Securities

3 Months Ended

Sep. 30, 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 September 30, 2024 and December 31, 2023 are summarized as follows (in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2024:
Securities available-for-sale:
U.S. Treasury securities	$	1,456,514	$	17	$	24,974	$	1,431,557
U.S. Government agency securities	238,930		5		18,132		220,803
Mortgage-backed securities	1,729,398		10,878		85,919		1,654,357
State and municipal securities	1,526,844		11,819		42,231		1,496,432
Asset-backed securities	127,039		1,647		74		128,612
Corporate notes and other	481,651		1,973		24,397		459,227
	$	5,560,376	$	26,339	$	195,727	$	5,390,988
Securities held-to-maturity:
U.S. Treasury securities	$	69,974	$	—	$	1,348	$	68,626
U.S. Government agency securities	340,158		—		10,979		329,179
Mortgage-backed securities	370,433		767		25,909		345,291
State and municipal securities	1,863,397		5,005		144,265		1,724,137
Asset-backed securities	176,557		63		6,801		169,819
Corporate notes and other	83,441		—		6,592		76,849
	$	2,903,960	$	5,835	$	195,894	$	2,713,901
Allowance for credit losses - securities held-to-maturity	(1,707)
Securities held-to-maturity, net of allowance for credit losses	$	2,902,253


	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	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 September 30, 2024, approximately $2.8 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 September 30, 2024, repurchase agreements comprised of secured borrowings totaled $210.0 million and were secured by $210.0 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 September 30, 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
September 30, 2024:	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	5,075	$	9,166	$	138,251	$	136,597
Due in one year to five years	227,176		214,064		307,863		294,076
Due in five years to ten years	452,701		425,872		80,695		75,397
Due after ten years	3,018,987		2,958,917		1,830,161		1,692,721
Mortgage-backed securities	1,729,398		1,654,357		370,433		345,291
Asset-backed securities	127,039		128,612		176,557		169,819
	$	5,560,376	$	5,390,988	$	2,903,960	$	2,713,901

At September 30, 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 September 30, 2024
U.S. Treasury securities	$	626,281	$	7,625	$	796,446	$	17,349	$	1,422,727	$	24,974
U.S. Government agency securities	—		—		219,712		18,132		219,712		18,132
Mortgage-backed securities	391,774		3,313		617,752		82,606		1,009,526		85,919
State and municipal securities	144,268		10,194		534,808		32,037		679,076		42,231
Asset-backed securities	20,457		29		1,455		45		21,912		74
Corporate notes	34,070		1,075		280,418		23,322		314,488		24,397
Total temporarily-impaired securities	$	1,216,850	$	22,236	$	2,450,591	$	173,491	$	3,667,441	$	195,727

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 September 30, 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 September 30, 2024 and December 31, 2023, but is not included in the "Investments with an Unrealized Loss of less than 12 months" category above.

As shown in the tables above, at September 30, 2024, Pinnacle Financial had approximately $195.7 million in unrealized losses on approximately $3.7 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 September 30, 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 September 30, 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 September 30, 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 September 30, 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 September 30, 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. No such securities were sold during three months ended September 30, 2024. During nine months ended September 30, 2024, $822.7 million of available-for-sale securities were sold resulting in gross realized gains of $86,000 and gross realized losses of $72.2 million. During the three and nine months ended September 30, 2023, $129.6 million and $303.1 million, respectively, of available-for-sale securities were sold resulting in gross realized gains of $289,000 and $302,000 and gross realized losses of $10.0 million and $20.0 million, 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 9. 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.