Note 2. Acquisitions

BNC Bancorp. On June 16, 2017, Pinnacle Financial consummated its merger with BNC. Pursuant to the terms of the Agreement and Plan of Merger, dated as of January 22, 2017, by and between Pinnacle Financial and BNC, BNC merged with and into Pinnacle Financial, with Pinnacle Financial continuing as the surviving corporation (the BNC Merger). On that same day, Pinnacle Bank and Bank of North Carolina, BNC's wholly-owned bank subsidiary, merged, with Pinnacle Bank continuing as the surviving entity.

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



	Number of Shares	Amount
Equity consideration:
Common stock issued	27,687,100	$	1,858,133
Total equity consideration		$	1,858,133
Non-equity consideration:
Cash paid to redeem common stock		$	129
Total consideration paid		$	1,858,262
Allocation of total consideration paid:
Fair value of net assets assumed including estimated identifiable intangible assets		$	602,689
Goodwill		1,255,573
		$	1,858,262

Pinnacle Financial recorded costs incurred in connection with the issuance of Pinnacle Financial common stock resulting from the BNC Merger of $7.2 million, net of related tax benefits, as a reduction to additional paid in capital. Certain merger-related expenses resulting from cultural and systems integrations, as well as stock-based compensation expense incurred as a result of change-in-control provisions applicable to assumed equity-based awards were recorded as merger-related expense.

Goodwill originating from the BNC Merger resulted primarily from anticipated synergies arising from the combination of certain operational areas of the businesses of BNC and Pinnacle Financial as well as the purchase premium inherent in buying a complete and successful banking operation. Goodwill associated with the BNC Merger is not amortizable for book or tax purposes. Adjustments totaling $82.0 million were recorded to goodwill to appropriately reflect the valuation of the acquired loan portfolio, OREO acquired, and certain liabilities assumed and have been included in the table below.

Pinnacle Financial accounted for the BNC Merger 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. Purchase price allocations related to the acquisition of BNC have been completed and are reflected in the following table (in thousands):



	As of June 16, 2017
	BNC Historical Cost Basis		Fair Value Adjustments⁽¹⁾			As Recorded by Pinnacle Financial
Assets
Cash and cash equivalents	$	155,271	$	—		$	155,271
Investment securities	643,875		1,667			645,542
Loans ⁽²⁾	5,782,720		(181,430		)	5,601,290
Mortgage loans held for sale	27,026		—			27,026
Other real estate owned⁽³⁾	20,143		1,382			21,525
Core deposit and other intangible ⁽⁴⁾	—		50,422			50,422
Property, plant and equipment ⁽⁵⁾	156,805		(3,341		)	153,464
Other assets ⁽⁶⁾	320,988		54,057			375,045
Total Assets	$	7,106,828	$	(77,243	)	$	7,029,585

Liabilities
Interest-bearing deposits ⁽⁷⁾	$	5,003,653	$	4,355		$	5,008,008
Non-interest bearing deposits	1,199,342		—			1,199,342
Borrowings ⁽⁸⁾	183,389		(6,412		)	176,977
Other liabilities ⁽⁹⁾	35,729		6,840			42,569
Total Liabilities	$	6,422,113	$	4,783		$	6,426,896
Net Assets Acquired	$	684,715	$	(82,026	)	$	602,689

Explanation of certain fair value adjustments:


(1)	The amount represents the adjustment of the book value of BNC's assets and liabilities to their estimated fair value on the date of acquisition. Fair value adjustments were updated subsequent to the merger date based on the results of finalized valuation assessments.


(2)	The amount represents the adjustment of the net book value of BNC'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 of approximately 2.6% of the 3.1% mark on the acquired loan portfolio.


(3)	This adjustment reflects the Day 1 value of OREO properties.


(4)	The amount represents the fair value of the core deposit intangible asset representing the intangible value of the deposit base acquired and the fair value of the customer relationship intangible assets representing the intangible value of customer relationships acquired.


(5)	The amount represents the adjustment of the net book value of BNC's property, plant and equipment to estimated fair value based on market values of similar assets.


(6)	The amount represents the deferred tax asset recognized on the fair value adjustment of BNC's acquired assets and assumed liabilities and an adjustment to the Day 1 fair value of an alternative investment.


(7)	The amount represents the adjustment necessary because the weighted average interest rate of BNC'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.

(8)

The amount represents the combined adjustment necessary because the weighted average interest rate of BNC's subordinated debt issuance exceeded the cost of similar funding at the time of acquisition and because the weighted average interest rate of BNC's trust preferred securities issuances was lower than the cost of similar funding at the time of acquisition. The combined fair value adjustments will be amortized to increase future interest expense over the lives of the instruments.


(9)	The amount represents the adjustment to accrue obligations that existed but had not been recorded as of the acquisition date and the fair value of BNC lease obligations.

Supplemental Pro Forma Combined Results of Operations

For the three months ended September 30, 2017, BNC was included in the operations of PNFP and, as such, no supplemental proforma information is necessary. The supplemental proforma information below for the nine months ended September 30, 2017 gives effect to the BNC acquisition as if it had occurred on January 1, 2017. These results combine the historical results of BNC into Pinnacle Financial's consolidated statement of income and, while certain adjustments were made for the estimated impact of certain fair value adjustments, they are not indicative of what would have occurred had the BNC Merger taken place on the indicated date nor are they intended to represent or be indicative of future results of operations. In particular, no adjustments have been made to eliminate the amount of BNC's provision for credit losses for the nine months ended September 30, 2017 that may not have been necessary had the acquired loans been recorded at fair value as of the beginning of 2017. Additionally, these financial statements were not adjusted for non-recurring expenses, such as merger-related expenses incurred by either Pinnacle Financial or BNC. Pinnacle Financial expects to achieve operating cost savings and other business synergies as a result of the acquisition which are also not reflected in the proforma amounts.



(dollars in thousands)	Nine Months Ended September 30, 2017
Revenue ⁽¹⁾	$	619,326
Income before income taxes	261,516

⁽¹⁾ Net interest income plus noninterest income.