Pinnacle Finl Partners achieves 54% EPS growth and projects strong 2025 outlook post-merger with Synovus

OPERATOR - (00:00:01)

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 Finl Partners' Annual Report on Form 10-K for the year ended December 31, 2024 and its subsequently filed quarterly reports. Pinnacle Financial disclaims any obligation to update or revise any forward looking statements contained in this presentation, whether as a result of new information, future events or otherwise. In addition, these remarks may include certain non GAAP financial measures as defined by SEC Regulation G. A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non GAAP measures to the comparable GAAP measures will be made 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.

Terry Turner - President and CEO - (00:00:58)

Thank you Matthew, and thanks for joining us. I'm sure no one's keeping track, but next week will be Pinnacle's 25th anniversary, which makes this the 100th quarterly close for Harold and me. Happily, this is one of the best in a long history of beat and raised quarters. As has been our custom for a very long time, we begin every quarterly call with the same shareholder Value dashboard GAAP measures first, followed by the non-GAAP measures which are the ones that I focus on to manage the firm. As you can see across the bottom row, our asset quality metrics remain well below pre-COVID median levels, with all problem loan metrics continuing to operate at or near historical lows. On the middle row, of course, everything's up and to the right you can see the balance sheet continues to reliably build quarter after quarter with double digit CAGR for loans and core deposits over. Nearly a five year period of time. That's largely attributable to our ability to recruit and retain proven revenue producers and consolidate their relationships. We expect balance sheet growth to continue based on the revenue producers that are currently on our payroll but have not yet completed consolidating their books to us. And we've continued hiring at a similar pace in 2025, which should help to continue to further produce balance sheet growth. More on future balance sheet growth expectations and hiring in a minute. And then moving on to the top row, you can see that the sustainable and reliable balance sheet growth has resulted in rapid revenue and EPS and a double digit Compound Annual Growth Rate (CAGR) for tangible book value per share growth, which we believe are the three metrics most highly correlated with total shareholder return. That's been our relentless pursuit over the last 25 years and has resulted in the second-highest total shareholder return among all the publicly traded banks in the country since our Nasdaq listing in 2002. A number of times over the years I've used the Flywheel concept, which was developed by Jim Collins and good to great, to help crystallize for investors the sustainable momentum that we built in this firm. I think I last used it in 2022 and it's hard to imagine that many are unfamiliar with the concept, but the idea is that through a series of disciplined consistent efforts in the right direction and you eventually produce accelerated and sustained growth. I don't think that could be a better descriptor of Pinnacle over time than accelerated and sustained growth for us. That hedgehog strategy, that disciplined and consistent effort in the right direction is our continuous recruitment and retention of market leading revenue producers. I've developed in previous quarterly investor calls how that hiring translates into the kind of sustainable balance sheet growth you saw on the previous slide. In last quarter's earnings call I demonstrated how our hiring to date could yield approximately $19 billion in loan growth that would materialize over the next five years, again with no further hiring and irrespective of tariffs, Fed rate moves, general economic conditions and so forth, simply based on the continued consolidation of relationships by the relationship managers on our payroll at that time. And third quarter 25 is just another quarter on that march with third quarter linked quarter annualized growth rates of 14.5% for non interest bearing deposits, 10.6% for core deposits, 8.9% for loans, 31.5% for revenue and 54% for adjusted EPS. So for those who wondered whether we could sustain momentum post merger, I hope we've at least put that question to bed. Annual FDIC data were released in the third quarter which make clear not only the success that we've enjoyed over the last decade, but why we were so optimistic about the future. We've long targeted the market share leaders in our markets. Here you can see the magnitude of their vulnerability given up over the last decade. As noted in the red circles, 10.3% in Nashville, 15.1% Chattanooga, 13.9% in Knoxville and 16.7% in Memphis. That is major vulnerability. And then across the bottom in the blue circles you see the incredible effectiveness of the Pinnacle model in the same time period picking up another 3% in Nashville where we enjoy the number one rank and not by a little, but by a lot. 8.4% in Chattanooga, 7.8% in Knoxville and 5.1% in Memphis. Hopefully this illustrates our excitement about the ongoing matchup, our ability to continue rapid balance sheet growth and ultimately to produce outsized revenue and EPS growth. And here you're looking at the same data across other southeastern markets where you can see fundamentally the same competitive vulnerabilities. Along the bottom row you see the magnitude of the vulnerability we're attempting to seize from those share leaders that we target. Look at these markets like 11.9% share loss in Greensboro, North Carolina. 11.9% share loss in Raleigh, North Carolina. 10.8% share loss in Greenville, South Carolina. 9.1% share loss in Charleston, South Carolina. 12.1% share loss in Atlanta, Georgia where post merger we'll have the number four market share position. Honestly, that is one of the things that excites me most about our combination with Pinnacle Finl Partners. When you combine that FDIC data with the Greenwich data, demonstrating the differentiated service level that Pinnacle provides when combined with Pinnacle Finl Partners, you can see why we believe that we'll be the fastest growing, most dynamic large regional bank in the country. Here you're looking at Greenwich data for businesses with sales from 1 to $500 million. In the legacy Pinnacle footprint, North and south, we're plotting market share. East and west, we're plotting net promoter scores. Obviously the goal is to get to the top right quadrant. So the first observation is that with this merger we will have arrived. Combining Pinnacle share with Sonova share and our existing footprint puts us on the heels of the three market share leaders which are in the top left box. That's a 8% share position, lead share position. And that leads to the second, even more important observation, combining Pinnacle's net promoter scores with Cenovus net promoter scores. In our footprint, we retain the highest net promoter score. And all of that leads to the third and single most important observation. This merger is unique in its ability to run a differentiated service model, literally the best, with a combined net promoter score near 80. And we'll be competing against banks who amassed great share in previous decades, but who have lost engagement of their clients, some with net promoter scores in the 20s, making them likely to continue giving up share, particularly to a bank like ours with similar mass in the market, but with a meaningfully differentiated service level. In my career, I have never seen a more advantaged competitive position than the. One we'll enjoy post merger. I recognize some have been concerned about a loss of momentum post merger announcement. As you saw earlier, there was certainly no loss of momentum in terms of financial performance. And here you can see there was no loss of hiring momentum in Q3 hiring almost exactly the number of revenue producers as we hired on average in the first two quarters of 2025 pre announcement and consistent with the quarterly run rate over the previous four quarters. Interestingly, the kill rate on job offers, meaning turning job offers into hires, it remained unchanged post announcement hiring 91.5% of those that were offered jobs in the first two quarter pre announcement and 91.6% in the third quarter. And so from 30,000ft drawn on mark Twain, rumors of our untimely demise were greatly exaggerated. Our flywheel continues to spin and when you overlay this model on the Synovus franchise, the growth of revenue producers and therefore the growth in revenue should be extraordinary. So with that let me turn it over to Harold for a detailed look at the quarter.

Harold - (00:09:23)

Thanks Terry. And I guess Mark Twain as well. There you go. Good morning everybody. We will again start with loans End of period loans increased 8.9% linked-quarter annualized a little less than we anticipated, but still a strong effort by our relationship managers. One that does not cause us to think any less about the fourth quarter. As our fourth quarter pipelines and quarter to date results are in great shape, we will continue to lean on our new markets and new revenue producers to provide the punch for our loan growth given third quarter results and fourth quarter pipelines, we've adjusted our end of period loan outlook range to consider 9% to 10% growth this year. We're also pleased with how our loan yields performed during the third quarter. Although the lift from fixed rate repricing is not as opportunistic as it once was, we will anticipate continued lift in fixed rate loan rates. Loan yields should decrease in the fourth quarter consistent with fed funds rate decreases, but these decreases we believe will be at consistent betas and obviously we will offset these decreases with corresponding decreases in deposit rates. EOP deposit growth came in at 6.4% linked-quarter annualized over the years. We typically experience more deposit growth in the second half of the year than the first half. As a result, we are increasing the low end of our estimated growth rate for total end of period deposits to 8% and maintaining the high end at 10% in deposit growth for 2025. As we highlighted in the press release last night, we are very excited about the performance of our non interest bearing deposits and the growth we have seen this year. To see the rebound in those dollars this year is very much a tailwind in our spread income as we head into the fourth quarter and 2026. Many thanks to our revenue producers, treasury professionals and specialty deposit units for all the hard work getting these very valuable operating accounts. We're also very pleased with how deposit pricing has performed thus far and how both of our loan and deposit betas have performed through the current rate cycle. We anticipate our betas will remain consistent given we anticipate incremental rate cuts in the fourth quarter. We anticipated a modest increase in Net Interest Margin (NIM) in the third quarter, so we're pleased that our Net Interest Margin (NIM) finished up 3 basis points at 3.26%. Our outlook for the fourth quarter of 2025 is more bullish as our Net Interest Margin (NIM)S should continue to increase with the anticipated two additional rate cuts. As to our 2025 outlook for net interest income, we have increased our estimated growth range for net interest income and now believe our growth outlook will approximate a range of 13 to 14% over 2024 results. Obviously, any surprise federal funds rate decisions and the slope of the yield curve will have influence on how all of this plays out for the remainder of this year. As to rate cut, we've modeled out many scenarios and again feel we're in pretty good shape to manage through most freight forecasts that are talked about in the markets today. Our current federal funds rate forecast contemplates a rate cut in October and another in December. At this time, we do believe more rate cuts are helpful, but given the timing, we believe whatever might happen otherwise will not have a substantial impact on our anticipated 2025 results. As to credit, our net charge offs decreased 18 basis points in the third quarter from 20 basis points in the second quarter. For the full year 2025, our net charge off outlook is unchanged as we estimate net charge offs for 2025 coming in at approximately 18 to 20 basis points. We've increased our estimated 2025 outlook for our provision to average loans to 2627 basis points. This increase is partially attributable to the increase in our reserve for unfunded commitments. That increase is very much volume related and consistent with increased outstanding unfunded lines of credit issued to our borrowers in the third quarter. A Quick Word about BHG BHG had an exceptional third quarter providing fee revenues to us of over $40 million. Production was again strong in the third quarter. Credit losses also were improved third quarter compared to second quarter off balance sheet loan sales were at spreads in excess of 10%, while margins for owned balance sheet loans are now in excess of 11%. Now that said, we are anticipating BHG's fourth quarter results to be less in earnings than the third quarter for the fourth quarter, we are estimating BHG's results should contribute approximately $30 million to our noninterest income. Given these matters, we and BHG are both comfortable in raising our earnings estimate for BHG earnings growth in 2025 to approximate 85 to 90% growth over the results reported in 2024. Several factors are contributing to this decision stronger production lead flow, great spreads, better credit performance and better operating margins, all of which should point to what should be a very strong year for BHG. Lastly, to our outlook for 2025 I mentioned much of the information on the slide again. The investments we've made in our new markets and our hiring success are the building blocks we will lean into in order to position us for top quartile growth in EPS and tangible book value per share amongst our peers. As to non interest income, banking fees and wealth management are performing well along with BHG's estimated growth this year, we are comfortable increasing our guidance for non interest income from 12 to 15% growth to now 20 to 22% growth this year. As I mentioned previously, BHG will likely approximate $30 million in the fourth quarter and make up most of the overall variance between our third quarter and fourth quarter. Anticipated Results as to expenses, Our prior outlook reflected 115% of target award for our associates which now given our more positive outlook for the year, we are increasing to an anticipated 125% target as of September 30th. Through all of that we are modifying our total expense outlook to a range of $1.15 billion to 1.155 billion for estimated expenses for this year. As the slide indicates above, we are projecting an effective tax rate for 2025 in the low 18% range which will basically be consistent with last year. Now as to PPNR and summing all of that up, we look at our fourth quarter PPNR excluding BHG and merger cost. We think fourth quarter will be flat to up from the third quarter and as to year over year PPNR we think we'll be in the 7 to 8% range in growth even as all the uncertainties around rates and tariffs play out. We are confident that 2025 will shape up to be one of the best years we've experienced in our 25 year history and provides a great deal of momentum as we prepare to head into 2026 with our new partners at Synovus. If there's anything investors know about us, it is that we are very competitive and we love to prove things to the doubters all of our associates are in for a lot of work next year. But also in my opinion, all of these associates will have a lot of fun as we continue to hire more people, grow revenues and grow earnings as we work to build the Southeast Growth champion. With that, I will hand it back over to Terry.

Terry Turner - President and CEO - (00:16:46)

Okay, thanks Harold. Speaking of building the Southeast Growth Champion, when we announced the deal, we disclosed the compelling financial and client centric metrics for this transaction, literally peer leading, growth and profitability. We also talked about the stark contrast between this deal and others as a result of doing the hard work to hash out critical decisions pre merger. For any of you who've been through this kind of thing before, you know that to have decided on exactly what the ongoing go to market strategy would be, the specific model that we'll run, to have selected the ongoing brand pre merger to have made and clarified for the whole organization, one ongoing long term CEO to have already determined the core processor. Those pre merger decisions have indeed been powerful in terms of propelling the integration of these two great firms. We were able to move quickly, we finalized all the key leadership positions. Having now pushed it down three levels into the organization, we were able to evaluate, make most key system decisions, though not all have been finalized and announced. As we complete negotiations with various systems from providers, mail the proxy materials and undergo pre merger exams by the Fed, and we're rapidly progressing through the final milestones toward an anticipated first quarter close, including holding the special shareholder meeting on November 6, completing the entire org chart literally down to each individual by November 10th and ultimately closing sometime in first quarter. I suspect that I have yet to convince everyone of the power of the merger with Synovus, but I expect you'll recall when we announced the deal, we showcased our projections for ongoing revenue and EPS growth, profitability and so forth. Virtually all key metrics were peer leading or number one. It seems to me the only reason you wouldn't want to own shares in that company is that you need to see it to believe it. And so it's my hope that our third quarter performance and continuing hiring momentum has delivered the first privilege operator. With that, we'll stop and take questions.

OPERATOR - (00:18:52)

Thank you, Mr. Turner. Everyone, the floor is now open for your questions. If you'd like to ask a question at this time, please press Star one on your touchtone phone. Analysts will be given preference during the Q and A. Again, we do ask that when you ask your question, please pick up your handset to provide optimal sound quality. Your first question is coming from Jared Shaw from Barclays Capital. Your line is live.

Jared Shaw - Equity Analyst at Barclays Capital - (00:19:20)

Hey, guys, good morning. Thanks for the question. I'm just looking at slide 11 and the pace of hiring by revenue producers and the success rate of the offer acceptance rate as we go forward and we look at the company as a pro forma company. You reference the ability to add 300 RMS, I guess. Are there 300 RMS that fit the Pinnacle model out in that market? You know, what, what type of increase in the pay should we expect, you know, as we. As we look at 26 and 27?

Terry Turner - President and CEO - (00:20:01)

Yeah, I think on the question of are there 300 in the market? There may not be 300 in the market right this minute, but there'll be 300 in the market over time. And all I mean by that is when we hire people, it has not been uncommon in our history to hire somebody from another bank, have that bank backfill with somebody else, and we go. Back three or four years later and. Hire the person that they backfilled with. And so again, I'm not concerned about will there be enough talent to hire. I think, Jared, if I could say this, you didn't exactly ask this, but I know a lot of people have questions about the competitive landscape. Are you going to be able to keep hiring people and so forth. Jared, I think you've heard me answer that question. I've been asked that question since 2002 when we first were listed on NASDAQ. I get asked that question all the time. Every year we keep hiring at record paces in terms of the people that we hire. And the point of that is, the more people that you do hire, the more people that you can hire. And that's a really important idea we got. I'll use the. Having grown up in Georgia, I'll use the standard phrase. We got the carpetbaggers coming to the Southeast who don't know, don't have people use traditional hiring models, all that sort of stuff. Our approach of using the people that we've hired to lead us to others to hire is, I think, time tested in a competitive landscape there in terms of the incremental hiring. You know, the biggest part and one of the great excitements to me in this transaction is to overlay this model, which I think is running, hitting on all eight, overlay this model on the Synovus footprint. And I know Kevin is fired up for the same reason. They've done an extraordinary job compounding EPS growth, the movements toward revenue producers. I think they had a commitment to hire roughly 45 relationship managers a year was the previous commitment. They had. Had. And so we think that'll accelerate by 35 to call it 80 a year in that footprint. And so again, that's the magic is to put this model on that footprint, gen up the revenue growth to match what happens in the pinnacle footprint. And not only ought that to grow the earnings, but it ought to grow the multiple as well. So that's the game plan.

Jared Shaw - Equity Analyst at Barclays Capital - (00:22:37)

Okay, thanks for that color. And then just shifting over to bhg. Obviously it was a great quarter there and guidance for still a strong quarter and fourth quarter, I guess. How does the bigger pro forma balance sheet or does the bigger pro forma Pinnacle balance sheet change the thought process on what the best use case of BHG is? And do you expect the pro forma balance sheet to maybe hold more BHG loans?

Harold - (00:23:11)

Yeah. Jared, this is Harold. I'll take the first question. I'll take that question. Let Terry talk about what might happen in the Future. I think BHG's growth is going to be consistent going into next year. Their quarterly run rates right now have improved meaningfully over the last four quarters. So I think there's a great deal of opportunity available to the new Pinnacle as it goes into 2026. I don't think Synovus or Kevin. I'll say it better this way, Kevin, Jamie and the leadership that'll be at the new pinnacle has any different approach towards BHD than we do currently. So I think there's a lot of options available to us with respect to BHG right now. They seem to be all positive.

Terry Turner - President and CEO - (00:24:00)

Yeah, Jared, I would just say I think the optionality is as high today as it's been in a number of years. To Harold's point, you got rapid growth, which is good if you hold it, but it also increases its attractiveness to potential acquirers. And I don't think there's been any noticeable change in our partners. I think we've said for some time we expect them and see them more interested in a liquidity event today than what they have expressed in years gone by. So anyway, I think we're just exactly at the same spot we've been at.

Jared Shaw - Equity Analyst at Barclays Capital - (00:24:40)

Great, thank you.

OPERATOR - (00:24:44)

Thank you. Your next question is coming from Kathryn Kneeler from abw. Your line is live.

Kathryn Kneeler - (00:24:51)

Thanks. Good morning.

Harold - (00:24:53)

Hey, good morning.

Kathryn Kneeler - (00:24:56)

Just one follow up on the BHG question. Is there any reason to assume that that was amazing growth this quarter? We got one coming this quarter for BHG earnings. Is there. I mean, is it fair to still assume growth in BHG into 26 relative to kind of the record levels we're seeing in 26, clearly not the 80 to 90% growth rate. Right. But that'll moderate. But just is there any reason to assume, to not assume that we shouldn't still grow BHG next year off of these levels?

Harold - (00:25:26)

No, it'll grow. I think the quarterly run rates will be consistent going into next year as far as call it the third and fourth quarter. And I think there will be a more reasonable growth path once you annualize call it the third and fourth quarter going into 2026. So I mean, it'll still be an outsized year over year number, but they're real excited about the way the production flows are coming in. They're real excited about the appetite for their volumes and they think they can, they can, you know, continue to kind of move this franchise forward.

Kathryn Kneeler - (00:26:05)

Okay, great. And then fee income, just even separately from BHG was really strong at both Pinnacle and Synovus this quarter. Is that, would you, would you say that that is encapsulated as we think about the merger slide deck and you know, kind of looking towards that 1160 kind of pro forma 2070 PS like, is this kind of strength in fee income reflected in that or is this even coming in better than you would have expected as you think about that pro forma run rate?

Harold - (00:26:40)

Yeah, I think. And we got to listen to most of the Synovus call this morning. I think Jamie described it well. The areas where we complement each other are really good and strong. And I think when you merge these two questions, there's two companies together, you get the strength at Synovus in these various fee areas and you match it with the strength in Pinnacle in our various fee areas. I think there's going to be a lot of opportunity to put some real tailwind into some of this fee revenue going forward, whether it be around wealth management or capital markets or wherever. We think we're going to be able to approach the market with a lot of strength once we kind of push these two companies together.

Terry Turner - President and CEO - (00:27:29)

Catherine, let me add Harold's comments. I echo his thoughts on the potential revenue synergies. We'll get in a position soon to sort of quantify those for the marketplace. But again, my belief is we've got very strong revenue synergies. But more to your question about so what's the current run rate? How does that impact what the original case that we discussed when we announced the deal and I think, you know, that merger model is just built on what consensus estimates were. And I can't say I've always that 100% of the time I beat the consensus estimate. But I don't think there's ever time I didn't think I was going through or intended not to beat the consensus assessment. So my only point about that is that, yeah, our expectation. My expectations to run faster than consensus estimates, and I think this growth rate that you're seeing right now would be still higher than the plan that we had laid, which would be higher than consensus. So at any rate, I do think there's a lot of momentum in fee income as it relates to the original projected growth.

Kathryn Kneeler - (00:28:45)

Yeah, perfect. That's what I was hoping and assumed you would say. And, yeah, you do have a history of beating consensus, Terry. All right, great. Thank you so much.

OPERATOR - (00:28:55)

Thank you. Your next question is coming from Anthony Elian from JP Morgan. Your line is live.

Anthony Elian - Equity Analyst at JP Morgan - (00:29:02)

Hi, Terry. On hiring, I'm wondering if anything will change on Legacy Pinnacle's hiring strategy post deal close, given the organization will be doubling its assets.

Terry Turner - President and CEO - (00:29:13)

Right. So I know on slide 11, you're forecasting another strong year for hiring next year and in 27, but what gives you confidence that the existing strategy you've had in place for two decades now will continue to be successful after you close the deal? Tony? I think I'd turn it around the other way if I could. I mean, what would keep it from being successful, I guess is really a better question. You know what we do? We hire people. When we hire those people, we poll them on who else do you know that's really good where you work and who would fit in in this company. Will you help us recruit them because they fall in love with this company? I cannot imagine what would interrupt that cycle. As I said earlier, the more people that we do hire, the more people that we can hire because of the way we go at it. It is a wildly different, starkly different model than what all of our competitors do for recruiting. Most of those people will rely on headhunters. Most of those people will have a big recruiting function as part of their HR operation. Most of them resort to the stack of resumes that have been sent in by. Been sent in by unhappy, unsuccessful people. Most of them are hiring out of a pool of applications. We of folks that came in to apply because they were unhappy, unsuccessful somewhere else. And so it's just a different model altogether. But I'll just have to be honest. I cannot see what would interrupt it. You know, I think you've seen the slide that we put out in the 8k at the time we filed the registration statement, but we talked about the Skepticism when we did the BNC transaction. And these numbers won't be exactly right, but they're close. I would say we were probably an $11 billion bank or something on that order. BNC was a 7.5 billion dollar bank when we made the acquisition. And there was near universal skepticism about our ability to continue the model on this bigger footprint, bigger asset base and so forth. And so you've seen the numbers. We hired the heck out of people. We compounded the balance sheet at a double digit rate and we outperformed the KRX two times from the date of that announcement. And so again I get the question, cause it's the same question I have faced so many times. But again I would just turn around and say, hey, I don't see what would interrupt it.

Anthony Elian - Equity Analyst at JP Morgan - (00:31:54)

Thank you, Terry. And then my follow up on bhg. What specifically drove the growth in originations in the third quarter? And given the strong results on both. Originations and credit in 3Q, what's driving the expected decline in BHG income in 4Q to 30 million?

Harold - (00:32:10)

Thank you. Yeah, Tony. As far as the third quarter growth rate, it was just merely about production and they do business with several credit aggregators. They run them through the BHG filter and so that's what the primary the growth rate came from. There was also some holdover inventory from the previous quarter that facilitated that. Their demand for their product is extremely high right now. Not only from the community bank network but from institutional buyers. As to the fourth quarter, I think that's a little bit of caution for us. We, we believe that as they head into the fourth quarter, they're a private company. I'm sure there's going to be some year end kind of things that they're going to want to do, but they believe their production will be as strong going into the fourth quarter. So we're kind of putting a caution flag up for the fourth quarter because we just believe that there might be some, call it personnel cost and other things that come in in the fourth quarter to cause us to be a little more cautious.

Anthony Elian - Equity Analyst at JP Morgan - (00:33:24)

Thank you.

OPERATOR - (00:33:27)

Thank you. Your next question is coming from Steven Scouten from Piper Sandler. Your line is live.

Steven Scouten - (00:33:35)

Hey, good morning everyone. Appreciate the time. So, wanted to go Back to Slide 9. This feels like the whole story to me. I love this slide. I feel like it proves a great point. I mean is that the right way to think about it? Like the right side of this slide. In particular the expansion markets and who knows, like we might see some of these banks in here go away as well, which could even only increase the opportunity. But you guys have this now established stability over the next at least handful of years, whereas there's still dislocation and the opportunity for you to take a bunch of market share. Can you kind of confirm that for me? Maybe, if that is, as I see it, the whole story and really how you think about that opportunity set.

Terry Turner - President and CEO - (00:34:18)

Yeah. Steven, thanks for the question. I have said for a long time, anytime I'm trying to orient a new investor to our company, I'll talk about the markets that we're in, the size and growth dynamics and so forth, because as you know, all these markets up here, if you, you know, you go look at the household income growth or the population growth or whatnot, I mean, they're the best markets in the United States in terms of size and growth dynamics. But you're on the right point. What is more important and what drives the revenue engine of this company is the market, market share takeaway opportunity that exists. The people that dominate the market are giving up share at a dramatic pace. And so, yes, that's exactly what we're trying to do to seize that vulnerability. If you think about getting up there into the top right quadrant, man, that's a dream of a lifetime for me. I've been fighting 25 years to get into that top quadrant. And we're here. And when you look at the share position, the mass that we have in the Southeast, man, we're in the hunt. Two of the market leaders are at 9%, we're at 8. And our net promoter score combined with sonova's is near 80, and theirs is near 20. Man, you probably wish you hadn't asked the question. You can tell I get wound up about that. That is the opportunity that this company has.

Steven Scouten - (00:35:43)

I'm just wondering if Kevin's going to be able to get you to step back at all in two or four years at all. That's really the question. Feels like that excitement is real, that opportunity is real. So that's. That's a great answer. I appreciate it.

Terry Turner - President and CEO - (00:35:54)

I would say that that'll scare him to death.

Steven Scouten - (00:35:59)

That's a good fear. I like it. And maybe like on the flip side of this, I mean, everything sounds like it's going great. You know, the deal sounds like it's on schedule. This is maybe a stupid question because I don't hear it, but is there anything that is an incremental risk at all? Is there anything that you're worried about as you've gotten into this or anything you're like, if if something were to crack, this is where my energy is focused, or is it really just, hey, man, we're on the offense and we're just full steam ahead?

Terry Turner - President and CEO - (00:36:32)

Steve, that's a great question. I think in terms of broad risk categories, like is there something that we're discovering on the balance sheet, or is something happening from a competitive or regulatory standpoint that would cause us to feel different in any way? I don't think there's anything there. Everything we've encountered thus far is really on the positive side of the ledger. I wouldn't want you to walk away and say, hey, man, it's just all roses there. You know, man, this is hard work. I wouldn't want anybody to think it's not. We are working extraordinarily hard to get these companies put together to protect our people, the existing revenue producers that we have. And I think you saw there. We still run a 93% associate retention rate, which I'm proud of, but it's. Hard work for sure. But in terms of the financial outcomes and the client centric outcomes that we believe in when we announce the transaction, I'd say I'm more convicted as opposed to less.

Steven Scouten - (00:37:34)

That's great. And maybe just one last follow up on what you just said, Terry, and forgive me for not looking this up, I know you used to put it at the bottom of the. Of the press release, but that employee retention, like, as memory serves me, it's always kind of floated in this 91 to 96% range for years and years. So that's pretty consistent with what you guys have delivered on over the long term, correct?

Terry Turner - President and CEO - (00:37:56)

Yeah, I would say. Somebody just said, terry, give me a band to where it's been over a decade. I'd say 93 to 96%, sort of where it operates. And so, yeah, the associate retention rate over the last 12 months was 93%. The associate retention rate the first two quarters of this deal prior to the announcement was 93%. Third quarter is 93%. So, yeah, it's solid.

Steven Scouten - (00:38:26)

Fantastic. Thanks for all the time and congrats. On all the progress. All right, thank you, Stephen.

OPERATOR - (00:38:32)

Thank you. Your next question is coming from Brett Rabitan from Hovet Group. Your line is live.

Brett Rabitan - (00:38:39)

Hey, guys. Good morning. Thanks for the question. Wanted to first go back to the. Margin, and in the slide deck, you referenced margin tailwinds, and I think, Harold, you said you think the 4Q margin. Will be a little stronger.

Harold - (00:38:54)

Can you just talk about the tailwinds as you see them? Is that primarily on the deposit Beta side and just anything else you would say about kind of the dynamic with the margin as we go into 4Q. Yeah, Brad, I think the, the three things that we look to as far as a tailwind for the margin obviously is debate on the deposit side and we, we consistently, we've got significant room. Yet to go as the Fed rate. As the Fed lowers rates, the growth in these non interest bearing deposit accounts we think is very impactful and also how we reprice these fixed rate credits. So we're still seeing a meaningful lift in that book. A matter of fact, I think we have a negative beta in our fixed rate loans right now and anticipate that to continue. So those three things are the primary things. I know a lot of people believe that it's what's that movie Field of Dreams where you just build it. They'll come. There's a lot of work going on to maintain these margins and to increase these margins. And so a lot of relationship managers are out there working to make that happen. So it just doesn't happen automatically is what I'm trying to say. Okay, that's helpful. And then the other question I was.

Brett Rabitan - (00:40:09)

Around strong DDA growth in the quarter and I think obviously some of that was related to specialty deposits. Can you talk about that dynamic? How much of that was maybe specialty deposits? And then as we think about those specialty businesses, you know what kind of share you're at in those businesses. And is that something you can continue to grow at the pace you have?

Harold - (00:40:35)

Yeah, you know, it's like. I guess. It goes into leadership and management. For years we've been aimed at operating accounts, but over the last call it 12 months, 9 to 12 months. We put particular emphasis on the sales side about that and particularly around small business. So we've seen some great results there here in the last few months that have really kind of been again, not to overuse a word, but the tailwind for that growth.

Brett Rabitan - (00:41:05)

Okay, Harold, is it fair that that kind of pace can continue or any thoughts on.

Harold - (00:41:12)

We don't have any reason to believe we won't see continued growth in that. We typically see some seasonality going into the last quarter of the year as people build cash balances and for incentives and taxes and whatnot. But I think we'll also see absolute sales growth with respect to those operating accounts.

Terry Turner - President and CEO - (00:41:34)

Okay, you know the numbers as well as I do, but you know, so you got a 14 and a half percent annualized third quarter annualized growth rate, but I think the year to date number is 12.8 nearly 13%. So it's a pretty rock solid growth.

Brett Rabitan - (00:41:56)

That's a great point. Thanks, Terry. Appreciate it.

OPERATOR - (00:42:02)

Thank you. Your next question is coming from Michael Rose, from Raymond James. Your line is live.

Michael Rose - Equity Analyst at Raymond James - (00:42:09)

Hey, good morning, everyone. Thanks for taking my questions. Hey, I was just looking at slide 28, where you have the loan growth kind of by expansion markets versus legacy markets. And looks like you've had some headwinds in the legacy markets over the past couple of quarters. Can you just address that? And then separately, once you guys combine, I know your C and D and construction or CRE concentrations are below where you wanted to get them, but is that an opportunity for growth on a combined basis once the deal is closed. As we move forward? Thanks.

Terry Turner - President and CEO - (00:42:46)

Yeah, I'll hit a couple of things, Michael. So if you looking at that slide you're talking about there, we have several components to it, right? You got a category that's called legacy. And what that really means is not the legacy market, it is the legacy bankers in a legacy market. So it's people that probably have been here on average 20 years and they have big books of business. And so when you go through periods of slack loan demand, which we've certainly been through over the last couple of years, you get limited growth. In fact, it's hard for those guys to cover their amortization when there's no loan demand. If you get loan demand, then that becomes the increment in that category. But the way we produce the growth is through hiring, both in the legacy footprint. So, you know, again, a lot of our new hires are in legacy footprints. And so that's where the growth comes from. It's the continued market share play there. And then of course, the specialty businesses have provided a great growth engine for us over the last, I would say three years or something like that. I think as it relates to the go forward, yeah, we would expect to continue similar growth trends going forward for the foreseeable future. If we get elevated loan demand, that would be an incremental to what we intend to produce. And you're on the right track on CRE, I didn't spend any time on that. We grew 8.9% in total volume. But the drag, you had big growth in CNI, nearly 18% or something like that. But we had five hundred and something million dollars, $560 million, I think, in early payoffs in the CRE book. As you know, some time ago we decided to lower our concentration limits in cre. And so we have been about that. We've now hit those targets and we have waded back into the market. But as you know, the payoffs continue. But it takes a while for the loans that you're making today to get burn through the equity that's in front of you and get to a fund up, period. And so to get down to the bottom of the stack here. Yes, I believe CRE will be a meaningful increment to us in terms of loan volume going forward.

Michael Rose - Equity Analyst at Raymond James - (00:45:16)

Very helpful, Terry. And maybe just one follow up. And I know it's minor, Credit's been very good. But on slide 15, you did have a little bit of pickup and classified potential problems, things like that. Anything that you guys are more broadly looking at. I know there's a lot of concern around, you know, some of these structured credits, NDFI stuff. Another bank showed up in a loss position last night in another credit. But anything that you guys are just broadly keeping a closer eye on or a little bit concerned about.

Harold - (00:45:45)

Thanks. Yeah, Michael, so far we feel pretty good about where that NDFI book sits. It's a pretty granular book. I think our average outstanding to that is about $4 million per account. So there's a lot of accounts in it. We feel like that we've got our arms around it and are being more diligent with respect to all the loans that we're not the lead bank on, for sure. As to the increase in potential problems, that's primarily attributed to one credit. It's a healthcare client that we've had our eyes on for a while. They only recently put a new manager into the CEO slot there. Somebody that a seasoned turnaround specialist and not a physician. And so we think we're in pretty good shape with that one credit.

Michael Rose - Equity Analyst at Raymond James - (00:46:51)

All right, thanks for taking my questions. Thank you.

OPERATOR - (00:46:57)

Thank you. Your next question is coming from Casey Hare from Autonomous Research. Your line is live.

Casey Hare - (00:47:05)

Thanks. Good morning, everyone. So earlier today, Kevin and Jamie talked about capital, and they don't have capital ratio targets post deal, but just wanted to touch on. I know you guys have tended to run with more capital to make your clients feel better, and I'm just wondering if that dynamic will hold or does it mitigate somewhat, given you're now, you know, over $100 billion in assets?

Harold - (00:47:38)

Yeah, well, obviously Kevin and Jamie will direct traffic on that once the transaction closes, but we've not. We're not planning on any kind of additional capital strategies than what we've traditionally deployed. We need capital to support this loan growth engine, and we think that'll continue. I think one of the things that was. I Believe put forth in the merger deck is the dividend. I think ours will go up and theirs will come down. But other than that I don't know of any significant other changes. I know Jamie has mentioned several times about the capital accretion that will occur post merger. And if you know, for some reason we don't hit our growth targets, then there's a lot of opportunities to get into some buyback programs.

Casey Hare - (00:48:38)

Okay, great. And just another follow up on slide 11, the recruiting strategy. A bit of a two parter. So one, have the terms of your hires, have they been similar or have you had to maybe sweeten the economics a little bit. And then two, you guys have talked about Texas in the past, expanding there, a lot of M and A activity. There could be a market that would where your guys recruiting strategy would resonate. Well, just some thoughts. There's.

Terry Turner - President and CEO - (00:49:14)

Yeah, I think on the recruitment, current recruitment conditions, terms and conditions and so forth. I don't think there's any doubt that it is a, it's probably a more competitive hiring landscape today than it would have been 10 years ago or something like that. So there is elevated competition and sometimes that will bear on pricing. But Casey, I think one of the things that people forget, at least in terms of the way we look at it, the profit leverage on a commercial relationship manager is so wide. I would say even mediocre commercial relationship managers, you probably make something on the order of $2 million a year on you got some. You make $12 million a year in contribution. And so you know, if you have to bid up 50,000 bucks on the comp expense, it's just not a roadblock to making the hire. Again, the profit leverage is so strong. In those experienced relationship managers. Now again, you can waste your money. You can hire trainees that don't bring a book, don't have revenue and all. That sort of stuff. But again, using the model that you're hiring people that on average have 18 years experience and competition consolidate the book pretty rapidly. The, the profit leverage is so strong. I'm not fearful about the impacts of competitive pricing, but you're on the right point. It is a competitive environment out there to hire people. I think as it relates to Texas, you know, what I've always tried to say is we're focused on the Southeast because of some of the things we've talked about on this call. You know, of course if you're just looking at size and growth dynamics, those Texas markets are unmatched. They're fabulous. And you're right, consolidation will change the landscape. But the Southeast has been more attractive to me than Texas because of that phenomenon where the market share leaders are vulnerable and giving up share at a rapid pace. And to date that hadn't been the case in Texas. But you're right, as the consolidation picks up speed there, there probably will be incremental opportunities.

OPERATOR - (00:51:45)

Thank you. Your next question is coming from Brian Martin from Janney. Your line is live.

Brian Martin - Equity Analyst at Janney - (00:51:52)

Hey, good morning, guys. Hi, Brian. Say just most of mine were answered but just one question back, Terry or Harold to the CRE concentration just in terms of kind of picking up a little bit of steam there. Is your expectation, it sounds like, to still stay below those targeted guidelines even with the growth you're expecting as you get through the combination of the two companies. The pro forma company will still be below that 72.25 even with the meaningful incremental growth you expect, Terry?

Terry Turner - President and CEO - (00:52:25)

Well, I think that's generally the case. I think, you know, you might have a temporary blip, Brian, you know, measured against capital with some tangible book value. Dilution and so forth. But you know, at the start of the transaction. But it's a quick earn back and yeah, fundamentally the idea is to continue to operate at those more peer median like numbers.

Brian Martin - Equity Analyst at Janney - (00:52:54)

Got you. Okay, that's helpful. And then just on the, with the rate environment, you know, you guys expecting a couple cuts here in the fourth quarter, just the outlook in terms of. The, you know, where you're putting on. New loans and kind of where you expect those. Can you just talk a little bit about where the new origination yields are today and what you expect over the next of years? Couple. Couple quarters. Yeah. I think the best thing to do.

Harold - (00:53:19)

Brian, is see the trends over the last couple of quarters on those loan originations. I think that'll be fairly consistent. And applying the same betas and on deposits, we fully intend to kind of keep our beta numbers where they are. If not, if not, grow them over the next two, three, four rate cuts. Gotcha.

Brian Martin - Equity Analyst at Janney - (00:53:44)

Okay. All right, that's all I have, guys. Thanks very much. Thank you.

OPERATOR - (00:53:51)

Thank you. That completes our Q and A session, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation. Goodbye.