Good morning, everyone, and welcome to the Pinnacle Financial Partners Second Quarter 2022 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 our website at 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. 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 will make comments which may constitute forward-looking statements.

All forward-looking statements are subject to risks, uncertainties and other facts that may cause 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, 2021, 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 in the 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, Latania, and thank all of you for joining us this morning for the second quarter earnings call. I'm confident you've already seen 2Q was a fabulous quarter for us in terms of financial performance.

Over the years, when the stock appears undervalued, analysts will sometimes as me ask, Terry, what you think the market is missing? So as I walk through my opening comments and as Harold reviews our second quarter performance in greater detail, we help to draw attention to these five things where I believe there may be a disconnect between the financial performance, the value that's being created and the valuation.

Number one, I believe management's drive an incentive to drive the outcome is significantly underestimated. As an example, a standard 10-K disposed asset sensitivity model projections as soon as management won't alter its main current sensitivity.

And I get it because we've all seen some management teams just wait for an upgrade cycle for years, consistently under performance. Instead, as an example, we got our price to raise the $7.7 million in flow, alter all from an outcome that would have been predicted going into the last Fed easing cycle.

I expect to be much the same in this tightening cycle. So we'll try to help investors understand the meaningful incentives this management team has to alter outcome the situations change, which partially accounts for the success we've enjoyed over the last 3 years, 5 years, 10 years, and honestly, since our inception 22 years ago.

Number two, I think many underestimate the power of our culture I think most everybody would recognize that we put a lot of emphases on culture and likely to say that's nice. So I may think it's happy to but many don't understand that we did that because we believe it really has enabled Pinnacle outperform fears cycle in and cycle out.

People listen me with burn underestimate the fact that our outsized shareholder returns over the last 22 years we're talking about the last 3 years, the last 5 years, last 10 years, of last 20, have largely occurred as a result of that culture.

And I'm participating it can be relied upon to do outside shareholder value over the next three years, five years and so forth.

Number three, I believe many don't understand what we view is the overwhelming almost unstoppable balance sheet and P&L momentum has been built by our relentless effort to attract and retain the best revenue producers both in our existing markets as well as the other Southeastern attractive markets to which we've recently extended.

Of course, you can easily see it looking at the history, but I'm hopeful we can illustrate its power and reliability going forward. We believe there is incredible balance sheet and P&L momentum already built in as the revenue producers we've hired over the last few years continue to consolidate their books of business to Pinnacle.

Number four, similarly, I believe we don't thoroughly understand the power that our hiring model has on asset quality. In true, hiring bankers who have been handling the book of business for negate is the single best mechanism of which I'm familiar to ensure better client selection and better client selection is how low quality is produced.

And finally, I believe many underestimated the value of BHG is unique funding model and what that means to the shareholders to Pinnacle, not only in terms of the very significant hidden equity on our balance sheet as a result of the difference between what we carry that and what it's worth, but the power and flexibility provided by a growing earnings stream, particularly as many of the fintech asset generators are faltering.

Access to funding is quickly becoming a key to success to these asset generators, and BHG demonstrated over its long history and as recently as in the second quarter, that it has the ability to access funding in ways that many of its competitors cannot.

Now as we always do, we'll begin with the shareholder value dashboard, GAAP measures first, followed by the non-GAAP measure. As the second quarter results specifically, I don't know what that can be said regarding asset quality, net charge-offs, classified assets and nonperformers are all at either historic or near historic loans.

I'm here someone say, well, okay, that's backward looking. We're more concerned about what's in front of us, which I get, but I don't want anyone to get this.

If they are to produce those metrics even in good times, but we're not proactive managers of our loan book and at the risk of the diversely, let me also add that over the last 90 days or so, we've been actively cycling underwriting in an effort to better position the bank for a more difficult credit environment, which honestly, I believe is likely.

But I think most are beginning to believe that while we're likely in for a more difficult credit environment, bank loan portfolios are likely to hold up significantly better than they did in 2008, 2009. And we'll talk more about some of the marginal piping we're doing a little bit later.

But it's suffice it to say, our asset quality is in the best shape it's probably ever been, which is exactly where you want to be if you believe you're heading into a more difficult credit environment.

As I remind you each quarter, I primarily focus on the this dashboard because it's our belief that these specific metrics provides the best insight into how successful we'll be in producing long-term shareholder value, that over a long period of time, they've been some of the most highly correlated to shareholder returns.

There are a lot of things that are interesting to measure in the banking business and my suspicion is we're measuring virtually every single one of them. But certainly, we measure things like asset sensitivity and shock and rent environment, deposit cost betas, noninterest expense growth rates, et cetera. But you have to be careful.

The goal was not asset sensitivity, its net interest income growth. The goal is not low deposit cost by it. It's net interest income growth. The goal is not containing noninterest expenses. It's growing EPS.

In fact, I don't believe any of those things I just mentioned, asset sensitivity, deposit cost basis and noninterest growth rate, we'd be highly correlated long-term shareholder value creation at all. In fact, I'm not even sure how predicted they are more short-term results, which I'll talk more on in a minute.

At any rate, we remain confident that we have been since the early days of discern the revenue growth, EPS growth, tangible book value accretion and ROTC along with asset quality of the island's most highly correlated to share price performance over time.

That's why we relentlessly focus on these items, and that's why I believe we've had one of the highest total shareholder returns of all top traded banks in the country since our inception in 2000. Sure. We track asset sensitivity and deposit cost basis, but we really focus more on growing net interest income. So that's how you grow revenue.

My guess is they're likely banks with assumption-based model, calculating greater asset sensitivity than we disclosed and banks with lower deposit cost bases and those that are forecast for us.

That was freeing really well, but unlikely to come close to our net interest income growth rate and therefore, our revenue and EPS growth rates through the cycle.

Certainly, no one knows the future, including me, but my experience as a meaningful investor in this firm for more than two decades, is the targeting top quartile performance on specific metrics like EPS and revenue growth, and not only targeting top quartile performance that tie our incentives to them year in, year out as high shareholders have been awarded.

So that as a backdrop, looking at the revenue growth in Q2 and over time. But obviously, the annualized growth in 2Q is pretty special, but don't get the CAGR since January 2018, and the relatively stable quarterly growth. In addition to rapidly growing loan volumes and rapidly expanding margins, 2Q was also aided by BHG outperformance in the quarter.

BHG falls over the second half 2022 earnings forward into the second quarter, and Harold will talk a little about that in a minute.

But it's not the least that BHG is really shelf case and while their model particularly their ability to fund loans that have attractive rate is different, better and more valuable with plastic fintech asset generators, many of whom don't produce any earnings at all, and many of them are struggling to solve funding river.

While funding for these kinds of assets during the period of Fed tightening and potential recession, that likely be more difficult or expensive for all asset generators I expect funding see much more resilience than most of the patents and truly differentiates the power of their model over those both the cause of their proprietary online and auction platforms then utilized by over 25% of the banks in this country.

And they're standing with rating agencies for asset securitizations. However, we review this in more in minute, but in addition to running $505 million to the auction platform in 2Q. BHG completed a $300 million securitization in the second quarter even as a rumor that a number of the classic fintechs didn't get their securitizations done.

Again, BHG didn't know what your classic fintech in addition to the substantial earnings I believe it offers much greater sustainability than those peers. And it's really the same story for EPS, generally up into the right.

Of course, you get a big dip in 1Q '20 as we built reserves during COVID and then a slight dip as we've had to outrun the benefits of PPP, those loans burned off.

The truth is most off point into 2022, if we had a difficult time growing earnings at all due to the impact leading PPP income as the consensus for us in early January, just before we released 4Q '21 results, was the weak experienced a decrease in EPS of 5% to 8% in 2022.

And while we don't disclose our incentive targets, including for EPS, you can be sure that our internal targets in order to earn incentives at target did not contemplate a reduction in EPS in 2022.

During the second quarter, you can see our widening margin along with our unused ability to attract line and grow loans is really the key to our revenues and earnings growth.

And that's why we also included the balance sheet growth metrics because at Pinnacle the generally provides the best insight into the sustainability of the net interest revenue growth. We had loan growth of 32% annualized. I recognize that some of them may be like me and describe to all that is on like we, it is one.

And usually, you might say, wow, that loan growth is pricing, particularly if you believe we're heading into a recession.

And so later in the call, Harold will dissect the loan growth in a way that I believe illustrates one is not a lead with just a high-quality outcome derived from our strategic advantage, our relentless focus on the execution of a highly successful organic growth model and our endless building efforts since the great recession, which I'll touch on more in a minute.

Deposit growth slowed in the second quarter, which is not unusual given the tax payment outflows. We believe our IRS statements were measurably elevated this year, but we encouraged that the growth rebounded in the second half of the quarter, particularly in the DDA category, Harold will provide more on that as well.

Before I move on to why it works that way, I will take just a second to illustrate what I'm talking about in terms of why I think we all should focus on net interest income growth as opposed to central proxies like deposit betas. During the last upgrade cycle, they make their first move in 4Q. So that's the start point for this slide.

The two dash lines represent the cumulative basis through the Fed tighten cycle, the blue is Pinnacle and the green is peers. As you can see, the people simply had on cumulative beta would've overlooked PNFP for sure, given the substantially higher cumulative beta cycle.

Investors that were able to look through the net income growth were highly rewarded with very rapid net interest income growth per share through the cycle roughly 61% higher than peers at substantial outperformance.

And that's because there are other critical variables like loan rate betas, balance sheet growth volume growth rates and other management taxes and also asset sensitivity that have the potential to substantially outrunning digital impacts of deposit cost betas. Now set aside the need to focus on a lot more than the central deposit cost betas.

I will say this for all of the deposit cost at fees, it would shock me at Pinnacle betas were anywhere near is not this cycle as they were in the last cycle for a few reasons. Number one, we begin the cycle with a substantially lower dependence on non-core funding, which reduces the immediate bidding pressure on core funding.

Number two, as competitors are also watching liquidity, which should dampen the competitive first for deposits. To that point, I heard a number of banks bragging on earnings calls here in the second quarter about their betas being lower than anticipated.

Number three, last cycle, Pinnacle in grade three banks during the cycle, which requires a heightened focus on holding their clients for which we anticipate a premium, and therefore, we had an increased urgency to raise rates.

And number four, the magnitude and speed of Fed move this cycle affords makes like our more opportunity to compress the beta or retain more of an increase. So it's my expectation given those four factors, that we will be able to expand margins and grow loans in support of our net interest income growth.

So now I want to move to why I think it works that way while the momentum continues to build so much more rate than peers and competitors. Jim Collins about this concept is paying a stay of how good companies become great companies and referred to it as the flywheel concept.

And here in just one minute, he describes it this way, "Picture a huge heavy flywheel, a massive meta. This matted horizontally on an axle about 30 feet diameter, 2 feet big and weighing 5,000 pounds. Now imagine that our task is to get the flywheel rotating on the axle as fast and as long as possible.

Pushing a great effort, you get the flywheel to inch forward moving almost 10 perceptively at first, you keep pushing and after two or three hours of persistent effort, you get the flywheel to complete one entire turn. You keep pushing and the flywheel against move a bit faster and we have continued great effort.

You move it around the second rotation. You keep pushing in a consistent direction. Three turn, four turns, five, builds momentum turning faster with each turn. Then at some point, breakthrough, momentum on thing kicks in in your favor to the flywheel forward. Turn after turn it's on heavy weight working for you.

You're pushing no harder than during the first rotation, but the flywheel goes faster and faster. Each turn of the flywheel builds upon work done earlier, compounding your investment of effort. The huge heavy bid fly forward with almost unstoppable momentum in growth." That's where we are.

back in 2008, this firm to take the market share from larger, more bureaucratic banks by taking their best bankers and having to move the best clients from their previous employers to us to steal another Tim Collins phrase, that's our hedgehog strategy. The civil one we revert to over and over and over and over. No doubt, it was harder back then.

I still remember hiring Larry Moore, before we ever opened our doors in 2000. And then on the first day of business in opening accounts for Janie Kennedy who owns Kennedy Resident supply, his long time supply at our previous employer. They were our very first client and they're still our clients to this day.

But now the same rolling forward with the sounding momentum and 2Q alone grew long almost $2 billion and push total assets 340 billion, an incredible growth story by anybody's measure. Our ability to hire the best bankers only improves as we go and our ability to assist them in moving their clients only improves as we go.

In the last three years, we've extended on a de novo basis to Atlanta, Huntsville, Birmingham and Washington, D.C., some of the largest fat store markets in the Southeast. We're hiring record numbers of bankers and wealth managers both in the new and existing markets. We've hired 334 revenue producers since 2019.

That's a 60% increase, a huge lift in market share moving capacity. 2018 of those revenue producers are bankers, traditional relationship managers. We hired 71 in 2019, 82 in 2020 and 116 in 2021. Year-to-date through June this year, we've hired 65 with 37 of those in Q2. So you can see the momentum continues to build.

We're not just hiring any bankers and wealth managers. We're hiring some of the most experienced and most highly regarded bankers in the market.

Of the 37, we hired in Q2, the average experience is 20 years, and literally the majority of them were hired from the large and more bureaucratic banks like Wells Fargo and Truist, the 92 Wells Fargo recruiting grounds as example, which is a pretty good proxy for their level of training and sophistication.

And as we've seen year after year, they’re now successfully movement of class, which I believe means balance sheet volumes have extraordinary momentum, which means core revenues have extraordinary momentum and happily that momentum requires limited no assistance from a strong economy.

As Jim Collins described that a flywheel like that produces almost unstoppable momentum. And those of you who are well familiar with the Pinnacle growth modeling and what through the years are likely comfortable with growth.

Do the idea that hiring long experienced relationship managers, who've been handling books of clients for decades and having to move those clients to Pinnacle will result in strong long quality based on the unusual approach to client selection said, simply these very experienced bankers who can move on to best clients and leave problem assets behind.

All right, I promise spare you the detailed explanation on the linkage between the associate experience, client experience, and shareholder return. Other than remind you how it relates to why our momentum is so strong.

There's overwhelmingly compelling data developed by Gallup, the best place to work entity and any number of others that demonstrates this idea of beginning with an exciting associate experience, and translating that into a client experience at yields Raven fans doesn't need fuel outside shareholder returns literally 3.33x the Russell 3000 since 1998.

And while some banks are hoping to catch whatever the next wave might be, rising rates, falling rates, whatever.

We've been diligently, building an infrastructure that I believe has and can continue to produce outside shareholder returns over the long term cycle in and cycle out, our associate engagement literally among the best employers in the country. It's long-standing.

It's across virtually every assumption group like women, millennials, parents and across our entire footprint in virtually every major market. Building on that foundation, these size associates are hiring welded clients.

Our Net Promoter store is market-leading in both our Tennessee and North Carolina footprint, an extremely high rating in every metro market would have largely not shared for the statistical valid sales. And on the far right, you can see that we have successfully translated all that focus on our associates compliance and shareholder value.

The longer-term shareholder returns have been outsized from beginning and over 10 years, 5 years and 3-year time horizons. There return this year has been not been due from the broader pressures on sector. I still expect over the longer term, Pinnacle's culture should continue to produce outsized returns.

And then finally, one more reason is the line spending so fast. I want to discuss briefly on how I get paid and frankly, how the top 140 liters in this firm are in their short and long-term incentives. I've already spent a little time on the variables that we believe the most correlated to shareholder value.

Now here you see the variables that determine our short-term incentives on top our long-term decisions on bottom, which is continue to help and see how the leadership of this fire is aligned to shareholders, and therefore, while they did outrun peers.

In the case of the short-term incentives, the variables, our asset quality, EPS growth and PPNR growth, for most of our existence instead of PPNR, the third variable has been revenue growth, but in periods like these, where PPNR growth becomes really critical we substituted it for revenue growth.

I will say that right now, it's my intent to ask our compensating committees to return to revenue growth probably next year. So these are the metrics, asset quality is a threshold venture.

In other words, if we missed the classified asset ratio cap, which we believe is most predictive of the potential asset quality metrics in terms of future loan losses, nobody gets paid or an cash and site.

Nobody -- so the entire leadership of this firm and Frank's entire associate base of this firm cannot afford a meaningful slip on credit, it shapes our behavior in good times and the bad, a shareholder line.

Assuming we clear the asset quality threshold actual incentive payouts determined by EPS growth and ordinary revenue growth, but as I just mentioned for the last few years to substitute PPNR for revenue. With those metrics, of course, the next question would be, so how the actual performance targets set to these metrics.

In general, we utilized consist assessments by our peers' EPS growth and ensure that our target would be at least the top quartile. And then we take the revenue growth required to hit the EPS target.

So in quarters like this, where you get a meaningful increase in EPS, you get an increase in incentive expense, and there has been a reduction in EPS this quarter and most likely got the reduction in incentive expense, which then serves to bolster the reported EPS, again, highly shareholder alignment.

So short term, you see it to be earned by anyone at Pinnacle historically we had to clear an asset quality metric and then actual payouts are a function of hitting earnings and revenue targets that were established with the intent to be in the top quartile bank, that's tested.

But it's one of the most important reasons in my judgment why the earnings growth of this program and the share price performance this firm is so consistently and substantial to outperforming peers over the long-term, as you just saw on the previous slide. And you can see the measure for long-term incentives on the bottom slide.

We planted disclosure in the proxy boutique based long-term incentive work, the slight modification made for year-to-year. But you can see in general, tangible book value accretion is one of the most important metrics in recent years. And all these measures, we have to outrun the theater. So it's not just getting lucky, that's outrunning the peers.

That makes plenty of while you run a scan on tangible book value dilution in the first quarter. Virtually all of the peers experienced substantial more tangible book value dilution than we did. My guess is you'll see more of that in this quarter.

And so I understand this, you not want to again to understand our cost on deployed and give you a large amount of excess liquidity in anything other than loans just picked up a few basis points of margin we need to pretty tangible book value and at a rate better than our peers.

But you also begin to see why using substantial screens and things like asset sensitivity and cost base as may be misleading since they assume that no management actions to alter forecast outcome.

Its management team is literally every incentive to offer outcome, the situations change, and I think we've got a long track record of doing that specifically. So we're two from here. Right now is obviously a difficult time for bank stocks, Bank stocks in general, I think rapid growers in particular.

In terms of PNFP, it kind of reminds me of the conversation I had over a good number of years was, is today of our larger shareholders. For years, she came to every conference and met with us every time that they bought the share. So always say, "Terry, I love the story, but the stock is just too expense.

I have said to a one time, you always say it's too expensive, but every time we need to put business on the last time. They're go ahead and jump in. Otherwise, I get the opportunity on PNFP. Well, following one of the previous downturn to banks, she tell me titers remember telling me I never get a chance on PNFP.

Well, today I'm one of your largest shareholders. This seems like much the same opportunity to me now. The average PD for the BKX has collapsed to shockingly near great recession lows, and not only that, but the traditionally wide premium to peer multiples that Pinnacle's enjoyed is almost nonexistent.

And so we appear to me that this might be a ban opportunity, not December to the one I just described. The one thing I know is I'm not in charge locals, I'm responsible to care long-term shareholder value here expected the cycle. And so my approach to delivering on that is.

Number one, the position asset quality, we have to not only are the leaders of this firm, relatively large shareholders, but all our annual cash incentive literally evaporated without it. That died.

Number two, to continue consumers to refine the remarkable culture, but I believe specifically lead to outsized shareholder returns is a competitive advantage in both good times and bad. Number three continue to emphasize being the best place to work.

We've become a magnet for talent and are successfully recruiting some of the best and Southeast and in large quantities. I used to play before this is a once-in-a-generation opportunity to mass talent that Pinnacle is uniquely suited to see.

Number four, to continue building on the market share momentum of this firm, honestly, it would be difficult to constrain. You can see why Colin referred to as almost unstoppable. We've added 334 revenue producers just since 2019. That's a 60% increase in revenue producers market share taking capacity.

We expect these revenue producers to continue to consolidate their clients to Pinnacle, while they seem to leave the problem credits behind. And with that approach, you get it rapidly grow and strong asset quality. And number five, to double down on well in our clients.

Here is taking the cycles over the long term, great places to work, produced greater than 3x the returns of companies that are not on that less because they can leverage the associate excitement to create rate and fans, which is probably the most important and creating long-term shareholder value creation.

In fact, we're actually increasing the intent there believing that as so many competitors wrestle how to deal with COVID, work from home, labor shortages, supply chain issues and any number of other excuses. We can see this time to further differentiate and already differentiated brand by continuing to enrich our associates and blow our clients away.

And all that thing that rapidly reliable growth in revenue and EPS cycle in and cycle out. So with all that, it's time tests, I'll turn it over to Harold to review the second quarter in greater detail..

one, our pure asset generation play with BHG, Advocate, JV; and then two, our strategic market expansions, validating Atlanta, BC, Birmingham, but also expansion of the specialty loan group like franchise and equipment lending; and then three, what sort of growth that we achieved from our recruiting.

So this is the growth of our newer RMs that have been with us for only 2.5 years on it and then filing the for the legacy markets contribution.

So all of this is net growth, thus far, through the first six months, we experienced 25% of our loan growth annualized in December 31 and June 30, which is inclusive of PPP pay downs, which has been noted and ran on this slide. Almost 50% of our loan growth is from our latency markets, while the rest is primarily from new ideas and new people.

We felt like this was helpful as we try to understand where all of this fantastic all growth has originated. Now on the deposits for the first time in a few years, our deposit growth sale, we are encouraged about what happened during the quarter once the month of April was lower, mainly on giving us some reason to be optimistic.

We're also optimistic about noninterest-bearing deposits growing during the quarter. As we all know, these accounts become increasingly valuable as rates increase. Since the pipeline cycle began, our deposit rates were up almost 34 basis points. So we're obviously pleased with the effort of our relationship managers thus far.

We've never abandoned our view that core deposit growth is a key long time for use objectives, and as a result, it all pans on deck currently. For the first 20-plus years of our existence, our number one objective is developing strategies and tactics around funding our growth.

We continue to lock our chances given the significant investments we've made both on the relationship managers and new markets over the last few years. We continue to believe an aggregate 40% by deposit rates through the end of 2022 is likely.

We also keep an eye on what our competitors given they are advertising much lower data, which we believe gives us some breaking at lease term. Now to liquidity. Our liquid assets decreased is corresponding with strong loan growth, modest deposit growth and a $400 million increase in securities, all of which were floating rate.

With our outlook for loan growth, we likely will not see an increased deployment of liquidity into bottom over the next several quarters. As the top left chart for place, with the piping our GAAP net increased 28 basis points this quarter.

The impact of PPP and liquidity has a meaningfully less impact on our man this quarter, and we anticipate further reductions in the impact of the two items over the next several quarters. For there, we have confidence that we should see margin expansion along with increased net interest income in 3Q and 4Q.

Concurrently, we are up in our guidance an 80% comes to high teens growth for the full year 2022 over the last year. As to credit, we are again presenting our traditional credit metrics. Pinnacle's loan portfolio continues to perform very well. And again, due to some of the best credit metric ratios we have experienced ever.

I not sure everyone here to hear about this anymore, my cases may up to the Section 4013 and Pinnacle continued to decrease and were down $646 million at June 30 down from $827 million earlier this year. Importantly, 97% of our 4013 credits are on some form of principle and interest monthly pay with only 1% in a classified risk category.

Importantly, given the penalty, we believe we will see further declines in our allowance for credit losses to total loan ratio over the next several quarters, all take it at a slower pace than we would have otherwise projected a couple of quarters ago.

Our current ACL was 1.03%, which compares to a preset pre-COVID reserve of 0.48 at December 31, 2019. So as we start this tightening cycle, we feel like we're in pretty good shape given the quality of our portfolio term.

I wrestled this chart out of our credit officers and the information here I think is maybe obvious, but I do believe is helpful in the detailing, our appetite for the various sub segments in construction and investment property.

As the left chart indicates, we have little appetite for the asset classes and the red portion and remain receptive to those asset classes in the main areas. More importantly is the information on the right side of the chart.

I don't know if any of this information blue box is all that moved, but it does signal to our RMs in the fields or expect more diligence, more questions, more analysis, which we all believe is the right thing to do right now. I won't spend a lot of time on these expenses. We've had more information on the slides to help the builders.

As always, I will speak to DHG in few minutes, which obviously, we had announced last quarter. You can further see evidence of our flow mill thing with never increases in brokerage income of 46% trustee to 20% and interest commissions of 6%. Second quarter fees were benefited by increased interchange, particularly in local credit cards.

We believe this will subside somewhat volume in the second half. We booked about $5 million in nontitle-related gains in the second quarter based on recent valuation adjustments as companies in which these funds or investments continue to issue a Capital markets had about $2 million in gains this quarter.

Their pipeline of bids to alone some we just had best right now. As to expenses, we are maintaining our overall total expense run rate of approximately mid-teen percentage growth in 2022 in comparison to 2021.

This is primarily attributable to headcount growth in the new markets, market disruption across our markets, which will lead to strong creating opportunities and the addition of JB&B. In additional, we now believe that we should anticipate hitting our maximum payout of 125% of target for our annual cash incentive plan.

We do believe the second quarter total expense as a decent run rate for the remainder of the year, and we have some reasonable that we could see cost back up saw in 2Q, but the inflation backdrop could wreck that thought. We also think we have a good expense number forecasted for headcount growth in the second half of this year.

We will just have to see how our recruiting pipeline remains exceptionally strong. As the capital changeable book value did increase to 42.08 from 41.65 last quarter. Our decision to move approximately $1.5 billion of BHG helped our tangible book value per share by approximately $0.50 per share at June 30.

With a not anticipating any other significant capital actions at this time. Quickly, here's an update on our outlook for 2022. For loans, we've increased our outlook to high teens to low 20s. We are adjusting our rate forecast and ones that are a 3.25% best up rate by year-end. We want you to continue to monitor and modify as necessary.

Given that, we believe we should see continued improvement in net interest income this year, which should result in net interest income growth in the high pages. We still believe our expense outlook for increased tariffs and other factors is in the teens percent of growth rates, but given where we are today, it will not likely be less than that.

We are very optimistic about hiring, and we are thinking we're going to have a modest really strong recruiting year.

So as the PPNR and third quarter run rate, we anticipate strong growth in net interest income, while run rate for fees taking out BHG and basing income could be slightly higher, but the but probably flattish and expenses should be applies for us. For provision the key driver, we believe, will be on growth for the third quarter.

Obviously, inflation in the macro environment will hopefully determine how all of this turns out. For our group, we will work with an intense focus and do what we need to do to grow the franchise value of this part. Now I'll keep comments on to BHG. BHG had another record quarter of originations.

We anticipated that CHG would increase sales under their bank network as the capital markets has been volatile while their bank platform continues to be super reliable, which is obviously one of their competitive benefits that BHG competition the bank network and the securitization network during time such as these.

Spread in the loans sold through the auto platform did contract slightly in the second quarter from the last few quarters, which had some of the widest spreads in their history with rate driving spread will likely head back to historical loans of around 9% or so.

The bottom right chart details, the 1400 plus banks and BHG networking and just over 600 unique buyers in the last 12 months. As you know, we consider the funding platform will be one of our strongest, if not group's strongest platform in the Company for companies that execute a broad-based revenue platform.

As we know, the resource obligation is a reserve for potential loss absorption for the soft loan portfolio. At the end of the second quarter, BHG increased their resources grew to $247 million, up $27 million from the first quarter all the ratio of the recourse obligation to some loans decreased modestly to 4.98%.

As the blue bars in the bottom right show credit loss portion of resource losses for the second quarter remained somewhat lowest levels in the past 10 years.

Additionally, in showing the supplemental information and build macro environment, BHG also increased its reserve for on balance sheet loans by about $18 million to approximately $75 million of the June 24. That reserve is now at 3% from 2.5% last quarter.

These reserves increased through credit net these sores increased both credit metrics remain persistent and in some cases are approved. BHG based on their opinion of macro environment, increased these reserve positions with a view for call. We obviously commented a thought process here.

That said, we are really pleased with BHG's second quarter, especially at the same struggles that other more well-known fintech lenders appear to be going through right now. The quality of BHG for made in our opinion remain present, and we believe one of our strong factories.

BHG refreshes is credits for muscle, always looking for weakness in its Florida base. Pass does and pre-store were at consistent levels with previous quarters, so their borrowers have remained resilient free credit cycle thus far.

Maxim reasonable unemployment forecast given the confidence that their borrowers should be able to withstand forecasted inflationary increase in the way that allows BHG to better weather in this environment than other lenders in inter space.

In comparison to other lenders, we believe BHG borrowers are well paid with average earnings being approximately $287,000 annually. They believe in the credit models and their experience gives them the reason to do so. Lastly, BHG had a record operating quarter in the second quarter.

As I mentioned earlier, with the volatility in rates in our other part of this year, BHG has consistently earnings in the earlier quarters of 2022 would likely be stronger as they sell more loans to the bank option platform ever hold along with our balance sheet and to better understand how the securitization markets will behave.

As you know, the bank option platform delivers immediate annual sales recognition file through securitization network where there's interest income over the life of the loan.

As in, we were able to accomplish during a $300 million securitization and an acceptable rate of 5.5% when as appear to us other fintech that we have to reevaluate their business models given the operating part. BHG has very pleased to be able to get the securities accomplished and anticipate potentially one to two more securitizations this year.

BHG has also increased their loan production assumption for 2022 and that ways the banking partnership drove 40% growth in originations this year in comparison to last year.

As 2022 earnings, BHG believe that 2022 earnings should now represent about 15% growth in 2021, which Pinnacle required reductions in the quarter run rates in comparison to the second quarter. Three key points I'd like to emphasize or reemphasize that gives us a whole earnings growth is now 15% to 2022.

Credit remains consistent from previous quarters with BHG and will likely be increasing reserves based on macro cap at least over the next quarter or so. Spread sprint is likely going occurring line with more historical levels as we get into the second half.

Spread remains historically high currently, but with increased rate forecast shrinkage and earnings could occur.

Production volumes are very strong, and we believe that we'll continue to have strong production going into the second half of the year, but BHG will aim to send more to the securitization platform, which reduces current period profits accordingly.

Of note that BHG anticipate at least two funding alternatives to open up in the near term as they speak to broader already strong orbit platform, which we also believe is one of our strongest attributes. As you all know, we are strong leaders in the BHG franchise.

So we think a 15% growth with a more conservative outlook is the right thing to do for right now. With that, operator, I will stop and ask for you to look for or ask for questions..

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

Also I just -- it's pretty tough to hear you. I'm not sure if your microphone is covered up or something, but it's been difficult to hear during the call, but I guess on the first question on the deposit growth.

As we look at Slide 15, when we see the breakdown of loan growth by different categories, is it similar on the deposit side? And do you think that there's going to be an opportunity to maybe see expansion or acceleration of growth from the more recent expansion on deposits as well?.

Yes. I think we're optimistic about what our deposit growth could look like for the second half of the year. Traditionally, our deposit growth does come in, in the back half of the year. So we're thinking we might see that occur.

We think our newer recruits in our newer markets, so we're going to deliver a more consistent deposit growth here and they gained some more experience with the firm. So yes, I think we do anticipate more growth in deposits from our new people and new markets..

And then as we look at that through the year, how should we think about your comfort level with where the loan-to-deposit ratio can grow to? And also with how low cash can go as a percentage of assets?.

Yes. We still believe we've got quite a bit of cash to fund loan growth to try to get down to kind of what that -- there's a chart in the slide deck that shows what -- where our cash balances were kind of pre-COVID as to the loan-to-deposit ratio, we operated this firm for a long time and nearly, call it, 95% to 98%.

I don't know if we'll get back to that level, but we've definitely got some room to run..

Okay. And then finally for me, just on BHG.

Did you see any -- as we looked at the end of the quarter and going into July, as the fear of recession or higher rates had a dramatic change in the appetite for bank -- the appetite for paper from the banks? Is that really reflective of the potential slowdown in the second half of growth there?.

No. I think the bank network remains active and receptive. I think what will happen in the second half of the year is, it will get more competitive, to be honest. And they will work hard to try to get a couple of securitizations done, which will take money away from the bank network. So as a result, auction platform becomes a little more competitive..

And our next question comes from Steven Alexopoulos of JPMorgan. Your line is open..

I wanted to first follow up on the oil side.

So assuming that you guys delivered the 2022 loan growth guidance that you're calling out, how should we start to think about 2023? And I'm not going to guidance, but should we think about that as a more typical year for you guys, like low double-digit growth? Or the momentum that you -- I mean, Terry called it out quite a few times.

Could it be another outsized growth just given all this momentum you're pointing to?.

Steven, my sense is that is gain. The -- I guess the thing I keep trying to make your thing understand that our hiring momentum is strong. And as you know, those books built over a four- or five-year period. So when you look at the number of people that have hired in 2019 that throws more outsized growth in there.

But don't miss that we're continuing to hire and higher momentum this year is higher than last year, the hiring momentum in the second quarter is higher than the first quarter. And so I think Harold used the phrase that our hiring pipelines are substantial. And so yes, that is what ought to drive both the balance sheet growth and the in-growth..

Got it. Okay. That's helpful. And I want to drill down further into your response to Jared's question.

if we assume deposit growth becomes more of a challenge for the entire rights I think we're seeing some banks wanting to get ahead of that, bringing more deposits now Harold, was your response to Jared's question implying that you guys plan to in your excess liquidity, go back to where the deposit ratio was historically, call it, 95%, 98%? And then you'll start fully funding loan growth with deposits, is that your plan?.

Yes. I don't think that would be exactly where our plan is. I think they'll run concurrently. But yes, we do plan to try to bring liquidity down over the next call it, six to nine months. But that in and of itself, we don't think is the right thing. We will focus our troops on core deposit growth.

And like I said, it will be all hands on deck to get that done. We've got several deposit kind of tactics in play right now, and we'll try to add resources to that to make sure that we can continue to fund the growth that we anticipate..

Okay. Okay. That's helpful. And then on the deposit betas, Terry, you made the point that you thought betas would be lower than the prior cycle. You called out a couple of reasons.

So maybe, Harold, what are we thinking now? What is the assumed total deposit beta would be assuming through the cycle?.

Yes. I think we're still leaning in on a 40% beta by the end of the year. So we still are not willing to come off that. We're hopeful that we will deliver less than that, obviously.

And so far, so good on that front, but we also think that 75 basis points here in July and on down through the rest of the year as we get to that 3.25% kind of Fed fund rate that we're targeting that we'll see increased deposit rates..

Okay. And I just want to understand, sorry, to put another question here, but you're also assuming that your loan beta is above your deposit beta.

And that's what's driving NIM expansion that's just not yielding cash into loans, right? You're assuming loan beta continues to stay ahead of the deposit beta, is that right?.

Yes. We -- yes, for sure. We've been really pleased with how loan yields have responded here early in the cycle. I think our -- kind of our test rate is probably running 100% so far. So we're -- every loan that's eligible for a low rate increase, I think we're getting it..

And our next question comes from Stephen Scouten. Your line is open..

So maybe just following down on maybe Steven's last question around what you're seeing on the loan side. And obviously, you guys lay out the Slide 34, showing us weighted average yields and then what your new yields are. And it seemed like there was a particularly strong move in the fixed rate yields quarter-over-quarter.

Is that just what you said, Harold, when repricing is necessary, like you're getting a high hit rate? Or what's -- what do you think is driving the success there? Because I can't say that so far through the earnings season, I've seen that from other banks. So it's really impressive, the 67 basis points on higher fixed rate loan yield..

Yes. I appreciate the question, Stephen, because we've been talking about fixed rate loan yields and making sure the new credit we keep up for a long time. And so I'm I appreciate the comment.

I hope that none of my other relationship managers heard the comment, but I appreciate it because we're going to keep beating on making sure the fixed rate loans continue to go up. And I hope that we can see what we've been -- to began, we've been a little disappointed in where fixed rate loan yields have been thus far in the cycle.

So we're hopeful that we can still see some more escalation in those yields..

Got it. Okay. That's helpful. And then on the share repurchase, I think the comment was somewhere in the presentation. Maybe you're in the release that no anticipation of using any of that $125 million. But obviously, Terry, you highlighted what you think is another great opportunity for the stock for investors.

So is there a level here where that becomes a viability for you guys? Or is it just with all the growth you want to continue to hold the capital for growth, not the repurchase?.

Yes, that's absolutely the point. As we look at our -- now our recruiting pipeline, our business development pipeline, loan deposit fees. We think we've got a lot of opportunity in front of us. I don't think the third quarter long growth numbers as high as the second quarter loan growth number. But there's a lot of momentum going.

And so we're going to try to reserve capital for longer..

Got it. And then just last one for me is around BHG. And I'm curious -- or just wondering if you can give any additional color on numbers around the CECL impact moving forward, if you guys have any updated data there.

If I remember correctly, I thought it was some of the securitizations would cause a higher CECL impact obviously, the selling us through the bank platform.

So I'm just wondering what you have there in terms of numbers and how that might impact maybe 23 on the BHG side of things?.

Yes. It's a great question, seasonal impact the ESG for the fourth quarter of next year. So they'll adopt on October 1. They're running various credit models. They're looking at various call it, funding platforms that work -- that are applicable to sleep and not applicable to CECL.

Right now, the securitization network, the way it's currently designed would have to be CECL compliant. So we'll probably be giving out more information on that here at the end of the third quarter. They're reworking their models, trying to get them in shape. So 2023 impact probably won't be that significant.

2024 is when they have to go full seasonal model. But again, I think they'll be designing different funding mechanisms with the capital markets to better navigate CECL..

Our next question comes from M. Olney of Stephens. Your line is open..

This is Matt. One more about loan growth, really improved the long growth numbers in 2Q. You guys gave us some good details on kind of the drivers. The guidance implies a slowdown in the back half of the year.

And I think a lot of your peers are also talking about a slowdown in the back half of the year, but I would love to hear more about your outlook for loan growth in the back half of the year are pipelines slowing? Just trying to get a sense of how much conservatism is baked in here..

Matt, my sense is $1.1 billion a quarter is probably not the best ongoing associate. That's the way of the quarter, I'm not saying we won't have that done a time, but I don't think that's some of the expected run rate. We think we really did have a fabulous quarter. I don't look for a huge slowdown.

In other words, I don't think it's really slowing economic activity or slowing market share movement as much as it is just a little more normalization in the second half than what you saw there in the second quarter, which is a was really sort of an extraordinary number..

Okay. And then on the expense side, the 2Q expenses a little elevated this quarter, but the guidance was unchanged. Anything that was had a higher accrual in 2Q.

And I'm interpreting that guidance correctly, implies that the 2Q expense levels could be the peak, and we could be flattish from here, if nothing about that right?.

Yes, I think so. I think that's what we believe today is that expenses will be pretty flat for the rest of the year.

2Q was elevated primarily based on incentives and call it, the increased earnings that we experienced here in the second quarter dictated a higher kind of allocation of incentives from the back half of the year towards the front half of the year. So that's primarily drove..

Okay. Great. And then just lastly on BHG, I want to make sure I appreciate the updated guidance.

Does this now assume that 9% spread that you mentioned earlier was a more normalized level? And then secondly, what does this assume as far as the -- what percent of your originations will be placed on the bank for the back half of the year? I think it was around 2/3 at level in 2Q. Just curious if you're going to stick with that thing.

Yes. I think, the numbers that I looked at, and we didn't disclose them, but the numbers I looked at would say that the bank network is probably going to be cut more or less than half, maybe may be down to 2/3 of what they got in the second quarter..

And the spreads, Harold..

The spread comments, you're absolutely right. We think this is going to probably approach 9% here over the last half of the year. I'm sorry I forgot you asked that question..

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

Just another one on BHG. So I appreciate the -- all the commentary as it relates to the guidance for the back half of the year.

But as we think about 2023 with those spreads compressing, maybe a little bit more allocated to recourse reserve, does BHG actually think that they can grow pretax earnings next year with those dynamics in place? I know they're building out some different verticals and expanding within some existing verticals.

But it may be a little bit early, but just wanted to get a sense if it's in the realm of expectations that pretax earnings at BHG could actually grow next year?.

Yes, Michael, it's the question our belief is it's not going to BHG as they have no intent to throttle back of earnings growth and any kind of meaningful way. Now like we talked about here on the call, we're looking at 15% growth in 2022. So using that as kind of a benchmark, I don't think they're looking at any material kind of change there.

That said, this is the time of the year when they begin to look at 2023 and the impact of some of the, like you said, new verticals, how that's going. They're going to be looking at their bank network is performing reduced spreads are going back to the higher spreads in a more, call it, a better backdrop as far as the economy is concerned.

But I'm not hearing anything then that says they're going to kind of take their foot off the accelerate..

So if I heard you right, and I'm not trying to pin you down here, but 15-percentage-ish range for next year is in the realm of possibilities? Is that what you're trying to convey?.

Yes, I think so. I've not gotten any word from them. There will be any less than that. But again, they'll be going through all of those processes here in the third and into the fourth quarter. So, I'll have a better idea for you in the third quarter..

Got it. I appreciate it. And then just going back to the deposit costs and betas. If I look at the spot rate at the end of the quarter, it was 67 bps.

And I appreciate the commentary that you expect loan betas will be higher than deposit betas, but it does, in theory with a couple more rate hikes, a pretty high magnitude implied pretty healthy growth in deposit costs.

Do you think after this gap up that we get in the third quarter that we're kind of nearing at least a near-term peak? And that you can still see margin expansion a few quarters beyond when the fed stops raising, again, just trying to kind of deconstruct the betas on both sides of the balance sheet?.

Yes, I think that's right. We believe that deposit rates -- thus far, we think our beta on deposits is somewhere around 22% as of yesterday. We think that with rate increases coming in the last part of the year, that we'll see an escalation because you got to in order to get to that 40% for the whole year.

And so we're trying to give ourselves some room to operate there. On the loan side thus far, we're not seeing any pushback at all with respect to those loans that are tied to any sort of probes, sulfur, LIBOR, or whatever. Those increased loan yields were in past clients. And so far, we're getting in those yields..

Got it. Maybe one final one for me, just more broadly probably for Terry. The Atlanta expansion obviously impacted by COVID. Can we just get an update there? And then can you give us more of an update on D.C.

and maybe what the expectations could be for growth contribution as we move into next year really for both of those new expansions on a combined basis?.

Yes. I think the last COVID, we like everywhere, I think, have seen a spike. In our footprint, we have seen an elevated number of cases in our associate base. But I guess I'm going to say it this way, happily, there's nothing particularly severe.

Some of the people are getting covered or getting it for the second or even third time and many of them are vaccinated and so forth. So consequences have not been particularly severe. But clearly, our associate cases have stepped up over the last 30 days or so.

I think in terms of D.C., Michael, how that's going to work, you hire the people that get to call on clients, they begin to book commitments and then it takes a while for commitments to turn into funding.

But I would say it this way that based on where they are in the coming cycle where they are in the commitment cycle, meaning monetize legal commitments closed loan agreements yet to fund. I'm really excited about D.C. And my guess is over a 12- to 18- to 24-month period, it will be our fastest-growing unit.

We're very excited and encouraged by the book of business that's developing there. Mark, last or Atlanta, I think your question was headed that basically their first year in operations were the COVID year. And are we thinking that we're going to back off on our $3 billion five-year notion.

As it sits right now, I think Atlanta could have a really strong third quarter here this year. And so, I think our leadership there has done a great job of pacing through COVID is in a way that still we believe that gives us a great shot at being that $3 billion franchise, call it by end of 2024, 2025.

I'm sorry, Michael, I thought the question was about D.C., but that's right about Atlanta..

No, it's both combined. I appreciate all the color, good point. Thanks for taking my questions..

Our next question comes from Casey Haire of Jefferies. Your line is open..

I wanted to follow up on the team pipeline. Obviously, a pretty strong quarter here in the second quarter with 37 producers hired.

How is that shaping up in the back half? Can you guys improve upon that?.

Well, I think I would be surprised, sitting here today, if we don't do at least that in the second half. But the recruiting pipelines are full, I guess, over the years, they'll learn you don't sell and brain until they get in the seat. And so forth. Yes. I think the simple answer is, yes, I would expect the second half to probably make the first..

Okay. Great. And just on the BHG front, Harold, if I heard you correctly, it sounds like originations up 40%. That implies an origination level a little bit higher than what we saw in the 2Q. I just was wondering if you could confirm that.

And then any color on where spreads are in the early going here in the third quarter?.

Yes. Sure, Casey. The 40% growth is an escalation. I think it was -- I think we talked about 30%, 35% at the end of the first quarter. And so, they do believe they've done kind of momentum here going into the second half of the year that they think production will go up here in the second half.

And the second part of your question was about spreads?.

Yes.

Just spreads, any color on spreads in the early going here in the third quarter?.

Yes. I don't have anything on July, but the month of June spreads were consistent with, call it, that tenuous number. So they didn't see any kind of significant degradation in spreads during the second quarter. I'll come out that..

Yes, that's great. And just last one for me. I know you guys gave the fee guide for '22 in just a question on interchange within the other line, popped up pretty nicely here in the second quarter.

Is that a sustainable run rate?.

Yes. We think we've got a good shot at that. A lot of that was in our purchasing card that we delivered to commercial clients. We think there could be some inflationary backdrop there as commercial clients build inventories, buy things before they think prices go up again. So, I'll just put it to you like that, Casey. That's what we've seen right.

We'll take that with you..

And our last question will come from Brian Martin of Janney Montgomery Scott. Your line is open..

Harold, can you just talk maybe a little bit about -- you talked about the liquidity or mentioned it earlier. Just kind of where do you expect that to end -- kind of end up here over the next couple of quarters? It sounds like it's your intent is to bring it lower.

And just kind of thinking about putting that together with kind of the margin outlook given the loan and deposit data commentary, but just that liquidity and margin generally maybe just over the next couple of quarters here..

Yes. I think the second quarter, as far as where we ended up, we probably took away about half of our, call it, liquidity cushion, maybe a little more than that. So I think we've got some more liquidity left to go get.

And I think we've got some, call it, short-term securities that we're going to call back to help us a little growth here in the third quarter. So we'll have a little bit of June 30 liquidity of getting used. We'll bolster it a little bit and then we'll see where deposits shake out.

So, we'll probably -- the blue bars on Slide 17 in that top right chart, I think those blue bars will come down some, but they want approach call it, the first quarter 2022 levels here in the third quarter..

Got you. Okay. And okay. And then how about just on the reserve, it sounds like the reserve coverage ratio drops a little bit further from here given kind of the trends you're seeing in credit quality.

Is that kind of what you guys were suggesting earlier, maybe I missed some of the commentary there, but just kind of how that ratio looks in the next quarter or two?.

As far as our ACL, is that what you're asking about, Brian?.

Yes, just ACL coverage..

In relation to loans, we still believe we've got opportunities to reduce it to based on our models that we use to produce our CECL-related reserve. And we also -- we're still adding back qualitative factors to keep it where it is.

The one point that I do want to reemphasize to is that call it, 2019, we were about -- the reserve was basically in half of where it was where it is today.

So we don't anticipate going back to that level nor do we anticipate going back to the day one CECL number, but we do think we've got some more room to continue to produce reserves, which we've been steadily doing, call it, for the last six quarters..

And this is today's conference call. Thank you for participating. You may now disconnect..