Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value of Financial Instruments [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present financial instruments measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):

March 31, 2014	Total carrying value in the consolidated balance sheet		Quoted market prices in an active market (Level 1)		Models with significant observable market parameters (Level 2)		Models with significant unobservable market parameters (Level 3)
Investment securities available-for-sale:
U.S. Treasury securities	$	-	$	-	$	-	$	-
U.S. government agency securities		107,368		-		107,368		-
Mortgage-backed securities		452,195		-		452,195		-
State and municipal securities		148,773		-		148,773		-
Agency-backed securities		15,822		-		15,822		-
Corporate notes and other		11,243		-		11,243		-
Total investment securities available-for-sale	$	735,401	$	-	$	735,401	$	-
Other equity investments		7,137		-		-		7,137
Other assets		17,860		-		17,860		-
Total assets at fair value	$	760,398	$	-	$	753,261	$	7,137

Other liabilities	$	13,476	$	-	$	13,476	$	-
Total liabilities at fair value	$	13,476	$	-	$	13,476	$	-

December 31, 2013
Investment securities available-for-sale:
U.S. government agency securities	$	103,873	$	-	$	103,873	$	-
Mortgage-backed securities		412,936		-		412,936		-
State and municipal securities		148,411		-		148,411		-
Agency-backed securities		17,007		-		17,007		-
Corporate notes and other		11,229		-		11,229		-
Total investment securities available-for-sale		693,456		-		693,456		-
Other equity investments		6,701		-		-		6,701
Other assets		19,900		-		19,900		-
Total assets at fair value	$	720,057	$	-	$	713,356	$	6,701

Other liabilities	$	13,670	$	-	$	13,670	$	-
Total liabilities at fair value	$	13,670	$	-	$	13,670	$	-

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The following table presents assets measured at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013 (in thousands):

March 31, 2014	Total carrying value in the consolidated balance sheet		Quoted market prices in an active market (Level 1)		Models with significant observable market parameters (Level 2)		Models with significant unobservable market parameters (Level 3)		Total losses for the year-to-date period then ended
Other real estate owned	$	15,038	$	-	$	-	$	15,038	$	(310	)
Nonaccrual loans, net ⁽¹⁾		14,308		-		-		14,308		(153	)
Total	$	29,346	$	-	$	-	$	29,346	$	(463	)

December 31, 2013
Other real estate owned	$	15,226	$	-	$	-	$	15,226	$	(2,258	)
Nonaccrual loans, net ⁽¹⁾		16,996		-		-		16,996		(2,921	)
Total	$	32,222	$	-	$	-	$	32,222	$	(5,179	)

(1)	Amount is net of a valuation allowance of $1.3 at March 31, 2014 and $1.2 million at December 31, 2013 as required by ASC 310-10, "Receivables."

Rollforward of the Balance Sheet Amounts, Unobservable Input Reconciliation

The table below includes a rollforward of the balance sheet amounts for the three months ended March 31, 2014 (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), 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 (in thousands):

	For the three months ended March 31,
	2014				2013
	Other assets		Other liabilities		Other assets		Other liabilities
Fair value, January 1	$	6,701	$	-	$	4,681	$	-
Total realized gains (losses) included in income		130		-		100		-
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at March 31		-		-		-		-
Purchases		306		-		304		-
Issuances		-		-		-		-
Settlements		-		-		-		-
Transfers out of Level 3		-		-		-		-
Fair value, March 31		7,137		-		5,085		-
Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at March 31	$	130	$	-	$	100	$	-

Carrying Amounts, Estimated Fair Value and Placement in the Fair Value hierarchy of Financial Instruments

The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at March 31, 2014 and December 31, 2013. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and cash equivalents, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity (in thousands).

(dollars in thousands) March 31, 2014	Carrying/ Notional Amount		Estimated Fair Value⁽¹⁾		Quoted market prices in an active market (Level 1)		Models with significant observable market parameters (Level 2)		Models with significant unobservable market parameters (Level 3)
Financial assets:
Securities held-to-maturity	$	38,733	$	38,195	$	-	$	38,195	$	-
Loans, net		4,114,163		4,062,235		-		-		4,062,235
Mortgage loans held-for-sale		13,971		14,437		-		14,437		-

Financial liabilities:
Deposits and securities sold under
agreements to repurchase		4,568,669		4,210,590		-		-		4,210,590
Federal Home Loan Bank advances		150,604		150,556		-		-		150,556
Subordinated debt and other borrowings		98,033		72,483		-		-		72,483

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾		1,221,891		1,051		-		-		1,051
Standby letters of credit ⁽³⁾		68,419		320		-		-		320


December 31, 2013
Financial assets:
Securities held-to-maturity	$	39,796	$	38,817	$	-	$	38,817	$	-
Loans, net		4,076,524		4,021,675		-		-		4,021,675
Mortgage loans held for sale		12,850		12,999		-		12,999		-

Financial liabilities:
Deposits and securities sold under
agreements to repurchase		4,603,938		4,378,805		-		-		4,378,805
Federal Home Loan Bank advances		90,637		90,652		-		-		90,652
Subordinated debt and other borrowings		98,658		73,083		-		-		73,083

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾		1,206,528		1,040		-		-		1,040
Standby letters of credit ⁽³⁾		69,231		331		-		-		331

(1)	Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction.

(2)

At the end of each quarter, Pinnacle Financial evaluates the inherent risks of the outstanding off-balance sheet commitments. In making this evaluation, Pinnacle Financial evaluates the credit worthiness of the borrower, the collateral supporting the commitments and any other factors similar to those used to evaluate the inherent risks of our loan portfolio. Additionally, Pinnacle Financial evaluates the probability that the outstanding commitment will eventually become a funded loan. As a result, at March 31, 2014 and December 31, 2013, Pinnacle Financial included in other liabilities $1.3 million representing the inherent risks associated with these off-balance sheet commitments.

(3)

At March 31, 2014 and December 31, 2013, the fair value of Pinnacle Financial's standby letters of credit was $320,000 and $331,000, respectively. This amount represents the unamortized fee associated with these standby letters of credit and is included in the consolidated balance sheet of Pinnacle Financial and is believed to approximate fair value. This fair value will decrease over time as the existing standby letters of credit approach their expiration dates.

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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