Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2017

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 June 30, 2017 and December 31, 2016, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands:



June 30, 2017	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	$	251	$	—	$	251	$	—
U.S. government agency securities	61,900		—		61,900		—
Mortgage-backed securities	1,539,050		—		1,539,050		—
State and municipal securities	533,602		—		533,602		—
Agency-backed securities	190,220		—		190,220		—
Corporate notes and other	102,011		24,705		77,306		—
Total investment securities available-for-sale	$	2,427,034	$	24,705	$	2,402,329	$	—
Other investments	27,850		—		—		27,850
Other assets	12,601		—		12,601		—
Total assets at fair value	$	2,467,485	$	24,705	$	2,414,930	$	27,850

Other liabilities	$	16,190	$	—	$	16,190	$	—
Total liabilities at fair value	$	16,190	$	—	$	16,190	$	—



December 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	$	250	$	—	$	250	$	—
U.S. government agency securities	21,769		—		21,769		—
Mortgage-backed securities	976,626		—		976,626		—
State and municipal securities	212,720		—		212,720		—
Agency-backed securities	78,580		—		78,580		—
Corporate notes and other	8,601		—		8,601		—
Total investment securities available-for-sale	1,298,546		—		1,298,546		—
Other investments	10,478		—		—		10,478
Other assets	13,340		—		13,340		—
Total assets at fair value	$	1,322,364	$	—	$	1,311,886	$	10,478

Other liabilities	$	15,758	$	—	$	15,758	$	—
Total liabilities at fair value	$	15,758	$	—	$	15,758	$	—

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 June 30, 2017 and December 31, 2016 (in thousands):



June 30, 2017	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	$	24,806	$	—	$	—	$	24,806	$	(66	)
Nonaccrual loans, net ⁽¹⁾	38,811		—		—		38,811		(3,410		)
Total	$	63,617	$	—	$	—	$	63,617	$	(3,476	)

December 31, 2016
Other real estate owned	$	6,090	$	—	$	—	$	6,090	$	(135	)
Nonaccrual loans, net ⁽¹⁾	26,506		—		—		26,506		(7,173		)
Total	$	32,596	$	—	$	—	$	32,596	$	(7,308	)

⁽¹⁾ Amount is net of valuation allowance of $1.4 million and $1.1 million at June 30, 2017 and December 31, 2016, respectively, 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 and six months ended June 30, 2017 (including the change in fair value) for financial instruments classified by Pinnacle Financial within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):



	For the For the three months ended June 30,										For the six months ended June 30,
	2017					2016					2017					2016
	Other assets			Other liabilities		Other assets			Other liabilities		Other assets			Other liabilities		Other assets			Other liabilities
Fair value, beginning of period	$	10,492		$	—	$	10,128		$	—	$	10,478		$	—	$	9,764		$	—
Total realized gains included in income	240			—		159			—		437			—		336			—
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at June 30	—			—		—			—		—			—		—			—
Acquired	17,062			—		—			—		17,062			—		—			—
Purchases	649			—		246			—		769			—		571			—
Issuances	—			—		—			—		—			—		—			—
Settlements	(593		)	—		(152		)	—		(896		)	—		(290		)	—
Transfers out of Level 3	—			—		—			—		—			—		—			—
Fair value, end of period	$	27,850		—		10,381			$	—	$	27,850		$	—	$	10,381		$	—
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at June 30	$	240		$	—	$	159		$	—	$	437		$	—	$	336		$	—

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 June 30, 2017 and December 31, 2016. 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):



(in thousands) June 30, 2017	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	$	21,163	$	21,322	$	—	$	21,322	$	—
Loans, net	14,696,820		14,429,187		—		—		14,429,187
Mortgage loans held-for-sale	90,275		90,534		—		90,534		—
Loans held-for-sale	11,368		11,546		—		11,546		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	15,962,483		15,483,609		—		—		15,483,609
Federal Home Loan Bank advances	725,230		725,312		—		—		725,312
Subordinated debt and other borrowings	465,419		445,683		—		—		445,683

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	5,021,242		2,290		—		—		2,290
Standby letters of credit ⁽³⁾	135,819		774		—		—		774



December 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	$	25,251	$	25,233	$	—	$	25,233	$	—
Loans, net	8,390,944		8,178,982		—		—		8,178,982
Mortgage loans held for sale	70,298		70,480		—		70,480		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	8,845,014		8,579,664		—		—		8,579,664
Federal Home Loan Bank advances	406,304		406,491		—		—		406,491
Subordinated debt and other borrowings	350,768		328,049		—		—		328,049

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	3,374,269		383		—		—		383
Standby letters of credit ⁽³⁾	131,418		740		—		—		740


(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 June 30, 2017 and December 31, 2016, Pinnacle Financial included in other liabilities $2.3 million and $383,000, respectively, representing the inherent risks associated with these off-balance sheet commitments.

(3)

At June 30, 2017 and December 31, 2016, the fair value of Pinnacle Financial's standby letters of credit was $774,000 and $740,000, 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.