Good morning, everyone and welcome to the Pinnacle Financial Partners Second Quarter 2017 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 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. [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 facts that may cause the actual results, performances, 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 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 and are defined by the SEC Regulation G. A presentation of the most directly compared GAAP financial measures and a reconciliation of non-GAAP measures are to the comparable GAAP measures and will be available on Pinnacle Financial’s website 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. We always begin our quarterly earnings calls with this dashboard to allow you to quickly assess how we are performing on all of the critical financial metrics. This particular slide is focused on the GAAP measures. I expect, most of you know, we closed our acquisition of BNC on June the 16th, less than five months from announcement. And so, all the financials are impacted by that transaction and two weeks of post-merger performance. So for the second quarter, we continued to grow the revenue and earnings capacity of the firm. We continued to grow the balance sheet at a very substantial pace, both organically and through M&A which we believe is predictive of future revenue and earnings growth, and then also shows that our asset quality is very strong. As I say each quarter, at least for me, given all the transition and merger, integration going on in the Company, the non-GAAP measures actually provide greater insight into the core run-rates on these important metrics. So, we will move on to those. Looking at the non-GAAP measures, those are all nicely sloped in the right direction. I won’t walk through each metric. I will just highlight two that we’ll get a little more discussion as Harold reviews the quarter in greater detail in just a few minutes. So, let’s look first at ROTCE on the first row and the reductions there over the last two quarters. As you will recall in conjunction with the BNC acquisition and to support the future growth needs of the firm, we issued 3.2 million shares on January 27, 2017, totaling $192 million in net proceeds. So, we had a partial quarter impact of those additional shares in…

Thanks, Terry. Revenues for the quarter increased from $119 million in the first quarter to $142 million in the second quarter or about $23 million quarter over quarter. Revenues from BNC contributed $14.1 million to the quarter for the half month of this operation’s post-merger. As a result, we believe the legacy Pinnacle franchise experienced 29% annualized linked quarter growth in revenues between the second quarter and the first quarter due to increased yields on earning assets as well as strong fee growth in a number of areas, more on that in a moment. Total spread income increased $18 million between second and first quarter, as shown on the blue bars on the chart; discount accretion represented $1.4 million of the increase, so less than 10%. The dark green line on the chart denotes revenue per share. Impacting our revenue per share in the first quarter was the capital raise, which we believe diluted our first quarter revenue per share by $0.12, which is the reason for the decrease in the chart in the first quarter. We reported $2.46 revenue per share in Q1 with the capital raise and reporting revenue per share at $2.64 this quarter. We believe revenue per share will increase in the third quarter as the capital raise in the early part of the year has already been fully absorbed in our second quarter run rate, while the BNC revenue impact and the corresponding share issuance were included in our results for only two weeks. Thus, BNC will have a larger impact in the coming quarters. We believe the BNC revenue per share in the last two weeks would have capped out at slightly more than $3 per weighted average share, post-merger. As we look forward to the third quarter purchase accounting related to our mergers…

Thanks, Harold. Okay. After a pretty thorough review of where we’ve been and where we are, I wanted to focus now on the growth potential that we see going forward. And so, to get behind the growth potential that we have going forward, I think it’s really critical to get behind and understand the growth model that we’ve successfully deployed over the last 17 years. In my opinion, Shakespeare guided right, “what’s past is prologue”. Many of you remember in the years, maybe following the recession, frankly the time when we felt our share evaluation didn’t really reflect the balance sheet and earnings growth we intended to produce, we published the three-year organic loan growth targets and ROA target to make it more clear to investors as to our expectations for earnings growth. And so in that period from 2012 to 2014, we consistently produced double-digit loan growth and exceeded our published target while at the same time muscle building [indiscernible] to hit target, at the time when not many banks were able to do either. What you’re looking at there is Greenwich Associates Research as it pretends to businesses with annual revenues from $1 million to $500 million which is effectively the entire business market and Nashville, Knoxville, Memphis and Chattanooga. For each market, banks are plotted left to right based on the percentage of their clients who rate their satisfaction as excellent. As you can see by the fact that Pinnacle for the most part is the right most plot point on each chart, we have clearly built the distinctive client experience when compared to the large regional national franchises with whom we compete. Banks are plotted north and south based on their market penetration of businesses with sales between $1 million and $500 million. And so, conclusion…

Thank you, Mr. Turner. The floor is now open for your questions following the presentation. [Operator Instructions] Our first question will come from line of Stephen Scouten with Sandler O’Neill. Please proceed.

Hey, guys. Good morning. Congrats on a great quarter here. Question for you, the loan growth especially within the Tennessee legacy footprint was extremely strong. Can you give any additional color there on kind of segment to that growth, where it came from either geographically or type of loan? And if you think we should be thinking about a faster rate of growth than maybe the legacy 10%, to 12%, 13% that you guys have traditionally put up?

Steve, that’s a great question. I think in terms of the growth during the second quarter, I guess to give you a little color commentary I would say in terms of industry segment it’s pretty broad in its distribution. So, it’s not like you’re doing it all in health career or name another sector there. It’s a broad and diversified in the growth. I think the thing I would comment is and this is just a back of the envelope estimate. But, it looked like to me about 40% of that growth came from market share takeaway, which seems important to me. Again, I think there’s been a lot of talk about limited C&I our loan demand and those kinds of things. We are getting some growth from our existing client set and I’m sure some of that has to do with this idea of hiring folks and their consolidating books of business. And so, even among existing clients loans continue to fund and move and those kinds of things. But to have 40% come in through market share movement is a big, I guess, boon to the growth rate. Steve, I think over the long-term, I mean we’ll have quarters -- I mean, my guess is that the third quarter is likely to resemble the second quarter in terms of growth. But I think just over an extended period of time, I sort of like low to mid double-digit growth rate for the loan category. So, I don’t know if that’s helpful but that’s who I see it.

Yes. No, that’s very helpful. And then, maybe on the NIM, nice moves there, especially on the core NIM. Harold, can you give any color into what drove that? I mean is that predominantly from the March hike and the effect there or is that new loan yields coming on a bit higher? What’s I guess kind of puts and takes between those two dynamics within that core NIM?

Yes, Steve. What we’ve kind of come down on or what we’ve concluded is that of the 14 basis-point increase in the core, probably about 8 basis points was attributable to the March rate hike. So, yes, probably about half of it.

Okay, great. That’s really helpful. And then, maybe one last kind of more high level question is, I mean obviously things look like they’re going great. I think there is a ton of potential in the North Carolina and Virginia markets from BNCN and I think that’s pretty clear. What do you feel like could trip you guys up? What do you worry about a little bit? I mean last quarter we were are talking more about healthcare loans and exposure there and some people are focused on retail now and credit for a bank obviously can always be the easiest way to trip up. But what is it that you guys are really focused on as you think about what could derail the kind of trajectory you have today?

Yes. I think I just gave you some random thoughts, Steve. I think for me, I’m always interested in containing CRE exposure. Many folks remember we took meaningful losses going through the last recession, one of the things we committed to as concentration limit. And we’ve got a number of sub limits but just 30,000 fee, the two most familiar limits are the 100% construction, 300% total CRE exposure. And we intend to stay inside of that. I do think in terms of our guidance to lenders, we have put a caution flag and really told commercial real estate lenders that if you are doing many firms or loans with either actual maturities in the three to five or seven-year time frame or rate maturities of 10 years, you are almost certainly going to intersect with the cycle here on commercial real estate. So, our guidance has really been in our red flags but what we said is we are going to do deals, it needs to be on our terms and our price or -- and we are in a position to miss deals. Again, I don’t want you to interpret that we are on the panic button; I’m not on the panic button. I just think we are later in the cycle than we once were. And so, now is a time for little more caution there. I think that’s probably the biggest area I guess, if you trying to highlight things like credit that would stop us.

Thank you. Our next question will come from the line of Catherine Mealor with KBW. Please proceed.

I want to follow up on the margin. Can you talk about your outlook for the margin when we layer in a fourth quarter BNCN, both with and without the accretion? And then, kind of follow-up to that is, as you think about the BNCN, naturally not as asset sensitive as you are because already you probably have more risk to the flat-end of the curve. So, can you talk about how you think about that incremental margin in a higher but flatter yield curve at BNCN? Thanks.

Yes. Catherine, what we have been talking about probably for the last, I guess since January is that we really believe that our core margins will stay relatively stable. We are not seeing any kind of big upticks in funding cost just yet, but we think that will eventually happen of course. But, the core margins ought to be pretty flat. There is a lot of discount accretion that’s going to be coming to us in the short end. So, we have always talked about there is going to be accretion with respect to I will call it the GAAP margin. So, once that -- we’ve got a $192 million, we allocated about $170 million of that to Bank of North Carolina, so a lot of that money will be coming in here in the next, call it four to eight to 12 quarters.

And would you say that and if that’s going to start ramping, I mean it’s going to start higher and then trail off as we get into the out years…

That’s for sure.

A larger portion of that $170 million is going to really start hitting next quarter?

That’s right.

And the life of that, do you think it’s going -- is the life of that $170 million -- it’s got to be longer than eight quarters. So, what’s your…

Yes. The life of it won’t -- the consultants have it going out as far as eight to 10 years.

I got it. But just a large percentage of it over the eight next quarters.

Yes. It’s definitely an accelerated kind of accretion.

Thank you. Our next question will come from the line of Jennifer Demba with SunTrust Robinson. Please proceed.

Good morning. Back to the loan growth in the quarter. Terry, do you have a guesstimate of how much of that came from new hires that were made this year? And can you give us any detail on those hires, where they came from or what types of banks they came from, if you don’t want to give specific?

Let me say, I don’t know the number but I have a perception about it and I’ll be glad to share that. There is no doubt that the growth is concentrated in recent hires. And so, I guess, Jenifer, your question had to do with hires his year. I’d probably rather expand that to hires over the last 12 to 18 months might be a better way to think about where the growth comes from. But, if you’re growing at a double digit pace, say you growing at 12% to 14% on a normalized basis, the way that typically breaks down is, among your legacy guys who are running $200 million and $300 million loan books, you’re growing at 4% to 6% and among your new guys, you are growing at 40% and 45% and so forth. So, the growth dramatically comes from the new hires.

Okay. And any color on where these hires have come from, particularly in the BNCN footprint?

I would say that in the Tennessee footprint, it’s the same large region from whom we’ve been taking people. And I would think that over the last 12 to 18 months, SunTrust might be the largest contributor there. And then -- and the BNCN footprint, it’s scattered out a little bit among larger regional banks. I probably would rather see that thing material a little bit more, we’ve got a big pipeline of people that we’re recruiting and I’d probably rather see a little bit more before I start talking about; here is what the big contributors are going to be. But it is primarily from the larger regional banks.

Okay. And if I could ask one follow-up question, your Bankers Healthcare Group fees, you’re up obviously sequentially but down year-over-year. Can you just talk about that -- the color behind that?

Yes. Jennifer, they had a big quarter and the second quarter of last year, the largest quarter they have ever had. So, we’ve -- that was -- their business flows were significantly -- call it first half of last year. They have been working it back over the last say four quarters. They changed some of their disciplines within some of their internal areas. And I think the way it’s shaping it for rest of the year; we’re really excited about what’s going to happen in the third and fourth quarters of this year. So, we’re still thinking that we will experience closer to 20% growth in that line item in our P&L once all has been done for 2017.

Thank you. Our next question will come from the line of Tyler Stafford with Stephens. Please go ahead.

Harold, maybe just to start, would there be any major balance sheet repositioning from BNC that we should expect to see or potentially could see in the third quarter?

We’re still working through the bond book. David Spencer is running through that for us. I think we will continue to see some repositioning there over the next, call it one to two quarters. I think what you will likely see is more in the loan portfolio as these C&I lenders get hired. So, that’s what we were probably most -- that’s what we’re most excited about as far as where the balance sheet might go. I think you’ll see a shift from longer term fixed rate commercial real estate into the shorter term C&I.

Okay, got it. And maybe on the reserve, clearly that took a hit with the fair value impact from BNC down to 42 bps at quarter-end. And I realize you got the 190 million of discount. But any thoughts Harold on the GAAP reserve and where that should trend, if you plan to rebuild that from here, obviously assuming no change in the credit environment?

Yes. I don’t think -- it’s going to be difficult to reduce that reserve from this point forward. I think you’ll continue to see that the provision will exceed charge-offs. And Harvey and I talk frequently about the credit environment and where he’s seeing weakness. And right now, we feel like where we are with credit is really good and that we’re not going to see any kind of big surprises here, at least in the short-term.

So, that ratio would be stable to maybe increasing slightly going forward?

Yes. I don’t think you’ll see that number going down very much from here if at all.

Okay, got it. And just last one for me on the $170 million of discount from BNC. Is that purely the fair value interest mark or does that also include their credit mark that you took?

That’s everything.

That’s everything? Okay.

Both interest rate and the credit.

Okay. Congratulations again, guys. Thanks.

Thank you. Our next question will come from the line of Nancy Bush with NAB Research. Please proceed.

Good morning. Two questions for you. Number one, 14 producers that you acquired with BNC, can you just kind of give us the distribution across markets?

Nancy, I don’t have notes in front of me, but I’m familiar where the good number of those are, firstly. So, I would just say that there have been hires made in Raleigh, several hires made in Raleigh. There have been hires made in Charlotte. There have -- there is a big hire in Roanoke. There are a number of mortgage originators and there are also that would be scattered around in towards the large urban markets.

Okay. Raleigh I hope that’s helpful.

Yes, it is. Thank you. And secondly, when I talk to people about the BNC deal, one of the comments that comes up consistently is what about the rural markets, because they did have more in rural markets than you have. Your strategy has been an urban strategy. I guess the question is sort of what do you do with rural markets, what is the strategy?

Well, I’d just say this. I think to be clear Nancy, as you highlight, we focus on urban areas, that’s really where we try to grow. But as we’ve done acquisitions all the years, even in Tennessee, we have some markets that might be described as rural market. Just as an example Shelbyville in Bedford county. That’s handsome h office there that draws up handsome cash flow and so we got no desire to eliminate that market. We do well in that market, they are just fine. But in terms of receiving incremental investment, we channel all the incremental investment into the large urban markets. And so, I think that really will extend into the BNC footprint. I mean, we have markets that, again something we might describe as more rural that do well for us and provide great fund and we’ll continue to operate those offices to the extent they meet our performance standards. But we will channel all the incremental investment, I think you ought to expect the incremental investment for us to be in key markets, specifically Raleigh and Charlotte and also in Greenville, South Carolina and probably in Charleston.

And doing one of these deals, Terry, do you get the regulatory flexibility to exit markets or to sell places that don’t make sense for you? Is that something that you would think about?

Sure. I think that we said when we announced the deal that we would go through a branch rationalization. And not driven so much, Nancy, by the fact that whether it’s rural or urban but just driven by the fact that BNC has been a rapid acquirer, and I think have done deals since 2012. Anytime you do that, there is some branch rationalization opportunity. And so that’s been an intent all along. And so, we are moving forward with that analytical construct. And I believe that there will be some opportunity in there. But again, I don’t want to characterize it as rural versus urban as much as just achieving our performance targets versus not achieving our performance targets.

Thank you. Our next question will come from the line of Tyler Agee with Hilliard Lyons. Please proceed.

Going back to your asset sensitivity, could you provide some color regarding what your simulation model is showing increase in interest rates of say of 100 or 200 basis points?

Yes. I think in the past, we have talked about anywhere from 3% to 4% on the first 100; it won’t be nearly that high going forward.

Okay.

That’s for two reasons. One is we’ve got Bank of North Carolina in our numbers now; and two, we have already experienced over the last, call it six, seven months, 75 basis points of uptick. We still believe we are asset sensitive on the short-end of the curve but it won’t be nearly that large.

Okay. And then you happen to have a breakout of merger related expenses by each line item that we’re going to have?

No, I don’t have that with me. It would be largely compensation related here in the second quarter and probably more than half of it is. But, we will talk about that more as we go through the next couple of quarters.

Okay. And then, lastly, do you have a good run rate for the effective tax rate for the rest of the year?

Yes. The tax rate this year -- this quarter was impacted by the change in the accounting rules for equity comp that was about a call it $780,000 adjustment; it won’t be nearly as large in third or fourth quarter. And then, we should have a fairly meaningful credit in the first quarter of next year. So, the first quarter will have the largest -- will be the largest beneficiary of the change in the accounting rules; second quarter will be second and then the third and fourth will be much less.

Thank you. Our next question will come from line of Brock Vandervliet with UBS. Please proceed.

Thanks for taking my question. Just a little bit of a different take on the prior one regarding your asset sensitivity. Clearly that’s been the right approach in the most recent quarters. It sounds like that’s getting less as a result of the merger integration now. But what’s your view on rates in general and may you rack in that sensitivity here in the next coming quarters?

Yes. Brock, I guess if the question is what are we modeling currently, then I’d tell you that we’re modeling a 25 basis-point increase in December and then two or three next year, both around the first quarter and midyear -- first quarter midyear and then one towards the end of next year. So that’s what we’re putting in our modeling currently.

Got it. Okay. And separately on mortgage banking, the purchase component of that alone was up very materially. Was that simply the impact of plugging in the BNC portion into the pipe or something more that play there?

Yes. I think I would probably characterize it as principally seasonality, in the high selling season, generally second and third quarters where you take the volumes. And so, I would say that was a principal contributor. Although we did have two-week worth for the production from BNC that would have been included in the hedge and sold on a mandatory basis. So, there is a little bit of pick-up in that. But it would just primarily be the seasonal growth volumes.

Thank you. Our next question will come from line of Brian Martin with FIG Partners. Please proceed.

Maybe just one question, Harold, back to the margin. We kind of talked about maybe the core margin being kind of flattish going forward. I mean this quarter it was up maybe 5 basis points or so with the yield benefit I guess in your expectations and rates still going higher, at least kind of as you guys are thinking about, I mean not much change in the funding costs. I mean that core margin ought to -- I guess your take that being flat versus up is -- am I not understanding what you’re saying? I guess what’s the outlook on that core margin, as you look forward? Is it kind of flattish at the current level or is that what you’re suggesting?

Yes. I think it will be flattish, will probably pick up a little -- a few basis points based on the increase in rates. But BNC’s core margin was a little less than ours. So, we will have that fully weighted in, in the third quarter. So, our estimates are that the core will likely be right around where it is, it might be a few ticks up. I think where you will see the biggest increase though is in the GAAP margin.

In your comments, Harold, in the past and the deals you guys have done, kind of talking about that accretion income, what’s kind of done and like you are in the year one period, how much of that accretion has typically come in, is it kind of in that 30% to 40% type of range, is it that kind of out ballpark.

Yes. We’re not planning that kind of number in the first four quarters. It’s pretty meaningfully less than that. So, that’s the way we look at it.

And then just from a -- going back to Terry’s comment about M&A. I guess given kind of as you kind work through getting the BNCN kind of integration and all that done kind being the near term priority but still looking at the opportunities that are out there, Terry. I guess, is there any indication time-wise? If you look at opportunities today, I guess how quickly could you or would you be willing to step into another potentially, another opportunity, if it came up? I guess are you ready currently or would it be a little bit?

Yes. I guess, I might go this way. You’re question is what would you do, and that’s not necessarily same as what you could do. My sense is on the what could you do, I don’t think I would make a large acquisition right at this minute. I probably won’t finish the system integration and those kinds of things. I’ve generally tried to indicate that if things go as we intend for them o go so forth, the next year you’d probably in a position where you could consider taking on another meaningful M&A. But, we get most questions about M&A and I believe there are some of those opportunities. But I also believe there may be some de novo opportunity in there is well. And at least for me that’s a significantly different integration challenge and honestly not much different than the volume of hiring we would normally do on a quarterly basis. So, if you say would you do de novo, I probably would if I had the right opportunity and the right group of people and so forth; that would be certainly I’d be willing to do. Again, I don’t want you to walk away and say, he said he’s getting ready to do a de novo start here. I’m not telling you that. I’m just sort of trying to answer your question, what would you do. I’d be willing to do de novo start. I probably wouldn’t be willing to do a really large acquisition, needs a little more time for that. But again, I do hope that the message comes through that we -- this is a luxurious position to be in where -- we’re going though of really outside of earnings growth for a period of time, it feels to me and without taking on these other projects. And so, that’s kind of my outlook is if it fits and it’s good for long-term shareholder value, based on what we do, but we’re not compelled to anytime somebody will say, what’s your timeline to get to Atlanta or something like that. There is no timeline. I don’t care if I ever get there. I bet we do, but I don’t care if we get there, we’ve got a great hand at play, just like it is.

Okay. That’s helpful. And then maybe just one more for Harold just on the -- you talk about some of the items on the fee side, as you kind of look forward. I guess, was there anything that’s unusual Harold that was not sustainable from the current level, maybe kind of in those other areas that as you look forward or is there -- I know you highlighted a couple of things in that other line item. But anything that’s really not sustainable going forward?

I don’t think there is anything in there that we’d classify as an outlier. All the gains that we had on those loans were from businesses that we are currently involved in and we’ve devoted resources to. So, there is not like a one-off deal in any of that.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session today. We’d like to thank you for your participation on today’s conference. And this does conclude the program. You may all disconnect. Everybody, have a wonderful day.