Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2018

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, 2018 and December 31, 2017, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):



	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)
March 31, 2018
Investment securities available-for-sale:
U.S. treasury securities	$	30,946	$	—	$	30,946	$	—
U.S. government agency securities	173,443		—		173,443		—
Mortgage-backed securities	1,277,273		—		1,277,273		—



	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)
State and municipal securities	1,192,465		—		1,177,239		15,226
Agency-backed securities	204,672		—		204,672		—
Corporate notes and other	81,825		—		81,825		—
Total investment securities available-for-sale	$	2,960,624	$	—	$	2,945,398	$	15,226
Other investments	29,788		—		—		29,788
Other assets	18,319		—		18,319		—
Total assets at fair value	$	3,008,731	$	—	$	2,963,717	$	45,014

Other liabilities	$	20,074	$	—	$	20,074	$	—
Total liabilities at fair value	$	20,074	$	—	$	20,074	$	—

December 31, 2017
Investment securities available-for-sale:
U.S. treasury securities	$	30,445	$	—	$	30,445	$	—
U.S. government agency securities	180,801		—		180,801		—
Mortgage-backed securities	1,263,819		—		1,263,819		—
State and municipal securities	784,612		—		767,583		17,029
Agency-backed securities	173,292		—		173,292		—
Corporate notes and other	82,314		—		82,314		—
Total investment securities available-for-sale	2,515,283		—		2,498,254		17,029
Other investments	28,874		—		—		28,874
Other assets	11,812		—		11,812		—
Total assets at fair value	$	2,555,969	$	—	$	2,510,066	$	45,903

Other liabilities	$	13,886	$	—	$	13,886	$	—
Total liabilities at fair value	$	13,886	$	—	$	13,886	$	—

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, 2018 and December 31, 2017 (in thousands):



March 31, 2018	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 gains (losses) for the year-to-date period then ended
Other real estate owned	$	23,982	$	—	$	—	$	23,982	$	481
Impaired loans, net ⁽¹⁾	105,533		—		—		105,533		(2,801		)
Total	$	129,515	$	—	$	—	$	129,515	$	(2,320	)

December 31, 2017
Other real estate owned	$	27,831	$	—	$	—	$	27,831	$	203
Impaired loans, net ⁽¹⁾	99,317		—		—		99,317		(722		)
Total	$	127,148	$	—	$	—	$	127,148	$	(519	)

⁽¹⁾ Amount is net of valuation allowance of $2.8 million and $2.3 million at March 31, 2018 and December 31, 2017, 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 months ended March 31, 2018 (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 three months ended March 31,
	2018								2017
	Available-for-sale Securities			Other assets			Other liabilities		Available-for-sale Securities		Other assets			Other liabilities
Fair value, beginning of period	$	17,029		$	28,874		$	—	$	—	$	10,478		$	—
Total realized gains included in income	31			512			—		—		197			—
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at March 31	(666		)	—			—		—		—			—
Purchases	—			870			—		—		120			—
Issuances	—			—			—		—		—			—
Settlements	(1,168		)	(468		)	—		—		(303		)	—
Transfers out of Level 3	—			—			—		—		—			—
Fair value, end of period	$	15,226		$	29,788		$	—	$	—	$	10,492		$	—
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at March 31	$	31		$	512		$	—	$	—	$	197		$	—

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, 2018 and December 31, 2017. 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):



March 31, 2018	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	$	20,677	$	20,603	$	—	$	20,603	$	—
Loans, net	16,255,813		16,170,768		—		—		16,170,768
Consumer loans held-for-sale	100,231		101,200		—		101,200		—
Commercial loans held-for-sale	18,625		18,803		—		18,803		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	16,634,772		16,094,142		—		—		16,094,142
Federal Home Loan Bank advances	1,976,881		1,964,389		—		—		1,964,389
Subordinated debt and other borrowings	465,550		442,970		—		—		442,970

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	5,769,256		1,984		—		—		1,984
Standby letters of credit ⁽³⁾	150,936		1,080		—		—		1,080

December 31, 2017
Financial assets:
Securities held-to-maturity	$	20,762	$	20,830	$	—	$	20,830	$	—
Loans, net	15,565,876		15,252,953		—		—		15,252,953
Consumer loans held for sale	103,729		104,986		—		104,986		—
Commercial loans held-for-sale	25,456		25,761		—		25,761		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	16,586,964		16,516,342		—		—		16,516,342
Federal Home Loan Bank advances	1,319,909		1,313,311		—		—		1,313,311
Subordinated debt and other borrowings	465,505		445,098		—		—		445,098

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	5,788,425		2,264		—		—		2,264
Standby letters of credit ⁽³⁾	143,684		800		—		—		800


(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, 2018 and December 31, 2017, Pinnacle Financial included in other liabilities $1.9 million and $2.3 million, respectively, representing the inherent risks associated with these off-balance sheet commitments.

(3)

At March 31, 2018 and December 31, 2017, the aggregate fair value of Pinnacle Financial's standby letters of credit was $1.1 million and $800,000, respectively. These amounts represent the unamortized fee associated with these standby letters of credit and are included in the consolidated balance sheets of Pinnacle Financial and are believed to approximate fair value. These fair values will decrease over time as the existing standby letters of credit approach their expiration dates.