Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments [Abstract]

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the financial instruments carried at fair value as of March 31, 2013 and December 31, 2012, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):

March 31, 2013	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)
Investment securities available-for-sale:
U.S. government agency securities	$	138,244	$	-	$	138,244	$	-
Mortgage-backed securities		371,857		-		371,857		-
State and municipal securities		145,107		-		145,107		-
Agency-backed securities		17,358		-		17,358		-
Corporate notes and other		10,979		-		10,979		-
Total investment securities available-for-sale		683,545		-		683,545	$	-
Alternative investments		4,663		-		-		4,663
Other assets		16,131		-		15,709		422
Total assets at fair value	$	704,339	$	-	$	699,254	$	5,085
Other liabilities	$	16,000	$	-	$	16,000	$	-
Total liabilities at fair value	$	16,000	$	-	$	16,000	$	-
December 31, 2012
Investment securities available-for-sale:
U.S. government agency securities	$	110,452	$	-	$	110,452	$	-
Mortgage-backed securities		375,651		-		375,651		-
State and municipal securities		191,727		-		191,727		-
Agency-backed securities		17,352				17,352
Corporate notes and other		11,396		-		11,396		-
Total investment securities available-for-sale		706,578		-		706,578		-
Alternative investments		4,214		-		-		4,214
Other assets		16,599		-		16,132		467
Total assets at fair value	$	727,391	$	-	$	722,710	$	4,681
Other liabilities	$	16,366	$	-	$	16,366	$	-
Total liabilities at fair value	$	16,366	$	-	$	16,366	$	-

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

March 31, 2013	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)		Total gains (losses) for the period ended
Other real estate owned	$	16,802	$	-	$	-	$	16,802	$	218
Nonaccrual loans, net (1)		20,088		-		-		20,088		2,192
Total	$	36,890	$	-	$	-	$	36,890	$	2,410
December 31, 2012
Other real estate owned	$	18,580	$	-	$	-	$	18,580	$	(5,428	)
Nonaccrual loans, net (1)		21,059		-		-		21,059		(4,745	)
Total	$	39,639	$	-	$	-	$	39,639	$	(10,173	)

(1)   Amount is net of a valuation allowance of $1.7 million at March 31, 2013 and $1.8 million at December 31, 2012 as required by ASC 310-10, "Receivables."

Rollforward of the Balance Sheet Amounts, Unobservable Input Reconciliation

The table below includes a rollforward of the balance sheet amounts for the three months ended March 31, 2013 (including the change in fair value) for financial instruments classified by Pinnacle Financial within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, since Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):

	For the three months ended March 31,
	2013				2012
	Other assets		Other liabilities		Other assets		Other liabilities
Fair value, January 1	$	4,681	$	-	$	3,400	$	-
Total realized gains included in income		100		-		115		-
Change in unrealized gains/losses included in other comprehensive income
for assets and liabilities still held at March 31		-		-		-		-
Purchases, issuances and settlements, net		304		-		71		-
Transfers out of Level 3		-		-		-		-
Fair value, March 31	$	5,085	$	-	$	3,586	$	-
Total realized gains included in income related to financial assets and liabilities
still on the consolidated balance sheet at March 31	$	100	$	-	$	115	$	-

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

The following table presents the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at March 31, 2013 and December 31, 2012.  This table excludes financial instruments for which the carrying amount approximates fair value.  For short-term financial assets such as cash and cash equivalents, 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) March 31, 2013		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)
Financial assets:
Securities held-to-maturity	$	40,459	$	40,377	$	-	$	40,377	$	-
Loans, net		3,702,952		3,408,914		-		-		3,408,914
Mortgage loans held-for-sale		30,327		30,999		-		30,999		-
Financial liabilities:
Deposits and securities sold under agreements to repurchase		4,031,994		3,988,176		-		-		3,988,176
Federal Home Loan Bank advances		200,796		200,526		-		-		200,526
Subordinated debt and other borrowings		105,533		80,229		-		-		80,229
Off-balance sheet instruments:
Commitments to extend credit (2)		1,118,203		2,605		-		-		2,605
Standby letters of credit (3)		68,554		266		-		-		266
December 31, 2012
Financial assets:
Securities held-to-maturity	$	575	$	583	$	-	$	583	$	-
Loans, net		3,642,744		3,358,435		-		-		3,358,435
Mortgage loans held for sale		41,195		42,425		-		42,425		-
Financial liabilities:
Deposits and securities sold under agreements to repurchase		4,129,855		4,084,314		-		-		4,084,314
Federal Home Loan Bank advances		75,850		76,350		-		-		76,350
Subordinated debt and other borrowings		106,158		83,862		-		-		83,862
Off-balance sheet instruments:
Commitments to extend credit (2)		1,030,723		1,594		-		-		1,594
Standby letters of credit (3)		74,679		304		-		-		304

(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.  In making this evaluation, Pinnacle Financial evaluates the credit worthiness of the borrower, the collateral supporting the commitments and any other factors similar to those used to evaluate the inherent risks of our loan portfolio.  Additionally, Pinnacle Financial evaluates the probability that the outstanding commitment will eventually become a funded loan.  As a result, at March 31, 2013 and December 31, 2012, Pinnacle Financial included in other liabilities $2.9 million and $1.9 million, respectively, representing the inherent risks associated with these off-balance sheet commitments.

(3)   At March 31, 2013 and December 31, 2012, the fair value of Pinnacle Financial's standby letters of credit was $266,000 and $304,000, respectively.  This amount represents the unamortized fee associated with these standby letters of credit and is included in the consolidated balance sheet of Pinnacle Financial and is believed to approximate fair value.  This fair value will decrease over time as the existing standby letters of credit approach their expiration dates.