Terry Turner - President and Chief Executive Officer Harold Carpenter - Chief Financial Officer.

David Feaster - Raymond James Financial Inc. Andrew Stapp - Hilliard Lyons Tyler Stafford - Stephens, Inc. Brian Martin - FIG Partners LLC.

Good morning, everyone, and welcome to the Pinnacle Financial Partners’ Second Quarter 2015 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 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, 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.

A presentation of the most directly comparable GAAP financial measures and a reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle Financial’s website at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle’s President and CEO..

Thank you, operator. Good morning. As we have for a good number of quarters now, I want to begin here with a dashboard of the key valuation drivers. Our basic thesis for consistently driving our share price higher is that over time revenue growth, earnings growth and asset quality are the three most important valuation drivers.

Also through good times bad companies that consistently grow book value per share grow share prices and so for quite some time we’ve been providing quarterly dashboard to highlight our progress on these key valuation drivers.

The top row of graphs shows real revenue and earnings growth with a 19.2% revenue growth rate year-over-year in the face of pretty stiff volume and margin headwinds. Core earnings at $0.64 was a record high, it’s the 17th consecutive quarter of increasing EPS, which was up 30.6% year-over-year.

And from a profitability perspective our return on average assets, which is not on the slide, was 1.44%, and our return on tangible capital which is on the slide is at 15.39%.

I’ll expand further on our profitability and our sustainable business model in just a minute; but obviously revenue growth, earnings growth and profitability continue to be very strong.

As you can see on the second row of graphs, we’re getting outsized balance sheet growth with end of period loans up 11.9% for the second quarter of 2015 compared to the same quarter last year. That’s a rate of organic growth consistent with what we’ve sustained over the last three to four years now.

You can also see that we’ve increased average transaction accounts by 18.8%, using that same year-over-year comparison, so the transaction accounts now represent 51.4% of total deposits.

While it’s not on the slide, I just might comment that during the second quarter of 2015, we grew loans roughly $185 million, and we grew core deposits $196 million, covering every dollar of loan growth with $1.06 core deposit growth.

And then, looking at the right most chart on the second row, even after having initiated a dividend payout in December of 2013, we have continued to accrete capital with tangible book value per share of 13% year-over-year, which is I just mentioned, we believe is highly correlated share price increases.

The third row provides information regarding our asset quality. Non-performing assets decreased just 50 basis points of total loan plus OREO. Classified assets remain extraordinarily low at just 19% of Tier 1 capital plus allowance.

The overall improvement in our credit metric since Great Recession provided meaningful credit leverage over the last few years. It appears to me that our allowance continues to be high versus peers which might suggest continuing credit leverage going forward.

As I alluded to in the last slide, more than three years ago, we laid out our sustainable business model which at the time called for, say, 1.20% ROAA, the midpoint of our target range, which was 1.10% to 1.30%.

We also broke down targets for full critical components that were required to produce that ROAA; [ph] the margin, the non-interest income to assets, the non-interest expense to assets, and net charge-offs, since in ordinary times charge-offs are the primary influence on provision expense.

In mid-2014, in conjunction with the 2014 to 2016 strategic plan, we increased our ROA target about 10 basis points to a range of 1.20% to 1.40%. And as you can see on the right of the slide in both first and second quarters of 2015, we’ve exceeded the top end of that range with an ROAA of 1.45% and 1.44% respectively.

So we will reevaluate that target in conjunction with our 2015 to 2018 strategic plan, which will be developed this fall and, of course, take into account our two mergers and our investment in BHG. Quite some time the only component not performing in or better than the target range has been the noninterest expense to asset ratio.

So those of you who have followed our firm for any length of time, you know our approach to rightsizing our expense base has really been to grow our earning assets primarily in the form of loans. So with the strong asset growth in the second quarter, we’re now all but in the target range for the expense to asset ratio.

2Q 2015 was the first quarter that our NIM has fallen outside the target range primarily as a result of the planning asset yields. The declining asset yields were the result of pricing competition, loan mix, and most importantly, the ongoing process to reposition the balance sheet for rising rates.

Harold is going to expand on the margin and repositioning the balance sheet in just a minute. So, overall, second quarter was another whale of a quarter with record EPS and ROAA meaningfully above our target range.

The NIM has shrunk just a bit as we’ve repositioned the balance sheet for rising rates, but given the expense is rightsized and the dramatic outperformance on fees and asset quality have, and should continue to carry the day. With that high-level summary, let me turn it over to Harold to review the quarter in greater detail..

Thanks, Terry. Our second quarter 2015 net interest income was up approximately $562,000 over the first quarter. This was primarily due to expansion of our average loan balances. As to our margin, our margin declined this quarter to 3.65% with a decrease in several factors.

First, we continue to reduce our floored loan portfolio, which we will speak to in just a minute. This year we have also experienced a meaningful increase in client back-to-back interest rate swap activity, where the client will agree to a fixed rate loan, and we record through a counterparty of floating-rate credit.

Substantially, all of these credits were LIBOR-based credits and as a result helps our asset sensitivity goals, but does lower current period yields.

Regarding the bond book and cash balances, as the cash proceeds from our investment portfolio are received, as well as the need to increase our bond book to support our public fund deposit base, we continue to invest in shorter, lower yielding instruments.

We have begun to reevaluate this position somewhat as we look at various economic forecasts and intermediate-term rates. We also managed to hold slightly more cash and Fed funds this quarter and last quarter, which tended to dilute the second quarter margin.

Even though our margins may fluctuate, we focused our efforts on growing net interest income by growing our customer base in our market, while at the same time maintaining appropriate profitability thresholds. Concerning loans specifically, as the chart indicates, the average loans were $4.7 billion, which was year-over-year growth of 11.9%.

EOP loan balances are higher than average balances and our sales pipelines remain strong for the remainder of 2015, and at this point, we expect strong loan growth for the remainder of the year. As to loan yields, our loan yield decreased 4% to 7% this quarter after having held steady for the past five to six quarters.

We anticipate pricing to remain very competitive in all of our markets going into the third quarter. There’s a lot of lending activity in our markets more than we’ve seen in quite some time.

This increase is attributable not only to the health of our markets, but also the fact that we have more relationship managers out in those markets meeting the needs of their clients.

Our pricing philosophy remain consistent and that we will evaluate each transaction on its own merits and meet or beat the competition whenever we feel it’s in the best interest of the bank. Concerning the price, we were making on reducing our exposure to floors on our floating-rate credit.

We continue to see reduction in loan floors, which obviously will put some pressure on loan yields, which I’ll get to next. We’ve been talking about this slide for quite some time.

As of December 31, we have approximately $1.08 billion of floating rate loans with floors in our loan portfolio, with an average difference between the floor rate and the contract rate of 73 basis points.

We’re pleased to report that through June 30, we’ve experienced about $202 million in reduced floating rate loans in 2015, along with reduction in the spread difference to 64 basis points. This reduction is due to market forces, paydowns or payoffs, and most importantly the targeted removal of loan floors.

As I mentioned previously, this obviously impacts our loan yields and loan interest income, but our plan was to manage reduction in order to prepare for an increase in short-term rates. Our modeling contemplates first rate increase in late 3Q or early 4Q.

We’d like to operate with about $800 million to $900 million of loans with floors, a range in which we are currently operating. As to deposits here in the second quarter, we were able to maintain our low funding costs. As to deposit balances, we did see our average deposit balances increase by approximately $93 million during the quarter.

We’re most pleased with the fact that our demand deposit growth has been really strong over the last several quarters with our second quarter 2015 average balance being up approximately 8.1% over the last year’s second quarter. These remain core operating accounts that we expect keep regardless of the rate environment.

Core deposit growth remains a critical strategic objective of our firm, and we intend to keep it front and center as we approach the last half of the year with a very strong loan pipeline. We introduced this slide to you last time. The top left chart has two lines.

The red line details the absolute volume of interest bearing liabilities that would be a candidate for re-pricing within the first 30 days following a rate increase, no matter how big or how small of an increase.

The blue line represents our floating rate assets, no floors, no fix, just assets that should re-price within 30 days following a rate increase. The blue line has been increasing since the first quarter of last year. In summary, it’s about the trend and we like where we are as we are hopefully nearing this forecasted rate increase.

The bottom right graph, we believe is also interesting. Of the $880 million of floating rate credit with a floor, approximately 36% were re-priced within the first 25 basis points. This along with the removal of the floors has resulted in the blue line in the top chart overtaking the red line. So we believe our core franchise is ready for rising rates.

It’s taken some sacrifice to current period results, but nonetheless, we think the tactics that we have deployed over the few years have gotten us to the point we need to be.

Looking forward and considering the addition of the two new franchise of the Memphis and Chattanooga to the mix, we don’t have the algebra to speak as confidently about the balance sheet interest rate position, but our initial assessment remains consistent and then we consider the additions to be modestly liability-sensitive, and that we believe we have many alternatives available to us, to modify those positions fairly quickly without significant sacrifice to either net interest income or net interest margin.

In summary, we obviously expect the meaningful increase in net-interest income in the last half of the year due to the addition of CapitalMark and Magna, so we aren’t expecting any meaningful dilution to our margins at this point. In fact, our current forecast would reflect fairly stable margins for the remainder of the year.

Switching now to non-interest income, excluding security gains, non-interest income for second quarter increased 54.4% over the same period prior year driven largely by our 30% ownership interest in Bankers Healthcare Group, which we announced and closed during the first week of February.

Our wealth management fees are up approximately 8.1% over the same prior year period and remain a reliable earnings stream. Quarterly interest revenues were down from the prior quarter due to incentive payments from insurance carriers that are received each year in the first quarter.

Our residential mortgage group had an outstanding quarter in terms of production with approximately $113 million in loan sales this quarter at a yield spread of 2.72%.

Revenues are down from last quarter due to an overall decrease in the mortgage pipeline at the end of the second quarter after a significant rise in the pipeline at the end of the first quarter.

Items included in the other non-interest income tend to be lumpy and include items such as gains on other investments and loan sales as well as interchange fees. As noted above interchange and other consumer is up approximately 29% from last year as we continue to aggressively market our credit, debit and purchasing cards to our clients.

We’ve also experienced a meaningful increase in client back-to-back swap fees from last year as we discussed previously. In summary, as to fees BHG has become a remarkable investment for our firm and we believe that the time of the acquisition that we’d likely experienced 7% to 9% accretion as a result.

We now anticipate that we’ll be on the high-side of at least 9% with some likelihood we will beat that original estimate. We continue to explore other ways to partner with BHG, so that both firms can take advantage of each other’s strengths. Lastly, we are reporting fees to average assets of approximately 1.24% for the second quarter.

With Magna and CapitalMark, we expect some minimal dilution with that metric by only 2 basis points to 4 basis points presently. Now as to operating leverage, our efficiency ratio of 51.1% represents a record for our firm.

We believe our efficiency ratio as it stands today compares favorably to most peer groups, but we continue to believe that we will be able to improve upon this level of efficiency for the core franchise. As to run rates, linked quarter, compensation expense was up approximately $240,000.

We’re expecting that increased hires will drive our expense increases this year as we believe all other costs should be fairly stable. I would like to highlight that our recruiting has been exceptional this year not only did we invest in our new Memphis platform which now has a 11 bankers.

We’ve hired 12 other revenue producers to our ranks in Nashville and Knoxville all of whom we are very excited about.

In other words in addition to the 11 bankers we’ve hired in Memphis, we’ve already hired as many revenue producers year-to-date in Nashville and Knoxville as we have typically been hiring on a full-year’s basis over the last three to four years. Our core expense to asset ratio was 2.31% for the same quarter of 2015.

As we have stated for many years, the primary strategy to ultimately achieve our long-term expense to asset ratio target of 2.30% is to grow the loan portfolio of this firm with a corresponding increase in operating revenues and earnings. That will also be the strategy we will deploy with CapitalMark and Magna as well.

We expect to see a slight rise in both our expense to average asset ratio and efficiency ratio in the third quarter with the addition of the two new banks, but the rise will be modest and best, perhaps 8 basis points to 10 basis points on our expense to average asset ratio with our efficiency ratio rising, but remaining in the low 50s as of today.

That said, our synergy case for both acquisitions remains in place. It will eventually help us create more operating leverage in future quarters, as we fully expect to see the target EPS accretion targets in 2016 that we spoke about on the acquisition conference calls.

As far as the remainder of 2015 is concerned, we do remain committed to increase the operating leverage with careful and mindful attention to our core expense base. That said, our focus remains on long-term shareholder value creation by growing our customer base.

We believe the best way to grow our customer base is to hire the best financial professionals in our markets. As I said, we’re mindful of our expense base and we’ll pay close attention, but if the opportunity arises where high-quality relationship managers are available to us, we will seize those opportunities.

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

Thank you, Harold. We’ve had a lot going on over the last several quarters. So I want to conclude by taking us back to the big picture. First of all, we’re simply executing a long-term growth plan, I think it’s been discussed pretty openly for quite some time. Number one, we’ve launched a higher-profile CRE line of business.

Of course, we’ve always been in the CRE business, but a meaningful part of our CRE exposure is owner-occupied, which is really more of a C&I risk. And we’ve also had relationships with many of our markets’ key developers for quite some time. We’ve never emphasized the commercial real estate segment to the extent that we have the C&I segments.

So that’s really what we’re talking about here is escalating our CRE business to match the thrust and position that we established in the C&I business. We’ve made four critical hires necessary to build out a sophisticated CRE capability over the next several years, targeting our markets’ best developers.

Although, our guys have contacts all over the Southeast, is really our intent to dominate this business among Tennessee’s best developers. Additionally, we have reenergized and refocused our residential lending capability with several key hires there as well.

And so we’re having great success building a dominant position in the CRE business just as we built the C&I business. We’ve hired high-profile bankers that are quickly consolidating their developers and their builders to Pinnacle. Number two, geographic expansion, you know that Chattanooga and Memphis have long been targeted markets for us.

They’re urban markets dominated by the same large regions with whom we compete, Nashville and Knoxville. We believe those two markets could represent $3 billion to $5 billion of assets for us.

We’ve made our play in both markets and once both mergers are consummated, I’ll be – we’ll focused on exactly the same approach to organic growth in those markets that we and they are focused on for some time.

I might point out that the hiring has really continued when we announced the lift-out in Memphis, it was a team of eight,and you can see there, we’ve added three more to the team in the last two to three months. And our hiring pipelines lead us to believe, we’ll continue to make great hires in that market.

Number three, asset growth to greater than $10 billion. With these acquisitions, we’ll add approximately $1.7 billion in assets to our roughly $6.5 billion, which gets us closer to the $10 billion threshold.

And that brings the question and concerns about the CFPB, other regulations, and the Durbin Amendment, with the Durbin Amendment likely being the most costly and impactful. Our compliance and finance folks are continuing to dig in on all the requirements of being a $10 billion franchise. So that we will be ready long before we get there.

So to be clear and as I think we’ve communicated many times in the past, we want to make sure you know that our goal is not to avoid the $10 billion, but to get there and grow through it.

Our DNA is all about capturing the large organic growth opportunity that continuous to exist in our targeted markets due to the vulnerabilities at the larger regional banks. Number four, increasing fee businesses, our BHG investment has really blown away our long-term fee targets.

And I imagine, we’ll need to revisit few of our targets with our board in conjunction with the 2015 to 2018 strategic planning process, which is coming up shortly. BHG provided approximately $0.07 in fully diluted EPS to our second quarter results. We had originally advertised BHG as being 7% to 9% accretive.

You can see on this chart, we’re now confident the investment will be at least 9% accretive. You heard Harold speak about that a minute ago. And our focus is not just on collecting the benefits of the investment, but to try to find additional ways to leverage our relationship with this very sophisticated marketing enterprise to better both firms.

I’ll be disappointed if we don’t find more revenue potential here. We’ve also hired Roger Osborne, who built out a capital markets unit aimed at capital raising and M&A consulting for our clients which are generally owner-managed businesses, not targeted by higher profile investment banks.

As some of you know, Roger’s had long career as a financial services professional, including heading SunTrust Robinson Humphrey’s capital markets origination group. We believe we can push that unit through breakeven this year and begin a meaningful incremental contribution in 2016.

And finally, number five, continued focus on bottom-line results; as we’ve already talked second quarter was another significant quarter for us with record revenues, record earnings, pristine asset quality, elevated profitability, and ongoing profit leverage.

And that leaves me to the concluding slide, which honestly is my favorite slide, and I think probably the most important slide in the deck this morning. Stephen Covey is famous for his statement; the main thing is to keep the main thing the main thing.

For us, the main thing is to grow an earnings stream by offering clients better service and financial advice than is otherwise available in the marketplace.

And despite the fact that we got the number of large initiatives underway, they’re intended to fuel the future growth of the company, this is an extraordinary time we’re focused on in execution of the main thing.

This is the latest independent research from Greenwich Associates, looking at market share and client satisfaction among businesses with sales from $5 million to $500 million in our two primary markets Knoxville and Nashville, Tennessee.

As you can see, we’re opening up quite a competitive advantage over all the national and large regional banks with whom we compete with the number one market share position, now north of 25%, and client satisfaction that would indicate that we’re in fact achieving distinction for our service and advice.

That not only bodes well for us as we move into Chattanooga and Memphis, where we’ll compete with the same national and large regional banks with whom we’re competing in Nashville and Knoxville, but also when you look at the very low levels of client satisfaction among the business clients that most of those large national and regional banks, it bodes well for our ability to continue moving market share in Nashville and Knoxville.

And that our ability to do that should be sustainable for quite some time. So, operator, we’ll stop there and open for questions..

Thank you, Mr. Turner. The floor is now open for your questions. [Operator Instructions] Our first question comes from David Feaster of Raymond James. Your line is open..

Hey, good morning, guys..

Hey, David..

We talk about cost. You guys have exhibited pretty impressive cost control and efficiencies continue to improve.

Could you maybe just give us your thought on your expenses going forward and maybe what we could expect as a run rate with the acquisitions?.

Yes, David. I’ll speak to that in two ways. First of all, with Magna and CapitalMark, we think that from a ratio perspective we will see some uptick in the expense to asset ratio and the efficiency ratio, but it won’t be significant. As to the core bank, we don’t really expect to see any meaningful increase in other expenses.

We’ll probably see some increase in ORE expense going into the third quarter, but other than that we should be fairly stable with respect to all other expenses other than the compensation line. We expect compensation will increase. We think it will increase ratably over the remainder of the year, as these new hires come onboard..

Okay.

Since we’re talking about the new hires, could you maybe talk about how the integrations faring and maybe their contribution to the new hires and then even the Memphis lift-out?.

David, I couldn’t quite get all that questions, but if I understand, you want us to comment on how the integration is going and the progress that we’re making with the lift-out, is that it?.

Yes, that and the new hires..

Yes. Okay, well, I would say quickly that, we’re excited about the progress in both the banks. Let me start with what’s going on with them. I think CapitalMark in particular had a whale of a second quarter.

And it would appear to us as a really outsized balance sheet growth than would lead us to believe that our synergy case is – I would say, they’re performing at a pace that would indicate, it’s probably better than what we assumed as we built our regional synergy case.

Magna is also performing better than the budget for balance sheet and earnings growth, which we used in forming our – developing our synergy case. So we’re excited.

I think, we commented in the press release specifically that we think it is a great tribute to the folks in those banks that they’re continuing to outperform their original projections at a time that where they’re going through a transition. We’ve begun integration process. We’re holding orientation sessions for all the associates.

I don’t know, I’d say, we’re 35% to 40% of the way through that process. And I think we’re building great excitement in both companies. I think in terms of the lift-out in Memphis, if you’ll remember, we announced that acquisition, I mean that – not acquisition, but that lift-out, whatever it is, 90 days ago or so.

During that period of time, we’ve located office space; we’ve leased it; we’ve filled it with furniture; we’ve trained people; we’ve oriented people; we’ve made application to operate our loan production office, as well as the deposit taking office; we built all the procedures to do that; we got systems up and running.

They are, in fact, opening accounts both on the loan and deposit side in those offices, and the pipelines are building rapidly. And so we’re excited about the progress of the lift-out team as well..

Okay, great. Last question for me, I want to talk about the Bankers Healthcare Group. It’s obviously trending better than even you guys expected.

Kind of what’s driving the strength and where are you in the cross-selling opportunities and even other revenue synergies that you talked about before? Are you still in the early innings of realizing those? And what could this opportunity, you think really – what do you think the opportunity could be?.

Yes. There are several points in there. They’re having an outstanding sales year. Their volumes are up meaningfully over last year. So, I think, that’s why we think we’re going to be on the high-end, if not, exceed our high-end – or the high-end of our forecast. So it’s all about volumes and they’re really churning a lot of good product this year.

As to revenue synergies, we continue to position our credit card book through that distribution channel. Those volumes are also growing. So that’s been a really good thing for Pinnacle as well.

Future revenue synergies are likely or what we’re looking at is around deposit products and trying to understand what we might be able to position with their client base with our deposit. And so that’s an ongoing process. A lot of people are involved in thinking about that and how to best do it, so that we can try to get some return off of that.

But that would be kind of the – that’s kind of what’s at the top of the list of trying to get accomplished as far as future revenue synergies..

Okay, great. Thanks, guys..

Thanks, Dave..

Thank you. Our next question comes from Andy Stapp with Hilliard Lyons. Your line is open..

Good morning..

Hi, Andy..

Hi, Andy..

What does your model project regarding the impact of rising interest rates on net interest income during the second year following the rate hike.

I’m just trying to get a sense of your longer-term asset sensitivity?.

Hi, Andy. I think what the charts would indicate is that, we’ll see some 2% to 3% interest increase in net interest income with our current rate forecast..

Right..

We currently have 25 bps or so at the end of this year and then another 25 bps next year. So we don’t have a real significant rate increase built into our forecast..

Oh, okay. Okay.

And is my understanding correct, the decline in the gains and sales of mortgage loans was just a function of strong Q1?.

Yes, I think that’s right. We had a mortgage pipeline of about $24 million at the end of the year, that that mortgage pipeline bloomed up to the mid-50s by the end of the first quarter. And so we put a rate lock on all of those, we put a rate lock hedge on all of that – on that increase.

And so that contributed significantly to the first quarter revenues. The volumes in the second quarter didn’t increase so – or increasing meaningfully. So the value of the rate lock hedge didn’t increase very much..

Okay..

Does that makes sense?.

Yes.

And what are your debit card fees, I don’t know if you have this, including CapitalMark and Magna?.

You want total?.

Yes..

Okay. Hold on just a second. This year so far it’s been about $3 million, that’s without Magna and CapitalMark..

Right..

So we’re anticipating with CapitalMark and Magna, and looking forward the next to three years of getting over the $10 billion threshold that we’re looking at probably a $4 million to $5 million hit on debit card, if that’s what you’re alluding to..

Yes, yes, yes. Exactly, okay. And last question hop back in the queue.

What’s the head count for the capital markets group?.

Capital markets group currently has two people..

Okay. All right, thanks..

Thanks, Andy..

Thanks, Andy..

Thank you. [Operator Instructions] Our next question comes from Tyler Stafford of Stephens. Your line is open..

Hey, good morning, guys..

Hey, Tyler..

Hey, I wanted to follow-up on earlier question on expense topic. Terry, I know you touched on this in your closing comments.

But given that we are bumping up close to the $10 billion threshold, can you talk more about the investments that you either have been doing or need to be doing across that? I guess, specifically, where we could be seeing the investments coming down the pike?.

Yes, Tyler, this is Harold. We’re kind of in the throes of trying to understand – to say, we think we’ve vetted all the issues associated with being a $10 billion bank would be a real overstatement. We’re not – we’re going into this, trying to not be naive about it. We’ve talked to a handful of software vendors related to the topic.

As you might expect, we’re getting – we’re fielding a lot of calls from boutique consultants to help us get over the $10 billion threshold. But we think we’re two to three years away from it. And so we’re not in the near-term about to engage a consultant that is wanting to try to get us through the first phase or the second phase or whatever.

I think, I’ve read quite a bit of commentary from some others that are in a similar position as us. I think we’ll probably respond similarly as the other banks are responding. We will continue to learn and educate ourselves. We’re looking, as I said, we’ll probably go ahead and sign some contracts related to software vendors.

And so we’ll see some marginal uptick in technology costs. But we’re not about to go out there and start trying to accomplish the – all the DFAST stress-testing requirements until we’ve had a lot of conversation in both internally and with regulators as to what they’re going to require.

Our hope is and maybe that’s all I can say is our hope is that overtime, the cost of compliance will come down, as will the requirements of what the regulators are looking for from a bank that just steps over the $10 billion threshold.

We know that the requirements of $40 billion bank aren’t nearly the requirements that they have for $10 billion bank, if that makes sense, so….

Okay, good color. Thank you, Harold. So switching gears over to the margin, I guess specifically the loan yield this quarter, the last several quarters, you guys have been able to hang on to those yields. They obviously compressed in Q2 a bit.

Was there a change in the pricing dynamic from your borrowers this quarter, or was it just more competition, I guess, coupled with the loan floor repositioning you did this quarter?.

Yes, I think pricing has gotten really competitive here, and it has been competitive. But we’re seeing a lot of LIBOR-based credit partially due to the commercial real estate initiatives that we have, but and partially due to the fact that we want more floating-rate credit.

So I think those are the two largest impactors to why the loan yields went down to 4.27%..

Okay. And then last one for me. Harold, I apologize if I missed this in your prepared remarks.

But any outlook or comments on the impact of the pending deals to the margin once we get those closed for 3Q and 4Q?.

Yes, we don’t expect any meaningful dilution to the margin at all. Our forecasts would say that the margin stays pretty stable for the rest of the year with the inclusion of CapitalMark and Magna..

Okay. Thanks, guys. I’ll hop out..

Thanks, Tyler..

Thank you. Our next question comes from Brian Martin of FIG Partners. Your line is open..

Hey, guys..

Hey, Brian..

Hey, Harold, can you just talk a little bit about kind of when the post transactions, kind of when the first quarter of kind of a clean expense run rate, when you kind of get some of these cost savings out of it, that based on when the integrations occur and whatnot?.

Yes. We think on the Memphis franchise, their technology conversion is scheduled from mid-November. So you’re probably looking at a run rate on expenses starting in January of next year, so, say first quarter. On CapitalMark of their technology conversion is scheduled for the middle of March.

So you’re probably not going to see an expense run rate until maybe May or June..

Okay. [indiscernible] Okay.

And then just any update on the capital for the tangible common equity, post-transaction still kind of that 8.5% type of range, or is there any thought on any changes there?.

So I don’t think there’s any changes. I’m hopeful that we’ll be in that 9% or closer to that 9% number..

Okay, post-transaction.

And then just as far as maybe just additional credit levers, how are you guys thinking about that kind of with the growth and then the addition of – additional assets from the two acquisitions?.

Yeah, once you apply the accounting rules, we’re probably looking at reserve of somewhere around 105 to 110. That said, we still believe that the core bank has credit leverage left to harvest at least over the next say one, two years..

Okay. All right, and then, maybe just one last housekeeping.

The increase, Harold, in the other fee income lines this quarter, is there anything that’s kind of non-recurring in that or is it just things are going to be volatile quarter-to-quarter, and it’s not necessarily a good run-rate, but just any thoughts there would be helpful?.

Now, are you looking at the investment gains, Brian, or…?.

No, just the kind of the other line that, in that fee income..

Yeah, I don’t think there is anything unusual. I’m not aware of anything unusual, I’ll say that..

Okay. Okay. All right, thanks for taking the questions and great quarter guys..

Thanks, Brian..

Thank you. This concludes our question-and-answer session. Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a great day..