Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020

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, 2020 and December 31, 2019, 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, 2020
Investment securities available-for-sale:
U.S. Treasury securities	$	84,464	$	—	$	84,464	$	—
U.S. government agency securities	76,859		—		76,859		—
Mortgage-backed securities	1,701,212		—		1,701,212		—
State and municipal securities	1,327,721		—		1,312,248		15,473
Agency-backed securities	168,839		—		168,839		—
Corporate notes and other	104,327		—		104,327		—
Total investment securities available-for-sale	$	3,463,422	$	—	$	3,447,949	$	15,473
Other investments	66,872		—		25,666		41,206
Other assets	265,835		—		265,835		—
Total assets at fair value	$	3,796,129	$	—	$	3,739,450	$	56,679

Other liabilities	$	198,724	$	—	$	198,724	$	—
Total liabilities at fair value	$	198,724	$	—	$	198,724	$	—

December 31, 2019
Investment securities available-for-sale:
U.S. Treasury securities	$	72,867	$	—	$	72,867	$	—
U.S. government agency securities	79,692		—		79,692		—
Mortgage-backed securities	1,463,907		—		1,463,907		—
State and municipal securities	1,714,453		—		1,698,550		15,903
Agency-backed securities	152,972		—		152,972		—
Corporate notes and other	56,104		—		56,104		—
Total investment securities available-for-sale	3,539,995		—		3,524,092		15,903
Other investments	63,291		—		25,135		38,156
Other assets	134,040		—		134,040		—
Total assets at fair value	$	3,737,326	$	—	$	3,683,267	$	54,059

Other liabilities	$	87,613	$	—	$	87,613	$	—
Total liabilities at fair value	$	87,613	$	—	$	87,613	$	—

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, 2020 and December 31, 2019 (in thousands):


September 30, 2020	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)
Other real estate owned	$	19,445	$	—	$	—	$	19,445

Collateral dependent loans (1)	77,798		—		—		77,798
Total	$	97,243	$	—	$	—	$	97,243

December 31, 2019
Other real estate owned	$	29,487	$	—	$	—	$	29,487
Impaired loans, net (1)	32,478		—		—		32,478
Total	$	61,965	$	—	$	—	$	61,965

(1) The carrying value of collateral dependent loans at September 30, 2020 is net of a valuation allowance of $10.7 million, and the carrying value of impaired loans at December 31, 2019 is net of a valuation allowance of $3.3 million.

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, 2020 and September 30, 2019 (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,
	2020				2019					2020	2019
	Available-for-sale Securities		Other investments			Available-for-sale Securities		Other investments			Available-for-sale Securities		Other investments		Available-for-sale Securities		Other investments
Fair value, beginning of period	$	15,295	$	40,612		$	15,263	$	31,522		$	15,903	$	38,156	$	14,595	$	26,422
Total realized gains included in income	27		456			29		1,264			82		4		87		2,193
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end	151		—			574		—			631		—		1,583		—
Purchases	—		1,095			—		1,777			—		4,822		—		6,965
Issuances	—		—			—		—			—		—		—		—
Settlements	—		(957)			—		(615)			(1,143)		(1,776)		(399)		(1,632)
Transfers out of Level 3	—		—			—		—			—		—		—		—
Fair value, end of period	$	15,473	$	41,206		$	15,866	$	33,948		$	15,473	$	41,206	$	15,866	$	33,948
Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at period-end	$	27	$	456		$	29	$	1,264		$	82	$	4	$	87	$	2,193

Carrying Amounts, Estimated Fair Value and Placement in the Fair Value Hierarchy of Financial Instruments

The following tables present the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at September 30, 2020 and December 31, 2019. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash, cash equivalents, and restricted cash, 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):


	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)
September 30, 2020
Financial assets:
Securities held-to-maturity	$	1,039,650	$	1,060,847	$	—	$	1,060,847	$	—
Loans, net	22,188,764		22,483,708		—		—		22,483,708
Consumer loans held-for-sale	82,748		84,877		—		84,877		—
Commercial loans held-for-sale	12,290		12,606		—		12,606		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	26,671,015		25,804,207		—		—		25,804,207
Federal Home Loan Bank advances	1,287,738		1,428,059		—		—		1,428,059
Subordinated debt and other borrowings	670,273		681,964		—		—		681,964

Off-balance sheet instruments:
Commitments to extend credit (2)	9,374,780		22,784		—		—		22,784


	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)

December 31, 2019
Financial assets:
Securities held-to-maturity	$	188,996	$	201,217	$	—	$	201,217	$	—
Loans, net	19,693,099		19,717,845		—		—		19,717,845
Consumer loans held-for-sale	81,820		82,986		—		82,986		—
Commercial loans held-for-sale	17,585		17,836		—		17,836		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	20,307,382		19,647,392		—		—		19,647,392
Federal Home Loan Bank advances	2,062,534		2,078,514		—		—		2,078,514
Subordinated debt and other borrowings	749,080		712,220		—		—		712,220

Off-balance sheet instruments:
Commitments to extend credit (2)	8,141,920		3,786		—		—		3,786

(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, including both commitments for unfunded loans and standby letters of credit. In making this evaluation, Pinnacle Financial utilizes credit loss expectations on funded loans from our allowance for credit losses methodology and evaluates the probability that the outstanding commitment will eventually become a funded loan. As a result, at September 30, 2020 and December 31, 2019, Pinnacle Financial included in other liabilities $21.2 million and $2.4 million, respectively, representing expected credit losses on off-balance sheet commitments, which are reflected in the estimated fair values of the related commitments. Also included in the fair values at September 30, 2020 and December 31, 2019 are unamortized fees related to these commitments of $1.6 million and $1.4 million, respectively.