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Loans and Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Loans and Allowance for Credit Losses
Note 4. Loans and Allowance for Credit Losses

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).

Pinnacle Financial uses the following loan categories for presentation of loan balances and the related allowance for credit losses on loans:
•Owner occupied commercial real estate mortgage loans - Owner occupied commercial real estate mortgage loans are secured by commercial office buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such loans, repayment is largely dependent upon the operation of the borrower's business.
•Non-owner occupied commercial real estate loans - These loans represent investment real estate loans secured by office buildings, industrial buildings, warehouses, retail buildings, and multifamily residential housing. Repayment is primarily dependent on lease income generated from the underlying collateral.
•Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by 1-4 family residential properties, including home equity lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.
•Construction and land development loans - Construction and land development loans include loans where the repayment is dependent on the successful completion and eventual sale, refinance or 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 and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily dependent on business cash flows.
•Consumer and other loans - Consumer and other loans include all loans issued to individuals not included in the consumer real estate mortgage classification. Examples of consumer and other loans are automobile loans, consumer credit cards and loans to finance education, among others. Many consumer loans are unsecured. Repayment is primarily dependent on the personal cash flow of the borrower.

Loans at September 30, 2023 and December 31, 2022 were as follows (in thousands):
September 30, 2023December 31, 2022
Commercial real estate:
Owner occupied$3,944,616 $3,587,257
Non-owner occupied7,447,610 6,542,619
Consumer real estate – mortgage4,768,780 4,435,046
Construction and land development3,942,143 3,679,498
Commercial and industrial11,307,611 10,241,362
Consumer and other532,524 555,823
Subtotal$31,943,284 $29,041,605 
Allowance for credit losses(346,192)(300,665)
Loans, net$31,597,092 $28,740,940 

Commercial loans receive risk ratings assigned by a 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 multiple ratings categories representing varying degrees of risk attributes that are less than those of the other defined risk categories further described below. Pinnacle Financial believes its categories follow those used by Pinnacle Bank's primary regulators. At September 30, 2023, approximately 79.2% of Pinnacle Financial's loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating. 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. Consumer loans that have been placed on nonaccrual but have not otherwise been assigned a risk rating are believed by management to share risk characteristics with loans rated substandard-nonaccrual and have been presented as such in Pinnacle Financial's risk rating disclosures.
 
Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, Pinnacle Financial's credit procedures require every risk rated loan of $1.5 million or more be subject to a formal credit risk review process. Each loan's risk rating is also subject to review by Pinnacle Financial's independent loan review department, which reviews a substantial portion of Pinnacle Financial's risk rated portfolio annually. Included in the coverage are independent reviews of loans in targeted higher-risk portfolio segments such as certain commercial and industrial loans, land loans and/or loan types in certain geographies.

Following are the definitions of the risk rating categories used by Pinnacle Financial. Pass rated loans include all credits other than those included within these categories:

•Special mention loans have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle Financial's credit position at some future date.
•Substandard loans are inadequately protected by the current net worth and financial 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 could sustain some loss if the deficiencies are not corrected.
•Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.
•Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.


The table below presents loan balances classified within each risk rating category and the current period gross charge-offs by primary loan type and year of origination or most recent renewal as of September 30, 2023 (in thousands):
September 30, 202320232022202120202019PriorRevolving LoansTotal
Commercial real estate - owner occupied
Pass$564,968 $1,140,655 $869,651 $518,137 $299,408 $410,623 $47,514 $3,850,956 
Special Mention1,489 38,361 238 3,986 5,429 3,089 15,614 68,206 
Substandard (1)
5,528 8,940 3,043 1,662 569 621 — 20,363 
Substandard-nonaccrual986 660 — 2,360 — 1,085 — 5,091 
Doubtful-nonaccrual— — — — — — — — 
Total Commercial real estate - owner occupied$572,971 $1,188,616 $872,932 $526,145 $305,406 $415,418 $63,128 $3,944,616 
Current period gross charge-offs$— — — — — — — $— 
Commercial real estate - non-owner occupied
Pass$1,005,075 $2,663,004 $1,721,620 $779,796 $589,720 $458,572 $110,497 $7,328,284 
Special Mention3,174 30,455 — 6,788 218 7,348 — 47,983 
Substandard (1)
24,641 2,974 40,156 — 1,216 562 — 69,549 
Substandard-nonaccrual1,641 153 — — — — — 1,794 
Doubtful-nonaccrual— — — — — — — — 
Total Commercial real estate - non-owner occupied$1,034,531 $2,696,586 $1,761,776 $786,584 $591,154 $466,482 $110,497 $7,447,610 
Current period gross charge-offs$— — — — — — — $— 
Consumer real estate – mortgage
Pass$507,284 $990,832 $1,062,479 $455,584 $212,988 $329,196 $1,190,763 $4,749,126 
Special Mention— — — — — — — — 
Substandard (1)
— — — — — — — — 
Substandard-nonaccrual256 1,372 2,743 4,412 6,427 3,848 596 19,654 
Doubtful-nonaccrual— — — — — — — — 
Total Consumer real estate – mortgage$507,540 $992,204 $1,065,222 $459,996 $219,415 $333,044 $1,191,359 $4,768,780 
Current period gross charge-offs$— (85)(80)(6)(49)(378)— $(598)
Construction and land development
Pass$888,677 $1,843,853 $1,054,829 $69,024 $12,317 $7,138 $41,491 $3,917,329 
Special Mention3,419 16,107 887 4,318 — — — 24,731 
Substandard (1)
— — — — — 83 — 83 
Substandard-nonaccrual— — — — — — — — 
Doubtful-nonaccrual— — — — — — — — 
Total Construction and land development$892,096 $1,859,960 $1,055,716 $73,342 $12,317 $7,221 $41,491 $3,942,143 
Current period gross charge-offs$— — — — — (3)— $(3)
Commercial and industrial
Pass$3,094,118 $2,341,941 $1,229,428 $349,426 $240,221 $167,914 $3,675,820 $11,098,868 
Special Mention11,668 10,675 33,138 1,698 165 2,355 54,795 114,494 
Substandard (1)
11,538 1,208 1,154 1,974 1,494 9,068 51,484 77,920 
Substandard-nonaccrual8,624 4,524 1,786 96 377 388 534 16,329 
Doubtful-nonaccrual— — — — — — — — 
 Total Commercial and industrial$3,125,948 $2,358,348 $1,265,506 $353,194 $242,257 $179,725 $3,782,633 $11,307,611 
Current period gross charge-offs$(2,170)(20,287)(9,840)(686)(88)(301)(11,786)$(45,158)
Consumer and other
Pass$136,325 $32,958 $72,241 $40,743 $712 $752 $248,711 $532,442 
Special Mention— — — — — — — — 
Substandard (1)
— — — — — — — — 
September 30, 202320232022202120202019PriorRevolving LoansTotal
Substandard-nonaccrual— 5 — — — — 77 82 
Doubtful-nonaccrual— — — — — — — — 
Total Consumer and other$136,325 $32,963 $72,241 $40,743 $712 $752 $248,788 $532,524 
Current period gross charge-offs$(29)(436)(5,236)(2,183)(140)(64)(3,769)$(11,857)
Total loans
Pass$6,196,447 $9,013,243 $6,010,248 $2,212,710 $1,355,366 $1,374,195 $5,314,796 $31,477,005 
Special Mention19,750 95,598 34,263 16,790 5,812 12,792 70,409 255,414 
Substandard (1)
41,707 13,122 44,353 3,636 3,279 10,334 51,484 167,915 
Substandard-nonaccrual11,507 6,714 4,529 6,868 6,804 5,321 1,207 42,950 
Doubtful-nonaccrual— — — — — — — — 
Total loans$6,269,411 $9,128,677 $6,093,393 $2,240,004 $1,371,261 $1,402,642 $5,437,896 $31,943,284 
Current period gross charge-offs$(2,199)(20,808)(15,156)(2,875)(277)(746)(15,555)$(57,616)
(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 loan modifications made to borrowers experiencing financial difficulty. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $134.5 million at September 30, 2023, compared to $53.8 million at December 31, 2022.

The table below presents the aging of past due balances by loan segment at September 30, 2023 and December 31, 2022 (in thousands):

September 30, 202330-59 days past due60-89 days past due90 days or more past dueTotal
past due		CurrentTotal loans
Commercial real estate:
Owner occupied$3,218 $202 $4,947 $8,367 $3,936,249 $3,944,616 
Non-owner occupied214 — 153 367 7,447,243 7,447,610 
Consumer real estate – mortgage3,361 16,926 9,767 30,054 4,738,726 4,768,780 
Construction and land development154 227 — 381 3,941,762 3,942,143 
Commercial and industrial14,889 4,521 18,012 37,422 11,270,189 11,307,611 
Consumer and other3,589 1,907 1,361 6,857 525,667 532,524 
Total$25,425 $23,783 $34,240 $83,448 $31,859,836 $31,943,284 
December 31, 2022
Commercial real estate:
Owner occupied$2,112 $615 $1,139 $3,866 $3,583,391 $3,587,257 
Non-owner occupied359 48 1,681 2,088 6,540,531 6,542,619 
Consumer real estate – mortgage13,635 83 9,094 22,812 4,412,234 4,435,046 
Construction and land development221 102 130 453 3,679,045 3,679,498 
Commercial and industrial15,457 13,713 9,428 38,598 10,202,764 10,241,362 
Consumer and other4,056 1,688 746 6,490 549,333 555,823 
Total$35,840 $16,249 $22,218 $74,307 $28,967,298 $29,041,605 
The following table details the changes in the allowance for credit losses for the three and nine months ended September 30, 2023 and 2022, respectively, by loan classification (in thousands):
 Commercial real estate - owner occupiedCommercial real estate - non-owner occupiedConsumer
 real estate - mortgage		Construction and land developmentCommercial and industrialConsumer
and other		Total
Three months ended September 30, 2023:
Balance at June 30, 2023$26,497 $55,108 $59,374 $38,855 $148,418 $9,207 $337,459 
Charged-off loans— — (168)(3)(20,330)(4,208)(24,709)
Recovery of previously charged-off loans52 44 374 86 3,831 2,229 6,616 
Provision for credit losses on loans1,329 2,097 10,917 (1,908)12,383 2,008 26,826 
Balance at September 30, 2023$27,878 $57,249 $70,497 $37,030 $144,302 $9,236 $346,192 
Three months ended September 30, 2022:      
Balance at June 30, 2022$19,609 $52,547 $33,883 $28,681 $125,772 $11,991 $272,483 
Charged-off loans(447)(99)(155)— (13,029)(3,969)(17,699)
Recovery of previously charged-off loans1,039 — 426 15 2,869 2,367 6,716 
Provision for credit losses on loans(132)(1,884)1,311 (75)24,673 2,695 26,588 
Balance at September 30, 2022$20,069 $50,564 $35,465 $28,621 $140,285 $13,084 $288,088 
Nine months ended September 30, 2023:      
Balance at December 31, 2022$26,617 $40,479 $36,536 $36,114 $144,353 $16,566 $300,665 
Charged-off loans— — (598)(3)(45,158)(11,857)(57,616)
Recovery of previously charged-off loans66 1,233 1,989 337 11,959 6,877 22,461 
Provision for credit losses on loans1,195 15,537 32,570 582 33,148 (2,350)80,682 
Balance at September 30, 2023$27,878 $57,249 $70,497 $37,030 $144,302 $9,236 $346,192 
Nine months ended September 30, 2022:      
Balance at December 31, 2021$19,618 $58,504 $32,104 $29,429 $112,340 $11,238 $263,233 
Charged-off loans(1,412)(284)(409)(150)(22,684)(8,445)(33,384)
Recovery of previously charged-off loans1,373 247 1,298 164 10,393 5,091 18,566 
Provision for credit losses on loans490 (7,903)2,472 (822)40,236 5,200 39,673 
Balance at September 30, 2022$20,069 $50,564 $35,465 $28,621 $140,285 $13,084 $288,088 

The adequacy of the allowance for credit losses is reviewed by Pinnacle Financial's management on a quarterly basis. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay the loan (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the allowance for credit losses maintained by management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. During the second quarter of 2023, Pinnacle Financial implemented updated CECL models in an effort to ensure that risk in its portfolio continues to be adequately captured given the uncertain state of the economy.

CECL methodology requires the allowance for credit losses to be measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For commercial real estate, consumer real estate, construction and land development, and commercial and industrial loans, Pinnacle Financial primarily utilizes a probability of default and loss given default modeling approach. These models utilize historical correlations between default and loss experience, loan level attributes, and certain macroeconomic factors as determined through a statistical regression analysis. Segments using this approach incorporate various economic drivers.

Under the current model, commercial and industrial loans consider gross domestic product (GDP), the consumer credit index and the national unemployment rate, commercial construction loans and commercial real estate loans including nonowner occupied and owner occupied commercial real estate loans consider the national unemployment rate and the commercial property and commercial real estate price indices, construction and land development loans consider the commercial property, consumer credit and home price
indices dependent upon their use as residential versus commercial, consumer real estate loans consider the home price index and household debt ratio and other consumer loans consider the national unemployment rate and the household financial obligations ratio.

Under the previous model, all loan segments considered changes in the national unemployment rate. In addition to the national unemployment rate, GDP and the three-month treasury rate were considered for owner occupied commercial real estate loans, the commercial real estate price index and the five-year treasury rate were considered for construction loans, and the three-month treasury rate was considered for commercial and industrial loans.

A third-party provides management with quarterly macroeconomic scenarios, which management evaluates to determine the best estimate of the expected losses. For the consumer and other loan segment, a non-statistical approach based on historical charge off rates is utilized. The implementation of the new model including the addition of, and changes to, macroeconomic factors considered had no material effect on the overall allowance for credit losses.

Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. The reasonable and supportable period and reversion period are re-evaluated each quarter by Pinnacle Financial and are dependent on the current economic environment among other factors. A reasonable and supportable period of eighteen months was utilized for all loan segments at September 30, 2023 as compared to twenty-four months at December 31, 2022, followed by a twelve month straight line reversion to long term averages at each measurement date.

The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. These adjustments are based upon quarterly trend assessments in portfolio concentrations, policy exceptions, associate retention, independent loan review results, competition and peer group credit quality trends. The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $1.0 million which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, as of September 30, 2023 and December 31, 2022 (in thousands):
Real EstateBusiness AssetsOtherTotal
September 30, 2023
Commercial real estate:
Owner occupied$24,243 $— $— $24,243 
Non-owner occupied28,933 — — 28,933 
Consumer real estate – mortgage22,435 — — 22,435 
Construction and land development61 — — 61 
Commercial and industrial— 24,618 630 25,248 
Consumer and other— — — — 
Total $75,672 $24,618 $630 $100,920 
December 31, 2022
Commercial real estate:
Owner occupied$10,804 $— $— $10,804 
Non-owner occupied4,795 — — 4,795 
Consumer real estate – mortgage22,466 — — 22,466 
Construction and land development299 — — 299 
Commercial and industrial— 12,327 — 12,327 
Consumer and other— — 2 2 
Total $38,364 $12,327 $2 $50,693 

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. Pinnacle Financial uses a probability of default/loss given
default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, a loan modification will be granted by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, a loan restructuring will result in providing multiple types of modifications. Typically, one type of modification, such as a payment delay or term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness or an interest rate reduction, may be granted. Additionally, multiple types of modifications may be made on the same loan within the current reporting period. Such a combination is at least two of the following: a payment delay, term extension, principal forgiveness, and interest rate reduction. Upon determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023 (all of which modifications occurred in the three months ended September 30, 2023), disaggregated by class of loans and type of modification granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty (in thousands):
Three and nine months ended September 30, 2023
Payment DelayTerm ExtensionCombination¹
Total%Total%Total%Total
Commercial real estate:
Owner occupied$— — %$5,528 0.14 %$— — %$5,528 
Non-owner occupied11,165 0.15 %— — %13,476 0.18 %24,641 
Consumer real estate – mortgage— — %— — %— — %— 
Construction and land development— — %— — %— — %— 
Commercial and industrial— — %3,225 0.03 %— — %3,225 
Consumer and other— — %— — %— — %— 
Total $11,165 $8,753 $13,476 $33,394 
¹ The combination includes payment delay, term extension, and an interest rate reduction.

Three and nine months ended September 30, 2023
Financial Effect
Payment Delay:
Non-owner occupiedImplemented interest-only payments until loan maturity
Term Extension:
Owner OccupiedAdded a weighted average 0.25 years to the term of the modified loans
Commercial and industrialAdded a weighted average 0.25 years to the term of the modified loans
Combination:
Non-owner OccupiedReduced weighted average contractual interest rate by 0.55%, added a weighted average 2 years to the term, and implemented an alternative payment schedule until loan maturity

None of the loans included in the tables above were subsequently past due in the months following modification. Additionally, none had a payment default in the nine months ended September 30, 2023 and none had been modified within the previous twelve months. Pinnacle Financial charged off $357,000 of previously modified commercial and industrial loans during the three months ended September 30, 2023.

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, 2023 and December 31, 2022. Also presented is the balance of loans on nonaccrual status at
September 30, 2023 for which there was no related allowance for credit losses recorded (in thousands):
September 30, 2023December 31, 2022
Total nonaccrual loansNonaccrual loans with no allowance for credit lossesLoans past due 90 or more days and still accruingTotal nonaccrual loansNonaccrual loans with no allowance for credit lossesLoans past due 90 or more days and still accruing
Commercial real estate:
Owner occupied$5,091 $2,339 $— $1,882 $— $— 
Non-owner occupied1,794 1,641 — 2,244 1,040 — 
Consumer real estate – mortgage19,654 1,299 — 17,330 — — 
Construction and land development— — — 231 — — 
Commercial and industrial16,329 — 3,608 16,345 8,003 3,663 
Consumer and other82 — 1,361 84 — 743 
Total$42,950 $5,279 $4,969 $38,116 $9,043 $4,406 
Pinnacle Financial's policy is 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 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 no interest income from cash payments received on nonaccrual loans during the three and nine months ended September 30, 2023 and 2022, respectively. Had these loans been on accruing status, an additional $1.2 million and $3.1 million of interest income would have been recognized for the three and nine months ended September 30, 2023, respectively, compared to an additional $240,000 and $864,000 for the three and nine months ended September 30, 2022, respectively. Approximately $9.2 million and $6.4 million of nonaccrual loans were performing pursuant to their contractual terms as of September 30, 2023 and December 31, 2022, respectively.

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, 2023 with the comparative exposures for December 31, 2022 (in thousands):
 September 30, 2023 
 Outstanding Principal BalancesUnfunded CommitmentsTotal exposureTotal Exposure at December 31, 2022
Lessors of nonresidential buildings$4,672,499 $1,545,847 $6,218,346 $7,058,045 
Lessors of residential buildings1,793,549 1,296,827 3,090,376 3,725,186 
New Housing For-Sale Builders547,566 918,711 1,466,277 1,763,089 
Music Publishers744,947 477,077 1,222,024 1,127,636 

Among other data, Pinnacle Financial monitors two ratios regarding construction and commercial real estate lending as part of its concentration management processes. 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 September 30, 2023 and December 31, 2022, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital were 83.1% and 85.9%, 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 256.4% and 249.6% as of September 30, 2023 and December 31, 2022, 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 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. At September 30, 2023, Pinnacle Bank was within the 100% and 300% guidelines and has established what it believes to be appropriate monitoring of its lending in these areas as it aims to keep the level of these loans below the 100% and 300% thresholds.

At September 30, 2023, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $38.3 million to current directors, executive officers, and their related interests, of which $34.4 million had been drawn upon. At December 31, 2022, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $20.9 million to directors, executive
officers, and their related interests, of which approximately $16.0 million had been drawn upon. All loans to directors, executive officers, and their related interests were performing in accordance with contractual terms at September 30, 2023 and December 31, 2022.

Loans Held for Sale

At September 30, 2023, Pinnacle Financial had approximately $20.5 million in commercial loans held for sale compared to $21.1 million at December 31, 2022. These include 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. Also included are commercial loans originated for sale to BHG as part of BHG's alternative financing portfolio.

At September 30, 2023, Pinnacle Financial had approximately $25.1 million of mortgage loans held-for-sale compared to approximately $12.9 million at December 31, 2022. Total mortgage loan volumes sold during the nine months ended September 30, 2023 were approximately $511.3 million compared to approximately $691.7 million for the nine months ended September 30, 2022. During the three and nine months ended September 30, 2023, Pinnacle Financial recognized $2.0 million and $5.6 million, respectively, in gains on the sale of these loans, net of commissions paid, compared to $1.1 million and $7.3 million, respectively, during the three and nine months ended September 30, 2022.

These residential 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.
 
Each purchaser of a residential mortgage loan held-for-sale has specific guidelines and criteria for sellers of loans and the risk of credit loss with regard to the principal amount of the loans sold is generally transferred to the purchasers upon sale. While the loans are sold without recourse, the purchase agreements require Pinnacle Bank to make certain representations and warranties regarding the existence and sufficiency of file documentation and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. If it is determined that the loans sold were in breach of these representations or warranties, Pinnacle Bank has obligations to either repurchase the loan for the unpaid principal balance and related investor fees or make the purchaser whole for the economic benefits of the loan. To date, Pinnacle Bank's liability pursuant to the terms of these representations and warranties has been insignificant.