Loans and Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2020

Schedule of Accounts, Notes, Loans and Financing Receivable

Loans at September 30, 2020 and December 31, 2019 were as follows:


	September 30, 2020		December 31, 2019
Commercial real estate:
Owner occupied	$	2,748,075	$	2,669,766
Non-owner occupied	5,220,452		5,039,452
Consumer real estate – mortgage	3,041,019		3,068,625
Construction and land development	2,728,439		2,430,483
Commercial and industrial	8,395,963		6,290,296
Consumer and other	343,461		289,254
Subtotal	$	22,477,409	$	19,787,876
Allowance for credit losses	(288,645)		(94,777)
Loans, net	$	22,188,764	$	19,693,099

Loan Classification Categorized by Risk Rating Category

The table below presents loan balances classified within each risk rating category by primary loan type and based on year of origination as of September 30, 2020 (in thousands):


September 30, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Commercial real estate- owner occupied
Pass	$	514,127	$	473,410	$	497,269	$	347,792	$	368,441	$	304,692	$	79,208	$	2,584,939
Special Mention	3,349		11,949		23,805		12,775		3,901		5,698		—		61,477
Substandard (1)	21,725		6,251		7,828		15,991		8,986		2,119		28,134		91,034
Substandard-nonaccrual	901		155		989		1,463		1,720		3,592		1,805		10,625
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	540,102	$	491,765	$	529,891	$	378,021	$	383,048	$	316,101	$	109,147	$	2,748,075
Commercial real estate- Non-owner occupied
Pass	$	1,011,392	$	1,035,694	$	765,605	$	560,797	$	509,620	$	403,696	$	54,308	$	4,341,112
Special Mention	165,690		120,702		121,523		157,652		144,731		128,007		11,028		849,333
Substandard (1)	6,696		1,495		5,699		6,120		1,015		2,972		—		23,997
Substandard-nonaccrual	—		437		745		139		840		3,849		—		6,010
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - Non-owner occupied	$	1,183,778	$	1,158,328	$	893,572	$	724,708	$	656,206	$	538,524	$	65,336	$	5,220,452
Consumer real estate – mortgage
Pass	$	462,452	$	539,068	$	372,363	$	183,725	$	142,646	$	341,108	$	955,781	$	2,997,143
Special Mention	102		2,695		2,929		644		—		1,040		8,739		16,149
Substandard (1)	—		546		—		895		9		2,274		2,108		5,832
Substandard-nonaccrual	169		1,677		1,003		1,426		2,627		11,027		3,966		21,895
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer real estate – mortgage	$	462,723	$	543,986	$	376,295	$	186,690	$	145,282	$	355,449	$	970,594	$	3,041,019
Construction and land development
Pass	$	849,025	$	1,209,363	$	471,069	$	77,146	$	20,229	$	10,394	$	15,858	$	2,653,084
Special Mention	6,924		33,253		26,062		—		4,244		—		—		70,483
Substandard (1)	619		681		29		—		240		150		—		1,719
Substandard-nonaccrual	391		554		77		83		—		2,048		—		3,153
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Construction and land development	$	856,959	$	1,243,851	$	497,237	$	77,229	$	24,713	$	12,592	$	15,858	$	2,728,439
Commercial and industrial
Pass	$	3,566,925	$	1,227,003	$	779,760	$	349,805	$	149,094	$	98,086	$	1,946,224	$	8,116,897
Special Mention	20,986		50,577		8,568		8,385		8,216		2,081		58,186		156,999
Substandard (1)	27,070		19,268		17,377		3,016		579		2,074		23,735		93,119
Substandard-nonaccrual	14,039		5,459		382		4,676		197		258		3,937		28,948
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial and industrial	$	3,629,020	$	1,302,307	$	806,087	$	365,882	$	158,086	$	102,499	$	2,032,082	$	8,395,963
Consumer and other
Pass	$	113,807	$	23,974	$	8,182	$	8,379	$	4,635	$	2,142	$	181,583	$	342,702
Special Mention	—		—		—		—		—		—		—		—
Substandard (1)	—		—		—		—		—		—		—		—
Substandard-nonaccrual	—		—		2		7		12		2		736		759
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer and other	$	113,807	$	23,974	$	8,184	$	8,386	$	4,647	$	2,144	$	182,319	$	343,461


September 30, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Total loans
Pass	$	6,517,728	$	4,508,512	$	2,894,248	$	1,527,644	$	1,194,665	$	1,160,118	$	3,232,962	$	21,035,877
Special Mention	197,051		219,176		182,887		179,456		161,092		136,826		77,953		1,154,441
Substandard (1)	56,110		28,241		30,933		26,022		10,829		9,589		53,977		215,701
Substandard-nonaccrual	15,500		8,282		3,198		7,794		5,396		20,776		10,444		71,390
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total loans	$	6,786,389	$	4,764,211	$	3,111,266	$	1,740,916	$	1,371,982	$	1,327,309	$	3,375,336	$	22,477,409

The following table outlines the risk category of loans as of December 31, 2019 (in thousands):


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
December 31, 2019
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 (1)	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

(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 $215.7 million at September 30, 2020, compared to $276.0 million at December 31, 2019.

Past Due Balances by Loan Classification

The table below presents the aging of past due balances by loan segment at September 30, 2020 and December 31, 2019 (in thousands):


September 30, 2020	30-59 days past due		60-89 days past due		90 days or more past due				Total past due		Current		Total loans
Commercial real estate:
Owner-occupied	$	3,365	$	415	$	4,226			$	8,006	$	2,740,069	$	2,748,075
Non-owner occupied	1,612		1,928		5,353				8,893		5,211,559		5,220,452
Consumer real estate – mortgage	7,852		1,338		5,971				15,161		3,025,858		3,041,019
Construction and land development	2,417		—		2,031				4,448		2,723,991		2,728,439
Commercial and industrial	6,615		4,743		4,986				16,344		8,379,619		8,395,963
Consumer and other	846		82		1,220				2,148		341,313		343,461
Total	$	22,707	$	8,506	$	23,787			$	55,000	$	22,422,409	$	22,477,409

December 31, 2019
Commercial real estate:
Owner-occupied	$	2,307	$	2,932	$	1,719			$	6,958	$	2,662,808	$	2,669,766
Non-owner occupied	3,156		3,641		3,816				10,613		5,028,839		5,039,452
Consumer real estate – mortgage	11,646		2,157		7,304				21,107		3,047,518		3,068,625
Construction and land development	1,392		711		1,487				3,590		2,426,893		2,430,483
Commercial and industrial	8,474		2,478		6,364				17,316		6,272,980		6,290,296
Consumer and other	1,770		414		570				2,754		286,500		289,254
Total	$	28,745	$	12,333	$	21,260	$	21,260	$	62,338	$	19,725,538	$	19,787,876

Details of Changes in the Allowance for Loan Losses

The following table details the changes in the allowance for credit losses for the three and nine months ended September 30, 2020 and 2019, respectively, by loan classification (in thousands):


	Commercial real estate - Owner occupied		Commercial real estate - Non-owner occupied		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
Three months ended September 30, 2020:
Balance at June 30, 2020	$	38,803	$	68,426	$	29,358	$	41,897	$	100,610	$	6,278	$	—	$	285,372
Charged-off loans	(186)		(222)		(907)		—		(12,984)		(730)		—		(15,029)
Recovery of previously charged-off loans	47		432		297		7		799		391		—		1,973
Provision for credit losses on loans	(2,238)		1,223		3,201		(682)		13,783		1,042		—		16,329
Balance at September 30, 2020	$	36,426	$	69,859	$	31,949	$	41,222	$	102,208	$	6,981	$	—	$	288,645
Three months ended September 30, 2019:
Balance at June 30, 2019	$	12,174	$	18,652	$	8,489	$	11,206	$	37,436	$	2,114	$	182	$	90,253
Charged-off loans	(40)		(62)		(194)		(14)		(5,082)		(1,388)		—		(6,780)
Recovery of previously charged-off loans	135		74		901		97		407		300		—		1,914
Provision for credit losses on loans	(112)		1,796		(1,426)		585		1,814		3,278		2,325		8,260
Balance at September 30, 2019	$	12,157	$	20,460	$	7,770	$	11,874	$	34,575	$	4,304	$	2,507	$	93,647
Nine months ended September 30, 2020:
Balance at December 31, 2019	$	13,406	$	19,963	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777
Impact of adopting ASC 326	264		(4,740)		21,029		(3,144)		23,040		2,638		(985)		38,102
Charged-off loans	(1,247)		(485)		(3,033)		—		(27,982)		(2,977)		—		(35,724)
Recovery of previously charged-off loans	272		631		971		100		3,798		1,356		—		7,128
Provision for credit losses on loans	23,731		54,490		4,928		31,604		67,240		2,369		—		184,362
Balance at September 30, 2020	$	36,426	$	69,859	$	31,949	$	41,222	$	102,208	$	6,981	$	—	$	288,645
Nine months ended September 30, 2019:
Balance at December 31, 2018	$	11,297	$	15,649	$	7,670	$	11,128	$	31,731	$	5,423	$	677	$	83,575
Charged-off loans	(1,626)		(75)		(1,124)		(18)		(13,842)		(4,643)		—		(21,328)
Recovery of previously charged-off loans	211		962		1,642		238		4,749		959		—		8,761
Provision for credit losses on loans	2,275		3,924		(418)		526		11,937		2,565		1,830		22,639
Balance at September 30, 2019	$	12,157	$	20,460	$	7,770	$	11,874	$	34,575	$	4,304	$	2,507	$	93,647

The following table details the allowance for credit losses on loans and recorded investment in loans by loan classification and by impairment evaluation method as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
December 31, 2019
Allowance for Loan Losses:
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(1)	—		—		—		—		—				—
Total allowance for loan losses	$	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
Total loans	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254			$	19,787,876

(1) Prior to the adoption of ASC 326 on January 1, 2020, an allowance for loan losses was recorded on loans acquired with deteriorated credit quality only in the event of additional credit deterioration subsequent to acquisition.

Schedule of Collateral Dependent Loans Individually Evaluated for ACL

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine

expected credit losses:


September 30, 2020	Real Estate		Business Assets		Other		Total
Commercial real estate:
Owner-occupied	14,955		—		—		14,955
Non-owner occupied	11,294		—		—		11,294
Consumer real estate – mortgage	27,122		—		—		27,122
Construction and land development	4,362		—		—		4,362
Commercial and industrial	2,052		28,692		45		30,789
Consumer and other	—		—		21		21
Total	$	59,785	$	28,692	$	66	$	88,543

Financing Receivable, Nonaccrual

The table below presents the amortized cost basis of loans on nonaccrual status and loans past due 90 or more days and still accruing interest at September 30, 2020 and December 31, 2019. Also presented is the balance of loans on nonaccrual status at September 30, 2020 for which there was no related allowance for credit losses recorded (in thousands):


	September 30, 2020						December 31, 2019
	Total nonaccrual loans		Nonaccrual loans with no allowance for credit losses		Loans past due 90 or more days and still accruing		Total nonaccrual loans		Loans past due 90 or more days and still accruing
Commercial real estate:
Owner-occupied	$	10,625	$	5,704	$	—	$	11,654	$	—
Non-owner occupied	6,010		—		—		7,173		—
Consumer real estate – mortgage	21,895		—		281		24,667		168
Construction and land development	3,152		1,152		—		2,278		—
Commercial and industrial	28,948		7,960		563		15,685		946
Consumer and other	760		—		469		148		501
Total	$	71,390	$	14,816	$	1,313	$	61,605	$	1,615

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

The following table presents impaired loans at December 31, 2019 as determined under ASC 310 prior to the adoption of ASU 2016-13. Impaired loans generally include nonaccrual loans, troubled debt restructurings, and other loans deemed to be impaired but that continue to accrue interest. Presented are the recorded investment, unpaid principal balance and related allowance of impaired loans at December 31, 2019 by loan classification (in thousands):


	At December 31, 2019
	Recorded investment		Unpaid principal balances		Related allowance
Impaired loans with an allowance:
Commercial real estate – mortgage	$	9,998	$	10,983	$	1,235
Consumer real estate – mortgage	20,996		23,105		1,292
Construction and land development	542		654		33
Commercial and industrial	4,074		5,381		711
Consumer and other	148		182		9
Total	$	35,758	$	40,305	$	3,280

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

Total impaired loans	$	58,144	$	64,556	$	3,280

The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three and nine months ended September 30, 2019, respectively, of impaired loans by loan classification as determined under ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Three months ended				Nine months ended
	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	13,050	$	—	$	14,689	$	—
Consumer real estate – mortgage	19,508		—		20,887		—
Construction and land development	451		—		587		—
Commercial and industrial	11,113		—		10,070		—
Consumer and other	143		—		400		—
Total	$	44,265	$	—	$	46,633	$	—

Impaired loans without an allowance:
Commercial real estate – mortgage	$	9,344	$	—	$	12,521	$	176
Consumer real estate – mortgage	7,922		—		8,381		—
Construction and land development	10		—		452		—
Commercial and industrial	12,108		—		13,625		—
Consumer and other	—		—		—		—
Total	$	29,384	$	—	$	34,979	$	176

Total impaired loans	$	73,649	$	—	$	81,612	$	176

Purchase Credit Impaired Loans

Prior to the adoption of ASU 2016-13, loans acquired with deteriorated credit quality, referred to under ASC 310-30 as purchased credit impaired loans and under ASU 2016-13 as purchased credit deteriorated loans, were assigned a credit related purchase discount and non-credit related purchase discount at acquisition. Upon adoption of ASU 2016-13 on January 1, 2020, the remaining credit related discount was re-classified to a component of the allowance for credit losses. The remaining non-credit discount will continue to be accreted into income over the remaining lives of the related loans. The following table provides a rollforward of purchased credit deteriorated loans from December 31, 2019 through September 30, 2020 (in thousands):


	Gross Carrying Value		Accretable Yield		Nonaccretable Yield		Net Carrying Value
December 31, 2019	$	29,544	$	(4,801)	$	(3,828)	$	20,915

Reclassification of discount to allowance for credit losses	—		—		3,828		3,828
Year-to-date settlements	(5,600)		2,240		—		(3,360)
September 30, 2020	$	23,944	$	(2,561)	$	—	$	21,383

Troubled Debt Restructurings

The following table outlines the amount of each loan category where troubled debt restructurings were made during the three and nine months ended September 30, 2020 and 2019 (dollars in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
	Number of contracts	Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, net of related allowance		Number of contracts	Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, net of related allowance
2020
Commercial real estate:
Owner-occupied	—	$	—	$	—	—	$	—	$	—
Non-owner occupied	—	—		—		—	—		—
Consumer real estate – mortgage	—	—		—		1	807		807
Construction and land development	—	—		—		—	—		—
Commercial and industrial	—	—		—		—	—		—
Consumer and other	—	—		—		—	—		—
	—	$	—	$	—	1	$	807	$	807

2019
Commercial real estate:
Owner-occupied	1	$	314	$	297	1	$	314	$	297
Non-owner occupied	—	—		—		—	—		—
Consumer real estate – mortgage	—	—		—		1	712		626
Construction and land development	—	—		—		1	21		19
Commercial and industrial	—	—		—		1	1,397		796
Consumer and other	—	—		—		—	—		—
	1	$	314	$	297	4	$	2,444	$	1,738

Summary of Loan Portfolio Credit Risk Exposure

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 September 30, 2020 with the comparative exposures for December 31, 2019 (in thousands):


	September 30, 2020
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2019
Lessors of nonresidential buildings	$	3,655,366	$	916,186	$	4,571,552	$	4,578,116
Lessors of residential buildings	1,158,042		795,259		1,953,301		1,599,837
New Housing For-Sale Builders	479,532		613,518		1,093,050		1,090,603
Hotels (except Casino Hotels) and Motels	910,857		127,623		1,038,480		967,771