Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2017

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the financial instruments carried at fair value on a recurring basis as of December 31, 2017 and 2016, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):



December 31, 2017	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. treasury securities	$	30,445	$	—	$	30,445	$	—
U.S. government agency securities	180,801		—		180,801		—
Mortgage-backed securities	1,263,819		—		1,263,819		—
State and municipal securities	784,612		—		767,583		17,029
Asset- backed securities	173,292		—		173,292		—
Corporate notes and other	82,314		—		82,314		—
Total investment securities available-for-sale	2,515,283		—		2,498,254		17,029
Other investments	28,874		—		—		28,874
Other assets	11,812		—		11,812		—
Total assets at fair value	$	2,555,969	$	—	$	2,510,066	$	45,903

Other liabilities	$	13,886	$	—	$	13,886	$	—
Total liabilities at fair value	$	13,886	$	—	$	13,886	$	—

December 31, 2016
Investment securities available-for-sale:
U.S. treasury securities	$	250	$	—	$	250	$	—
U.S. government agency securities	$	21,769	$	—	$	21,769	$	—
Mortgage-backed securities	976,626		—		976,626		—
State and municipal securities	212,720		—		212,720		—
Asset- backed securities	78,580		—		78,580		—
Corporate notes and other	8,601		—		8,601		—
Total investment securities available-for-sale	1,298,546		—		1,298,546		—
Other investments	10,478		—		—		10,478
Other assets	13,340		—		13,340		—
Total assets at fair value	$	1,322,364	$	—	$	1,311,886	$	10,478

Other liabilities	$	15,758	$	—	$	15,758	$	—
Total liabilities at fair value	$	15,758	$	—	$	15,758	$	—

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 December 31, 2017 and 2016 (in thousands):



December 31, 2017	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	$	27,831	$	—	$	—	$	27,831	$	203
Nonaccrual loans, net ⁽¹⁾	55,138		—		—		55,138		(722		)
Total	$	82,969	$	—	$	—	$	82,969	$	(519	)

December 31, 2016
Other real estate owned	$	6,090	$	—	$	—	$	6,090	$	(135	)
Nonaccrual loans, net ⁽¹⁾	26,506		—		—		26,506		(7,173		)
Total	$	32,596	$	—	$	—	$	32,596	$	(7,308	)


⁽¹⁾	Amount is net of a valuation allowance of $2.3 million and $1.1 million at December 31, 2017 and 2016, respectively, 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 year ended December 31, 2017 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 year ended December 31,
	2017							2016
	Available-for-sale Securities		Other assets			Other liabilities		Available-for-sale Securities		Other assets			Other liabilities
Fair value, Jan. 1	$	—	$	10,478		$	—	$	—	$	9,764		$	—
Total net realized losses included in income	66		605			—		—		131			—
Change in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at Dec. 31	709		—			—		—		—			—
Acquired	16,254		17,062			—		—		—			—
Purchases	—		2,330			—		—		1,639			—
Issuances	—		—			—		—		—			—
Settlements	—		(1,601		)	—		—		(1,056		)	—
Transfers out of Level 3	—		—			—		—		—			—
Fair value, Dec. 31	$	17,029	$	28,874		$	—	$	—	$	10,478		$	—
Total realized losses included in income related to financial assets and liabilities still on the consolidated balance sheet at Dec. 31	$	66	$	605		$	—	$	—	$	131		$	—

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 December 31, 2017 and 2016. 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.



December 31, 2017	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	$	20,762	$	20,830	$	—	$	20,830	$	—
Loans, net	15,565,876		15,252,953		—		—		15,252,953
Mortgage loans held-for-sale	103,729		104,986		—		104,986		—
Commercial loans held-for-sale	25,456		25,761		—		25,761		—

Financial liabilities:
Deposits and securities sold under agreements to repurchase	16,586,964		16,516,342		—		—		16,516,342
Federal Home Loan Bank advances	1,319,909		1,313,311		—		—		1,313,311
Subordinated debt and other borrowings	465,505		445,098		—		—		445,098

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	5,788,425		2,264		—		—		2,264
Standby letters of credit ⁽³⁾	143,684		800		—		—		800



December 31, 2017	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, 2016
Financial assets:
Securities held-to-maturity	$	25,251	$	25,233	$	—	$	25,233	$	—
Loans, net	8,390,944		8,178,982		—		—		8,178,982
Mortgage loans held-for-sale	47,710		47,892		—		47,892		—
Commercial loans held-for-sale	22,588		22,674		—		22,674		—

Financial liabilities:
Deposits and securities sold under agreements to repurchase	8,845,014		8,579,664		—		—		8,579,664
Federal Home Loan Bank advances	406,304		406,491		—		—		406,491
Subordinated debt and other borrowings	350,768		328,049		—		—		328,049

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	3,374,269		383		—		—		383
Standby letters of credit ⁽³⁾	131,418		740		—		—		740


(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 period, 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 both December 31, 2017 and 2016, respectively, Pinnacle Financial included in other liabilities $2.3 million and $383,000 representing the inherent risks associated with these off-balance sheet commitments.

(3)

At December 31, 2017 and 2016, the fair value of Pinnacle Financial's standby letters of credit totaled $800,000 and $740,000, respectively. This amount represents the unamortized fee associated with these standby letters of credit, which were priced at market when issued, 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.