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Loans and Allowance for Loan Losses
 6 Months Ended
Jun. 30, 2017
Receivables [Abstract]  
Loans and Allowance for Loan Losses
Loans and Allowance for Loan Losses

For financial reporting purposes, Pinnacle Financial classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed with the Federal Deposit Insurance Corporation (FDIC).

Pinnacle Financial uses five loan categories: commercial real estate mortgage, consumer real estate mortgage, construction and land development, commercial and industrial, and consumer and other.
•
Commercial real-estate mortgage loans. Commercial real-estate mortgage loans are categorized as such based on investor exposures where repayment is largely dependent upon the operation, refinance, or sale of the underlying real estate. Commercial real-estate mortgage also includes owner occupied commercial real estate which shares a similar risk profile to Pinnacle Financial's commercial and industrial products.
•
Consumer real-estate mortgage loans. Consumer real-estate mortgage consists primarily of loans secured by 1-4 residential properties, including home equity lines of credit.
•
Construction and land development loans. Construction and land development loans include loans where the repayment is dependent on the successful operation of the related real estate project. Construction and land development loans include 1-4 family construction projects and commercial construction endeavors such as warehouses, apartments, office and retail space and land acquisition and development.
•
Commercial and industrial loans. Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.
•
Consumer and other loans. Consumer and other loans include all loans issued to individuals not included in the consumer real-estate mortgage classification. Examples of consumer and other loans are automobile loans, credit cards and loans to finance education, among others.

Commercial loans receive risk ratings assigned by a financial advisor and approved by a senior credit officer subject to validation by Pinnacle Financial's independent loan review department.  Risk ratings are categorized as pass, special mention, substandard, substandard-nonaccrual or doubtful-nonaccrual.  Pinnacle Financial believes that its categories follow those used by Pinnacle Bank's primary regulators.  At June 30, 2017, approximately 77% of Pinnacle Financial's loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating in the allowance for loan loss assessment.  Consumer loans and small business loans are generally not assigned an individual risk rating but are evaluated as either accrual or nonaccrual based on the performance of the individual loans.  However, certain consumer real-estate mortgage loans and certain consumer and other loans receive a specific risk rating due to the loan proceeds being used for commercial purposes even though the collateral may be of a consumer loan nature.
 
Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, Pinnacle Financial's credit procedures require that every risk rated loan of $1.0 million or more be subject to a formal credit risk review process by the assigned financial advisor. Each loan's risk rating is also subject to review by Pinnacle Financial's independent loan review department, which reviews a substantial portion of Pinnacle Financial's risk rated portfolio annually. Included in the coverage are independent loan reviews of loans in targeted higher-risk portfolio segments such as certain commercial and industrial loans, land loans and/or loan types in certain geographies.
 
The following table presents Pinnacle Financial's loan balances by primary loan classification and the amount within each risk rating category. Pass rated loans include all credits other than those included in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:

•
Special mention loans have potential weaknesses that deserve management's close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle Financial's credit position at some future date.
•
Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified must have a well-defined weakness or weaknesses that jeopardize collection of the debt.  Substandard loans are characterized by the distinct possibility that Pinnacle Financial will sustain some loss if the deficiencies are not corrected.
•
Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.
•
Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

The following table outlines the amount of each loan classification categorized into each risk rating category as of June 30, 2017 and December 31, 2016 (in thousands):
 
 
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer
and other
 
Total
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Pass
$
6,192,533

 
$
2,449,319

 
$
1,737,057

 
$
3,565,754

 
$
355,314

 
$
14,299,977

Special Mention
112,120

 
58,928

 
12,628

 
36,759

 
1,432

 
221,867

Substandard (1)
72,603

 
26,116

 
19,241

 
78,637

 
108

 
196,705

Substandard-nonaccrual
10,042

 
17,810

 
3,873

 
7,206

 
456

 
39,387

Doubtful-nonaccrual
74

 
754

 
—

 
1

 
—

 
829

Total loans
$
6,387,372

 
$
2,552,927

 
$
1,772,799

 
$
3,688,357

 
$
357,310

 
$
14,758,765


December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Pass
$
3,137,452

 
$
1,160,361

 
$
897,556

 
$
2,782,713

 
$
264,723

 
$
8,242,805

Special Mention
21,449

 
1,856

 
2,716

 
25,641

 
802

 
52,464

Substandard (1)
29,674

 
15,627

 
5,788

 
75,861

 
129

 
127,079

Substandard-nonaccrual
4,921

 
8,073

 
6,613

 
7,492

 
475

 
27,574

Doubtful-nonaccrual
—

 
—

 
—

 
3

 
—

 
3

Total loans
$
3,193,496

 
$
1,185,917

 
$
912,673

 
$
2,891,710

 
$
266,129

 
$
8,449,925


(1)
Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have doubts about the borrower's ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by Pinnacle Bank's primary regulators for loans classified as substandard, excluding the impact of nonaccrual loans and troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $182.5 million at June 30, 2017, compared to $114.6 million at December 31, 2016.

The table below details the loans acquired from BNC and the fair value adjustment with respect thereto as of June 30, 2017 (dollars in thousands):
 
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer
and other
 
Fair value adjustment
 
Net total acquired loans
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
3,029,203

 
$
1,247,986

 
$
699,921

 
$
489,340

 
$
79,163

 
$
(143,783
)
 
$
5,401,830

Special Mention
73,517

 
58,876

 
9,385

 
7,881

 
678

 
(5,111
)
 
145,226

Substandard (1)
46,825

 
14,650

 
17,717

 
9,881

 
—

 
(16,335
)
 
72,738

Substandard-nonaccrual
9,719

 
12,302

 
1,157

 
1,783

 
4

 
(7,257
)
 
17,708

Doubtful-nonaccrual
193

 
858

 
—

 
—

 
—

 
(220
)
 
831

Total loans
$
3,159,457

 
$
1,334,672

 
$
728,180

 
$
508,885

 
$
79,845

 
$
(172,706
)
 
$
5,638,333



Loans acquired with deteriorated credit quality are recorded pursuant to the provisions of ASC 310-30, and are referred to as purchase credit impaired loans. The following table provides a rollforward of purchase credit impaired loans from December 31, 2016 through June 30, 2017 (in thousands):
 
Gross Carrying Value
 
Accretable
Yield
 
Nonaccretable
Yield
 
Net Carrying
Value
December 31, 2016
$
12,468

 
$
—

 
$
(3,633
)
 
$
8,835

Acquisitions
75,425

 
(300
)
 
(25,953
)
 
49,172

Year-to-date settlements
(2,919
)
 
2

 
796

 
(2,121
)
June 30, 2017
$
84,974

 
$
(298
)
 
$
(28,790
)
 
$
55,886



Certain of these loans have been deemed to be collateral dependent and as such, no accretable yield has been recorded for these loans. The carrying value is adjusted for additional draws, pursuant to contractual arrangements, offset by loan paydowns. Year-to-date settlements include both loans that were charged-off as well as loans that were paid off, typically as a result of refinancings at other institutions.
 
For the three and six months ended June 30, 2017, the average balance of nonaccrual loans was $26.7 million and $26.7 million, respectively, compared to $37.0 million and $36.6 million, respectively, for the same periods in 2016. Pinnacle Financial's policy is that the discontinuation of the accrual of interest income will occur when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or (2) the principal or interest is more than 90 days past due, unless the loan is both well secured and in the process of collection. As such, at the date the above mentioned loans were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year earnings. Pinnacle Financial's policy is that once a loan is placed on nonaccrual status each subsequent payment is reviewed on a case-by-case basis to determine if the payment should be applied to interest or principal pursuant to regulatory guidelines. Pinnacle Financial recognized approximately $16,000 and $65,000, respectively, in interest income from cash payments received on nonaccrual loans during the three and six months ended June 30, 2017, compared to approximately $41,000 and $88,000, respectively, during the three and six months ended June 30, 2016. Had these nonaccruing loans been on accruing status, interest income would have been higher by $1.0 million and $1.5 million for the three and six months ended June 30, 2017, respectively, compared to $396,000 and $676,000 for the three and six months ended June 30, 2016, respectively.

The following table details the recorded investment, unpaid principal balance and related allowance of Pinnacle Financial's nonaccrual loans at June 30, 2017 and December 31, 2016 by loan classification (in thousands):
 
At June 30, 2017
 
At December 31, 2016
 
Recorded investment
 
Unpaid principal balances(1)
 
Related allowance(2)
 
Recorded investment
 
Unpaid principal balances(1)
 
Related allowance(2)
Collateral dependent nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
Commercial real estate – mortgage
$
9,532

 
$
12,824

 
$
—

 
$
2,308

 
$
2,312

 
$
—

Consumer real estate – mortgage
14,539

 
17,508

 
—

 
2,880

 
2,915

 
—

Construction and land development
1,935

 
2,192

 
—

 
3,128

 
3,135

 
—

Commercial and industrial
6,270

 
7,270

 
—

 
6,373

 
6,407

 
—

Consumer and other
2

 
2

 
—

 
—

 
—

 
—

Total
$
32,278

 
$
39,796

 
$
—

 
$
14,689

 
$
14,769

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
Cash flow dependent nonaccrual loans:
 
 

 
 

 
 

 
 

 
 

Commercial real estate – mortgage
$
584

 
$
810

 
$
38

 
$
2,613

 
$
3,349

 
$
59

Consumer real estate – mortgage
4,025

 
4,077

 
941

 
5,193

 
5,775

 
688

Construction and land development
1,938

 
2,384

 
22

 
3,485

 
4,154

 
20

Commercial and industrial
938

 
936

 
172

 
1,122

 
2,714

 
77

Consumer and other
453

 
498

 
232

 
475

 
851

 
227

Total
$
7,938

 
$
8,705

 
$
1,405

 
$
12,888

 
$
16,843

 
$
1,071

 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccrual loans
$
40,216

 
$
48,501

 
$
1,405

 
$
27,577

 
$
31,612

 
$
1,071


(1) 
Unpaid principal balance presented net of fair value adjustments recorded in conjunction with purchase accounting.
(2) 
Collateral dependent loans are typically charged-off to their net realizable value and no specific allowance is carried related to those loans.

The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three and six months ended June 30, 2017 and 2016, respectively, on Pinnacle Financial's nonaccrual loans that remain on the balance sheets as of such date (in thousands):

 
For the three months ended
June 30,
 
For the six months ended
June 30,
 
2017
 
2016
 
2017
 
2016
 
Average recorded investment
 
Interest income recognized
 
Average recorded investment
 
Interest income recognized
 
Average recorded investment
 
Interest income recognized
 
Average recorded investment
 
Interest income recognized
Collateral dependent nonaccrual loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate – mortgage
$
4,019

 
$
—

 
$
3,845

 
$
—

 
$
3,298

 
$
—

 
$
3,474

 
$
—

Consumer real estate – mortgage
6,000

 
—

 
4,125

 
—

 
5,188

 
—

 
4,140

 
—

Construction and land development
665

 
16

 
7,125

 
41

 
592

 
65

 
7,293

 
88

Commercial and industrial
6,341

 
—

 
12,107

 
—

 
6,356

 
—

 
11,928

 
—

Consumer and other
1

 
—

 
383

 
—

 
—

 
—

 
385

 
—

Total
$
17,026

 
$
16

 
$
27,585

 
$
41

 
$
15,434

 
$
65

 
$
27,220

 
$
88

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow dependent nonaccrual loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate – mortgage
$
619

 
$
—

 
$
1,352

 
$
—

 
$
1,166

 
$
—

 
$
725

 
$
—

Consumer real estate – mortgage
4,126

 
—

 
3,163

 
—

 
4,197

 
—

 
3,181

 
—

Construction and land development
1,928

 
—

 
130

 
—

 
2,119

 
—

 
134

 
—

Commercial and industrial
1,221

 
—

 
1,838

 
—

 
1,345

 
—

 
2,396

 
—

Consumer and other
1,821

 
—

 
2,936

 
—

 
2,409

 
—

 
2,973

 
—

Total
$
9,715

 
$
—

 
$
9,419

 
$
—

 
$
11,236

 
$
—

 
$
9,409

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total nonaccrual loans
$
26,741

 
$
16

 
$
37,004

 
$
41

 
$
26,670

 
$
65

 
$
36,629

 
$
88


 
At June 30, 2017 and December 31, 2016, there were $14.2 million and $15.0 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which were accruing interest.

The  following table outlines the amount of each loan category where troubled debt restructurings were made during the three and six months ended June 30, 2017 and 2016 (dollars in thousands):
 
Three months ended
June 30,
 
Six months ended
June 30,
2017
Number
of contracts
 
Pre Modification Outstanding Recorded Investment
 
Post Modification Outstanding Recorded Investment, net of related allowance
 
Number
of contracts
 
Pre Modification Outstanding Recorded Investment
 
Post Modification Outstanding Recorded Investment, net of related allowance
Commercial real estate – mortgage
—

 
$
—

 
$
—

 
—

 
$
—

 
$
—

Consumer real estate – mortgage
1

 
9

 
6

 
1

 
9

 
6

Construction and land development
—

 
—

 
—

 
—

 
—

 
—

Commercial and industrial
—

 
—

 
—

 
2

 
2,033

 
2,033

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

 
1

 
$
9

 
$
6

 
3

 
$
2,042

 
$
2,039

 
 
 
 
 
 
 
 
 
 
 
 
2016
 

 
 

 
 

 
 

 
 

 
 

Commercial real estate – mortgage
—

 
$
—

 
$
—

 
—

 
$
—

 
$
—

Consumer real estate – mortgage
—

 
—

 
—

 
—

 
—

 
—

Construction and land development
—

 
—

 
—

 
—

 
—

 
—

Commercial and industrial
—

 
—

 
—

 
1

 
2,321

 
1,536

Consumer and other
—

 
—

 
—

 
—

 
—

 
—

 
—

 
$
—

 
$
—

 
1

 
$
2,321

 
$
1,536



During the six months ended June 30, 2017 and 2016, Pinnacle Financial did not have any troubled debt restructurings that subsequently defaulted within twelve months of the restructuring.

To monitor concentration risk, Pinnacle Financial utilizes broadly accepted industry classification systems in order to classify borrowers into various industry classifications.  Pinnacle Financial has a credit exposure (loans outstanding plus unfunded lines of credit) exceeding 25% of Pinnacle Bank's total risk-based capital to borrowers in the following industries at June 30, 2017 with the comparative exposures for December 31, 2016 (in thousands):

 
June 30, 2017
 
 
 
Outstanding Principal Balances
 
Unfunded Commitments
 
Total exposure
 
Total Exposure at December 31,
2016
Lessors of nonresidential buildings
$
2,679,712

 
$
542,158

 
$
3,221,870

 
$
1,701,853

Lessors of residential buildings
879,787

 
289,682

 
1,169,469

 
874,234



The table below presents past due balances by loan classification and segment at June 30, 2017 and December 31, 2016, allocated between accruing and nonaccrual status (in thousands):

 
Accruing
 
Nonaccruing
 
 
June 30, 2017
30-89 days past due and accruing
 
90 days or more past due and accruing
 
Total past due and accruing
 
Purchased credit impaired
 
Current and accruing
 
Nonaccrual (1)
 
Purchased credit impaired
 
Total loans
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
$
3,872

 
$
—

 
$
3,872

 
$
6,545

 
$
2,352,679

 
$
2,249

 
$
3,296

 
$
2,368,641

All other
1,820

 
—

 
1,820

 
11,061

 
4,001,279

 
819

 
3,752

 
4,018,731

Consumer real estate – mortgage
7,689

 
—

 
7,689

 
9,081

 
2,517,593

 
8,133

 
10,431

 
2,552,927

Construction and land development
6,250

 
—

 
6,250

 
7,628

 
1,755,049

 
1,121

 
2,751

 
1,772,799

Commercial and industrial
2,880

 
1,072

 
3,952

 
559

 
3,676,638

 
6,429

 
779

 
3,688,357

Consumer and other
4,692

 
619

 
5,311

 
—

 
351,543

 
453

 
3

 
357,310

 
$
27,203

 
$
1,691

 
$
28,894

 
$
34,874

 
$
14,654,781

 
$
19,204

 
$
21,012

 
$
14,758,765

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Owner-occupied
$
3,505

 
$
—

 
$
3,505

 
$
—

 
$
1,347,134

 
$
2,297

 
$
1,956

 
$
1,354,893

All other
—

 
—

 
—

 
—

 
1,837,936

 
240

 
428

 
1,838,603

Consumer real estate – mortgage
3,838

 
53

 
3,891

 
—

 
1,173,953

 
5,554

 
2,520

 
1,185,917

Construction and land development
2,210

 
—

 
2,210

 
—

 
903,850

 
3,205

 
3,408

 
912,673

Commercial and industrial
4,475

 
—

 
4,475

 
—

 
2,879,740

 
6,971

 
524

 
2,891,710

Consumer and other
7,168

 
1,081

 
8,249

 
—

 
257,405

 
475

 
—

 
266,129

 
$
21,196

 
$
1,134

 
$
22,330

 
$
—

 
$
8,400,018

 
$
18,742

 
$
8,836

 
$
8,449,925


(1)
Approximately $10.0 million and $16.7 million of nonaccrual loans as of June 30, 2017 and December 31, 2016, respectively, were performing pursuant to their contractual terms at those dates.

The following table shows the allowance allocation by loan classification and accrual status at June 30, 2017 and December 31, 2016 (in thousands):

 
 
 
Impaired Loans
 
 
 
Accruing Loans
 
Nonaccrual Loans
 
Troubled Debt Restructurings (1)
 
Total Allowance
for Loan Losses
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
 
June 30, 2017
 
December 31, 2016
Commercial real estate –mortgage
$
15,963

 
$
13,595

 
$
38

 
$
59

 
$
1

 
$
1

 
$
16,002

 
$
13,655

Consumer real estate – mortgage
6,891

 
5,874

 
941

 
688

 
3

 
2

 
7,835

 
6,564

Construction and land development
5,104

 
3,604

 
22

 
20

 
—

 
—

 
5,126

 
3,624

Commercial and industrial
24,005

 
24,648

 
172

 
77

 
58

 
18

 
24,235

 
24,743

Consumer and other
7,317

 
9,293

 
232

 
227

 
—

 
—

 
7,549

 
9,520

Unallocated
—

 
—

 
—

 
—

 
—

 
—

 
1,197

 
874

 
$
59,280

 
$
57,014

 
$
1,405

 
$
1,071

 
$
62

 
$
21

 
$
61,944

 
$
58,980


(1)
Troubled debt restructurings of $14.2 million and $15.0 million as of both June 30, 2017 and December 31, 2016, respectively, are classified as impaired loans pursuant to U.S. GAAP; however, these loans continue to accrue interest at contractual rates.

The following table details the changes in the allowance for loan losses for the three and six months ended June 30, 2017 and 2016, respectively, by loan classification (in thousands):

 
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer and other
 
Unallocated
 
Total
Three months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2017
$
14,168

 
$
7,219

 
$
4,441

 
$
22,912

 
$
8,477

 
$
1,133

 
$
58,350

Charged-off loans
(8
)
 
(206
)
 
—

 
(495
)
 
(4,448
)
 
—

 
(5,157
)
Recovery of previously charged-off loans
9

 
412

 
96

 
560

 
862

 
—

 
1,939

Provision for loan losses
1,833

 
410

 
589

 
1,258

 
2,658

 
64

 
6,812

Balance at June 30, 2017
$
16,002

 
$
7,835

 
$
5,126

 
$
24,235

 
$
7,549

 
$
1,197

 
$
61,944

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2016:
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at April 1, 2016
$
13,551

 
$
7,169

 
$
3,942

 
$
24,144

 
$
11,858

 
$
1,575

 
$
62,239

Charged-off loans
(196
)
 
(180
)
 
—

 
(619
)
 
(6,151
)
 
—

 
(7,146
)
Recovery of previously charged-off loans
135

 
71

 
81

 
182

 
570

 
—

 
1,039

Provision for loan losses
175

 
(520
)
 
(100
)
 
1,383

 
4,861

 
(519
)
 
5,280

Balance at June 30, 2016
$
13,665

 
$
6,540

 
$
3,923

 
$
25,090

 
$
11,138

 
$
1,056

 
$
61,412

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
$
13,655

 
$
6,564

 
$
3,624

 
$
24,743

 
$
9,520

 
$
874

 
$
58,980

Charged-off loans
(9
)
 
(268
)
 
—

 
(1,653
)
 
(8,391
)
 
—

 
(10,321
)
Recovery of previously charged-off loans
15

 
582

 
129

 
702

 
1,394

 
—

 
2,822

Provision for loan losses
2,341

 
957

 
1,373

 
443

 
5,026

 
323

 
10,463

Balance at June 30, 2017
$
16,002

 
$
7,835

 
$
5,126

 
$
24,235

 
$
7,549

 
$
1,197

 
$
61,944

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2016:
 

 
 

 
 

 
 

 
 

 
 

 
 

Balance at December 31, 2015
$
15,513

 
$
7,220

 
$
2,903

 
$
23,643

 
$
15,616

 
$
537

 
$
65,432

Charged-off loans
(196
)
 
(379
)
 
—

 
(2,243
)
 
(13,555
)
 
—

 
(16,373
)
Recovery of previously charged-off loans
193

 
156

 
106

 
1,615

 
1,109

 
—

 
3,179

Provision for loan losses
(1,845
)
 
(457
)
 
914

 
2,075

 
7,968

 
519

 
9,174

Balance at June 30, 2016
$
13,665

 
$
6,540

 
$
3,923

 
$
25,090

 
$
11,138

 
$
1,056

 
$
61,412


The following table details the allowance for loan losses and recorded investment in loans by loan classification and by impairment evaluation method as of June 30, 2017 and December 31, 2016, respectively (in thousands):

 
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer and other
 
Unallocated
 
Total
June 30, 2017
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for Loan Losses:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
15,963

 
$
6,891

 
$
5,104

 
$
24,005

 
$
7,317

 
$
1,197

 
$
60,477

Individually evaluated for impairment
39

 
944

 
22

 
230

 
232

 
—

 
1,467

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

Total allowance for loan losses
$
16,002

 
$
7,835

 
$
5,126

 
$
24,235

 
$
7,549

 
$
1,197

 
$
61,944

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
6,359,443

 
$
2,522,372

 
$
1,761,298

 
$
3,669,480

 
$
356,833

 
 

 
$
14,669,426

Individually evaluated for impairment
3,275

 
11,043

 
1,122

 
17,536

 
477

 
 

 
33,453

Loans acquired with deteriorated credit quality
24,654

 
19,512

 
10,379

 
1,341

 
—

 
 

 
55,886

Total loans
$
6,387,372

 
$
2,552,927

 
$
1,772,799

 
$
3,688,357

 
$
357,310

 
 

 
$
14,758,765

 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 

 
 

 
 

 
 

 
 

 
 

 
 

Allowance for Loan Losses:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
13,595

 
$
5,874

 
$
3,604

 
$
24,648

 
$
9,293

 
$
874

 
$
57,888

Individually evaluated for impairment
60

 
690

 
20

 
95

 
227

 
—

 
1,092

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

Total allowance for loan losses
$
13,655

 
$
6,564

 
$
3,624

 
$
24,743

 
$
9,520

 
$
874

 
$
58,980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans:
 

 
 

 
 

 
 

 
 

 
 

 
 

Collectively evaluated for impairment
$
3,188,362

 
$
1,174,456

 
$
906,053

 
$
2,872,855

 
$
265,613

 
 

 
$
8,407,339

Individually evaluated for impairment
2,750

 
8,941

 
3,212

 
18,331

 
516

 
 

 
33,750

Loans acquired with deteriorated credit quality
2,384

 
2,520

 
3,408

 
524

 
—

 
 

 
8,836

Total loans
$
3,193,496

 
$
1,185,917

 
$
912,673

 
$
2,891,710

 
$
266,129

 
 

 
$
8,449,925



The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter. The level of the allowance is based upon evaluation of the loan portfolio, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, historical loss experience, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The allowance for loan losses for purchased loans is calculated similarly to the method utilized for legacy Pinnacle Bank loans. Pinnacle Financial's accounting policy is to compare the computed allowance for loan losses for purchased loans on a loan-by-loan basis to any remaining fair value adjustment. If the computed allowance is greater than the remaining fair value adjustment, the excess is added to the allowance for loan losses by a charge to the provision for loan losses.

At June 30, 2017, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $25.8 million to current directors, executive officers, and their related entities, of which $17.2 million had been drawn upon. At December 31, 2016, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $22.6 million to directors, executive officers, and their related entities, of which approximately $14.8 million had been drawn upon. None of these loans to directors, executive officers, and their related entities were impaired at June 30, 2017 or December 31, 2016.

At June 30, 2017, Pinnacle Financial had approximately $11.4 million in commercial loans held for sale, which included loans previously held in Pinnacle Bank's commercial loan portfolio that it has elected to sell as well apartment loans originated for sale to a third-party as part of a multi-family loan program. Such loans are closed under a pass-through commitment structure wherein Pinnacle Bank's loan commitment to the borrower is the same as the third party's take-out commitment to Pinnacle Bank, and the third party purchase typically occurs within thirty days of Pinnacle Bank closing with the borrowers.

Residential Lending

At June 30, 2017, Pinnacle Financial had approximately $90.3 million of mortgage loans held-for-sale compared to approximately $47.7 million at December 31, 2016. Total loan volumes sold during the six months ended June 30, 2017 were approximately $262.0 million compared to approximately $198.2 million for the six months ended June 30, 2016. During the six months ended June 30, 2017, Pinnacle Financial recognized $8.8 million in gains on the sale of these loans, net of commissions paid, compared to $7.8 million during the six months ended June 30, 2016.

These mortgage loans held-for-sale are originated internally and are primarily to borrowers in Pinnacle Bank's geographic markets. These sales are typically on a mandatory basis to investors that follow conventional government sponsored entities (GSE) and the Department of Housing and Urban Development/U.S. Department of Veterans Affairs (HUD/VA) guidelines.
 
Each purchaser of a mortgage loan held-for-sale has specific guidelines and criteria for sellers of loans, and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require Pinnacle Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties, Pinnacle Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan. To date, repurchase activity pursuant to the terms of these representations and warranties has been insignificant to Pinnacle Bank.