Securities

3 Months Ended

Mar. 31, 2024

Investments, Debt and Equity Securities [Abstract]

Note 3. Securities

The amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2024 and December 31, 2023 are summarized as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2024:
Securities available-for-sale:
U.S. Treasury securities	$	877,149	$	21	$	4,379	$	872,791
U.S. Government agency securities	316,289		20		27,476		288,833
Mortgage-backed securities	1,095,839		544		126,171		970,212
State and municipal securities	1,620,208		26,568		53,993		1,592,783
Asset-backed securities	230,109		452		8,893		221,668
Corporate notes and other	474,229		52		41,850		432,431
	$	4,613,823	$	27,657	$	262,762	$	4,378,718


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2024:
Securities held-to-maturity:
U.S. Treasury securities	$	90,199	$	—	$	3,415	$	86,784
U.S. Government agency securities	364,898		—		20,355		344,543
Mortgage-backed securities	378,228		175		39,134		339,269
State and municipal securities	1,878,776		2,783		180,516		1,701,043
Asset-backed securities	197,511		49		12,429		185,131
Corporate notes and other	85,225		—		8,936		76,289
	$	2,994,837	$	3,007	$	264,785	$	2,733,059
Allowance for credit losses - securities held-to-maturity	(1,708)
Securities held-to-maturity, net of allowance for credit losses	$	2,993,129


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	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

During the quarters ended March 31, 2022, March 31, 2020 and September 30, 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, on these transferred securities remained in accumulated other comprehensive income (loss) and are being amortized over the remaining life of the transferred securities, offsetting the related amortization of discount or premium on the transferred securities. No gains or losses were recognized at the time of the transfer. At March 31, 2024, approximately $2.0 billion of securities within Pinnacle Financial's investment portfolio were pledged to secure either public funds and other deposits or securities sold under agreements to repurchase. At March 31, 2024, repurchase agreements comprised of secured borrowings totaled $201.4 million and were secured by $201.4 million of pledged U.S. government agency securities, mortgage-backed securities, municipal securities, asset-backed securities and corporate notes. As the fair value of securities pledged to secure repurchase agreements may decline, Pinnacle Financial regularly evaluates its need to pledge additional securities to the customers with whom it has entered into the repurchase agreements for the customers to remain adequately secured.

The amortized cost and fair value of debt securities as of March 31, 2024 by contractual maturity is shown below. Actual maturities may differ from contractual maturities of mortgage- and asset-backed securities since the mortgages and assets 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
March 31, 2024:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	27,863	$	29,143	$	95,418	$	92,840
Due in one year to five years	241,765		236,003		372,318		347,867
Due in five years to ten years	506,600		462,247		91,872		84,791
Due after ten years	2,511,647		2,459,445		1,859,490		1,683,161
Mortgage-backed securities	1,095,839		970,212		378,228		339,269
Asset-backed securities	230,109		221,668		197,511		185,131
	$	4,613,823	$	4,378,718	$	2,994,837	$	2,733,059

At March 31, 2024 and December 31, 2023, the following available-for-sale securities had unrealized losses. The table below classifies these investments according to the term of the unrealized losses 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
At March 31, 2024
U.S. Treasury securities	$	669,265	$	3,780	$	130,101	$	599	$	799,366	$	4,379
U.S. Government agency securities	1,428		13		286,532		27,463		287,960		27,476
Mortgage-backed securities	43,474		615		799,688		125,556		843,162		126,171
State and municipal securities	254,269		2,053		500,627		51,940		754,896		53,993
Asset-backed securities	39,732		91		120,109		8,802		159,841		8,893
Corporate notes	26,183		1,099		375,259		40,751		401,442		41,850
Total temporarily-impaired securities	$	1,034,351	$	7,651	$	2,212,316	$	255,111	$	3,246,667	$	262,762

At 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	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

The applicable dates for determining when available-for-sale securities were in an unrealized loss position were March 31, 2024 and December 31, 2023. As such, it is possible that an available-for-sale security had a market value less than its amortized cost on other days during the twelve-month periods ended March 31, 2024 and December 31, 2023, but is not in the "Investments with an Unrealized Loss of less than 12 months" category above.

As shown in the tables above, at March 31, 2024, Pinnacle Financial had approximately $262.8 million in unrealized losses on approximately $3.2 billion of available-for-sale securities. 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 currently does not intend to sell those available-for-sale securities that have an unrealized loss at March 31, 2024, and it is 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 of available-for-sale securities 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 available-for-sale securities at March 31, 2024 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 March 31, 2024. These securities will continue to be monitored as a part of Pinnacle Financial's ongoing evaluation of credit quality. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments.

The allowance for credit losses on held-to-maturity securities is measured on a collective basis by major security type. 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 third-party 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. At both March 31, 2024 and December 31, 2023, the estimated allowance for credit losses on these held-to-maturity securities was $1.7 million.

Pinnacle Financial utilizes bond credit ratings assigned by third party ratings agencies to monitor the credit quality of debt securities held-to-maturity. At March 31, 2024, 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, or to implement changes in investment or asset/liability strategy, including maintaining collateral requirements and raising funds for liquidity purposes or preparing for 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. During the three months ended March 31, 2024 and 2023, no available-for-sale securities were sold.

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 8. 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.