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 2012 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, 2012. 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, 2012.

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 other comprehensive income for the three months ended March 31, 2012. Pinnacle Financial reclassified approximately $75,000, net of tax, out of accumulated other comprehensive income into net income related to net gains on sale of investment securities.

Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for each of the three months ended March 31, 2013 and 2012 was as follows:

	For the three months ended March 31,
	2013		2012
Cash Transactions:
Interest paid	$	4,540,692	$	6,659,856
Income taxes paid, net		7,100,000		7,825,894
Noncash Transactions:
Loans charged-off to the allowance for loan losses		3,557,313		4,925,559
Loans foreclosed upon and transferred to other real estate owned		550,000		4,574,792
Available-for-sale securities transferred to held-to-maturity portfolio		39,959,647		-

Income Per Common Share — Basic net income per common share available to common stockholders (EPS) is computed by dividing net income available to common stockholders by the weighted average common shares outstanding for the period. Weighted average common shares outstanding also include salary stock units issued to the named executive officers. 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, warrants and restricted shares with time-based vesting criteria. The dilutive effect of outstanding options, common stock appreciation rights, warrants and restricted shares with time-based vesting criteria is reflected in diluted EPS by application of the treasury stock method.

For the three months ended March 31, 2013, approximately 219,000 shares associated with dilutive stock options, stock appreciation rights and restricted shares with time-based vesting criteria were included in the net income per share calculation. For the three months ended March 31, 2012, there were approximately 612,000 shares associated with dilutive stock options, stock appreciation rights and time-based restricted shares with time-based vesting criteria outstanding to purchase common shares that were included in the net income per share calculation.

The following is a summary of the basic and diluted net income per share calculations for the three months ended March 31, 2013 and 2012:

	For the three months ended March 31,
	2013		2012
Basic net income per share calculation:
Numerator - Net income available to common stockholders	$	13,448,125	$	7,205,788

Denominator - Average common shares outstanding		33,987,265		33,811,871
Basic net income per share available to common stockholders	$	0.40	$	0.21

Diluted net income per share calculation:
Numerator – Net income available to common stockholders	$	13,448,125	$	7,205,788

Denominator - Average common shares outstanding		33,987,265		33,811,871
Dilutive shares contingently issuable		218,937		612,027
Average diluted common shares outstanding		34,206,202		34,423,898
Diluted net income per share available to common stockholders	$	0.39	$	0.21