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Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2017
Receivables [Abstract]  
Loans and Allowance for Loan Losses
Note 6.  Loans and Allowance for Loan 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 with the Federal Deposit Insurance Corporation (FDIC).
 
Pinnacle Financial uses five loan categories: commercial real estate mortgage, consumer real estate mortgage, construction and land development, commercial and industrial, consumer and other.
 
•
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 also includes owner occupied commercial real estate which shares a similar risk profile to our commercial and industrial products.
•
Consumer real-estate mortgage loans. Consumer real-estate mortgage consists primarily of loans secured by 1-4 residential properties including home equity lines of credit.
•
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 and industrial loans. Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other professional purposes.
•
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, credit cards and loans to finance education, among others.

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, 2017, approximately 81.4% 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, land loans and/or loan types in certain geographies.

The following table presents our loan balances by primary loan classification and the amount within each risk rating category. Pass-rated loans include all credits other than those included in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:

•
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 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.
•
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 following table outlines the amount of each loan classification categorized into each risk rating category as of December 31, 2017 and 2016 (in thousands):
December 31, 2017
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer
and other
 
Total
Pass
$
6,487,368

 
$
2,503,688

 
$
1,880,704

 
$
4,014,656

 
$
351,359

 
$
15,237,775

Special Mention
94,134

 
18,356

 
8,148

 
46,898

 
1,177

 
168,713

Substandard (1)
72,044

 
21,053

 
13,468

 
62,529

 
79

 
169,173

Substandard-nonaccrual
16,064

 
18,117

 
5,968

 
17,258

 
48

 
57,455

Doubtful-nonaccrual
—

 
—

 
—

 
—

 
—

 
—

Total loans
$
6,669,610

 
$
2,561,214

 
$
1,908,288

 
$
4,141,341

 
$
352,663

 
$
15,633,116

December 31, 2016
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer
and other
 
Total
Pass
$
3,137,452

 
$
1,160,361

 
$
897,556

 
$
2,782,713

 
$
264,723

 
$
8,242,805

Special Mention
21,449

 
1,856

 
2,716

 
25,641

 
802

 
52,464

Substandard (1)
29,674

 
15,627

 
5,788

 
75,861

 
129

 
127,079

Substandard-nonaccrual
4,921

 
8,073

 
6,613

 
7,492

 
475

 
27,574

Doubtful-nonaccrual
—

 
—

 
—

 
3

 
—

 
3

Total loans
$
3,193,496

 
$
1,185,917

 
$
912,673

 
$
2,891,710

 
$
266,129

 
$
8,449,925


(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 the impact of substandard nonperforming loans and substandard troubled debt restructurings. Potential problem loans, which are not included in nonperforming assets, amounted to approximately $164.0 million at December 31, 2017, compared to $114.6 million at December 31, 2016.

At December 31, 2017 and 2016, all loans classified as nonaccrual were deemed to be impaired. The principal balances of these nonaccrual loans amounted to $57.5 million and $27.6 million at December 31, 2017 and 2016, respectively, and are included in the table above.  For the twelve months ended December 31, 2017, the average balance of nonaccrual loans was $66.0 million as compared to $35.1 million for the twelve months ended December 31, 2016. 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 $2.7 million, $2.1 million and $2.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.
 
The following table provides a rollforward of purchase credit impaired loans from December 31, 2016 through December 31, 2017 (in thousands):
 
Gross Carrying Value
 
Accretable Yield
 
Nonaccretable Yield
 
Carrying Value
 
 
 
 
 
 
 
 
December 31, 2015
$
16,274

 
$
—

 
$
(4,143
)
 
$
12,131

Acquisitions
1,359

 
—

 
(812
)
 
547

Settlements, net
(5,165
)
 
—

 
1,322

 
(3,843
)
December 31, 2016
12,468

 
—

 
(3,633
)
 
8,835

Acquisitions
80,812

 
(196
)
 
(32,314
)
 
48,302

Settlements, net
(18,956
)
 
64

 
4,410

 
(14,482
)
December 31, 2017
$
74,324

 
$
(132
)
 
$
(31,537
)
 
$
42,655



These loans were deemed to be collateral dependent at the time of acquisition. 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.

Purchase credit impaired loans purchased during the year ended December 31, 2017 for which it was probable at acquisition that all contractually required payments would not be collected are as follows (in thousands):
 
December 31,
 
2017
2016
2015
Contractually required payments receivable
$
94,312

$
1,359

$
19,960

Cash flows expected to be collected at acquisition
48,498

547

14,257

Fair value of acquired loans at acquisition
48,302

547

14,257



The following tables detail the recorded investment, unpaid principal balance and related allowance and average recorded investment of our nonaccrual loans at December 31, 2017, 2016 and 2015 by loan classification and the amount of interest income recognized on a cash basis throughout the year-to-date period then ended, respectively, on these loans that remain on the balance sheets (in thousands):
 
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
Collateral dependent nonaccrual loans:
 
 
 
 
 
 
 
 
 
Commercial real estate – mortgage
$
13,570

 
$
16,631

 
$
38

 
$
13,839

 
$
—

Consumer real estate – mortgage
10,093

 
14,309

 
115

 
11,216

 
—

Construction and land development
5,735

 
10,273

 
6

 
5,935

 
95

Commercial and industrial
2,135

 
3,533

 
362

 
2,980

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

Total
$
31,533

 
$
44,746

 
$
521

 
$
33,970

 
$
95

 
 
 
 
 
 
 
 
 
 
Cash flow dependent nonaccrual loans:
 

 
 

 
 

 
 

 
 

Commercial real estate – mortgage
$
2,494

 
$
2,505

 
$
95

 
$
3,463

 
$
—

Consumer real estate – mortgage
8,024

 
8,079

 
411

 
10,076

 
—

Construction and land development
233

 
233

 
12

 
438

 
—

Commercial and industrial
15,171

 
15,224

 
1,278

 
18,027

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

Total
$
25,922

 
$
26,041

 
$
1,796

 
$
32,004

 
$
—

 
 
 
 
 
 
 
 
 
 
Total Nonaccrual Loans
$
57,455

 
$
70,787

 
$
2,317

 
$
65,974

 
$
95

 
December 31, 2016
 
For the year ended
December 31, 2016
 
Recorded investment
 
Unpaid principal balance
 
Related allowance
 
Average recorded investment
 
Cash basis
interest income recognized
Collateral dependent nonaccrual loans:
 
 
 
 
 
 
 
 
 
Commercial real estate – mortgage
$
2,308

 
$
2,312

 
$
—

 
$
2,540

 
$
—

Consumer real estate – mortgage
2,880

 
2,915

 
—

 
2,907

 
—

Construction and land development
3,128

 
3,135

 
—

 
3,132

 
159

Commercial and industrial
6,373

 
6,407

 
—

 
8,841

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

Total
$
14,689

 
$
14,769

 
$
—

 
$
17,420

 
$
159

 
 
 
 
 
 
 
 
 
 
Cash flow dependent nonaccrual loans:
 

 
 

 
 

 
 

 
 

Commercial real estate – mortgage
$
2,613

 
$
3,349

 
$
59

 
$
2,688

 
$
—

Consumer real estate – mortgage
5,193

 
5,775

 
688

 
5,966

 
—

Construction and land development
3,485

 
4,154

 
20

 
3,476

 
—

Commercial and industrial
1,122

 
2,714

 
77

 
2,884

 
—

Consumer and other
475

 
851

 
227

 
2,624

 
—

Total
$
12,888

 
$
16,843

 
$
1,071

 
$
17,638

 
$
—

 
 
 
 
 
 
 
 
 
 
Total Nonaccrual Loans
$
27,577

 
$
31,612

 
$
1,071

 
$
35,058

 
$
159

 
December 31, 2015
 
For the year ended
December 31, 2015
 
Recorded investment
 
Unpaid principal balance
 
Related allowance
 
Average recorded investment
 
Cash basis
interest income recognized
Collateral dependent nonaccrual loans:
 
 
 
 
 
 
 
 
 
Commercial real estate – mortgage
$
4,411

 
$
5,659

 
$
—

 
$
2,253

 
$
—

Consumer real estate – mortgage
5,596

 
6,242

 
—

 
3,067

 
—

Construction and land development
7,531

 
7,883

 
—

 
4,317

 
308

Commercial and industrial
1,420

 
3,151

 
—

 
1,527

 
—

Consumer and other
—

 
—

 
—

 
—

 
—

Total
$
18,958

 
$
22,935

 
$
—

 
$
11,164

 
$
308

 
 
 
 
 
 
 
 
 
 
Cash flow dependent nonaccrual loans:
 

 
 

 
 

 
 

 
 

Commercial real estate – mortgage
$
1,410

 
$
1,661

 
$
20

 
$
1,466

 
$
—

Consumer real estate – mortgage
3,750

 
4,098

 
616

 
3,815

 
—

Construction and land development
76

 
125

 
12

 
87

 
—

Commercial and industrial
263

 
281

 
19

 
168

 
—

Consumer and other
4,902

 
5,341

 
3,002

 
4,913

 
—

Total
$
10,401

 
$
11,506

 
$
3,669

 
$
10,449

 
$
—

 
 
 
 
 
 
 
 
 
 
Total Nonaccrual Loans
$
29,359

 
$
34,441

 
$
3,669

 
$
21,613

 
$
308



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 approximately $95,000, $159,000 and $308,000 in interest income from cash payments received on nonaccrual loans during the years ended December 31, 2017, 2016, and 2015, respectively.

At December 31, 2017 and 2016, there were $6.6 million and $15.0 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.

The following table outlines the amount of each troubled debt restructuring by loan classification made during the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):
 
Number
of contracts
 
Pre Modification Outstanding Recorded Investment
 
Post Modification Outstanding Recorded Investment, net of related allowance
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

December 31, 2016
 
 
Commercial real estate – mortgage
—

 
$
—

 
$
—

Consumer real estate – mortgage
—

 
—

 
—

Construction and land development
—

 
—

 
—

Commercial and industrial
6

 
11,084

 
11,083

Consumer and other
—

 
—

 
—

 
6

 
$
11,084

 
$
11,083

 
 
 
 
 
 
 
Number
of contracts
 
Pre Modification Outstanding Recorded Investment
 
Post Modification Outstanding Recorded Investment, net of related allowance
 
 
 
 
 
 
December 31, 2015
 
 
Commercial real estate – mortgage
1

 
$
223

 
$
185

Consumer real estate – mortgage
—

 
—

 
—

Construction and land development
—

 
—

 
—

Commercial and industrial
1

 
434

 
337

Consumer and other
—

 
—

 
—

 
2

 
$
657

 
$
522


During the years ended December 31, 2017, 2016 and 2015, Pinnacle Financial had no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring. A default is defined as an occurrence which violates the terms of the receivable's contract.

At December 31, 2017 and 2016, the allowance for loan losses included no allowance and $21,000, respectively, specifically related to accruing troubled debt restructurings, which 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, 2017 with the comparative exposures for December 31, 2016 (in thousands):
 
At December 31, 2017
 
 
 
Outstanding Principal Balances
 
Unfunded Commitments
 
Total exposure
 
Total Exposure at
December 31, 2016
 
 
 
 
 
 
 
 
Lessors of nonresidential buildings
$
2,778,454

 
$
32,497

 
$
2,810,951

 
$
1,701,853

Lessors of residential buildings
870,777

 
13,467

 
884,244

 
874,234

Hotels and motels
627,126

 
1,865

 
628,991

 
291,865



Additionally, 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 December 31, 2017 and 2016, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital was 89.4% and 80.3%, respectively.  Non-owner occupied commercial real estate and multifamily loans (including construction and loan development loans) was 297.1% and 256.0% for December 31, 2017 and 2016, 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. Should a bank’s ratios be in excess of these guidelines, banking regulations generally require an increased level of monitoring in these lending areas by bank management.  At both December 31, 2017 and 2016, Pinnacle Bank’s computed ratios were below the applicable regulatory guidelines.  Pinnacle Bank believes that it has the appropriate monitoring controls in place should it exceed the regulatory guidelines in a future period.

The table below presents past due balances at December 31, 2017 and 2016, by loan classification and segment allocated between performing and nonperforming status (in thousands):
 
30-89 days past due and performing
90 days or more past due and performing
Total past due and performing
Current
and accruing
Purchase credit impaired
Nonaccrual (1)
Nonaccruing purchase credit impaired
Total
Loans
December 31, 2017
 
 
 
 
 
 
 
 
Commercial real estate:
 
 
 
 
 
 
 
 
Owner-occupied
$
6,772

$
104

$
6,876

$
2,435,819

$
4,820

$
11,395

$
1,105

$
2,460,015

All other
16,559

—

16,559

4,177,454

12,018

704

2,860

4,209,595

Consumer real estate – mortgage
14,835

1,265

16,100

2,521,748

5,249

9,320

8,797

2,561,214

Construction and land development
4,136

146

4,282

1,894,560

3,478

2,878

3,090

1,908,288

Commercial and industrial
7,406

1,348

8,754

4,114,127

1,154

17,222

84

4,141,341

Consumer and other
6,311

1,276

7,587

345,076

—

—

—

352,663

 
$
56,019

$
4,139

$
60,158

$
15,488,784

$
26,719

$
41,519

$
15,936

$
15,633,116

 
 
 
 
 
 
 
 
 
December 31, 2016
 

 

 

 

 
 

 

 

Commercial real estate:
 

 

 

 

 
 

 

 

Owner-occupied
$
3,505

$
—

$
3,505

$
1,347,134

$
—

$
2,297

$
1,957

$
1,354,893

All other
—

—

—

1,837,936

—

239

428

1,838,603

Consumer real estate – mortgage
3,838

53

3,891

1,173,953

—

5,553

2,520

1,185,917

Construction and land development
2,210

—

2,210

903,850

—

3,205

3,408

912,673

Commercial and industrial
4,475

—

4,475

2,879,740

—

6,971

524

2,891,710

Consumer and other
7,168

1,081

8,249

257,405

—

475

—

266,129

 
$
21,196

$
1,134

$
22,330

$
8,400,018

$
—

$
18,740

$
8,837

$
8,449,925


(1)
Approximately $45.8 million and $16.7 million of nonaccrual loans as of December 31, 2017 and 2016, respectively, are currently performing pursuant to their contractual terms.

The following table details the changes in the allowance for loan losses from December 31, 2015 to December 31, 2016 to December 31, 2017 by loan classification and the allocation of allowance for loan losses (in thousands):
 
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, 2014
$
22,202

$
5,424

$
5,724

$
29,167

$
1,570

$
3,272

$
67,359

Charged-off loans
(384
)
(365
)
(190
)
(2,207
)
(18,002
)
—

(21,148
)
Recovery of previously charged-off loans
85

874

1,479

1,730

5,865

—

10,033

Provision for loan losses
(6,390
)
1,287

(4,110
)
(5,047
)
26,183

(2,735
)
9,188

Balance at December 31, 2015
$
15,513

$
7,220

$
2,903

$
23,643

$
15,616

$
537

$
65,432

 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
15,452

$
6,109

$
2,891

$
22,669

$
12,609

 

$
59,730

Individually evaluated for impairment
61

1,111

12

974

3,007

 

5,165

Loans acquired with deteriorated credit quality
—

—

—

—

—

 

—

Balance at December 31, 2015
$
15,513

$
7,220

$
2,903

$
23,643

$
15,616

$
537

$
65,432

 
 
 
 
 
 
 
 
Loans:
 

 

 

 

 

 

 

Collectively evaluated for impairment
$
2,269,439

$
1,033,479

$
740,090

$
2,222,714

$
240,066

 

$
6,505,788

Individually evaluated for impairment
2,420

8,986

3,689

5,288

4,930

 

25,313

Loans acquired with deteriorated credit quality
3,624

4,052

3,918

540

—

 

12,134

Balance at December 31, 2015
$
2,275,483

$
1,046,517

$
747,697

$
2,228,542

$
244,996

 

$
6,543,235

 
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, 2015
$
15,513

$
7,220

$
2,903

$
23,643

$
15,616

$
537

$
65,432

Charged-off loans
(276
)
(788
)
(231
)
(5,801
)
(24,016
)
—

(31,112
)
Recovery of previously charged-off loans
208

546

545

2,138

2,895

—

6,332

Provision for loan losses
(1,790
)
(414
)
407

4,763

15,025

337

18,328

Balance at December 31, 2016
$
13,655

$
6,564

$
3,624

$
24,743

$
9,520

$
874

$
58,980

 
 
 
 
 
 
 
 
Collectively evaluated for impairment
$
13,595

$
5,874

$
3,604

$
24,648

$
9,293

 

$
57,014

Individually evaluated for impairment
60

690

20

95

227

 

1,092

Loans acquired with deteriorated credit quality
—

—

—

—

—

 

—

Balance at December 31, 2016
$
13,655

$
6,564

$
3,624

$
24,743

$
9,520

$
874

$
58,980

 
 
 
 
 
 
 
 
Loans:
 

 

 

 

 

 

 

Collectively evaluated for impairment
$
3,188,361

$
1,174,456

$
906,053

$
2,872,855

$
265,613

 

$
8,407,338

Individually evaluated for impairment
2,750

8,941

3,212

18,331

516

 

33,750

Loans acquired with deteriorated credit quality
2,385

2,520

3,408

524

—

 

8,837

Balance at December 31, 2016
$
3,193,496

$
1,185,917

$
912,673

$
2,891,710

$
266,129

 
$
8,449,925

 
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
)
—

(22,047
)
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



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, historical loss experience, 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.

At December 31, 2017, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $26.4 million to current directors, executive officers, and their related entities, of which $16.1 million had been drawn upon.  At December 31, 2016, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $22.6 million to directors, executive officers, and their related entities, of which approximately $14.8 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, 2017 or 2016.

Residential Lending

At December 31, 2017, Pinnacle Financial had approximately $103.7 million of mortgage loans held-for-sale compared to approximately $47.7 million at December 31, 2016. Total loan volumes sold during the year ended December 31, 2017 were approximately $1.1 billion compared to approximately $803.5 million for the year ended December 31, 2016. During the year ended December 31, 2017, Pinnacle Financial recognized $18.6 million in gains on the sale of these loans, net of commissions paid, compared to $15.8 million and $7.7 million, respectively, during the years ended December 31, 2016 and 2015.
 
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.
 
Each purchaser 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, repurchase activity pursuant to the terms of these representations and warranties has been insignificant to Pinnacle Bank.