Good morning, everyone and welcome to Pinnacle Financial Partners' third quarter 2016 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 opened for your questions following the presentation [Operator Instructions]. Before we begin, Pinnacle does not provide earnings guidance or forecasts. During this presentation, we may make comments, which may constitute forward-looking statements. All forward-looking statements are subject to risks, uncertainties and other factors 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 of such factors are beyond Pinnacle Financial's ability to control or predict and listeners are cautioned to not put undue reliance on such forward-looking statements. A more detailed description of these and other risks is contained in Pinnacle Financial's most recent Annual Report on Form 10-K. 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 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 am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO.

Thank you Operator. Good morning, we appreciate you being on the call with us this morning. Obviously, the primary objective of our call this morning is to review third quarter performance. As we always do, I’ll make some summary comments and then Harold will go through the quarter in greater detail. The second objective of our call today is to make sure folks are updated both on where we are and where - so following Harold's review of the quarter, I’ll take to create clarity around our long range plans. With that said this first slide the dashboard that we've used for quite some time now, to allow you to quickly assess how we are performing on the critical financial metrics. This particular slide is focused on the GAAP measures. Frankly, for me given all the translation and merger integration going on the company, the non-GAAP measures actually provide greater inside. So reviewing the key performance metrics, the number which are non-GAAP measures. Begin at the top left of the slide, our top-line revenue growth continues to be excellent in the third quarter, revenue excluding securities gains and losses we are up 41.8% year-over-year and up roughly 9.8% on a linked quarter basis. Bottom line our fully diluted EPS, net of merger related charge were $0.78 up 18.2% year-over-year and excluding merger related charges the ROTCE was 16.1% and that’s up from 15.641% last quarter and from 15.31% the same quarter last year. I think it's important to note that all three of those measures are now at record levels. Let’s move now to the second row of charts that generally focused on balance sheet growth, which for companies like ours is the primary basis for our future revenue and earnings growth. Loan growth $1.15 billion in the quarter that’s…

Thanks Terry. For those of you that have followed us over the years know we pay attention to expenses, but we focus on revenues and how to grow our top-line revenue. It's our belief that top-line revenue growers that can leverage growth with increased earnings will be supported with outsized multiples by investors. This chart shows that in some detail, green bars are fees, while the blue bars represent spread income, the dark line on the chart denotes revenue per share. Growing EPS and tangible book value per share is much easier to do if the stream line is increasing. Our trailing four quarter revenue per share is around $9.98, which is up 25% from the previous trailing four quarter period. On a GAAP basis, our trailing four quarter fully diluted EPS is approximately $2.77 per share, up almost 15% from the previous trailing four quarters. Excluding merger related charges, our trailing four quarter fully diluted EPS is approximately $2.93 a share, up almost 20%. So we believe our firm has performed exceptionally well and transferred revenue growth to bottom-line results. Over the last 24 months, we’ve experienced a lot of change at Pinnacle, hats off for our associates for guiding our firm to a significant amount of both organic as well as acquired growth. There has been a lot of inward focus around here over the last 24 months, which has allowed us to absorb all of this growth into our infrastructure in an exceptional way. We are in the late innings with all of this and very much excited about the future as we set new goals for our banking franchise, both in our four core markets in Tennessee, as well as potentially beyond our stakes. Not concerning loans specifically, as the chart indicates, average loans for the…

Thanks Harold. I mentioned on last quarter's call that we would be completing our three-year strategic planning process during the third quarter. And during this process, you should expect our Board Management to review all our accomplishments, explore our opportunities particularly in areas where we believe we’ve an advantage. I indicated that we would be looking at our tactics for continued long-term organic growth, our long-term operating metrics which we established several years ago. Our expansion plans in Tennessee and we would be evaluating expansion into other high growth markets in the South-East. So I want to take a few minutes to talk through the operating environment we see over the next several years and exactly what our response to those opportunities will be. First of all let me remind you that back in the 2011 to 2012 timeframe, we published targeted profitability and we published the financial model or operating metrics that would be required to achieve that profitability. In conjunction with previous year’s annual planning process, as we updated our profitability target back in 2014, increase in the level of return on assets that we were targeting, and while we’ve kept that targeted level of return on average assets constant since then. We’ve updated the targets for individual components of the model three different times to better reflect environmental realities and still achieve the targeted return on average asset. For any of you that are unfamiliar with the model and our target range is generally should we hit the midpoint for each component, we would hit the midpoint for the ROAA. So as a result of this year’s planning process, in terms of the profitability target, we expect to continue to operate this firm at its current level of profitability for the foreseeable future. In other words, we…

Thank you Mr. Turner. The floor is now open for your question following the presentation. [Operator Instruction] Our first question for today comes from a line of Jennifer Demba from SunTrust.

Thank you good morning.

Good morning.

Terry thanks for laying out on the criteria in terms of expansion. What are your thoughts on tangible book value dilution and your tolerant there, and then, also can you just kind of talk about what your pipeline is in terms of potential new hires outside Tennessee or M&A opportunities outside Tennessee?

Okay, yes I think on tangible book value dilution, you know we've not published a formal target on that, our view has always been that we would not do anything that would have and earn back greater than three years. I think in all the deals that we announced previously, it was substantially shorter than that and that would be our ongoing model as well. so I wouldn't necessarily want to say it will be zero, but it certainly wouldn't have any extended earn back period, it just wouldn't be attractive to us on that basis. I think as it relates to hiring pipelines and so forth, our deal flow and so forth, I guess let me see if I can get it in perspective for you. you know we're in the relatively early stage of exploration, we've had conversations with a number of people that I would characterize as casual or exploratory, we're not specifically down the hiring line or down the deal line. But I do have a general belief that in at least one of the markets that we outlined there, there is a group of people who I think would be capable of a de novo start similar to what we've done in these other markets. Again, I'm not telling you we can or will hire them, I’m just saying I'm aware that there are people that are available to add that capacity. And in the case of deal flow, I do think there is just more chatter than I have seen in a very long time. I don't want to digress too much, but I have listened to people and their theories about consolidation and the pace of consolidation. If you go back two, three, four years ago people talked about that they were about to enter a big wave of consolidation calls, some of these smaller banks could earn their cost to capital and so forth. Again, my view of that has always been there could not be a meaningful acceleration and consolidation until the merger multiples got up to something more tolerable to the sellers, because most of these banks are sold, as opposed to bought. So I think you had upon equilibrium, here now where a lot of people recognize and this environment's going to be hard, the lower longer rate scenario is tough on margins, the compliant expense burden gets heavier and heavier and so you got people that are more willing to capitulate. You probably got multiples at a point that are maybe over the minimum threshold from their view and so again I think there are a lot of opportunities out there. So it's a long winded answer to your question, I just would characterize it that we've had some discussions on both avenues of expansion, but I wouldn’t want to pitch it that we're like the way down the road on any of it. We're still in early stages of exploring those opportunities.

Okay, and can you give us some color around the hires you made during 3Q 2016?

Let's see, I don’t know if you got a schedule or something there that I could talk from. Yes, I think - maybe I'll just take a second and again try to get on the table with you how we look at hire. What we are talking about here in this hiring in the slide presentation. We made a revenue hire, revenue producing hire, I think when we talked about the hiring ratio generally turns out to be above two to one, in other words for each revenue produce you have to hire about two support that may either be direct or indirect support. And so what we are talking about the revenue hires, we’ve also made meaningful hires of non-revenue producers as well. On the revenue producers, we most for the hiring continues to be from large regional banks, occasionally if we hire some smaller banks just because those folks worked at large regional bank went to a smaller bank and find our option to be a better option. So again, I think the hiring basis thesis are really the same, we are hiring folks from large regional banks and we are hiring on almost every front, we are hiring commercial middle markets FAs. We are hiring smaller business, but when I say FAs that’s financial advisors, you might use the term relationships managers and so we are hiring middle markets relationships managers, we are hiring small business relationships managers. We are hiring wealth management professionals both as brokers and trust or asset management and we are hiring more originators. So it’s a pretty broad cross section revenue producers.

Okay, thanks so much.

All right.

Thank you. And our next question comes from the line of Stephen Scouten from Sandler O'Neill.

Hey guys, congratulations on solid quarter.

Thank you, Stephen.

I wanted to get some incremental detail on the NIM trajectory and I saw where you were bringing down your forward target by about 20 basis points for that range and it sounds like the NIM will be lower in the Q4 with further affects from Avenue. But I mean what beyond that are you seeing in terms of compression affects from a core yield basis, are new loans yields coming lower still or is it just kind of fill the gap between new loan yields and current yields on the books?

Yes I think what is really impacting our loan yields for the last probably four quarters or even longer is we are getting a lot of LIBOR based credit, a lot of [fraud] (Ph) based credits. So roughly 50 some off percent of our book is now going to that kind of pricing and particularly the LIBOR based credit is a much lower than we would otherwise get. So the spread the LIBOR have decreased some. But it really feels like Stephen that the pace of the decrease is slowing and that just our national business flow between the types of loans that we are getting is relay consistent. So as you look to the four quarter, we have talked about what the purchase accounting accretion would be in the fourth quarter. We are not expecting a big decrease in our margin in the fourth quarter, but we do think it will come down soon.

Okay and then you guys also mentioned obviously the incentive accrual is down which kind of implies that may be relative to what you were expecting, the targets you were expecting to hit it Q2 versus what you are expecting now maybe have been paired off a little bit. So what are you kind of seeing there that makes you feel - is it just growth looks a little slower. I mean we are hearing from a lot of banks that maybe pay downs are a lot higher into the permanent financing markets or kind of what is the trend you are seeing across the Board that leading those kind of that trajectory, if you will?

Yes, well I think it really kind of plays into your first question, I think all banks are fighting this margin every day. We had built in our planning assumptions this year that we would get a couple of rate increases that has not transpired. And so I think it’s basically just trying to figure out how this margin is going to respond over the next six to 18 months. As you know on our incentive accruals, we based it off with an annual target that’s based off of EPS and revenue growth or traditionally that’s what we’ve done. And so as we looked at each quarter in, we just evaluate where we think we are for the full-year. So that’s what resulted in the approximately $2 million decrease in that accrual this quarter.

Stephen, I might take a second just maybe put that in perspective for you. again, just as a reminder for having incentive target get set it's generally a function as Harold said, revenue growth and earnings assuming we clear sound this threshold. And so in the revenue and earnings plans for going into 2016, our forecast call for several Fed fund increases, which would have been advantages to us in terms of revenues and earnings, which didn’t materialize. I think our firm has done a fabulous job and we have been benefited by some of the M&A activity in particular the BHG incremental investment that we made and so we’ve covered what would be a pretty significant gap created by the assumptions that were made at the beginning on Fed fund increases. And so again, in terms of what the folks in this firm has done, it seems good to me. I think from an investor standpoint, the fact that incentive accrual represents that the shareholder get their money before the associates get theirs is also a pretty strong signal.

Yes definitely and I guess maybe one last question for me, the offset to that has been your expense performance has been impressive and it seems as though you are ahead schedule as you said on the Avenue expense targets in the 40% target there. I know Harold you said you don’t want to get too much into weeds there, but just as it pertains to that $4 million in cost saves, can you give us an idea maybe of just what percentage of those costs already came out? I mean is it 70% that already came out? Is it more like 30 or 40 or just kind of, I don’t know if you can frame that up at all relative to that $4 million in total?

Yes, Stephen it wouldn’t be 70%, its probably more alike 40% to 50%, there were Avenue - any time we have merger announcement, a lot of the people that will be a part of the synergy case. They are beginning to look around pretty early. So we had a lot of people that left even before the acquisition day. But here in the third quarter, we had 26 more come up to payroll and most of those came up payroll in September. So I don’t think that we harvested 70% yet, I think it might be closer to maybe half.

Okay great, but you do expect the totality of that will be out in the fourth quarter, is that right?

Yes, I think there is a handful of jobs that are coming out in the fourth quarter, but those are coming out relatively soon. So yes, we believe a lot of the synergy case will be fully absorbed early fourth quarter.

That’s great. Well thanks for taking my questions, I appreciate it.

Thank you.

Thank you, [Operator Instructions], and comes from the line of Tyler Stafford from Stephens.

Hey, good morning guys.

Hi Tyler.

Hey. Maybe just to follow-up on the expense topic, I was hoping to get some clarification around the long-term expense outlook. The press release said you can continue to operate in that long-term expense to average asset range of that 2.10 to 2.30 in 4Q and then throughout 2017, but in the presentation it said you are altering and improving that long-term outlook down to 2 to 2.20. So I guess how should we be thinking about that in the near-term in 2017, it should be at that higher previous range and then longer term as you guys get greater scale it will drop down to that lower 2 to 2.20 range.

We ought to be in that 2 to 2.20 range. The press release we didn't want to get into a change in these long-term strategic targets in the press release to just get kind of wordy, so we ought to be in that 2 to 2.20 range going forward.

Okay, so as early as 4Q and then 2017 that you are referencing.

Yes sir.

Okay, all right thanks, and then maybe just a question around BHG revenues this quarter and looking at the cost to fund BHG that was up marginally in the quarter, but then obviously the fee income that we see was down. So were the originations actually stronger than in 2Q, but you either sold less or the gain on sell margins were lower than last quarter. Any help, I guess some puts and takes there.

Yes, I think the operating flows for BHG were consistent, maybe slightly down, I think the operating flows for BHG were down in the third quarter Tyler. So I'm not sure, I'm not following your question completely, but they also had a higher substitution amount this quarter, so their credit losses also increased in the quarter, so their margins were squeezed I guess is the way to put it.

Yes, that's what I was getting at, since the funding was still elevated just wondering if it was more of an origination issue, which I guess would match up with the higher funding cost or is it more of a margin gain on sale issue.

That's right. The funding cost that we put in the press release is an estimate of what we're having to fund that asset. And so as that asset grows on our balance sheet that means, you know as we as our earnings exceed their dividend paid to that number's going to increase.

Okay, got it.

Because the balance sheet asset is increasing.

Yes, okay. And then maybe just lastly from me on the loan growth topic, a couple other local competitors have recently gotten into the music and entertainment lending niche, just wondering if you're seeing any increased competition out of that specifically now that Avenue's on.

That's an interesting question, I would say there is a lot of talk in verbally I think in terms of the absolute level of competition I would say no.

Okay. All right, thanks guys.

Thank you, and our next question comes from the line of Tyler Agee from Hilliard Lyons.

Hey good morning. Staying on loan growth clearly the annualized base of 10.3 is still strong, but it was below your year-over-year pace of 15.2 and a lot of banks we've talked to has seen a softening in the loan demand and I was just going to see to what extent you have experienced this or whether there were other factors impacting that loan growth?

My sense of it is that for us you got a commercial for us, you got a lot of large tickets in there and so literally the movement between quarter-to-quarter sometimes can be unusually influenced by a large pay down or two or a large transactions that involves inside the quarter or just outside the quarter by some winning closes. And so as we look at our pipelines you might guess we run a pretty rigorous pipeline measurement on the loan and we expect to produce over the next 90 days and so right now our pipelines would suggest there is really no softening on C&I front. But again I would say the modestly lower growth realized in the third quarter relative to the previous 12 month period is just more related to timing than demand. Again, I would say the demand is strong, we would look for a strong fourth quarter in terms of loan growth.

Okay, thank you. And then moving to the net interest margin, do you have an idea of how much of that linked quarter contraction was attributable to Avenue?

Yes, we’ve got to put some things on a back of a napkin, but it was probably closer to three to five basis points was kind of what Avenue contributed.

Okay. And then you mentioned assets sensitivity, do you all run a simulation models to show what your increase in like net income would be as interest rates come up say 100 basis points?

Well for sure we do that. I can just tell you that we have got to $1.8 billion in assets net of funding that would respond on the first basis points of a rate increase. Now that will include LIBOR related credit, so we are making an assumption that LIBOR would increase concurrent.

Okay and then very quick lastly what is of going to deal you are seeing for new investment securities as those roll forward?

Well we think going forward the securities that we’re rolling off would be around two and a quarter and the securities that we’re purchasing are going to be 1.75% to 2%. But we are not looking to grow that book, we are just going to maintain that book to collateralize public fund deposits.

Okay, thank you. That’s all I had.

Thank you. And our next question comes from the line of Brian Martin from FIG Partners.

Hey guys.

Hey Brian.

Most of mine were answered, just a couple of things, Harold may be just the accretion income remaining on the CapitalMark and Magna and then the Avenue you kind of gave some numbers last quarter. I guess on the Avenue, was there any change to the I think you said it was $10 million to $12 million based on what you are expecting last quarter is that a good number?

Right now and I guess we will have just as closing the Q10, we’ve got about $36 million of purchase accounting accretion left to go through the loan book.

Okay and that’s in total for everything.

That’s for everything.

Okay perfect and then you gave the 50% of the loan I think you said that with floors that would move by the way I guess that’s all-in with Avenue?

Yes.

Okay.

That’s a LIBOR based credit as well as prom based credit.

Got you, okay. And then just maybe the last thing was on the gain on sale revenue in the quarter, I guess is this a pretty - I mean I guess from a run rate perspective, is there anything unusual this quarter, I guess this is a good run rate combined to the two companies and Terry had said that there is some - maybe as you Harold said there are some pick up or some better activity in Nashville of late.

Yes, well the mortgage business has been really strong for us probably in the last nine months and so we’ve seen significant pick up in their volumes. We don’t think that volume is going to continue into the fourth quarter, you are kind of coming in on the tail end of the buying season for homes. So we don’t expect that the increase. And so that will probably hurt us on fees going into the fourth quarter, we expect a solid quarter out of BHG in the fourth quarter. And we’ve also got some transactions related to small business loans with Freddie Mac that are suppose to occur here in the fourth quarter as well as some other things that are going to occur in the fourth quarter that should help support our fee number for the rest of the year.

Okay and no change in the outlook for BHG as you look to 2017, I think you said a solid fourth quarter, but I mean still expect the growth rate of that to kind of near the growth and as of kind of loans of the legacy Pinnacle?

Yes, we expect BHG to still outperform, I think their pipelines are really strong right now, so they are entering fourth quarter where a lot sales programs kind of come into more focus. And I’m sure that the marketing engine and the sales engine of BHG are going to be running at full till in the fourth quarter.

Okay. All right that’s all I had guys, thanks.

Thanks Brian.

Thank you. And our next question comes from a line of Peyton Green from Piper Jaffray.

Yes, Harold, I just wonder maybe if you can comment on the outlook for BHG not just in the fourth quarter but maybe beyond into 2017, are they seeing any change in competitive pressure that might change your view about what they can do?

Yes, we get kind of quarterly update on what they see about competition and they are not really experiencing any kind of big dents in their programs, because of competitive pressure. They are still getting the yields that they have always gotten. The business flows are still strong, what is key to their business is what their lead flow is, how many names and phone numbers they can get from the various sources that they acquired those lists from. And I think their marketing folks are running to be hard right and I think they are generating a lot of leads. So it's all based on the top of the waterfall and how many leads they can generate will ultimately result in what kind of loan volume they ultimately get to book and then ultimately sale.

Okay great. And then in terms of your outlook for 2017, what do you expect or what you have embedded in your margin outlook in terms of the Fed movement?

Well I think we have a 25 basis points movement in mid-year and another 25 basis points towards the end of the year which basically is inconsequential for our net interest income next year.

Anything in third fourth quarter?

Of this year?

Of this year.

Yes, 25 basis points coming in December.

Peyton what is your outlook Fed funds?

It's been lower for longer for quite a while. Maybe they do a quarter but I don't know that there's much.

All right.

Thank you.

Sure.

Thank you, and our next question comes from the line of Jefferson Harralson from KBW.

Hi thanks, I want to ask you first about the expense line and just see if I heard what you said correctly that we had about $56 million of expense in this quarter with the reverse incentive accrual or with maybe the lack in incentive accruals were at 58. But we said a million I guess from Avenue, so 58 which should be growing overtime with a million dollars we will have to get of Avenue, am I thinking that correctly, is there some other unusual item in the quarter that we should think about.

No, I think that's directionally right, like we talked about we got an incentive accrual out there that we hope to recapture in the fourth quarter and then we've got some more synergies out of that in the acquisition that we will get in the fourth quarter.

Okay, then with your mentioning of 15 or 20 basis points of 4Q margin coming from [accretible] (Ph) yield that's probably $4.5 million to $5 million. How should that line item look over 2017, are we still early enough in the accretible yield flow that that should be relatively stable or should that come down a little bit as we go through next year.

No I will come down overtime, we mentioned earlier we got about $35 million left to go, it's probably going to be four to five in the fourth quarter and it will get probably over the next two years, it's probably how that will all kind of play out. Additionally it will become inconsequential.

Yes, all right and lastly you mentioned the hire substitution amount on BHG, can you talk about the credit you saw this quarter, the credit you expect or kind of anything that's going on there with credit that you can talk about.

I don't really have anything that's unusual, what they experienced was in September was probably about 750 to a million dollars more in substitution than they would have normally experienced. So we'll be looking at the fourth quarter to see if that continues but so far they are running about you know call it a million dollar run rate on substitution amount.

Okay. All right, thanks guys.

Thank you, and that concludes our conference call for today. We thank you for your participation and you may now disconnect. Everyone have a great day.