Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) Q3 2023 Earnings Call Transcript

Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) Q3 2023 Earnings Call Transcript October 18, 2023

Operator: Good morning, everyone, and welcome to the Pinnacle Financial Partners Third Quarter 2023 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle’s earnings release and this morning’s presentation are available on the Investor Relations page of their website at www.pnfp.com. Today’s call is being recorded and will be available for replay on Pinnacle’s website for the next 90 days. [Operator Instructions]. During this presentation, we may make comments, which constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties, and other factors 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, 2022, and its subsequently filed quarterly reports. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non-GAAP financial measures as defined by SEC Regulation G, a presentation of the most directly comparable GAAP financial measures and a reconciliation of non-GAAP measures at the comparable non-GAAP measures will be available on Pinnacle Financial’s 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.

Terry Turner: Thank you, Paul, and thank you for joining us here this morning. Most of you have endured these calls before. And so, you know we’re going to begin every one of these calls with this shareholder value dashboard because these metrics are North Star. There are a lot of interesting things that can be talked about. But ultimately, we’re here to produce shareholder value, and this is how we think you do that. And of course, always use to these non-GAAP measures because this is how I really manage the business. At a glance, you can see that we continue to grow revenue and EPS more rapidly and reliably than peers that we continue to grow our balance sheet volumes more rapidly and reliably than peers and that we relentlessly focus on tangible book value.

Also, our asset quality continues to be strong with problem asset metrics continuing to outperform peers at 23 basis points. Net charge-offs are excellent, but a little lumpy. You can see that they jumped up just a little bit this quarter because of a large, much-publicized syndication we were in. But generally, our nonperformers and classified assets have been peer leading with NPAs ranked number three among peers in Q2 and classified assets, number two among peers. So, from 30,000 feet, it’s my opinion that we continue to deliver on all the key drivers of real long-term shareholder value creation. So, with that, Harold, let’s take a more in-depth look at the quarter.

Harold Carpenter: Thanks, Terry. Good morning, everybody. We will again start with deposits, reporting linked quarter annualized average growth of almost 19% in the third quarter was again a real positive for us. The third quarter was yet another indication that obtaining deposits in an environment where competitive can be unpredictable is very much doable for this franchise. Early in the third quarter, competitive rate pressures remained fairly intense. As we approach the middle part of the quarter, it appeared that rate pressures did subside somewhat, mix shift of noninterest-bearing to interest-bearing slowed during the third quarter as we were down $112 million, much less than prior quarters of this year. All-in deposit costs increased to 2.92%.

I’d like to point out that we ended the quarter with a spot rate at quarter end of 2.97%, only 5 basis points higher than the average for the quarter. That is the smallest difference we’ve seen between the average rate in the quarter in rate and a long time signaling to us perhaps a much more modest increase in deposit rates in the near term and are optimistic about the pace of deposit rate increases as we head into the fourth quarter. We also believe we’ll continue to be disciplined as to the relationship between pricing and growth of our deposit book. We believe we can continue at a more deliberate pace for gathering deposits without leaning heavily on the rate component for our growth. As many of you know, our goal is to be the best organic deposit grower and we feel like we are on our way.

Terry will speak more to our deposit-gathering capabilities in a minute. The third quarter was another strong loan growth quarter for us as we were reporting an 8.4% linked quarter annualized average loan growth. Given that, we’re maintaining our EOP loan goals for 2023 at low to mid-teens growth. As we’ve mentioned over the last several quarters, we’re exhibiting much more discipline on fixed-rate loan pricing, which ended the quarter with average fixed-rate loan yields on new originations of 7.17%. Spread maintenance on floating and variable rate loans continues to be strong. We are pleased with yields on our originations and believe we can continue to maintain similar loan spreads as we enter the fourth quarter. As the top chart reflects our NIM decreased 14 basis points, which is more than we anticipated at the start of the quarter.

What we did anticipate was an increase in average cash as we have more cash on our balance sheet spillover at the end of the second quarter into the third quarter. During the third quarter, our cash balances did decrease modestly as our liquidity did decrease during the quarter. So, we believe in that liquidity will be less impactful on our margins in the fourth quarter. That said, with a backdrop of slowing deposit pricing and with fixed rate loan repricing at better spreads, we’re growing more confident that our NIM has found the bottom or we at least are fairly close. We’re anticipating our fourth quarter NIM to approximate our third quarter NIM or perhaps be slightly down. Obviously, should deposit pricing heat up in conjunction with competitors just becoming more aggressive, we might need to revisit that assertion.

But as we sit here today, we feel like we are close. Our rate forecast, we believe, is consistent with most rate forecasts out there. Our planning assumption is that we’re not going to see another fed rate increase and future fed rate decreases are not expected until the second half of next year. Call us a believer in a higher for longer rate environment. With that, we don’t believe a near-term fed rate increase will be that impactful to us either in the fourth quarter or as we enter 2024. As you know, the macro environment is volatile and very unpredictable right now. And given that we will have a continued bias towards elevated interest rate risk management, yarding the liquidity of our balance sheet and modest capital accretion. As for credit, we’re again presenting our traditional credit metrics.

Pinnacle’s loan portfolio continued to perform well in the third quarter. Our belief is that credit should remain consistent for the remainder of the year. Our credit officers continue their routine periodic credit reviews of the portfolio and bring resources to bear for borrowers exhibiting potential signs of weakness. The CRE appetite chart on the bottom right is largely unchanged from the prior quarter but does reflect perhaps a slightly more conservative appetite for multifamily and industrial from what we have shown over the last few quarters. Charge-offs did increase to 23 basis points during the quarter. During the quarter, there was a lot of information out there about a single syndicated credit out of Atlanta. We were a participant in the syndication for about $10 million, not sure of any recovery opportunities at this point, but we will continue to work with the lead bank and the syndicate to recover whatever might be available.

We have shown this slide before the top-left chart deals with trends in construction originations. We began dramatically reducing our appetite for construction last summer, which is consistent with the chart. A modest amount of new construction originations during the third quarter was primarily due to new home construction loans under existing officer guidance lines to our residential homebuilders. Secondly, much discussion about renewals of commercial real estate fixed-rate loans, which is the objective of the chart on the top right. Over the next several quarters, we will have approximately $100 million in fixed-rate commercial real estate renewals coming up for repricing where the average rate on these loans is currently around 4.5%. Our current yield target for these loans at renewal will be in the 7.5% to 8% range.

Altogether, we have about $6 billion and fixed-rate loans maturing over the next two years with a weighted average yield of 4.4%. Thus, we see real opportunity from a repricing perspective. Now on the fees. And as always, I’ll speak to BHG in a few minutes. Excluding BHG and the impact of the gain on sale of fixed assets and the loss on the sale of investment securities fee revenues were up slightly from the second quarter. A couple of items to point out here, which we believe are noteworthy. During the quarter, we recognized $5.9 million in revenues from a solar tax investment that we entered into in December of 2022. We received a third-party report as to the adjusted value of the investment during the third quarter, which provided us the support for the results we posted.

We’re excited about our solar business and what we believe it can and will accomplish. Starting last year, it’s relatively new to us as we only have about $130 million in balances, where we have a staff with seasoned industry veterans from large cap franchises. So, we expect great things from this business line. Just like many of our other equity investments, valuation gains and losses are difficult to predict, and thus the ongoing contribution to our fee revenues will always be choppy. As I mentioned, we’ll go into BHG more in just a second, but I wanted to emphasize that BSG continues to represent less of our pretax revenues this quarter than in previous quarters. As we noted in last night’s press release, we believe BHG has decreased to a 9% contribution to this year’s fully diluted EPS compared to approximately 20% last year.

We anticipate that fee revenues, excluding BHG, the gain on the sale of fixed assets, and investment security losses were coming in at around a mid to high single-digit growth rate for ’23 over ’22. Not a lot to say here this time on expenses. Total expenses came in about where we thought. We did adjust our incentive accrual downward to 65% of target this quarter based on where we believe our performance metrics will come in for all of 2023. Our outlook for expense growth for 2023 over 2022 remains in the high single, low double-digit range, same as last time. One quick comment on FDIC insurance. We are expecting a special assessment to replace the bank insurance fund before year-end. Our understanding is that the industry will likely recognize that as a charge to the P&L when that amount is known.

Just so you know, we expect that charge to be in the $25 million to $30 million range, and this charge is not reflected in our outlook for 2023 expense growth. Our tangible book value per common share decreased to $48.78 at quarter end, down slightly from June 30. The decrease was primarily attributable to the rise in intermediate-term interest rates during the third quarter and the resulting impact of that on the market values of our AFS portfolio and, of course, AOCI. Our outlook for the fourth quarter is that our capital ratios will likely be flat to down next quarter. Contributing to this will be the usual fourth quarter P&L matters, fourth quarter loan growth, et cetera. Of note is that BHG will record their day one CECL adjustment in the fourth quarter, and this will serve to reduce our capital accounts by a modest amount.

This day one non-cash adjustment will not impact our fourth quarter earnings. I repeat, it will not impact our fourth quarter earnings and should approximate a charge to capital of approximately $40 million. Subsequently, BHG will likely need to maintain their reserves that amounts to approximately 9% of total balance sheet loans. The impact of maintaining loss reserves at those levels going forward has been considered at our fourth quarter outlook for BHG. We believe the actions we’ve taken to preserve to handle book value and our tangible capital ratio have served us well, and we have no plans currently to alter our Tier 1 capital stack being any sort of common or preferred offer. The chart on the bottom left of the slide details several pro forma capital ratios as of the end of September.

Although we don’t anticipate significant changes to the capital rules, we are pleased with these results and believe they will likely compare favorably to other peer banks. Now a few comments about BHG. The top right chart is consistent with our previous quarterly earnings calls and details that production has been consistent over the last several quarters, at about $1 billion to $1.2 billion per quarter. Placements to the bank network were less in the third quarter, while placements to the institutional investors were again at the highest level ever and signaled that demand for BHG paper some of the most respected asset managers in the country continues to be really strong. As we look to the fourth quarter, BHG believes origination volumes will likely be less than Q3 as they continue to shrink their credit box, and they believe sales into the bank network could experience some decline over the next few quarters as that client base continues to wrestle with a more restricted funding environment, and we also believe BHG will likely want to build loan inventories in the fourth quarter as they head into 2024.

That said, BHG’s bank network, which we believe is very unique, and we believe would be difficult to replicate by any BHG competitor will continue to grow and provide ample liquidity to BHG. As to liquidity, we presented this slide last time in order to provide additional insight with regard to the significant liquidity changes that were available to BHG and placement of their loan production. BHG successfully negotiated two private home loan sales of about $400 million during the third quarter. Importantly, this type of sales are executed with no recourse to BHG. Lastly, BHG is anticipating their eighth Capital Markets transaction here in the fourth quarter. They are currently anticipating that the volume for the securitization will likely be in the $300 million range.

All things considered, we believe BHG has assembled a very enviable liquidity platform that is serving well for many years to come. This is the usual information we’ve shown in the past [indiscernible] spread trends since the first quarter of 2021. The top chart represents the gain on sale of the off-balance sheet bank network and the bottom chart is a blended chart of all on balance sheet funding, which incorporates the historical buildup of balances and anticipated spreads for all balance sheet loan placements have come in somewhat with higher rates and a tightening of BHG’s credit box. During the third quarter, the blended spreads for all balance sheet loans was slightly higher than the bank network given the balance sheet loans reflect the buildup of balances over the last three years.

As we hit in the fourth quarter, BHG believes that spreads for both on and off-balance sheet loans should be consistent with the third quarter. As we’ve noted in previous quarters, BHG has tightened its credit box over the last several quarters, particularly with respect to lower tranches of its borrowing base. Production volumes remain strong even with tighter credit underwriting. BHG refreshes is credit score monthly, always looking for indications of weakness in its borrowing base. Credit scores are obviously up from previous years. The finish chart on the right is helpful to understand how much underwriting has improved and does impact the loss containing the portfolio. At the top of the chart of the lines reflecting originations in 2012 and through 2015, lines begin to level out at cumulative loss rates of 10% to 12%.

Vintages after 2015 began to reflect improved performance with the lines leveling out within the 5% to 10% loss ranges. BHG continues to allocate resources to the post-COVID vintages of 2021 through the first half of 2022 as those vintages BHG believes were graded higher than the borrower ultimately market and thus skewed the loss rates higher for those loans. This slide again provides more information on credit and detailed reserves and losses for both off-balance sheet and on balance sheet loans. BHG is optimistic about credit at the end of the third quarter. Typically for BHG, approximately 70% of the loss is incurred within the first three years of origination. But with great inflation, as was mentioned about the 2021 and the first half of 2022 vintages while it should and has come to light sooner.

As a result, BHG has expended significant resources to bulk up collection activities, and we’ll be instituting in-person closings for new borrowers, which was suspended during COVID. Although higher than historical losses are likely for the near term, the credit performance of the portfolio does appear to be improving pointing towards cautious optimism as we enter the fourth quarter and into 2024. BHG had another strong quarter with approximately $1 billion in originations and are on track to achieve $3.8 billion to $4 billion in originations this year, which is slightly less than last year, but consistent with our outlook from the last quarter. As we mentioned last quarter, BHG had a conservative bias going into the third quarter such that as they continually tightened their credit box, production in the last half of the year was expected to be lower than the first half.

The current fourth quarter loan production forecast should approximate $600 million to $800 million in order to follow within the 2023 full-year guidance, which is less than the quarterly production levels thus far this year. During the quarter, BHG record several one-time expenses related to the markdown of a building they anticipate selling as well as markdowns of some software assets and other items that were related to some business lines that BHG has elected to not support any longer. These one-time charges amounted to approximately $10 million during the third quarter. These amounts have been incorporated in BHG results and outlook for 2023. Net earnings for 2023 are forecasted at $175 million to $185 million, inclusive of the one-time adjustments just mentioned, and is basically consistent with the range from last year’s forecast.

Quickly, the useful slide detailing our financial outlook for 2023, we have a bias currently toward a more cautious outlook when it comes to credit, interest rates, and capital. Our job is to manage the risk that face this franchise every day, what we know is that our business model remains relationship-based, nimble, and resilient. Our management team has significant experience and has tackled economic downturns before. We have great confidence that we’ll be able to manage the high-quality banking franchise that our shareholders have put it back from us and can currently handle whatever curve balls get thrown our way. And with that, I’ll turn it back over to Terry.

Terry Turner : Thanks, Harold. Warren Buffett and others have famously said, manage the fundamentals and tell the story and the stock will take care of itself. I believe that. At Pinnacle, we are managing what we believe are the fundamentals, the critical variables to creating outsized shareholder value. And so, my goal here now is to tell the story to crystallize the extraordinarily valuable deposit franchise we’ve built. As an industry, we’ve been in award the last three quarters and in the fog of war, it’s easy to get confused about what’s really important. We’ve all just witnessed three high-profile franchises go to zero, primarily because of two things. Number one, their enterprise-wide risk management. In my judgment, they all took extraordinary risk; and two, the stickiness of their deposits.

And so, the risk of management team is willing to take matters and how they use their security book matters and how they manage interest rate sensitivity matters and how they manage concentrations matters, and then how they attract and retain their deposits matters. Personally, I wouldn’t want to be long any bank our size that’s stuck in the commodity trap. That means an undifferentiated franchise from a client’s perspective. Because in that case, there’s no ability to reliably gather deposits at a pace sufficient to sustain outsized revenue and EPS growth and no ability to retain deposits in difficult times, which again jeopardizes the reliability of their growth, but a bank that can attract talent by virtue of being an employer of choice, a bank that utilizes its client experience is the primary basis by which it attracts clients and retains clients a bank that can rapidly and reliably grow net interest income, the largest component of EPS, that’s available deposit franchise.

Anyone who’s heard me tell Pinnacle stories heard me talk about the Pinnacle philosophy that excited associates produce engage clients and nothing enrich to shareholders like engaged clients, meaning raving fans that bring more business to you and refused to leave you in times of uncertainty. Many times, when I discuss that philosophy, I tried to list the profits. The workplace awards we’ve won, the service and brand awards we’ve won, the outsized shareholder returns we’ve produced over short, medium, and long-term time frames. But today, I want to show you the power of building a great workplace of being an employer of choice. Happily, most of the banks that have leading market share positions in our footprint are hemorrhaging talent. And while I can’t provide a metric to prove that I do believe we’re the employer of choice throughout our footprint.

What bank do you know this produced a compound annual growth rate of revenue producers of 7%, a 7% per annum increase in the number of experienced revenue producers while still producing top-quartile profitability. That’s a deposit — valuable deposit franchise. And by virtue of the associate engagement you’re able to create, you provide clients an experience that lights them up that engages them in such a way that they want to bring you more of their business and they want their friends and colleagues to experience the same thing. Those are what the researchers refer to as promoters. At 57, according to J.D. Power, we have the second highest Net Promoter Score of all the top 50 banks in the United States based on asset size. Number two in the country.

That’s pretty tall cotton. Of course, J.D. Power has more of a consumer’s land. So, we rely a little more on Coalition Greenwich, which is more focused on businesses. According to Greenwich, our ability to create an experience that results in raving fans, promoters is literally one of the best in the nation. I know no competitor in our footprint is coming close to a 79 Net Promoter Score, and I’d be surprised of any bank in the country is exceeding the 79 Net Promoter Score. And of course, that begins to explain our substantial outperformance in terms of deposit growth shown here on the far right, our net deposit growth, our ability to attract and retain deposits is wildly better than peers, both prior to the bank failures and subsequent to the bank failures and I’d say that’s a valuable deposit franchise.

Nashville is the best-case study of MSA [ph] works using the FDIC summary of deposit market share data, you can see on the far left, the market share leaders in Nashville in June of 2000 prior to Pinnacle opening in October 2000. I included the 2022 data in the middle, not only so you can easily see the outstanding market share we took and how we took it from. But so, you can see the most recent data on the far right that our model continues to grow deposit market share in Nashville in 2023 at a very rapid pace, so much for the law of large numbers. What I hope I can bring to life for you is that while it is incredibly advantageous to be in large, high-growth markets, which we are nothing, literally nothing is more valuable than a differentiated experience that can reliably take share from the weaker competitors that dominate our markets.

Think about that. Over 23 years in existence in Nashville, the top three banks gave up 27% share, and we took nearly 21% of the market from them. That’s a valuable deposit franchise. And honestly, I’m not aware of a single bank in the country with that kind of deposit-building franchise. And while we’ve been at it the longest in Nashville, based on FDIC market share data for 2023, we’re growing share in virtually every market that we’re in. All of those listed here have positive share growth. And look at this, when you compare the deposit volumes we’re now producing in markets like Atlanta and Washington, D.C. to our first three years in Nashville, where we now dominate. You have to be blown away by how that propels sustainable growth going forward.

That’s a valuable deposit franchise. As I’ve alluded to several times now, to be available deposit franchise, in addition to your ability to attract deposits, it’s critical that you can retain deposits in times of crisis. And we don’t need to invent metrics that we hope might be predictive of how sticky bank’s deposits are, we can know, right? I would say the best test of a bank’s ability to retain clients was how well they did in that period of time leading up to and immediately following the Silicon Valley Bank pay. Think about it. It was the worst bank care since the Great Depression and it occurred in this time of frictionless transfers. It’s never been easier to transfer bank balances than at this time. And really, that’s — we saw three relatively large bank failures — fail precisely for that reason.

But at Pinnacle in that extreme crisis, not one of our 200 largest depositors left us in the month following those players, not one, and the balances of those 200 totaled $3.9 billion at the time of the SVB failure and $3.9 billion roughly a month after that failure. It’s just hard to leave a bank you love and trust and that’s available deposit franchise. A further proof of the power of the franchise is that according to Greenwich over the next six to 12 months in our footprint, Pinnacle is the most likely bank to earn more business and the least at risk of losing business. The most likely bank turn business and the least likely of losing business. For each of the three banks that dominate our footprint in terms of existing deposit client share, in other words, for each of the three market share leaders between 17% and 22% of their clients indicate they’re likely to lose business in the next six to 12 months.

That’s a huge opportunity for us to produce outsized growth, given our proven ability to take their share. And because our clients’ engagement with us, nearly 40% of our clients indicate a likelihood that we’ll earn more of their business. I would say that the franchise is most likely to earn new business and least likely to lose business is a very valuable deposit franchise. And of course, the ultimate goal of all that is to rapidly and reliably increase total shareholder returns. Over the last 10 years, our total shareholder returns have substantially outperformed all our peers. As we’ve grown in asset size, our PE multiple has contracted more than most of our peers, largely I suspect, due to a fear of the law of large numbers. And so, for us to produce outsized total shareholder returns as our PE contracts, we had to substantially outgrow peers in terms of EPS, which we did.

But given that net interest income by far the largest component of EPS, it’d be hard to substantially outgrow peers in terms of EPS over an extended period of time without growing them in terms of net interest income. And it’d be hard to outgrow peers over the long haul in terms of net interest income without outsized loan and deposit volume growth. So hopefully, you’ll agree that a bank that can attract talent by virtue of being an employer of choice, bank that utilizes its client experience as the primary basis by which it attracts clients and retain clients a bank that can rapidly and reliably grow its net interest income, the largest component of EPS. That’s a high deposit highly valuable deposit franchise. Paul, I’ll stop there, and we’ll take questions.

Operator: [Operator Instructions]. And the first question today is coming from Steven Alexopoulos from JPMorgan. Steven your line is live.

See also 20 Most Overpaid Jobs in the World and 20 Least Egalitarian Countries in the World.

Q&A Session

Steven Alexopoulos : Good morning, everyone. I want to start on the deposit side specifically a deposit mix. So, you guys had very strong growth in the interest checking account, right? It’s over half on the average balance, and that rate is now 377. Can you give some color? Is that where new customers are coming into the bank or seeing a migration from noninterest-bearing into that account? And is that where we should expect to see outsized growth?

Harold Carpenter : Yes. I think we’ll see more in the money market accounts, interest checking accounts. I think a lot of the new strategies; the new verticals will point clients in that direction. Looking at our new account growth over the last, call it, three months, about 10% to 15% of it is in noninterest-bearing. So, we’re still attracting class that need operating accounts, but I think a lot of the sales of course, is aimed at more products that are more aimed towards those interest checking and money market accounts.

Steven Alexopoulos : Got it. And Harold, you called out the spot rate on total deposits, but what about this account? where are you pricing relative to the 377 right now?

Harold Carpenter : Yes. I don’t have that right now, but I would imagine that new account growth is probably in the 377, just a while guess, Steve, I would think the spot rate is probably in the, call it, probably pretty close to the 297, maybe a little north of that.

Steven Alexopoulos : Okay. And then helping to offset that earning asset yields are picking up a bit of 21 bps quarter-over-quarter. Given where longer-term rates have moved. Harold, should we expect more of a lift in our earning asset yields coming in the fourth quarter? Is that picking up?

Harold Carpenter : Yes, we’re expecting some more lift primarily through the repricing of the fixed rate loan renewals. We got — like we mentioned, about $100 million in construction coming. I think altogether, we’re looking at somewhere close to maybe call it, $300 million or $400 million in fixed-rate renewals coming through this quarter.

Steven Alexopoulos : Okay. So, if we put those together, you think NIM is flat to down slightly in the fourth quarter. Is it safe to say that will likely be the bottom of net interest margin for this cycle?

Harold Carpenter : Yes. That’s what we’re hoping for, Steve. We’re really hoping that it was this quarter at the bottom is when we hit. But we looked at the projections for the fourth quarter, several different ways under several different scenarios and it looks like we’re really close.

Steven Alexopoulos : Okay. And then on the expense side, I appreciate all the commentary that more of the expenses are now being directed at revenue producers versus support staff when I balance the commentary that you’re putting out, Terry, that you’re putting out the word to accelerate the pace of new hiring rate just given the market opportunity, but there’s less pressure on back office. When I put those together, how should we start to think about expense growth for next year. Could you give us just a rough range because I don’t know how to put those two together?

Terry Turner: Yes. We’re looking at the 2024 expense plan right now, and we’ve got to be — the largest increase in expenses that we’re hopeful to cover would be our incentive costs. We’re accruing at 65%, so we’ll add 35% into the plan for next year. We are introducing to our Board and the comp committee several different ways that we think we can cover that additional cost and still produce the revenue growth that I think everybody expects us to produce. So, we’re obviously not going to introduce into our expense plan any number that is going to cause our EPS to be unduly hit. So, we’re looking at what our projections are next year for us and our peers. We’re likely to try to achieve some percentage growth and likely well, we’ll always be trying to get into the top quartile of that group.

So, I know that’s a lot of word salad for you, Steve. But at the same time, we’re not really ready to kind of talk about where we are on expenses. Terry’s challenge us to look at our expense base with a lot more diligence here this quarter as we look in into 2024.

Steven Alexopoulos : Right. But Harold, if we just put together new hiring with less back office, does that imply less pressure on expenses or more pressure on expenses because of the …

Harold Carpenter : Well, that will obviously produce better operating leverage on that particular notion for sure. We don’t intend to hire as many in the support groups next year as we’ve done over the last two years. So that is an added benefit. What I want to make sure is that we get on the table that we’re also planning to increase our expense base next year to more of a target payout of our incentive accruals. So just don’t let us — don’t forget about that.

Terry Turner: Steve, I think on what you’re chasing there on just the impact of the net hiring of revenue producers and non-revenue producers, that ought to be a net positive. And again, I think what Harold is trying to do is make sure everybody gets it that our incentives are tied to performance. And so, we’re hoping to produce the performance that warrants the target payout or above next year. And so that in and of itself is a big increase to the incentive line, but the item you’re chasing on the net impact of hiring, it ought to be a net positive.

Steven Alexopoulos : Okay. And maybe just lastly, just if I zoom out, right, we look at loan and deposit growth, just full year expectations for this year, maybe for you, Terry, as you look at the strength of your markets, the pace of new hiring, do you see us exiting 2023 and entering 2024 with more momentum than what we saw in 2023? Or is it about the same? Thanks.