PNFPP - Pinnacle Financial Partners Inc. (PNFP) Q1 2024 Earnings Call Transcript

2024-04-23 14:58:02 ET

Pinnacle Financial Partners, Inc. (PNFP)

Q1 2024 Results Conference Call

April 23, 2024 09:30 AM ET

Company Participants

Terry Turner - Chief Executive Officer

Harold Carpenter - Chief Financial Officer

Conference Call Participants

Casey Haire - Jefferies

Steven Alexopoulos - JPMorgan

Catherine Mealor - KBW

Brandon King - Truist Securities

Stephen Scouten - Piper Sandler

Michael Rose - Raymond James

Timur Braziler - Wells Fargo

Brett Rabatin - Hovde Group

Matt Olney - Stephens

Samuel Varga - UBS

Jared Shaw - Barclays

Brian Martin - Janney Montgomery

Presentation

Operator

Good morning, everyone. And welcome to the Pinnacle Financial Partners First Quarter 2024 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle's earnings release and this morning's presentation are available on the Investor Relations page of their Web site at www.pnfp.com. Today's call is being recorded and will be available for replay on Pinnacle's Web site for the next 90 days. At this time, all participants have been placed on a listen-only mode. The floor will be opened for your questions following the presentation [Operator Instructions].

During the 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 actual results, performance or achievements of Pinnacle Financial Partners 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 to not put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle’s financial annual report on Form 10-K for the year ended December 31, 2023, and its subsequently filed quarterly reports. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise.

In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G, a presentation of the most directly comparable GAAP financial measures and the reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financials Web site at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle’s President and CEO.

Terry Turner

Thank you, Paul. And thank all of you for joining us here this morning. Most of you have endured these calls and so we're going to begin every one of these calls with this shareholder value dashboard. These metrics are really our North Star. There are a lot of interesting things that can be talked about and obviously, Harold will talk about more things in more detail here in just a few minutes. But ultimately, we're here to produce shareholder value and this is how we think you do it over time. Looking at the GAAP measures first and then the adjusted numbers, which really better reflect how we run the business. At a glance, you can see that we continue to grow revenue more rapidly and reliably than peers and we continue to grow our balance sheet volumes more rapidly and reliably than peers, which is the fuel for our future revenue growth. And that we relentlessly focus on compounding tangible book value. And then across the bottom, now the key asset quality metrics we focus on reflecting both problem loan formation and losses. In general, those measures continue to be among the best in the peer group, and as you can see, compare favorably to our longer term historical averages. But that said, during the quarter, we increased our allowance for credit losses on loans from 1.08% to 1.12%, primarily as a result of further deterioration in a previously disclosed problem borrower and to provide additional protection given the higher for longer rate scenario. So from 30,000 feet this quarter, we've got the reserve build on one side, largely being offset by the recognition of a conversion mortgage servicing right and lower expenses in the form of reduction in associate incentives. Nevertheless, for me, there's a lot to celebrate here, particularly in terms of revenue growth with growth in both noninterest income and net interest income, double digit core deposit growth and even net growth in noninterest bearing deposits. So with that, Harold, let's take a more in-depth look to quarter.

Harold Carpenter

Thanks, Terry. Good morning, everybody. Another strong quarter of deposit growth. We were also pleased with how our noninterest bearing deposits performed during the quarter, giving us additional optimism about where those balances might be added for the year. As to 2024 deposit growth, still believing we can grow deposits within the previous range of high single to low double digits this year. Obviously, the latest FOMC meeting will impact our rate projections for the remainder of the year. As a result, we've taken more time looking at the back book on deposits. Two years ago, 100% of our MMAs had rates less than 2%. Today, only 15% of our rates are less than 2%. Also today, 65% of our money markets are at rates greater than 4%. So we feel that our deposits are priced very competitively. We have made some preemptive strikes here late in the quarter successfully reducing some of our more expensive accounts as well as a deep dive on our pool of reciprocal deposits. This effort is helpful to our outlook as we enter the second quarter. As to new accounts added to our lenders in the first quarter, the average onboarding rate was around 3.75%. As we've said, we like our position as to deposit rates in our markets. So for us, deposit rates will likely be more like a slow creep from here, not any sort of rapid increase. I've listened to a few conference calls of late, particularly by large caps as some believe they've acknowledged outsized deposit spreads and are letting people know that benefit may be going away in the near future. That said, we believe as we head into second quarter, deposit rates for us may increase a few basis points, but it won't be a lot....

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