Securities

12 Months Ended

Dec. 31, 2023

Investments, Debt and Equity Securities [Abstract]

Note 4. Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at December 31, 2023 and 2022 are summarized as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2023
Securities available-for-sale:
U.S Treasury securities	$	907,990	$	2	$	14,580	$	893,412
U.S. Government agency securities	284,607		—		21,877		262,730
Mortgage-backed securities	1,071,963		444		125,017		947,390
State and municipal securities	1,604,874		26,129		45,108		1,585,895
Asset-backed securities	201,577		338		10,280		191,635
Corporate notes and other	477,761		69		41,362		436,468
	$	4,548,772	$	26,982	$	258,224	$	4,317,530
Securities held-to-maturity:
U.S Treasury securities	$	90,309	$	—	$	3,840	$	86,469
U.S. Government agency securities	364,769		—		19,187		345,582
Mortgage-backed securities	382,100		637		34,900		347,837
State and municipal securities	1,886,459		6,079		159,027		1,733,511
Asset-backed securities	198,418		—		14,228		184,190
Corporate notes and other	86,009		—		8,414		77,595
	$	3,008,064	$	6,716	$	239,596	$	2,775,184
Allowance for credit losses - securities held-to-maturity	(1,707)
Securities held-to-maturity, net of allowance for credit losses	$	3,006,357

December 31, 2022
Securities available-for-sale:
U.S Treasury securities	$	196,151	$	—	$	1,967	$	194,184
U.S. Government agency securities	432,475		—		36,318		396,157
Mortgage-backed securities	1,114,948		211		143,583		971,576
State and municipal securities	1,478,310		12,553		78,557		1,412,306
Asset-backed securities	134,386		—		16,983		117,403
Corporate notes and other	515,221		41		48,018		467,244
	$	3,871,491	$	12,805	$	325,426	$	3,558,870
Securities held-to-maturity:
U.S Treasury securities	$	92,738	$	—	$	6,472	$	86,266
U.S. Government agency securities	374,255		—		27,860		346,395
Mortgage-backed securities	413,119		52		41,593		371,578
State and municipal securities	1,927,778		2,216		233,564		1,696,430
Asset-backed securities	184,241		—		18,573		165,668
Corporate notes and other	88,527		—		9,918		78,609
	$	3,080,658	$	2,268	$	337,980	$	2,744,946
Allowance for credit losses - securities held-to-maturity	(1,608)
Securities held-to-maturity, net of allowance for credit losses	$	3,079,050

During the years ended December 31, 2022, 2020 and 2018, Pinnacle Financial transferred, at fair value, $1.1 billion, $873.6 million and $179.8 million, respectively, of securities from the available-for-sale portfolio to the held-to-maturity portfolio. The related net unrealized after tax losses of $1.5 million, net unrealized after tax gains of $69.0 million and net unrealized after tax losses of $2.2 million, respectively, remained in accumulated other comprehensive income (loss) and will be amortized over the remaining life of the securities, offsetting the related amortization of discount on the transferred securities. No gains or losses were recognized at the time of the transfer. At December 31, 2023, approximately $2.1 billion of Pinnacle Financial's investment portfolio was pledged to secure public funds and other deposits and securities sold under agreements to repurchase. At December 31, 2023, repurchase agreements comprised of secured borrowings totaled $209.5 million and were secured by $209.5 million of pledged U.S. government agency securities, mortgage-backed securities, municipal securities, asset backed securities and corporate debentures. As the fair value of securities pledged to secure repurchase agreements may decline, Pinnacle Financial regularly evaluates its need to pledge additional securities for the counterparty to remain adequately secured.

The amortized cost and fair value of debt securities as of December 31, 2023 by contractual maturity is shown below. Actual maturities may differ from contractual maturities of mortgage-backed securities since the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories in the following summary (in thousands):


	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	16,744	$	18,747	$	44,911	$	43,530
Due in one year to five years	204,619		202,103		406,769		383,312
Due in five years to ten years	549,251		504,648		100,801		94,025
Due after ten years	2,504,618		2,453,007		1,875,065		1,722,290
Mortgage-backed securities	1,071,963		947,390		382,100		347,837
Asset-backed securities	201,577		191,635		198,418		184,190
	$	4,548,772	$	4,317,530	$	3,008,064	$	2,775,184

At December 31, 2023 and 2022, included in securities available-for-sale were the following investments with unrealized losses. The information below classifies these investments according to the term of the unrealized loss of less than twelve months or twelve months or longer (in thousands):


	Investments with an Unrealized Loss of less than 12 months				Investments with an Unrealized Loss of 12 months or longer				Total Investments with an Unrealized Loss
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2023
U.S. Treasury securities	$	693,621	$	11,651	$	192,500	$	2,929	$	886,121	$	14,580
U.S. Government agency securities	14,989		11		247,648		21,866		262,637		21,877
Mortgage-backed securities	72,907		1,518		828,251		123,499		901,158		125,017
State and municipal securities	185,108		908		449,212		44,200		634,320		45,108
Asset-backed securities	42,207		254		122,469		10,026		164,676		10,280
Corporate notes and other	12,679		7		403,882		41,355		416,561		41,362
Total temporarily-impaired securities	$	1,021,511	$	14,349	$	2,243,962	$	243,875	$	3,265,473	$	258,224

December 31, 2022
U.S. Treasury securities	$	192,188	$	1,963	$	1,997	$	4	$	194,185	$	1,967
U.S. Government agency securities	46,062		2,224		350,094		34,094		396,156		36,318
Mortgage-backed securities	390,014		34,106		570,601		109,477		960,615		143,583
State and municipal securities	568,691		18,863		304,451		59,694		873,142		78,557
Asset-backed securities	513		5		116,442		16,978		116,955		16,983
Corporate notes and other	259,453		20,260		207,326		27,758		466,779		48,018
Total temporarily-impaired securities	$	1,456,921	$	77,421	$	1,550,911	$	248,005	$	3,007,832	$	325,426

The applicable date for determining when securities are in an unrealized loss position is December 31, 2023 and 2022. As such, it is possible that a security had a market value less than its amortized cost on other days during the twelve-month periods ended December 31, 2023 and 2022, but is not in the "Investments with an Unrealized Loss of less than 12 months" category above.

As shown in the tables above, at December 31, 2023 and 2022, Pinnacle Financial had unrealized losses of $258.2 million and $325.4 million on $3.3 billion and $3.0 billion, respectively, of securities. The unrealized losses associated with $1.1 billion, $873.6 million and $179.8 million of securities transferred from the available-for-sale portfolio to the held-to-maturity portfolio during the years ended December 31, 2022, 2020 and 2018, respectively, represent unrealized losses since the date of purchase, independent of the impact associated with changes in the cost basis upon transfer between portfolios. As described in Note 1. Summary of Significant Accounting Policies, for any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, Pinnacle Financial assesses whether or not it intends to sell the security, or more-likely-than-not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because Pinnacle Financial, as of December 31, 2023, did not intend to sell those securities that had an unrealized loss at December 31, 2023, and at December 31, 2023 it was not more-likely-than-not that Pinnacle Financial will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, Pinnacle Financial has determined that no write-down is necessary. In addition, Pinnacle Financial evaluates whether any portion of the decline in fair value is the result of credit deterioration, which would require the recognition of an allowance for credit losses. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. The unrealized losses associated with securities at December 31, 2023 are driven by changes in interest rates and are not due to the credit quality of the securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at December 31, 2023. These securities will continue to be monitored as a part of Pinnacle Financial's ongoing evaluation of credit quality.

The allowance for credit losses on held-to-maturity securities is measured on a collective basis by major security type as described in Note 1. Summary of Significant Accounting Policies. Pinnacle Financial has a zero loss expectation for U.S. treasury securities in addition to U.S government agency securities and mortgage-backed securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac, and accordingly, no allowance for credit losses is estimated for these securities. Credit losses on held-to-maturity state and municipal securities and corporate notes and other securities are estimated using probability of default and loss given default models driven primarily by macroeconomic factors over a reasonable and supportable period of twenty-four months with an eight month reversion to average loss factors. The allowance for credit losses on held-to-maturity securities totaled $1.7 million and $1.6 million, at December 31, 2023 and 2022, respectively.

Pinnacle Financial utilizes bond credit ratings assigned by third party ratings agencies to monitor the credit quality of debt securities held-to-maturity. At December 31, 2023, all debt securities classified as held-to-maturity were rated A or higher by the ratings agencies. Updated credit ratings are obtained as they become available from the ratings agencies.

Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality or marketability, to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes or in preparation of anticipated changes in market interest rates. Additionally, if an available-for-sale security loses its investment grade or tax-exempt status, the underlying credit support is terminated or collection otherwise becomes uncertain based on factors known to management, Pinnacle Financial will consider selling the security, but will review each security on a case-by-case basis as these factors become known. Consistent with the investment policy, and to improve yields during the years ended December 31, 2023, 2022 and 2021, available-for-sale securities of approximately $312.6 million, $29.5 million and $37.5 million, respectively, were sold, resulting in gross realized gains of $321,000, $292,000 and $769,000, and gross realized losses of $20.0 million, $136,000 and $10,000, respectively.

Pinnacle Financial has entered into various fair value hedging transactions to mitigate the impact of changing interest rates on the fair values of available for sale securities. See Note 14. Derivative Instruments for disclosure of the gains and losses recognized on derivative instruments and the cumulative fair value hedging adjustments to the carrying amount of the hedged securities.