Terry Turner – Chief Executive Officer Harold Carpenter – Chief Financial Officer.

Jared Shaw – Wells Fargo Securities Stephen Scouten – Sandler O’Neill David Feaster – Raymond James Jennifer Demba – SunTrust Catherine Mealor – KBW Will Curtiss – Piper Jaffray Tyler Stafford – Stephens Brock Vandervliet – UBS Brian Zabora – Hovde Group Brian Martin – FIG Partners Nancy Bush – NAB Research.

Good morning, everyone, and welcome to the Pinnacle Financial Partners’ Second Quarter 2018 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 maybe 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 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.

The presentation of the most directly comparable GAAP financial measures and the 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, Daniel. As we’ve done in these quarterly earnings call for several years now, up again with this dashboard which is intended to give a quick snapshot of our performance during the quarter and outlines not only the absolute level of performance during the quarter but trends, which are so important to a growing company like ours.

These measures are all presented on a GAAP basis. On this slide, I think we want to focus on revenue growth, that’s one of our key themes for today’s call. In the chart on the top left, you can see total revenues continue to set a new high each quarter, up 5.2% on a linked-quarter basis or 21% in terms of annualized revenue growth during the quarter.

Regarding our growth in balance sheet volumes, which is generally the best predictor of future revenue growth. Looking now at just below the revenue chart, the loan chart, organic loan growth during the quarter was an excess of $700 million, which is an annualized growth rate for the quarter of roughly 18%.

So, second quarter was a dangerous quarter in terms of current revenue growth and an outlook for future revenue growth.

Because of all the noises associated with the BNC merger, restructurings in conjunction with the tax law change in the fourth quarter and so forth, in some cases the non-GAAP measures might better illustrate the relative performance of the firm.

So on this chart I'd like to focus first on EPS, net of merger-related expenses, that was $1.15, which is in the chart on the top row in the middle. It’s up roughly 37% over the same quarter last year.

And then immediately to the right on the first row, the tangible book value per share chart, which paints a nice picture of our ability to a great capital and grow tangible book value on a rapid and reliable basis with a 4.5 year CAGR of 14.5%. Immediately below the tangible book value chart that would highlight the ROTCE at 18.45% this quarter.

And if you review the trend line post-recession, you can see that it progressed nicely until the first and second quarter of 2017, which is when we did the large capital raise in advance of and in order to make the BNC acquisition.

As a reminder that deal closed at the end of the second quarter, so you see a very nice lift in ROTCE following that deal closing. Next, I want to highlight the core deposit growth in the middle chart on the second row.

Core deposits grew at an annualized rate of roughly 18% in the second quarter, essentially matching the annualized growth rate for loans during the quarter. And lastly, on the bottom row, you can see that the asset quality is essentially blemish-free. So aftermarket charges, second quarter was a great quarter.

Loan growth of 18% annualized; core deposit growth 18% annualized; revenue growth 21% annualized; EPS growth of 37% annualized; ROA of 1.54% and ROTCE of 18.45%. Now here’s what we want to get done today. Harold will review the 2Q 2018 financial performance in greater detail.

And following our strategic planning for trades in our board while there is no change to our overall ROAA target, he’ll update some of the target ranges for the four components that leads that overall ROAA target. I’ll then provide an update on our success with BNC integration tend to create more clarity on our M&A stance.

And then I want to deal with several questions that are intended to demonstrate the power of the differentiated model we run, and we believe it makes us different from our peers.

Number one, we continue to organically grow loans at mid-double-digit pace and related question, how long does it take to build out the C&I programs in Carolinas and Virginia. Number two, give and get a relationship-based funding to support the loan growth.

And number three, despite high deposit bases balance sheet growth produce rapid net interest income and EPS growth. So with that, I’ll turn it over to Harold for a more detailed review of the quarter..

Thanks, Terry. Revenues for the quarter were up $11.5 million from the previous quarter ending at $230.2 million. While we grew those revenues, we also again experienced a decrease in our quarter-over-quarter efficiency ratio, which is again, are pleased to somehow we create operating leverage around here.

Net interest income is up from the previous quarter of 2 -- about $7.8 million, reflecting an annualized growth rate of 18%. Much of this was attributable to increased average loan balances and also improved loan yields resulting from the recent interest rate hikes.

The impact of fair value accretion increased $700,000 during the quarter to $16.1 million, which is above where we expected to land in Q2. We anticipate decreases in discount accretion in future quarters as the level of acquired loans and recent merger becomes less impactful and post-merger prepayments slowed.

Best guess at this point is that fair value accretion is likely to remain around $55 million for 2018 and perhaps $13 million to $15 million in the third quarter. At the end of June, we’ve got about $130 million in total loan discounts remaining on our balance sheet. The dark green line on the chart denotes our non-GAAP revenue per share.

We reported $2.64 of adjusted revenue per share in the second quarter of 2017, and are reporting $2.97 this quarter, so we’ve grown adjusted revenue per share by roughly 12.5% year-over-year. Obviously, our goal is continually increase this measurement.

As you all know, it’s a lot easier to grow earnings per share if you’re growing revenue per share as we expect continue to do so as we move through 2018 when we’re growing balance sheet. This is the new slide, but again focusing on revenue per share growth using trailing 12-months as the basis for the amounts. Two things we’d like to communicate here.

First is that we have experienced an accelerated green line over the last few quarters. Now this is during the time of significant internal focus around the Bank of North Carolina deal closing and systems conversions, not to mention cultural integration and getting folks aimed in the right direction.

Additionally, we still were deploying the synergy case in the first quarter, so we’ve all have been at the targeted environment for essentially 3 months to 4 months. I can’t help but be excited about where we are as a combined firm and where we’re headed in all of our markets.

Secondly, the dotted line represents the peer groups’ year-over-year growth, which is a cumulative last 12 months revenue of our peer group, divided by the average number of shares. We consistently outpaced these amounts over the last 18 months and gaining traction.

I work at places where the only way you’re going to get your bottom line number was through some expense initiative, it’s a whole lot more fun to work for a firm with growing revenues. We’ve had this chart for a long time now.

And certain loans, as the chart indicates, average loans for the quarter was $16.8 billion compared to $16 billion at the end of the first quarter as average loans increased by almost $800 million thus an annualized growth rate of better than 19%. This is on the heels of a strong growth in the first quarter as well.

So we’re going to the third quarter was roughly $300 million more in EOT loan balances over the average for the same quarter, which is a great head start for the second half of 2018. In the Carolinas and Virginia, their organic loan growth for the first half of the year has been around 14% annualized.

There’s a chart in the back that shows what each market has achieved. Importantly, C&I and owner-occupied is up almost 22% annualized. Right now, they’ve grown their C&I owner-occupied book to 26% of total loans, CRE infrastructure remains around 50%. In Tennessee, C&I is 50 plus percent.

If they keep growing at a 22% clip in C&I, they will create the C&I platform in the Carolinas and Virginia much faster than most would have imagined. As the chart indicates and as expected, our loan yields increased to 5.04% from 4.91% last quarter, a 13 basis point increase linked quarter.

Our modeling has one more rate increase for September, and then only two rate increases next year. Our thought is that we may begin modeling at least one more rate increase, most likely next year, given the recent economic moves, which we believe is helpful to our outlook.

We presented this slide last year, so it’s – last quarter, so it’s back by popular demand. We’re still targeting 35% fixed rate loan book for our loan portfolio. We also exclude the forward interest rate swap early in the second quarter in order to accelerate our floating-rate component by an additional 3%.

We may execute another forward swap to further accelerate our floating-rate asset book. Also, we’ve updated the slide with additional information on rates on various rate categories for LIBOR and prime rate we feel like we’ve captured substantially all of the short-term rate increases.

Fixed rate loan yields have not moved much for the loan book, but given the yield curve, it takes a lot of new loans from a weighted average yield over the fixed rate portfolio.

As the last two columns on the chart at the bottom indicate, we are seeing some lift in fixed rate pricing this year, so we should see the book yield begin to move north eventually. New loan yields from prime base credits were fairly flat quarter-to-quarter.

This was because we booked some really nice higher-yielding prime based credits early into this year. We have this chart for our Investor Day few weeks ago. The chart reflects our quarterly average loan growth for each quarter since Q3 2015. The blue bars on the slide has been adjusted to remove acquired loans.

That said these are the real quarterly annualized growth numbers, thus, showing the impact of growing our revenue producers. As shown, our loan growth continues to outperform our peer group quarter-after-quarter without sacrificing credit quality or accepting undue concentration risk.

Keep in mind, we don’t know what 2Q 2018 peer information is but based on what we hear so far, it will be consistent with the first quarter. So another strong loan growth quarter for the Pinnacle in comparison to peers. The small chart in the middle of the slide is average account balances comparing early 2015 to the second quarter of 2018.

We need to make this a bigger deal. Our portfolio is not about a whole lot of whale-type loans to say [indiscernible] may be an understatement. We’ve got a few large loans, but we’re talking average ticket size to hit us of just over $1 million to $1.25 million for commercial real estate and construction. That’s all commercial and residential.

Our average commercial construction commitment is just over $2.4 million for the first six months of 2018. Again, we believe a very granular portfolio aimed at small and middle-market builders and developers in our markets.

Again, the blue bar could not be where they are without hiring new revenue producers, hiring revenue producers gathering plan and doing it over and over again. Average deposit balances were up $670 million while EOP balances are up $1.35 billion. Most of our average balance increase was attributable to quarter positive increases.

Late in the quarter, we have restructured some funding to move in Federal Home Loan Bank balances into wholesale CDs to save a little spread income. Even without that, we think we had a great deposit growth quarter. Our deposit cost did increased 18 basis points for the second quarter from the first quarter and currently stands at 78 basis points.

We can see a beta of 31% on deposit costs given those figures since 4Q 2015, more on that in a minute. As to the future, we expect deposit cost will continue to increase in a measured pace for several factors.

The two most prominent are general pressure for increased deposit rates and rising rate environment, but also we need to fund a significant loan pipeline. Our relationship managers are out in our markets selling our ability to serve commercial and employment consumer depositors with a value equation we think is far superior to our competitors.

We still believe we are in markets that have ample liquidity to match our loan growth and expectations. Terry, Rob and Rick are driving our sales efforts for our depositors. Yes, we continue to aim at specific depositors. Yes, our private bankers are calling affluent clients. Yes, our commercial bankers are looking for commercial operating deals.

Yes, our deposit rates will increase to fund our loan growth. We will play our customary sheet lever gain. We still believe we’ve got adequate room in our plans to fund our loan growth with a fair rate paid on deposits. We have planned on a 50% beta this year.

Don’t get me wrong, deposit betas are important, we pay attention, but right now we’re focused on gathering more clients and growing revenue and earnings. Here’s another chart we showed at Investor Day.

Again, a big quarter for deposit growth in 2Q, and I know many of you will say that we have a large wholesale component, but more than half of our growth is core deposit. And a meaningful portion of the non-core was public funds, most of which was in the Carolinas. I’d tell you that because our folks have gotten the message.

Go and get the clients, get their deposits. We may sometimes hold our notable rate, but get the client. The bank that can gather clients wins. Also on the chart if the loan-to-deposit ratio for us compared to peers as you might expect, our loan balance around, but a pure line will merger closer to us after 2Q results are announced.

This is a new chart, deposit betas versus earnings asset betas. At the end of the first quarter, our deposit beta was 10% more than the peers, but our earning asset beta was 19%. We are focused on managing both side of our balance sheet, net interest income will trough net interest margin to a point.

But as many of you know, we are EPS and revenue focused around here. You may or may not like how a particular metric responds from time-to-time, but at the end of the day, it’s setting big targets, creating strategies to hit them and managing the curveballs that focus in the economy throw at you. We believe we have a differentiated model.

We believe that model is transportable and we believe it’s working. Fees amounting to $48 million, up $3.8 million since last quarter, our residential mortgage group had a good quarter in terms of production with approximately $265 million in loan sales this quarter. Resi mortgage income was up from last quarter.

Rate increases have not been helpful to this group over the last few months. Mortgage is hiring, particularly in the Carolinas. As we mentioned to you before, we’re going through a significant change in mortgage driven to Carolinas and the news is good as we’ve secured several new hires in that area this year.

As expected, BHG’s contribution was up slightly from the first quarter reporting in at $9.7 million, reflecting year-over-year growth for around 11% from the second quarter. We continue to anticipate the net growth from BHG this year should be in the 12% to 15% range.

Investment services’ income remained flat in the second quarter compared to the first quarter; keep in mind we remain in the Phase I of a build-out program of our platform in the Carolinas. There was a solid base in one of our key goals in the C&I build-out just to ramp up our investment efforts in that footprint immediately.

We’ve had several significant hires in both footprints that have contributed to our success in investment services. In insurance in the first quarter, we have approximately $1 million in revenues from insurance companies due to claims experienced, but still insurance is doing quite well.

Trust keeps on growing several key hires and trust in Tennessee and the Carolinas have pushed their revenue contributions to where it is today. And in other non-interest income, we had a positive $2 million pick up from the revaluation of certain of our joint venture investments. Non-operating leverage.

Our efficiency ratio on a GAAP basis was 48% of our core efficiency ratios, excluding merger-related charges was 46%, which is better than the first quarter. We expected our non-interest expense to be a little higher this quarter, and I’ll get to incentives in just a second.

As I mentioned earlier, our efficiency ratio was almost 2% better this quarter than the same quarter last year and there’s been a whole bunch of change between last year and this year. We continue to accrue less than our targeted work for our corporate incentive plan at the end of the second quarter of 2018.

Many of you are familiar with how we do things. You know that our corporate incentive targets offsets ourselves, we believe we equate to the top quartile performance within our peer group. As many of you know, we get paid to hit numbers. If we don’t hit numbers, we don’t get paid.

Now some of you might say that it’s a short-term fix, don’t disagree, over the long-term, you need to pay these incentives. We’ve had years where we paid more than target, we’ve had years where we paid [indiscernible]. The critical thing is that our associate base understands why we do it the way we do it.

Keep in mind that Terry and myself and the entire leadership team of this firm are on the same incentive plan with everyone else. Thus, if the CEO gets paid, we all get paid and vice versa. Incentives are important and it’s one of those things that makes us unique.

Other expenses were up this quarter, we believe, about $1 million of that is non-recurring due to various charges we incurred this quarter from various losses, which included elevated product losses, credit card and ATM and other areas.

Lastly, as many of you know, last January, we increased ROA targets to a range of 150 to 170 for our strategic targets, we left our other targets unchanged. We promised that we would update those targets after our strategic planning retreat, which was held last month.

Currently, we are modifying our net interest margin, non-interest income to average assets and net charge-off ratio to the amounts noted on the slide. Given the changes, we don’t think these modifications will result in any change to our ROA outlook going forward. We fully intend to operate within this guidance over the next several quarters.

With that, I’ll turn it back over to Terry to wrap up..

number one, hiring occurs in straight line over the course of the year; number two, production occurs in straight lines from the point of hiring; and number three, Mature FAs produce $80 million in loans over a five-year period of time with 85% relationship funding.

In a minute, I’ll talk about the material relationship managers in Nashville, but they average $99 million in loans with 85% relationship funding. So in an instant like this, as we originally laid it out, we’d entail hiring 13, commercial and private bankers in year one. So you might think about it as you look across the line goal of year one clients.

Using the assumption I just reviewed, you would expect the year one clients to manage the books, average an $836 million in total in year five.

And if you have concluded year one, which we have, the compensation expenses required to achieve not only the $836 million in average loans, but the $710 million in average deposits would already be in your run rate.

And so you can see our each year class will be additive, so it’s over the five-year period, where you are successful in hiring 65 C&Is and private bankers who produce volumes consistent with the assumptions we just laid out. The loan-to-deposit growth and previously unavailable sources would do two things.

Number one, is steepen the annual rated growth. And number two, provide a more diversified loan book in which we would force to constrain CRE loan growth in conjunction with macro factors on a number of banks have been discussed.

So this got an incremental growth initiative to provide some comfort that are mid-double-digit growth in loans should be attainable for some times. So switching gears, let me see if I can provide more color on how we approach the funding challenge. First of all, our model calls core funding in the 75% to 85% range.

In general, we build our goal setting methodology from the sales force to sell fund 85% of loan growth. Our average macro level from an outcome level, we can comfortably operate with a 25% dependence on non-core funding.

Secondly, I’ve already discussed the hiring models and our approach to moving clients, home clients, loans, deposits and fees, not just loans. In other words, we harvest an entire client relationship. The Nashville planned advisory group, as I alluded to a minute ago, here is the model for how we attempt to build these C&I practices in other markets.

So the Nashville Claims Advisory Group has build 29 C&I and private bankers from material relationship managers in that unit, which we consider those that have been there at least five years. The average loan book is $99 million and average deposit book is $84 million.

So you can see in material C&I platform operates just inside our core funding requirements, 85%. Again, the key is to harvest the entire client relationships, not just make loans. Much has been discussed regarding our approach to relationship banking on the commercial side, but it applies through our retail business as well.

This is data from Infusion Marketing Group based on our retail households, which we have about 141,000 now. And it covers our entire footprint in Tennessee to Carolinas and Virginia for the period beginning March 1, 2017, immediately following our BNC deal announcement for one year.

During that period of time, which included the brand change in the Carolinas and Virginia as well as the system conversion affecting the entire firm, we added household 30% faster than the norm per banks and the average household deposits were nearly double the norm for banks.

We added household 30% faster than the norm with deposit balance is nearly twice the norm. And the highlight what I mean by relationship selling, during that period of time, we never ran an ad, there was no promotion, we didn't have sales contest, we didn't offer any incremental incentives for sales. We just focused on relationship-based selling.

So, we gather relationship funding to support loan growth I think the answer to that is yes, but we recognize that it doesn't always occur on a straight line. And since it doesn't occur on a straight line, I think most of you are familiar with headquarters where loan grew faster than deposits and quarters where deposits grew faster than loans.

But there's always been a great deal of intentionality around deposit acquisitions. We typically have a number of initiatives that are specifically focused deposit acquisition in order to augment the natural relationship management that typically occurs. They included things like this.

Number one, recruiting and hiring associates over the years who build plan portfolio among clients who are primarily depositors, many private bank and RMs would fit this category.

Number two, taking our existing RMs and focusing them on sectors or clients that are meaningfully net providers of funds, things like bankruptcy trustee, title companies, property managers, HSA processors and the like.

Number three, we augment brand distribution with a courier deposit pickup capability, specifically, we send a courier to the planned location to pick up the deposits. Our Chattanooga market has been posted up this technique.

Number four, leverage a full suite of electronic banking tools like multiple deposit captured businesses, multiple deposit for consumers. Number five, traditionally, we've done zero mass marketing, but now we have an opportunity to experiment with that in Carolinas and Virginia, where we typically have more branches and lower share positions.

In fact, we just completed running Money More campaign in Carolina and Virginia for a money market account at 1.69%, a relatively high rate but not 2.3%, so successful campaign there. And then lastly, in the past, we made investments in number of non-banks that provide a great returns and fit our balance sheet and P&L needs.

Of course, BNC is the biggest example of that.

Another example of that, several years ago, in an effort to increase higher-yielding assets, we made an investment in a firm that builds on credit card platform, Carolinas bank that put us in a position to build out more than $120 million credit card portfolio and what is normally a scaled business than just wouldn't otherwise have been feasible for us to do.

We also made a modest investment in a cyber security firm. It specializes in cyber security for banks which we view as a rapidly growing market, but also puts us in a position to have a state-of-art cyber security at affordable price.

We risk recently managed investment in a firm called Artist Growth, which we discussed and made a showcased on Investor Day, which in deed had some return on the investments puts us in a position to control huge sources of deposit funding for music artists and their tours.

And so over time, we are hopeful we'll be able to find similar opportunities that leaves us with corner large blocks of funding. So finally, there's been so much discussion about deposit betas that some, in my opinion, may have lost sight of revenue and earnings growth which is the primary objective of this firm.

And so it's whether relatively high deposit measure firm can be a rapid grower of net interest income, therefore a rapid grower of revenues and therefore rapid grower of EPS. It seems to me the answer to that question is yes.

Here, you can see that we flawed our peers, some of whom are really low deposit beta companies, plotting the year-over-year increase in total deposit costs on the y-axis and the year-over-year increase and net interest income per share on the – x-axis in order to normalize for acquisition, et cetera, and our performance on net interest income growth in the first quarter was pure lien, despite a relatively high beta.

I believe this was changed because we’re able to grow our client base by taking market share and consequently growing earning asset volumes at a dramatic pace. And I think that may be the most important difference between us and many of our peers. And so here's our focus.

We’ve seem to be very different than most of the management presentations up here these days some other banks. Even our very high level of profitability and the very unusual opportunity we have to produce outsized organic growth in all our markets we’re are tightly focused on growing revenue and EPS.

In fact, we are 1% ROA bank, we might not be able to make that play if we didn’t have a differentiated model where we can gather clients at a dramatic pace we might not be able to make that play. But actually we are in a position to make that play. Again, we do that by taking market share.

Accordingly, we wanted to assess the higher level of volatility on measures like Go Fund at time when we’re advancing our operating leverage and improving our efficiency ratio.

Specifically, it’s our intent to continue adding revenue producers at a rapid pace, pricing competitively, growing earning assets at mid-double-digit pace and produce an outsized growth in earnings per share. So I’ll stop there, Dan and we will take questions..

Thank you, Mr. Turner. The floor is now open for your questions following the presentation. [Operator Instructions] Our first question comes from Jared Shaw with Wells Fargo Securities. Your line is now open..

Hi, good morning..

Hi, good morning..

Maybe just start maybe on the funding side, great color around that.

When we look at the reduction in borrowings this quarter, did that entire $400 million – was that just shifted over to the wholesale CD side or was that something less than the growth in CDs?.

Jared, can you repeat the question? I’m sorry..

Sure, yes.

When you look at the borrowings, the FHLB borrowing declined the $400 million there, was that replaced entirely by sort of that noncore CD line, you talked about with the munis? Or was it less than the $400 million in that transition?.

Yeah I think it was a little bit less than the $400 million, but not a lot less, Jared. But if you look at the average balances on the Federal Home Loan Bank borrowings, they stay pretty flat for the quarter. So that transaction happened at the end of the quarter.

Does that make sense?.

Yes, absolutely.

And then what’s the rate differential between the new CDs versus what you paid off on the FHLB, if you could provide a little color please?.

That was about 11 basis points..

Okay, great. And then on the fee income side, I guess, first, in the quarter, you had a nice little jump there in other fee income.

Anything there that we should be aware of or is that a good base going forward? And then sort of corollary to that, longer-term, I see on Slide 17, you brought down the target for fee income, but longer-term, should we expect in out years that fee income goes back to the level where we saw sort of pre-BNC?.

Yes, I mean, well that’s effectively the goal was to try to give the C&I platform built in the Carolinas and Virginia and that comes with the deposit fees, and investment fees and all the other ancillary services. Yes, we did have in the second quarter, a reevaluation of some joint venture investments.

And that contributed about $2 million to that other non-interest income number..

Great, thank you very much..

Thanks, Jared..

Thanks, Jared..

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

Hey guys, good morning..

Good morning..

Terry, great color on kind of your expectations for a continued double-digit loan growth. I do have a question relative to the kind of 18 percent-ish growth we’ve seen year-to-date versus maybe what’s historically been more like 12% to 13%.

Has there been any sort of composition change to date, now that you guys are a larger bank, are you doing larger loans? Or is this really just a manifestation of all that impressive hiring activity over the last few years? And can you kind of reconcile where you really think we might fall within that kind of historical range versus what we’ve seen year-to-date?.

Yes, Stephen, I don’t think there’s any change in the personality of the lending, meaning, our company continues to be focused on being a C&I lender. We’re not doing hard shared credits. I think Harold has already reviewed the really granular nature of the loan portfolio, average ticket sizes that we’re doing, and so forth.

As you all know, I mean, every ticket is not worth the averages, but you’ve got an average that low income from not doing large and hard shared credits. I don’t think there’s any personality change from that perspective.

I do think that it is a fair representation that the principal driver has been the rapid success of hiring great bankers out of that large books business and move those loans more quickly than others can do. So I hope I’m answering your question..

Yeah, it does.

I mean, I guess do you think this above a 15% rate is sustainable? Or are you guys are still comfortable with the kind of double-digit messaging?.

See let me say this we work hard to try to deliver whatever we say. I feel comfortable talking about mid-double-digit range that sounds right to me.

If you want to know the truth, if you were – I would say that we’ll be at mid-double-digit range from say 14% to 17% or some, I mean, that sounds like mid-double digit to me, so I go mid-double digit guidance range.

It seems like there is some prospect that we can do better than that, but again, I’d rather just stick with the guidance that we’ve given..

Perfect, perfect, okay.

And then one other one from me, really is any color maybe Harold that you can give around the deposit betas you’ve seen on the nice core deposit growth you had versus maybe the noncore stuff? Is that a number you have at all? I’m just trying to decipher how much of that 23 basis point move was kind of core versus noncore and how we can think about that quarter-over-quarter moving forward? If that 23 bps we saw in 2Q is likely the pace we’ll see moving forward or some of that was pulled forward into this quarter?.

Yes, the beta along the wholesale deposits is significantly higher than the core deposits. I’m looking for my information on that, but I think it is somewhere around, call it 17% kind of percent on the core book versus, call it, I don’t know, 60% on the wholesale book.

I’m trying to figure out I’m trying to gather my thoughts on what I’m looking at cycle-to-date or quarter-to-date. The quarter-to-date numbers are much higher. But that will probably be kind of the relationship between the core and the wholesale book Steve..

Okay, okay.

And I guess as a follow-up to that, maybe, with the big deposit growth you put up this quarter, I mean, do you think you can mitigate some of that pressure in the subsequent quarters and kind of keep the core NIM flattish from here, or could we see downside pressure?.

I think we’ll see some downside pressure in the core NIM. I don’t think we’ll see what we saw this quarter. But you’re right, we had a great quarter. We had a great growth quarter in deposits. So I’m not going to say we don’t feel like we can – I’m not going to say I’m always like Trump like, I don’t know.

I’m not going to say that we’re going to take the foot off the pedal deposit growth with the sales force. They’re still going to be focused on growing deposits, but the growth quarter we had in the second quarter does give us some degree of flexibility as we go into the third quarter and looking at deposit growth if that makes sense.

The other thing I’ll add to it is, I think, we found where the pressure point is on pricing. I’ve mentioned this to our board yesterday. It doesn’t appear like there’s been this kind of this unlimited appetite by depositors that require an ever escalating deposit price.

I think to our benefit the large caps have kept their deposit pricing lower which gives us an opportunity to secure deposits from some of their depositors at an obviously a little bit higher price but that price is not escalating dramatically.

Does that make sense, Steve?.

Yeah, that’s really helpful here. Thanks so much. And guys thanks for the color and congrats on a great quarter..

Thank you..

Thank you. And our next question comes from Catherine Mealor with KBW. Your line is now open. .

Hey, good morning everyone. Just a clarifying question on the way you talk about deposit beta, Harold.

So, when you say you think you have a 50% deposit beta for this year, you’re thinking about that on a cumulative basis or on a basis just for this year?.

I think that’s a basis for this year, and we’re looking at effective fed funds rate when we talk about that, Catherine. So yeah, it was for this year. .

Okay. And so that to Stephen point, it would almost suggest that the beta, I think when you get – I think when you get the full benefit for June and we get another one, let’s say in September, then the actual beta should decline from this quarter – from the level that we saw this quarter.

So linked quarter, we may not see over 20 bps increase in interest-bearing deposit cost like we saw this quarter.

Is that a fair assumption?.

Yeah. We’re not expecting another large increase in deposit costs like we experienced this quarter, but I’ll tell you that in context that if that’s what we need to support loan growth and support this pipeline, we will have that kind of deposit cost increase. But we’re not expecting it. I’ll say it that way..

Got it, okay. That’s helpful. Thank you..

Okay..

Thank you. Our next question comes from David Feaster with Raymond James. Your line is now open..

Hey, good morning guys..

Hey, David..

C&I growth has been tremendous and competition has picked up, and this is a testament to your – you’ve executed exactly as you would have thought and more than we have given you credit for.

Could you give us some pulls of what you’re seeing in the C&I space? What segments you’re seeing the most opportunity? And maybe is there any irrationality in certain segments given increased competition?.

That’s a great question, but I think the answer is we continue to – certainly in the C&I book to have a well-diversified portfolio. If you can look back there in the past earnings calls slides, when we break down the portfolio components and so forth, it’s an extraordinary well-diversified book.

I don’t think we find that we’re growing the C&I category, because there’s something inherently going on in that sector that’s creating that growth. I would just take you back to your older comment, where that growth comes from is it’s coming from the relationship management.

So, if a relationship management of the private banker, who is concentrated on doctors in terms of building a deposit book, then that’s what shows up on our balance sheet, it is not a sort of macroeconomic thing that’s causing deposits from doctors to occur it is that we are a banker, who has a concentration among doctors.

And so I’d say the same thing would apply as we hire C&I bankers, some were specialties of this phase was in franchise lending or different things. And so you’ll see some tapering up in whatever category they are moving. But again, we don’t see it tied to any particular economic factor that’s causing surge in one category versus another..

Okay, great. And then you talked about, that’s probably on the sidelines for M&A in near-term and highlighted the success that you’ve had on the de novo front.

Could you just talk about your appetite for de novo expansion in near-term? And whether Atlanta is still a market that you’d be interested in? I know you’ve talked about that in the past, but maybe given the M&A activity there, it’s more competitive or maybe there’s some dislocation opportunity that you can capitalize on? Just your thoughts there..

Well, I would say that as I’ve mentioned, walking out, I’d say, they’ll target mortgage. We’re still interested in all of those markets.

And I would say that just in terms of attractiveness, the way we would evaluate the attractiveness of the Atlanta market, given what you just said is not that it’s more competitive, but there’s more opportunity there, there’s more vulnerability there.

Generally, what happens when there’s M&A consequential transaction and when there are several of those transactions, that creates a lot of vulnerability for banks and they’re tied to their people, which as you know is what we try to seize on.

So, I would say just from a general attractiveness standpoint, Atlanta would be highly attractive from that perspective. But again, I want to be realistic. My bet is if we’re talking three or four net years from now, you’re going to say that we’ve done a lot of stuff and look exactly like what we have just told you what we’re going to do.

We’re talking nine months from now, 12 months from now, something like that, we probably would have done a lot of those things, I’m just trying to give you the basic practicality of where we are in discussions and all those kind of things that these things are likely to be a lot of that kind of activity in the next nine to 12 months..

Okay, great. Thank you..

Thank you..

Thank you. And our next question comes from Jennifer Demba with SunTrust. Your line is now open..

Thank you. A question, we’ve seen a couple of banks have some health care loan issues this quarter.

Wondering if you guys could clarify the size of your health care portfolio? And give us some color on the components, whether it be corporate loans, hospital loans, doctor’s practices, et cetera?.

Terry Turner:.

.:.

Yeah. I think so, I think so, I mean do you have any just hospitals or I mean, would you put – you wouldn’t put, obviously, assisted living and stuffs like that senior housing.

Would you put that in the bucket too?.

Let’s see….

I don’t think we’ve got that level of detail with us today. We’ll have to hold that out. I know we have a view of independent hospitals in middle Tennessee. I’m not sure about what’s going on in Carolinas or Virginia. But it’s – I think, Terry has already mentioned, we’ve got some loans to some of the larger hospital chains here in town.

And we go through the rigorous sneak reviews and look at what their S&Ps and all that might be before we do those things..

Okay..

So right now, we don’t have any issues with the health care book..

Great. Thank you. Nice quarter..

Thank you..

Thank you. And our next question comes from Will Curtiss with Piper Jaffray. Your line is now open..

Hey, good morning guys..

Good morning..

I wanted to see, Harold, maybe can you help us out on the expense side and kind of how we should think about the third quarter, just given the hires that you made during the quarter? And I would assume it's not fully reflected in the current base so just given the timing, but just curious your thoughts on the expense base going forward? Thanks..

Yeah, the expense base I think we’ve got a pretty good run rate going on. It all depends on, our intention is to hit our numbers this year. So if we can hit our numbers and also continue to fund the incentive plan, that will be what causes the expense base to healthy. So absent that the expense base ought to be fairly flat going forward.

We've booked about $7 million in incentive expense this quarter. That's up from about 5.7 in the first quarter. So and again we increased our kind of our target range from 75% to 80%. So as we go through the year, hopefully, we can increase that number even more. But again that will be a burden to the expense line..

Got it. Okay. And then maybe going back to the fee income discussion and kind of the outlook for BHG, I think you still expect 12% to 15% annual growth, if that's correct. Which I guess would imply kind of a decent ramp here in the next couple of quarters.

So just how should we think about the growth trend for the rest of the year, does it look sort of like – last year where you had a big jump in the fourth quarter?.

Yes, I think we're not anticipating anything different this year. They run a bunch of sales campaigns in the fourth quarter. We have a feeling they'll do likewise this year. Our business flows are good.

They've got a lot of banks want to buy their credits, they're warehousing a lot of loans on their balance sheet that they intend to release periodically. So yes, we're still anticipating 12% to 15% growth and it will probably be in – more so in the fourth quarter than the third..

Okay, great. And then just real quick, do you have what the core loan yield was this quarter? I think last quarter, it was 4.50%..

I do not have it with me. I've got it upstairs. I'll get that for you in a little..

All right, thank you very much..

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

Hi Terry and Harold..

Hey Tyler..

So my question is on Slide 34. So that bullet point three mentions growing both loans and NII at a mid double-digit pace.

So I just want to clarify if you believe you can organically grow NII at a mid double-digit pace annually despite those accretion headwinds and the funding pressures?.

Yes, I think we've got a plan in place to do that. It takes a lot of loan growth to do that, but I think we've got opportunities..

Thank you, there is no more question..

Thanks Tyler..

Thank you. And our next question comes from Brock Vandervliet with UBS. Your line is now open..

Hi good morning. Thanks for taking the question. I just wanted to talk about loan growth. First of all, loan growth this quarter was excellent, above 20% annualized. It seemed like in the Investor Day, you talked about growth being this strong in the second quarter but curtailing off somewhat in the second half.

Is that still the case or do you expect this level to continue into Q3 and Q4?.

As far as absolute dollars, it's probably – our plan is that right now, the pipelines look like that we are going to be able to be close to what we booked in the first and second quarters and in the third and fourth quarter. We generally have a strong third quarter.

And in the fourth quarter is kind of a crapshoot on sometimes it's the best quarter of the year and sometimes it's not. But I guess we've been very pleased with the first and second quarter loan growth to sit here and say, okay, we'll be able to replicate that in the third and fourth quarter. We're just kind of hedging our bets a little bit..

Got it, okay. And separately on the NIM guide, 365 to 375 and your NIM this quarter was 369, above kind of the center point of that range.

Do we look at that as guidance really for the remainder of the year or do you look at that as longer-term?.

I think it's the longer term number we’ve just gotten through our strategic planning effort. We do that for the next call it, 3.5 years. So and the way that kind of goes, Brock, is we set targets and we try to figure out how to hit those targets. And we try to rationalize what those results look like.

And it seems like a 355 to 375 is a reasonable target for us over the next, call it, 3.5 years..

Okay, thank you..

Thank you..

Thank you. And our next question comes from Brian Zabora with Hovde Group. Your line is now open..

Thanks. Good morning..

Hi Brian..

Just a question on CRE, could you just talk about the current environment, some of the banks had talked about higher paydowns.

Obviously, you generated strong growth but did you see kind of the same industry dynamic? And could you just talk about pricing and structure to those credits?.

Yeah, I think, I guess, in terms of market dynamics, number one, paydowns, we do see relatively higher level of paydowns and we do expect that to continue before the perceived future.

What I'll call alternative financing, long-term financing markets are wide open and generally attractive so that people are able to take projects and put them in permanent facilities at very low rates with no recourse.

And so I think we and others in the industry are likely to see a high level of paydowns over an extended period of time in the CRE book. I think in terms of pricing and underwriting guidelines, again, I don’t say we're not on the panic button about that, but it is important to get this above the book that we have.

Harold talked about the granularity of the CRE book and when you look at the construction book – and take residential out of the commercial construction book, we are less than a $2.5 million average ticket size.

You can see we are dealing with the largely relationship based clients, in our market, we are not dealing with large national providers and we are not dealing with 40-storey buildings in downtown urban markets and those kinds of things.

And so the client said the reserves and the product base that we provide them, I think works a little differently and so we, again, I would say it is more competitive from a project standpoint. I do see, from time-to-time, some underwriting slippage but we don't see that to be an overwhelming trend, again, in the segment that we serve..

That’s very helpful.

And then just a question on deposit pricing is there any different dynamics in the Carolinas and Virginia versus Tennessee?.

Brian, we've been kind of surprised that there's not a real big difference. I think the prices, or the rates that are being offered in both markets are fairly consistent. We’ve got a bigger noninterest bearing deposit book in Tennessee than do in the Carolinas, and that's one of Rick's objectives is to build that operating account flow over there.

But for interest-bearing accounts, they're pretty consistent..

Great, thanks for taking my questions..

Sure..

Thank you. And our next question comes from Brian Martin with FIG Partners. Your line is now open..

Hi guys..

Hi Brian..

Hey, just one question, just Harold, that restructuring you did on the FHLB in the time deposits, I guess, that impact was not in the margin in the second quarter. So it's a favorable impact in the third quarter.

Is that – understand when the timing is that happened?.

Yes, it will be helpful to the margin in the third quarter. You’re right..

So I guess, a modest positive, is the way you think about it the given size of it? I guess, that’s quite fair?.

Yeah, I think so. I think it is a modest positive. The way we’re looking at rates, and for sure, I’ll tell you there is some hotels to your backwards, but generally, the Federal Home Loan Bank, is they’re based on the shorter end of the curve, probably two years in NIM and the wholesale market was more advantageous on the longer end of the curve.

So it was just one of those lines..

I got you.

And then you talked about mainly doing another forward interest rate swap, I guess, what’s the – I guess, can you just talk about you would think about doing that? Or I guess, the timing of when that could occur?.

So it could occur as early as the end of this week, first part of next week. We are talking about somewhere around a $300 million or $400 million tranche with a forward start into 2019..

Okay.

And the other question I have, I guess, answered, the expense number, I guess, just think about it would be instead of camping the driver, I mean it sounds like most of the salaries are lot of that’s already kind of in the numbers based on, I think you said there’s about $1 million excess this quarter that was kind of non-recurring?.

Yes. And we also had kind of a little bit of a heavier ORE expense number this quarter. So, but – and I think we had – there’s probably some more expenses scattered around the technology accounts that is all heavier than what we would normally see..

Okay. Okay, so the $1 million you quoted, Harold, that was kind of excess, does that include the oil? Or that does not include the oil, just to be clear on what was….

Does not..

It does not. Okay. All right. Understood. And then the last thing for me was the mortgage number in the quarter.

I guess, I know there’s a lot of changes as you guys have kind of alluded to in the call, can you give us a little color how you’re thinking about mortgage going forward? Given like you said the rates have obviously impacted their performance to some degree, so..

Yes. We’ve lowered our expectations for mortgage in 2018. They’ve got a budget gap, I guess, I can tell you that. They don’t – we don’t anticipate filling that gap, but I think there’s building momentum in the Carolinas and Virginia. I think our mortgage guys here in Tennessee have partnered with the guys in Tennessee and Carolinas.

And I think it will create some momentum over there, particularly going into 2019 that probably wasn't there or wasn't as strong as it was going into 2018..

Okay. That’s helpful. I appreciate the color guys. Thanks..

Thanks Brian..

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

Good morning, gentlemen. Two questions for you. Terry, you operate in states that have a higher than the national average emphasis on manufacturing , particularly auto manufacturing.

And I’m wondering, are you starting to hear any kind of talk about tariffs? What the impact may be? Pushback? How it may impact growth, et cetera?.

Yeah. Nancy, I think it would be fair to say that it’s a topic of discussion. But I think, in terms of clarity and people changes forecasts and doing those kinds of things, I have not heard any of that. Again, it’s just cocktail chatter at this point, I think..

Is there anything that you think you have to incorporate into your thought process, growth process, et cetera, any time in the very near future?.

I really don’t, Nancy. I think, again, I just go back and reiterate, and it is one of the things that I love about the model that we run. What we do is, hire bankers and move their books of business, that’s where growth comes from.

And if we’re simply reliant on the pure macroeconomics of the situation, but we would be subject to loss of volatility on our ability to grow kind of things will contract and then we expand and that would be the defining basis of our growth.

But defining basis of our growth is really hiring people with large books of business, so I don’t expect, I think the question is, do you expect that contain growth or tempered down those kind of things, I think the answer to that is I really don’t..

Okay. Secondly, this is kind of multidimensional question. I mean, I’ve listened to your presentation this morning. And I think we’re all totally in accord with your growth and your methods and the mindset that you have in your culture there. But that’s not being reflected in your stock right now.

And as you know, your stock is flat-to-down year-over-year. And down what, about 9% year-to-date. You're very cheap based on a P/E basis, much cheaper than it used to be based on a tangible book value basis.

What are your thoughts about this? Is this – and I sense the certain amount of frustration in your commentary this morning, and I'm wondering if that's frustration that's directed at stock price?.

Well, I hope that's was Harold sounded frustrated not me. I'm just kidding you, Nancy.

Yes, I think it's fair to say, I am frustrated from the perspective that we've laid out a plan without being and continue to believe irrespective of what's going on with the short-term share price, is the right thing to do for our shareholders, is going to produce extraordinary long-term shareholder value and that's all I care about and that's what we are working for.

So I'm not concerned about that. Nancy, if somebody asked me in one of the investor conferences and say, Terry, what are you going to do differently? And I'd say, look, we are above this, there's two things. One, you manage your fundamentals of business and two, you tell him the story. And the stock will hopefully take care of itself.

So I'm making that bet in terms of what we're doing differently, I think, we will say we're not doing a tad down thing differently than we have done in the past, we are running straight line and we're hiring revenue producers, we are growing in outsized phase. We doing it on a sound basis. We are getting funded, all those kind of things.

So we're going to continue to manage the fundamental. Maybe, I can come up with a better way to tell the story, so if I could do that and produce some improvement in share price volumes in short run. I would love to see that out but if you have ideas on what we are to be taking that we are not, please feel free to list them up..

Okay.

I would ask, I mean, if this sort of cheap stock valuation continues, I mean, would you think about your dividend, and I get it, you've got other opportunities for growth than plowing capital into a dividend, but I mean, would you think about being a little bit more competitive and sharing a little more capital on the dividend side?.

Well, I guess the answer is we'll think about anything and we'll think about everything. But if you said, Terry, tell me the truth, are you really want to delaying things and trying dividend, not meaningfully. I’m not saying, we wouldn’t concern – we’ve had increases in dividends.

They’ve always been modest and I think that minus [ph] that would continue to be the case. I can't imagine that if we can grow our earnings at the rate we grow earnings at that we would to instead slow the growth and pay out dividend. It wouldn't make sense to me to do that.

So, anyway, I'm sincere when I say, we talk about it, we debate it as you can imagine. Some people say, I have you been considering this alternative, or that alternative is also work but again, right now, I know it sounds contrite or what you hear in most of the call.

We're excited about the growth prospects of this company and I have never seen an opportunity to gather mainline clients at a piece we are gathering them. We have produced the volumes and earnings over time so we're going to keep going down that path and my guess that will be – where that is appreciated..

All right. Thank you..

Thank you. And I'm not showing any further questions at this time. Ladies and gentlemen, thank you for participating in today’s conference. This does concludes today and you may all disconnect. Everyone have a wonderful day..