Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2019

Loan Classification Categorized by Risk Rating Category

The following table outlines the amount of each loan classification categorized into each risk rating category as of March 31, 2019 and December 31, 2018 (in thousands):



	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
March 31, 2019
Pass	$	7,252,503	$	2,830,701	$	2,083,602	$	5,259,503	$	349,945	$	17,776,254
Special Mention	51,552		6,916		7,843		41,980		710		109,001
Substandard ⁽¹⁾	76,171		17,880		3,350		96,049		57		193,507
Substandard-nonaccrual	38,920		32,131		2,775		21,988		330		96,144
Doubtful-nonaccrual	—		—		—		—		—		—
Total loans	$	7,419,146	$	2,887,628	$	2,097,570	$	5,419,520	$	351,042	$	18,174,906



	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
December 31, 2018
Pass	$	6,998,485	$	2,787,570	$	2,059,376	$	5,148,726	$	352,516	$	17,346,673
Special Mention	55,932		7,902		4,334		24,284		711		93,163
Substandard ⁽¹⁾	78,202		20,906		5,358		75,351		62		179,879
Substandard-nonaccrual	32,335		28,069		3,387		23,060		983		87,834
Doubtful-nonaccrual	—		—		—		—		—		—
Total loans	$	7,164,954	$	2,844,447	$	2,072,455	$	5,271,421	$	354,272	$	17,707,549

(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 troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $190.3 million at March 31, 2019, compared to $176.3 million at December 31, 2018.

Purchase Credit Impaired Loans

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, 2018 through March 31, 2019 (in thousands):



	Gross Carrying Value			Accretable Yield			Nonaccretable Yield			Net Carrying Value
December 31, 2018	$	42,837		$	(114	)	$	(17,394	)	$	25,329
Acquisition	—			—			—			—
Year-to-date settlements	(2,951		)	12			1,312			(1,627		)
March 31, 2019	$	39,886		$	(102	)	$	(16,082	)	$	23,702

Summary of Recorded Investment, Unpaid Principal Balance and Related Allowance and Average Recorded Investment of Impaired Loans

Impaired loans include nonaccrual loans, troubled debt restructurings, and other loans deemed to be impaired but that continue to accrue interest. The following tables detail the recorded investment, unpaid principal balance and related allowance of Pinnacle Financial's impaired loans at March 31, 2019 and December 31, 2018 by loan classification (in thousands):



	At March 31, 2019						At December 31, 2018
	Recorded investment		Unpaid principal balances		Related allowance		Recorded investment		Unpaid principal balances		Related allowance
Impaired loans with an allowance:
Commercial real estate – mortgage	$	18,539	$	18,543	$	1,521	$	14,114	$	14,124	$	724
Consumer real estate – mortgage	24,668		24,784		2,381		19,864		19,991		1,443
Construction and land development	868		864		55		581		579		28
Commercial and industrial	8,802		8,773		1,461		9,252		9,215		1,441
Consumer and other	331		352		100		983		1,005		328
Total	$	53,208	$	53,316	$	5,518	$	44,794	$	44,914	$	3,964

Impaired loans without an allowance:
Commercial real estate – mortgage	$	16,674	$	16,678	$	—	$	14,724	$	14,739	$	—
Consumer real estate – mortgage	10,431		10,466		—		7,247		7,271		—
Construction and land development	—		—		—		1,786		1,786		—
Commercial and industrial	15,691		15,712		—		14,595		14,627		—
Consumer and other	—		—		—		—		—		—
Total	$	42,796	$	42,856	$	—	$	38,352	$	38,423	$	—

Total impaired loans	$	96,004	$	96,172	$	5,518	$	83,146	$	83,337	$	3,964

For the three months ended March 31, 2019, the average balance of impaired loans, was $89.6 million, compared to $64.2 million for the same period in 2018. Pinnacle Financial's policy is that the accrual of interest income will be discontinued 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 loans are placed on nonaccrual status, Pinnacle Financial reverses 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. As detailed in the following table, Pinnacle Financial recognized $87,000 in interest income from cash payments received on nonaccrual loans during the three months ended March 31, 2019 compared to $101,000 during the three months ended March 31, 2018. Had these nonaccruing loans been on accruing status, interest income would have been $1.6 million higher for the three months ended March 31, 2019 compared to $1.4 million higher for the three months ended March 31, 2018.

The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three months ended March 31, 2019 and 2018, respectively, of impaired loans by loan classification (in thousands):



	For the three months ended March 31,
	2019				2018
	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	16,327	$	—	$	5,119	$	—
Consumer real estate – mortgage	22,266		—		8,792		—
Construction and land development	724		—		1,451		—
Commercial and industrial	9,027		—		11,220		—
Consumer and other	657		—		390		—
Total	$	49,001	$	—	$	26,972	$	—

Impaired loans without an allowance:
Commercial real estate – mortgage	$	15,699	$	87	$	15,375	$	101
Consumer real estate – mortgage	8,839		—		4,369		—
Construction and land development	893		—		1,322		—
Commercial and industrial	15,143		—		16,185		—
Consumer and other	—		—		—		—
Total	$	40,574	$	87	$	37,251	$	101

Total impaired loans	$	89,575	$	87	$	64,223	$	101

Summary of Loan Portfolio Credit Risk Exposure

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 March 31, 2019 with the comparative exposures for December 31, 2018 (in thousands):



	March 31, 2019
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2018
Lessors of nonresidential buildings	$	3,208,737	$	894,936	$	4,103,673	$	3,932,059
Lessors of residential buildings	1,038,462		335,860		1,374,322		1,484,697
New Housing For-Sale Builders	509,750		586,983		1,096,733		1,100,989
Hotels (except Casino Hotels) and Motels	825,627		137,885		963,512		920,001

Past Due Balances by Loan Classification

The table below presents past due balances by loan classification and segment at March 31, 2019 and December 31, 2018, allocated between accruing and nonaccrual status (in thousands):



	Accruing										Nonaccruing
March 31, 2019	30-89 days past due and accruing		90 days or more past due and accruing		Total past due and accruing		Current and accruing		Purchase credit impaired		Nonaccrual ⁽¹⁾		Nonaccruing purchase credit impaired		Total loans
Commercial real estate:
Owner-occupied	$	8,302	$	—	$	8,302	$	2,583,109	$	2,577	$	22,436	$	1,117	$	2,617,541
All other	6,569		—		6,569		4,774,555		5,119		12,601		2,761		4,801,605
Consumer real estate – mortgage	10,982		39		11,021		2,840,793		3,683		27,336		4,795		2,887,628
Construction and land development	795		—		795		2,092,563		1,437		868		1,907		2,097,570
Commercial and industrial	9,068		1,323		10,391		5,386,830		306		21,993		—		5,419,520
Consumer and other	2,736		620		3,356		347,356		—		330		—		351,042
Total	$	38,452	$	1,982	$	40,434	$	18,025,206	$	13,122	$	85,564	$	10,580	$	18,174,906



	Accruing										Nonaccruing
December 31, 2018	30-89 days past due and accruing		90 days or more past due and accruing		Total past due and accruing		Current and accruing		Purchase credit impaired		Nonaccrual ⁽¹⁾		Nonaccruing purchase credit impaired		Total loans
Commercial real estate:
Owner-occupied	$	10,170	$	—	$	10,170	$	2,623,700	$	2,664	$	16,025	$	874	$	2,653,433
All other	1,586		—		1,586		4,488,840		5,659		12,634		2,802		4,511,521
Consumer real estate – mortgage	18,059		—		18,059		2,794,630		3,689		22,564		5,505		2,844,447
Construction and land development	3,759		—		3,759		2,063,201		2,108		2,020		1,367		2,072,455
Commercial and industrial	21,451		1,082		22,533		5,225,205		623		23,022		38		5,271,421
Consumer and other	3,276		476		3,752		349,537		—		983		—		354,272
Total	$	58,301	$	1,558	$	59,859	$	17,545,113	$	14,743	$	77,248	$	10,586	$	17,707,549


(1)	Approximately $47.4 million and $52.5 million of nonaccrual loans as of March 31, 2019 and December 31, 2018, respectively, were performing pursuant to their contractual terms at those dates.

Details of Changes in the Allowance for Loan Losses

The following table details the allowance for loan losses and recorded investment in loans by loan classification and by impairment evaluation method as of March 31, 2019 and December 31, 2018, respectively (in thousands):



	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
March 31, 2019
Allowance for Loan Losses:
Collectively evaluated for impairment	$	28,646	$	5,988	$	10,860	$	31,238	$	4,703			$	81,435
Individually evaluated for impairment	1,521		2,381		55		1,461		100				5,518
Loans acquired with deteriorated credit quality⁽¹⁾	—		—		—		—		—				—
Total allowance for loan losses	$	30,167	$	8,369	$	10,915	$	32,699	$	4,803	$	241	$	87,194

Loans:
Collectively evaluated for impairment	$	7,372,359	$	2,844,051	$	2,093,358	$	5,394,721	$	350,711			$	18,055,200
Individually evaluated for impairment	35,213		35,099		868		24,493		331				96,004
Loans acquired with deteriorated credit quality	11,574		8,478		3,344		306		—				23,702
Total loans	$	7,419,146	$	2,887,628	$	2,097,570	$	5,419,520	$	351,042			$	18,174,906

December 31, 2018
Allowance for Loan Losses:
Collectively evaluated for impairment	$	26,222	$	6,227	$	11,100	$	30,290	$	5,095			$	78,934
Individually evaluated for impairment	724		1,443		28		1,441		328				3,964
Loans acquired with deteriorated credit quality⁽¹⁾	—		—		—		—		—				—
Total allowance for loan losses	$	26,946	$	7,670	$	11,128	$	31,731	$	5,423	$	677	$	83,575

Loans:
Collectively evaluated for impairment	$	7,124,117	$	2,808,142	$	2,066,613	$	5,246,913	$	353,289			$	17,599,074
Individually evaluated for impairment	28,838		27,111		2,367		23,847		983				83,146
Loans acquired with deteriorated credit quality	11,999		9,194		3,475		661		—				25,329
Total loans	$	7,164,954	$	2,844,447	$	2,072,455	$	5,271,421	$	354,272			$	17,707,549

⁽¹⁾ Loans acquired with deteriorated credit quality are recorded at fair value at the time of acquisition. An allowance for loan losses is recorded only in the event of subsequent credit deterioration.

The following table details the changes in the allowance for loan losses for the three months ended March 31, 2019 and 2018, 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 March 31, 2019:
Balance at December 31, 2018	$	26,946		$	7,670		$	11,128		$	31,731		$	5,423		$	677		$	83,575
Charged-off loans	(534		)	(350		)	—			(3,352		)	(1,832		)	—			(6,068		)
Recovery of previously charged-off loans	72			369			122			1,598			342			—			2,503
Provision for loan losses	3,683			680			(335		)	2,722			870			(436		)	7,184
Balance at March 31, 2019	$	30,167		$	8,369		$	10,915		$	32,699		$	4,803		$	241		$	87,194

Three months ended March 31, 2018:
Balance at December 31, 2017	$	21,188		$	5,031		$	8,962		$	24,863		$	5,874		$	1,322		$	67,240
Charged-off loans	(728		)	(336		)	(2		)	(2,540		)	(5,063		)	—			(8,669		)
Recovery of previously charged-off loans	1,396			666			565			888			1,187			—			4,702
Provision for loan losses	832			(261		)	591			3,437			3,478			(1,146		)	6,931
Balance at March 31, 2018	$	22,688		$	5,100		$	10,116		$	26,648		$	5,476		$	176		$	70,204