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Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2022

Note 5. 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. Loans granted under the PPP, which are fully guaranteed by the SBA, are included in this category. Such loans totaled $8.0 million and $371.1 million at December 31, 2022 and 2021, respectively.

•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 December 31, 2022 and 2021 were as follows (in thousands):


	December 31, 2022		December 31, 2021
Commercial real estate:
Owner-occupied	$	3,587,257	$	3,048,822
Non-owner occupied	6,542,619		5,221,704
Consumer real estate – mortgage	4,435,046		3,680,684
Construction and land development	3,679,498		2,903,017
Commercial and industrial	10,241,362		8,074,546
Consumer and other	555,823		485,489
Subtotal	$	29,041,605	$	23,414,262
Allowance for credit losses	(300,665)		(263,233)
Loans, net	$	28,740,940	$	23,151,029

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 multiple ratings categories representing varying degrees of risk attributes lesser than those of the other defined risk categories further described below. Pinnacle Financial believes its categories follow those used by Pinnacle Bank's primary regulators. At December 31, 2022, approximately 78.4% 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 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 or most recent renewal as of December 31, 2022 (in thousands):


December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Commercial real estate- owner occupied
Pass	$	1,172,662	$	856,145	$	594,369	$	315,711	$	244,203	$	277,072	$	64,206	$	3,524,368
Special Mention	20,710		9,451		8,434		5,987		—		5,575		—		50,157
Substandard (1)	2,685		2,843		1,633		1,035		1,356		1,298		—		10,850
Substandard-nonaccrual	677		—		64		94		919		128		—		1,882
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	1,196,734	$	868,439	$	604,500	$	322,827	$	246,478	$	284,073	$	64,206	$	3,587,257
Commercial real estate- Non-owner occupied
Pass	$	2,443,858	$	1,551,480	$	998,502	$	708,665	$	294,972	$	382,254	$	89,370	$	6,469,101
Special Mention	28,927		—		16,936		15,064		—		9,071		—		69,998
Substandard (1)	—		—		—		1,276		—		—		—		1,276
Substandard-nonaccrual	—		1,040		—		—		—		1,204		—		2,244
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - Non-owner occupied	$	2,472,785	$	1,552,520	$	1,015,438	$	725,005	$	294,972	$	392,529	$	89,370	$	6,542,619
Consumer real estate – mortgage
Pass	$	1,055,454	$	1,122,823	$	492,824	$	238,931	$	124,579	$	258,187	$	1,124,453	$	4,417,251
Special Mention	207		—		—		—		216		42		—		465
Substandard (1)	—		—		—		—		—		—		—		—
Substandard-nonaccrual	198		1,676		2,184		7,957		1,202		3,749		364		17,330
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer real estate – mortgage	$	1,055,859	$	1,124,499	$	495,008	$	246,888	$	125,997	$	261,978	$	1,124,817	$	4,435,046
Construction and land development
Pass	$	1,964,251	$	1,363,519	$	246,840	$	55,396	$	5,989	$	5,707	$	19,251	$	3,660,953
Special Mention	14,978		2,765		—		—		—		—		1		17,744
Substandard (1)	440		—		—		—		—		130		—		570
Substandard-nonaccrual	—		130		—		—		—		101		—		231
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Construction and land development	$	1,979,669	$	1,366,414	$	246,840	$	55,396	$	5,989	$	5,938	$	19,252	$	3,679,498
Commercial and industrial
Pass	$	3,686,252	$	1,643,062	$	485,030	$	320,501	$	146,884	$	132,388	$	3,645,795	$	10,059,912
Special Mention	33,491		2,370		3,570		27,607		4,738		1,174		51,014		123,964
Substandard (1)	7,673		7,954		255		6,818		715		792		16,934		41,141
Substandard-nonaccrual	11,682		3,684		143		183		266		369		18		16,345
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial and industrial	$	3,739,098	$	1,657,070	$	488,998	$	355,109	$	152,603	$	134,723	$	3,713,761	$	10,241,362


December 31, 2022	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
Consumer and other
Pass	$	156,417	$	101,821	$	55,362	$	1,865	$	744	$	997	$	238,533	$	555,739
Special Mention	—		—		—		—		—		—		—		—
Substandard (1)	—		—		—		—		—		—		—		—
Substandard-nonaccrual	—		82		—		—		—		2		—		84
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer and other	$	156,417	$	101,903	$	55,362	$	1,865	$	744	$	999	$	238,533	$	555,823
Total loans
Pass	$	10,478,894	$	6,638,850	$	2,872,927	$	1,641,069	$	817,371	$	1,056,605	$	5,181,608	$	28,687,324
Special Mention	98,313		14,586		28,940		48,658		4,954		15,862		51,015		262,328
Substandard (1)	10,798		10,797		1,888		9,129		2,071		2,220		16,934		53,837
Substandard-nonaccrual	12,557		6,612		2,391		8,234		2,387		5,553		382		38,116
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total loans	$	10,600,562	$	6,670,845	$	2,906,146	$	1,707,090	$	826,783	$	1,080,240	$	5,249,939	$	29,041,605

(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 TDRs. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $53.8 million at December 31, 2022, compared to $109.6 million at December 31, 2021.

The table below presents the aging of past due balances by loan segment at December 31, 2022 and December 31, 2021 (in thousands):


	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans
December 31, 2022
Commercial real estate:
Owner-occupied	$	2,112	$	615	$	1,139	$	3,866	$	3,583,391	$	3,587,257
Non-owner occupied	359		48		1,681		2,088		6,540,531		6,542,619
Consumer real estate – mortgage	13,635		83		9,094		22,812		4,412,234		4,435,046
Construction and land development	221		102		130		453		3,679,045		3,679,498
Commercial and industrial	15,457		13,713		9,428		38,598		10,202,764		10,241,362
Consumer and other	4,056		1,688		746		6,490		549,333		555,823
Total	$	35,840	$	16,249	$	22,218	$	74,307	$	28,967,298	$	29,041,605
December 31, 2021
Commercial real estate:
Owner-occupied	$	727	$	—	$	2,426	$	3,153	$	3,045,669	$	3,048,822
Non-owner occupied	1,434		—		645		2,079		5,219,625		5,221,704
Consumer real estate – mortgage	8,710		122		4,450		13,282		3,667,402		3,680,684
Construction and land development	61		—		127		188		2,902,829		2,903,017
Commercial and industrial	4,926		2,677		7,311		14,914		8,059,632		8,074,546
Consumer and other	1,715		568		372		2,655		482,834		485,489
Total	$	17,573	$	3,367	$	15,331	$	36,271	$	23,377,991	$	23,414,262

The following table details the changes in the allowance for credit losses from December 31, 2019 to December 31, 2020 to December 31, 2021 to December 31, 2022 by loan classification and the allocation of allowance for credit losses (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
Allowance for Credit Losses:
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	(2,598)		(546)		(3,478)		—		(38,718)		(3,993)		—		(49,333)
Recovery of previously charged-off loans	1,317		911		1,493		147		4,540		1,554		—		9,962
Provision for loan losses	10,909		63,544		6,206		32,743		73,449		4,691		—		191,542
Balance at December 31, 2020	$	23,298	$	79,132	$	33,304	$	42,408	$	98,423	$	8,485	$	—	$	285,050
Charged-off loans	(1,420)		(786)		(632)		(367)		(46,213)		(5,578)		—		(54,996)
Recovery of previously charged-off loans	1,609		969		2,288		372		7,485		3,550		—		16,273
Provision for loan losses	(3,869)		(20,811)		(2,856)		(12,984)		52,645		4,781		—		16,906
Balance at December 31, 2021	$	19,618	$	58,504	$	32,104	$	29,429	$	112,340	$	11,238	$	—	$	263,233
Charged-off loans	(1,413)		(185)		(651)		(150)		(39,020)		(12,757)		—		(54,176)
Recovery of previously charged-off loans	2,082		187		1,512		471		15,687		7,690		—		27,629
Provision for loan losses	6,330		(18,027)		3,571		6,364		55,346		10,395		—		63,979
Balance at December 31, 2022	$	26,617	$	40,479	$	36,536	$	36,114	$	144,353	$	16,566	$	—	$	300,665

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.

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. Upon adoption of ASU 2016-13 in 2020, the opening balance of the allowance for credit losses was increased by $38.1 million through retained earnings.

For commercial real estate, consumer real estate, construction and land development, and commercial and industrial loans, Pinnacle Financial primarily utilizes a probability of default and loss given default modeling approach. These models utilize historical correlations between default experience and certain macroeconomic factors as determined through a statistical regression analysis. All loan segments modeled using this approach consider changes in the national unemployment rate. In addition to the national unemployment rate, GDP and the three month treasury rate are considered for owner occupied commercial real estate, the commercial real estate price index and the five year treasury rate are considered for construction loans, and the three month treasury rate is considered for commercial and industrial loans. For the consumer and other loan segment, a non-statistical approach based on historical charge off rates is utilized.

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. The reasonable and supportable period and reversion period are re-evaluated each quarter by Pinnacle Financial and are dependent on the current economic environment among other factors. A reasonable and supportable period of 24 months was utilized for all loan segments at December 31, 2022 and 2021, followed by, in each case, a 12 month straight line reversion to long term averages at each measurement date.

The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. These adjustments are based in part on quarterly trend assessments compared to historical experience in portfolio concentrations, policy exceptions, associate retention, independent loan review results, collateral considerations, risk ratings, competition and peer group credit quality trends. The qualitative allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various qualitative factors.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools. Individual evaluations are generally performed for loans greater than $1.0 million which have experienced significant credit deterioration. Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral.

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, as of December 31, 2022 and December 31, 2021 (in thousands):


	Real Estate		Business Assets		Other		Total
December 31, 2022
Commercial real estate:
Owner-occupied	$	10,804	$	—	$	—	$	10,804
Non-owner occupied	4,795		—		—		4,795
Consumer real estate – mortgage	22,466		—		—		22,466
Construction and land development	299		—		—		299
Commercial and industrial	—		12,327		—		12,327
Consumer and other	—		—		2		2
Total	$	38,364	$	12,327	$	2	$	50,693
December 31, 2021
Commercial real estate:
Owner-occupied	$	5,300	$	—	$	—	$	5,300
Non-owner occupied	5,631		—		—		5,631
Consumer real estate – mortgage	16,392		—		—		16,392
Construction and land development	1,208		—		—		1,208
Commercial and industrial	—		6,976		206		7,182
Consumer and other	—		—		—		—
Total	$	28,531	$	6,976	$	206	$	35,713

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 December 31, 2022 and 2021. Also presented is the balance of loans on nonaccrual status at December 31, 2022 and 2021 for which there was no related allowance for credit losses recorded (in thousands):


	December 31, 2022						December 31, 2021
	Total nonaccrual loans		Nonaccrual loans with no allowance for credit losses		Loans past due 90 or more days and still accruing		Total nonaccrual loans		Nonaccrual loans with no allowance for credit losses		Loans past due 90 or more days and still accruing
Commercial real estate:
Owner-occupied	$	1,882	$	—	$	—	$	2,694	$	—	$	—
Non-owner occupied	2,244		1,040		—		1,404		—		—
Consumer real estate – mortgage	17,330		—		—		10,264		—		144
Construction and land development	231		—		—		356		—		—
Commercial and industrial	16,345		8,003		3,663		16,849		13,188		1,091
Consumer and other	84		—		743		2		—		372
Total	$	38,116	$	9,043	$	4,406	$	31,569	$	13,188	$	1,607

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 through cash payments received on nonaccrual loans during the years ended December 31, 2022, 2021, and 2020. Had these nonaccruing loans been on accruing status, interest income would have been higher by $1.6 million, $1.7 million and $3.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. Approximately $6.4 million and $15.5 million of nonaccrual loans as of December 31, 2022 and 2021, respectively, were performing pursuant to their contractual terms at those dates.

At December 31, 2022 and 2021, there were $2.2 million and $2.4 million, respectively, of TDRs that were performing as of their restructure date and which are 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.

There were no TDRs made during the years ended December 31, 2022 and 2021. The following table outlines the amount of each TDR by loan classification made during the year ended December 31, 2020 (dollars in thousands):


	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

During the years ended December 31, 2022, 2021 and 2020, Pinnacle Financial had no TDRs 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.

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 had 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, 2022 with the comparative exposures for December 31, 2021 (in thousands):


	At December 31, 2022
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2021
Lessors of nonresidential buildings	$	4,911,231	$	2,146,814	$	7,058,045	$	5,368,638
Lessors of residential buildings	1,865,903		1,859,283		3,725,186		2,566,352
New housing for-sale builders	760,771		1,002,318		1,763,089		1,534,789
Music publishers	634,778		492,858		1,127,636		529,886
Total	$	8,172,683	$	5,501,273	$	13,673,956	$	9,999,665

Pinnacle Financial monitors two ratios regarding construction and commercial real estate lending as a part of its concentration management process. 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, 2022 and 2021, Pinnacle Bank's construction and land development loans as a percentage of total risk-based capital were 85.9% and 79.1%, 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 249.6% and 234.1% as of December 31, 2022 and 2021, 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 commercial real estate and multifamily 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. Pinnacle Bank was within the 100% and 300% guidelines as of December 31, 2022 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 December 31, 2022, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $20.9 million to current directors, executive officers, and their related interests, of which $16.0 million had been drawn upon. At December 31, 2021, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $45.2 million to directors, executive officers, and their related interests, of which approximately $14.5 million had been drawn upon. All loans to directors, executive officers, and their related entities were performing in accordance with contractual terms at December 31, 2022 and 2021.

Loans Held for Sale

At December 31, 2022, Pinnacle Financial had approximately $21.1 million in commercial loans held for sale compared to $17.7 million at December 31, 2021. These include 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. Also included are commercial loans originated for sale to BHG as part of BHG's alternative financing portfolio as more fully described in Note 2. Equity Method Investment.

At December 31, 2022, Pinnacle Financial had approximately $12.9 million of mortgage loans held-for-sale compared to approximately $30.3 million at December 31, 2021. Total mortgage loan volumes sold during the year ended December 31, 2022 were approximately $826.2 million compared to approximately $1.6 billion and $1.8 billion for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2022, Pinnacle Financial recognized $7.3 million in gains on the sale of these loans, net of commissions paid, compared to $32.4 million and $60.0 million, respectively, during the years ended December 31, 2021 and 2020.

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.