Ben Gerlinger: Yeah, it is. I was just more so curious, like, how much flexibility are you giving them on rate in order to gather those deposits?
Harold Carpenter: Again, we’re getting way down into the philosophy here, but as you know, we hire experienced people. The average experience of the people that we’ve hired is 26 years. Fundamentally, what we do is try to make sure they know what our targets are and then give them plenty of freedom to execute. Generally, the relationship manager has the flexibility to decide what the price is for the deposits and what the price is for the loans. What happens is, in fact, because of this idea, they know we have to hit the targets. They’re not inclined to overpay on deposits or get underpaid on loans and so forth. And, of course, we have a tight management system where every month, we’re going down through everybody’s performance with key performance indicators, talking about, hey, what’s the reason for this?
Why are you doing this? This price needs to come down, all those kinds of things. So it takes an active management, but generally, we’re handling that in arrears and empowering our client-facing people to be able to handle client needs without a lot of bureaucracy.
Ben Gerlinger: Got you. I appreciate it. That’s helpful color. Thanks, guys.
Terry Turner: All right. Thank you, Ben.
Operator: Thank you. Your next question is coming from Brett Rabatin from Hovde Group. Your line is live.
Brett Rabatin: Hey, guys. Good morning.
Harold Carpenter: Hey, Brett.
Terry Turner: Hi, Brett.
Brett Rabatin: Wanted to start with BHG and just try and understand a little better the confidence on the reduced losses by 2Q. Can you just walk us through your thought process on BHG? And obviously, the guidance is for fairly minimal growth and contribution this year, but it sounds like you’re thinking it could be a lot better if certain things play out right with credit and perhaps growth.
Harold Carpenter: Yeah, that’s a great question. For us, it’s — we have conversations with BHG quite frequently. And they still believe that the first half of 2022 and the 2021 loans where these outsized losses are originating large. They will see substantially all their losses within call it the first 30 months of origination. And given the great inflation, a lot of those loans have come to kind of the knowledge that they’re not — there won’t be good loans fairly quickly. So they believe that where they are today at the call it the end of 2023, that a lot of the 2021 credits have already gone through this proverbial pig through the python. And so, they’re still looking at some of the ’22 credits and watching those, but they believe that they’re substantially through the bulk of the problems.
Brett Rabatin: Okay. And then thinking about fintech, I’m sorry, Terry.
Terry Turner: Brett, I was just going to say, I think, you know, said simply, they’re watching their migration analysis. And to Harold’s point, the losses — the largest part of the losses occur in the first 30 months. So when you look at those migrations, they really have just a few more months to go before they will have completed that 30-month cycle for that period where the great inflation occurred. And so, again, I think Harold tried to isolate out the ongoing FICO scores and so forth for more recently originated credits. And so, it’s just a matter, as he said, of getting that pig through the python, which is literally just several months away.
Brett Rabatin: Okay, that’s helpful. And then just around, you know, BHG conceptually, you know, the IPO market for fintech was fairly minimal last year. And this year, it could be better. Is there a potential for you guys to maybe sell a portion of BHG’s ownership to potentially increase capital ratios, or how do you think about BHG ownership from here and how they obviously, at one point where it would appear to have been thinking about an IPO? Maybe just walk through your ownership of them from here.
Terry Turner: Yeah. Brett, I think, I would say this is really just a reinforcement, I think, I hope of what I’ve said for some time. So, we still enjoy a fabulous partnership with BHG. I continue to love that business as I’ve tried to say, you know, if I owned 100% of Pinnacle, I’d want to own 100% of BHG. And we would focus on gain on sale transactions, but it doesn’t work that way. And so, I think we’ve come to the conclusion that the volatility and the difficulty in getting bank investors to understand the model, you know, at some point, it’s just not worth continuing the battle. And so, we have decided whenever the time’s right, that we would like to reduce our ownership interest at BHG in whole or in part, not to be tripe, but I’m more of a, you know, buy low, sell high guy.
And so, it’s not an ideal time to liquidate our position. We’re comfortable with it. It provides a great source of income to us. And so, we’ll continue in the current arrangement. But, you know, whenever the markets get to a point where you could enjoy a higher price, we would be willing to sell some or all of our position in BHG.
Operator: Thank you. [Operator Instructions] Your next question is coming from Timur Braziler from Wells Fargo. Your line is live.
Timur Braziler: Hi. Good morning. Maybe talk through — can we maybe talk through the expectation for net interest margin cadence throughout the course of the year with the expectation for it to be relatively flat in the first quarter and then for your outlook with three rate cuts? It seems like there maybe isn’t that much NIM upside and just wondering kind of what your expectation is for NIM cadence throughout the year, given the broader NII guidance.
Harold Carpenter: Yeah, Timur, I think what’s in our plan for this year is that we will see continued increases in our fixed rate lending. That will provide somewhat of a tailwind here in 2024 for, call it, earning asset yields. I think we will have to be very aggressive, if there is a rate cut. Now, keep in mind that basically 27% of my deposit book is indexed. So I do have that head start probably more so than maybe some others. But our relationship managers will have to maintain constant contact, and we’ll discuss this with their depositors over the course of 2024, so that we can respond very quickly with respect to rate cuts. I appreciate that other banks can go into their systems and punch a button and lower deposit rates.
We can do that too for some portion of our deposit book. But what it’s going to do for us or what we’re going to have to do is be in touch with our clients in a way that we’ve probably not been in you know play because we’re going to be taking money away from them, basically.
