UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(mark one)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

Commission File Number: 000-31225

, Inc.

(Exact name of registrant as specified in its charter)

Tennessee		62-1812853
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
211 Commerce Street, Suite 300, Nashville, Tennessee		37201
(Address of principal executive offices)		(Zip Code)

(615) 744-3700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changes since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                                          No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o		Accelerated Filer x
Non-accelerated Filer o		Smaller reporting company o
(do not check if you are a smaller
reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                                          No x

As of May 7, 2008 there were 22,596,497 shares of common stock, $1.00 par value per share, issued and outstanding.

Pinnacle Financial Partners, Inc.
Report on Form 10-Q
March 31, 2008

TABLE OF CONTENTS

		Page No.
PART I:
Item 1. Consolidated Financial Statements (Unaudited)			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			43
Item 4. Controls and Procedures			43
PART II:
Item 1. Legal Proceedings			44
Item 1A. Risk Factors			44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 3. Defaults Upon Senior Securities			44
Item 4. Submission of Matters to a Vote of Security Holders			44
Item 5. Other Information			44
Item 6. Exhibits			44
Signatures			45
EX-31.1 Section 302 Certification of the CEO.
EX-31.2 Section 302 Certification of the CFO.
EX-32.1 Section 906 Certification of the CEO.
EX-32.2 Section 906 Certification of the CFO.

FORWARD-LOOKING STATEMENTS

Pinnacle Financial Partners, Inc. (“Pinnacle Financial”) may from time to time make written or oral statements, including statements contained in this report which may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The words “expect,” “anticipate,” “intend,” “consider,” “plan,” “believe,” “seek,” “should,” “estimate,” and similar expressions are intended to identify such forward-looking statements, but other statements may constitute forward-looking statements. These statements should be considered subject to various risks and uncertainties. Such forward-looking statements are made based upon management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Pinnacle Financial’s actual results may differ materially from the results anticipated in forward-looking statements due to a variety of factors. Such factors are described below in “Item 1A. Risk Factors” and include, without limitation, (i) unanticipated deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) increased competition with other financial institutions, (iii) lack of sustained growth in the economy in the Nashville and Knoxville, Tennessee areas, (iv) rapid fluctuations or unanticipated changes in interest rates, (v) the inability of our bank subsidiary, Pinnacle National Bank, to satisfy regulatory requirements for its expansion plans, and (vi) changes in state or federal legislation or regulations applicable to financial service providers, including banks. Many of such factors are beyond Pinnacle Financial’s ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle Financial does not intend to update or reissue any forward-looking statements contained in this report as a result of new information or other circumstances that may become known to Pinnacle Financial. Forward-looking statements made by us in this report are also subject to those risks identified within “Item 1A. Risk Factors.”

Item 1.

Part I. FINANCIAL INFORMATION

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

		March 31,				December 31,
		2008				2007
ASSETS
Cash and noninterest-bearing due from banks		$	68,352,893			$	76,941,931
Interest-bearing due from banks			26,890,349				24,706,966
Federal funds sold			21,043,348				20,854,966
Cash and cash equivalents			116,286,590				122,503,863
Securities available-for-sale, at fair value			494,114,484				495,651,939
Securities held-to-maturity (fair value of $11,375,050 and $26,883,473 at March 31, 2008 and December 31, 2007, respectively)			11,262,901				27,033,356
Mortgage loans held-for-sale			13,672,849				11,251,652
Loans			2,866,535,567				2,749,640,689
Less allowance for loan losses			(29,871,384	)			(28,470,207	)
Loans, net			2,836,664,183				2,721,170,482
Premises and equipment, net			69,168,517				68,385,946
Other investments			24,752,783				22,636,029
Accrued interest receivable			16,630,336				18,383,004
Goodwill			242,107,449				243,573,636
Core deposit intangible, net			17,935,955				17,325,988
Other assets			46,690,061				46,254,566
Total assets		$	3,889,286,108			$	3,794,170,461
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest-bearing		$	429,289,392			$	400,120,147
Interest-bearing			406,906,848				410,661,187
Savings and money market accounts			757,776,325				742,354,465
Time			1,373,052,003				1,372,183,317
Total deposits			2,967,024,568				2,925,319,116
Securities sold under agreements to repurchase			171,186,458				156,070,830
Federal Home Loan Bank advances and other borrowings			168,605,882				141,666,133
Subordinated debt			82,476,000				82,476,000
Accrued interest payable			9,679,145				10,374,538
Other liabilities			13,155,622				11,653,550
Total liabilities			3,412,127,675				3,327,560,167
Stockholders’ equity:
Preferred stock, no par value; 10,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, par value $1.00; 90,000,000 shares authorized; 22,467,263 issued and outstanding at March 31, 2008 and 22,264,817 issued and outstanding at December 31, 2007			22,467,263				22,264,817
Additional paid-in capital			391,942,152				390,977,308
Retained earnings			59,616,770				54,150,679
Accumulated other comprehensive income (loss), net of taxes			3,132,248				(782,510	)
Total stockholders’ equity			477,158,433				466,610,294
Total liabilities and stockholders’ equity		$	3,889,286,108			$	3,794,170,461

See accompanying notes to consolidated financial statements.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

		Three months ended
		March 31,
		2008				2007
Interest income:
Loans, including fees		$	45,392,162			$	28,977,224
Securities:
Taxable			4,637,277				3,346,120
Tax-exempt			1,351,037				669,519
Federal funds sold and other			780,917				746,379
Total interest income			52,161,393				33,739,242
Interest expense:
Deposits			21,085,633				13,537,263
Securities sold under agreements to repurchase			832,053				1,712,091
Federal funds purchased and other borrowings			2,884,586				1,407,460
Total interest expense			24,802,272				16,656,814
Net interest income			27,359,121				17,082,428
Provision for loan losses			1,591,123				787,966
Net interest income after provision for loan losses			25,767,998				16,294,462
Noninterest income:
Service charges on deposit accounts			2,573,737				1,797,149
Investment services			1,268,248				734,560
Insurance sales commissions			1,063,663				636,962
Gain on loans and loan participations sold, net			656,088				363,306
Trust fees			505,000				420,290
Other noninterest income			2,300,667				1,073,316
Total noninterest income			8,367,403				5,025,583
Noninterest expense:
Salaries and employee benefits			13,866,737				8,266,501
Equipment and occupancy			4,276,273				2,164,702
Marketing and other business development			375,871				251,735
Postage and supplies			648,340				454,916
Amortization of core deposit intangible			766,033				515,754
Other noninterest expense			2,452,641				1,470,083
Merger related expense			3,105,763				—
Total noninterest expense			25,491,658				13,123,691
Income before income taxes			8,643,743				8,196,354
Income tax expense			2,578,953				2,594,513
Net income		$	6,064,790			$	5,601,841
Per share information:
Basic net income per common share		$	0.27			$	0.36
Diluted net income per common share		$	0.26			$	0.34
Weighted average shares outstanding:
Basic			22,331,398				15,433,442
Diluted			23,484,754				16,617,484

See accompanying notes to consolidated financial statements.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(Unaudited)

For the three months ended March 31, 2008 and 2007

		Common Stock
																		Accumulated
										Additional								Other				Total
										Paid-in				Retained				Comprehensive				Stockholders'
		Shares				Amount				Capital				Earnings				Income (Loss)				Equity
Balances, December 31, 2006			15,446,074			$	15,446,074			$	211,502,516			$	31,109,324			$	(2,040,893	)		$	256,017,021
Exercise of employee common stock options and related tax benefits			58,475				58,475				389,808				—				—				448,283
Issuance of restricted common shares pursuant to 2004 Equity Incentive Plan			26,426				26,426				(26,426	)			—				—				—
Compensation expense for restricted stock			—				—				105,282				—				—				105,282
Compensation expense for stock options			—				—				362,000				—				—				362,000
Comprehensive income:
Net income			—				—				—				5,601,841				—				5,601,841
Net unrealized holding gains on available-for-sale securities, net of deferred taxes of $234,187			—				—				—				—				382,094				382,094
Total comprehensive income																							5,983,935
Balances, March 31, 2007			15,530,975			$	15,530,975			$	212,333,180			$	36,711,165			$	(1,658,799	)		$	262,916,521
Balances, December 31, 2007			22,264,817			$	22,264,817			$	390,977,308			$	54,150,679			$	(782,510	)		$	466,610,294
Cumulative effect of change in accounting principle due to adoption of EITF 06-4, net of tax			—				—				—				(598,699	)			—				(598,699	)
Exercise of employee common stock options and stock appreciation rights and related tax benefits			62,073				62,073				623,276				—				—				685,349
Issuance of restricted common shares pursuant to 2004 Equity Incentive Plan			140,373				140,373				(140,373	)			—				—				—
Compensation expense for restricted stock			—				—				(32,641	)			—				—				(32,641	)
Compensation expense for stock options			—				—				514,582				—				—				514,582
Comprehensive income:
Net income			—				—				—				6,064,790				—				6,064,790
Net unrealized holding gains on available-for-sale securities, net of deferred taxes of $2,404,397			—				—				—				—				3,914,758				3,914,758
Total comprehensive income																							9,979,548
Balances, March 31, 2008			22,467,263			$	22,467,263			$	391,942,152			$	59,616,770			$	3,132,248			$	477,158,433

See accompanying notes to consolidated financial statements.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		Three months ended
		March 31,
		2008				2007
Operating activities:
Net income		$	6,064,790			$	5,601,841
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of premium on securities			182,563				132,221
Depreciation and net amortization			1,112,113				1,823,194
Provision for loan losses			1,591,123				787,966
Gains on loans and loan participations sold, net			(656,088	)			(363,306	)
Stock-based compensation expense			481,941				467,282
Deferred tax (benefit) expense			1,487,344				(1,310,271	)
Excess tax benefit from stock compensation			(50,299	)			(20,742	)
Mortgage loans held for sale:
Loans originated			(61,526,765	)			(36,739,515	)
Loans sold			59,757,305				31,044,228
Increase in other assets			273,098				2,035,596
Decrease in other liabilities			(257,260	)			(2,504,034	)
Net cash provided by operating activities			8,459,865				954,460
Investing activities:
Purchases of securities available-for-sale			(57,529,865	)			(3,355,360	)
Maturities, prepayments and calls of securities available-for-sale			65,224,367				9,928,338
Maturities, prepayments and calls of securities held-to-maturity			15,750,000				150,000
Increase in loans, net			(119,667,223	)			(56,801,579	)
Purchases of premises and equipment and software			(2,603,806	)			(2,292,955	)
Purchases of other investments			(1,486,800	)			(718,846	)
Net cash used in investing activities			(100,313,327	)			(53,090,402	)
Financing activities:
Net increase in deposits			42,735,290				78,001,234
Net increase (decrease) in securities sold under agreements to repurchase			15,115,628				(24,064,130	)
Net increase (decrease) in Federal funds purchased			(39,668,000	)			19,907,000
Advances from Federal Home Loan Bank:
Issuances			70,000,000				—
Payments			(3,336,883	)			(27,013,609	)
Exercise of common stock options and stock appreciation rights			739,855				427,541
Excess tax benefit from stock compensation			50,299				20,742
Net cash provided by financing activities			85,636,189				47,278,778
Net decrease in cash and cash equivalents			(6,217,273	)			(4,857,164	)
Cash and cash equivalents, beginning of period			122,503,863				92,518,850
Cash and cash equivalents, end of period		$	116,286,590			$	87,661,686

See accompanying notes to consolidated financial statements

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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 National Bank (Pinnacle National). Pinnacle National is a commercial bank located in Nashville, Tennessee. Pinnacle National provides a full range of banking services in its primary market areas of the Nashville-Davidson-Rutherford-Franklin and Knoxville Metropolitan Statistical Areas.

     In addition to Pinnacle National, Pinnacle Financial, for the time period following its merger with Mid-America Bancshares, Inc. (“Mid-America”) on November 30, 2007 through February 29, 2008, conducted banking operations through the two banks formerly owned by Mid-America: PrimeTrust Bank in Nashville, Tennessee and Bank of the South in Mt. Juliet, Tennessee. On February 29, 2008, Pinnacle National purchased all of the assets and assumed all of the liabilities of PrimeTrust Bank and contemporaneously, through a series of transactions, sold the charter (and rights to operate a branch in Tennessee) of PrimeTrust Bank to an unaffiliated out-of-state third party for $500,000. Pinnacle Financial also merged Bank of the South into Pinnacle National on that date. References to Pinnacle National as of December 31, 2007 include PrimeTrust Bank and Bank of the South.

     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 All adjustments consisting of normally recurring accruals that, in the option 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 the 2007 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, PNFP Statutory Trust IV and Collateral Plus, LLC, 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. generally accepted accounting principles 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.

     Cash Flow Information —The following supplemental cash flow information addresses certain cash payments and noncash transactions for the three months ended March 31, 2008 and 2007 was as follows:

		For the three months ended March 31,
		2008				2007
Cash Payments:
Interest		$	25,035,879			$	16,469,389
Income taxes			—				1,100,000
Noncash Transactions:
Loans charged-off to the allowance for loan losses			757,276				187,818
Loans foreclosed upon with repossessions transferred to other assets			2,855,967				110,570
Net unrealized holding gains on available-for-sale securities, net of deferred taxes			3,914,758				382,094

     Income Per Common Share — Basic earnings per 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 was attributable to common stock options, common stock appreciation rights, warrants and restricted shares. The dilutive effect of outstanding options, common stock appreciation rights, warrants and restricted shares is reflected in diluted earnings per share by application of the treasury stock method.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     As of March 31, 2008, there were 2,457,000 stock options and 14,000 stock appreciation rights outstanding to purchase common shares. As of March 31, 2007, there were 1,846,000 stock options outstanding to purchase common shares. Most of these options have exercise prices and compensation costs attributable to current services, which when considered in relation to the average market price of Pinnacle Financial’s common stock, are considered dilutive and are considered in Pinnacle Financial’s diluted income per share calculation for the three months ended March 31, 2008 and 2007. There were common stock options of 481,000 and 618,000 outstanding as of March 31, 2008 and 2007, respectively, which were considered anti-dilutive and thus have not been considered in the fully-diluted share calculations below. Additionally, as of March 31, 2008 and 2007, Pinnacle Financial had outstanding warrants to purchase 395,000 common shares which have been considered in the calculation of Pinnacle Financial’s diluted income per share for the three months ended March 31, 2008 and 2007.

     The following is a summary of the basic and diluted earnings per share calculation for the three months ended March 31, 2008 and 2007:

		For the three months ended March 31,
		2008				2007
Basic earnings per share calculation:
Numerator - Net income		$	6,064,790			$	5,601,841
Denominator - Average common shares outstanding			22,331,398				15,433,442
Basic net income per share		$	0.27			$	0.36
Diluted earnings per share calculation:
Numerator - Net income		$	6,064,790			$	5,601,841
Denominator - Average common shares outstanding			22,331,398				15,433,442
Dilutive shares contingently issuable			1,153,356				1,184,042
Average diluted common shares outstanding			23,484,754				16,617,484
Diluted net income per share		$	0.26			$	0.34

Newly Adopted Accounting Pronouncements

     Split-Dollar Life Insurance Arrangements — Pinnacle Financial acquired Cavalry Banking, Inc. in March of 2006. Certain executives and directors of Cavalry Banking, Inc. were participants in a deferred compensation arrangement which included split-dollar life insurance arrangements. In September 2006, the FASB ratified the consensuses reached by the Task Force on Issue No. 06-4 (EITF 06-4) “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The EITF concluded that deferred compensation or postretirement benefit aspects of an endorsement split-dollar life insurance arrangement should be recognized as a liability by the employer and the obligation is not effectively settled by the purchase of a life insurance policy. The effective date is for fiscal years beginning after December 15, 2007. On January 1, 2008, we accounted for this EITF as a change in accounting principle and recorded a liability of $985,000 along with a corresponding adjustment to beginning retained earnings, net of tax.

     Fair Value Measurement - In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157 (“SFAS 157”), “Fair Value Measurements” — SFAS 157, which defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies only to fair-value measurements that are already required or permitted by other accounting standards and is expected to increase the consistency of those measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement; not an entity-

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. The effective date for SFAS No. 157 is for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Pinnacle Financial partially adopted SFAS 157 effective January 1, 2008. The adoption of SFAS 157 had no impact on the consolidated financial statements of Pinnacle Financial. SFAS 157 has not been applied to nonfinancial assets and liabilities pursuant to FSP FAS 157-2. This standard is applicable for nonfinancial assets and liabilities for fiscal periods beginning after November 30, 2008.

     In February of 2007, the FASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial Liabilities”, which gives entities the option to measure eligible financial assets, and financial liabilities at fair value on an instrument by instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in fair value must be recorded in earnings. This statement was effective as of January 1, 2008; however it had no impact on the consolidated financial statements of Pinnacle Financial because it did not elect the fair value option for any financial instrument not presently being accounted for at fair value.

     Pinnacle Financial has an established process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models or processes that use primarily market-based or independently-sourced market data, including interest rate yield curves, option volatilities and third party information. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. Furthermore, while Pinnacle Financial believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Valuation Hierarchy

     SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.

•		Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•		Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

     A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Assets

     Securities — Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other products. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy.

     Mortgage loans held-for-sale - Mortgage loans held-for-sale are carried at fair value and are classified within level 2 of the valuation hierarchy. The inputs for valuation of these assets are based on the anticipated sales price of these loans as the loans are usually sold within a few weeks of their origination.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Impaired loans — A loan is considered to be impaired when it is probable Pinnacle Financial will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Individually identified impaired loans are measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses. Impaired loans are classified within level 3 of the hierarchy.

     Other investments — Included in other investments are investments in certain nonpublic private equity funds. The valuation of nonpublic private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing reviews by senior investment managers. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of the particular investment, industry valuations of comparable public companies, changes in market outlook and the third-party financing environment over time. In determining valuation adjustments resulting from the investment review process, emphasis is placed on current company performance and market conditions. These equity investments are included in level 3 of the valuation hierarchy.

     Other assets — Included in other assets are certain assets carried at fair value, including the cash value of bank owned life insurance policies and interest rate swap agreements. The carrying amount of bank owned life insurance is based on information received from the insurance carriers indicating the financial performance of the policies and the amount Pinnacle Financial would receive should the policies be surrendered. The carrying amount of interest rate swap agreements is based on information obtained from a third party bank. Pinnacle Financial reflects these assets within level 2 of the valuation hierarchy.

Liabilities

     Other liabilities — Pinnacle Financial has certain liabilities carried at fair value including certain interest rate swap agreements. The fair value of these liabilities is based on information obtained from a third party bank and is reflected within level 2 of the valuation hierarchy.

     The following table presents the financial instruments carried at fair value as of March 31, 2008, by caption on the consolidated balance sheets and by SFAS 157 valuation hierarchy (as described above) (dollars in thousands):

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2008

										Internal
		Total								models with				Internal models
		carrying				Quoted				significant				with significant
		value in the				market prices				observable				unobservable
		consolidated				in an active				market				market
		balance sheet				market				parameters				parameters
						(Level 1)				(Level 2)				(Level 3)
Available-for-sale securities		$	494,114			$	—			$	494,114			$	—
Mortgage loans held-for-sale			13,673				—				13,673				—
Other investments			1,329				—				—				1,329
Other assets			37,401				—				2,609				34,792
Total assets at fair value		$	546,517			$	—			$	510,396			$	36,121
Other liabilities			2,632				—				2,632				—
Total liabilities at fair value		$	2,632			$	—			$	2,632			$	—

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2008

										Internal
		Total								models with				Internal models
		carrying				Quoted				significant				with significant
		value in the				market prices				observable				unobservable
		consolidated				in an active				market				market
		balance sheet				market				parameters				parameters
						(Level 1)				(Level 2)				(Level 3)
Impaired loans		$	17,124			$	—			$	—			$	17,124
Total assets at fair value		$	17,124			$	—			$	—			$	17,124
Other liabilities			—				—				—				—
Total liabilities at fair value		$	—			$	—			$	—			$	—

Changes in level 3 fair value measurements

     The table below includes a rollforward of the balance sheet amounts for the first quarter of 2008 (including the change in fair value) for financial instruments classified by Pinnacle Financial within level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

Three months ended March 31, 2008 (in thousands)		Assets				Liabilities
Fair value, January 1, 2008		$	35,336			$	—
Total realized and unrealized gains and (losses) included in income			65				—
Purchases, issuances and settlements, net			720				—
Transfers in and/or out of level 3			—				—
Fair value, March 31, 2008		$	36,121			$	—
Total unrealized gains and (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at March 31, 2008		$	65			$	—

Note 2. Merger with Mid-America Bancshares, Inc.

     On November 30, 2007, Pinnacle Financial consummated its merger with Mid-America, a two-bank holding company located in Nashville, Tennessee.

     In accordance with SFAS No. 141, “Accounting for Business Combinations” (“SFAS No. 141”), SFAS No. 142, “Goodwill and Intangible Assets” (“SFAS No. 142”) and SFAS No. 147, “Acquisition of Certain Financial Institutions” (“SFAS No. 147”), Pinnacle Financial recorded at fair value the following assets and liabilities of Mid-America as of November 30, 2007. The table below details the amounts our consolidated financial statements as of December 31, 2007 and the updated amounts as of March 31, 2008 for changes in the purchase price allocation recorded during the first quarter of 2008 (in thousands):

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

						Changes in
						purchase price
						allocation
		November 30, 2007				recorded during				Revised November
		purchase price				first quarter of				30, 2007 purchase
Mid-America Purchase Price Allocation (1)		allocation				2008				price allocation
Cash and cash equivalents		$	60,795			$	—			$	60,795
Investment securities — available-for-sale			147,766				—				147,766
Loans, net of an allowance for loan losses of $8,695			855,887				—				855,887
Goodwill			129,334				(1,466	)			127,868
Core deposit intangible			8,085				1,351				9,436
Other assets			49,854				139				49,993
Total assets acquired			1,251,721				24				1,251,745
Deposits			957,076				—				957,076
Federal Home Loan Bank advances			61,383				—				61,383
Other liabilities			27,107				79				27,186
Total liabilities assumed			1,045,566				79				1,045,645
Total consideration paid for Mid-America		$	206,155			$	(55	)		$	206,100

     In accordance with SFAS Nos. 141 and 142, Pinnacle Financial has preliminarily recognized $9.4 million as a core deposit intangible through March 31, 2008. This identified intangible is being amortized over ten years using an accelerated method which anticipates the life of the underlying deposits to which the intangible is attributable. For the three months ended March 31, 2008, approximately $273,000 was recognized in the accompanying consolidated statement of income as other noninterest expense. Amortization expense associated with this identified intangible will approximate $700,000 to $1.1 million per year for the next ten years.

     At November 30, 2007, Pinnacle Financial also recorded other adjustments to the carrying value of Mid-America’s assets and liabilities in order to reflect the fair value at the date of acquisition. The discounts and premiums related to financial assets and liabilities are being accreted and amortized into the consolidated statements of income using a method that approximates the level yield over the anticipated lives of the underlying financial assets or liabilities. For the quarter ended March 31, 2008, the accretion and amortization of the fair value discounts and premiums related to the acquired assets and liabilities increased net interest income by approximately $1,111,000. Based on the estimated useful lives of the acquired loans, deposits and FHLB advances, Pinnacle Financial will recognize increases in net interest income related to accretion of these purchase accounting adjustments of $2.91 million in subsequent years.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The following pro forma income statements assume the merger was consummated on January 1, 2007 and thus the amounts in the pro form information below will differ from the actual results as presented in the accompanying consolidated statements of income. The pro forma information does not reflect Pinnacle Financial’s results of operations that would have actually occurred had the merger been consummated on such date (dollars in thousands).

		Three months ended March 31,
		2008				2007
		(unaudited)
Pro Forma Income Statements:
Net interest income		$	26,452			$	26,024
Provision for loan losses			1,591				976
Noninterest income			8,367				6,923
Noninterest expense			25,486				20,707
Net income before taxes			7,742				11,264
Income tax expense			2,225				3,653
Net income		$	5,516			$	7,611
Pro Forma Per Share Information:
Basic net income per common share		$	0.25			$	0..34
Diluted net income per common share		$	0.24			$	0..33
Weighted average shares outstanding:
Basic			22,088,665				22,110,022
Diluted			23,242,022				23,294,064

     During the three months ended March 31, 2008, Pinnacle Financial incurred merger integration expense related to the merger with Mid-America of $3,106,000. These expenses were directly related to the merger and consisted primarily of severance costs and costs to integrate systems and are reflected on the accompanying consolidated statement of income as merger related expense.

     Following the merger with Mid-America, on February 29, 2008, Pinnacle National purchased all of the assets and assumed all of the liabilities of PrimeTrust Bank and simultaneously sold the charter of PrimeTrust Bank to an unaffiliated third party for $500,000. Pinnacle Financial also merged Bank of the South into Pinnacle National on that date, leaving Pinnacle National as the sole banking subsidiary of Pinnacle Financial. Goodwill was reduced for the proceeds of the sale of the charter, and therefore no gain was recorded.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3. Securities

     The amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2008 and December 31, 2007 are summarized as follows:

		March 31, 2008
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Securities available-for-sale:
U.S. Treasury securities		$	—			$	—			$	—			$	—
U.S. government agency securities			32,921,120				624,092				3,022				33,542,190
Mortgage-backed securities			329,639,159				4,361,031				280,933				333,719,257
State and municipal securities			124,204,397				2,045,951				1,774,177				124,476,171
Corporate notes and other			2,414,318				17,961				55,413				2,376,866
		$	489,178,994			$	7,049,035			$	2,113,545			$	494,114,484
Securities held-to-maturity:
U.S. government agency securities		$	1,997,672			$	14,628			$	—			$	2,012,300
State and municipal securities			9,265,229				105,508				7,987				9,362,750
		$	11,262,901			$	120,136			$	7,987			$	11,375,050

		December 31, 2007
						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
		Cost				Gains				Losses				Value
Securities available-for-sale:
U.S. Treasury securities		$	—			$	—			$	—			$	—
U.S. Government agency securities			69,481,328				220,833				39,598				69,662,563
Mortgage-backed securities			297,909,174				1,237,807				1,441,635				297,705,346
State and municipal securities			127,220,978				206,102				1,521,273				125,905,807
Corporate notes			2,415,783				—				37,560				2,378,223
		$	497,027,263			$	1,664,742			$	3,040,066			$	495,651,939
Securities held-to-maturity:
U.S. government agency securities		$	17,747,589			$	4,436			$	—			$	17,752,025
State and municipal securities			9,285,767				4,242				158,561				9,131,448
		$	27,033,356			$	8,678			$	158,561			$	26,883,473

     At March 31, 2008, approximately $424,263,000 of Pinnacle Financial’s investment portfolio was pledged to secure public funds and other deposits and securities sold under agreements to repurchase.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     At March 31, 2008 and December 31, 2007, included in securities were the following investments with unrealized losses. The information below classifies these investments according to the term of the unrealized loss of less than twelve months or twelve months or longer:

		Investments with an
		Unrealized Loss of less than								Investments with an Unrealized								Total Investments with an
		12 months								Loss of 12 months or longer								Unrealized Loss
						Unrealized								Unrealized								Unrealized
		Fair Value				Losses				Fair Value				Losses				Fair Value				Losses
At March 31, 2008:
U.S. government agency securities		$	853,999			$	3,022			$	—			$	—			$	853,999			$	3,022
Mortgage-backed securities			31,580,268				147,641				15,696,314				133,292				47,276,582				280,933
State and municipal securities			43,869,958				1,773,395				1,561,784				8,769				45,431,742				1,782,164
Corporate notes			493,601				6,518				441,000				48,895				934,601				55,413
Total temporarily-impaired securities		$	76,797,826			$	1,930,576			$	17,699,098			$	190,956			$	94,496,924			$	2,121,532
At December 31, 2007:
U.S. government agency securities		$	13,942,078			$	25,198			$	2,985,600			$	14,400			$	16,927,678			$	39,598
Mortgage-backed securities			51,240,090				181,098				97,593,453				1,260,537				148.833.543				1.441.635
State and municipal securities			54,467,544				1,193,763				35,481,739				486,071				89,949,283				1,679,834
Corporate notes			527,115				300				1,451,108				37,260				1,978,223				37,560
Total temporarily-impaired securities		$	120,176,827			$	1,400,359			$	137,511,900			$	1,798,268			$	257,688,727			$	3,198,627

     Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of Pinnacle Financial to retain its investment in the issue for a period of time sufficient to allow for any anticipated recovery in fair value. Because the declines in fair value noted above were attributable to increases in interest rates and not attributable to credit quality and because Pinnacle Financial has the ability and intent to hold all of these investments until a market price recovery or maturity, the impairment of these investments is not deemed to be other-than-temporary.

Note 4. Loans and Allowance for Loan Losses

     The composition of loans at March 31, 2008 and December 31, 2007 is summarized as follows:

		At March 31,				At December 31,
		2008				2007
Commercial real estate — Mortgage		$	771,926,021			$	728,200,839
Consumer real estate — Mortgage			584,104,279				562,720,828
Construction and land development			557,069,605				517,399,037
Commercial and industrial			859,364,380				838,160,611
Consumer and other			94,071,282				103,159,374
Total Loans			2,866,535,567				2,749,640,689
Allowance for loan losses			(29,871,384	)			(28,470,207	)
Loans, net		$	2,836,664,183			$	2,721,170,482

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     Changes in the allowance for loan losses for the three months ended March 31, 2008 and for the year ended December 31, 2007 are as follows:

		March 31, 2008				December 31, 2007
Balance at beginning of period		$	28,470,207			$	16,117,978
Charged-off loans			(757,276	)			(1,341,890	)
Recovery of previously charged-off loans			567,330				279,491
Allowance from Mid-America acquisition			—				8,694,787
Provision for loan losses			1,591,123				4,719,841
Balance at end of period		$	29,871,384			$	28,470,207

     At March 31, 2008 and at December 31, 2007, Pinnacle Financial had certain impaired loans on nonaccruing interest status. The principal balance of these nonaccrual loans amounted to $17,124,000 and $19,677,000 at March 31, 2008 and December 31, 2007, respectively. In each case, at the date such loans were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year earnings. Had nonaccruing loans been on accruing status, interest income would have been higher by $482,000 and $102,000 for the three months ended March 31, 2008 and 2007, respectively.

     At March 31, 2008, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $28,936,000 to directors, executive officers, and their related entities, of which $20,391,000 had been drawn upon. During the three months ended March 31, 2008, $1,602,000 of loan and other commitment increases and $319,000 of principle and other reductions were made by directors, executive officers, and their related entities. The terms on these loans and extensions are on substantially the same terms customary for other persons for the type of loan involved. None of these loans to directors, executive officers, and their related entities, were impaired at March 31, 2008.

     During the three months ended March 31, 2008 and 2007, Pinnacle Financial sold participations in certain loans to correspondent banks at an interest rate that was less than that of the borrower’s rate of interest. In accordance with U.S. generally accepted accounting principles, Pinnacle Financial recognized a net gain on the sale of these participated loans for the three months ended March 31, 2008 and 2007 of approximately $4,000 and $45,000, respectively, which is attributable to the present value of the future net cash flows of the difference between the interest payments the borrower is projected to pay Pinnacle Financial and the amount of interest that will be owed the correspondent bank based on their participation in the loans. At March 31, 2008, Pinnacle Financial was servicing $165 million of loans for correspondent banks and other entities, of which $114 million was commercial loans.

Note 5. Income Taxes

     Pinnacle Financial’s income tax expense differs from the amounts computed by applying the Federal income tax statutory rates of 35% to income before income taxes. A reconciliation of the differences for the three months ended March 31, 2008 and 2007 is as follows:

		2008				2007
Income taxes at statutory rate		$	3,025,310			$	2,868,724
State tax (benefit) expense, net of Federal tax effect			(14,857	)			57,864
Federal tax credits			(57,625	)			(90,000	)
Tax-exempt securities			(296,618	)			(196,607	)
Bank owned life insurance			(81,097	)			(48,134	)
Insurance premiums			(63,184	)			(102,430	)
Other items			67,024				105,096
Income tax expense		$	2,578,953			$	2,594,513

     The effective tax rate for 2008 and 2007 is impacted by Federal tax credits related to the New Markets Tax Credit program whereby a subsidiary of Pinnacle National has been awarded approximately $2.3 million in future Federal tax credits which are available through 2010. Tax benefits related to these credits will be recognized for financial reporting purposes in the same periods

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

that the credits are recognized in the Company’s income tax returns. The credit that was available for the years ended December 31, 2008 and 2007 was $360,000. Pinnacle Financial believes that it will comply with the various regulatory provisions of the New Markets Tax Credit program, and therefore has reflected the impact of the credits in its estimated annual effective tax rate for 2008 and 2007.

Note 6. Commitments and Contingent Liabilities

     In the normal course of business, Pinnacle Financial has entered into off-balance sheet financial instruments which include commitments to extend credit (i.e., including unfunded lines of credit) and standby letters of credit. Commitments to extend credit are usually the result of lines of credit granted to existing borrowers under agreements that the total outstanding indebtedness will not exceed a specific amount during the term of the indebtedness. Typical borrowers are commercial concerns that use lines of credit to supplement their treasury management functions, thus their total outstanding indebtedness may fluctuate during any time period based on the seasonality of their business and the resultant timing of their cash flows. Other typical lines of credit are related to home equity loans granted to consumers. Commitments to extend credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

     Standby letters of credit are generally issued on behalf of an applicant (our customer) to a specifically named beneficiary and are the result of a particular business arrangement that exists between the applicant and the beneficiary. Standby letters of credit have fixed expiration dates and are usually for terms of two years or less unless terminated beforehand due to criteria specified in the standby letter of credit. A typical arrangement involves the applicant routinely being indebted to the beneficiary for such items as inventory purchases, insurance, utilities, lease guarantees or other third party commercial transactions. The standby letter of credit would permit the beneficiary to obtain payment from Pinnacle Financial under certain prescribed circumstances. Subsequently, Pinnacle Financial would then seek reimbursement from the applicant pursuant to the terms of the standby letter of credit.

     Pinnacle Financial follows the same credit policies and underwriting practices when making these commitments as it does for on-balance sheet instruments. Each customer’s creditworthiness is evaluated on a case-by-case basis, and the amount of collateral obtained, if any, is based on management’s credit evaluation of the customer. Collateral held varies but may include cash, real estate and improvements, marketable securities, accounts receivable, inventory, equipment, and personal property.

     The contractual amounts of these commitments are not reflected in the consolidated financial statements and would only be reflected if drawn upon. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future cash requirements. However, should the commitments be drawn upon and should our customers default on their resulting obligation to us, Pinnacle Financial’s maximum exposure to credit loss, without consideration of collateral, is represented by the contractual amount of those instruments.

     A summary of Pinnacle Financial’s total contractual amount for all off-balance sheet commitments at March 31, 2008 is as follows:

Commitments to extend credit		$	869,938,000
Standby letters of credit			90,893,000

     Various legal claims also arise from time to time in the normal course of business. As of March 31, 2008, management is not aware of any such proceedings against Pinnacle Financial.

Visa Litigation

     Pinnacle National is a member of the Visa USA network. Under Visa USA bylaws, Visa members are obligated to indemnify Visa USA and/or its parent company, Visa, Inc., for potential future settlement of, or judgments resulting from, certain litigation, which Visa refers to as the “covered litigation.” Pinnacle National’s indemnification obligation is limited to its membership proportion of Visa USA. On November 7, 2007, Visa announced the settlement of its American Express litigation, and disclosed in its annual report to the SEC on Form 10-K for the year ended September 30, 2007 that Visa had accrued a contingent liability for the estimated settlement of its Discover litigation. Accordingly, Pinnacle National has recognized a contingent liability in the amount of $145,000 as an estimate for its membership proportion of the American Express settlement and the potential Discover

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

settlement, as well as its membership proportion of the amount that Pinnacle National estimates will be required for Visa to settle the remaining covered litigation.

     Visa, Inc. completed an initial public offering (the Visa IPO) in March 2008. Visa used a portion of the proceeds from the IPO to establish a $3.0 billion escrow for settlement of covered litigation and used substantially all of the remaining portion to redeem class B and class C shares held by Visa issuing members. During the three months ended March 31, 2008, Pinnacle Financial recognized a pre-tax gain of $140,000 on redemption proceeds received from Visa, Inc. and reversed $63,000 of the $145,000 litigation expense recognized as its pro-rata share of the $3.0 billion escrow funded by Visa, Inc. The timing for ultimate settlement of all covered litigation is not determinable at this time.

Note 7. Equity Compensation

     Pinnacle Financial has two equity incentive plans under which it has granted stock options to its employees to purchase common stock at or above the fair market value on the date of grant and granted restricted share awards to employees and directors. At March 31, 2008, there were 452,083 shares available for issue under these plans.

Common Stock Options and Stock Appreciation Rights

     As of March 31, 2008, of the 2,457,431 stock options and 14,070 stock appreciation rights outstanding, 1,365,356 options were granted with the intention to be incentive stock options qualifying under Section 422 of the Internal Revenue Code for favorable tax treatment to the option holder while 1,106,145 options would be deemed non-qualified stock options or stock appreciation rights and thus not subject to favorable tax treatment to the option holder. All stock options granted under the Pinnacle equity incentive plans vest in equal increments over five years from the date of grant and are exercisable over a period of ten years from the date of grant.

     A summary of the stock option and stock appreciation rights activity during the three months ended March 31, 2008 and information regarding expected vesting, contractual terms remaining, intrinsic values and other matters was as follows:

										Weighted-
										Average
						Weighted-				Contractual				Aggregate
						Average				Remaining				Intrinsic
						Exercise				Term				Value (1)
		Number				Price				(in years)				(000's)
Outstanding at December 31, 2007			2,398,823			$	16.84				6.9			$	23,784
Granted			163,360				21.51
Exercised (2)			(63,527	)			11.55
Forfeited			(27,155	)			27.14
Outstanding at March 31, 2008			2,471,501			$	17.14				6.9			$	23,855
Outstanding and expected to vest as of March 31, 2008			2,431,645			$	17.01				6.9			$	23,780
Options exercisable at March 31, 2008			1,610,064			$	12.11				6.1			$	20,937

     During the three months ended March 31, 2008, 141,632 option awards vested at an average exercise price of $24.54 and an intrinsic value of approximately $3.3 million. On January 18, 2008, Pinnacle Financial granted options to purchase 163,360 common shares to certain employees at an exercise price of $21.51 per share. These options, which were issued as non-qualified stock options, will vest in varying increments over five years beginning one year after the date of the grant and are exercisable over a period of ten years from the date of grant. Pursuant to SAB 110, “Share-Based Payment,” Pinnacle Financial will continue to use the simplified method for estimating the expense of stock compensation during 2008.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     During the three months ended March 31, 2008, the aggregate intrinsic value of options and stock appreciation rights exercised was $1.4 million determined as of the date of exercise. As of March 31, 2008, there was approximately $6.7 million of total unrecognized compensation cost related to unvested stock options granted. That cost is expected to be recognized over a weighted-average period of 3.1 years.

     During the three months ended March 31, 2008 and 2007, Pinnacle Financial recorded stock-based compensation expense of $515,000 and $362,000 for the three months ended March 31, 2008 and 2007, respectively, using the Black-Scholes valuation model for awards granted prior to, but not yet vested, as of January 1, 2006 and for stock-based awards granted after January 1, 2006. For these awards, Pinnacle Financial has recognized compensation expense using a straight-line amortization method. Stock-based compensation expense has been reduced for estimated forfeitures.

     The fair value of options granted for each of the three month periods ended March 31, 2008 and 2007 was estimated using the Black-Scholes option pricing model and the following assumptions:

		2008				2007
Risk free interest rate			3.20	%			4.78	%
Expected life of options		6.5 years				6.5 years
Expected dividend yield			0.00	%			0.00	%
Expected volatility			24.58	%			20.94	%
Weighted average fair value		$	7.07			$	10.79

     Pinnacle Financial’s computation of expected volatility is based on weekly historical volatility since September of 2002. Pinnacle Financial used the simplified method in determining the estimated life of stock option issuances. The risk free interest rate of the award is based on the closing market bid for U.S. Treasury securities corresponding to the expected life of the stock option issuances in effect at the time of grant.

Restricted Shares

     Additionally, Pinnacle Financial’s 2004 Equity Incentive Plan provides for the granting of restricted share awards and other performance or market-based awards. There were no market-based awards outstanding as of March 31, 2008 under the 2004 Equity Incentive Plan. During the three months ended March 31, 2008, Pinnacle Financial awarded 140,373 shares of restricted common stock to Pinnacle Financial directors, officers and associates. The weighted average fair value of these awards as of the date of grant was $21.95 per share. The forfeiture restrictions on 77,000 of the restricted shares awarded to Pinnacle Financial associates lapse in annual increments of 20% over the next five years. The forfeiture restrictions on 26,805 restricted shares awarded to members of Pinnacle Financial’s senior management lapse in three separate traunches should Pinnacle achieve certain earnings and soundness targets over the subsequent three year period. Additionally, the forfeiture restrictions on 26,805 restricted shares issued to members of Pinnacle Financial’s senior management lapse in annual increments of 10% over the next ten years if Pinnacle Financial is profitable in the prior year. The remaining 9,763 restricted shares were awarded to Pinnacle Financial directors with the restrictions on these shares lapsing on the one year anniversary date of the award 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 during the period from March 1, 2008 through February 28, 2009.

     Compensation expense associated with the performance based restricted share awards is recognized over the time period that the restrictions associated with the awards lapse based on a graded vesting schedule such that each traunche is amortized separately. Compensation expense associated with the time based restricted share awards is recognized over the time period that the restrictions associated with the awards lapse based on the total cost of the award. For the three months ended March 31, 2008, Pinnacle Financial recognized approximately $168,000 in compensation costs attributable to all restricted share awards issued prior to March 31, 2008. During the three months ended March 31, 2008, $201,000 in previously expensed compensation associated with certain traunches of restricted share awards was reversed when Pinnacle Financial determined that the performance targets required to vest the awards were unlikely to be achieved.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     A summary of activity for unvested restricted share awards for the three months ended March 31, 2008 follows:

		Number
Unvested awards at December 31, 2007			54,349
New awards granted			140,373
Awards whereby restrictions have lapsed and shares released to participants			(3,230	)
Forfeited awards (i.e., restrictions not met by participants)			—
Unvested awards at March 31, 2008			191,492

Note 8. Regulatory Matters

     Pinnacle National is subject to restrictions on the payment of dividends to Pinnacle Financial under federal banking laws and the regulations of the Office of the Comptroller of the Currency. Pinnacle Financial is also subject to limits on payment of dividends to its shareholders by the rules, regulations and policies of federal banking authorities. Pinnacle Financial has not paid any cash dividends since inception, and it does not anticipate that it will consider paying dividends until Pinnacle National generates sufficient capital from operations to support both anticipated asset growth and dividend payments. At March 31, 2008, pursuant to federal banking regulations, Pinnacle National had approximately $50.4 million of net retained profits from the previous two years available for dividend payments to Pinnacle Financial.

     Pinnacle Financial and its banking subsidiary 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 its banking subsidiary 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. Pinnacle Financial’s and its banking subsidiary capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

     Quantitative measures established by regulation to ensure capital adequacy require Pinnacle Financial and its banking subsidiaries to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of March 31, 2008, that Pinnacle Financial and its banking subsidiary met all capital adequacy requirements to which they are subject. To be categorized as well-capitalized, Pinnacle National must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. Pinnacle Financial and its banking subsidiaries actual capital amounts and ratios are presented in the following table (dollars in thousands):

																		Minimum
																		To Be Well-Capitalized
										Minimum								Under Prompt
										Capital								Corrective
		Actual								Requirement								Action Provisions
		Amount				Ratio				Amount				Ratio				Amount				Ratio
At March 31, 2008
Total capital to risk weighted assets:
Pinnacle Financial		$	330,975				10.4	%		$	254,510				8.0	%		not applicable
Pinnacle National		$	323,346				10.2	%		$	254,112				8.0	%		$	317,641				10.0	%
Tier I capital to risk weighted assets:
Pinnacle Financial		$	301,103				9.5	%		$	127,255				4.0	%		not applicable
Pinnacle National		$	293,419				9.2	%		$	127,056				4.0	%		$	190,584				6.0	%
Tier I capital to average assets (*):
Pinnacle Financial		$	301,103				8.6	%		$	140,841				4.0	%		not applicable
Pinnacle National		$	293,419				8.3	%		$	140,873				4.0	%		$	176,092				5.0	%

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 9. Derivative Instruments

     Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as hedges, the gain or loss is recognized in current earnings. Beginning in 2007, Pinnacle Financial entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. Upon entering into these instruments to meet customer needs, Pinnacle Financial enters into offsetting positions in order to minimize the risk to Pinnacle Financial. These swaps qualify as derivatives, but are not designated as hedging instruments.

     Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counter party or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty and therefore, has no credit risk.

     A summary of Pinnacle Financial’s interest rate swaps is included in the following table (in thousands):

		March 31, 2008
		Notional				Estimated Fair
		Amount				Value
Interest rate swap agreements:
Pay fixed / receive variable swaps		$	59,243			$	2,609
Pay variable / receive fixed swaps			59,243				(2,632	)
Total		$	118,486			$	(23	)

Note 10. Business Segment Information

     Pinnacle Financial has four reporting segments comprised of commercial banking, trust and investment services, mortgage origination and insurance services. Pinnacle Financial’s primary segment is commercial banking which consists of commercial loan and deposit services as well as the activities of Pinnacle National’s branch locations. Trust and investment services include trust services offered by Pinnacle National and all brokerage and investment activities associated with Pinnacle Asset Management, an operating unit within Pinnacle National. Mortgage origination is also a separate unit within Pinnacle National and focuses on the origination of residential mortgage loans for sale to investors in the secondary residential mortgage market. Insurance Services reflect the activities of Pinnacle National’s wholly owned subsidiary, Miller and Loughry Insurance Services, Inc. Miller and Loughry is a general insurance agency located in Murfreesboro, Tennessee and is licensed to sell various commercial and consumer insurance products.

PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

     The following tables present financial information for each reportable segment as of March 31, 2008 and 2007 and for the three months ended March 31, 2008 and 2007 (dollars in thousands):

						Trust and
		Commercial				Investment				Mortgage				Insurance				Total
		Banking				Services				Origination				Services				Company
For the three months ended March 31, 2008:
Net interest income		$	27,285			$	—			$	74			$	—			$	27,359
Provision for loan losses			1,591				—				—				—				1,591
Noninterest income			4,459				1,670				1,175				1,064				8,368
Noninterest expense			22,709				1,305				1,031				447				25,492
Income tax expense			2,106				144				86				243				2,579
Net income		$	5,338			$	221			$	132				374				6,065
End of period assets		$	3,884,042			$	—			$	—			$	5,244			$	3,889,286
For the three months ended March 31, 2007:
Net interest income		$	17,047			$	—			$	35			$	—			$	17,082
Provision for loan losses			788				—				—				—				788
Noninterest income			2,648				1,114				586				643				5,026
Noninterest expense			11,397				800				487				440				13,124
Income tax expense			2,338				123				53				80				2,594
Net income		$	5,207			$	191			$	81			$	123			$	5,602
End of period assets		$	2,188,750			$	—			$	—			$	4,382			$	2,193,132