•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 Paycheck Protection Program (PPP), which are fully guaranteed by the SBA, are included in this category.

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, 2023, approximately 79.2% 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 $1.5 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.


December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Commercial real estate- owner occupied
Pass	$	785,834	$	1,123,425	$	871,389	$	502,260	$	267,595	$	357,339	$	56,680	$	3,964,522
Special Mention	1,595		37,324		5,300		2,252		5,306		4,701		—		56,478
Substandard (1)	5,528		9,331		3,262		1,145		568		610		—		20,444
Substandard-nonaccrual	1,781		615		686		53		—		317		—		3,452
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - owner occupied	$	794,738	$	1,170,695	$	880,637	$	505,710	$	273,469	$	362,967	$	56,680	$	4,044,896
Current period gross charge-offs	$	—	—		—		—		—		—		—		$	—
Commercial real estate- Non-owner occupied
Pass	$	1,304,109	$	2,682,275	$	1,737,275	$	713,979	$	505,767	$	370,420	$	107,841	$	7,421,666
Special Mention	—		30,229		—		6,745		216		5,335		—		42,525
Substandard (1)	25,723		2,969		—		—		1,195		73		—		29,960
Substandard-nonaccrual	—		153		40,180		—		—		489		521		41,343
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Commercial real estate - Non-owner occupied	$	1,329,832	$	2,715,626	$	1,777,455	$	720,724	$	507,178	$	376,317	$	108,362	$	7,535,494
Current period gross charge-offs	$	—	—		—		—		—		—		—		$	—
Consumer real estate – mortgage
Pass	$	573,120	$	976,006	$	1,056,720	$	448,420	$	207,790	$	318,505	$	1,253,091	$	4,833,652
Special Mention	—		—		—		—		—		—		—		—
Substandard (1)	—		—		—		—		—		—		—		—
Substandard-nonaccrual	688		2,265		2,951		2,525		5,265		3,671		514		17,879
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer real estate – mortgage	$	573,808	$	978,271	$	1,059,671	$	450,945	$	213,055	$	322,176	$	1,253,605	$	4,851,531
Current period gross charge-offs	$	—	(225)		(91)		(6)		(89)		(472)		—		$	(883)
Construction and land development
Pass	$	1,153,137	$	1,930,062	$	884,060	$	12,102	$	5,580	$	6,369	$	41,886	$	4,033,196
Special Mention	2,728		—		—		4,467		—		—		—		7,195
Substandard (1)	—		—		—		—		—		82		—		82
Substandard-nonaccrual	—		608		—		—		—		—		—		608
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Construction and land development	$	1,155,865	$	1,930,670	$	884,060	$	16,569	$	5,580	$	6,451	$	41,886	$	4,041,081
Current period gross charge-offs	$	—	—		—		—		—		(3)		—		$	(3)


December 31, 2023	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Commercial and industrial
Pass	$	3,778,326	$	2,103,473	$	1,127,096	$	325,176	$	215,158	$	142,806	$	3,753,575	$	11,445,610
Special Mention	11,125		22,806		12,457		532		144		1,847		45,025		93,936
Substandard (1)	10,142		2,243		25,311		145		359		9,028		60,986		108,214
Substandard-nonaccrual	10,436		4,193		1,583		409		359		735		1,215		18,930
Doubtful-nonaccrual	—		—		—		1		—		—		—		1
Total Commercial and industrial	$	3,810,029	$	2,132,715	$	1,166,447	$	326,263	$	216,020	$	154,416	$	3,860,801	$	11,666,691
Current period gross charge-offs	$	(3,428)	(24,114)		(13,857)		(3,309)		(111)		(455)		(15,268)		$	(60,542)
Consumer and other
Pass	$	136,809	$	28,774	$	66,126	$	37,015	$	541	$	656	$	266,402	$	536,323
Special Mention	—		—		—		—		—		—		—		—
Substandard (1)	—		—		—		—		—		—		—		—
Substandard-nonaccrual	—		—		—		—		—		—		75		75
Doubtful-nonaccrual	—		—		—		—		—		—		—		—
Total Consumer and other	$	136,809	$	28,774	$	66,126	$	37,015	$	541	$	656	$	266,477	$	536,398
Current period gross charge-offs	$	(151)	(629)		(6,377)		(2,808)		(235)		(110)		(4,987)		$	(15,297)
Total loans
Pass	$	7,731,335	$	8,844,015	$	5,742,666	$	2,038,952	$	1,202,431	$	1,196,095	$	5,479,475	$	32,234,969
Special Mention	15,448		90,359		17,757		13,996		5,666		11,883		45,025		200,134
Substandard (1)	41,393		14,543		28,573		1,290		2,122		9,793		60,986		158,700
Substandard-nonaccrual	12,905		7,834		45,400		2,987		5,624		5,212		2,325		82,287
Doubtful-nonaccrual	—		—		—		1		—		—		—		1
Total loans	$	7,801,081	$	8,956,751	$	5,834,396	$	2,057,226	$	1,215,843	$	1,222,983	$	5,587,811	$	32,676,091
Current period gross charge-offs	$	(3,579)	$	(24,968)	$	(20,325)	$	(6,123)	$	(435)	$	(1,040)	$	(20,255)	$	(76,725)

(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 loan modifications made to borrowers experiencing financial difficulty. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $127.4 million at December 31, 2023, compared to $53.8 million at December 31, 2022.

The table below presents the aging of past due balances by loan segment at December 31, 2023 and December 31, 2022 (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, 2023
Commercial real estate:
Owner-occupied	$	1,671	$	507	$	3,398	$	5,576	$	4,039,320	$	4,044,896
Non-owner occupied	40,577		489		153		41,219		7,494,275		7,535,494
Consumer real estate – mortgage	21,585		1,352		10,824		33,761		4,817,770		4,851,531
Construction and land development	621		28		608		1,257		4,039,824		4,041,081
Commercial and industrial	14,197		28,221		16,890		59,308		11,607,383		11,666,691
Consumer and other	5,286		1,868		1,496		8,650		527,748		536,398
Total	$	83,937	$	32,465	$	33,369	$	149,771	$	32,526,320	$	32,676,091
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


	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		Total
Allowance for Credit Losses:
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 credit losses on loans	(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 credit losses on loans	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
Charged-off loans	—		—		(883)		(3)		(60,542)		(15,297)		(76,725)
Recovery of previously charged-off loans	76		1,632		2,114		338		15,556		8,403		28,119
Provision for credit losses on loans	1,997		15,576		33,587		2,693		48,845		(1,702)		100,996
Balance at December 31, 2023	$	28,690	$	57,687	$	71,354	$	39,142	$	148,212	$	7,970	$	353,055

The adequacy of the allowance for credit losses on loans 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 on loans 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. During the second quarter of 2023, Pinnacle Financial implemented updated CECL models in an effort to ensure that risk in its portfolio continues to be adequately captured given the uncertain state of the economy.

CECL methodology requires the allowance for credit losses to be 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 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 and loss experience, loan level attributes, and certain macroeconomic factors as determined through a statistical regression analysis. Segments using this approach incorporate various economic drivers.

Under the current model, commercial and industrial loans consider gross domestic product (GDP), the consumer credit index and the national unemployment rate, commercial construction loans and commercial real estate loans including nonowner occupied and owner occupied commercial real estate loans consider the national unemployment rate and the commercial property and commercial real estate price indices, construction and land development loans consider the commercial property, consumer credit and home price indices dependent upon their use as residential versus commercial, consumer real estate loans consider the home price index and household debt ratio and other consumer loans consider the national unemployment rate and the household financial obligations ratio.

A third-party provides management with quarterly macroeconomic scenarios, which management evaluates to determine the best estimate of the expected losses. For the consumer and other loan segment, a non-statistical approach based on historical charge off rates is utilized. The implementation of the new model including the addition of, and changes to, macroeconomic factors considered had no material effect on the overall allowance for credit losses.

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 15 months was utilized for all loan segments at December 31, 2023 as compared to 24 months at December 31, 2022, 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.


	Real Estate		Business Assets		Other		Total
December 31, 2023
Commercial real estate:
Owner-occupied	$	22,284	$	—	$	—	$	22,284
Non-owner occupied	69,577		—		—		69,577
Consumer real estate – mortgage	20,389		—		—		20,389
Construction and land development	668		—		—		668
Commercial and industrial	—		31,625		552		32,177
Consumer and other	—		—		—		—
Total	$	112,918	$	31,625	$	552	$	145,095
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

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. Pinnacle Financial uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, a loan modification will be granted by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

In some cases, a loan restructuring will result in providing multiple types of modifications. Typically, one type of modification, such as a payment delay or term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness or an interest rate reduction, may be granted. Additionally, multiple types of modifications may be made on the same loan within the current reporting period. Such a combination is at least two of the following: a payment delay, term extension, principal forgiveness and interest rate reduction. Upon determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.


	December 31, 2023
	Payment Delay			Term Extension			Combination¹
	Total	%		Total	%		Total	%		Total
Commercial real estate:
Owner-occupied	—	—	%	5,528	0.14	%	—	—	%	5,528
Non-owner occupied	12,244	0.16	%	—	—	%	13,479	0.18	%	25,723
Consumer real estate – mortgage	—	—	%	—	—	%	—	—	%	—
Construction and land development	—	—	%	—	—	%	—	—	%	—
Commercial and industrial	—	—	%	3,226	0.03	%	—	—	%	3,226
Consumer and other	—	—	%	—	—	%	—	—	%	—
	12,244			8,754			13,479			34,477

December 31, 2023

Financial Effect

Payment Delay:

Non-owner occupied

Implemented interest-only payments until loan maturity

Term Extension:

Owner Occupied

Added a weighted average 0.46 years to the term of the modified loans

Commercial and industrial

Added a weighted average 0.25 years to the term of the modified loans

Combination:

Non-owner Occupied

Reduced weighted average contractual interest rate by 0.55%, added a weighted average 2 years to the term, and implemented an alternative payment schedule until loan maturity


	December 31, 2023						December 31, 2022
	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	$	3,452	$	122	$	—	$	1,882	$	—	$	—
Non-owner occupied	41,343		40,669		—		2,244		1,040		—
Consumer real estate – mortgage	17,879		—		781		17,330		—		—
Construction and land development	608		—		—		231		—		—
Commercial and industrial	18,931		519		3,802		16,345		8,003		3,663
Consumer and other	75		—		1,421		84		—		743
Total	$	82,288	$	41,310	$	6,004	$	38,116	$	9,043	$	4,406

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, 2023, 2022, and 2021. Had these nonaccruing loans been on accruing status, interest income would have been higher by $4.5 million, $1.6 million and $1.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Approximately $7.9 million and $6.4 million of nonaccrual loans as of December 31, 2023 and 2022, respectively, were performing pursuant to their contractual terms at those dates.

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, 2023 with the comparative exposures for December 31, 2022 (in thousands):


	At December 31, 2023
	Outstanding Principal Balances		Unfunded Commitments		Total exposure		Total Exposure at December 31, 2022
Lessors of nonresidential buildings	$	4,674,176	$	1,242,159	$	5,916,335	$	7,058,045
Lessors of residential buildings	2,028,622		1,150,419		3,179,041		3,725,186
New housing for-sale builders	577,090		819,563		1,396,653		1,763,089
Music publishers	787,407		432,374		1,219,781		1,127,636
Total	$	8,067,295	$	3,644,515	$	11,711,810	$	13,673,956

Among other data, 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, 2023 and 2022, Pinnacle Bank's construction and land development loans as a percentage of total risk-based capital were 84.2% and 85.9%, 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 259.0% and 249.6% as of December 31, 2023 and 2022, 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, 2023 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, 2023, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $37.7 million to current directors, executive officers, and their related interests, of which $34.7 million had been drawn upon. At December 31, 2022, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $20.9 million to directors, executive officers, and their related interests, of which approximately $16.0 million had been drawn upon. All loans to directors, executive officers, and their related interests were performing in accordance with contractual terms at December 31, 2023 and 2022.

At December 31, 2023, Pinnacle Financial had approximately $9.3 million in commercial loans held for sale compared to $21.1 million at December 31, 2022. 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, 2023, Pinnacle Financial had approximately $20.2 million of mortgage loans held-for-sale compared to approximately $12.9 million at December 31, 2022. Total mortgage loan volumes sold during the year ended December 31, 2023 were approximately $653.9 million compared to approximately $826.2 million and $1.6 billion for the years ended December 31, 2022 and 2021, respectively. During the year ended December 31, 2023, Pinnacle Financial recognized $6.5 million in gains on the sale of these loans, net of commissions paid, compared to $7.3 million and $32.4 million, respectively, during the years ended December 31, 2022 and 2021. 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.