back to a more intense to focus on budding our balance sheet growth with core deposits.

That said, we lack our chances given the significant investments we've made in relationship managers and new markets over the last few years. We continue to look at ways to create increased earnings momentum through deployment of excess liquidity into higher yielding assets and the elimination of wholesale funding sources.

We are optimistic that loan growth in 2022 should help to reduce our overall liquidity, but reducing our liquidity to a more normalized level, we believe will be a multi-year effort. Our objective here is to find ways to put money to work in a rising rate environment without placing too much pressure on tangible book value growth.

During the fourth quarter, our investment securities increased by approximately $446 million, almost 80%. A little over 80% of our purchases in the fourth quarter were bonds on the short end of the curve, slight less than three years, with an average rate of approximately 1.15%.

We also increased our investment in a collateralize repo investments by 500 million, which yields approximately 35 basis points. We're not currently pursuing a formalized strategy to deploy our excess liquidity, which is approximately $3 billion, in the longer term investments, even though the 10-year is pricing at around $185 currently.

We will pick our spots and invest along the curve and approve of them. We do believe we have some opportunities on the short end of curve to put some money to work at slightly higher yield but this will be a modest response, say an additional $500 million in deployment in the first quarter.

As the gray bars on the top left chart reflect, I believe we've done a remarkable job defending our margins over the last two years. We tend to hover in the three in a quarter range and we'll work hard to defend our margins going forward.

Obviously, we like everyone else look forward to a robust upgrade environment in 2022, as we think we will win with a rising yield curve, but even if that doesn't materialize, our track record would indicate that we're very capable of managing our balance sheet regardless of the [Indiscernible].

As credit, we are again presenting the four big traditional credit metrics of net charge-offs classified, non-performers and past-due accruing loans. Pinnacle's loan portfolio continues to perform very well and again, these are some of the best credit metrics ratios we've experienced in our history.

Modifications made pursuant to Section 4013 of the CARES Act continue to decrease from $817 million at June 30th to $791 million at September 30th and now stands at $713 million at December 31.

Importantly, and as noted in the highlights on the slide, we do anticipate further declines in our allowance for credit losses to total loans ratio over the next several quarters given continued improvement of our credit metrics as well as macro-economic factors.

That [Indiscernible], again, lots of good news here and then over the course of 2021, we spent quite a bit of time on our various [Indiscernible] categories. Well the fourth quarter fee revenues were up more than 20% over the same quarter last year.

As to run rate for 2022, we are anticipating high-single to low double-digit increases in fee revenues this year, inclusive of BHG which were estimated -- estimating approximately 20% growth, and we'll speak that in a few minutes.

Also included in our planning assertion is that, we're not anticipating a repeat of $20 million in income we've experienced in '21, from valuation adjustments for several of our joint venture investments. We are planning for revenues from business as from today significantly less in 2022.

Other than that, our wealth management mortgage and other fee based business lines believe they're ready for a breakout year in 2022. As to expenses, I was not going to spend a great deal of time on expenses, but given last [Indiscernible], I feel I need to pause here and provide some more color, particularly around our expense plan for 2022.

I think everyone is familiar with the impact of incentive cost to our expense base and the direct correlation to corporate results. More on that in just a second. 2021 was our great year for our associates. And to say we are pleased to deliver an outsized incentive to our associates for their 2021 effort is the profound understatement.

We're elated at being able provide this for them and thank our Board for supporting us in this effort. As to our overall total expense run rate, we anticipate low double-digit percentage growth in 2022, which is primarily attributable to head count growth in the new markets.

We also are aim -- aiming for a recruiting year in 2022 that will be even more prolific than what we experienced in 2021. Terry will discuss more on that in a few minutes. As to incentives, our current plan is that our incentives will increase by 2% to 3% in 2022 should we achieve our performance targets.

That's right, we hope and desire our incentives to go up in 2022. The increase is based on headcount ads in 2021 and our planned recruiting in 2022. We are reducing our target pay in our annual bonus plan from the outsized amount of 160% of target back to the traditional 125% of target.

But we are also providing more cost to our equity plans for our leadership, as well as our associates who all received some form of stock compensation. So why should shareholders be okay with all this? Substantially all of our incentive costs are performance-based.

Our annual bonus plan, which is about 2/3 of our annual expense, is entirely performance based. That performance is not based on individual results, but on corporate earnings, PPNR, and [Indiscernible] targets.

Our leases, our secret sales are at the right combination for achievement of top quartile earning growth and some as will result in higher multiples, on our shares over time. This time last year, PNFP street estimates for 2021 were $4.50 a share. After first quarter 2021 earnings, that number increased to around $5.20 a share.

Internally, we knew those targets could not give us the share performance we deserve. So our targets were higher, which is basically what we do practically every year. We finished 2021 at $6.73. So our targets are set to achieve top quartile performance over the long term. If we don't achieve our targets and then bonus pools are reduced.

And in many years that number has resulted in 0% payout. Thus every year there is cushion. And for 2022 it is mean. We are finalizing our incentive plans for 2022 currently, but nothing of substance will change. Our incentives will be performance based and we will target top four top performance.

Our best guess, is that given the environment today and the uncertainties that were still prevalent, we have another meaningful stretch goal in front of us for 2022. Quickly, some comments on capital. The board approved an increase of our dividends per common share to $0.22 from $0.18 yesterday, a 20% increase.

During 2021, we redeemed $250 million of sub-debt issuances from available cash. We get calls consistently about issuing new sub-debt given interest rates that some of our peers have been obtaining but we like our capital stock -- our capital stack currently.

That said, we will continue to monitor the debt markets and access them as it appears to be advantageous to us. And as I have mentioned several times before and all I want to do is to reinforce the point we've intensified our focus on tangible book value growth by adding a peer relative opponent, in our leadership's equity compensation plan.

We are currently calculating an annualized increase of 14.2%, and our tangible book value per share at year-end 2021 compared to 2020.

Our equity program plan is designed such that our leadership wins, if our tangible book value per share growth, our return on tangible common equity, and our total shareholder return outperforms in relation to our peers.

As I alluded to earlier, we believe our incentive programs are objective, not subjective and to be candid, very unique in design, and we believe aligns our management with shareholders to incent rapid shareholder value creation. This slide is a summary of our outlook for 2022.

We won't go into this slide in depth as we've covered much of this previously, 2021 was a great year for us and we have significant momentum going into 2022 that excites us about our growth prospects. Several 2021 matters require quick highlight as we look forward to 2022. Margins.

We've been very successful in both sides of the balance sheet and in keeping our pricing competitive and maintaining margins, [Indiscernible] curve will be beneficial to us over time.

PPP has been a significant contributor to our success, both from a client service perspective, as well as a financial perspective, but thankfully, it is heading to the rear view mirror. Replacing the financial impacts of PPP is not easy, but we are confident that we have the loan growth prospects to overcome the reduction in PPP revenues in 2022.

Credit has continued to outperform and given where our loan portfolio is currently positioned, and the macro-environment, we believe we have reason to be optimistic for 2022. BHG group up 46% in 2021, we'd fully anticipate this year to have another outstanding year of outperformance at a pace which should approximately 20% annualized growth.

Recruiting, we fully anticipate another great year of building our core franchise through organic growth by recruiting the best bankers in our markets to our firm.

We will lean at our organic growth models even more in 2022 as we develop our new markets, our specialty lending businesses and continue to build and grow market share of our legacy franchise. Now to BHG. BHG had another great quarter and 1 that was better than we anticipated as they wrapped up a 46% growth year.

Another quarter of record originations would spread wildly through the pandemic on the [Indiscernible] platform. The bottom right chart details these almost 1400 banks in BHG's network and over 700 individual banks acquired BHG loans last year.

Coupled with the securitization success, this continues to be one of, if not, the strongest funding platform for gain on sale model in the country. As the current, BHG has sold to their network of community and other banks just over $4.1 billion credit 3-year network.

As noted, the recourse obligation as reserved for potential future loss absorption, BHG decreased 3 point reserve to approximately $207 million at the end of the fourth quarter. Fourth quarter as a percentage of loans, it was down by approximately 67 basis points all those to pre COVID launch.

As noted on the chart at the bottom right, the trailing 2021 losses landed at 4.64%. This chart splits the actual credit losses from losses BHG absorbed from reimbursing banks for the unamortized premium, via acquiring buying to get the loan.

The increase for the free type at loss is primarily attributable to the actual premiums paid for BHG credit, has gotten larger, consumer credit trends tends to have a higher prepayment track record and loans being paid off earlier as rates have decreased. As shown, 2.51% in credit losses is very respectful in comparison to prior years.

As the losses [Indiscernible] on the right-hand chart, losses continue to level out in earlier months since origination to those point to a lower loss percentage over the life of the underlying loans. The quality of the borrowing base in our opinion is very impressive and remains much better than just from a few years ago.

BHG had another great operating quarter in the fourth-quarter and exceeded our expectations in year. 2021 produced out sized growth in relation to 2020, at 46%. Were also reviving our growth factor, for 2022 the annual approximately 20%.

BHG believes that by investing more into the on balance sheet model and creating a more predictable revenue stream should benefit the long-term franchise value creation of BHG.

Originations, as noted in the previous chart for 2021, approximated $2.8 billion up meaningfully from 2020, BHG believes they will continue to grow originations in 2022 and have not reduced their target originations for this year. Roughly, they're looking at 25% to 30% growth in originations.

They just -- or they just decided to send more to the balance sheet. They executed two securitizations in 2021 looking for another one here in the first quarter, and I wouldn't be surprised if they don't execute three here in 2022.

As the slide indicates, they've got more ideas that are in some stage of development which if successful should bolster continued growth over the next several years.

BHG continues to review their business from both a critical perspective, how can they perform better as well as a strategic perspective, how can they export their strengths to grow the franchise? Their track record is impressive. So wrapping up as to loan growth and loan pricing for Pinnacle in 2022, it will take work but we are optimistic.

Deposit growth has been remarkable and likely will slow as macro factors begin to reflect change, deposit pricing continues to decrease but is nearing the floor, our fee outlook is likely aggressive but we believe we have the horsepower in place to deliver outsized growth in 2022.

Lastly, we will continue to incent our leadership by some top quartile performance and believe we have the momentum going into 2022 to do so. With that, I'll turn it back over to Terry..

number 1, continuing to hire great bankers in our existing markets; number 2, extend into new markets where they are bankers capable building us a bank of consequence. Did you know, we've recently gone to Atlanta, Birmingham, Huntsville, Washington DC? Frankly, I'd be surprised if we don't find our way to more of those kinds of opportunities in 2022.

And then thirdly, attract an industry specialist. We use this approach to support our geographic market manager with a higher level of industry expertise and ability to attract larger classes that might first best [Indiscernible] knowledge versus local context.

We've recently added [Indiscernible] area of equipment lending, franchise lending, and [Indiscernible] lending to name a few. So as I mentioned earlier, we expect all those previous actions to yield outsize growth, and we expect to set another record in 2022 for recruiting and hiring revenue producers from our larger, more vulnerable competitor.

Four when our [Indiscernible], you saw that we're currently producing an outsized fee growth and a good number of fee categories like brokerage like trust, like interchange and so forth, as what we're talking about, making sure we meet every needs that our clients have.

We are specifically not product pushers, but is our desire and know our clients’ needs so well that we've made them all, which is a huge fee income opportunity. It's already yielding outsized growth as you've seen, in which we expect to continue for the foreseeable future.

And then of course, Steven, though our asset quality metrics are extremely strong, nothing can demolish earnings like credit losses. So as we grow the firm, we continue to invest in credit infrastructure, including senior credit officers, credit analyst systems support and so forth.

As you can probably tell, I'm on fire about the opportunities that have slipped our firm, as on fire as I've never been. We built a differentiated model that should continue to produce outsized share growth for an extended period of time.

And honestly, the competitive vulnerability that currently exists should continue to expand in a consolidating industry, that's just an accelerant for our growth. The banks that have most of the market share in many of our markets also possess the greatest vulnerability.

So what could be better? And so the question is, how do we best seize this opportunity? Number 1, continuity of senior leadership. Of course, no one knows the future but I fully expect all the [Indiscernible] will stay in here at least three more years, some more. I believe some will stay longer.

For me, [Indiscernible] and is currently my intent to stay at least 5 more years. We can evaluate after that. Over that period of time, it's my intent to put the board in the best possible position to optimize the shareholder value in this firm.

If that's been done by avoiding consolidation, it is my intent to continue to work to identify and [Indiscernible] the next-generation leaders for the firm. It was best optimize about combining forces with another financial institution, often will avail one most valuable on track, the franchises around.

And the way we do that is to seize this opportunity that I've tried to crystallize for you this morning to build the dominant Southeastern banking franchise. Operator we'll stop there and take questions..

Thank you, Mr. Turner, the floor is now open for your questions. If you would like to ask a question at this time [Operator Instructions]. Analysts will be given preference during the Q&A. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality.

Our first question comes from the line of Jared Shaw from Wells Fargo Securities. Your line is now open..

Hi everybody. Good morning..

Good morning. Hi Jared..

Just a few things on BHG. A couple of questions. Harold, you'd said the fee income growth to Pinnacle on that 20% range.

But could you reiterate what you think the originations of BHG could be? Did you say that's 25% to 30% growth off of '21's level?.

Yeah, that's right, Jared. They're thinking they're going to still maintain the same kind of origination momentum going into 2022 that they felt they have now for the last few quarters. What they've decided to do is allocate more on the balance sheet and build the balance sheet, create a more sustainable revenue platform through interest income.

So they completed two securitizations in '21, one in 2020 and then I think they'll complete 2 or 3 this year, and I think they will be larger than what they've completed in the past. So they continue to be on a roll. They continue to find new clients.

And so the business model itself is running really well and they've also got these opportunities with these new, call it verticals, that they are also exploring as well. So we're still as promptly as we can be about BHG and I think they'll have another great year for us..

And then when we look at that different or the originations versus placements chart, should we assume that the placements are still, call it around that $400 million level that they're still going to keep up that demand satisfies there with the growth coming beyond that?.

Yeah. I think they'll continue a similar ratio to what they did in the fourth quarter. So as they scale out 2022, they'll manage their results towards that 20% growth factor..

Okay. I guess shifting to the broader loan growth, Terry know, that was great. Create out on the $530 million of growth in the new markets.

When you add in, do you see, like you said for '22 and looking to see that expand, do you think that the DC operation can ramp up maybe faster than that typical, where did you say in the past, about three years to get a book of business over.

Do you think that that could ramp faster than we've seen for other team hires?.

Due for two reasons. I think that the trust there will have an even more commercial orientation than our other market extensions. And so it takes less people to produce more loan volume than, what we'd be difficult. So not all in size and growth dynamics of the market, but particularly the group of people that we've hired.

My guess is that we could do somewhere between [Indiscernible] million our first quarter out of the gate. Again, you can see they get that done in the first quarter, the momentum builds as you go, we could do something really special there. And you didn't ask about Atlanta, but I may just comment on Atlanta.

I think in round numbers, they finished this year with about $900 million in loan commitments, about $500 million in loan outstandings, they've got 46 associates, as I mentioned, that are going into the third office. And so, man, that thing is traveling really fast as well. I do hope for Atlanta and DC to produce really outsized growth.

And then I always want to make sure people get it.

These markets that we're in like Charlotte and Raleigh, while the asset basis that we have there are meaningful to us, there are not compared to the market capacity of what I expect to grow there, just -- you know, again, I mentioned all hiring is done and the movement towards the C&I mix over there, we expect Charlotte and Raleigh to really produce some extraordinary growth as well.

So anyway, that's a little more guess but..

That's great colors, thanks. And then I guess just finally, with all the success you've had in hiring and how quickly they're able to come in and all the benefits you talked about.

Do you really even need to consider M&A at this point in terms of being required already get into these markets, or do you think you've crack the code here and can just do hiring as really the sole way to expand the potential?.

Jared, as you know I have worked hard to try to make sure people get it. I'm not going to take M&A off the table because there could be a great transaction that I'd be willing to do.

But that said, if you want my honest opinion, you're on the right track, you're sort of like why would I go do some acquisition when you can produce kind of growth in Atlanta and DC and Birmingham And again, I think we will have other opportunities like those that easily my preferred play..

Great. Thanks for taking my questions..

All right..

Thank you. Our next question comes from the line of Steven Alexopoulos from JPMorgan. Your line is now open..

Hey. Good morning, everyone..

Hey Steven..

I wanted just to -- so to go back to BHG for a minute and the reduction the fee income growth of 30% down to 20%.

Can you give us a little more context what drove their decision and maybe was it a change in the rate outlook? And maybe that they're expecting maybe that gain on sale margin to compress a bit?.

Well, I think the rate outlook did have something to do with it. But I really think that the CEO strongly believes that the on balance sheet model will result in a greater franchise value [Indiscernible]. So I think as he begins to look over the next 2, 3, or 4 years, and we agree with that -- all that point.

As we looked over the next 2 or 3, 4 years, I think it's going to be extremely focused on how to build franchise value in that firm. And I think this is one of his core beliefs. He felt like going into '21 that they were going to have a great year, which they achieved. They felt like that 2022 would get a spillover of that at a 30% clip.

But I think here over the last quarter or so, he's reevaluated that -- call it that allocation between balance sheet and gain on sale, and just moved it around a little bit. I think it's kind of the perspective that he shared with us..

Okay. That's helpful. Terry, in terms of new hires, so you guys had 119 revenue producers in 2021 and last quarter, I thought you indicated you thought you might be 110, 120 for 2022.

Are you still in that range? How are you thinking and what's embedded in the expense guidance?.

I will say in terms of the hires, I think we will do more than that. That's a reasonable range, but I think we will do more than that. And again, my optimism is really fueled by what is happening in Atlanta. I've talked about that a little bit.

Honestly, I believe they have three commitment letters for many for revenue producers that are signed and are waiting their bonus before they come across. And so again, I expect to come out and get it a little quicker in Atlanta and I think the same thing will happen in DC. So a little more optimistic.

Again, I'm not trying to take the guidance up meaningfully, but I expect we'll hire more than what I previously said, Harold, do you want to talk about how that's taken into account and the expense guidance?.

Yes. We've loaded everything into the expense book for 2022. We got less of a turnover factor, I'll say it that way. So we expect our headcount to increase more in 2022 than in 2021. The hiring just sheer hires, we believe will increase the numbers 10% or 15%. Steven..

And maybe final just drilling down a bit Harold, how much of the bump up? I know it's fairly modest, but the bump up in expense outlook, how much of that tied to this wage pressure that we're going against basically everywhere? Thanks..

We believe -- well, first of all, the standard raised for our firm was about 3%. I think we ended up close to 4% with all the merit raises that will go into play this year. So it's -- we're feeling it but I don't think it's going to derail this plan. I think -- congratulations to the [Indiscernible] for realizing there is inflation though..

Yep. Okay. Thanks for taking my questions..

Thank you. Our next question comes from the line of Jennifer Demba from Truist Securities. Your line is now open..

Good morning..

Hi, Jen..

Harold, you guys had strong sequential growth in service charges, investment services, trust fees, are those fourth quarter run rate -- are those good run rates going forward, do you think, in those areas? And was there anything in particular driving that growth?.

We think well, first of all, there's likely some seasonality around interchange because of December. But we don't think we'll see any significant pullback in any of those areas going into next year. A lot of wealth management is due to what's going on in the overall or the broader markets.

But I don't think there's any big pullbacks that we're looking at going into the first quarter, other than like I mentioned, probably in the service charge and interchange areas where they're just probably less volume going into the first quarter..

Okay. And Terry --.

Jennifer, the fact that -- if I could just say that what -- you are getting extraordinary growth in these wealth management businesses, typically the brokerage business, the trust business, and so forth and -- so much of that is tied to this revenue producer thing that we talked about and trying to be clear.

It's not just relationship managers, it is the wealth managers and brokers and those kinds of people. And so we hired a great number of those kinds of folks, particularly in our Carolinas markets. And so that's really fueling a lot of that growth there..

Terry, when can we expect Pinnacle to enter the Sunshine State?.

[Indiscernible] I don't know the answer to that. You know we don't set targets, say, hey, I have got to get to this market about this day, it's all about the opportunity. But again, I don't mind to say, we mind around with some growth. We ultimately decided we didn't think that were the right things for us.

And as you know, that would've been good sales paper but we didn't blend like, [Indiscernible] been able to sequential buying force. So, anyway, I'm just indicating that we're interested in some of those markets and I would be shocked if we don't find our way there over the reasonably near future.

But again, I don't have a specific [Indiscernible] specific target to get there. It's just about when we find the right group..

Thank you. Our next question comes from the line of Brock Vandervliet from UBS. Your line is now open..

Hi, good morning. Thanks for the question. Harold is that what your deposit growth that's not too much different than many of the banks in the sector where it's, up roughly a third or so since COVID started? You kind of get out the telescope and think about deposit betas and stuff.

How should we start to think about the stickiness, for lack of a more technical term of those deposit balances as rates begin to move?.

Great question Brock. We've been looking at growth in deposits, particularly large deposit balances for quite some time trying to anticipate what could happen in an upgrade environment. That said, the relationship managers that we talked to about those depositors believe they're sticky.

There will -- there are some -- there is some money and all of that where they're waiting on event to occur or something like that. But that's just happens in the day-to-day running of those bank.

So we believe they are sticky as to basis and what we're projecting, we're looking at somewhere in the numbers around 40% that was similar to the last cycle, 40% to 60% depending on whether or not you're talking total deposits or interest-bearing deposits. But it's -- we're looking forward to that occurring.

We're coaching the sales force on an up rate environment now, I think Robin Kay (ph), Rick Callicutt, Rob Garcia in Atlanta, they're all getting ready for upgrade environments and talking to their -- call up their relationship managers that work with large depositors on how we're going to respond to that. So we're just hopeful.

We believe that more sooner than later our rate increase from the third is going to be helpful to all of us..

Got it. Okay. And just flipping over the other side of the balance sheet and securities, I think you added $146 million this quarter? It's been pretty steady. It doesn't -- I think you mentioned 500 for Q1. It doesn't sound like you're likely to accelerate that, just given that rates are up and you can earn more on that.

The book value focus seems to be playing into that. I just want to make sure I've got that correct..

Yeah. I think you've got that correct. We'll pick our spots. If I had to say we had a target yield bogey with the bond book, our new purchases are probably in the 250 range, a little bit north of that with the same kind of products that we've customarily acquired. So that's probably where we're headed.

We're likely to put some more work -- more money to work on the shorter end of the curve. We've got a couple of products that we're looking at that we think we're going to be able to execute all here in the first quarter and through the second quarter. But like you might imagine, they won't lose the [Indiscernible] a lot..

Got it. Okay. Thanks for the questions..

Our next question comes from the line of Catherine Mealor from KBW. Your line is now open..

Thanks. Good morning..

Hi. Morning..

I maybe just sticking with the balance sheet composition as a follow-up to Brock's question. So as we think about the -- maybe the size of the securities book, it feels like we're not going to see a big change, net 17% of average earning assets today, maybe up a little bit to 18 to 19.

But my guess is that if that stays below 20% of the balance sheet, and then as a follow-on to that on the liquidity side.

As you think about this mid double-digit growth in your GAAP and [Indiscernible] what kind of -- how much of deployment from this $4 billion in cash are you assuming, goes away and it's deployed into loans and securities books, just try to think of the kind of size of the balance sheet within that GAAP and [Indiscernible] guide..

Yes. As far as-- right now, we believe we've got about $3 billion in cash as just -- than we wish was deployed in a higher yielding asset. But hesitant to pull the trigger on because of the way the rate markets responding currently so on and so forth. I think you're accurate and you're 18%, 20% kind of range.

I don't think we're not going to execute any big gulp strategy to divest or to reduce the liquidity profile into more longer term bond assets. But we will monitor what's going on every day. The 10 years kind of spiked up. Not sure what it's going to do today, but it does make things more interesting.

We've kind of like bonds that [Indiscernible] 5, 7, 8 years in maturity that we can get, call it $250 or more in yield. If we can find those bonds then we'll tap into the market in a very measured and modest way. But you're right, there's not like any kind of ultimatum put on my group, say go -- let's go push all these monies out into the bond market.

That's not happening..

Okay. And then really this $3 billion in cash, it's going to be mostly going into the loan book. So TierPoint, and that's a multi-year effort. Maybe at the most, a billion of that is deployed, comes out this year just really depending on how deposit growth for us..

That's right. And deposit growth is probably one of the more -- the biggest uncertainties as to what happens with macro-environment changing like it's going to change and how all that flows down to banks like us..

Got it. Okay. And then maybe a follow-up on your fee guide.

To clarify, is your high single-digit to low double-digit fee guide inclusive of the 20% BHG or exclusive of that?.

That's inclusive..

Including.

So total operating fee is all-in or up-high single-digit to low double-digit?.

That's right..

Okay..

So I think the BHG may move that number to 150 basis points or something like that..

And then one last just on BHG and because it's a little bit earlier.

But how does a higher rate environment impact the way be issue things that they're gain on sale margin?.

Probably -- I mean, they will tell you that they're not going to shrink. But they widened throughout the pandemic. So we've been in this low rate environment now for several years and spreads have widened. So I'm not sure they're going to get any wider when we get to an upgrade environment.

So but where they might be like 10% kind of spread they might go to none. It's not going to be a big change, if rates move more quickly..

Great. Thank you so much..

Thank you. Our next question comes from the line of Stephen Scouten from Piper Sandler. Your line is now open..

Hey. Good morning, guys..

Hey, Stephen..

I'm curious just if I may continue on the BHG pass there. It looks like in third quarter, you guys have put on about $75 million on your own balance sheet to BHG loans and that's about $263 million now in total.

So just wondering what the -- if you have the fourth quarter number, how much is baked into the growth expectations for '22 in terms of how much of that you guys will hold yourselves on balance sheet?.

I think we're in a $50 million range in the fourth-quarter. And for the year, I think our planning assumption is that we're -- will be less in 2022 than 2021, call it around a $150 to $200 million..

Okay. Great. That's helpful..

And one more thing. I take a follow up on Catherine's question about spreads. The one thing that I think is an advantage to BHG is the funding platforms through that auction that work. For that spread to shrink, the BHG loans have to compete with a more accelerating lending platform at some of these smaller call it community banks.

And so right now, BHG represents to the smaller community banks an opportunity to grow their loan platform that they don't otherwise have. For spreads to shrink, their loan growth outlook has to improve and it may improve, but we don't think it's going to improve significantly to a point that spreads are going to be impacted materially.

How about that?.

That's good color. Okay, thanks. And then thinking about the interchange fees for a second. I know you had some vendor incentives last quarter, that maybe that was going to come out, but then obviously you still had a big quarter here.

I'm wondering, was there anything unusual that led other than you mentioned the month of December being active, but anything unusual that led that number higher? And then we've seen with some of the larger regional banks are pushed back on overdraft fees.

Are you guys experiencing any of that with your size bank, or do you think that will be a pressure point for you guys here in the quarters ahead?.

Yeah. I don't know of anything unusual in the fourth quarter interchange numbers. We're not feeling the pressure on overdrafts. We had a lot of waivers during COVID. We pulled back on some of that post COVID. And so we believe we're at somewhat of a standard run rate.

We monitor what's going on with the large caps and what they're doing with overdraft waiver, so on and so forth. We'll just have to see how all that plays out and how it works its way down to us over the coming quarters and years..

Got it. And then maybe last thing for me, I'm just curious around asset sensitivity, it's increased modestly over the last four quarters. Harold, you noted that the floors and it does have been a great benefit to you guys.

But is there anything you guys are thinking about strategically to increase the rate sensitivity more materially? And then the 58% deposit beta, I think you mentioned in the presentation, in 40% overall, why wouldn't it be lower this cycle, given all the liquidity we have? If you kind of give me your thoughts there..

That would be absolutely where we're headed. And that's what brings in this whole coaching thing that Rob, and Rob, and Rick are doing with their sales force, and getting them prepared for a rising rate environment.

So we hope we can beat the betas that we'd kind of set out there, and believe we have a great opportunity to do it precisely because we have the liquidity out in the system, and so does everybody else. So I don't think from the large gaps in the mid-caps, you'll see a significant boost in deposit rates from right out the gate.

So we will try to manage that accordingly. As to boosting asset sensitivity here in the near term, I think it's going to be through our loan book. I think loan fundings traditionally come to us with a heavier weight on floating rate assets. I think we'll still have some deposit gathering going on here than a likely going to cash.

So I think we've got a great opportunity here in the near-term to still boost our asset sensitivity levels about solo mail.

That said, over the long term, I think it's important to get on the table, our goal is to be neutral with some bias one way or the other based on what we think the near-term prospects are, but we will not bet heavily one way or the other with our balance sheet..

Got it. Thanks for all the color and congrats on another great year, guys..

Thanks Stephen..

Our next question comes from the line of Michael Rose from Raymond James. Your line is now open..

Hey, good morning, guys. Thanks for taking my questions. Just wanted to go back to BHG again. Another big recourse, reserve release this quarter. I think you had said, on the last call, that you expected it to end the year around 525, you are at 5% and talked about getting down to 475 to 485 this year.

Any updates there? And then if you can comment on the expense trajectory there because it did look like another big ramp and an expense growth there and just maybe if that incorporates any new verticals that were talked about at the Investor Day? Thanks..

Yeah, I think there is probably some room -- more room and recourse reserve release here in 2022. I'm not sure if they'll tap into it, but I think that 475 number is still reasonable. I don't know if it will get that low, but that's kind of what their current thoughts are.

There is expense growth, they are adding quite a bit of headcount with particularly in their analytical groups. They believe that's what drops the engine, so they are seeing it quite a bit of that as well. But we still believe at the end of the day, we're looking at 20% growth for us..

Okay. That's helpful. And then maybe just back to market expansions, you guys have had a very successful track record. I have no doubt that you will be successful. In the DC market as well.

Florida was brought up earlier, but as you look throughout the Southeast and then the Southwest, your taxes is obviously a market that would seem to kind of fit the profile you guys have historically sought.

Would that be an option at some point and maybe if you can just remind us on where the geographic limitations might be in the short intermediate term? Thanks..

I think what our geographic throughout this, we covered the Southeast. Basically, what we're trying to say is Memphis draw a lineup to DC and down to the Southern tip of Florida, that's sort of the target. Again, we now have [Indiscernible] participants from Texas. So somebody might go to Texas, South eastern state but right now our trust is there.

Candidly, the reason that our trust is there is, we know bankers and the bankers that we've hired no bankers in those markets, and that's really what we do, just try to cultivate our non-bankers. We know less indexes and therefore, the opportunities are a smaller force. I think you're on the right point.

It wouldn't surprise me if we draw the map at some point to include Texas, but right now the updates are so range in the Southeastern markets. That's our first preference..

All right. Well, maybe at some point Harold can start up the LA office too as you guys grow. Thanks for taking my questions..

All right..

Thanks Michael..

Thank you. Our next question comes from the line of David Bishop from Seaport Research. Your line is now open..

Hey here. Good morning, gentlemen..

Good morning..

Hey, quick question Terry and Harold. I noticed a nice improvement, nice growth on the C&I, commercial industrial segment there. Just curious, maybe what you're seeing and hearing on that front.

Are you seeing any sort of better line utilization up there? Obviously, we know [Indiscernible] buy has dominated the news but I noticed the narrative in terms of the credit costs, sounds like you're expecting a further reduction in the allowance here.

Is that informing your view on the positive economic outlook?.

Yes. In terms of C&I loan demand, I honestly believe C&I loan demand is fairly tepid. We don't see meaningful increase in land utilization at this point. I think again [Indiscernible] manage businesses lower middle-market businesses that like a lot of favor or just sort of looking at the landscape sample there.

A lot of unknowns here and typically that own do a lot of borrowing when there are so many unknowns. If we can get a more solid footing for both, the economy and political land scape and all those things that influence optimism among business owners. That'll be helpful additive and produce greater loan demand.

But I think that C&I loan demand is not very strong. The growth that we achieved there, I think is largely dependent on our hiring model and the number of new hires that we've made both in their books businesses and so forth..

Got it. And then just maybe a follow-up on the asset sensitivity net interest margin. I think last quarter you said that the core NIM outlook a little lower in the near term, not clearly down flat a few basis points which came to fruition core to your database point.

Looking in your crystal ball in the first-quarter of 2022, what are you thinking now about in terms of core margin direction?.

I think we'll still experience some dilution in our margins. But again, I don't think it's going to be a big thing. I think it will -- it will come down maybe a few basis points, but nothing significant..

Got it. Thank you..

Thank you. Our next question comes from the line of Brian Martin from Janney Montgomery. Your line is now open..

Hey, good morning, guys. Thanks for taking the questions. The -- hey, Harold, maybe just one follow-up on the last question on margin with regard to your guide and then [Indiscernible].

The core margin, when you outlook, when you look at the core margin, what do you consider the core margin today? I guess knowing with the liquidity levels, PPP, I'm just wondering what you'd pull out of there when you're thinking about the core margin..

Yeah, I think you're right. I mean, that's a valid question. But we're still analyzing the impact of this liquidity bill but it has very little impact on net interest income but a meaningful impact on net interest margin. So I think it's important to understand that.

As for the PPP program, we think the PPP program is effectively in the rear-view mirror and so it will be less impactful. For sure, we'll have to probably keep looking at it as well for comparison purposes to the last couple of years.

And as part of discount accretion on mergers, that number has come down quite a bit and so the GAAP margin and our core margins, the biggest difference is basically going to be with respect to the liquidity in that number..

This concludes today's conference call. Thank you for participating. You may now disconnect..