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EX-10.3 - EX-10.3 - PINNACLE FINANCIAL PARTNERS INCd397148dex103.htm
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EX-4.3 - EX-4.3 - PINNACLE FINANCIAL PARTNERS INCd397148dex43.htm
8-K - FORM 8-K - PINNACLE FINANCIAL PARTNERS INCd397148d8k.htm

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined statement of operations and other data give effect to:

 

    the merger, effective June 16, 2017, of Blue Merger Sub, Inc., a North Carolina corporation (“Merger Sub”) and a wholly owned subsidiary of Pinnacle Financial Partners, Inc., a Tennessee corporation (“Pinnacle”), with and into BNC Bancorp, a North Carolina corporation (“BNC”), with BNC remaining as the surviving entity and becoming a wholly owned subsidiary of Pinnacle (the “merger”), which was followed as soon as reasonably practicable by the merger of BNC with and into Pinnacle, with Pinnacle remaining as the surviving entity, in each case pursuant to the terms of the Agreement and Plan of Merger (the “merger agreement”) entered into on January 22, 2017 by and among Pinnacle, BNC and Merger Sub;

 

    the sale by Pinnacle on January 27, 2017 of 3,220,000 shares of its common stock in a registered public offering and Pinnacle’s receipt of $191.2 million in estimated net proceeds, after deducting underwriting discounts and commissions and the estimated offering expenses payable by Pinnacle; and

 

    the issuance of approximately 27.6 million shares of Pinnacle common stock to the shareholders of BNC in connection with the merger,

as if, in the case of the balance sheet data, the merger occurred as of March 31, 2017 and, in the case of the statement of operations data for the three months ended March 31, 2017 and the year ended December 31, 2016, the merger and the issuance of the shares of Pinnacle’s common stock in the offering occurred as of January 1, 2016.

The unaudited pro forma condensed combined statement of earnings and other data for the three months ended March 31, 2017 and the year ended December 31, 2016 combines the historical consolidated results of operations of Pinnacle with the historical consolidated results of operations of BNC for such period giving effect to the transactions described above as if those transactions had been completed as of January 1, 2016. The unaudited pro forma condensed combined balance sheet data as of March 31, 2017 combines the historical consolidated balance sheet of Pinnacle as of that date with the historical consolidated balance sheet of BNC as of that date and gives effect to the merger described above as if the merger had been completed as of that date. Pinnacle will account for the merger under the purchase method of accounting.

The pro forma financial data appearing below is presented for illustrative purposes only, is based upon a number of assumptions and estimates and is subject to uncertainties, and that data does not purport to be indicative of the actual results of operations or financial condition that would have occurred had the transactions described above in fact occurred on the dates indicated, nor does it purport to be indicative of the results of operations or financial condition that the combined company may achieve in the future.

The pro forma condensed combined financial data appearing below also does not consider any potential effects of changes in market conditions on revenues or expense efficiencies, among other factors. In addition, as explained in more detail in the accompanying notes, the preliminary allocation of the pro forma purchase price reflected in the pro forma condensed combined financial data is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the merger.

The unaudited pro forma condensed combined statement of operations data appearing below does not give pro forma effect to the following for any period prior to the applicable date the transaction was consummated:

 

    Pinnacle and Pinnacle Bank’s subsequent investment in Bankers Healthcare Group, LLC which was consummated on March 1, 2016;

 

    Pinnacle’s acquisition of Avenue Financial Holdings, Inc., which was consummated on July 1, 2016;

 

    BNC’s acquisition of Southcoast Financial Corporation, which was consummated on June 17, 2016;

 

    BNC’s acquisition of High Point Bank Corporation, which was consummated on November 1, 2016; or

 

    Pinnacle’s issuance in a private placement of $120.0 million of subordinated notes due 2026 on November 16, 2016 and the use of approximately $57.0 million of the net proceeds from that offering to repay borrowings outstanding at that date under Pinnacle’s line of credit.

The pro forma financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Pinnacle’s historical financial statements and the notes thereto, in each case as included in Pinnacle’s Annual Report on Form 10-K for the fiscal year ended

 

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December 31, 2016 and Pinnacle’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements of BNC and the notes thereto included in BNC’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and BNC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

As noted above, the merger will be accounted for using the purchase method of accounting. The total purchase price will be allocated to the tangible and intangible assets and liabilities acquired based on their respective fair values. The allocation of the purchase price reflected in the following pro forma financial statements is preliminary and is subject to adjustment upon receipt of, among other things, appraisals of some of the assets and liabilities of BNC.

 

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     PNFP
3/31/2017
    BNC
3/31/2017
    Pro Forma
Adjustments
    Notes      Pro Forma
3/31/2017
 

Assets:

           

Cash and cash equivalents

   $ 192,674     $ 294,287     $ (23     A      $ 486,938  

Investment securities

           

Held to maturity

     24,998       313,118       (2,757     B        335,359  

Available for sale

     1,579,775       579,883                2,159,658  

Loans, net of unearned income

     8,642,032       5,620,867       (81,967     C        14,180,932  

Allowance for loan losses

     (58,350     (39,365     39,365       D        (58,350
  

 

 

   

 

 

   

 

 

      

 

 

 

Loans, net

     8,583,682       5,581,502       (42,602        14,122,582  

Premises and equipment

     97,004       170,530            267,534  

Goodwill

     550,349       234,769       937,788       E        1,722,906  

Core Deposit and other intangibles

     15,104       24,372       37,622       F        77,098  

Other assets

     681,014       376,881       (1,686     G        1,056,209  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 11,724,600     $ 7,575,342     $ 928,342        $ 20,228,284  
  

 

 

   

 

 

   

 

 

      

 

 

 

Liabilities and Shareholders’ Equity:

           

Deposits and securities sold under agreements to repurchase

   $ 9,351,754     $ 6,381,359              $ 15,733,113  

Advances from Federal Home Loan Bank

     231,264       106,979       (858     H        337,385  

Subordinated debt and other borrowings

     350,848       115,105       (8,549     I        457,404  

Accrued expenses and other liabilities

     67,660       55,261                122,921  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     10,001,526       6,658,704       (9,407        16,650,823  

Shareholders’ equity

           

Common stock and additional paid in capital

     1,324,551       743,442       1,110,945       J        3,577,461  

Retained earnings

     413,701       169,738       (169,738     K        413,701  

Accumulated other comprehensive income

     (15,178     3,458       (3,458     L        (15,178
  

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

   $ 1,723,074     $ 916,638     $ 937,749        $ 3,470,600  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 11,724,600     $ 7,575,342     $ 928,342        $ 20,228,284  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

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    Pinnacle
3/31/2017
    BNC
3/31/2017
    Stock
Issuance
    Notes     BNC
Pro Forma
Adjustments
3/31/2017
    Notes     Pro forma
3/31/2017
 

Statement of Operations Data:

             

Interest Income

  $ 102,143     $ 70,171         $ 2,503       N     $ 174,817  

Interest Expense

    13,376       10,203           59       O       23,638  
 

 

 

   

 

 

       

 

 

     

 

 

 

Net interest income

    88,767       59,968           2,444         151,179  

Provision for loan losses

    3,651       1,222                   4,873  
 

 

 

   

 

 

       

 

 

     

 

 

 

Net interest income after provision for loan losses

    85,116       58,746           2,444         146,306  

Noninterest income

    30,382       14,466                   44,848  

Noninterest expense

    60,858       51,260                   112,118  

Amortization of intangible assets

    1,196       1,538           1,303       P       4,037  
 

 

 

   

 

 

       

 

 

     

 

 

 

Income before income taxes

    53,444       20,414           1,141         74,999  

Income taxes

    13,791       5,983           448       Q       20,222  
 

 

 

   

 

 

       

 

 

     

 

 

 

Net income

  $ 39,653     $ 14,431         $ 693       $ 54,777  
 

 

 

   

 

 

       

 

 

     

 

 

 

Per Share Data:

             

Earnings per share of common stock

             

Basic

  $ 0.83     $ 0.28             $ 0.72  

Diluted

  $ 0.82     $ 0.28             $ 0.71  

Weighted average common shares outstanding

             

Basic

    48,022,342       52,209,933       966,000       M       27,552,192       R       76,540,534  

Fully Diluted

    48,517,920       52,356,697       966,000       M       27,552,192       R       77,036,112  

 

    Pinnacle
12/31/2016
    BNC
12/31/2016
    Stock
Issuance
    Notes     BNC
Pro Forma
Adjustments
12/31/2016
    Notes     Pro forma
12/31/2016
 

Statement of Operations Data:

             

Interest Income

    363,609     $ 249,185         $ 12,918       N     $ 625,712  

Interest Expense

    38,615       36,021           238       O       74,874  
 

 

 

   

 

 

       

 

 

     

 

 

 

Net interest income

    324,994       213,164           12,680         550,838  

Provision for loan losses

    18,328       4,665                   22,993  
 

 

 

   

 

 

       

 

 

     

 

 

 

Net interest income after provision for loan losses

    306,666       208,499           12,680         527,845  

Noninterest income

    121,003       38,484               159,487  

Noninterest expense

    232,004       152,211                   384,215  

Amortization on intangible assets

    4,281       4,915           5,942       P       15,138  
 

 

 

   

 

 

       

 

 

     

 

 

 

Income before income taxes

    191,384       89,857           6,738         287,979  

Income taxes

    64,159       26,944           2,643       Q       93,746  
 

 

 

   

 

 

       

 

 

     

 

 

 

Net income

  $ 127,225     $ 62,913         $ 4,095       $ 194,233  
 

 

 

   

 

 

       

 

 

     

 

 

 

Per Share Data:

             

Earnings per share of common stock

             

Basic

  $ 2.96     $ 1.40             $ 2.63  

Diluted

  $ 2.91     $ 1.39             $ 2.61  

Weighted average common shares outstanding

             

Basic

    43,037,083       45,095,976       3,220,000       S       27,552,192       R    

Diluted

    43,731,992       45,184,911       3,220,000       S       27,552,192       R    

Note 1—Basis of presentation

The pro forma condensed combined financial information and explanatory notes have been prepared to illustrate the effects of the merger under the acquisition method of accounting with Pinnacle treated as the acquirer. The pro forma condensed combined financial information is presented for illustrative purposes only and does not necessarily indicate the financial results of the combined companies had the companies actually been combined at the beginning of the period presented, nor does it necessarily indicate the results of operations in future periods or the future financial position of the combined entities. Under the acquisition method of accounting, the assets and liabilities of BNC, as of the effective date of the merger, will be recorded by Pinnacle at their respective fair values and the excess of the merger consideration over the fair value of BNC’s net assets will be allocated to goodwill.

The merger, which was completed on June 16, 2017, provides for BNC common shareholders to receive 0.5235 shares of Pinnacle common stock (the “merger consideration”) for each share of BNC common stock they hold immediately prior to the effective time of the merger. Based on the closing sale price of shares of Pinnacle common stock on the Nasdaq Global Select Market (the “NASDAQ”) on June 15, 2017 of $67.25, the last trading day before the consummation of the merger, the value of the merger consideration per share of BNC common stock was $35.21.

The pro forma allocation of the purchase price reflected in the pro forma condensed combined financial information is subject to adjustment and may vary from the actual purchase price allocation that will be recorded at the time the merger is completed. Adjustments may include, but not be limited to, changes in (i) BNC’s balance sheet through the effective time of the merger; (ii) total merger-related expenses if consummation and/or implementation costs vary from currently estimated amounts; and (iii) the underlying values of assets and liabilities if market conditions differ from current assumptions.

The accounting policies of both Pinnacle and BNC are in the process of being reviewed in detail. Upon completion of such review, conforming adjustments or financial statement reclassification may be determined.

 

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Note 2—Preliminary Purchase Price Allocation

The pro forma adjustments include the estimated purchase accounting entries to record the merger. The excess of the purchase price over the fair value of net assets acquired, net of deferred taxes, is allocated to goodwill. The fair values are estimated as of March 31, 2017. Estimated fair value adjustments included in the pro forma financial statements are based upon available information and certain assumptions considered reasonable, and may be revised as additional information becomes available.

Core deposit intangible assets of $62.0 million are included in the pro forma adjustments separate from goodwill and amortized using the sum-of-the-years-digits method over ten years. Actual amortization will be recorded on an accelerated basis which reflects the anticipated life of the underlying assets. Goodwill totaling $1.2 billion is included in the pro forma adjustments and is not subject to amortization.

The preliminary purchase price allocation is as follows:

 

(in thousands except per share amounts)

     

Pro Forma Purchase Price (1)

     

BNC shares outstanding (includes restricted stock awards and any restricted stock units that vested upon change in control)

     52,631     

Exchange ratio to Pinnacle shares

     0.5235     

Pinnacle shares issued

     27,552     

Issuance price

   $ 67.25     

Value of Pinnacle common stock issued

   $ 1,852,885     

Number of BNC stock options outstanding as of June 15, 2017

     1     

Weighted average exercise price

   $ 11.00     

Fair value of each option

   $ 34.07     

Fair value of acquired options

   $ 23     

BNC restricted stock awards that do not vest on change in control

     261     

Replacement awards issued to BNC associates

     136     

Fair value of replacement awards

   $ 9,205     
  

 

 

    

Fair value of replacement awards attributable to pre-combination service

   $

 

1,502

 

 

 

  
  

 

 

    
     

Total estimated consideration to be paid

      $ 1,854,410  

BNC Net Assets Estimated at Fair Value

     

Assets acquired:

     

Cash and short-term investments

        294,287  

Securities investments

        890,244  

Loans and leases

        5,538,900  

Other intangible assets

        61,994  

Other assets

        545,725  
     

 

 

 

Total assets acquired

        7,331,150  

Liabilities assumed:

     

Deposits

        6,381,359  

Advances from the FHLB

        106,121  

Subordinated debt and other borrowings

        106,556  

Accrued expenses and other liabilities

        55,261  
     

 

 

 

Total liabilities assumed

        6,649,297  
     

 

 

 

Net assets acquired

        681,853  
     

 

 

 

Preliminary pro forma goodwill

      $ 1,172,557  
     

 

 

 

 

(1) Totals may not add up due to rounding.

 

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Note 3—Pro forma adjustments

The following pro forma adjustments have been reflected in the pro forma condensed combined financial information. All taxable adjustments were calculated using a blended statutory effective tax rate of 39.23% to account for both federal and state tax obligations to arrive at deferred tax asset or liability adjustments. All adjustments are based on current assumptions and valuations, which are subject to change.

 

A Adjustments to cash and short-term investments to reflect cash paid to redeem outstanding BNC common stock options of $23,000.

 

B Adjustment to securities classified as held-to-maturity to reflect estimated fair value of acquired investment securities as of March 31, 2017.

 

C Adjustment to net acquired loans to reflect incremental net estimated fair value adjustments. The net fair value adjustment for the loan portfolio reflects the reversal of the remaining loan mark of $43.5 million previously recorded by BNC and to record the estimated fair value adjustment of $125.5 million to be recorded by Pinnacle. The estimated fair value adjustment to be recorded by Pinnacle is composed of two components, the expected credit loss component, which amounts to an estimated $106.3 million, and the component that considers current interest rates and liquidity, which amounts to an estimated $19.2 million. The estimated fair value adjustment aggregates an estimated adjustment of 2.3% of the outstanding loan balance and is based upon the combined experience of both Pinnacle and BNC in prior acquisitions in which independent third party valuations were prepared using current market yields and discounted cash flow modeling for individual loans and pools of similar loans utilizing prepayment and default assumptions. For the purpose of the pro forma financial statements, the future accretion of the fair value adjustment will be recorded as a component of interest income utilizing an accelerated amortization method over an average loan life of approximately three years.

 

D Elimination of BNC’s existing allowance for loan losses. Purchased loans in a business combination are recorded at estimated fair value on the purchase date and the carryover of the related allowance for loan losses is prohibited.

 

E Adjustments to goodwill to eliminate BNC goodwill of $234.8 million at merger date and record estimated goodwill associated with the merger of $1.2 billion.

 

F Adjustments to other intangible assets to eliminate BNC’s other intangible assets of $24.3 million and record an estimated core deposit intangible asset associated with the merger of $62.0 million.

 

G Adjustment to deferred tax assets to reflect the effects of the fair value acquisition accounting adjustments.

 

H Adjustment to debt to reflect estimated fair value of $858,000 of FHLB advances of BNC outstanding as of March 31, 2017.

 

I Adjustment to debt to reflect estimated fair value of $8.5 million of long term debt of BNC outstanding as of March 31, 2017.

 

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J Adjustment to remove BNC common stock and additional paid in capital and to record the issuance in connection with the merger of 27,552,192 shares of Pinnacle common stock to BNC common shareholders of $27.6 million par value and additional paid in capital of $1.8 billion.

 

K Adjustment to eliminate BNC retained earnings.

 

L Adjustments to eliminate remaining BNC accumulated other comprehensive income balances of $3.5 million.

 

M Adjustments to weighted-average shares of Pinnacle common stock outstanding to record 966,000 of the 3,220,000 shares of Pinnacle common stock issued on January 27, 2017.

 

N Reflects the income statement impact of the adjustments described in Note C above. Net adjustments to interest income of $2.6 million and $12.9 million for the three months ended March 31, 2017 and the year ended December 31, 2016, respectively, to eliminate BNC amortization of premiums and accretion of discounts on previously acquired loans of $5.1 million and $17.8 million, respectively, and record estimated amortization of premiums and accretion of discounts on acquired loans of $7.7 million and $30.1 million, respectively, and held-to-maturity securities of $148,000 and $590,000, respectively.

 

O Reflects incremental interest expense of $59,000 for the three months ended March 31, 2017 and $238,000 for the year ended December 31, 2016, related to the fair value adjustments on the FHLB advances, trust preferred securities and subordinated debt issuances of BNC acquired by Pinnacle.

 

P Net adjustments to noninterest expense of $1.3 million for the three months ended March 31, 2017 and $5.9 million for the year ended December 31, 2016 to eliminate BNC amortization expense on other intangible assets and record estimated amortization of acquired other intangible assets. See Note 2 for additional information regarding Pinnacle’s amortization of acquired other intangible assets.

 

Q Adjustment to income tax expense to record the income tax effects of pro forma adjustments at the estimated combined statutory federal and state tax rate of 39.23%.

 

R Adjustments to weighted-average shares of BNC common stock outstanding to eliminate weighted-average shares of BNC common stock outstanding and to record 27,552,192 shares of Pinnacle common stock issued in connection with the merger calculated using the 0.5235 exchange ratio.

 

S Adjustments to weighted average shares of Pinnacle common stock outstanding to record 3,220,000 shares of Pinnacle common stock issued on January 27, 2017.

Note 4—Merger integration costs

Merger- and integration-related costs are not included in the pro forma condensed combined financial data income since they will be recorded in the combined results of income as they are incurred prior to, or after completion of, the merger and are not indicative of what the historical results of the combined company would have been had the companies been actually combined during the periods presented. Merger- and integration-related costs expected to be incurred resulting from the merger include financial, legal and advisory fees, software termination expenses and lease termination expenses, and are estimated to be $100.1 million pretax; $63.3 million of which is estimated to be incurred at the closing of the merger by BNC. None of these estimated merger- and integration-related charges had been incurred as of March 31, 2017.

 

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