Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

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 March 31, 2020 and December 31, 2019, 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)
March 31, 2020
Investment securities available-for-sale:
U.S. Treasury securities	$	73,200	$	—	$	73,200	$	—
U.S. government agency securities	92,327		—		92,327		—
Mortgage-backed securities	1,618,580		—		1,618,580		—
State and municipal securities	1,036,619		—		1,021,852		14,767
Agency-backed securities	146,460		—		146,460		—
Corporate notes and other	63,378		—		63,378		—
Total investment securities available-for-sale	$	3,030,564	$	—	$	3,015,797	$	14,767
Other investments	65,194		—		25,438		39,756
Other assets	262,156		—		262,156		—
Total assets at fair value	$	3,357,914	$	—	$	3,303,391	$	54,523

Other liabilities	$	202,366	$	—	$	202,366	$	—
Total liabilities at fair value	$	202,366	$	—	$	202,366	$	—

December 31, 2019
Investment securities available-for-sale:
U.S. Treasury securities	$	72,867	$	—	$	72,867	$	—
U.S. government agency securities	79,692		—		79,692		—
Mortgage-backed securities	1,463,907		—		1,463,907		—
State and municipal securities	1,714,453		—		1,698,550		15,903
Agency-backed securities	152,972		—		152,972		—
Corporate notes and other	56,104		—		56,104		—
Total investment securities available-for-sale	3,539,995		—		3,524,092		15,903
Other investments	63,291		—		25,135		38,156
Other assets	134,040		—		134,040		—
Total assets at fair value	$	3,737,326	$	—	$	3,683,267	$	54,059

Other liabilities	$	87,613	$	—	$	87,613	$	—
Total liabilities at fair value	$	87,613	$	—	$	87,613	$	—

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 March 31, 2020 and December 31, 2019 (in thousands):


March 31, 2020	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)
Other real estate owned	$	27,182	$	—	$	—	$	27,182

Collateral dependent loans	$	35,254	$	—	$	—	$	35,254
Total	$	62,436	$	—	$	—	$	62,436

December 31, 2019
Other real estate owned	$	29,487	$	—	$	—	$	29,487
Impaired loans, net ⁽¹⁾	32,477		—		—		32,477
Total	$	61,964	$	—	$	—	$	61,964

⁽¹⁾ Amount is net of valuation allowance of $3.3 million at December 31, 2019 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, 2020 and March 31, 2019 (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 March 31,
	2020						2019
	Available-for-sale Securities		Other assets		Available-for-sale Securities		Other assets
Fair value, beginning of period	$	15,903	$	38,156	$	14,595	$	26,422
Total realized gains included in income	28		(174)		30		448
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end	(21)		—		(496)		—
Purchases	—		2,361		—		1,670
Issuances	—		—		—		—
Settlements	(1,143)		(587)		(399)		(433)
Transfers out of Level 3	—		—		—		—
Fair value, end of period	$	14,767	$	39,756	$	13,730	$	28,107
Total realized gains (losses) included in income related to financial assets and liabilities still on the consolidated balance sheet at period-end	$	28	$	(174)	$	30	$	448

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

The following tables present the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at March 31, 2020 and December 31, 2019. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash, cash equivalents, and restricted cash, 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, 2020	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	$	1,059,257	$	1,051,091	$	—	$	1,051,091	$	—
Loans, net	20,174,388		20,503,751		—		—		20,503,751
Consumer loans held-for-sale	87,245		89,072		—		89,072		—
Commercial loans held-for-sale	6,850		6,993		—		6,993		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	21,519,719		20,820,328		—		—		20,820,328
Federal Home Loan Bank advances	2,317,520		2,359,795		—		—		2,359,795
Subordinated debt and other borrowings	669,658		637,187		—		—		637,187

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	8,189,466		17,676		—		—		17,676


December 31, 2019
Financial assets:
Securities held-to-maturity	$	188,996	$	201,217	$	—	$	201,217	$	—
Loans, net	19,693,099		19,717,845		—		—		19,717,845
Consumer loans held-for-sale	81,820		82,986		—		82,986		—
Commercial loans held-for-sale	17,585		17,836		—		17,836		—

Financial liabilities:
Deposits and securities sold under
agreements to repurchase	20,307,382		19,647,392		—		—		19,647,392
Federal Home Loan Bank advances	2,062,534		2,078,514		—		—		2,078,514
Subordinated debt and other borrowings	749,080		712,220		—		—		712,220

Off-balance sheet instruments:
Commitments to extend credit ⁽²⁾	8,141,920		3,786		—		—		3,786

(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, including both commitments for unfunded loans and standby letters of credit. In making this evaluation, Pinnacle Financial utilizes credit loss expectations on funded loans from our allowance for credit losses methodology and evaluates the probability that the outstanding commitment will eventually become a funded loan. As a result, at March 31, 2020 and December 31, 2019, Pinnacle Financial included in other liabilities $16.3 million and $2.4 million, respectively, representing expected credit losses on off-balance sheet commitments, which are reflected in the estimated fair values of the related commitments. Also included in the fair values at March 31, 2020 and December 31, 2019 are unamortized fees related to these commitments of $1.4 million at both dates.