Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016 and December 31, 2015, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):

March 31, 2016	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		129,467		-		129,467		-
Mortgage-backed securities		665,709		-		665,709		-
State and municipal securities		165,745		-		165,745		-
Agency-backed securities		47,013		-		47,013		-
Corporate notes and other		9,396		-		9,396		-
Total investment securities available-for-sale	$	1,017,330	$	-	$	1,017,330	$	-
Other investments		10,128		-		-		10,128
Other assets		27,072		-		27,072		-
Total assets at fair value	$	1,054,530	$	-	$	1,044,402	$	10,128

Other liabilities	$	29,205	$	-	$	29,205	$	-
Total liabilities at fair value	$	29,205	$	-	$	29,205	$	-

December 31, 2015
Investment securities available-for-sale:
U.S. treasury securities	$	-	$	-	$	-	$	-
U.S. government agency securities		128,193		-		128,193		-
Mortgage-backed securities		582,916		-		582,916		-
State and municipal securities		165,042		-		165,042		-
Agency-backed securities		48,801		-		48,801		-
Corporate notes and other		10,113		-		10,113		-
Total investment securities available-for-sale		935,065		-		935,065		-
Other investments		9,764		-		-		9,764
Other assets		15,147		-		15,147		-
Total assets at fair value	$	959,976	$	-	$	950,212	$	9,764

Other liabilities	$	16,568	$	-	$	16,568	$	-
Total liabilities at fair value	$	16,568	$	-	$	16,568	$	-

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, 2016 and December 31, 2015 (in thousands):

March 31, 2016	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	$	4,687	$	-	$	-	$	4,687	$	(32	)
Collateral dependent nonaccrual loans, net ⁽¹⁾		30,511		-		-		30,511		(1,877	)
Total	$	35,198	$	-	$	-	$	35,198	$	(1,909	)

December 31, 2015
Other real estate owned	$	5,083	$	-	$	-	$	5,083	$	(41	)
Collateral dependent nonaccrual loans, net ⁽¹⁾		18,598		-		-		18,598		(2,637	)
Total	$	23,681	$	-	$	-	$	23,681	$	(2,678	)

(1)	Amount is net of a valuation allowance of $2.3 million at March 31, 2016 and $3.7 million at December 31, 2015 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, 2016 (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,
	2016					2015
	Other assets			Other liabilities		Other assets			Other liabilities
Fair value, January 1	$	9,764		$	-	$	8,004		$	-
Total realized gains (losses) included in income		177			-		95			-
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period end		-			-		-			-
Purchases		325			-		121			-
Issuances		-			-		-			-
Settlements		(138	)		-		(470	)		-
Transfers out of Level 3		-			-		-			-
Fair value, March 31		10,128			-		7,750			-
The amount of gains for the period included in earnings attributable to the change in unrealized gains relating to assets still held at the reporting date	$	177		$	-	$	95		$	-

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, 2016 and December 31, 2015. 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 (dollars in thousands).

March 31, 2016	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	$	31,089	$	31,521	$	-	$	31,521	$	-
Loans, net		6,765,690		6,678,330		-		-		6,678,330
Mortgage loans held-for-sale		35,437		36,188		-		36,188		-
Loans held-for-sale		10,504		10,722		-		10,722		-


Financial liabilities:
Deposits and securities sold under
agreements to repurchase		7,143,014		6,770,220		-		-		6,770,220
Federal Home Loan Bank advances		616,290		616,636		-		-		616,636
Subordinated debt and other borrowings		210,708		189,239		-		-		189,239

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾		2,529,273		886		-		-		886
Standby letters of credit ⁽³⁾		100,940		451		-		-		451


December 31, 2015
Financial assets:
Securities held-to-maturity	$	31,377	$	31,586	$	-	$	31,586	$	-
Loans, net		6,477,803		6,379,153		-		-		6,379,153
Mortgage loans held for sale		47,930		48,365		-		48,365		-

Financial liabilities:
Deposits and securities sold under
agreements to repurchase		7,050,498		6,562,509		-		-		6,562,509
Federal Home Loan Bank advances		300,305		299,214		-		-		299,214
Subordinated debt and other borrowings		142,476		131,494		-		-		131,494

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾		2,218,784		1,017		-		-		1,017
Standby letters of credit ⁽³⁾		93,534		354		-		-		354

(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, 2016 and December 31, 2015, Pinnacle Financial included in other liabilities $0.9 million and $1.0 million, respectively, representing the inherent risks associated with these off-balance sheet commitments.

(3)

At March 31, 2016 and December 31, 2015, the fair value of Pinnacle Financial's standby letters of credit was $451,000 and $354,000, 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.