Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 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 September 30, 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)
September 30, 2018
Investment securities available-for-sale:
U.S. Treasury securities	$	30,528	$	—	$	30,528	$	—
U.S. government agency securities	63,185		—		63,185		—
Mortgage-backed securities	1,294,545		—		1,294,545		—
State and municipal securities	1,212,271		—		1,196,917		15,354
Agency-backed securities	334,658		—		334,658		—
Corporate notes and other	69,395		—		69,395		—
Total investment securities available-for-sale	$	3,004,582	$	—	$	2,989,228	$	15,354
Other investments	49,351		—		24,169		25,182
Other assets	34,700		—		34,700		—
Total assets at fair value	$	3,088,633	$	—	$	3,048,097	$	40,536

Other liabilities	$	26,727	$	—	$	26,727	$	—
Total liabilities at fair value	$	26,727	$	—	$	26,727	$	—

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	53,796		—		24,922		28,874
Other assets	11,812		—		11,812		—
Total assets at fair value	$	2,580,891	$	—	$	2,534,988	$	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 September 30, 2018 and December 31, 2017 (in thousands):



September 30, 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	$	17,467	$	—	$	—	$	17,467	$	259
Impaired loans, net ⁽¹⁾	34,082		—		—		34,082		(133		)
Total	$	51,549	$	—	$	—	$	51,549	$	126

December 31, 2017
Other real estate owned	$	27,831	$	—	$	—	$	27,831	$	203
Impaired loans, net ⁽¹⁾	22,723		—		—		22,723		(4		)
Total	$	50,554	$	—	$	—	$	50,554	$	199

⁽¹⁾ Amount is net of valuation allowance of $2.4 million and $2.2 million at September 30, 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 and nine months ended September 30, 2018 and September 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 three months ended September 30,										For the nine months ended September 30,
	2018					2017					2018						2017
	Available-for-sale Securities		Other assets			Available-for-sale Securities		Other assets			Available-for-sale Securities			Other assets			Available-for-sale Securities		Other assets
Fair value, beginning of period	$	15,290	$	23,578		$	—	$	27,850		$	17,029		$	28,874		$	—	$	10,478
Total realized gains included in income	30		81			—		188			90			2,858			—		625
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at September 30	34		—			—		—			(597		)	—			—		—
Acquired	—		—			—		—			—			—			—		17,062
Purchases	—		2,455			—		815			—			7,273			—		1,584
Issuances	—		—			—		—			—			—			—		—
Settlements	—		(932		)	—		(376		)	(1,168		)	(1,657		)	—		(1,272		)
Transfers out of Level 3	—		—			—		—			—			(12,166		)	—		—
Fair value, end of period	$	15,354	$	25,182		$	—	$	28,477		$	15,354		$	25,182		$	—	$	28,477
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at September 30	$	30	$	81		$	—	$	188		$	90		$	2,858		$	—	$	625

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, 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):



September 30, 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	$	194,997	$	192,500	$	—	$	192,500	$	—
Loans, net	17,384,024		17,201,694		—		—		17,201,694
Consumer loans held-for-sale	47,417		47,957		—		47,957		—
Commercial loans held-for-sale	11,402		11,532		—		11,532		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	18,537,732		17,935,256		—		—		17,935,256
Federal Home Loan Bank advances	1,520,603		1,481,374		—		—		1,481,374
Subordinated debt and other borrowings	465,487		439,369		—		—		439,369

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	6,455,039		1,673		—		—		1,673
Standby letters of credit ⁽³⁾	177,796		1,191		—		—		1,191

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 September 30, 2018 and December 31, 2017, Pinnacle Financial included in other liabilities $1.7 million and $2.3 million, respectively, representing the inherent risks associated with these off-balance sheet commitments.

(3)

At September 30, 2018 and December 31, 2017, the aggregate fair value of Pinnacle Financial's standby letters of credit was $1.2 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.