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Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2020

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 March 31, 2020 and December 31, 2019 were as follows:


	March 31, 2020		December 31, 2019
Commercial real estate:
Owner occupied	$	2,650,170	$	2,669,766
Non-owner occupied	5,070,572		5,039,452
Consumer real estate – mortgage	3,106,465		3,068,625
Construction and land development	2,520,937		2,430,483
Commercial and industrial	6,752,317		6,290,296
Consumer and other	296,392		289,254
Subtotal	$	20,396,853	$	19,787,876
Allowance for credit losses	(222,465)		(94,777)
Loans, net	$	20,174,388	$	19,693,099

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 six distinct ratings categories for loans that represent specific attributes. Pinnacle Financial believes that its categories follow those used by Pinnacle Bank's primary regulators. At March 31, 2020, approximately 80.3% 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 $1.0 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 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.

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 by primary loan type and based on year of origination as of March 31, 2020 (in thousands):


March 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total
Commercial real estate- owner occupied
Pass	$	178,512	$	505,153	$	529,837	$	414,639	$	425,788	$	416,602	$	43,273	$	2,513,804
Special Mention	—		1,706		3,383		12,769		678		353		919		19,808
Substandard ⁽¹⁾	1,263		11,357		8,296		12,981		20,660		4,183		46,494		105,234
Substandard-nonaccrual	735		460		1,694		2,319		1,623		4,403		90		11,324
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	180,510	$	518,676	$	543,210	$	442,708	$	448,749	$	425,541	$	90,776	$	2,650,170
Commercial real estate- Non-owner occupied
Pass	$	421,156	$	1,321,669	$	922,005	$	817,345	$	787,630	$	663,636	$	78,264	$	5,011,705
Special Mention	6,828		1,305		1,162		17,027		1,222		1,472		249		29,265
Substandard ⁽¹⁾	—		5,056		2,714		7,502		1,952		3,002		—		20,226
Substandard-nonaccrual	—		2,407		785		149		1,066		4,969		—		9,376
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - Non-owner occupied	$	427,984	$	1,330,437	$	926,666	$	842,023	$	791,870	$	673,079	$	78,513	$	5,070,572
Consumer real estate – mortgage
Pass	$	134,885	$	643,354	$	455,461	$	216,073	$	172,577	$	431,480	$	1,008,141	$	3,061,970
Special Mention	204		1,173		1,370		70		—		108		8,739		11,664
Substandard ⁽¹⁾	1,382		1,210		—		924		385		2,167		657		6,725
Substandard-nonaccrual	1,117		1,508		1,184		1,595		2,885		12,928		4,889		26,106
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer real estate – mortgage	$	137,588	$	647,245	$	458,015	$	218,662	$	175,847	$	446,683	$	1,022,426	$	3,106,465


March 31, 2020	2020		2019		2018		2017		2016		Prior		Revolving Loans		Total


Construction and land development
Pass	$	286,814	$	1,337,729	$	662,700	$	156,448	$	25,691	$	12,131	$	18,134	$	2,499,647
Special Mention	968		243		10,098		—		—		738		—		12,047
Substandard ⁽¹⁾	1,502		829		31		4,083		240		168		—		6,853
Substandard-nonaccrual	88		830		84		92		—		1,296		—		2,390
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Construction and land development	$	289,372	$	1,339,631	$	672,913	$	160,623	$	25,931	$	14,333	$	18,134	$	2,520,937
Commercial and industrial
Pass	$	817,119	$	1,636,441	$	940,772	$	503,490	$	186,801	$	133,277	$	2,347,145	$	6,565,045
Special Mention	701		15,023		8,410		5,108		6,786		986		17,713		54,727
Substandard ⁽¹⁾	4,715		38,853		17,651		5,106		4,077		609		39,819		110,830
Substandard-nonaccrual	1,054		10,606		499		889		267		279		7,828		21,422
Doubtful-nonaccrual	—		294		—		—		—		—		—		294
Total Commercial and industrial	$	823,589	$	1,701,217	$	967,332	$	514,593	$	197,931	$	135,151	$	2,412,504	$	6,752,317
Consumer and other
Pass	$	35,729	$	36,345	$	11,948	$	13,012	$	7,363	$	3,886	$	187,318	$	295,601
Special Mention	—		—		—		—		—		677		9		686
Substandard ⁽¹⁾	—		—		—		—		—		—		47		47
Substandard-nonaccrual	—		—		6		42		6		4		—		58
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer and other	$	35,729	$	36,345	$	11,954	$	13,054	$	7,369	$	4,567	$	187,374	$	296,392
Total Loans
Pass	$	1,874,215	$	5,480,691	$	3,522,723	$	2,121,007	$	1,605,850	$	1,661,012	$	3,682,274	$	19,947,772
Special Mention	8,701		19,450		24,423		34,974		8,686		4,334		27,629		128,197
Substandard ⁽¹⁾	8,862		57,305		28,692		30,596		27,314		10,129		87,017		249,915
Substandard-nonaccrual	2,994		15,811		4,252		5,086		5,847		23,879		12,807		70,676
Doubtful-nonaccrual	—		294		—		—		—		—		—		294
Total Loans	$	1,894,772	$	5,573,551	$	3,580,090	$	2,191,663	$	1,647,697	$	1,699,354	$	3,809,727	$	20,396,853

The following table outlines the risk category of loans as of December 31, 2019 (in thousands):


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Total
December 31, 2019
Pass	$	7,499,725	$	3,019,203	$	2,422,347	$	6,069,757	$	288,361	$	19,299,393
Special Mention	51,147		13,787		2,816		79,819		698		148,267
Substandard ⁽¹⁾	139,518		10,969		3,042		125,035		47		278,611
Substandard-nonaccrual	18,828		24,666		2,278		15,685		148		61,605
Doubtful-nonaccrual	—		—		—		—		—		—
Total loans	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254	$	19,787,876

(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 troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $249.2 million at March 31, 2020, compared to $276.0 million at December 31, 2019.

The table below presents the aging of past due balances by loan segment at March 31, 2020 and December 31, 2019 (in thousands):


March 31, 2020	30-59 days past due		60-89 days past due		90 days or more past due				Total past due		Current		Total loans
Commercial real estate:
Owner-occupied	$	5,892	$	2,157	$	2,463			$	10,512	$	2,639,658	$	2,650,170
Non-owner occupied	1,846		5,917		4,705				12,468		5,058,104		5,070,572
Consumer real estate – mortgage	10,673		3,104		8,034				21,811		3,084,654		3,106,465
Construction and land development	1,975		137		1,527				3,639		2,517,298		2,520,937
Commercial and industrial	6,873		3,968		4,565				15,406		6,736,911		6,752,317
Consumer and other	1,059		118		427				1,604		294,788		296,392
Total	$	28,318	$	15,401	$	21,721	$	21,721	$	65,440	$	20,331,413	$	20,396,853

December 31, 2019
Commercial real estate:
Owner-occupied	$	2,307	$	2,932	$	1,719			$	6,958	$	2,662,808	$	2,669,766
Non-owner occupied	3,156		3,641		3,816				10,613		5,028,839		5,039,452
Consumer real estate – mortgage	11,646		2,157		7,304				21,107		3,047,518		3,068,625
Construction and land development	1,392		711		1,487				3,590		2,426,893		2,430,483
Commercial and industrial	8,474		2,478		6,364				17,316		6,272,980		6,290,296
Consumer and other	1,770		414		570				2,754		286,500		289,254
Total	$	28,745	$	12,333	$	21,260	$	21,260	$	62,338	$	19,725,538	$	19,787,876

The following table details the changes in the allowance for credit losses for the three months ended March 31, 2020 and 2019, respectively, by loan classification (in thousands):


	Commercial real estate - Owner occupied		Commercial real estate - Non-owner occupied		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
Three months ended March 31, 2020:
Balance at December 31, 2019	$	13,406	$	19,963	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777
Impact of adopting ASC 326	264		(4,740)		21,029		(3,144)		23,040		2,638		(985)		38,102
Charged-off loans	(1,561)		(261)		(930)		—		(7,734)		(1,207)		—		(11,693)
Recovery of previously charged-off loans	145		93		190		43		748		319		—		1,538
Provision for credit losses on loans	11,380		17,059		4,655		29,350		35,894		1,403		—		99,741
Balance at March 31, 2020	$	23,634	$	32,114	$	32,998	$	38,911	$	88,060	$	6,748	$	—	$	222,465


Three months ended March 31, 2019:
Balance at December 31, 2018	$	11,297	$	15,649	$	7,670	$	11,128	$	31,731	$	5,423	$	677	$	83,575
Charged-off loans	(521)		(13)		(350)		—		(3,352)		(1,832)		—		(6,068)
Recovery of previously charged-off loans	60		12		369		122		1,598		342		—		2,503
Provision for credit losses on loans	1,782		1,901		680		(335)		2,722		870		(436)		7,184
Balance at March 31, 2019	$	12,618	$	17,549	$	8,369	$	10,915	$	32,699	$	4,803	$	241	$	87,194

The following table details the allowance for credit losses and recorded investment in loans by loan classification and by impairment evaluation method as of December 31, 2019, as determined in accordance with ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Commercial real estate - mortgage		Consumer real estate - mortgage		Construction and land development		Commercial and industrial		Consumer and other		Unallocated		Total
December 31, 2019
Allowance for Loan Losses:
Collectively evaluated for impairment	$	32,134	$	6,762	$	12,629	$	35,401	$	3,586			$	90,512
Individually evaluated for impairment	1,235		1,292		33		711		9				3,280
Loans acquired with deteriorated credit quality⁽¹⁾	—		—		—		—		—				—
Total allowance for loan losses	$	33,369	$	8,054	$	12,662	$	36,112	$	3,595	$	985	$	94,777

Loans:
Collectively evaluated for impairment	$	7,681,608	$	3,036,922	$	2,426,901	$	6,274,280	$	289,106			$	19,708,817
Individually evaluated for impairment	18,122		25,018		561		14,295		148				58,144
Loans acquired with deteriorated credit quality	9,488		6,685		3,021		1,721		—				20,915
Total loans	$	7,709,218	$	3,068,625	$	2,430,483	$	6,290,296	$	289,254			$	19,787,876

⁽¹⁾ Prior to the adoption of ASC 326 on January 1, 2020, an allowance for loan losses was recorded on loans acquired with deteriorated credit quality only in the event of additional credit deterioration subsequent to acquisition.

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.

As described in Note 1. Summary of Significant Accounting Policies, Pinnacle Financial adopted ASU 2016-13 on January 1, 2020, which introduced the CECL methodology for estimating all expected losses over the life of a financial asset. Under the CECL methodology the allowance for credit losses is 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 all loan segments collectively evaluated, 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. Upon implementation of ASU 2016-13 on January 1, 2020, Pinnacle Financial utilized a reasonable and supportable period of eighteen months for all loan segments, followed by a twelve month straight line reversion to long term averages. At March 31, 2020, a reasonable and supportable period of nine months was utilized for owner occupied commercial real estate, construction and land development, and commercial and industrial in response to the relatively high level of economic uncertainly related to the ongoing COVID-19 pandemic. For all other loan segments, the reasonable and supportable period of eighteen months was maintained as longer variable lag structures are used within their statistical models, which inherently mitigates the uncertainty in the economic projections by placing less reliance on sudden changes in the projections. The twelve month straight line reversion period was maintained for all loan segments at March 31, 2020. Upon adoption of ASU 2016-13, the opening balance of the allowance for credit losses was increased by $38.1 million through retained earnings. The additional increase during the three months ended March 31, 2020 is primarily attributable to the change in projected economic conditions resulting from the COVID-19 pandemic, with the projected increase in the unemployment rate being the most significant driver.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine

expected credit losses:


March 31, 2020	Real Estate		Business Assets		Other		Total
Commercial real estate:
Owner-occupied	14,951		135		—		15,086
Non-owner occupied	11,259		—		—		11,259
Consumer real estate – mortgage	31,247		—		—		31,247
Construction and land development	2,488		—		—		2,488
Commercial and industrial	294		7,768		5,659		13,721
Consumer and other	—		—		49		49
Total	$	60,239	$	7,903	$	5,708	$	73,850

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 March 31, 2020 and December 31, 2019. Also presented is the balance of loans on nonaccrual status at March 31, 2020 for which there was no related allowance for credit losses recorded (in thousands):


	March 31, 2020										December 31, 2019
	Total nonaccrual loans		Nonaccrual loans with no allowance for credit losses		Loans past due 90 or more days and still accruing		Total nonaccrual loans		Loans past due 90 or more days and still accruing
Commercial real estate:
Owner-occupied	$	11,324	$	4,465	$	—	$	11,654	$	—
Non-owner occupied	9,376		6,425		—		7,173		—
Consumer real estate – mortgage	26,106		379		517		24,667		168
Construction and land development	2,390		1,287		—		2,278		—
Commercial and industrial	21,716		15,430		1,089		15,685		946
Consumer and other	58		—		384		148		501
Total	$	70,970	$	27,986	$	1,990	$	61,605	$	1,615

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 months ended March 31, 2020, compared to $87,000 during the three months ended March 31, 2019. Had these nonaccruing loans been on accruing status, interest income would have been higher by $713,000 for the three months ended March 31, 2020 compared to $1.6 million higher for the three months ended March 31, 2019. Approximately $39.7 million and $35.8 million of nonaccrual loans as of March 31, 2020 and December 31, 2019, respectively, were performing pursuant to their contractual terms at those dates.

The following table presents impaired loans at December 31, 2019 as determined under ASC 310 prior to the adoption of ASU 2016-13. Impaired loans generally include nonaccrual loans, troubled debt restructurings, and other loans deemed to be impaired but that continue to accrue interest. Presented are the recorded investment, unpaid principal balance and related allowance of impaired loans at December 31, 2019 by loan classification (in thousands):


	At December 31, 2019
	Recorded investment		Unpaid principal balances		Related allowance
Impaired loans with an allowance:
Commercial real estate – mortgage	$	9,998	$	10,983	$	1,235
Consumer real estate – mortgage	20,996		23,105		1,293
Construction and land development	542		654		33
Commercial and industrial	4,074		5,381		711
Consumer and other	148		182		9
Total	$	35,758	$	40,305	$	3,281

Impaired loans without an allowance:
Commercial real estate – mortgage	$	8,124	$	8,891	$	—
Consumer real estate – mortgage	4,022		4,021		—
Construction and land development	19		17		—
Commercial and industrial	10,221		11,322		—
Consumer and other	—		—		—
Total	$	22,386	$	24,251	$	—

Total impaired loans	$	58,144	$	64,556	$	3,281

The following table details the average recorded investment and the amount of interest income recognized on a cash basis for the three months ended March 31, 2019, respectively, of impaired loans by loan classification as determined under ASC 310 prior to the adoption of ASU 2016-13 (in thousands):


	Three months ended March 31, 2019
	Average recorded investment		Interest income recognized
Impaired loans with an allowance:
Commercial real estate – mortgage	$	16,327	$	—
Consumer real estate – mortgage	22,266		—
Construction and land development	724		—
Commercial and industrial	9,027		—
Consumer and other	657		—
Total	$	49,001	$	—

Impaired loans without an allowance:
Commercial real estate – mortgage	$	15,699	$	87
Consumer real estate – mortgage	8,839		—
Construction and land development	893		—
Commercial and industrial	15,143		—
Consumer and other	—		—
Total	$	40,574	$	87

Total impaired loans	$	89,575	$	87

Prior to the adoption of ASU 2016-13, loans acquired with deteriorated credit quality, referred to under ASC 310-30 as purchased credit impaired loans and under ASU 2016-13 as purchased credit deteriorated loans, were assigned a credit related purchase discount and non-credit related purchase discount at acquisition. Upon adoption of ASU 2016-13 on January 1, 2020, the remaining credit related discount was re-classified to a component of the allowance for credit losses. The remaining non-credit discount will continue to be accreted into income over the remaining lives of the related loans. The following table provides a rollforward of purchased credit deteriorated loans from December 31, 2019 through March 31, 2020 (in thousands):


	Gross Carrying Value		Accretable Yield		Nonaccretable Yield		Net Carrying Value
December 31, 2019	$	29,544	$	(4,801)	$	(3,828)	$	20,915

Reclassification of discount to allowance for credit losses	—		—		3,828		3,828
Year-to-date settlements	(1,691)		1,141		—		(550)
March 31, 2020	$	27,853	$	(3,660)	$	—	$	24,193

The carrying value is adjusted for additional draws, pursuant to contractual arrangements, offset by loan paydowns. Year-to-date 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.

At March 31, 2020 and December 31, 2019, there were $3.9 million and $4.9 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which were accruing interest. Troubled commercial loans are restructured by specialists within Pinnacle Bank's Special Assets Group, and all restructurings are approved by committees and/or 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 loan category where troubled debt restructurings were made during the three months ended March 31, 2020 (dollars in thousands):


	Three Months Ended March 31, 2020
	Number of contracts		Pre Modification Outstanding Recorded Investment		Post Modification Outstanding Recorded Investment, net of related allowance
Commercial real estate:
Owner-occupied	$	—	$	—	$	—
Non-owner occupied	—		—		—
Consumer real estate – mortgage	1		807		807
Construction and land development	—		—		—
Commercial and industrial	—		—		—
Consumer and other	—		—		—
	1		$	807	$	807

There were no troubled debt restructurings made during the three months ended March 31, 2019. During the three months ended March 31, 2020 and 2019, there were no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring.

In response to the COVID-19 pandemic and its economic impact to its customers, Pinnacle Bank implemented a short-term modification program in accordance with interagency regulatory guidance to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments for 90 days, which Pinnacle Bank may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. Pursuant to the interagency regulatory guidance, Pinnacle Financial may elect to not classify loans for which these deferrals are granted as troubled debt restructurings.

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 March 31, 2020 with the comparative exposures for December 31, 2019 (in thousands):


	March 31, 2020
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2019
Lessors of nonresidential buildings	$	3,737,224	$	895,221	$	4,632,445	$	4,578,116
Lessors of residential buildings	939,201		690,788		1,629,989		1,599,837
New Housing For-Sale Builders	534,896		599,323		1,134,219		1,090,603
Hotels (except Casino Hotels) and Motels	825,202		139,190		964,392		967,771

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 March 31, 2020 and December 31, 2019, Pinnacle Bank’s construction and land development loans as a percentage of total risk-based capital were 84.2% and 83.6%, 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 264.1% and 268.3% as of March 31, 2020 and December 31, 2019, 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 March 31, 2020, Pinnacle Bank was within the 100% and 300% guidelines and has established what it believes to be appropriate controls to monitor its lending in these areas as it aims to keep the level of these loans below the 100% and 300% thresholds.

At March 31, 2020, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $10.7 million to current directors, executive officers, and their related entities, of which $6.7 million had been drawn upon. At December 31, 2019, Pinnacle Bank had granted loans and other extensions of credit amounting to approximately $10.6 million to directors, executive officers, and their related entities, of which approximately $6.8 million had been drawn upon. All loans to directors, executive officers, and their related entities were performing in accordance with contractual terms at March 31, 2020 and December 31, 2019.

At March 31, 2020, Pinnacle Financial had approximately $6.9 million in commercial loans held for sale compared to $17.6 million at December 31, 2019, which primarily included 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.

Residential Lending

At March 31, 2020, Pinnacle Financial had approximately $70.3 million of mortgage loans held-for-sale compared to approximately $61.6 million at December 31, 2019. Total loan volumes sold during the three months ended March 31, 2020 were approximately $286.7 million compared to approximately $193.8 million for the three months ended March 31, 2019. During the three months ended March 31, 2020, Pinnacle Financial recognized $8.6 million in gains on the sale of these loans, net of commissions paid, compared to $4.9 million net of commissions paid, during the three months ended March 31, 2019.

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 of a 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 to Pinnacle Bank.