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 2014 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, 2014. 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, 2014.

Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for each of the three months ended March 31, 2015 and 2014 was as follows:

	For the three months ended March 31,
	2015		2014
Cash Transactions:
Interest paid	$	3,426,798	$	3,447,425
Income taxes paid, net		8,217,500		6,100,000
Noncash Transactions:
Loans charged-off to the allowance for loan losses		2,649,708		1,503,511
Loans foreclosed upon and transferred to other real estate owned		-		1,645,100
Loans foreclosed upon and transferred to other repossessed assets		1,738,757		347,800

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 months ended March 31, 2015 and 2014:

	Three months ended March 31,
	2015		2014
Basic net income per share calculation:
Numerator - Net income	$	21,842,711	$	16,367,123

Denominator - Average common shares outstanding		35,041,203		34,602,337
Basic net income per share	$	0.62	$	0.47

Diluted net income per share calculation:
Numerator – Net income	$	21,842,711	$	16,367,123

Denominator - Average common shares outstanding		35,041,203		34,602,337
Dilutive shares contingently issuable		339,326		364,263
Average diluted common shares outstanding		35,380,529		34,966,600
Diluted net income per share	$	0.62	$	0.47

Subsequent Events — ASC 855, Subsequent Events, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Pinnacle Financial evaluated all events or transactions that occurred after March 31, 2015 through the date of the issued financial statements.

CapitalMark Bank & Trust - On April 7, 2015, Pinnacle Bank and Pinnacle Financial entered into a definitive agreement with CapitalMark Bank &Trust (CapitalMark) to acquire CapitalMark via merger. The proposed merger of CapitalMark with and into Pinnacle Bank has been approved by each company's Board of Directors and is expected to close in the third quarter or early in the fourth quarter of 2015, pending regulatory and CapitalMark shareholder approval.

Under the terms of the merger agreement, CapitalMark shareholders will have the option to either convert their outstanding shares of common stock into 0.50 shares of Pinnacle's common stock plus cash in lieu of any fractional shares, a cash payment per CapitalMark share equal to the product of 0.50 multiplied by the average trading price for Pinnacle Financial's common stock on the Nasdaq Global Select Market for a 10-day period prior to the closing of the transaction or into a combination of 0.50 shares of Pinnacle Financial's common stock and the cash consideration at a ratio of 90 percent stock and 10 percent cash, provided that 90 percent of the outstanding shares of CapitalMark common stock will be converted into shares of Pinnacle Financial's common stock. Additionally, CapitalMark's outstanding stock options will be converted into approximately 860,000 Pinnacle Financial options and will be fully vested upon consummation of the merger pursuant to CapitalMark's stock option plan. At closing, CapitalMark shareholders will beneficially own approximately 9.7 percent of Pinnacle's outstanding shares of common stock.

The transaction is currently valued at $187.0 million based on Pinnacle Financial's closing price on April 7, 2015, and is comprised of stock consideration of approximately 3.3 million shares of Pinnacle Financial common stock and $16.4 million in cash. Additionally, Pinnacle Financial and Pinnacle Bank plan to redeem at closing the $18.2 million in preferred stock issued by CapitalMark in connection with its participation in the U.S. Treasury's Small Business Lending Fund program.

Magna Bank - On April 28, 2015, Pinnacle Financial and Pinnacle Bank entered into a definitive agreement with Magna Bank (Magna) to acquire Magna via merger. The proposed merger of Magna with and into Pinnacle Bank has been approved by each company's Board of Directors and is expected to close in the third quarter or early in the fourth quarter of 2015, pending regulatory and Magna shareholder approval.

Under the terms of the merger agreement, Magna shareholders will have the right to elect to convert their outstanding shares of common stock into 0.3369 shares of Pinnacle Financial's common stock plus cash in lieu of any fractional shares, a cash payment equal to $14.32 per Magna share, or into a combination of 0.3369 shares of Pinnacle's common stock and $14.32 in cash at a ratio of 75 percent stock and 25 percent cash, provided that 75 percent of the outstanding shares of Magna's common stock will be converted into shares of Pinnacle Financial's common stock. Magna's 328,350 stock options will be fully vested upon consummation of the merger pursuant to Magna's stock option plan. At closing, Magna's outstanding unexercised stock options will be settled in cash for the difference between the option's exercise price and $14.32. At the closing, Magna shareholders will beneficially own approximately 3.3 percent of Pinnacle Financial's outstanding common stock, assuming all of Magna's options are cashed out and the CapitalMark Merger has been consummated.

The transaction is currently valued at $83.4 million based on Pinnacle Financial's closing price on April 28, 2015, based on the issuance of approximately 1.325 million shares of Pinnacle Financial's common stock and $20.7 million in cash, in each case assuming none of Magna's options are exercised prior to closing. Additionally, Pinnacle Financial and Pinnacle Bank plan to redeem at closing the $18.35 million in Series C preferred stock issued by Magna in connection with its participation in the U.S. Treasury's Small Business Lending Fund program.