M. Terry Turner - President and CEO Harold R. Carpenter - CFO.

Kevin Fitzsimmons - Hovde Group Tyler Stafford - Stephens Incorporated Michael Rose - Raymond James Jefferson Harralson - KBW Andrew Stapp - Hilliard Lyons Stephen Scouten - Sandler O'Neill Brian Martin - FIG Partners.

Good morning everyone, and welcome to the Pinnacle Financial Partners' First Quarter 2016 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer and Mr. Harold Carpenter, Chief Financial Officer.

Please note, Pinnacle's earning release and this morning's presentation are available on the Investor Relations page of their Web site at www.pnfp.com. Today's call is being recorded and will be available for replay on Pinnacle's Web site for the next 90 days. At this time, all participants have been placed in a listen-only mode.

The floor will be open for your questions following the presentation. [Operator Instructions]. Before we begin, Pinnacle does not provide earnings guidance or forecasts. During this presentation, we may make comments which may constitute forward-looking statements.

All forward-looking statements are subject to risks, uncertainties, and other 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 Web site at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO..

number one, revenue growth which for this firm is largely influenced by balance sheet growth; number two, EPS growth which for this firm is largely influenced by the revenue growth; and then number three, asset quality. And so we focus intentionally on those variables.

Also through good times and bad, companies that consistently grow book value per share tend to grow share prices.

The top row graph shows real top line and bottom line growth with a 43% revenue growth rate year-over-year and a 14.5% annualized growth rate EPS which at $0.71 was a record high and it is the 23rd consecutive quarter of double-digit year-over-year EPS growth, excluding extraordinary items.

From a profitability perspective, excluding merger charges, our return on average assets which is not on the chart was 1.32% right in the center of our target range and our ROTCE which is show there was 15.64% top quartile performance among an extremely high performing peer group.

So, revenue growth, earnings growth, and profitability continued to be very strong. As you can see on the second row graph, we're getting outsized balance sheet growth with end of period loans, up 17.4% annualized linked quarter between the first quarter of 2016 and the fourth quarter of 2015.

That's a rate of organic growth slightly in excess of what we’ve sustained over the last three to four years, and we are successfully funding virtually all of that loan growth with core deposit growth when you look at the year-over-year comparisons of loans and core deposits.

And looking at the rightmost chart on that second row, even after having initiated dividend payout in December 2013, and having raised it for the fourth time since then just last quarter, we've continued to accrete capital with tangible book value per share up 16.3% year-over-year. The third row provides information regarding our asset quality.

In my judgment, asset quality continues to be very strong. Nevertheless on a quarter-over-quarter basis, each of these three metrics jumped up not exclusively but primarily as a result of our consumer loan portfolio, particularly the auto portfolio. Non-performing assets were up a little this quarter at 70 basis points of total loan plus OREO.

While that's a little higher than normal, I am going to add that for our firm, movement in these numbers is lumpy and you can see that on the chart we have actually been above that level twice in the last two years. We generally try to operate in the 50 to 75 basis point range.

So, even though it ticked up a little bit quarter-over-quarter, we are still in a great spot overall. Similarly, classified assets remained low at just 24.2% on Tier 1 capital plus allowance.

We typically try to operate in the 20% to 35% range and in the case of net charge offs this quarter was obviously higher than normal and actually outside our target range of 20 to 35 basis points which again was meaningfully impacted by our consumer automobile portfolio.

So let me digress just a minute flesh that out, few years ago we announced we were entering in a measured way the indirect auto lending business. It is one of several initiatives that we are intended to find some suitable higher yielding assets. Within that business, we have a traditional paper buying function, buying A paper from mainline of dealers.

Honestly, I would say the asset quality in that book is very good, and however, frankly it has not turned out to be a particularly high yielding asset. We have also acquired some higher risk, higher yielding paper from used car dealers over the last few years.

We currently own around $60 million of this high risk, higher yielding car paper, thus it is a pretty small portfolio. During the first quarter, we’ve recorded $3.65 million in charge offs and lease accounts, which is very much beyond our risk appetite.

We are evaluating the remaining high yield portfolio and continue to believe we have adequate reserves against future losses. That said, we are definitely managing the volume and the risk of this portfolio down and focusing our attention on other products. As you might expect, we are constantly searching for opportunities to enhance our business.

Some involve buying a business or acquiring a bank or partnering in some new venture, and we’ll occasionally take on these ideas when it appears the risk of all parameters are balanced. We’ll also let you know when we decide to move on as we are here.

Examples of some of the more successful initiatives over the last few years that are like this are our original purchases that we made in loans originated by BHG, which turned out to be extraordinarily successful, both in terms of the roughly $70 million in generally higher yielding loans that are currently on our books as well as our ultimate [ph] acquisition of 49% of that company.

Another is our entry into the credit card business where we now have generated approximately $70 million in credit card out standings and have dramatically grown our interchange income.

I think it was Jim Collins, in one of his books said, “Winners fire bullets not cannon balls” and that’s exactly what we've done here as it relates to the used car paper. It was a measured risk to improve asset yields that at the end of the day one consists with our risk appetite. But even with this issue, overall asset quality remains very strong.

As an example, excluding the charge-offs in our auto loan portfolio, our charge-off rate for the remaining portfolio was just 21 basis points in the first quarter. So our client selection process remains very strong.

Because investors are always trying to understand the likelihood that our earnings growth can continue in the last couple of years in addition to trying to crystallize the power of our organic growth model, which is pretty broadly understood, we’ve laid out other key and important growth initiatives that we would undertake, longer-term initiatives to be undertaken during the five-year time horizon, all of which were intended to sustain the rapid growth in earnings that the firm’s enjoyed over the last number of years.

So by way of update on these various growth initiatives the hiring momentum is as strong as I ever remember. We had a fabulous fourth quarter 2015.

If you remember, in the first quarter of 2016 we've hired 14 revenue producing associates, again a pace similar to what we did in fourth quarter 2015, at 17% more in the first quarter than our previous annual hiring phase in 2012, 2013 and 2014.

In other words, prior to 2015 we were generally trying to hire around 12 revenue producers per year and in the first quarter 2016 alone, we hired 14. And so that backed to more than any other size about the organic growth going forward. In terms of the other initiatives, 2015 was a fabulous year of execution.

We indicated last year that we’d expand to Tennessee’s other two urban markets, Chattanooga and Memphis. We announced the acquisitions in both markets during the second quarter of 2015, closed them both in the third quarter of 2015, roughly 90 days following announcement.

We completed the system integration for Magna during 2015 and cap-to-mark in the first quarter this year. That puts us in a position to realize the remaining cost synergies in 2Q 2016. I think we've lost just two relationship measures in Memphis and nine in Chattanooga. So really we've not lost any revenue producers of consequence in either market.

And most importantly our actual earnings accretion was $0.06 to $0.08 during 2015 versus the earnings accretion as zero that we had projected for 2015 at the time of the announcement. So those mergers and integrations are well ahead of schedule. BHG has turned out to be a fabulous investment for our firm.

We completed an additional investment for 19% of the company during the first quarter, bringing our total ownership to 49% of BHG, which had a record year in 2015 and looks to be on track for another record year in 2016.

So as I think about the performance of our firm against the high but sustainable profit targets that we've established several years back, the tremendous momentum in organic growth and the operating leverage that I expect going forward, I'm as optimistic as I've been in quite some time.

With that let me turn it over to Harold for a more in-depth review of the first quarter..

Thanks, Terry. For those of you that have followed us over the years, you know that we pay attention to expenses but we spend most of our time and energy developing tactics to grow revenues organically.

It’s our belief that top-line revenue growers that can leverage that type of growth with increased earnings will be rewarded with outsized multiples by the markets. So far so good. This chart gets at that in some detail. The green bars are fees while the blue bars represent spread income.

The dark line on the chart is the critical one as it denotes revenue per share. Growing EPS or tangible book value per share is obviously much more difficult if this line will stagger down. Our trailing four quarter revenue per share is around $9 which is up 23.5% from the previous trailing four quarter period.

Excluding margin charges, our trailing four quarter fully diluted EPS is up approximately -- is approximately $2.76 up 27.2% from the previous trailing four quarters. So we believe our firm has performed admirably and transferred a reasonable amount of our revenue growth to bottom line results.

That said this organization is undergoing a lot of change in the last 12 months and there is more change coming but as it impacts this line we believe it is all positive change.

I believe that the Avenue merger will also be positive to revenue per share growth and after seeing our first quarter loan growth we believe it is not only a leading indicator to this future positive but is near term validation as to why the combination of Pinnacle and Avenue made so much sense.

Concerning loans specifically as the chart indicates, average loans for the quarter were 6.74 billion. First quarter ELP March 31 loan balances are higher than average balances and our sales pipelines remain strong going into the second quarter of 2016. And at this point we expect continued double-digit loan growth throughout 2016.

As mentioned previously, Avenue's loan growth in the first quarter was exceptional at roughly 28% over last year's ELP balances. We reported in the press release last night that we acquired $169 million in loans during the quarter in connection with the hiring of three commercial lenders from Memphis market.

Excluding those loans from our first quarter growth, we grew loans of 115 million in the first quarter which is traditionally our slowest growth quarter. On annualized linked quarter pace of greater than 7% over 4Q 2015 average balances.

Collectively Avenue's linked quarter and Pinnacle's linked quarter loan growth amounted to 11.5% over fourth quarter balances so yes, we like the way this year is shaping up. As for loan yields, our loan yields increased to 4.49% this quarter.

Impacting our loan yields this quarter was approximately 2.6 million in purchase accounting accretion which positively impacted yields by about 15 basis points. Not considering Avenue we will have this continued benefit to our loan yields although in lesser amounts for the next several quarters.

As to asset sensitivity we continue to forecast Fed [ph] funds increase in June and in December. Our balance sheet we believe is in a solid asset sensitive position upon the first tick of a rate increase.

Our annualized beta factors remained conservative of deposit increases of around 60% of the rate increase being used for additional interest cost even though after the December 2015 rate increase the realized increase in funding cost was negligible.

We have worked our floating rate loans which brought us down to approximately 650 million as of March 31, slightly less than 10% of our loan balances. Additionally almost 50% of our loan book will participate in the next rate hike if and when it occurs.

Coincidentally average loan book is fairly close to ours with about 128 million of their 962 million in loans with [indiscernible] and 43% of their loan balances set to participate in the next rate hike. Asset deposits again here in the first quarter we are able to maintain our low funding cost with only a slight increase in cost.

As to the deposit balances we had a solid quarter of deposit growth with deposits up 109 million in the first quarter. Our average loan to deposit ratio has remained fairly consistent for more than a year now at 95% to 96%. Avenue's average loan to deposit ratio was in the 92% range in the first quarter.

As we mentioned on the January 29th conference call concerning the Avenue merger, our balance sheets are very similar so we don’t anticipate any significant balance sheet restructurings to take place.

We are also pleased that our demand deposit have been very strong over the last several quarters with our first quarter 2016 average balance continuing to comprise about 28% of our total deposit base while Avenue's is only slightly less at approximately 25%.

That said we are jazzed up that Avenue's average demand deposits for the first quarter 2016 are up 18% over last year's first quarter. These demand deposit accounts are core operating accounts that we and Avenue would expect to 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 nine months of the year with our anticipated strong loan pipelines.

Switching now to non-interest income, excluding securities gain non-interest income for the first quarter includes almost 40% of the same period prior year driven largely by our ownership interest in Bankers Healthcare Group. During the first quarter 2016 we increased our ownership in BHG from 30% to 49%.

We believe that EPS accretion as a result of 19% ownership stake increase for this year should be around 4% and next year 4% as well.

We've got an excellent partnership with BHG, they run a remarkable company and we're obviously excited about not only the additional investment but also continue to explore opportunities to expand the partnership into more diverse revenue channels.

Our residential mortgage group had another outstanding quarter in terms of production and yield with approximately $164 million in loan sales this quarter at a yield spread of 3.31%. Yields were increased as a result of a forward-lock hedge that was applied to the Magna portfolio for the first time.

Wealth management was up 4.8% linked quarter driven primarily by interest commissions, which were up in the first quarter due to the annual incentive payments received from various carriers. Items included in other non-interest income tend to be lumpy and include items such as gains on other investments and loan sales as well as interchange.

As noted on the slide interchange and other consumers’ up approximately 53% from last year as we continue to aggressively market our credit, debit and purchasing cards to our clients. Now as to operating leverage, our core efficiency ratio was 52.2%, which was good for us and compares favorably to peer groups.

We believe that we’ll be able to improve upon these levels of efficiency throughout 2016. Our annual merit rate increase occurs in January of each year and with payroll tax resets the first quarter is typically when personnel costs increased, although this year it was larger than normal due to increased headcount.

We continue to expect that increased hires will drive our expense increases throughout this year as we currently believe all other costs should be fairly stable. I’d like to highlight again that our recruiting base has been -- our recruiting has been exceptional this year.

With all of that and all of the other activity that occurred in 2015 with our franchise we were able to recruit 14 revenue producing relationship managers to our firm in the first quarter and our recruiting pipelines remain very strong across the franchise in all four markets.

Our recruiting effort is very active, intentional, and we’re on offense in all four markets. As we look to the remainder of 2016, we continue to anticipate a new branch opening in Chattanooga and another in Knoxville later this year as we seek to further emphasis core deposit growth in these markets.

Our core expense-to-asset ratio was 2.36 -- 2.37% for the first quarter of 2016, up slightly from the fourth quarter. So we're obviously are operating above our operating target this quarter.

The synergy case for our mergers remain in place, which will eventually help us to create more operating leverage in future quarters as we fully expect to achieve the targeted EPS accretion targets in 2016 that we spoke about on the various merger conference calls.

As you may know the technology conversion for capital market was completed in the first quarter and we have approximately 25 positions that are set to roll off our payrolls by the end of this month.

We continue to forecast the penalty for exceeded – for exceeding 10 billion in assets to be around $3.5 million to $4.5 million negative impact in 2017, most of which is in the last half of 2017 as a result of reduced interchange fees for the Durban Amendment and $8 million to $9 million impact in 2018, once the Durban penalty is fully absorbed.

We've considered these charges when we announced the Avenue merger and continue to believe that the Avenue merger will be approximately 2% accretive in 2016 and 4% accretive in 2017, inclusive of the $10 billion threshold charges.

We continue to believe the Avenue merger will occur in the late second quarter or early third quarter, once we obtain the required regulatory and shareholder approvals. To be clear we filed this S-4 on Friday of last week, so we’re anxiously awaiting the SEC’s approval of the S-4.

We think we have earned a reputation for balancing investment and future growth, with current period operating efficiencies. We believe we have meaningful hiring opportunities for our franchise, but at the same time we will guard the reputation we have built for being good operators with diligence.

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

Okay. Thanks, Harold. And so I want to go back to 30,000 feet here for just a minute, kind of talk about the strategic outlook for Pinnacle. I get asked all the time, what about going out of state, and so I want to be clear, we believe we're going to build a $13 billion to $15 billion bank in Tennessee’s four urban markets.

In each market we expect to be one of the top three banks in terms of FDIC deposits, and so you might say the firm’s strategy is to be a foot wide and two yards deep.

As has been the case since our founding we rely on distinctive service and effective advice to take share from vulnerable large regional and national franchises that have previously dominated our markets, which as you can see on the slide are essentially the same competitors in each of the four markets.

So moving from the asset target to return on asset target we are currently targeting 1.2 to 1.4 ROA. More than three years ago we laid out our sustainable business model which at that time called for a targeted range of 1.10 to 1.30 for ROA.

We also have brought down targets for the four critical components required to produce that ROA, the margin and non-interest income to assets, the non-interest expense to asset, and net charge offs.

And then in mid 2014 in conjunction with the 2014 to 2016 strategic plan we increased that ROA target by 10 basis points to a range of 1.20 to 1.40 which is where we now are.

In conjunction with the 2015 to 2017 strategic planning process we decided to leave the ROA target as it is but as it related to the four individual components we decided to increase the non-interest income to average assets by 10 basis points and decreased the target range for the net interest margin 10 points to reflect the current operating environment.

So, overall the first quarter was another great quarter, at 1.32% ROA at steady merger cost. We are right in the center of the target and that is even with the seasonal spike in expenses that Harold has talked about and elevated credit cost in the first quarter.

The key of course ultimately gets back to execution, so let me put that in perspective for you if I can. Usually the most important aspect of execution is organic growth model that we have been executing for roughly 15 years now. We are hiring revenue producers at a record pace in the first quarter of 2016.

Our crediting pipelines remain very robust for the remainder of 2016. We are producing double-digit organic balance sheet and core fee growth rates and all that results in double-digit EPS growth rates. In terms of capital market in Magna, we have been a highly successful system in brand integrations for both those banks. They are now complete.

We expect to pick up the remaining cost synergies to be realized beginning in the second quarter 2016. I think Harold mentioned 25 headcount reduction during the quarter.

And then we will begin harvesting revenue synergies which we think are impactful, they want greater, like in our case to make the acquisition but we do continue to believe that we have a number of meaningful revenue synergies in both those acquisitions.

In the case of BHG we purchased an additional 19% stake there to take our combined ownership to 49%. We anticipate at least 4% EPS accretion in 2016 and we also believe that we have got a number of opportunities to continue to expand the synergies between Pinnacle and BHG.

And then finally in the case of Avenue, we announced that transaction in January. Harold's been through the accretion numbers there and indicated that we expect to close that transaction either late second quarter or early third quarter and then we will have the technology conversion which is slated for the fourth quarter of 2016.

So, again just trying to put all that in a summary format here, I would say that we truly established a competitive distinction among bankers which is evidenced by our recruiting success and among clients which is evidenced by our balance sheet growth.

We consistently produced and expect to continue double-digit organic asset growth, mention the $13 billion to $15 billion asset level. We believe we can build in four markets. At 1.20% to 1.40% ROA target, I would say our targets have and we consistently performed there.

Similarly for the last 23 quarters adjusting for extraordinary items, we have had double-digit EPS growth and we expect that to continue. At 15.64% level we continue to produce top quartile ROTCE that is in a very high performance degree.

And I think the last point which I believe is really important here is that we have got an advantage stock that is rationally deployed. We are fundamentally organic growers at heart, that is what we think about, that is what we love to do.

But we do have an advantage stock that puts us in a position to create even more operating leverage and even more EPS growth. I think Harold did a nice job talking about the growth and revenues per share and growth in earnings per share that we have been able to create.

And even though we are not out here aggressively or recklessly deploying our shares, I'm confident we’ll have a number of other opportunities over time similar to the opportunities that we've had over the last year or two to create even more shareholder value and turbo charge our growth rate.

So I think in simple terms that’s really how I think about our organic growth and growth in EPS and shareholder value over time. Bridgette, I’ll stop there and be glad to take questions..

Thank you, Mr. Turner. The floor is now open for your questions following the presentation. [Operator Instructions]. Our first question is from Kevin Fitzsimmons from the Hovde Group. Your line is open..

Hey, good morning, Terry and Harold.

How are you?.

Good.

How are you?.

Good. Can we -– you’ve mentioned a few times and emphasized it Terry on the call that about the pace of recruiting has been as strong as you can remember and how high you expect it to continue to be.

I'm just curious can you -– how much of why it’s so strong right now is deliberate, in other words, I'm guessing maybe it’s because you are new to Chattanooga and to Memphis, and so that’s maybe accelerated your pace for that or is it something about what the competitors are doing and its leaving an opportunity open for you.

If you can just give a sense for what's driving that recruiting to be so strong right at this moment?.

Yes. Kevin, that’s a great question and you have hit at two things both of which I think are impactful. There's no doubt that we sort of have more hunting ground by virtue of being in two additional markets, and so that increases our volume of hiring.

But honestly, I would say that it's probably more about the competitive landscape than it is the new territory. And all I mean by that Kevin, you’ve followed our company a long time, I think you understand this. I meet every Monday morning with my Director of Board, so we review the company's performance in detail every Monday morning.

We spend as much time on our recruiting pipelines as we do on our business development pipelines. And so I think that’s unusual versus most of our peers.

I'm just trying to communicate that for a very long time, we've focused on a weekly basis on hiring pipeline, who the targeted hires are, where we are with them, what the next steps are, and so forth.

And I would say that we're having more success -- I think we've been successful at it all along, but I’d say we're having more success right now than we have versus some of the large regional banks.

I do think their frustration levels are very high in several of those companies, and so I think that has sort of turbo charged the recruiting success as well..

Terry, what is it specifically though, I mean I know you guys have always focused on organic growth, but some of those larger regional banks that traditionally have been easier targets for the recruiting, it seems like just from our advantage point that they’re getting more on the offensive and they’re focused a little more organically and they’re healthier, they have healthier balance sheets.

So one would think that maybe the recruiting effort is a little tougher on that sense, but if -– but maybe I'm wrong, if you can just shed a little light on that?.

Yes, I think part of your assertion is true which is that the large regional banks have a better financial performance, a better asset quality level and so forth today than they had going back two, three, four years ago. So there's no doubt there's improvement on that regard.

But again, I would just state that I don’t think the thesis changes at all because they’re financially healthier. And again, I don’t say this Kevin to disparage the large regional banks. I've been in one. It’s hard to do in a large regional bank.

But there is just a lot of disengagement, the way they pay incentives, the timeliness of paying them, just how they communicate with their people, how they excite and engage them. I guess I'm really speaking of just the softer aspects of what's it like to work in a large regional bank.

I suppose it might be a tick better from the perspective that the financial performance is better but those are the things which is so important, just what’s it like to work in that company, I would say they are no better today than they have been since we started the company..

Got it, okay, thank you.

One quick follow-up on credit, I know you mentioned that the review of the auto book has driven the increase in net charge-offs, and on NPAs, specifically non-accruals, even though it is at a fairly low base, it was a pretty healthy linked quarter increase, just curious if you can give us a little color on what was driving that and was it a few big lumpy things or was it several things that were spread out?.

I would say, generally Kevin there is a concentration in a couple of bigger ticket items, and again I think you know and you have seen this happen in the past, I mean literally you can have $20 million to $30 million fall into or outside a quarter by a week or two.

And so, I think in this case we had some upgrades we thought might be made that probably spilled over in the second quarter and some downgrades. We are hopeful it wouldn’t occur but actually it spilled into the first quarter. So, again it’s few transactions got lumpy in there, but again it doesn’t feel alarming to me at all..

And nothing, nothing at all tied to energy or direct or indirect on that front?.

No, nothing energy related at all..

Okay, alright. Thanks guys..

Yes..

Our next question is from Tyler Stafford with Stephens Incorporated, your line is open..

Hey, good morning guys..

Hey Tyler..

Hey, I wanted to start on BHG and I know you increased the 2016 accretion guidance this quarter, but can you talk about what happened with BHG this quarter. My understanding was that there wasn’t a large seasonal dynamic at play with BHG.

So was there something else -- was there some other aspect to that I guess? And then as a follow-up can you tell us what the originations and gain on sales were out of BHG this quarter?.

Yeah Tyler, this is Harold. I don’t think there was anything significant or meaningful that would distort the timeliness or the recognition of the BHG income. I don’t have all of their production statistics with me yet, so I don’t know the answer to that second part of that question either.

But we weren’t anticipating the seasonality either but it does occur. And so, we were down there last week, talking to the BHG people. I will just tell you they are optimistic as they have ever been about their business model and what kind of business flow that they have got going through their pipelines right now..

Do you happen to have the pipelines that you referenced in the press release, what they are at today and I guess give a sense for what they were heading into 1Q or last quarter?.

I will just -- I will say they are up..

Okay, and maybe just a couple of questions on the ROA portfolio as a follow-up, can you give us the total size of that book at this point, what was the mix between prime, subprime, new and used, and I guess current delinquencies right now as well, any kind of characteristics of the auto book as we stand at quarter end?.

Yeah, we got about 50 million left of this used car paper remaining on our ledgers right now and I think there is about another 50 million in more traditional and direct type that is coming from the new car dealers. As far as delinquencies are concerned, I think we have got something like everything over 120 days has been charged up.

We have probably got about 1 million over 90 right now. So they are actively working that $1 million. And in all that million I believe is in that subprime group. I say subprime, it is more of a used car paper..

Okay, alright I love that. Thanks guys..

Thanks Tyler..

Our next question is from Michael Rose with Raymond James, your line is open..

Hey guys, good morning.

How are you?.

Hey, how are you Mike..

Good, I wanted to look at that 5.30 in spite that and if I look at sub standard commercial loans, can you just help us reconcile what the large increase is quarter-to-quarter?.

Yes, there was a -– let me get my glasses on. Yes, I know there's a couple of pretty significant ones in that increase. I think there's one that was about $14 million and another one that’s about $5 million that make up most of that increase. There may be another couple of big ones in there as well but that’s where most of that increase is..

Now are any of those from the banks you acquired or they kind of legacy Pinnacle?.

The two I spoke of are legacy Pinnacle..

Okay, and any -– I just want to look at the -- obviously the statistics around Nashville and Austin is still very strong.

So can you give us kind of a little color as to what happened there, if there's any sort of trend that you’re seeing that would cause that increase?.

No, I don’t think there's any trends at all. I think they’re just -– as Terry mentioned, it’s just lumpiness coming around. So….

Okay. And then if I can just touch on the margin this quarter, I think in the press release you mentioned there were some purchase accounting accretion.

What was the margin as to the purchase accounting accretion this quarter?.

It would have been probably about 15 basis points less maybe 10. It impacted loan yields by 15 basis points..

Okay.

And then I haven’t opened up the S-4 but what are the kind of pro forma impacts on a margin basis for the Avenue deal?.

The Avenue deal will be diluted to the margin by a couple of ticks..

Okay and then maybe one more from me for Terry. You talked about the 14 people that you brought on this quarter and historically you talked about kind of the pipeline.

Have you sized the business that those 14 folks that you’ve brought on could bring in over time?.

Yes, Michael I'm not sure I can tell you the number. I mean each one’s evaluated independently, and again, I think you know enough about our hiring model. Each person we hire we have an agreement with them about what we think they’ll bring in year one, two and three. And so we expect these hires to produce similar leverage.

We manage our relationship managers based on a salary multiple that they can produce when they are mature and so we believe that all these people will hit the salary multiples that we produce out of our existing employee base..

Okay. So it sounds like maybe you’ve done the math, you’re just not willing to tell us..

Yes, I think that’s right..

Fair enough. Thanks for taking my questions guys..

Alright..

Our next question is from Jefferson Harralson with KBW. Your line is open..

Hey, guys. Thanks, good morning..

How are you?.

Good.

The -– on the auto book, is there some catch up on this where now let’s say a change, we're going to charge off everything over 120 days or is it, a lot of this deterioration happened this quarter?.

Yes, I think a lot of deterioration did happen this quarter. There has been a focused effort on cleaning that book up now for, call it, 9 to 12 months. And so I think they’re -– we're actively reviewing that book and hopefully we've gotten at the majority of the issues..

Right, you mentioned the accretable yield was $2.6 million this quarter I think, is that right?.

That’s right..

Does that include all the principle and interest from those acquired loans or just the amount of what will be in excess of what you would normally bring in on those loans?.

It’s the excess on those loans..

Alright, and how much was that last quarter, was that zero last quarter?.

No, it was about 1.6, I think is the number..

Okay.

And I’ll finish up on BHG as -– can you comment on the [indiscernible] trends there and the pricing that’s happening at BHG?.

I think their pricing is pretty stable quarter-to-quarter. It’s just a volume issue fourth quarter to first quarter and so like I mentioned earlier, we were down there last week. They are pretty excited about what 2016 is shaping up to be..

Okay. And just a last – this might be for Terry, while on the -– you mentioned your advantaged stock that you are now in most of the markets you want to be in, in Tennessee.

So is it time to expand outside Tennessee or is that -– are you thinking front [ph]?.

Yes, I think Jefferson, you and I have had this discussion a lot of times. I think what I would say is that I never say never. I mean I can imagine there might be some day some time when we might want to go outside of the state. But I would say this is not that time.

If you look at the opportunities we have in front of us you’ve got a tremendous growth trajectory. You can grow organically at $1 billion a year in these bull markets that we know well, that we have mass in, that we perform well, and in which we have operating leverage, in which we're able to hire people at dramatic pace.

And so it just doesn’t feel like the time I want to figure out how to go to Virginia or Georgia or North Carolina or whatever it is. So I don’t want to say that we’d just never do it.

I can imagine there might be a day and a time but I wouldn’t want you to exit this call thinking, hey, those guys are trying to work something out to enter other markets besides Tennessee because we're not working on that right now..

Got you, alright, thanks guys..

Okay, thanks, Jeff..

[Operator Instructions]. Our next question is from Andy Stapp with Hilliard Lyons. Your line is open..

Good morning..

Hey, Andy..

If I adjust BHG’s 1Q 2015 results by adjusting for full quarter and your increased ownership, its looks like their earnings are down year-over-year, is that the case or I need to take another look at my math?.

Well, if I were you I would take another look at the math. They ought to be fairly close to flat. The -– we acquired BHG in the first part of February last year, and then we acquired the 19% in the last -– in the first part of March this year..

Right..

So it ought to be fairly close to flat..

Okay.

And could you provide some color on linked quarter increase in gains on sale of loans as well as the growth prospects for this line item?.

Yes. That’s all mortgage -– residential mortgage. They had a great quarter again with production. And I think it was fairly balanced between new purchases as well as refi business..

Okay.

What type of growth should we think of going forward in that line item?.

Well, I think as long as rates are where they are particularly on the 10-year, then they’ll have a steady flow of business. I know that our mortgage guys are hiring people in Memphis and Knoxville and Chattanooga right now. So we've got some volume increase that we will expect out of these new hires..

Okay..

Andy, I think generally you would guess that’s a pretty cyclical thing..

Right..

Principle selling activities pick up in the second, third quarter and tail off in the fourth quarter and first quarters. So again we’d be optimistic on the outlook of that business going forward..

Okay.

And were there any unusual items in other non-interest income and other non-interest expense, are these line items good run rates?.

I would say they are probably pretty good run rates. There's a variety of things going on in there but I don’t think there's anything that’s significant or constant..

Okay.

And you’ve been guiding for the past several quarters for low double-digit loan growth with the success you’ve had in interacting revenue producers might just be conservative, you think?.

Well, I don’t know. I think we ought to just stick with the guidance that we have. We produced low double-digit loan growth for the foreseeable future..

Okay. Great, thank you..

Thank you, Andy..

Our next question is from Stephen Scouten with Sandler O'Neill. Your line is open..

Hi, guys.

How are you doing?.

Good..

I had a couple of maybe kind of tie-up questions on some of the things already been asked, maybe following up on that loan growth question from Andy, the $1 billion for the year, is that still a number you think you can hit? And as you use your basis for that number, would it be the $115 million of organic growth or would it kind of be the net -– the $248 million including the purchases?.

Well, let me talk about the $115 million in net growth during the quarter. If you go back and look at last quarter, last first quarter, I think we did $55 million in net loan growth, so we did 2x that run rate. If you go back and look at the first quarter of 2014, I think we did $37 million.

So while I know that you, you're looking at it saying, okay, linked quarter average-to-average it looks like 7% while I’m looking at it saying it’s a while over first quarter that’s 2x to 3x what I've done the last first quarters. And so that again would cause me to be extremely optimistic.

I think the $1 billion in growth, I'm not necessarily tying that to the – okay, I did $115 million in the first quarter therefore here's the math. What I would say is that’s what our planned growth rate is and we're running ahead of plan..

Okay. Yes, that’s great. I appreciate that. And then noticing on the balance sheet here, it looked like there was a pretty big jump in your securities balances in the quarter and also a really nice increase in the yield on taxable securities.

So anything unique there or any kind of change in strategy or expending duration or kind of what's going on there?.

Yes, I don’t think there's any kind of change in strategy on the municipal book. The jump in the bond book was primarily attributable to public bonds and those balances coming in towards the end of the year so we had to get them collateralized with securities..

Makes sense. Okay, and then maybe jumping back to BHG for a second, I know there's been kind of a lot of questions around trying to figure out what the potential of that group can be.

But I mean with no major seasonality and the increased investment, I mean, can you kind of frame up a run rate at all of what you think that might be? I mean is this a $9 million to $10 million kind of a quarter revenue opportunity or -- I mean obviously its – it was kind of lumpy in 2015 and there are some partial quarters in there? So anything you can do that would kind of give us an idea of what you think this can be on a dollar basis?.

Well, I think if you go back and look at the fourth quarter call and I think we reported something like $70 million in pre-tax or something like that for them. They think they are well into that range this year and think they’ll be able to beat that number..

Okay. That’s helpful. Thank you. And then maybe be one last one from me, is just kind of thinking about your exposure to construction lending in these new HBCRE guidelines and that you guys screen relatively high on that scale especially with some of the impact of the acquisitions.

So any regulatory impacts there with these HBCRE guidelines and anything that you're going to do differently as it pertains to growing that portion of the loan portfolio?.

Yes, Stephen, that’s a great question. We've obviously had a lot of discussions with our regulators over the last six, nine months. But I don’t think there's any strategic change in what we're going to do with respect to that. Harvey White has done an admirable job in making sure that we're hitting on all the points with those new regulations.

So I think it is steady as she goes and we're still going focus on that commercial real estate book..

Okay. Thanks for taking my question guys and congrats on the great quarter and on the new hires..

Alright, thank you..

Our next question is from Brian Martin with FIG Partners. Your line is open..

Hey, guys..

Hey, Brian..

Hey, just a couple last things here as well.

Just going back to BHG, Harold, anything just with the first quarter seasonality just as far as the remainder of the year, I guess is it more flattish by quarter if we think about it or is it we still see some seasonality or increases in second and third or just any thought on that as far as going back to seasonality?.

Yes, I think what will happen is, like I said, they posted like $70 million in pre-tax last year. They are pretty confident they’ll be able to beat that number pretty good this year and they’ve ramped up on the sales side so they’ve got more people in shares. They feel like the brand’s getting a lot better recognition around.

So I think if I were in your shoes I’d be counting on an increase in that $70 million this year and just plan forward accordingly..

Okay. And then just on the expenses, I know you talked about all the new hires, not sure how many of them were in there for what part of the quarter, but you are obviously getting the synergies at the 25% headcount.

So I mean still the thought would be that expenses are higher second quarter versus first quarter on the salary lines, just a maybe not as much of an increase with the new hires given the headcount reduction?.

Yes, there ought to be an offset with the integration of the capital mark of synergy case coming online at the end of April for sure. Also the payroll tax reset was probably about $800,000 number here in the first quarter. So that ought to go away here fairly quickly.

So, we are not counting on any big upticks and expenses other than when these new hires come on board as we take them in the second, third, and fourth quarters..

I got you.

Okay, alright and then just last two, just as it relates to NIM [ph] and Avenue, I mean the kind of a guidance range, I mean can you remind us what the guidance range is on them and just it sounds like is it 3.70 to 3.90 or do I have that wrong as far as kind of what your target range is?.

Yeah, we think this year we ought to be in the 3.70 to 3.90 when Avenue comes on board, you are probably looking at anywhere from 2 to 5 basis points in dilution..

Okay, alright and then just lastly, just on the credit leverage, just given the somewhat of drive down the reserve this quarter, just any though as far as additional credit leverage going forward or just how you are thinking about that?.

Yeah, we still believe there is credit leverage in our reserve accounts. This quarter was obviously one where we had to think about that curve, the automobile loan portfolio. But we still believe there is additional credit leverage that we can harvest or invest this year..

Okay, alright that is all from me guys, thanks and nice quarter..

Thanks Brian..

Thank you. We do have a follow-up from Jefferson Harralson with KBW. Your line is open..

Hey, thanks.

I meant to ask you at the first time on the loan purchase, it sounds unusual but you are hiring and you are also purchasing presumably from the institution where they were, so as if that the earns just came over and then you went to the bank and offered to buy them, how -- seems unusual, how did this come about?.

Yeah, thanks. I think you know we hired a great firm, Cadence and Cadence had a commercially oriented group there. We hired that group and I think Cadence probably has a desire to leave this market, I am not their spokesperson but again you could check with them on their rationale.

But I think they would want to exit the market and so we were able to have to let them out the lenders, just go ahead and buy the book as opposed to wait in there and try to take it over time..

Got you, alright, thanks guys..

Alright..

Thank you and I am not showing any further questions. This does conclude the Q&A portion of the call as well as the conference call. Ladies and gentlemen thank you for joining, you may now disconnect and everyone have a great day..