Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2019

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 June 30, 2019 and December 31, 2018, 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)
June 30, 2019
Investment securities available-for-sale:
U.S. Treasury securities	$	48,917	$	—	$	48,917	$	—
U.S. government agency securities	55,023		—		55,023		—
Mortgage-backed securities	1,291,913		—		1,291,913		—
State and municipal securities	1,636,502		—		1,621,239		15,263
Agency-backed securities	169,423		—		169,423		—
Corporate notes and other	55,128		—		55,128		—
Total investment securities available-for-sale	$	3,256,906	$	—	$	3,241,643	$	15,263
Other investments	56,573		—		25,050		31,523
Other assets	79,776		—		79,776		—
Total assets at fair value	$	3,393,255	$	—	$	3,346,469	$	46,786

Other liabilities	$	87,276	$	—	$	87,276	$	—
Total liabilities at fair value	$	87,276	$	—	$	87,276	$	—



	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)
December 31, 2018
Investment securities available-for-sale:
U.S. Treasury securities	$	30,300	$	—	$	30,300	$	—
U.S. government agency securities	70,159		—		70,159		—
Mortgage-backed securities	1,310,945		—		1,310,945		—
State and municipal securities	1,229,654		—		1,215,059		14,595
Agency-backed securities	375,582		—		375,582		—
Corporate notes and other	67,046		—		67,046		—
Total investment securities available-for-sale	3,083,686		—		3,069,091		14,595
Other investments	50,791		—		24,369		26,422
Other assets	24,524		—		24,524		—
Total assets at fair value	$	3,159,001	$	—	$	3,117,984	$	41,017

Other liabilities	$	46,550	$	—	$	46,550	$	—
Total liabilities at fair value	$	46,550	$	—	$	46,550	$	—

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 June 30, 2019 and December 31, 2018 (in thousands):



June 30, 2019	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 losses for the year-to-date period then ended
Other real estate owned	$	26,657	$	—	$	—	$	26,657	$	(2,438	)
Impaired loans, net ⁽¹⁾	38,251		—		—		38,251		(5,228		)
Total	$	64,908	$	—	$	—	$	64,908	$	(7,666	)

December 31, 2018
Other real estate owned	$	15,165	$	—	$	—	$	15,165	$	(84	)
Impaired loans, net ⁽¹⁾	40,830		—		—		40,830		(1,214		)
Total	$	55,995	$	—	$	—	$	55,995	$	(1,298	)

⁽¹⁾ Amount is net of valuation allowance of $5.5 million and $4.0 million at June 30, 2019 and December 31, 2018, 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 three and six months ended June 30, 2019 and June 30, 2018 (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 June 30,										For the six months ended June 30,
	2019					2018					2019						2018
	Available-for-sale Securities		Other assets			Available-for-sale Securities		Other assets			Available-for-sale Securities			Other assets			Available-for-sale Securities			Other assets
Fair value, beginning of period	$	13,730	$	28,107		$	15,226	$	29,788		$	14,595		$	26,422		$	17,029		$	28,874
Total realized gains included in income	29		481			30		2,265			59			929			60			2,777
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end	1,504		—			34		—			1,008			—			(631		)	—
Purchases	—		3,518			—		3,948			—			5,188			—			4,818
Issuances	—		—			—		—			—			—			—			—
Settlements	—		(584		)	—		(257		)	(399		)	(1,017		)	(1,168		)	(725		)
Transfers out of Level 3	—		—			—		(12,166		)	—			—			—			(12,166		)
Fair value, end of period	$	15,263	$	31,522		$	15,290	$	23,578		$	15,263		$	31,522		$	15,290		$	23,578
Total realized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at period-end	$	29	$	481		$	30	$	2,265		$	59		$	929		$	60		$	2,777

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 June 30, 2019 and December 31, 2018. 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):



June 30, 2019	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	$	190,928	$	200,566	$	—	$	200,566	$	—
Loans, net	18,724,065		18,644,090		—		—		18,644,090
Consumer loans held-for-sale	70,004		71,108		—		71,108		—
Commercial loans held-for-sale	21,295		21,631		—		21,631		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	19,603,552		18,966,437		—		—		18,966,437
Federal Home Loan Bank advances	1,960,062		1,965,111		—		—		1,965,111
Subordinated debt and other borrowings	464,144		446,951		—		—		446,951

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	7,582,092		1,083		—		—		1,083
Standby letters of credit ⁽³⁾	198,945		1,281		—		—		1,281

December 31, 2018
Financial assets:
Securities held-to-maturity	$	194,282	$	193,131	$	—	$	193,131	$	—
Loans, net	17,623,974		17,288,795		—		—		17,288,795
Consumer loans held-for-sale	34,196		34,929		—		34,929		—
Commercial loans held-for-sale	15,954		16,296		—		16,296		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	18,953,848		18,337,848		—		—		18,337,848
Federal Home Loan Bank advances	1,443,589		1,432,003		—		—		1,432,003
Subordinated debt and other borrowings	485,130		464,616		—		—		464,616

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	6,921,689		1,733		—		—		1,733
Standby letters of credit ⁽³⁾	177,475		1,131		—		—		1,131


(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 June 30, 2019 and December 31, 2018, Pinnacle Financial included in other liabilities $1.1 million and $1.7 million, respectively, representing the inherent risks associated with these off-balance sheet commitments.

(3)

At June 30, 2019 and December 31, 2018, the aggregate fair value of Pinnacle Financial's standby letters of credit was $1.3 million and $1.1 million, respectively. These amounts represent the unamortized fee associated with these standby letters of credit and are included in the consolidated balance sheets of Pinnacle Financial and are believed to approximate fair value. These fair values will decrease over time as the existing standby letters of credit approach their expiration dates.