Stock Options and Restricted Shares

As described more fully in the Annual Report on Form 10-K, as of December 31, 2016, Pinnacle Financial has one equity incentive plan under which it is able to grant awards, the 2014 Equity Incentive Plan (2014 Plan) and has assumed the stock option plan of CapitalMark (the CapitalMark Option Plan) in connection with the CapitalMark Merger and the BNC Bancorp 2013 Amended and Restated Omnibus Stock Incentive Plan (BNC Plan) in connection with the acquisition of BNC. In addition, awards previously granted remain outstanding under equity plans previously adopted by Pinnacle Financial's board of directors. No new awards may be granted under plans other than the 2014 Plan, or, in the case of associates that were former associates of BNC or its subsidiaries, the BNC Plan.

Total shares available for issuance under the 2014 Plan were approximately 735,912 shares as of June 30, 2017, inclusive of shares returned to plan reserves during the six months ended June 30, 2017. The 2014 Plan also permits Pinnacle Financial to reissue awards currently outstanding that are subsequently forfeited, settled in cash or expired unexercised and returned to the 2014 Plan. Upon the acquisition of CapitalMark, Pinnacle Financial assumed approximately 858,000 of stock options under the CapitalMark Plan. No further shares remain available for issuance under the CapitalMark Option Plan. Approximately 33,000 shares remain available for issuance to existing BNC associates in future periods, related to the BNC Plan. No options were assumed upon the acquisition of Magna, Avenue or BNC as all preexisting Magna, Avenue and BNC stock options were converted to cash upon acquisition.

Common Stock Options

A summary of the stock option activity within the equity incentive plans during the six months ended June 30, 2017 and information regarding expected vesting, contractual terms remaining, intrinsic values and other matters is as follows:



	Number		Weighted- Average Exercise Price		Weighted- Average Contractual Remaining Term (in years)	Aggregate Intrinsic Value (000's)
Outstanding at December 31, 2016	550,490		$	20.75	2.61	$	26,728	⁽¹⁾
Granted	—
Exercised⁽³⁾	(184,181	)
Forfeited	—
Outstanding at June 30, 2017	366,309		$	21.23	3.18	$	15,228	⁽²⁾
Options exercisable at June 30, 2017	366,309		$	21.23	3.18	$	15,228	⁽²⁾


(1)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $69.30 per common share at December 31, 2016 for the 550,490 options that were in-the-money at December 31, 2016.


(2)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted closing price of Pinnacle Financial common stock of $62.80 per common share at June 30, 2017 for the 366,309 options that were in-the-money at June 30, 2017.


(3)	Includes 750 stock options which were exercised in a stock swap transaction which settled in 277 shares of Pinnacle Financial common stock.

Compensation costs related to stock options granted under Pinnacle Financial's equity incentive plan have been fully recognized and all outstanding option awards are fully vested.

Restricted Share Awards

A summary of activity for unvested restricted share awards for the six months ended June 30, 2017 is as follows:



	Number		Grant Date Weighted-Average Cost
Unvested at December 31, 2016	820,539		$	36.47
Shares awarded	233,340
Conversion of previously awarded restricted share units to restricted share awards	43,680
Shares assumed in connection with acquisition of BNC	136,890
Restrictions lapsed and shares released to associates/directors	(212,659	)
Shares forfeited ⁽¹⁾	(17,765	)
Unvested at June 30, 2017	1,004,025		$	50.10


(1)	Represents shares forfeited due to employee termination and/or retirement. No shares were forfeited due to failure to meet performance targets.

Pinnacle Financial has granted restricted share awards to associates, executive management and outside directors with a combination of time and, in the case of executive management, performance vesting criteria. The following table outlines restricted stock grants that were awarded, grouped by similar vesting criteria, during the six months ended June 30, 2017:



Grant Year	Group ⁽¹⁾	Vesting Period in years	Shares awarded	Restrictions Lapsed and shares released to participants	Shares Forfeited by participants ⁽⁶⁾	Shares Unvested
Time Based Awards
2017	Associates ⁽²⁾	3 - 5	82,973	298	151	82,524
2017	Associates ⁽³⁾	3 - 5	136,690	—	—	136,690

Performance Based Awards
2017	Leadership team ⁽⁴⁾	3	43,680	—	—	43,680

Outside Director Awards ⁽⁵⁾
2017	Outside directors	1	13,677	2,376	796	10,505

(1)

Groups include employees (referred to as associates above), the leadership team which includes our named executive officers and other key senior leadership members, and outside directors. When the restricted shares are awarded, a participant receives voting rights and forfeitable dividend rights with respect to the shares, but is not able to transfer the shares until the restrictions have lapsed. Once the restrictions lapse, the participant is taxed on the value of the award and may elect to sell some shares (or have Pinnacle Financial withhold some shares) to pay the applicable income taxes associated with the award. For time-based restricted share awards, dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination. For performance-based awards and time-based awards to Pinnacle Financial's executive officers, dividends are placed into escrow until the forfeiture restrictions on such shares lapse.


(2)	The forfeiture restrictions on these restricted share awards lapse in equal annual installments on the anniversary date of the grant.


(3)	Restricted share awards issued to associates that were former associates of BNC in connection with acquisition of BNC.


(4)	Reflects conversion of restricted share units issued in prior years to restricted share awards. The forfeiture restrictions on these restricted share awards lapse in separate equal installments should Pinnacle Financial achieve certain soundness targets over each year of the subsequent vesting period. See further details of these awards under the caption "Restricted Share Units" below.


(5)	Restricted share awards are issued to the outside members of the board of directors in accordance with their board compensation plan. Restrictions lapse on February 28, 2018 based on each individual board member meeting their attendance goals for the various board and board committee meetings to which each member was scheduled to attend.


(6)	These shares represent forfeitures resulting from recipients whose employment or board membership is terminated during the year-to-date period ended June 30, 2017. Any dividends paid on shares for which the forfeiture restrictions do not lapse will be recouped by Pinnacle Financial at the time of termination.

Restricted Share Units

The following table details the Restricted Share Unit awards outstanding at June 30, 2017:



	Units Awarded
Grant year	Named Executive Officers (NEOs) ⁽¹⁾	Leadership Team other than NEOs	Applicable Performance Periods associated with each tranche (fiscal year)	Service period per tranche (in years)	Subsequent holding period per tranche (in years)	Shares settled into RSAs as of period end ⁽²⁾
2017	72,537-109,339	24,916	2017	2	3	N/A
			2018	2	2	N/A
			2019	2	1	N/A

2016	73,474-110,223	26,683	2016	2	3	N/A
			2017	2	2	N/A
			2018	2	1	N/A

2015	58,200-101,850	28,378	2015	2	3	N/A
			2016	2	2	N/A
			2017	2	1	N/A

2014 ⁽³⁾	58,404-102,209	29,087	2014	5	N/A	21,856
			2014	4	N/A	21,856
			2015	4	N/A	21,847
			2015	3	N/A	21,847
			2016	3	N/A	21,840
			2016	2	N/A	21,840


(1)	The named executive officers are awarded a range of awards that may be earned based on attainment of goals between a target level of performance and a maximum level of performance.


(2)	Restricted share unit awards granted in 2017, 2016 and 2015 will be earned if certain performance targets are achieved and thereafter will be settled in shares of Pinnacle Financial common stock, for which additional forfeiture restrictions may lapse based on Pinnacle Financial's performance in future periods.


(3)	Restrictions on half of the shares previously converted to RSAs will lapse commensurate with the filing of the Form 10-K for the year ended December 31, 2017 and 2018, respectively.

Stock compensation expense related to restricted share awards and restricted share units for the three and six months ended June 30, 2017 was $5.2 million and $8.6 million, respectively, compared to $2.6 million and $5.2 million, respectively, for the three and six months ended June 30, 2016. Included in the above three and six months ended June 30, 2017 stock compensation expense was $1.5 million of stock-based compensation expense incurred as a result of change-in-control provisions applicable to assumed equity-based awards that was recorded as merger related expense.