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Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2025
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
Note 10. Fair Value of Financial Instruments

FASB ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement; not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

Valuation Hierarchy

FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

•Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.

Assets

Securities available-for-sale – Where quoted prices are available for identical securities in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government securities and certain other financial products. If quoted market prices are not available, then fair values are estimated by using pricing models that use observable inputs or quoted prices of securities with similar characteristics and are classified within Level 2 of the valuation hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation and more complex pricing models or discounted cash flows are used, securities are classified within Level 3 of the valuation hierarchy.

Other investments – Included in other investments are investments recorded at fair value primarily in certain nonpublic investments and funds. The valuation of these nonpublic investments requires management judgment due to the absence of observable quoted market prices, inherent lack of liquidity and the long-term nature of such assets. These investments are valued initially based upon transaction price. The carrying values of other investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through financial reports provided by the portfolio managers of the investments. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of the particular investment, industry valuations of comparable public companies and changes in market outlook and the third-party financing environment over time. In determining valuation adjustments resulting from the investment review process, emphasis is placed on current company performance and market conditions. These investments are included in Level 3 of the valuation hierarchy if the entities and funds are not widely traded and the underlying investments are in privately-held and/or start-up companies for which market values are not readily available. Certain investments in funds for which the underlying assets of the fund represent publicly traded investments are included in Level 2 of the valuation hierarchy.

Mortgage Servicing Rights – On March 31, 2024, Pinnacle Financial recognized a mortgage servicing asset totaling $11.8 million related to a commercial mortgage loan portfolio. Upon the sale of these commercial loans, the MSRs are capitalized and represent the fair value of future net servicing fees from servicing activities associated with these commercial mortgage loans. Pinnacle Financial has elected to account for this class of MSRs under the fair value measurement method. Fair value for MSRs is determined utilizing a discounted cash flow model which calculates the fair value of each servicing right based on the present value of the expected cash flows from servicing revenues less servicing costs of the portfolio. The valuation of MSRs uses assumptions market participants would use in determining fair value, including prepayment speeds, interest rates, discount rates and other economic factors, which are
considered significant unobservable inputs. Due to the nature of the inputs used in the valuation, MSRs are classified within Level 3 of the valuation hierarchy.

Other assets – Included in other assets are certain assets carried at fair value, including interest rate swap agreements to facilitate customer transactions, interest rate swap agreements designated as fair value hedges, interest rate caps, collars and floors designated as cash flow hedges and interest rate locks associated with the mortgage loan pipeline. The fair value of interest rate swap agreements is based on Pinnacle Financial's pricing models that utilize observable market inputs. The fair value of the cash flow hedge agreements is determined by calculating the difference between the discounted fixed rate cash flows and the discounted variable rate cash flows. The fair value of the mortgage loan pipeline is based upon the projected sales price of the underlying loans, taking into account market interest rates and other market factors at the measurement date, net of the projected fallout rate. Pinnacle Financial reflects these assets within Level 2 of the valuation hierarchy as these assets are valued using similar transactions that occur in the market.

Collateral dependent loans – Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on various sources, including third party asset valuations and internally determined values based on cost adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's underlying financial condition.

Other real estate owned – Other real estate owned (OREO) represents real estate foreclosed upon by Pinnacle Bank through loan defaults by customers or acquired by deed in lieu of foreclosure. Upon Pinnacle Bank's acquisition of OREO, the property is recorded at the lower of cost or fair value, based on appraised value, less selling costs estimated as of the date acquired with any loss recognized as a charge-off through the allowance for credit losses. Additional OREO losses for subsequent valuation downward adjustments are determined on a specific property basis and are included as a component of noninterest expense along with holding costs. Any gains or losses realized at the time of disposal are also reflected in noninterest expense, as applicable. OREO is included in Level 3 of the valuation hierarchy due to the lack of observable market inputs into the determination of fair value as appraisal values are property-specific and sensitive to the changes in the overall economic environment.

Liabilities

Other liabilities – Pinnacle Financial has certain liabilities carried at fair value including certain interest rate swap agreements to facilitate customer transactions, interest rate swaps designated as fair value hedges, interest rate caps, collars and floors designated as cash flow hedges and interest rate locks associated with the funding for its mortgage loan originations. The fair value of these liabilities is based on Pinnacle Financial's pricing models that utilize observable market inputs and is reflected within Level 2 of the valuation hierarchy.
The following tables present financial instruments measured at fair value on a recurring basis as of September 30, 2025 and December 31, 2024, by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (in thousands):
Total carrying value in the consolidated balance sheetQuoted market prices in an active market
(Level 1)		Models with significant observable market parameters
(Level 2)		Models with significant unobservable market parameters
(Level 3)
September 30, 2025
Investment securities available-for-sale:    
U.S. Treasury securities$1,593,558 $— $1,593,558 $— 
U.S. Government agency securities203,816 — 203,816 — 
Mortgage-backed securities2,618,190 — 2,618,190 — 
State and municipal securities1,690,538 — 1,690,538 — 
Agency-backed securities195 — 195 — 
Corporate notes and other305,509 — 292,582 12,927 
Total investment securities available-for-sale6,411,806 — 6,398,879 12,927 
Other investments238,395 — 22,750 215,645 
Mortgage servicing rights10,684 — — 10,684 
Other assets203,557 — 203,557 — 
Total assets at fair value$6,864,442 $— $6,625,186 $239,256 
Other liabilities$78,561 $— $78,561 $— 
Total liabilities at fair value$78,561 $— $78,561 $— 
December 31, 2024
Investment securities available-for-sale:    
U.S. Treasury securities$1,405,478 $— $1,405,478 $— 
U.S. Government agency securities214,066 — 214,066 — 
Mortgage-backed securities1,962,359 — 1,962,359 — 
State and municipal securities1,506,557 — 1,506,222 335 
Agency-backed securities45,338 — 45,338 — 
Corporate notes and other448,571 — 435,682 12,889 
Total investment securities available-for-sale5,582,369 — 5,569,145 13,224 
Other investments198,721 — 22,170 176,551 
Mortgage servicing rights11,854 — — 11,854 
Other assets177,100 — 177,100 — 
Total assets at fair value$5,970,044 $— $5,768,415 $201,629 
Other liabilities$98,311 $— $98,311 $— 
Total liabilities at fair value$98,311 $— $98,311 $— 
The following table presents assets measured at fair value on a nonrecurring basis as of September 30, 2025 and December 31, 2024 (in thousands):
September 30, 2025Total carrying value in the consolidated balance sheetQuoted market prices in an active market
(Level 1)		Models with significant observable market parameters
(Level 2)		Models with significant unobservable market
parameters
(Level 3)
Other real estate owned$5,129 $— $— $5,129 
Collateral dependent loans (1)
113,230 — — 113,230 
Total$118,359 $— $— $118,359 
December 31, 2024    
Other real estate owned$1,278 $— $— $1,278 
Collateral dependent loans (1)
84,273 — — 84,273 
Total$85,551 $— $— $85,551 

(1) The carrying values of collateral dependent loans at September 30, 2025 and December 31, 2024 are net of valuation allowances of $34.5 million and $54.7 million, respectively.

In the case of the available-for-sale (AFS) investment securities portfolio, Pinnacle Financial monitors the portfolio to ascertain when transfers between levels have been affected. For the nine months ended September 30, 2025, there were no transfers between Levels 1, 2 or 3. During the nine months ended September 30, 2024, one AFS security with a carrying value of $12.8 million previously classified as Level 2 was transferred to Level 3 due to unobservable inputs becoming significant. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare.

The table below includes a rollforward of the balance sheet amounts for the three and nine months ended September 30, 2025 and 2024 (including the change in fair value) for financial instruments classified by Pinnacle Financial within Level 3 of the valuation hierarchy measured at fair value on a recurring basis including changes in fair value due in part to observable factors that are part of the valuation methodology (in thousands):

 For the Three months ended September 30,For the Nine months ended September 30,
 2025202420252024
 Available-for-sale securities Other
investments		Mortgage servicing rightsAvailable-for-sale securities Other
 investments		Mortgage servicing rightsAvailable-for-sale securitiesOther
investments		Mortgage servicing rightsAvailable-for-sale securitiesOther
investments		Mortgage servicing rights
Fair value, beginning of period$13,086 $199,420 $10,903 $13,197 $168,312 $11,301 $13,224$176,551$11,854$479$157,140$—
Total realized gains (losses) included in income14 4,822 (219)13 2,414 (343)408,396(1,170)391,87910,958
Changes in unrealized gains/losses included in other comprehensive income (loss)— — — 2 — — 2——18——
Transfers into Level 3— — — — — — ———12,841——
Purchases— 12,879 — — 5,608 — —37,501——22,910—
Issuances— — — — — — ——————
Settlements(173)(1,476)— — (6,078)— (339)(6,803)—(165)(11,673)—
Transfers out of Level 3— — — — — — ——————
Fair value, end of period$12,927 $215,645 $10,684 $13,212 $170,256 $10,958 $12,927$215,645$10,684$13,212$170,256$10,958
Total net realized gains (losses) included in income$14 $4,822 $(219)$13 $2,414 $(343)$40$8,396$(1,170)$39$1,879$10,958
The following tables present the carrying amounts, estimated fair value and placement in the fair value hierarchy of Pinnacle Financial's financial instruments at September 30, 2025 and December 31, 2024. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash, cash equivalents, and restricted cash, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand, interest-bearing demand, and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity (in thousands):
Carrying Amount
Estimated
Fair Value (1)
Quoted market prices in an active market
(Level 1)		Models with significant observable market parameters
(Level 2)		Models with significant unobservable market
parameters
(Level 3)
September 30, 2025
Financial assets:     
Securities purchased with agreement to resell$83,120 $83,121 $— $— $83,121 
Securities held-to-maturity2,644,802 2,432,068 — 2,432,068 — 
Loans, net37,498,163 37,082,950 — — 37,082,950 
Consumer loans held-for-sale163,129 163,509 — 163,509 — 
Commercial loans held-for-sale12,267 12,296 — 12,296 — 
Financial liabilities:     
Deposits and securities sold under     
agreements to repurchase46,052,697 45,108,617 — — 45,108,617 
Federal Home Loan Bank advances1,777,003 1,802,117 — — 1,802,117 
Subordinated debt and other borrowings426,483 429,775 — — 429,775 
December 31, 2024
Financial assets:     
Securities purchased with agreement to resell$66,449 $66,451 $— $— $66,451 
Securities held-to-maturity2,798,899 2,560,252 — 2,560,252 — 
Loans, net35,071,282 34,440,683 — — 34,440,683 
Consumer loans held-for-sale175,627 175,838 — 175,838 — 
Commercial loans held-for-sale19,700 19,724 — 19,724 — 
Financial liabilities:     
Deposits and securities sold under     
agreements to repurchase43,073,236 42,190,235 — — 42,190,235 
Federal Home Loan Bank advances1,874,134 1,874,588 — — 1,874,588 
Subordinated debt and other borrowings425,821 431,996 — — 431,996 
(1)Estimated fair values are consistent with an exit-price concept. The assumptions used to estimate the fair values are intended to approximate those that a market-participant would realize in a hypothetical orderly transaction.