Good morning, everyone and welcome to the Pinnacle Financial Partners' Fourth 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 Web site at www.pnfp.com. Today's call is being recorded and will be available for replay on Pinnacle's Web site 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 respect -- 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 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 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 Web site at www.pnfp.com. With that, I’m 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. I will begin where we always do. For a number of years now we’ve begun our quarterly earnings call with the dashboard to allow you to quickly assess how we’re performing on all the critical financial metrics. This particular slide is focused on the GAAP measures and as you can see we continue to grow the revenue and earnings capacity of the firm. We continue to grow the balance sheet, which we believe is predictive of future revenue and earnings growth and our asset quality is in great shape. But frankly, at least for me, given all the transition and merger integration going on in the Company, I believe the non-GAAP measures actually provide the best insight. So reviewing the key performance metrics, a number which are non-GAAP. I think that the overarching conclusion is that our momentum continues to be very strong and asset quality is pristine. We’ve been through an interesting time in the market where there has been extraordinary inflow to financials. Some would argue on almost an indiscriminate basis. So, for those that are looking for some distinction, I believe this chart tells our story very well. Number one, we're rapid growers. I believe this is the 24th consecutive quarter that we reported double-digit year-over-year earnings growth. Number two, we're reliable growers. I believe that virtually all of those quarters we met or exceeded consensus expectations. And number three, we’re profitable growers not many peer published their profitability target, but we publish targets to operate as a top quartile company with an ROA between 1.20% and 1.40% and we now operate high in that range. Beginning at the top left of the slide, our top line revenue growth continues to…

Thanks, Terry. For those of you that have followed us over the years, you know that we pay attention to expenses, but we focus on revenues and how to grow our top line revenue at an accelerated rate. We believe the 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. The dark green line on the chart denotes revenue per share. Growing EPS and tangible book value per share is much easier to do if the green line is increasing. Our 2016 revenue per share is around $10.20, which is up 20% from 2015. On a GAAP basis, our 2016 fully diluted EPS is approximately $2.91, up more than 15% from 2015. Excluding merger related charges, our 2016 fully diluted EPS is approximately $3.07 a share, up over 17% from 2016. 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. Integration of three very handsome franchises into our Firm, as well as the acquisition of a 49% interest in BHG. Through all of that, our associates have maintained a key focus of running our franchise very effectively and produce we believe outstanding results for our shareholders. Concerning loans, specifically, as the chart indicates, average loans for the quarter were $8.36 billion. Fourth quarter EOP December 31 loan balances are roughly $90 million higher than the average balances. So this should help us to increased average loan balances in the first quarter of 2017. At the end of 2016, we achieved linked quarter loan growth of 10.1% annualized. As we mentioned in our press release last night, loans grew about $208.9 million in…

Okay. Thanks, Harold. As a part of wrapping up, I wanted to try to provide some long-term strategic context. We currently operate in all four Tennessee's urban markets. The model that we built and perfected in Nashville going back to the year 2000 has been successfully exported to the other three urban markets in Tennessee. We've now been successful with both de novo starts in market extending acquisitions, and so we believe our current platform should produce a $15 billion bank in these four markets by 2020 through organic growth. We see similar growth opportunities in other high-growth southeastern markets. This is who we are. We are an urban community bank, which just means we target the urban markets and we compete with the community bank level of service. That's what we set out to build from the beginning. This is what we do. We compete aggressively and win against the large bureaucratic regionals in those urban markets based on service and advice, which includes access to local decision makers. Keep in mind, we're nationally recognized as having established a brand for trust and ease of doing business. There are a number of attractive high-growth markets scattered around the Southeast that are dominated by generally the same cast of regional banks with whom we compete in Tennessee. And so, in addition to building out a $15 billion bank in Tennessee by 2020, our three-year strategic plan contemplates our exploration of opportunities in some of the most attractive southeastern markets, including Atlanta, Charlotte, Raleigh, Charleston and Richmond. Year end 2016 is a good time to sort of backup, let's say it's how we’re doing overall. We are very excited about the growth that we're experiencing in both Chattanooga and Memphis, our newest market extensions. Both of these acquisitions were completed in…

Thank you, Mr. Turner. [Operator Instructions] And our first question comes from Jennifer Demba of SunTrust. Your line is now open.

Thank you. It looks like your loan growth during the quarter was pretty back end loaded. Can you just give us some color there? And then I’ve a follow-up question as well.

Yes, I think that’s accurate, Jennifer. As you know, our thrust is commercial. The tickets are large, both on payoffs and new loans. I think while I look at our loan growth over a very extended period of time, it seems to me to be almost on a straight line slope from quarter-to-quarter. Sometimes transactions fall in or out of the quarter, sometimes they fall early and late in the quarter which sort of impact how the averages in any given quarter work, but again my belief is that the loan growth was very solid at a 10% period-over-period number. And again I believe our pipelines and our activity going into first quarter 2017 are very strong.

Yes, Jennifer, I will just tack on there and I don’t have any kind of factual references here, but I believe in October, November, everybody kind of slow down a little bit waiting on the election and then after the election I think some of the activity kind of got reenergized. So, I think that could have contributed to the more of the funding coming in later in the day.

Okay. And how much of the loan growth approximately came from outside of Nashville?

40%, 50%, something like that. I don’t have that number specifically in front of me, but I would say it was probably half.

Okay.

Yes, they were all within Memphis, Chattanooga, and Knoxville.

And secondly, another topic, M&A, have you seen an increase in discussion levels in the last couple of months, Terry? Any change there in kind of pipeline?

I believe there -- I guess, I would stick to it this way, Jennifer. I would say there is a lot more chatter, for sure. We visit with both bankers, investment bankers and commercial bankers and here I guess like you, lots of rumors, lots of deals that are at some stage of discussion out there. So, I do believe there is elevated activity right now.

Okay. Thanks so much.

Thank you. And our next question comes from Tyler Stafford of Stephens. Your line is now open.

Hi. Good morning, guys.

Hi, Tyler.

Hey, Harold, can you go over again what happened this quarter with BHG? Just given the backdrop, it's normally a seasonally stronger -- a quarter from those guys in 4Q. And just to clarify that the 10% to 15% growth you expect in BHG this year, is that relative to the $31 million of revenue you recognized in '16?

No, I think it will be bigger than what we booked, because we only owned 30% of it in the first couple of months of 2016. So we will have that pickup for sure. But they’re talking 10% to 15% of their bottom line earnings should happen this year. So that will equate to something north of 20%, I think by the time, you know call it a 15% run rate for them, it ought to be north of 20% for us.

Okay. And then your comments about activity slowing down at the -- in the mid -- mid-November [technical difficulty] December and then picking back up, do you think that's applicable here to BHG and what drove a lot of the softness this quarter?

Yes, I don’t know if I can speak for them on that. I do not -- I didn’t ask them that question, but I'm not sure if you’re getting that same information out of others as you get through these conference calls. But I would add too that we had a couple large fundings towards the end of the year. One was a tax-advantaged credit that we got over in Memphis that was really helpful.

Okay. And then, I guess, the bigger picture on fees. You guys are within or better than every long-term target that you put out there, but with the interchange falling out back up this year and continue in the first half of '18, do you think you can make that up and remain within the 1.10 to 1.30 fee income to asset range over the next year or two?

Yes, I do.

Okay, great. I will hop out. Thanks.

Thank you. And our next question comes from Stephen Scouten of Sandler O'Neill. Your line is now open.

Hey, guys. Good morning.

Good morning. How are you doing?

Doing well. Thanks. Just one maybe follow-up question on the fee line items there after Tyler's question. With the mortgage change quarter-over-quarter, do you guys have handy what the effect of that fair value mark on the pipeline was relative to that overall gain on sale number?

I think it was about a $1.5 million. I know the volumes at the end of the quarter that have been rate-locked went from 135 in September, now to 90 something at the end of December. And so we're expecting first quarter -- some first quarter rebuild coming out here in the first quarter.

Okay. And I guess, yes, that kind of falls into my next question with that, it's in terms of overall activity everything still looked pretty strong in the fourth quarter, but given where rates have kind of trended, you think you can build that pipeline backup or do we think we'll see further 15% to 20% kind of weakness into '17, like some of these MBA forecasts are predicting?

Well, I think we will all have to battle a larger rate increase or rates going up from mortgage loans. But one thing that we've been able to do through the years is hire more producers and so I think we will get larger volumes as we -- in 2017 with increased headcounts.

Okay.

Stephen, I might just comment, we talk about the hiring momentum and we talk about revenue producers and clearly the most important aspect of that is growing relationship managers, banking relationship managers. But we hire rapidly on the mortgage origination front and so we’ve hired a large number of people in 2016 and believe that we will hire a large number of people in 2017 and so that's really the thing that closes the gap. I don't think there is any doubt that, as you say, the Mortgage Bankers Association would forecast and likely be right that there will be softening volumes, but our belief is and the way we try to outrun that is through this hiring model and we do have a large number of incremental mortgage producers on our payroll today.

Okay, great. That’s helpful. And then just maybe hopping back to BHG within those fee line items and you said obviously it was a little weaker than you guys would have expected. Two questions within that and I think you were saying -- targeting a pace of about 550 million in originations for them for the full-year. I wonder where that’s kind of panned out? And then secondarily, the amount of the substitutions or replacements that they saw this quarter, if you have that kind of ballpark at all?

Yes, I don’t have that information with me, but I will grab it.

Okay. No worries. And then maybe lastly, just on the NIM expectations, you guys sound obviously a little more positive given the rate hike we already had, the move in LIBOR and whatnot. But last quarter you had intimated that we would see a quarter or two more of compression. Do you think that's probably not the case now given the move we've seen into that core NIM can stay, maybe flattish, not accounting for the purchase accounting effect?

Yes, I think so. It's -- we've got here in the last call at 60 days or maybe 90 days seeing some real kind of firmness in loan yields or the contract rate so on new and renewed credit. So we're hopeful that we would be able to kind of keep that going.

Okay. Sounds good. I appreciate it, guys and Harold thanks for the clarity on the incentive accruals versus the purchase accounting adjustment. That was very helpful.

Thank you.

Thank you. And our next question comes from Nancy Bush of NAB Research. Your line is now open.

Good morning, guys. Terry, a question for you. You mentioned that the outset this inflow into the financial stocks and I think you said the inflows were without discrimination and everybody is basing these inflows on stronger growth, steeper yield curve, lessened regulation etcetera. Could you just give your view of what you think within that scenario is going to pan out and what is not?

I don't mind to give you an opinion. It is worth exactly what it calls, which is nothing. I think my belief is that the big players that should pan out, I do think you're going to get a reduction in the tax rate and that's a meaningful impact to earnings. I do believe you'll have an impact on the regulatory landscape although, I view that to be longer term and not an immediate impact. But again, I do expect some improvement there. I think the thing that I would highlight the most, Nancy, is I think you have -- if you look at your measures of business owner confidence, all those sorts of things, the -- if you look at all those sorts of measures, I think what you see is that business owners for the first time in quite some time are optimistic and more willing to increase their investment. And that’s the play where we win the best. I mean, we bank owner managed businesses, we’ve suffered for an extended period of time with limited confidence among business owners and so to the extent that they jump in and make investment to propel the economy, that would be the biggest win for us. Nancy, I might also just sort of clarify my comment, I really was just sort of parroting what I hear from lots of students of the investment market. And my comment about being indiscriminate was just that the funds have had the flow in a rapid way to sort of financials in general ETFs, I mean all those sorts of things as opposed to people being more discriminate about who has sustainable advantage and those kinds of things. So that was really the point of my comment.

Okay. One of the things that I hear consistently is that seems to be almost sure to happen is that the asset size limitation on what is and is not a community bank will get lifted and perhaps lifted significantly. And with that the need to forgo Durbin revenues etcetera, etcetera. I mean, are you counting on that as the long-term development, short-term development, not at all development or how do you look at that?

I don’t count on it again. I’m not saying it won't happen. Certainly hope it does happen, but again I don't count on that. Again, I would be more certain about tax rate decreases and so forth, then I would be about something like the Durbin amendment.

Okay.

But I certainly hope to happen, but it's certainly not built into my plan.

Okay. Secondly, I would just ask about Avenue. At the time you guys did the Avenue merger, it was interesting because a number of your regional and community competitors suddenly started up music/entertainment lines of business and I think probably with the thought that they would be able to snag producers or clients. Can you just tell us how that business has proceeded to grow since the deal?

Yes, I would just say, I can express it in terms of loan volume, I would say that the music group which was previously Avenue's music group, now Pinnacle had its biggest quarter ever in terms of loan volume in the fourth quarter of 2016. So again, we feel good about our ability to compete in that sector.

All right. Thank you.

Thank you. And our next question comes from Tyler Agee of Hilliard Lyons. Your line is now open.

Hey, good morning.

Good morning.

You'll mentioned you had 25% growth in trust assets. Could you provide some color on the linked quarter surge in investment services?

Yes, I think most of that investment services increase is the contingency payment we get from Raymond James every year.

Okay.

They based that of off trading activity for the last year and so we get a little bonus here in the fourth quarter.

Okay.

That's what most of it was.

Okay.

But there was other, I think trading activity for our brokers was also up in the fourth quarter as well.

Okay. And then also a big piece of your story is bringing over revenue producers. Could you speak to the pipeline currently?

Yes, I would say there is not a dramatic change in the pipeline. I guess which is a way to say that we have continue to hire people in the fourth quarter, and I believe we will continue to hire people in the first quarter.

Okay. And then moving on, could you provide some color on a target for loan growth in 2017?

I would say our expectation would be low to mid double-digit growth.

Okay. And then lastly you mentioned tax reform. Where do you all expect the effective tax rate in 2017 to be absent that?

It will probably be somewhere between 33 and 33.5.

Okay. That’s all I got. Thank you.

All right. Thank you.

Thank you. [Operator Instructions] And our next question comes from Brian Martin of FIG Partners. Your line is now open.

Hey, guys.

Hi, Brian.

Hey, two things for Harold on the fee income side just to make sure, I’m clear, the BHG part I think you said you kind of gave 10% and 20%, so the 20% is on your work earnings in, Pinnacle contributions in ;16 is $31,000. So the 20% growth on top of that would be the outlook?

Yes, that’s true. And that two pieces one is their business flow growth and then they were picking up two months of increased ownership.

Yup, got you. Okay. And then just secondly on the mortgage side, I guess you talked about the rate-locks and then Terry talked about just kind of the incremental hires you expect in mortgage producers in '17? When you look at the net earnings with flow-through mortgage, I guess is your outlook that the mortgage origination revenue should be greater in '17 versus 16.

Yes, I will just say, the guy that runs that department for us, or that group, he has got a big challenge this year, because yes, he is supposed to produce increased revenues this year over and above what he did in 2016.

Okay. And I guess, just a last couple of things. I think you said, just maybe going to Terry on M&A for a minute. You talked about looking at these other southeastern markets. Can you just talk about, are there still opportunities to do in market deal in your existing footprint or I guess, is the focus more out of market at this point?

There are a few, but I think it's pretty limited in terms of the bona fide in market acquisition potentials. Again it's not zero, but it's not very large, and so they think looking to the east is very attractive to us.

Okay. I got you. Okay and then, just on the last two things, just the revenue producers that you guys hired in '15 was strong, '16 was stronger. Is your outlook just in general that the number of revenue producers you hire in '17 will be greater than '16? I guess, is that a kind of the high watermark as far as how many folks you brought abroad?

I will think we would hire at least as many people in '17 as '16.

Okay. All right. And then, just the last one was just on the margin. I think Harold, you gave some -- you quantified somehow the recent 25 basis point increase, the impact to margin, I guess, could you give some color regarding there or maybe I missed it or just misheard what you had to say, but the recent increase that occurred late December, how much benefit did that have -- I guess, would you expect that to have to the margin based on your current asset sensitivity?

Yes, we think that the 25 basis points that occurred in mid December and given that we’ve not had to adjust deposit rates hardly at all, that’s probably more than $0.5 million a month increase to our run rate.

Okay. Perfect. That’s all I had. Thanks, guys. Nice quarter.

Thank you.

Thank you. And our next question comes from Peyton Green of Piper Jaffray. Your line is now open.

Yes, Terry, I was wondering if you could give maybe a little color on the low of mid double-digit loan growth for '17 with the hiring that certainly was very active in 2015 and even more active in '16? Maybe what’s missing in terms to understanding kind of the loan growth might pick up in '17 is the seasoning of that capacity and the -- and then the amount of capacity that exists in those revenue producers?

Peyton, ask me the question again. I’m not sure I got it.

Yes. I guess, in terms of the number of revenue producers increasing in '15 and '16, maybe the mix of revenue producers, I mean, how much of them are more lending oriented versus mortgage? And does that make you more optimistic about loan growth in '17 versus '16?

Well, I think maybe just to get out into the basic numbers, if the question is do we expect to grow our loan volumes more in 2017 than we did in 2016? The answer to that would be yes. And it is largely influenced by the increased hiring of what I’m going to call relationship managers, commercial bankers as you know, Peyton, we call them financial advisors. And so that’s the principal driver on the loan volume. Of course the mortgage volume as you know we sell in the secondary market and so we have hired a good number of mortgage originators. We’ve also hired trust sales people and brokers, Series 7 licensed brokers in -- among those revenue producers and so we expect growth in -- outsized growth in each of those categories as well. Again, I think to your point of milking out the revenue, we’re incurring the expense today and so we milk out the revenue in 2017.

Okay. And then, Harold, as you grow loans, each dollar of loan growth, will you add securities at the margin going forward if deposit growth remains stronger than loan growth or continue to pay borrowings?

No, no., we will -- I think as long as our capital is in good shape and as long as -- I don’t think we will see the ratio of securities to assets go down much further. I think we’re pretty comfortable where it is, we like the way it shapes up, but you’re right we’re largely carrying a bond book to secure public fund deposits.

Okay. And then, do you still feel good about deposit growth going forward, Terry?

I do. I do.

Okay. All right, good enough. Thank you for taking my questions.

Thank you, Peyton.

Thank you. And our next question comes from Tyler Stafford of Stephens. Your line is now open.

Hey, I just had one follow-up question to Peyton's last point about the bond book. Can you talk about the changes you made there this quarter? It looks like you took duration up a bit and yields were much stronger at quarter end than they were on average. Just any color on what you’re buying now and what are the new yields there?

Yes, I think the -- those were quarter end yields. I don’t think there has been any significant change in what we’re buying or anything like that. I know we’ve kind of dipped our toe into some banks sub debt issuances. I think I might have $10 million of that, that occurred this quarter, but there is -- I think it might have just been just a general increase in rates, but I don’t sense any big changes in how we’re going about constructing that book.

Okay. And then maybe one more, if I could sneak it in on the reserve ratio, just any thoughts on where that reserve ratio bottoms out or how we should be thinking about it for next year? I’m talking about the 70 bps GAAP reserve.

Yes, I think Tyler, you’re right. We are getting close to where it's going to be at an embedded floor. We still -- my charge-off ratio for the quarter was influenced by high yield. I think charge-offs if you take high yield out were like 4 basis points this quarter, so we still have, we believe credit leverage there, but not nearly as much this time this year as we had this time last year. And I think that’s primarily just due to optics. We will continue to look at it. We probably have some more reserve release coming, but you're right, it's not going to be nearly to the extent we had in 2016.

Okay. Thanks, Harold. I appreciate it.

Thank you. And I’m showing no further questions at this time. Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.