Note 10. Investments in Affiliated Companies and Subordinated Debt

On August 5, 2008, Pinnacle Bank entered into a $15 million subordinated term loan with a regional bank. During the third quarter of 2012, Pinnacle Bank repaid this subordinated term loan.

Beginning on December 29, 2003, Pinnacle Financial established Trusts that were created for the exclusive purpose of issuing 30-year capital trust preferred securities and used the proceeds to acquire junior subordinated debentures (Subordinated Debentures) issued by Pinnacle Financial. The sole assets of the Trusts are the Subordinated Debentures. The $2,476,000 investment in the Trusts is included in other investments in the accompanying consolidated balance sheets and the $82,476,000 obligation is reflected as subordinated debt. The details of the Trusts established are as follows:

	Date Established	Maturity	Common Securities		Trust Preferred Securities		Floating Interest Rate	Interest Rate at December 31, 2012
Trust I	December 29, 2003	December 30, 2033	$	310,000	$	10,000,000	Libor + 2.80%		3.11	%
Trust II	September 15, 2005	September 30, 2035		619,000		20,000,000	Libor + 1.40%		1.71	%
Trust III	September 7, 2006	September 30, 2036		619,000		20,000,000	Libor + 1.65%		1.96	%
Trust IV	October 31, 2007	September 30, 2037		928,000		30,000,000	Libor + 2.85%		3.16	%

Distributions are payable quarterly. The Trust Preferred Securities are subject to mandatory redemption upon repayment of the Subordinated Debentures at their stated maturity date or their earlier redemption in an amount equal to their liquidation amount plus accumulated and unpaid distributions to the date of redemption. Pinnacle Financial guarantees the payment of distributions and payments for redemption or liquidation of the Trust Preferred Securities to the extent of funds held by the Trusts. Pinnacle Financial's obligations under the Subordinated Debentures together with the guarantee and other back-up obligations, in the aggregate, constitute a full and unconditional guarantee by Pinnacle Financial of the obligations of the Trusts under the Trust Preferred Securities.

The Subordinated Debentures are unsecured; bear interest at a rate equal to the rates paid by the Trusts on the Trust Preferred Securities; and mature on the same dates as those noted above for the Trust Preferred Securities. Interest is payable quarterly. We may defer the payment of interest at any time for a period not exceeding 20 consecutive quarters provided that the deferral period does not extend past the stated maturity. During any such deferral period, distributions on the Trust Preferred Securities will also be deferred and our ability to pay dividends on our common shares will be restricted.

The Trust Preferred Securities may be redeemed prior to maturity at our option. The Trust Preferred Securities may also be redeemed at any time in whole (but not in part) in the event of unfavorable changes in laws or regulations that result in (1) the Trust becoming subject to federal income tax on income received on the Subordinated Debentures, (2) interest payable by the parent company on the Subordinated Debentures becoming non-deductible for federal tax purposes, (3) the requirement for the Trust to register under the Investment Company Act of 1940, as amended, or (4) loss of the ability to treat the Trust Preferred Securities as "Tier I capital" under the Federal Reserve capital adequacy guidelines.

Under current Federal Reserve capital adequacy guidelines, the Trust Preferred Securities are treated as Tier I capital so long as Pinnacle Financial has less than $15 billion in assets. The Federal Reserve proposed regulations in June 2012 that would gradually phase out Tier I capital treatment over ten years commencing December 2013, for trust preferred securities by bank holding companies with less than $15 billion in assets.

Combined summary financial information for the Trusts follows (in thousands):

Combined Summary Balance Sheets
	December 31, 2012		December 31, 2011
Asset – Investment in subordinated debentures issued by Pinnacle Financial	$	82,476	$	82,476

Liabilities	$	-	$	-

Stockholder's equity – Trust preferred securities		80,000		80,000
Common securities (100% owned by Pinnacle Financial)		2,476		2,476
Total stockholder's equity		82,476		82,476
Total liabilities and stockholder's equity	$	82,476	$	82,476

Combined Summary Income Statements
	Year ended December 31,
	2012		2011		2010
Income – Interest income from subordinated debentures issued by Pinnacle Financial	$	2,218	$	2,082	$	2,749
Net Income	$	2,218	$	2,082	$	2,749

Combined Summary Statements of Stockholder's Equity
	Trust Preferred Securities		Total Common Stock		Retained Earnings			Stockholder's Equity
Balances, December 31, 2009	$	80,000	$	2,476	$	-		$	82,476
Net income		-		-		2,749			2,749
Issuance of trust preferred securities		-		-		-			-
Dividends:
Trust preferred securities		-		-		(2,669	)		(2,669	)
Common- paid to Pinnacle Financial		-		-		(80	)		(80	)
Balances, December 31, 2010	$	80,000	$	2,476	$	-		$	82,476
Net income		-		-		2,082			2,082
Issuance of trust preferred securities		-		-		-			-
Dividends:
Trust preferred securities		-		-		(2,017	)		(2,017	)
Common- paid to Pinnacle Financial		-		-		(65	)		(65	)
Balances, December 31, 2011	$	80,000	$	2,476	$	-		$	82,476
Net income		-		-		2,218			2,689
Issuance of trust preferred securities		-		-		-			-
Dividends:
Trust preferred securities		-		-		(2,151	)		(2,622	)
Common- paid to Pinnacle Financial		-		-		(67	)		(67	)
Balances, December 31, 2012	$	80,000	$	2,476	$	-		$	82,476