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 by Pinnacle Bank with the Federal Deposit Insurance Corporation (FDIC).

•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 loans also includes owner-occupied commercial real estate which Pinnacle Financial believes shares a similar risk profile to Pinnacle Financial's commercial and industrial products.

•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 loans receive risk ratings by the assigned financial advisor 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. Pass-rated loans include five distinct ratings categories for loans that represent specific attributes. Pinnacle Financial believes that its categories follow those outlined by Pinnacle Bank's primary regulators. At December 31, 2019, approximately 80.3% of our 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, our credit policy requires that every risk rated loan of $1.0 million or more be subject to a formal credit risk review process. Each loan's risk rating is also subject to review by our independent loan review department, which reviews a substantial portion of our 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, highly leveraged transactions, land loans and/or loan types in certain geographies.

•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.


December 31, 2019	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
Pass	$	7,499,725	$	3,019,203	$	2,422,347	$	6,069,757	$	288,361	$	19,299,393
Special Mention	51,147		13,787		2,816		79,819		698		148,267
Substandard	139,518		10,969		3,042		125,035		47		278,611
Substandard-nonaccrual	18,828		24,666		2,278		15,685		148		61,605
Doubtful-nonaccrual	—		—		—		—		—		—
Total loans	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254	$	19,787,876


December 31, 2018	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
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	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

At December 31, 2019 and 2018, all loans classified as nonaccrual were deemed to be impaired. The principal balances of impaired loans amounted to $58.1 million and $83.1 million at December 31, 2019 and 2018, respectively, and are included in the tables above. For the twelve months ended December 31, 2019, the average balance of impaired loans was $76.9 million as compared to $75.3 million for the twelve months ended December 31, 2018. 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. Had these nonaccruing loans been on accruing status, interest income would have been higher by $3.0 million, $4.2 million and $2.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.


	Gross Carrying Value		Accretable Yield		Nonaccretable Yield		Carrying Value

December 31, 2017	$	74,324	$	(132)	$	(31,537)	$	42,655
Acquisitions	—		—		—		—
Settlements, net	(31,487)		18		14,143		(17,326)
December 31, 2018	42,837		(114)		(17,394)		25,329
Acquisitions	1,883		—		—		1,883
Reclassification of yield from nonaccretable to accretable	—		(7,505)		7,505		—
Settlements, net	(15,176)		2,818		6,061		(6,297)
December 31, 2019	$	29,544	$	(4,801)	$	(3,828)	$	20,915

Certain of these loans have been deemed to be collateral dependent and, as such, no accretable yield has been recorded for these loans. Amounts are reclassified between accretable and nonaccretable yield as cash flow analyses performed on the individual loans indicate an increase or decrease in the amount of cash flows expected to be collected. 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.

Impaired loans, as disclosed in the table below, include troubled debt restructurings, nonaccrual loans, and 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 December 31, 2019, 2018 and 2017 by loan classification (in thousands):


	December 31, 2019										For the year ended December 31, 2019
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Cash basis interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	9,998	$	10,983	$	1,235	$	13,750	$	—
Consumer real estate – mortgage	20,996		23,105		1,293		20,909		—
Construction and land development	542		654		33		578		—
Commercial and industrial	4,074		5,381		711		8,871		—
Consumer and other	148		182		9		350		—
Total	$	35,758	$	40,305	$	3,281	$	44,458	$	—

Impaired loans without an allowance:
Commercial real estate – mortgage	$	8,124	$	8,891	$	—	$	11,642	$	176
Consumer real estate – mortgage	4,022		4,021		—		7,509		—
Construction and land development	19		17		—		365		—
Commercial and industrial	10,221		11,322		—		12,945		—
Consumer and other	—		—		—		—		—
Total	$	22,386	$	24,251	$	—	$	32,461	$	176

Total impaired loans	$	58,144	$	64,556	$	3,281	$	76,919	$	176


	December 31, 2018										For the year ended December 31, 2018
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Cash basis interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	14,114	$	14,124	$	724	$	10,260	$	—
Consumer real estate – mortgage	19,864		19,991		1,443		13,154		—
Construction and land development	581		579		28		1,157		—
Commercial and industrial	9,252		9,215		1,441		9,326		—
Consumer and other	983		1,005		328		718		—
Total	$	44,794	$	44,914	$	3,964	$	34,615	$	—

Impaired loans without an allowance:
Commercial real estate – mortgage	$	14,724	$	14,739	$	—	$	17,906	$	469
Consumer real estate – mortgage	7,247		7,271		—		5,477		—
Construction and land development	1,786		1,786		—		1,463		—
Commercial and industrial	14,595		14,627		—		15,796		—
Consumer and other	—		—		—		—		—
Total	$	38,352	$	38,423	$	—	$	40,642	$	469

Total impaired loans	$	83,146	$	83,337	$	3,964	$	75,257	$	469


	December 31, 2017										For the year ended December 31, 2017
	Recorded investment		Unpaid principal balance		Related allowance		Average recorded investment		Cash basis interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	1,850	$	1,863	$	95	$	650	$	—
Consumer real estate – mortgage	8,028		8,079		410		4,990		—
Construction and land development	2,522		2,528		66		567		—
Commercial and industrial	12,521		12,644		1,627		10,559		—
Consumer and other	—		—		—		425		—
Total	$	24,921	$	25,114	$	2,198	$	17,191	$	—

Impaired loans without an allowance:
Commercial real estate – mortgage	$	16,364	$	16,514	$	—	$	6,983	$	—
Consumer real estate – mortgage	4,144		4,174		—		5,727		—
Construction and land development	2,645		2,650		—		1,890		95
Commercial and industrial	10,905		10,902		—		9,039		—
Consumer and other	—		—		—		—		—
Total	$	34,058	$	34,240	$	—	$	23,639	$	95

Total impaired loans	$	58,979	$	59,354	$	2,198	$	40,830	$	95

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 $176,000 in interest income from cash payments received on nonaccrual loans during the year ended December 31, 2019 compared to $469,000 and $95,000 during the years ended December 31, 2018, and 2017, respectively.

At December 31, 2019 and 2018, there were $4.9 million and $5.9 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which are accruing interest. These troubled debt restructurings are considered impaired loans pursuant to U.S. GAAP. Troubled commercial loans are restructured by specialists within Pinnacle Bank's Special Assets Group, and all restructurings are approved by committees and credit officers separate and apart from the normal loan approval process. These specialists are charged with reducing Pinnacle Financial's overall risk and exposure to loss in the event of a restructuring by obtaining some or all of the following: improved documentation, additional guaranties, increase in curtailments, reduction in collateral release terms, additional collateral or other similar strategies.


	Number of contracts	Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, net of related allowance
December 31, 2019
Commercial real estate – mortgage	1	$	306	$	287
Consumer real estate – mortgage	1	683		683
Construction and land development	1	19		19
Commercial and industrial	1	1,318		777
Consumer and other	—	—		—
	4	$	2,326	$	1,766
December 31, 2018
Commercial real estate – mortgage	—	$	—	$	—
Consumer real estate – mortgage	3	1,967		1,967
Construction and land development	1	347		347
Commercial and industrial	—	—		—
Consumer and other	—	—		—
	4	$	2,314	$	2,314
December 31, 2017
Commercial real estate – mortgage	—	$	—	$	—
Consumer real estate – mortgage	1	6		5
Construction and land development	—	—		—
Commercial and industrial	2	3,776		3,751
Consumer and other	—	—		—
	3	$	3,782	$	3,756

At December 31, 2019, 2018 and 2017, the allowance for loan losses included no amounts specifically related to accruing troubled debt restructurings. These accruing troubled debt restructurings are classified as impaired loans pursuant to U.S. GAAP; however, these loans continue to accrue interest at contractual rates.

In addition to the loan metrics above, Pinnacle Financial analyzes its commercial loan portfolio to determine if a concentration of credit risk exists to any industries. 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 December 31, 2019 with the comparative exposures for December 31, 2018 (in thousands):


	At December 31, 2019
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2018
Lessors of nonresidential buildings	$	3,681,897	$	896,219	$	4,578,116	$	3,932,059
Lessors of residential buildings	951,295		648,542		1,599,837		1,484,697
New housing for-sale builders	530,345		560,258		1,090,603		1,100,989
Hotels and motels	805,957		161,814		967,771		920,001
Total	$	5,969,494	$	2,266,833	$	8,236,327	$	7,437,746

Additionally, Pinnacle Financial monitors two ratios regarding construction and commercial real estate lending as a part of its concentration management process. Both ratios are calculated by dividing certain types of loan balances for each of the two categories by Pinnacle Bank's total risk-based capital. At December 31, 2019, and December 31, 2018, Pinnacle Bank's construction and land development loans as a percentage of total risk-based capital were 83.6% and 85.2%, respectively. Non owner-occupied commercial real estate and multifamily loans (including construction and land development loans) as a percentage of total risk-based capital were 268.3% and 277.7% as of December 31, 2019 and December 31, 2018, respectively. Banking regulations have established guidelines for the construction ratio of less than 100% of total risk-based capital and for the non owner-occupied commercial real estate and multifamily ratio of less than 300% of total risk-based capital. When a bank's ratios are in excess of one or both of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management. Pinnacle Bank was within the 100% and 300% guidelines as of December 31, 2019 and has established what it believes to be appropriate controls to monitor its lending in these areas as it aims to keep the level of these loans below the 100% and 300% guidelines though there may be periods where Pinnacle Bank exceeds these levels if loan growth is more heavily weighted to these types of loans.


	Accruing																Nonaccruing
December 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	$	4,361	$	—	$	4,361	$	2,650,385	$	3,366	$	10,791	$	863	$	2,669,766
All other	6,797		—		6,797		5,020,227		5,254		7,169		5		5,039,452
Consumer real estate – mortgage	8,162		168		8,330		3,032,615		3,014		20,995		3,671		3,068,625
Construction and land development	2,087		—		2,087		2,424,832		1,286		542		1,736		2,430,483
Commercial and industrial	10,312		946		11,258		6,263,024		329		14,294		1,391		6,290,296
Consumer and other	2,168		501		2,669		286,437		—		148		—		289,254
Total	$	33,887	$	1,615	$	35,502	$	19,677,520	$	13,249	$	53,939	$	7,666	$	19,787,876


	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


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
Allowance for Loan Losses:
Balance at December 31, 2016	$	13,655	$	6,564	$	3,624	$	24,743	$	9,520	$	874	$	58,980
Charged-off loans	(633)		(1,461)		(137)		(4,297)		(15,518)		—		(22,046)
Recovery of previously charged-off loans	671		1,516		1,136		1,317		2,002		—		6,642
Provision for loan losses	7,495		(1,588)		4,339		3,100		9,870		448		23,664
Balance at December 31, 2017	$	21,188	$	5,031	$	8,962	$	24,863	$	5,874	$	1,322	$	67,240

Collectively evaluated for impairment	$	20,753	$	4,460	$	8,879	$	23,181	$	5,874			$	63,147
Individually evaluated for impairment	95		410		66		1,627		—				2,198
Loans acquired with deteriorated credit quality	340		161		17		55		—				573
Balance at December 31, 2017	$	21,188	$	5,031	$	8,962	$	24,863	$	5,874	$	1,322	$	67,240

Loans:
Collectively evaluated for impairment	$	6,630,593	$	2,534,996	$	1,896,553	$	4,116,677	$	352,663			$	15,531,482
Individually evaluated for impairment	18,214		12,172		5,167		23,426		—				58,979
Loans acquired with deteriorated credit quality	20,803		14,046		6,568		1,238		—				42,655
Balance at December 31, 2017	$	6,669,610	$	2,561,214	$	1,908,288	$	4,141,341	$	352,663			$	15,633,116


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
Allowance for Loan Losses:
Balance at December 31, 2017	$	21,188	$	5,031	$	8,962	$	24,863	$	5,874	$	1,322	$	67,240
Charged-off loans	(3,030)		(1,593)		(74)		(13,175)		(12,528)				(30,400)
Recovery of previously charged-off loans	2,096		2,653		1,863		3,035		2,711				12,358
Provision for loan losses	6,692		1,579		377		17,008		9,366		(645)		34,377
Balance at December 31, 2018	$	26,946	$	7,670	$	11,128	$	31,731	$	5,423	$	677	$	83,575

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	—		—		—		—		—				—
Balance at December 31, 2018	$	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
Balance at December 31, 2018	$	7,164,954	$	2,844,447	$	2,072,455	$	5,271,421	$	354,272			$	17,707,549


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
Allowance for Loan Losses:
Balance at December 31, 2018	$	26,946	$	7,670	$	11,128	$	31,731	$	5,423	$	677	$	83,575
Charged-off loans	(1,700)		(1,335)		(18)		(19,208)		(6,206)		—		(28,467)
Recovery of previously charged-off loans	2,232		1,827		682		6,473		1,172		—		12,386
Provision for loan losses	5,891		(108)		870		17,116		3,206		308		27,283
Balance at December 31, 2019	$	33,369	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777

Collectively evaluated for impairment	$	32,134	$	6,762	$	12,629	$	35,401	$	3,586			$	90,512
Individually evaluated for impairment	1,235		1,292		33		711		9				3,280
Loans acquired with deteriorated credit quality	—		—		—		—		—				—
Balance at December 31, 2019	$	33,369	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777

Loans:
Collectively evaluated for impairment	$	7,681,608	$	3,036,922	$	2,426,901	$	6,274,280	$	289,106			$	19,708,817
Individually evaluated for impairment	18,122		25,018		561		14,295		148				58,144
Loans acquired with deteriorated credit quality	9,488		6,685		3,021		1,721		—				20,915
Balance at December 31, 2019	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254			$	19,787,876

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 under the incurred loss model 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. Beginning January 1, 2020, Pinnacle Financial adopted the Current Expected Credit Loss framework which will result in an allowance being recorded on non-purchase credit deteriorated loans.

At December 31, 2019, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $10.6 million to current directors, executive officers, and their related interests, of which $6.8 million had been drawn upon. At December 31, 2018, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $37.9 million to directors, executive officers, and their related interests, of which approximately $18.3 million had been drawn upon. These loans and extensions of credit were made in the ordinary course of business. None of these loans to directors, executive officers, and their related entities were impaired at December 31, 2019 or 2018.

At December 31, 2019, Pinnacle Financial had approximately $17.6 million in commercial loans held for sale compared to $16.0 million at December 31, 2018, which primarily included commercial real estate and 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.

At December 31, 2019, Pinnacle Financial had approximately $61.6 million of mortgage loans held-for-sale compared to approximately $31.8 million at December 31, 2018. Total mortgage loan volumes sold during the year ended December 31, 2019 were approximately $1.1 billion compared to approximately $1.0 billion for the year ended December 31, 2018. During the year ended December 31, 2019, Pinnacle Financial recognized $24.3 million in gains on the sale of these loans, net of commissions paid, compared to $14.6 million and $18.6 million, respectively, during the years ended December 31, 2018 and 2017.

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.