Thanks, Terry. Good morning, everybody. Many of our slides we've shown for quite some time on fourth quarter results are basically consistent with what we've anticipated from last time.
So I don't believe there's a ton of new information.
So I'll hit the highlights. We did experienced a wealth of loan growth for the fourth quarter.
Excluding PPP, we're up almost 8% annualized between third quarter and fourth quarter. We don't have a trend just yet but it was a positive signal.
We will lean on our new hires over the last few years to give us an advantage on loan growth.
As you know, we're in great markets. We don't apologize for any markets where we do business so we think that too will help us outperform when entrepreneurs begin to see the fog lift and we see loan growth reemerge in a more predictable way. That said, our market leaders believe that loan growth forecast excluding PPP of high single digit growth in 2021 is a reasonable number for our firm.
As the loan yields ex-PPP loan yields were pretty flat. Keeping loan yields will be a fight in 2021.
We will lean into our relationships even harder to maintain our yields. Granted the steepening curve should be helpful to us but there's a lot of liquidity out there.
So finding borrowers is more difficult plus you've got a lot of banks out there using pricing as leverage, because I don't know a bank that doesn't have a considerable amount of all balance sheet liquidity. The PPP program is back in the news and we're excited about deploying the next round of funding and hopefully we can place a meaningful amount during the first half of 2021.
Although, we don't expect to have similar level of PPP volumes in the second round as the first, we do believe we're ready to be just as successful in the second round as the first, and also believe this will be incredibly beneficial to those small businesses in our market that continue to be impacted by the pandemic.
Over the last few weeks for those clients that are interested in the second round, we've pre-loaded data files to expedite the process.
So we’ve surveyed these clients and are contacting them currently to explain the new program and gauge their interest.
As of close of business yesterday, we received approximately 4,000 applications totaling almost $600 million, so we're off to a pretty rapid start.
As to the first round forgiveness process, it remains rigorous but our team is working through with our clients.
We expected net interest income lift in the fourth quarter due to PPP forgiveness and expect more lift in the first half of 2021.
Now on to deposits. We had another big deposit quarter. We've experienced significant growth in non-interest bearing deposits ending at $7.4 billion at quarter, up 54% since last year. The number of commercial check accounts is up almost 12% since year end.
Our average loan to average deposits was at its lowest level than I can ever remember, 83%.
We expect to reverse that trend at some point in 2021. We were at 33 basis points on average deposits at year end and at 29 basis points for ELP rates. We were intentional about getting those numbers down to less than 25 basis points very quickly. We're getting a few questions about deploying excess liquidity. We're beginning to get interested in various ways to leverage some of this cash flow given the steepening of the yield curve, but we'll be very cautious in whatever new opportunities we see to deploy excess cash.
So we will have an opportunity to reduce our wholesale funding book over the next several quarters, which we fully anticipate to. This reduction should help reduce funding costs across the board and help our NIM. Similar to what some other banks announced during the quarter, although, our opportunity wasn’t nearly as large as others, we did redeem $200 million of Federal Home Loan Bank borrowings prior to maturity and incurred $10.3 million prepayment build.
We also unwound a cash flow hit that start in January of 2021 that we've been carrying for a few years. Combined loss of around 15 million between the two but should be paid back within two years.
We have other opportunities with Federal Home Loan borrowings that we will evaluate respectively, but the payback period is too long currently for us to get excited about those right now.
As to the cash flow hedge due to liquidity swell, we no longer have to need to carry the wholesale funding that was hit by the swap. Therefore we recognize the previous unrealized loss once we cancel the funding. By paying off the Federal Home Loan Bank advance early and unwinding the cash flow hedge, we should stay close to $7 million in interest expense in 2021.
Our liquidity bill costs us approximately $2 million a quarter.
We will shed this excess liquidity at some point, likely more slower than we'd like. We believe that both PPP and our excess liquidity negatively impact our fourth quarter NIM by 30 basis points, which is down from 40 basis points in the third quarter. We believe our NIM after PPP and liquidity is approximately 3.27%. This compares to a similar calculation last quarter of 3.22%, so we're up 5 basis points from the previous quarter. Thus, our adjusted NIM is up two quarters in a row. We called out a trend. Seriously, this will be a big focus of our bank going into 2021.
Now to fee income. I'll be brief. Fees were more than $83 million for the quarter.
For the year, fee revenues grew 40% in 2020, which we believe was remarkable. Everyone knows that 2020 was a power year for mortgage. We don't expect to repeat in 2021 but then again, mortgage doesn't get a pass either. I'll talk more about BHG in a few minutes but BHG continues to issue great report cards every quarter. Wealth management had a big year as their fees were up 17.5% year over year.
We expect they will have a great year in 2021 as they have made several key hires in the latter part of 2020 across our markets.
As to expenses, as we've stated in the press release, 4Q '20 expenses were higher than anticipated due to a discretionary bonus award approved by our Board last week.
As we've stated in the past, our annual cash incentive is tied directly to results. Due to COVID, we failed to hit our EPS targets this year due primarily to the required increased provision as a result of CECL adoption.
During the year and as I mentioned last quarter, we modified our cash incentive plan to incorporate a PPNR component. All in, our plan would have calculated a 50% target opportunity based on a modified structure of the plant.
Our PPNR results will help us ramp into 2021 with a lot of momentum. The Board elected to increment their award for participating associates modestly to 65% of targets given the impact of COVID to our 2020 results.
Just so you know, missing our target payout on incentives resulted in $25 million in savings to our results, coupled with a similar issue for equity incentive compensation, and that was another $6 million in savings in 2020. That approximates $0.31 per share that found its way to our bottom line and into tangible capital in 2020.
Speaking for the employees of our firm, we are hopeful those savings aren't repeated in 2021.
All of us, obviously, are pleased with the Board's decision and what the additional $0.15 means to some 2,200 planned participants. That said, we missed this year and the focus for 2021 will be to overachieve.
So our 2021 plan design will still target top quartile performance within our peer group and still incorporate both EPS and PPNR targets. The leadership of our firm is determined to not let a trend develop on a less than target payout to our associates. That's a trend we will work hard to avoid and to do it, we will look forward to meeting and exceeding our financial objectives in 2021. Quickly some comments on capital.
Our Board has approved the authorization of $125 million buyback program. The previous program expired at year end 2020.
We will begin to consider deploying of those funds soon but are not likely to see any material impact from the authorization in the first quarter of 2021.
We also have a couple of sub debt issuance that are up for renewal this year.
So we will consider redemption and/or refinance in due course. The board increased the quarterly dividend yesterday. But given all of our shareholders, we are grateful for that as well. We affirm that we are so many things.
We are focused on growing earnings per share and PPNR in an outsized way, and we are also intentional about growing tangible book value per share. We've accomplished a lot of things since year end in . One thing we are particularly proud of is that since that time, we've increased our tangible book value per share by 85%.
We will continue our focus on tangible book value per share growth. Not going through this slide in depth as we have covered most of this previously. Obviously, we appear more optimistic than most. That said, we have a great confidence in our people, our markets and our clients and renewed optimism around reopening of our local economies Now to BHG. This is a familiar slide to most and provides a snapshot of BHG's business flows over time and more importantly, how they're holding up during the pandemic. The blue bars on the chart are originations have ramped up with more loans being funded with records being set nearly every quarter for the past three years. Business flows are strong and their model is hitting on all cylinders. The green bars represent loans on which gain on sale has been recorded as these loans are sold downstream banks. This is the traditional BHG model with gain wholesale revenues being generated.
As you can see, the green bars are fairly flat, not necessarily because of the appetite for their loans has decreased but because of the building of balance sheet loans and diversifying their business model with interest income. Coupons have fluctuated over the last three years, ending down at 13.8% for the fourth quarter.
As to bank borrowings, they also fell to 4.3% in the fourth quarter. The good news is that net spreads remain in the mid-9s, which over time has been up from previous years. The bottom right chart details now over 1,200 banks in BHG's network and almost 700 individual banks acquired BHG's loans in 2020. This has to be one of the strongest funding platforms for our gain wholesale model in the country. There are firms out there trying to replicate this, but they've got to get real busy, real fast to find a funding platform like BHG. Like I said last time, it's taken 20 years but it belongs to BHG, they own it, they developed it and they capitalize on it. The top left chart, we've shown on several occasions. The quality of BHG's borrowers has improved steadily in the past and over the last few years but particularly in 2020. They continue to refine their scorecards and increase the quality of the borrowing base. Again, the right chart and I said before, may be the most powerful chart I have to offer related to BHG's steadily improving credit quality.
Looking at losses by vintage, losses continue to level out in earlier months since origination, thus, pointing toward a lower loss percentage over the life of the underlying loans. Pandemic related events will likely cause these lines to move upward, but the quality of the borrowing base, in our opinion, is very impressive and is much higher than the bars from just a few years ago. We've updated BHG's charge-offs and reserve build chart. These are for loans that BHG has sold to their network of community banks. The green bar shows that currently they have more than $3.6 billion in credit with banks who have acquired BHG loan. The orange line details the annual loss rate, while the blue line on the chart details the recourse accrual as a percentage of outstanding loans with these other banks. 2020 losses landed at 4.26%, basically consistent with the last two years and during the year where who knew how COVID would impact loss rates. The recourse obligation reserve is used to reserve for future losses for the loans sold to other banks. With COVID, they increased the reserve in the first quarter and incremented it slightly. One note that may be of important interest to some. Included in the 4.26% is also prepayment losses related to early payouts.
So good borrowers that pay off early, BHG reimburses the bank for unpaid premium.
Just so you know, that makes up about 30% of the 2020 year-to-date loss rates. We don't anticipate any significant lift in recourse reserves in 2021.
Lastly, we said it last quarter and we'll see it again. It's been a big year for BHG and we anticipate big things in 2021.
During the third quarter of 2020, the credit markets improved, which allowed BHG's opportunity to execute on their first $160 million securitization. Appreciate that that securitization went out with investment grade rating. This allows BHG to continue to diversify its revenue stream, not so much away from gain on sale but with incrementally more interest income, as well as provide another competitively priced funding source to its business model. We're expecting another similar securitization at BHG in early 2021. The chart on the top right is a little new. It shows the trends related to the more important line items on BHG's balance sheet.
As noted at year end 2020, BHG held over $200 million in cash and slightly over $1 billion in loans, funded by almost $650 million in borrowings. The red bar I find both interesting and comforting. BHG has over $500 million in reserves and capital. It's a healthy franchise. It's a sound franchise.
So wrapping up. Loan growth for Pinnacle in 2021 will take work but we are optimistic. Loan pricing in the fourth quarter held. Deposit growth has been remarkable. Deposit pricing is headed down. BHG had another great year and credit for both Pinnacle and BHG is very much managed. To say I'm pleased with how this quarter and year ended up is again an understatement. It's difficult to relate the significant effort that my colleagues are putting forth every day, working with clients and solving their problems through this weird time. We all know it's a difficult operating environment. Loan demand is sluggish at best and who knows where the yield curve is headed.
However, the bright spots for Pinnacle are [mid]. Depositors continue to trust us and borrowers seem to have figured out how to manage their businesses through this cycle.
Our operating leverage also remains top quartile. We do have the best clients and discipline remains very important.
Additionally and hopefully, COVID-19 finds its way to our rearview mirror. Last quarter, we had hoped for an effective vaccine.
This quarter, we have a vaccine.
In fact, we have many vaccines, hope has transitioned to tangible optimism.
Our recruiting platform is scoring all over the franchise. We do like our franchise and where we do business and with whom we do business. Migration patterns continue to favor Tennessee, to Carolinas and Georgia. We like our competitive prospects. We remain a force in Tennessee as well as in several markets in the Carolinas.
We are winning in Charlotte, Raleigh, Charleston, and as I've said before, we think we can score big in Atlanta.
So with that, I'll turn it over to Tim to talk about credit.