Good morning, everyone, and welcome to the Pinnacle Financial Partners first 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 to your questions following the presentation. If you would like to ask a question at that time, please press star one on your touch-tone telephone. Analysts will be given a preference during the Q&A. We ask that you please pick up your handset to allow optimal sound quality.
During the presentation, we may make comments which may constitute forward-looking statements. All forward-looking statements are subject to risk, uncertainties and other facts that may cause actual results of Pinnacle Financial to differ materially from any results expressed or implied in such forward-looking statements. Many of such factors are beyond Pinnacle Financial's ability, 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 31st 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 in 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 available on Pinnacle Financial's website at www.pnfp.com. With that, I'm going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.
Thank you, operator, and thank you for joining us this morning. By way of introduction, I would say that first quarter 2022 was another outstanding quarter for us. I think the power of our ability to attract the best and experienced bankers in our markets, both in the legacy markets and in the market extensions, and translate that hiring into outsized, high quality growth was on full display again this quarter. In addition to all the macro issues that are creating a great deal of economic uncertainty, the industry also has a number of other headwinds, like outrunning the loss of PPP revenues as those loans pay off, and like substantial reduction in mortgage loan originations due to the rate movement that pretty well eliminated the robust mortgage refinance market we've enjoyed for several years, just to name a few.
Our belief has been that our ability to overcome those headwinds would be our ability to produce outsized balance sheet growth. I think that's the most important storyline for us here in the first quarter. We've begun every quarterly conference call with this dashboard for years. Beginning with the GAAP measures, I'll focus you first on the credit metrics along the bottom row. The green bars show our median quarterly performance over the last five years. As you can see, our asset quality over the last five years has been very strong. Even so, again this quarter for all three measures, problem loan metrics continue to trend down and are at decade-long lows. Our five-year median for NPAs to loans and OREO is an incredible 46 basis points. Q1, they were just 14 basis points.
Our five-year median for classified asset ratio is 12%. Q1, it was 3.6%. Our five-year median annualized net charge off ratio is 10 basis points. Q1, it was 5 basis points. Honestly, it's hard to get much better than that. Moving now to the non-GAAP measures, which are the ones I generally most focus on, let's look at the top row of charts first. As you can see, revenues and fully diluted EPS continued their upward slope. Adjusted pre-tax, pre-provision net income was actually flattish, down just a tick. We weren't quite able to outrun the impacts of reduced PPP revenue and mortgage origination fees in this quarter. As I mentioned a few moments ago, I do expect to outrun those headwinds this year based on our outlook for loan growth going forward. More on that later.
Now looking at the second row, as I've already outlined, loan and deposit volumes continued to grow at a double-digit pace. EOP loans were up 18.5% annualized, and 22.5% annualized, excluding the impact of PPP. Core deposits were up 14.8%. I would say that growth is directly tied to the growth in non-interest expense we've invested over the last year or two. As the tangible book value per share, we actually saw our first reduction there in more than five years. With interest rates rising, we saw a decrease of 2.1% this quarter, primarily due to the impacts on accumulated other comprehensive income. On a pure relative basis, I believe our conservative balance sheet has held us in relatively good stead there.
Along those lines, early in the quarter, we transferred approximately $1.1 billion of available-for-sale securities to held-to-maturity in order to help counter the impact of rising rates on tangible equity. Harold will talk more about that in just a minute also. In summary, based on our previous investment in revenue producers, we're continuing to grow our balance sheet at an outsized pace. We're translating that into revenue and earnings growth, and our asset quality is blemish-free. With that, I'll turn it over to Harold for a more detailed look at the quarter.
Thanks, Terry. Good morning, everybody. As usual, we'll start with loans, and the first quarter was likely one of the strongest loan growth quarters for us in our history, and with our current pipelines, provides us with much confidence as we enter the second quarter. Even inclusive of PPP paydowns, average loans were up 14.7% annualized between the first and fourth quarters.
As we mentioned in the press release last night, upping our guidance to at least mid-teen % growth for this year is reasonable for us. Loan rates were down in the first quarter due to reduced impact of PPP on our loan yields. We recognized $10.8 million in PPP revenues in the first quarter, down from $15.5 million in the fourth quarter. PPP balances decreased to approximately $157 million in the first quarter, and consistent with what we discussed last quarter, we believe that 2022 PPP revenues will likely range between $15 million and $20 million, compared to approximately $86 million in 2021. We are down about $25 million in PPP loan volumes so far in the second quarter, so not much left to go related to PPP.
That said, PPP was a huge program for this bank and a big thank you to all those that were connected with getting PPP up and running because from a client service perspective and our desiring to gather clients for life, PPP very much enhanced our standing with our client base. Also, we did see some uptick in commercial line utilization this quarter. First time that has happened in quite a while, and we have some reason to believe that increases could continue this year as borrowers look to lock in inventory at current price levels. We also anticipate increases in construction fundings through the spring and summer. More on borrowers when I speak to credit in a few minutes. We've responded to a lot of questions about loan floors over the past year or so and their impact on our yields in a rising rate environment.
Again, we do not apologize for our loan floors because we've realized the ongoing benefit of these floors for quite some time. During the first quarter, given the impact from the recent 25 basis point increase in short-term rates, approximately $824 million in loans escaped their floors and are now priced based on their original loan spreads. As the bottom left chart on the slide indicates, we have about $2.2 billion of our floating rate loans that should push through floor pricing with the next 50 basis point raise, which we anticipate will occur next month. Many are focused on deposit betas, but at this bank, we're also focused on the loan beta and making sure we achieve as strong of a push in loan yields as possible as rates increase.
As we mentioned in the press release, we're pleased to see approximately a six basis point lift in aggregate loan yields after only four weeks post the latest Fed increase. As the top chart indicates, we experienced strong yields in the 5.2% range back in 2019. Now, that was a much different time, and we don't expect achieving those levels this year, but we could make a strong dent in the current delta between where yields are now and those prior levels. Lastly, as to loans, our market leaders are excited about our loan growth prospects and about a mid-teens % growth rate, which is inclusive of PPP pay downs. Additionally, in 2021, our new markets, including Atlanta and our new special lending units, provided approximately $530 million in loan growth.
For the first quarter and including JB&D, they incremented our loan growth by $386 million or 35% of our 1Q 2022 EOP loan growth, and we expect strong participations from our new markets in the second quarter as well. Now on to deposits. We had yet another big deposit growth quarter. Deposits were up almost $1.1 billion in the first quarter. We don't anticipate that sort of growth in the second quarter with tax payments and with some projected deposit outflows by some relatively large depositors, but still believe that high single digit growth in core deposits remains a reasonable target for us for this year. So no change there. Our average deposit rates decreased to 13 basis points, while end of period deposit rates were slightly higher than average at 14 basis points.
Since the last FOMC meeting, our deposit rates are up almost 2 basis points. We are pleased with the effort of our relationship managers thus far. We've never abandoned our view that core deposit growth is a key long-term strategic objective. For the first 20 years of our existence, our number one goal was 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. We also like our start point on deposit costs as we enter an uprate cycle. We continue to forecast an aggregate 40% beta on total deposit costs through the cycle, but we'll keep an eye on what our competitors are doing given they are advertising much less betas, which we believe gives us some breathing room, at least initially.
Now to liquidity deployment. We continue to look at ways to create increased earnings momentum through deployment of excess liquidity into higher yielding assets. Our liquid assets actually increased this quarter corresponding with strong core deposit growth and the impact of PPP pay downs. We are optimistic that loan growth in 2022 should serve to reduce our overall liquidity, but in our view, this will be a multi-year effort. Again, our objective here is to find ways to put money to work in a rising rate environment without placing unreasonable pressure on our tangible book value. During the first quarter, our investment securities increased by in total about approximately 1% as we continue to reinvest cash flows from the bond book back into the bond book.
The increase in balances actually represented a decrease in our bonds to total asset ratio, which was 15.6% at March 31. We do believe we have some opportunities on the short end of the curve to put some money to work at slightly higher yields and did some of that in the first quarter. We will continue to have a modest measured response in how we elect to put liquidity to work in this rate environment. We did execute a transfer of about $1.1 billion in securities from AFS to HTM. Doing so did help support tangible book value by almost $0.73 per share in the first quarter. As the gray bars on the top left chart reflect, I believe we've done a remarkable job defending our core margins over the last few years.
We tend to hover in the 3.2%-3.25% range, and we'll work hard to lift our margins going forward. Given the operating environment, we have confidence that we should see some margin expansion along with increased net interest income this year. We are upping our guidance on net interest income to low double-digit growth for 2022 over last year. As to credit, we're again presenting our traditional credit metrics. Pinnacle's loan portfolio continued to perform very well, and again, these were some of the best credit metric ratios we've experienced ever. Modifications made pursuant to Section 4013 of the CARES Act continued to decrease and was at $660 million at March 31, 2022.
Importantly, over 91% of our Section 4013 credits are on monthly principal pay downs, likely a similar amortization to pre-COVID, and only 1% of the Section 4013 loans are in a classified risk category. Importantly, as noted on the highlights in the slide, we do anticipate further declines in our allowance for credit losses to total loan ratio over the next several quarters, given continued improvement in our credit metrics as well as macroeconomic factors. We've had a lot of conversations with borrowers over the last few months about inflation and how it's impacting their businesses. So far, so good. Our truckers, our hospitality borrowers, apartment owners, et cetera, are thus far able to pass along price increases to their customers. The biggest issue that most all point to is labor and finding enough labor to grow their businesses.
Backlogs for some are some of the highest levels ever. Obviously, we all need inflation to slow down and supply chains to be less of an issue. We can only hope that over the next few quarters, we will all get our arms around some of these issues. Now on to fees. As for run rates for 2022 and for BHG, we are maintaining our estimate of approximately 20% growth, and we'll speak to that in a few minutes. Also included in our planning assertion is that we are not anticipating a repeat of $20 million in income we've experienced in 2021 from valuation adjustments for several of our joint venturing investments. Thus, we are planning for revenues from these investments to be much less in 2022.
Other than that, our Wealth Management and several other fee-based business lines believe they are ready for a breakout year in 2022 and believe that an aggregate 79% increase in all of our other remaining fee categories is reasonable for us for this year. A lot of interest in our mortgage forecast for 2022. We've lowered expectations for this year, not only because rates are increasing, but housing stock and our markets are at levels that home sales are being impacted. Along with that, the price of housing has increased significantly with some amazing stories where sellers receiving above list price has become fairly common. Additionally, there are a larger percentage of cash buyers acquiring homes in our markets as our markets continue to attract jobs and people from other states where housing costs have been much higher for many years.
As to expenses, we are increasing our overall total expense run rate from low double-digit % growth in 2022 to mid-teen % growth. This increase is primarily attributable to headcount growth in the new markets, market disruption initiatives across our market, the addition of JB&D, and our belief that we should likely approach max payouts for cash incentives this year. As a reminder, as we mentioned last time, our current plan is that our incentives will increase in 2022 should we achieve some fairly aggressive performance targets. The increase is based on headcount adds in 2021 and our planned recruiting adds for this year.
Offsetting the increase is that we are reducing our target payout in our annual cash bonus plan from an outsized amount of 160% of target last year to the traditional 125% of target this year. We are also providing more costs for our equity plans for our leadership. Lots of discussion currently about expense growth, particularly in the large cap space. Not sure why their costs are escalating, but our expense increases are primarily attributable to the successful recruitment of new bankers who will help drive our growth over the next several years. Terry will discuss more on that point in a few minutes. We believe in our organic growth model and will continue to lean into it as the opportunities to hire established revenue producers in our markets has never been better.
On capital, we did see 2% pullback on tangible book value per share with the impact of increased rates on AOCI and tangible book value per share. Just to reiterate a point, our leadership's equity compensation plans are designed to perform upon how we rank with our peers on tangible book value growth. Our leadership is focused on growing tangible book value over the longer term. Our strategy and tactics are focused on building franchise value using an organic growth model over the long term. That includes a focus on earnings growth, revenue growth, soundness, and tangible book value per share. Quickly, as to an update on our outlook for 2022, as to loans, we've increased our outlook to mid-teens growth for 2022 and are optimistic about how the second quarter is shaping up.
We are adjusting our rate forecast to six rate increases from three last time and a bias that we could increase that assumption again here shortly. Given that, we believe we should see NIM improvement this year, which should result in net interest income growth of low double digits. We've also increased our expense outlook for increased hires and other factors to mid-teens % growth. We are very optimistic that hiring will ramp up here in the near term. All in, we're thinking that we are gonna have a really strong year, all things equal. Obviously, inflation and macro events will influence how all this ultimately turns out, but as for our group, we will work to balance the risk of whatever comes our way with an intense focus on growing the franchise value of this firm. Now quickly to BHG, another quarter of record originations.
The gap between origination and sold loans has widened as BHG has been holding more loans on its balance sheet. We anticipate that BHG may accelerate sales into their bank network as capital market interest rates have been volatile of late, while the auction platform continues to be super reliable, which is obviously one of their great competitive benefits as BHG can quickly pivot between the bank network and the securitization network during times such as these. Once BHG can better discern the impact of rising rates on its securitization platform, they will likely go back to it. More on that in a second. Spreads continued to expand in the first quarter, some of the widest spreads in their history.
With rates rising, spreads may decrease some, but at these margins, BHG has the capacity to execute its business model with a great deal of confidence, regardless of some shrinkage in spreads. The bottom right chart details the 1,400+ banks in BHG's network and just over 600 unique buyers in the last 12 months. As you know, we consider it the strongest funding platform in the country for companies in their space, and that there is a significant hunger for more products. As many of you know, the recourse obligation is reserved for potential loss absorption for the sold loan portfolio. At the end of the first quarter, recourse reserves were up slightly at approximately $208 million, while the ratio to sold loans decreased modestly to 4.82%.
As the blue bars in the bottom right chart show, the credit portion of recourse losses for 1Q22 are some of the lowest levels in the past 10 years. The quality of BHG's borrowing base, in our opinion, remains impressive and is much stronger than just a few years ago. BHG refreshes credit scores monthly, always looking for signs of weakness. Past dues and credit scores are at consistent levels, and the portfolio appears to be as strong as it's ever been. National and regional unemployment gives them confidence that BHG borrowers should be able to withstand forecasted inflationary increase. They and we believe in their credit models, and their experience gives them reason to do so. BHG had another great operating quarter in the first quarter.
We still believe BHG's earnings growth for 2022, over 2021, will be at least 20%, which is consistent with our discussion from last quarter. Originations, as noted in the bottom right chart, are anticipated to grow at least 30% this year, which is also consistent with our last quarter's discussion. With $855 million in originations in the first quarter, they are at a good pace to achieve that growth. As I mentioned earlier, with the volatility in rates, BHG believes revenues in their earlier quarters of 2022 will likely be stronger as they likely send more loans to the bank auction platform rather than hold loans on their balance sheet until they can better understand how the securitization markets are and will be behaving.
They are hopeful that as the year plays out, BHG will pivot back and retain more loans on its balance sheet. As to the balance sheet model, and as the slide indicates, BHG closed their fourth securitization in the first quarter. It amounted to $492 million with a weighted average funding rate of 2.79%. Loans that securitized the debt had a weighted average fee model of 14.1. With that, I will turn it back over to Terry to wrap up.
All right. Thank you, Harold. In our view, the economic landscape remains fragile. Russia's invasion of Ukraine and the various economic sanctions enacted in response are likely to continue to weigh on our economy for some time. The full impact of the ongoing supply chain issues, inflation, inverted yield curves, and a potential recession aren't yet known. Our response thus far, as Harold's already mentioned, has really been to seek to protect our tangible book value, to initiate a number of targeted loan portfolio reviews, including our COVID impacted and commercial real estate portfolios, and to heighten our diligence on cybersecurity and fraud detection. Despite the uncertain economic environment, we're extremely pleased with our first quarter performance and remain optimistic for 2022.
As a result of our prolific hiring over the last few years, not only are we realizing outsized growth in our legacy Tennessee, Carolina, and Virginia markets, but we're also having great success in our market extensions to Atlanta, Washington, D.C., Birmingham, and Huntsville. The prolific hiring continued during the first quarter with 28 additional revenue producers. The loan growth we experienced during the first quarter, along with our current loan pipelines and our continued ability to attract new associates, have bolstered our confidence that we should meet or exceed mid-teen % loan growth for this year. Not only that, but there's tremendous market disruption in our markets, and we believe we're uniquely suited to capitalize on that. We fully expect to seize this opportunity by continuing to hire the best, most experienced bankers in our markets and consolidate their books.
This company was formed for the purpose of capitalizing on market disruption due to the consolidation 22 years ago. This is who we are, and as I look at our current environment, this literally feels to me like the best market opportunity that we've ever had. I don't think it's a secret to anyone that merger integrations pose great risk for those banks that are involved. System integrations are extraordinarily difficult. Cultural wars generally commence and persist. Invariably, there'll be winners and losers in those organizations, and a great deal of the revenue is lost as associates and clients get frustrated and leave. Happily, these are the current integrations going on in the markets that we serve. Here's a great way to think about the magnitude of the vulnerability that creates and on which we're focused. This is FDIC deposit market share data.
Obviously, you could use other measures, but this is a pretty good proxy for the potential vulnerabilities in the markets we serve as a result of consolidation, or in the case of Wells, other ongoing issues. Taking these 12 markets as a whole, I would say that $325 billion is vulnerable. Even though this company was formed to take advantage of the same kind of merger-related turmoil following the consolidation of the 1990s, frankly, I've never in my life seen competitor vulnerability at this level. We've successfully exported what we started in Nashville by de novo market extensions as well as via M&A. I spent some time demonstrating the success of the BNC merger several quarters ago, so today I wanna highlight our most recent market extensions.
Merger-related turmoils really catalyzed our entry into four new markets and two new specialty lending practices, equipment finance and franchise lending. This is a snapshot of our progress, which I think you'll agree is rapid. In Atlanta, we've successfully hired 42 associates, 24 of them revenue producing. At quarter end, they had $1 billion in loan commitments, nearly $600 million in loan outstandings. As you can see, they're already through break even. Huntsville and Birmingham, Alabama, have now been with us for just 3 quarters. In Huntsville, we've hired 12 associates, six of them revenue producing. We've still got a great hiring pipeline in front of us. Loan production's not bad, but deposit production's off the chart. They're almost break even in just three quarters.
Birmingham, as it relates to loan and deposit volumes, is sort of the opposite story. Similar hiring levels, fabulous loan production. In D.C., we've just been there four months. We've had great initial hiring success with a continuing large pipeline for hires. Balance sheet volumes have barely scratched the surface yet, but the pipeline looks massive to me. I cannot tell you how excited I am about what I believe we're gonna build there. Finally, I mentioned two new specialties for equipment finance and franchise lending, both less than a year old. And you can see that like the other markets, we've had strong hiring and really rapid loan growth. All in last quarter, the EPS drag was about $0.03. Because we're growing core volumes so rapidly, we can absorb that drag and still outgrow peers in terms of earnings.
You can see the pace at which we are continuing to build out. We've been talking for quite some time about the number of revenue producers that we're hiring because, honestly, that's the principal theme for the success that we've enjoyed for a good number of years now. Revenue producers include financial advisors. Many of you would refer to them as relationship managers, but it also includes other revenue producers like mortgage originators, brokers, trust administrators, and the like. Just for one moment, I wanna direct you to just the number of balance sheet loan and deposit producers as a subset of the revenue producers in order to provide a simple illustration of how we convert new hires to sound balance sheet volumes, which translates to revenue growth.
We hire all kinds of experienced loan and deposit producers, not trainees, not rookies, but producers with at least 10 years experience with their own book of business, small business FAs, private banking FAs, commercial middle market FAs, corporate FAs and so forth. The volumes associated with each type of those FAs vary. If you took the average since 2018 for all types of FAs, our new hires generally consolidate their book over five years. Volumes continue to build post five years, but for today, we just wanna concentrate on the first five years. On average, loans build to $8 million in balances in year one, $28 million in year two, $30 million in year three, $44 million in year four, $56 million in year five. Deposit growth is noted on the chart on the top right.
Both of these charts on the top are intended to illustrate how we go about our planning. It's a lot of numbers, but it's simply intended to illustrate our planning assumptions for the balance sheet growth that's associated with new hires and the market share consolidation over the last four plus years. I don't want you to miss this. This is an incredibly powerful growth engine to have already built. The table at the bottom aggregates the volumes for the same 176 financial advisors that we've hired what our planning assumption is for new volume growth for 2022 and future periods. Again, based on historical averages and for 2022 thus far, we would expect these same individuals to generate $6.4 billion in loan volumes. That number is about $2.2 billion in growth over the previous year.
That's how it works. All we've talked about here is just the balance sheet growth, but there are meaningful fee revenues that go with that as well. The obvious point is, as a shareholder, given these volumes, making this investment in these experienced producers, it's hard to beat. Here's another way to think about our ability to grow the revenues. This is a chart that's really important to me. Normally it gets relegated to the back of the deck, and we haven't addressed it on the call for a few years. The reason it's important to me is because first and foremost, we're an earnings per share focused company.
Our path to produce that earnings growth is through revenue per share, sustainable revenue per share, true franchise value creation, not expense cutting. The blue bars plot our revenue per share growth since first quarter of 2018, and you can see it's a pretty steep and reliable slope. The green dashed line is the year-over-year percentage growth in revenue per share. The red dashed line is the same for peers. I'd point out a couple of things. Number one, we grow revenue per share quarter in and quarter out. Two, we almost always grow it faster than peers and not by a little, by a lot. During 2021, the gap to peers in terms of the rate of growth in revenue per share has widened every quarter. We have quite a track record for successfully investing in growth.
Ferdinand Foch was a French general in World War I of some notoriety. I've actually used his famous quote before, but I feel somewhat the same way. The economy is volatile at best, in collapse at worst. There are significant headwinds associated with things like PPP pay downs and the disappearance of the mortgage refinance market. Our situation is excellent. The competitive landscape has tilted our way. We're attracting talent and clients at a dramatic pace, and we expect to continue top quartile EPS growth based on top quartile revenue growth. Operator, we'll be glad to stop there and take questions.
Thank you, Mr. Turner. The floor is open for your questions. If you would like to ask a question, please press star one on your touch-tone phone. Analysts will be given preference during the Q&A. Again, we do ask while you pose your question that you pick up your handset for the best optimal sound quality. First question comes from Brett Rabatin of Hovde Group.
Hey, guys. Good morning.
Good morning, Brett.
Congrats on a really strong quarter. That's some impressive loan growth. Wanted to first start with BHG and, you know, usually when I'm having a conversation about you guys, it's within the first 30 seconds that BHG comes up, and so I think it's a big focus. Wanted to get an update on, you know, any thoughts on that investment and their thoughts on what they might do to either monetize it or to look to capitalize on the strength. Wanted to see what you thought the margin, Harold, you talked about spreads. How much spread compression you think that business, you know, might be seeing here in the next few quarters?
Yeah, Brett. I'll answer the second question first. They don't think spread compression is going to be that great here in the near term. They have been successful with coupon rates north of 15%, 16% in the past. So they feel like they can move rates up with borrowers. They do think that the buy side or the auction platform side that they'll have to probably be a little more aggressive to get those rates up a little bit. But you know, say perhaps some spread compression of maybe 1% or maybe 2%, something like that. But they don't think it's going to be put that big of a dent into their business model.
Now, over the years, we've had all kinds of conversations about liquidity events and when the market's right and when the market's not right. I think the current belief is that the market is not shaping up to their advantage currently. They think they've got a lot of growth and a lot of runway in front of them. They will likely be focused on growing the revenues of their firm because they believe that as they grow their revenues, they, too, will see increased franchise value at some point whenever that occurs, and there's a liquidity event. I think Al and Eric and Pinnacle were all on the same page. We have a great partnership. We communicate frequently.
That said, I do believe that Al and Eric are at a point personally that they think that they need to keep their eyes open and aware of what's going on in the various fintech lending markets and what kind of appetite there might be for their firm, who they believe is very profitable, and they're very proud of it. I don't know. Like we've always said, and I know some of the buy-siders get tired of me saying this, but it's still the truth. We don't know if there's a liquidity event this year, next year, or five years from now, but we do know there's likely to be one.
When that occurs, we hope to enjoy a very nice gain, and we hope to be able to look at a variety of options on how we execute on that gain. With that, I'll stop, see if Terry got any additional comments or whatever.
No, I wouldn't add anything.
Okay. Appreciate the color on BHG. Wanted to ask about the margin as well. Just when I look at your filings, it seems like they would suggest that you're being somewhat conservative with your assumptions for 100- 200 basis point rises in rates, just given the liquidity that you still have on the balance sheet. Can you talk maybe about the assumptions that go into your upside for NII? And then just talk about, you know, what reprices in the first 90 days on the loan portfolio following a rate hike.
Yeah. Well, I think the advantage we got here in the near term is that we anticipate a 50 basis point increase in rates from the Fed. That's gonna, you know, take, you know, a little over $2 billion in loans out from their floors and put them back on, you know, what the note coupon is. You know, what we do is we're talking to our market leaders. We're trying to anticipate what they think their growth is gonna be over the next several quarters, and then we just fashion that on out. We also look at what our pricing has traditionally been and use that as a forward on the forward curve. It's not, you know, some people might say it's not rocket science, but there are a blue million assumptions that go into this forecast.
Just to get on my soapbox just for a second because I know time's precious. The disclosures that we include regarding our asset sensitivity in the back are primarily weighted towards what the regulators generally require. It's, you know, a stable balance sheet or and a parallel shift in the curve and all those kind of assumptions that go into it. It really lacks a lot of creativity and a lot of ingenuity that we're always thinking about around here to improve both the earnings content of our firm as well as what we think our growth is gonna be. We've got several levers here that we can pull periodically that helps us either in the near- term, the short-t erm, or the long- term, and that's what we'll do.
What we try to do is provide that information that's in that asset sensitivity table, but at the same time, kind of get you to a real-world kind of growth perspective that we think is more likely.
Okay. Fair enough. Appreciate the color. Congrats on the quarter.
Thanks, Brett.
Our next question comes from Jared Shaw with Wells Fargo.
Hi, this is John Rowan for Jared. How are you?
Good, John.
I just wanted to go back to the comment earlier in the prepared remarks about line utilization was a benefit this quarter. I was hoping you could just quantify how much that increased from the fourth quarter and what the dollar impact of that was, and I guess if there's any further for that to go as we move through the year.
Yeah, John, I'm looking for the slide 35 in the back. I think it generally will give you that information. I think commercial real estate lines went up. The active balances on commercial real estate went up $370 million, $322 million on C&I. The utilization went up 0.5% on commercial real estate and 0.8% on C&I.
John, it's just my color commentary in addition to that slide and Harold's comments. I think you asked at the end, do we see an opportunity for that to pick up speed? I think the answer to that is yes. I mean, you know, there's sort of two components to it. One is the sort of inevitable fund up of construction loans, so you know, that utilization ought to pick up.
Secondly, in the case of C&I, my belief is that, you know, if the economy moves forward, it spins the sales cycle, and that results in receivable and inventory financing, line utilization, and the like. You know, depending upon what your economic outlook is, if you think the economy is gonna find a good footing, you ought to expect line utilization to pick up.
Okay. That's very helpful. Just on the rate hike assumptions, does the faster assumption in increases in short-term rates impact your beta assumptions at all, like moving to a 50 basis point hike in May versus kind of spread out throughout the year? Does that kind of ramp up how quickly you have to pass through that to the depositors?
Yeah. Our planning would be that initially our beta will be relatively small, and that over the course of the rate cycle, we increase the beta up meaningfully.
Okay. The pace of hikes is factored into that, though?
For sure. Yes.
Okay, great. Thank you. Sorry, just one last one for me. On the prepared remarks, you talked about six rate hikes being assumed in the guidance, but on the slides, I'm seeing six additional hikes throughout the rest of the year. I'm just wondering if the actual guidance assumes six or seven total for the year.
Yeah, we're thinking six more for the rest of this year.
Okay, great. Seven total.
Yes.
Okay, thank you. Thank you very much. That is, that's all for me. Thanks for answering my questions.
Thanks, John.
Our next question comes from Brock Vandervliet with UBS.
Hey, good morning. Just going back to BHG and just an awesome loan growth guide for this year. You know, just wondering, as you've, you know, been talking to them and, you know, some of the macro clouds have darkened, you know, materially year to date, or at least gotten more uncertain, you know, how much discussion has there been internally in terms of, okay, if we are less comfortable with the environment, what would, you know, what would need to happen? Do we need to narrow the credit box, you know, drop guidance on loan growth, boost reserves? Like, how much of those discussions have been happening behind the curtain?
Yeah, the only my exposure to BHG is through their Board Meetings, and we have access to their, obviously, to their credit people. I'm not sure how much increased diligence. I can't really put a measurement on that other than that, they are looking at their portfolio statistics. They've added people into their credit units, and so on and so forth. You know, they, like us, have an enterprise-wide risk group that is, you know, trying to look out and around the corners. I don't know if that's exactly getting to what you wanted, Brock, but that's where I'm headed.
Okay. Yeah, that's close enough. Separately, Harold, just on your and Pinnacle's, you know, reserve guidance, you know, we've repeatedly estimated way to the high side in provisioning. It sounds like, you know, we should be expecting this neighborhood of provisioning, you know, near the intermediate term as that reserve continues to trend down. Is that? Am I on target there?
Yeah, I think so. We have a stronger charge-off forecast for this year in our numbers, but I think that's just out of caution. When I talk to the credit officers, they're really excited about where the book is. We've had now a string of probably four quarters where provisioning has been a lot less than even we anticipated. There may be some elevation towards the back end of the year.
Okay, thank you.
Our next question comes from Steven Alexopoulos with JPMorgan.
Hey, good morning, everybody.
Good morning.
I wanted to start, Terry, on slide 23, you have quite a few markets where First Horizon has really strong market shares. I'm curious, based on your experience in these local markets, do you see this as a similar opportunity to what happened with Truist, or you think this could be even better from a talent acquisition perspective? What's your take there?
I would say comparable, to be honest with you, Steven. I think you know this. I would say to you, and I'm speaking off the top of my head, I'd have to go get numbers to prove it. What I believe is, if you looked at over the last five years, SunTrust would have been the principal benefactor to us in terms of new hires. I think you know, when you make it a more recent time period, meaning over the last two or three years, that evolved to Wells being the biggest benefactor for us. Today, I think the pendulum's sort of moving back to Truist. There's lots of vulnerability there. You know, I don't know.
My own sense of it is First Horizon's probably gonna be a comparable thing for us.
Okay, that's helpful. Then on the next slide, Terry, where you break out this once in a generation opportunity, these different markets. From a big picture view, where do you see the revenue producers moving to in these markets? I'm not looking for an exact number, but, you know, is this the start of, you know, these other markets moving towards Atlanta and Atlanta continuing forward?
Well, I think so. As you know, there's size differences in those markets, and so Atlanta and D.C. are the grand markets just in terms of total size and growth dynamics. You know, when we go into those, when we hire leadership in those markets, you know, part of our discussion centers around that. Do you think you can build a $3 billion bank over a five-year period of time or something? You know, that's you know would be indicative of you know what we set out to do in those big markets. You know, Huntsville and Birmingham are meaningfully smaller markets, the penetration should be similar in those markets, maybe even better. The growth opportunity and the number of revenue producers that we hire in those markets will be less.
Yeah, you know, just sitting here today, Steve, you know, I love what's going on in Atlanta. I'll be shocked if we don't run faster in D.C. than even in Atlanta. I don't know. We'll just have to see. I am so encouraged by what's going on there.
Okay. That's good color. Finally, I'll get Harold into the mix on deposit rates. The end of period deposit rates were up modestly. Maybe, Harold, what's going on behind the scenes? Do you have many customers now asking for a higher rate? How are the RMs handling that? Maybe what are you seeing from competitor banks on that front? Thanks.
I mean, first of all, we're not seeing anything from competitor banks. So I don't think competitors are increasing rates of any consequence at all. We are getting phone calls from various clients that tend to focus on their rate, and we are working with those clients as you might expect us to do. And they're primarily the ones. Well, now we do have several clients that are on an index, you know, deposit rate pricing scale, so they obviously got increased rates. But you know, there's a lot of our client base out there, you know, the not-for-profits and the churches and those kind of businesses where they pay attention to, you know, every last nickel.
We expect them to call, and you should expect us to work with them. That's what's really going on. We're not a lot of the operating companies that are around, a few are calling, but most of the operating companies are more concerned about where they're gonna get their next person to put on the line to drive the truck to do those sort of things.
Okay. Based on, Harold, what you expected, right, from an exception pricing view, is it about in line what you've seen so far in terms of the number of requests coming in for exception pricing?
Well, I think we're doing a little better than I would've thought. I would've thought with that 25 basis point rise that we would see more increase in our deposit costs, because we look at it every day, and we particularly took interest when the Fed increased rates 25 basis points. We had some inclination as to what rates would do given the indexed accounts. I think I really do, and I meant that in the comment is that my, you know, my hat's off to my relationship managers because I think they're doing a great job in, you know, explaining to our clients where we are in this rate cycle.
Mm-hmm. Okay. Great. Thanks for taking my questions.
All right. Thank you.
Our next question comes from Michael Rose with Raymond James.
Hey. Good morning. Thanks for taking my questions. Just wanted to get an update on how many or how much loans you guys are adding from BHG each quarter, and if that would be expected to increase. I know they did a securitization in February and, you know, could be a little tougher given the environment. Just wanna get a sense for how much of this quarter's growth and maybe expectations for adding BHG loans are kind of built into the guidance for the year. Thanks.
Yeah, Michael, I don't think we added any loans in the first quarter from BHG. If we added any, it was about $25 million. I think what we've communicated between us and them is that, you know, we may look to add $150 million or so this year. I'm not sure if we added any here in the first quarter.
Okay. Great. Then maybe just switching to credit quality. Obviously, things are really good, but clearly some potential clouds on the horizon. You know, if I look at post day one CECL, I mean, it's definitely lower than where the reserve is now, and you talked about that going down. Can you just kind of talk about the, you know, countervailing forces there in terms of improving, you know, credit metrics versus kind of what could happen out on the horizon and what that could mean for provisions and reserves? Thanks.
Yeah. I think the influence of CECL for us would be that the migration period in the past is gradually moving forward, and credit metrics are improving with that. That'll put downward pressure on it, and the same thing exists with respect to the forward outlook. There's less near term kind of macroeconomic pressure on a reserve build. Those two things will, in combination, give us more confidence that the reserve will likely go down than up here at least the next couple of quarters. Now we don't expect it to get down into the kind of day one CECL area code. We don't think that'll happen. We do think we've got some more room here, like I said, over the next couple of quarters.
Okay, great. Thanks for taking my questions.
Our next question comes from Matt Olney with Stephens Inc.
Hey, thanks. Good morning. I wanna go back to the discussion of the impact of higher rates on the bank. My question's really on new loan spreads. On page 33, you gave us a good summary. But with higher rates, I know you're hoping to see that flow into the new loan originations. I'm curious what the expectations are for this year. It seems like the market is assuming that many of your competitors also have really strong liquidity, like Pinnacle does, that could really slow down the lift of the new spreads. Curious kind of what your expectations are this year.
Yeah, Matt, this is Harold. I think for new loan originations, we hope to get kind of similar spreads to what the book is currently. Our planning assumption is that we likely won't. That in order to bring a new borrower across the street, we probably won't get the 100% loan beta that we anticipate, that we'd like to get out of our current book. There is some caution built into what pricing is gonna be on the new credit that we're booking.
Okay. I guess just taking a step back and thinking about Pinnacle rate sensitivity more broadly throughout the cycle, it seems like last rate cycle, the bank performed pretty well the first half the cycle, but then deposit costs accelerated in the back half. I guess, what are the expectations for this cycle? It sounds like you think that deposit betas could be lower given the higher levels of liquidity. What else should we think about in terms of how the bank's balance sheet has changed since a few years ago? Thanks.
Yeah. I don't know if there's a whole lot of, you know, significant change in how our balance sheet is built. As far as on the left side, I think our bond book is probably, you know, maybe a couple of percentage points bigger than what it was back in the last upright cycle. You know, obviously, this liquidity has influenced how our balance sheet has moved since the last time. I think that gives us some comfort that maybe the deposit beta won't be as significant this time as it was last time.
Man, I think, you know, beyond the structure of the balance sheet, I think just the macro environment here, where there's massive liquidity and modest loan demand is a pretty different phenomenon than what we faced before. I think that will have more impact perhaps than just changes to the structure of the balance sheet.
Yep. Okay. That's all for me. Thanks, guys.
Our next question comes from Jennifer Demba with Truist Securities.
Thank you. Good morning.
Hey, Jen.
Terry, could you kind of elaborate on your commentary on your optimism for the Greater Washington D.C. market? My second question is on Pinnacle's buyback appetite right now. Thanks.
Okay. Yeah. I think in the case of Washington, D.C., Jennifer. It just starts with a large market with high growth. As you know, beyond that, for us, the whole story is about people, and who are the people that you hire, and where they come from, and who else can they hire, and what business can they move, and, you know, all those sorts of things. I'm just, you know. It's still in the early stages. As you saw on the slide there, the balance sheet volumes have barely scratched the surface there in the first four months. The pipeline is very large. You know, again, you can't celebrate till you get it booked. My belief is they'll be successful in getting it booked.
They're off to a really rapid pace on hiring, and their pipeline for hiring is also large. You know, the combina tion of the people that are there, the loan pipelines that they've generated, and the hiring pipelines that also are building, is the basis for my optimism.
Great. The appetite for buybacks at this point?
Yeah, Jennifer, this is Harold. I'm not really. I don't think we're at a point to execute on any kind of buybacks right now. One thing that we do consider in buybacks is what our loan growth forecast looks like. Currently it looks like our loan growth is gonna be fairly significant, and we'll look at that in relation to capital. Right now, I think we're probably on a hold. Obviously, if we see more pressure on the stock, then we might start weighing in and trying to defend the stock with a little more effort.
Great. Thank you so much.
Thank you.
Our next question comes from Stephen Scouten with Piper Sandler.
Hey, good morning, guys. Appreciate the time. Terry, I'm curious just how you're thinking about loan growth from a market expansion standpoint. If I do the math on the slide you laid out for the new hires, it looks like maybe that's about 10% growth just on their potential. I'm guessing the next, you know, amount to get to the upside is more market expansion. Is that a fair way to think about it? And how do you see the prospects shaking out from a market expansion standpoint currently?
Yeah. Stephen, I think I might go at it the other way. We don't have specifically market extensions baked into the forecast, but when you start compartmentalizing that growth, you get growth from new hires, and you get growth from existing bankers in the footprint. That's where that mid-teen growth would come from, is that math, you know, the people that we have hired and the people that are, you know, sort of legacy lenders here. In terms of market extensions, I think it is a good question. You know, we've tried to. You know, it comes up, Stephen, as you know, there's always a question about M&A.
You know, I always try to say, "Look, man, our opportunity in the markets that we're in is so strong, it's hard to figure out. It'd have to be an overwhelming transaction for M&A." Same thing for market extensions. Man, I think we'll have more market extension opportunities. We have had discussions in a number of markets. Just to remind you, for us, it's not about hiring a sales team, it's about hiring somebody that we think can build a big bank in that market. When we find those, we'll move. When you think about where might we move, Steven, you know, basically, we keep going back to this triangle.
If you go to Memphis and draw a line up to D.C. and down to the state of Florida, the big, major urban markets are the markets we'd like to be in. As we find people who we think can build us a big bank, we'll pull the trigger at that point. That's not included in sort of the growth projection.
Okay, perfect. Yeah, that's really helpful. I probably should have said economic expansion, not market expansion, but that's a great answer, Terry. I appreciate that.
Yeah.
If I'm thinking about BHG, the Atlanta expansion, I think that was noted in the presentation. Was that about any extension of their product set, or is that just more about being able to tap a new market for talent to run that platform?
I think it's a little of both. I think a lot of the people that are part of some of their new products are, you know, are in Atlanta. They decided to establish a kind of a foothold there in Atlanta, and I think that gives them opportunities to, you know, introduce their brand to some more potential employees that have the talent set they're looking for.
Got it. That's helpful. Just one more question maybe around BHG and kinda credit outlook as a whole. I know you said, you know, some of this stuff could change in the back half of the year. With BHG, how do you combat maybe some of the investor pushback that just, you know, says, "Hey, this is more unsecured consumer type of lending. This is what we might be worried about if we enter a recession." How do you maybe combat that sort of ideology as you think about that book and their business? If the Moody's modeling were to, you know, start to shift, would that also have an impact on, you know, near term, where your provisioning could go?
Yeah, I think if, obviously, if Moody's were to change their position on whatever they think GDP and unemployment goes, that could be impactful to everybody. As to BHG and their credit systems and their borrowers. Now granted, they've kinda gotten into the shallow end of the pool on point of sale. As far as their traditional business lines, they're lending to, you know, consumers at an average ticket size of $50,000. These are not, you know, low-ticket kind of credits. These are credits that are established. They believe in their credit scoring system, and these are folks that have legitimate credit histories that they can lean into with confidence.
I wouldn't classify it as a traditional consumer book based on what I understand traditional consumer books look like. These are folks that are focused on different things with respect to use of proceeds, so on and so forth.
Got it. Makes sense. Well, congrats on a great quarter, guys, and appreciate a lot of the new slides in the deck. Very helpful stuff.
Thanks, Steven.
Our next question comes from Catherine Mealor with KBW.
Thanks. Good morning.
Hi, Catherine.
One follow-up on just the balance sheet and the margins. The cash is sitting at 14% of average earning assets today. How do you think about where that ratio moves to through the back half of the year and how that goes into your NII guide?
Yeah. I mean, we do have some reduction in that, but not a lot. We think it's gonna be fairly stable for the rest of the year. We are looking at a couple of near-term products that'll give us some exposure on the shorter end of the curve with some floating rate kind of instruments that will maybe give us a little bit of an extra little punch. For all intents and purposes, that'll be just another cash item that's making a little more money. I think technically it'll be in the bond book, but it'll be a shorter-term security.
Okay, great. Just the picture on credit. I mean, credit's so good, and even just we're seeing charge-offs low and NPAs decline and reserves are still coming down. You know, it feels like there's a big disconnect between what we're seeing from the banks and just concerns that we have with investors and on Wall Street. Any commentary on what you can do today to prepare for any potential increase in credit costs, types of credits you're looking more closely at, you're staying away from, parts of your book that you think are at relatively higher risk today, and things you can do to prepare yourself would be helpful. Thank you.
Well, like I mentioned before, I spent a lot of time with the credit officer, particularly the Chief Credit Officer, on what kind of diligence they're about doing today, given what forecasts look like regarding inflation and so on and so forth. I think one of the things that gave me some comfort from what Tim was talking about to me is that they're going back into that COVID book that we looked at over the last two years, revisiting those credits. Particularly around hotels, because probably the first exposure will be to discretionary spending, so on and so forth.
Right now, they believe that our collection processes are sound, that we feel good that those type credits that are more subject to discretionary spending are looked to be in good shape. Now, past that, you look at all the fuel consumers, call it truckers and concrete companies and da da da da da, and right now all of them are passing that cost along. How long that's gonna be able to do that, not sure. Right now, everybody is up to their neck in business opportunities. The biggest issue, like we talked about, is can they find workers?
Okay. Great. That's helpful. Thank you so much. Great quarter.
Thank you.
Next question comes from Steven Alexopoulos with JPMorgan.
Steve, you there? He must have dropped.
Okay. I'll move on to the next one. Our next question comes from Brian Martin with Janney Montgomery Scott.
Hey, good morning, guys. Hey, Harold, maybe I joined a little bit late, but just maybe the last question, you talked a little bit about the liquidity. It sounded as though last quarter, you kind of expected that liquidity to drop a little bit in conjunction with the loan growth. Is your stance a little bit different this quarter based on just your comments to the last question or so that maybe it's not gonna change all that much?
Yeah. I think it'll come down, but I don't think it's gonna change a lot. Catherine noted 14%, you know, it might go to 12%, something like that. I don't think it's gonna jump. It'll go down that much.
Gotcha. Okay. All right. Just, if you gave it, Harold, maybe I missed it, just the timing of your rate increase expectations. It said 50 basis points next meeting in May. Beyond that, is it just kinda one a meeting or what?
Yep.
All right.
I think that's right, Brian.
Okay. All right. Just the yields on new loans that you guys are getting. I know you talked about spreads, but just new loan yields today on the commercial side in general. Can you give any thoughts on those relative to what's coming off the books, right, on the books?
Well, I don't think there's a whole lot of big delta between the new loans and the former loans. Right now we're hopeful that we can get some increased rates on the fixed rate credit. I think we've been kind of, I don't know. We just need to probably do a little better on fixed rate lending and what kind of rates we're getting on those. But other than that, I think our spreads are hanging in there. The other issue that's out there that our folks I think are doing a really good job on is this whole essation thing. I think our rates that we're gathering on SOFR, that the spreads are hanging in there, it's not increasing a little bit. We feel pretty good about that.
Gotcha. Okay. That's all I had, guys. I appreciate it. Thanks, and great quarter.
Thanks, Brian.
I'm not showing any further questions at this time, so this does conclude today's presentation. You may now disconnect and have a wonderful day.