Good morning everyone and welcome to the Pinnacle Financial Partners fourth quarter 2019 earnings conference call. Hosting the call today from Pinnacle Financial Partners is Mr. Terry Turner, Chief Executive Officer, and Mr. Harold Carpenter, Chief Financial Officer. Please note Pinnacle’s earnings release and this morning’s presentation are available on the Investor Relations page of their website at www.pnfp.com. Today’s call is being recorded and will be available for replay on Pinnacle’s website for the next 90 days. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star, one on your touchtone phone. Analysts will be given preference during the Q&A. We ask that you please pick up your handset to allow optimal sound quality. 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’s financial 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’s financial quarterly report for the quarter ended June 30, 2019. 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 reconciliation of the non-GAAP measures to the comparable GAAP measures will be available on Pinnacle’s financial website at www.pnfp.com. With that, I am now going to turn the presentation over to Mr. Terry Turner, Pinnacle’s President and CEO.

Thank you Sherree. Good morning. As we always do, I’ll begin with this dashboard. As a reminder, it’s typically focused on revenue growth, earnings growth, and asset quality because we continue to believe that they are the three most highly correlated metrics to long-term shareholder returns. Q4 was a good quarter for our firm. We continued to have strong balance sheet growth, already great asset quality got even better, and despite a little contraction in revenue and fully diluted EPS sequentially, we still had 2.5% year-over-year growth in revenue and 2.4% year-over-year growth in EPS. Due to all the noise and adjustments primarily in previous periods, in many cases the non-GAAP measures may better illustrate the relative performance of the firm. As a reminder, the reason we begin each quarterly earnings call with that, it goes back five years is because as you can see, irrespective of M&A impact, deposit betas, outsized pre-pay offs, or any of the other hot buttons that have come and gone, our balance sheet grows, and until this quarter our growth in revenue and EPS have been remarkably rapid and reliable. In 4Q19, we continued our share-taking balance sheet growth; however, as I mentioned on the last slide, despite being up year-over-year, both revenue and fully diluted EPS declined almost on a sequential quarter basis. My hope is that that’s not a surprise to anyone. I believe we had adequately signaled to the market last quarter that would be the case largely as a result of two key reasons. Number one, BHG is in the process of converting a greater volume of their originations to hold on their balance sheet as opposed to selling them through their auction platform for immediate gain. From 30,000 feet, we agree that an increase in spread business should result…

Thanks Terry. Good morning everybody. We’ve updated this revenue per share slide for fourth quarter results. As you can see, we continue to experience year-over-year double-digit revenue per share growth. The red dotted line represents the peer group’s year-over-year growth. We outpaced our peers on revenue per share consistently by a wide margin. Our relationship managers have remained focused on gathering clients and generating incremental revenues for our firm. Obviously BHG’s performance has had a meaningful influence on these results. As we had mentioned before, we don’t apologize for that at all. We continue to expect 8% to 12% revenue growth from BHG in 2020. Even though BHG was down in the fourth quarter, BHG will be back in the coming quarters. As you know, BHG has afforded us opportunities to invest in our franchise as well as provide significant tangible book value accretion. We’re also excited about de novo expansion into Atlanta and what that will do to our revenue per share growth over the next few years. Now comparing the fourth quarter 2019 average loans to fourth quarter 2018, our growth was nearly 12%. At this time, we have no reason to believe that our loan growth outlook for 2020 will be any less than the high-single-digit to low-double-digit growth. As you know, we booked about $2.1 billion in loan growth in 2019. We have no reason to believe we won’t exceed that in 2020. We make that statement because of the success of our hiring over the last few years, the continued success we anticipate in hiring in our present markets, and the energy that comes to our franchise from Atlanta. Next is an update to our loan pricing. Our loan mix average is approximately 50% to 55% LIBOR prime with substantially all the LIBOR credit being…

Okay, thanks Harold. As most of you know, we’ve generally targeted the largest, fastest growing urban markets in the southeast. For some time, we’ve used this map to illustrate our desired geographies. There are 15 urban markets that were originally targeted in this triangle, from Memphis to D.C., and from Memphis to Charleston, South Carolina. Today, we’re operating in 10 of the 15 and it’s our expectation that we can generally produce double digit loan growth with no further market extension; in other words, we expect double digit growth from the 10 blue markets in which we currently operate. That’s a pretty enviable position, to have built a current market presence that should yield double digit growth. In general, we’ve been operating right through the core of this triangle but not at the fringes, so the remaining targets include Atlanta, Georgia and Columbia, South Carolina to the south and the Hampton Roads area of Virginia, Richmond, Virginia, and Washington D.C. to the north. In my judgment, easily the most attractive of those remaining targeted markets is Atlanta. Obviously we’ve chosen these southeastern markets because of their size and growth dynamics. They support our aspirations to build a large high growth bank, and we’ve chosen them because they’re familiar to us. We understand how business is done in them. Frankly, I love our model but I’m not completely sure if it would be as effective in, say, New England as an example. Beyond our familiarity with them, we’ve chosen these markets because of our confidence in our ability to attract the best bankers and provide distinctive service to their clients, and that yields huge market share takeaway specifically from those large vulnerable competitors that currently dominate all these markets. In short, from a strategic standpoint, we target large high growth urban…

[Operator instructions] Our first question comes from Jennifer Demba with SunTrust.

Good morning.

Hi Jen.

Terry, the Atlanta expansion makes a ton of sense for you guys. Do you see a potential other de novo effort for Pinnacle in the next few years if opportunities should arise, or do you think you’ll try and just focus in on Atlanta and be--yeah, and focus in on Atlanta?

That’s a great question. Jen, as you know, I’m hesitant to make comments about we’re always going to do this or we’re never going to do that or those kinds of things, because the opportunities change, landscapes change, all those kinds of things, so I don’t want to put myself in a position to say, we just wouldn’t do another de novo expansion. But having said that and to put it in context, to be honest with you and sitting here right now, my thrust is Atlanta. It’s an unbelievable opportunity. It’s what we want to work on. You know the market better than I do, but it is so large and high growing, and the competitive landscape is so ripe, and what we do is so well suited to the opportunity, and it just becomes sort of the top of my list of what I want to work on. So, as a company, that’s where we’ll dedicate a lot of resources, and quite honestly, that’s where I’ll personally invest a meaningful amount of time.

Okay. Harold, you mentioned something about the growth rate for BHG in the first quarter of ’20, and I don’t think I understood it. Could you repeat that?

Yes. Trying to build off the fourth quarter of 2019 but also comparing it to the first quarter of ’19, we think the growth rate for the first quarter of this year will at least be 12% over the first quarter of last year.

Okay. Any thoughts on a tax rate for 2020?

Yes, we don’t anticipate the tax rate to change very much in 2020. It ought to be -- the ETR ought to be pretty similar.

Great, thanks a lot. Good quarter.

Thank you.

Thank you. Our next question comes from Steven Alexopoulos with JP Morgan.

Hi, good morning everyone.

Hi Steven.

I wanted to start first on the margin. Harold, I thought you said the NIM would be flat to down in 2020. How do you think about the NIM over the near term?

Yes, that would be for the first quarter.

So that is the first quarter?

Yes, we think it will be--it won’t be down much if it goes down, so hopefully we’re close to that inflection point here within the first half of the year.

Got you, and then stabilize beyond 1Q’20?

That’s our current planning assumption, Steven. We’ve still got a July rate cut in there. Whether or not that happens or not, I’m not sure; but we did a lot of, call it initiatives last year to kind of reduce our asset sensitivity, and that has basically neutralized our balance sheet with respect to rate cuts.

Got you, okay. Then on the Atlanta expansion, I’m curious how many relationship managers do you expect to add in 2020, and how did you come up with 50 as the right overall number?

Yes, I guess the thrust is sort of how fast can you hire and assimilate people, and so I think again in working with Rob Garcia, who is our market leader there, it felt a comfortable pace to us to hire 10 relationship managers, and I think you might think about it this way, Steven, that it’d be maybe a number like six, C&I bankers in the 10, maybe a number like 3 private bankers in the 10, and maybe a number like 1 CRE banker in the 10. And so, that seemed liked a comfortable build-out pace for us, and so it’s just simple math from there - 10 a year, five years is 50. That’s not to say we wouldn’t hire more if we had an opportunity, which we may well have, but that’s sort of the core of what we’re trying to do as we build the C&I platform. I also indicated that we’ll build out the other fee business professionals as well, which would include treasury management consultants, wealth managers, primarily brokers, mortgage originators, and SBA loan originators and so forth, and so compared to the 50 over five years, that’s probably another 15 to 20 revenue producers that would be added to that.

Okay, that’s helpful. Just one final question. Looking at the loan growth guidance for 2020, you included high-single digit in the range. Are you just being conservative, or do you see something that could cause loan growth to slow this year? Thanks.

Yes, I think we’re being more about--it’s more about being conservative than it is any kind of statement regarding what kind of energy we have within the franchise. We did $2.1 billion, we ought to at least do that here going into 2020.

Okay. Thanks for all the color, and thanks for taking my questions.

All right, thanks Steven.

Thank you. Our next question comes from Catherine Mealor with KBW.

Thanks, good morning.

Morning.

Harold, in your earlier remarks, you talked about how your incentive plan relies on EPS growth versus as you compare it to peer EPS growth, and so as we think about what we’re seeing across maybe consensus, across midcap banks, there’s generally flat to maybe even down EPS growth for most of your peers. How do we think about what--and I know you’re not going to give us your goal, but just conceptually, is it fair to assume that there is some level of EPS growth in 2020 over 2019 to get a full incentive compensation payout this year?

Yes, I think that’s a fair assertion. There’s quantitative and qualitative factors going on. You’re right - when you line up our peer group, there’s probably half of them that are now with estimates out there for negative earnings growth in 2020 over 2019, so you might say it’s kind of like stepping over a rock or something to get to top quartile. But at the end of the day when you line it all up and you start thinking about, okay, how are you going to propel these shares, what’s going to make these shares move, what kind of catalyst might be there, so we use that incentive plan to help create that energy, so you should assume that there’s going to be outsized growth. I think if you line up our peers, you can probably see what kind of targets we’re shooting for.

Great, that’s [indiscernible].

I don’t know if I got to your question, but that would be my response.

I think that’s right. I would assume that there’s some level of EPS growth for you to get a full payout, so just wanted to kind of confirm that. That makes sense. Then maybe a follow-up on that and just thinking about the expense build-out. If we take your $0.03 to $0.04 EPS investment for Atlanta, that’s about, call it $3.5 million, which is a very small piece of the overall expense growth this year, if you kind of do it on a dollar basis. Where is the rest of the expense growth coming from, or is there some kind of revenue component also in that $0.03 to $0.04 investment?

There definitely is a revenue component. Terry’s not been bashful with Rob in assigning growth rates and all that sort of stuff, so he’s got himself a full-time job, I’ll say it like that. There is revenue growth in that number for Atlanta. The expense growth, we’ve got a significant hiring plan coming up on us, and that comes with an additional incentive cost and all that; but that also gives us flexibility with some respects. The easiest thing we can get quick returns off of with respect to our plan is to throttle back on expenses or otherwise use that incentive plan to help us perhaps offset revenue shortfalls, and we’ve done that in the past so 2020 will be no different. But what we’re speaking to today in our comments is a fairly significant hiring plan that we’ve got going into next year.

Catherine, I might just add to Harold’s comments there, Jennifer Demba asked a great question really about okay, so would you take on other de novo opportunities in addition to Atlanta, and again that’s not in our plan. Our plan is to focus on the markets that we’re in, plus Atlanta. But I wouldn’t want anybody to lose sight of we’re still building out a lot of revenue capability in markets like Charlotte and Raleigh and Greenville and Charleston, and I think you probably saw in the fourth quarter, I think we added 18 revenue producers in the fourth quarter alone last quarter, fourth quarter of 2019, so we’re still believing that this competitive landscape is right up our alley and we’re still finding great opportunity to hire banks largely from these large banks that we view to be so vulnerable. Anyway, I’d just give you as color on the expense build.

That’s helpful. Great, thank you so much.

Thanks Catherine.

Thank you. Our next question comes from Stephen Scouten with Piper Sandler.

Hey guys, good morning. I’m curious, I think you said on CECL, maybe it was a $0.01 to $0.03 drag into your 2020 expectations, so does that imply you think credit trends should kind of continue at their current pace and I guess provisioning would be in the $30 million to $35 million range, based on that math?

Yes, I don’t think that’s too far off. We spent a lot of time with the credit administrators trying to figure out what kind of charge-off forecast they might have for 2020, and we’re just not seeing anything that would alarm us that we’re going to see increased provisioning related to the charge-offs for 2020.

Got it, okay. Digging further into some of Catherine’s questioning there, you guys noted a little bit below the ROA target here in the fourth quarter, but obviously not for the full year. You did a great job on the full year relative to that target, but it seems like it will be difficult really to deliver EPS growth year-over-year given NIM headwinds, mid-single digit expense growth, and maybe a dip into the high single digits on the loan growth front. How confident are you around that ability to grow EPS year-over-year apart from maybe a reduction in incentive comp?

I think it’s going to be a hard year. Obviously the yield curve is not helpful. It’s improved some over the last short term period here, but--. The confidence we have goes back to the core - it’s about what markets you’re operating in and what kind of objectives you lay out on these people, to say okay, what’s that old saying, without an objective, any path will get you there, or something? You’ve just got to kind of lay out these goals. I think there was a question earlier about how do we get to 50 people? Well, a lot of that is just sitting down and going eyeball to eyeball with people and saying, hey, you’ve got to do this for us to get to the numbers we need to get to, so we laid that out and say, okay, you need to hire this many people. That’s the way we’ve operated this firm now for almost 20 years, and we think that at the end of the day, our folks will deliver what we’ve tasked them to deliver. It’s not that difficult, actually, as to how we operate this firm.

Stephen, I might add to Harold’s comments, just for whatever it’s worth. You know this - nobody knows the future, including me, and I don’t know what all the market conditions are going to do, how they might change and what the impact of the political discourse in the country is going to be, or what the impacts by North Korea, Iran, all those sorts of things. But if you’re talking about an environment that looks very much like the environment that we’re in today, I can’t imagine this company is not going to produce earnings per share growth.

Okay, great. Then just maybe last thing, I’m curious, you guys still have a pretty sizeable authorization on the share buybacks, a little less active this quarter. When you’re modeling and you’re thinking about the company for next year, how are you thinking about capital planning and the share repurchases in particular?

Yes, we’re still planning on using the rest of our allocation. We’re likely to use it here over the next three quarters, or four quarters. We intend to use it.

Okay, great. Thanks for the color, guys.

Thank Stephen.

Thank you. Our next question comes from Jared Shaw with Wells Fargo Securities.

Just looking at the BHG with the color on first quarter, should we expect then that the rest of the year, the growth is sort of a steady ramp from here, or will it be a little lumpy?

Yes Jared, we’ve had a lot of conversation with BHG over the years about lumpiness. I think the way it’s planned out this of what they’re shooting for is that you’ll see a ramp-up from the fourth quarter into the first quarter, and then a ramp-up into the second quarter, and then that growth rate will basically be flattish to slightly up for the rest of the year. It’s been somewhat of a bell curve for a few years, so I think this year they’re planning on kind of a ramp-up in 1Q and 2Q and then kind of flattish into the last half of the year.

Do those two funding facilities, does that provide enough funding for them to meet their goals, or is there an expectation that they’re going to have to get additional funding as we go through the year?

Yes, the plan for them is to fund up here fairly quickly and then what they’ll do is they’ll securitize--they’ve got a $200 million facility, they’ll securitize that facility and then in effect sell it off to investors, not the asset, just the funding part. They’ll borrow money to set up a security and then they’ll reload the warehouse.

Got it, great. Then on the margin, with your expectation for a July cut there, if we don’t see a July cut, is that incrementally positive to margin in the second half or are you running neutral enough now where it should be relatively neutral overall?

Oh, I think it will be positive. I don’t think it will be a big positive, but I think it will be positive.

Great, thanks very much.

Thank you. Our next question comes from Brock Vandervliet with UBS.

Good morning, thanks for the questions. Just to follow up on those, if I understand this, BHG’s funding is now set between what they’ve got organically in terms of the balance sheet runway plus the securitization strategy. Is there any missing piece that’s left here, or are they set?

I think they’re pretty much set. I think they’re still working through documents on the securitization piece, but they intend in the second quarter to kind of do that first issuance.

Did Pinnacle expand its financing of BHG, or was that unchanged?

I don’t think it has changed.

Okay. Harold, I think you’ve done a good job in terms of orchestrating this shift we see in funding, running down some of the CDs. How much more can you go on the wholesale CD front? Remind us how large that portfolio is.

Yes, hold on. Give me a second. I’ll try to give you the numbers. I appreciate the compliment in front of Terry - that’s good.

Yes Brock, I was kind of hoping for one too, so I could get one, that’d be good.

I’ll work on it.

The CD book, we’re probably talking about--oh heck, $300 million, $400 million.

Okay.

About 100--or I’m sorry--no wait, I’m sorry, I’m talking to you wrong. Probably about $2 billion in CDs.

And how much of that is wholesale?

I think basically about $2 billion is about wholesale. I’ve got $1.7 billion in brokered and about, call it non-core retail, about $800 million in that. That’s kind of my wholesale book.

Okay. Terry, I’m not sure this is a compliment, but you’re obviously no stranger to acquisitions. As you looked at the Atlanta market, clearly you’ve got a horse there you’ve found with a leader, but how did you evaluate that versus a possible acquisition?

Well, I think there’s two or three things that are important to me. Goal one is to get to the market. We’ve sort of had it as a target for a long time, but the vulnerability really accelerated in Atlanta over the last 12 months in the competitive landscape, so it just got important to me to get there. I’m not insincere when I say it may be as big an opportunity as the one we seized in Nashville. Then underneath that, obviously we had discussions about M&A and about the de novo model. I think I’ve said all along I’d be prepared to go either way, and I still say that would reflect that my mindset. I would have been willing to go either way. It gets back to can you hire somebody and how big a book can they build, and then if you do an M&A transaction, what are the ongoing implications of that, what’s the price going to be, what’s the accretion going to be, all those kinds of things. So at least at this moment, the de novo start felt best to us.

Got it, okay. Thanks for taking my questions.

All right.

Thank you. Our next question comes from Tyler Stafford with Stephens.

Hey, good morning guys. Just two more for me. I just wanted to follow up on the inclusion of the core deposit growth within the incentive plan. How much weighting does that carry in the plan this year?

It will be a similar weighting to the revenue share that we’ve had in prior years, so it will be around 20% or so.

Okay. Then I just wanted to clarify, as you guys pencil out the 2020 year with the guidance and outlook you’ve laid out, you do think that you can get back within your ROA and ROTC target range over the next couple quarters with that July and November cut assumption?

Yes, I think so. I think the ROAA target will be a little--I mean, it’ll be a little easier than the ROTC target, but we still think that our modeling shows that we’ll get back within it.

Okay. Should there be much balance sheet--the difference between loan growth and overall balance sheet growth, will that differ much, or total balance sheet growth should still be kind of high single digits, low double digits?

Yes, I think balance sheet growth and loan growth will run kind of similar growth rates.

Okay. All right, thanks Harold.

Thank you. Our next question comes from Brian Martin with Janney Montgomery.

Hey guys, good morning. Harold, just one thing, back to the margin. If you don’t get the two cuts that you expect, is there upside to the margin? Is that how we should think about it given the plans you’ve outlined? It sounds like stable with the cuts, and then maybe some upside if you don’t get the cuts.

I think it is that way. I think there’s going to be a slight positive to a no-cut environment or a flat Fed funds rate for the year. We did a lot of work last year to, like I said, remove asset sensitivity, so I think we’re much more neutral with respect to interest rate risk management this year.

Okay, perfect. I think you said on the expense outlook that it’s a mid single digit growth rate. Is that of off ’19, and does that include the Atlanta build-out, the cost for that?

Yes, it’s off of the fourth quarter run rate, and it’s got a component in there for Atlanta.

Okay. Last thing on the clarification on BHG, I think the revenue’s in--I thought your comment was that the revenues in BHG are up 8% to 12% in ’20 versus ’19, and 2019 was a $90 million number. Is that the right math, how we’re thinking about that?

Yes.

All right, that’s all I had. Thanks so much.

All right, thanks Brian.

Speakers, I’m showing no further questions in the queue at this time. I would now like to turn the call back over to you for any further remarks.

All right, I would just say that our view was fourth quarter was a good quarter for us. It’s really highlighted by the improvement in cost of deposits, continued balance sheet growth, and continued hiring, and our outlook for 2020 continues to be strong running exactly the same program with the addition of the high profile Atlanta market. Thanks for joining us.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.