Chairman for the Carolinas & Virginia and Director, PINNACLE FINL PARTNERS INC
Pinnacle Financial CEO on Q4 earnings, real estate loans
Terry Turner, Pinnacle Financial Partners CEO, joins 'Money Movers' to discuss Turner's expectations for the company's expenses ...
About Richard Callicutt
In a September 2024 CNBC appearance, Pinnacle Financial Partners CEO Terry Turner discussed the company's incentive compensation structure, stating that 100% of salary-based associates are included in the incentive plan and that payouts are tied to hitting revenue and EPS targets. Turner noted that in 2023, a difficult year for banks, the company reduced incentives by 38%, and that assuming targets are met in the following year, the incentive expense would need to increase from 62% to 100%. He said the company believes it will grow EPS. Regarding commercial real estate exposure, Turner said the bank is "well underneath" regulatory guidelines of 100% of risk-based capital for construction credit and 300% for total commercial real estate. He attributed the health of the portfolio to strong growth in the Southeast since 2020, describing the region as the only U.S. quadrant with positive net population growth. Turner stated that the bank's internal scenario is for a soft landing rather than a serious recession.
Transcript (9 segments)
H
Host0:04
Growth guidance for fiscal '24 and announcing plans to expand into Florida. Joining us now in a CNBC exclusive, CEO Terry Turner, who oversees roughly 150 locations across the Southeast U.S. Thank you, Terry, for being here. So it appears that it was the expense guidance in particular that spooked the markets a bit. Can you share some more color on your expectations there?
T
Terry Turner0:29
Yeah, I think one of the things that's really hard for analysts that are less familiar with our company to understand is we run an incentive plan here that's different than every bank I know. Specifically, 100% of the salary-based associates are included in that incentive plan. So when we give guidance, we include that incentive payout. The way that gets paid is based on us hitting revenue targets and EPS targets. Otherwise, the incentive expense is reduced to bring earnings in line. Honestly, it seems like every year as we come out of the gates, we give the expense guidance, people will take and include 100% of a targeted incentive payout. That may account for less revenue growth and it's sometimes confusing to people. But generally, we prevail over the first quarter or two to get people to understand how that plan works.
H
Host1:24
Is it possible to generate positive operating leverage given that dynamic?
T
Terry Turner1:30
Yes, the plan would be to have positive operating leverage to grow EPS. It's our belief we will grow EPS. I think, again, one of the dynamics there, Leslie, is just to illustrate how it works. 2023 is a difficult year for banks. We reduced our incentives by 38% this year, and so that ends up being harvested into the earnings stream of the company. And so assuming we hit our targets next year, you have to get that lift from 62% up to 100%. All that said, the only way that incentive gets paid is if we've generated positive operating leverage, if we've hit our revenue targets and our EPS targets.
H
Host2:17
Terry, when the analyst community starts parsing financials these days, a lot of it is about concentration of commercial real estate on the book. They argue that you have a little bit higher than some peers. Is that a fair argument?
T
Terry Turner2:33
We have really, I think for regional banks, we're pretty well in line. Regulators use a guideline of 100% of risk-based capital for construction credit, 300% of risk-based capital for total commercial real estate. We're well underneath all of those guidelines. I think the more important thing is exactly what gets financed, where it's financed, and how it performs. All I mean by that is I watch commercial real estate reports all over the country. The markets that we operate here in the Southeast are significantly different than what I see in San Francisco or New England or some of these other markets. So I jokingly tell the investors, you need to turn the television off and come to Charlotte, come to Jacksonville. Come to some of these other markets that we operate in. We've enjoyed really strong growth since 2020, which is a very different dynamic and plays out in the health of the commercial real estate portfolio.
H
Host3:37
It's interesting that you mention that. Analysts at Piper say that your updated guidance implies no worsening of credit conditions. Is that a function of the conditions by which you're exposed to, or do you think that we have writ large avoided a severe economic scenario?
T
Terry Turner3:54
I think our internal main scenario would be that we're headed for a soft landing, but we're not looking for a serious recession, so that certainly plays through. But it is critical to understand the Southeastern markets. I think a lot of people are familiar with the population migration trends. If you divide the country into four quadrants, three of the four have negative net growth. One quadrant has positive growth, and that's the Southeast. And so these large urban markets that we operate in...
R
Richard Callicutt4:28
Thank you, Terry. That's very helpful.