Note 1. Summary of Significant Accounting Policies

Nature of Business — Pinnacle Financial Partners, Inc. (Pinnacle Financial) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Pinnacle Bank. Pinnacle Bank is a commercial bank headquartered in Nashville, Tennessee. Pinnacle Bank provides a full range of banking services in its primary market areas of the Nashville-Davidson-Murfreesboro-Franklin, Tennessee and Knoxville, Tennessee Metropolitan Statistical Areas.

Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP). All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the Pinnacle Financial consolidated financial statements and related notes appearing in the 2013 Annual Report previously filed on Form 10-K.

These consolidated financial statements include the accounts of Pinnacle Financial and its wholly-owned subsidiaries. PNFP Statutory Trust I, PNFP Statutory Trust II, PNFP Statutory Trust III and PNFP Statutory Trust IV are affiliates of Pinnacle Financial and are included in these consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, any potential impairment of intangible assets, including goodwill and the valuation of deferred tax assets, other real estate owned, and our investment portfolio, including other-than-temporary impairment. These financial statements should be read in conjunction with Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant changes to Pinnacle Financial's significant accounting policies as disclosed in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2013.

Recently Adopted Accounting Pronouncements — In February 2013, the FASB issued Accounting Standards Update 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" which provides disclosure guidance on amounts reclassified out of AOCI by component. The adoption did not have any impact on our financial position or results of operations but has impacted our financial statement disclosure. As shown on the statement of comprehensive income for the three and nine months ended September 30, 2014, Pinnacle Financial reclassifed net losses of approximately $18,000 out of other comprehensive income into loss on the sale of investment securities, net of tax, compared to reclassifications of net losses for the three and nine months ended September 30, 2013, of approximately $876,000 and $891,000, net of tax, respectively.

Goodwill — ASC 350-35-3 provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the quantitative two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). Based on the qualitative assessment, if an entity determines that the fair value of a reporting unit is more than its carrying amount, the quantitative two-step goodwill impairment test is not required. Pinnacle Financial performed its annual qualitative assessment as of September 30, 2014. No impairment was noted as a result of this assessment.

Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for each of the nine months ended September 30, 2014 and 2013 was as follows:

	For the nine months ended September 30,
	2014		2013
Cash Transactions:
Interest paid	$	10,186,045	$	12,434,753
Income taxes paid, net		22,150,000		20,850,009
Noncash Transactions:
Loans charged-off to the allowance for loan losses		5,634,327		14,088,656
Loans foreclosed upon and transferred to other real estate owned		1,672,459		3,491,421
Loans foreclosed upon and transferred to other repossessed assets		1,398,823		366,072
Available-for-sale securities transferred to held-to-maturity portfolio		-		39,959,647

Income Per Common Share — Basic net income per common share (EPS) is computed by dividing net income by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted. The difference between basic and diluted weighted average shares outstanding is attributable to common stock options, common stock appreciation rights, restricted share awards, and restricted share unit awards. The dilutive effect of outstanding options, common stock appreciation rights, restricted share awards, and restricted share unit awards is reflected in diluted EPS by application of the treasury stock method.

The following is a summary of the basic and diluted net income per share calculations for the three and nine months ended September 30, 2014 and 2013:

	For the three months ended September 30				For the nine months ended September 30,
	2014		2013		2014		2013
Basic net income per share calculation:
Numerator - Net income	$	18,196,822	$	14,646,950	$	51,733,929	$	42,405,607

Denominator - Average common shares outstanding		34,762,206		34,282,899		34,688,064		34,148,562
Basic net income per share	$	0.52	$	0.43	$	1.49	$	1.24

Diluted net income per share calculation:
Numerator – Net income	$	18,196,822	$	14,646,950	$	51,733,929	$	42,405,607

Denominator - Average common shares outstanding		34,762,206		34,282,899		34,688,064		34,148,562
Dilutive shares contingently issuable		393,018		323,668		381,700		267,214
Average diluted common shares outstanding		35,155,224		34,606,567		35,069,764		34,415,776
Diluted net income per share	$	0.52	$	0.42	$	1.48	$	1.23