Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2015

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 September 30, 2015 and December 31, 2014, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):

September 30, 2015	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	$	9,999	$	9,999	$	-		-
U.S. government agency securities		144,803		-		144,803		-
Mortgage-backed securities		590,971		-		590,971		-
State and municipal securities		163,494		-		163,494		-
Agency-backed securities		50,891		-		50,891		-
Corporate notes and other		12,137		-		12,137		-
Total investment securities available-for-sale	$	972,295	$	9,999	$	962,296	$	-
Other investments		7,845		-		-		7,845
Other assets		18,419		-		18,419		-
Total assets at fair value	$	998,559	$	9,999	$	980,715	$	7,845

Other liabilities	$	20,132	$	-	$	20,132	$	-
Total liabilities at fair value	$	20,132	$	-	$	20,132	$	-

December 31, 2014
Investment securities available-for-sale:
U.S. treasury securities	$	-	$	-	$	-	$	-
U.S. government agency securities		113,456		-		113,456		-
Mortgage-backed securities		455,839		-		455,839		-
State and municipal securities		138,578		-		138,578		-
Agency-backed securities		13,018		-		13,018		-
Corporate notes and other		11,164		-		11,164		-
Total investment securities available-for-sale		732,055		-		732,055		-
Other investments		8,004		-		-		8,004
Other assets		15,987		-		15,987		-
Total assets at fair value	$	756,046	$	-	$	748,042	$	8,004

Other liabilities	$	15,981	$	-	$	15,981	$	-
Total liabilities at fair value	$	15,981	$	-	$	15,981	$	-

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 September 30, 2015 and December 31, 2014 (in thousands):

September 30, 2015	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	$	4,773	$	-	$	-	$	4,773	$	(18	)
Nonaccrual loans, net ⁽¹⁾		27,900		-		-		27,900		(567	)
Total	$	32,673	$	-	$	-	$	32,673	$	(585	)

December 31, 2014
Other real estate owned	$	11,186	$	-	$	-	$	11,186	$	(509	)
Nonaccrual loans, net ⁽¹⁾		15,551		-		-		15,551		(1,032	)
Total	$	26,737	$	-	$	-	$	26,737	$	(1,541	)

(1)

Amount is net of a valuation allowance of $2.1 million at September 30, 2015 and $1.2 million at December 31, 2014 as required by ASC 310-10, "Receivables." Included in nonaccrual loans at September 30, 2015 are $11.8 million of loans acquired with deteriorated credit quality which were recorded at their fair value upon acquisition.

Rollforward of the Balance Sheet Amounts, Unobservable Input Reconciliation

The table below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, 2015 (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 nine months ended September 30,
	2015					2014
	Other assets			Other liabilities		Other assets		Other liabilities
Fair value, January 1	$	8,004		$	-	$	6,701	$	-
Total realized gains (losses) included in income		(243	)		-		406		-
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at September 30		-			-		-		-
Purchases		708			-		357		-
Issuances		-			-		-		-
Settlements		(624	)		-		-		-
Transfers out of Level 3		-			-		-		-
Fair value, September 30		7,845			-		7,464		-
The amount of (gains) losses for the period included in earnings attributable to the change in unrealized (gains) losses relating to assets still held at the reporting date	$	(243	)	$	-	$	406	$	-

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 September 30, 2015 and December 31, 2014. 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).

September 30, 2015	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	$	31,698	$	31,850	$	-	$	31,850	$	-
Loans, net		6,272,230		6,182,104		-		-		6,182,104
Mortgage loans held-for-sale		47,672		48,097		-		48,097		-
Loans held-for-sale		20,236		20,415		-		20,415		-
Mortgage servicing rights		9,128		9,400		-		-		9,400

Financial liabilities:
Deposits and securities sold under
agreements to repurchase		6,668,756		6,147,757		-		-		6,147,757
Federal Home Loan Bank advances		545,330		548,531		-		-		548,531
Subordinated debt and other borrowings		142,476		128,818		-		-		128,818

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾		2,219,059		1,071		-		-		1,071
Standby letters of credit ⁽³⁾		81,732		265		-		-		265


December 31, 2014
Financial assets:
Securities held-to-maturity	$	38,676	$	38,789	$	-	$	38,789	$	-
Loans, net		4,522,668		4,406,581		-		-		4,406,581
Mortgage loans held for sale		14,039		14,322		-		14,322		-

Financial liabilities:
Deposits and securities sold under
agreements to repurchase		4,876,600		4,603,915		-		-		4,603,915
Federal Home Loan Bank advances		195,476		195,450		-		-		195,450
Subordinated debt and other borrowings		96,158		77,433		-		-		77,433

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾		1,390,593		1,078		-		-		1,078
Standby letters of credit ⁽³⁾		65,955		293		-		-		293

(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 both September 30, 2015 and December 31, 2014, Pinnacle Financial included in other liabilities $1.1 million representing the inherent risks associated with these off-balance sheet commitments.

(3)

At September 30, 2015 and December 31, 2014, the fair value of Pinnacle Financial's standby letters of credit was $265,000 and $293,000, 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.