Note 2. Acquisitions

Avenue Financial Holdings, Inc. On July 1, 2016, Pinnacle Financial consummated its merger with Avenue, and Avenue Bank, Avenue's wholly-owned bank subsidiary. Pursuant to the terms of the Agreement and Plan of Merger, dated as of January 28, 2016, by and between Pinnacle Financial and Avenue (the Avenue Merger Agreement), Avenue merged with and into Pinnacle Financial, with Pinnacle Financial continuing as the surviving corporation (the Avenue Merger). On that same day, Pinnacle Bank and Avenue Bank merged, with Pinnacle Bank continuing as the surviving entity.

The following summarizes the consideration paid and presents a preliminary allocation of purchase price to net assets acquired (dollars in thousands):

	Number of Shares		Amount
Equity consideration:
Common stock issued		3,760,326	$	182,469
Total equity consideration			$	182,469

Non-equity consideration:
Cash paid to redeem common stock			$	20,910
Cash paid to exchange outstanding stock options				987
Total consideration paid			$	204,366

Allocation of total consideration paid:
Fair value of net assets assumed including estimated identifiable intangible assets			$	81,695
Goodwill				122,671
			$	204,366

Pinnacle Financial accounted for the aforementioned completed mergers under the acquisition method in accordance with ASC Topic 805. Accordingly, the purchase price is allocated to the fair value of the assets acquired and liabilities assumed as of the date of merger.

The following purchase price allocations on the Avenue Merger are preliminary and will be finalized upon the receipt of final valuations on certain assets and liabilities. Upon receipt of final fair value estimates, which must be within one year of the Avenue Merger date, Pinnacle Financial will make any final adjustments to the purchase price allocation and prospectively adjust any goodwill recorded. Material adjustments to merger date estimated fair values would be recorded in the period in which the Avenue Merger occurred, and as a result, previously reported results are subject to change. Information regarding Pinnacle Financial's loan discount and related deferred tax asset, core deposit intangible asset and related deferred tax liability, as well as income taxes payable and the related deferred tax balances recorded in the Avenue Merger, may be adjusted as Pinnacle Financial refines its estimates. Determining the fair value of assets and liabilities, particularly illiquid assets and liabilities, is a complicated process involving significant judgment regarding estimates and assumptions used to calculate estimated fair value. Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the Avenue Merger. Pinnacle Financial may incur losses on the acquired loans that are materially different from losses Pinnacle Financial originally projected.

	As of July 1, 2016
	Avenue Historical Cost Basis		Preliminary Fair Value Adjustments			As Recorded by Pinnacle Financial
Assets
Cash and cash equivalents	$	39,485	$	-		$	39,485
Investment securities⁽¹⁾		163,862		(463	)		163,399
Loans⁽²⁾		980,319		(27,789	)		952,530
Mortgage loans held for sale		3,310		-			3,310
Core deposit intangible⁽³⁾		-		8,845			8,845
Other assets⁽⁴⁾		47,729		8,774			56,503
Total Assets	$	1,234,705	$	(10,633	)	$	1,224,072

Liabilities
Interest-bearing deposits⁽⁵⁾	$	741,635	$	1,400		$	743,035
Non-interest bearing deposits		223,685		-			223,685
Borrowings⁽⁶⁾		142,639		3,240			145,879
Other liabilities		29,719		59			29,778
Total Liabilities	$	1,137,678	$	4,699		$	1,142,377
Net Assets Acquired	$	97,027	$	(15,332	)	$	81,695

Explanation of certain fair value adjustments:

⁽¹⁾	The amount represents the adjustment of the book value of Avenue's investment securities to their estimated fair value on the date of acquisition.
⁽²⁾	The amount represents the adjustment of the net book value of Avenue's loans to their estimated fair value based on interest rates and expected cash flows as of the date of acquisition, which includes estimates of expected credit losses inherent in the portfolio.
⁽³⁾	The amount represents the fair value of the core deposit intangible asset representing the intangible value of the deposit base acquired.
⁽⁴⁾	The amount represents the deferred tax asset recognized on the fair value adjustment of Avenue's acquired assets and assumed liabilities as well as the fair value adjustment for property and equipment.
⁽⁵⁾	The amount represents the adjustment necessary because the weighted average interest rate of Avenue's deposits exceeded the cost of similar funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest expense over the life of the portfolio.
⁽⁶⁾	The amount represents the adjustment necessary because the weighted average interest rate of Avenue's FHLB advances and subordinated debt issuance exceeded the cost of similar funding at the time of acquisition. The fair value adjustment will be amortized to reduce future interest expense over the life of the portfolio.