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

Catherine Mealor – KBW Michael Rose – Raymond James Tyler Stafford – Stephens Inc. Stephen Scouten – Sandler O’Neill Jennifer Demba – SunTrust Andy Stapp – Hilliard Lyons Kevin Fitzsimmons – Hovde Group Peyton Green – Piper Jaffray Brian Martin – FIG Partners.

Good morning, everyone and welcome to the Pinnacle Financial Partners' First Quarter 2017 Earnings Conference Call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer; and Mr. Harold Carpenter, Chief Financial Officer.

Please note, Pinnacle's earnings release and this morning's presentation are available on 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 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 risk factors are 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’m now going to turn the presentation over to Mr. Terry Turner, Pinnacle's President and CEO..

Thank you operator. Good morning. We appreciate you being on the call with us this morning. We always try to begin our quarterly earnings call with this dashboard, that’s laid to quickly assess how we are performing on all the critical financial metrics.

This particular slide is focused on the GAAP measures, so for the first quarter we continue to grow the revenue and earnings capacity of the firm. We continue to grow the balance sheet, which we believe is predictive of future revenue and earnings growth. And our asset quality is in great shape.

Frankly, at least for me given all the transition and the merger integration going on in the Company I believe the non-GAAP measures actually provide greater insight into the core run-rates on these important metrics. So we will move to those now.

For viewing these performance metrics [a number] [ph] of which are non-GAAP, I think overarching conclusion remains that the balance sheet and earnings momentum continue to be strong and the asset quality is pristine. Beginning at the top left of this slide, our topline revenue growth continues to be excellent.

In the first quarter revenues excluding security gains and losses were up 19.4% year-over-year, they declined a tick on a linked quarter basis largely due to 2 less days in the second quarter and the impact of purchase accounting, which Harold will review in greater detail little later.

Bottom line our fully diluted EPS and the merger related charges was $0.83 up 16.9% year-over-year. And excluding merger related charges the ROTCE was 14.89% relatively high versus peer but down from 16.34% last quarter and from 15.64% in the same quarter last year, largely owing to the follow-on offering completed in January.

Of course it is our intent to leverage that up over the foreseeable future. So let's move now to the second row of charts that generally focus on balance sheet growth, which for a Company like ours is probably a basis for our future revenue and earning growth. Loans were up $192.1 million in the quarter that’s an annualized growth rate of 9.1%.

I’ll talk a little more about that in just a minute. Core deposits were up $453.3 million in the quarter, that is an annualized growth rate of 23.1% and I believe the single most indicative measure of the success that we are having [indiscernible] gathering corporate clients in our markets it’s really hard to believe.

Lastly, the general target of revenue of 20% dividend payout ratio, we’re still growing tangible book value per share excluding merger related charges quarter in and quarter out. Of course this quarter was also impacted by the accretive follow-on offering.

And switching now to asset quality on the bottom row of the chart, you can see that the asset quality is pristine for NPAs and classified assets are currently below our historical operating range and net charge-offs are very low in the target range that we established in conjunction with our long term profitability targets.

So all in 1Q 2017, was a fabulous quarter for us, with year-over-year revenue growth, and with a little more than 19% year-over-year core earnings growth of approximately 17% and key asset quality indicators all in great shape.

In an effort to put the quarterly numbers in the broader context I want to review the quarter against our [indiscernible] long-term strategic targets.

Those of you that followed our firm for any length of time know that coming out of recession back in 2011 we published our profit model and associated performance targets since then, we’ve not only climbed to originally targeted levels, we’ve actually increased the return on average assets, target range twice now to its current level of 1.30% to 1.50%.

In conjunction with that return on average asset target, we continue to publish the targets for the key performance measures that would result in that overall profitability, specifically the margin, fees to assets, expenses to assets, and the net charge-offs.

As you can see on this slide, reflecting the GAAP measurements, first quarter of 2017 was another great quarter with a return on average assets of 1.41%, inside the new target that we published with the announcement of the BNC and acquisition and the component measures, all are performing well against target.

As I've already said, there is meaningful impact of merger-related charges, I partially tend to focus more on profitability metrics adjusted for those merger-related charges.

On that basis, you can really get a picture of our operating momentum here, the first quarter return on average asset is above the midpoint of our new target range at 1.42%, net interest margin was within the targeted range of 3.60%, which is the top end of the range.

And expenses to assets, and net charge-offs are all operating inside our targeted ranges. Fees assets are slightly below the target range here in the first quarter due to a large part to the reduction in the number of days in the quarter versus the other quarter during the year, but we would anticipate that come back in the range next quarter.

So the quarter was a fabulous quarter when compared to our lofty long-term strategic targets. Also in terms of first quarter highlights, I wanted to comment on the several recent accolades.

Honestly, the belvedere is not just a pound in our chest but there is a tendency on quarterly earnings calls that just about a lot of elevator analysis, then you just talk about what's up and down. It is easy to focus so much on purchase accounting, equity accounting and the like, that miss the substance in power behind numbers.

So for those of you that are new to stock, you may be less familiar with what it is that makes our numbers work like they do and whether they're sustainable. When we found the firm in 2000, we built it on a philosophy that the endgame is to enrich shareholders.

In our case, moving up the chart, can only be done on a sustainable basis that will create a distinctive client experience is better than the large regionals that currently dominate our markets.

And that can only be done to the extent that we can attract and retain the best bankers in our markets and excite them about their freedom and ability to serve client well, the client experience really exceeds of the associate's experience.

So during the first quarter, we were recognized by Great Place To Work in Fortune magazine as the seventh best work environment amongst bank financial services firms in the U.S. By Fortune, it's one of the top 100 companies of any variety to work for in the U.S. And by People Magazine as one of the top 50 companies in America who cares.

We were recognized in 2016 by Grants Research as one of only 18 banks in the country that has effectively achieved a brand of distinction, I guess, you would say, with clients. In other words, vast majority of our peers and competitors lag distinction.

In our case, according to Independent Research, our clients view us as having achieved distinction for being trustworthy and being easy to do business with.

Also in the first quarter of 2017, we’re recognized by Forbes as a top quartile performer among the nation's largest 100 banks, one considered a basket of traditional banks performance metrics like interest margin, return on average assets and revenue growth.

Most recently, we've earned our assets as best government rankings for the evidence of our commitment to shareholders. And finally, before I hand it over to Harold for a more detailed review of the quarter, let me give an update on building the infrastructure that continued to propel our future growth.

We’ve been and continue to be dominant about not just going earnings but about growing the ongoing earnings capacity of the firm, we always have a number of initiatives that are aimed to accelerating our future growth. I hope our earning reputation is an outstanding integrator of banks based successfully we've enjoyed in the previous three deals.

I'll talk about, I guess, a minute about great growth in hiring a balance sheet volumes in Chattanooga and Memphis, which are clearly the newest markets. First quarter of 2017 was a very busy quarter for us as it's related to the proposed merger with BNC. Most of you would remember, on January 22, we announced the transaction.

April 6, we received our regulatory approvals from FDIC, the Federal Reserve, the Tennessee Department of Management Institutions and the North Carolina Office of the Commissioner of Banking. So at this point, we believe we will have our shareholder meetings for PNFP and BNC in the mid to late June.

We will actually close the merger in mid-June or early July. We will actually make their brand converge into Pinnacle in the September or October timeframe. And as you see over the slide there, we have October, November, Legacy Pinnacle Systems, converging. I think this is a really important and strategic update here.

For those of you that listened are aware what our regular assumptions is going in, we are anticipating that we would go through the phase conversion of Bank of North Carolina from the Jack Henry Silverlake system to the system that we operate on at Pinnacle.

We have termed at this point to do the ounces of that we intend to convert Pinnacle to the Jack Henry Silverlake system. We believe that this significantly de-risks the integration and conversion effort.

For several reasons, one is, we believe our ability to manage the change [indiscernible] salesforce, conduct the transition in our existing footprint, it is very strong, powerful and frankly, easier than across the market footprint as Bank of North Carolina.

And secondly, because Bank of North Carolina has been effective acquirer and integrator of banks through a number of their clients who have been through a number of systems integrations in the recent past. And so we can avoid putting them through an additional integration.

So again, we think this is a creative approach, and one is significantly de-risk the integration effort. We will actually merge our systems and DNC systems data in February 2018 and so the synergy case will be fully deployed in the second quarter of 2018.

As I mentioned, we think the approach does substantially reduce the risk, it accelerates the time of many of the synergies of that the late realization of a small portion of the synergies by a quarter. Back at the envelope estimate for me might be $1 million in delayed synergy pick up during the first quarter of 2018.

And again, I think that price is affordable and appropriate for the substantial reduction in risk. Moving on beyond M&A activities. I think over time, the single most impact on growth strategy was best used as they go behind the best bankers, brokers and mortgage originators in our markets, it's our primary core confidence.

We've established reputation as being a great place to work, we're ready to leverage that [indiscernible] home retain a large number of the best amongst productive revenue producers in the market. For me, that's the best way to propel our organic growth going forward.

2016 was a record year for hiring revenue producers that they continued in 1Q 2017 the 11 new revenue producers hired here in the quarter. Also I want to highlight that we successfully overlaid our approving hiring methodology in Memphis and Chattanooga. As I mentioned, I'll talk further about them in just a few minutes.

But I don't want anyone to miss the power of this we had a 1.42% ROAA adjusted for merger cost and still paying for a substantial increase in our future growth capacity. Lastly, I've highlight loan growth for the quarter at $192 million. That's roughly 65% above the first quarter of 2016 net loan growth.

After you adjust for the loan purchase we made last year in conjunction with the list out of the lift out of the CNI growth from another bank. BNCN released their results last night. And as you may have seen, they continued to aggressively grow their loan book, $165 million in net loan growth in Q1 will be an annualized loan growth rate of 12.1%.

So again, they continued to perform trading well. Now, Harold, I'll turn it over to you and let you walk through a more detailed review of the board..

Thanks, Terry. We anticipated revenues in the first quarter were impacted by reduced loan discount accretion as well as there have been two fewer days in the first quarter compared to the fourth quarter of last year. We've got a lot going on in this quarter.

We talked about some we are going to move past the volatility call it by the calendar, which likely cost us around $2 million in the first quarter. Where they get into net interest income, in a little more detail and its management fees and expenses as always. Total spread income was down $646,000 during the fourth and first quarter.

It's a dark green line on the chart. Then those revenues per share, impacting our revenue per share in the first quarter with a capital raise, which we believe diluted our revenue per share by $0.12.

As the blue bar, we anticipated the loan discount accretion that would be less than the first quarter and actually ended up being around $3 million less in the first when compared to the fourth. So call our core net interest income is up around $2 million to $2.5 million between the first and the fourth excluding purchase accounting.

As we look forward to the same quarter, purchase accounting related to CapitalMark and Magna, an avenue should continue to decrease and have left in to us our margins as we're estimating our loan discount accretion in the second quarter will be 10 to 20 basis points of our margins before we consider any impact of Bank of North Carolina, should that transaction close in the second quarter.

As many of you know, Bank of North Carolina, reported last night based on our review their information, the first quarter revenues were $74.4 million compared to $71 million in the fourth quarter or an increase of almost $3.5 million, which is a whale of a number.

Excluding the increase in the loan discount accretion of approximately $500,000 net revenue growth of 2.9, reflects a strong quarter of revenue growth in our view. Over the last 2 years, we experienced a lot of change at Pinnacle with more on the horizon.

Through all of that, our associates have maintained a key focus on running our franchise very effectively and produce legally outstanding results for our shareholders.

Concerning loans specifically the chart indicate the average loans for the first quarter were $8.56 billion or an increase of $200 million in average loan balances when compared to the fourth quarter, which equates to almost 10% linked quarter growth rate when annualized.

As we mentioned in our press release, our EOP balance has increased by $192 million. We believe it's a strong first quarter growth as traditionally on our first quarter has not been a strong growth quarter.

During last year's first quarter, our loans grew approximately $285 million, but included in amount was $169 million, which was acquired from another bank in connection with a list down of several commercial lenders in Memphis.

So last year's net growth was $115 million, which when compared to this year's $192 million has a pretty sized about our prospects for the rest of this year. Our second quarter pipelines are almost, are 2x and 3x, our first quarter pipelines, which we believe is a record for us.

As to loan yields, our loan yields decreased from 4.6% last quarter to 4.49% this quarter, impacting our loan yield in this quarter was purchase accounting accretion, which positively impacted the yield by 23 basis points compared to 37 basis points in the prior quarter.

Excluding purchase accounting core loan yields actually increased from 43 to 46, I'll talk about the impact of rate increases in a few moments.

Bank of North Carolina reported yesterday this net growth in average balances was up approximately $165 million or approximately 12% linked quarter annualized, which we believe is a testament to their associates and their ability to stay focused on their business while also in the middle of the transaction.

But then again, that's what they've told us they could and will do. As to deposits again here in the fourth quarter, we were able to maintain our low funding costs with only a slight increase in costs.

As to deposit balance, we had a great quarter for deposit growth, with average deposits up $308 million in the first quarter over the previous quarter, our linked quarter annualized growth rate of 14%. This is on top of a linked quarter growth rate in the fourth quarter of 16%.

Even though our average deposit balance has increased by 14% linked quarter annualized, our deposit costs increased by only three basis points as our costs approximated 36 basis points for the first quarter compared to 33 basis points for the fourth quarter.

You can see an arch line over the chart and a gap between the arch and the green line is wide as we all anticipated. Our factors remain relatively low, but we do anticipate increases in deposit rates as time marches on, but don't expect anything dramatic in the short-term.

Bank of North Carolina also reported very strong deposit growth as their average deposits increased by $213 million during the first quarter or 14% linked quarter annualized while their cost fund only increased by 1 basis point. We all consider that to be great market at Bank of North Carolina.

Concerning our margin and asset sensitivity, the top line shows trend in core margin versus the impact of purchase accounting. As you can see, our GAAP margins have remained barely consistent while core margins over the last three quarters appear to be stabilized.

We've projected 15 to 25 basis points of purchase accounting impact in Q1, which have been approximately 21 basis points. The bottom chart is our attempt to separate our bank into two parts. The client bank and the wholesale bank we presented this slide on several occasions over the years but given the changes, we thought we bring it back this time.

The wholesale bank has experienced shrinkage in its margins over the past 3 years, primarily resulting from a combination of a persistently low interest rate environment and the issuance of $270 million and subordinated debt, including $120 million issuance in the fourth quarter of last year, all used both through our total capital analysis.

However, our disciplined approach in maintaining shorter duration profile, our investment portfolio paid off in the first quarter as yields increased 18 basis points quarter-over-quarter. This stabilized the wholesale margin despite the headwind of our latest sub-debt issuance.

Going forward, we believe our approach of balancing our investments for only fixed and variable structures and the fact that we don't anticipate any sub-debt issuances in the near-term, we expect the wholesale margin to remain relatively stable.

The blue margin line is a more critical line and makes up 80% or more of our balance sheet, the blue line on the chart excludes purchase accounting, which has been very volatile as well as the impact of our high yield auto portfolio, which produces yields in the low 20% range. So we believe the blue line more accurately reflects our core client base.

In the first quarter, the client margin increased by 8 basis points, driven largely by the decent rate increase, we monitor our variable spread cost link and believe we are maintaining our spreads on our new and renewed credits.

Some more sensitivity there the top chart is a summary of our balance sheet as it didn't show how much of our balance is repriced on the short-end and are more heavily impacted by short-term rate moves.

So as Fed funds rate increase, our ability to show positive traction is dependent upon several factors, but primarily involve our home reliable loan spreads, in relation to prime based and LIBOR based indexes and managing the beta on our deposit balances effectively.

The bottom chart is our current calculation of our 12-month ramp increase in rate curve at the 200 basis points level, which reflects increasing asset sensitivity for our firm over time. So we believe we're all – we are in a very solid asset sensitive position and our business mix will likely create increasing asset sensitivity.

We believe in March Fed funds rate increase benefited us by more than $600,000 to our monthly run rates. So we are hopeful for more of those. We continue to forecast a 25 basis point Feb funds rate increase in late third quarter and another in late fourth quarter of this year.

We did a lot of questions about what happens when our balance sheet and Bank of North Carolina’s balance sheet come together. We talked about this in some detail on the merger call that we thought we'd update you today. Top charts are earning assets and bottom charts are deposits and other funding.

As of the balance sheet composition, we are more asset sensitive than Bank of North Carolina with 53% of our earning assets tied to some variable rate with Bank of North Carolina being at 33%, combined we are 45%. You can see, we reduced the percentage of our loan book on – basically an inconsequential amount at 3%.

As the Bank of North Carolina footprint works on developing their C&I platform, which is the more variable rate product on the asset side of the combined balance sheet, but roughly half of that assets are in variable rate structures currently. On funding, Bank of North Carolina has more longer-term product.

Again, as the Bank of North Carolina footprint works on developing our C&I platform, we should see more non-interest bearing products and more core deposit unit flows into their balance sheet.

None of the information considers purchase accounting, which will have a meaningful impact on the combined firm's balance sheet, especially in the first two years to three years. That said, we continue to like the way this balance sheet is coming together.

Switching now to fees, excluding securities gains and losses, non-interest income for the fourth quarter increased 17.5% over the same period prior year. Some increase is attributable to the Avenue acquisition which occurred in July of 2016, but not that much.

Excluding BHG revenues of almost $8 million for the first quarter of 2017; from this conversation our fee income increased by about 9%. Our residential mortgage group had another outstanding quarter in terms of production with approximately $161 million in loan sales this quarter at a yield spread of 2.75%.

Despite the decrease in gross loan sold over quarter-over-quarter, net gains on mortgage loan sold increased. The value of the mortgage pipeline, which is mark-to-market each quarter, have increased as of the end of the first quarter compared to the end of the fourth quarter because of increased production heading into the second quarter.

This increased production is due to a combination of a lower 10-year treasury yield, product refinancing activity and all set of [indiscernible] new home purchases in our markets.

We feel positive regarding our mortgage pipeline as we head into the second quarter, additional income related to insurance commissions increased quarter-over-quarter due to annual incentive payment received in carriers for cost of claims experience.

We’re reporting BHG revenues of almost $8 million this quarter, down from fourth quarter by about $300,000. We expected a meaningful uptick in BHG revenues in the first quarter compared to the first quarter of last year, due to our increased ownership, and thus we experienced a 52% increase this first quarter compared to last year.

In the second quarter, we're not likely to experience that same level of success compared to the second quarter of last year, but this is the same quarter linked-quarter income to increase as we continue to anticipate that net growth for BFG in 2017 should be in a 10% to 15% range, which equates to a 20% increase for Pinnacle, given the larger ownership percentage.

Interchange revenues continue to show a positive traction as we approach the impact from the Durbin amendment on July 1 of this year.

Excluding the impact of Durbin, our current estimates are that the Durbin amendment will negatively impact us by approximately $6.5 million to $7.5 million over the next 12 months or about $1.5 million to $2 million per quarter.

Our revenue from loan swap fees has declined over the last several quarters has many of our clients has opted for current, lower coupon variable structures. We've also seen a much larger appetite and a much more aggressive pricing for long-term fixed rate on balance sheet lending from many of our competitors.

Now to operating leverage, our efficient ratio on a GAAP basis was 52%, while our core efficiency ratio, excluding merger related charges was 51%. First, considering to personal call, as many of you know, we grant merit raises to our workforce in January of each year with 2017 being no exception.

Our annual merit raises is approximately 3.5% increase this year. The run rate for salaries is up approximately 4% annualized, but our headcount is up 38 FTE. So given first quarter with payroll tax to start over, you would have expected our salary cost to be up by a larger margin in the first quarter.

Impacting the first quarter salary number is an incentive expansion, which in the fourth quarter, with here do the catch up on incentive cost that we spoke of on the call in January.

What we talked about in January was that our fourth quarter 2016 purchase accounting adjustment or loans was more than we anticipated which resulted in our ability to increase our percentage payout as we achieve elevated earnings targets for the fourth quarter.

And the purchase accounting not been advantageous, we would have had to reduce our incentives. If you'll recall, in spite of a 70% earnings growth rate last year, we paid less the target on our percentage to our associates last year. At each quarter end, our incentive plan is to target corporate results, primarily fully diluted EPS and revenues.

We project our annual incentive costs for the full year and then began accrued that amount proportionally each quarter. Our first quarter 2017 incentive expense was $2.5 million less than the amount in the fourth quarter.

Those of you that have followed our story for many years know how our one incentive plan system works and it's based on corporate results, not based on the individual sales goals. You also know that we set big targets around here, so we'll be working hard to get back those reduced incentives but we only get it back if we get our numbers.

Comparing the fourth quarter to the first quarter run rate on smaller items, during the fourth quarter, we had a meaningful quarterly increase in marketing expense due to our sponsorship of various organizations throughout the footprint, most specifically due to our relationship with the Memphis Grizzlies, which we entered into in August of 2016.

Other expenses, down in the fourth quarter of last year as well, primarily due to a reduction in various areas with the largest decrease in franchise tax expense called by increased funding for several of our tax-advantaged housing loans, where state of Tennessee intents us to reduce our tax burden.

The run rate for others expense normalized in the first quarter of this year. All things considered, our goal is for a personnel cost to increase steadily this year, while other expense growth will be relatively small. Now, I'll turn it back over to Terry so he can wrap up..

Loans; deposits and revenue producers. You can see that the growth has been apparent from the very beginning, since we do not acquire and integrated with these banks until the mid to late 2015.

So we believe that these market expanding acquisitions have demonstrated that the approach we perfected in Nashville, one, focusing on businesses in affluent consumers, two, hiring and retaining a cadre of proven, and three, competing with improved levels of service and advice versus the larger regionals that dominate the market is indeed an exportable.

We can ask a lot about what's next and our outlook going forward. I'm very excited about the position we find ourselves in today. When we closed the BNCN transaction, we'll be located in 12 of the most attractive markets in the Southeast, with a proven ability to take share from large regionals that has dominated these markets for some time.

I think you should expect just to focus our energy in 2017 on effective integration of BNCN. Rick Callicutt, BNCN CEO, and I have establish a number of performance targets. We believe will enable us to achieve this integration with no loss of momentum for either bank, which is a monumental achievement. And looking at Q1, we're off to back to the start.

It's our belief that the organic growth potential for our firm in these 12 markets for the foreseeable future is outstanding. And beyond that, we're like this additional de novo and acquisition opportunities depending to building out our remaining targeted markets.

It is my current belief that we'll effectively integrate BNCN in 2017 and be in a position for some additional strategic opportunities in 2018. So just trying to pull all this into the summary, I’d say we truly established a competitive distinction among the bankers in our markets, which is evidenced by our ongoing recruiting success.

We think we have a competitive distinction with our clients, which is evidenced by our balance sheet growth and market share gains, as well as national recognition from Greenwich Research for the brand we've been able to establish the businesses for easy to doing business and trustworthiness.

We have consistently produced and expect to continue to produce strong organic asset growth in Tennessee's urban market, specifically due to a $16 billion asset bank by 2020. And we believe we can produce a 1.30% to 1.50% core ROAA, which is where we now perform.

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

But we do have an advantage stock and that puts us in a position to create even more operating leverage and even more EPS growth, which we believe we've done with CaptilMark, and Magna, and Avenue and BHG. So in simple terms, I think you should expect a two-prong strategy from us going forward.

Number one, continuation of our current organic high-growth, high-profit plan in Tennessee to Carolinas and Virginia; and number two, explore expansion to the other high-growth southeastern markets in 2018. Operator, I'll stop there and we will 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 Catherine Mealor with KBW. Your line is now open..

Thanks. Good morning, everyone..

Hi, Catherine..

First question let me start on the margin. Your core loan yields moved up about 3 basis points in the quarter as you mentioned, Harold.

Can you give a little bit more color on loan pricing, how your contract and your [indiscernible] credits are trending and your outlook for how quickly you think we're going to see an increase in loan yields as you move throughout the rest of the year?.

Yes, Catherine. We're seeing our strength hold on all of our index price – index based pricing products. And so we think we're getting a full benefit out of a 25 basis points increase. We think that we're going to – we're still projecting one in September. Our customer margins were up. I think we missed like 8 basis points in the first quarter.

So that's about a third of 25 basis point move. So that seems to be reasonable to us. So we believe it's about $1.8 million additional net interest income tailwind for us that will help offset the discount accretion that will likely come out this quarter. .

Okay. And then as a follow-up just thinking big picture on the margin figure. In your strategic target slide, you showed that you're at the top end of your NIM target.

Now some of that is accretable yield, of course, but is there an opportunity for that target to move higher with rates moving higher and then as we fold BNC in or is that still the range in what you think you're comfortable operating?.

We'll look at when we get the full effect back in North Carolina, but we think it actually could, it just depends on what it looks like on the day that the accounts are merged in and what the discount accretion is got to be. .

Catherine, I might just add to Harold's comments. You've been around and seeing these numbers a long time. We started with a longer ROA target, we've raised it twice.

When we moved it with – we have moved some of those subsidiary targets, in other words, the margin, the fees to assets, expenses to assets, net charge-off, we've moved those more rapidly than we have the ROA target.

So when we go through the [indiscernible] ideas, we're going to figure out how to hit the ROA target and we'll move those other components as we need to based on what the market offers us. So again, just to say simply what Harold says, there is perhaps an opportunity to increase the margin target. .

Okay. All right. Thanks for the color. Appreciate it..

Our next question is from Michael Rose with Raymond James. Your line is now open..

Hey, good morning, guys.

How are you?.

Good.

How are you?.

Good. Hey, sorry, if I missed this, I've been hopping around some calls this morning. Harold, can you talk about the increase and the interest-bearing deposit yield look like that was up about 10 bps quarter-to-quarter.

Was there any sort of promotional items in there? And then if you can maybe split versus what the increase is more on the retail side or on the commercials side? Just any color would be helpful. Thanks..

Yes. I think it's all going to be on the commercial side, Michael. We – the total – our beta in the aggregate are really low. We do have some large client depositors that pay more attention to what the [debt] [ph] fund rates are, and we do have quite a few of them that are tied to debt fund.

So I think in that product category, we've got some of those deposits in that particular product category..

Okay.

So given the positive mix shift change this quarter and obviously, we’ve got the rate hike this quarter, which you mentioned, we probably shouldn’t expect to see this type of magnitude of deposit yield cost increases in the next couple of quarters, assuming our rate hike is correct?.

Assuming no rate hikes. Yes. That’s correct..

Okay, that’s helpful. And then maybe for Terry, I just wanted to circle back on some of the comments you’d made around BNCN and hiring of commercial lenders. As I look at BNCN, they tend to be more of a CRE-focused bank.

What are the expectations for hiring commercial lenders in the BNCN franchise? And how does that translate or triangulate to kind of the accretion guidance you’ve given? Thanks..

Yes, thanks. Let me start with the accretion guidance that we’ve given. And that, we were seeing no revenue synergy– so in other words, we built the synergy case on cost take outs exclusively. So hiring additional C&I, building out a C&I platform would be outside and beyond the accretion guidance that we have given.

I think in terms of expectation, you would expect us to build that out – build those markets out in a format similar to what we described there for Chattanooga and Memphis. And I think in the case of Chattanooga, [indiscernible] was a C&I-dominated platform. But if you’ll recall back and it was a CRE-dominated platform.

And so what we’ve done is hire a number of C&I and private banking type FAs in Memphis and again, you can see the traction that we’re getting, the volume of hiring that we’re doing in that market. And the growth that we’re giving in that market on both loans and deposits.

I think really being driven in some market [indiscernible] addition of the C&I platform. And so I would expect that same thing to happen to markets that have the greatest billboard that will shoot [ph] most quickly on the commercial front would be markets like Charlotte, markets like Raleigh, markets like Charleston, markets like Greenville.

And so again, I think those core markets [indiscernible]. And Rick Callicutt has already begun his recruiting efforts I think was successful on one great hire and has a number in pipeline and he is pursuing on the C&I front.

So I guess, long way to answer to say we expect it to impact those big markets in North Carolina, the same that has market extensions that we’ve done here. And we expect that to be over and above the accretion guidance that we given..

Okay. Maybe just one final follow-up, Terry, to that response. Teams like the competition, potentially for lenders and the Carolinas, might be a little bit more intense because there are couple of banks that are similar sized to you guys, whereas in the markets in Tennessee, you guys clearly stand out as kind of a premier bank in the state.

Can you talk about acquisition cost of lenders and if you’re not able to attract the lenders that you think you are, what would be the backup plan as we move forward? Thanks..

I think, I guess, relative to a backup plan again, I just would remind you that we don’t need any of that, it’s a synergy case. So again, the build out that program is incremental, not like you can’t get the synergy, can’t hit the creation targets without doing it. So I’m just, so our player. I think on the incremental side, Michael, you know this.

I can’t even predict the future. I don’t know what’s going to happen in every market, I don’t know what the client response is going to be in every market. But I will say this, that’s the same question I ask when we started here in Nashville. It’s the same thing to ask when we went to Knoxville.

It’s the same thing that was asked when we went to Memphis and Chattanooga. And so in each of those markets, we found our way to hire great bankers in the markets, and have them leverage book of business over here.

I think one of the things that – the reason that it has worked that way in the markets that we’ve been in is because the – cost, primarily because of a difficult experience for lenders in these large regional banks. In other words, again, I don’t want to rattle too long about it little bit.

For the experience for a middle-market lender in a large regional company it is difficult to lend lots of your options [indiscernible], difficult to get approvals done long length of time, frankly the disappointed clients, being talked to by credit officers try to clearly all those sorts of things.

And so that’s what we don’t do, and that’s the advantage that we have over large regional banks. And I believe is that it will work in those markets for the same reason. I’ll just comment quickly, again, I can’t predict the future.

I don’t know how to play and I’d say I’m optimistic that will be successful in the lenders success that Rick Callicutt has had, I think if you were to talk about Rick, Rick would say, yes, we were trying to build our C&I platform, we were having moderate success.

But he didn’t get to hire all the places he wanted to for a number reasons, which include the size of the house for lending, the robustness of the management platform and many percentage and as you mentioned that they’re more of the CRE bank than a C&I banking.

So with that holdup, where all of those objections have been eliminated by our combination and I think he’s finding that in hiring process and presented this to people as they’re about recruiting.

Just all of our – one more comment, one of the analyst, one of the sell-side analysts who has covered us for a long time was doing some background work in the Carolinas and was calling some of the banks that you’re likely referring to there that would be guaranteed the aggressive grower, challenger brands, if you will.

And he told me that make those kinds of calls, and lastly what they’re looking at the market, what they see that side of this go create a lot of hiring of taken from us because we’re going to be able to step in there and take advantage of the transition.

He said, not one person told me that in fact, they have problem about what they’re doing for any discussions they held against your recruiting evaluation technique. So again, Mike, I don’t know what the future holds. I can’t make any promises about what little transpired.

But again, I do believe that the model that we have of hiring and engaging these little market bankers were working the Carolinas and Virginia and most likely does in Tennessee..

Hey, Terry. Appreciate the color. If anybody got – thank you for doing it. [Indiscernible] you guys. So appreciate the context, thanks..

All right..

Our next question is from Tyler Stafford with Stephens Inc. Your line is now open..

Hey, good morning guys..

Good morning, Tyler..

Maybe first just a follow-up on Catherine’s earlier question, just about the long-term operating targets. So when you guys announced the BNCN deal, you did increase the ROA target at the time, but you left all the other operating targets the same. But BNC was operating roughly 65 bps of fee income to average assets.

And then with Durbin it seems difficult to get back to that long-term fee income target of that 1.10%, 1.30% but then conversely with all the cost savings that you’re going to get with the deal, it implies a fairly significant expense ramp to get back within those long-term expense targets.

So, I’m just wondering if BNC and its size changes the long-term operating profile of Pinnacle, there is something there that I’m missing..

Harold Carpenter:.

.:.

Okay. And maybe just part B to that, just a clarity question on the long-term expense target.

Is it currently right now that the 2.1% to 2.3% that’s stated in earnings release or the 2.0% to 2.2% that’s in the presentation?.

The 2.0% to 2.2% I think..

Okay, the release that 2.1% to 2.3% but – you think it’s the 2.0% to 2.2%..

I think so, yes..

Okay, okay. And then just going back to Terry’s comment on the Durbin impacts, the $1.5 million I believe you said of negative impacts from Durbin.

Does that include BNC or that just standalone Pinnacle?.

That’s standalone Pinnacle. I think BNC is about $0.5 million to $1 million..

Okay. And then maybe just last one from me, a bigger picture BHG question.

What do you think that the longer term, I guess, impacts would be from higher rates to BHG’s business? Is that getting higher rates as a hindrance there? Does it make it more profitable? What are the impacts that the BHG with rates?.

Yes, we’ve had a lot of conversations about that with them. I think it’s kind of like the way we look at data factors. Right now, we’re not experiencing any kind of uptick in our deposit calls, they’re not seeing any slowdown and there is a spread between the bar rates and the contract rates with borrowing.

So they think that will continue at least in the short-term but there is probably at some point that rate gets higher and higher that there maybe some I guess reduction in those spreads on those bar rates. But right now, it doesn’t look like there is anything slowing them down..

Okay. Thanks, Harold. Nice quarter guys. I will hop out..

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

Hey, guys good morning.

How you’re doing?.

Good..

Good, good. Question for you on the loan growth trend, obviously you guys had a pretty strong quarter of growth given what’s normally little seasonally slower. But obviously still below the kind of below double-digit targets you traditionally given.

You also seem to mention more fixed-rate loan competition, so maybe some competitive pressures that could be of some mild concerns.

So can you talk to what your expectations are moving forward? And if there’s any change to those expectations, maybe specifically by asset class?.

We’ll take last part of that Stephen..

Maybe even specifically like buy asset class or buy by loan component type, if there is any areas where you are seeing concern or weakness or more competition that’s maybe irrational, that sort of thing..

Yes. I think Harold’s comments on fixed-rate is, we see that as a – I guess, smart thing our sales weapons are the number of banks. I think you would see it across the number of asset classes, you would see it used frequently for small business lending.

You see 10 to 15 year fix rate with a free handle on it from time to time, it’s a small business asset class. We see it to some extent on owner occupied real estate. And may be to a lesser extent in CRE bucket, it generally fits the thereby smaller banks, I think the larger banks tend to be more rational in terms of pricing that particular asset.

So I think in terms of – if your question, when we talk about the strength of the various asset classes, I’m interpreting that to the strength in terms of marketing momentum, as opposed to asset quality….

Correct, correct..

Yes. I think clearly there is plenty of loan demand for CRE. I think the C&I loan demand is less strong I think, Stephen, we’ve had this conversation number of times, you had the Euphoria following the Trump election and size and optimism among the business owner.

But the truth is, until somebody tells him what the tax rate is and when expected and what calls to help get her in and some of those kinds of things, it doesn’t translate into loan demand. And so I think the C&I loan demand is not that strong. Which again, for us, and one thing I try to help people get it, we’re a market share banker.

Our growth is not so dependent on loan demand it is more dependent on our ability to take share from large regionals banks. Harold mentioned that our pipeline is extraordinarily high around pipeline is extraordinarily high going into the second quarter.

And if you look at the core deposit growth that we achieved in the first quarter, those two things are related. I mean, that’s just sort of main line client movement from large regional banks to us. That’s really what is the largest thing driving that growth.

So again, I hope, I’m sure clarify a lots of loan demand on CRE categories, softer demand in the C&I category and so our ability to grow loan is primarily been and upon our ability to take-off..

Yes. That’s perfect, that’s really helpful. And maybe thinking about the NIM a little bit here, I notice that there were some – obviously some increases in the securities investments some of that being the equity raise, being deployed a little bit into investments but it looks like some extended duration as well.

Can you talk a little more about the ideology there and if that something that will continue given the rate environment and the trends we’re expecting..

Yes. Actually, what happened is – the proceeds from the offering did get deployed until late in the quarter, but we’re not expecting any kind of big ramp up in the securities book from here all now Stephen..

Okay. Perfect, perfect. And then thinking about the loan loss reserve maybe a little bit. Obviously no real credit issues, credit still looks fantastic. But obviously that’s been declining as a percentage of loans. And I’m wondering if you guys have gotten any more clarity on the preliminary work around Stifel and the impact there.

I know, in the K it was kind of noted that those numbers maybe weren’t available yet. But just wondering if you have any clarity or insights to where that number may trend over time relative to where it’s been trend in the last few quarters..

Yes, I mean, whenever Stifel comes into play with the [indiscernible] is that reserves will go up, but right now I can’t give you any kind of ideas to how much that will be..

Okay.

And then in the near term, would you expect this kind of 68 bps of reserve to loan to be more flattish? Or with this recent trend down, could that continue as well?.

Yes, I think we've got only a small amount of credit leverage left in the Pinnacle book. With Bank of North Carolina, you'll see a meaningful reduction in the actual calculated reserve.

So because all of that reserve will get embedded into the loan book, so the actual ratio will go down but just like with Pinnacle, we got $30 million in discount still left from Avenue, Magna and Capital Mark, all that money was just in the loan account then..

Perfect. Thanks guys, really appreciate the color. Congrats on another great quarter..

Thanks, Steve..

Our next question comes from Jennifer Demba with SunTrust. Your line is now open..

Thank you, good morning.

Question on loan growth, can you kind of give us an idea of geographically, where – how the loan growth was dispersed in the first quarter? And how the music businesses have gone since acquiring the Avenue?.

Let me – I guess, I'll comment on the music business first and then comment on the geographic dispersion next. I think on the music business, Jennifer, you know Andy and most of the team, I don't have access all the numbers in the past.

But I'm told about Andy that the fourth quarter was a record quarter for the music and entertainment team in turns net loan outstanding growth. There are breakdowns, there are good number of lands with continued funding the data current in the first quarter and we expect to continue funding under some commitments in this second quarter as well.

And a good pipeline, as we go into second quarter. So I think Andy would say, in terms of the loan growth, he's traveling faster than he travel under that big brand. And Jennifer, as you know I mean, they didn't get an advantage with a higher house lending and those kinds of things.

So they're able to do deals for both existing clients and new clients as they previously probably could not – not yet done. So again, our belief is that the momentum in terms of loans and deposits and music industry is just very strong. I guess, just comment on the geographic dispersion.

I think, I would say that we had – well, let me go at it, we've showed you, I think, a slide where we've given you the Memphis and Chattanooga number. So you can they were meaningful, both contributors on both loans and deposits. Jennifer, you'd see the growth during the 2016 year as well as in the first quarter of 2017 there.

So again, great growth from Chattanooga and Memphis. I would say good growth in Nashville.

In Nashville, we have a number of large real estate paid downs that occurred payoffs, that occurred in the first quarter, which math in there number, the gross loan growth was obviously much higher than the net loan growth and really, a pretty good number, but had some pretty large pay downs in there debuted growth in Nashville.

And Knoxville's case, Knoxville has some clients that have very elevated fundings in the fourth quarter that payout in the first quarter. And so their growth was not so strong in first quarter. But again, there their pipeline would indicate the lever record quarter in the second quarter.

So it's pretty well diversified, slightly different story in each market. But again, nice growth momentum in each of the 4 markets..

Okay, and a separate question. In terms of a expanding to new markets in the Southeast via de novo effort, Terry.

Do you have any sort of priority list outside of the Carolinas? I mean, we've -- you've already given us the target market, I mean is it land are the number of priority or not? Can you give us some thoughts there?.

Yes. Let me clarify the question first.

I think you started with a comment about the de novo growth, and so are you asking about the priorities that relates to de novo growth?.

Yes..

Yes, I think easily if we were going on de novo basis, Atlanta was the most attractive market if we left out of this..

Thanks so much..

Our next question is from Andy Stapp with Hilliard Lyons. Your line is now open..

Good morning. Your earnings release indicates that the March Fed hike would -- could boost net interest income by $1.8 million. Last quarter, you’ve indicated that the December rate hike would provide a $9.5 million from play out.

I'm just trying to understand what caused the increase I thought maybe higher payers and the flatting of the yield curve might have constrained a lift?.

Yes, and that's just on I think in the short hand of the curve, we just got bigger analysis. And so that caused most of the increase in..

Okay.

I may have missed this but could you talk about how much cost saves should be realized in the first phase of this systems' conversion versus the second?.

I don’t think it's going to be too terribly different than what we talked about on the merger call. We anticipated about 25% of the 70k to get realized in 2017. So we still believe that's going to be the case. And primarily the steps prepares we won't really get into any kind of synergies until later on in the year.

And then we're looking at the rest of it being towards, call it for the second quarter of next year of the full synergy technically in the fourth..

Okay. And just trying to make sure I understand your guidance expression, the earnings release regarding the effective tax rate for the year.

Are you expecting an effective tax rate of 33%, including the impact of the accounting change?.

That's exclusive of the accounting change shows on – it stated right should be a list of the 43%..

Okay. All right, got it. Thanks..

Our next question is from Kevin Fitzsimmons with Hovde Group. Your line is now open..

Hey guys, most of my question has been answered. Just one quick follow-on, on the systems conversion. So is that purely or mostly due to this effort to produce the risk? I heard your point, Terry, about the BNCN customers have been doing a lot of these.

Or is it a decision based on the system that Jack Henry's system is just a better system at the end of the day, and that's what you want to end up with?.

Well, that's a great question. I think there are several factors in there. And I would say, honestly, for me, personally, the most compelling has to do with the de-risking of the conversion. But I wouldn't do it if Jack Henry was a less good system, we think it's a equal system at minimum and perhaps, slightly better.

And what we really like about the Jack Henry as a vendor is their ability to provide support both during the system conversion and integration that we have to be substantial and important, and review their support on an ongoing basis that substantial as well. And so all those things that have rolled together in there.

But we are, we believe, despite the derisking, despite the convergence for all those kinds of things, we do believe that we're slightly better off on the Jack Henry system as we continue to grow the pipeline..

Great. Okay, thanks Terry that’s all I had..

Our next question comes from Peyton Green with Piper Jaffray. Your line is now open..

Yes, good morning.

Just wanted to get one thing clarified, I missed it earlier, but I think, Harold, you alluded to the size of the pipeline, turning into the second quarter, relative to the size coming into the first quarter and just thinking about loan growth of about 9% annualized in the first quarter of 2017 organically versus 7% a year ago, not organically, it would seem like if you like the overall productive capacity of the firm is probably better today than it was 6 to 9 months ago?.

Yes, for sure. I think we've gotten some extra hires out of several places, both here in Nashville, Memphis and Chattanooga, I think we've got some momentum in some of the expended markets. And I think everybody knows….

Okay.

And then just a follow-up the relative size of the pipeline coming into the second quarter versus the first quarter?.

I think it’s at least 2.5 times..

Okay. Okay. And then in looking at the growth in Memphis and Chattanooga, I think what's really noteworthy was that their core deposit growth was as strong as it was.

Is that something that you think will continue on into the second quarter and third quarter?.

I think, just a little bit because it's difficult enough to be protecting our own numbers. I don't feel like I'm in a position necessary for Jake, BNCN growth. But I do know is, our first quarter growth was really extraordinary and unusual. And I think it has to do with the hiring momentum that we talked about and market share moment.

I think it's in their case, they have built and they've working. As you know, you've seen their core deposit trends.

And a lot of that has been dependent upon their branches and some methodologies that they’ve deployed [indiscernible] and Rick Arthur in one of their branches and he’s done a fabulous job in building positive acquisition went to move that footprint. And so I think that explains a large part of the growth and that they've had.

And I believe it's likely to continue. But again, I’m better able to predict simple growth than BNC at this moment..

Okay. I’m sorry, I meant Memphis and Chattanooga, your core deposit growth very strong. And I was just wondering if you thought that was going to carry through over the balance of 2017. It seems like traction has really picked up in Chattanooga particularly..

My guess is in Chattanooga, there are 1 or 2 relationships in there that are large and represents the temporary funding again, I think the core growth is strong and outside. But in both Chattanooga and Memphis in the first quarter, they will have a couple of large deposits in there that are likely to be outside deposits.

But again, even with the large that they picked up, the core growth is extraordinary. I'm sorry, I thought you're asking about BNCN..

Okay. Great. Thank you very much for taking my questions..

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

Hey guys. Most of my stuff was answered. Just a couple maybe just housekeeping, and that was on the – just going back to the tax question, Harold. The $3.8 million benefit this quarter, you kind of talked into the lease about $1 million remaining.

Is that $1 million an aggregate to the next three quarters? Or is it kind of $1 million a quarter you're talking about. Just to clarify.

Yes, that will be probably for the rest of the year. And that's if our share price is whole as to where they're at currently. So that, it would not be for first quarter, it will be for the rest of the year..

Okay. And then just two last things. Just on the rebound and mortgage in this quarter, I guess, can you talk about the last portfolio last quarter. I guess just given the performance this quarter, I guess, the expectation, is it might typically first quarter is a season that's the weakest and builds from there.

Is that kind of how you look guys look at things today on that – on the performance this quarter?.

As far as looking at the quarter, you're telling me that the same quarter, they had a big pipeline coming into the second quarter, and if they can keep that pipeline going into the third quarter, then it will all be a great quarter for them.

So we're not anticipating any kind of dramatic decrease in mortgage in the second quarter, but we're not expecting it the same kind of similar increase here either. So is slightly up, somewhere in that range might be fair..

Yes, okay. All right. That's fair. And then just lastly on the comments about the comments about the conversion and kind of the change.

I guess the if the stock – and Terry mentioned this maybe a little out of the first quarter, but I guess just the thought that the prior assumption on the conversion that the first clean quarter, inclusive of BNCN on expense might be first quarter and now, its maybe pushed that into the second quarter, so just a little bit of a delay.

But I've been curious, it might be around $1 million, but that's what I think about it. The first clean quarter with the full synergies is 2Q versus 1Q..

Yes, that's exactly right, Brian, we've – we're planning on the target environment being established in April of next year..

Okay. All right. That’s all I had guys. Thanks so much..

Thank you, Brian..

I'm showing no further questions. Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day..