Note 21. Regulatory Matters

Pursuant to Tennessee banking law, Pinnacle Bank may not, without the prior consent of the Commissioner of the Tennessee Department of Financial Institutions (TDFI), pay any dividends to Pinnacle Financial in a calendar year in excess of the total of Pinnacle Bank's retained net income for that year plus the retained net income for the preceding two years. During the year ended December 31, 2014, Pinnacle Bank paid $21.2 million in dividends to Pinnacle Financial. As of December 31, 2014, Pinnacle Bank could pay approximately $116.5 million of dividends to Pinnacle Financial without prior approval of the Commissioner of the TDFI. Pinnacle Financial initiated payment of a quarterly dividend of $0.08 per share of common stock in the fourth quarter of 2013 and has since declared five subsequent dividend payments including a $0.12 dividend declared in the first quarter of 2015. The amount and timing of all future dividend payments, if any, is subject to the discretion of Pinnacle Financial's board of directors and will depend on Pinnacle Financial's earnings, capital position, financial condition and other factors, including new regulatory capital requirements, as they become known to us.

Pinnacle Financial and Pinnacle Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions, by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Pinnacle Financial and Pinnacle Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

Quantitative measures established by regulation to ensure capital adequacy require Pinnacle Financial and Pinnacle Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets and for Pinnacle Bank of Tier I capital to average assets. Management believes, as of December 31, 2014, that Pinnacle Financial and Pinnacle Bank met all capital adequacy requirements to which they are subject. To be categorized as well-capitalized under applicable banking regulations, Pinnacle Financial and Pinnacle Bank was required to maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios in effect prior to January 1, 2015 as set forth in the following table and not be subject to a written agreement, order or directive to maintain a higher capital level. Pinnacle Financial's and Pinnacle Bank's actual capital amounts and ratios are presented in the following table (in thousands):

	Actual					Minimum Capital Requirement					Minimum To Be Well-Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
At December 31, 2014

Total capital to risk weighted assets:
Pinnacle Financial	$	698,810		13.4	%	$	418,748		8.0	%	$	523,760		10.0	%
Pinnacle Bank	$	657,576		12.6	%	$	417,511		8.0	%	$	522,234		10.0	%
Tier I capital to risk weighted assets:
Pinnacle Financial	$	633,348		12.1	%	$	209,374		4.0	%	$	314,256		6.0	%
Pinnacle Bank	$	592,298		11.4	%	$	208,756		4.0	%	$	313,340		6.0	%
Tier I capital to average assets (*):
Pinnacle Financial	$	633,348		11.3	%	$	224,406		4.0	%		N/A		N/A
Pinnacle Bank	$	592,298		10.6	%	$	223,656		4.0	%	$	279,570		5.0	%

At December 31, 2013

Total capital to risk weighted assets:
Pinnacle Financial	$	621,683		13.0	%	$	382,190		8.0	%	$	478,688		10.0	%
Pinnacle Bank	$	599,028		12.6	%	$	381,439		8.0	%	$	477,761		10.0	%
Tier I capital to risk weighted assets:
Pinnacle Financial	$	561,847		11.8	%	$	191,095		4.0	%	$	287,213		6.0	%
Pinnacle Bank	$	539,309		11.3	%	$	190,720		4.0	%	$	286,657		6.0	%
Tier I capital to average assets (*):
Pinnacle Financial	$	561,847		10.9	%	$	205,695		4.0	%		N/A		N/A
Pinnacle Bank	$	539,309		10.5	%	$	204,977		4.0	%	$	256,221		5.0	%

(*) Average assets for the above calculations were based on the most recent quarter.

In July 2013, the Federal Reserve Board and the FDIC approved final rules that substantially amend the regulatory risk-based capital rules applicable to Pinnacle Bank and Pinnacle Financial. The final rules implement the regulatory capital reforms of the Basel Committee on Banking Supervision reflected in "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems" (Basel III) and changes required by the Dodd-Frank Act.

Under these rules which became effective on January 1, 2015, the leverage and risk-based capital ratios of bank holding companies may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The final rules also include new minimum risk-based capital and leverage ratios. Moreover, these rules refine the definition of what constitutes "capital" for purposes of calculating those ratios, including the definitions of Tier 1 capital and Tier 2 capital.

The new minimum capital level requirements applicable to bank holding companies and banks subject to the rules are:

(i) a new common equity Tier 1 capital ratio of 4.5%;

(ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%);

(iii) a total risk-based capital ratio of 8% (unchanged from current rules); and

(iv) a Tier 1 leverage ratio of 4% for all institutions.

To be considered well-capitalized under applicable banking regulations following January 1, 2015, Pinnacle Financial and Pinnacle Bank must maintain the following minimum capital ratios and not be subject to a written agreement, order or directive to maintain a higher capital level:

(i) a common equity Tier 1 capital ratio of 6.5%;

(ii) a Tier 1 risk-based capital ratio of 8%;

(iii) a Total risk-based capital ratio of 10%; and

(iv) in the case of Pinnacle Bank, a Tier 1 leverage ratio of 5%.

The rules also establish a "capital conservation buffer" of 2.5% (to be phased in over three years) above the new regulatory minimum risk-based capital ratios, and result in the following minimum ratios once the capital conservation buffer is fully phased in:

(i) a common equity Tier 1 risk-based capital ratio of 7.0%,

(ii) a Tier 1 risk-based capital ratio of 8.5%, and

(iii) a total risk-based capital ratio of 10.5%.

The capital conservation buffer requirement is to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if capital levels fall below minimum levels plus the buffer amounts. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Under these new rules, Tier 1 capital will generally consist of common stock (plus related surplus) and retained earnings, limited amounts of minority interest in the form of additional Tier 1 capital instruments, and non-cumulative preferred stock and related surplus, subject to certain eligibility standards, less goodwill and other specified intangible assets and other regulatory deductions. Cumulative preferred stock and trust preferred securities issued after May 19, 2010, will no longer qualify as Tier 1 capital, but such securities issued prior to May 19, 2010, including in the case of bank holding companies with less than $15.0 billion in total assets, trust preferred securities issued prior to that date, will continue to count as Tier 1 capital subject to certain limitations. As a result, Pinnacle Financial's Trust Preferred Securities will continue to qualify as Tier 1 capital. The definition of Tier 2 capital is generally unchanged for most banking organizations, subject to certain new eligibility criteria.

Common equity Tier 1 capital will generally consist of common stock (plus related surplus) and retained earnings plus limited amounts of minority interest in the form of common stock, less goodwill and other specified intangible assets and other regulatory deductions.

The final rules allow banks and their holding companies with less than $250 billion in assets a one-time opportunity to opt-out of a requirement to include unrealized gains and losses in accumulated other comprehensive income in their capital calculation. Pinnacle Financial expects that it will opt-out of this requirement.