Loans and Allowance for Loan Losses | Note 6. Loans and Allowance for Loan Losses For financial reporting purposes, Pinnacle Financial classifies its loan portfolio based on the underlying collateral utilized to secure each loan. This classification is consistent with those utilized in the Quarterly Report of Condition and Income filed with the Federal Deposit Insurance Corporation (FDIC). Pinnacle Financial uses five loan categories: commercial real estate mortgage, consumer real estate mortgage, construction and land development, commercial and industrial, consumer and other. · Commercial real-estate mortgage loans · Consumer real-estate mortgage loans · Construction and land development loans · Commercial and industrial loans · Consumer and other loans 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 five distinct ratings categories for loans that represent specific attributes. Pinnacle Financial believes that its categories follow those outlined by Pinnacle Bank's primary regulators. At December 31, 2016, approximately 79% of our loan portfolio was analyzed as a commercial loan type with a specifically assigned risk rating in the allowance for loan loss assessment. 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. Risk ratings are subject to continual review by a financial advisor and a senior credit officer. At least annually, our credit policy requires that every risk rated loan of $500,000 or more be subject to a formal credit risk review process. Each loan's risk rating is also subject to review by our independent loan review department, which reviews a substantial portion of our risk rated portfolio annually. Included in the coverage are independent loan 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. The following table presents our loan balances by primary loan classification and the amount within each risk rating category. Pass-rated loans include all credits other than those included in special mention, substandard, substandard-nonaccrual and doubtful-nonaccrual which are defined as follows:  Special mention loans have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in Pinnacle Financial's credit position at some future date.  Substandard loans are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize collection of the debt. Substandard loans are characterized by the distinct possibility that Pinnacle Financial will sustain some loss if the deficiencies are not corrected.  Substandard-nonaccrual loans are substandard loans that have been placed on nonaccrual status.  Doubtful-nonaccrual loans have all the characteristics of substandard-nonaccrual loans with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The following table outlines the amount of each loan classification categorized into each risk rating category as of December 31, 2016 and 2015 (in thousands): December 31, 2016 Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial Consumer and other Total Accruing loans: Pass $ 3,137,239 $ 1,159,003 $ 897,549 $ 2,782,000 $ 264,682 $ 8,240,473 Special Mention 21,449 1,620 2,716 25,641 802 52,228 Substandard (1) 29,674 13,833 5,788 65,215 129 114,639 Total 3,188,362 1,174,456 906,053 2,872,856 265,613 8,407,340 Impaired loans: Nonaccruing loans Substandard-nonaccrual 4,921 8,073 6,613 7,492 475 27,574 Doubtful-nonaccrual - - - 3 - 3 Total nonaccruing loans (3) 4,921 8,073 6,613 7,495 475 27,577 Troubled debt restructurings (2) Pass 213 1,358 7 713 41 2,332 Special Mention - 236 - - - 236 Substandard - 1,794 - 10,646 - 12,440 Total troubled debt restructurings 213 3,388 7 11,359 41 15,008 Total impaired loans 5,134 11,461 6,620 18,854 516 42,585 Total loans $ 3,193,496 $ 1,185,917 $ 912,673 $ 2,891,710 $ 266,129 $ 8,449,925 December 31, 2015 Accruing loans: Pass $ 2,217,639 $ 1,020,239 $ 732,662 $ 2,143,006 $ 239,874 $ 6,353,420 Special Mention 18,162 1,894 1,133 26,037 118 47,344 Substandard (1) 33,638 11,346 6,295 53,671 74 105,024 Total 2,269,439 1,033,479 740,090 2,222,714 240,066 6,505,788 Impaired loans: Nonaccruing loans Substandard-nonaccrual 5,819 9,344 7,607 1,591 4,902 29,263 Doubtful-nonaccrual 2 2 - 92 - 96 Total nonaccruing loans (3) 5,821 9,346 7,607 1,683 4,902 29,359 Troubled debt restructurings (2) Pass 223 409 - 553 28 1,213 Special Mention - 422 - - - 422 Substandard - 2,861 - 3,592 - 6,453 Total troubled debt restructurings 223 3,692 - 4,145 28 8,088 Total impaired loans 6,044 13,038 7,607 5,828 4,930 37,447 Total loans $ 2,275,483 $ 1,046,517 $ 747,697 $ 2,228,542 $ 244,996 $ 6,543,235 (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 the impact of substandard nonperforming loans and substandard troubled debt restructurings. Potential problem loans, which are not included in nonperforming assets, amounted to approximately $114.6 million at December 31, 2016, compared to $105.0 million at December 31, 2015. (2) Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates. (3) Included in nonaccrual loans at December 31, 2016 and 2015 are $8.8 million and $12.1 million, respectively, in loans acquired with deteriorated credit quality and accounted for as purchase credit impaired. At December 31, 2016 and 2015, all loans classified as nonaccrual were deemed to be impaired. The principal balances of these nonaccrual loans amounted to $27.6 million and $29.4 million at December 31, 2016 and 2015, respectively, and are included in the table above. For the twelve months ended December 31, 2016, the average balance of nonaccrual loans was $35.1 million as compared to $21.6 million for the twelve months ended December 31, 2015. Pinnacle Financial's policy is that the discontinuation of the accrual of interest income will occur 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 the above mentioned loans were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year earnings. Had these nonaccruing loans been on accruing status, interest income would have been higher by $2.1 million, $2.3 million and $636,000 for the years ended December 31, 2016, 2015 and 2014, respectively. As discussed in Note 2, during 2016, the Company acquired loans of $952.5 million from Avenue. Of the $952.5 million of net loans acquired in 2016, $951.1 million were determined to have no evidence of deteriorated credit quality and are accounted for under ASC Topics 310-10 and 310-20. Our acquired loans were recorded at fair value upon acquisition. These loans are subject to additional allowance or provisioning charges in the event there is evidence of credit deterioration. The remaining acquired loans of $1.4 million were determined to have deteriorated credit quality under ASC Topic 310-30. The table below details these two subsections of the acquired loans by loan classification into each risk rating category as of December 31, 2016 (dollars in thousands): Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial Consumer and other Fair Value Adjustment Net total acquired loans December 31, 2016 Gross contractual accruing loans Pass $ 365,797 $ 119,430 $ 114,849 $ 280,415 11,897 $ (18,893 ) $ 873,495 Special Mention 9,075 - - 570 - (142 ) 9,503 Substandard - 3,382 1,835 - - (132 ) 5,085 Total 374,872 122,812 116,684 280,985 11,897 (19,167 ) 888,083 Gross contractual impaired loans (1) Nonaccrual loans Substandard-nonaccrual - 295 404 388 73 (594 ) 566 Doubtful-nonaccrual - - - - - - - Total nonaccrual loans - 295 404 388 73 (594 ) 566 Total gross contractual acquired impaired loans - 295 404 388 73 (594 ) 566 Total gross contractual acquired loans $ 374,872 $ 123,107 $ 117,088 $ 281,373 $ 11,970 $ (19,761 ) $ 888,649 (1) All of the acquired impaired loans have been deemed to be collateral dependent and as such were placed on nonaccrual. As such, no accretable difference has been recorded on these loans. The following table provides a rollforward of purchase credit impaired loans from December 31, 2015 through December 31, 2016 (in thousands): Gross Contractual Receivable Accretable Yield Nonaccretable Yield Carrying Value Acquisition Date $ 19,960 $ - $ (5,703 ) $ 14,257 Settlements (3,803 ) - 1,560 (2,243 ) Additional fundings 117 - - 117 December 31, 2015 16,274 - (4,143 ) 12,131 Acquisitions 1,359 - (812 ) 547 Settlements (6,017 ) - 1,322 (4,695 ) Additional fundings 852 - - 852 December 31, 2016 $ 12,468 $ - $ (3,633 ) $ 8,835 These loans have been deemed to be collateral dependent and as such, no accretable yield has been recorded for these loans. At the date of acquisition, the Day 1 Fair Value represents the carrying value. The carrying value is adjusted for additional draws, pursuant to contractual arrangements, offset by loan paydowns. Year-to-date settlements include both loans that were charged-off as well as loans that were paid off, typically as a result of refinancings at other institutions. The following tables detail the recorded investment, unpaid principal balance and related allowance and average recorded investment of our nonaccrual loans at December 31, 2016, 2015 and 2014 by loan classification and the amount of interest income recognized on a cash basis throughout the year-to-date period then ended, respectively, on these loans that remain on the balance sheets (in thousands): December 31, 2016 For the year ended December 31, 2016 Recorded investment Unpaid principal balance Related allowance (1) Average recorded investment Cash basis interest income recognized Collateral dependent nonaccrual loans: Commercial real estate – mortgage $ 2,308 $ 2,312 $ - $ 2,540 $ - Consumer real estate – mortgage 2,880 2,915 - 2,907 - Construction and land development 3,128 3,135 - 3,132 159 Commercial and industrial 6,373 6,407 - 8,841 - Consumer and other - - - - - Total $ 14,689 $ 14,769 $ - $ 17,420 $ 159 Cash flow dependent nonaccrual loans: Commercial real estate – mortgage $ 2,613 $ 3,349 $ 59 $ 2,688 $ - Consumer real estate – mortgage 5,193 5,775 688 5,966 - Construction and land development 3,485 4,154 20 3,476 - Commercial and industrial 1,122 2,714 77 2,884 - Consumer and other 475 851 227 2,624 - Total $ 12,888 $ 16,843 $ 1,071 $ 17,638 $ - Total Nonaccrual Loans $ 27,577 $ 31,612 $ 1,071 $ 35,058 $ 159 December 31, 2015 For the year ended December 31, 2015 Recorded investment Unpaid principal balance Related allowance (1) Average recorded investment Cash basis interest income recognized Collateral dependent nonaccrual loans: Commercial real estate – mortgage $ 4,411 $ 5,659 $ - $ 2,253 $ - Consumer real estate – mortgage 5,596 6,242 - 3,067 - Construction and land development 7,531 7,883 - 4,317 308 Commercial and industrial 1,420 3,151 - 1,527 - Consumer and other - - - - - Total $ 18,958 $ 22,935 $ - $ 11,164 $ 308 Cash flow dependent nonaccrual loans: Commercial real estate – mortgage $ 1,410 $ 1,661 $ 20 $ 1,466 $ - Consumer real estate – mortgage 3,750 4,098 616 3,815 - Construction and land development 76 125 12 87 - Commercial and industrial 263 281 19 168 - Consumer and other 4,902 5,341 3,002 4,913 - Total $ 10,401 $ 11,506 $ 3,669 $ 10,449 $ - Total Nonaccrual Loans $ 29,359 $ 34,441 $ 3,669 $ 21,613 $ 308 December 31, 2014 For the year ended December 31, 2014 Recorded investment Unpaid principal balance Related allowance (1) Average recorded investment Cash basis interest income recognized Collateral dependent nonaccrual loans: Commercial real estate – mortgage $ 2,422 $ 2,641 $ - $ 2,624 $ - Consumer real estate – mortgage 1,472 1,901 - 1,552 - Construction and land development 4,810 4,810 - 5,016 256 Commercial and industrial 1,325 1,804 - 1,561 - Consumer and other - - - - - Total $ 10,029 $ 11,156 $ - $ 10,753 $ 256 Cash flow dependent nonaccrual loans: Commercial real estate – mortgage $ 1,891 $ 2,107 $ 108 $ 1,958 $ - Consumer real estate – mortgage 2,986 3,205 654 3,080 - Construction and land development 363 406 79 384 - Commercial and industrial 284 294 62 316 - Consumer and other 1,152 1,184 252 972 - Total $ 6,676 $ 7,196 $ 1,155 $ 6,710 $ - Total Nonaccrual Loans $ 16,705 $ 18,352 $ 1,155 $ 17,463 $ 256 (1) Collateral dependent loans are typically charged-off to their net realizable value and no specific allowance is carried related to those loans. Pinnacle Financial's policy is that 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 approximately $159,000, $308,000 and $256,000 in interest income from cash payments received on nonaccrual loans during the years ended December 31, 2016, 2015, and 2014, respectively. At December 31, 2016 and 2015, there were $15.0 million and $8.1 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which are accruing interest. These troubled debt restructurings are considered impaired loans pursuant to U.S. GAAP. Troubled commercial loans are restructured by specialists within Pinnacle Bank's Special Assets Group, and all restructurings are approved by committees and credit officers separate and apart from the normal loan approval process. These specialists are charged with reducing Pinnacle Financial's overall risk and exposure to loss in the event of a restructuring by obtaining some or all of the following: improved documentation, additional guaranties, increase in curtailments, reduction in collateral release terms, additional collateral or other similar strategies. The following table outlines the amount of each troubled debt restructuring by loan classification made during the years ended December 31, 2016, 2015 and 2014 (in thousands): December 31, 2016 Number of contracts Pre Modification Outstanding Recorded Investment Post Modification Outstanding Recorded Investment, net of related allowance Commercial real estate – mortgage - $ - $ - Consumer real estate – mortgage - - - Construction and land development - - - Commercial and industrial 6 11,084 11,083 Consumer and other - - - 6 $ 11,084 $ 11,083 December 31, 2015 Commercial real estate – mortgage 1 $ 223 $ 185 Consumer real estate – mortgage - - - Construction and land development - - - Commercial and industrial 1 434 337 Consumer and other - - - 2 $ 657 $ 522 December 31, 2014 Commercial real estate – mortgage - $ - $ - Consumer real estate – mortgage 1 47 38 Construction and land development 1 436 403 Commercial and industrial 10 3,628 2,646 Consumer and other - - - 12 $ 4,111 $ 3,087 During the years ended December 31, 2016, 2015 and 2014, Pinnacle Financial had no troubled debt restructurings that subsequently defaulted within twelve months of the restructuring. A default is defined as an occurrence which violates the terms of the receivable's contract. In addition to the loan metrics above, 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 has 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, 2016 with the comparative exposures for December 31, 2015 (in thousands): At December 31, 2016 Outstanding Principal Balances Unfunded Commitments Total exposure Total Exposure at December 31, 2015 Lessors of nonresidential buildings $ 1,294,366 $ 407,487 $ 1,701,853 $ 1,078,211 Lessors of residential buildings 526,259 347,975 874,234 500,266 New housing operative builders 229,035 157,370 386,405 206,538 Hotels and motels 127,296 164,569 291,865 167,317 The table below presents past due balances at December 31, 2016 and 2015, by loan classification and segment allocated between performing and nonperforming status (in thousands): December 31, 2016 30-89 days past due and performing 90 days or more past due and performing Total past due and performing Nonperforming(1) Current and performing Total Loans Commercial real estate: Owner-occupied $ 3,505 $ - $ 3,505 $ 4,254 $ 1,347,134 $ 1,354,893 All other - - - 667 1,837,936 1,838,603 Consumer real estate – mortgage 3,838 53 3,891 8,073 1,173,953 1,185,917 Construction and land development 2,210 - 2,210 6,613 903,850 912,673 Commercial and industrial 4,475 - 4,475 7,495 2,879,740 2,891,710 Consumer and other 7,168 1,081 8,249 475 257,405 266,129 $ 21,196 $ 1,134 $ 22,330 $ 27,577 $ 8,400,018 $ 8,449,925 December 31, 2015 Commercial real estate: Owner-occupied $ - $ - $ - $ 5,103 $ 1,078,394 $ 1,083,497 All other - - - 718 1,191,268 1,191,986 Consumer real estate – mortgage 6,380 1,396 7,776 9,346 1,029,395 1,046,517 Construction and land development 309 - 309 7,607 739,781 747,697 Commercial and industrial 4,798 - 4,798 1,683 2,222,061 2,228,542 Consumer and other 6,721 373 7,094 4,902 233,000 244,996 $ 18,208 $ 1,769 $ 19,977 $ 29,359 $ 6,493,899 $ 6,543,235 (1) Approximately $16.7 million and $19.0 million of nonaccrual loans as of December 31, 2016 and 2015, respectively, are currently performing pursuant to their contractual terms. The following table shows the allowance allocation by loan classification for accruing and nonperforming loans at December 31, 2016 Impaired Loans Accruing Loans Nonaccrual Loans Troubled Debt Restructurings (1) Total Allowance for Loan Losses December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015 Commercial real estate –mortgage $ 13,595 $ 15,452 $ 59 $ 20 $ 1 $ 41 $ 13,655 $ 15,513 Consumer real estate – mortgage 5,874 6,109 688 616 2 495 6,564 7,220 Construction and land development 3,604 2,891 20 12 - - 3,624 2,903 Commercial and industrial 24,648 22,669 77 19 18 955 24,743 23,643 Consumer and other 9,293 12,609 227 3,002 - 5 9,520 15,616 Unallocated - - - - - - 874 537 $ 57,014 $ 59,730 $ 1,071 $ 3,669 $ 21 $ 1,496 $ 58,980 $ 65,432 (1) Troubled debt restructurings of $15.0 million and $8.1 million as of December 31, 2016 and 2015, respectively, are classified as impaired loans pursuant to U.S. GAAP; however, these loans continue to accrue interest at contractual rates. The following table details the changes in the allowance for loan losses from December 31, 2014 to December 31, 2015 to December 31, 2016 by loan classification and the allocation of allowance for loan losses (in thousands): Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial Consumer and other Unallocated Total Allowance for Loan Losses: Balance at December 31, 2013 $ 21,372 $ 8,355 $ 7,235 $ 25,134 $ 1,632 $ 4,242 $ 67,970 Charged-off loans (875 ) (1,621 ) (301 ) (3,095 ) (1,811 ) - (7,703 ) Recovery of previously charged-off loans 538 671 277 1,484 487 - 3,457 Provision for loan losses 1,167 (1,981 ) (1,487 ) 5,644 1,262 (970 ) 3,635 Balance at December 31, 2014 $ 22,202 $ 5,424 $ 5,724 $ 29,167 $ 1,570 $ 3,272 $ 67,359 Collectively evaluated for impairment $ 22,094 $ 3,963 $ 5,555 $ 28,329 $ 1,261 $ 61,202 Individually evaluated for impairment 108 1,461 169 838 309 2,885 Loans acquired with deteriorated credit quality - - - - - - Balance at December 31, 2014 $ 22,202 $ 5,424 $ 5,724 $ 29,167 $ 1,570 $ 3,272 $ 67,359 Loans: Collectively evaluated for impairment $ 1,539,778 $ 712,774 $ 316,857 $ 1,779,347 $ 216,155 $ 4,564,911 Individually evaluated for impairment 4,313 8,384 5,609 5,382 1,428 25,116 Loans acquired with deteriorated credit quality - - - - - - Balance at December 31, 2014 $ 1,544,091 $ 721,158 $ 322,466 $ 1,784,729 $ 217,583 $ 4,590,027 Allowance for Loan Losses: Balance at December 31, 2014 $ 22,202 $ 5,424 $ 5,724 $ 29,167 $ 1,570 $ 3,272 $ 67,359 Charged-off loans (384 ) (365 ) (190 ) (2,207 ) (18,002 ) - (21,148 ) Recovery of previously charged-off loans 85 874 1,479 1,730 5,865 - 10,033 Provision for loan losses (6,390 ) 1,287 (4,110 ) (5,047 ) 26,183 (2,735 ) 9,188 Balance at December 31, 2015 $ 15,513 $ 7,220 $ 2,903 $ 23,643 $ 15,616 $ 537 $ 65,432 Collectively evaluated for impairment $ 15,452 $ 6,109 $ 2,891 $ 22,669 $ 12,609 $ 59,730 Individually evaluated for impairment 61 1,111 12 974 3,007 5,165 Loans acquired with deteriorated credit quality - - - - - - Balance at December 31, 2015 $ 15,513 $ 7,220 $ 2,903 $ 23,643 $ 15,616 $ 537 $ 65,432 Loans: Collectively evaluated for impairment $ 2,269,439 $ 1,033,479 $ 740,090 $ 2,222,714 $ 240,066 $ 6,505,788 Individually evaluated for impairment 2,420 8,986 3,689 5,288 4,930 25,313 Loans acquired with deteriorated credit quality 3,624 4,052 3,918 540 - 12,134 Balance at December 31, 2015 $ 2,275,483 $ 1,046,517 $ 747,697 $ 2,228,542 $ 244,996 $ 6,543,235 Commercial real estate - mortgage Consumer real estate - mortgage Construction and land development Commercial and industrial Consumer and other Unallocated Total Allowance for Loan Losses: Balance at December 31, 2015 $ 15,513 $ 7,220 $ 2,903 $ 23,643 $ 15,616 $ 537 $ 65,432 Charged-off loans (276 ) (788 ) (231 ) (5,801 ) (24,016 ) - (31,112 ) Recovery of previously charged-off loans 208 546 545 2,138 2,895 - 6,332 Provision for loan losses (1,790 ) (414 ) 407 4,763 15,025 337 18,328 Balance at December 31, 2016 $ 13,655 $ 6,564 $ 3,624 $ 24,743 $ 9,520 $ 874 $ 58,980 Collectively evaluated for impairment $ 13,595 $ 5,874 $ 3,604 $ 24,648 $ 9,293 $ 57,014 Individually evaluated for impairment 60 690 20 95 227 1,092 Loans acquired with deteriorated credit quality - - - - - - Balance at December 31, 2016 $ 13,655 $ 6,564 $ 3,624 $ 24,743 $ 9,520 $ 874 $ 58,980 Loans: Collectively evaluated for impairment $ 3,188,362 $ 1,174,456 $ 906,053 $ 2,872,856 $ 265,613 $ 8,407,340 Individually evaluated for impairment 2,750 8,941 3,212 18,331 516 33,750 Loans acquired with deteriorated credit quality 2,384 2,520 3,408 523 - 8,835 Balance at December 31, 2016 $ 3,193,496 $ 1,185,917 $ 912,673 $ 2,891,710 $ 266,129 $ 8,449,925 The adequacy of the allowance for loan losses is assessed at the end of each calendar quarter. The level of the allowance is based upon evaluation of the loan portfolio, historical loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, historical loss experience, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. At December 31, 2016, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $22.6 million to current directors, executive officers, and their related entities, of which $14.8 million had been drawn upon. At December 31, 2015, Pinnacle Financial had granted loans and other extensions of credit amounting to approximately $14.5 million to directors, executive officers, and their related entities, of which approximately $11.4 million had been drawn upon. These loans and extensions of credit were made in the ordinary course of business. None of these loans to directors, executive officers, and their related entities were impaired at December 31, 2016 or 2015. Residential Lending At December 31, 2016, Pinnacle Financial had approximately $47.7 million of mortgage loans held-for-sale compared to approximately $47.9 million at December 31, 2015. Total loan volumes sold during the year ended December 31, 2016 were approximately $803.5 million compared to approximately $519.1 million for the year ended December 31, 2015. During the year ended December 31, 2016, Pinnacle Financial recognized $15.8 million in gains on the sale of these loans, net of commissions paid, compared to $7.7 million and $5.6 million, respectively, during the years ended December 31, 2015 and 2014. 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 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, repurchase activity pursuant to the terms of these representations and warranties has been insignificant to Pinnacle Bank. |