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Acquisitions | 3 Months Ended
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Mar. 31, 2018
Business Combinations [Abstract] |
Acquisitions | 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 presents a preliminary 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 |  |  | $ | 601,509 |
Goodwill |  |  | 1,256,753 |
|  |  | $ | 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 charges 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 $83.2 million were recorded to goodwill to appropriately reflect the valuation of the 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. The following purchase price allocations on the BNC 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 received within one year of the BNC Merger date, Pinnacle Financial will make any final adjustments to the purchase price allocation and prospectively adjust any goodwill recorded. 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 BNC 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 BNC Merger. Pinnacle Financial may incur losses on the acquired loans that are materially different from losses Pinnacle Financial originally projected.
(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 |  |  | 645 |  |  | 20,788 |
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 |  |  | 53,614 |  |  | 374,602 |
Total Assets | $ | 7,106,828 |  |  | $ | (78,423 | ) |  | $ | 7,028,405 |
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 |  |  | $ | (83,206 | ) |  | $ | 601,509 |
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 are 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) | Although not complete, this adjustment reflects the Day 1 value of OREO properties subsequently sold.
(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.
(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 The supplemental proforma information below for the three months ended March 31, 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 first three months of 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 charges 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.
|  | Three Months Ended March 31, |
(dollars in thousands) |  | 2017 |
Revenue (1) |  | $ | 219,665 |  |
Income before income taxes |  | $ | 74,999 |  |
______________________
(1) | Net interest income plus noninterest income.

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