Pinnacle Financial Partners, Inc. Q3 2025 earnings call

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 beaten-raised quarters. This 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 CAGRs 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. 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.

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 the double-digit 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 in Good to Great, to help crystallize for investors the sustainable momentum that we've 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, you eventually produce accelerated and sustained growth. I don't think there 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 today 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. Third Quarter 2025 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. 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 made 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% in Chattanooga, 13.9% in Knoxville, and 16.7% in Memphis. That is major vulnerability. 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. 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 Synovus.

When you combine that FDIC data with the Greenwich data demonstrating the differentiated service level that Pinnacle provides when combined with Synovus, 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. The first observation is that with this merger, we will have arrived. Combining Pinnacle's share with Synovus's 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 an 8% share position, lead share position.

That leads to the second, even more important observation: combining Pinnacle's net promoter scores with Synovus's net promoter scores in our footprint, we retain the highest net promoter score. 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. We'll be competing against banks who amassed great share in previous decades, but who have lost the 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 in Q3. 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, remained unchanged post-announcement, hiring 91.5% of those that were offered jobs in the first two quarters pre-announcement and 91.6% in the third quarter. From 30,000 ft, 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. With that, let me turn it over to Harold for a detailed look at the quarter.

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%-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. End-of-period 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're 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 NIM in the third quarter, so we're pleased that our NIM finished up three basis points at 3.26%. Our outlook for the fourth quarter of 2025 is more bullish, as our NIM should continue to increase with the anticipated two additional rate cuts.

As for 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%-14% over 2024 results. Obviously, any surprise Fed 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 rate forecasts that are talked about in the markets today. Our current Fed 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 18-20 basis points. We've increased our estimated 2025 outlook for our provision to average loans to 26-27 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%. That said, we are anticipating BHG's fourth quarter results to be less in earnings than the third quarter. For the fourth quarter, we're estimating BHG's results should contribute approximately $30 million to our non-interest income. Given these matters, we and BHG are both comfortable in raising our earnings estimate for BHG earnings growth in 2025 to approximate 85%-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're 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-$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 PP&R and summing all of that up, we look at our fourth quarter PP&R, excluding BHG and merger costs. We think the fourth quarter will be flat to up from the third quarter. As to year-over-year PP&R, we think we'll be in the 7%-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 provide 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.

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 and make most key system decisions, though not all have been finalized and announced as we complete negotiations with various systems providers, mail the proxy materials, and undergo pre-merger exams by the Fed. We're rapidly progressing through the final milestones toward an anticipated first quarter close, including holding the special shareholder meeting on November 6th, completing the entire org chart literally down to each individual by November 10th, and ultimately closing sometime in the 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. It's my hope that our third quarter performance and continuing hiring momentum has delivered the first proof. Operator, with that, we'll stop and take questions.