Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) Q4 2022 Earnings Call Transcript January 18, 2023
Operator: Good morning, everyone, and welcome to the Pinnacle Financial Partners’ Fourth Quarter 2022 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. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. During this presentation, we may make comments which may constitute forward-looking statements.
All forward-looking statements are subject to risks, uncertainties, and other facts that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Many 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, 2021, 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 the 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 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.
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That’s why our incentives are linked to them, and that’s why we show this dashboard every single quarter where you can see the relentless upward flow for those metrics, most closely tied to the shareholder returns. GAAP measures first, followed by the non-GAAP measures, which I’m personally most focused on. And if you believe that asset quality, revenue growth, earnings per share growth and tangible book value accretion mostly influent shareholder returns, which I do, then you have to appreciate the persistent excellent performance against those variables year in and year out. As I mentioned a minute ago, there is considerable noise in our fourth quarter financials, so we’re anxious to get on level details. The most impact of those items with BHG’s election to fund roughly $500 million in originations on their balance sheet, thereby deferring the income on those loans over the life of loans as opposed to directing them into their auction platform, which would have resulted in taking the gain on sale upfront, significantly increasing their and our earnings during the fourth quarter.
Nevertheless, I believe you should be able to look through to see that the core banking business continues to have great momentum. So, Harold, let’s move on and let’s walk through the quarter.
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Harold Carpenter: Thanks, Terry. Good morning, everybody. As usual, we’ll start with loans. The fourth quarter was another strong loan growth quarter for us, and we believe annualized mid-teens loan growth going into 2023 is reasonable for us, as we anticipate loan yield growth in the fourth quarter, and we anticipate further escalation in loan yields in the first quarter. Along with that, we are forecasting Fed increases of 25 basis points in February and 25 basis points in March. Our modeling indicates that loan yields will be up 40 basis points to 50 basis points or so in the first quarter. The talent we’ve added over the last several years results in extraordinary balance sheet momentum, as we’ve done over the past few quarters, we’re again dissecting net loan growth based on the categories noted on the slide to help everyone better understand the source of our growth.
It’s been a huge year for us as far as loan growth is concerned, and it works out with the new markets and our new hires contributed to more than half of our growth. That said, that represents more than just an annuity stream for interest income, those are new clients with now new opportunities for our firm (ph) all types of financial products. We are definitely in a broader footprint with new markets, but also a much deeper footprint given our model. Now deposits, really pleased to report the growth in deposits for the fourth quarter. Growing deposits at a reasonable price in 2023 is a key focus for our current environment. We are actively building out deposit gathering franchise around HSA, community housing associations, non-profits and others, and we believe we are making headway with these and other special deposit initiatives.
Our average deposit cost came in heavier at 74 basis point increase over the third quarter. Although we believe we remain inside of our total deposit beta guidance of 40% through the end of 2022, we experienced an acceleration in deposit cost in the fourth quarter above our expectations by about 15 basis points. Competitive pressure around deposit costs are significant. So, we fully anticipate that increases in Fed rates will continue to add a tailwind for increased deposit costs in 2023. Average deposit cost, we believe, may approach 1.5% to 2% in the first quarter of this year. As for mix, we are seeing deposit move more noninterest-bearing and lower-yielding interest accounts with the higher interest products and current deposits. Our average noninterest-bearing deposits were down approximately $440 million in the quarter from 3Q averages and even more based on end-of-period balances.
Our plan will contemplate this decrease to continue at a lesser pace in the first half of ’23. About 90% of our noninterest-bearing balances are commercial, with approximately 25% of that number being annualized. Over the last year, annualized commercial has dropped from around $425,000 per account to around $350,000, while non-annualized commercial has dropped from $35,000 to $30,000. Pre-COVID levels will be around $300,000 per annualized and a little less than $25,000 for non-annualized. So, average account size is still 10% or so higher than pre-COVID levels. Our number one objective remains developing strategies and tactics around funding our growth. We continue to like our chances given the significant investment we’ve made in both relationship managers and new markets over the last few years.
Hopefully, you’ll not hear this bank’s leadership ever talk about having too many deposits. Our belief is that we have and will fund our deposit growth effectively and prudently maintain the appropriate balance between profitability and growth. Now, liquidity. We believe we have ample liquidity to fund our near-term growth. As investment securities, our allocation to bonds was flattish in the quarter. We don’t anticipate any significant growth in bonds this year. As the top left chart reflects, our GAAP NIM increased by 13 basis points compared to 28 basis points to 30 basis points in the previous two quarters. As we mentioned last time, a decrease in our NIM expansion was not unexpected, although we felt like the NIM would expand in the fourth quarter by a few more basis points than it did.
Our planning assumption is our NIM will likely to be flat to down next year and likely down in the first quarter, given the first quarter is burdened by fewer days. That said, our growth model should provide for increases in net interest income. As we enter 2023, we believe net interest income guidance of the high-teens percentage growth for 2023 over 2022 is reasonable at this time. As for credit, we’re again presenting our traditional credit metrics, Pinnacle’s loan portfolio continues to perform very well. Our current ACL is 1.04%, while — which again compares the pre-CECL pre-COVID reserves of 48 basis points at the end of 2019. We did modify our CECL modeling this quarter with a more pessimistic assumption set with a baseline at 20% stagflation at 30% and with pessimistic scenario at 50%.
We continue to have conversations with borrowers about supply chain, inflation and how it’s impacting their businesses. We’ve been all about sustainable credit diligence efforts with the intent to actively identify any weaknesses in our borrowings. We continue to have a very limited appetite of new construction, whether it be residential or commercial. Thus, the growth of our construction portfolio is limited to funding previously approved commitments with no new projects being added at least through the first quarter of 2023. We also remain attentive to our concentration limits in all areas of our portfolio, particularly in CRE and the table on the bottom right of the slide details. No changes regarding our CRE appetite from last quarter. In summary, our outlook for credit remains strong as we entered 2023 from a position of strength.
So, if negative trends begin to develop, we believe we’re advantaged. Now, on the fees, and as always, I’ll speak to BHG in a few minutes. Excluding BHG, fee revenues were flattish for the third quarter. All that said, we’re pleased with the effort of our free-generating units that several units are negatively impacted by the current operating environment in a meaningful way. Obviously, residential mortgage volumes were down this year. Mortgage does see their pipelines building back modestly in the first quarter as rates hopefully will be less volatile when the spring home buying season begin. Gains on SBA loan sales are also down significantly from the third quarter, as their business was impacted by the elimination of incentive from the CARES Act, which drove more business to SBA lenders in the previous quarter.
We’ve gotten a few questions on earnings credit rates and the impact on deposit fees. So, here’s a stab at that. We have approximately $2.5 billion in annualized commercial noninterest-bearing accounts. Our current ECR is around 35 basis points is competitive. At the moment, our run rate on analysis fee with labors is about $4.5 million per quarter. For every 25 basis points, we raised the ECR that reduces our analysis fee by $400,000 to $500,000 each quarter. Our goal is to stay in the middle of our competition peer group on earnings credit rates, so we have to release some lift in the ECR that’s coming, but it will come in small bites. We had anticipated 2022 to return a high single-digit growth in fees over 2021. Excluding BHG and other non-equity investments, we believe 5% growth, and we achieved 5% growth for the year.
We think mortgage should recover modestly in 2023, and we’ve also added some strong revenue producers in Wealth Management late in 2022. Excluding BHG and the impact of other equity investments, we believe that high single-digit to low-teens growth in ’23 over ’22 in the region. Expenses came in about where we thought for the quarter. We did see non-compensation expense decline from 4Q — in 4Q from 3Q, but attributable to the reversal of franchise tax accruals with some of that being added to the tax line, so it was a reclassification between franchise tax expense and income tax expense. All in, we are anticipating an effective tax rate of approximately 20% in 2023. Our incentive costs also decreased in 4Q from 3Q. This was primarily the result of the impact of 4Q ’22 PPNR results on a cash plan, which came in below target, and overall performance metrics on the performance-based equity incentive awards, which came in below our expectations.
All of this is a segue into a few comments about variable cost nature of our expense base. We feel like our expense base should result in mid-teens growth for ’23 over ’22. As to how we can manage expenses? As I mentioned, we’ve reduced our ’22 payouts due for not achieving selected incentive targets, particularly on our quarterly PPNR targets and various other measurements when it comes to equity compensation, which is, by the way, primarily impacts senior leadership. That’s how it works. Our cash incentive plans always tied to EPS growth targets and, for 2022, it was also tied to PPNR target for each quarter. We missed our fourth quarter PPNR target, thus incentives were reduced. Our leadership equity plans were tied to results in relation to our peers, some are returnable tangible common equity, some are tangible book value accretion, some are PE and tangible book value and (ph).
So, it’s all based on ranking in relation to our peers that we think are directly linked to shareholder value, the higher the peer ranking, the better we do. We believe we have a very shareholder-friendly compensation system that is objective, not subjective, which is a meaningful variable cost component. The other element that brings the variable cost attribute to our expense growth is our hiring level. We can always back down or overrecruiting and have done that a few times in our history. I can recall once during the financial crisis and the other is during COVID. Both times, we slowed recruiting until we better understood the depth of the macro environment. Lastly, and as we mentioned in the press release, we’ve got the ability to modify, cancel and postpone various events and projects with and we will do should our targets be in jeopardy and not being achieved.
On the capital, tangible book value per common share increased to $44.74 at quarter-end, up slightly from last quarter. Our capital ratios remain above well-capitalized levels. We like our tangible common equity ratio, which was stands at 8.5% currently. We are mindful of our Tier 2 capital levels, particularly at Pinnacle Bank. We’ll be monitoring our capital levels as we get into ’23. We believe the action we’ve taken to preserve tangible book value and our tangible capital ratio have served us well and have no plans currently to alter our PNFP Tier 1 capital stack via any sort of common or preferred offering. Now, a few comments about BHG before we look at the outlook for the rest of the year. As slide indicates, BHG had another great quarter on originations, second best in its history.
Originations did decrease from the prior quarter with BHG’s implementation of a tighter credit mark, so fewer of the lower credit score loans, which are typically more profitable, were funded in the fourth quarter. As a result, spreads did come down from the last quarter from 9.7% to 8.9% as the chart on the bottom left indicates. That’s more spread shrinking than originally planned, but as the chart indicate, for several quarters in 2020, current spreads remained above or near historical norms. The accrual for loan substitutions and prepayments increased to 5.66% and 5.28% last quarter as a result of a more precautionary posture on BHG management. BHG accrual for loan substitutions and prepayments for sole loan portfolio increased from $270 million at September 30 to $314 million at December 31.
As the blue bars in the bottom right chart show, recourse losses fell slightly from 4% to 3.96% at year-end. Additionally, given the macro environment and as we mentioned last quarter, BHG also increased on-balance sheet reserve for loan losses to $147 million or 4.59% of its on-balance sheet loans from 3.53% last quarter. Of course, CECL is still on the radar for adoption on October 1, 2023. We continue to anticipate the CECL reserve to be 8% to 9%, but that certainly is an estimate at this point. The quality of BHG’s borrowing base, in our opinion, remains impressive. As mentioned earlier, BHG has modified its credit mark, particularly with respect to lower tranches of its borrowing base. This will have an impact on both production and spreads going forward.
BHG refreshes its credit score monthly, always looking for indications on weakness in its borrowing base. Credit scores were at a consistent level with the previous quarters, so their borrowers have remained resilient during the cycle thus far. In comparison to other consumer lenders, we believe BHG remains well — BHG borrowers remain well compensated with average borrower earnings being around $293,000 annually. BHG’s trailing 12-month charge-off ratio has increased from 1.98% to 2.94%. Similarly, its delinquency ratio has increased from 1.22% to 1.78%. Although these ratios are in line with early 2021 ratios, BHG recognizes the macro environment to lead to further deterioration of similar credits. In an effort to keep performance to near historical levels, BHG has made a number of credit cuts to both their marketing and underwriting models.
We believe that BHG’s management team has taken a proactive approach to managing credit as they’ve entered 2023. Lastly, BHG had another great year in 2022. As I mentioned during our earnings calls this year, we have always believed BHG’s earnings in the first half of 2022 would likely be stronger than the second half, as they set more loans to the bank auction platform in the first half of the year rather than whole loans on their balance sheet. As you know, the bank auction platform delivers an immediate gain on sale, while loans that they retain on the balance sheet and fund through various funding options deliver interest income over the life of the loan. BHG accomplished three securitization this year, aggregated almost $1.3 billion in volume.
During the last part of December, they added $550 million in new facilities with Goldman and Truist. This represents incremental funding available to BHG in 2023. A third facility for $500 million was closed in late December as well. Closing on this facility required more loans to remain on balance sheet than which otherwise had been expected. This facility was fully funded at year-end 2022. So, here’s a simple example. $100 million issuance through the bank auction platform could generate anywhere from $30 million to $40 million in gains immediately, while going through the securitization platform at an 8% spread would yield approximately $7 million to $8 million in interest income annually. In the fourth quarter, BHG set more of the balance sheet than originally anticipated with sold through the GMS model.
Again, looking forward, some key points I’d like to reemphasize which are basically the same comments I mentioned for three year — three months ago. BHG management has responded to the macro environment in a very real way. BHG is and will be increasing reserves based on macroeconomic data at least over the next few quarters. BHG has been modifying their credit model scores (ph) less risky assets with that spread shrinkage may occur as we head in 2013. Production volumes are strong, and we believe they will maintain production levels going into 2023. BHG’s new funding alternatives will broaden their already strong liquidity platform, which we also believe is unmatched by their peers. Lastly, a few weeks ago, BHG took steps to limit its headcount with job eliminations and elimination of most open positions, as well as other expense reductions, which shield — which should yield a 10% reduction in its expense burn in 2023 from 2022.
For all those reasons, we have great confidence in our partners at Bankers Healthcare Group to deliver strong results over the long term. Quickly, here’s our final initial outlook for 2023, along with a comparison of our comments on 2022, the third quarter conference call in October. We expect mid-teens growth in loans, low to mid-teens growth in deposits. This correlates to a similar outlook for net interest income, which should result, we believe, in high-teens growth in net interest income. Our plan to 2023 contemplates our NIM being flat to down for the year, which will obviously be a challenge and we need to be nimble with respect to product, especially on the cards. Fee revenues may be our biggest challenge as many fee units are facing more than their fair share of economic headwind, but we’ve had some key hires in several of these areas and are optimistic that we should see a lift from those new associates.
We believe BHG’s (ph) will be flat to slightly up for 2023. We’ve reduced our expense growth outlook to mid-teens. Our senior leaders are still committed to a strong recruiting year, especially as it pertains to revenue hires. Asset quality, we believe, is in great shape currently, and we believe we are entering the year from a position of strength, which should be a great thing should negative trends begin to develop. We are putting the final touches on our strategic and financial plans for 2023 with just as many unknowns now as they were last year, but our goal remains the same; top quartile earnings performance no matter what gets thrown at us. With that, I will turn it back over to Terry.
Terry Turner: All right. Thank you, Harold. There’re two things that I hate, and I know most of you do as well. One is noise in the numbers. In my opinion, no one just forces discussion to be around trying to create clarity about the noise and take focus off the underlying ability to produce outsized shareholder returns, which, of course, where I think the focus should be. The second thing I hate is economic uncertainty. So, frequently it forces investors to the sidelines regardless of the potential for shareholder value creation. And so, I will take just a minute to ensure understanding how we intend to produce outsized shareholder returns regardless of whether BHG (ph) balance sheet more loans regardless of the economic uncertainties that persist, come what may.
It’s not lost on anyone on this call that there’s a broad sentiment that we’re headed into a difficult economic landscape. Greenwich’s long survey commercial executives as to their view of the direction of the economy going forward. Their optimism index is simply a net score of deposit less or negative. And as you can see here, commercial executive has not been so pessimistic since the great recession. The economic headwinds bearing on commercial banks are widely known and include shrinking money supply, which means a shrinking deposit pool, increased rate-based competition for deposits and inverted yield curve, inflation and, ultimately, a recession, just to name a few. And there’s no doubt that the banking business is subject to the economic environment.
But our growth model is more a function of our ability to take both talent and market share, and therefore, is substantially less dependent on short-term interest rate movements, inflation ups and downs and those kinds of things. And we literally have been pursuing this model for 23 years. So, frankly, it’s just hard for me to understand our competitors who’ve not been building this differentiation can either catch up or defend against it, it is the classic sustainable advantage. Beginning with the far right, objecting is total shareholder returns. Here you can see the dramatic outperformance over the last 10 years. Generally, that would be true if you look at our first 10 years of existence; true, if you looked at our 10 years of existence; true, if you looked at our first 20 years of existence.
And while past results are no guarantee of future performance, I believe it will be true over the next 10 years, because this model is intended to produce value through thick and thin over the long term. The reason I say that is because we built a demonstrably different client experience. Every banks say they give great service. In our case, it’s our clients who say that. And they tell that to the independent researchers that prepares the data not only for Pinnacle, but for virtually all of our competitors. You can see in the center of the chart that our clients’ engagement with this firm is literally unparalleled. And at the risk of oversimplifying, that differentiated service is largely contingent on our ability to excite and engage our associates.
I’m not going to read you the list, but to say it simply, in 2022, we’ve been rated as the best place to work in virtually every market we operate in; and on a national scale, we’ve been ranked as the second-best workplace for women and the seventh best workplace for millennials in the country. We excite and engage our associates. So, it’s just hard for me to imagine that competitors who’ve not been building this over an extended period of time will be very successful, either taking our associates and clients or stopping us from taking theirs. Moving on to the advantaged markets. Using the United Van Lines’ Movers Study, the Southeast continues to attract people from all over the country. Our challenge is to find a bank with a more advantaged footprint than ours in terms of population migration and growth.
And then as it relates to our chosen footprint, we operate in the vast, vast majority of the large high-growth urban markets. So, we’re located in the most advantaged region of the country. And within that region, we’re generally located in the largest and fastest-growing cities. Moving beyond incredibly attractive size and growth dynamics of our markets, frankly, the more important attraction is the competitive landscape. Given the Net Promoter Score is the best indicator of a bank’s ability to protect or expand market share, beginning on the left, according to Greenwich’s national study, despite all their investments in technology, you can see scores are horribly low for the national franchises, slightly better while defining at super regionals, and not surprisingly better while defining the community banks.
Moving to the right, you can see the Pinnacle stores are unmatched and getting better. I fully expect that gap to widen as the industry adopts a work-from-home platform, while we operate a work-from-office platform primarily for the purpose of further differentiating our service level. (ph), that’s what we’ll do. Keep in mind that Net Promoter Score measured clients’ willingness to recommend. So that’s how you continue to grow safely in the face of a declining economy. And speaking of the competitive vulnerability, never in our existence, I remember a time when the banks that have the bulk of the share in our markets were more likely to give it up than now. Here’s a smattering of recent headlines in our markets regarding our competitors. My goal here is not to spare them, but simply to crystallize the sustainability of our ongoing market share taking for both associates and clients.
And here’s further demonstration of our winning war for talent. I believe we’ve become the employer of choice for bankers that are frustrated with the large bank employers in our markets. It seems like every year, we set a new record for hiring many of the most experienced and successful revenue producers in our markets from those banks that still have the largest market shares. And when they work in a company that despite of bureaucracy and is universally focused on wining clients, these revenue producers create literally the best experience in the market. Now to the label point, but the three banks on the left of that chart are the market share leaders. So, I could expect anything from us but rapid growth over the long term, complete (ph) to economic conditions when you recognize that those banks are where most of our revenue producers come from, and you see the differentiated service that they’re now able to provide.
Here’s another way to visualize that opportunity. Banks above the crosshairs have share dominance. Banks to the left of the crosshairs are least successful engaging their clients, they’re vulnerable. Of course, banks to the right of the crosshairs are most successful in engaging their clients and best positioned to capitalize on those competitive vulnerabilities, PNFP being the most advantage against the market share leaders, all of them look vulnerable. Most has been written about the competitive advantage is being created by the tech spend at the nation’s largest banks. And in Greenwich’s study of the national franchise, you can see sure enough, there is a strong correlation between clients’ perceptions of a bank’s digital capabilities and a client’s willingness to add them as a bank provider.
But according to Greenwich, in our markets, the best overall digital experience is being provided by Pinnacle, the best product capabilities, the best service professional, the best overall experience. Thinking about long-term shareholder value creation, Greenwich research is long isolated the three pillars on which client loyalty is built: number one, value in long-term relationship; number two, ease of doing business; number three, a bank you can trust. Over the last couple of years, they’ve actually expanded to a fourth pillar, which is data and analytics-driven insights, a key area of investment, again, for those largest competitors. But again, in our markets, we dominate all four of those metrics, further indication that our net growth of clients is likely to continue.
And now I’m trying to connect the dots. I recognize many, associate engagement, client service, they have little or no bearing on earnings and shareholder returns. Some things is expenses to be cut, but hopefully, this slide can connect the dots for you on why we believe our growth should be insulated from economic conditions, because the people we hire and the service we give, very few clients would consider leaving and a great many intend to add us as a provider on their next product (ph). As you scan up and down those net momentum percentages for the banks in our market, irrespective of economic conditions, our net momentum is huge. In the case of small businesses, more than twice as much as the next best competitor. And in the case of the middle market, total dominance, particularly when you compare it to the market share leaders, the top three banks on both of those charts.
Without understanding our unique approach to penetrating the market, largely by hiring experienced bankers, enabling them to be easy to do business with, draw a completion that if it’s growing like a weed, it is one. So, many of our competitors are out prospecting for new clients by circulating ton of brand list or some other prospect list, trying to be the prospect to borrow money. I would say, even slow growers, that’s typically how it is done, and you can see here, according to Greenwich, we’re dead last in prospect calling. As previously discussed, we’re not out trying to meet clients loan money to, we’re simply supporting our relationship managers and calling on the clients that they’ve known them by many times for decades. We believe that strategy provides us with better protection than our peers in the event of credit terms.
So, Q4 was a noisy quarter. Economic uncertainties are bound. My encouragement is to keep the imposes on the right to level. As it relates to BHG, the fundamentals remain strong. Originations were the second highest in their history. They’ve restored their loan book and score has not deteriorated again, and gaining strength in the loan book. They continue to add liquidity sources and utilized those liquidity sources many — from some of the most sophisticated investors in the market. And at the end of the day, nearly $300 million in pre-tax earnings, 22% growth over prior year, it’s an incredible story and continues to be a handsome asset. Beyond that, and I think this is most important to me, we run a core banking franchise that continues to dominate and continues to have momentum regardless of what the circumstances are.
We compete in the advantaged Southeastern footprint. We have a cultural focus that results in a differentiated client experience, and there is no more sustainable advantage than that. Our organic growth model, we’re having proven successes that resonate throughout our markets. One of the best loan growth stories in the U.S., one of the best tangible book value growers in the country. From a credit perspective, we’re top quartile in terms of NPAs, the loans and OREO, clearly, the place you want to start, if credit does turn. And then, lastly, I’ll just hit on the slide there. Harold has talked about it a little bit, but I think an important consideration as people begin to focus on how we get to 2023 estimate set, has to do with our compensation systems, high those goals are set, particularly as it relates to the leadership compensation.
Specifically, those incentive plans focused on tangible book value generation, making some insight to why our tangible book value grew at the pace it did versus peers in ’22. We do a peer relative target setting, so we have to outrun the peers. As Harold has indicated, we’re looking for top quartile performance on things like EPS and revenue growth in 2023. As many of you trying to develop those 2023 estimates, maybe you can go to still a little bit on 2022. And all I mean by that is, if you think back to 2022, generally, the outlook for the industry as a whole was that there would be negative earnings — negative earnings growth in 2022. It was because most believe that the industry didn’t have sufficient momentum to outrun the loss of PPP income.
But I will say this, obviously, this information ends up in our proxy, but regardless of what those industry expectation are, we still targeted top quartile growth, which was not negative, and we bet mine’s and Harold’s incentive and the incentives of the roughly 3,000 salary-based employees of this company on that idea. That’s been our methodology from the start that continues to be our methodology. And so, if you think through that, you get some insight into our belief about the momentum in the core banking franchise in order to get that done. So, I’ll stop there, and we’ll be glad to take questions.
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