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EXCEL - IDEA: XBRL DOCUMENT - PINNACLE FINANCIAL PARTNERS INCFinancial_Report.xls
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

              (mark one)
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 000-31225

, Inc.
(Exact name of registrant as specified in its charter)

Tennessee
 
62-1812853
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

150 Third Avenue South, Suite 900, Nashville, Tennessee
 
 
37201
(Address of principal executive offices)
 
(Zip Code)

(615) 744-3700
 (Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changes since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x
No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).
Yes  x
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large Accelerated Filer x
Accelerated Filer o
 
Non-accelerated Filer  o
(do not check if you are a smaller reporting company)
Smaller reporting companyo 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  o
No x
As of July 31, 2014 there were 35,610,952 shares of common stock, $1.00 par value per share, issued and outstanding.



Pinnacle Financial Partners, Inc.
Report on Form 10-Q
June 30, 2014

TABLE OF CONTENTS
Page No.
 
 
PART I – Financial Information:
 
Item 1. Consolidated Financial Statements (Unaudited)
4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
38
Item 3. Quantitative and Qualitative Disclosures about Market Risk
60
Item 4. Controls and Procedures
60
 
 
PART II – Other Information:
 
Item 1. Legal Proceedings
61
Item 1A. Risk Factors
61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
62
Item 3. Defaults Upon Senior Securities
63
Item 4.  Mine Safety Disclosures
63
Item 5. Other Information
63
Item 6. Exhibits
64
Signatures
 

2


FORWARD-LOOKING STATEMENTS

Certain of the statements in this quarterly report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words "expect," "anticipate," "goal," "objective," "intend," "plan," "believe," "should," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of Pinnacle Financial to differ materially from any results expressed or implied by such forward-looking statements. Such risks include, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses; (ii) continuation of the historically low short-term interest rate environment; (iii) the inability of Pinnacle Financial to grow its loan portfolio; (iv) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (v) effectiveness of Pinnacle Financial's asset management activities in improving, resolving or liquidating lower-quality assets; (vi) increased competition with other financial institutions; (vii) greater than anticipated adverse conditions in the national or local economies including the Nashville-Davidson-Murfreesboro-Franklin MSA and the Knoxville MSA, particularly in commercial and residential real estate markets; (viii) rapid fluctuations or unanticipated changes in interest rates on loans or deposits; (ix) the results of regulatory examinations; (x) the ability to retain large, uninsured deposits; (xi) the development of any new market other than Nashville or Knoxville; (xii) a merger or acquisition; (xiii) any matter that would cause Pinnacle Financial to conclude that there was impairment of any asset, including intangible assets; (xiv) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Pinnacle Financial) or otherwise to attract customers from other financial institutions; (xv) further deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvi) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies and required capital maintenance levels; (xvii) risks associated with litigation, including the applicability of insurance coverage; (xviii) approval of the declaration of any dividend by Pinnacle Financial's board of directors; (xix) the vulnerability of our network and online banking portals to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xx) the possibility of increased compliance costs as a result of increased regulatory oversight and the development of additional banking products for our corporate and consumer clients; and (xxi) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A more detailed description of these and other risks is contained in Pinnacle Financial's most recent annual report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2014 and Pinnacle Financial's most recent quarterly report on Form 10-Q filed with the Securities and Exchange Commission on May 2, 2014.  Many of such factors are beyond Pinnacle Financial's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. Pinnacle Financial disclaims any obligation to update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

3


Item 1. Part I.  Financial Information
PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
June 30, 2014
   
December 31, 2013
 
ASSETS
 
   
 
Cash and noninterest-bearing due from banks
 
$
91,575,519
   
$
79,785,004
 
Interest-bearing due from banks
   
114,865,408
     
124,509,486
 
Federal funds sold and other
   
4,667,086
     
4,644,247
 
Cash and cash equivalents
   
211,108,013
     
208,938,737
 
 
               
Securities available-for-sale, at fair value
   
743,528,294
     
693,456,314
 
Securities held-to-maturity (fair value of $38,290,464 and $38,817,467 at
               
June 30, 2014 and December 31, 2013, respectively)
   
38,537,545
     
39,795,649
 
Mortgage loans held-for-sale
   
24,591,553
     
12,850,339
 
 
               
Loans
   
4,315,561,552
     
4,144,493,486
 
Less allowance for loan losses
   
(66,888,250
)
   
(67,969,693
)
Loans, net
   
4,248,673,302
     
4,076,523,793
 
 
               
Premises and equipment, net
   
72,534,086
     
72,649,574
 
Other investments
   
33,496,695
     
33,226,195
 
Accrued interest receivable
   
15,921,099
     
15,406,389
 
Goodwill
   
243,550,227
     
243,651,006
 
Core deposits and other intangible assets
   
3,365,399
     
3,840,750
 
Other real estate owned
   
12,946,465
     
15,226,136
 
Other assets
   
140,538,915
     
148,210,975
 
Total assets
 
$
5,788,791,593
   
$
5,563,775,857
 
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits:
               
Noninterest-bearing
 
$
1,324,358,420
   
$
1,167,414,487
 
Interest-bearing
   
900,576,170
     
884,294,802
 
Savings and money market accounts
   
1,950,235,361
     
1,962,714,398
 
Time
   
476,343,393
     
519,049,037
 
Total deposits
   
4,651,513,344
     
4,533,472,724
 
Securities sold under agreements to repurchase
   
62,272,670
     
70,465,326
 
Federal Home Loan Bank advances
   
170,556,327
     
90,637,328
 
Subordinated debt and other borrowings
   
97,408,292
     
98,658,292
 
Accrued interest payable
   
661,273
     
792,703
 
Other liabilities
   
41,997,702
     
46,041,823
 
Total liabilities
   
5,024,409,608
     
4,840,068,196
 
Stockholders' equity:
               
Preferred stock, no par value, 10,000,000 shares authorized;
               
no shares issued and outstanding
   
-
     
-
 
Common stock, par value $1.00; 90,000,000 shares authorized;
               
35,601,495 and 35,221,941 shares issued and outstanding
               
at June 30, 2014 and December 31, 2013, respectively
   
35,601,495
     
35,221,941
 
Additional paid-in capital
   
555,428,349
     
550,212,135
 
Retained earnings
   
170,155,642
     
142,298,199
 
Accumulated other comprehensive loss, net of taxes
   
3,196,499
     
(4,024,614
)
Total stockholders' equity
   
764,381,985
     
723,707,661
 
Total liabilities and stockholders' equity
 
$
5,788,791,593
   
$
5,563,775,857
 
See accompanying notes to consolidated financial statements (unaudited).
4


PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Interest income:
 
   
   
   
 
Loans, including fees
 
$
45,089,706
   
$
42,149,149
   
$
88,785,364
   
$
83,663,362
 
Securities:
                               
Taxable
   
3,628,264
     
3,650,766
     
7,348,543
     
7,321,700
 
Tax-exempt
   
1,563,612
     
1,483,965
     
3,161,409
     
3,140,373
 
Federal funds sold and other
   
282,822
     
260,440
     
559,880
     
575,212
 
Total interest income
   
50,564,404
     
47,544,320
     
99,855,196
     
94,700,647
 
 
                               
Interest expense:
                               
Deposits
   
2,481,762
     
2,955,985
     
5,077,002
     
6,368,381
 
Securities sold under agreements to repurchase
   
31,329
     
70,823
     
61,844
     
148,639
 
Federal Home Loan Bank advances and other borrowings
   
824,912
     
918,762
     
1,582,134
     
1,826,403
 
Total interest expense
   
3,338,003
     
3,945,570
     
6,720,980
     
8,343,423
 
Net interest income
   
47,226,401
     
43,598,750
     
93,134,216
     
86,357,224
 
Provision for loan losses
   
254,348
     
2,774,048
     
741,986
     
4,946,452
 
Net interest income after provision for loan losses
   
46,972,053
     
40,824,702
     
92,392,230
     
81,410,772
 
 
                               
Noninterest income:
                               
Service charges on deposit accounts
   
2,965,644
     
2,540,866
     
5,756,612
     
5,021,110
 
Investment services
   
2,164,410
     
1,895,398
     
4,292,244
     
3,688,038
 
Insurance sales commissions
   
1,144,871
     
1,107,696
     
2,529,792
     
2,501,000
 
Gain on mortgage loans sold, net
   
1,668,604
     
1,948,531
     
2,903,475
     
3,803,942
 
Loss on sale of investment securities
   
-
     
(25,241
)
   
-
     
(25,241
)
Trust fees
   
1,071,848
     
880,204
     
2,217,599
     
1,824,536
 
Other noninterest income
   
3,582,067
     
2,978,266
     
7,630,084
     
6,414,691
 
Total noninterest income
   
12,597,444
     
11,325,720
     
25,329,806
     
23,228,076
 
 
                               
Noninterest expense:
                               
Salaries and employee benefits
   
21,772,469
     
20,570,753
     
43,522,429
     
40,143,109
 
Equipment and occupancy
   
5,822,662
     
5,204,159
     
11,531,692
     
10,317,209
 
Other real estate expense
   
226,006
     
1,390,606
     
877,158
     
2,111,568
 
Marketing and other business development
   
1,064,990
     
987,171
     
1,973,891
     
1,777,842
 
Postage and supplies
   
544,194
     
517,667
     
1,104,808
     
1,109,155
 
Amortization of intangibles
   
237,676
     
248,186
     
475,351
     
769,173
 
Other noninterest expense
   
4,233,931
     
1,943,190
     
8,062,459
     
7,073,683
 
Total noninterest expense
   
33,901,928
     
30,861,732
     
67,547,788
     
63,301,739
 
Income before income taxes
   
25,667,569
     
21,288,690
     
50,174,248
     
41,337,109
 
Income tax expense
   
8,497,589
     
6,978,160
     
16,637,146
     
13,578,452
 
Net income
   
17,169,980
     
14,310,530
     
33,537,102
     
27,758,657
 
Per share information:
                               
Basic net income per common share
 
$
0.49
   
$
0.42
   
$
0.97
   
$
0.81
 
Diluted net income per common share
 
$
0.49
   
$
0.42
   
$
0.96
   
$
0.81
 
Weighted average shares outstanding:
                               
Basic
   
34,697,888
     
34,172,274
     
34,650,377
     
34,080,281
 
Diluted
   
35,081,702
     
34,431,054
     
35,024,859
     
34,319,796
 

See accompanying notes to consolidated financial statements (unaudited).
5


PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Net income
 
$
17,169,980
   
$
14,310,530
   
$
33,537,102
   
$
27,758,657
 
Other comprehensive income (loss), net of tax:
                               
Change in fair value on available-for-sale securities, net of tax
   
5,104,719
     
(13,933,693
)
   
10,050,631
     
(16,204,604
)
Change in fair value of cash flow hedges, net of tax
   
(1,535,212
)
   
3,347,367
     
(2,829,518
)
   
3,347,367
 
    Net loss on sale of investment securities reclassified from other comprehensive income into net income, net of tax
   
-
     
15,339
     
-
     
15,339
 
Total comprehensive income
 
$
20,739,487
   
$
3,739,543
   
$
40,758,215
   
$
14,916,759
 

See accompanying notes to consolidated financial statements (unaudited).
6


PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

 
Common Stock
 
Additional Paid-in
Capital
 
Retained Earnings
 
Accumulated Other Comp.
Income (Loss), net
 
Total Stockholders' Equity
 
 
Shares
 
Amount
         
 
 
 
 
 
 
 
Balances, December 31, 2012
 
34,696,597
 
$
34,696,597
 
$
543,760,439
 
$
87,386,689
 
$
13,227,634
 
$
679,071,359
 
Exercise of employee common stock
                                   
options and related tax benefits
 
123,239
   
123,239
   
1,282,323
   
-
   
-
   
1,405,562
 
Issuance of restricted common shares,
                                   
net of forfeitures
 
293,441
   
293,441
   
(293,441
)
 
-
   
-
   
-
 
Restricted shares withheld for taxes
 
(39,514
)
 
(39,514
)
 
(781,156
)
 
-
   
-
   
(820,670
)
Compensation expense for restricted shares
 
-
   
-
   
1,983,339
   
-
   
-
   
1,983,339
 
Compensation expense for stock options
 
-
   
-
   
12,470
   
-
   
-
   
12,470
 
Net income
 
-
   
-
   
-
   
27,758,657
   
-
   
27,758,657
 
Other comprehensive loss
 
-
   
-
   
-
   
-
   
(12,841,898
)
 
(12,841,898
)
Balances, June 30, 2013
 
35,073,763
 
$
35,073,763
 
$
545,963,974
 
$
115,145,346
 
$
385,736
 
$
696,568,819
 
 
                                   
Balances, December 31, 2013
 
35,221,941
 
$
35,221,941
 
$
550,212,135
 
$
142,298,199
 
$
(4,024,614
)
$
723,707,661
 
Exercise of employee common stock
                                   
options and related tax benefits
 
175,442
   
175,442
   
4,664,969
   
-
   
-
   
4,840,411
 
Common stock dividends paid
 
-
   
-
   
-
   
(5,679,659
)
       
(5,679,659
)
Issuance of restricted common shares,
                                   
net of forfeitures
 
259,197
   
259,197
   
(259,197
)
 
-
   
-
   
-
 
Restricted shares withheld for taxes
 
(55,085
)
 
(55,085
)
 
(1,771,041
)
 
-
   
-
   
(1,826,126
)
Compensation expense for restricted shares
 
-
   
-
   
2,581,483
   
-
   
-
   
2,581,483
 
Net income
 
-
   
-
   
-
   
33,537,102
   
-
   
33,537,102
 
Other comprehensive income
 
-
   
-
   
-
   
-
   
7,221,113
   
7,221,113
 
Balances, June 30, 2014
 
35,601,495
 
$
35,601,495
 
$
555,428,349
 
$
170,155,642
 
$
3,196,499
 
$
764,381,985
 

See accompanying notes to consolidated financial statements (unaudited).
7


PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended
June 30,
 
 
 
2014
   
2013
 
Operating activities:
 
   
 
Net income
 
$
33,537,102
   
$
27,758,657
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net amortization/accretion of premium/discount on securities
   
2,154,065
     
2,373,927
 
Depreciation and amortization
   
4,598,989
     
4,622,942
 
Provision for loan losses
   
741,986
     
4,946,452
 
Gain on mortgage loans sold, net
   
(2,903,475
)
   
(3,803,942
)
Loss on sale of investment securities
   
-
     
25,241
 
Stock-based compensation expense
   
2,581,483
     
1,995,809
 
Deferred tax benefit (expense)
   
(136,855
)
   
67,794
 
Losses on dispositions of other real estate and other investments
   
141,913
     
1,877,964
 
Excess tax benefit from stock compensation
   
(1,166,463
)
   
(140,181
)
Mortgage loans held for sale:
               
Loans originated
   
(153,548,739
)
   
(226,714,093
)
Loans sold
   
144,711,000
     
243,750,000
 
(Decrease) increase in other assets
   
(1,504,523
)
   
10,576,616
 
Decrease in other liabilities
   
(4,207,922
)
   
(12,608,365
)
Net cash provided by operating activities
   
24,998,561
     
54,728,821
 
 
               
Investing activities:
               
Activities in securities available-for-sale:
               
Purchases
   
(96,556,556
)
   
(128,922,089
)
Sales
   
1,273,528
     
1,213,584
 
Maturities, prepayments and calls
   
59,975,601
     
77,932,668
 
Activities in securities held-to-maturity:
               
Purchases
   
-
     
(2,045,030
)
Maturities, prepayments and calls
   
864,028
     
2,325,000
 
Increase in loans, net
   
(171,994,156
)
   
(221,126,597
)
Purchases of software, premises and equipment
   
(3,265,513
)
   
(3,388,292
)
Purchase of bank owned life insurance
   
-
     
(30,000,000
)
Increase in other investments
   
(178,118
)
   
(3,325,587
)
Net cash used in investing activities
   
(209,881,186
)
   
(307,336,343
)
 
               
Financing activities:
               
Net increase in deposits
   
118,040,619
     
81,390,021
 
Net (decrease) increase in securities sold under agreements to repurchase
   
(8,192,656
)
   
2,678,252
 
Advances from Federal Home Loan Bank:
               
Issuances
   
410,000,000
     
324,038,282
 
Payments/maturities
   
(330,047,151
)
   
(74,091,731
)
Decrease in other borrowings
   
(1,250,000
)
   
(6,250,000
)
Exercise of common stock options and stock appreciation rights,
               
net of repurchase of restricted shares
   
3,014,285
     
584,892
 
Excess tax benefit from stock compensation
   
1,166,463
     
140,181
 
Common stock dividends paid
   
(5,679,659
)
   
-
 
Net cash provided by financing activities
   
187,051,901
     
328,489,897
 
Net decrease in cash and cash equivalents
   
2,169,276
     
75,882,375
 
Cash and cash equivalents, beginning of period
   
208,938,737
     
165,288,669
 
Cash and cash equivalents, end of period
 
$
211,108,013
   
$
241,171,044
 

See accompanying notes to consolidated financial statements (unaudited).
8


PINNACLE FINANCIAL PARTNERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.  Summary of Significant Accounting Policies

Nature of Business — Pinnacle Financial Partners, Inc. (Pinnacle Financial) is a bank holding company whose primary business is conducted by its wholly-owned subsidiary, Pinnacle Bank. Pinnacle Bank is a commercial bank headquartered in Nashville, Tennessee. Pinnacle Bank provides a full range of banking services in its primary market areas of the Nashville-Davidson-Murfreesboro-Franklin, Tennessee and Knoxville, Tennessee Metropolitan Statistical Areas.

Basis of Presentation — The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (U.S. GAAP).  All adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by the report have been included.  The accompanying unaudited consolidated financial statements should be read in conjunction with the Pinnacle Financial consolidated financial statements and related notes appearing in the 2013 Annual Report previously filed on Form 10-K.

These consolidated financial statements include the accounts of Pinnacle Financial and its wholly-owned subsidiaries. PNFP Statutory Trust I, PNFP Statutory Trust II, PNFP Statutory Trust III and PNFP Statutory Trust IV are affiliates of Pinnacle Financial and are included in these consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of the allowance for loan losses, any potential impairment of intangible assets, including goodwill and the valuation of deferred tax assets, other real estate owned, and our investment portfolio, including other-than-temporary impairment. These financial statements should be read in conjunction with Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant changes to Pinnacle Financial's significant accounting policies as disclosed in Pinnacle Financial's Annual Report on Form 10-K for the year ended December 31, 2013.

Recently Adopted Accounting Pronouncements  In February 2013, the FASB issued Accounting Standards Update 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" which provides disclosure guidance on amounts reclassified out of AOCI by component.  The adoption did not have any impact on our financial position or results of operations but has impacted our financial statement disclosure. As shown on the statement of comprehensive income for the three and six months ended June 30, 2014, Pinnacle Financial did not reclassify any net losses out of other comprehensive income into loss on the sale of investment securities, net of tax, compared to reclassifications of net losses for the three and six months ended June 30, 2013, of approximately $15,000, net of tax.
9


Cash Flow Information — Supplemental cash flow information addressing certain cash and noncash transactions for each of the six months ended June 30, 2014 and 2013 was as follows:

 
 
For the six months ended June 30,
 
 
 
2014
   
2013
 
Cash Transactions:
 
   
 
Interest paid
 
$
6,886,261
   
$
8,701,479
 
Income taxes paid, net
   
14,100,000
     
15,600,009
 
Noncash Transactions:
               
Loans charged-off to the allowance for loan losses
   
3,268,626
     
11,377,491
 
Loans foreclosed upon and transferred to other real estate owned
   
1,672,459
     
1,780,131
 
Available-for-sale securities transferred to held-to-maturity portfolio
   
-
     
39,959,647
 
 
Income Per Common Share — Basic net income per common share (EPS) is computed by dividing net income by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted.  The difference between basic and diluted weighted average shares outstanding is attributable to common stock options, common stock appreciation rights, restricted share awards, and restricted share unit awards. The dilutive effect of outstanding options, common stock appreciation rights, restricted share awards, and restricted share unit awards is reflected in diluted EPS by application of the treasury stock method.

The following is a summary of the basic and diluted net income per share calculations for the three and six months ended June 30, 2014 and 2013:

 
 
For the three months ended
June 30,
   
For the six months ended
June 30,
 
 
 
2014
   
2013
   
2014
   
2013
 
Basic net income per share calculation:
 
   
   
   
 
Numerator - Net income
 
$
17,169,980
   
$
14,310,530
   
$
33,537,102
   
$
27,758,657
 
 
                               
Denominator - Average common shares outstanding
   
34,697,888
     
34,172,274
     
34,650,377
     
34,080,281
 
Basic net income per share
 
$
0.49
   
$
0.42
   
$
0.97
   
$
0.81
 
 
                               
Diluted net income per share calculation:
                               
Numerator – Net income
 
$
17,169,980
   
$
14,310,530
   
$
33,537,102
   
$
27,758,657
 
 
                               
Denominator - Average common shares outstanding
   
34,697,888
     
34,172,274
     
34,650,377
     
34,080,281
 
Dilutive shares contingently issuable
   
383,814
     
258,780
     
374,482
     
239,515
 
Average diluted common shares outstanding
   
35,081,702
     
34,431,054
     
35,024,859
     
34,319,796
 
Diluted net income per share
 
$
0.49
   
$
0.42
   
$
0.96
   
$
0.81
 

10

Note 2.  Securities
The amortized cost and fair value of securities available-for-sale and held-to-maturity at June 30, 2014 and December 31, 2013 are summarized as follows (in thousands):

 
Amortized
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Fair
Value
 
June 30, 2014:
 
   
   
   
 
Securities available-for-sale:
 
   
   
   
 
U.S. Treasury securities
 
$
-
   
$
-
   
$
-
   
$
-
 
U.S. government agency securities
   
117,053
     
19
     
6,148
     
110,924
 
Mortgage-backed agency securities
   
452,580
     
11,608
     
4,250
     
459,938
 
State and municipal securities
   
138,382
     
8,066
     
328
     
146,120
 
Asset-backed securities
   
15,380
     
-
     
150
     
15,230
 
Corporate notes and other
   
10,207
     
1,109
     
-
     
11,316
 
 
 
$
733,602
   
$
20,802
   
$
10,876
   
$
743,528
 
Securities held-to-maturity:
                               
State and municipal securities
 
$
38,538
   
$
120
   
$
368
   
$
38,290
 
 
 
$
38,538
   
$
120
   
$
368
   
$
38,290
 
 
 
December 31, 2013:
                               
Securities available-for-sale:
                               
U.S. Treasury securities
 
$
-
   
$
-
   
$
-
   
$
-
 
U.S. government agency securities
   
117,282
     
13
     
13,422
     
103,873
 
Mortgage-backed agency securities
   
411,967
     
9,771
     
8,802
     
412,936
 
State and municipal securities
   
143,763
     
5,504
     
856
     
148,411
 
Asset-backed securities
   
17,262
     
-
     
255
     
17,007
 
Corporate notes and other
   
10,218
     
1,018
     
7
     
11,229
 
 
 
$
700,492
   
$
16,306
     
23,342
   
$
693,456
 
Securities held-to-maturity:
                               
State and municipal securities
 
$
39,796
   
$
72
   
$
1,051
   
$
38,817
 
 
 
$
39,796
   
$
72
   
$
1,051
   
$
38,817
 

At June 30, 2014, approximately $619.1 million of securities within Pinnacle Financial's investment portfolio were either pledged to secure public funds and other deposits or securities sold under agreements to repurchase.
 
The amortized cost and fair value of debt securities as of June 30, 2014 by contractual maturity are 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
 
June 30, 2014:
 
Amortized
Cost
   
Fair
Value
   
Amortized Cost
   
Fair
Value
 
Due in one year or less
 
$
4,124
   
$
4,161
   
$
658
   
$
660
 
Due in one year to five years
   
33,208
     
34,896
     
8,184
     
8,107
 
Due in five years to ten years
   
125,395
     
128,613
     
12,578
     
12,632
 
Due after ten years
   
102,915
     
100,690
     
17,118
     
16,891
 
Mortgage-backed agency securities
   
452,580
     
459,938
     
-
     
-
 
Asset-backed securities
   
15,380
     
15,230
     
-
     
-
 
 
 
$
733,602
   
$
743,528
   
$
38,538
   
$
38,290
 

 

11

At June 30, 2014 and December 31, 2013, the following investments 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 June 30, 2014:
 
   
   
   
   
   
 
 
 
   
   
   
   
   
 
U.S. Treasury securities
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
U.S. government agency securities
   
903
     
2
     
101,152
     
6,146
     
102,055
     
6,148
 
Mortgage-backed agency securities
   
69,147
     
515
     
109,845
     
3,735
     
178,992
     
4,250
 
State and municipal securities
   
3,098
     
13
     
31,228
     
683
     
34,326
     
696
 
Asset-backed securities
   
-
     
-
     
15,230
     
150
     
15,230
     
150
 
Corporate notes
   
500
     
-
     
157
     
-
     
657
     
-
 
Total temporarily-impaired securities
 
$
73,648
   
$
530
   
$
257,612
   
$
10,714
   
$
331,260
   
$
11,244
 
 
                                               
At December 31, 2013:
                                               
 
                                               
U.S. Treasury securities
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
U.S. government agency securities
   
8,742
     
22
     
92,869
     
13,400
     
101,611
     
13,422
 
Mortgage-backed agency securities
   
157,262
     
3,913
     
42,903
     
4,889
     
200,165
     
8,802
 
State and municipal securities
   
46,282
     
1,351
     
3,798
     
555
     
50,080
     
1,906
 
Asset-backed securities
   
-
     
-
     
17,006
     
255
     
17,006
     
255
 
Corporate notes
   
946
     
6
     
159
     
2
     
1,105
     
8
 
Total temporarily-impaired securities
 
$
213,232
   
$
5,292
   
$
156,735
   
$
19,101
   
$
369,967
   
$
24,393
 

The applicable dates for determining when securities are in an unrealized loss position are June 30, 2014 and December 31, 2013. As such, it is possible that a security had a market value that exceeded its amortized cost on other days during the past twelve-month periods ended June 30, 2014 and December 31, 2013, but is in the "Investments with an Unrealized Loss of less than 12 months" category above.

As shown in the tables above, at June 30, 2014, Pinnacle Financial had approximately $11.2 million in unrealized losses on $331.3 million of securities. The unrealized losses associated with these investment securities are driven by changes in interest rates and the unrealized loss is recorded as a component of equity.  These securities will continue to be monitored as a part of our ongoing impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond issuers. 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. If a shortfall in future cash flows is identified, a credit loss will be deemed to have occurred and will be recognized as a charge to earnings and a new cost basis for the security will be established.

Because Pinnacle Financial currently does not intend to sell those securities that have an unrealized loss at June 30, 2014, 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 does not consider these securities to be other-than-temporarily impaired at June 30, 2014.


12

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. 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.
 
The carrying values of Pinnacle Financial's investment securities could decline in the future if the financial condition of issuers deteriorates and management determines it is probable that Pinnacle Financial will not recover the entire amortized cost bases of the securities.  As a result, there is a risk that other-than-temporary impairment charges may occur in the future. There is also a risk that other-than-temporary impairment charges may occur in the future if management's intention to hold these securities to maturity and/or recovery changes. 

Note 3.  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).

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.  Pinnacle Financial believes that its categories follow those used by Pinnacle Bank's primary regulators.  At June 30, 2014, approximately 75% 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 the loan officer. At least annually, our credit procedures require 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.

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.

13

The following table outlines the amount of each loan classification categorized into each risk rating category as of June 30, 2014 and December 31, 2013 (in thousands):

 
Commercial real estate - mortgage
 
Consumer real estate - mortgage
 
Construction and land development
 
Commercial and industrial
 
Consumer
and other
 
Total
 
June 30, 2014
 
 
 
 
 
 
Accruing loans
 
 
 
 
 
 
        Pass
$
1,417,022
 
$
672,747
 
$
253,501
 
$
1,634,704
 
$
168,287
 
$
4,146,261
 
        Special Mention
 
16,291
   
2,667
   
26,739
   
23,163
   
146
   
69,006
 
        Substandard (1)
 
17,268
   
12,932
   
11,550
   
35,162
   
154
   
77,066
 
        Total
 
1,450,581
   
688,346
   
291,790
   
1,693,029
   
168,587
   
4,292,333
 
Impaired loans
                                   
        Nonaccrual loans
                                   
                Substandard-nonaccrual
 
6,754
   
6,239
   
978
   
1,387
   
320
   
15,678
 
                Doubtful-nonaccrual
 
-
   
-
   
-
   
-
   
-
   
-
 
        Total nonaccrual loans
 
6,754
   
6,239
   
978
   
1,387
   
320
   
15,678
 
        Troubled debt restructurings(2)
                                   
                Pass
 
-
   
66
   
107
   
263
   
83
   
519
 
                Special Mention
 
-
   
820
   
-
   
-
   
200
   
1,020
 
                Substandard
 
-
   
3,057
   
-
   
2,955
   
-
   
6,012
 
         Total troubled debt restructurings
 
-
   
3,943
   
107
   
3,218
   
283
   
7,551
 
Total impaired loans
 
6,754
   
10,182
   
1,085
   
4,605
   
603
   
23,229
 
Total loans
$
1,457,335
 
$
698,528
 
$
292,875
 
$
1,697,634
 
$
169,190
 
$
4,315,562
 

(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 nonaccrual loans and troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $77.1 million at June 30, 2014, compared to $65.0 million at December 31, 2013.
(2)
Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates.
14


 
 
Commercial real estate - mortgage
   
Consumer real estate - mortgage
   
Construction and land development
   
Commercial and industrial
   
Consumer
and other
   
Total
 
December 31, 2013
 
   
   
   
   
   
 
Accruing loans
 
   
   
   
   
   
 
        Pass
 
$
1,332,387
   
$
670,412
   
$
275,876
   
$
1,557,923
   
$
143,032
   
$
3,979,630
 
        Special Mention
   
8,282
     
1,824
     
31,835
     
20,065
     
-
     
62,006
 
        Substandard (1)
   
20,296
     
14,107
     
7,297
     
23,174
     
154
     
65,028
 
        Total
   
1,360,965
     
686,343
     
315,008
     
1,601,162
     
143,186
     
4,106,664
 
Impaired loans
                                               
        Nonaccrual loans
                                               
                Substandard-nonaccrual
   
9,017
     
5,289
     
1,070
     
2,565
     
242
     
18,183
 
                Doubtful-nonaccrual
   
-
     
-
     
-
     
-
     
-
     
-
 
        Total nonaccrual loans
   
9,017
     
5,289
     
1,070
     
2,565
     
242
     
18,183
 
        Troubled debt restructurings(2)
                                               
                Pass
   
2,564
     
1,666
     
113
     
320
     
276
     
4,939
 
                Special Mention
   
-
     
-
     
-
     
-
     
-
     
-
 
                Substandard
   
10,889
     
2,318
     
-
     
1,500
     
-
     
14,707
 
         Total troubled debt restructurings
   
13,453
     
3,984
     
113
     
1,820
     
276
     
19,646
 
Total impaired loans
   
22,470
     
9,273
     
1,183
     
4,385
     
518
     
37,829
 
Total loans
 
$
1,383,435
   
$
695,616
   
$
316,191
   
$
1,605,547
   
$
143,704
   
$
4,144,493
 

(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 nonaccrual loans and troubled debt restructurings. Potential problem loans, which are not included in nonaccrual loans, amounted to approximately $77.1 million at June 30, 2014, compared to $65.0 million at December 31, 2013.
(2)
Troubled debt restructurings are presented as an impaired loan; however, they continue to accrue interest at contractual rates.

At June 30, 2014 and December 31, 2013, all loans classified as nonaccrual were deemed to be impaired. The principal balances of these nonaccrual loans amounted to $15.7 million and $18.2 million at June 30, 2014 and December 31, 2013, respectively, and are included in the tables above.  For the six months ended June 30, 2014, the average balance of nonaccrual loans was $16.1 million as compared to $21.5 million for the twelve months ended December 31, 2013.  At the date such loans were placed on nonaccrual status, Pinnacle Financial reversed all previously accrued interest income against current year earnings.  Had these nonaccrual loans been on accruing status, interest income would have been higher by $416,000 for the six months ended June 30, 2014 and by $573,000 for the six months ended June 30, 2013.

15

The following table details the recorded investment, unpaid principal balance and related allowance and average recorded investment of our nonaccrual loans at June 30, 2014 and December 31, 2013 by loan classification and the amount of interest income recognized on a cash basis throughout the fiscal year-to-date period then ended, respectively, on these loans that remain on the balance sheets (in thousands):

 
 
At June 30, 2014
   
For the six months ended
June 30, 2014
 
 
 
Recorded investment
   
Unpaid principal balance
   
Related allowance(1)
   
Average recorded investment
   
Interest income recognized
 
Collateral dependent nonaccrual loans:
 
   
   
   
   
 
    Commercial real estate – mortgage
 
$
4,814
   
$
5,407
   
$
-
   
$
4,913
   
$
-
 
    Consumer real estate – mortgage
   
2,336
     
2,416
     
-
     
2,366
     
-
 
    Construction and land development
   
545
     
545
     
-
     
545
     
-
 
    Commercial and industrial
   
1,018
     
1,161
     
-
     
1,053
     
-
 
    Consumer and other
   
-
     
-
     
-
     
-
     
-
 
Total
 
$
8,713
   
$
9,529
   
$
-
   
$
8,877
   
$
-
 
 
                                       
Cash flow dependent nonaccrual loans:
                                       
    Commercial real estate – mortgage
 
$
1,940
   
$
2,145
   
$
190
   
$
1,967
   
$
-
 
    Consumer real estate – mortgage
   
3,903
     
4,185
     
1,089
     
4,045
     
-
 
    Construction and land development
   
433
     
512
     
16
     
443
     
-
 
    Commercial and industrial
   
369
     
375
     
145
     
469
     
-
 
    Consumer and other
   
320
     
338
     
126
     
333
     
-
 
Total
 
$
6,965
   
$
7,555
   
$
1,566
   
$
7,257
   
$
-
 
Total nonaccrual loans
 
$
15,678
   
$
17,084
   
$
1,566
   
$
16,134
   
$
-
 
16


 
 
At December 31, 2013:
   
For the year ended
December 31, 2013
 
 
 
Recorded investment
   
Unpaid principal balance
   
Related allowance(1)
   
Average recorded investment
   
Interest income recognized
 
Collateral dependent nonaccrual loans:
 
   
   
   
   
 
    Commercial real estate – mortgage
 
$
7,035
   
$
7,481
   
$
-
   
$
6,522
   
$
-
 
    Consumer real estate – mortgage
   
2,162
     
2,209
     
-
     
2,234
     
-
 
    Construction and land development
   
545
     
545
     
-
     
938
     
-
 
    Commercial and industrial
   
1,828
     
1,901
     
-
     
3,911
     
-
 
    Consumer and other
   
-
     
-
     
-
     
-
     
-
 
Total
 
$
11,570
   
$
12,136
   
$
-
   
$
13,605
   
$
-
 
 
                                       
Cash flow dependent nonaccrual loans:
                                       
    Commercial real estate – mortgage
 
$
1,982
   
$
2,166
   
$
142
   
$
2,448
   
$
-
 
    Consumer real estate – mortgage
   
3,127
     
3,334
     
722
     
3,405
     
-
 
    Construction and land development
   
525
     
609
     
33
     
568
     
-
 
    Commercial and industrial
   
737
     
1,029
     
218
     
1,216
     
-
 
    Consumer and other
   
242
     
252
     
72
     
242
     
-
 
Total
 
$
6,613
   
$
7,390
   
$
1,187
   
$
7,879
   
$
-
 
Total nonaccrual loans
 
$
18,183
   
$
19,526
   
$
1,187
   
$
21,484
   
$
-
 

(1)    
Collateral dependent loans are typically charged-off to their net realizable value pursuant to requirements of our primary regulators 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 no interest income from cash payments received on nonaccrual loans during the three and six months ended June 30, 2014 or during the year ended December 31, 2013.

Impaired loans also include loans that Pinnacle Bank has elected to formally restructure due to the weakening credit status of a borrower. The restructuring may facilitate a repayment plan that seeks to minimize the potential losses that Pinnacle Bank may otherwise incur.  If on nonaccrual status as of the date of restructuring, the loans are included in nonaccrual loans. Loans that have been restructured that were performing as of the restructure date and continue to perform in accordance with the restructured terms are reported separately as troubled debt restructurings.

At June 30, 2014 and December 31, 2013, there were $7.6 million and $19.6 million, respectively, of troubled debt restructurings that were performing as of their restructure date and which were accruing interest. These troubled debt restructurings are considered impaired loans pursuant to U.S. GAAP. Troubled commercial loans are restructured by specialists within our 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.

17

The following table outlines the amount of each troubled debt restructuring categorized by loan classification made during the three and six months ended June 30, 2014 and 2013 (dollars in thousands):


 
 
Three months ended June 30, 2014
   
Six months ended June 30, 2014
 
 
 
Number
of contracts
   
Pre
Modification Outstanding Recorded Investment
   
Post Modification Outstanding Recorded Investment, net of related allowance
   
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
   
1
     
75
     
59
     
7
     
2,955
     
2,099
 
Consumer and other
   
-
     
-
     
-
     
-
     
-
     
-
 
 
   
1
   
$
75
   
$
59
     
7
   
$
2,955
   
$
2,099
 

 
 
Three months ended June 30, 2013
   
Six months ended June 30, 2013
 
 
 
Number
of contracts
   
Pre
Modification Outstanding Recorded Investment
   
Post Modification Outstanding Recorded Investment, net of related allowance
   
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
   
-
     
-
     
-
     
1
     
428
     
355
 
Construction and land development
   
1
     
51
     
44
     
1
     
51
     
44
 
Commercial and industrial
   
1
     
1,500
     
1,290
     
1
     
1,500
     
1,290
 
Consumer and other
   
-
     
-
     
-
     
1
     
193
     
164
 
 
   
2
   
$
1,551
   
$
1,334
     
4
   
$
2,172
   
$
1,853
 

During the three months ended June 30, 2014 and 2013, Pinnacle Financial did not have any troubled debt restructurings that subsequently defaulted within twelve months of the restructuring.  During the six months ended June 30, 2014, Pinnacle Financial did not have any troubled debt restructurings that subsequently defaulted within twelve months of the restructuring. During the six months ended June 30, 2013, two consumer real estate loans totaling $1.0 million which were previously classified as a troubled debt restructuring subsequently defaulted due to their lack of performance, within twelve months of the restructuring. A default of a troubled debt restructuring is defined as an occurrence which violates the terms of the receivable's restructured contract.

18

Pinnacle Financial analyzes its commercial loan portfolio to determine if a concentration of credit risk exists to any industry.  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 June 30, 2014 with the comparative exposures for December 31, 2013 (in thousands):

 
At June 30, 2014:
 
 
 
Outstanding Principal Balances
 
Unfunded Commitments
 
Total exposure
 
Total Exposure at December 31, 2013
 
 
 
   
   
   
 
Lessors of nonresidential buildings
 
$
477,902
   
$
73,210
   
$
551,112
   
$
515,240
 
Lessors of residential buildings
   
245,782
     
33,609
     
279,391
     
270,773
 
 
The table below presents past due balances at June 30, 2014 and December 31, 2013, by loan classification and segment allocated between accruing and nonaccrual status (in thousands):

June 30, 2014
 
30-89 days past due and accruing
   
90 days or more past due and accruing
   
Total past due and accruing
   
Nonaccrual(1)
   
Current
and accruing
   
Total
Loans
 
Commercial real estate:
 
   
   
   
   
   
 
    Owner-occupied
 
$
914
   
$
280
   
$
1,194
   
$
6,754
   
$
694,903
   
$
702,851
 
    All other
   
21
     
-
     
21
     
-
     
754,463
     
754,484
 
Consumer real estate – mortgage
   
5,402
     
-
     
5,402
     
6,239
     
686,887
     
698,528
 
Construction and land development
   
5,083
     
-
     
5,083
     
978
     
286,814
     
292,875
 
Commercial and industrial
   
3,581
     
51
     
3,632
     
1,387
     
1,692,615
     
1,697,634
 
Consumer and other
   
3,561
     
318
     
3,879
     
320
     
164,991
     
169,190
 
 
 
$
18,562
   
$
649
   
$
19,211
   
$
15,678
   
$
4,280,673
   
$
4,315,562
 
December 31, 2013
                       
Commercial real estate:
 
   
   
   
   
   
 
    Owner-occupied
 
$
2,534
   
$
-
   
$
2,534
   
$
7,750
   
$
669,014
   
$
679,298
 
    All other
   
27
     
2,232
     
2,259
     
1,267
     
700,611
     
704,137
 
Consumer real estate – mortgage
   
2,215
     
-
     
2,215
     
5,289
     
688,112
     
695,616
 
Construction and land development
   
4,839
     
-
     
4,839
     
1,070
     
310,282
     
316,191
 
Commercial and industrial
   
1,847
     
825
     
2,672
     
2,565
     
1,600,310
     
1,605,547
 
Consumer and other
   
1,488
     
289
     
1,777
     
242
     
141,685
     
143,704
 
 
 
$
12,950
   
$
3,346
   
$
16,296
   
$
18,183
   
$
4,110,014
   
$
4,144,493
 

(1)    
Approximately $10.7 million and $10.9 million of nonaccrual loans as of June 30, 2014 and December 31, 2013, respectively, were performing pursuant to their contractual terms at those dates.

19


The following table shows the allowance allocation by loan classification and accrual status at June 30, 2014 and December 31, 2013 (in thousands):

 
 
   
Impaired Loans
   
 
 
 
Accruing Loans
   
Nonaccrual Loans
   
Troubled Debt Restructurings(1)
   
Total Allowance
for Loan Losses
 
 
 
June 30, 2014
   
December 31, 2013
   
June 30, 2014
   
December 31, 2013
   
June 30, 2014
   
December 31, 2013
   
June 30, 2014
   
December 31, 2013
 
Commercial real estate –mortgage
 
$
19,149
   
$
19,298
   
$
190
   
$
142
   
$